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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 https://cdn.kscope.io/1e9bc79b7ac9a4b8aaa1f8a70efed8f4-gibindcolorlogonotaga14.gif

FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 2019
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.
Delaware
 
 
16-1445150
 
(State or incorporation )
 
 
(I.R.S. Employer Identification No.)
 
3556 Lake Shore Road
P.O. Box 2028
Buffalo ,
New York
14219-0228
 
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (716) 826-6500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
ROCK
 
NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes    No 
Indicate by check mark if the registrant is not required to file report pursuant to Section 13 or Section 15(d) of the Act.   Yes    No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Emerging growth company
Non-accelerated filer
 
Smaller reporting 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
Aggregate market value of voting Common Stock held by non-affiliates of the registrant as of June 30, 2019 was: $1.3 billion.
As of February 27, 2020, the number of common shares outstanding was: 32,358,728.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement to be filed for its 2020 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Annual Report on Form 10-K.

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Form 10-K Index
 
 
 
 
 
 
Page
Number
 
 
 
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
 
 

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Safe Harbor Statement
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,” “estimates,” “anticipates,” “expects,” “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 industries 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 Item 1A “Risk Factors.” Those factors should not be construed as exhaustive and should be read with the other cautionary statements in Item 1A “Risk Factors.” 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 document, 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.
PART I
 
Item 1.
Business
The Company
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, conservation, residential, industrial and infrastructure markets. Gibraltar’s mission is to create compounding and sustainable value with strong leadership positions in higher growth, profitable end markets. At the beginning of 2019, after four years of steady improvement in operational execution and financial results under the leadership of Frank Heard, the Company announced the appointment of Bill Bosway as Chief Executive Officer, with Frank Heard vacating the CEO role and being appointed Executive Vice Chair of the Board through his planned retirement in March 2020. Under Mr. Bosway’s leadership, management completed a thorough evaluation of the markets in which the Company participates in, as well as its position in each market. This work solidified the Company’s strategy and defined plans to accelerate growth and further improve the Company’s margin profile, both through organic and inorganic investment. It has also helped focus and prioritize the Company's key investments such that it deliver increasing returns and sustainable value for its shareholders.
Over the past twelve months, the Company migrated from a Four-Pillar strategy to a Three-Pillar Strategy with the operating foundation focused on three core tenets: Business Systems, Portfolio Management, and Organizational Development.

1.
Business Systems, which combines two of the Company's previous strategic pillars - operational excellence and product innovation - is supported by an execution review of the Company's monthly business performance, implementation of key investments, IT operating and digital systems performance, and new product and services innovation.

2.
Portfolio Management, which combines the two other previous strategic pillars - acquisitions and portfolio management - is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to provide sustainable, profitable growth while expanding our relevance with customers and shaping our markets. The recent acquisitions of Apeks Supercritical, LLC ("Apeks") in August 2019, Thermo

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Energy Systems ("Thermo) in January 2020, and Delta Separations (“Delta”) in February 2020 were the direct result of our portfolio management strategy.

3.
Organizational Development is the third pillar of our strategy. In order to execute Business Systems and Portfolio Management, the Company must have a strong organization to execute, and the organization must continuously develop and improve. The Company aspires to make our place of work the "Best Place to Work", where we focus on creating the best development and learning environment for our people, proactively operate businesses that solve global challenges, and engage and support the communities we are present in. We believe doing so helps us attract and retain the best people so we can execute our business plans.

The Company serves customers primarily in North America including renewable energy (solar) developers, institutional and commercial growers of food and plants, home improvement retailers, wholesalers, distributors, and contractors. As of December 31, 2019, we operated 41 facilities, comprised of 29 manufacturing facilities, five distribution centers, and seven offices, which are located in 18 states, Canada, China, and Japan. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.

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

The following table sets forth the primary products, applications, and end markets for each segment:
Renewable Energy and Conservation Segment
Products & Services
  
Applications
  
End Users
Renewable Energy: Design, engineering, manufacturing and installation of solar racking and electrical balance of systems
  
Commercial & distributed generation scale commercial solar installations
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Solar developers; power companies; solar energy EPC contractors
 
 
 
 
Conservation: Provide growing and processing solutions including the designing, engineering, manufacturing and installation of greenhouses, and botanical extraction systems
  
Retail, vegetable, flowers, cannabis, commercial, institutional and conservatories, car wash tunnels, botanical oil extraction
Retail garden centers; conservatories and botanical gardens; commercial growers; public and private agricultural research; botanical oil processors
Residential Products Segment
 
Product
  
Applications
 
End Market
 
 
 
 
 
Roof and foundation ventilation products
  
Ventilation and whole-house air flow
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Residential: new construction and repair and remodeling
 
 
 
Centralized mail systems and electronic package solutions
  
Secure storage for mail and package deliveries
 
 
 
Retractable awnings & gutter guards
  
Sun protection; gutter protection
 
 
 
Rain dispersion, trims and flashings, other accessories
  
Water & protection from natural elements

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Industrial and Infrastructure Products Segment
 
Product
  
Applications
  
End Market
Fabricated expanded metal and perforated metal products
  
Perimeter security barriers; walkways / catwalks; filtration; architectural facades
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Industrial and commercial construction, automotive, energy and power generation
 
 
 
 
Structural bearings, expansion joints and pavement sealant for bridges and roadways
  
Preserve functionality under varying weight, wind, temperature and seismic conditions
Bridge and elevated highway construction, airport pavements

The Company’s operating businesses have established leadership positions in attractive end markets by building core capabilities in innovation, new products and services, manufacturing and field operations, business systems, quality performance, along with a healthy balance sheet and the strength of our people. We will continue our focus of time, talent, and energy on strengthening our position in each market we serve.
Attractive End Markets. Our markets are focused on solving global challenges as it relates to accelerating renewable energy generation, maintaining healthy home environments, growing food and plants more effectively and efficiently, supporting postal and parcel home delivery, and improving our country’s transportation infrastructure and ways of transporting people.
Value-Added Products and Services. We provide industry-best solutions to our customers: racking and electrical systems for photovoltaic (PV) solar systems, commercial growing greenhouses and processing extraction technology for biologically grown food, cannabis, and other plants; roof-related ventilation to support healthy home environments; postal and parcel storage for home and retail sites; and structural bearings and expansion joints for bridges and other transportation structures. Our products and services are highly engineered, supported with intellectual property, and driven by effective business systems and IT infrastructure.
Commitment to Customer & Quality. We strive to be connected directly with our end customers, where we receive unfiltered feedback on performance, insight on customer problems and opportunities, and cooperation on ideas for new products, services, and business model optimization. The percentage of our total business contracted directly with end users of our products and services exceeded 45% in 2019, and we expect this to grow in future years. Our commitment to quality is a core operating tenet for the Company, and our quality management systems are designed to ensure we deliver to customer and stakeholder expectations while meeting statutory and regulatory requirements related to our products and services.

Strong liquidity profile. We strive to manage our cash resources to ensure sufficient liquidity to fund growth initiatives, support the seasonality of our businesses, manage effectively through economic cycles. As of December 31, 2019, our liquidity was $585 million, including $191 million of cash and $394 million of availability under our revolving credit facility. We believe our low leverage and ample borrowing capacity, along with enhanced flexibility in our Senior Credit Agreement, provides us with the financial capacity to fund our ongoing business requirements, strategic initiatives, and acquisition opportunities.
Recent developments

On February 13, 2020, the Company acquired the assets of California-based Delta Separations and Teaching Tech ("Delta Separations"), a privately held ethanol-based extraction systems manufacturer and training and laboratory design and operations consultative partner for $50 million in an all cash transaction. Delta Separations had revenue of approximately $46 million in 2019.

On January 15, 2020, the Company acquired the assets of Canadian-based Thermo Energy Systems ("Thermo"), a privately held provider of commercial greenhouse solutions in North America supporting the biologically grown organic food market, in an all cash transaction for approximately $7 million. The Company also expects to invest approximately $25 million into Thermo to provide an appropriate level of working capital. Thermo is expected to contribute annual revenue at a run rate of approximately $75 million.


5


On August 30, 2019, the Company acquired all of the outstanding membership interests of Apeks LLC ("Apeks"), a designer and manufacturer of botanical oil extraction systems utilizing subcritical and supercritical carbon dioxide ("CO2"). The acquisition was financed through cash on hand of $12 million. Apeks had trailing twelve months of revenues as of June 30, 2019 of $17.7 million. The results of operations of Apeks have been included in the Renewable Energy and Conservation segment of the Company's consolidated financial statements from the date of acquisition.

On March 18, 2019, the Company appointed Patrick M. Burns as Chief Operating Officer. In his position as Chief Operating Officer, Mr. Burns is responsible for all aspects of Gibraltar’s day-to-day operations across its businesses and such other executive duties as he is assigned from time to time by the Board of Directors and the Chief Executive Officer.

On January 24, 2019, we entered into the Company's Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") which includes a 5-year, $400 million revolving credit facility. The Senior Credit Agreement also provides the Company the opportunity, upon request, to increase the amount of the revolving credit facility to $700 million. In conjunction with entering into the Senior Credit Agreement, on February 1, 2019, the Company redeemed all $210 million of its outstanding 6.25% Senior Subordinated Bonds. The amended Senior Credit Agreement provides the Company with access to capital and improves our financial flexibility.

On January 2, 2019, the Company appointed William T. Bosway as President and Chief Executive Officer of the Company and a member of the Board of Directors. Over the past 29 years, Mr. Bosway has worked for two Fortune 500 industrial companies and brings to the Company strong leadership skills and significant experience in acquisitions, driving organic growth, lean manufacturing and continuous improvement techniques. In connection with Mr. Bosway’s appointment, then Chief Executive Officer Frank Heard was appointed Executive Vice Chair of the Board and he announced his intention to retire on March 3, 2020.

Customers and Products
Our customers are located primarily throughout North America. One customer, a home improvement retailer which purchases from both the Residential Products segment and Renewable Energy and Conservation segment, represented 12% of our consolidated net sales for each of the three years ended December 31, 2019, 2018, and 2017. No other customer in any segment or segments accounted for more than 10% of our consolidated net sales.
Our products are primarily distributed to our customers using common carriers. We maintain distribution centers that complement our manufacturing plants from which we ship products and ensure on-time delivery while maintaining efficiency within our distribution system. Our customers and product offerings by segment are described below.
Renewable Energy and Conservation
The Renewable Energy and Conservation segment is primarily a designer and manufacturer of fully-engineered solutions for solar mounting systems, greenhouse structures and botanical oil extraction systems. This segment offers a fully integrated approach to the design, engineering, manufacturing and installation of solar racking systems, including electrical balance of systems, and commercial, institutional, and retail greenhouse structures servicing customers, such as community solar owners and developers, retail garden centers, conservatories and botanical gardens, commercial growers, schools and universities, and botanical oil processors. With the recently announced acquisitions of Thermo and Delta Separations, we have 10 manufacturing facilities and 2 distribution centers and operate in the United States, China and Japan.
An integral part of solar racking and greenhouse projects is the fabrication of specifically designed metal structures for highly-engineered applications including: racking for ground-mounted solar arrays; single-axis solar tracker solutions; carports that integrate solar PV panels; as well as commercial-scale greenhouses and other glass structures. Both the solar racking and greenhouse projects involve securing glass and plastic to metal and use the same raw materials including steel and aluminum. Most of our production is completed using computer numerical control machines, roll forming machines, laser cutters and other fabrication tools. The structural metal components are designed, engineered, fabricated and installed in accordance with applicable building codes.
We strive to improve our offerings of products by introducing new products, enhancing existing products, adjusting product specifications to respond to commercial building codes and regulatory changes, and providing solutions to contractors and end users. New products introduced in recent years include botanical oil extraction systems, single-axis tracker systems, metal framed structures for car washes, and solar racking systems for carports and canopies. Our botanical oil extraction systems provide equipment for extracting plant oils for hemp, cannabis, and nutraceutical

6


processors. The single-axis tracker systems within our solar mounting solutions group provide flexibility to adapt to a variety of site conditions that impact tracker site designs when using other solutions in the market and can vastly reduce the costs associated with civil work on projects. The patented design eliminates complexities incorporated in the traditional systems, simplifying the operations and maintenance of the system, along with streamlining the installation process. Our car washes serve a market preference for light- transparent structures. Solar racking systems for carports serve as protection for cars from the effects of the sun and intense heat while providing a renewable energy source. Similarly, solar racking systems installed on idle land, such as solid waste landfills, converts such land into a useful property by providing clean renewable power generating capabilities.
Residential Products
Our Residential Products segment services the residential repair and remodeling and to a lesser extent the new housing construction markets in North America with products including roof and foundation ventilation products, centralized mail systems and electronic package solutions, outdoor living products (retractable sun-shades), rain dispersion products and other roofing and related accessories. Our residential product offerings are sold through a number of sales channels including major retail home centers, building material wholesalers, building product distributors, buying groups, roofing distributors, residential contractors, property management companies and postal services distributors and providers. This segment operates 11 manufacturing facilities throughout the United States, giving it a base of operations to provide manufacturing capability of high quality products, customer service, delivery and technical support to a broad network of regional and national customers across North America.
Our roof and foundation ventilation products and accessories include solar powered units. Our centralized mail and electronic package solutions include single mailboxes, cluster style mail and parcel boxes for single and multi-family housing and electronic package locker systems. Our remaining residential product offerings consist of roof edging and flashing, soffits and trim, drywall corner bead, metal roofing and accessories, rain dispersion products, including gutters and accessories, and exterior retractable awnings. Each of these product offerings can be sold separately or as part of a system solution.
Within our Residential Products businesses, we are constantly striving to improve our product/solution offerings by introducing new products, enhancing existing products, adapting to building code and regulatory changes, and providing new and innovative solutions to homeowners and contractors. New products introduced in recent years include electronic parcel lockers, roof top safety kits, chimney caps, heat trace coils, exterior, remote-controlled deck awnings for sun protection, and high-efficiency and solar-powered ventilation products. Our electronic parcel lockers and parcel room systems provide residents in multi-family communities a secure storage receptacle to handle both package deliveries and receipt of other delivered goods. Our ventilation and roof flashing products provide protection and extend the life of structures while providing a safer, healthier environment for residents. Our cluster box mail delivery products provide delivery cost savings to the postal service while offering secure storage for delivered mail and packages. Our building products are manufactured primarily from galvanized and painted steel, anodized and painted aluminum, and various resins.
Within our manufacturing facilities, we leverage significant production capabilities which allow us to process a wide range of metals and plastics for our residential products. Most of our production is completed using automatic roll forming machines, stamping presses, welding, paint lines, and injection molding equipment. We maintain our equipment according to a thorough preventive maintenance program allowing us to meet the demanding quality and delivery requirements of our customers. In some cases, the Company sources products from third-party vendors to optimize cost and quality in order to provide the very best and affordable solution for our customers.
Industrial and Infrastructure Products
Our Industrial and Infrastructure Products segment serves a variety of end markets such as industrial and commercial construction, highway and bridge construction, automotive, airports and energy and power generation through a number of sales channels including discrete and process manufacturers, steel fabricators and distributors, commercial and transportation contractors, and power generating utilities. Our Industrial and Infrastructure product offerings include perimeter security, expanded and perforated metal, plank grating, as well as, expansion joints and structural bearings for highway bridges. We operate 10 manufacturing facilities and 3 distribution centers throughout the United States and Canada 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.
Our expanded and perforated metal and plank grating is used in walkways, catwalks, architectural facades, perimeter security barriers, shelving, and other applications where both visibility and security are necessary. Our fiberglass grating is used by our customers where high strength, light weight, low maintenance, corrosion resistance and non-

7


conductivity are required. Our remaining product offerings in this segment include expansion joint systems, bearing assemblies, and pavement sealing systems used in bridges, elevated highways, airport runways, and rail crossings.
We strive to improve our offerings of industrial and infrastructure products by introducing new products, enhancing existing products, adjusting product specifications to respond to commercial building code and regulatory changes, and providing additional solutions to original equipment manufacturers and contractors. New products introduced in recent years include customized perforated and expanded metal to penetrate a range of new markets such as architectural facades for buildings (museums, sports stadiums and retail outlets) and perimeter security barriers for protecting critical infrastructure. In addition, we have extended our transportation infrastructure products into new markets. For example, our long-lasting pavement sealants for roadways are now being installed on airport runways internationally, our structural bearings for elevated highways and bridges have been installed on an offshore oil production platform, and our corrosion-protection products for cable-suspension bridges are now marketed and sold internationally.
Our production capabilities allow us to process a wide range of metals necessary for manufacturing industrial products. Most of our production is completed using computer numerical control machines, shears, slitters, press brakes, milling, welding, and numerous automated assembly machines. We maintain our equipment according to a thorough preventive maintenance program, including in-house tool and die shops, allowing us to meet the demanding service requirements of our customers.
Engineering and Technical Services
Our business segments employ engineers and other technical personnel to perform a variety of key tasks which include the identification and implementation of improvements to our manufacturing process, redesign of our products for better performance, the development of new products and identification and execution of cost reduction activities. In addition, our engineering staff employs a range of drafting software to design highly specialized and technically precise products. In our Renewable Energy and Conservation and Industrial and Infrastructure Products segments, drawings are approved and stamped by state licensed professional engineers. Technical service personnel also work in conjunction with our sales force in the new product development process to determine the types of products and services that suit the particular needs of our customers.
Suppliers and Raw Materials
Our business is required to maintain sufficient quantities of raw material inventory in order to accommodate our customers’ short lead times. Accordingly, we plan our purchases to maintain raw materials at sufficient levels to satisfy the anticipated needs of our customers. We have implemented enterprise resource planning systems along with a corporate wide SIOP (Sales, Inventory, Operations Planning process) to better manage our inventory, forecast customer orders, enable efficient supply chain management, and allow for more timely counter-measures to changing customer demand and market conditions.
The primary raw materials we purchase are flat-rolled and plate steel, aluminum coil and extrusions, and resins. We purchase flat-rolled and plate steel and aluminum at regular intervals on an as-needed basis, primarily from the major North American mills, as well as, a limited amount from domestic service centers and foreign steel importers. Substantially all of our resins are purchased from domestic vendors, primarily through distributors, with a small amount purchased directly from manufacturers. Supply has historically been adequate from these sources to fulfill our needs. Because of our strategy to develop longstanding relationships in our supply chain, we have been able to adjust our deliveries of raw materials to match our required inventory positions to support our on-time deliveries to customers while allowing us to manage our investment in inventory and working capital. Management continually evaluates improvements in our purchasing practices across our geographically dispersed facilities in order to streamline purchasing across similar commodities.
We purchase natural gas and electricity from suppliers in proximity to our operations.


8


Intellectual Property
We actively protect our proprietary rights by the use of trademark, copyright, and patent registrations. While we do not believe that any individual item of our intellectual property is material, we believe our trademarks, copyrights, and patents provide us with a competitive advantage when marketing our products to customers. We also believe our brands are well recognized in the markets we serve and we believe they stand for high-quality manufactured goods at a competitive price. These trademarks, copyrights, and patent registrations help us maintain product leadership positions for the goods we offer. In 2019, 11% of our annual revenues were generated from patented products.

Sales and Marketing
In 2019, approximately 48% of our revenues were generated from products and services that were sold directly to the end user, with the remainder of revenues generated through retailers, wholesalers and distributors, up from 43% in 2018. Continual communication with our customers allows us to understand their challenges and provides us with the opportunity to identify solutions that will meet their needs. We have organized sales teams to focus on specific customers and national accounts through which we provide enhanced solutions and improve our ability to increase the relevance of products and services that we sell. Our sales regularly involve competitive bidding processes, and our reputation for meeting delivery requirements and strict specifications make us a preferred provider for many customers.

Our sales staff works with certain retail customers to optimize shelf space for our products which is expected to increase sales at these locations. Our retail customers are provided with point-of-sale marketing aids to encourage consumer spending on our products in their stores. We focus on providing our customers with industry leading customer service. We are able to meet our customers’ demand requirements due to our efficient manufacturing processes and extensive distribution network.
Backlog
While the majority of our products have short lead time order cycles, we had aggregated approximately $218 million of backlog at December 31, 2019 compared to $161 million at December 31, 2018. The backlog primarily relates to certain business units in our Renewable Energy and Conservation and our Industrial and Infrastructure segments. We believe that the majority of our backlog will be shipped, completed and installed during 2020.
Competition
The Company operates in highly competitive markets. We compete against several competitors in all three of our segments with different competitors in each major product category. We compete with competitors based on the range of products offered, quality, price, and delivery, as well as serving as a full service provider for project management in certain segments. Although some of our competitors are large companies, the majority are small to medium-sized and do not offer the large range of products that we offer.
We believe our broad range of products, high quality, and sustained ability to meet exacting customer delivery requirements gives us a competitive advantage over many of our competitors. We also believe that execution of our business strategy further differentiates us from many of our competitors and allows us to capitalize on those areas that give us a competitive advantage over many of our competitors.
Seasonality
The Company’s business has historically been subjected to seasonal influences, with higher sales typically realized in the second and third quarters. General economic forces, such as tax credit expirations and imposed tariffs, along with changes in the Company’s products and customer mix have shifted traditional seasonal fluctuations in revenue over the past few years.
Governmental Regulation
Our production processes involve the use of environmentally regulated materials. We believe that we operate our business in material compliance with all federal, state and local environmental laws and regulations, and do not anticipate any material adverse effect on our financial condition or results of operations to maintain compliance with such laws and regulations. However, we could incur operating costs or capital expenditures in complying with new or more stringent environmental requirements in the future or with current requirements if they are applied to our

9


manufacturing facilities or distribution centers in a way we do not anticipate. In addition, new or more stringent regulation of our energy suppliers could cause them to increase the price of energy.
Our operations are also governed by many other laws and regulations covering our labor relationships, the import and export of goods, the zoning of our facilities, taxes, our general business practices, and other matters. We believe that we are in material compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our financial condition or results of operations.
Internet Information
Copies of the Company’s Proxy Statements on Schedule 14A filed pursuant to Section 14 of the Securities Exchange Act of 1934 and Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the Company’s website (www.gibraltar1.com) as soon as reasonably practicable after the Company electronically files the material with, or furnishes it to, the Securities and Exchange Commission.

Employees
The Company employed 1,932 and 1,939 employees at December 31, 2019 and 2018, respectively.

Information About Executive Officers
Our senior management team is composed of talented and experienced managers possessing broad experience in operational excellence, new product development, and driving profitable growth gained over multiple business cycles:
William Bosway - President, Chief Executive Officer (CEO) and a member of the Board of Directors. Mr. Bosway was appointed President, Chief Executive Office and a member of the Board of Directors effective January 2, 2019. Mr. Bosway joined our Company with extensive experience in global manufacturing industries, driving organic growth, acquisitions, lean manufacturing and continuous improvement techniques. Mr. Bosway was appointed as successor to the former CEO and President, Frank Heard, who announced that he would retire in March 2020.
Frank Heard - Vice Chair of the Board of Directors. Mr. Heard was appointed Vice Chair effective January 2, 2019 after announcement of his intentions to retire from the Company in March 2020. As the former CEO and President of the Company since January 2015, Mr. Heard assisted in transitioning the role of CEO to Mr. Bosway.
Patrick Burns - Chief Operating Office (COO). Mr. Burns was appointed COO of the Company on March 18, 2019. Mr. Burns joined with Company with significant experience in key leadership and operational strategy roles at various multi-industrial companies over his career.
Timothy Murphy - Chief Financial Officer (CFO) and Senior Vice President (SVP). Mr. Murphy was appointed CFO and SVP of the Company on April 1, 2017. Mr. Murphy joined the Company in 2004 as Director of Financial Reporting, and subsequently served as the Company's Vice President, Treasurer and Secretary.
Cherri Syvrud - SVP of Human Resources and Organizational Development. Ms. Syvrud was appointed SVP of Human Resources and Organizational Development on April 1, 2016. Ms. Syvrud joined the Company with significant experience in human resources and organization development, including 25 years of employment at Illinois Tool Works, Inc.
Jeffrey Watorek - Vice President, Treasurer and Secretary. Mr. Watorek was appointed as Vice President, Treasurer and Secretary on April 1, 2017. Mr. Watorek joined the Company in 2008 as Manager of Financial Reporting, and subsequently served as the Company's Director of Financial Planning and Analysis.

Item 1A.
Risk Factors
Our business, financial condition and results of operations, and the market price for the Company's common shares are subject to numerous risks, many of which are driven by factors that cannot be controlled or predicted. The following discussion, as well as other sections of this Annual Report on Form 10-K, including “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe certain business and other risks

10


affecting the Company. In conjunction with reviewing the forward-looking statements and other information contained in this Annual Report on Form 10-K, consideration should be given to the risk factors described below as well as those in the Safe Harbor Statement at the beginning of this Annual Report on Form 10-K.These risks are not the only risks we face. Our business operations and the market for our securities could also be adversely affected by additional factors that are not presently known to us, or that we currently consider to be immaterial in our operations.

Macroeconomic factors outside of our control may adversely affect our business, our industry, and the businesses and industries of many of our customer and suppliers.

Macroeconomic factors have a significant impact on our business, customer demand and the availability of credit and other capital, affecting our ability to generate profitable margins. Our operations are subject to the effects of domestic and international economic conditions including government monetary and trade policies, tax laws and regulations, as well as, the relative debt levels of the U.S. and the other countries in which we sell our products. Tariffs placed on imported products used by our customers could impact cost and availability of these products to our customers which could impact the demand for our products or services. In addition, fluctuations in the U.S. dollar impact the prices we charge and costs we incur to export and import products.

We are unable to predict the impact on our business of changes in domestic and international economic conditions. The markets in which we operate have been challenging in the past, and the possibility remains that the domestic or global economies, or certain industry sectors of those economies that are key to our sales, may deteriorate, which could result in a corresponding decrease in demand for our products and negatively impact our results of operations and financial condition.

Increases in future levels of leverage and size of debt service obligations could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of December 31, 2019, we did not have any outstanding indebtedness. Nonetheless, we may need to incur debt in the future to fund strategic acquisitions, investments or for other purposes, which debt could have significant adverse consequences to our business. Our Senior Credit Agreement entered into on January 24, 2019 contains several financial and other restrictive covenants. A significant decline in our operating income along with increased levels of debt could cause us to violate these covenants which could result in our incurring of additional financing fees that would be costly and adversely affect our profitability and cash flows. We may also use our Senior Credit Agreement or otherwise incur additional debt for acquisitions, operations and capital expenditures that could adversely impact our ability to meet these covenants.

We apply judgments and make estimates in accounting for contracts, and changes in these judgments or estimates may have significant impacts on our earnings.
Changes in judgments or required estimates and any subsequent adjustments to those judgments or estimates (such as performance incentives, penalties, contract claims and contract modifications) could have a material adverse effect on sales and profits. Due to the substantial judgments applied and estimations involved with this process, our actual results could differ materially or could be settled unfavorably from our estimates. Revenue representing 35%, 32% and 28% of 2019, 2018 and 2017 consolidated net sales, respectively, were recognized over time under the cost-to-cost method. Refer to “Critical Accounting Estimates” within Item 7 of this Form 10-K for more detail of how our financial statements can be affected by accounting for revenue from contracts with customers.

A significant portion of our net sales are concentrated with a few customers. The loss of those customers would adversely affect our business, results of operations, and cash flows.

A loss of sales, whether due to decreased demand from the end markets we serve or from the loss of any significant customer in these markets, a decrease in the prices that we can realize from sales of our products to customers in these markets, or a loss, bankruptcy, or significant decrease in business from any of our major customers, could have a significant adverse effect on our profitability and cash flows. Our ten largest customers accounted for approximately 32%, 38%, and 36% of our net sales during 2019, 2018, and 2017, respectively, with our largest customer, a retail home improvement center, accounting for approximately 12% of our consolidated net sales during each of the years 2019, 2018 and 2017.


11


The volatility of the commodity market on our pricing of our principal raw materials, and the highly competitive market environment in which we do business could significantly impact our gross profit, net income, and cash flow.
Our principal raw materials are commodity products consisting of steel, aluminum, and resins, for which, at times, availability and pricing can be volatile due to a number of factors beyond our control, including general economic conditions, domestic and worldwide demand, labor costs, competition, import duties, tariffs, and currency exchange rates. Commodity price fluctuations and increased competition could force us to lower our prices or to offer additional services or enhanced products at a higher cost to us, which could reduce our gross profit, net income, and cash flow and cause us to lose market share.

A portion of our business is dependent on laws and regulations pertaining to the cannabis industry, and this industry faces significant opposition that could adversely affect this portion of our business.

One of our businesses makes and sells greenhouses and botanical extraction and processing equipment which may be sold to companies that cultivate, process and sell cannabis products for recreational and medicinal use. This business is dependent on state laws and regulations pertaining to the cannabis industry that legalize and regulate cannabis use. While several states have legalized cannabis for medical or recreational purposes, it remains illegal under federal law. Even in those states in which cannabis use has been legalized, its use remains a violation of federal criminal law, which preempts state laws that legalize its use. Strict enforcement of federal law regarding cannabis would likely have an adverse impact on our customers, and correspondingly, may adversely impact our gross profit, net income and cash flows.

The cultivation, processing and distribution of cannabis in states where it has been legalized is subject to significant regulatory requirements. If our customers who purchase greenhouses and extraction and processing equipment are unable to obtain and maintain the licenses, permits, authorizations or accreditations required to comply with state and local regulations, we may experience adverse effects on our business and results of operations.

Our business that engages in the sale of greenhouses and botanical extraction equipment is dependent, in part, on increasing legalization and market acceptance of medical and recreational cannabis use. We cannot predict the future increase in state legalization or the future market potential of legalized cannabis use. Other well-established business sectors with powerful economic influence may take action that could adversely impact the cannabis market. The failure of further legalization or market acceptance, or the adverse action by competing well-established business sectors, may suppress our customers’ demand for our products and thereby reduce our gross profit and net income.

Our business is highly competitive and increased competition could reduce our gross profit, net income, and cash flow.
The principal markets that we serve are highly competitive. Competition is based primarily on product functionality, quality, price, raw material and inventory availability, and the ability to meet delivery schedules dictated by customers. We compete in our principal markets with companies of various sizes, some of which have greater financial and other resources than we do, and some of which have better established brand names in the markets we serve. Increased competition could force us to lower our prices or to offer additional services or enhanced products at a higher cost to us, which could reduce our gross profit, net income, and cash flow and cause us to lose market share.

Our business and financial performance may be adversely affected by cybersecurity attacks, information systems interruptions, equipment failures, and technology integration.

Our business may be impacted by disruptions to our own or third-party information technology (“IT”) infrastructure, which could result from (among other causes) cyber-attacks on, or failures of, such infrastructure or compromises to its physical security, as well as from damaging weather or other acts of nature. Cyber-based risks, in particular, are evolving and include, but are not limited to, both attacks on our IT infrastructure and attacks on the IT infrastructure of third parties (both on premises and in the cloud) attempting to gain unauthorized access to our confidential or other proprietary information, classified information, or information relating to our employees, customers and other third parties.

Due to the evolving threat landscape, cyber-based attacks will continue and we may experience them going forward, potentially with more frequency. We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products,

12


services and operations from potential cyber-attacks. However, given the unpredictability, sophistication and scope of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. We could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromise of confidential or otherwise protected information, misappropriation of assets, destruction or corruption of data, security breaches, other manipulation or improper use of our or third-party systems, networks or products, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation. Due to the evolving nature of such risks, the impact of any potential incident cannot be predicted, but under certain circumstances could materially and adversely affect our competitive position, results of operations and cash flows.

If the subcontractors and suppliers we rely upon do not perform to their contractual obligations, our revenues and cash flows would be adversely affected.

Several of our construction contracts with customers involve subcontracts with other companies that perform a portion of the services we provide to our customers. There is a risk that our subcontractors may not perform their contractual obligations, and therefore may cause disputes regarding the quality and timeliness of work performed by our subcontractors or customer concerns with the subcontractor. Any such disputes or concerns could materially and adversely impact our ability to perform our obligations as the prime contractor. Similarly, the failure by our suppliers to deliver raw materials, components or equipment parts according to schedule, or at all, may affect our ability to meet our customers' needs and may have an adverse effect upon our profitability. Failure of our raw materials or components to conform to our specification could also result in delays in our ability to timely deliver, and may have an adverse impact on our relationships with our customers, and our ability to fully realize the revenue expected from sales to those customers.

Our strategy depends on identification, management and successful business and system integration of future acquisitions.

Historically, we have grown through a combination of internal growth plus external expansion through acquisitions. We intend to continue to seek additional acquisition opportunities in accordance with our business strategy. However, we cannot provide any assurance that the following risks involved in completing acquisitions will not occur nor adversely impact our operations and financial results:
Failure to identify appropriate acquisition candidates, or, if we do, failure to successfully negotiate the terms of an acquisition;
Diversion of senior management’s attention from existing business activities;
Failure to integrate any acquisition into our operations successfully that may result in incurring unforeseen obligations, loss of key customers, suppliers, and employees of the acquired businesses, or loss of existing customers and suppliers;
Difficulties or delays in integrating and assimilating information and systems that may require significant unforeseen upgrades or replacement of our primary information technology systems across significant parts of our businesses and operations to successfully integrate acquisitions. The implementation of new information technology solutions could lead to interruptions of information flow internally and to our customers and suppliers while the implementation project is being completed. Any failure to integrate legacy systems of acquisitions or to implement new systems properly could negatively impact our operations and financial results.
Consummating a large acquisition could require us to raise additional funds through additional equity or debt financing, which could be dilutive to shareholder value, increase our interest expense and reduce our cash flows and available funds.
Adverse impact on overall profitability if the acquired business does not achieve the return on investment projected at the time of acquisition.

We depend on our senior management team and other key employees, and the unexpected loss of any member could adversely affect our operations.

Our success is dependent on the management and leadership skills of our senior executive and divisional management teams. The unexpected loss of any of these individuals or our inability to attract and retain additional personnel could prevent us from successfully executing our business strategy. We cannot assure you that we will be able to retain our existing senior management personnel or to attract additional qualified personnel when needed. We have not entered into employment agreements with any of our senior management personnel other than Frank G. Heard, our Vice Chairman of the Board.


13


We could incur substantial costs in order to comply with, or to address any violations of, environmental, health and safety laws.
Our operations and facilities are subject to a variety of stringent federal, state, local, and foreign laws and regulations relating to the protection of the environment and human health and safety. Compliance with these laws and regulations sometimes involves substantial operating costs and capital expenditures, and failure to maintain or achieve compliance with these laws and regulations or with the permits required for our operations could result in substantial costs and liabilities, such as fines and civil or criminal sanctions, third-party claims for property damage or personal injury, cleanup costs or temporary or permanent discontinuance of operations, including claims arising from the businesses and facilities that we have sold. For certain businesses we have divested, we have provided limited indemnifications for environmental contamination to the successor owners. We have also acquired and continue to acquire businesses and facilities to add to our operations. While we sometimes receive indemnification for pre-existing environmental contamination, the party providing the indemnification may not have sufficient resources to cover the cost of any required measures. Certain facilities of ours have been in operation for many years and we may be liable for remediation of any contamination at our current or former facilities; or at off-site locations where wastes have been sent for disposal, regardless of fault or whether we, our predecessors or others are responsible for such contamination. We have been responsible for remediation of contamination at some of our locations, and while such costs have not been material to date, the cost of remediation of any of these and any newly-discovered contamination cannot be quantified, and we cannot assure you that it will not materially affect our profits or cash flows. Changes in environmental laws, regulations or enforcement policies, including without limitation new or additional regulations affecting disposal of hazardous substances and waste, greenhouse gas emissions or use of fossil fuels, could have a material adverse effect on our business, financial condition, or results of operations.

Climate change and climate change legislation or regulations may adversely affect our business.

Legislative and regulatory changes in response to the potential effects of climate change may require additional costs and investment for compliance, including but not limited to, an increase in the cost of purchased energy and electricity. Physical effects of climate change, such as disruption in production and product distribution as a result of major storm events and shifts in regional weather patterns and intensities, may also significantly affect our operations and financial results.

Our operations are subject to seasonal fluctuations that may impact our cash flow.
Our net sales are generally lower in the first and fourth quarters primarily as a result of reduced activity in the building industry due to inclement weather. Therefore, our cash flow from operations may vary from quarter to quarter. If, as a result of any such fluctuation, our quarterly cash flows were significantly reduced, we may not be able to service our indebtedness or maintain covenant compliance.
Economic, political, and other risks associated with foreign operations could adversely affect our financial results and cash flows.
Although the large majority of our business activity takes place in the United States, we derive a portion of our revenues and earnings from operations in Canada, China and Japan, and are subject to risks associated with doing business internationally. Our sales originating outside the United States represented approximately 5% of our consolidated net sales during the year ended December 31, 2019. We believe that our business activities outside of the United States involve a higher degree of risk than our domestic activities, such as the possibility of unfavorable circumstances arising from host country laws or regulations, changes in tariff and trade barriers and import or export licensing requirements. In addition, any local or global health issue or uncertain political climates, international hostilities, natural disasters, or any terrorist activities could adversely affect customer demand, our operations and our ability to source and deliver products and services to our customers.

Future terror attacks, war, natural disasters or other catastrophic events beyond our control could negatively impact our operations and financial results.
Terror attacks, war, or other civil disturbances, natural disasters, other catastrophic events or public health crises, such as the coronavirus, could lead to economic instability, decreased capacity to produce our products and decreased demand for our products. From time to time, terrorist attacks worldwide have caused instability in global financial markets. Concerns over global climate changes and environmental sustainability over time or a prolonged virus outbreak may influence the Company's strategic direction, supply chain, or delivery channels. Also, our facilities could be subject to damage from fires, floods, earthquakes or other natural or man-made disasters.  Such interruptions could have an adverse effect on our operations, cash flows and financial results.

14


The nature of our business exposes us to product liability, product warranty and other claims, and other legal proceedings.
We are involved in product liability, product warranty and other claims relating to the products we manufacture and distribute. Although we currently maintain what we believe to be suitable and adequate insurance in excess of our self-insured amounts for product liability and other claims, there can be no assurance that we will be able to maintain such insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods, regardless of the ultimate outcome. Claims of this nature could also have a negative impact on customer confidence in our products and our Company. We cannot assure you that any current or future claims will not adversely affect our reputation, financial condition, operating results, and cash flows.

If events occur or indicators of impairment are present that may cause the carrying value of long-lived and indefinite-lived assets to no longer be recoverable or to exceed the fair value of the asset, or that may lead to a reduction in the fair value of the asset, significant non-cash impairment charges to earnings may be taken that may have a material adverse impact on our results of operations.
In prior years, we have recorded significant non-cash impairment charges for goodwill and other intangible assets as a result of reductions in the estimated fair values of certain businesses. It is possible that we will be required to record additional non-cash impairment charges to our earnings in the future, which could be significant and have a material adverse impact on our results of operations. Refer to “Critical Accounting Estimates” within Item 7 of this Form 10-K for more detail of how our financial statements can be affected by asset impairment.

The expiration, elimination or reduction of solar rebates, credits and incentives may adversely impact our business.
A variety of federal, state and local government agencies provide incentives to promote electricity generation from renewable sources such as solar power. These incentives are in the form of rebates, tax credits and other financial incentives which help to motivate end users, distributors, system integrators and others to install solar powered generating systems. Any changes to reduce, shorten or eliminate the scope and availability of these incentive programs could materially and adversely impact the demand for our related products, our financial condition and results of operations.

Recently imposed tariffs and potential future tariffs may result in increased costs and could adversely affect our results of operations.
 
In 2018, the United States imposed Section 232 tariffs on certain steel (25%) and aluminum (10%) products imported into the U.S. These tariffs have created volatility in the market and have increased the costs of these inputs. Increased costs for imported steel and aluminum products have led domestic sellers to respond with market-based increases to prices for such inputs as well. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or other countries, could result in further increased costs, shifting in competitive positions and a decreased available supply of steel and aluminum as well as additional imported components and inputs. We may not be able to pass price increases on to our customers and may not be able to secure adequate alternative sources of steel and aluminum on a timely basis. While retaliatory tariffs imposed by other countries on U.S. goods have not yet had a significant impact, we cannot predict further developments. The tariffs could adversely affect the income from operations for some of our businesses and customer demand for some of our products which could have a material adverse effect on our consolidated results of operations, financial position and cash flows.
Item 1B.
Unresolved Staff Comments
None.


15


Item 2.
Properties
We lease our principal executive office and corporate headquarters in Buffalo, New York. The number, type, location and classification of the properties used by our operations by segment and corporate as of December 31, 2019, are as follows:
 
 
Number and type of properties
 
 
Plant
 
Distribution
Center
 
Office
 
Total
Renewable Energy and Conservation
 
8

 
2

 
3

 
13

Residential Products
 
11

 

 
2

 
13

Industrial and Infrastructure Products
 
10

 
3

 

 
13

Corporate
 

 

 
2

 
2

Total
 
29

 
5

 
7

 
41

 
 
Location of properties
 
Classification of properties
 
 
Domestic
 
Foreign
 
Owned
 
Leased
Renewable Energy and Conservation
 
10

 
3

 
2

 
11

Residential Products
 
13

 

 
5

 
8

Industrial and Infrastructure Products
 
10

 
3

 
5

 
8

Corporate
 
2

 

 

 
2

Total
 
35

 
6

 
12

 
29

We believe that our properties are effectively utilized, well maintained, in good condition, and will be able to accommodate our capacity needs to meet current levels of demand. In addition we believe that our properties are located to optimize customer service, market requirements, distribution capability and freight costs.
Item 3.
Legal Proceedings
From time to time, the Company is named a defendant in legal actions arising out of the normal course of business. The Company is not a party to any material pending legal proceedings. The Company is also not a party to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business.
Item 4.
Mine Safety Disclosures
Not applicable.

16


PART II
 
Item 5.
Market for Common Equity and Related Stockholder Matters

The Company’s common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ROCK.”

As of February 27, 2020, there were 39 shareholders of record of the Company’s common stock. However, the Company believes that it has a significantly higher number of beneficial owners because of the number of shares that are held by banks, brokers, and other financial institutions.

The Company did not declare any cash dividends during the years ended December 31, 2019 and 2018. The Company intends to use cash generated by operations to reinvest in the businesses and to fund acquisitions. The Company's disclosure in Item 7 of this Annual Report on Form 10-K regarding Liquidity and Capital Resources and disclosures in Note 9 of the Company’s audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K provide additional information regarding restrictions on potential dividends.

Performance Graph
The performance graph shown below compares the cumulative total shareholder return on the Company’s common stock, based on the market price of the common stock, with the total return of the S&P SmallCap 600 Index and the S&P SmallCap 600 Industrials Index for the five-year period ended December 31, 2019. The comparison of total return assumes that a fixed investment of $100 was invested on December 31, 2014 in common stock and in each of the foregoing indices and further assumes the reinvestment of dividends. The stock price performance shown on the graph is based on historical results and is not necessarily indicative of future price performance.
https://cdn.kscope.io/1e9bc79b7ac9a4b8aaa1f8a70efed8f4-stockgrapha01.jpg

17


Item 6.
Selected Financial Data
The selected historical consolidated financial data for each of the five years presented ended December 31 (in thousands, except per share data) are derived from the Company’s audited financial statements as reclassified for discontinued operations. The selected historical consolidated financial data should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 7 of this Annual Report on Form 10-K. These historical results are not necessarily indicative of the results to be expected in any future periods.
 
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
Net sales
$
1,047,439

 
$
1,002,372

 
$
986,918

 
$
1,007,981

 
$
1,040,873

Intangible asset impairment
$

 
$
1,552

 
$
247

 
$
10,175

 
$
4,863

Income from operations
$
87,839

 
$
93,968

 
$
92,849

 
$
73,488

 
$
48,732

Interest expense
$
2,205

 
$
12,064

 
$
14,032

 
$
14,577

 
$
15,003

Income before taxes
$
84,763

 
$
79,945

 
$
77,908

 
$
49,983

 
$
37,100

Provision for income taxes
$
19,672

 
$
16,136

 
$
14,943

 
$
16,264

 
$
13,624

Income from continuing operations
$
65,091

 
$
63,809

 
$
62,965

 
$
33,719

 
$
23,476

Income from continuing operations per share – Basic
$
2.01

 
$
2.00

 
$
1.98

 
$
1.07

 
$
0.75

Weighted average shares outstanding – Basic
32,389

 
31,979

 
31,701

 
31,536

 
31,233

Income from continuing operations per share – Diluted
$
1.99

 
$
1.96

 
$
1.95

 
$
1.05

 
$
0.74

Weighted average shares outstanding – Diluted
32,722

 
32,534

 
32,250

 
32,069

 
31,545

Current assets
$
437,102

 
$
544,553

 
$
462,764

 
$
391,197

 
$
351,422

Current liabilities
$
229,197

 
$
392,872

 
$
171,033

 
$
152,088

 
$
185,395

Total assets
$
984,450

 
$
1,061,645

 
$
991,385

 
$
918,245

 
$
889,772

Total debt
$

 
$
210,405

 
$
210,021

 
$
209,637

 
$
209,282

Total shareholders’ equity
$
673,964

 
$
596,693

 
$
531,719

 
$
460,880

 
$
410,086

Capital expenditures
$
11,184

 
$
12,457

 
$
11,399

 
$
10,779

 
$
12,373

Depreciation
$
12,678

 
$
12,152

 
$
12,929

 
$
14,477

 
$
17,869

Amortization
$
7,271

 
$
8,222

 
$
8,761

 
$
9,637

 
$
12,679


As described in Note 1 "Summary of Significant Accounting Policies" in the footnotes to the Company's consolidated financial statements, the Company adopted ASU No. 2016-02 - Leases (Topic 842) effective January 1, 2019 using the modified retrospective method. As such, all prior period information has not been restated and continues to be reported under the accounting standard in effect for that period.


18


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s risk factors and its consolidated financial statements and notes thereto included in Item 1A and Item 8, respectively, of this Annual Report on Form 10-K. Certain information set forth in this Item 7 constitutes “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based, in whole or in part, on management’s beliefs, estimates, assumptions, and currently available information. For a more detailed discussion of what constitutes a forward-looking statement and of some of the factors that could cause actual results to differ materially from such forward-looking statements, please refer to the “Safe Harbor Statement” on page 3 of this Annual Report on Form 10-K.

We omitted discussion of results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 where it would be redundant to the discussion previously included in Part II, Item 7, Results of Operations, in our Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission on February 27, 2019.

We use certain operating performance measures, specifically consolidated gross margin, operating margin by segment and consolidated operating margin, to manage our businesses, set operational goals, and establish performance targets for incentive compensation for our employees. We define consolidated gross margin as a percentage of total consolidated gross profit to total consolidated net sales. We define operating margin by segment as a percentage of total income from operations by segment to total net sales by segment and consolidated operating margin as a percentage of total consolidated income from operations to total consolidated net sales. We believe gross margin and operating margin may be useful to investors in evaluating the profitability of our segments and Company on a consolidated basis.
Company Overview
Gibraltar Industries, Inc. (the "Company") is a leading manufacturer and provider of products and services for the renewable energy, conservation, residential, industrial and infrastructure markets. Gibraltar’s mission is to create compounding and sustainable value with strong leadership positions in higher growth, profitable end markets. At the beginning of 2019, after four years of steady improvement in operational execution and financial results under the leadership of Frank Heard, the Company announced the appointment of Bill Bosway as Chief Executive Officer, with Frank Heard vacating the CEO role and being appointed Executive Vice Chair of the Board through his planned retirement in March 2020. Under Bill’s leadership, management completed a thorough evaluation of the markets the Company participates in, as well as its position in each market. This work solidified the Company’s strategy and defined plans to accelerate growth and further improve the Company’s margin profile, both through organic and inorganic investment. It has also helped focus and prioritize the Company's key investments such that it deliver increasing returns and sustainable value for its shareholders.
Over the past twelve months, the Company migrated from a Four-Pillar strategy to a Three-Pillar strategy with the operating foundation focused on three core tenets: Business Systems, Portfolio Management, and Organizational Development.

1.
Business Systems, which combines two of the Company's previous strategic pillars - operational excellence and product innovation - is supported by an execution review of the Company's monthly business performance, implementation of key investments, IT operating and digital systems performance, and new product and services innovation.

2.
Portfolio Management, which combines the two other previous strategic pillars - acquisitions and portfolio management - is focused on optimizing the Company’s business portfolio and ensuring our human and financial capital are invested to provide sustainable, profitable growth while expanding our relevance with customers and shaping our markets. The recent acquisitions of Apeks Supercritical, LLC ("Apeks") in August 2019, Thermo Energy Systems ("Thermo) in January 2020, and Delta Separations (“Delta”) in February 2020 were the direct result of our portfolio management strategy.

3.
Organizational Development is the third pillar of our strategy. In order to execute Business Systems and Portfolio Management, the Company must have a strong organization to execute, and the organization must continuously develop and improve. The Company aspires to make our place of work the "Best Place to Work", where we focus on creating the best development and learning environment for our people, proactively operate

19


businesses that solve global challenges, and engage and support the communities we are present in. We believe doing so helps us attract and retain the best people so we can execute our business plans.

In addition to migrating from a Four-Pillar strategy to a Three-Pillar strategy over the past twelve months, the Company:
Implemented new management tools to complement our core 80/20 toolkit and drive improvements in our operating margins;
Increased the percentage of our sales that are direct to end customer, allowing us to have a more meaningful connection with our end customer, providing the opportunity to better understand the challenges our customers face, and developing solutions to these challenges; and
Continued to shift the focus of our portfolio to take advantage of rising tides in the renewable energy and conservation markets.
The Company serves customers primarily in North America including renewable energy (solar) developers, institutional and commercial growers of food and plants, home improvement retailers, wholesalers, distributors, and contractors. As of December 31, 2019, we operated 41 facilities in 18 states, Canada, China and Japan which includes 29 manufacturing facilities and five distribution centers. Our operational infrastructure provides the necessary scale to support local, regional, and national customers in each of our markets.
The Company operates and reports its results in the following three reporting segments:
Renewable Energy and Conservation;
Residential Products; and
Industrial and Infrastructure Products.
The end markets our businesses serve 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, demand for repair and remodeling, governmental policies and funding, tax policies and incentives, tariffs, trade policies, the level of non-residential construction and infrastructure projects, the need for protection of high value assets, demand for renewable energy sources, and climate change. We believe the key elements of our strategy will allow us to respond timely to these factors.
We believe the key elements of our strategy have, and will continue to enable us, to respond timely to changes in the end markets we serve. We have and expect to continue to examine the need for restructuring of our operations, including consolidation of facilities, reducing overhead costs, curtailing investments in inventory, and managing our business to generate incremental cash. We believe our enhanced strategy enabled us to better react to volatility in commodity costs and fluctuations in customer demand, along with helping to improve margins. We have used the improved cash flows generated by these initiatives to pay down debt, improve our liquidity position, and invest in growth initiatives. Overall, we continue to strive to achieve stronger financial results, make more efficient use of capital, and deliver higher shareholder returns.


20


Results of Operations
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The following table sets forth selected results of operations data (in thousands) and its percentages of net sales for the years ended December 31:
 
2019
 
2018
Net sales
$
1,047,439

 
100.0
%
 
$
1,002,372

 
100.0
%
Cost of sales
802,548

 
76.6
%
 
760,012

 
75.8
%
Gross profit
244,891

 
23.4
%
 
242,360

 
24.2
%
Selling, general, and administrative expense
157,052

 
15.0
%
 
146,840

 
14.6
%
Intangible asset impairment

 
%
 
1,552

 
0.2
%
Income from operations
87,839

 
8.4
%
 
93,968

 
9.4
%
Interest expense
2,205

 
0.2
%
 
12,064

 
1.2
%
Other expense
871

 
0.1
%
 
1,959

 
0.2
%
Income before taxes
84,763

 
8.1
%
 
79,945

 
8.0
%
Provision for income taxes
19,672

 
1.9
%
 
16,136

 
1.6
%
Net income
$
65,091

 
6.2
%
 
$
63,809

 
6.4
%
The following table sets forth the Company’s net sales by reportable segment for the years ended December 31 (in thousands):
 
 
2019
 
2018
 
Total
Change
Net sales:
 
 
 
 
 
Renewable Energy and Conservation
$
373,023

 
$
317,253

 
$
55,770

Residential Products
461,630

 
463,216

 
(1,586
)
Industrial and Infrastructure Products
213,805

 
223,006

 
(9,201
)
Less Inter-Segment Sales
(1,019
)
 
(1,103
)
 
84

Net Industrial and Infrastructure Products
212,786

 
221,903

 
(9,117
)
Consolidated
$
1,047,439

 
$
1,002,372

 
$
45,067


Consolidated net sales increased by $45.1 million, or 4.5%, for 2019 compared to 2018. The increase was primarily the result of a 1.9% increase in pricing to customers, along with $17.4 million of incremental sales generated from both the current year acquisition of Apeks and the 2018 acquisition of SolarBOS, and a 1.0% increase in volume. Strong organic growth in our Renewable Energy and Conservation segment more than offset the volume declines in both our Residential Product and Industrial and Infrastructure Products segments.
Net sales in our Renewable Energy and Conservation segment increased 17.6%, or $55.8 million, to $373.0 million in 2019 compared to $317.3 million in 2018. The increase in revenue was driven by strong organic growth resulting from our continued efforts to be more relevant to our customers as evidenced by our 51% improvement in backlog year over year in our conservation and renewable energy business. Additionally, incremental sales of $17.4 million attributable to the current year acquisition of Apeks and the 2018 acquisition of SolarBOS contributed to the increase.

Net sales in our Residential Products segment decreased 0.3%, or $1.6 million, to $461.6 million in 2019 compared to $463.2 million in 2018. The decrease from the prior year was primarily due to lower demand for our building products largely offset by increases in pricing to customers.
Net sales in our Industrial and Infrastructure Products segment decreased 4.1%, or $9.1 million, to $212.8 million in 2019 compared to $221.9 million in 2018. Increased volume in the Infrastructure business was more than offset by lower revenues in our Industrial businesses. Demand for our core Industrial products declined as customers optimized their inventory in a declining steel price environment over the year.

21


Our consolidated gross margin decreased to 23.4% for 2019 compared to 24.2% for 2018. This decrease was largely the result of incremental costs of $7.5 million incurred during the year for field improvements for our solar tracker solution which we believe have been substantially completed as of year end. In addition, we terminated a multi-employer pension plan in our Industrial business resulting in an exit cost of $3.2 million.
Selling, general, and administrative ("SG&A") expenses increased by $10.2 million, or 7.0%, to $157.1 million for 2019 from $146.8 million for 2018. The $10.2 million increase was largely due to $5.1 million of incremental SG&A expenses recorded year over year for our recent acquisitions, along with a $3.3 million increase in exit activity costs related to our simplification initiatives. SG&A expenses as a percentage of net sales increased to 15.0% for 2019 compared to 14.6% for 2018.
The Company did not recognize any intangible asset impairment charges in 2019. During 2018, the $1.6 million impairment charges recognized were the result of a reduction in fair values of indefinite-lived trademarks for our international businesses in our Renewable Energy and Conservation segment along with charges resulting from a realignment of businesses within this segment.

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 years ended December 31 (in thousands):
 
2019
 
2018
 
Total
Change
Income from operations:
 
 
 
 
 
 
 
Renewable Energy and Conservation
$
47,558

12.7
 %
 
$
37,423

11.8
 %
 
$
10,135

Residential Products
63,047

13.7
 %
 
69,838

15.1
 %
 
(6,791
)
Industrial and Infrastructure Products
13,455

6.3
 %
 
15,336

6.9
 %
 
(1,881
)
Unallocated Corporate Expenses
(36,221
)
(3.5
)%
 
(28,629
)
(2.9
)%
 
(7,592
)
Consolidated income from operations
$
87,839

8.4
 %
 
$
93,968

9.4
 %
 
$
(6,129
)
 
The Renewable Energy and Conservation segment generated an operating margin of 12.7% in 2019 compared to 11.8% in 2018. The improvement in margin resulted from the benefits of volume leverage, favorable alignment of material costs to customer selling prices and higher margin product mix, largely offset by the additional costs related to the field improvements for our solar tracker solution, of $7.5 million, for which have been substantially completed as of year end.

Our Residential Products segment operating margin decreased to 13.7% in 2019 compared to 15.1% in 2018. The decrease in operating margin was due to increased exit activity costs, an unfavorable alignment of material costs to customer selling prices and unfavorable product mix, partially offset by benefits from 80/20 simplification initiatives. Exit activity costs largely relate to severance, contract termination and moving costs associated with a plant closure during the year.
Our Industrial and Infrastructure Products segment operating margin decreased to 6.3% in 2019 compared to 6.9% in 2018. The decrease in operating margin year over year was the result of volume leverage and a termination payment of $3.2 million to exit the Industrial business's multiemployer pension plan, largely offset by operational efficiencies resulting from the Company’s 80/20 initiatives and higher margin product mix.
Unallocated corporate expenses increased $7.6 million, or 26.5%, for 2019 from $28.6 million for 2018 to $36.2 million for 2019. The higher expenses in the current year were primarily the result of a $2.9 million increase in performance-based compensation expenses, which includes senior leadership transition costs, along with higher costs for other restructuring initiatives as compared to the prior year.
The Company recorded other expense of $0.9 million in 2019 and $2.0 million in 2018, respectively. The decrease in other expense was due to the $3.1 million reversal in the prior year of an indemnification asset resulting from the lapse in the statute of limitations of an uncertain tax position related to an acquisition, partially offset by foreign currency fluctuations.

22


Interest expense decreased $9.9 million to $2.2 million for 2019 from $12.1 million for 2018. The decrease in expense resulted from the redemption of the Company's outstanding 6.25% Senior Subordinated Notes during the first quarter of 2019. During 2019 and 2018, no amounts were outstanding under our revolving credit facility.
We recognized a provision for income taxes of $19.7 million, an effective tax rate of 23.2%, for 2019 compared with a provision for income taxes of $16.1 million, an effective tax rate of 20.2%, for 2018. The difference between the Company's recorded charge for 2019 and the expense that would result from applying the U.S. statutory rate of 21% is primarily due to state taxes and nondeductible permanent differences partially offset by favorable discrete items. The difference between the Company's recorded charge for 2018 and the expense that would result from applying the U.S. statutory rate of 21% is primarily due to net favorable discrete items and a benefit from the 2018 reversal of an uncertain tax position related to an acquisition as a result of the lapse of the statute of limitations.

Outlook

For 2020, we begin the year with confidence in the end markets we serve across our businesses but are cautious about the general economy, trade actions, and continued volatility in material costs. Our plan is to accelerate innovative product development, continue to drive 80/20 across our businesses and processes, and seek acquisitions in attractive end markets. At the end of the year, we expect to deliver increased profits and make excellent progress in strengthening our robust platforms for sustainable organic growth.

The Company is providing its guidance for revenues and earnings for the full year 2020. Gibraltar expects 2020 consolidated revenues to be in the range of $1.21 billion and $1.23 billion, up from $1.0 billion for 2019. GAAP EPS for full year 2020 is expected to be between $2.58 and $2.75, compared with $1.99 in 2019.

Liquidity and Capital Resources

Our principal capital requirements are to fund our operations' working capital and capital improvements and to provide capital for 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. The following table sets forth our liquidity position as of:
(in thousands)
 
December 31, 2019
 
December 31, 2018
Cash and cash equivalents
 
$
191,363

 
$
297,006

Availability on revolving credit facility
 
393,991

 
290,761

 
 
$
585,354

 
$
587,767


Cash and cash equivalents as of December 31, 2019 decreased by $105.6 million from December 31, 2018 primarily as a result of utilizing excess cash on hand to repay $210 million of the Company’s 6.25% Senior Subordinated Bonds (“6.25% Notes”) on February 1, 2019, partially offset by cash generated from operations, as noted below in "Cash Flows".

Availability on our revolving credit facility at December 31, 2019 increased from December 31, 2018, as we entered into the Company's Sixth Amended and Restated Credit Agreement (the "Senior Credit Agreement") on January 24, 2019, which includes a 5-year, $400 million revolving credit facility compared to a $300 million revolving credit facility under our then existing Fifth Amended and Restated Credit Agreement.

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 December 31, 2019, our foreign subsidiaries held $30.0 million of cash in U.S. dollars, of which $13.3 million is available to be repatriated to the U.S., net of $0.7 million of withholding tax. Subsequent cash generated by our foreign subsidiaries will be reinvested into their operations.

We believe that our low leverage and increased borrowing capacity, along with enhanced flexibility in our Senior Credit Agreement, provide us with ample liquidity. We believe our liquidity, together with the cash expected to be generated from operations, should be sufficient to fund working capital needs and simplification initiatives.

Over the long-term, we expect that future investments, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash, availability under our revolving credit

23


facility, new debt financing, the issuance of equity securities, or any combination of the above. All 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, with the goal of creating compounding and sustainable shareholder value.

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 years ended December 31 (in thousands):
 
2019
 
2018
Cash provided by (used in):
 
 
 
Operating activities of continuing operations
$
129,935

 
$
97,545

Investing activities of continuing operations
(19,673
)
 
(14,549
)
Financing activities of continuing operations
(217,050
)
 
(6,180
)
Effect of exchange rate changes
1,145

 
(2,090
)
Net (decrease) increase in cash and cash equivalents
$
(105,643
)
 
$
74,726

Operating Activities
Net cash provided by operating activities for 2019 of $129.9 million consisted of net income of $65.1 million, non-cash net charges totaling $41.5 million, which include depreciation, amortization, stock compensation, and other non-cash charges, and a decrease in working capital and other net assets of $23.3 million. The decrease in net working capital and other net assets was largely the result of planned inventory management reduction initiatives along with more favorable timing of customer payments on contracts, partially offset by an increase in accounts receivable resulting from increased sales volume in our Renewable Energy and Conservation segment.

Net cash provided by operating activities in 2018 of $97.6 million consisted of net income of $63.8 million plus $38.5 million of non-cash net charges which include depreciation, amortization, stock compensation, and other non-cash charges, partially offset by a net investment in working capital of $4.7 million, primarily the result of increased inventory volumes to hedge against supply shortages due to tariffs.
Investing Activities
Net cash used in investing activities for 2019 of $19.7 million consisted of capital expenditures of $11.2 million and net cash paid for the acquisition of Apeks LLC of $8.6 million, partially offset by net proceeds of $0.1 million from the sale of property and equipment.
Net cash used in investing activities for 2018 of $14.5 million consisted of capital expenditures of $12.5 million and net cash paid for the acquisition of SolarBOS of $5.2 million, partially offset by net proceeds of $3.2 million from the sale and leaseback of property and equipment.
Financing Activities
Net cash used in financing activities for 2019 of $217.1 million was primarily driven by the $212.0 million repayment of our 6.25% Notes and other debt, as well as the $4.3 million purchase of treasury stock related to the net settlement of tax obligations for participants in the Company's equity incentive plans, and the $1.2 million payment of debt issuance costs, all which were slightly offset by $0.5 million in net proceeds from stock option exercises.
Net cash used in financing activities for 2018 of $6.2 million consisted of the purchase of treasury stock related to the net settlement of tax obligations for participants in the Company's equity incentive plans of $7.2 million primarily due to a large number of performance awards that vested in June 2018, and payment of long-term debt borrowings of $0.4

24


million, partially offset by the proceeds received from the issuance of common stock of $1.4 million due to stock option exercises.

See Note 9 to the Company's consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further information on the Company’s Senior Credit Agreement.
Off Balance Sheet Arrangements
As of December 31, 2019, the Company did not have any off balance sheet arrangements that had or were reasonably likely to have a current or future material effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Contractual Obligations
The following table summarizes by category our Company’s expected future cash outflows associated with contractual obligations in effect at December 31, 2019 (in thousands):
 
Payments Due by Period
Contractual Obligation
Total
 
Less than
One Year
 
One to Three
Years
 
Three to
Five Years
 
More Than
Five Years
Operating lease obligations
31,319

 
9,700

 
14,064

 
6,749

 
806

Pension & other post-retirement payments
4,760

 
500

 
1,355

 
921

 
1,984

Management stock purchase plan (1)
21,350

 
14,816

 
5,410

 
910

 
214

Purchase obligations (2)
119,518

 
117,599

 
1,919

 

 

Total
$
176,947

 
$
142,615

 
$
22,748

 
$
8,580

 
$
3,004


(1)    Includes amounts due to retired participants of the Management Stock Purchase Plan (MSPP). Excludes the future payments due to active participants of the MSPP who have not notified the Company of their intended retirement date, which represents a liability of $7.0 million as of December 31, 2019. The less than one year period includes lump sum distributions for certain participants.The timing of future payments to active participants cannot be accurately estimated as we are uncertain of when active participants’ service to the Company will terminate. Our policy does not recognize the contractual obligation until the participant has officially retired.

(2)    The purchase obligations are primarily comprised of purchase orders issued in the normal course of business for inventory, minimum quantities of certain raw materials, and expenditures related to capital projects in progress.
Critical Accounting Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make decisions based upon estimates, assumptions, and factors it considers relevant to the circumstances. Such decisions include the selection of applicable principles and the use of judgment in their application, the results of which could differ from those anticipated.
A summary of the Company’s significant accounting policies are described in Note 1 of the Company’s consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Our most critical accounting estimates that require the most difficult, subjective and complex judgments include:
 
revenue recognition on contracts; and
the assessment of recoverability of goodwill and other indefinite-lived intangible assets.

25


Management reviews these estimates on a regular basis and makes adjustments based on historical experience, current conditions, and future expectations. Management believes these estimates are reasonable, but actual results could differ from these estimates.

Revenue Recognition on Contracts
The vast majority of our sales contracts are for standard products with revenue recognized at the point in time we transfer control to the customer. The point in time we transfer control is based on when we determine the customer has legal title, significant risks and rewards of ownership of the asset, and we have a present right to payment for the product. However, revenue representing 35%, 32% and 28% of our 2019, 2018 and 2017 consolidated net sales, respectively, was recognized over time under the cost-to-cost method as we satisfied our performance obligations. This method of revenue recognition pertains to activities within the Renewable Energy and Conservation and the Industrial and Infrastructure Products segments.

Revenue recognized on contracts over time using the cost-to-cost method for measuring progress is recognized as work progresses toward completion based on the ratio of cumulative costs incurred to date to estimated total contract costs at completion. Revenues are recognized proportionally as costs are incurred under this method. Estimates of the total costs at completion for the performance obligations involve subjective judgment and estimation to determine total costs expected to be incurred by the time the performance obligation has been completed and accepted by the customer. The estimates of total costs to be incurred at completion of each contract are sensitive to significant judgments and assumptions, such as the expected costs to complete installation, which are affected by customer site-specific conditions as well as availability and cost of third-party contractors to complete the installation process. These estimates, judgments and assumptions impact the timing and amount of net sales and cost of sales recognized on in-progress performance obligations with customers. We continuously review our estimates and the progress and performance of the performance obligation for substantially all contracts that we recognize revenue over time under the cost-to-cost method. Any adjustments or changes in these estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. A significant change in an estimate on one or more contracts could have a material effect on our results of operations.
Contract costs include all direct costs related to contract performance. Selling and administrative expenses are charged to operations as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Because of inherent uncertainties in estimating costs, it is reasonably possible that changes in performance could result in revisions to cost and revenue, which are recognized in the period when the revisions are determined.
Goodwill and Other Indefinite-lived Intangible Asset Impairment Testing
Our goodwill and indefinite-lived intangible asset balances of $329.7 million and $45.8 million, respectively, which in aggregate represent 43% of total assets as of December 31, 2019, are subject to impairment testing. We test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of October 31 and at interim dates when indicators of impairment are present. Indicators of impairment could include a significant long-term adverse change in business climate, poor indicators of operating performance, or a sale or disposition of a significant portion of a reporting unit.
We test goodwill for impairment at the reporting unit level. We identify our reporting units by assessing whether the components of our Company constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. We have ten reporting units, nine of which have goodwill.
During interim periods, we evaluate the potential for goodwill impairment using a qualitative assessment by considering factors such as, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy, changes in key personnel, and overall financial performance. If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test. During the interim periods of 2019, we concluded that no indicators of impairment existed at interim dates and did not perform any quantitative interim impairment tests related to goodwill and indefinite-lived intangible assets.


26


The Company conducts its annual impairment test on all ten reporting units as of October 31, during which we test goodwill and other indefinite-lived intangible assets for impairment. On an annual basis, the quantitative goodwill impairment test consists of comparing the fair value of a reporting unit, as determined using the two valuation methodologies described below, with the carrying amount of the reporting unit including goodwill. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit.

The annual quantitative goodwill impairment test requires subjective and complex judgment due to the significant estimation required in determining the fair value of the reporting units and the fair value of indefinite-lived intangible assets. Reporting unit fair value estimates include significant assumptions such as: revenue growth rates, operating margins, company-specific risk premiums used in the weighted-average cost of capital, and EBITDA multiples, which are affected by expectations about future market or economic conditions. The fair value estimates for indefinite-lived intangible assets include significant assumptions such as revenue growth rates and estimated royalty rates, which are affected by the market for comparable intellectual property licensing arrangements and expectations about future market or economic conditions. The Company performs sensitivity analysis on significant assumptions to evaluate how changes in the estimated fair values of reporting units and indefinite-lived intangible assets respond to changes in assumptions, specifically the revenue growth rates and the weighted-average cost of capital.

As a result of our quantitative testing, none of the reporting units with goodwill as of our testing date had carrying values in excess of their fair values, nor were any of the reporting units "at-risk" of impairment. The Company quantitatively defines "at risk" as a percentage of the excess of the reporting unit's fair value over its carrying amount that is less than 10%. An "at risk" reporting unit qualitatively represents a reporting unit with a higher degree of uncertainty of the reporting unit's ability to meet its forecasted cash flows based upon revenue growth rate and operating margin assumptions relied upon in the estimation of its fair value. There were no impairment charges against goodwill recorded during the years ended December 31, 2019, 2018 and 2017.

The fair value of each reporting unit is determined using a weighted average of the fair values calculated under two valuation techniques: an income approach and a market approach.
The income approach included a discounted cash flow model relying on significant assumptions consisting of revenue growth rates and profit margins based on internal forecasts, terminal value, and the weighted average cost of capital ("WACC") used to discount future cash flows. Internal forecasts of revenue growth, operating margins, capital expenditures and working capital needs of each reporting unit over the next five years were developed with consideration of macroeconomic factors, historical performance, and planned activities. We made a terminal value assumption that cash flows would grow 3.0% each year subsequent to 2024 based on our approximation of gross domestic product growth. To determine the WACC, we used a standard valuation method, the capital asset pricing model, based on readily available and current market data of peer companies considered market participants. Acknowledging the varying degrees of risk inherent in each reporting units’ ability to achieve long-term forecasted cash flows in applying the income approach, we applied a reporting unit-specific risk premium to the WACC of each reporting unit, the extent of which was determined based upon each reporting unit’s past operating performance and their relative ability to achieve the forecasted cash flows. The income approach is weighted at 67% when arriving at our concluded estimate of the fair value of each reporting unit, as this technique uses a long-term approach that considers the expected operating profit of each reporting unit during periods where macroeconomic indicators are nearer historical averages. This weighting approach is consistent with prior years.

The market approach consisted of applying the Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") multiple to the forecasted EBITDA to be generated in the next two years in determining an estimated fair value for the reporting unit. The market approach also relied on the same significant assumptions used in the discounted cash flow model, consisting of revenue growth rates and profit margins based on internal forecasts and the EBITDA multiple selected from an analysis of peer companies. Similar to the WACC analysis, we assessed the risk of each reporting unit achieving its forecasts with consideration given to how each reporting unit has performed historically compared to forecasts. We also evaluated each reporting units' expected growth and historical performance relative to that of the peer companies and made adjustments to the multiples where the growth rates and historical performance deviated from the peer companies. The market approach is weighted at 33% when arriving at our concluded estimate of the fair value of each reporting unit. This weighting approach is consistent with prior years.
Indefinite-Lived Intangibles

27


We test our indefinite-lived intangible assets for impairment by comparing the fair value of the indefinite-lived intangible asset, determined using a discounted cash flow model, with its carrying amount. Each reporting period, we perform an evaluation of the remaining useful life of our indefinite-lived intangible assets to determine whether events and circumstances continue to support an indefinite useful life. If an indefinite-lived intangible asset is subsequently determined to have a finite useful life, the asset is tested for impairment and then amortized prospectively over its estimated remaining useful life, and accounted for in the same manner as other intangible assets that are subject to amortization.
The assumptions used to determine the fair value of our indefinite-lived intangible assets are consistent with the assumptions employed in the determination of the fair values of our reporting units. An impairment loss would be recognized for the carrying amount in excess of its fair value. The fair values of the impaired trademarks were determined using an income approach consisting of the relief-from-royalty method. In 2019, the Company did not recognize any impairment charges on our indefinite-lived intangible assets. During 2018 and 2017, the Company recognized $1.2 million and $0.2 million, respectively, of impairment charges on our indefinite-lived intangible assets.
Recent Accounting Pronouncements
See Note 1 to the Company's consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further information on recent accounting pronouncements.
Item 7A.
Quantitative and Qualitative 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, 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.
Raw Material Pricing Risk
We are subject to market risk exposure related to volatility in the price of steel, aluminum and resins. A significant amount of our cost of sales relates to material costs. Our business is heavily dependent on the price and supply of our raw materials. The commodity market, which includes the steel, aluminum, and resin industries, is highly cyclical in nature, and commodity costs have been volatile in recent years, and may become more volatile in the future. Commodity costs are influenced by numerous factors beyond our control, including general economic conditions, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions.

The Company principally manages its exposures to the market fluctuations in the steel and resins industries through management of its core business activities. Although we have the ability to purchase steel from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. The prices we offer to our customers are also impacted by changes in commodity costs. We manage the alignment of the cost of our raw materials and prices offered to customers and attempt to pass changes to raw material costs through to our customers. To improve our management of commodity costs, we attempt to maintain inventory levels not in excess of our production requirements.

We have not entered into long-term contractual commitments for the purchase of raw materials however, from time to time, we may purchase raw materials in advance of commodity cost increases.

We rely on major suppliers for our supply of raw materials. During 2019, we purchased our raw materials from domestic and foreign suppliers in an effort to purchase the lowest cost, high quality material possible while maintaining acceptable service levels.

We cannot accurately calculate the pre-tax impact a one percent change in the commodity costs would have on our 2019 operating results as the change in commodity costs would both impact the cost to purchase materials and the selling prices we offer our customers. The impact to our operating results would significantly depend on the competitive environment and the costs of other alternative products, which could impact our ability to pass commodity costs to our customers.


28


Interest Rate Risk
To manage interest rate risk, the Company uses both fixed and variable interest rate debt. As of December 31, 2019, the Company had no fixed or variable rate debt outstanding. We limited our exposure to interest rate risk by repaying all of the Company's variable rate and fixed rate debt. However, the Company will continue to monitor changes in its debt levels and access to capital ensuring interest rate risk is appropriately managed.
At December 31, 2019, our available variable rate debt consisted primarily of the revolving credit facility under the Company's Sixth Amended and Restated Credit Agreement. No amounts were outstanding on the revolving credit facility as of December 31, 2019. Borrowings under the revolving credit facility bore interest at a variable interest rate based upon the LIBOR plus an additional margin. A hypothetical 1% increase or decrease in interest rates would have changed the 2019 interest expense by less than $0.1 million.
Foreign Exchange Risk
The Company has foreign exchange risk due to our international operations, primarily in Canada and Asia, and through sales to and purchases from foreign customers and vendors. Changes in the values of currencies of foreign countries affect our financial position and cash flows when translated into U.S. dollars. The Company principally manages its exposures to many of these foreign exchange rate risks solely through management of its core business activities. We cannot accurately calculate the pre-tax impact that a one percent change in the exchange rates of foreign currencies would have on our 2019 operating results as the changes in exchange rates would impact the cost of materials, the U.S. dollar revenue equivalents, and potentially the prices offered to our overseas customers.


29


Item 8.
Financial Statements and Supplementary Data
 


30


Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Gibraltar Industries, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gibraltar Industries, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12 effective January 1, 2018. As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leases as a result of the adoption of ASU No. 2016-02, Leases (Topic 842), and the amendments in ASU 2018-11, effective January 1, 2019.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

31


 
 
Revenue Recognition on Contracts
Description of the Matter
 
During the year ended December 31, 2019, the amount of revenue recognized over time was $371.1 million. As discussed in Note 1 to the consolidated financial statements, the Company’s revenue on contracts is accounted for based on the cost-to-cost input measure of progress, whereby the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
Auditing management’s estimates to complete for certain components is especially subjective due to significant judgment required in estimating the remaining costs to complete. Factors inherent in the estimation process include direct labor hours, direct material costs, and other direct costs. Due to uncertainties attributed to such factors, a significant change in an estimate on one or more contracts could have a material effect on the Company’s results of operations.
How We Addressed the Matter in Our Audit
 
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the measurement and valuation of the Company’s review of estimated costs to complete, including the determination of the underlying significant assumptions and the completeness and accuracy of the open contracts reviewed. For example, we tested controls over management’s quarterly review of the cost estimates, monthly review of open contracts and completed contracts, and review over the cost estimates used to develop initial cost estimates on projects.
To test the amount of revenue recognized from contracts, our audit procedures included, among others, assessing whether the performance obligations identified were appropriately recognized on an over time basis through inspection of the contract and inquiry from program management regarding the nature and scope of work and testing the completeness and accuracy of the data underlying the determination of the amount of revenue recognized in the current period. To assess the over time revenue recognition, we tested that the actual costs incurred on the project are complete and accurate through agreement to supporting evidence. Our testing of the assumptions included a combination of inquiries of the program management and financial personnel, inspection of evidence to support future estimated costs, performance of an analysis of actual gross margin on completed contracts compared to prior estimates, evaluation of subsequent year-end expenses incurred on projects, and assessment of the historical accuracy of management’s estimates by analyzing changes in project gross margins during project lifecycles and determining if those changes were driven by cost factors that should have been known or could have been reasonably estimated at project inception.
 
 
Valuation of Goodwill
Description of the Matter
 
At December 31, 2019, the Company’s goodwill was $329.7 million. As discussed in Notes 1 and 7 of the consolidated financial statements, the Company tests goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company may elect to perform a qualitative assessment or a quantitative test for impairment. In its quantitative tests the Company used the discounted cash flow method to estimate the fair value of its reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates and the weighted-average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
Auditing management’s annual goodwill impairment test was especially subjective due to the significant estimation required to determine the fair value of certain reporting units tested using the quantitative assessment. The fair value estimates for certain reporting units were sensitive to significant assumptions inherent in the Company’s discounted estimated future cash flows, such as changes in the weighted average cost of capital, revenue growth rate, operating margin, working capital and terminal value, which are affected by expectations about future market or economic conditions, particularly those in the U.S. highway and bridge repair and construction markets that impact those reporting units.

32


How We Addressed the Matter in Our Audit
 
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above.
To test the estimated fair value of the Company’s reporting units that applied a quantitative assessment, we performed audit procedures with the assistance of our valuation professionals that included, among others, assessing the methodology used and testing the significant assumptions discussed above and the underlying data used in the impairment analysis. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business model, customer base or product mix and other factors would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the aggregate fair value of the reporting units that would result from changes in the assumptions. We considered the relationship between the fair value of the Company’s reporting units to the market capitalization of the Company as of the annual impairment testing date.


/s/ Ernst & Young LLP

We have served as the Company‘s auditor since 2005.
Buffalo, New York
February 28, 2020



33


GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Years Ended December 31,
 
2019
 
2018
 
2017
Net sales
$
1,047,439

 
$
1,002,372

 
$
986,918

Cost of sales
802,548

 
760,012

 
750,374

Gross profit
244,891

 
242,360

 
236,544

Selling, general, and administrative expense
157,052

 
146,840

 
143,448

Intangible asset impairment

 
1,552

 
247

Income from operations
87,839

 
93,968

 
92,849

Interest expense, net
2,205

 
12,064

 
14,032

Other expense
871

 
1,959

 
909

Income before taxes
84,763

 
79,945

 
77,908

Provision for income taxes
19,672

 
16,136

 
14,943

Income from continuing operations
65,091

 
63,809

 
62,965

Discontinued operations:
 
 
 
 
 
Loss before taxes

 

 
(644
)
Benefit of income taxes

 

 
(239
)
Loss from discontinued operations

 

 
(405
)
Net income
$
65,091

 
$
63,809

 
$
62,560

Net earnings per share – Basic:
 
 
 
 
 
Income from continuing operations
$
2.01

 
$
2.00

 
$
1.98

Loss from discontinued operations

 

 
(0.01
)
Net income
$
2.01

 
$
2.00

 
$
1.97

Weighted average shares outstanding – Basic
32,389

 
31,979

 
31,701

Net earnings per share – Diluted:
 
 
 
 
 
Income from continuing operations
$
1.99

 
$
1.96

 
$
1.95

Loss from discontinued operations

 

 
(0.01
)
Net income
$
1.99

 
$
1.96

 
$
1.94

Weighted average shares outstanding – Diluted
32,722

 
32,534

 
32,250








See accompanying notes to consolidated financial statements.

34


GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
 
Years Ended December 31,
 
2019
 
2018
 
2017
Net income
$
65,091

 
$
63,809

 
$
62,560

Other comprehensive income (loss):
 
 
 
 
 
Foreign currency translation adjustment
1,766

 
(3,241
)
 
3,150

Cumulative effect of accounting change

 
(350
)
 

Adjustment to pension and post-retirement benefit liability, net of tax
77

 
723

 
205

Other comprehensive income (loss)
1,843

 
(2,868
)
 
3,355

Total comprehensive income
$
66,934

 
$
60,941

 
$
65,915







































See accompanying notes to consolidated financial statements.

35


GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
December 31, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
191,363

 
$
297,006

Accounts receivable, net
147,515

 
140,283

Inventories
78,476

 
98,913

Prepaid expenses and other current assets
19,748

 
8,351

Total current assets
437,102

 
544,553

Property, plant, and equipment, net
95,409

 
95,830

Operating lease assets
27,662

 

Goodwill
329,705

 
323,671

Acquired intangibles
92,592

 
96,375

Other assets
1,980

 
1,216

 
$
984,450

 
$
1,061,645

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
83,136

 
$
79,136

Accrued expenses
98,463

 
87,074

Billings in excess of cost
47,598

 
17,857

Current maturities of long-term debt

 
208,805

Total current liabilities
229,197

 
392,872

Long-term debt

 
1,600

Deferred income taxes
40,334

 
36,530

Non-current operating lease liabilities
19,669

 

Other non-current liabilities
21,286

 
33,950

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

 

Common stock, $0.01 par value; authorized 50,000 shares; 33,192 and 32,887 shares issued in 2019 and 2018
332

 
329

Additional paid-in capital
295,582

 
282,525

Retained earnings
405,668

 
338,995

Accumulated other comprehensive loss
(5,391
)
 
(7,234
)
Cost of 906 and 796 common shares held in treasury in 2019 and 2018
(22,227
)
 
(17,922
)
Total shareholders’ equity
673,964

 
596,693

 
$
984,450

 
$
1,061,645






See accompanying notes to consolidated financial statements.

36


GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Years Ended December 31,
 
2019
 
2018
 
2017
Cash Flows from Operating Activities
 
 
 
 
 
Net income
$
65,091

 
$
63,809

 
$
62,560

Loss from discontinued operations

 

 
(405
)
Income from continuing operations
65,091

 
63,809

 
62,965

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
19,949

 
20,374

 
21,690

Intangible asset impairment

 
1,552

 
247

Stock compensation expense
12,570

 
9,189

 
7,122

Exit activity costs (recoveries), non-cash
408

 
1,344

 
(1,877
)
Provision for (benefit of) deferred income taxes
3,303

 
4,781

 
(7,105
)
Other, net
5,296

 
1,243

 
1,995

Changes in operating assets and liabilities (excluding the effects of acquisitions):
 
 
 
 
 
Accounts receivable
(9,418
)
 
9,737

 
(21,806
)
Inventories
23,105

 
(16,951
)
 
870

Other current assets and other assets
(9,118
)
 
(22
)
 
(2,629
)
Accounts payable
2,571

 
(4,828
)
 
11,332

Accrued expenses and other non-current liabilities
16,178

 
7,317

 
(2,734
)
Net cash provided by operating activities
129,935

 
97,545

 
70,070

Cash Flows from Investing Activities
 
 
 
 
 
Purchases of property, plant, and equipment
(11,184
)
 
(12,457
)
 
(11,399
)
Acquisitions, net of cash acquired
(8,595
)
 
(5,241
)
 
(18,494
)
Net proceeds from sale of property and equipment
106

 
3,149

 
13,096

Net cash used in investing activities
(19,673
)
 
(14,549
)
 
(16,797
)
Cash Flows from Financing Activities
 
 
 
 
 
Long-term debt payments
(212,000
)
 
(400
)
 
(400
)
Payment of debt issuance costs
(1,235
)
 

 

Purchase of treasury stock at market prices
(4,305
)
 
(7,165
)
 
(2,872
)
Net proceeds from issuance of common stock
490

 
1,385

 
674

Net cash used in financing activities
(217,050
)
 
(6,180
)
 
(2,598
)
Effect of exchange rate changes on cash
1,145

 
(2,090
)
 
1,428

Net (decrease) increase in cash and cash equivalents
(105,643
)
 
74,726

 
52,103

Cash and cash equivalents at beginning of year
297,006

 
222,280

 
170,177

Cash and cash equivalents at end of year
$
191,363

 
$
297,006

 
$
222,280






See accompanying notes to consolidated financial statements.

37


GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
 
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