Notes to the Unaudited Consolidated Financial Statements
1. BACKGROUND AND NATURE OF OPERATIONS
Description of Business
Continental Building Products, Inc. (the "Company") is a Delaware corporation. Prior to the acquisition of the gypsum division of Lafarge North America Inc. ("Lafarge N.A.") described below, the Company had no operating activity. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of
three
highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at
one
plant in the United States and at another plant in Canada.
The Acquisition
On
June 24, 2013
, Lone Star Fund VIII (U.S.), L.P., (along with its affiliates and associates, but excluding the companies that it owns as a result of its investment activity, "Lone Star"), entered into a definitive agreement with Lafarge N.A. to purchase the assets of its North American gypsum division for an aggregate purchase price of approximately
$703 million
(the "Acquisition") in cash. The closing of the Acquisition occurred on
August 30, 2013
.
Secondary Public Offerings
On March 18, 2016, following a series of secondary offerings, LSF8 Gypsum Holdings, L.P. ("LSF8") sold its remaining
5,106,803
shares of the Company's common stock at a price per share of
$16.10
. Following the March 18, 2016 transaction and the concurrent repurchase by the Company of
900,000
shares of Company's common stock from LSF8, to the best of the Company's knowledge, neither LSF8 nor any other affiliate of Lone Star held any shares of Company common stock (See Note 11, Treasury Stock).
2. SIGNIFICANT ACCOUNTING POLICIES
|
|
(a)
|
Basis of Presentation
|
The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
|
|
(b)
|
Basis of Presentation for Interim Periods
|
Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim
financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial
position of the Company and the results of operations and cash flows for the periods presented.
The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year
ending December 31, 2018. Seasonal changes and other conditions can affect the sales volumes of the Company's products.
Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.
The financial statements should be read in conjunction with Company's audited consolidated financial statements and the notes
thereto for the year ended December 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year then
ended (the "2017 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.
Revenue from the sale of gypsum products is recognized when control of the promised products is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product to a customer and is the unit of account under ASC 606. Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. Generally, the Company satisfies its performance obligations within a number of days from the time the contract is executed.
The Company records estimated reductions to revenue for customer programs and incentive offerings, including promotions and other volume-based incentives, in the period in which the sale occurs.
Amounts billed to a customer at the transaction price are included in "Net sales," and costs incurred for shipping and handling are treated as fulfillment costs and are classified as "Cost of goods sold" in the Consolidated Statements of Operations. See Note 17, Segment reporting, for disaggregation of revenue by segment.
As of
March 31, 2018
, accounts receivables were
$46.2 million
. The Company had no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheets as of
March 31, 2018
. We do not have any material payment terms as payment is received shortly after the point of sale.
|
|
(d)
|
Supplemental Cash Flow Disclosure
|
|
|
|
|
|
|
|
|
|
Table 2.1: Certain Cash Transactions and Other Activity
|
|
For the Three Months Ended
|
|
March 31, 2018
|
|
March 31, 2017
|
|
(in thousands)
|
Cash paid during the period for:
|
|
|
|
Interest paid on term loan, net
|
$
|
2,396
|
|
|
$
|
2,457
|
|
Income taxes paid, net
|
—
|
|
|
216
|
|
Other activity:
|
|
|
|
Amounts in accounts payable for capital expenditures
|
1,789
|
|
|
915
|
|
|
|
(e)
|
Recent Accounting Pronouncements
|
Accounting Standards Adopted During the Period
In May 2014, the FASB issued ASU No. 2014-9,
"Revenue from Contracts with Customers (Topic 606),"
which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. In August 2015, the FASB issued ASU No. 2015-14,
"Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,"
which deferred the effective date of ASU No. 2014-9 for all entities by one year to annual reporting periods beginning after December 15, 2017. The ASU requires retroactive application on either a full or modified basis. The Company adopted the standard on January 1, 2018 using the modified retrospective approach. Based on evaluation, the Company has concluded it has one revenue stream and the adoption of this new guidance did not have a material impact on its Consolidated Financial Statements. The Company included the disclosures required by this ASU above.
In August 2016, the FASB issued ASU 2016-15,
"Classification of Certain Cash Receipts and Cash Payments."
This ASU reduces existing diversity in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16,
"Intra-Entity Transfers of Assets Other Than Inventory."
The new standard requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sales or transfer occurs. The standard requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The provisions of this standard are effective for fiscal years beginning after December 15, 2017, and early adoption
is permitted. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,
"Leases."
ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on its Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13,
"Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments."
This ASU is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12,
"Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities."
This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The provisions of this standard are effective in 2019 for calendar-year public business entities and in 2020 for all other calendar-year companies. Early adoption of the standard is permitted. The Company is currently evaluating when it will adopt the ASU and the expected impact to its Consolidated Financial Statements.
In February 2018, the FASB issued ASU 2018-02,
"Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The provisions of this standard are effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
Certain reclassifications of prior year information were made to conform to the 2018 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.
3. RECEIVABLES, NET
|
|
|
|
|
|
|
|
|
Table 3: Details of Receivables, Net
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Trade receivables, gross
|
$
|
46,961
|
|
|
$
|
39,577
|
|
Allowance for cash discounts and doubtful accounts
|
(715
|
)
|
|
(808
|
)
|
Receivables, net
|
$
|
46,246
|
|
|
$
|
38,769
|
|
Trade receivables are recorded net of credit memos issued during the normal course of business.
4. INVENTORIES, NET
|
|
|
|
|
|
|
|
|
Table 4: Details of Inventories, Net
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Finished products
|
$
|
6,128
|
|
|
$
|
5,893
|
|
Raw materials
|
14,463
|
|
|
11,663
|
|
Supplies and other
|
7,134
|
|
|
7,326
|
|
Inventories, net
|
$
|
27,725
|
|
|
$
|
24,882
|
|
5. PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
Table 5: Details of Property, Plant and Equipment, Net
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Land
|
$
|
13,187
|
|
|
$
|
13,187
|
|
Buildings
|
114,193
|
|
|
114,051
|
|
Plant machinery
|
282,732
|
|
|
281,786
|
|
Mobile equipment
|
10,565
|
|
|
10,366
|
|
Construction in progress
|
26,789
|
|
|
20,291
|
|
Property, plant and equipment, at cost
|
447,466
|
|
|
439,681
|
|
Accumulated depreciation
|
(153,564
|
)
|
|
(145,678
|
)
|
Property, plant and equipment, net
|
$
|
293,902
|
|
|
$
|
294,003
|
|
Depreciation expense was
$8.1 million
for both the three months ended
March 31, 2018
and
2017
.
6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6.1: Details of Customer Relationships and Other Intangibles, Net
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
(in thousands)
|
Customer relationships
|
$
|
116,531
|
|
|
$
|
(59,855
|
)
|
|
$
|
56,676
|
|
|
$
|
116,711
|
|
|
$
|
(57,811
|
)
|
|
$
|
58,900
|
|
Purchased and internally developed software
|
6,483
|
|
|
(5,015
|
)
|
|
1,468
|
|
|
6,226
|
|
|
(4,871
|
)
|
|
1,355
|
|
Trademarks
|
14,816
|
|
|
(4,527
|
)
|
|
10,289
|
|
|
14,839
|
|
|
(4,287
|
)
|
|
10,552
|
|
Total
|
$
|
137,830
|
|
|
$
|
(69,397
|
)
|
|
$
|
68,433
|
|
|
$
|
137,776
|
|
|
$
|
(66,969
|
)
|
|
$
|
70,807
|
|
Amortization expense was
$2.5 million
and
$3.2 million
for the three months ended
March 31, 2018
and
2017
, respectively.
|
|
|
|
|
Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
|
|
As of March 31, 2018
|
|
(in thousands)
|
April 1, 2018 through December 31, 2018
|
$
|
7,344
|
|
2019
|
8,753
|
|
2020
|
7,869
|
|
2021
|
7,178
|
|
2022
|
6,605
|
|
Thereafter
|
30,684
|
|
Total
|
$
|
68,433
|
|
7. INVESTMENT IN SEVEN HILLS
The Company is a party with an unaffiliated third party to a paperboard liner venture named Seven Hills Paperboard, LLC ("Seven Hills") that provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.
The Company has evaluated the characteristics of its investment and determined that Seven Hills is a variable interest entity, but that it does not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.
Paperboard liner purchased from Seven Hills was
$12.2 million
and
$12.0 million
for the three months ended
March 31, 2018
and
2017
, respectively. As of
March 31, 2018
, the Company had certain purchase commitments for paper totaling
$35.1 million
through
2021
.
8. ACCRUED AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
Table 8: Details of Accrued and Other Liabilities
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Employee-related costs
|
$
|
3,828
|
|
|
$
|
9,258
|
|
Income taxes
|
3,764
|
|
|
—
|
|
Other taxes
|
1,665
|
|
|
938
|
|
Other
|
1,425
|
|
|
1,744
|
|
Accrued and other liabilities
|
$
|
10,682
|
|
|
$
|
11,940
|
|
9. DEBT
|
|
|
|
|
|
|
|
|
Table 9.1: Details of Debt
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
First Lien Credit Agreement (
1
)
|
$
|
270,894
|
|
|
$
|
271,573
|
|
Less: Original issue discount (net of amortization)
|
(1,575
|
)
|
|
(1,681
|
)
|
Less: Debt issuance costs
|
(4,397
|
)
|
|
(4,580
|
)
|
Total debt
|
264,922
|
|
|
265,312
|
|
Less: Current portion of long-term debt
|
(1,680
|
)
|
|
(1,702
|
)
|
Long-term debt
|
$
|
263,242
|
|
|
$
|
263,610
|
|
|
|
(1)
|
As of March 31, 2018 and December 31, 2017, the Amended and Restated Credit Agreement, as amended, had a maturity date of August 18, 2023 and an interest rate of LIBOR (with a
0.75%
floor) plus
2.25%
.
|
On August 18, 2016, the Company, Continental Building Products Operating Company, LLC ("OpCo") and Continental Building Products Canada Inc. and the lenders party thereto and Credit Suisse, as Administrative Agent, entered into an Amended and Restated Credit Agreement amending and restating the Company's First Lien Credit Agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement provides for a
$275 million
senior secured first lien term loan facility and a
$75 million
senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. Related to this debt refinancing, the Company incurred
$4.7 million
of discount and debt issuance costs, of which
$2.5 million
was recorded in Other expense, net on the Consolidated Statements of Operations in 2016, and
$2.2 million
will be amortized over the term of the Amended and Restated Credit Agreement. Upon completion of this debt refinancing, the Company recognized an additional expense of
$3.3 million
related to losses resulting from debt extinguishment which was also reported in Other expense, net on the Consolidated Statements of Operations in 2016. The interest rate under the Amended and Restated Credit Agreement remained floating but was reduced to a spread over LIBOR of
2.75%
and floor of
0.75%
.
On
February 21, 2017
, the Company repriced its term loan under the Amended and Restated Credit Agreement lowering its interest rate by
25
basis points to LIBOR plus
2.50%
. Subsequently, on
December 6, 2017
, the Company further repriced its term loan under the Amended and Restated Credit Agreement lowering its interest rate by an additional 25 basis points to LIBOR plus
2.25%
. The Company may further reduce its interest rate to LIBOR plus
2.00%
based on the attainment of a total leverage ratio of
1.1
or better. All other terms and conditions under the Amended and Restated Credit Agreement remained the same.
During both the three months ended
March 31, 2018
and
2017
, the Company made
$0.7 million
of ordinary scheduled mandatory principal payments. As of
March 31, 2018
, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was
4.6%
.
There were no amounts outstanding under the Revolver as of
March 31, 2018
or
2017
. During the three months ended
March 31, 2018
and
2017
the Company did not have any draws under the Revolver. Interest under the Revolver is floating,
based on LIBOR plus
2.25%
. In addition, the Company pays a facility fee of
50
basis points per annum on the total capacity under the Revolver. Availability under the Revolver as of
March 31, 2018
, based on draws and outstanding letters of credit and absence of violations of covenants, was
$73.4 million
.
|
|
|
|
|
Table 9.2: Details of Future Minimum Principal Payments Due Under the Amended and Restated Credit Agreement
|
|
Amount Due
|
|
(in thousands)
|
April 1, 2018 through December 31, 2018
|
$
|
2,037
|
|
2019
|
2,716
|
|
2020
|
2,716
|
|
2021
|
2,716
|
|
2022
|
2,716
|
|
Thereafter
|
257,993
|
|
Total Payments
|
$
|
270,894
|
|
Under the terms of the Amended and Restated Credit Agreement, the Company is required to comply with certain covenants, including among others, the limitation of indebtedness, limitation on liens, and limitations on certain cash distributions.
One
single financial covenant governs all of the Company's debt and only applies if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than
$22.5 million
as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, taxes, depreciation and amortization. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than
$22.5 million
at
March 31, 2018
, the total leverage ratio of no greater than
5.0
under the financial covenant was not applicable at
March 31, 2018
. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement as of
March 31, 2018
.
10. DERIVATIVE INSTRUMENTS
Commodity Derivative Instruments
As of
March 31, 2018
, the Company had
2.9 million
mmBTUs (millions of British Thermal Units) in aggregate notional amount outstanding natural gas swap contracts to manage commodity price exposures. All of these contracts mature by
December 31, 2018
. The Company elected to designate these derivative instruments as cash flow hedges in accordance with ASC 815-20,
"Derivatives – Hedging"
. No ineffectiveness was recorded on these contracts during the three months ended
March 31, 2018
and
2017
.
Interest Rate Derivative Instrument
In September 2016, the Company entered into interest rate swap agreements for a combined notional amount of
$100.0 million
with a term of
four years
, which hedged the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of
1.323%
and LIBOR floor of
0.75%
. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. No ineffectiveness was recorded on these contracts during the three months ended
March 31, 2018
and
2017
.
On March 29, 2018, the Company terminated its interest rate swap agreements that were previously designated as a cash flow hedge and received
$3.2 million
in cash, the fair value of the swap on the termination date. The unrealized gain at termination remains in accumulated other comprehensive income and will be amortized into interest expense over the life of the original hedged instrument. On the same date, the Company entered into new interest rate swap agreements for a combined notional amount of
$100.0 million
, which expire on
September 30, 2020
and hedge the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of
2.46%
and LIBOR floor of
0.75%
. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
|
|
|
|
|
|
|
|
|
Table 10.1: Details of Derivatives Fair Value
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Assets
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
2,148
|
|
Commodity hedges
|
9
|
|
|
11
|
|
Total assets
|
$
|
9
|
|
|
$
|
2,159
|
|
Liabilities
|
|
|
|
Interest rate swap
|
$
|
108
|
|
|
$
|
—
|
|
Commodity hedges
|
339
|
|
|
613
|
|
Total liabilities
|
$
|
447
|
|
|
$
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 10.2: Gains/(Losses) on Derivatives
|
|
For the Three Months Ended
|
|
March 31, 2018
|
|
March 31, 2017
|
|
March 31, 2018
|
|
March 31, 2017
|
|
Gain/(loss) recognized in Other comprehensive income on derivatives (effective portion), net of tax
|
|
Gain/(loss) reclassified from Accumulated other comprehensive loss into income (effective portion), net of tax
|
|
(in thousands)
|
Interest rate swap
|
$
|
831
|
|
|
$
|
(2
|
)
|
|
$
|
70
|
|
|
$
|
82
|
|
Commodity hedges
|
241
|
|
|
(66
|
)
|
|
(97
|
)
|
|
6
|
|
Total
|
$
|
1,072
|
|
|
$
|
(68
|
)
|
|
$
|
(27
|
)
|
|
$
|
88
|
|
Counterparty Risk
The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company's derivative instruments. As of
March 31, 2018
, the Company's derivatives were in a
$0.4 million
net liability position and recorded in Other current liabilities. All of the Company's counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company's agreements outline the conditions upon which it or the counterparties are required to post collateral. As of
March 31, 2018
, the Company had
no
collateral posted with its counterparties related to the derivatives.
11. TREASURY STOCK
On
November 4, 2015
, the Company announced that the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to
$50 million
of its common stock, at such times and prices as determined by management as market conditions warrant, through
December 31, 2016
. Pursuant to this authorization, the Company has repurchased shares of its common stock in the open market and in the March 2016 private transaction with LSF8 described above.
During
2016
,
2017
and
2018
, the Company announced
three
expansions of its stock repurchase program. The most recent authorization on
February 21, 2018
expanded the program to a total of
$300 million
and also extended the expiration date to
December 31, 2019
.
All repurchased shares are held in treasury, reducing the number of shares of common stock outstanding and used in the Company's earnings per share calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 11: Details of Treasury Stock Activity
|
|
March 31, 2018
|
|
March 31, 2017
|
|
Shares
|
|
Amount (1)
|
|
Average Share Price (1)
|
|
Shares
|
|
Amount (1)
|
|
Average Share Price (1)
|
|
(in thousands, except share data)
|
Beginning Balance
|
6,788,817
|
|
|
$
|
143,357
|
|
|
$
|
21.12
|
|
|
4,499,655
|
|
|
$
|
88,756
|
|
|
$
|
19.73
|
|
Repurchases on open market
|
530,600
|
|
|
14,550
|
|
|
27.42
|
|
|
217,123
|
|
|
5,237
|
|
|
24.12
|
|
Ending Balance
|
7,319,417
|
|
|
$
|
157,907
|
|
|
$
|
21.57
|
|
|
4,716,778
|
|
|
$
|
93,993
|
|
|
$
|
19.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
1
) Includes commissions paid for repurchases on open market.
|
12. SHARE-BASED COMPENSATION
On February 20, 2018, the Company granted certain employees
51,012
Restricted Share Units ("RSUs") that vest ratably over
four
years from the grant date. All of these grants had a market price on the date of grant of
$26.85
. Additionally, on February 21, 2018, the Company granted an employee and members of the Board of Directors
19,788
RSUs and
15,900
RSUs, respectively that vest ratably over a period of
four
years for the employee and
one
year for the members of the Board of Directors from the grant date and had a market price on the date of grant of
$27.00
.
On February 20, 2018 and February 21, 2018, the Company also granted certain employees
21,385
Performance Based RSUs ("PRSUs") and
19,788
PRSUs, respectively. The PRSUs vest on December 31, 2020, with the exact number of PRSUs vesting subject to the achievement of certain performance conditions through December 31, 2019. The number of PRSUs earned will vary from
0%
to
240%
of the number of PRSUs awarded, depending on the Company’s performance relative to a cumulative two year EBITDA target for fiscal years 2018 and 2019 and the Company's Total Shareholder Return ("TSR") relative to the TSRs of a pre-determined peer group. The market price on February 20, 2018 was
$26.85
, and the market price on February 21, 2018 was
$27.00
.
For the three months ended
March 31, 2018
and
2017
, the Company recognized share-based compensation expenses of
$0.6 million
and
$0.7 million
in expense, respectively. The expenses related to share-based compensation awards that were recorded in selling and administrative expenses. As of
March 31, 2018
, there was
$6.4 million
of total unrecognized compensation cost related to non-vested stock options, restricted stock awards, RSUs and PRSUs. This cost is expected to be recognized over a weighted average period of
2.6 years
.
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13: Details of Changes in Accumulated Other Comprehensive Loss by Category
|
|
Foreign currency translation adjustment
|
|
Net unrealized gain on derivatives, net of tax
|
|
Total
|
|
(in thousands)
|
Balance as of December 31, 2017
|
$
|
(3,636
|
)
|
|
$
|
987
|
|
|
$
|
(2,649
|
)
|
Other comprehensive (loss)/income before reclassifications
|
(481
|
)
|
|
1,072
|
|
|
591
|
|
Amounts reclassified from Accumulated other comprehensive loss
|
—
|
|
|
(27
|
)
|
|
(27
|
)
|
Net current period other comprehensive (loss)/income
|
(481
|
)
|
|
1,045
|
|
|
564
|
|
Balance as of March 31, 2018
|
$
|
(4,117
|
)
|
|
$
|
2,032
|
|
|
$
|
(2,085
|
)
|
14. INCOME TAXES
The Company’s estimated annual effective tax rate is approximately
22.9%
. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Cuts and Jobs Act of 2017 (the "Act"), the Company calculated its best estimate of the impact of the Act in its 2017 year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of its Annual Report on Form 10-K for fiscal year 2017 and as a result had recorded
$9.2 million
reduction in income tax expense in the fourth quarter of 2017. No adjustment was made to the provisional amount as a result of additional information obtained for the three months ended
March 31, 2018
. The accounting is expected to be complete when the 2017 U.S. federal and state corporate income tax returns are filed in late 2018.
The Company is subject to audit examinations at federal, state and local levels by tax authorities in those jurisdictions. In addition, the Canadian operations are subject to audit examinations at federal and provincial levels by tax authorities in those jurisdictions. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcome of any challenges would be subject to uncertainty. The Company has not identified any issues that did not meet the recognition threshold or would be impacted by the measurement provisions of the uncertain tax position guidance.
15. EARNINGS PER SHARE
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of potentially dilutive securities. Potentially dilutive common stock has no effect on income available to common stockholders. For the three months ended
March 31, 2018
and
2017
respectively, approximately
62,949
and
84,456
share-based compensation awards were excluded from the weighted average shares outstanding because their impact would be anti-dilutive in the computation of dilutive earnings per share.
|
|
|
|
|
|
|
|
|
Table 15: Details of Basic and Dilutive Earnings Per Share
|
|
For the Three Months Ended
|
|
March 31, 2018
|
|
March 31, 2017
|
|
(dollars in thousands, except for per share amounts)
|
Net income
|
$
|
13,646
|
|
|
$
|
12,227
|
|
|
|
|
|
Weighted average number of shares outstanding - basic
|
37,432,782
|
|
|
39,576,268
|
|
Effect of dilutive securities:
|
|
|
|
Restricted stock awards
|
3,509
|
|
|
10,061
|
|
Restricted stock units
|
72,012
|
|
|
74,349
|
|
Performance restricted stock units
|
69,509
|
|
|
16,523
|
|
Stock options
|
27,141
|
|
|
24,925
|
|
Total effect of dilutive securities
|
172,171
|
|
|
125,858
|
|
Weighted average number of shares outstanding - diluted
|
37,604,953
|
|
|
39,702,126
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.36
|
|
|
$
|
0.31
|
|
Diluted earnings per share
|
$
|
0.36
|
|
|
$
|
0.31
|
|
16. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain buildings and equipment. The Company's facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The total expenses under operating leases for both the three months ended
March 31, 2018
and
2017
was
$0.8 million
. The Company also has non-capital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials. The total amounts purchased under such commitments were
$22.4 million
and
$17.6 million
for the three months ended
March 31, 2018
and
2017
, respectively.
|
|
|
|
|
|
|
|
|
Table 16: Details of Future Minimum Lease Payments Due Under Noncancellable Operating Leases and Purchase Commitments
|
|
Future Minimum Lease Payments
|
|
Purchase Commitments
|
|
(in thousands)
|
April 1, 2018 - December 31, 2018
|
$
|
540
|
|
|
$
|
23,932
|
|
2019
|
1,658
|
|
|
27,939
|
|
2020
|
48
|
|
|
27,054
|
|
2021
|
—
|
|
|
8,828
|
|
2022
|
—
|
|
|
5,410
|
|
2023
|
—
|
|
|
5,572
|
|
Thereafter
|
—
|
|
|
53,621
|
|
Total
|
$
|
2,246
|
|
|
$
|
152,356
|
|
Contingent obligations
Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of
March 31, 2018
and
December 31, 2017
, the Company had outstanding letters of credit of approximately
$1.6 million
.
Legal Matters
In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry. These indemnifications might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
In the ordinary course of business, the Company is involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total liability for these legal actions and claims cannot be determined with certainty. When the Company determines that it is probable that a liability for environmental matters, legal actions or other contingencies has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in the financial statements. As of
March 31, 2018
and
December 31, 2017
, such liabilities were not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. While management believes its accruals for such liabilities are adequate, the Company may incur costs in excess of the amounts provided. Although the ultimate amount of liability that may result from these matters or actions is not ascertainable, any amounts exceeding the recorded accruals are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
17. SEGMENT REPORTING
Segment information is presented in accordance with ASC 280,
Segment Reporting,
which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. The Company's primary reportable segment is wallboard, which represented approximately
96.7%
and
96.6%
of the Company's revenues for the three months ended
March 31, 2018
and
2017
, respectively. This segment produces wallboard for the commercial and residential construction sectors. The Company also manufactures finishing products, which complement the Company's full range of wallboard products.
Revenues from the major products sold to external customers include gypsum wallboard and finishing products.
The Company's
two
geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets.
The Company evaluates operating performance based on profit or loss from operations before certain adjustments as shown below. Revenues are attributed to geographic areas based on the location of the customer generating the revenue. The Company did not provide asset information by segment as its Chief Operating Decision Maker does not use such information for purposes of allocating resources and assessing segment performance.
|
|
|
|
|
|
|
|
|
Table 17.1: Segment Reporting
|
|
For the Three Months Ended
|
|
March 31, 2018
|
|
March 31, 2017
|
|
(in thousands)
|
Net Sales:
|
|
|
|
Wallboard
|
$
|
112,971
|
|
|
$
|
116,476
|
|
Other
|
3,831
|
|
|
4,139
|
|
Total net sales
|
$
|
116,802
|
|
|
$
|
120,615
|
|
Operating Income:
|
|
|
|
Wallboard
|
$
|
21,030
|
|
|
$
|
21,592
|
|
Other
|
(268
|
)
|
|
95
|
|
Total operating income
|
$
|
20,762
|
|
|
$
|
21,687
|
|
Adjustments:
|
|
|
|
Interest expense
|
$
|
(2,720
|
)
|
|
$
|
(2,916
|
)
|
Losses from equity investment
|
(364
|
)
|
|
(170
|
)
|
Other expense, net
|
(140
|
)
|
|
(644
|
)
|
Income before provision for income taxes
|
$
|
17,538
|
|
|
$
|
17,957
|
|
Depreciation and Amortization:
|
|
|
|
Wallboard
|
$
|
10,305
|
|
|
$
|
11,022
|
|
Other
|
276
|
|
|
264
|
|
Total depreciation and amortization
|
$
|
10,581
|
|
|
$
|
11,286
|
|
|
|
|
|
|
|
|
|
|
Table 17.2: Details of Net Sales By Geographic Region
|
|
For the Three Months Ended
|
|
March 31, 2018
|
|
March 31, 2017
|
|
(in thousands)
|
United States
|
$
|
109,975
|
|
|
$
|
110,386
|
|
Canada
|
6,827
|
|
|
10,229
|
|
Net sales
|
$
|
116,802
|
|
|
$
|
120,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 17.3: Details of Assets By Geographic Region
|
|
Fixed Assets
|
|
Total Assets
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
United States
|
$
|
290,371
|
|
|
$
|
290,324
|
|
|
$
|
621,878
|
|
|
$
|
622,836
|
|
Canada
|
3,531
|
|
|
3,679
|
|
|
18,738
|
|
|
19,098
|
|
Total
|
$
|
293,902
|
|
|
$
|
294,003
|
|
|
$
|
640,616
|
|
|
$
|
641,934
|
|
18. FAIR VALUE DISCLOSURES
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. As of
March 31, 2018
and
December 31, 2017
, the carrying value reported in the consolidated balance sheet for the Company's notes payable approximated its fair value. The only assets or liabilities the Company had at
March 31, 2018
that are recorded at fair value on a recurring basis are the natural gas hedges and interest rate swaps. Generally, the Company obtains its Level 2 pricing inputs from its counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value when they are considered to be impaired.
There were no fair value adjustments for assets and liabilities measured on a non-recurring basis. The Company discloses fair value information about financial instruments for which it is practicable to estimate that value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 18.1: Fair Value Hierarchy - 2018
|
|
As of March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
|
(in thousands)
|
Asset
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivatives
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Total assets
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
108
|
|
Commodity derivatives
|
—
|
|
|
339
|
|
|
—
|
|
|
339
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
447
|
|
|
$
|
—
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 18.2: Fair Value Hierarchy - 2017
|
|
As of December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance
|
|
(in thousands)
|
Asset
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
2,148
|
|
|
$
|
—
|
|
|
$
|
2,148
|
|
Commodity derivatives
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Total assets
|
$
|
—
|
|
|
$
|
2,159
|
|
|
$
|
—
|
|
|
$
|
2,159
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity derivatives
|
—
|
|
|
613
|
|
|
—
|
|
|
613
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
613
|
|
|
$
|
—
|
|
|
$
|
613
|
|