Document

Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 https://cdn.kscope.io/00b32ec993644ede845fbfec228f5974-gibindcolorlogonotaga02.gif
 
FORM 10-Q
 
 
 
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
¨
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 other jurisdiction of
incorporation or organization)
 
(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
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  x    No  ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
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  x
As of July 25, 2017, the number of common shares outstanding was: 31,601,117.



Table of Contents

GIBRALTAR INDUSTRIES, INC.
INDEX
 
 
PAGE NUMBER
PART I.
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-32
Item 2.
 
33-42
Item 3.
 
Item 4.
 
PART II.
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 


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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Net Sales
$
247,627

 
$
265,738

 
$
454,232

 
$
503,409

Cost of sales
185,802

 
196,895

 
343,152

 
380,416

Gross profit
61,825

 
68,843

 
111,080

 
122,993

Selling, general, and administrative expense
36,895

 
40,267

 
76,471

 
76,656

Income from operations
24,930

 
28,576

 
34,609

 
46,337

Interest expense
3,550

 
3,666

 
7,126

 
7,357

Other expense
353

 
8,195

 
407

 
8,160

Income before taxes
21,027

 
16,715

 
27,076

 
30,820

Provision for (benefit of) income taxes
7,853

 
(1,897
)
 
9,906

 
3,179

Income from continuing operations
13,174

 
18,612

 
17,170

 
27,641

Discontinued operations:
 
 
 
 
 
 
 
Loss before taxes
(644
)
 

 
(644
)
 

Benefit of income taxes
(239
)
 

 
(239
)
 

Loss from discontinued operations
(405
)
 

 
(405
)
 

Net income
$
12,769

 
$
18,612

 
$
16,765

 
$
27,641

Net earnings per share – Basic:
 
 
 
 
 
 
 
Income from continuing operations
$
0.41

 
$
0.59

 
$
0.54

 
$
0.88

Loss from discontinued operations
(0.01
)
 

 
(0.01
)
 

Net income
$
0.40

 
$
0.59

 
$
0.53

 
$
0.88

Weighted average shares outstanding – Basic
31,709

 
31,475

 
31,698

 
31,447

Net earnings per share – Diluted:
 
 
 
 
 
 
 
Income from continuing operations
$
0.41

 
$
0.58

 
$
0.53

 
$
0.87

Loss from discontinued operations
(0.01
)
 

 
(0.01
)
 

Net income
$
0.40

 
$
0.58

 
$
0.52

 
$
0.87

Weighted average shares outstanding – Diluted
32,183

 
32,007

 
32,219

 
31,916

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,
 
2017
 
2016
 
2017
 
2016
Net income
$
12,769

 
$
18,612

 
$
16,765

 
$
27,641

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
1,091

 
7,753

 
1,770

 
10,831

Adjustment to retirement benefit liability, net of tax
(3
)
 
(1
)
 
(6
)
 
(2
)
Adjustment to post employment health care benefit liability, net of tax
30

 
38

 
59

 
76

Other comprehensive income
1,118

 
7,790

 
1,823

 
10,905

Total comprehensive income
$
13,887

 
$
26,402

 
$
18,588

 
$
38,546

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,
2017
 
December 31,
2016
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
182,379

 
$
170,177

Accounts receivable, net
138,871

 
124,072

Inventories
86,065

 
89,612

Other current assets
8,351

 
7,336

Total current assets
415,666

 
391,197

Property, plant, and equipment, net
95,869

 
108,304

Goodwill
320,848

 
304,032

Acquired intangibles
110,325

 
110,790

Other assets
4,750

 
3,922

 
$
947,458

 
$
918,245

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
88,007

 
$
69,944

Accrued expenses
69,389

 
70,392

Billings in excess of cost
13,963

 
11,352

Current maturities of long-term debt
400

 
400

Total current liabilities
171,759

 
152,088

Long-term debt
209,229

 
209,237

Deferred income taxes
38,203

 
38,002

Other non-current liabilities
46,364

 
58,038

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; authorized 10,000 shares; none outstanding

 

Common stock, $0.01 par value; authorized 50,000 shares; 32,155 shares and 32,085 shares issued and outstanding in 2017 and 2016
321

 
320

Additional paid-in capital
267,601

 
264,418

Retained earnings
228,767

 
211,748

Accumulated other comprehensive loss
(5,898
)
 
(7,721
)
Cost of 554 and 530 common shares held in treasury in 2017 and 2016
(8,888
)
 
(7,885
)
Total shareholders’ equity
481,903

 
460,880

 
$
947,458

 
$
918,245

See accompanying notes to consolidated financial statements.

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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited) 
 
Six Months Ended 
 June 30,
 
2017
 
2016
Cash Flows from Operating Activities
 
 
 
Net income
$
16,765

 
$
27,641

Loss from discontinued operations
(405
)
 

Income from continuing operations
17,170

 
27,641

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
11,006

 
11,856

Stock compensation expense
3,191

 
3,218

Net gain on sale of assets
(39
)
 
(198
)
Loss on sale of business

 
8,533

Exit activity (recoveries) costs, non-cash
(2,737
)
 
1,074

Provision for deferred income taxes

 
196

Other, net
628

 
(449
)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 
 
Accounts receivable
(14,446
)
 
9,145

Inventories
2,245

 
4,988

Other current assets and other assets
(2,174
)
 
(4,333
)
Accounts payable
16,962

 
(2,427
)
Accrued expenses and other non-current liabilities
(10,086
)
 
(9,803
)
Net cash provided by operating activities
21,720

 
49,441

Cash Flows from Investing Activities
 
 
 
Cash paid for acquisitions, net of cash acquired
(18,494
)
 
(2,314
)
Net proceeds from sale of property and equipment
12,778

 
162

Purchases of property, plant, and equipment
(3,274
)
 
(4,035
)
Net proceeds from sale of business

 
8,479

Other, net

 
1,118

Net cash (used in) provided by investing activities
(8,990
)
 
3,410

Cash Flows from Financing Activities
 
 
 
Long-term debt payments
(400
)
 
(400
)
Payment of debt issuance costs

 
(54
)
Purchase of treasury stock at market prices
(1,003
)
 
(462
)
Net proceeds from issuance of common stock
247

 
2,057

Net cash (used in) provided by financing activities
(1,156
)
 
1,141

Effect of exchange rate changes on cash
628

 
1,264

Net increase in cash and cash equivalents
12,202

 
55,256

Cash and cash equivalents at beginning of year
170,177

 
68,858

Cash and cash equivalents at end of period
$
182,379

 
$
124,114

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, 2016
32,085

 
$
320

 
$
264,418

 
$
211,748

 
$
(7,721
)
 
530

 
$
(7,885
)
 
$
460,880

Net income

 

 

 
16,765

 

 

 

 
16,765

Foreign currency translation adjustment

 

 

 

 
1,770

 

 

 
1,770

Adjustment to retirement benefit liability, net of taxes of ($3)

 

 

 

 
(6
)
 

 

 
(6
)
Adjustment to post employment health care benefit liability, net of taxes of $36

 

 

 

 
59

 

 

 
59

Stock compensation expense

 

 
3,191

 

 

 

 

 
3,191

Cumulative effect of accounting change (see Note 2)

 

 
(254
)
 
254

 

 

 

 

Stock options exercised
16

 

 
247

 

 

 

 

 
247

Issuance of restricted stock
2

 

 

 

 

 

 

 

Net settlement of restricted stock units
52

 
1

 
(1
)
 

 

 
24

 
(1,003
)
 
(1,003
)
Balance at June 30, 2017
32,155

 
$
321

 
$
267,601

 
$
228,767

 
$
(5,898
)
 
554

 
$
(8,888
)
 
$
481,903

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 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 results of operations for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results expected for the full year. The Company is subject to reduced activity in the first and fourth quarters as colder, inclement weather reduces order rates from end markets it serves. 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, 2016.

Certain prior year amounts have been reclassified to conform to current year's presentation. Refer to Note 2 for a summary of ASUs we adopted during 2017 and the related financial statement impact.

Immaterial Adjustment to Previously Reported Interim Period

For the three and six month periods ended June 30, 2016, immaterial differences were identified between amounts presented in prior quarterly reports on Form 10-Q and amounts required to be recorded in accordance with U.S. generally accepted accounting principles due to errors in the Company's accounting for estimated total contract costs at completion as it is related to revenue recognition under the percentage of completion accounting method. Refer to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 for a complete description of these differences. The corrected amounts for the three and six month periods ended June 30, 2016, are presented in the accompanying consolidated statements of operations, comprehensive income and cash flows.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements Adopted
Standard
Description
Financial Statement Effect or Other Significant Matters
ASU No. 2016-09
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
The standard simplifies the accounting for share-based payment award transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The provisions of this standard are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted.
The Company has adopted all amendments included in this standard under each required transition method.  The Company concluded there were no material changes to prior periods, except for the following: the Company (a) reclassified its prior interim period excess tax benefit for stock compensation of $292,000 on its consolidated statement of cash flows from a financing activity to an operating activity; and (b) recognized a cumulative-effect adjustment of $254,000 as an increase to retained earnings and decrease to additional paid-in capital on the Company's consolidated statement of shareholders' equity as of January 1, 2017 to reflect the change in value for a restricted stock unit liability award as of December 31, 2016, as if the award had been classified as an equity award since its respective grant date.

Date of adoption: Q1 2017

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Table of Contents

Standard
Description
Financial Statement Effect or Other Significant Matters
ASU No. 2017-04
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
The standard eliminates the "Step 2" analysis to determine the amount of impairment realized when a reporting unit's carrying amount exceeds its fair value in its "Step 1" analysis of accounting for impairment of goodwill. The impairment charge would be the amount determined in "Step 1." The provisions of this standard are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.
The Company has adopted this standard and it did not have any impact on the Company's consolidated financial statements.








Date of Adoption: Q1 2017
ASU No. 2017-07
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
The standard requires an employer to recognize the service cost component of net periodic pension costs and net periodic postretirement benefit costs in the same line item(s) as other compensation costs from services rendered by pertinent employees during the period. Other components of net benefit cost are required to be presented separately from the service cost component and outside a subtotal of income from operations. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.
The Company has adopted this standard and has applied it retrospectively for the presentation of the service cost component, as well as, other components of net periodic pension cost and net periodic postretirement benefit cost in our statement of operations. The adoption decreased selling, general, and administrative expense by $160,000 for the three months ended June 30, 2016 and $320,000 for the six months ended June 30, 2016, and comparably increased other expense by the same amounts, respectively. This guidance did not have any impact on our balance sheet or our statement of cash flows.

Date of Adoption: Q1 2017
Recent Accounting Pronouncements Not Yet Adopted
Standard
Description
Financial Statement Effect or Other Significant Matters
ASU No. 2014-09
Revenue from Contracts with Customers (Topic 606)
And All Related ASUs
The standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and assets recognized from costs incurred to obtain or fulfill a contract. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach.
The Company currently believes the most significant impact of this standard upon adoption relates to the revenue recognition for custom fabricated products within the Company's Industrial and Infrastructure Products segment. Under this standard, the Company expects to recognize revenue on an over time basis on custom fabricated products in the Industrial and Infrastructure Products segment which is a change from our current revenue recognition policy of point-in-time basis. The Company expects revenue recognition related to the remaining Industrial and Infrastructure Products segment, Residential Products segment and Renewable Energy and Conservation segment to remain substantially unchanged upon adoption of this standard. The Company has identified and is in the process of implementing appropriate changes to the Company's business processes, systems and internal controls to support recognition and disclosure under this standard. The Company currently anticipates adopting the modified retrospective transition method approach. The Company has not yet completed the process of quantifying the effects of any changes that will result from adoption.

Planned date of adoption: Q1 2018

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Standard
Description
Financial Statement Effect or Other Significant Matters
ASU No. 2016-02
Leases (Topic 842)
The standard requires lessees to recognize most leases as assets and liabilities on the balance sheet, but record expenses on the statement of operations in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases. The standard also requires additional disclosures about leasing arrangements and requires a modified retrospective transition approach for existing leases, whereby the standard will be applied to the earliest year presented. The provisions of the standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.
The Company is currently evaluating the impact of this standard on the Company's consolidated financial statements and related disclosures, including the impact on the Company's current lease portfolio from both a lessor and lessee perspective. The adoption of this standard will primarily result in an increase in the assets and liabilities on the Company's consolidated balance sheet and related disclosures.





Planned date of adoption: Q1 2019
ASU No. 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
The standard provides guidance on eight specific cash flow issues to reduce diversity in reporting. The provisions of this standard are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted.
The Company is currently evaluating the requirements of this standard and has not yet determined its impact on the Company's consolidated financial statements.

Planned date of adoption: Q1 2018
ASU No. 2016-16
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
The standard allows an entity to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The provisions of this standard are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance.
The Company is currently evaluating the requirements of this standard and has not yet determined its impact on the Company's consolidated financial statements.







Planned date of adoption: Q1 2018

3. ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Trade accounts receivable
$
101,578

 
$
81,193

Contract receivables:
 
 
 
Amounts billed
35,658

 
41,569

Costs in excess of billings
7,007

 
6,582

Total contract receivables
42,665

 
48,151

Total accounts receivable
144,243

 
129,344

Less allowance for doubtful accounts
(5,372
)
 
(5,272
)
Accounts receivable
$
138,871

 
$
124,072

Contract receivables are primarily associated with developers, contractors and customers in connection with the Renewable Energy and Conservation segment. Costs in excess of billings principally represent revenues recognized on contracts that were not billable as of the balance sheet date. These amounts will be billed in accordance with contract terms, generally as certain milestones are reached or upon shipment. All of the costs in excess of billings are expected to be collected within one year. In situations where billings exceed revenues recognized, the excess is included in billings in excess of cost in the Consolidated Balance Sheet.

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4. INVENTORIES
Inventories consist of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Raw material
$
42,528

 
$
41,758

Work-in-process
12,580

 
12,268

Finished goods
30,957

 
35,586

Total inventories
$
86,065

 
$
89,612


5. ACQUISITIONS
On February 22, 2017, the Company acquired all of the outstanding stock of Package Concierge. Package Concierge is a leading provider of multifamily electronic package delivery locker systems in the United States.

The acquisition of Package Concierge is expected to enable the Company to expand its position in the fast-growing package delivery solutions market. The results of Package Concierge have been included in the Company's consolidated financial results since the date of acquisition (within the Company's Residential Products segment). The final aggregate purchase consideration for the acquisition of Package Concierge was $18,917,000, which includes a working capital adjustment of $67,000 received by the Company during the second quarter of 2017 and certain other adjustments provided for in the stock purchase agreement.

The purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $16,931,000, which is not deductible for tax purposes. Goodwill represents future economic benefits arising from other assets acquired that could not be individually identified including workforce additions, growth opportunities, and increased presence in the building products markets.

The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
Cash
$
590

Working capital
(2,071
)
Property, plant and equipment
55

Acquired intangible assets
3,600

Other assets
8

Deferred income taxes
(196
)
Goodwill
16,931

Fair value of purchase consideration
$
18,917


The intangible assets acquired in this acquisition consisted of the following (in thousands):
 
Fair Value
 
Estimated
Useful Life
Trademarks
$
600

 
Indefinite
Technology
1,300

 
10 years
Customer relationships
1,700

 
7 years
Total
$
3,600

 
 

On October 11, 2016, the Company acquired all of the outstanding stock of Nexus Corporation ("Nexus"). Nexus is a leading provider of commercial-scale greenhouses to customers in the United States.


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Table of Contents

The acquisition of Nexus is expected to enable the Company to strengthen its position in the commercial greenhouse market in the United States. The results of Nexus 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 final aggregate purchase consideration for the acquisition of Nexus was $23,762,000, which includes a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The remaining estimated purchase adjustment accrued as of December 31, 2016 of $1,000,000 was reduced to $167,000 and was paid by the Company during the first quarter of 2017.

The purchase price for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill and approximated $11,451,000, of which all is deductible for tax purposes.

The allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed is as follows as of the date of the acquisition (in thousands):
Cash
$
2,495

Working capital
(1,109
)
Property, plant and equipment
4,702

Acquired intangible assets
6,200

Other assets
23

Goodwill
11,451

Fair value of purchase consideration
$
23,762


The intangible assets acquired in this acquisition consisted of the following (in thousands):
 
Fair Value
 
Estimated
Useful Life
Trademarks
$
3,200

 
Indefinite
Technology
1,300

 
15 years
Customer relationships
800

 
11 years
Backlog
900

 
0.25 years
Total
$
6,200

 
 

The acquisitions of Package Concierge and Nexus were funded from available cash on hand. The Company incurred certain acquisition-related costs composed of legal and consulting fees, and these costs were recognized as a component of selling, general and administrative expenses in the consolidated statements of operations.

The following table summarizes acquisition-related costs for the three and six months ended June 30 (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Acquisition-related costs
$
13

 
$

 
$
115

 
$
31




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6. GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2017 are as follows (in thousands):
 
Residential
Products
 
Industrial and
Infrastructure
Products
 
Renewable Energy & Conservation
 
Total
Balance at December 31, 2016
$
181,285

 
$
53,884

 
$
68,863

 
$
304,032

Acquired goodwill
16,931

 

 

 
16,931

Adjustments to prior year acquisitions

 

 
(832
)
 
(832
)
Foreign currency translation

 
197

 
520

 
717

Balance at June 30, 2017
$
198,216

 
$
54,081

 
$
68,551

 
$
320,848

Goodwill is recognized net of accumulated impairment losses of $235,419,000 as of June 30, 2017 and December 31, 2016.
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Estimated Life
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
$
45,352

 
$

 
$
44,720

 
$

 
Indefinite
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Trademarks
5,842

 
2,749

 
5,808

 
2,427

 
5 to 15 Years
Unpatented technology
28,020

 
11,030

 
26,720

 
10,041

 
5 to 20 Years
Customer relationships
80,644

 
36,626

 
78,569

 
33,585

 
5 to 17 Years
Non-compete agreements
1,649

 
777

 
1,649

 
623

 
4 to 10 Years
Backlog

 

 
900

 
900

 
0.25 Years
 
116,155

 
51,182

 
113,646

 
47,576

 
 
Total acquired intangible assets
$
161,507

 
$
51,182

 
$
158,366

 
$
47,576

 
 
The following table summarizes the acquired intangible asset amortization expense for the three and six months ended June 30 (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Amortization expense
$
2,230

 
$
2,201

 
$
4,392

 
$
4,382

Amortization expense related to acquired intangible assets for the remainder of fiscal 2017 and the next five years thereafter is estimated as follows (in thousands):
2017
$4,363
2018
$8,286
2019
$7,615
2020
$7,103
2021
$6,501
2022
$6,090

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7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
 
June 30, 2017
 
December 31, 2016
Senior Subordinated 6.25% Notes
$
210,000

 
$
210,000

Other debt
2,400

 
2,800

Less unamortized debt issuance costs
(2,771
)
 
(3,163
)
Total debt
209,629

 
209,637

Less current maturities
400

 
400

Total long-term debt
$
209,229

 
$
209,237

The Company's Fifth Amended and Restated Credit Agreement dated December 9, 2015 (the "Senior Credit Agreement") was amended to convert our secured asset based credit facility into a secured cash flow revolver, and terminates on December 9, 2020.
The Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount of $300 million. The Company has the option to request additional financing from the banks to either increase the revolving credit facility to $500 million or to provide a term loan of up to $200 million. The Senior Credit Agreement contains financial covenants. As of June 30, 2017, the Company is in compliance with all covenants.
Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real property of the Company’s significant domestic subsidiaries. Interest rates on the revolving credit facility are based on the LIBOR plus an additional margin that ranges from 1.25% to 2.25% for LIBOR loans based on the Total Leverage Ratio.
In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20% and 0.30% based on the Total Leverage Ratio and the daily average undrawn balance.
Standby letters of credit of $11,081,000 have been issued under the Senior Credit Agreement on behalf of the Company as of June 30, 2017. These letters of credit reduce the amount otherwise available under the revolving credit facility. As of June 30, 2017, the Company had $288,919,000 of availability under the revolving credit facility. No borrowings were outstanding under the revolving credit facility at June 30, 2017 and December 31, 2016.
On January 31, 2013, the Company issued $210 million of 6.25% Senior Subordinated Notes (6.25% Notes) due February 1, 2021.The provisions of the 6.25% Notes include, without limitation, restrictions on indebtedness, liens, and distributions from restricted subsidiaries, asset sales, affiliate transactions, dividends, and other restricted payments. Dividend payments are subject to annual limits and interest is paid semiannually on February 1 and August 1 of each year.

8. RELATED PARTY TRANSACTIONS
An officer of one of the Company's operating segments is the owner of certain real estate properties leased for manufacturing and distribution purposes by that operating segment. The leases are in effect until June 2018 and June 2020. For the three and six months ended June 30, 2017 and 2016, the Company incurred the following lease expense for these properties.
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Cost of sales
 
$
263

 
$
235

 
$
525

 
$
452



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9. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The cumulative balance of each component of accumulated other comprehensive loss, net of tax, is as follows (in thousands):
 
Foreign Currency Translation Adjustment
 
Minimum Pension
Liability
Adjustment
 
Unamortized Post Retirement Health
Care Costs
 
Total Pre-Tax Amount
 
Tax (Benefit) Expense
 
Accumulated  Other
Comprehensive
(Loss) Income
Balance at December 31, 2016
$
(5,848
)
 
$
197

 
$
(3,150
)
 
$
(8,801
)
 
$
(1,080
)
 
$
(7,721
)
Minimum pension and post retirement health care plan adjustments

 
(9
)
 
95

 
86

 
33

 
53

Foreign currency translation adjustment
1,770

 

 

 
1,770

 

 
1,770

Balance at June 30, 2017
$
(4,078
)
 
$
188

 
$
(3,055
)

$
(6,945
)

$
(1,047
)
 
$
(5,898
)
The realized adjustments relating to the Company’s minimum pension liability and post retirement health care costs were reclassified from accumulated other comprehensive loss and included in other expense in the consolidated statements of operations.

10. EQUITY-BASED COMPENSATION
On May 6, 2016, the shareholders of the Company authorized the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan"). The Non-Employee Directors Plan is a compensation plan that allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company. In connection with the Non-Employee Directors Plan, the Company adopted a new stock deferral plan, the Gibraltar Industries, Inc. Non-Employee Director Stock Deferral Plan ("Deferral Plan"). The Deferral Plan permits non-employee Directors of the Company to defer receipt of shares of common stock which the non-employee Director is entitled to receive pursuant to the terms of the Non-Employee Directors Plan.
On May 7, 2015, the shareholders of the Company authorized the Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "Plan") and simultaneously amended the 2005 Equity Incentive Plan (the "Prior Plan") to terminate issuance of further awards from the Prior Plan. The Plan is an incentive compensation plan that allows the Company to grant equity-based incentive compensation awards to eligible participants. Awards under the Plan may be in the form of options, restricted shares, restricted units, performance shares, performance stock units, and rights.
Equity Based Awards - Settled in Stock
The following table provides the number of stock unit awards granted which will convert to shares upon vesting during the six months ended June 30, along with the weighted average grant date fair values:
 
2017
 
2016
Awards
Number of
Awards
 
Weighted
Average
Grant Date
Fair Value
 
Number of
Awards
 
Weighted
Average
Grant Date
Fair Value
Performance stock units
108,748

 
$
42.72

 

 
$

Restricted stock units
74,292

 
$
42.39

 
109,210

 
$
21.44

Options
25,000

 
$
42.35

 

 
$

Deferred stock units
10,170

 
$
34.42

 
11,945

 
$
29.30

Restricted shares
2,034

 
$
34.42

 
3,185

 
$
29.30

Included in the performance stock units disclosed above are 78,482 units awarded in February 2017 and 5,266 units award in April 2017 for which the final number of units that will convert to shares will be determined based on the Company’s actual return on invested capital (ROIC) relative to the ROIC targeted for the performance period ended December 31, 2017. Additionally, included in the performance stock units disclosed above, there were 20,000 units awarded in February 2017 and 5,000 units award in April 2017. For these awards, the final number of shares to be issued to the recipient will be determined based upon the ranking of the Company’s total shareholder return over a three (3) year performance period ended February 1, 2020 compared to the total shareholder return of companies in the S&P Small Cap Industrial Sector over such period.

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Table of Contents

Performance Stock Units - Settled in Cash
The Company awarded performance stock units ("PSUs") that will convert to cash after three years based upon a one year performance period in 2016 and 2015. The cost of these awards is recognized over the requisite vesting period. The PSUs earned over the performance period are determined based on the Company’s actual return on invested capital (ROIC) relative to the ROIC targeted for the performance period.
During the 2016 performance period, the participants earned an aggregate of 256,000 PSUs, representing 200% of the targeted
2016 award of 128,000. This award will convert to cash payable in January 2019.
During the 2015 performance period, the participants earned an aggregate of 438,000 PSUs, representing 200% of the targeted 2015 award of 219,000. This award will convert to cash payable in January 2018.
The following table summarizes the compensation expense recognized for the PSUs which will convert to cash for the three and six months ended June 30, (in thousands):
 
Three Months Ended 
June 30,
 
Six Months Ended 
June 30,
 
2017
 
2016
 
2017
 
2016
Performance stock unit compensation expense
$
341

 
$
2,916

 
$
2,078

 
$
3,741

Management Stock Purchase Plan
The Management Stock Purchase Plan ("MSPP") provides participants the ability to defer a portion of their compensation, which deferral is converted to restricted stock units, and credited to an account. Under the MSPP, the Company provides a matching award in restricted stock units equal to a percentage of the employees' compensation. Matching awards are not provided to directors. The account represents a share-based liability converted to and settled in cash which is payable to participants upon retirement or a termination of their service to the Company.
The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the six months ended June 30,
 
2017
 
2016
Restricted stock units credited
88,344

 
185,685

Share-based liabilities paid (in $1000s)
$
2,353

 
$
1,984


11. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for similar assets and liabilities.
Level 3 - Inputs that are unobservable inputs for the asset or liability.
The Company had no financial assets or liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016. The Company’s only financial instrument for which the carrying value differs from its fair value is long-term debt. At June 30, 2017 and December 31, 2016, the fair value of outstanding debt net of unamortized debt issuance costs was $219,750,000 and $219,898,000, respectively, compared to its carrying value of $209,629,000 and $209,637,000, respectively.  The fair value of the Company’s Senior Subordinated 6.25% Notes is classified as Level 2 within the fair value hierarchy and was estimated based on quoted market prices adjusted for unamortized debt issuance costs. 
  
12. DISCONTINUED OPERATIONS

For certain divestiture transactions completed in prior years, the Company has agreed to indemnify the buyer for various liabilities that may arise after the disposal date, subject to limits of time and amount. The Company is a party to certain claims made under these indemnification provisions. As of June 30, 2017, the Company has a contingent liability recorded for such provisions related to discontinued operations. Management does not believe that the outcome of this claim, or other claims, would significantly affect the Company's financial condition or results of operation.

13. EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS

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The Company is in its third year of a five year planned transformation strategy formulated to transform its operations and improve its financial results over this five year period. This strategy includes an 80/20 simplification initiative which, in part, focuses the Company’s internal resources on further increasing the value provided to our customers. A result of this initiative was the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued. Portfolio management, another key part of the strategy and a natural adjunct to the 80/20 initiative, is another initiative in which management conducts strategic reviews of our current portfolio for future profitable growth and greater shareholder returns. This initiative has resulted in the sale and exiting of less profitable businesses or products lines in order to enable the Company to re-allocate leadership, time, capital and resources to the highest potential platforms and businesses. Exit activity costs and asset impairment charges were incurred as a result of these initiatives.
Exit activity costs were incurred during the six months ended June 30, 2017 which related to contract termination costs, severance costs, and other moving and closing costs. These costs were the result of the closing and consolidation of facilities, relocation of inventory and equipment at those facilities and the reduction of workforce associated with the discontinued products and closed facilities. During the six months ended June 30, 2017, asset impairment charges incurred were more than offset by a gain on sale of assets previously impaired in 2016 as a result of businesses and product lines discontinued. Specifically, the exit of both the Company's small European residential solar racking business and the exit of the Company's U.S. bar grating product line, which commenced during the fourth quarter of 2016, transacted sales of assets during the six months ended June 30, 2017 which resulted in a net gain. These exits were completed in the first half of 2017. During the six months ended June 30, 2017, asset impairment charges were incurred related to the write-down of inventory and impairment of machinery and equipment associated with either discontinued product lines or the reduction of manufactured goods offered within a product line. These assets were written down to their sale or scrap value, and were subsequently sold or disposed of. During the six months ended June 30, 2017, the company closed three facilities as a result of these initiatives.
During the six months ended June 30, 2016, the Company incurred asset impairment charges and exit activity costs resulting from the above initiatives as well. As a result of these initiatives, the Company sold its European industrial manufacturing business to a third party in April 2016, as well as closed one other facility during the first half of 2016.
The following tables set forth the asset impairment charges and exit activity costs incurred by segment during the three and six months ended June 30, related to the restructuring activities described above (in thousands):
 
Three Months Ended 
 June 30,
 
2017
 
2016
 
Inventory write-downs &/or asset impairment recoveries, net
 
Exit activity costs
 
Total
 
Inventory write-downs &/or asset impairment charges
 
Exit activity costs
 
Total
Residential Products
$
(126
)
 
$
207

 
$
81

 
$
118

 
$
140

 
$
258

Industrial & Infrastructure Products
(1,694
)
 
315

 
(1,379
)
 
46

 
805

 
851

Renewable Energy & Conservation

 
1,369

 
1,369

 

 

 

Corporate

 
135

 
135

 

 

 

Total exit activity costs & asset impairments
$
(1,820
)
 
$
2,026

 
$
206

 
$
164

 
$
945

 
$
1,109

 
Six Months Ended 
 June 30,
 
2017
 
2016
 
Inventory write-downs &/or asset impairment recoveries, net
 
Exit activity costs
 
Total
 
Inventory write-downs &/or asset impairment charges
 
Exit activity costs
 
Total
Residential Products
$
(147
)
 
$
392

 
$
245

 
$
806

 
$
470

 
$
1,276

Industrial & Infrastructure Products
(2,590
)
 
2,971

 
381

 
268

 
1,263

 
1,531

Renewable Energy & Conservation

 
2,419

 
2,419

 

 

 

Corporate

 
163

 
163

 

 

 

Total exit activity costs & asset impairments
$
(2,737
)
 
$
5,945

 
$
3,208

 
$
1,074

 
$
1,733

 
$
2,807



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Table of Contents

The following table provides a summary of where the asset impairments and exit activity costs were recorded in the statement of operations for the three and six months ended June 30, (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Cost of sales
$
(1,472
)
 
$
560

 
$
(478
)
 
$
1,678

Selling, general, and administrative expense
1,678

 
549

 
3,686

 
1,129

Net asset impairment and exit activity charges
$
206

 
$
1,109

 
$
3,208

 
$
2,807


The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
 
2017
 
2016
Balance at January 1
$
3,744

 
$
603

Exit activity costs recognized
5,945

 
1,733

Cash payments
(8,288
)
 
(1,527
)
Balance at June 30
$
1,401

 
$
809


As noted above, the Company sold its European industrial manufacturing business to a third party on April 15, 2016 from its Industrial and Infrastructure Products segment. This divestiture did not meet the criteria to be reported as a discontinued operation as it does not represent a strategic shift that has or will have a major effect on the Company’s operations. Therefore, prior period results of continuing operations have not been restated to exclude the impact of the divested business’s financial results. The pretax loss on disposal is presented within other expense (income) in the consolidated statement of operations. Neither the exiting of the Company’s small European residential solar racking business nor its U.S. bar grating product line met the criteria to be reported as a discontinued operation as well.

14. INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three and six months ended June 30, and the applicable effective tax rates:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Provision for income taxes
$
7,853

 
$
(1,897
)
 
$
9,906

 
$
3,179

Effective tax rate
37.3
%
 
(11.3
)%
 
36.6
%
 
10.3
%
The effective tax rate for the three months and six months ended June 30, 2017 was greater than the U.S. federal statutory rate of 35% due to state taxes and $2.0 million of pretax losses generated by the European residential solar racking business for which no tax benefit has been recorded as such benefit is not expected to be realizable partially offset by net deductible permanent differences and favorable discrete items. The effective tax rate for the three and six months ended June 30, 2016 was less than the U.S. federal statutory rate of 35% due to net deductible permanent differences and favorable discrete items partially offset by state taxes.
The Company recorded a discrete tax benefit of $11.4 million during the three months ended June 30, 2016 due to the effect of a worthless stock deduction and an associated bad debt deduction of inter-company debt resulting from the sale of its European industrial manufacturing business to a third party. The amount of this benefit was subsequently adjusted in the fourth quarter of 2016.


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Table of Contents

15. EARNINGS PER SHARE
Basic earnings and diluted weighted-average shares outstanding are as follows for the three and six months ended June 30, (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Income from continuing operations
$
13,174

 
$
18,612

 
$
17,170

 
$
27,641

Loss from discontinued operations
(405
)
 

 
(405
)
 

Net income available to common shareholders
$
12,769

 
$
18,612

 
$
16,765

 
$
27,641

Denominator for basic earnings per share:
 
 
 
 
 
 
 
Weighted average shares outstanding
31,709

 
31,475

 
31,698

 
31,447

Denominator for diluted earnings per share:
 
 
 
 
 
 
 
Weighted average shares outstanding
31,709

 
31,475

 
31,698

 
31,447

Common stock options and restricted stock
474

 
532

 
521

 
469

Weighted average shares and conversions
$
32,183

 
$
32,007

 
$
32,219

 
$
31,916

The weighted average number of diluted shares does not include potential anti-dilutive common shares aggregating 556,000 and 764,000 for the three months ended June 30, 2017 and 2016, respectively, and 541,000 and 724,000 for the six months ended June 30, 2017 and 2016, respectively .

16. SEGMENT INFORMATION
The Company is organized into three reportable segments on the basis of the production process and products and services provided by each segment, identified as follows:
(i)
Residential Products, which primarily includes roof and foundation ventilation products, mail and package storage products, rain dispersion products and roofing accessories;
(ii)
Industrial and Infrastructure Products, which primarily includes expanded and perforated metal, expansion joints and structural bearings; and
(iii)
Renewable Energy and Conservation, which primarily includes designing, engineering, manufacturing and installation of solar racking systems and greenhouse structures.
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.

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Table of Contents

The following table illustrates certain measurements used by management to assess performance of the segments described above for the three and six months ended June 30, (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2017
 
2016
 
2017
 
2016
Net sales:
 
 
 
 
 
 
 
Residential Products
$
127,252

 
$
119,965

 
$
231,803

 
$
220,112

Renewable Energy and Conservation
62,763

 
64,766

 
114,555

 
122,640

Industrial and Infrastructure Products
57,926

 
81,380

 
108,644

 
161,397

Less: Intersegment sales
(314
)
 
(373
)
 
(770
)
 
(740
)
Net Industrial and Infrastructure Products
57,612

 
81,007

 
107,874

 
160,657

Total consolidated net sales
$
247,627

 
$
265,738

 
$
454,232

 
$
503,409

 
 
 
 
 
 
 
 
Income from operations:
 
 
 
 
 
 
 
Residential Products
$
22,579

 
$
20,725

 
$
38,220

 
$
32,956

Renewable Energy and Conservation
3,492

 
10,296

 
6,832

 
18,603

Industrial and Infrastructure Products
3,397

 
6,190

 
3,360

 
9,516

Unallocated Corporate Expenses
(4,538
)
 
(8,635
)
 
(13,803
)
 
(14,738
)
Total income from operations
$
24,930

 
$
28,576

 
$
34,609

 
$
46,337


17. SUPPLEMENTAL FINANCIAL INFORMATION
The following information sets forth the consolidating summary financial statements of the issuer (Gibraltar Industries, Inc.) and guarantors, which guarantee the Senior Subordinated 6.25% Notes due February 1, 2021, and the non-guarantors. The guarantors are 100% owned domestic subsidiaries of the issuer and the guarantees are full, unconditional, joint and several.
Investments in subsidiaries are accounted for by the parent using the equity method of accounting. The guarantor subsidiaries and non-guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.



























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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2017
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
238,652

 
$
10,627

 
$
(1,652
)
 
$
247,627

Cost of sales

 
178,779

 
8,739

 
(1,716
)
 
185,802

Gross profit

 
59,873

 
1,888

 
64

 
61,825

Selling, general, and administrative expense
34

 
33,681

 
3,180

 

 
36,895

(Loss) income from operations
(34
)
 
26,192

 
(1,292
)
 
64

 
24,930

Interest expense (income)
3,403

 
162

 
(15
)
 

 
3,550

Other expense

 
115

 
238

 

 
353

(Loss) income before taxes
(3,437
)
 
25,915

 
(1,515
)
 
64

 
21,027

(Benefit of) provision for income taxes
(1,340
)
 
9,360

 
(167
)
 

 
7,853

(Loss) income from continuing operations
(2,097
)
 
16,555

 
(1,348
)
 
64

 
13,174

Discontinued operations:
 
 
 
 
 
 
 
 
 
Loss from discontinued operations before taxes

 
(644
)
 

 

 
(644
)
Benefit of income taxes

 
(239
)
 

 

 
(239
)
Loss from discontinued operations

 
(405
)
 

 

 
(405
)
Equity in earnings (loss) from subsidiaries
14,802

 
(1,348
)
 

 
(13,454
)
 

Net income (loss)
$
12,705

 
$
14,802

 
$
(1,348
)
 
$
(13,390
)
 
$
12,769































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
247,912

 
$
19,922

 
$
(2,096
)
 
$
265,738

Cost of sales

 
183,557

 
15,075

 
(1,737
)
 
196,895

Gross profit

 
64,355

 
4,847

 
(359
)
 
68,843

Selling, general, and administrative expense
14,134

 
29,206

 
(3,073
)
 

 
40,267

(Loss) income from operations
(14,134
)
 
35,149

 
7,920

 
(359
)
 
28,576

Interest expense (income)
3,401

 
285

 
(20
)
 

 
3,666

Other expense (income)
8,533

 
225

 
(563
)
 

 
8,195

(Loss) income before taxes
(26,068
)
 
34,639

 
8,503

 
(359
)
 
16,715

(Benefit of) provision for income taxes
(8,275
)
 
5,293

 
1,085

 

 
(1,897
)
Equity in earnings from subsidiaries
36,764

 
7,418

 

 
(44,182
)
 

Net income
$
18,971

 
$
36,764

 
$
7,418

 
$
(44,541
)
 
$
18,612






































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2017
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
436,400

 
$
21,869

 
$
(4,037
)
 
$
454,232

Cost of sales

 
329,286

 
17,721

 
(3,855
)
 
343,152

Gross profit

 
107,114

 
4,148

 
(182
)
 
111,080

Selling, general, and administrative expense
77

 
70,187

 
6,207

 

 
76,471

(Loss) income from operations
(77
)
 
36,927

 
(2,059
)
 
(182
)
 
34,609

Interest expense (income)
6,805

 
354

 
(33
)
 

 
7,126

Other expense

 
245

 
162

 

 
407

(Loss) income before taxes
(6,882
)
 
36,328

 
(2,188
)
 
(182
)
 
27,076

(Benefit of) provision for income taxes
(2,684
)
 
12,738

 
(148
)
 

 
9,906

(Loss) income from continuing operations
(4,198
)
 
23,590

 
(2,040
)
 
(182
)
 
17,170

Discontinued operations:
 
 
 
 
 
 
 
 
 
Loss from discontinued operations before taxes

 
(644
)
 

 

 
(644
)
Benefit of income taxes

 
(239
)
 

 

 
(239
)
Loss from discontinued operations

 
(405
)
 

 

 
(405
)
Equity in earnings (loss) from subsidiaries
21,145

 
(2,040
)
 

 
(19,105
)
 

Net income (loss)
$
16,947

 
$
21,145

 
$
(2,040
)
 
$
(19,287
)
 
$
16,765































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$

 
$
463,125

 
$
47,215

 
$
(6,931
)
 
$
503,409

Cost of sales

 
348,996

 
37,715

 
(6,295
)
 
380,416

Gross profit

 
114,129

 
9,500

 
(636
)
 
122,993

Selling, general, and administrative expense
14,174

 
61,117

 
1,365

 

 
76,656

(Loss) income from operations
(14,174
)
 
53,012

 
8,135

 
(636
)
 
46,337

Interest expense (income)
6,804

 
595

 
(42
)
 

 
7,357

Other expense (income)
8,487

 
441

 
(768
)
 

 
8,160

(Loss) income before taxes
(29,465
)
 
51,976

 
8,945

 
(636
)
 
30,820

(Benefit of) provision for income taxes
(9,482
)
 
11,385

 
1,276

 

 
3,179

Equity in earnings from subsidiaries
48,260

 
7,669

 

 
(55,929
)
 

Net income
$
28,277

 
$
48,260

 
$
7,669

 
$
(56,565
)
 
$
27,641






































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2017
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net income (loss)
$
12,705

 
$
14,802

 
$
(1,348
)
 
$
(13,390
)
 
$
12,769

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 
1,091

 

 
1,091

Adjustment to retirement benefit liability, net of tax

 
(3
)
 

 

 
(3
)
Adjustment to post employment health care benefit liability, net of tax

 
30

 

 

 
30

Other comprehensive income

 
27

 
1,091

 

 
1,118

Total comprehensive income (loss)
$
12,705

 
$
14,829

 
$
(257
)
 
$
(13,390
)
 
$
13,887









































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net income
$
18,971

 
$
36,764

 
$
7,418

 
$
(44,541
)
 
$
18,612

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 
7,753

 

 
7,753

Adjustment to retirement benefit liability, net of tax

 
(1
)
 

 

 
(1
)
Adjustment to post employment health care benefit liability, net of tax

 
38

 

 

 
38

Other comprehensive income

 
37

 
7,753

 

 
7,790

Total comprehensive income
$
18,971

 
$
36,801

 
$
15,171

 
$
(44,541
)
 
$
26,402









































26


Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2017
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net income (loss)
$
16,947

 
$
21,145

 
$
(2,040
)
 
$
(19,287
)
 
$
16,765

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 
1,770

 

 
1,770

Adjustment to retirement benefit liability, net of tax

 
(6
)
 

 

 
(6
)
Adjustment to post employment health care benefit liability, net of tax

 
59

 

 

 
59

Other comprehensive income

 
53

 
1,770

 

 
1,823

Total comprehensive income (loss)
$
16,947

 
$
21,198

 
$
(270
)
 
$
(19,287
)
 
$
18,588









































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Net income
$
28,277

 
$
48,260

 
$
7,669

 
$
(56,565
)
 
$
27,641

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment

 

 
10,831

 

 
10,831

Adjustment to retirement benefit liability, net of tax

 
(2
)
 

 

 
(2
)
Adjustment to post employment health care benefit liability, net of tax

 
76

 

 

 
76

Other comprehensive income

 
74

 
10,831

 

 
10,905

Total comprehensive income
$
28,277

 
$
48,334

 
$
18,500

 
$
(56,565
)
 
$
38,546









































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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
JUNE 30, 2017
(in thousands) 

 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
158,843

 
$
23,536

 
$

 
$
182,379

Accounts receivable, net

 
131,513

 
7,358

 

 
138,871

Intercompany balances
(10,789
)
 
15,604

 
(4,815
)
 

 

Inventories

 
81,927

 
4,138

 

 
86,065

Other current assets
2,730

 
1,498

 
4,123

 

 
8,351

Total current assets
(8,059
)
 
389,385

 
34,340

 

 
415,666

Property, plant, and equipment, net

 
92,450

 
3,419

 

 
95,869

Goodwill

 
298,399

 
22,449

 

 
320,848

Acquired intangibles

 
101,232

 
9,093

 

 
110,325

Other assets

 
4,750

 

 

 
4,750

Investment in subsidiaries
705,610

 
58,978

 

 
(764,588
)
 

 
$
697,551

 
$
945,194

 
$
69,301

 
$
(764,588
)
 
$
947,458

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
84,230

 
$
3,777

 
$

 
$
88,007

Accrued expenses
7,369

 
60,533

 
1,487

 

 
69,389

Billings in excess of cost

 
11,524

 
2,439

 
 
 
13,963

Current maturities of long-term debt

 
400

 

 

 
400

Total current liabilities
7,369

 
156,687

 
7,703

 

 
171,759

Long-term debt
208,279

 
950

 

 

 
209,229

Deferred income taxes

 
35,583

 
2,620

 

 
38,203

Other non-current liabilities

 
46,364

 

 

 
46,364

Shareholders’ equity
481,903

 
705,610

 
58,978

 
(764,588
)
 
481,903

 
$
697,551

 
$
945,194

 
$
69,301

 
$
(764,588
)
 
$
947,458



















29


Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
143,826

 
$
26,351

 
$

 
$
170,177

Accounts receivable, net

 
117,526

 
6,546

 

 
124,072

Intercompany balances
(615
)
 
6,152

 
(5,537
)
 

 

Inventories

 
85,483

 
4,129

 

 
89,612

Other current assets
13,783

 
(10,070
)
 
3,623

 

 
7,336

Total current assets
13,168

 
342,917

 
35,112

 

 
391,197

Property, plant, and equipment, net

 
104,642

 
3,662

 

 
108,304

Goodwill

 
282,300

 
21,732

 

 
304,032

Acquired intangibles

 
101,520

 
9,270

 

 
110,790

Other assets

 
3,922

 

 

 
3,922

Investment in subsidiaries
663,118

 
58,477

 

 
(721,595
)
 

 
$
676,286

 
$
893,778

 
$
69,776

 
$
(721,595
)
 
$
918,245

Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
66,363

 
$
3,581

 
$

 
$
69,944

Accrued expenses
7,369

 
60,004

 
3,019

 

 
70,392

Billings in excess of cost

 
9,301

 
2,051

 

 
11,352

Current maturities of long-term debt

 
400

 

 

 
400

Total current liabilities
7,369

 
136,068

 
8,651

 

 
152,088

Long-term debt
208,037

 
1,200

 

 

 
209,237

Deferred income taxes

 
35,354

 
2,648

 

 
38,002

Other non-current liabilities

 
58,038

 

 

 
58,038

Shareholders’ equity
460,880

 
663,118

 
58,477

 
(721,595
)
 
460,880

 
$
676,286

 
$
893,778

 
$
69,776

 
$
(721,595
)
 
$
918,245



















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Table of Contents

GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2017
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(6,640
)
 
$
31,687

 
$
(3,327
)
 
$

 
$
21,720

Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Cash paid for acquisitions

 
(18,494
)
 

 

 
(18,494
)
Net proceeds from sale of property and equipment

 
12,627

 
151

 

 
12,778

Purchases of property, plant, and equipment

 
(3,123
)
 
(151
)
 

 
(3,274
)
Net cash used in investing activities

 
(8,990
)
 

 

 
(8,990
)
Cash Flows from Financing Activities
 
 
 
 
 
 
 
 
 
Long-term debt payments

 
(400
)
 

 

 
(400
)
Purchase of treasury stock at market prices
(1,003
)
 

 

 

 
(1,003
)
Net proceeds from issuance of common stock
247

 

 

 

 
247

Intercompany financing
7,396

 
(7,280
)
 
(116
)
 

 

Net cash provided by (used in) financing activities
6,640

 
(7,680
)
 
(116
)
 

 
(1,156
)
Effect of exchange rate changes on cash

 

 
628

 

 
628

Net increase (decrease) in cash and cash equivalents

 
15,017

 
(2,815
)
 

 
12,202

Cash and cash equivalents at beginning of year

 
143,826

 
26,351

 

 
170,177

Cash and cash equivalents at end of period
$

 
$
158,843

 
$
23,536

 
$

 
$
182,379



























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Table of Contents


GIBRALTAR INDUSTRIES, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2016
(in thousands)
 
 
Gibraltar
Industries, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(27,296
)
 
$
62,474

 
$
14,263

 
$

 
$
49,441

Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Cash paid for acquisitions

 
(2,314
)
 

 

 
(2,314
)
Net proceeds from sale of property and equipment

 
133

 
29

 

 
162

Purchases of property, plant, and equipment

 
(3,852
)
 
(183
)
 

 
(4,035
)
Net proceeds from sale of business

 

 
8,479

 

 
8,479

Other, net

 
1,118

 

 

 
1,118

Net cash (used in) provided by investing activities

 
(4,915
)
 
8,325

 

 
3,410

Cash Flows from Financing Activities
 
 
 
 
 
 
 
 
 
Long-term debt payments

 
(400
)
 

 

 
(400
)
Payment of debt issuance costs

 
(54
)
 

 

 
(54
)
Purchase of treasury stock at market prices
(462
)
 

 

 

 
(462
)
Net proceeds from issuance of common stock
2,057

 

 

 

 
2,057

Intercompany financing
25,701

 
4,060

 
(29,761
)
 

 

Net cash provided by (used in) financing activities
27,296

 
3,606

 
(29,761
)
 

 
1,141

Effect of exchange rate changes on cash

 

 
1,264

 

 
1,264

Net increase (decrease) in cash and cash equivalents

 
61,165

 
(5,909
)
 

 
55,256

Cash and cash equivalents at beginning of year

 
39,597

 
29,261

 

 
68,858

Cash and cash equivalents at end of period
$

 
$
100,762

 
$
23,352

 
$

 
$
124,114



32


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain information set forth herein includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and, therefore, are or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “anticipates,” “expects,” “estimates,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, competition, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” disclosed in our Annual Report on Form 10-K. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this quarterly report, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and distributor of building products for the industrial, transportation infrastructure, residential housing, renewable energy and resource conservation markets. Our business strategy is designed to significantly elevate and accelerate the growth and financial returns of the Company. We believe this can be achieved, in part, from a transformational change in the Company’s portfolio, as well as, the implementation of the strategy described below. Our business strategy has four key elements, or "pillars," which are: operational excellence, product innovation, portfolio management, and acquisitions as a strategic accelerator. We strive to deliver best-in-class, sustainable value creation for our shareholders for the long-term.

Operational excellence is our first pillar in this strategy. 80/20 simplification ("80/20") is a core part of the operational excellence pillar and is based on the analysis that 25% of the customers typically generate 89% of the revenue in a business, and 150% of the profitability. Through analysis of data generated by our 80/20 practices, we are focusing on our largest and best opportunities (the “80”) and eliminating complexity associated with less profitable opportunities (the “20”) in order to generate more earnings year over year, at a higher rate of return with a more efficient use of capital.

We are in the third year of our multi-year simplification initiative. Since initiation of 80/20 in 2015, we have exceeded our initial five-year target ending 2019 of $25 million of pre-tax savings. We are currently in the middle of this 80/20 initiative, which means that there is both more work and more opportunity ahead. We are targeting greater structural changes affecting our balance sheet. We are starting the follow-on management tools of in-lining our manufacturing processes linked with market-rate-of-demand replenishment tools. These follow-on tools are focused on manufacturing the highest-volume products for our largest customers, and on a much higher level of capacity utilization. We expect these methods will yield additional benefits including lower manufacturing costs, lower inventories and fixed assets, and an even higher level of service to customers.

The second pillar of our strategy is portfolio management, which is a natural adjunct to the 80/20 initiative. Using the 80/20 process, we conduct strategic reviews of our customers and end markets, and allocate leadership time, capital and resources to the platforms and businesses with the highest revenue and margin potential. Following the sale of our European industrial manufacturing business to a third party in April 2016, we decided in December 2016 to exit our small European residential solar racking business and U.S. bar grating product line, both of which proceeded as planned. These portfolio changes have helped contribute to the Company's realization of a higher rate of return on invested capital in 2016. We have now acted on all near-term portfolio assessments and expect no additional changes in 2017 while we continue to position our resources on more attractive projects and markets.


33


Table of Contents

Product innovation is our third strategic pillar. Innovation is centered on the allocation of new and existing resources to opportunities that we believe will produce sustainable returns. Our focus is on driving top line growth with new and innovative products. We are focused on those products and technologies that have relevance to the end-user and can be differentiated from our competition. Our initiatives will be tailored toward reallocating sales and marketing talent to target specific end user groups in order to better understand their needs and the various market opportunities that may be available. This effort is expected to produce ideas and opportunities that generate profitable growth. Our focus on innovation is centered on four markets: postal and parcel products, residential air management, infrastructure and renewable energy. These respective markets are expected to grow based on demand for: centralized mail and parcel delivery systems; zero carbon footprint homes; the need for repairs to elevated bridges that are structurally deficient or functionally obsolete; and energy sources not dependent on fossil fuels.

The fourth pillar of our strategy is acquisitions. We have targeted five key markets in which to make strategic acquisitions, four of which are served by existing platforms within the Company. The existing platforms include the same areas in which we are targeting the development of innovative products: postal and parcel solutions, infrastructure, residential air management and renewable energy. The new market we are targeting for strategic acquisitions is water management and conservation. These platforms are all in large markets in which the underlying trends for customer convenience and safety, energy-savings and resource conservation are of increasing importance to consumers and are expected to drive long-term demand. We believe these markets also offer the opportunity for higher returns on our investments than those we have generated in the past. The acquisitions of Rough Brothers Manufacturing, Inc., RBI Solar, Inc., and affiliates, collectively known as "RBI" in June 2015 and more recently, Nexus Corporation ("Nexus") in October 2016 and Package Concierge in February 2017, were the direct result of this strategy.
On February 22, 2017, the Company acquired all of the outstanding stock of Package Concierge for approximately $19 million subject to a working capital adjustment and certain other adjustments provided for in the stock purchase agreement. The acquisition was financed through cash on hand. Package Concierge is a leading provider of multifamily electronic package delivery locker systems in the United States. The results of operations of Package Concierge have been included within the Residential Products segment of the Company's consolidated financial statements from the date of acquisition.
On February 6, 2017, the Company completed the sale of substantially all of its U.S. bar grating product line assets to a third party. The Company had previously announced, on December 2, 2016, its intentions to exit its U.S. bar grating product line as part of its portfolio management initiative. These assets were a part of our Industrial and Infrastructure Products segment.

On December 2, 2016, the Company announced its decision to exit its European residential solar racking business and U.S. bar grating product line as part of its portfolio management and 80/20 strategic initiatives. These businesses contributed a combined $75 million in revenue and pre-tax operating losses of $6 million in 2016. This action resulted in the sale and closing of 3 facilities in early 2017.

On October 11, 2016, the Company acquired all of the outstanding stock of Nexus for approximately $24 million. The acquisition was financed through cash on hand. Nexus is a leading provider of commercial-scale greenhouses to customers in the United States. The results of operations of Nexus have been included within the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.

On April 15, 2016, the Company sold its European industrial manufacturing business to a third party for net of cash proceeds of $8.3 million. This business, which supplied expanded metal products for filtration and other applications, contributed $36 million in revenue to the Company's Industrial and Infrastructure Products segment in 2015 and had nearly break-even operating results. The Company's divestiture of this business was the result of the Company's portfolio management assessments.

The Company serves customers primarily throughout North America and, to a lesser extent, Asia. Our customers include major home improvement retailers, wholesalers, industrial distributors, contractors, solar developers and institutional and commercial growers of plants. As of June 30, 2017, we operated 42 facilities in 17 states, Canada, China, and Japan, giving us a base of operations to provide customer support, delivery, service and quality to a number of regional and national customers and providing us with manufacturing and distribution efficiencies in North America, as well as a presence in the Asian markets.

The Company operates and reports its results in the following three reporting segments, entitled:
Residential Products;
Renewable Energy and Conservation; and
Industrial and Infrastructure Products.


34


Table of Contents

Our Residential Products segment services residential repair and remodeling activity and new residential housing construction with products including roof and foundation ventilation products, mail and package storage products, rain dispersion products and roof ventilation accessories. This segment's products are sold through major retail home centers, building material wholesalers, distributor groups, residential contractors and property management companies.

Our Renewable Energy and Conservation segment focuses on the design, engineering, manufacturing and installation of solar racking systems and commercial, institutional, and retail greenhouse structures. This segment's services and products are provided directly to developers, select distribution channels, and end users/owners.

Our Industrial and Infrastructure Products segment focuses on a variety of markets including industrial and commercial construction, highway and bridge construction, automotive, airports and energy and power generation markets with products including perimeter security, expanded and perforated metal, plank grating, as well as, expansion joints and structural bearings for roadways and bridges. This segment sells its products through steel fabricators and distributors, commercial and transportation contractors, and original equipment manufacturers.
The end markets our businesses serve include residential housing, industrial manufacturing, transportation infrastructure, and renewable energy and conservation. These end markets are subject to economic conditions that are influenced by various factors. These factors include but are not limited to changes in general economic conditions, interest rates, exchange rates, commodity costs, demand for residential construction, governmental policies and funding, tax policies and the volume of non-residential construction and infrastructure projects. We believe the key elements of our strategy will allow us to respond timely to changes in these factors. We have and expect to continue to restructure our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. Additionally, we believe our strategy has enabled us to better react to fluctuations in commodity costs and customer demand, and has helped in improving margins. We have used the improved cash flows generated by these initiatives to maintain low levels of debt, improve our liquidity position, and invest in growth initiatives. Overall, we are striving to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns.
Results of Operations
Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
The following table sets forth selected data from our statements of operations and the related percentage of net sales for the three months ended June 30, (in thousands):
 
2017
 
2016
Net sales
$
247,627

 
100.0
 %
 
$
265,738

 
100.0
 %
Cost of sales
185,802

 
75.0
 %
 
196,895

 
74.1
 %
Gross profit
61,825

 
25.0
 %
 
68,843

 
25.9
 %
Selling, general, and administrative expense
36,895

 
14.9
 %
 
40,267

 
15.1
 %
Income from operations
24,930

 
10.1
 %
 
28,576

 
10.8
 %
Interest expense
3,550

 
1.4
 %
 
3,666

 
1.4
 %
Other expense
353

 
0.2
 %
 
8,195

 
3.1
 %
Income before taxes
21,027

 
8.5
 %
 
16,715

 
6.3
 %
Provision for (benefit of) income taxes
7,853

 
3.2
 %
 
(1,897
)
 
(0.7
)%
Income from continuing operations
13,174

 
5.3
 %
 
18,612

 
7.0
 %
Loss from discontinued operations
(405
)
 
(0.1
)%
 

 
0.0
 %
Net income
$
12,769

 
5.2
 %
 
$
18,612

 
7.0
 %
The following table sets forth the Company’s net sales by reportable segment for the three months ended June 30, (in thousands):

35


 
 
 
 
 
 
 
Change due to
 
2017
 
2016
 
Total
Change
 
Divestitures
 
Acquisitions
 
Operations
Net sales:
 
 
 
 
 
 
 
 
 
 
 
Residential Products
$
127,252

 
$
119,965

 
$
7,287

 
$

 
$
1,702

 
$
5,585

        Renewable Energy and Conservation
62,763

 
64,766

 
(2,003
)
 
(2,900
)
 
4,522

 
(3,625
)
Industrial and Infrastructure Products
57,926

 
81,380

 
(23,454
)
 
(17,715
)
 

 
(5,739
)
Less: Intersegment sales
(314
)
 
(373
)
 
59

 

 

 
59

Net Industrial and Infrastructure Products
57,612

 
81,007

 
(23,395
)
 
(17,715
)
 

 
(5,680
)
Consolidated
$
247,627

 
$
265,738

 
$
(18,111
)
 
$
(20,615
)
 
$
6,224

 
$
(3,720
)

Consolidated net sales decreased by $18.1 million, or 6.8%, to $247.6 million for the three months ended June 30, 2017 compared to the three months ended June 30, 2016. The decrease in sales was primarily the result of divestitures related to the Company’s portfolio management activities during 2016. The Company sold its European industrial manufacturing business in April 2016 to a third party and exited both the Company's small European residential solar racking business and the Company's U.S. bar grating product line, both of which commenced during the fourth quarter of 2016. These divestitures resulted in a decrease in revenues of $20.6 million from the prior year quarter. Along with the divestitures, volumes in ongoing revenue streams quarter over quarter decreased 3.0%. Slightly offsetting these declines were net sales contributions from our recent acquisitions in our Renewable Energy and Conservation and Residential Products Segments, Nexus in October 2016 and Package Concierge in February 2017, along with a modest 2.0% increase in pricing to customers.
Net sales in our Residential Products segment increased 6.1%, or $7.3 million to $127.3 million for the three months ended June 30, 2017 compared to $120.0 million in the three months ended June 30, 2016. The increase was the result of sales generated from the acquisition of Package Concierge, an increase in pricing to customers, and a net increase in volume. The net sales volume increase was primarily due to an increase in demand for our commercial package solutions as well as our roofing-related ventilation and rain dispersion products.
Net sales in our Renewable Energy and Conservation segment decreased 3.1%, or $2.0 million to $62.8 million for the three months ended June 30, 2017 compared to $64.8 million for the three months ended June 30, 2016. The decrease was the result of the effects of the exit of the Company's small European residential solar racking business, and continued softness in our international markets, partially offset by sales generated from the acquisition of Nexus. The decrease in volume was expected as we entered the second quarter of 2017. Ending backlog for this segment has increased during the second quarter of 2017.
Net sales in our Industrial and Infrastructure Products segment decreased 28.9%, or $23.4 million to $57.6 million for the three months ended June 30, 2017 compared to $81.0 million for the three months ended June 30, 2016. The decrease in net sales was the combined result of the Company's exit from its U.S. bar grating product line and the divestiture of our European industrial manufacturing business, along with a 8.0% decrease in volume as compared to the second quarter in the prior year. A decrease in demand for our infrastructure products, which include components for bridges and elevated highways, contributed to the decline in volume due to continued delay in infrastructure projects. We expect this decline to be temporary due to federal and state funding availability and as evidenced by an increase in segment backlog during the quarter.
Our consolidated gross margin slightly decreased to 25.0% for the three months ended June 30, 2017 compared to 25.9% for the three months ended June 30, 2016. The decrease in margin was largely the result of increased costs for steel and aluminum, less favorable alignment of material costs to customer selling prices and competitive pressures on pricing. This decrease was largely offset by portfolio management actions during 2016 in which less profitable businesses or product lines were sold or exited in order to enable the Company to re-allocate leadership, time, capital and resources to the highest potential platforms and businesses.
Selling, general, and administrative (SG&A) expenses decreased by $3.4 million, or 8.4%, to $36.9 million for the three months ended June 30, 2017 from $40.3 million for the three months ended June 30, 2016. The $3.4 million decrease was primarily due to $5.3 million of lower performance-based compensation expenses. This was partially offset by $2.4 million of additional expense from the acquisitions of Nexus and Package Concierge, as well as a $1.6 million increase in restructuring costs related

36


to our portfolio management and 80/20 initiatives. SG&A expenses as a percentage of net sales slightly decreased to 14.9% in the three months ended June 30, 2017 compared to 15.1% in the three months ended June 30, 2016.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended June 30, (in thousands):
 
2017
 
2016
 
Total
Change
Income (loss) from operations:
 
 
 
 
 
 
 
 
 
Residential Products
$
22,579

 
17.7
 %
 
$
20,725

 
17.3
 %
 
$
1,854

Renewable Energy and Conservation
3,492

 
5.6
 %
 
10,296

 
15.9
 %
 
(6,804
)
Industrial and Infrastructure Products
3,397

 
5.9
 %
 
6,190

 
7.6
 %
 
(2,793
)
Unallocated Corporate Expenses
(4,538
)
 
(1.8
)%
 
(8,635
)
 
(3.2
)%
 
4,097

Consolidated income from operations
$
24,930

 
10.1
 %
 
$
28,576

 
10.8
 %
 
$
(3,646
)
Our Residential Products segment generated an operating margin of 17.7% during the three months ended June 30, 2017 compared to 17.3% during the three months ended June 30, 2016. The increase of $1.9 million of operating profit is due to the benefits of improved operational efficiencies and contributions from the 80/20 initiative.

The Renewable Energy and Conservation segment generated an operating margin of 5.6% in the current year quarter compared to 15.9% in the prior year quarter. The decrease was primarily due to lower volume, an unfavorable alignment of material costs to customer selling prices, and field installation issues isolated to the second quarter, along with $1.4 million of costs incurred to divest the European solar racking business.

Our Industrial and Infrastructure Products segment generated an operating margin of 5.9% during the three months ended June 30, 2017 compared to 7.6% during the three months ended June 30, 2016. The decrease was mainly the result of lower volumes resulting from the divestitures of our U.S. bar grating product line and our European industrial manufacturing business not fully offset by the effects of manufacturing efficiencies resulting from the 80/20 initiative.
Unallocated corporate expenses decreased $4.1 million from $8.6 million during the three months ended June 30, 2016 to $4.5 million during the three months ended June 30, 2017. This decrease from the prior year quarter was largely due to a $5.3 million decrease in performance-based compensation expenses.
The Company recorded other expense of $0.4 million for the three months ended June 30, 2017. Other expense of $8.2 million for the three months ended June 30, 2016 was primarily comprised of the $8.5 million pre-tax loss on the sale of our European industrial manufacturing business, partially offset by net gains on foreign currency transactions.
Interest expense decreased by $0.1 million to $3.6 million for the three months ended June 30, 2017 compared to $3.7 million for the three months ended June 30, 2016. During the three months ended June 30, 2017 and 2016, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $7.9 million for the three months ended June 30, 2017, an effective tax rate of 37.3%, compared with a benefit from income taxes of $1.9 million, with an effective tax rate of (11.3)% for the three months ended June 30, 2016, respectively. The effective tax rate for the second quarter of 2017 exceeded the U.S. federal statutory rate of 35% due to state taxes and $2.0 million of pretax losses generated by the European residential solar racking business for which no tax benefit has been recorded as such benefit is not expected to be realizable, partially offset by net deductible permanent differences and favorable discrete items. The effective tax rate for the second quarter of 2016 was less than the U.S. federal statutory rate of 35% primarily due to a discrete tax benefit of $11.4 million resulting from the sale of our European industrial manufacturing business along with net deductible permanent differences, partially offset by state taxes.

Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
The following table sets forth selected data from our statements of operations and the related percentage of net sales for the six months ended June 30, (in thousands):

37


 
2017
 
2016
Net sales
$
454,232

 
100.0
 %
 
$
503,409

 
100.0
%
Cost of sales
343,152

 
75.5
 %
 
380,416

 
75.6
%
Gross profit
111,080

 
24.5
 %
 
122,993

 
24.4
%
Selling, general, and administrative expense
76,471

 
16.9
 %
 
76,656

 
15.2
%
Income from operations
34,609

 
7.6
 %
 
46,337

 
9.2
%
Interest expense
7,126

 
1.5
 %
 
7,357

 
1.5
%
Other expense
407

 
0.1
 %
 
8,160

 
1.6
%
Income before taxes
27,076

 
6.0
 %
 
30,820

 
6.1
%
Provision for income taxes
9,906

 
2.2
 %
 
3,179

 
0.6
%
Income from continuing operations
17,170

 
3.8
 %
 
27,641

 
5.5
%
Loss from discontinued operations
(405
)
 
(0.1
)%
 

 
0.0
%
Net income
$
16,765

 
3.7
 %
 
$
27,641

 
5.5
%
The following table sets forth the Company’s net sales by reportable segment for the six months ended June 30, (in thousands):
 
 
 
 
 
 
 
Change due to
 
2017
 
2016
 
Total
Change
 
Divestitures
 
Acquisitions
 
Operations
Net sales:
 
 
 
 
 
 
 
 
 
 
 
Residential Products
$
231,803

 
$
220,112

 
$
11,691

 
$

 
$
2,278

 
$
9,413

        Renewable Energy and Conservation
114,555

 
122,640

 
(8,085
)
 
(4,300
)
 
8,829

 
(12,614
)
Industrial and Infrastructure Products
108,644

 
161,397

 
(52,753
)
 
(44,819
)
 

 
(7,934
)
Less: Intersegment sales
(770
)
 
(740
)
 
(30
)
 

 

 
(30
)
Net Industrial and Infrastructure Products
107,874

 
160,657

 
(52,783
)
 
(44,819
)
 

 
(7,964
)
Consolidated
$
454,232

 
$
503,409

 
$
(49,177
)
 
$
(49,119
)
 
$
11,107

 
$
(11,165
)

Consolidated net sales decreased by $49.2 million, or 9.8%, to $454.2 million for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The decrease in sales was primarily the result of divestitures related to the Company’s portfolio management activities during 2016. The Company sold its European industrial manufacturing business in April 2016 to a third party and exited both the Company's small European residential solar racking business and the Company's U.S. bar grating product line, both of which commenced during the fourth quarter of 2016. These divestitures resulted in a decrease in revenues of $49.1 million from the prior year. Along with the divestitures, volumes in comparable revenue streams decreased 4.0% year over year. Net sales contributions from our recent acquisitions in our Renewable Energy and Conservation and Residential Products Segments, Nexus in October 2016 and Package Concierge in February 2017, in conjunction with a modest 2.0% increase in pricing to customers, partially offset these declines.
Net sales in our Residential Products segment increased 5.3%, or $11.7 million to $231.8 million for the six months ended June 30, 2017 compared to $220.1 million in the six months ended June 30, 2016. The increase was the result of sales generated from the acquisition of Package Concierge, an increase in pricing to customers, and net increase in volume. The net sales volume increase was primarily due to an increase in demand for our postal and parcel storage products.
Net sales in our Renewable Energy and Conservation segment decreased 6.6%, or $8.1 million to $114.6 million for the six months ended June 30, 2017 compared to $122.6 million for the six months ended June 30, 2016. The decrease was the result of the effects of the exit of the Company's small European residential solar racking business, continued softness in our international markets, and a reduction in the domestic business, partially offset by sales generated from the acquisition of Nexus. As expected, volume declined in the first half of 2017 with lower backlogs as compared to the beginning of 2016. Ending backlog for this segment now exceeds its prior year level.


38


Net sales in our Industrial and Infrastructure Products segment decreased 32.9%, or $52.8 million to $107.9 million for the six months ended June 30, 2017 compared to $160.7 million for the six months ended June 30, 2016. The decrease in net sales was the combined result of the Company's exit from its U.S. bar grating product line and the divestiture of our European industrial manufacturing business, along with a 6.0% decrease in volume as compared to the same period in the prior year. A decrease in demand for our infrastructure products, which include components for bridges and elevated highways, contributed to the decline in volume due to continued delay in infrastructure projects. We expect this decline to be temporary due to pending federal and state funding availability and as evidenced by an increase in segment backlog for first half of the current year.
Our consolidated gross margin remained relatively unchanged at 24.5% for the six months ended June 30, 2017 compared to 24.4% for the six months ended June 30, 2016. The Company benefited from portfolio management actions during 2016 in which less profitable businesses or products lines were sold or exited in order to enable the Company to re-allocate leadership, time, capital and resources to the platforms and businesses with the highest potential revenue and margins. In addition, other portfolio management actions taken resulting from our 80/20 initiatives contributed to maintaining the margin as well. These benefits were largely offset by less favorable alignment of material costs to customer selling prices.
Selling, general, and administrative (SG&A) expenses modestly decreased by $0.2 million, or 0.3%, to $76.5 million for the six months ended June 30, 2017 from $76.7 million for the six months ended June 30, 2016. The $0.2 million decrease was primarily due to a $3.9 million decrease in performance-based compensation expenses. This was partially offset by a $3.7 million increase in portfolio management charges related to our 80/20 initiatives, as well as senior leadership transition costs. SG&A expenses as a percentage of net sales increased to 16.9% in the six months ended June 30, 2017 compared to 15.2% in the six months ended June 30, 2016.
The following table sets forth the Company’s income from operations and income from operations as a percentage of net sales by reportable segment for the six months ended June 30, (in thousands):
 
2017
 
2016
 
Total
Change
Income (loss) from operations:
 
 
 
 
 
 
 
 
 
Residential Products
$
38,220

 
16.5
 %
 
$
32,956

 
15.0
 %
 
$
5,264

Renewable Energy and Conservation
6,832

 
6.0
 %
 
18,603

 
15.2
 %
 
(11,771
)
Industrial and Infrastructure Products
3,360

 
3.1
 %
 
9,516

 
5.9
 %
 
(6,156
)
Unallocated Corporate Expenses
(13,803
)
 
(3.0
)%
 
(14,738
)
 
(2.9
)%
 
935

Consolidated income from operations
$
34,609

 
7.6
 %
 
$
46,337

 
9.2
 %
 
$
(11,728
)
Our Residential Products segment generated an operating margin of 16.5% during the six months ended June 30, 2017 compared to 15.0% during the six months ended June 30, 2016. The increase of $5.3 million of operating profit is primarily due to the benefits of improved operational efficiencies and contributions from the 80/20 initiative.

The Renewable Energy and Conservation segment generated an operating margin of 6.0% in the current year compared to 15.2% in the prior year. The decrease was primarily due to lower volume, an unfavorable alignment of material costs to customer selling prices, along with $2.4 million of reduction of workforce and facility cleanup costs incurred to divest the European solar racking business.

Our Industrial and Infrastructure Products segment generated an operating margin of 3.1% during the six months ended June 30, 2017 compared to 5.9% during the six months ended June 30, 2016. The decrease was largely an unfavorable alignment of material costs to customer selling prices.
Unallocated corporate expenses decreased $0.9 million from $14.7 million during the six months ended June 30, 2016 to $13.8 million during the six months ended June 30, 2017. The largest contributor to the lower expenses in the current year was the decrease in performance-based compensation expenses. Senior leadership transition costs recorded during the current year partially offset the decreased compensation expenses over the comparable period for 2016.
The Company recorded other expense of $0.4 million for the six months ended June 30, 2017. Other expense of $8.2 million for the six months ended June 30, 2016 was primarily comprised of the $8.5 million pre-tax loss on the sale of our European industrial manufacturing business, partially offset by net gains on foreign currency transactions.

39


Interest expense decreased by $0.2 million to $7.1 million for the six months ended June 30, 2017 compared to $7.4 million for the six months ended June 30, 2016. During the six months ended June 30, 2017 and 2016, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $9.9 million and $3.2 million, with effective tax rates of 36.6% and 10.3% for the six months ended June 30, 2017, and 2016, respectively. The effective tax rate for the six months ended June 30, 2017 exceeded the U.S. federal statutory rate of 35% due to state taxes and $2.0 million of pretax losses generated by the European residential solar racking business for which no tax benefit has been recorded as such benefit is not expected to be realizable, partially offset by net deductible permanent differences and favorable discrete items. The effective tax rate for the six months ended June 30, 2016 was less than the U.S. federal statutory rate of 35% primarily due to a discrete tax benefit of $11.4 million resulting from the sale of our European industrial manufacturing business along with net deductible permanent differences, partially offset by state taxes.
Outlook
For the second half of 2017, we continue to expect generally favorable market conditions for each of our segments, increased bidding activity and continued growth of backlogs in both our Industrial & Infrastructure and Renewable Energy & Conservation segments, as well as increased revenues from our new product development initiatives. As we head into our seasonally strongest quarter, we are maintaining our full year guidance of revenues in the $970 million to $980 million range and earnings per share ("EPS") to be between $1.37 and $1.50 per diluted share, comparing favorably to $1.05 in 2016.
For the second half of 2017 our financial priorities will be to accelerate sales through innovative products, seek value-added acquisitions in attractive end markets, and continue to advance our 80/20 initiatives.
For the third quarter of 2017, we expect revenues in the range of $275 million to $280 million, and EPS to be between $0.51 and $0.58 per diluted share, compared to $0.43 in the third quarter of 2016.


Liquidity and Capital Resources
General
Our principal capital requirements are to fund our operations' working capital and capital improvements and to fund acquisitions. We will continue to invest in growth opportunities as appropriate while focusing on working capital efficiency and profit improvement opportunities to minimize the cash invested to operate our business. We have successfully generated positive cash flows from operating activities which have funded our capital requirements and recent acquisitions as noted below in “Cash Flows.”

On December 9, 2015, we entered into the Company's Fifth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $300 million revolving credit facility and provides the Company with access to capital and improved financial flexibility. As of June 30, 2017, our liquidity of $471.3 million consisted of $182.4 million of cash plus $288.9 million of availability under our revolving credit facility. We believe this liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and simplification initiatives that likely will need cash to fund transitions and future growth. We continue to search for strategic acquisitions and larger acquisitions may require additional borrowings and/or the issuance of our common stock.
Our Senior Credit Agreement provides the Company with liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations have generated cash flow from operations sufficient to invest in working capital and fund their capital improvements. As of June 30, 2017, our foreign subsidiaries held $23.5 million of cash in U.S. dollars. We believe cash held by our foreign subsidiaries provides our foreign operations with the necessary liquidity to meet future obligations and allows the foreign business units to reinvest in their operations. These cash resources could eventually be used to grow our business internationally. Repatriation of this cash for domestic purposes could result in significant tax consequences.
Over the long-term, we expect that future obligations, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our revolving credit facility, new debt financing, the issuance of equity securities, or any combination of the above. Any potential acquisitions are evaluated based on our acquisition strategy, which includes the enhancement of our existing products, operations, or capabilities, expanding our access to new products, markets, and customers, and the improvement of shareholder value. The recent acquisitions of Nexus Corporation and Package Concierge on October 11, 2016 and February 22, 2017, respectively, were financed through cash on hand.

40


Table of Contents

These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit and equity markets deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels, or sources of financing are not available or not available at acceptable terms, our future liquidity may be adversely affected.
Cash Flows
The following table sets forth selected cash flow data for the six months ended June 30, (in thousands):
 
2017
 
2016
Cash provided by (used in):
 
 
 
Operating activities of continuing operations
$
21,720

 
$
49,441

Investing activities of continuing operations
(8,990
)
 
3,410

Financing activities of continuing operations
(1,156
)
 
1,141

Effect of exchange rate changes
628

 
1,264

Net increase in cash and cash equivalents
$
12,202

 
$
55,256

During the six months ended June 30, 2017, we generated net cash from operating activities totaling $21.7 million, composed of net income of $17.2 million plus $12.1 million from non-cash charges including depreciation, amortization, stock compensation, and exit activities, partially offset by an investment in working capital and other net assets of $7.5 million. Net cash provided by operating activities for the six months ended June 30, 2016 totaled $49.4 million, primarily composed of net income from continuing operations of $27.6 million plus non-cash charges including depreciation, amortization, stock compensation and loss on sale of business of $24.2 million, partially offset by a $2.4 million investment in working capital.

During the six months ended June 30, 2017, the cash invested in working capital and other net assets of $7.5 million included a $14.5 million increase in accounts receivable and a $10.1 and $2.1 million decrease in accrued expenses and other non-current liabilities and total other current assets, respectively, partially offset by a $17.0 million increase in accounts payable and a $2.2 million decrease in inventory. The increase in accounts receivable is a result of the seasonal increase in manufacturing activity. The decrease in accrued expenses and other non-current liabilities was largely due to the decrease in liabilities for equity based incentive plans as well as annual customer rebate payments made during the first quarter, offset by billings in excess of cost related to the timing of customer contracts. The increase in total other current assets is primarily due to the timing of prepaid expenses. Accounts payable increased due to the seasonal increase in manufacturing activity as well as the timing of quarter end vendor payments. The decrease in inventory is due to the Company's continued 80/20 simplification process efforts, resulting in disposal of inventory associated with less profitable product lines.
Net cash used in investing activities for the six months ended June 30, 2017 of $9.0 million primarily consisted of $18.3 million of net cash paid for the acquisition of Package Concierge, capital expenditures of $3.3 million and a payment of $0.2 million related to the final purchase adjustment for the acquisition of Nexus. These payments were partially offset by net proceeds of $12.8 million from the sale of property and equipment. Net cash provided by investing activities for the six months ended June 30, 2016 of $3.4 million was primarily due to net proceeds of $8.5 million from the sale of our European industrial manufacturing business partially offset by capital expenditures of $4.0 million and $2.3 million related to the final purchase adjustment for the acquisition of RBI.
Net cash used in financing activities for the six months ended June 30, 2017 of $1.2 million consisted of the purchase of treasury stock of $1.0 million and payment of long-term debt borrowings of $0.4 million partially offset by the proceeds received from the issuance of common stock of $0.2 million. Net cash provided by financing activities for the six months ended June 30, 2016 of $1.1 million consisted of the proceeds received from the issuance of common stock of $2.0 million partially offset by the purchase of treasury stock of $0.5 million and payment of long-term debt borrowings of $0.4 million.
Senior Credit Agreement and Senior Subordinated Notes
Our Senior Credit Agreement is committed through December 9, 2020. Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and certain real property of the Company’s significant domestic subsidiaries. The Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount of $300 million. The Company can request additional financing from the banks to increase the revolving credit facility to $500 million or to provide a term loan of up to $200 million subject to conditions set forth in the Senior Credit Agreement. The Senior Credit Agreement contains three financial covenants. As of June 30, 2017, the Company is in compliance with all three covenants.

41


Table of Contents


Interest rates on the revolving credit facility are based on the LIBOR plus an additional margin that ranges from 1.25% to 2.25% for LIBOR loans based on the Total Leverage Ratio. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.20% and 0.30% based on the Total Leverage Ratio and the daily average undrawn balance.
As of June 30, 2017, we had $288.9 million of availability under the Senior Credit Agreement net of outstanding letters of credit of $11.1 million. No amounts were outstanding under our revolving credit facility as of either June 30, 2017 or December 31, 2016.
In addition to our Senior Credit Agreement, the Company issued $210.0 million of 6.25% Notes in January 2013 which are due February 1, 2021. Provisions of the 6.25% Notes include, without limitation, restrictions on indebtedness, liens, and distributions from restricted subsidiaries, asset sales, affiliate transactions, dividends, and other restricted payments. Dividend payments are subject to annual limits and interest is paid semiannually on February 1 and August 1 of each year.

Off Balance Sheet Financing Arrangements
We have no off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Contractual Obligations
Our contractual obligations have not changed materially from the disclosures included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Critical Accounting Policies
In the current year, there have been no changes to our critical accounting policies and estimates from those disclosed in the consolidated financial statements and accompanying notes contained in Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Pronouncements
See Note 2 to the Company's consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information on recent accounting pronouncements.

Item 3. Qualitative and Quantitative Disclosures About Market Risk
In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition, foreign exchange rates, and raw materials pricing and availability. In addition, the Company is exposed to other financial market risks, primarily related to its long-term debt and foreign operations. There have been no material changes to the Company's exposure to market risk since December 31, 2016.

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Item 4. Controls and Procedures
 
(a)
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). The Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls as of the end of the period covered in this report. Based upon that evaluation and the definition of disclosure controls and procedures contained in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period the Company’s disclosure controls and procedures were effective.
 
(b)
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) or 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.

Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operation, cash flows, and future prospects. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition, or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.



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Table of Contents

Item 6. Exhibits
(a) Exhibits
 
a.
10.1
First Amendment to the Gibraltar Industries, Inc. 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 9, 2017)
a.
31.1
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
b.
31.2
Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
c.
32.1
Certification of the President and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
d.
32.2
Certification of the Senior Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
e.
101.INS
XBRL Instance Document *
f.
101.SCH
XBRL Taxonomy Extension Schema Document *
g.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document *
h.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
i.
101.PRA
XBRL Taxonomy Extension Presentation Linkbase Document *
j.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
*
Submitted electronically with this Quarterly Report on Form 10-Q.

44


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GIBRALTAR INDUSTRIES, INC.
(Registrant)
 
 
/s/ Frank G. Heard
Frank G. Heard
President and Chief Executive Officer

/s/ Timothy F. Murphy
Timothy F. Murphy
Senior Vice President and
Chief Financial Officer
Date: July 27, 2017


45
Exhibit


EXHIBIT 31.1
CERTIFICATIONS
I, Frank G. Heard, certify that:
1.
I have reviewed this report on Form 10-Q of Gibraltar Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
July 27, 2017
 
/s/ Frank G. Heard
 
 
 
Frank G. Heard
 
 
 
President and Chief Executive Officer



Exhibit


EXHIBIT 31.2
CERTIFICATIONS
I, Timothy F. Murphy, certify that:
1.
I have reviewed this report on Form 10-Q of Gibraltar Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
July 27, 2017
 
/s/ Timothy F. Murphy
 
 
 
Timothy F. Murphy
 
 
 
Senior Vice President and
Chief Financial Officer




Exhibit


EXHIBIT 32.1
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank G. Heard, President and Chief Executive Officer, of Gibraltar Industries, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The Quarterly Report on Form 10-Q of the Company for the year ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Frank G. Heard
Frank G. Heard
President and Chief Executive Officer
 
July 27, 2017
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.



Exhibit


EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy F. Murphy, Senior Vice President and Chief Financial Officer, of Gibraltar Industries, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
The Quarterly Report on Form 10-Q of the Company for the year ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Timothy F. Murphy
Timothy F. Murphy
Senior Vice President and Chief Financial Officer
 
July 27, 2017
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.