UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20192020
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-22462
GIBRALTAR INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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| | | | | | | | | | | | | | | | |
Delaware | | 16-1445150 |
(State or incorporation ) | | (I.R.S. Employer Identification No.) |
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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) (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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 definitions 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 | ☒ | 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 ☒
As of October 24, 2019,26, 2020, the number of common shares outstanding was: 32,272,420.32,522,138.
GIBRALTAR INDUSTRIES, INC.
INDEX
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| PAGE NUMBER
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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 INCOME
(in thousands, except per share data)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Net Sales | $ | 299,236 |
| | $ | 280,086 |
| | $ | 789,308 |
| | $ | 761,459 |
| Net Sales | $ | 329,665 | | | $ | 299,236 | | | $ | 864,918 | | | $ | 789,308 | |
Cost of sales | 222,658 |
| | 209,807 |
| | 605,272 |
| | 572,359 |
| Cost of sales | 244,222 | | | 222,658 | | | 650,830 | | | 605,272 | |
Gross profit | 76,578 |
| | 70,279 |
| | 184,036 |
| | 189,100 |
| Gross profit | 85,443 | | | 76,578 | | | 214,088 | | | 184,036 | |
Selling, general, and administrative expense | 45,158 |
| | 40,875 |
| | 115,444 |
| | 113,579 |
| Selling, general, and administrative expense | 41,584 | | | 45,158 | | | 120,448 | | | 115,444 | |
| Income from operations | 31,420 |
| | 29,404 |
| | 68,592 |
| | 75,521 |
| Income from operations | 43,859 | | | 31,420 | | | 93,640 | | | 68,592 | |
Interest expense | 17 |
| | 2,906 |
| | 2,297 |
| | 9,305 |
| Interest expense | 218 | | | 17 | | | 385 | | | 2,297 | |
Other expense (income) | 84 |
| | 522 |
| | 660 |
| | (50 | ) | Other expense (income) | 53 | | | 84 | | | (1,542) | | | 660 | |
Income before taxes | 31,319 |
| | 25,976 |
| | 65,635 |
| | 66,266 |
| Income before taxes | 43,588 | | | 31,319 | | | 94,797 | | | 65,635 | |
Provision for income taxes | 6,843 |
| | 6,473 |
| | 14,901 |
| | 15,574 |
| Provision for income taxes | 9,828 | | | 6,843 | | | 21,686 | | | 14,901 | |
| Net income | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
| Net income | $ | 33,760 | | | $ | 24,476 | | | $ | 73,111 | | | $ | 50,734 | |
| | | | | | | | | | | | | | | | |
Net earnings per share: | | | | | | | | Net earnings per share: | |
Basic | $ | 0.75 |
| | $ | 0.61 |
| | $ | 1.57 |
| | $ | 1.59 |
| Basic | $ | 1.03 | | | $ | 0.75 | | | $ | 2.24 | | | $ | 1.57 | |
Diluted | $ | 0.75 |
| | $ | 0.60 |
| | $ | 1.55 |
| | $ | 1.56 |
| Diluted | $ | 1.02 | | | $ | 0.75 | | | $ | 2.22 | | | $ | 1.55 | |
Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | | | | | |
Basic | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
| Basic | 32,635 | | | 32,470 | | | 32,606 | | | 32,357 | |
Diluted | 32,770 |
| | 32,571 |
| | 32,677 |
| | 32,524 |
| Diluted | 32,969 | | | 32,770 | | | 32,902 | | | 32,677 | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
| Net income | $ | 33,760 | | | $ | 24,476 | | | $ | 73,111 | | | $ | 50,734 | |
Other comprehensive (loss) income: | | | | | | | | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Foreign currency translation adjustment | (664 | ) | | 139 |
| | 1,176 |
| | (1,538 | ) | Foreign currency translation adjustment | 2,200 | | | (664) | | | (883) | | | 1,176 | |
Cumulative effect of accounting change | — |
| | — |
| | — |
| | (350 | ) | |
| Minimum pension and post retirement benefit plan adjustments | 12 |
| | 27 |
| | 36 |
| | 80 |
| Minimum pension and post retirement benefit plan adjustments | 18 | | | 12 | | | 54 | | | 36 | |
Other comprehensive (loss) income | (652 | ) | | 166 |
| | 1,212 |
| | (1,808 | ) | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | 2,218 | | | (652) | | | (829) | | | 1,212 | |
Total comprehensive income | $ | 23,824 |
| | $ | 19,669 |
| | $ | 51,946 |
| | $ | 48,884 |
| Total comprehensive income | $ | 35,978 | | | $ | 23,824 | | | $ | 72,282 | | | $ | 51,946 | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | September 30, 2019 | | December 31, 2018 | | September 30, 2020 | | December 31, 2019 |
| (unaudited) | | | | (unaudited) | | |
Assets | | | | Assets | |
Current assets: | | | | Current assets: | |
Cash and cash equivalents | $ | 137,618 |
| | $ | 297,006 |
| Cash and cash equivalents | $ | 179,816 | | | $ | 191,363 | |
Accounts receivable, net | 196,334 |
| | 140,283 |
| |
Inventories | 83,048 |
| | 98,913 |
| |
Other current assets | 17,527 |
| | 8,351 |
| |
Accounts receivable, net of allowance of $3,319 and $6,330 | | Accounts receivable, net of allowance of $3,319 and $6,330 | 203,488 | | | 147,515 | |
Inventories, net | | Inventories, net | 77,943 | | | 78,476 | |
Prepaid expenses and other current assets | | Prepaid expenses and other current assets | 20,306 | | | 19,748 | |
Total current assets | 434,527 |
| | 544,553 |
| Total current assets | 481,553 | | | 437,102 | |
Property, plant, and equipment, net | 95,075 |
| | 95,830 |
| Property, plant, and equipment, net | 94,983 | | | 95,409 | |
Operating lease assets | 28,573 |
| | — |
| Operating lease assets | 32,359 | | | 27,662 | |
Goodwill | 327,983 |
| | 323,671 |
| Goodwill | 382,427 | | | 329,705 | |
Acquired intangibles | 96,185 |
| | 96,375 |
| Acquired intangibles | 108,821 | | | 92,592 | |
Other assets | 2,475 |
| | 1,216 |
| Other assets | 1,703 | | | 1,980 | |
| $ | 984,818 |
| | $ | 1,061,645 |
| | $ | 1,101,846 | | | $ | 984,450 | |
Liabilities and Shareholders’ Equity | | | | Liabilities and Shareholders’ Equity | | | |
Current liabilities: | | | | Current liabilities: | |
Accounts payable | $ | 103,630 |
| | $ | 79,136 |
| Accounts payable | $ | 131,746 | | | $ | 83,136 | |
Accrued expenses | 97,883 |
| | 87,074 |
| Accrued expenses | 106,480 | | | 98,463 | |
Billings in excess of cost | 38,672 |
| | 17,857 |
| Billings in excess of cost | 31,267 | | | 47,598 | |
Current maturities of long-term debt | — |
| | 208,805 |
| |
| Total current liabilities | 240,185 |
| | 392,872 |
| Total current liabilities | 269,493 | | | 229,197 | |
Long-term debt | — |
| | 1,600 |
| |
| Deferred income taxes | 36,672 |
| | 36,530 |
| Deferred income taxes | 40,942 | | | 40,334 | |
Non-current operating lease liabilities | 20,461 |
| | — |
| Non-current operating lease liabilities | 23,314 | | | 19,669 | |
Other non-current liabilities | 30,287 |
| | 33,950 |
| Other non-current liabilities | 22,022 | | | 21,286 | |
Shareholders’ equity: | | | | Shareholders’ equity: | |
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding | — |
| | — |
| |
Common stock, $0.01 par value; authorized 50,000 shares; 33,145 shares and 32,887 shares issued and outstanding in 2019 and 2018 | 332 |
| | 329 |
| |
Preferred stock, $0.01 par value; authorized 10,000 shares; NaN outstanding | | Preferred stock, $0.01 par value; authorized 10,000 shares; NaN outstanding | 0 | | | 0 | |
Common stock, $0.01 par value; authorized 50,000 shares; 33,519 shares and 33,192 shares issued and outstanding in 2020 and 2019 | | Common stock, $0.01 par value; authorized 50,000 shares; 33,519 shares and 33,192 shares issued and outstanding in 2020 and 2019 | 335 | | | 332 | |
Additional paid-in capital | 293,009 |
| | 282,525 |
| Additional paid-in capital | 302,107 | | | 295,582 | |
Retained earnings | 391,311 |
| | 338,995 |
| Retained earnings | 478,488 | | | 405,668 | |
Accumulated other comprehensive loss | (6,022 | ) | | (7,234 | ) | Accumulated other comprehensive loss | (6,220) | | | (5,391) | |
Cost of 888 and 796 common shares held in treasury in 2019 and 2018 | (21,417 | ) | | (17,922 | ) | |
Cost of 1,024 and 906 common shares held in treasury in 2020 and 2019 | | Cost of 1,024 and 906 common shares held in treasury in 2020 and 2019 | (28,635) | | | (22,227) | |
Total shareholders’ equity | 657,213 |
| | 596,693 |
| Total shareholders’ equity | 746,075 | | | 673,964 | |
| $ | 984,818 |
| | $ | 1,061,645 |
| | $ | 1,101,846 | | | $ | 984,450 | |
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited) |
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
Cash Flows from Operating Activities | | | |
Net income | $ | 50,734 |
| | $ | 50,692 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 14,923 |
| | 15,449 |
|
Stock compensation expense | 10,087 |
| | 6,854 |
|
Exit activity costs, non-cash | 479 |
| | 1,088 |
|
Benefit of deferred income taxes | (429 | ) | | — |
|
Other, net | 3,267 |
| | 1,114 |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: | | | |
Accounts receivable | (56,645 | ) | | (30,534 | ) |
Inventories | 18,617 |
| | (16,263 | ) |
Other current assets and other assets | (6,949 | ) | | 1,052 |
|
Accounts payable | 22,770 |
| | 9,237 |
|
Accrued expenses and other non-current liabilities | 15,640 |
| | (479 | ) |
Net cash provided by operating activities | 72,494 |
| | 38,210 |
|
Cash Flows from Investing Activities | | | |
Acquisitions, net of cash acquired | (8,665 | ) | | (5,241 | ) |
Net proceeds from sale of property and equipment | 87 |
| | 3,147 |
|
Purchases of property, plant, and equipment | (7,703 | ) | | (6,767 | ) |
Net cash used in investing activities | (16,281 | ) | | (8,861 | ) |
Cash Flows from Financing Activities | | | |
Long-term debt payments | (212,000 | ) | | (400 | ) |
Payment of debt issuance costs | (1,235 | ) | | — |
|
Purchase of treasury stock at market prices | (3,495 | ) | | (6,549 | ) |
Net proceeds from issuance of common stock | 400 |
| | 1,343 |
|
Net cash used in financing activities | (216,330 | ) | | (5,606 | ) |
Effect of exchange rate changes on cash | 729 |
| | (610 | ) |
Net (decrease) increase in cash and cash equivalents | (159,388 | ) | | 23,133 |
|
Cash and cash equivalents at beginning of year | 297,006 |
| | 222,280 |
|
Cash and cash equivalents at end of period | $ | 137,618 |
| | $ | 245,413 |
|
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 |
|
Net income | — |
| | — |
| | — |
| | 19,913 |
| | — |
| | — |
| | — |
| | 19,913 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 998 |
| | — |
| | — |
| | 998 |
|
Minimum pension and post retirement benefit plan adjustments, net of taxes of $5 | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Stock compensation expense | — |
| | — |
| | 3,720 |
| | — |
| | — |
| | — |
| | — |
| | 3,720 |
|
Stock options exercised | 5 |
| | — |
| | 69 |
| | — |
| | — |
| | — |
| | — |
| | 69 |
|
Awards of common shares | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | 62 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 25 |
| | (998 | ) | | (998 | ) |
Balance at June 30, 2019 | 33,101 |
| | $ | 331 |
| | $ | 288,822 |
| | $ | 366,835 |
| | $ | (5,370 | ) | | 880 |
| | $ | (21,071 | ) | | $ | 629,547 |
|
Net income | | | | | | | 24,476 |
| | | | | | | | 24,476 |
|
Foreign currency translation adjustment | | | | | | | | | (664 | ) | | | | | | (664 | ) |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4 | | | | | | | | | 12 |
| | | | | | 12 |
|
Stock compensation expense | — |
| | — |
| | 3,996 |
| | — |
| | — |
| | — |
| | — |
| | 3,996 |
|
Stock options exercised | 16 |
| | — |
| | 192 |
| | — |
| | — |
| | — |
| | — |
| | 192 |
|
Net settlement of restricted stock units | 28 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 8 |
| | (346 | ) | | (346 | ) |
Balance at September 30, 2019 | 33,145 |
| | $ | 332 |
| | $ | 293,009 |
| | $ | 391,311 |
| | $ | (6,022 | ) | | 888 |
| | $ | (21,417 | ) | | $ | 657,213 |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Cash Flows from Operating Activities | | | |
Net income | $ | 73,111 | | | $ | 50,734 | |
| | | |
| | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | | |
Depreciation and amortization | 17,325 | | | 14,923 | |
Stock compensation expense | 6,151 | | | 10,087 | |
| | | |
Gain on sale of business | (1,881) | | | 0 | |
Exit activity costs, non-cash | 505 | | | 479 | |
| | | |
| | | |
Provision for (benefit of) deferred income taxes | 668 | | | (429) | |
| | | |
Other, net | 1,402 | | | 3,267 | |
| | | |
Changes in operating assets and liabilities, excluding the effects of acquisitions: | | | |
Accounts receivable | (40,176) | | | (56,645) | |
Inventories | 6,102 | | | 18,617 | |
Other current assets and other assets | 6,095 | | | (6,949) | |
Accounts payable | 13,408 | | | 22,770 | |
Accrued expenses and other non-current liabilities | (26,516) | | | 15,640 | |
| | | |
| | | |
Net cash provided by operating activities | 56,194 | | | 72,494 | |
Cash Flows from Investing Activities | | | |
Acquisitions, net of cash acquired | (54,385) | | | (8,665) | |
Net proceeds from sale of property and equipment | 568 | | | 87 | |
Purchases of property, plant, and equipment | (9,335) | | | (7,703) | |
Net proceeds from sale of business | 2,000 | | | 0 | |
| | | |
| | | |
Net cash used in investing activities | (61,152) | | | (16,281) | |
Cash Flows from Financing Activities | | | |
| | | |
Long-term debt payments | 0 | | | (212,000) | |
Payment of debt issuance costs | 0 | | | (1,235) | |
| | | |
Purchase of treasury stock at market prices | (6,408) | | | (3,495) | |
Net proceeds from issuance of common stock | 377 | | | 400 | |
| | | |
Net cash used in financing activities | (6,031) | | | (216,330) | |
Effect of exchange rate changes on cash | (558) | | | 729 | |
Net decrease in cash and cash equivalents | (11,547) | | | (159,388) | |
Cash and cash equivalents at beginning of year | 191,363 | | | 297,006 | |
Cash and cash equivalents at end of period | $ | 179,816 | | | $ | 137,618 | |
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 |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance at December 31, 2019 | 33,192 | | | $ | 332 | | | $ | 295,582 | | | $ | 405,668 | | | $ | (5,391) | | | 906 | | | $ | (22,227) | | | $ | 673,964 | |
Net income | — | | | — | | | — | | | 12,059 | | | — | | | — | | | — | | | 12,059 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5,898) | | | — | | | — | | | (5,898) | |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $7 | — | | | — | | | — | | | — | | | 18 | | | — | | | — | | | 18 | |
| | | | | | | | | | | | | | | |
Stock compensation expense | — | | | — | | | 1,665 | | | — | | | — | | | — | | | — | | | 1,665 | |
Cumulative effect of accounting change (See Note 2) | — | | | — | | | — | | | (291) | | | — | | | — | | | — | | | (291) | |
Stock options exercised | 3 | | | — | | | 24 | | | — | | | — | | | — | | | — | | | 24 | |
| | | | | | | | | | | | | | | |
Net settlement of restricted stock units | 193 | | | 2 | | | (2) | | | — | | | — | | | 80 | | | (4,184) | | | (4,184) | |
| | | | | | | | | | | | | | | |
Balance at March 31, 2020 | 33,388 | | | $ | 334 | | | $ | 297,269 | | | $ | 417,436 | | | $ | (11,271) | | | 986 | | | $ | (26,411) | | | $ | 677,357 | |
Net income | — | | | — | | | — | | | 27,292 | | | — | | | — | | | — | | | 27,292 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 2,815 | | | — | | | — | | | 2,815 | |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $6 | — | | | — | | | — | | | — | | | 18 | | | — | | | — | | | 18 | |
Stock compensation expense | — | | | — | | | 2,506 | | | — | | | — | | | — | | | — | | | 2,506 | |
Stock options exercised | 6 | | | — | | | 54 | | | — | | | — | | | — | | | — | | | 54 | |
Awards of common shares | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net settlement of restricted stock units | 15 | | | 0 | | | 0 | | | — | | | — | | | 7 | | | (278) | | | (278) | |
| | | | | | | | | | | | | | | |
Balance at June 30, 2020 | 33,413 | | | $ | 334 | | | $ | 299,829 | | | $ | 444,728 | | | $ | (8,438) | | | 993 | | | $ | (26,689) | | | $ | 709,764 | |
Net income | — | | | — | | | — | | | 33,760 | | | — | | | — | | | — | | | 33,760 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 2,200 | | | — | | | — | | | 2,200 | |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $7 | — | | | — | | | — | | | — | | | 18 | | | — | | | — | | | 18 | |
Stock compensation expense | — | | | — | | | 1,980 | | | — | | | — | | | — | | | — | | | 1,980 | |
| | | | | | | | | | | | | | | |
Stock options exercised | 31 | | | — | | | 299 | | | — | | | — | | | — | | | — | | | 299 | |
| | | | | | | | | | | | | | | |
Net settlement of restricted stock units | 75 | | | 1 | | | (1) | | | — | | | — | | | 31 | | | (1,946) | | | (1,946) | |
| | | | | | | | | | | | | | | |
Balance at September 30, 2020 | 33,519 | | | $ | 335 | | | $ | 302,107 | | | $ | 478,488 | | | $ | (6,220) | | | 1,024 | | | $ | (28,635) | | | $ | 746,075 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance at December 31, 2017 | 32,332 |
| | $ | 323 |
| | $ | 271,957 |
| | $ | 274,562 |
| | $ | (4,366 | ) | | 615 |
| | $ | (10,757 | ) | | $ | 531,719 |
|
Net income | — |
| | — |
| | — |
| | 8,352 |
| | — |
| | — |
| | — |
| | 8,352 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 110 |
| | — |
| | — |
| | 110 |
|
Minimum pension and post retirement benefit plan adjustments, net of taxes of $10 | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
|
Stock compensation expense | — |
| | — |
| | 2,097 |
| | — |
| | — |
| | — |
| | — |
| | 2,097 |
|
Cumulative effect of accounting change | — |
| | — |
| | — |
| | 624 |
| | (350 | ) | | — |
| | — |
| | 274 |
|
Stock options exercised | 13 |
| | — |
| | 226 |
| | — |
| | — |
| | — |
| | — |
| | 226 |
|
Net settlement of restricted stock units | 53 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 24 |
| | (850 | ) | | (850 | ) |
Balance at March 31, 2018 | 32,398 |
| | $ | 324 |
| | $ | 274,279 |
| | $ | 283,538 |
| | $ | (4,579 | ) | | 639 |
| | $ | (11,607 | ) | | $ | 541,955 |
|
Net income | — |
| | — |
| | — |
| | 22,837 |
| | — |
| | — |
| | — |
| | 22,837 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | (1,787 | ) | | — |
| | — |
| | (1,787 | ) |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $11 | — |
| | — |
| | — |
| | — |
| | 26 |
| | — |
| | — |
| | 26 |
|
Stock compensation expense | — |
| | — |
| | 2,731 |
| | — |
| | — |
| | — |
| | — |
| | 2,731 |
|
Stock options exercised | 21 |
| | — |
| | 300 |
| | — |
| | — |
| | — |
| | — |
| | 300 |
|
Awards of common shares | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net settlement of restricted stock units | 334 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | 128 |
| | (5,166 | ) | | (5,166 | ) |
Balance at June 30, 2018 | 32,755 |
| | $ | 327 |
| | $ | 277,307 |
| | $ | 306,375 |
| | $ | (6,340 | ) | | 767 |
| | $ | (16,773 | ) | | $ | 560,896 |
|
Net income | — |
| | — |
| | — |
| | 19,503 |
| | — |
| | — |
| | — |
| | 19,503 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 139 |
| | — |
| | — |
| | 139 |
|
Minimum pension and post retirement benefit plan adjustments, net of taxes of $10 | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
|
Stock compensation expense | — |
| | — |
| | 2,026 |
| | — |
| | — |
| | — |
| | — |
| | 2,026 |
|
Stock options exercised | 50 |
| | 1 |
| | 816 |
| | — |
| | — |
| | — |
| | — |
| | 817 |
|
Net settlement of restricted stock units | 37 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | (533 | ) | | (533 | ) |
Balance at September 30, 2018 | 32,842 |
| | $ | 328 |
| | $ | 280,149 |
| | $ | 325,878 |
| | $ | (6,174 | ) | | 778 |
| | $ | (17,306 | ) | | $ | 582,875 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | |
| 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 | — | | | — | | | — | | | 1,582 | | | — | | | — | | | — | | | 1,582 | | |
Stock options exercised | 12 | | | — | | | 139 | | | — | | | — | | | — | | | — | | | 139 | | |
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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 | | |
Net income | — | | | — | | | — | | | 19,913 | | | — | | | — | | | — | | | 19,913 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | 998 | | | — | | | — | | | 998 | | |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $5 | — | | | — | | | — | | | — | | | 12 | | | — | | | — | | | 12 | | |
Stock compensation expense | — | | | — | | | 3,720 | | | — | | | — | | | — | | | — | | | 3,720 | | |
Stock options exercised | 5 | | | — | | | 69 | | | — | | | — | | | — | | | — | | | 69 | | |
Awards of common shares | 8 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Net settlement of restricted stock units | 62 | | | 1 | | | (1) | | | — | | | — | | | 25 | | | (998) | | | (998) | | |
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Balance at June 30, 2019 | 33,101 | | | $ | 331 | | | $ | 288,822 | | | $ | 366,835 | | | $ | (5,370) | | | 880 | | | $ | (21,071) | | | $ | 629,547 | | |
Net income | — | | | — | | | — | | | 24,476 | | | — | | | — | | | — | | | 24,476 | | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (664) | | | — | | | — | | | (664) | | |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4 | — | | | — | | | — | | | — | | | 12 | | | — | | | — | | | 12 | | |
Stock compensation expense | — | | | — | | | 3,996 | | | — | | | — | | | — | | | — | | | 3,996 | | |
Stock options exercised | 16 | | | — | | | 192 | | | — | | | — | | | — | | | — | | | 192 | | |
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Net settlement of restricted stock units | 28 | | | 1 | | | (1) | | | — | | | — | | | 8 | | | (346) | | | (346) | | |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2019 | 33,145 | | | $ | 332 | | | $ | 293,009 | | | $ | 391,311 | | | $ | (6,022) | | | 888 | | | $ | (21,417) | | | $ | 657,213 | | |
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See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
(1) | CONSOLIDATED FINANCIAL STATEMENTS |
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Gibraltar Industries, Inc. (the "Company") 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, such as the impact of the COVID-19 pandemic, financial results for any interim period are not necessarily indicative of the results expected for any subsequent interim period or 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, 2018.2019.
The balance sheet at December 31, 20182019 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 |
(2) RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements 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 has adopted this standard using 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 net earnings and had no impact on cash flows.
Date 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 (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 provisionsstandard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the modified retrospective approach through a cumulative-effect adjustment to retained earnings of $291,000, net of $96,000 of income taxes, on the opening consolidated balance sheet as of January 1, 2020. The Company's financial assets that are in the scope of the standard are contract assets and accounts receivables which are short-term in nature. Additionally, the Company has identified and implemented appropriate changes to the Company's business processes, policies and internal controls to support reporting and disclosures.
Date of adoption: Q1 2020
|
ASU 2018-15 Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
| | The amendments in this update require an entity to apply the same requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract as the entity would for implementation costs incurred to develop or obtain internal-use software. The accounting for the service element is not affected by the amendments in this update.
| | The standard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the prospective method of adoption, and the adoption did not have a material impact to the Company's financial statements.
Date of adoption: Q1 2020
|
Recent Accounting Pronouncements Not Yet Adopted
| | | | | | | | | | | | | | |
Standard | | Description | | Financial Statement Effect or Other Significant Matters |
ASU No. 2019-12 Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes
| | The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance. The amendments of this standard are effective for fiscal years beginning after December 15, 2019,2020, including interim periods within those fiscal years. Early adoption is permitted. An entity will applypermitted, including adoption in any interim period for which financial statements have not been issued, with the amendments in this update throughto be applied on a cumulative-effect adjustment to retained earnings as ofrespective, modified retrospective or prospective basis, depending on the beginning of the first reporting period in which the guidance is effective, that is, a modified-retrospective approach.specific amendment.
| | The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements.
Date of adoption: Q1 2020 2021 |
(3) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
| |
(3) | ACCOUNTS RECEIVABLE, NET |
Accounts receivable consists of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Trade accounts receivable | $ | 171,375 | | | $ | 133,238 | |
Costs in excess of billings | 35,432 | | | 20,607 | |
Total accounts receivables | 206,807 | | | 153,845 | |
Less allowance for doubtful accounts and contract assets | (3,319) | | | (6,330) | |
Accounts receivable | $ | 203,488 | | | $ | 147,515 | |
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Trade accounts receivable | $ | 178,457 |
| | $ | 124,609 |
|
Costs in excess of billings | 24,951 |
| | 22,634 |
|
Total accounts receivables | 203,408 |
| | 147,243 |
|
Less allowance for doubtful accounts | (7,074 | ) | | (6,960 | ) |
Accounts receivable | $ | 196,334 |
| | $ | 140,283 |
|
Refer to Note 4 of the Company's consolidated financial statements included in this quarterly report on Form 10-Q for additional information"Revenue" concerning the Company's costs in excess of billings.
The Company is exposed to credit losses through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable and costs in excess of billings (collectively "accounts receivable") is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' accounts receivables. Due to the short-term nature of such accounts receivable, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances. Additionally, specific allowance amounts are established to record the appropriate provision for customers that no longer share risk characteristics similar with other accounts receivable. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted as of September 30, 2020.
Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.
The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| | | | | |
(4)Beginning balance as of January 1, 2020 | REVENUE$ | 6,330 | |
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings | 387 | |
Bad debt expense, net of recoveries | 780 | |
Write-off charged against the allowance and other adjustments | (4,178) | |
Ending balance as of September 30, 2020 | $ | 3,319 | |
(4) REVENUE
Sales includes revenue from contracts with customers for designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures; extraction systems; 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.
Revenue recognition
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Refer to Note 16 of this quarterly report on Form 10-Q14 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.
As of September 30, 2019,2020, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.
Contract assets and contract liabilities
Contract assets consist of costs in excess of billings. Contract liabilities consist of billings in excess of cost 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 of costs in excess of billings, billings in excess of cost and unearned revenue as of September 30, 20192020 and December 31, 2018,2019, respectively,
and revenue recognized during the nine months ended September 30, 20192020 and 2018,2019, respectively, that was in billings in excess of cost and unearned revenue at the beginning of the period (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Costs in excess of billings | $ | 35,432 | | | $ | 20,607 | |
Billings in excess of cost | (31,267) | | | (47,598) | |
Unearned revenue | (18,951) | | | (17,311) | |
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Costs in excess of billings | $ | 24,951 |
| | $ | 22,634 |
|
Billings in excess of cost | (38,672 | ) | | (17,857 | ) |
Unearned revenue | (21,860 | ) | | (12,028 | ) |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
Revenue recognized in the period from: | | | |
Amounts included in billings in excess of cost at the beginning of the period | $ | 44,723 | | | $ | 14,137 | |
Amounts included in unearned revenue at the beginning of the period | $ | 13,614 | | | $ | 11,052 | |
The increase in contract liabilities as of September 30, 2019 compared with December 31, 2018 was primarily driven by the seasonality in our businesses.
|
| | | | | | | |
| Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
Revenue recognized in the period from: | | | |
Amounts included in billings in excess of cost at the beginning of the period | $ | 14,137 |
| | $ | 9,294 |
|
Amounts included in unearned revenue at the beginning of the period | $ | 11,052 |
| | $ | 2,977 |
|
(5) INVENTORIES
Inventories consist of the following (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Raw material | $ | 47,275 | | | $ | 48,799 | |
Work-in-process | 6,195 | | | 5,988 | |
Finished goods | 29,264 | | | 28,021 | |
Gross inventory | $ | 82,734 | | | $ | 82,808 | |
Less reserves | (4,791) | | | (4,332) | |
Total inventories | $ | 77,943 | | | $ | 78,476 | |
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Raw material | $ | 48,158 |
| | $ | 57,845 |
|
Work-in-process | 7,658 |
| | 6,930 |
|
Finished goods | 27,232 |
| | 34,138 |
|
Total inventories | $ | 83,048 |
| | $ | 98,913 |
|
(6) ACQUISITIONS
2020 Acquisitions
On February 13, 2020, the Company purchased substantially all of the assets of Delta Separations, LLC, a California limited liability company, and Teaching Tech, LLC, a California limited liability company (collectively, "Delta Separations"). Delta Separations was a privately-held engineering company primarily engaged in the assembly and sale of centrifugal ethanol-based extraction systems. The results of Delta Separations have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The purchase consideration for the acquisition of Delta Separations was $47.1 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement.
The purchase price for the acquisition of the assets was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $32.2 million, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and presence in the extraction processing 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):
| | | | | |
| |
Working capital | $ | 3,918 | |
Property, plant and equipment | 219 | |
Acquired intangible assets | 13,900 | |
Other assets | 951 | |
Other liabilities | (4,027) | |
Goodwill | 32,151 | |
Fair value of purchase consideration | $ | 47,112 | |
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| | | | | | | | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 6,900 | | | Indefinite |
Technology | 3,200 | | | 10 years |
Customer relationships | 3,200 | | | 11 years |
Non-compete agreements | 300 | | | 5 years |
Backlog | 300 | | | 0.25 years |
Total | $ | 13,900 | | | |
On January 15, 2020, the Company purchased substantially all of the assets of Thermo Energy Systems Inc. ("Thermo"), a Canadian-based, privately held provider of commercial greenhouse solutions in North America providing growing infrastructure for the plant based organic food market. The results of Thermo have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The preliminary purchase consideration for the acquisition of Thermo was $7.3 million.
The purchase price for the acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective estimated fair values and the remaining consideration was recorded to goodwill. Goodwill of approximately $19.5 million was recorded, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the commercial greenhouse
markets. The preliminary allocation of the purchase price is subject to adjustments during the measurement period as third-party valuations are finalized. The final purchase price allocation will be completed no later than the first quarter of 2021.
The preliminary allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
| | | | | |
Cash | $ | 135 | |
Working capital | (23,450) | |
Property, plant and equipment | 1,087 | |
Acquired intangible assets | 10,102 | |
| |
Other assets | 1,363 | |
Other liabilities | (1,363) | |
Goodwill | 19,459 | |
Fair value of purchase consideration | $ | 7,333 | |
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| | | | | | | | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 1,122 | | | 3 years |
Technology | 3,218 | | | 10 years |
Customer relationships | 4,939 | | | 12 years |
Non-compete agreements | 224 | | | 5 years |
Backlog | 599 | | | 0.75 years |
Total | $ | 10,102 | | | |
2019 Acquisition
On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems and equipment. The results of Apeks have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The preliminaryaggregate purchase consideration for the acquisition of Apeks was $12.6 million, which includes a working capital adjustment and certain other adjustments provided for in the stockmembership interest purchase agreement expected to be remitted in the next three to six months, at which time a final purchase price will be determined. The acquisition was financed through cash on hand.agreement.
The preliminary purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $4.2$6.4 million, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the conservation markets.
The allocation of the preliminary purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
|
| | | |
Cash | $ | 4,149 |
|
Working capital | (1,230 | ) |
Property, plant and equipment | 859 |
|
Acquired intangible assets | 5,061 |
|
Other assets | 508 |
|
Other liabilities | (982 | ) |
Goodwill | 4,185 |
|
Fair value of purchase consideration | $ | 12,550 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
|
| | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 900 |
| | Indefinite |
Technology | 793 |
| | 9 years |
Customer relationships | 3,368 |
| | 9 years |
Total | $ | 5,061 |
| | |
On August 21, 2018, the Company acquired all of the outstanding stock of SolarBOS. SolarBOS is a provider of electrical balance of systems products, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the U.S. solar renewable energy market. The Company expects the acquisition of SolarBOS to enable the Company to provide complementary product offerings to its existing customers and strengthen its position in the solar renewable energy market. The results of SolarBOS have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Renewable Energy and Conservation segment). The aggregate purchase consideration for the acquisition of SolarBOS was $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 $2.9 million, all of which is deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the solar renewable energyextraction processing 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 | $ | 4,154 | |
Working capital | (1,515) | |
Property, plant and equipment | 1,059 | |
Acquired intangible assets | 3,000 | |
Other assets | 508 | |
Other liabilities | (1,081) | |
Goodwill | 6,436 | |
Fair value of purchase consideration | $ | 12,561 | |
|
| | | |
Cash | $ | 915 |
|
Working capital | 680 |
|
Property, plant and equipment | 483 |
|
Acquired intangible assets | 1,450 |
|
Other assets | 13 |
|
Other liabilities | (51 | ) |
Goodwill | 2,879 |
|
Fair value of purchase consideration | $ | 6,369 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| | | | | | | | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 1,400 | | | Indefinite |
Technology | 900 | | | 7 years |
Customer relationships | 700 | | | 6 years |
Total | $ | 3,000 | | | |
|
| | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 300 |
| | 3 years |
Technology | 450 |
| | 9 years |
Customer relationships | 700 |
| | 9 years |
Total | $ | 1,450 |
| | |
In determining the allocation of the purchase price to the assets acquired and the liabilities assumed, the Company uses all available information to make fair value determinations using Level 3 unobservable inputs in which little or no market data exists, and therefore, engages independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.
The acquisitions of Delta Separations, Thermo and Apeks were funded from available cash on hand.
The Company incurred certain acquisition-related costs composed of legal and consulting fees. These costs were recognized as a component of selling, general, and administrative expenses in the consolidated statement of operations. The Company also recognized costs as a component of cost of sales related to the sale of inventory at fair value as a result of allocating the purchase price of recent acquisitions.
The acquisition-related costs consisted of the following for the three and nine months ended September 30 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Selling, general and administrative costs | $ | 470 |
| | $ | 471 |
| | $ | 474 |
| | $ | 471 |
|
Cost of sales | 134 |
| | — |
| | 134 |
| | — |
|
Total acquisition-related costs | $ | 604 |
| | $ | 471 |
| | $ | 608 |
| | $ | 471 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Selling, general and administrative costs | $ | 16 | | | $ | 470 | | | $ | 1,564 | | | $ | 474 | |
Cost of sales | 0 | | | 134 | | | 634 | | | 134 | |
Total acquisition-related costs | $ | 16 | | | $ | 604 | | | $ | 2,198 | | | $ | 608 | |
| |
(7) | GOODWILL AND RELATED INTANGIBLE ASSETS |
(7) GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 20192020 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Renewable Energy & Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Balance at December 31, 2019 | $ | 77,602 | | | $ | 198,075 | | | $ | 54,028 | | | $ | 329,705 | |
Acquired goodwill | 51,629 | | | 0 | | | 0 | | | 51,629 | |
Adjustments to prior year acquisitions | 579 | | | 0 | | | 0 | | | 579 | |
Foreign currency translation | 664 | | | 0 | | | (150) | | | 514 | |
Balance at September 30, 2020 | $ | 130,474 | | | $ | 198,075 | | | $ | 53,878 | | | $ | 382,427 | |
|
| | | | | | | | | | | | | | | |
| Renewable Energy & Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Balance at December 31, 2018 | $ | 71,827 |
| | $ | 198,075 |
| | $ | 53,769 |
| | $ | 323,671 |
|
Acquired goodwill | 4,185 |
| | — |
| | | | 4,185 |
|
Adjustments to prior year acquisitions | (172 | ) | | | | — |
| | (172 | ) |
Foreign currency translation | 137 |
| | — |
| | 162 |
| | 299 |
|
Balance at September 30, 2019 | $ | 75,977 |
| | $ | 198,075 |
| | $ | 53,931 |
| | $ | 327,983 |
|
The Company conducts its annual goodwill impairment test as of October 31 each year. All of the Company’s 10 reporting units had fair values exceeding their carrying values as of October 31, 2019. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and future macroeconomic and market conditions, along with its current market capitalization, projected cash flows and internal and external forecasts, and projections relating to the impact of the COVID-19 pandemic on each of its reporting units. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | |
Indefinite-lived intangible assets: | | | | | | | | | |
Trademarks | $ | 52,170 | | | $ | 0 | | | $ | 45,770 | | | $ | 0 | | | |
Finite-lived intangible assets: | | | | | | | | | |
Trademarks | 7,235 | | | 4,557 | | | 6,139 | | | 4,105 | | | |
Unpatented technology | 35,962 | | | 17,970 | | | 29,544 | | | 15,807 | | | |
Customer relationships | 79,702 | | | 44,723 | | | 71,195 | | | 40,294 | | | |
Non-compete agreements | 2,174 | | | 1,689 | | | 1,649 | | | 1,499 | | | |
Backlog | 899 | | | 382 | | | — | | | 0 | | | |
| 125,972 | | | 69,321 | | | 108,527 | | | 61,705 | | | |
Total acquired intangible assets | $ | 178,142 | | | $ | 69,321 | | | $ | 154,297 | | | $ | 61,705 | | | |
|
| | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Weighted-Average Amortization Period |
Indefinite-lived intangible assets: | | | | | | | | | |
Trademarks | $ | 44,770 |
| | $ | — |
| | $ | 43,870 |
| | $ | — |
| | Indefinite |
Finite-lived intangible assets: | | | | | | | | | |
Trademarks | 6,122 |
| | 3,954 |
| | 6,094 |
| | 3,518 |
| | 3 to 15 Years |
Unpatented technology | 29,444 |
| | 15,301 |
| | 28,644 |
| | 13,881 |
| | 5 to 20 Years |
Customer relationships | 74,072 |
| | 39,187 |
| | 70,419 |
| | 35,678 |
| | 5 to 17 Years |
Non-compete agreements | 1,649 |
| | 1,430 |
| | 1,649 |
| | 1,224 |
| | 4 to 10 Years |
| 111,287 |
| | 59,872 |
| | 106,806 |
| | 54,301 |
| | |
Total acquired intangible assets | $ | 156,057 |
| | $ | 59,872 |
| | $ | 150,676 |
| | $ | 54,301 |
| | |
The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended September 30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | 2020 | | 2019 | | 2020 | | 2019 |
Amortization expense | | | | | $ | 3,041 | | | $ | 1,840 | | | $ | 7,531 | | | $ | 5,434 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Amortization expense | $ | 1,840 |
| | $ | 2,121 |
| | $ | 5,434 |
| | $ | 6,408 |
|
Amortization expense related to acquired intangible assets for the remainder of fiscal 20192020 and the next five years thereafter is estimated as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Amortization expense | $ | 2,247 | | | $ | 8,772 | | | $ | 8,294 | | | $ | 7,664 | | | $ | 7,132 | | | $ | 6,961 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Amortization expense | $ | 1,798 |
| | $ | 6,904 |
| | $ | 6,709 |
| | $ | 6,231 |
| | $ | 5,693 |
| | $ | 5,437 |
|
As of September 30, 2019, the
The Company did 0t have any long-term debt outstanding. Atoutstanding at September 30, 2020 and December 31, 2018, the Company's total outstanding debt was $210.4 million, which included $210.0 million of Senior Subordinated 6.25% Notes and $2.0 million of other debt, net of $1.6 million in unamortized debt issuance costs. $208.8 million of total debt at December 31, 2018 was included in current liabilities.2019.
Senior Credit Agreement
On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("2019 Senior Credit Agreement"), which amendsamended and restatesrestated the Company’s Fifth Amended and Restated Credit Agreement dated December 9, 2015, and 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 lenders 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 Credit Agreement. The 2019 Senior Credit Agreement contains 3 financial covenants. As of September 30, 2019,2020, the Company is in compliance with all 3 covenants.
Borrowings under the 2019 Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries.
Standby letters of credit of $6.0$5.9 million have been issued under the 2019 Senior Credit Agreement on behalf of the Company as of September 30, 2019.2020. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of September 30, 2019,2020, the Company had $394.0$394.1 million of availability under the revolving credit facility. NaN borrowings were outstanding under the Company's revolving credit facility at September 30, 20192020 and December 31, 2018.
Senior Subordinated Notes
2019.
On January 31, 2013, the Company issued $210 million of 6.25% Senior Subordinated Notes ("Notes") due February 1, 2021. On December 20, 2018, the Company announced its redemption of its $210 million outstanding Notes, effective February 1, 2019. The 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 Notes during the nine months ended September 30, 2019.
(9) ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
| |
(9) | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME |
The following tables summarize the cumulative balance of each component of accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2019 | $ | (4,173) | | | $ | (1,939) | | | $ | (6,112) | | | $ | (721) | | | $ | (5,391) | | | |
| | | | | | | | | | | |
Minimum pension and post retirement health care plan adjustments | — | | | 25 | | | 25 | | | 7 | | | 18 | | | |
Foreign currency translation adjustment | (5,898) | | | — | | | (5,898) | | | — | | | (5,898) | | | |
Balance at March 31, 2020 | $ | (10,071) | | | $ | (1,914) | | | $ | (11,985) | | | $ | (714) | | | $ | (11,271) | | | |
Minimum pension and post retirement health care plan adjustments | — | | | 24 | | | 24 | | | 6 | | | 18 | | | |
Foreign currency translation adjustment | 2,815 | | | — | | | 2,815 | | | — | | | 2,815 | | | |
Balance at June 30, 2020 | $ | (7,256) | | | $ | (1,890) | | | $ | (9,146) | | | $ | (708) | | | $ | (8,438) | | | |
Minimum pension and post retirement health care plan adjustments | — | | | 25 | | | 25 | | | 7 | | | 18 | | | |
Foreign currency translation adjustment | 2,200 | | | — | | | 2,200 | | | — | | | 2,200 | | | |
Balance at September 30, 2020 | $ | (5,056) | | | $ | (1,865) | | | $ | (6,921) | | | $ | (701) | | | $ | (6,220) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 17 |
| | 17 |
| | 5 |
| | 12 |
|
Foreign currency translation adjustment | 998 |
| | — |
| | 998 |
| | — |
| | 998 |
|
Balance at June 30, 2019 | $ | (4,099 | ) | | $ | (2,007 | ) | | $ | (6,106 | ) | | $ | (736 | ) | | $ | (5,370 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 16 |
| | 16 |
| | 4 |
| | 12 |
|
Foreign currency translation adjustment | (664 | ) | | — |
| | (664 | ) | | — |
| | (664 | ) |
Balance at September 30, 2019 | $ | (4,763 | ) | | $ | (1,991 | ) | | $ | (6,754 | ) | | $ | (732 | ) | | $ | (6,022 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) | |
Minimum pension and post retirement health care plan adjustments | — | | | 17 | | | 17 | | | 5 | | | 12 | |
Foreign currency translation adjustment | 998 | | | — | | | 998 | | | — | | | 998 | |
Balance at June 30, 2019 | $ | (4,099) | | | $ | (2,007) | | | $ | (6,106) | | | $ | (736) | | | $ | (5,370) | |
Minimum pension and post retirement health care plan adjustments | — | | | 16 | | | 16 | | | 4 | | | 12 | |
Foreign currency translation adjustment | (664) | | | — | | | (664) | | | — | | | (664) | |
Balance at September 30, 2019 | $ | (4,763) | | | $ | (1,991) | | | $ | (6,754) | | | $ | (732) | | | $ | (6,022) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| 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 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 37 |
| | 37 |
| | 11 |
| | 26 |
|
Foreign currency translation adjustment | (1,787 | ) | | — |
| | (1,787 | ) | | — |
| | (1,787 | ) |
Balance at June 30, 2018 | $ | (4,375 | ) | | $ | (2,914 | ) | | $ | (7,289 | ) | | $ | (949 | ) | | $ | (6,340 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 37 |
| | 37 |
| | 10 |
| | 27 |
|
Foreign currency translation adjustment | 139 |
| | — |
| | 139 |
| | — |
| | 139 |
|
Balance at September 30, 2018 | $ | (4,236 | ) | | $ | (2,877 | ) | | $ | (7,113 | ) | | $ | (939 | ) | | $ | (6,174 | ) |
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 income.
| |
(10) | EQUITY-BASED COMPENSATION |
(10) EQUITY-BASED COMPENSATION
On May 4, 2018, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the existing Gibraltar Industries, Inc. 2015 Equity
Incentive Plan (the "2015 Plan"). Both the 2018 Plan and the 2015 Plan allow the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights to eligible participants.
In 2016, the shareholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which 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.
Equity Based Awards - Settled in Stock
The following table sets forth the number of equity-based awards granted during the nine months ended September 30, which will convert to shares upon vesting, along with the weighted average grant date fair values:
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
Awards | Number of Awards (1) | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value |
Performance stock units | 183,908 |
| | $ | 40.49 |
| | 135,540 |
| | $ | 33.60 |
|
Restricted stock units | 144,172 |
| | $ | 39.43 |
| | 95,674 |
| | $ | 36.81 |
|
Deferred stock units | 7,509 |
| | $ | 37.95 |
| | 10,255 |
| | $ | 35.96 |
|
Common shares | 7,509 |
| | $ | 37.95 |
| | 2,113 |
| | $ | 35.50 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
Awards | Number of Awards | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value |
Performance stock units (1) | 129,513 | | | $ | 53.30 | | | 183,908 | | | $ | 40.49 | |
Restricted stock units | 74,247 | | | $ | 56.24 | | | 144,172 | | | $ | 39.43 | |
Deferred stock units | 12,402 | | | $ | 45.98 | | | 7,509 | | | $ | 37.95 | |
Common shares | 4,134 | | | $ | 45.98 | | | 7,509 | | | $ | 37.95 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Included inThe Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance or market conditions. The number of shares to be issued may vary between 0% and 200% of the number of performance stock units granted abovedepending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance
condition are 145,420 performance stock units awarded in the first quarter of 2019, which will convert to shares based on either the Company's actualCompany’s return on invested capital ("ROIC"(“ROIC”) relativeover a one-year performance period or revenue, gross profit and operating profit thresholds over a two or three-year performance period. The Company's PSUs with a market condition are based on the ranking of the Company’s total shareholder return (“TSR”) performance, on a percentile basis, over a three year performance period compared to the ROIC targeted forS&P Small Cap Industrial sector, over the same three year performance period ended December 31, 2019, and 38,488 performance stock units granted in the third quarter of 2019, which will convert to shares based on net sales and gross profit performance of Apeks acquired in August 2019 compared to targeted net sales and gross profit for the performance period ended December 31, 2021.period.
(2) Performance stock units granted in 2018 which will convert to 126,337 shares2019 include 168,688 PSUs to be converted to shares and issued to recipients in the first quarter of 2021,2022, representing 95.5%116% of the targeted 20182019 award, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2018.2019 and 38,488 PSUs with a performance end date of December 31, 2021.
Equity Based Awards - Settled in Cash
The Company's equity-based liability includesis comprised of awards under a management stock purchase plan. As of September 30, 2019,2020, the Company's total share-based liabilities recorded on the consolidated balance sheet were $27.0$30.2 million, of which $22.0$13.5 million was included in non-current liabilities. The share-based liabilities as of December 31, 20182019 were $38.4$28.0 million, of which $23.6$13.2 million was included in non-current liabilities.
During the nine months ended September 30, 2019, the Company paid $8.9 million to participants of cash-settled performance stock units awarded in 2016. The participants earned 200% of the target, or 256,000 units, which were converted to cash and valued at the trailing 90-day closing price of the Company's common stock as of December 31, 2018.
Management Stock Purchase Plan
The Management Stock Purchase Plan ("MSPP") provides participants the ability to defer a portion of their compensation, convertible to unrestricted investments, restricted stock units, or a combination of both, or defer a portion of their Directors’directors’ fees, convertible to restricted stock units. Employees eligible to defer a portion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of their compensation.
The deferrals and company-matching are credited to an account that represents a share-based liability. The portionEligible employees may direct their deferrals to invest in phantom restricted stock units that are measured on the 200-day average of the account deferred to unrestricted investments isCompany’s stock price, hypothetical investment alternatives available under the Company’s 401(k) plan that are measured at fair market value, or a combination of both. Non-employee directors may only direct their deferrals into phantom restricted stock units that are measured on the 200-day average of the unrestricted investments, and the portion of the account deferred toCompany’s stock price. The company-matching is made in phantom restricted stock units and company-matching restricted stock units is measured
at a on the 200-day average of the CompanyCompany’s stock price. The account will 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 nine months ended September 30,:
| | | | | | | | | | | |
| 2020 | | 2019 |
Restricted stock units credited | 54,974 | | | 51,381 | |
Share-based liabilities paid (in thousands) | $ | 4,433 | | | $ | 5,742 | |
|
| | | | | | | |
| 2019 | | 2018 |
Restricted stock units credited | 51,381 |
| | 74,180 |
|
Share-based liabilities paid (in thousands) | $ | 5,742 |
| | $ | 4,986 |
|
| |
(11) | FAIR VALUE MEASUREMENTS |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 - Inputs that are unobservable inputs for the asset or liability.
The Company had no financial assets or liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018. As of September 30, 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 was the Company's Senior Subordinated 6.25% Notes, which were redeemed on February 1, 2019. At December 31, 2018, the fair value of the outstanding debt, net of unamortized debt issuance costs, was $210.8 million compared to its carrying value of $210.4 million.
The Company's leases are classified as operating leases and consist of manufacturing facilities, distribution centers, office space, vehicles and equipment. For leases with terms greater than twelve months, at lease commencement the Company recognizes a right-of-use asset and a lease liability. The initial lease liability is recognized at the present value of remaining lease payments over the lease term. Leases with an initial term of 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 included 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 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 September 30, 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.
|
| | | | | |
(In thousands) | Classification | | September 30, 2019 |
Assets | Operating lease assets | | $ | 28,573 |
|
| | | |
Liabilities | | | |
Current | Accrued expenses | | $ | 8,350 |
|
Non-current | Non-current operating lease liabilities | | 20,461 |
|
| | | $ | 28,811 |
|
(11) EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS
|
| | | | | | | |
Lease cost (in thousands) | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Operating lease cost | $ | 3,102 |
| | $ | 9,649 |
|
|
| | | | |
Other information (in thousands) | | Nine Months Ended September 30, 2019 |
Cash paid for amounts included in the measurement of operating liabilities | | $ | 8,635 |
|
Right-of-use assets obtained in exchange for new lease liabilities | | $ | 5,974 |
|
|
| | | | |
Lease Term and Discount Rate | | September 30, 2019 |
Weighted-average remaining lease term - operating leases | | 4.0 |
| years |
Weighted-average discount rate - operating leases | | 5.8 | % | |
|
| | | | |
Maturity of lease liabilities | | (In thousands) |
|
2019 (October 1, 2019 through December 31, 2019) | | $ | 2,680 |
|
2020 | | 9,172 |
|
2021 | | 7,526 |
|
2022 | | 5,621 |
|
2023 | | 4,902 |
|
After 2023 | | 2,557 |
|
Total lease payments | | 32,458 |
|
Less: present value discount | | (3,647 | ) |
Present value of lease liabilities | | $ | 28,811 |
|
The Company uses the its incremental borrowing rate based on information available at the commencement date of a lease 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 sale-leaseback transactions was recorded as a cumulative-effect adjustment to increase retained earnings, net of 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.product lines, and the reduction in our manufacturing footprint.
Exit activity costs were incurred during the nine months ended September 30, 2020 and 2019 which related to contract terminations, moving and closing costs, contract terminations, and severance incurred as a result of process simplification initiatives. NaN facility was closed during the nine months ended September 30, 2019.
During the nine months ended September 30, 2018, the Company incurred exit activity costs and asset impairment charges resulting from the above initiatives. In conjunction with these initiatives, the Company closed 2 facilities1 facility and, separately, sold a facility closed in 2017 during the first nine months ended September 30, 2020. During the nine months ended September 30, 2019, the Company closed 1 facility as a result of 2018 and sold and leased back another facility which resulted in a gain, which was partially offset by inventory impairment charges incurred for discontinued products.these initiatives.
The following tables set forth the asset impairment charges and exit activity costs incurred by segment during the three and nine months ended September 30, related to the restructuring activities described above (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, |
| 2019 | | 2018 |
| Inventory write-downs &/or asset impairment (recoveries) charges, net | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment charges | | Exit activity (recoveries) costs, net | | Total |
Renewable Energy and Conservation | $ | (9 | ) | | $ | 46 |
| | $ | 37 |
| | $ | — |
| | $ | (156 | ) | | $ | (156 | ) |
Residential Products | 478 |
| | 2,937 |
| | 3,415 |
| | 1,392 |
| | 485 |
| | 1,877 |
|
Industrial and Infrastructure Products | 10 |
| | 275 |
| | 285 |
| | 358 |
| | 1,417 |
| | 1,775 |
|
Corporate | — |
| | 246 |
| | 246 |
| | — |
| | 164 |
| | 164 |
|
Total exit activity costs & asset impairments | $ | 479 |
| | $ | 3,504 |
| | $ | 3,983 |
| | $ | 1,750 |
| | $ | 1,910 |
| | $ | 3,660 |
|
19
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, |
| 2020 | | 2019 |
| Inventory write-downs &/or asset impairment charges | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment (recoveries) charges, net | | Exit activity costs | | Total |
Renewable Energy and Conservation | $ | 0 | | | $ | 172 | | | $ | 172 | | | $ | (9) | | | $ | 46 | | | $ | 37 | |
Residential Products | 21 | | | 165 | | | 186 | | | 478 | | | 2,937 | | | 3,415 | |
Industrial and Infrastructure Products | 138 | | | 114 | | | 252 | | | 10 | | | 275 | | | 285 | |
Corporate | 0 | | | 17 | | | 17 | | | 0 | | | 246 | | | 246 | |
Total exit activity costs & asset impairments | $ | 159 | | | $ | 468 | | | $ | 627 | | | $ | 479 | | | $ | 3,504 | | | $ | 3,983 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2019 | | 2018 |
| Inventory write-downs &/or asset impairment (recoveries) charges, net | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment charges (recoveries), net | | Exit activity (recoveries) costs, net | | Total |
Renewable Energy and Conservation | $ | (9 | ) | | $ | 45 |
| | $ | 36 |
| | $ | 84 |
| | $ | (107 | ) | | $ | (23 | ) |
Residential Products | 478 |
| | 3,307 |
| | 3,785 |
| | 1,349 |
| | 333 |
| | 1,682 |
|
Industrial and Infrastructure Products | 10 |
| | 1,588 |
| | 1,598 |
| | (345 | ) | | 1,607 |
| | 1,262 |
|
Corporate | — |
| | 919 |
| | 919 |
| | — |
| | 431 |
| | 431 |
|
Total exit activity costs & asset impairments | $ | 479 |
| | $ | 5,859 |
| | $ | 6,338 |
| | $ | 1,088 |
| | $ | 2,264 |
| | $ | 3,352 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
| Inventory write-downs &/or asset impairment charges | | Exit activity costs | | Total | | Inventory write-downs &/or asset impairment (recoveries) charges, net | | Exit activity costs | | Total |
Renewable Energy and Conservation | $ | 72 | | | $ | 506 | | | $ | 578 | | | $ | (9) | | | $ | 45 | | | $ | 36 | |
Residential Products | 21 | | | 649 | | | 670 | | | 478 | | | 3,307 | | | 3,785 | |
Industrial and Infrastructure Products | 412 | | | 152 | | | 564 | | | 10 | | | 1,588 | | | 1,598 | |
Corporate | 0 | | | 116 | | | 116 | | | 0 | | | 919 | | | 919 | |
Total exit activity costs & asset impairments | $ | 505 | | | $ | 1,423 | | | $ | 1,928 | | | $ | 479 | | | $ | 5,859 | | | $ | 6,338 | |
The following table provides a summary of where the asset impairments and exit activity costs (recoveries) were recorded in the consolidated statements of income for the three and nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Cost of sales | $ | 325 | | | $ | 683 | | | $ | 1,198 | | | $ | 968 | |
Selling, general, and administrative expense | 302 | | | 3,300 | | | 730 | | | 5,370 | |
Total asset impairment and exit activity charges | $ | 627 | | | $ | 3,983 | | | $ | 1,928 | | | $ | 6,338 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Cost of sales | $ | 683 |
| | $ | 1,621 |
| | $ | 968 |
| | $ | 1,465 |
|
Selling, general, and administrative expense | 3,300 |
| | 2,039 |
| | 5,370 |
| | 1,887 |
|
Net asset impairment and exit activity charges | $ | 3,983 |
| | $ | 3,660 |
| | $ | 6,338 |
| | $ | 3,352 |
|
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
| | | 2019 | | 2018 | | 2020 | | 2019 |
Balance at January 1 | $ | 1,923 |
| | $ | 961 |
| Balance at January 1 | $ | 5,449 | | | $ | 1,923 | |
Exit activity costs recognized | 5,859 |
| | 2,264 |
| Exit activity costs recognized | 1,423 | | | 5,859 | |
Cash payments | (3,032 | ) | | (1,608 | ) | Cash payments | (6,179) | | | (3,032) | |
Balance at September 30 | $ | 4,750 |
| | $ | 1,617 |
| Balance at September 30 | $ | 693 | | | $ | 4,750 | |
On June 30, 2020, the Company sold its self-guided apartment tour application business to a third party from its Residential Products segment. The $2.0 million net proceeds from the sale resulted in pre-tax net gain of $1.9 million and has been presented within other (income) expense in the consolidated statements of income. This
divestiture does not meet the criteria to be reported as a discontinued operation nor will it have a major effect on the Company's operations.
(12) INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended September 30, and the applicable effective tax rates:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Provision for income taxes | $ | 6,843 |
| | $ | 6,473 |
| | $ | 14,901 |
| | $ | 15,574 |
|
Effective tax rate | 21.8 | % | | 24.9 | % | | 22.7 | % | | 23.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Provision for income taxes | $ | 9,828 | | | $ | 6,843 | | | $ | 21,686 | | | $ | 14,901 | |
Effective tax rate | 22.5 | % | | 21.8 | % | | 22.9 | % | | 22.7 | % |
The effective tax rate for the three and nine months ended September 30, 20192020 and 20182019, respectively, was more than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act, among other things, includes certain income tax provisions for individuals and corporations, however, these benefits do not materially impact the Company’s income tax provision. (15)
On July 20, 2020, the Department of the Treasury and the Internal Revenue Service issued final regulations addressing the treatment of income earned by certain foreign corporations related to the treatment of income that is subject to high rate of foreign tax under the global intangible low-taxed income ("GILTI") and subpart F income regimes.The Company determined that the impact of GILTI is not material to the financial statements.
(13) EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the three and nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available to common shareholders | $ | 33,760 | | | $ | 24,476 | | | $ | 73,111 | | | $ | 50,734 | |
Denominator for basic earnings per share: | | | | | | | |
Weighted average shares outstanding | 32,635 | | | 32,470 | | | 32,606 | | | 32,357 | |
Denominator for diluted earnings per share: | | | | | | | |
Weighted average shares outstanding | 32,635 | | | 32,470 | | | 32,606 | | | 32,357 | |
Common stock options and stock units | 334 | | | 300 | | | 296 | | | 320 | |
Weighted average shares and conversions | 32,969 | | | 32,770 | | | 32,902 | | | 32,677 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Net income available to common shareholders | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
|
Denominator for basic earnings per share: | | | | | | | |
Weighted average shares outstanding | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
|
Denominator for diluted earnings per share: | | | | | | | |
Weighted average shares outstanding | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
|
Common stock options and stock units | 300 |
| | 456 |
| | 320 |
| | 602 |
|
Weighted average shares and conversions | 32,770 |
| | 32,571 |
| | 32,677 |
| | 32,524 |
|
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 346,0009,000 and 247,000346,000 for the three months ended September 30, 20192020 and 2018,2019, respectively, and 324,00024,000 and 328,000324,000 for the nine months ended September 30, 20192020 and 2018,2019, respectively.
(14) SEGMENT INFORMATION
The Company is organized into 3 reportable segments on the basis of the production process andprocesses, products and services provided by each segment, identified as follows:
| |
(i) | Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking, electrical balance of systems, extraction systems and greenhouse structures; |
| |
(ii) | Residential Products, which primarily includes roof and foundation ventilation products, rain dispersion products and roofing accessories, centralized mail systems and electronic package solutions; and |
| |
(iii) | Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, perimeter security systems, expansion joints, and structural bearings. |
(i)Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking, electrical balance of systems, extraction systems and greenhouse structures;
(ii)Residential Products, which primarily includes roof and foundation ventilation products, rain dispersion products and roofing accessories, centralized mail systems and electronic package solutions; and
Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, perimeter security systems, expansion joints, and structural bearings.
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
The following table illustrates certain measurements used by management to assess performance of the segments described above for the three and nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net sales: | | | | | | | |
Renewable Energy and Conservation | $ | 128,258 | | | $ | 116,771 | | | $ | 323,014 | | | $ | 261,612 | |
Residential Products | 151,718 | | | 126,275 | | | 394,609 | | | 360,417 | |
Industrial and Infrastructure Products | 49,767 | | | 56,361 | | | 147,831 | | | 168,096 | |
Less: Intersegment sales | (78) | | | (171) | | | (536) | | | (817) | |
Net Industrial and Infrastructure Products | 49,689 | | | 56,190 | | | 147,295 | | | 167,279 | |
Total consolidated net sales | $ | 329,665 | | | $ | 299,236 | | | $ | 864,918 | | | $ | 789,308 | |
| | | | | | | |
Income from operations: | | | | | | | |
Renewable Energy and Conservation | $ | 14,195 | | | $ | 19,633 | | | $ | 29,082 | | | $ | 30,914 | |
Residential Products | 32,454 | | | 17,012 | | | 74,143 | | | 49,880 | |
Industrial and Infrastructure Products | 5,199 | | | 5,462 | | | 15,832 | | | 13,660 | |
Unallocated Corporate Expenses | (7,989) | | | (10,687) | | | (25,417) | | | (25,862) | |
Total consolidated income from operations | $ | 43,859 | | | $ | 31,420 | | | $ | 93,640 | | | $ | 68,592 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net sales: | | | | | | | |
Renewable Energy and Conservation | $ | 116,771 |
| | $ | 98,486 |
| | $ | 261,612 |
| | $ | 229,187 |
|
Residential Products | $ | 126,275 |
| | $ | 125,839 |
| | $ | 360,417 |
| | $ | 360,915 |
|
Industrial and Infrastructure Products | 56,361 |
| | 56,033 |
| | 168,096 |
| | 172,218 |
|
Less: Intersegment sales | (171 | ) | | (272 | ) | | (817 | ) | | (861 | ) |
Net Industrial and Infrastructure Products | 56,190 |
| | 55,761 |
| | 167,279 |
| | 171,357 |
|
Total consolidated net sales | $ | 299,236 |
| | $ | 280,086 |
| | $ | 789,308 |
| | $ | 761,459 |
|
| | | | | | | |
Income from operations: | | | | | | | |
Renewable Energy and Conservation | $ | 19,633 |
| | $ | 15,072 |
| | $ | 30,914 |
| | $ | 28,690 |
|
Residential Products | 17,012 |
| | 20,138 |
| | 49,880 |
| | 57,572 |
|
Industrial and Infrastructure Products | 5,462 |
| | 2,892 |
| | 13,660 |
| | 12,098 |
|
Unallocated Corporate Expenses | (10,687 | ) | | (8,698 | ) | | (25,862 | ) | | (22,839 | ) |
Total consolidated income from operations | $ | 31,420 |
| | $ | 29,404 |
| | $ | 68,592 |
| | $ | 75,521 |
|
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended September 30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 29,632 | | | $ | 150,608 | | | $ | 39,251 | | | $ | 219,491 | |
Over Time | 98,626 | | | 1,110 | | | 10,438 | | | 110,174 | |
Total net sales | $ | 128,258 | | | $ | 151,718 | | | $ | 49,689 | | | $ | 329,665 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 12,682 | | | $ | 125,350 | | | $ | 46,781 | | | $ | 184,813 | |
Over Time | 104,089 | | | 925 | | | 9,409 | | | 114,423 | |
Total net sales | $ | 116,771 | | | $ | 126,275 | | | $ | 56,190 | | | $ | 299,236 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 10,784 |
| | $ | 125,118 |
| | $ | 47,686 |
| | $ | 183,588 |
|
Over Time | 87,702 |
| | 721 |
| | 8,075 |
| | 96,498 |
|
Total net sales | $ | 98,486 |
| | $ | 125,839 |
| | $ | 55,761 |
| | $ | 280,086 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 56,636 | | | $ | 391,227 | | | $ | 115,925 | | | $ | 563,788 | |
Over Time | 266,378 | | | 3,382 | | | 31,370 | | | 301,130 | |
Total net sales | $ | 323,014 | | | $ | 394,609 | | | $ | 147,295 | | | $ | 864,918 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 28,441 | | | $ | 357,808 | | | $ | 138,383 | | | $ | 524,632 | |
Over Time | 233,171 | | | 2,609 | | | 28,896 | | | 264,676 | |
Total net sales | $ | 261,612 | | | $ | 360,417 | | | $ | 167,279 | | | $ | 789,308 | |
(15) SUBSEQUENT EVENTS
On October 15, 2020, the Company acquired substantially all of the assets of Architectural Mailboxes, LLC ("Architectural Mailboxes") in an all cash transaction for approximately $27 million. Architectural Mailboxes was a privately-held company in the business of designing, developing, and selling decorative residential mailboxes and related products. A preliminary purchase price allocation for the Architectural Mailboxes business has not yet been determined. Architectural Mailboxes will be reported as a part of our Residential Products segment.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 28,441 |
| | $ | 357,808 |
| | $ | 138,383 |
| | $ | 524,632 |
|
Over Time | 233,171 |
| | 2,609 |
| | 28,896 |
| | 264,676 |
|
Total net sales | $ | 261,612 |
| | $ | 360,417 |
| | $ | 167,279 |
| | $ | 789,308 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | |
Point in Time | $ | 25,128 |
| | $ | 358,960 |
| | $ | 145,657 |
| | $ | 529,745 |
|
Over Time | 204,059 |
| | 1,955 |
| | 25,700 |
| | 231,714 |
|
Total net sales | $ | 229,187 |
| | $ | 360,915 |
| | $ | 171,357 |
| | $ | 761,459 |
|
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,” "aspires," “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.10-K along with Item 1A of this Form 10-Q. 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.
We use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe consolidated gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis.
Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and distributorprovider of building products and services for the renewable energy, conservation, residential, industrial and infrastructure markets.
The Company operates and reports its results in the following three reporting segments, entitled:segments:
•Renewable Energy and Conservation;
•Residential Products; and
•Industrial and Infrastructure Products.
Our Renewable Energy and Conservation segmentThe Company serves customers primarily 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 toin North America including renewable energy (solar) developers, power companies, solar energy contractors, and institutional and commercial growers of plants.
Our Residential Products segment services residential repairfood and remodeling activityplants, home improvement retailers, wholesalers, distributors, 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 and 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.
contractors. As of September 30, 2019,2020, we operated 4145 facilities, comprised of 29which include 32 manufacturing facilities and five distribution centers, and seven offices, which are located in 1819 states, Canada, China and Japan,Japan. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.
COVID-19 Update
While the Company continues to encounter challenges and uncertainty associated with COVID-19, the pandemic did not have a material adverse effect on our reported results for the three and nine months ended September 30, 2020. While most of our operations have been considered essential businesses and have remained open during the pandemic, the decision to keep our team intact despite some pandemic related softness in demand in certain businesses enabled us to deliver revenue and earnings growth during this period. Our top priorities continue to be
focused on our organization, keeping the team and their families as safe as possible, our supply chain operating well, and providing a high level of responsiveness to customer needs. We will continue to actively monitor the impact of the COVID-19 outbreak on operations for the remainder of 2020 and beyond, and make adjustments to our operating protocols as necessary. The extent to which our operations will be impacted by the outbreak will largely depend on future developments, which are ablehighly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity, or resurgence, of the outbreak and actions by government authorities to accommodate our capacity needscontain the outbreak or respond to meet current levels of demand throughout North Americaits impact, among other things. Refer to the Company's Outlook section in this management discussion and analysis for consideration relative to a lesser extent, Asia.future periods.
Business Strategy
Our business strategy focuses on accelerating theThe Company’s mission is to create compounding and sustainable value with strong leadership positions in higher growth and financial returnsprofitable end markets. The Company's operational foundation employs a Three-Pillar strategy focusing on three core tenets: Business Systems, Portfolio Management, and Organizational Development.
1.Business Systems - operational excellence and product innovation supported by an execution review of the Company. We striveCompany's monthly business performance, implementation of key investments, information technology operating and digital systems performance, and new product and services innovation.
2.Portfolio Management - acquisitions and portfolio management is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to deliver best-in-class,provide sustainable, value creation forprofitable growth while expanding our shareholders,relevance to customers and team members, and we believe this can be achieved from a transformational change in the Company’s portfolio and strong operating performance. Our business strategy has four key elements, or "pillars," which are: operational excellence, innovation, portfolio management, and acquisitions as a strategic accelerator.
Operational excellence isshaping 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”). The execution of 80/20 across our businesses, along with in-lining and market rate of demand replenishment initiatives, has and will continue to improve our service levels, overall profitability, and efficiency in the deployment of capital.
Innovation is our second strategic pillar. Our focus is on making innovation a strong competency across our organization to ensure we consistently bring new products, better processes, and value added services to our markets and customers. We are focused on delivering solutions that create more relevance for our end customers, and position 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 market challenges we need to solve. This effort is expected to produce ideas and opportunities that generate profitable and sustainable growth for us and enhance the value we provide our customers. Our focus on innovation is centered on our current end markets, including, postal and parcel products, 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; energy sources not dependent on fossil fuels, crops utilized in medical and recreational products, and the growing demand for locally grown produce.
The third pillar of our strategy is portfolio management, which is a natural adjunct to the 80/20 initiative. Using the 80/20 process, we conduct strategic reviews of our customers and end markets, and allocate leadership time, capital and resources to the platforms and businesses having the greatest potential revenues, profits and margins. 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 Gibraltar's long-term financial performance.
The fourth pillar of our strategy is acquisitions. We have targeted four key markets in which to make strategic acquisitions which are served by existing platforms within the Company. The target markets include: postal, parcel and storage solutions; infrastructure; 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.markets. The acquisitions of Rough Brothers Manufacturing,Apeks, LLC ("Apeks") in August 2019, Thermo Energy Systems Inc., RBI Solar, Inc., ("Thermo") in January 2020, Delta Separations LLC and affiliates, collectively known as "RBI"Teaching Tech LLC (collectively, “Delta Separations”) in June 2015, Nexus CorporationFebruary 2020 and, most recently, the acquisition of Architectural Mailboxes, LLC ("Nexus"Architectural Mailboxes") in October 2016, Package Concierge, Inc. ("Package Concierge") in February 2017, SolarBOS in August 2018, and most recently, Apeks in August 2019,2020, were the direct result of this fourth pillarexecuting our Portfolio Management strategy.
3.Organizational Development - execution of the Business Systems and Portfolio Management pillars of our strategy requires a strong organization that must continuously develop and improve. The Company aspires to make our workplace the "Best Place to Work", by focusing on creating the best development and learning environment for our people, proactively operating businesses that mitigate environmental and climate related impacts, and engaging with and supporting the communities in which we are located. We also consider businesses outside of these four markets, as we continually search out opportunitiesbelieve doing so helps us attract and retain the best people, enhancing our ability to growexecute our business in large markets with expected growth in demand forplans.
As a part of our on-going Three-Pillar strategy, the foreseeable future, where we can add value throughCompany:
•implemented new management tools to complement our manufacturing expertise,core 80/20 processtoolkit and purchasing synergies.drive improvements in our operating margins;
•increased the percentage of our sales that are direct to end customers, allowing us to have a more meaningful connection with our end customers, providing the opportunity to better understand the challenges our customers face, and developing solutions to these challenges; and
Overall,•continued to shift the focus of our portfolio to take advantage of rising tides in the renewable energy and conservation markets.
We believe the key elements of our strategy have, and will continue to, enable us to respond timely to changes in the end markets we serve, including evolving changes due to the outbreak of COVID-19. We have and expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. We believe our businessenhanced strategy has enabled us to better react to volatility in commodity costs and fluctuations in customer demand, along with helping to improve margins. We have used the improved cash flows generated by these initiatives to pay down debt, improve our liquidity position, and invest in growth initiatives. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns. Going forward, we will continue to improve upon our operational excellence, optimize our assets and working capital efficiency, and invest in innovation and new product development to drive profitable and sustainable growth.
Recent Developments
On October 15, 2020, the Company acquired substantially all of the assets of Architectural Mailboxes, a privately-held company in the business of designing, developing, and selling decorative residential mailboxes and related products in an all cash transaction for approximately $27 million. The results of operations for Architectural
Mailboxes will be reported as a part of our Residential Products segment and are expected to contribute annual revenues of approximately $26 million.
On February 13, 2020, the Company acquired the assets of California-based Delta Separations, a privately held ethanol-based extraction systems manufacturer and training and laboratory design and operations consultative partner for $50 million in an all cash transaction.
On January 15, 2020, the Company acquired the assets of Canadian-based Thermo, a privately held provider of commercial greenhouse solutions in North America providing growing infrastructure for the plant based organic food market, in an all cash transaction for approximately $7 million. The Company also expects to invest approximately $42 million into Thermo to provide an appropriate level of working capital.
On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks, LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems utilizing subcritical and supercritical carbon dioxide ("CO2"), for an aggregate purchase price of $12.6 million, which may be adjusted for working capital adjustments and certain other adjustments provided for in the stock purchase agreement.dioxide. The acquisition was financed through cash on hand. hand of $12 million.
The financial results from the acquisitions of operations ofThermo, Delta, and Apeks have been included in the Renewablereported as a part of our Renewables Energy and Conservation segment of the Company's consolidated financial statements from the datesince their respective dates of acquisition.
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 1, 2019, the Company redeemed all $210 million of its outstanding 6.25% Senior Subordinated Notes. 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 SolarBOS for an aggregate purchase price of $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. SolarBOS is a provider of electrical balance of systems products, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the U.S. solar renewable energy market. The results of operations of SolarBOS have been included in the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.
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 September 30, 20192020 Compared to the Three Months Ended September 30, 20182019
The following table sets forth selected results of operations data (in thousands) and its percentage of net sales for the three months ended September 30:30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
Net sales | $ | 329,665 | | | 100.0 | % | | $ | 299,236 | | | 100.0 | % |
Cost of sales | 244,222 | | | 74.1 | % | | 222,658 | | | 74.4 | % |
Gross profit | 85,443 | | | 25.9 | % | | 76,578 | | | 25.6 | % |
Selling, general, and administrative expense | 41,584 | | | 12.6 | % | | 45,158 | | | 15.1 | % |
| | | | | | | |
Income from operations | 43,859 | | | 13.3 | % | | 31,420 | | | 10.5 | % |
Interest expense | 218 | | | 0.1 | % | | 17 | | | 0.0 | % |
Other expense | 53 | | | 0.0 | % | | 84 | | | 0.0 | % |
Income before taxes | 43,588 | | | 13.2 | % | | 31,319 | | | 10.5 | % |
Provision for income taxes | 9,828 | | | 3.0 | % | | 6,843 | | | 2.3 | % |
| | | | | | | |
| | | | | | | |
Net income | $ | 33,760 | | | 10.2 | % | | $ | 24,476 | | | 8.2 | % |
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
Net sales | $ | 299,236 |
| | 100.0 | % | | $ | 280,086 |
| | 100.0 | % |
Cost of sales | 222,658 |
| | 74.4 | % | | 209,807 |
| | 74.9 | % |
Gross profit | 76,578 |
| | 25.6 | % | | 70,279 |
| | 25.1 | % |
Selling, general, and administrative expense | 45,158 |
| | 15.1 | % | | 40,875 |
| | 14.6 | % |
Income from operations | 31,420 |
| | 10.5 | % | | 29,404 |
| | 10.5 | % |
Interest expense | 17 |
| | 0.0 | % | | 2,906 |
| | 1.0 | % |
Other expense | 84 |
| | 0.0 | % | | 522 |
| | 0.2 | % |
Income before taxes | 31,319 |
| | 10.5 | % | | 25,976 |
| | 9.3 | % |
Provision for income taxes | 6,843 |
| | 2.3 | % | | 6,473 |
| | 2.3 | % |
Net income | $ | 24,476 |
| | 8.2 | % | | $ | 19,503 |
| | 7.0 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change due to |
| 2020 | | 2019 | | Total Change | | | | Acquisitions | | Operations |
Net sales: | | | | | | | | | | | |
Renewable Energy and Conservation | $ | 128,258 | | | $ | 116,771 | | | $ | 11,487 | | | | | $ | 24,061 | | | $ | (12,574) | |
Residential Products | 151,718 | | | 126,275 | | | 25,443 | | | | | — | | | 25,443 | |
Industrial and Infrastructure Products | 49,767 | | | 56,361 | | | (6,594) | | | | | — | | | (6,594) | |
Less: Intersegment sales | (78) | | | (171) | | | 93 | | | | | — | | | 93 | |
Net Industrial and Infrastructure Products | 49,689 | | | 56,190 | | | (6,501) | | | | | — | | | (6,501) | |
Consolidated | $ | 329,665 | | | $ | 299,236 | | | $ | 30,429 | | | | | $ | 24,061 | | | $ | 6,368 | |
|
| | | | | | | | | | | |
| 2019 | | 2018 | | Total Change |
Net sales: | | | | | |
Renewable Energy and Conservation | $ | 116,771 |
| | $ | 98,486 |
| | $ | 18,285 |
|
Residential Products | 126,275 |
| | 125,839 |
| | 436 |
|
Industrial and Infrastructure Products | 56,361 |
| | 56,033 |
| | 328 |
|
Less: Intersegment sales | (171 | ) | | (272 | ) | | 101 |
|
Net Industrial and Infrastructure Products | 56,190 |
| | 55,761 |
| | 429 |
|
Consolidated | $ | 299,236 |
| | $ | 280,086 |
| | $ | 19,150 |
|
Consolidated net sales increased by $19.2$30.4 million, or 6.8%10.2%, to $299.2$329.7 million for the three months ended September 30, 20192020 compared to the three months ended September 30, 2018.2019. The 6.8%10.2% increase in revenue was leddriven by the Residential Products and Renewable Energy and Conservation segments. Organic growth accounted for 2.1%, or $6.4 million, the result of increased volume in our Residential Products segment, which more than offset the organic growth of $12.6 million followed by contributions from acquisitions of $7.2 million. The organic growthvolume declines in the quarter stemmed from a 4.5% increase in volume, primarily fromboth our Renewable Energy and Conservation segment, as our Residential Products and our Industrial and Infrastructure Products segment revenues were essentially flat. Oursegments. Sales generated from our first quarter 2020 acquisitions of Apeks during the current quarterThermo and SolarBOS duringDelta Separations, and the prior year generated incremental revenues as comparedacquisition of Apeks, contributed 8.1% or $24.1 million to the growth from the prior year quarter.
Net sales in our Renewable Energy and Conservation segment increased 18.6%9.8%, or $18.3$11.5 million, to $128.3 million for the three months ended September 30, 2020 compared to $116.8 million for the three months ended September 30, 2019 compared to $98.5 million for the three months ended September 30, 2018. The increase was led by strong organic growth resulting from our continued efforts to be more relevant to our customers as evidenced by our 72% improvement in backlog year over year in both our conservation and renewable energy businesses.2019. Sales generated from acquisitions of $7.2 million from both the current year quarter acquisitionacquisitions of ApeksThermo and Delta Separations, and the prior year acquisition of SolarBOS alsoApeks, contributed $24.1 million to the increase.increase in the current year quarter. Organic revenue decreased $12.6 million, or 10.8%, driven by a decline in our core conservation business related to a slowdown in the cannabis and hemp markets, partially offset by participation gains in our renewable energy related business. Backlog improved 28% year over year for this segment, which was the result of strong end market demand in renewable energy, and in conservation, driven by strength in the fruit and vegetable market and increasing activity in the cannabis market.
Net sales in our Residential Products segment increased 0.3%20.1%, or $0.4$25.4 million, to $151.7 million for the three months ended September 30, 2020 compared to $126.3 million for the three months ended September 30, 2019 compared to $125.8 million for the three months ended September 30, 2018. The slight2019.
The increase from the prior year quarter was largely due to continued solid activity in the result of a modest increase in volume, partially offset by a decrease in pricing to customers.repair and remodel market, along with participation gains across our various distribution channels.
Net sales in our Industrial and Infrastructure Products segment increased 0.7%decreased 11.6%, or $0.4$6.5 million, to $49.7 million for the three months ended September 30, 2020 compared to $56.2 million for the three months ended September 30, 20192019. Lower demand for its core industrial products resulted in a decrease in revenue in the Industrial businesses. While revenue in the Infrastructure business was down modestly, as the pandemic affected spending on infrastructure projects in certain end markets, infrastructure backlog grew slightly compared to $55.8 millionthe prior year quarter.
Our consolidated gross margin increased to 25.9% for the three months ended September 30, 2018. Increased volume in the Infrastructure business was partially offset by lower revenue in the Industrial businesses, driven by lower steel prices impacting its core industrial products.
Our consolidated gross margin increased2020 compared to 25.6% for the three months ended September 30, 2019 compared to 25.1% for the three months ended September 30, 2018.2019. This modest increase was the result of improved operating execution includingin all our core businesses compared to the prior year quarter, effective price and material cost management, and benefits from our 80/20 simplification initiatives along with a favorable alignment of material costsinitiatives. Partially offsetting the above improvements were expected lower gross margins generated from our recent acquisitions as we continue to customer selling prices and volume leverage.integrate them operationally.
Selling, general, and administrative (SG&A)("SG&A") expenses increaseddecreased by $4.3$3.6 million, or 10.5%7.9%, to $41.6 million for the three months ended September 30, 2020 from $45.2 million for the three months ended September 30, 2019 from $40.92019. The $3.6 million for the three months ended September 30, 2018. The $4.3 million increasedecrease was largely the result of a $2.3decrease in costs of approximately $7.2 million increase inrelated to exit activities, senior leadership transition costs, $2.2and completing acquisitions, partially offset by $3.8 million ofin incremental SG&A expenses recorded quarter over quarter for our recent acquisitions, along with a $1.3 million increase in exit activity costs related to our simplification initiatives. These increases were partially offset by $3.4 million of lower performance-based compensation expenses, as compared to the prior year quarter.acquisitions. SG&A expenses as a percentage of net sales increaseddecreased to 12.6% for the three months ended September 30, 2020 compared to 15.1% for the three months ended September 30, 2019 compared to 14.6% for the three months ended September 30, 2018.2019.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 2020 | | 2019 | | Total Change | | | | | | | | |
Income from operations: | | | | | | | | | | | | | | | | | |
Renewable Energy and Conservation | $ | 14,195 | | | 11.1 | % | | $ | 19,633 | | | 16.8 | % | | $ | (5,438) | | | | | | | | | |
Residential Products | 32,454 | | | 21.4 | % | | 17,012 | | | 13.5 | % | | 15,442 | | | | | | | | | |
Industrial and Infrastructure Products | 5,199 | | | 10.5 | % | | 5,462 | | | 9.7 | % | | (263) | | | | | | | | | |
Unallocated Corporate Expenses | (7,989) | | | (2.4) | % | | (10,687) | | | (3.6) | % | | 2,698 | | | | | | | | | |
Consolidated income from operations | $ | 43,859 | | | 13.3 | % | | $ | 31,420 | | | 10.5 | % | | $ | 12,439 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | Total Change |
Income from operations: | | | | | | | | | |
Renewable Energy and Conservation | $ | 19,633 |
| | 16.8 | % | | $ | 15,072 |
| | 15.3 | % | | $ | 4,561 |
|
Residential Products | 17,012 |
| | 13.5 | % | | 20,138 |
| | 16.0 | % | | (3,126 | ) |
Industrial and Infrastructure Products | 5,462 |
| | 9.7 | % | | 2,892 |
| | 5.2 | % | | 2,570 |
|
Unallocated Corporate Expenses | (10,687 | ) | | (3.6 | )% | | (8,698 | ) | | (3.1 | )% | | (1,989 | ) |
Consolidated income from operations | $ | 31,420 |
| | 10.5 | % | | $ | 29,404 |
| | 10.5 | % | | $ | 2,016 |
|
TheOur Renewable Energy and Conservation segment generated an operating margin of 16.8%11.1% in the current year quarter compared to 15.3%16.8% in the prior year quarter. The increasedecrease in operating margin was largely the combined result of improved operating execution, volume leverageexpected lower margins generated by our recent acquisitions as we continue to integrate them operationally and near-term market challenges impacting the conservation business related to a slowdown in the cannabis and hemp markets. Partially offsetting this decrease was favorable product and vertical market mix.services mix and strong execution in our renewable energy business.
OurThe Residential Products segment generated an operating margin of 21.4% during the three months ended September 30, 2020 compared to 13.5% during the three months ended September 30, 2019 compared to 16.0% during2019. The increase in operating margin was the three months ended September 30, 2018. The decrease resulted from increased exit activity costs, unfavorable product mix,result of volume leverage, effective price and an unfavorable alignment of material costs to customer selling prices, partially offset bycost management, and continued benefits from 80/20 simplification initiatives.initiatives, along with a $3.2 million decrease in exit activity costs compared to the prior year quarter.
Our Industrial and Infrastructure Products segment generated an operating margin of 10.5% during the three months ended September 30, 2020 compared to 9.7% during the three months ended September 30, 2019 compared to 5.2% during the three months ended September 30, 2018.2019. The increase resulted from continued improvement in operating margin was the result of a more favorable mix of higher margin products, continued efforts to reduce operating costsexecution in our industrial business, and ongoing benefit from the Company's 80/20 initiatives.effective price and material cost management.
Unallocated corporate expenses increased $2.0decreased $2.7 million from $8.7 million during the three months ended September 30, 2018 to $10.7 million during the three months ended September 30, 2019. This increase from2019 to $8.0 million during the prior year quarter was duethree months ended September 30, 2020. A decline in costs related to an increase in senior leadership transition, costsrestructuring and exit activity costs, partially offset by lower performance-based compensation expensescompleting acquisitions of approximately $3.2 million resulted in the current year quarter decrease as compared to the prior year quarter.
Interest expense was negligible for both the three months ended September 30, 2019 compared to $2.9 million for2020 and September 30, 2019. No amounts were outstanding under our revolving credit facility during the three months ended September 30, 2018. The decrease in expense resulted from the redemption of the Company's outstanding 6.25% Senior Subordinated Notes during the first quarter of2020 and 2019. During the three months ended September 30, 2019 and 2018, no amounts were outstanding under our then applicable revolving credit facility.
We recognized a provision for income taxes of $6.8$9.8 million and $6.5$6.8 million, with effective tax rates of 21.8%22.5% and 24.9%21.8% for the three months ended September 30, 2019,2020, and 2018,2019, respectively. The effective tax raterates for both the third quarters ofthree months ended September 30, 2020 and 2019, and 2018respectively, were greater than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items.
Nine Months Ended September 30, 20192020 Compared to the Nine Months Ended September 30, 2018
2019
The following table sets forth selected results of operations data (in thousands) and its percentage of net sales for the nine months ended September 30:30 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
Net sales | $ | 864,918 | | | 100.0 | % | | $ | 789,308 | | | 100.0 | % |
Cost of sales | 650,830 | | | 75.2 | % | | 605,272 | | | 76.7 | % |
Gross profit | 214,088 | | | 24.8 | % | | 184,036 | | | 23.3 | % |
Selling, general, and administrative expense | 120,448 | | | 14.0 | % | | 115,444 | | | 14.6 | % |
| | | | | | | |
Income from operations | 93,640 | | | 10.8 | % | | 68,592 | | | 8.7 | % |
Interest expense | 385 | | | 0.0 | % | | 2,297 | | | 0.3 | % |
Other (income) expense | (1,542) | | | (0.2) | % | | 660 | | | 0.1 | % |
Income before taxes | 94,797 | | | 11.0 | % | | 65,635 | | | 8.3 | % |
Provision for income taxes | 21,686 | | | 2.5 | % | | 14,901 | | | 1.9 | % |
| | | | | | | |
| | | | | | | |
Net income | $ | 73,111 | | | 8.5 | % | | $ | 50,734 | | | 6.4 | % |
|
| | | | | | | | | | | | | |
| 2019 | | 2018 |
Net sales | $ | 789,308 |
| | 100.0 | % | | $ | 761,459 |
| | 100.0 | % |
Cost of sales | 605,272 |
| | 76.7 | % | | 572,359 |
| | 75.2 | % |
Gross profit | 184,036 |
| | 23.3 | % | | 189,100 |
| | 24.8 | % |
Selling, general, and administrative expense | 115,444 |
| | 14.6 | % | | 113,579 |
| | 14.9 | % |
Income from operations | 68,592 |
| | 8.7 | % | | 75,521 |
| | 9.9 | % |
Interest expense | 2,297 |
| | 0.3 | % | | 9,305 |
| | 1.2 | % |
Other expense (income) | 660 |
| | 0.1 | % | | (50 | ) | | 0.0 | % |
Income before taxes | 65,635 |
| | 8.3 | % | | 66,266 |
| | 8.7 | % |
Provision for income taxes | 14,901 |
| | 1.9 | % | | 15,574 |
| | 2.0 | % |
Net income | $ | 50,734 |
| | 6.4 | % | | $ | 50,692 |
| | 6.7 | % |
The following table sets forth the Company’s net sales by reportable segment for the nine months ended September 30, (in thousands):
|
| | | | | | | | | | | |
| | | | | |
| 2019 | | 2018 | | Total Change |
Net sales: | | | | | |
Renewable Energy and Conservation | $ | 261,612 |
| | $ | 229,187 |
| | $ | 32,425 |
|
Residential Products | 360,417 |
| | 360,915 |
| | (498 | ) |
Industrial and Infrastructure Products | 168,096 |
| | 172,218 |
| | (4,122 | ) |
Less: Intersegment sales | (817 | ) | | (861 | ) | | 44 |
|
Net Industrial and Infrastructure Products | 167,279 |
| | 171,357 |
| | (4,078 | ) |
Consolidated | $ | 789,308 |
| | $ | 761,459 |
| | $ | 27,849 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change due to |
| 2020 | | 2019 | | Total Change | | | | Acquisitions | | Operations |
Net sales: | | | | | | | | | | | |
Renewable Energy and Conservation | $ | 323,014 | | | $ | 261,612 | | | $ | 61,402 | | | | | $ | 58,858 | | | $ | 2,544 | |
Residential Products | 394,609 | | | 360,417 | | | 34,192 | | | | | — | | | 34,192 | |
Industrial and Infrastructure Products | 147,831 | | | 168,096 | | | (20,265) | | | | | — | | | (20,265) | |
Less: Intersegment sales | (536) | | | (817) | | | 281 | | | | | — | | | 281 | |
Net Industrial and Infrastructure Products | 147,295 | | | 167,279 | | | (19,984) | | | | | — | | | (19,984) | |
Consolidated | $ | 864,918 | | | $ | 789,308 | | | $ | 75,610 | | | | | $ | 58,858 | | | $ | 16,752 | |
Consolidated net sales increased by $27.8$75.6 million, or 3.7%9.6%, to $789.3$864.9 million for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 2018. The 3.7% increase was the result of a 2.5% increase in pricing to customers, partially offset by a 0.6% decrease in volume. Strong organic growth in our Renewable Energy and Conservation segment along with $13.0 million of sales2019. Sales generated from both theour current year acquisitionacquisitions of ApeksThermo and Delta Separations and the prior year acquisition of SolarBOSApeks contributed 7.5%, or $58.9 million to the growth from the prior year. The $16.8 million, or 2.1% increase, in organic growth during the current year was primarily the result of increased volume in both our Residential Products and Renewable Energy and Conservation segments, which more than offset the volume decline in our Industrial and Infrastructure Products segment.
Net sales in our Renewable Energy and Conservation segment increased 14.1%23.5%, or $32.4$61.4 million, to $323.0 million for the nine months ended September 30, 2020 compared to $261.6 million for the nine months ended September 30, 2019 compared2019. Sales generated by the current year acquisitions of Thermo and Delta Separations, along with the prior year acquisition of Apeks, contributed $58.9 million, or 22.5%, to $229.2the increase in the current year.
Organic growth of $2.5 million, or 1.0%, was driven by participation gains in our renewable energy related businesses, partially offset by a decline in our core conservation business related to a slowdown in the cannabis and hemp markets. Backlog improved 28% year over year for this segment, which was the result of strong end market demand in renewable energy, and in conservation, driven by strength in the fruit and vegetable market and increasing activity in the cannabis market.
Net sales in our Residential Products segment increased 9.5%, or $34.2 million, to $394.6 million for the nine months ended September 30, 2018. The increase was led by strong organic growth resulting from our continued efforts2020 compared to be more relevant to our customers as evidenced by our 72% improvement in backlog year over year in our conservation and renewable energy business. Additionally, incremental sales of $13.0 million combined from the current year acquisition of Apeks and the 2018 acquisition of SolarBOS contributed to the increase.
Net sales in our Residential Products segment of $360.4 million for the nine months ended September 30, 2019 were essentially flat as compared2019. The increase from the prior year was largely due to $360.9 million forcontinued solid activity in the nine months ended September 30, 2018. Slight decreases in volume were nearly offset by increases in carryover pricing to customers implemented in 2018.
repair and remodel market, along with participation gains across our various distribution channels.
Net sales in our Industrial and Infrastructure Products segment decreased 2.4%12.0%, or $4.1$20.0 million, to $147.3 million for the nine months ended September 30, 2020 compared to $167.3 million for the nine months ended September 30, 2019 compared2019. Lower demand and lower steel prices impacting its core industrial products resulted in a decrease in revenue in the Industrial businesses. Revenue in the Infrastructure business was essentially flat year over year, while its ending backlog improved slightly from the prior year.
Our consolidated gross margin increased to $171.4 million24.8% for the nine months ended September 30, 2018. Increased volume in the Infrastructure business was more than offset by lower revenues in our Industrial businesses, driven by lower steel prices impacting its core industrial products.
Our consolidated gross margin decreased2020 compared to 23.3% for the nine months ended September 30, 20192019. This increase was due to improved operating execution in all of our core businesses compared to 24.8%the prior year period that included incremental costs for design refinement and field improvements for our solar tracking solution, effective price and material cost management and benefits from our 80/20 simplification initiatives. Partially offsetting the above improvements were lower gross margins generated from our recent acquisitions.
SG&A expenses increased by $5.0 million, or 4.3%, to $120.4 million for the nine months ended September 30, 2018. This decrease was the result of incremental costs incurred for field improvements for our tracker solution largely offset by improved operating execution, including benefits2020 from our 80/20 simplification initiatives and a favorable alignment of material costs to customer selling prices.
Selling, general, and administrative (SG&A) expenses increased by $1.9 million, or 1.6%, to $115.4 million for the nine months ended September 30, 2019 from $113.6 million for the nine months ended September 30, 2018.2019. The $1.9$5.0 million increase was primarily due to a $6.0 million increase in senior leadership transition costs, $4.1largely the result of $11.0 million of incremental SG&A expenses recorded year over year for our recent acquisitions and costs to complete those acquisitions closed during the year, along with a $3.4 million increaseinvestments in the development of our organization and safety of our team by reallocating SG&A spending. Partially offsetting these increases was decreased spending for exit activity costs related to our simplification initiatives. These increases were partially offset by $10.5 million of lower performance-based compensation expenses, as compared to the prior year.approximately $4.6 million. SG&A expenses as a percentage of net sales decreased to 14.6% in14.0% for the nine months ended September 30, 20192020 compared to 14.9% in14.6% for the nine months ended September 30, 2018.
2019.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the nine months ended September 30, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 2020 | | 2019 | | Total Change | | | | | | | | |
Income from operations: | | | | | | | | | | | | | | | | | |
Renewable Energy and Conservation | $ | 29,082 | | | 9.0 | % | | $ | 30,914 | | | 11.8 | % | | $ | (1,832) | | | | | | | | | |
Residential Products | 74,143 | | | 18.8 | % | | 49,880 | | | 13.8 | % | | 24,263 | | | | | | | | | |
Industrial and Infrastructure Products | 15,832 | | | 10.7 | % | | 13,660 | | | 8.2 | % | | 2,172 | | | | | | | | | |
Unallocated Corporate Expenses | (25,417) | | | (2.9) | % | | (25,862) | | | (3.3) | % | | 445 | | | | | | | | | |
Consolidated income from operations | $ | 93,640 | | | 10.8 | % | | $ | 68,592 | | | 8.7 | % | | $ | 25,048 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| 2019 | | 2018 | | Total Change |
Income from operations: | | | | | | | | | |
Renewable Energy and Conservation | $ | 30,914 |
| | 11.8 | % | | $ | 28,690 |
| | 12.5 | % | | $ | 2,224 |
|
Residential Products | 49,880 |
| | 13.8 | % | | 57,572 |
| | 16.0 | % | | (7,692 | ) |
Industrial and Infrastructure Products | 13,660 |
| | 8.2 | % | | 12,098 |
| | 7.1 | % | | 1,562 |
|
Unallocated Corporate Expenses | (25,862 | ) | | (3.3 | )% | | (22,839 | ) | | (3.0 | )% | | (3,023 | ) |
Consolidated income from operations | $ | 68,592 |
| | 8.7 | % | | $ | 75,521 |
| | 9.9 | % | | $ | (6,929 | ) |
TheOur Renewable Energy and Conservation segment generated an operating margin of 9.0% during the nine months ended September 30, 2020 compared to 11.8% during the first nine months of the current year compared to 12.5% in the same period of the prior year.ended September 30, 2019. The decrease in operating margin was the net result of additionalthe expected lower margins generated from our recent acquisitions, as we continue to integrate them operationally, largely offset by favorable product and services mix and strong execution in our renewable energy businesses, as well as, the absence of incremental costs related toincurred during the prior year for design refinement and field improvements for our solar tracker solution largely offset by the benefits of volume leverage, favorable alignment of material costs to customer selling prices and higher margin product mix.
tracking solution.
Our Residential Products segment generated an operating margin of 18.8% during the nine months ended September 30, 2020 compared to 13.8% during the nine months ended September 30, 2019 compared to 16.0% during the nine months ended September 30, 2018.2019. The decreaseincrease in operating margin was due to increased exit activity costs, an unfavorable alignmentlargely the result of volume leverage, effective price and material costs to customer selling pricescost management and unfavorable product mix, partially offset bycontinued benefits from 80/20 simplification initiatives.initiatives, along with a $3.1 million decrease in exit activity costs compared to the prior year.
The Industrial and Infrastructure Products segment generated an operating margin of 10.7% during the nine months ended September 30, 2020 compared to 8.2% during the nine months ended September 30, 2019 compared to 7.1% during the nine months ended September 30, 2018.2019. The increase in operating margin was the result of a more favorable mix of higher margin productscontinued improvement in execution in our industrial business, effective price and operational efficiencies resultingmaterial cost management and ongoing benefit from the Company's 80/20 initiatives.
Unallocated corporate expenses increased $3.0decreased $0.4 million from $22.8 million during the nine months ended September 30, 2018 to $25.9 million during the nine months ended September 30, 2019. This increase2019 to $25.4 million during the nine months ended September 30, 2020. The slight decrease was primarily due to senior leadership transition costs and exit activity costs charges partially offsetlower performance based compensation expense.
Interest expense decreased by a$1.9 million to $0.4 million for the nine months ended September 30, 2020 compared to $2.3 million for the nine months ended September 30, 2019. The decrease in performance-based compensation expenses.expense resulted from the redemption of the Company's outstanding $210 million of 6.25% Senior Subordinated Notes during the first quarter of 2019. No amounts were outstanding under our revolving credit facility during the nine months ended September 30, 2020 and 2019.
The Company recorded other income of $1.5 million for the nine months ended September 30, 2020 and other expense of $0.7 million for the nine months ended September 30, 2019 and other income of $0.1 million for the nine months ended September 30, 2018.2019. The increase in other expensechange from the prior year was primarily the result of foreign currency fluctuations.
Interest expense decreased by $7.0the $1.9 million to $2.3 million forpre-tax gain on the nine months ended September 30, 2019 compared to $9.3 million for the nine months ended September 30, 2018. The decrease in expense resulted from the redemptionsale of the Company's outstanding 6.25% Senior Subordinated Notes duringself-guided apartment tour application business within the first quarter of 2019. During the nine months ended September 30, 2019 and 2018, no amounts were outstanding under our then applicable revolving credit facility.
Residential Products segment.
We recognized a provision for income taxes of $14.9$21.7 million and $15.6$14.9 million, with effective tax rates of 22.7%22.9% and 23.5%22.7%, for the nine months ended September 30, 2019,2020, and 2018,2019, respectively. The effective tax raterates for the nine months ended September 30, 2020 and 2019, respectively, exceeded the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items.
Outlook
The effective tax rate forCompany delivered solid revenue and growth in earnings per share to date in 2020, and expects fourth quarter performance to surpass 2019 results. Given the nine months ended September 30, 2018 exceeded the U.S. federal statutory rateongoing level of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items, including a $2.6 million tax benefituncertainty related to performance share unit vesting.the pandemic and the economy Gibraltar is maintaining the practice of providing qualitative guidance.
Outlook
We expect to continue profitable growth in the final quarter of the year based on the composition of projects in backlogOur momentum and end market activity levels. Our focus remainstrends continue to drive toward leadership positions in attractive end markets throughbe positive, and we continue to monitor the pandemic's impact on our businesses and potential impact on the U.S. and global economy. We remain focused on executing our operating protocols, maintaining a safe environment for our people, and meeting our customers’ needs every day. We will also continue with key organic growth and acquisitions thatinorganic investments to strengthen our business platforms to increase our value to our customers through innovation and performance optimization, to expand our profitability through operational excellence and 80/20 acceleration, and to build a team and a culture that supports both growth and increasing returns to all our stakeholders.
The Company is narrowing its guidance for revenues and earnings for the full year 2019. We expect 2019 consolidated revenues to be in range of $1.04 billion to $1.05 billion. GAAP EPS for full year 2019 is expected to be between $2.02 and $2.10, compared with $1.96 in 2018.markets we serve.
For the fourth quarter of 2019, the Company is expecting revenue in the range of $251 million to $261 million, compared with $241 million in the fourth quarter of 2018. GAAP EPS for the fourth quarter 2019 is expected to be between $0.47 and $0.55, compared to $0.40 in 2018.
Liquidity and Capital Resources
General
Our principal capital requirements are to fund our operations' working capital and capital improvements and to provide capital for 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 businesses.
As of September 30, 2019,The following table sets forth our liquidity of $531.6 million consisted of $137.6 million of cash and $394.0 million of availability under our revolving credit facilityposition as compared to liquidity of $587.8 million as of December 31, 2018 and $535.9 million as of September 30, 2018.of:
| | | | | | | | | | | | | | |
(in thousands) | | September 30, 2020 | | December 31, 2019 |
Cash and cash equivalents | | $ | 179,816 | | | $ | 191,363 | |
Availability on revolving credit facility | | 394,100 | | | 393,991 | |
| | $ | 573,916 | | | $ | 585,354 | |
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 under the revolving credit facility to $700 million.
Utilizing existing cash on hand, the Company repaid $210 million of 6.25% Senior Subordinated Notes on February 1, 2019. We believe that our resulting low leveragecash on hand, lack of outstanding debt, and increasedavailable borrowing capacity along with enhanced flexibility in our newprovided under the Senior Credit Agreement provide us with ample liquidity. We believeliquidity and capital resources to weather the economic impacts of the COVID-19 pandemic while continuing to invest in operational excellence, growth initiatives and the development of our liquidity, togetherorganization. After pausing earlier in the year as the pandemic unfolded, we have begun to cautiously re-engage in acquisition processes that are aligned with our strategic initiatives and invest in opportunities that strengthen our business platforms for the cash expected to be generated from operations, should be sufficient to fund working capital needs and simplification initiatives.markets we serve, while being mindful of the continued impact of the COVID-19 pandemic on our economic outlook. We continue to search for strategic acquisitions. Larger acquisitionsremain focused on managing our working capital, which may require additional borrowings and/or the issuanceinclude adjusting scheduled deliveries of our common stock or other securities.
inventory to match current demand levels, closely monitoring customer credit and collection activities, and working to extend payment terms.
Our Senior Credit Agreement provides the Companyus with liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of September 30, 2019,2020, our foreign subsidiaries held $27.3$38.8 million of cash in U.S. dollars,dollars.
We are taking advantage of which $13.8the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), and estimate that this deferral will allow us to retain approximately $4 million is available to be repatriatedin cash during 2020 that would have otherwise been remitted to the U.S. tax-free. Subsequent cash generated by our foreign subsidiariesfederal government. The deferred tax payments will be reinvested into their operations.repaid equally in 2021 and 2022. The CARES Act, along with other foreign government initiatives, also provides for job retention programs, which have allowed some of our businesses to receive payroll tax credits or subsidies during 2020.
Over the long-term, we expect that future 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. AnyAll 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, with the goal of creating compounding and the improvement ofsustainable shareholder value. Our acquisition of Apeks during this quarter and our 2018 acquisition of SolarBOS were funded by cash on hand.
These expectations are forward-looking statements based upon currently available plans and 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 or expected levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected.
Cash Flows
The following table sets forth selected cash flow data for the nine months ended September 30, (in thousands):
| | | | | | | | | | | |
| 2020 | | 2019 |
Cash provided by (used in): | | | |
Operating activities of operations | $ | 56,194 | | | $ | 72,494 | |
Investing activities of operations | (61,152) | | | (16,281) | |
Financing activities of operations | (6,031) | | | (216,330) | |
| | | |
Effect of foreign exchange rate changes | (558) | | | 729 | |
Net decrease in cash and cash equivalents | $ | (11,547) | | | $ | (159,388) | |
|
| | | | | | | |
| 2019 | | 2018 |
Cash provided by (used in): | | | |
Operating activities | $ | 72,494 |
| | $ | 38,210 |
|
Investing activities | (16,281 | ) | | (8,861 | ) |
Financing activities | (216,330 | ) | | (5,606 | ) |
Effect of foreign exchange rate changes | 729 |
| | (610 | ) |
Net (decrease) increase in cash and cash equivalents | $ | (159,388 | ) | | $ | 23,133 |
|
Operating Activities
DuringNet cash provided by operating activities for the nine months ended September 30, 2020 of $56.2 million consisted of net income of $73.1 million and non-cash net charges totaling $24.2 million, which include depreciation, amortization, stock compensation, and other non-cash charges, offset by a $41.1 million investment in working capital and other net assets. The investment in net working capital and other net assets was driven by the investment in net working capital and other net assets was largely driven by an investment of $42.4 million in Thermo, one of our recent acquisitions, which was undercapitalized at purchase, along with an increase in accounts receivable due to strong demand in our Residential Products segment and a decrease in accrued expenses and other non-current liabilities correlated to the timing of customer billings and payments.
Net cash provided by operating activities of $72.5 million during the nine months ended September 30, 2019 net cash provided by operating activities totaling $72.5 million was primarily driven byconsisted of net income of $50.7 million and $28.3 million of non-cash charges including depreciation, amortization, stock compensation, exit activity costs and other charges, offset by an investment in working capital and other net assets of $6.6 million. During
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2018,2020 of $61.2 million primarily consisted of net cash generated from operating activities totaling $38.2 million was primarily driven by net incomepaid for the acquisitions of $50.7Delta Separations of $47.1 million and $24.5Thermo of $7.3 million from non-cash charges including depreciation, amortization, stock compensation, intangible asset impairment charges and exit activities, partially
capital expenditures of $9.3 million, offset by an investment$2.0 million in working capitalproceeds from the sale of a business within the Residential Products segment and other net assets$0.6 million in proceeds from the sale of $37.0 million.property and equipment.
During the nine months ended September 30, 2019, the cash invested in working capital and other net assets of $6.6 million included a $56.6 million increase in accounts receivable and a $7.0 million increase in other assets, which was largely offset by a $22.8 million increase in accounts payable, a $18.6 million decrease in inventory and a $15.6 million increase in accrued expenses and other non-current liabilities. The increase in accounts receivable primarily relates to seasonal increases in manufacturing activity and customer demand. The increase in other current assets and other assets was due to timing of prepaid expenses. Accounts payable increased due to the seasonal increase in manufacturing activity. The decrease in inventory was driven by planned inventory management reduction initiatives. The increase in accrued expenses and other non-current liabilities was due to costs correlated to the timing of customer payments, offset by payments made pursuant to the Company's performance based incentive plans and interest on the redemption of the Company's 6.25% Senior Subordinated Notes on February 1, 2019.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2019 of $16.3 million consisted of $8.7 million net cash paid for the acquisition of Apeks and capital expenditures of $7.7 million.
Financing Activities
Net cash used in investingfinancing activities for the nine months ended September 30, 20182020 of $8.9$6.0 million consistedwas primarily the result of capital expenditures$6.4 million of $6.8 million
andtreasury stock related to the net cash paidsettlement of tax obligations for participants in the acquisition of SolarBOS of $5.2 million partiallyCompany's equity incentive plans, offset by net$0.4 million in proceeds of $3.2 million from the sale and lease-backissuance of property and equipment.common stock from stock option exercises during the period.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2019 of $216.3 million primarily consisted of long term debt repayments for the repayment of the $210.0 million of 6.25% Senior Subordinated Notes along with $2.0 million in other debt repayments, purchases of treasury stock of $3.5 million related to the net settlement of tax obligations for participants in the Company's equity incentive plans, and the payment of debt issuance costs of $1.2 million, partially offset by proceeds received from the issuance of common stock of $0.4 million from stock options exercised. Net cash used
See Note 8 to the Company's consolidated financial statements in financing activitiesPart I, Item 1, Financial Statements, of this Form 10-Q for further information on the nine months ended September 30, 2018 of $5.6 million consisted of the purchase of treasury stock of $6.5 million due to a large number of performance awards that vested in June 2018 and payment of long-term debt borrowings of $0.4 million partially offset by the proceeds received from the issuance of common stock of $1.3 million due to stock option exercises.
Company’s Senior Credit Agreement.
Our new 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 Credit Agreement. The Senior Credit Agreement is committed through January 23, 2024. Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries. The Senior Credit Agreement contains three financial covenants. As of September 30, 2019, the Company is in compliance with all three covenants.
Interest rates on the revolving credit facility are based on the LIBOR plus 1.125%. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.15% and 0.25% based on the Total Leverage Ratio and the daily average undrawn balance.
As of September 30, 2019, we have $394.0 million of availability under our revolving credit agreement, net of outstanding letters of credit of $6.0 million. No amounts were outstanding under our revolving credit facility as of September 30, 2019 and December 31, 2018.
Off Balance Sheet Financing Arrangements
We have no off-balance sheet arrangements 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, 2018.2019.
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, 2018.2019.
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 foreign operations. Refer to Item 7A in the Company's Form 10-K for the year ended December 31, 20182019 for more information about the Company's exposure to market risk.
Item 4. Controls and Procedures
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(a) | Evaluation of Disclosure Controls and Procedures |
(a)Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls as of the end of the period covered in this report. Based upon that evaluation and the definition of disclosure controls and procedures contained in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period the Company’s disclosure controls and procedures were effective.
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(b) | Changes in Internal Control over Financial Reporting |
(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, 2018.2019. 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. During the nine months ended September 30, 2020, there have been no material changes to the risk factors previously disclosed under Part I, Item 1A. “Risk Factors” in our 2019 Annual Report, other than the addition of the risk factor set forth below, which was included in Part II, Item 1A of our Form 10-Q reports for the quarters ended March 31, 2020 and June 30, 2020.
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
The COVID-19 pandemic began to impact our operations late in the first quarter of 2020 and is likely to continue to affect our business as government authorities impose mandatory closures, work-from-home orders and social distancing protocols, seek voluntary facility closures or impose other restrictions to help control the spread of COVID-19. Although we cannot predict the duration or scope of the COVID-19 pandemic, current actions to control the spread of COVID-19 may adversely impact our business, including limiting our ability to implement our strategic growth initiatives, causing delays in our receipt of raw materials and other product components due to disruptions in our supply chain, limiting access to our distribution channels, reducing the availability of our workforce and subcontractors and increased threats of cyber attacks on our information technology infrastructure. The instability in global financial markets and unpredictable changes in our supply chain or our production capacity and customer demand resulting from the COVID-19 pandemic may pose material risk to our results of operations, financial condition, and cash flows. We are continuously monitoring the impact to our business and operations and taking action to mitigate the risks involved. However, prolonged disruption to the economy and the end markets we serve may have a material adverse impact our business, results of operations, financial condition, and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) Exhibits
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| | 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/ William T. Bosway |
William 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
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Date: October 25, 201929, 2020