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, 2019March 31, 2020
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.) |
| | | | |
3556 Lake Shore Road | P.O. Box 2028 | Buffalo | New York | | 14219-0228 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (716) 826-6500
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | ROCK | | NASDAQ Stock Market |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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,May 4, 2020, the number of common shares outstanding was: 32,272,420.32,408,882.
GIBRALTAR INDUSTRIES, INC.
INDEX
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| PAGE NUMBER |
PART I. | | | |
Item 1. | | | |
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Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
PART II. | | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
Item 5. | | | |
Item 6. | | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net Sales | $ | 299,236 |
| | $ | 280,086 |
| | $ | 789,308 |
| | $ | 761,459 |
| $ | 249,439 |
| | $ | 227,417 |
|
Cost of sales | 222,658 |
| | 209,807 |
| | 605,272 |
| | 572,359 |
| 193,052 |
| | 183,517 |
|
Gross profit | 76,578 |
| | 70,279 |
| | 184,036 |
| | 189,100 |
| 56,387 |
| | 43,900 |
|
Selling, general, and administrative expense | 45,158 |
| | 40,875 |
| | 115,444 |
| | 113,579 |
| 41,197 |
| | 33,334 |
|
Income from operations | 31,420 |
| | 29,404 |
| | 68,592 |
| | 75,521 |
| 15,190 |
| | 10,566 |
|
Interest expense | 17 |
| | 2,906 |
| | 2,297 |
| | 9,305 |
| |
Other expense (income) | 84 |
| | 522 |
| | 660 |
| | (50 | ) | |
Interest (income) expense | | (47 | ) | | 2,061 |
|
Other expense | | 192 |
| | 589 |
|
Income before taxes | 31,319 |
| | 25,976 |
| | 65,635 |
| | 66,266 |
| 15,045 |
| | 7,916 |
|
Provision for income taxes | 6,843 |
| | 6,473 |
| | 14,901 |
| | 15,574 |
| 2,986 |
| | 1,571 |
|
Net income | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
| $ | 12,059 |
| | $ | 6,345 |
|
| | | | | | | | | | |
Net earnings per share: | | | | | | | | | | |
Basic | $ | 0.75 |
| | $ | 0.61 |
| | $ | 1.57 |
| | $ | 1.59 |
| $ | 0.37 |
| | $ | 0.20 |
|
Diluted | $ | 0.75 |
| | $ | 0.60 |
| | $ | 1.55 |
| | $ | 1.56 |
| $ | 0.37 |
| | $ | 0.19 |
|
Weighted average shares outstanding: | | | | | | | | | | |
Basic | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
| 32,586 |
| | 32,279 |
|
Diluted | 32,770 |
| | 32,571 |
| | 32,677 |
| | 32,524 |
| 32,883 |
| | 32,617 |
|
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 March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net income | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
| $ | 12,059 |
| | $ | 6,345 |
|
Other comprehensive (loss) income: | | | | | | | | | | |
Foreign currency translation adjustment | (664 | ) | | 139 |
| | 1,176 |
| | (1,538 | ) | (5,898 | ) | | 842 |
|
Cumulative effect of accounting change | — |
| | — |
| | — |
| | (350 | ) | |
Minimum pension and post retirement benefit plan adjustments | 12 |
| | 27 |
| | 36 |
| | 80 |
| 18 |
| | 12 |
|
Other comprehensive (loss) income | (652 | ) | | 166 |
| | 1,212 |
| | (1,808 | ) | (5,880 | ) | | 854 |
|
Total comprehensive income | $ | 23,824 |
| | $ | 19,669 |
| | $ | 51,946 |
| | $ | 48,884 |
| $ | 6,179 |
| | $ | 7,199 |
|
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 | March 31, 2020 | | December 31, 2019 |
| (unaudited) | | | (unaudited) | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 137,618 |
| | $ | 297,006 |
| $ | 85,966 |
| | $ | 191,363 |
|
Accounts receivable, net | 196,334 |
| | 140,283 |
| |
Accounts receivable, net of allowance of $5,781 and $6,330 | | 172,452 |
| | 147,515 |
|
Inventories | 83,048 |
| | 98,913 |
| 88,585 |
| | 78,476 |
|
Other current assets | 17,527 |
| | 8,351 |
| |
Prepaid expenses and other current assets | | 16,149 |
| | 19,748 |
|
Total current assets | 434,527 |
| | 544,553 |
| 363,152 |
| | 437,102 |
|
Property, plant, and equipment, net | 95,075 |
| | 95,830 |
| 95,882 |
| | 95,409 |
|
Operating lease assets | 28,573 |
| | — |
| 33,991 |
| | 27,662 |
|
Goodwill | 327,983 |
| | 323,671 |
| 382,045 |
| | 329,705 |
|
Acquired intangibles | 96,185 |
| | 96,375 |
| 107,528 |
| | 92,592 |
|
Other assets | 2,475 |
| | 1,216 |
| 1,924 |
| | 1,980 |
|
| $ | 984,818 |
| | $ | 1,061,645 |
| $ | 984,522 |
| | $ | 984,450 |
|
Liabilities and Shareholders’ Equity | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 103,630 |
| | $ | 79,136 |
| $ | 102,816 |
| | $ | 83,136 |
|
Accrued expenses | 97,883 |
| | 87,074 |
| 84,140 |
| | 98,463 |
|
Billings in excess of cost | 38,672 |
| | 17,857 |
| 34,567 |
| | 47,598 |
|
Current maturities of long-term debt | — |
| | 208,805 |
| |
Total current liabilities | 240,185 |
| | 392,872 |
| 221,523 |
| | 229,197 |
|
Long-term debt | — |
| | 1,600 |
| |
Deferred income taxes | 36,672 |
| | 36,530 |
| 39,999 |
| | 40,334 |
|
Non-current operating lease liabilities | 20,461 |
| | — |
| 24,968 |
| | 19,669 |
|
Other non-current liabilities | 30,287 |
| | 33,950 |
| 20,675 |
| | 21,286 |
|
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 |
| |
Common stock, $0.01 par value; authorized 50,000 shares; 33,388 shares and 33,192 shares issued and outstanding in 2020 and 2019 | | 334 |
| | 332 |
|
Additional paid-in capital | 293,009 |
| | 282,525 |
| 297,269 |
| | 295,582 |
|
Retained earnings | 391,311 |
| | 338,995 |
| 417,436 |
| | 405,668 |
|
Accumulated other comprehensive loss | (6,022 | ) | | (7,234 | ) | (11,271 | ) | | (5,391 | ) |
Cost of 888 and 796 common shares held in treasury in 2019 and 2018 | (21,417 | ) | | (17,922 | ) | |
Cost of 986 and 906 common shares held in treasury in 2020 and 2019 | | (26,411 | ) | | (22,227 | ) |
Total shareholders’ equity | 657,213 |
| | 596,693 |
| 677,357 |
| | 673,964 |
|
| $ | 984,818 |
| | $ | 1,061,645 |
| $ | 984,522 |
| | $ | 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, | Three Months Ended March 31, |
| 2019 | | 2018 | 2020 | | 2019 |
Cash Flows from Operating Activities | | | | | | |
Net income | $ | 50,734 |
| | $ | 50,692 |
| $ | 12,059 |
| | $ | 6,345 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Adjustments to reconcile net income to net cash used in operating activities: | | | | |
Depreciation and amortization | 14,923 |
| | 15,449 |
| 5,338 |
| | 4,941 |
|
Stock compensation expense | 10,087 |
| | 6,854 |
| 1,665 |
| | 2,371 |
|
Exit activity costs, non-cash | 479 |
| | 1,088 |
| |
Benefit of deferred income taxes | (429 | ) | | — |
| |
(Benefit of) provision for deferred income taxes | | (216 | ) | | 393 |
|
Other, net | 3,267 |
| | 1,114 |
| 411 |
| | 2,456 |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: | | | | | | |
Accounts receivable | (56,645 | ) | | (30,534 | ) | (7,059 | ) | | (27,623 | ) |
Inventories | 18,617 |
| | (16,263 | ) | (6,004 | ) | | 35 |
|
Other current assets and other assets | (6,949 | ) | | 1,052 |
| 6,144 |
| | 165 |
|
Accounts payable | 22,770 |
| | 9,237 |
| (17,789 | ) | | 5,332 |
|
Accrued expenses and other non-current liabilities | 15,640 |
| | (479 | ) | (37,561 | ) | | (31,903 | ) |
Net cash provided by operating activities | 72,494 |
| | 38,210 |
| |
Net cash used in operating activities | | (43,012 | ) | | (37,488 | ) |
Cash Flows from Investing Activities | | | | | | |
Acquisitions, net of cash acquired | (8,665 | ) | | (5,241 | ) | (54,539 | ) | | (264 | ) |
Net proceeds from sale of property and equipment | 87 |
| | 3,147 |
| 52 |
| | 22 |
|
Purchases of property, plant, and equipment | (7,703 | ) | | (6,767 | ) | (2,822 | ) | | (3,132 | ) |
Net cash used in investing activities | (16,281 | ) | | (8,861 | ) | (57,309 | ) | | (3,374 | ) |
Cash Flows from Financing Activities | | | | | | |
Long-term debt payments | (212,000 | ) | | (400 | ) | — |
| | (210,000 | ) |
Payment of debt issuance costs | (1,235 | ) | | — |
| — |
| | (1,235 | ) |
Purchase of treasury stock at market prices | (3,495 | ) | | (6,549 | ) | (4,184 | ) | | (2,151 | ) |
Net proceeds from issuance of common stock | 400 |
| | 1,343 |
| 24 |
| | 139 |
|
Net cash used in financing activities | (216,330 | ) | | (5,606 | ) | (4,160 | ) | | (213,247 | ) |
Effect of exchange rate changes on cash | 729 |
| | (610 | ) | (916 | ) | | 612 |
|
Net (decrease) increase in cash and cash equivalents | (159,388 | ) | | 23,133 |
| |
Net decrease in cash and cash equivalents | | (105,397 | ) | | (253,497 | ) |
Cash and cash equivalents at beginning of year | 297,006 |
| | 222,280 |
| 191,363 |
| | 297,006 |
|
Cash and cash equivalents at end of period | $ | 137,618 |
| | $ | 245,413 |
| $ | 85,966 |
| | $ | 43,509 |
|
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 | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance at December 31, 2018 | 32,887 |
| | $ | 329 |
| | $ | 282,525 |
| | $ | 338,995 |
| | $ | (7,234 | ) | | 796 |
| | $ | (17,922 | ) | | $ | 596,693 |
| |
Balance at December 31, 2019 | | 33,192 |
| | $ | 332 |
| | $ | 295,582 |
| | $ | 405,668 |
| | $ | (5,391 | ) | | 906 |
| | $ | (22,227 | ) | | $ | 673,964 |
|
Net income | — |
| | — |
| | — |
| | 6,345 |
| | — |
| | — |
| | — |
| | 6,345 |
| — |
| | — |
| | — |
| | 12,059 |
| | — |
| | — |
| | — |
| | 12,059 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 842 |
| | — |
| | — |
| | 842 |
| — |
| | — |
| | — |
| | — |
| | (5,898 | ) | | — |
| | — |
| | (5,898 | ) |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4 | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
| |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $7 | | — |
| | — |
| | — |
| | — |
| | 18 |
| | — |
| | — |
| | 18 |
|
Stock compensation expense | — |
| | — |
| | 2,371 |
| | — |
| | — |
| | — |
| | — |
| | 2,371 |
| — |
| | — |
| | 1,665 |
| | — |
| | — |
| | — |
| | — |
| | 1,665 |
|
Cumulative effect of accounting change (see Note 2) | — |
| | — |
| | — |
| | 1,582 |
| | — |
| | — |
| | — |
| | 1,582 |
| |
Cumulative effect of accounting change (See Note 2) | | — |
| | — |
| | — |
| | (291 | ) | | — |
| | — |
| | — |
| | (291 | ) |
Stock options exercised | 12 |
| | — |
| | 139 |
| | — |
| | — |
| | — |
| | — |
| | 139 |
| 3 |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | — |
| | 24 |
|
Net settlement of restricted stock units | 127 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 59 |
| | (2,151 | ) | | (2,151 | ) | 193 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | 80 |
| | (4,184 | ) | | (4,184 | ) |
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 |
| |
Balance at March 31, 2020 | | 33,388 |
| | $ | 334 |
| | $ | 297,269 |
| | $ | 417,436 |
| | $ | (11,271 | ) | | 986 |
| | $ | (26,411 | ) | | $ | 677,357 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
Balance at December 31, 2017 | 32,332 |
| | $ | 323 |
| | $ | 271,957 |
| | $ | 274,562 |
| | $ | (4,366 | ) | | 615 |
| | $ | (10,757 | ) | | $ | 531,719 |
| |
Balance at December 31, 2018 | | 32,887 |
| | $ | 329 |
| | $ | 282,525 |
| | $ | 338,995 |
| | $ | (7,234 | ) | | 796 |
| | $ | (17,922 | ) | | $ | 596,693 |
|
Net income | — |
| | — |
| | — |
| | 8,352 |
| | — |
| | — |
| | — |
| | 8,352 |
| — |
| | — |
| | — |
| | 6,345 |
| | — |
| | — |
| | — |
| | 6,345 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 110 |
| | — |
| | — |
| | 110 |
| — |
| | — |
| | — |
| | — |
| | 842 |
| | — |
| | — |
| | 842 |
|
Minimum pension and post retirement benefit plan adjustments, net of taxes of $10 | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
| |
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4 | | — |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Stock compensation expense | — |
| | — |
| | 2,097 |
| | — |
| | — |
| | — |
| | — |
| | 2,097 |
| — |
| | — |
| | 2,371 |
| | — |
| | — |
| | — |
| | — |
| | 2,371 |
|
Cumulative effect of accounting change | — |
| | — |
| | — |
| | 624 |
| | (350 | ) | | — |
| | — |
| | 274 |
| — |
| | — |
| | — |
| | 1,582 |
| | — |
| | — |
| | — |
| | 1,582 |
|
Stock options exercised | 13 |
| | — |
| | 226 |
| | — |
| | — |
| | — |
| | — |
| | 226 |
| 12 |
| | — |
| | 139 |
| | — |
| | — |
| | — |
| | — |
| | 139 |
|
Net settlement of restricted stock units | 53 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 24 |
| | (850 | ) | | (850 | ) | 127 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | 59 |
| | (2,151 | ) | | (2,151 | ) |
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 |
| |
Balance at March 31, 2019 | | 33,026 |
| | $ | 330 |
| | $ | 285,034 |
| | $ | 346,922 |
| | $ | (6,380 | ) | | 855 |
| | $ | (20,073 | ) | | $ | 605,833 |
|
See accompanying notes to consolidated financial statements.
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
(1) | CONSOLIDATED FINANCIAL STATEMENTS |
The accompanying unaudited consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons, such as the impact of the COVID-19 pandemic, financial results for any interim period are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual Form 10-K for the year ended December 31, 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 |
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 20202021 |
| |
(3) | ACCOUNTS RECEIVABLE NETAND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Accounts receivable consists of the following (in thousands):
| | | September 30, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Trade accounts receivable | $ | 178,457 |
| | $ | 124,609 |
| $ | 156,399 |
| | $ | 133,238 |
|
Costs in excess of billings | 24,951 |
| | 22,634 |
| 21,834 |
| | 20,607 |
|
Total accounts receivables | 203,408 |
| | 147,243 |
| 178,233 |
| | 153,845 |
|
Less allowance for doubtful accounts | (7,074 | ) | | (6,960 | ) | |
Less allowance for doubtful accounts and contract assets | | (5,781 | ) | | (6,330 | ) |
Accounts receivable | $ | 196,334 |
| | $ | 140,283 |
| $ | 172,452 |
| | $ | 147,515 |
|
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 coronavirus ("COVID-19") pandemic and determined that the estimate of credit losses was not significantly impacted as of March 31, 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.
|
| | | |
Beginning balance as of January 1, 2020 | $ | 6,330 |
|
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings | 387 |
|
Bad debt expense | 69 |
|
Write-off charged against the allowance and other adjustments | (1,005 | ) |
Ending balance as of March 31, 2020 | $ | 5,781 |
|
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,March 31, 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, 2019March 31, 2020 and December 31, 2018,2019, respectively, and
revenue recognized during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively, that was in billings in excess of cost and unearned revenue at the beginning of the period (in thousands):
|
| | | | | | | |
| 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 | ) |
The increase in contract liabilities as of September 30, 2019 compared with December 31, 2018 was primarily driven by the seasonality in our businesses. |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Costs in excess of billings | $ | 21,834 |
| | $ | 20,607 |
|
Billings in excess of cost | (34,567 | ) | | (47,598 | ) |
Unearned revenue | (19,388 | ) | | (17,311 | ) |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 | Three Months Ended March 31, 2020 | | Three Months Ended March 31, 2019 |
Revenue recognized in the period from: | | | | | | |
Amounts included in billings in excess of cost at the beginning of the period | $ | 14,137 |
| | $ | 9,294 |
| $ | 29,221 |
| | $ | 9,697 |
|
Amounts included in unearned revenue at the beginning of the period | $ | 11,052 |
| | $ | 2,977 |
| $ | 9,619 |
| | $ | 4,661 |
|
Inventories consist of the following (in thousands):
| | | September 30, 2019 | | December 31, 2018 | March 31, 2020 | | December 31, 2019 |
Raw material | $ | 48,158 |
| | $ | 57,845 |
| $ | 50,601 |
| | $ | 45,700 |
|
Work-in-process | 7,658 |
| | 6,930 |
| 9,471 |
| | 5,988 |
|
Finished goods | 27,232 |
| | 34,138 |
| 28,513 |
| | 26,788 |
|
Total inventories | $ | 83,048 |
| | $ | 98,913 |
| $ | 88,585 |
| | $ | 78,476 |
|
(6) 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 described as "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 preliminary purchase consideration for the acquisition of Delta Separations was $47.2 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement expected to be remitted in the next three to six months, at which time a final purchase price will be determined.
The purchase price for the acquisition of the assets was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $39.3 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 preliminary 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 | $ | 3,183 |
|
Property, plant and equipment | 337 |
|
Acquired intangible assets | 7,600 |
|
Other assets | 923 |
|
Other liabilities | (4,189 | ) |
Goodwill | 39,335 |
|
Fair value of purchase consideration | $ | 47,189 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
|
| | | | | |
| Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 2,000 |
| | 5 years |
Technology | 2,200 |
| | 10 years |
Customer relationships | 3,400 |
| | 5 years |
Total | $ | 7,600 |
| | |
On January 15, 2020, the Company purchased substantially all of the assets of Thermo Energy Systems, Inc., a Canadian-based, privately held provider of commercial greenhouse solutions in North America supporting the plant based organic food market. The results of Thermo Energy Systems 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 Energy Systems 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 $13.3 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 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 | $ | 58 |
|
Working capital | (16,464 | ) |
Property, plant and equipment | 1,029 |
|
Acquired intangible assets | 9,386 |
|
Other assets | 1,285 |
|
Other liabilities | (1,285 | ) |
Goodwill | 13,324 |
|
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 | $ | 635 |
| | 3 years |
Technology | 2,541 |
| | 15 years |
Customer relationships | 6,210 |
| | 10 years |
Total | $ | 9,386 |
| | |
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 stock 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 preliminarily 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$5.9 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 conservationextraction processing 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 energy markets.
The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
| | Cash | $ | 915 |
| $ | 4,154 |
|
Working capital | 680 |
| (1,412 | ) |
Property, plant and equipment | 483 |
| 1,059 |
|
Acquired intangible assets | 1,450 |
| 3,400 |
|
Other assets | 13 |
| 508 |
|
Other liabilities | (51 | ) | (1,081 | ) |
Goodwill | 2,879 |
| 5,933 |
|
Fair value of purchase consideration | $ | 6,369 |
| $ | 12,561 |
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
| | | Fair Value | | Weighted-Average Amortization Period | Fair Value | | Weighted-Average Amortization Period |
Trademarks | $ | 300 |
| | 3 years | $ | 1,900 |
| | 5 years |
Technology | 450 |
| | 9 years | 900 |
| | 7 years |
Customer relationships | 700 |
| | 9 years | 600 |
| | 6 years |
Total | $ | 1,450 |
| | $ | 3,400 |
| |
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 Energy Systems 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.
During the three months ended March 31, 2020, the Company incurred $1.3 million of acquisition-related costs. 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.
Thedid 0t incur any acquisition-related costs consisted of the following forduring 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 |
|
March 31, 2019.
| |
(7) | GOODWILL AND RELATED INTANGIBLE ASSETS |
Goodwill
The changes in the carrying amount of goodwill for the ninethree months ended September 30, 2019March 31, 2020 are as follows (in thousands):
| | | Renewable Energy & Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total | Renewable Energy & Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Balance at December 31, 2018 | $ | 71,827 |
| | $ | 198,075 |
| | $ | 53,769 |
| | $ | 323,671 |
| |
Balance at December 31, 2019 | | $ | 77,602 |
| | $ | 198,075 |
| | $ | 54,028 |
| | $ | 329,705 |
|
Acquired goodwill | 4,185 |
| | — |
| | | | 4,185 |
| 52,659 |
| | — |
| | — |
| | 52,659 |
|
Adjustments to prior year acquisitions | (172 | ) | | | | — |
| | (172 | ) | 75 |
| | — |
| | — |
| | 75 |
|
Foreign currency translation | 137 |
| | — |
| | 162 |
| | 299 |
| 75 |
| | — |
| | (469 | ) | | (394 | ) |
Balance at September 30, 2019 | $ | 75,977 |
| | $ | 198,075 |
| | $ | 53,931 |
| | $ | 327,983 |
| |
Balance at March 31, 2020 | | $ | 130,411 |
| | $ | 198,075 |
| | $ | 53,559 |
| | $ | 382,045 |
|
The Company conducts its annual goodwill impairment test as of October 31 each year. All of the Company’s ten 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, 2019 | | December 31, 2018 | | | March 31, 2020 | | December 31, 2019 | | |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Weighted-Average Amortization Period | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Weighted-Average Amortization Period |
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | $ | 44,770 |
| | $ | — |
| | $ | 43,870 |
| | $ | — |
| | Indefinite | $ | 45,770 |
| | $ | — |
| | $ | 45,770 |
| | $ | — |
| | Indefinite |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | 6,122 |
| | 3,954 |
| | 6,094 |
| | 3,518 |
| | 3 to 15 Years | 8,693 |
| | 4,239 |
| | 6,139 |
| | 4,105 |
| | 3 to 15 Years |
Unpatented technology | 29,444 |
| | 15,301 |
| | 28,644 |
| | 13,881 |
| | 5 to 20 Years | 34,289 |
| | 16,354 |
| | 29,544 |
| | 15,807 |
| | 5 to 20 Years |
Customer relationships | 74,072 |
| | 39,187 |
| | 70,419 |
| | 35,678 |
| | 5 to 17 Years | 80,777 |
| | 41,490 |
| | 71,195 |
| | 40,294 |
| | 5 to 17 Years |
Non-compete agreements | 1,649 |
| | 1,430 |
| | 1,649 |
| | 1,224 |
| | 4 to 10 Years | 1,649 |
| | 1,567 |
| | 1,649 |
| | 1,499 |
| | 4 to 10 Years |
| 111,287 |
| | 59,872 |
| | 106,806 |
| | 54,301 |
| | 125,408 |
| | 63,650 |
| | 108,527 |
| | 61,705 |
| |
Total acquired intangible assets | $ | 156,057 |
| | $ | 59,872 |
| | $ | 150,676 |
| | $ | 54,301 |
| | $ | 171,178 |
| | $ | 63,650 |
| | $ | 154,297 |
| | $ | 61,705 |
| |
The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended September 30March 31 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Amortization expense | $ | 1,840 |
| | $ | 2,121 |
| | $ | 5,434 |
| | $ | 6,408 |
|
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Amortization expense | | $ | 2,078 |
| | $ | 1,797 |
|
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):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Amortization expense | $ | 1,798 |
| | $ | 6,904 |
| | $ | 6,709 |
| | $ | 6,231 |
| | $ | 5,693 |
| | $ | 5,437 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Amortization expense | $ | 5,311 |
| | $ | 6,937 |
| | $ | 6,459 |
| | $ | 5,921 |
| | $ | 5,666 |
| | $ | 5,566 |
|
As of September 30, 2019, theThe Company did 0t have any long-term debt outstanding. Atoutstanding at March 31, 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 amends and restates 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,March 31, 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.March 31, 2020. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of September 30, 2019,March 31, 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, 2019March 31, 2020 and December 31, 2018.
Senior Subordinated Notes
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 |
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,March 31, (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 | 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 | ) | |
Balance at December 31, 2019 | | $ | (4,173 | ) | | $ | (1,939 | ) | | $ | (6,112 | ) | | $ | (721 | ) | | $ | (5,391 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 16 |
| | 16 |
| | 4 |
| | 12 |
| — |
| | 25 |
| | 25 |
| | 7 |
| | 18 |
|
Foreign currency translation adjustment | 842 |
| | — |
| | 842 |
| | — |
| | 842 |
| (5,898 | ) | | — |
| | (5,898 | ) | | — |
| | (5,898 | ) |
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 | ) | |
Balance at March 31, 2020 | | $ | (10,071 | ) | | $ | (1,914 | ) | | $ | (11,985 | ) | | $ | (714 | ) | | $ | (11,271 | ) |
| | | Foreign Currency Translation Adjustment | | Minimum pension and post retirement benefit plan adjustments | | Total Pre-Tax Amount | | Tax (Benefit) Expense | | Accumulated Other Comprehensive (Loss) Income | 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 | ) | |
Balance at December 31, 2018 | | $ | (5,939 | ) | | $ | (2,040 | ) | | $ | (7,979 | ) | | $ | (745 | ) | | $ | (7,234 | ) |
Minimum pension and post retirement health care plan adjustments | — |
| | 37 |
| | 37 |
| | 10 |
| | 27 |
| — |
| | 16 |
| | 16 |
| | 4 |
| | 12 |
|
Foreign currency translation adjustment | 110 |
| | — |
| | 110 |
| | — |
| | 110 |
| 842 |
| | — |
| | 842 |
| | — |
| | 842 |
|
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 | ) | |
Balance at March 31, 2019 | | $ | (5,097 | ) | | $ | (2,024 | ) | | $ | (7,121 | ) | | $ | (741 | ) | | $ | (6,380 | ) |
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 |
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 ninethree months ended September 30,March 31, which will convert to shares upon vesting, along with the weighted average grant date fair values:
| | | 2019 | | 2018 | 2020 | | 2019 |
Awards | Number of Awards (1) | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value | Number of Awards (1) | | Weighted Average Grant Date Fair Value | | Number of Awards (2) | | Weighted Average Grant Date Fair Value |
Performance stock units | 183,908 |
| | $ | 40.49 |
| | 135,540 |
| | $ | 33.60 |
| 123,870 |
| | $ | 53.29 |
| | 145,420 |
| | $ | 40.55 |
|
Restricted stock units | 144,172 |
| | $ | 39.43 |
| | 95,674 |
| | $ | 36.81 |
| 42,101 |
| | $ | 52.31 |
| | 117,821 |
| | $ | 39.37 |
|
Deferred stock units | 7,509 |
| | $ | 37.95 |
| | 10,255 |
| | $ | 35.96 |
| |
Common shares | 7,509 |
| | $ | 37.95 |
| | 2,113 |
| | $ | 35.50 |
| |
(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 period 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 convert2019 have converted to 126,337168,688 shares to be 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.
Equity Based Awards - Settled in Cash
The Company's equity-based liability includes awards under a management stock purchase plan. As of September 30, 2019,March 31, 2020, the Company's total share-based liabilities recorded on the consolidated balance sheet were $27.0$28.7 million, of which $22.0$12.2 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’ 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 portion of the account deferred to unrestricted investments is measured at fair market value of the unrestricted investments, and the portion of the account deferred to restricted stock units and company-matching restricted stock units is measured
at a 200-day average of the Company 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 ninethree months ended September 30,March 31,:
| | | 2019 | | 2018 | 2020 | | 2019 |
Restricted stock units credited | 51,381 |
| | 74,180 |
| 52,411 |
| | 51,608 |
|
Share-based liabilities paid (in thousands) | $ | 5,742 |
| | $ | 4,986 |
| $ | 4,433 |
| | $ | 4,933 |
|
| |
(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 |
|
|
| | | | | | | |
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.lines, and the reduction in our manufacturing footprint.
Exit activity costs were incurred during the ninethree months ended September 30,March 31, 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 wasfacilities were 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 withas a result of these initiatives the Company closed 2 facilities during the first nine months 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 respective periods.
The following tables set forth the asset impairment charges and exit activity costs (recoveries) incurred by segment during the three and nine months ended September 30,March 31, 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 |
|
| | | Nine months ended September 30, | | | | | |
| 2019 | | 2018 | Three months ended March 31, |
| 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 | 2020 | | 2019 |
Renewable Energy and Conservation | $ | (9 | ) | | $ | 45 |
| | $ | 36 |
| | $ | 84 |
| | $ | (107 | ) | | $ | (23 | ) | $ | 18 |
| | $ | 94 |
|
Residential Products | 478 |
| | 3,307 |
| | 3,785 |
| | 1,349 |
| | 333 |
| | 1,682 |
| 221 |
| | 151 |
|
Industrial and Infrastructure Products | 10 |
| | 1,588 |
| | 1,598 |
| | (345 | ) | | 1,607 |
| | 1,262 |
| (2 | ) | | (33 | ) |
Corporate | — |
| | 919 |
| | 919 |
| | — |
| | 431 |
| | 431 |
| 54 |
| | 7 |
|
Total exit activity costs & asset impairments | $ | 479 |
| | $ | 5,859 |
| | $ | 6,338 |
| | $ | 1,088 |
| | $ | 2,264 |
| | $ | 3,352 |
| |
Total exit activity costs | | $ | 291 |
| | $ | 219 |
|
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,March 31, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Cost of sales | $ | 683 |
| | $ | 1,621 |
| | $ | 968 |
| | $ | 1,465 |
| $ | 87 |
| | $ | (34 | ) |
Selling, general, and administrative expense | 3,300 |
| | 2,039 |
| | 5,370 |
| | 1,887 |
| 204 |
| | 253 |
|
Net asset impairment and exit activity charges | $ | 3,983 |
| | $ | 3,660 |
| | $ | 6,338 |
| | $ | 3,352 |
| |
Net exit activity charges | | $ | 291 |
| | $ | 219 |
|
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 |
| $ | 5,449 |
| | $ | 1,923 |
|
Exit activity costs recognized | 5,859 |
| | 2,264 |
| 291 |
| | 219 |
|
Cash payments | (3,032 | ) | | (1,608 | ) | (4,728 | ) | | (550 | ) |
Balance at September 30 | $ | 4,750 |
| | $ | 1,617 |
| |
Balance at March 31 | | $ | 1,012 |
| | $ | 1,592 |
|
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended September 30,March 31, and the applicable effective tax rates:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Provision for income taxes | $ | 6,843 |
| | $ | 6,473 |
| | $ | 14,901 |
| | $ | 15,574 |
| $ | 2,986 |
| | $ | 1,571 |
|
Effective tax rate | 21.8 | % | | 24.9 | % | | 22.7 | % | | 23.5 | % | 19.8 | % | | 19.8 | % |
The effective tax rate for the three and nine months ended September 30,March 31, 2020 and 2019, and 2018 respectively, was moreless than the U.S. federal statutory rate of 21% due to favorable discrete items partially offset by state taxes and nondeductible permanent differences partially offset by favorable discrete items.differences.
(13) EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the three and nine months ended September 30,March 31, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Numerator: | | | | | | | | | | |
Net income available to common shareholders | $ | 24,476 |
| | $ | 19,503 |
| | $ | 50,734 |
| | $ | 50,692 |
| $ | 12,059 |
| | $ | 6,345 |
|
Denominator for basic earnings per share: | | | | | | | | | | |
Weighted average shares outstanding | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
| 32,586 |
| | 32,279 |
|
Denominator for diluted earnings per share: | | | | | | | | | | |
Weighted average shares outstanding | 32,470 |
| | 32,115 |
| | 32,357 |
| | 31,922 |
| 32,586 |
| | 32,279 |
|
Common stock options and stock units | 300 |
| | 456 |
| | 320 |
| | 602 |
| 297 |
| | 338 |
|
Weighted average shares and conversions | 32,770 |
| | 32,571 |
| | 32,677 |
| | 32,524 |
| 32,883 |
| | 32,617 |
|
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 346,00018,000 and 247,000258,000 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and 324,000 and 328,000 for the nine months ended September 30, 2019 and 2018, respectively.
| |
(16)(14) | SEGMENT INFORMATION |
The Company is organized into 3 reportable segments on the basis of the production process and 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. |
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,March 31, (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended March 31, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 |
Net sales: | | | | | | | | | | |
Renewable Energy and Conservation | $ | 116,771 |
| | $ | 98,486 |
| | $ | 261,612 |
| | $ | 229,187 |
| $ | 96,497 |
| | $ | 68,837 |
|
Residential Products | $ | 126,275 |
| | $ | 125,839 |
| | $ | 360,417 |
| | $ | 360,915 |
| 103,419 |
| | 103,709 |
|
Industrial and Infrastructure Products | 56,361 |
| | 56,033 |
| | 168,096 |
| | 172,218 |
| 49,801 |
| | 55,188 |
|
Less: Intersegment sales | (171 | ) | | (272 | ) | | (817 | ) | | (861 | ) | (278 | ) | | (317 | ) |
Net Industrial and Infrastructure Products | 56,190 |
| | 55,761 |
| | 167,279 |
| | 171,357 |
| 49,523 |
| | 54,871 |
|
Total consolidated net sales | $ | 299,236 |
| | $ | 280,086 |
| | $ | 789,308 |
| | $ | 761,459 |
| $ | 249,439 |
| | $ | 227,417 |
|
| | | | | | | | | | |
Income from operations: | | | | | | | | | | |
Renewable Energy and Conservation | $ | 19,633 |
| | $ | 15,072 |
| | $ | 30,914 |
| | $ | 28,690 |
| $ | 5,699 |
| | $ | 1,632 |
|
Residential Products | 17,012 |
| | 20,138 |
| | 49,880 |
| | 57,572 |
| 13,725 |
| | 12,090 |
|
Industrial and Infrastructure Products | 5,462 |
| | 2,892 |
| | 13,660 |
| | 12,098 |
| 3,989 |
| | 4,129 |
|
Unallocated Corporate Expenses | (10,687 | ) | | (8,698 | ) | | (25,862 | ) | | (22,839 | ) | (8,223 | ) | | (7,285 | ) |
Total consolidated income from operations | $ | 31,420 |
| | $ | 29,404 |
| | $ | 68,592 |
| | $ | 75,521 |
| $ | 15,190 |
| | $ | 10,566 |
|
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended September 30March 31 (in thousands):
| | | Three Months Ended September 30, 2019 | Three Months Ended March 31, 2020 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total | Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | | | | | | | | |
Point in Time | $ | 12,682 |
| | $ | 125,350 |
| | $ | 46,781 |
| | $ | 184,813 |
| $ | 14,588 |
| | $ | 102,331 |
| | $ | 39,495 |
| | $ | 156,414 |
|
Over Time | 104,089 |
| | 925 |
| | 9,409 |
| | 114,423 |
| 81,909 |
| | 1,088 |
| | 10,028 |
| | 93,025 |
|
Total net sales | $ | 116,771 |
| | $ | 126,275 |
| | $ | 56,190 |
| | $ | 299,236 |
| $ | 96,497 |
| | $ | 103,419 |
| | $ | 49,523 |
| | $ | 249,439 |
|
| | | Three Months Ended September 30, 2018 | Three Months Ended March 31, 2019 |
| Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total | Renewable Energy and Conservation | | Residential Products | | Industrial and Infrastructure Products | | Total |
Net sales: | | | | | | | | | | | | | | |
Point in Time | $ | 10,784 |
| | $ | 125,118 |
| | $ | 47,686 |
| | $ | 183,588 |
| $ | 7,290 |
| | $ | 102,892 |
| | $ | 45,287 |
| | $ | 155,469 |
|
Over Time | 87,702 |
| | 721 |
| | 8,075 |
| | 96,498 |
| 61,547 |
| | 817 |
| | 9,584 |
| | 71,948 |
|
Total net sales | $ | 98,486 |
| | $ | 125,839 |
| | $ | 55,761 |
| | $ | 280,086 |
| $ | 68,837 |
| | $ | 103,709 |
| | $ | 54,871 |
| | $ | 227,417 |
|
|
| | | | | | | | | | | | | | | |
| 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 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,March 31, 2020, we operated 4145 facilities comprised of 29 manufacturing facilities, five distribution centers, and seven offices, which are located in 1819 states, Canada, China and Japan which includes 33 manufacturing facilities and five distribution centers. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.
Our businesses and the end markets that our businesses serve are ablesubject to accommodate our capacity needschanges in economic conditions that are influenced by various factors that could cause actual results to meetdiffer materially from current levels of demand throughout North America and, to a lesser extent, Asia.expectations. Such factors include, but are not limited to:
Business Strategy
Our business strategy focuses on accelerating the growth and financial returnsimpacts of the Company. We strive to deliver best-in-class, sustainable value creation forrecent outbreak of the COVID-19 pandemic on the global economy, our shareholders, customers, suppliers, employees, operations, business, liquidity and team members,cash flows;
general economic conditions and we believe this can be achieved from a transformational changeconditions in the Company’s portfolioparticular markets in which we operate;
changes in customer demand for residential construction, repair and strong operating performance. Our business strategy has four key elements, or "pillars," which are: operational excellence, innovation, portfolio management,remodeling, non-residential construction and acquisitions as a strategic accelerator.
Operational excellence is our first pillar in this strategy. We focus on reducing complexity, adjusting costsinfrastructure projects, botanical extraction equipment, 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.
sources;
capital spending, competitive factors and pricing pressures;
our ability to develop and launch new products in a cost-effective manner;
our ability to realize synergies from newly acquired businesses, and our ability to derive expected benefits from restructuring, productivity initiatives, liquidity enhancing actions, and other cost reduction actions;
changes in interest rates, exchange rates, commodity costs;
changes in governmental policies and funding, tax policies and incentives, tariffs, trade policies;
the need for protection of high value assets; and
climate change.
The fourth pillarimpact of the recent outbreak of COVID-19 pandemic on our future consolidated results of operations is uncertain and will depend on the duration of the outbreak and its impact on our customers, suppliers, employees and subcontractors. Refer to the Company's Outlook section in this management discussion and analysis for consideration relative to future periods. We are taking proactive measures to respond to the challenges to our business and are altering our operations accordingly to continue to serve our end markets and maintain the safety of our employees.
We believe the key elements of our strategy discussed below will allow us to respond timely to the challenges presented by the COVID-19 pandemic and changes in the other various factors that could cause our actual results to differ materially from current expectations.
Business Strategy
Gibraltar’s mission is acquisitions.to create compounding and sustainable value with strong leadership positions in higher growth, profitable end markets. At the beginning of 2019, after four years of steady improvement in operational execution and financial results under the leadership of Frank Heard, the Company announced the appointment of Bill Bosway as Chief Executive Officer, with Frank Heard vacating the CEO role and being appointed Executive Vice Chair of the Board through his planned retirement in March 2020. Under Mr. Bosway’s leadership, management completed a thorough evaluation of the markets the Company participates in, as well as its position in each market. This work solidified the Company’s strategy and defined plans to accelerate growth and further improve the Company’s margin profile, both through organic and inorganic investment. It has also helped focus and prioritize the Company's key investments to delivers increasing returns and sustainable value for its shareholders.
The Company migrated from a Four-Pillar strategy to a Three-Pillar strategy with the operating foundation focused on three core tenets: Business Systems, Portfolio Management, and Organizational Development.
| |
1. | Business Systems, which combines two of the Company's previous strategic pillars - operational excellence and product innovation is supported by an execution review of the Company's monthly business performance, implementation of key investments, information technology operating and digital systems performance, and new product and services innovation. |
| |
2. | Portfolio Management, which combines the two other previous strategic pillars - acquisitions and portfolio management is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to provide sustainable, profitable growth while expanding our relevance with customers and shaping our markets. The recent acquisitions of Apeks, LLC ("Apeks") in August 2019, Thermo Energy Systems, Inc. ("Thermo") in January 2020, and Delta Separations LLC and Teaching Tech LLC (collectively “Delta Separations”) in February 2020 were the direct result of our portfolio management strategy. |
| |
3. | Organizational Development is the third pillar of our strategy. In order to execute Business Systems and Portfolio Management, the Company must have a strong organization to execute, and the organization 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 operate businesses that mitigate environmental and climate related impacts, and engage and support the communities in which we are located. We believe doing so helps us attract and retain the best people, enhancing our ability to execute our business plans. |
In addition to migrating from a Four-Pillar strategy to a Three-Pillar strategy, the Company:
Implemented new management tools to complement our core 80/20 toolkit and 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
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 targeted four key marketsand expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in whichinventory, and managing our business 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.generate incremental cash. We believe our enhanced strategy 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 markets also offer the opportunity for higher returns oninitiatives to pay down debt, improve our investments than those we have generatedliquidity position, and invest in the past. The acquisitions of Rough Brothers Manufacturing, Inc., RBI Solar, Inc., and affiliates, collectively known as "RBI" in June 2015, Nexus Corporation ("Nexus") in October 2016, Package Concierge, Inc. ("Package Concierge") in February 2017, SolarBOS in August 2018, and most recently, Apeks in August 2019, were the direct result of this fourth pillar strategy. We also consider businesses outside of these four markets, as we continually search out opportunities to grow our business in large markets with expected growth in demand for the foreseeable future, where we can add value through our manufacturing expertise, 80/20 process and purchasing synergies.
initiatives. Overall, we believe our business strategy has enabled uscontinue 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 February 13, 2020, the Company acquired the assets of California-based Delta Separations and Teaching Tech ("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. Delta Separations had revenue of approximately $46 million in 2019.
On January 15, 2020, the Company acquired the assets of Canadian-based Thermo Energy Systems ("Thermo"), a privately held provider of commercial greenhouse solutions in North America supporting the biologically grown organic food market, in an all cash transaction for approximately $7 million. The Company also expects to invest approximately $25 million into Thermo to provide an appropriate level of working capital. Thermo is expected to contribute annual revenue at a run rate of approximately $75 million.
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.. The acquisition was financed through cash on hand.hand of $12 million. Apeks had trailing twelve months of revenues as of June 30, 2019 of $17.7 million. The results of operations of Apeks have been included in the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.
On March 18, 2019, the Company appointed Patrick M. Burns as Chief Operating Officer. In his position as Chief Operating Officer, Mr. Burns is 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 Bonds. The amended Senior Credit Agreement provides the Company with access to capital and improves our financial flexibility.
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. In connection with Mr. Bosway’s appointment, then Chief Executive Officer Frank Heard was appointed Executive Vice Chair of the Board and he announced his intention to retire on March 3, 2020.
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, 2019March 31, 2020 Compared to the Three Months Ended September 30, 2018March 31, 2019
The Company did not experience any significant impact on its operations from the COVID-19 pandemic during the quarter ended March 31, 2020, as stay at home and shelter in place orders were not issued until the later days of March 2020. Our businesses are deemed essential and therefore we generally continued to operate after these orders were issued. Refer to the Company's Outlook section in the MD&A for consideration relative to future periods.
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:March 31:
| | | 2019 | | 2018 | 2020 | | 2019 |
Net sales | $ | 299,236 |
| | 100.0 | % | | $ | 280,086 |
| | 100.0 | % | $ | 249,439 |
| | 100.0 | % | | $ | 227,417 |
| | 100.0 | % |
Cost of sales | 222,658 |
| | 74.4 | % | | 209,807 |
| | 74.9 | % | 193,052 |
| | 77.4 | % | | 183,517 |
| | 80.7 | % |
Gross profit | 76,578 |
| | 25.6 | % | | 70,279 |
| | 25.1 | % | 56,387 |
| | 22.6 | % | | 43,900 |
| | 19.3 | % |
Selling, general, and administrative expense | 45,158 |
| | 15.1 | % | | 40,875 |
| | 14.6 | % | 41,197 |
| | 16.5 | % | | 33,334 |
| | 14.7 | % |
Income from operations | 31,420 |
| | 10.5 | % | | 29,404 |
| | 10.5 | % | 15,190 |
| | 6.1 | % | | 10,566 |
| | 4.6 | % |
Interest expense | 17 |
| | 0.0 | % | | 2,906 |
| | 1.0 | % | |
Interest (income) expense | | (47 | ) | | 0.0 | % | | 2,061 |
| | 0.9 | % |
Other expense | 84 |
| | 0.0 | % | | 522 |
| | 0.2 | % | 192 |
| | 0.1 | % | | 589 |
| | 0.2 | % |
Income before taxes | 31,319 |
| | 10.5 | % | | 25,976 |
| | 9.3 | % | 15,045 |
| | 6.0 | % | | 7,916 |
| | 3.5 | % |
Provision for income taxes | 6,843 |
| | 2.3 | % | | 6,473 |
| | 2.3 | % | 2,986 |
| | 1.2 | % | | 1,571 |
| | 0.7 | % |
Net income | $ | 24,476 |
| | 8.2 | % | | $ | 19,503 |
| | 7.0 | % | $ | 12,059 |
| | 4.8 | % | | $ | 6,345 |
| | 2.8 | % |
The following table sets forth the Company’s net sales by reportable segment for the three months ended September 30,March 31, (in thousands):
| | | 2019 | | 2018 | | Total Change | 2020 | | 2019 | | Total Change |
Net sales: | | | | | | | | | | |
Renewable Energy and Conservation | $ | 116,771 |
| | $ | 98,486 |
| | $ | 18,285 |
| $ | 96,497 |
| | $ | 68,837 |
| | $ | 27,660 |
|
Residential Products | 126,275 |
| | 125,839 |
| | 436 |
| 103,419 |
| | 103,709 |
| | (290 | ) |
Industrial and Infrastructure Products | 56,361 |
| | 56,033 |
| | 328 |
| 49,801 |
| | 55,188 |
| | (5,387 | ) |
Less: Intersegment sales | (171 | ) | | (272 | ) | | 101 |
| (278 | ) | | (317 | ) | | 39 |
|
Net Industrial and Infrastructure Products | 56,190 |
| | 55,761 |
| | 429 |
| 49,523 |
| | 54,871 |
| | (5,348 | ) |
Consolidated | $ | 299,236 |
| | $ | 280,086 |
| | $ | 19,150 |
| $ | 249,439 |
| | $ | 227,417 |
| | $ | 22,022 |
|
Consolidated net sales increased by $19.2$22.0 million, or 6.8%9.7%, to $299.2$249.4 million for the three months ended September 30, 2019March 31, 2020 compared to the three months ended September 30, 2018.March 31, 2019. The 6.8%9.7% increase in revenue was leddriven by organic growth$15.7 million of $12.6 million followed by contributionssales generated from our acquisitions of $7.2 million.Delta Separations and Thermo during the current year quarter and the prior year acquisition of Apeks. The organic growth in the quarter stemmed from a 4.5%2.8% increase in volume, primarily from our Renewable Energy and Conservation segment, as our Residential Products andwhich more than offset the volume decline in our Industrial and Infrastructure Products segment. Revenue in our Residential Products segment revenues werewas essentially flat. Our acquisitions of Apeks during the current quarter and SolarBOS during the prior year generated incremental revenuesflat as compared to the prior year quarter.
Net sales in our Renewable Energy and Conservation segment increased 18.6%40.3%, or $18.3$27.7 million, to $116.8$96.5 million for the three months ended September 30, 2019March 31, 2020 compared to $98.5$68.8 million for the three months ended September 30, 2018. TheMarch 31, 2019. Sales generated from the current year quarter acquisitions of Delta Separations and Thermo, along with the prior year acquisition of Apeks, contributed $15.7 million to the increase was led byin the current year. In addition, strong organic growth resulting from our continued efforts to be more relevant to our customerswas the result of healthy market dynamics and participation gains as evidenced by our 72%58% improvement in backlog year over year, in both our conservation and renewable energy businesses. Sales generated from acquisitions of $7.2 million from both the current year quarter acquisition of Apeks and the prior year acquisition of SolarBOS also contributed to the increase.or 13% on an organic basis.
Net sales in our Residential Products segment increased 0.3%, or $0.4 million, 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 slight
increaseNet sales in our Residential Products segment decreased 0.3%, or $0.3 million, to $103.4 million for the three months ended March 31, 2020 compared to $103.7 million for the three months ended March 31, 2019. The slight decrease from the prior year quarter was the result of a modest increaseproduct line simplification actions taken in 2019 and from lower volume partially offset by a decrease in pricingfor products sold directly to customers.homeowners.
Net sales in our Industrial and Infrastructure Products segment increased 0.7%decreased 9.7%, or $0.4$5.3 million, to $56.2$49.5 million for the three months ended September 30, 2019March 31, 2020 compared to $55.8$54.9 million for the three months ended September 30, 2018.March 31, 2019. Increased volume in the Infrastructure business was partiallymore than offset by lower revenue in the Industrial businesses, driven by lower demand and lower steel prices impacting its core industrial products.
Our consolidated gross margin increased to 25.6%22.6% for the three months ended September 30, 2019March 31, 2020 compared to 25.1%19.3% for the three months ended September 30, 2018.March 31, 2019. This increase was the result of improved operating execution including benefits fromcompared to the prior year quarter which included $3.4 million of incremental costs for design refinement and field improvements for our 80/20 simplification initiatives along with a favorablesolar tracking solution. Favorable alignment of material costs to customer selling prices, volume leverage and volume leverage.benefits from our 80/20 simplification initiatives also contributed to the improved gross margin year over year. Partially offsetting the above improvements were lower gross margins generated from our recent acquisitions.
Selling, general, and administrative (SG&A) expenses increased by $4.3$7.9 million, or 10.5%23.6%, to $45.2$41.2 million for the three months ended September 30, 2019March 31, 2020 from $40.9$33.3 million for the three months ended September 30, 2018.March 31, 2019. The $4.3$7.9 million increase was largely the result of a $2.3 million increase in senior leadership transition costs, $2.2$3.7 million of incremental SG&A expenses recorded quarter over quarter for our recent acquisitions, along with a $1.3 million increase in exit activity costs relatedincurred to our simplification initiatives. These increases were partially offset by $3.4 million of lower performance-based compensation expenses, as compared toeffect the prior yearacquisitions closed during the quarter. SG&A expenses as a percentage of net sales increased to 15.1%16.5% for the three months ended September 30, 2019March 31, 2020 compared to 14.6%14.7% for the three months ended September 30, 2018.March 31, 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,March 31, (in thousands):
| | | 2019 | | 2018 | | Total Change | 2020 | | 2019 | | Total Change |
Income from operations: | | | | | | | | | | | | | | | | | | |
Renewable Energy and Conservation | $ | 19,633 |
| | 16.8 | % | | $ | 15,072 |
| | 15.3 | % | | $ | 4,561 |
| $ | 5,699 |
| | 5.9 | % | | $ | 1,632 |
| | 2.4 | % | | $ | 4,067 |
|
Residential Products | 17,012 |
| | 13.5 | % | | 20,138 |
| | 16.0 | % | | (3,126 | ) | 13,725 |
| | 13.3 | % | | 12,090 |
| | 11.7 | % | | 1,635 |
|
Industrial and Infrastructure Products | 5,462 |
| | 9.7 | % | | 2,892 |
| | 5.2 | % | | 2,570 |
| 3,989 |
| | 8.1 | % | | 4,129 |
| | 7.5 | % | | (140 | ) |
Unallocated Corporate Expenses | (10,687 | ) | | (3.6 | )% | | (8,698 | ) | | (3.1 | )% | | (1,989 | ) | (8,223 | ) | | (3.3 | )% | | (7,285 | ) | | (3.2 | )% | | (938 | ) |
Consolidated income from operations | $ | 31,420 |
| | 10.5 | % | | $ | 29,404 |
| | 10.5 | % | | $ | 2,016 |
| $ | 15,190 |
| | 6.1 | % | | $ | 10,566 |
| | 4.6 | % | | $ | 4,624 |
|
The Renewable Energy and Conservation segment generated an operating margin of 16.8%5.9% in the current year quarter compared to 15.3%2.4% in the prior year quarter. The increase in operating margin was largely the result of $3.4 million of incremental costs incurred during the prior year quarter for design refinement and field improvements for our solar tracking solution. Volume leverage, improved operating execution volume leverage and favorable productalignment of material costs to customer selling prices also contributed to the improved margin year over year. Partially offsetting the above improvements were losses generated from our recent acquisitions which incurred seasonally lower volumes and vertical market mix.include lower margin projects as compared to our organic margin profile.
Our Residential Products segment generated an operating margin of 13.5%13.3% during the three months ended September 30, 2019March 31, 2020 compared to 16.0%11.7% during the three months ended September 30, 2018.March 31, 2019. The decreaseincrease resulted from increased exit activity costs, unfavorable product mix, and an unfavorablea favorable alignment of material costs to customer selling prices partially offset byalong with continued benefits from 80/20 simplification initiatives.
Our Industrial and Infrastructure Products segment generated an operating margin of 9.7%8.1% during the three months ended September 30, 2019March 31, 2020 compared to 5.2%7.5% during the three months ended September 30, 2018.March 31, 2019. The increase in operating margin was the result of a more favorable mixalignment of material costs to customer selling prices, higher margin products, continued efforts to reduce operating costsproduct mix and ongoing benefit from the Company's 80/20 initiatives.
Unallocated corporate expenses increased $2.0$0.9 million from $8.7$7.3 million during the three months ended September 30, 2018March 31, 2019 to $10.7$8.2 million during the three months ended September 30, 2019.March 31, 2020. This increase from the prior year quarter was duelargely the result of costs incurred to an increase in senior leadership transition costs and exit activity costs, partially offset by lower performance-based compensation expenses as compared toeffect the prior yearacquisitions closed during the quarter.
Interest expense was negligibleincome realized for the three months ended September 30, 2019 compared to $2.9March 31, 2020 was negligible. The change from $2.1 million of interest expense incurred for the three months ended September 30, 2018. The decrease in expenseMarch 31, 2019 resulted from the redemption of the Company's outstanding 6.25% Senior Subordinated Notes during the first quarter of 2019. During the three months ended September 30, 2019 and 2018, noNo amounts were outstanding under our then applicable revolving credit facility.
facility during the three months ended March 31, 2020 and 2019.
We recognized a provision for income taxes of $6.8$3.0 million and $6.5$1.6 million, with an effective tax ratesrate of 21.8% and 24.9%19.8% for both the three months ended September 30,March 31, 2020, and 2019, and 2018, respectively. The effective tax rate for both the third quarters ofthree months ended March 31, 2020 and 2019, and 2018 were greaterrespectively, was less than the U.S. federal statutory rate of 21% due to favorable discrete items partially offset by state taxes and nondeductible permanent differences partially offset by favorable discrete items.
Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
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:
|
| | | | | | | | | | | | | |
| 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 |
|
Consolidated net sales increased by $27.8 million, or 3.7%, to $789.3 million for the nine months ended September 30, 2019 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 sales generated from both the current year acquisition of Apeks and the prior year acquisition of SolarBOS, more than offset the volume decline in our Industrial and Infrastructure segment.
Net sales in our Renewable Energy and Conservation segment increased 14.1%, or $32.4 million, to $261.6 million for the nine months ended September 30, 2019 compared to $229.2 million for the nine 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 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 compared to $360.9 million for the nine months ended September 30, 2018. Slight decreases in volume were nearly offset by increases in carryover pricing to customers implemented in 2018.
Net sales in our Industrial and Infrastructure Products segment decreased 2.4%, or $4.1 million, to $167.3 million for the nine months ended September 30, 2019 compared to $171.4 million 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 decreased to 23.3% for the nine months ended September 30, 2019 compared to 24.8% 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 benefits 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. The $1.9 million increase was primarily due to a $6.0 million increase in senior leadership transition costs, $4.1 million of incremental SG&A expenses recorded year over year for our recent acquisitions, along with a $3.4 million increase in 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. SG&A expenses as a percentage of net sales decreased to 14.6% in the nine months ended September 30, 2019 compared to 14.9% in the nine months ended September 30, 2018.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the nine months ended September 30, (in thousands):
|
| | | | | | | | | | | | | | | | | |
| 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 | ) |
The Renewable Energy and Conservation segment generated an operating margin of 11.8% during the first nine months of the current year compared to 12.5% in the same period of the prior year. The decrease in operating margin was the result of additional costs related to the 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.
Our Residential Products segment generated an operating margin of 13.8% during the nine months ended September 30, 2019 compared to 16.0% during the nine months ended September 30, 2018. The decrease in operating margin was due to increased exit activity costs, an unfavorable alignment of material costs to customer selling prices and unfavorable product mix, partially offset by benefits from 80/20 simplification initiatives.
Our Industrial and Infrastructure Products segment generated an operating margin of 8.2% during the nine months ended September 30, 2019 compared to 7.1% during the nine months ended September 30, 2018. The increase in operating margin was the result of a more favorable mix of higher margin products and operational efficiencies resulting from the Company's 80/20 initiatives.
Unallocated corporate expenses increased $3.0 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 increase was due to senior leadership transition costs and exit activity costs charges partially offset by a decrease in performance-based compensation expenses.
The Company recorded 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. The increase in other expense from the prior year was primarily the result of foreign currency fluctuations.
Interest expense decreased by $7.0 million to $2.3 million for 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 redemption of the Company's outstanding 6.25% Senior Subordinated Notes during 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.
We recognized a provision for income taxes of $14.9 million and $15.6 million, with effective tax rates of 22.7% and 23.5% for the nine months ended September 30, 2019, and 2018, respectively. The effective tax rate for the nine months ended September 30, 2019 exceeded the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items. The effective tax rate for the nine months ended September 30, 2018 exceeded the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items, including a $2.6 million tax benefit related to performance share unit vesting.differences.
Outlook
We expectGibraltar continues to accelerate growth and margin improvement through organic and inorganic investment in inherently attractive end markets that are vital to the economy’s core needs and less impacted by economic variables. Our higher growth businesses - renewable energy, commercial greenhouse growing, and processing - represented 39% of first quarter revenue and generated 58% growth in backlog as these markets continue profitableto accelerate. The infrastructure business is also experiencing solid market growth and participation gains as reflected in backlog that has grown 13% over the prior year quarter.
The core residential building products businesses - ventilation, building accessories, and postal - delivered modest growth in the finalfirst quarter, but did see demand begin to slow after the end of the first quarter. The home improvement and industrial businesses have been the most impacted in today’s environment. Overall, the we expects demand in the immediate future to lag prior year baseduntil consumer confidence and spending improves. We have not seen a disruption from our suppliers. Our supply chain team remains in close contact with key suppliers and alternate supply sources to mitigate the risk of potential supply disruption.
We will continue to enhance our revenue and income streams and, backed by the strength of our balance sheet, will remain focused on executing our strategy, working to improve our business, and helping our team, customers, suppliers, and partners successfully navigate through today’s environment. We are leveraging our operating system - Business Systems, Portfolio Management, and Organization Development - to refine our business, strengthen the composition of projects in backlogorganization, and end market activity levels. Our focus remains to drive toward leadership positions in attractive end markets through organicexecute critical initiatives that will accelerate growth, profitability, asset utilization, and acquisitions that strengthen our 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.further improve return on invested capital.
The CompanyGiven the current economic environment and reduced visibility, it is narrowing itsdifficult to provide guidance for revenuesthe second quarter and full-year 2020. Therefore, we are going to rescind our previous guidance. However, we do expect to deliver positive earnings forand generate cash from operations throughout 2020. We will revisit the full year 2019. We expect 2019 consolidated revenues to be in rangepractice 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.providing guidance as we complete the second quarter.
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 opportunitiesThe following table sets forth our liquidity position as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate our businesses.of:
|
| | | | | | | | |
(in thousands) | | March 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | | $ | 85,966 |
| | $ | 191,363 |
|
Availability on revolving credit facility | | 394,100 |
| | 393,991 |
|
| | $ | 480,066 |
| | $ | 585,354 |
|
As of September 30, 2019, our liquidity of $531.6 million consisted of $137.6 million of cash and $394.0 million of availability under our revolving credit facility as compared to liquidity of $587.8 million as of December 31, 2018 and $535.9 million as of September 30, 2018.
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.liquidity 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 organization. Given the economic uncertainty caused by the COVID-19 pandemic and federal, state and local governments response to it, we have currently paused our acquisition activities. We believe our liquidity, togetherremain in contact with the cash expectedcompanies aligned with our strategic initiatives and expect to be generated from operations, should be sufficient to fundre-engage in these acquisition processes when the economic impact becomes clearer. In the interim, we remain highly focused on managing our working capital, needswhich may include adjusting scheduled deliveries of inventory to match current demand levels, closely monitoring customer credit and simplification initiatives. We continuecollection activities, and working to search for strategic acquisitions. Larger acquisitions may require additional borrowings and/or the issuance of our common stock or other securities.extend payment terms.
Our Senior Credit Agreement provides us with the Company with liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of September 30, 2019,March 31, 2020, our foreign subsidiaries held $27.3$29.6 million of cash in U.S. dollars, of which $13.8$12.9 million is available to be repatriated to the U.S. tax-free., net of $0.6 million of withholding tax. Subsequent cash generated by our foreign subsidiaries will be reinvested into their operations.
We are taking advantage of the 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 in cash during the remainder of 2020 that would have otherwise been remitted to the federal government. The deferred tax payments will be repaid equally in 2021 and 2022.
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 information and may change if conditions in the credit and equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected.
Cash Flows
The following table sets forth selected cash flow data for the ninethree months ended September 30,March 31, (in thousands):
|
| | | | | | | |
| 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 |
|
|
| | | | | | | |
| 2020 | | 2019 |
Cash (used in) provided by: | | | |
Operating activities of continuing operations | $ | (43,012 | ) | | $ | (37,488 | ) |
Investing activities of continuing operations | (57,309 | ) | | (3,374 | ) |
Financing activities of continuing operations | (4,160 | ) | | (213,247 | ) |
Effect of foreign exchange rate changes | (916 | ) | | 612 |
|
Net decrease in cash and cash equivalents | $ | (105,397 | ) | | $ | (253,497 | ) |
Operating Activities
DuringNet cash used in operating activities for the ninethree months ended September 30, 2019, net cash provided by operating activities totaling $72.5March 31, 2020 of $43.0 million was primarily driven byconsisted of net income of $50.7$12.1 million, and $28.3non-cash net charges totaling $7.2 million, of non-cash charges includingwhich include depreciation, amortization, stock compensation, exit activity costs and other non-cash charges, offset byand an investment in working capital and other net assets of $6.6$62.3 million. DuringIn addition to seasonal increases in inventory and trade receivables and payables, the nineinvestment in net working capital and other net assets was largely driven by an investment of $37.5 million in Thermo, one of our recent acquisitions, which was undercapitalized at purchase, along with the payments made during the quarter for the Company's performance based incentive plans, customer rebates, and settlements of multi-employer pension plans terminated during 2019.
Net cash used in operating activities of $37.5 million during the three months ended September 30, 2018, net cash generated from operating activities totaling $38.2 million was primarily driven by net incomeMarch 31, 2019 consisted of $50.7 million and $24.5 million from non-cash charges including depreciation, amortization, stock compensation, intangible asset impairment charges and exit activities, partially offset by an investment in working capital and other net assets of $37.0 million.
During the nine months ended September 30, 2019, the cash invested in working capital$54.0 million offset by $10.2 million from non-cash charges including depreciation, amortization, stock compensation and other net assetscharges as well as net income 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.$6.3 million.
Investing Activities
Net cash used in investing activities for the ninethree months ended September 30, 2019March 31, 2020 of $16.3$57.3 million primarily consisted of $8.7 million net cash paid for the acquisitionacquisitions of ApeksDelta Separations of $47.2 million and Thermo Energy Systems of $7.3 million and capital expenditures of $7.7$2.8 million.
Net cash used in investing activities for the ninethree months ended September 30, 2018March 31, 2019 of $8.9$3.4 million consisted of capital expenditures of $6.8$3.1 million and a payment of $0.3 million related to the acquisition of SolarBOS.
and net cash paid for the acquisition of SolarBOS of $5.2 million partially offset by net proceeds of $3.2 million from the sale and lease-back of property and equipment.
Financing Activities
Net cash used in financing activities for the ninethree months ended September 30, 2019March 31, 2020 of $216.3$4.2 million was primarily consistedthe result 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 related to the net settlement of $3.5 million, and payment of debt issuance costs of $1.2 million, partially offset by proceeds received fromtax obligations for participants in the issuance of common stock of $0.4 million from stock options exercised. Company's equity incentive plans.
Net cash used in financing activities for the ninethree months ended September 30, 2018March 31, 2019 of $5.6$213.2 million consisted of the purchaserepayment of $210.0 million of 6.25% Senior Subordinated Notes on February 1, 2019, purchases of treasury stock of $6.5$2.1 million duerelated to a large numberthe net settlement of performance awards that vestedtax obligations for participants in June 2018the Company's equity incentive plans and the payment of long-term debt borrowingsissuance costs 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.$1.2 million.
See Note 8 to the Company's consolidated financial statements in Part I, Item 1, Financial Statements, of this Form 10-Q for further information on the 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
| |
(a) | Evaluation of Disclosure Controls and Procedures |
The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls as of the end of the period covered in this report. Based upon that evaluation and the definition of disclosure controls and procedures contained in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period the Company’s disclosure controls and procedures were effective.
| |
(b) | Changes in Internal Control over Financial Reporting |
There have been no changes in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 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 quarter ended March 31, 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, except as follows:
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, or coronavirus, 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 |
Date: October 25, 2019May 6, 2020