Item 1. Financial Statements
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,
2021 2020 2021 2020
Net Sales $ 369,353 $ 296,792 $ 1,005,334 $ 767,377
Cost of sales 286,101 218,297 781,133 573,460
Gross profit 83,252 78,495 224,201 193,917
Selling, general, and administrative expense 45,274 37,552 141,999 109,449
Income from operations 37,978 40,943 82,202 84,468
Interest expense 491 217 1,180 483
Other expense (income) 72 ( 48 ) ( 4,279 ) ( 1,422 )
Income before taxes 37,415 40,774 85,301 85,407
Provision for income taxes 9,561 9,440 20,578 19,714
Income from continuing operations 27,854 31,334 64,723 65,693
Discontinued operations:
(Loss) Income before taxes ( 201 ) 2,814 1,867 9,390
Provision for income taxes 97 388 323 1,972
(Loss) Income from discontinued operations ( 298 ) 2,426 1,544 7,418
Net income $ 27,556 $ 33,760 $ 66,267 $ 73,111
Net earnings per share – Basic:
Income from continuing operations $ 0.85 $ 0.96 $ 1.97 $ 2.01
(Loss) Income from discontinued operations ( 0.01 ) 0.07 0.05 0.23
Net income $ 0.84 $ 1.03 $ 2.02 $ 2.24
Weighted average shares outstanding -- Basic 32,802 32,635 32,791 32,606
Net earnings per share – Diluted:
Income from continuing operations $ 0.84 $ 0.95 $ 1.96 $ 2.00
(Loss) Income from discontinued operations ( 0.01 ) 0.07 0.05 0.22
Net income $ 0.83 $ 1.02 $ 2.01 $ 2.22
Weighted average shares outstanding -- Diluted 33,050 32,969 33,055 32,902
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Net income $ 27,556 $ 33,760 $ 66,267 $ 73,111
Other comprehensive (loss) income:
Foreign currency translation adjustment ( 1,057 ) 2,200 2,902 ( 883 )
Minimum post retirement benefit plan adjustments 27 18 81 54
Other comprehensive (loss) income ( 1,030 ) 2,218 2,983 ( 829 )
Total comprehensive income $ 26,526 $ 35,978 $ 69,250 $ 72,282
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30,
2021 December 31,
2020
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 13,934 $ 32,054
Accounts receivable, net of allowance of $ 5,799 and $ 3,529 , respectively
260,624 197,990
Inventories, net 156,494 98,307
Prepaid expenses and other current assets 20,592 19,671
Assets of discontinued operations — 77,438
Total current assets 451,644 425,460
Property, plant, and equipment, net 96,263 89,562
Operating lease assets 19,858 25,229
Goodwill 508,660 514,279
Acquired intangibles 154,655 156,365
Other assets 1,135 1,599
$ 1,232,215 $ 1,212,494
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 165,940 $ 134,738
Accrued expenses 71,663 83,505
Billings in excess of cost 42,133 34,702
Liabilities of discontinued operations — 49,295
Total current liabilities 279,736 302,240
Long-term debt 59,695 85,636
Deferred income taxes 37,000 39,057
Non-current operating lease liabilities 12,837 17,730
Other non-current liabilities 28,263 24,026
Stockholders’ equity:
Preferred stock, $ 0.01 par value; authorized 10,000 shares; none outstanding
— —
Common stock, $ 0.01 par value; 100,000 shares and 50,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 33,782 shares and 33,568 shares issued and outstanding in 2021 and 2020
338 336
Additional paid-in capital 312,658 304,870
Retained earnings 536,210 469,943
Accumulated other comprehensive income (loss) 522 ( 2,461 )
Cost of 1,102 and 1,028 common shares held in treasury in 2021 and 2020
( 35,044 ) ( 28,883 )
Total stockholders’ equity 814,684 743,805
$ 1,232,215 $ 1,212,494
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
2021 2020
Cash Flows from Operating Activities
Net income $ 66,267 $ 73,111
Income from discontinued operations 1,544 7,418
Income from continuing operations 64,723 65,693
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 23,958 15,749
Stock compensation expense 6,769 6,151
Gain on sale of business — ( 1,881 )
Exit activity costs, non-cash 1,193 505
(Benefit of) provision for deferred income taxes ( 689 ) 680
Other, net 1,274 763
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable ( 65,297 ) ( 40,883 )
Inventories ( 65,906 ) 2,007
Other current assets and other assets ( 316 ) 6,055
Accounts payable 32,029 12,856
Accrued expenses and other non-current liabilities ( 12,261 ) ( 22,379 )
Net cash (used in) provided by operating activities of continuing operations ( 14,523 ) 45,316
Net cash (used in) provided by operating activities of discontinued operations ( 2,002 ) 10,878
Net cash (used in) provided by operating activities ( 16,525 ) 56,194
Cash Flows from Investing Activities
Purchases of property, plant, and equipment ( 13,312 ) ( 7,893 )
Acquisitions, net of cash acquired 4,143 ( 54,385 )
Net proceeds from sale of business 38,062 723
Net proceeds from sale of property and equipment 61 1,355
Net cash provided by (used in) investing activities of continuing operations 28,954 ( 60,200 )
Net cash used in investing activities of discontinued operations ( 176 ) ( 952 )
Net cash provided by (used in) investing activities 28,778 ( 61,152 )
Cash Flows from Financing Activities
Proceeds from long-term debt 58,500 —
Long-term debt payments ( 83,636 ) —
Purchase of common stock at market prices ( 6,161 ) ( 6,408 )
Net proceeds from issuance of common stock 1,021 377
Net cash used in financing activities ( 30,276 ) ( 6,031 )
Effect of exchange rate changes on cash ( 97 ) ( 558 )
Net decrease in cash and cash equivalents ( 18,120 ) ( 11,547 )
Cash and cash equivalents at beginning of year 32,054 191,363
Cash and cash equivalents at end of period $ 13,934 $ 179,816
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Additional
Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive (Loss) Income Treasury Stock Total
Stockholders’ Equity
Shares Amount Shares Amount
Balance at December 31, 2020 33,568 $ 336 $ 304,870 $ 469,943 $ ( 2,461 ) 1,028 $ ( 28,883 ) $ 743,805
Net income — — — 12,762 — — — 12,762
Foreign currency translation adjustment — — — — 3,198 — — 3,198
Minimum post retirement benefit plan adjustments, net of taxes of $ 10
— — — — 27 — — 27
Stock compensation expense — — 2,368 — — — — 2,368
Stock options exercised 25 — 910 — — — — 910
Net settlement of restricted stock units 118 1 ( 1 ) — — 54 ( 4,662 ) ( 4,662 )
Balance at March 31, 2021 33,711 $ 337 $ 308,147 $ 482,705 $ 764 1,082 $ ( 33,545 ) $ 758,408
Net income — — — 25,949 — — — 25,949
Foreign currency translation adjustment — — — — 761 — — 761
Minimum post retirement benefit plan adjustments, net of taxes of $ 10
— — — — 27 — — 27
Stock compensation expense — — 2,567 — — — — 2,567
Stock options exercised 1 — 14 — — — — 14
Awards of common shares 3 — — — — — — —
Net settlement of restricted stock units 3 — — — — 1 ( 118 ) ( 118 )
Balance at June 30, 2021 33,718 $ 337 $ 310,728 $ 508,654 $ 1,552 1,083 $ ( 33,663 ) $ 787,608
Net income — — — 27,556 — — — 27,556
Foreign currency translation adjustment — — — — ( 1,057 ) — — ( 1,057 )
Minimum post retirement benefit plan adjustments, net of taxes of $ 9
— — — — 27 — — 27
Stock compensation expense — — 1,834 — — — — 1,834
Stock options exercised 10 — 97 — — — — 97
Net settlement of restricted stock units 54 1 ( 1 ) — — 19 ( 1,381 ) ( 1,381 )
Balance at September 30, 2021 33,782 $ 338 $ 312,658 $ 536,210 $ 522 1,102 $ ( 35,044 ) $ 814,684
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Additional
Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive Loss Treasury Stock Total
Stockholders’ Equity
Shares Amount Shares Amount
Balance at December 31, 2019 33,192 $ 332 $ 295,582 $ 405,668 $ ( 5,391 ) 906 $ ( 22,227 ) $ 673,964
Net income — — — 12,059 — — — 12,059
Foreign currency translation adjustment — — — — ( 5,898 ) — — ( 5,898 )
Minimum post retirement benefit plan adjustments, net of taxes of $ 7
— — — — 18 — — 18
Stock compensation expense — — 1,665 — — — — 1,665
Cumulative effect of accounting change — — — ( 291 ) — — — ( 291 )
Stock options exercised 3 — 24 — — — — 24
Net settlement of restricted stock units 193 2 ( 2 ) — — 80 ( 4,184 ) ( 4,184 )
Balance at March 31, 2020 33,388 $ 334 $ 297,269 $ 417,436 $ ( 11,271 ) 986 $ ( 26,411 ) $ 677,357
Net income — — — 27,292 — — — 27,292
Foreign currency translation adjustment — — — — 2,815 — — 2,815
Minimum post retirement benefit plan adjustments, net of taxes of $ 6
— — — — 18 — — 18
Stock compensation expense — — 2,506 — — — — 2,506
Stock options exercised 6 — 54 — — — — 54
Awards of common shares 4 — — — — — — —
Net settlement of restricted stock units 15 — — — — 7 ( 278 ) ( 278 )
Balance at June 30, 2020 33,413 $ 334 $ 299,829 $ 444,728 $ ( 8,438 ) 993 $ ( 26,689 ) $ 709,764
Net income — — — 33,760 — — — 33,760
Foreign currency translation adjustment — — — — 2,200 — — 2,200
Minimum post retirement benefit plan adjustments, net of taxes of $ 7
— — — — 18 — — 18
Stock compensation expense — — 1,980 — — — — 1,980
Stock options exercised 31 — 299 — — — — 299
Net settlement of restricted stock units 75 1 ( 1 ) — — 31 ( 1,946 ) ( 1,946 )
Balance at September 30, 2020 33,519 $ 335 $ 302,107 $ 478,488 $ ( 6,220 ) 1,024 $ ( 28,635 ) $ 746,075
See accompanying notes to consolidated financial statements.
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GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Gibraltar Industries, Inc. (the "Company") have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons, such as the impact of the COVID-19 pandemic, financial results for any interim period are not necessarily indicative of the results expected for any subsequent interim period or for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2020.
The balance sheet at December 31, 2020 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) RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements 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, 2020, including interim periods within those fiscal years. The standard is effective for the Company as of January 1, 2021. The Company adopted the amendments in this update and the adoption did not have a material impact to the Company’s financial statements.
Date of adoption: Q1 2021
(3) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable consists of the following (in thousands):
September 30, 2021 December 31, 2020
Trade accounts receivable $ 213,133 $ 174,604
Costs in excess of billings 53,290 26,915
Total accounts receivables 266,423 201,519
Less allowance for doubtful accounts and contract assets ( 5,799 ) ( 3,529 )
Accounts receivable, net $ 260,624 $ 197,990
Refer to Note 4 "Revenue" concerning the Company's costs in excess of billings.
The following table provides a roll-forward of the allowance for credit losses, for the nine month period ended September 30, 2021, 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, 2021 $ 3,529
Bad debt expense, net of recoveries 1,972
Accounts written off against allowance and other adjustments 298
Ending balance as of September 30, 2021 $ 5,799
(4) REVENUE
Sales includes revenue from contracts with customers for: designing, engineering, manufacturing and installation of solar racking systems; electrical balance of systems; roof and foundation ventilation products; centralized mail systems and electronic package solutions; retractable awnings; gutter guards; rain dispersion products; trims and flashings and other accessories; designing, engineering, manufacturing and installation of greenhouses; botanical extraction systems; structural bearings; expansion joints; pavement sealant; elastomeric concrete; and bridge cable protection systems.
Refer to Note 15 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.
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As of September 30, 2021, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.
Contract assets consist of costs in excess of billings presented within accounts receivable in the Company's consolidated balance sheets. Contract liabilities consist of billings in excess of cost, classified as current liabilities, and unearned revenue, presented within accrued expenses, in the Company's consolidated balance sheets. Unearned revenue as of September 30, 2021 and December 31, 2020 was $ 3.2 million and $ 21.3 million, respectively. Revenue recognized during the nine months ended September 30, 2021 and 2020 that was in contract liabilities at the beginning of the respective periods was $ 52.6 million and $ 56.5 million, respectively.
(5) INVENTORIES
Inventories consist of the following (in thousands):
September 30, 2021 December 31, 2020
Raw material $ 119,966 $ 66,018
Work-in-process 7,420 5,382
Finished goods 34,434 31,205
Gross inventory $ 161,820 $ 102,605
Less reserves ( 5,326 ) ( 4,298 )
Total inventories, net $ 156,494 $ 98,307
(6) ACQUISITIONS
2020 Acquisitions
During the year ended December 31, 2020, the Company acquired five businesses in separate transactions, described further below, two of which are included within our Renewables segment, two in our Agtech segment, and one in our Residential segment. The purchase consideration for each acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values.
On December 31, 2020, the Company purchased all the outstanding membership interests of TerraSmart LLC and TerraTrak LLC (collectively, "TerraSmart"), a leading provider of screw-based, ground-mount solar racking technology, particularly used for solar projects installed on challenging terrain. The results of TerraSmart have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewables segment. The purchase consideration for the acquisition of TerraSmart was $ 223.9 million, which includes a working capital adjustment and certain other adjustments provided for in the equity purchase agreement.
The purchase price for the TerraSmart acquisition was preliminarily allocated to the assets acquired and liabilities assumed based upon their respective fair values estimated as of the date of acquisition. The Company has commenced the process to confirm the existence, condition and completeness of the assets acquired and liabilities assumed to establish fair values of such acquired assets and assumed liabilities and to determine the amount of goodwill to be recognized as of the date of acquisition. We continue to gather information supporting the acquired assets and assumed liabilities. Accordingly, all amounts recorded are provisional. These provisional amounts are subject to change if new information is obtained concerning facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The final determination of the fair value of certain assets and liabilities will be completed within a measurement period of up to one year from the date of acquisition. The final values may also result in changes to depreciation and amortization expense related to certain assets such as property, plant and equipment and acquired intangible assets. The preliminary excess consideration (purchase consideration over the aggregate value of the assets acquired net of liabilities assumed) was recorded as goodwill and approximated $ 139.1 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
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the domestic solar energy market. The final purchase price allocation will be completed no later than December 31, 2021.
The preliminary allocation of the TerraSmart 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 $ 1,491
Working capital 7,148
Property, plant and equipment 11,758
Acquired intangible assets 64,150
Other assets 1,854
Other liabilities ( 1,640 )
Goodwill 139,106
Fair value of purchase consideration $ 223,867
The intangible assets acquired in the TerraSmart acquisition consisted of the following (in thousands):
Fair Value Weighted-Average Amortization Period
Trademarks $ 20,830 Indefinite
Technology 1,940 12 years
Customer relationships 35,110 12 years
Backlog 6,270 Less than 1 year
Total $ 64,150
On December 11, 2020, the Company purchased all the outstanding stock of Sunfig Corporation ("Sunfig"), a provider of software solutions that optimize solar energy investments through upstream design, performance and financial modeling, for a purchase consideration of $ 3.8 million, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The results of Sunfig have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewables segment. The excess consideration was recorded as goodwill and approximated $ 3.5 million, all of which is deductible for tax purposes.
On October 15, 2020, the Company purchased substantially all of the assets of Architectural Mailboxes LLC ("Architectural Mailboxes"), a complementary addition to the Company's existing mail and package solutions business within the Residential segment, for a purchase consideration of $ 26.9 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement. The results of Architectural Mailboxes have been included in the Company's consolidated financial results since the date of acquisition within the Company's Residential segment. The excess consideration was recorded as goodwill and approximated $ 7.4 million, all of which is deductible for tax purposes.
On February 13, 2020, the Company purchased substantially all of the assets of Delta Separations, LLC and Teaching Tech, LLC (collectively, "Delta Separations") for a purchase consideration of $ 47.1 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement. 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 Agtech segment. The excess consideration was recorded as goodwill and approximated $ 32.2 million, all of which is deductible for tax purposes.
On January 15, 2020, the Company purchased substantially all of the assets of Thermo Energy Systems Inc. ("Thermo"), a Canadian-based, privately held provider of commercial greenhouse solutions in North America providing growing infrastructure for the plant based organic food market, for a purchase consideration of $ 7.3 million. The results of Thermo have been included in the Company's consolidated financial results since the
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date of acquisition within the Company's Agtech segment. Goodwill of approximately $ 18.7 million was recorded, all of which is deductible for tax purposes.
The allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed in the acquisitions of Sunfig, Architectural Mailboxes, Delta Separations and Thermo is as follows as of the respective date of the acquisition (in thousands):
Cash $ 200
Working capital ( 14,959 )
Property, plant and equipment 1,740
Acquired intangible assets 38,066
Other current assets 1,528
Other assets 2,381
Other liabilities ( 5,576 )
Goodwill 61,722
Fair value of purchase consideration $ 85,102
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 respective markets.
The intangible assets acquired in the acquisitions of Sunfig, Architectural Mailboxes, Delta Separations and Thermo consisted of the following (in thousands):
Fair Value Weighted-Average Amortization Period
Trademarks $ 8,100 Indefinite
Trademarks 1,177 3 years
Technology 8,345 5 - 15 years
Customer relationships 18,480 11 - 13 years
Non-compete agreements 1,036 5 years
Backlog 928 Less than 1 year
Total $ 38,066
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 acquisition of TerraSmart was financed through a combination of cash on hand and borrowings under the Company's revolving credit facility. The acquisitions of Sunfig, Architectural Mailboxes, Delta Separations and Thermo were funded from available cash on hand.
The Company recognized costs as a component of cost of sales related to the sale of inventory at fair value as a result of allocating the purchase price of recent acquisitions. The Company also 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.
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The acquisition-related costs consisted of the following for the three and nine months ended September 30 (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Cost of sales $ — $ — $ — $ 634
Selling, general and administrative costs 53 16 946 1,564
Total acquisition-related costs $ 53 $ 16 $ 946 $ 2,198
(7) GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2021 are as follows (in thousands):
Renewables Residential Agtech Infrastructure Total
Balance at December 31, 2020 $ 192,527 $ 205,452 $ 84,622 $ 31,678 $ 514,279
Adjustments to prior year acquisitions ( 4,323 ) — — — ( 4,323 )
Foreign currency translation ( 990 ) — ( 306 ) — ( 1,296 )
Balance at September 30, 2021 $ 187,214 $ 205,452 $ 84,316 $ 31,678 $ 508,660
The Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. 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, 2021 December 31, 2020
Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization
Indefinite-lived intangible assets:
Trademarks $ 61,000 $ — $ 56,570 $ —
Finite-lived intangible assets:
Trademarks 5,520 3,878 5,818 3,385
Unpatented technology 38,442 19,891 38,752 17,765
Customer relationships 108,937 37,815 98,500 31,580
Non-compete agreements 2,685 1,913 4,885 1,747
Backlog 7,200 5,632 7,228 911
162,784 69,129 155,183 55,388
Total acquired intangible assets $ 223,784 $ 69,129 $ 211,753 $ 55,388
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The following table summarizes the acquired intangible asset amortization expense for the three and nine months ended September 30 (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Amortization expense $ 4,646 $ 2,946 $ 14,125 $ 6,948
Amortization expense related to acquired intangible assets for the remainder of fiscal 2021 and the next five years thereafter is estimated as follows (in thousands):
2021 2022 2023 2024 2025 2026
Amortization expense $ 4,690 $ 12,132 $ 11,200 $ 11,020 $ 10,785 $ 9,210
(8) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, 2021 December 31, 2020
Revolving credit facility $ 60,500 $ 85,000
Other debt — 636
Less unamortized debt issuance costs ( 805 ) —
Total debt $ 59,695 $ 85,636
Senior Credit Agreement
On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("Senior Credit Agreement"), which amended and restated 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 Senior Credit Agreement contains three financial covenants. As of September 30, 2021, the Company was in compliance with all three covenants.
Interest rates on the revolving credit facility are based on LIBOR plus an additional margin that ranges from 1.125 % to 2.00 %. 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 (as defined in the Senior Credit Agreement) and the daily average undrawn balance. The Senior Credit Agreement terminates on 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.
Standby letters of credit of $ 6.6 million have been issued under the Senior Credit Agreement on behalf of the Company as of September 30, 2021. These letters of credit reduce the amount otherwise available under the revolving credit facility. The Company had $ 332.9 million and $ 309.2 million of availability under the revolving credit facility at September 30, 2021 and December 31, 2020, respectively.
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(9) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the cumulative balance of each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, (in thousands):
Foreign Currency Translation Adjustment Minimum post retirement benefit plan
adjustments Total Pre-Tax Amount Tax (Benefit) Expense Accumulated Other
Comprehensive
(Loss) Income
Balance at December 31, 2020 $ ( 872 ) $ ( 2,426 ) $ ( 3,298 ) $ ( 837 ) $ ( 2,461 )
Minimum post retirement health care plan adjustments — 37 37 10 27
Foreign currency translation adjustment 3,198 — 3,198 — 3,198
Balance at March 31, 2021 $ 2,326 $ ( 2,389 ) $ ( 63 ) $ ( 827 ) $ 764
Minimum post retirement health care plan adjustments — 37 37 10 27
Foreign currency translation adjustment
761 — 761 — 761
Balance at June 30, 2021 $ 3,087 $ ( 2,352 ) $ 735 $ ( 817 ) $ 1,552
Minimum post retirement health care plan adjustments — 36 36 9 27
Foreign currency translation adjustment
( 1,057 ) — ( 1,057 ) — ( 1,057 )
Balance at September 30, 2021 $ 2,030 $ ( 2,316 ) $ ( 286 ) $ ( 808 ) $ 522
Foreign Currency Translation Adjustment Minimum post retirement benefit plan
adjustments Total Pre-Tax Amount Tax (Benefit) Expense Accumulated Other
Comprehensive
(Loss) Income
Balance at December 31, 2019 $ ( 4,173 ) $ ( 1,939 ) $ ( 6,112 ) $ ( 721 ) $ ( 5,391 )
Minimum post retirement health care plan adjustments — 25 25 7 18
Foreign currency translation adjustment ( 5,898 ) — ( 5,898 ) — ( 5,898 )
Balance at March 31, 2020 $ ( 10,071 ) $ ( 1,914 ) $ ( 11,985 ) $ ( 714 ) $ ( 11,271 )
Minimum post retirement health care plan adjustments — 24 24 6 $ 18
Foreign currency translation adjustment 2,815 — 2,815 — 2,815
Balance at June 30, 2020 $ ( 7,256 ) $ ( 1,890 ) $ ( 9,146 ) $ ( 708 ) $ ( 8,438 )
Minimum post retirement health care plan adjustments — 25 25 7 18
Foreign currency translation adjustment 2,200 — 2,200 — 2,200
Balance at September 30, 2020 $ ( 5,056 ) $ ( 1,865 ) $ ( 6,921 ) $ ( 701 ) $ ( 6,220 )
The realized adjustments relating to the Company’s minimum 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 stockholders 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 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 stockholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which provides for the issuance of up to 100,000 shares, allows the Company to grant awards of shares of the Company's common stock to non-employee Directors
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of the Company, and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan.
Equity Based Awards - Settled in Stock
The following table sets forth the number of equity-based awards granted during the nine months ended September 30, which will convert to shares upon vesting, along with the weighted average grant date fair values:
2021 2020
Awards Number of
Awards Weighted
Average
Grant Date
Fair Value Number of
Awards (2) Weighted
Average
Grant Date
Fair Value
Performance stock units (1) 62,778 $ 87.84 129,513 $ 53.30
Restricted stock units 62,873 $ 80.43 74,247 $ 56.24
Deferred stock units 7,536 $ 83.58 12,402 $ 45.98
Common shares 2,512 $ 83.58 4,134 $ 45.98
(1) The 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 PSUs granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on either the Company’s return on invested capital (“ROIC”) over a one-year performance period or other criteria such as 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 stockholder return (“TSR”) performance, on a percentile basis, over a three year performance period compared to the S&P Small Cap Industrial sector, over the same three year performance period.
(2) PSUs granted in 2020 include 76,792 PSUs that will be converted to shares and issued to recipients in the first quarter of 2023 at 109.5 % of the target amount granted, based on the Company’s actual ROIC compared to ROIC target for the performance period ended December 31, 2020.
Equity Based Awards - Settled in Cash
The Company's equity-based liability is comprised of awards under a management stock purchase plan. As of September 30, 2021, the Company's total share-based liabilities recorded on the consolidated balance sheet were $ 23.9 million, of which $ 20.7 million was included in non-current liabilities. The share-based liabilities as of December 31, 2020 were $ 18.2 million, of which $ 14.7 million was included in non-current liabilities.
The Company's 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 related company match 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’s stock price. The account will be converted to and settled in cash payable to participants upon retirement or a termination of their service to the Company.
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The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the nine months ended September 30,:
2021 2020
Restricted stock units credited 28,230 54,974
Share-based liabilities paid (in thousands) $ 4,022 $ 4,433
(11) DISCONTINUED OPERATIONS
On February 23, 2021, the Company sold the stock of its Industrial business which had been classified as held for sale and reported as a discontinued operation in the Company’s consolidated financial statements for the year ended December 31, 2020. Net proceeds of $ 38 million, consisting of cash and a $ 13 million seller note, resulted in an estimated pre-tax loss of $ 30 million, subject to working capital and other adjustments, of which $ 29.6 million was recorded when the assets of the Industrial business were written down to fair market value during the fourth quarter of 2020. The seller note was paid in full to the Company during the second quarter of 2021.
The results of operations and financial position of the Industrial business have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. The Company allocates interest to its discontinued operations in accordance with ASC Subtopic 205-20, “Presentation of Financial Statements – Discontinued Operations.” Interest was allocated based on the amount of net assets held by the discontinued operation in comparison to consolidated net assets.
The following carrying amounts of the major classes of assets and liabilities included in discontinued operations related to the Industrial business have been segregated from the Company's continuing operations and are reported as assets and liabilities of discontinued operations, respectively, in the consolidated balance sheet at December 31, 2020 (in thousands):
December 31, 2020
Assets
Accounts receivable, net $ 11,261
Inventories, net 13,041
Prepaid expenses and other current assets 21,310
Total current assets (1) 45,612
Property, plant, and equipment, net 16,999
Operating lease assets 6,470
Goodwill 22,475
Acquired intangibles 15,482
Loss recognized on classification as held for sale ( 29,600 )
Total noncurrent assets (1) 31,826
Total assets classified as held for sale $ 77,438
Liabilities
Accounts payable $ 10,708
Accrued expenses 9,274
Total current liabilities (1) 19,982
Deferred income taxes 24,657
Non-current operating lease liabilities 4,639
Other non-current liabilities 17
Total noncurrent liabilities (1) 29,313
Total liabilities classified as held for sale $ 49,295
(1) The assets and liabilities of the discontinued operations were classified as current on the December 31, 2020 consolidated balance sheet, as it was probable that the sale would occur and proceeds would be collected within one year.
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Components of income from discontinued operations before taxes, including the interest allocated to discontinued operations, for the three and nine months ended September 30 are as follows (in thousands):
Three months ended
September 30, Nine months ended
September 30,
2021 2020 2021 2020
Net sales $ — $ 32,873 $ 20,391 $ 97,541
Operating expenses — 30,028 17,493 88,080
Adjustment to loss on disposal 201 — 1,031 —
Interest expense allocation — 31 — 71
(Loss) Income from discontinued operations before taxes $ ( 201 ) $ 2,814 $ 1,867 $ 9,390
On June 30, 2020, the Company sold its self-guided apartment tour application business to a third party from its Residential segment. The $ 2.0 million net proceeds from the sale resulted in pre-tax net gain of $ 1.9 million and has been presented within other (income) expense in the consolidated statements of income. This divestiture did not meet the criteria to be reported as discontinued operations nor will it have a major effect on the Company's operations.
(12) 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, the sale and exiting of less profitable businesses or product lines, and a reduction in our manufacturing footprint.
Exit activity costs were incurred during the nine months ended September 30, 2021 and 2020 which related to moving and closing costs, severance, and contract terminations, along with asset impairment charges related to the write-down of inventory and impairment of machinery and equipment associated with discontinued product lines, as a result of process simplification initiatives. In conjunction with these initiatives, the Company closed two facilities during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company closed one facility and, separately, sold a facility closed in 2017, as a result of these initiatives.
The following tables set forth the exit activity costs and asset impairment charges incurred by segment during the three and nine months ended September 30, related to the restructuring activities described above (in thousands):
Three months ended September 30,
2021 2020
Exit activity costs Asset impairment charges Total Exit activity (recoveries) costs, net Asset impairment charges Total
Renewables $ 131 $ — $ 131 $ ( 3 ) $ — $ ( 3 )
Residential 83 — 83 165 21 186
Agtech 293 — 293 175 — 175
Infrastructure — — — — — —
Corporate 37 — 37 17 — 17
Total exit activity costs & asset impairments $ 544 $ — $ 544 $ 354 $ 21 $ 375
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Nine months ended September 30,
2021 2020
Exit activity costs Asset impairment charges Total Exit activity costs Asset impairment charges Total
Renewables $ 4,695 $ 1,193 $ 5,888 $ 15 $ — $ 15
Residential 177 — 177 649 21 670
Agtech 1,784 — 1,784 491 72 563
Infrastructure — — — — — —
Corporate 96 — 96 116 — 116
Total exit activity costs & asset impairments $ 6,752 $ 1,193 $ 7,945 $ 1,271 $ 93 $ 1,364
The following table provides a summary of where the exit activity costs and asset impairment charges were recorded in the consolidated statements of income for the three and nine months ended September 30, (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Cost of sales $ 194 $ 222 $ 5,959 $ 763
Selling, general, and administrative expense 350 153 1,986 601
Total exit activity and asset impairment charges $ 544 $ 375 $ 7,945 $ 1,364
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
2021 2020
Balance at January 1 $ 1,030 $ 2,083
Exit activity costs recognized 6,752 1,271
Cash payments ( 5,970 ) ( 2,708 )
Balance at September 30 $ 1,812 $ 646
(13) INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and nine months ended September 30, and the applicable effective tax rates:
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Provision for income taxes $ 9,561 $ 9,440 $ 20,578 $ 19,714
Effective tax rate 25.6 % 23.2 % 24.1 % 23.1 %
The effective tax rate for the three and nine months ended September 30, 2021 and 2020, respectively, was greater than the U.S. federal statutory rate of 21 % due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation.
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(14) EARNINGS PER SHARE
Earnings per share and the weighted average shares outstanding used in the calculating basic and diluted earnings per share are as follows for the three and nine months ended September 30, (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Numerator:
Income from continuing operations $ 27,854 $ 31,334 $ 64,723 $ 65,693
(Loss) Income from discontinued operations ( 298 ) 2,426 1,544 7,418
Net income available to common stockholders $ 27,556 $ 33,760 $ 66,267 $ 73,111
Denominator for basic earnings per share:
Weighted average shares outstanding 32,802 32,635 32,791 32,606
Denominator for diluted earnings per share:
Weighted average shares outstanding 32,802 32,635 32,791 32,606
Common stock options and stock units 248 334 264 296
Weighted average shares and conversions 33,050 32,969 33,055 32,902
The weighted average number of diluted shares does not include potential anti-dilutive common shares issuable pursuant to equity based incentive compensation awards. There were 30,000 and 9,000 shares issuable pursuant to equity based incentive compensation awards excluded from the diluted earnings calculation because the effect of their inclusion would be anti-dilutive for the three months ended September 30, 2021 and 2020, respectively. There were no shares issuable pursuant to equity based incentive compensation awards excluded from the diluted earnings calculation for the nine months ended September 30, 2021 and 24,000 for the nine months ended September 30, 2020.
(15) SEGMENT INFORMATION
The Company is organized into four reportable segments on the basis of the production processes, products and services provided by each segment, identified as follows:
(i) Renewables, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of systems;
(ii) Residential, which primarily includes roof and foundation ventilation products, centralized mail systems and electronic package solutions, retractable awnings and gutter guards, and rain dispersion products, trims and flashings and other accessories;
(iii) Agtech, which provides growing and processing solutions including the designing, engineering, manufacturing and installation of greenhouses, and botanical extraction systems; and
(iv) Infrastructure, which primarily includes structural bearings, expansion joints and pavement sealant for bridges, airport runways and roadways, elastomeric concrete, and bridge cable protection systems.
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. During the first quarter of 2021, the Company reassessed its reportable segments. As a result, the Company's former Renewable Energy and Conservation segment was divided into two reportable segments: Renewables and Agtech.
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The following table illustrates certain measurements used by management to assess performance of the segments described above for the three and nine months ended September 30, (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Net sales:
Renewables $ 130,162 $ 70,246 $ 323,425 $ 173,459
Residential 171,545 151,718 475,971 394,609
Agtech 48,975 58,012 149,410 149,555
Infrastructure 18,671 16,816 56,528 49,754
Total net sales $ 369,353 $ 296,792 $ 1,005,334 $ 767,377
Income from operations:
Renewables $ 12,206 $ 9,070 $ 21,195 $ 21,851
Residential 29,482 32,454 79,571 74,143
Agtech 2,227 5,125 4,133 7,231
Infrastructure 1,640 2,283 7,863 6,660
Unallocated Corporate Expenses ( 7,577 ) ( 7,989 ) ( 30,560 ) ( 25,417 )
Total income from operations $ 37,978 $ 40,943 $ 82,202 $ 84,468
September 30, 2021 December 31, 2020
Total assets:
Renewables $ 450,702 $ 402,796
Residential 458,744 407,132
Agtech 211,542 216,275
Infrastructure 84,130 80,796
Unallocated corporate assets 27,097 28,057
Assets of discontinued operations — 77,438
$ 1,232,215 $ 1,212,494
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The following tables illustrate segment revenue disaggregated by timing of transfer of control to the customer for the three and nine months ended September 30 (in thousands):
Three Months Ended September 30, 2021
Renewables Residential Agtech Infrastructure Total
Net sales:
Point in Time $ 8,835 $ 170,280 $ 4,010 $ 8,194 $ 191,319
Over Time 121,327 1,265 44,965 10,477 178,034
Total net sales $ 130,162 $ 171,545 $ 48,975 $ 18,671 $ 369,353
Three Months Ended September 30, 2020
Renewables Residential Agtech Infrastructure Total
Net sales:
Point in Time $ 7,038 $ 150,608 $ 14,206 $ 6,378 $ 178,230
Over Time 63,208 1,110 43,806 10,438 118,562
Total net sales $ 70,246 $ 151,718 $ 58,012 $ 16,816 $ 296,792
Nine Months Ended September 30, 2021
Renewables Residential Agtech Infrastructure Total
Net sales:
Point in Time $ 21,855 $ 472,277 $ 16,541 $ 25,301 $ 535,974
Over Time 301,570 3,694 132,869 31,227 469,360
Total net sales $ 323,425 $ 475,971 $ 149,410 $ 56,528 $ 1,005,334
Nine Months Ended September 30, 2020
Renewables Residential Agtech Infrastructure Total
Net sales:
Point in Time $ 16,246 $ 391,227 $ 40,390 $ 18,384 $ 466,247
Over Time 157,213 3,382 109,165 31,370 301,130
Total net sales $ 173,459 $ 394,609 $ 149,555 $ 49,754 $ 767,377
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.