rock-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-22462

GIBRALTAR INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware

16-1445150

(State or incorporation )

(I.R.S. Employer Identification No.)

3556 Lake Shore Road

P.O. Box 2028

Buffalo

New York

14219-0228

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (716) 826-6500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

ROCK

NASDAQ Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2020, the number of common shares outstanding was: 32,423,220.

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GIBRALTAR INDUSTRIES, INC.

INDEX

PAGE
NUMBER

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Income for the Three and S i x Months Ended June 30 , 2020 and 2019 (unaudited)

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2020 and 2019 (unaudited)

Consolidated Balance Sheets as of June 30 , 2020 (unaudited) and December 31, 2019

Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2020 and 2019 (unaudited)

Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30 , 2020 and 2019 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GIBRALTAR INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net Sales	$	285,814	$	262,655	$	535,253	$	490,072
Cost of sales	213,556		199,097		406,608		382,614
Gross profit	72,258		63,558		128,645		107,458
Selling, general, and administrative expense	37,667		36,952		78,864		70,286

Income from operations	34,591		26,606		49,781		37,172
Interest expense	214		219		167		2,280
Other (income) expense	(1,787)		(13)		(1,595)		576
Income before taxes	36,164		26,400		51,209		34,316
Provision for income taxes	8,872		6,487		11,858		8,058





Net income	$	27,292	$	19,913	$	39,351	$	26,258











Net earnings per share:
Basic	$	0.84	$	0.62	$	1.21	$	0.81
Diluted	$	0.83	$	0.61	$	1.20	$	0.80
Weighted average shares outstanding:
Basic	32,605		32,321		32,596		32,300
Diluted	32,860		32,642		32,868		32,630

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	27,292	$	19,913	$	39,351	$	26,258
Other comprehensive income (loss):
Foreign currency translation adjustment	2,815		998		(3,083)		1,840

Minimum pension and post retirement benefit plan adjustments	18		12		36		24

Other comprehensive income (loss)	2,833		1,010		(3,047)		1,864
Total comprehensive income	$	30,125	$	20,923	$	36,304	$	28,122

See accompanying notes to consolidated financial statements.

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GIBRALTAR INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	120,859	$	191,363
Accounts receivable, net of allowance of $6,270 and $6,330	193,609		147,515
Inventories	79,058		78,476
Prepaid expenses and other current assets	22,849		19,748
Total current assets	416,375		437,102
Property, plant, and equipment, net	94,723		95,409
Operating lease assets	33,383		27,662
Goodwill	378,740		329,705
Acquired intangibles	110,481		92,592
Other assets	1,794		1,980
	$	1,035,496	$	984,450
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	116,853	$	83,136
Accrued expenses	94,009		98,463
Billings in excess of cost	29,281		47,598

Total current liabilities	240,143		229,197

Deferred income taxes	40,022		40,334
Non-current operating lease liabilities	24,400		19,669
Other non-current liabilities	21,167		21,286
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding	—		—
Common stock, $0.01 par value; authorized 50,000 shares; 33,413 shares and 33,192 shares issued and outstanding in 2020 and 2019	334		332
Additional paid-in capital	299,829		295,582
Retained earnings	444,728		405,668
Accumulated other comprehensive loss	(8,438)		(5,391)
Cost of 993 and 906 common shares held in treasury in 2020 and 2019	(26,689)		(22,227)
Total shareholders’ equity	709,764		673,964
	$	1,035,496	$	984,450

See accompanying notes to consolidated financial statements.

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GIBRALTAR INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2020		2019
Cash Flows from Operating Activities
Net income	$	39,351	$	26,258


Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization	11,054		9,892
Stock compensation expense	4,171		6,091

Gain on sale of business	(1,881)		—
Exit activity costs, non-cash	346		—


(Benefit of) provision for deferred income taxes	(216)		278

Other, net	1,018		2,437

Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable	(25,842)		(41,156)
Inventories	5,661		13,464
Other current assets and other assets	1,996		(4,983)
Accounts payable	(1,732)		4,012
Accrued expenses and other non-current liabilities	(41,181)		(9,807)


Net cash (used in) provided by operating activities	(7,255)		6,486
Cash Flows from Investing Activities
Acquisitions, net of cash acquired	(54,385)		(264)
Net proceeds from sale of property and equipment	59		60
Purchases of property, plant, and equipment	(5,231)		(6,265)
Net proceeds from sale of business	704		—


Net cash used in investing activities	(58,853)		(6,469)
Cash Flows from Financing Activities

Long-term debt payments	—		(212,000)
Payment of debt issuance costs	—		(1,235)

Purchase of treasury stock at market prices	(4,462)		(3,149)
Net proceeds from issuance of common stock	78		208

Net cash used in financing activities	(4,384)		(216,176)
Effect of exchange rate changes on cash	(12)		1,035
Net decrease in cash and cash equivalents	(70,504)		(215,124)
Cash and cash equivalents at beginning of year	191,363		297,006
Cash and cash equivalents at end of period	$	120,859	$	81,882

See accompanying notes to consolidated financial statements.

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GIBRALTAR INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Treasury Stock						Total Shareholders’ Equity
	Shares	Amount											Shares			Amount
Balance at December 31, 2019	33,192	$	332	$	295,582	$	405,668	$	(5,391)	906	$	(22,227)		$	673,964
Net income	—	—		—		12,059		—		—	—			12,059
Foreign currency translation adjustment	—	—		—		—		(5,898)		—	—			(5,898)
Minimum pension and post retirement benefit plan adjustments, net of taxes of $7	—	—		—		—		18		—	—			18

Stock compensation expense	—	—		1,665		—		—		—	—			1,665
Cumulative effect of accounting change (See Note 2)	—	—		—		(291)		—		—	—			(291)
Stock options exercised	3	—		24		—		—		—	—			24

Net settlement of restricted stock units	193	2		(2)		—		—		80	(4,184)			(4,184)

Balance at March 31, 2020	33,388	$	334	$	297,269	$	417,436	$	(11,271)	986	$	(26,411)		$	677,357
Net income	—	—		—		27,292		—		—	—			27,292
Foreign currency translation adjustment	—	—		—		—		2,815		—	—			2,815
Minimum pension and post retirement benefit plan adjustments, net of taxes of $6	—	—		—		—		18		—	—			18
Stock compensation expense	—	—		2,506		—		—		—	—			2,506
Stock options exercised	6	—		54		—		—		—	—			54
Awards of common shares	4	—		—		—		—		—	—			—
Net settlement of restricted stock units	15	—		—		—		—		7	(278)			(278)

Balance at June 30, 2020	33,413	$	334	$	299,829	$	444,728	$	(8,438)	993	$	(26,689)		$	709,764

See accompanying notes to consolidated financial statements.

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GIBRALTAR INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss	Treasury Stock						Total Shareholders’ Equity
	Shares	Amount											Shares			Amount
Balance at December 31, 2018	32,887	$	329	$	282,525	$	338,995	$	(7,234)	796	$	(17,922)		$	596,693
Net income	—	—		—		6,345		—		—	—			6,345
Foreign currency translation adjustment	—	—		—		—		842		—	—			842
Minimum pension and post retirement benefit plan adjustments, net of taxes of $4	—	—		—		—		12		—	—			12

Stock compensation expense	—	—		2,371		—		—		—	—			2,371
Cumulative effect of accounting change	—	—		—		1,582		—		—	—			1,582
Stock options exercised	12	—		139		—		—		—	—			139

Net settlement of restricted stock units	127	1		(1)		—		—		59	(2,151)			(2,151)

Balance at March 31, 2019	33,026	$	330	$	285,034	$	346,922	$	(6,380)	855	$	(20,073)		$	605,833
Net income	—	—		—		19,913		—		—	—			19,913
Foreign currency translation adjustment	—	—		—		—		998		—	—			998
Minimum pension and post retirement benefit plan adjustments, net of taxes of $5	—	—		—		—		12		—	—			12
Stock compensation expense	—	—		3,720		—		—		—	—			3,720
Stock options exercised	5	—		69		—		—		—	—			69
Awards of common shares	8	—		—		—		—		—	—			—
Net settlement of restricted stock units	62	1		(1)		—		—		25	(998)			(998)

Balance at June 30, 2019	33,101	$	331	$	288,822	$	366,835	$	(5,370)	880	$	(21,071)		$	629,547

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 Form 10-K for the year ended December 31, 2019.

The balance sheet at December 31, 2019 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. 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 standard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the modified retrospective approach through a cumulative-effect adjustment to retained earnings of $291,000, net of $96,000 of income taxes, on the opening consolidated balance sheet as of January 1, 2020. The Company's financial assets that are in the scope of the standard are contract assets and accounts receivables which are short-term in nature. Additionally, the Company has identified and implemented appropriate changes to the Company's business processes, policies and internal controls to support reporting and disclosures.

Date of adoption: Q1 2020

ASU 2018-15

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

The amendments in this update require an entity to apply the same requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract as the entity would for implementation costs incurred to develop or obtain internal-use software. The accounting for the service element is not affected by the amendments in this update.

The standard is effective for the Company as of January 1, 2020. The Company adopted the amendments in this update using the prospective method of adoption, and the adoption did not have a material impact to the Company's financial statements.

Date of adoption: Q1 2020

Recent Accounting Pronouncements Not Yet Adopted

Standard

Description

Financial Statement Effect or Other Significant Matters

ASU No. 2019-12

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance. The amendments of this standard are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued, with the amendments to be applied on a respective, modified retrospective or prospective basis, depending on the specific amendment.

The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements.

Date of adoption: Q1 2021

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(3) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consists of the following (in thousands):


	June 30, 2020		December 31, 2019
Trade accounts receivable	$	175,251	$	133,238
Costs in excess of billings	24,628		20,607
Total accounts receivables	199,879		153,845
Less allowance for doubtful accounts and contract assets	(6,270)		(6,330)
Accounts receivable	$	193,609	$	147,515

Refer to Note 4 "Revenue" concerning the Company's costs in excess of billings.

The Company is exposed to credit losses through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable and costs in excess of billings (collectively "accounts receivable") is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' accounts receivables. Due to the short-term nature of such accounts receivable, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances. Additionally, specific allowance amounts are established to record the appropriate provision for customers that no longer share risk characteristics similar with other accounts receivable. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted as of June 30, 2020.

Estimates are used to determine the allowance. It is based on assessment of anticipated payment and all other historical, current and future information that is reasonably available.

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.


Beginning balance as of January 1, 2020	$	6,330
Adoption of ASU 2016-13, cumulative-effect adjustment to retained earnings	387
Bad debt expense	687
Write-off charged against the allowance and other adjustments	(1,134)
Ending balance as of June 30, 2020	$	6,270

(4) REVENUE

Sales includes revenue from contracts with customers for designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures; extraction systems; roof and foundation ventilation products; centralized mail systems and electronic package solutions; rain dispersion products and roofing accessories; expanded and perforated metal; perimeter security solutions; expansion joints and structural bearings.

Refer to Note 14 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.

As of June 30, 2020, 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. Contract liabilities consist of billings in excess of cost and unearned revenue. The following table presents the beginning and ending balances of costs in excess of billings, billings in excess of cost and unearned revenue as of June 30, 2020 and December 31, 2019, respectively, and

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revenue recognized during the six months ended June 30, 2020 and 2019, respectively, that was in billings in excess of cost and unearned revenue at the beginning of the period (in thousands):


	June 30, 2020		December 31, 2019
Costs in excess of billings	$	24,627	$	20,607
Billings in excess of cost	(29,281)		(47,598)
Unearned revenue	(16,503)		(17,311)


	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Revenue recognized in the period from:
Amounts included in billings in excess of cost at the beginning of the period	$	42,115	$	11,357
Amounts included in unearned revenue at the beginning of the period	$	12,553	$	6,153

(5) INVENTORIES

Inventories consist of the following (in thousands):


	June 30, 2020		December 31, 2019
Raw material	$	43,234	$	45,700
Work-in-process	6,206		5,988
Finished goods	29,618		26,788
Total inventories	$	79,058	$	78,476

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(6) ACQUISITIONS

2020 Acquisitions

On February 13, 2020, the Company purchased substantially all of the assets of Delta Separations, LLC, a California limited liability company, and Teaching Tech, LLC, a California limited liability company (collectively described as "Delta Separations"). Delta Separations was a privately-held engineering company primarily engaged in the assembly and sale of centrifugal ethanol-based extraction systems. The results of Delta Separations have been included in the Company's consolidated financial results since the date of acquisition within the Company's Renewable Energy and Conservation segment. The purchase consideration for the acquisition of Delta Separations was $47.1 million, which includes a working capital adjustment and certain other adjustments provided for in the asset purchase agreement.

The purchase price for the acquisition of the assets was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $32.9 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 presence in the extraction processing markets.

The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):



Working capital	$	4,063
Property, plant and equipment	219
Acquired intangible assets	13,000
Other assets	951
Other liabilities	(4,027)
Goodwill	32,906
Fair value of purchase consideration	$	47,112

The intangible assets acquired in this acquisition consisted of the following (in thousands):


	Fair Value		Weighted-Average Amortization Period
Trademarks	$	6,000	Indefinite
Technology	3,200		10 years
Customer rela