UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
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 000-22462
(Exact name of Registrant as specified in its charter)
| (State of incorporation ) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
Registrant’s telephone number, including area code: (716 ) 826-6500
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 3, 2022, the number of common shares outstanding was: 32,793,333 .
GIBRALTAR INDUSTRIES, INC.
INDEX
| PAGE NUMBER | |||||||||||
| PART I. | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II. | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net Sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general, and administrative expense | |||||||||||
| Income from operations | |||||||||||
| Interest expense | |||||||||||
| Other expense | |||||||||||
| Income before taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Income from continuing operations | |||||||||||
| Discontinued operations: | |||||||||||
| Income before taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Income from discontinued operations | |||||||||||
| Net income | $ | $ | |||||||||
| Net earnings per share – Basic: | |||||||||||
| Income from continuing operations | $ | $ | |||||||||
| Income from discontinued operations | |||||||||||
| Net income | $ | $ | |||||||||
| Weighted average shares outstanding – Basic | |||||||||||
| Net earnings per share – Diluted: | |||||||||||
| Income from continuing operations | $ | $ | |||||||||
| Income from discontinued operations | |||||||||||
| Net income | $ | $ | |||||||||
| Weighted average shares outstanding – Diluted | |||||||||||
See accompanying notes to consolidated financial statements.
3
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive (loss) income: | |||||||||||
| Foreign currency translation adjustment | ( | ||||||||||
| Minimum post retirement benefit plan adjustments, net of tax | |||||||||||
| Other comprehensive (loss) income | ( | ||||||||||
| Total comprehensive income | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
4
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
| Acquired intangibles | |||||||||||
| Other assets | |||||||||||
| $ | $ | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Billings in excess of cost | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Non-current operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
Cost of | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| $ | $ | ||||||||||
See accompanying notes to consolidated financial statements.
5
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Income from discontinued operations | |||||||||||
| Income from continuing operations | |||||||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock compensation expense | |||||||||||
| Exit activity costs, non-cash | |||||||||||
| Provision for deferred income taxes | |||||||||||
| Other, net | ( | ||||||||||
| Changes in operating assets and liabilities, excluding the effects of acquisitions: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Other current assets and other assets | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other non-current liabilities | ( | ||||||||||
| Net cash used in operating activities of continuing operations | ( | ( | |||||||||
| Net cash used in operating activities of discontinued operations | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash Flows from Investing Activities | |||||||||||
| Purchases of property, plant, and equipment | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||
| Net proceeds from sale of business | |||||||||||
| Net proceeds from sale of property and equipment | |||||||||||
| Net cash (used in) provided by investing activities of continuing operations | ( | ||||||||||
| Net cash used in investing activities of discontinued operations | ( | ||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| Cash Flows from Financing Activities | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Long-term debt payments | ( | ( | |||||||||
| Purchase of common stock at market prices | ( | ( | |||||||||
| Net proceeds from issuance of common stock | |||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
6
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
Minimum post retirement benefit plan adjustments, net of taxes of $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
7
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Minimum post retirement benefit plan adjustments, net of taxes of $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net settlement of restricted stock units | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
8
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Gibraltar Industries, Inc. (the "Company") have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The Company's operations are seasonal; for this and other reasons, such as the impact of the COVID-19 pandemic, financial results for any interim period are not necessarily indicative of the results expected for any subsequent interim period or for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.
The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements Not Yet Adopted
| Standard | Description | Financial Statement Effect or Other Significant Matters | ||||||||||||
| ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of Effects of Reference Rate Reform on Financial Reporting, and ASU No. 2021-01 Reference Rate Reform (Topic 848), Scope | The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, and apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued as a result of reference rate reform. The expedients and exceptions provided by the amendments in ASU 2020-04 do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. | The amendments in these updates are effective as of March 12, 2020 through December 31, 2022, and may be applied retrospectively to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date the financial statements are available to be issued. The adoption of the amendments in these updates is not expected to have a material impact on the Company's financial statements. | ||||||||||||
9
(3) ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Costs in excess of billings | |||||||||||
| Total accounts receivables | |||||||||||
| Less allowance for doubtful accounts and contract assets | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
Refer to Note 4 "Revenue" concerning the Company's costs in excess of billings.
The following table provides a roll-forward of the allowance for credit losses, for the three month period ended March 31, 2022, that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected.
| Beginning balance as of January 1, 2022 | $ | ||||
| Bad debt expense, net of recoveries | |||||
| Accounts written off against allowance and other adjustments | ( | ||||
| Ending balance as of March 31, 2022 | $ | ||||
(4) REVENUE
Sales includes revenue from contracts with customers for designing, engineering, manufacturing and installation of solar racking systems; electrical balance of systems; roof and foundation ventilation products; centralized mail systems and electronic package solutions; retractable awnings; gutter guards; rain dispersion products; trims and flashings and other accessories; designing, engineering, manufacturing and installation of greenhouses; botanical extraction systems; structural bearings; expansion joints; pavement sealant; elastomeric concrete; and bridge cable protection systems.
Refer to Note 14 "Segment Information" for additional information related to revenue recognized by timing of transfer of control by reportable segment.
As of March 31, 2022, the Company's remaining performance obligations are part of contracts that have an original expected duration of one year or less.
Contract assets consist of costs in excess of billings presented within accounts receivable in the Company's consolidated balance sheets. Contract liabilities consist of billings in excess of cost, classified as current liabilities, and unearned revenue, presented within accrued expenses, in the Company's consolidated balance sheets. Unearned revenue as of March 31, 2022 and December 31, 2021 was $2.4 million and $3.7 million, respectively. Revenue recognized during the three months ended March 31, 2022 and 2021 that was in contract liabilities at the beginning of the respective periods was $27.4 million and $40.7 million, respectively.
10
(5) INVENTORIES
Inventories consist of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Raw material | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Gross inventory | $ | $ | |||||||||
| Less reserves | ( | ( | |||||||||
| Total inventories, net | $ | $ | |||||||||
(6) GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2022 are as follows (in thousands):
| Renewables | Residential | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company determined that a triggering event has not occurred as of March 31, 2022 which would require an interim impairment test to be performed.
Acquired Intangible Assets
Acquired intangible assets consist of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Trademarks | $ | $ | $ | $ | |||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Trademarks | |||||||||||||||||||||||
| Unpatented technology | |||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||
| Non-compete agreements | |||||||||||||||||||||||
| Backlog | |||||||||||||||||||||||
| Total acquired intangible assets | $ | $ | $ | $ | |||||||||||||||||||
11
The following table summarizes the acquired intangible asset amortization expense for the three months ended March 31 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Amortization expense | $ | $ | |||||||||
Amortization expense related to acquired intangible assets for the remainder of fiscal 2022 and the next five years thereafter is estimated as follows (in thousands):
| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | ||||||||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(7) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Revolving credit facility | $ | $ | |||||||||
| Less unamortized debt issuance costs | ( | ( | |||||||||
| Total debt | $ | $ | |||||||||
Senior Credit Agreement
On January 24, 2019, the Company entered into a Sixth Amended and Restated Credit Agreement ("Senior Credit Agreement"), which amended and restated the Company’s Fifth Amended and Restated Credit Agreement dated December 9, 2015, and provides for a revolving credit facility and letters of credit in an aggregate amount equal to $400 million. The Company can request additional financing from the lenders to increase the revolving credit facility to $700 million or enter into a term loan of up to $300 million subject to conditions set forth in the Senior Credit Agreement. The Senior Credit Agreement contains three financial covenants. As of March 31, 2022, the Company was in compliance with all three covenants.
Interest rates on the revolving credit facility are based on LIBOR plus an additional margin that ranges from 1.125 % to 2.00 %. In addition, the revolving credit facility is subject to an undrawn commitment fee ranging between 0.15 % and 0.25 % based on the Total Leverage Ratio (as defined in the Senior Credit Agreement) and the daily average undrawn balance. The Senior Credit Agreement terminates on January 23, 2024.
Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property, equipment, and general intangibles of the Company’s significant domestic subsidiaries. Capital distributions under the Senior Credit Agreement are capped at an annual aggregate limit of $75 million if the Company's leverage ratio is over 3.0 times.
Standby letters of credit of $5.5 million have been issued under the Senior Credit Agreement on behalf of the Company as of March 31, 2022. These letters of credit reduce the amount otherwise available under the revolving credit facility. The Company had $351.5 million and $369.3 million of availability under the revolving credit facility at March 31, 2022 and December 31, 2021, respectively.
12
(8) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the cumulative balance of each component of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, (in thousands):
| Foreign Currency Translation Adjustment | Minimum post retirement benefit plan adjustments | Total Pre-Tax Amount | Tax Benefit (Expense) | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
| Minimum post retirement health care plan adjustments | — | ( | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | — | ( | ( | |||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||
| Foreign Currency Translation Adjustment | Minimum post retirement benefit plan adjustments | Total Pre-Tax Amount | Tax Benefit (Expense) | Accumulated Other Comprehensive (Loss) Income | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Minimum post retirement health care plan adjustments | — | ( | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||
(9) EQUITY-BASED COMPENSATION
On May 4, 2018, the stockholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan provides for the issuance of up to 1,000,000 shares of common stock and supplements the remaining shares available for issuance under the Gibraltar Industries, Inc. 2015 Equity Incentive Plan (the "2015 Plan"). Both the 2018 Plan and the 2015 Plan allow the Company to grant equity-based incentive compensation awards, in the form of non-qualified options, restricted shares, restricted stock units, performance shares, performance stock units, and stock rights to eligible participants.
In 2016, the stockholders of the Company approved the adoption of the Gibraltar Industries, Inc. 2016 Stock Plan for Non-Employee Directors ("Non-Employee Directors Plan") which provides for the issuance of up to 100,000 shares, allows the Company to grant awards of shares of the Company's common stock to non-employee Directors of the Company, and permits the Directors to defer receipt of such shares pursuant to the terms of the Non-Employee Directors Plan.
13
Equity Based Awards - Settled in Stock
The following table sets forth the number of equity-based awards granted during the three months ended March 31, which will convert to shares upon vesting, along with the weighted average grant date fair values:
| 2022 | 2021 | ||||||||||||||||||||||
| Awards | Number of Awards | Weighted Average Grant Date Fair Value | Number of Awards (2) | Weighted Average Grant Date Fair Value | |||||||||||||||||||
| Performance stock units (1) | $ | $ | |||||||||||||||||||||
| Restricted stock units | $ | $ | |||||||||||||||||||||
(1) The Company’s performance stock units (“PSUs”) represent shares granted for which the final number of shares earned depends on financial performance or market conditions. The number of shares to be issued may vary between 0 % and 200 % of the number of PSUs granted depending on the relative achievement to targeted thresholds. The Company's PSUs with a financial performance condition are based on either the Company’s return on invested capital (“ROIC”) over a one-year performance period. The Company's PSUs with a market condition are based on the ranking of the Company’s total stockholder return (“TSR”) performance, on a percentile basis, over a three year performance period compared to the S&P Small Cap Industrial sector, over the same three year performance period.
(2) All PSUs granted in the first quarter of 2021 were forfeited in the first quarter of 2022 as the threshold level of achievement was not met based on the Company's actual ROIC achievement level for the performance period ended December 31, 2021.
Equity Based Awards - Settled in Cash
The Company's equity-based awards that are settled in cash are the awards under the Management Stock Purchase Plan (the "MSPP") which is authorized under the Company's equity incentive plans. The total of these share-based liabilities recorded on the consolidated balance sheet as of March 31, 2022 was $18.9 million, of which $2.0 million was included in current accrued expenses and $16.9 million was included in non-current liabilities. Total share-based liabilities as of December 31, 2021 were $22.6 million, of which $2.9 million was included in current accrued expenses and $19.7 million was included in non-current liabilities.
The Company's MSPP provides participants the ability to defer a portion of their compensation, convertible to unrestricted investments, restricted stock units, or a combination of both, or defer a portion of their directors’ fees, convertible to restricted stock units. Employees eligible to defer a portion of their compensation also receive a company-matching award in restricted stock units equal to a percentage of their compensation.
The deferrals and related company match are credited to an account that represents a share-based liability. The portion of the account deferred to unrestricted investments is measured at fair market value of the unrestricted investments, and the portion of the account deferred to restricted stock units and company-matching restricted stock units is measured at a 200 -day average of the Company’s stock price. The account will be converted to and settled in cash payable to participants upon retirement or a termination of their service to the Company.
The following table provides the number of restricted stock units credited to active participant accounts and the payments made with respect to restricted stock units issued under the MSPP during the three months ended March 31,:
| 2022 | 2021 | ||||||||||
| Restricted stock units credited | |||||||||||
| Share-based liabilities paid (in thousands) | $ | $ | |||||||||
14
(10) HELD FOR SALE AND DISCONTINUED OPERATIONS
Held for Sale
During the first quarter of 2022, the Company committed to a plan to sell its Processing business (the "disposal group") which is a business within the Company's Agtech reportable segment. The planned sale does not meet the criteria to be classified as a discontinued operation. As a result, the Company will continue reporting the operating results of the disposal group in the Company's consolidated operating results from continuing operations until the sale of the business is completed.
The Company classifies assets and related liabilities as held for sale when: (i) management has committed to a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and transfer of the net assets is probable within one year. Assets and liabilities held for sale are presented separately on our consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell.
As of March 31, 2022, the assets and liabilities of the disposal group have been classified as held for sale. The following table summarizes these assets and liabilities which have been measured at the lower of (i) the carrying value when classified as held for sale and (ii) the fair value of the business less costs to sell.
| (in thousands) | March 31, 2022 | |||||||
| Assets held for sale | ||||||||
| Accounts receivable, net of allowance | $ | |||||||
| Inventories, net of reserves | ||||||||
| Other current assets | ||||||||
| Property, plant, and equipment, net | ||||||||
| Operating lease asset | ||||||||
Goodwill (1) | ||||||||
| Acquired intangibles, net | ||||||||
| Total assets held for sale | $ | |||||||
| Liabilities held for sale | ||||||||
| Accounts payable | $ | |||||||
| Accrued expenses | ||||||||
| Non-current operating lease liabilities | ||||||||
| Total liabilities held for sale | $ | |||||||
(1) The assignment of goodwill was based on the relative fair value of the disposal group compared to the fair value of the total reporting unit it was included in prior to being reclassified as held for sale.
Net sales and operating loss for held for sale operations for the three months ended March 31 are as follows (in thousands):
| 2022 | 2021 | |||||||
| Net sales | $ | $ | ||||||
| Operating loss | $ | ( | $ | ( | ||||
Effective with the classification of the disposal group as held for sale, depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale. As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to an estimated sales price, adjusted for costs to sell, no losses were recorded during the three months ended March 31, 2022. The recoverability of the disposal group will be evaluated each reporting period until the sale of the business is completed.
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Discontinued Operations
On February 23, 2021, the Company sold the stock of its Industrial business which had been classified as held for sale and reported as a discontinued operation in the Company’s consolidated financial statements for the year ended December 31, 2021. Net proceeds of $38 million, consisting of cash and a $13 million seller note, resulted in an estimated pre-tax loss of $30 million, subject to working capital and other adjustments, of which $29.6 million was recorded when the assets of the Industrial business were written down to fair market value during the fourth quarter of 2020. The seller note was paid in full to the Company during the second quarter of 2021.
The results of operations and financial position of the Industrial business have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. The Company allocates interest to its discontinued operations in accordance with ASC Subtopic 205-20, “Presentation of Financial Statements – Discontinued Operations.” Interest was allocated based on the amount of net assets held by the discontinued operation in comparison to consolidated net assets.
Components of income from discontinued operations before taxes, including the interest allocated to discontinued operations, for the three months ended March 31 are as follows (in thousands):
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | $ | |||||||||
| Operating expenses | |||||||||||
| Adjustment to loss on disposal | |||||||||||
| Income from discontinued operations before taxes | $ | $ | |||||||||
(11) EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS
The Company has incurred exit activity costs and asset impairment charges as a result of its 80/20 simplification and portfolio management initiatives. These initiatives have resulted in the identification of low-volume, low margin, internally-produced products which have been or will be outsourced or discontinued, the simplification of processes, the sale and exiting of less profitable businesses or product lines, and a reduction in our manufacturing footprint.
Exit activity costs (recoveries) were incurred during the three months ended March 31, 2022 and 2021 which related to moving and closing costs, severance, and contract terminations, along with asset impairment charges related to the write-down of inventory and impairment of machinery and equipment associated with discontinued product lines, as a result of process simplification initiatives. In conjunction with these initiatives, the Company closed one facility during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company closed two facilities as a result of these initiatives.
16
The following tables set forth the exit activity costs (recoveries) and asset impairment charges incurred by segment during the three months ended March 31, related to the restructuring activities described above (in thousands):
| Three months ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Exit activity costs (recoveries), net | Asset impairment charges | Total | Exit activity costs | Asset impairment charges | Total | ||||||||||||||||||||||||||||||
| Renewables | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||
| Agtech | ( | ( | |||||||||||||||||||||||||||||||||
| Infrastructure | ( | ( | |||||||||||||||||||||||||||||||||
| Corporate | |||||||||||||||||||||||||||||||||||
| Total exit activity costs & asset impairments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table provides a summary of where the exit activity costs and asset impairment charges were recorded in the consolidated statements of income for the three months ended March 31, (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cost of sales | $ | $ | |||||||||
| Selling, general, and administrative expense | |||||||||||
| Total exit activity and asset impairment charges | $ | $ | |||||||||
The following table reconciles the beginning and ending liability for exit activity costs relating to the Company’s facility consolidation efforts (in thousands):
| 2022 | 2021 | ||||||||||
| Balance at January 1 | $ | $ | |||||||||
| Exit activity costs recognized | |||||||||||
| Cash payments | ( | ( | |||||||||
| Balance at March 31 | $ | $ | |||||||||
(12) INCOME TAXES
The following table summarizes the provision for income taxes for continuing operations (in thousands) for the three months ended March 31, and the applicable effective tax rates:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Provision for income taxes | $ | $ | |||||||||
| Effective tax rate | % | % | |||||||||
The effective tax rate for the three months ended March 31, 2022 was greater than the U.S. federal statutory rate of 21 % due to state taxes and nondeductible permanent differences partially offset by favorable discrete items due to an excess tax benefit on stock-based compensation. The effective tax rate for the three months ended March 31, 2021 was less than the U.S. federal statutory rate of 21 % due to favorable discrete items due to an excess tax benefit on stock-based compensation, partially offset by state taxes and nondeductible permanent differences.
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(13) EARNINGS PER SHARE
Earnings per share and the weighted average shares outstanding used in calculating basic and diluted earnings per share are as follows for the three months ended March 31, (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Numerator: | |||||||||||
| Income from continuing operations | $ | $ | |||||||||
| Income from discontinued operations | |||||||||||
| Net income available to common stockholders | $ | $ | |||||||||
| Denominator for basic earnings per share: | |||||||||||
| Weighted average shares outstanding | |||||||||||
| Denominator for diluted earnings per share: | |||||||||||
| Weighted average shares outstanding | |||||||||||
| Common stock options and stock units | |||||||||||
| Weighted average shares and conversions | |||||||||||
(14) SEGMENT INFORMATION
The Company is organized into four reportable segments on the basis of the production processes, products and services provided by each segment, identified as follows:
(i)Renewables, which primarily includes designing, engineering, manufacturing and installation of solar racking and electrical balance of systems;
(ii)Residential, which primarily includes roof and foundation ventilation products, centralized mail systems and electronic package solutions, retractable awnings and gutter guards, and rain dispersion products, trims and flashings and other accessories;
(iii)Agtech, which provides growing and processing solutions including the designing, engineering, manufacturing and installation of greenhouses, and botanical extraction systems; and
(iv)Infrastructure, which primarily includes structural bearings, expansion joints and pavement sealant for bridges, airport runways and roadways, elastomeric concrete, and bridge cable protection systems.
When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics.
18
The following table illustrates certain measurements used by management to assess performance of the segments described above for the three months ended March 31, (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales: | |||||||||||
| Renewables | $ | $ | |||||||||
| Residential | |||||||||||
| Agtech | |||||||||||
| Infrastructure | |||||||||||
| Total net sales | $ | $ | |||||||||
| Income from operations: | |||||||||||
| Renewables | $ | ( | $ | ( | |||||||
| Residential | |||||||||||
| Agtech | |||||||||||
| Infrastructure | |||||||||||
| Unallocated Corporate Expenses | ( | ( | |||||||||
| Total income from operations | $ | $ | |||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Total assets: | |||||||||||
| Renewables | $ | $ | |||||||||
| Residential | |||||||||||
| Agtech | |||||||||||
| Infrastructure | |||||||||||
| Unallocated corporate assets | |||||||||||
| $ | $ | ||||||||||
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The following tables illustrate segment revenue disaggregated by timing of transfer of control to the customer for the three months ended March 31 (in thousands):
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
| Renewables | Residential | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Renewables | Residential | Agtech | Infrastructure | Total | |||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||
| Point in Time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over Time | |||||||||||||||||||||||||||||