NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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|
(1)
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CONSOLIDATED FINANCIAL STATEMENTS
|
The accompanying unaudited consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons, financial results for any interim period are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual Form 10-K for the year ended
December 31, 2018
.
The balance sheet at
December 31, 2018
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.
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(2)
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RECENT ACCOUNTING PRONOUNCEMENTS
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Recent Accounting Pronouncements Adopted
|
|
|
|
|
|
Standard
|
|
Description
|
|
Financial Statement Effect or Other Significant Matters
|
ASU No. 2016-02
Leases (Topic 842)
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|
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.
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|
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
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Recent Accounting Pronouncements Not Yet Adopted
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Standard
|
|
Description
|
|
Financial Statement Effect or Other Significant Matters
|
ASU No. 2016-13
Financial Instruments - Credit Losses (Topic 326)
|
|
The objective of this standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit, including trade receivables, held by an entity at each reporting date. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The provisions of this standard are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective, that is, a modified-retrospective approach.
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The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements.
Date of adoption: Q1 2020
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(3)
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ACCOUNTS RECEIVABLE, NET
|
Accounts receivable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
Trade accounts receivable
|
$
|
164,429
|
|
|
$
|
124,609
|
|
Costs in excess of billings
|
23,562
|
|
|
22,634
|
|
Total accounts receivables
|
187,991
|
|
|
147,243
|
|
Less allowance for doubtful accounts
|
(7,290
|
)
|
|
(6,960
|
)
|
Accounts receivable
|
$
|
180,701
|
|
|
$
|
140,283
|
|
Refer to Note 4 of the Company's consolidated financial statements included in this quarterly report on Form 10-Q for additional information concerning the Company's costs in excess of billings.
Sales includes revenue from contracts with customers for roof and foundation ventilation products; centralized mail systems and electronic package solutions; rain dispersion products and roofing accessories; expanded and perforated metal; perimeter security solutions; expansion joints and structural bearings; designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures.
Revenue recognition
Revenue is recognized when, or as, the Company transfers control of promised products or 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-Q for additional information related to revenue recognized by timing of transfer of control by reportable segment.
As of
June 30, 2019
, 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 of June 30, 2019 and December 31, 2018, respectively, and revenue recognized during the six months ended
June 30, 2019
and 2018, respectively, that was in billings in excess of cost and unearned revenue at the beginning of the period (in thousands):
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|
|
|
|
|
|
|
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|
June 30, 2019
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|
December 31, 2018
|
Costs in excess of billings
|
$
|
23,562
|
|
|
$
|
22,634
|
|
Billings in excess of cost
|
(38,133
|
)
|
|
(17,857
|
)
|
Unearned revenue
|
(9,971
|
)
|
|
(12,028
|
)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2019
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|
Six Months Ended
June 30, 2018
|
Revenue recognized in the period from:
|
|
|
|
Amounts included in billings in excess of cost
at the beginning of the period
|
$
|
11,357
|
|
|
$
|
9,044
|
|
Amounts included in unearned revenue
at the beginning of the period
|
$
|
6,153
|
|
|
$
|
2,581
|
|
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
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|
June 30, 2019
|
|
December 31, 2018
|
Raw material
|
$
|
49,162
|
|
|
$
|
57,845
|
|
Work-in-process
|
8,746
|
|
|
6,930
|
|
Finished goods
|
27,490
|
|
|
34,138
|
|
Total inventories
|
$
|
85,398
|
|
|
$
|
98,913
|
|
(6) ACQUISITIONS
On August 21, 2018, the Company acquired all of the outstanding stock of SolarBOS. SolarBOS is a provider of electrical balance of systems products, which consists of electrical components such as wiring, switches, and combiner boxes that support photovoltaic systems, for the U.S. solar renewable energy market. The Company expects the acquisition of SolarBOS to enable the Company to provide complementary product offerings to its existing customers and strengthen its position in the solar renewable energy market. The results of SolarBOS have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Renewable Energy and Conservation segment). The 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):
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|
|
|
|
Cash
|
$
|
915
|
|
Working capital
|
680
|
|
Property, plant and equipment
|
483
|
|
Acquired intangible assets
|
1,450
|
|
Other assets
|
13
|
|
Other liabilities
|
(51
|
)
|
Goodwill
|
2,879
|
|
Fair value of purchase consideration
|
$
|
6,369
|
|
The intangible assets acquired in this acquisition consisted of the following (in thousands):
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|
|
|
|
|
|
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Fair Value
|
|
Estimated
Useful Life
|
Trademarks
|
$
|
300
|
|
|
3 years
|
Technology
|
450
|
|
|
9 years
|
Customer relationships
|
700
|
|
|
9 years
|
Total
|
$
|
1,450
|
|
|
|
During the three and six month periods ended June 30, 2019, the Company incurred
$4 thousand
of acquisition-related costs. The Company
did not incur
any acquisition-related costs during the first half of 2018.
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(7)
|
GOODWILL AND RELATED INTANGIBLE ASSETS
|
Goodwill
The changes in the carrying amount of goodwill for the
six
months ended
June 30, 2019
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Products
|
|
Industrial and
Infrastructure
Products
|
|
Renewable Energy & Conservation
|
|
Total
|
Balance at December 31, 2018
|
$
|
198,075
|
|
|
$
|
53,769
|
|
|
$
|
71,827
|
|
|
$
|
323,671
|
|
Adjustments to prior year acquisitions
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
(172
|
)
|
Foreign currency translation
|
—
|
|
|
229
|
|
|
291
|
|
|
520
|
|
Balance at June 30, 2019
|
$
|
198,075
|
|
|
$
|
53,998
|
|
|
$
|
71,946
|
|
|
$
|
324,019
|
|
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Estimated
Life
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
$
|
43,870
|
|
|
$
|
—
|
|
|
$
|
43,870
|
|
|
$
|
—
|
|
|
Indefinite
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
6,134
|
|
|
3,820
|
|
|
6,094
|
|
|
3,518
|
|
|
3 to 15 Years
|
Unpatented technology
|
28,644
|
|
|
14,823
|
|
|
28,644
|
|
|
13,881
|
|
|
5 to 20 Years
|
Customer relationships
|
70,690
|
|
|
38,053
|
|
|
70,419
|
|
|
35,678
|
|
|
5 to 17 Years
|
Non-compete agreements
|
1,649
|
|
|
1,361
|
|
|
1,649
|
|
|
1,224
|
|
|
4 to 10 Years
|
|
107,117
|
|
|
58,057
|
|
|
106,806
|
|
|
54,301
|
|
|
|
Total acquired intangible assets
|
$
|
150,987
|
|
|
$
|
58,057
|
|
|
$
|
150,676
|
|
|
$
|
54,301
|
|
|
|
The following table summarizes the acquired intangible asset amortization expense for the
three and six
months ended
June 30
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization expense
|
$
|
1,797
|
|
|
$
|
2,148
|
|
|
$
|
3,594
|
|
|
$
|
4,287
|
|
Amortization expense related to acquired intangible assets for the remainder of fiscal
2019
and the next five years thereafter is estimated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
Amortization expense
|
$
|
3,593
|
|
|
$
|
6,894
|
|
|
$
|
6,700
|
|
|
$
|
6,221
|
|
|
$
|
5,683
|
|
|
$
|
5,428
|
|
As of June 30, 2019, the Company did
no
t have any long-term debt outstanding. At 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.
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 three financial covenants. As of June 30, 2019, the Company is in compliance with all three covenants.
Borrowings under the 2019 Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries.
Standby letters of credit of
$6.0
million have been issued under the 2019 Senior Credit Agreement on behalf of the Company as of
June 30, 2019
. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of
June 30, 2019
, the Company had
$394.0
million of availability under the revolving credit facility.
No
borrowings were outstanding under the Company's revolving credit facility at
June 30, 2019
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 six months ended June 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 six months ended June 30, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Minimum pension and post retirement benefit plan
adjustments
|
|
Total Pre-Tax Amount
|
|
Tax (Benefit) Expense
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
Balance at December 31, 2018
|
$
|
(5,939
|
)
|
|
$
|
(2,040
|
)
|
|
$
|
(7,979
|
)
|
|
$
|
(745
|
)
|
|
$
|
(7,234
|
)
|
Minimum pension and post retirement health care plan adjustments
|
—
|
|
|
16
|
|
|
16
|
|
|
4
|
|
|
12
|
|
Foreign currency translation adjustment
|
842
|
|
|
—
|
|
|
842
|
|
|
—
|
|
|
842
|
|
Balance at March 31, 2019
|
$
|
(5,097
|
)
|
|
$
|
(2,024
|
)
|
|
$
|
(7,121
|
)
|
|
$
|
(741
|
)
|
|
$
|
(6,380
|
)
|
Minimum pension and post retirement health care plan adjustments
|
—
|
|
|
17
|
|
|
17
|
|
|
5
|
|
|
12
|
|
Foreign currency translation adjustment
|
998
|
|
|
—
|
|
|
998
|
|
|
—
|
|
|
998
|
|
Balance at June 30, 2019
|
$
|
(4,099
|
)
|
|
$
|
(2,007
|
)
|
|
$
|
(6,106
|
)
|
|
$
|
(736
|
)
|
|
$
|
(5,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Minimum pension and post retirement benefit plan
adjustments
|
|
Total Pre-Tax Amount
|
|
Tax (Benefit) Expense
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
Balance at December 31, 2017
|
$
|
(2,698
|
)
|
|
$
|
(2,638
|
)
|
|
$
|
(5,336
|
)
|
|
$
|
(970
|
)
|
|
$
|
(4,366
|
)
|
Cumulative effect of accounting change
|
—
|
|
|
(350
|
)
|
|
(350
|
)
|
|
—
|
|
|
(350
|
)
|
Minimum pension and post retirement health care plan adjustments
|
—
|
|
|
37
|
|
|
37
|
|
|
10
|
|
|
27
|
|
Foreign currency translation adjustment
|
110
|
|
|
—
|
|
|
110
|
|
|
—
|
|
|
110
|
|
Balance at March 31, 2018
|
$
|
(2,588
|
)
|
|
$
|
(2,951
|
)
|
|
$
|
(5,539
|
)
|
|
$
|
(960
|
)
|
|
$
|
(4,579
|
)
|
Minimum pension and post retirement health care plan adjustments
|
—
|
|
|
37
|
|
|
37
|
|
|
11
|
|
|
26
|
|
Foreign currency translation adjustment
|
(1,787
|
)
|
|
—
|
|
|
(1,787
|
)
|
|
—
|
|
|
(1,787
|
)
|
Balance at June 30, 2018
|
$
|
(4,375
|
)
|
|
$
|
(2,914
|
)
|
|
$
|
(7,289
|
)
|
|
$
|
(949
|
)
|
|
$
|
(6,340
|
)
|
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
six
months ended
June 30,
which will convert to shares upon vesting, along with the weighted average grant date fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Awards
|
Number of
Awards (1)
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Number of
Awards (2)
|
|
Weighted
Average
Grant Date
Fair Value
|
Performance stock units
|
145,420
|
|
|
$
|
40.55
|
|
|
132,288
|
|
|
$
|
33.35
|
|
Restricted stock units
|
117,821
|
|
|
$
|
39.37
|
|
|
69,055
|
|
|
$
|
33.41
|
|
Deferred stock units
|
7,509
|
|
|
$
|
37.95
|
|
|
10,255
|
|
|
$
|
35.96
|
|
Common shares
|
7,509
|
|
|
$
|
37.95
|
|
|
2,113
|
|
|
$
|
35.50
|
|
(1) Performance stock units granted will convert to shares based on the Company's actual return on invested capital ("ROIC") relative to the ROIC targeted for the performance period ended December 31, 2019.
(2) Performance stock units granted in 2018 which will convert to
126,337
shares to be issued in the first quarter of 2021, representing
95.5%
of the targeted 2018 award, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2018.
Equity Based Awards - Settled in Cash
The Company's equity-based liability includes awards under a management stock purchase plan. As of
June 30, 2019
, the Company's total share-based liabilities recorded on the consolidated balance sheet were
$26.1 million
, of which
$21.5 million
was included in non-current liabilities. The share-based liabilities as of December 31, 2018 were
$38.4 million
, of which
$23.6 million
was included in non-current liabilities.
During the six-months ended June 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
six
months ended
June 30,
:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Restricted stock units credited
|
55,513
|
|
|
69,514
|
|
Share-based liabilities paid (in thousands)
|
$
|
5,742
|
|
|
$
|
4,717
|
|
|
|
(11)
|
FAIR VALUE MEASUREMENTS
|
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement as follows:
|
|
•
|
Level 1 - Quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 - Observable inputs other than quoted prices in active markets for similar assets and liabilities.
|
|
|
•
|
Level 3 - Inputs that are unobservable inputs for the asset or liability.
|
The Company had no financial assets or liabilities measured at fair value on a recurring basis at
June 30, 2019
and
December 31, 2018
. As of June 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 June 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
|
|
June 30,
2019
|
Assets
|
Operating lease assets
|
|
$
|
30,029
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
Accrued expenses
|
|
$
|
8,958
|
|
Non-current
|
Non-current operating lease liabilities
|
|
21,375
|
|
|
|
|
$
|
30,333
|
|
|
|
|
|
|
|
|
|
|
Lease cost
(in thousands)
|
Three Months Ended
June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
Operating lease cost
|
$
|
3,190
|
|
|
$
|
6,547
|
|
|
|
|
|
|
|
Other information
(in thousands)
|
|
Six Months Ended June 30, 2019
|
Cash paid for amounts included in the measurement of operating liabilities
|
|
$
|
5,461
|
|
Right-of-use assets obtained in exchange for new lease liabilities
|
|
$
|
4,274
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
June 30, 2019
|
Weighted-average remaining lease term - operating leases
|
|
4.22
|
|
years
|
Weighted-average discount rate - operating leases
|
|
5.76
|
%
|
|
|
|
|
|
|
|
Maturity of lease liabilities
|
|
(In thousands)
|
|
2019 (July 1, 2019 through December 31, 2019)
|
|
$
|
5,517
|
|
2020
|
|
9,141
|
|
2021
|
|
7,168
|
|
2022
|
|
5,311
|
|
2023
|
|
4,670
|
|
After 2023
|
|
2,459
|
|
Total lease payments
|
|
34,266
|
|
Less: present value discount
|
|
(3,933
|
)
|
Present value of lease liabilities
|
|
$
|
30,333
|
|
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.
Exit activity costs were incurred during the
six
months ended
June 30, 2019
which related to contract terminations, moving and closing costs, and severance incurred as a result of process simplification initiatives. No facilities were closed during the
six
months ended
June 30, 2019
.
During the
six
months ended
June 30, 2018
, the Company incurred exit activity costs resulting from the above initiatives. In conjunction with these initiatives, the Company closed
one
facility during the first half 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.
The following tables set forth the asset impairment charges and exit activity costs incurred by segment during the
three and six
months ended
June 30,
related to the restructuring activities described above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
2019
|
|
2018
|
|
Inventory write-downs &/or asset impairment charges
|
|
Exit activity costs (recoveries), net
|
|
Total
|
|
Inventory write-downs &/or asset impairment charges
|
|
Exit activity (recoveries) costs, net
|
|
Total
|
Residential Products
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
Industrial and Infrastructure Products
|
—
|
|
|
1,346
|
|
|
1,346
|
|
|
—
|
|
|
(28
|
)
|
|
(28
|
)
|
Renewable Energy and Conservation
|
—
|
|
|
(95
|
)
|
|
(95
|
)
|
|
65
|
|
|
(68
|
)
|
|
(3
|
)
|
Corporate
|
—
|
|
|
666
|
|
|
666
|
|
|
—
|
|
|
223
|
|
|
223
|
|
Total exit activity costs & asset impairments
|
$
|
—
|
|
|
$
|
2,136
|
|
|
$
|
2,136
|
|
|
$
|
65
|
|
|
$
|
98
|
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
2019
|
|
2018
|
|
Inventory write-downs &/or asset impairment charges
|
|
Exit activity costs (recoveries), net
|
|
Total
|
|
Inventory write-downs &/or asset impairment (recoveries) charges, net
|
|
Exit activity (recoveries) costs, net
|
|
Total
|
Residential Products
|
$
|
—
|
|
|
$
|
370
|
|
|
$
|
370
|
|
|
$
|
(43
|
)
|
|
$
|
(152
|
)
|
|
$
|
(195
|
)
|
Industrial and Infrastructure Products
|
—
|
|
|
1,313
|
|
|
1,313
|
|
|
(703
|
)
|
|
190
|
|
|
(513
|
)
|
Renewable Energy and Conservation
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
84
|
|
|
49
|
|
|
133
|
|
Corporate
|
—
|
|
|
673
|
|
|
673
|
|
|
—
|
|
|
267
|
|
|
267
|
|
Total exit activity costs & asset impairments
|
$
|
—
|
|
|
$
|
2,355
|
|
|
$
|
2,355
|
|
|
$
|
(662
|
)
|
|
$
|
354
|
|
|
$
|
(308
|
)
|
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 six
months ended
June 30,
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cost of sales
|
$
|
319
|
|
|
$
|
(193
|
)
|
|
$
|
285
|
|
|
$
|
(156
|
)
|
Selling, general, and administrative expense
|
1,817
|
|
|
356
|
|
|
2,070
|
|
|
(152
|
)
|
Net asset impairment and exit activity charges (recoveries)
|
$
|
2,136
|
|
|
$
|
163
|
|
|
$
|
2,355
|
|
|
$
|
(308
|
)
|
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
|
Balance at January 1
|
$
|
1,923
|
|
|
$
|
961
|
|
Exit activity costs recognized
|
2,355
|
|
|
354
|
|
Cash payments
|
(1,329
|
)
|
|
(1,256
|
)
|
Balance at June 30
|
$
|
2,949
|
|
|
$
|
59
|
|
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the
three and six
months ended
June 30,
and the applicable effective tax rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Provision for income taxes
|
$
|
6,487
|
|
|
$
|
6,294
|
|
|
$
|
8,058
|
|
|
$
|
9,101
|
|
Effective tax rate
|
24.6
|
%
|
|
21.6
|
%
|
|
23.5
|
%
|
|
22.6
|
%
|
The effective tax rate for the
three and six
months ended
June 30, 2019
and 2018 respectively, was more than the U.S. federal statutory rate of 21% due to state taxes and nondeductible permanent differences partially offset by favorable discrete items.
(15) EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the
three and six
months ended
June 30,
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
$
|
19,913
|
|
|
$
|
22,837
|
|
|
$
|
26,258
|
|
|
$
|
31,189
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
32,321
|
|
|
31,862
|
|
|
32,300
|
|
|
31,824
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
32,321
|
|
|
31,862
|
|
|
32,300
|
|
|
31,824
|
|
Common stock options and stock units
|
321
|
|
|
691
|
|
|
330
|
|
|
674
|
|
Weighted average shares and conversions
|
32,642
|
|
|
32,553
|
|
|
32,630
|
|
|
32,498
|
|
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
366,000
and
377,000
for the three months ended
June 30, 2019
and
2018
, respectively, and
312,000
and
368,000
for the six months ended June 30, 2019 and 2018, respectively.
The Company is organized into
three
reportable segments on the basis of the production process and products and services provided by each segment, identified as follows:
|
|
(i)
|
Residential Products, which primarily includes roof and foundation ventilation products, rain dispersion products and roofing accessories, centralized mail systems and electronic package solutions;
|
|
|
(ii)
|
Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, perimeter security systems, expansion joints, and structural bearings; and
|
|
|
(iii)
|
Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of systems and greenhouse structures.
|
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
The following table illustrates certain measurements used by management to assess performance of the segments described above for the
three and six
months ended
June 30,
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net sales:
|
|
|
|
|
|
|
|
Residential Products
|
$
|
130,433
|
|
|
$
|
131,128
|
|
|
$
|
234,142
|
|
|
$
|
235,076
|
|
Industrial and Infrastructure Products
|
56,547
|
|
|
61,561
|
|
|
111,735
|
|
|
116,185
|
|
Less: Intersegment sales
|
(329
|
)
|
|
(368
|
)
|
|
(646
|
)
|
|
(589
|
)
|
Net Industrial and Infrastructure Products
|
56,218
|
|
|
61,193
|
|
|
111,089
|
|
|
115,596
|
|
Renewable Energy and Conservation
|
76,004
|
|
|
73,715
|
|
|
144,841
|
|
|
130,701
|
|
Total consolidated net sales
|
$
|
262,655
|
|
|
$
|
266,036
|
|
|
$
|
490,072
|
|
|
$
|
481,373
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
Residential Products
|
$
|
20,778
|
|
|
$
|
24,196
|
|
|
$
|
32,868
|
|
|
$
|
37,434
|
|
Industrial and Infrastructure Products
|
4,069
|
|
|
6,604
|
|
|
8,198
|
|
|
9,206
|
|
Renewable Energy and Conservation
|
9,649
|
|
|
9,556
|
|
|
11,281
|
|
|
13,618
|
|
Unallocated Corporate Expenses
|
(7,890
|
)
|
|
(8,082
|
)
|
|
(15,175
|
)
|
|
(14,141
|
)
|
Total consolidated income from operations
|
$
|
26,606
|
|
|
$
|
32,274
|
|
|
$
|
37,172
|
|
|
$
|
46,117
|
|
The following tables illustrate revenue disaggregated by timing of transfer of control to the customer for the
three and six
months ended
June 30
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Residential Products
|
|
Industrial and Infrastructure Products
|
|
Renewable Energy and Conservation
|
|
Total
|
Net sales:
|
|
|
|
|
|
|
|
Point in Time
|
$
|
129,566
|
|
|
$
|
46,315
|
|
|
$
|
8,469
|
|
|
$
|
184,350
|
|
Over Time
|
867
|
|
|
9,903
|
|
|
67,535
|
|
|
78,305
|
|
Total net sales
|
$
|
130,433
|
|
|
$
|
56,218
|
|
|
$
|
76,004
|
|
|
$
|
262,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Residential Products
|
|
Industrial and Infrastructure Products
|
|
Renewable Energy and Conservation
|
|
Total
|
Net sales:
|
|
|
|
|
|
|
|
Point in Time
|
$
|
130,958
|
|
|
$
|
51,428
|
|
|
$
|
8,724
|
|
|
$
|
191,110
|
|
Over Time
|
170
|
|
|
9,765
|
|
|
64,991
|
|
|
74,926
|
|
Total net sales
|
$
|
131,128
|
|
|
$
|
61,193
|
|
|
$
|
73,715
|
|
|
$
|
266,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Residential Products
|
|
Industrial and Infrastructure Products
|
|
Renewable Energy and Conservation
|
|
Total
|
Net sales:
|
|
|
|
|
|
|
|
Point in Time
|
$
|
232,458
|
|
|
$
|
91,602
|
|
|
$
|
15,759
|
|
|
$
|
339,819
|
|
Over Time
|
1,684
|
|
|
19,487
|
|
|
129,082
|
|
|
150,253
|
|
Total net sales
|
$
|
234,142
|
|
|
$
|
111,089
|
|
|
$
|
144,841
|
|
|
$
|
490,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Residential Products
|
|
Industrial and Infrastructure Products
|
|
Renewable Energy and Conservation
|
|
Total
|
Net sales:
|
|
|
|
|
|
|
|
Point in Time
|
$
|
233,842
|
|
|
$
|
97,971
|
|
|
$
|
14,344
|
|
|
$
|
346,157
|
|
Over Time
|
1,234
|
|
|
17,625
|
|
|
116,357
|
|
|
135,216
|
|
Total net sales
|
$
|
235,076
|
|
|
$
|
115,596
|
|
|
$
|
130,701
|
|
|
$
|
481,373
|
|