false2019Q30001592480--12-310.0010.00110,000,00010,000,000————0.0010.001190,000,000190,000,00044,539,75944,472,21434,688,20635,401,86800015924802019-01-012019-09-30xbrli:shares00015924802019-11-10iso4217:USD00015924802019-07-012019-09-3000015924802018-07-012018-09-3000015924802018-01-012018-09-30iso4217:USDxbrli:shares00015924802019-09-3000015924802018-12-3100015924802017-12-3100015924802018-09-300001592480us-gaap:CommonStockMember2017-12-310001592480us-gaap:AdditionalPaidInCapitalMember2017-12-310001592480us-gaap:TreasuryStockMember2017-12-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-310001592480us-gaap:RetainedEarningsMember2017-12-310001592480us-gaap:RetainedEarningsMember2018-01-012018-03-3100015924802018-01-012018-03-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-012018-03-310001592480us-gaap:CommonStockMember2018-01-012018-03-310001592480us-gaap:TreasuryStockMember2018-01-012018-03-310001592480us-gaap:AdditionalPaidInCapitalMember2018-01-012018-03-310001592480us-gaap:CommonStockMember2018-03-310001592480us-gaap:AdditionalPaidInCapitalMember2018-03-310001592480us-gaap:TreasuryStockMember2018-03-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-03-310001592480us-gaap:RetainedEarningsMember2018-03-3100015924802018-03-310001592480us-gaap:RetainedEarningsMember2018-04-012018-06-3000015924802018-04-012018-06-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-04-012018-06-300001592480us-gaap:CommonStockMember2018-04-012018-06-300001592480us-gaap:TreasuryStockMember2018-04-012018-06-300001592480us-gaap:AdditionalPaidInCapitalMember2018-04-012018-06-300001592480us-gaap:CommonStockMember2018-06-300001592480us-gaap:AdditionalPaidInCapitalMember2018-06-300001592480us-gaap:TreasuryStockMember2018-06-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-06-300001592480us-gaap:RetainedEarningsMember2018-06-3000015924802018-06-300001592480us-gaap:RetainedEarningsMember2018-07-012018-09-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-07-012018-09-300001592480us-gaap:CommonStockMember2018-07-012018-09-300001592480us-gaap:TreasuryStockMember2018-07-012018-09-300001592480us-gaap:AdditionalPaidInCapitalMember2018-07-012018-09-300001592480us-gaap:CommonStockMember2018-09-300001592480us-gaap:AdditionalPaidInCapitalMember2018-09-300001592480us-gaap:TreasuryStockMember2018-09-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-09-300001592480us-gaap:RetainedEarningsMember2018-09-300001592480us-gaap:CommonStockMember2018-12-310001592480us-gaap:AdditionalPaidInCapitalMember2018-12-310001592480us-gaap:TreasuryStockMember2018-12-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001592480us-gaap:RetainedEarningsMember2018-12-310001592480us-gaap:RetainedEarningsMember2019-01-012019-03-3100015924802019-01-012019-03-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001592480us-gaap:CommonStockMember2019-01-012019-03-310001592480us-gaap:TreasuryStockMember2019-01-012019-03-310001592480us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001592480us-gaap:CommonStockMember2019-03-310001592480us-gaap:AdditionalPaidInCapitalMember2019-03-310001592480us-gaap:TreasuryStockMember2019-03-310001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001592480us-gaap:RetainedEarningsMember2019-03-3100015924802019-03-310001592480us-gaap:RetainedEarningsMember2019-04-012019-06-3000015924802019-04-012019-06-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001592480us-gaap:CommonStockMember2019-04-012019-06-300001592480us-gaap:TreasuryStockMember2019-04-012019-06-300001592480us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300001592480us-gaap:CommonStockMember2019-06-300001592480us-gaap:AdditionalPaidInCapitalMember2019-06-300001592480us-gaap:TreasuryStockMember2019-06-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001592480us-gaap:RetainedEarningsMember2019-06-3000015924802019-06-300001592480us-gaap:RetainedEarningsMember2019-07-012019-09-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001592480us-gaap:CommonStockMember2019-07-012019-09-300001592480us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001592480us-gaap:CommonStockMember2019-09-300001592480us-gaap:AdditionalPaidInCapitalMember2019-09-300001592480us-gaap:TreasuryStockMember2019-09-300001592480us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001592480us-gaap:RetainedEarningsMember2019-09-30cbpx:facility0001592480cbpx:WallboardMember2019-09-300001592480cbpx:JointCompoundMember2019-09-300001592480us-gaap:AccountingStandardsUpdate201602Member2019-01-010001592480us-gaap:LandMember2019-09-300001592480us-gaap:LandMember2018-12-310001592480us-gaap:BuildingMember2019-09-300001592480us-gaap:BuildingMember2018-12-310001592480us-gaap:EquipmentMember2019-09-300001592480us-gaap:EquipmentMember2018-12-310001592480us-gaap:TransportationEquipmentMember2019-09-300001592480us-gaap:TransportationEquipmentMember2018-12-310001592480us-gaap:ConstructionInProgressMember2019-09-300001592480us-gaap:ConstructionInProgressMember2018-12-310001592480us-gaap:CustomerRelationshipsMember2019-09-300001592480us-gaap:CustomerRelationshipsMember2018-12-310001592480us-gaap:ComputerSoftwareIntangibleAssetMember2019-09-300001592480us-gaap:ComputerSoftwareIntangibleAssetMember2018-12-310001592480us-gaap:TrademarksMember2019-09-300001592480us-gaap:TrademarksMember2018-12-310001592480cbpx:SevenHillsPaperboardLLCMemberus-gaap:EquityMethodInvesteeMemberus-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2019-07-012019-09-300001592480cbpx:SevenHillsPaperboardLLCMemberus-gaap:EquityMethodInvesteeMemberus-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2019-01-012019-09-300001592480cbpx:SevenHillsPaperboardLLCMemberus-gaap:EquityMethodInvesteeMemberus-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2018-07-012018-09-300001592480cbpx:SevenHillsPaperboardLLCMemberus-gaap:EquityMethodInvesteeMemberus-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2018-01-012018-09-300001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2019-09-300001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2019-03-310001592480cbpx:IndustrialRevenueBondsMemberus-gaap:LineOfCreditMembercbpx:IndustrialRevenueBondsDue2025Member2019-09-300001592480cbpx:IndustrialRevenueBondsMemberus-gaap:LineOfCreditMembercbpx:IndustrialRevenueBondsDue2025Member2019-03-31xbrli:pure0001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2019-09-300001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2019-01-012019-09-300001592480cbpx:IndustrialRevenueBondsMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:LineOfCreditMembercbpx:IndustrialRevenueBondsDue2025Member2019-01-012019-09-300001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2016-08-180001592480us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMembercbpx:AmendedandRestatedCreditAgreementMember2016-08-180001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2016-08-182016-08-180001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2016-08-180001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2017-02-212017-02-210001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2017-02-212017-02-210001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2017-12-062017-12-060001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2017-12-062017-12-060001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2019-01-012019-09-300001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2018-01-012018-09-300001592480us-gaap:SecuredDebtMembercbpx:AmendedandRestatedCreditAgreementMember2018-10-012018-12-310001592480us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMembercbpx:AmendedandRestatedCreditAgreementMember2018-12-312018-12-310001592480cbpx:IndustrialRevenueBondsMemberus-gaap:LineOfCreditMembercbpx:IndustrialRevenueBondsDue2025Member2018-12-310001592480us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMembercbpx:AmendedandRestatedCreditAgreementMember2019-09-300001592480us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMembercbpx:AmendedandRestatedCreditAgreementMember2018-12-310001592480us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMembercbpx:AmendedandRestatedCreditAgreementMember2019-01-012019-09-30cbpx:covenant0001592480cbpx:AmendedandRestatedCreditAgreementMember2019-09-300001592480srt:MaximumMembercbpx:AmendedandRestatedCreditAgreementMember2019-01-012019-09-30utr:MMBTU0001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:EnergyRelatedDerivativeMember2019-01-012019-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2016-12-310001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2016-09-012016-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2016-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:InterestRateSwapMember2016-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:InterestRateSwapMember2018-03-290001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2018-03-292018-03-290001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-07-012019-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-01-012019-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2018-07-012018-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2018-01-012018-09-300001592480us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2018-03-290001592480us-gaap:InterestRateSwapMember2019-09-300001592480us-gaap:InterestRateSwapMember2018-12-310001592480us-gaap:CommodityContractMember2019-09-300001592480us-gaap:CommodityContractMember2018-12-310001592480us-gaap:InterestRateSwapMember2019-07-012019-09-300001592480us-gaap:InterestRateSwapMember2018-07-012018-09-300001592480us-gaap:InterestRateSwapMember2019-01-012019-09-300001592480us-gaap:InterestRateSwapMember2018-01-012018-09-300001592480us-gaap:CommodityContractMember2019-07-012019-09-300001592480us-gaap:CommodityContractMember2018-07-012018-09-300001592480us-gaap:CommodityContractMember2019-01-012019-09-300001592480us-gaap:CommodityContractMember2018-01-012018-09-3000015924802015-11-0400015924802018-02-2100015924802019-01-012019-06-3000015924802018-01-012018-06-300001592480cbpx:OpenMarketRepurchaseProgramMember2019-07-012019-09-300001592480cbpx:OpenMarketRepurchaseProgramMember2018-07-012018-09-3000015924802018-01-012018-12-3100015924802017-01-012017-12-310001592480cbpx:OpenMarketRepurchaseProgramMember2019-01-012019-09-300001592480cbpx:OpenMarketRepurchaseProgramMember2018-01-012018-09-300001592480us-gaap:AccumulatedTranslationAdjustmentMember2018-12-310001592480us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2018-12-310001592480us-gaap:AccumulatedTranslationAdjustmentMember2019-01-012019-09-300001592480us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-01-012019-09-300001592480us-gaap:AccumulatedTranslationAdjustmentMember2019-09-300001592480us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-09-300001592480srt:ScenarioForecastMember2019-01-012019-12-310001592480us-gaap:RestrictedStockMember2019-07-012019-09-300001592480us-gaap:RestrictedStockMember2018-07-012018-09-300001592480us-gaap:RestrictedStockMember2019-01-012019-09-300001592480us-gaap:RestrictedStockMember2018-01-012018-09-300001592480us-gaap:RestrictedStockUnitsRSUMember2019-07-012019-09-300001592480us-gaap:RestrictedStockUnitsRSUMember2018-07-012018-09-300001592480us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-09-300001592480us-gaap:RestrictedStockUnitsRSUMember2018-01-012018-09-300001592480us-gaap:PerformanceSharesMember2019-07-012019-09-300001592480us-gaap:PerformanceSharesMember2018-07-012018-09-300001592480us-gaap:PerformanceSharesMember2019-01-012019-09-300001592480us-gaap:PerformanceSharesMember2018-01-012018-09-300001592480us-gaap:EmployeeStockOptionMember2019-07-012019-09-300001592480us-gaap:EmployeeStockOptionMember2018-07-012018-09-300001592480us-gaap:EmployeeStockOptionMember2019-01-012019-09-300001592480us-gaap:EmployeeStockOptionMember2018-01-012018-09-300001592480us-gaap:InventoriesMember2019-07-012019-09-300001592480us-gaap:InventoriesMember2019-01-012019-09-300001592480us-gaap:InventoriesMember2018-07-012018-09-300001592480us-gaap:InventoriesMember2018-01-012018-09-300001592480us-gaap:FinancialStandbyLetterOfCreditMember2019-09-300001592480us-gaap:FinancialStandbyLetterOfCreditMember2018-12-310001592480us-gaap:ProductConcentrationRiskMembercbpx:WallboardMemberus-gaap:SalesRevenueNetMember2019-01-012019-09-300001592480us-gaap:ProductConcentrationRiskMembercbpx:WallboardMemberus-gaap:SalesRevenueNetMember2019-07-012019-09-300001592480us-gaap:ProductConcentrationRiskMembercbpx:WallboardMemberus-gaap:SalesRevenueNetMember2018-07-012018-09-300001592480us-gaap:ProductConcentrationRiskMembercbpx:WallboardMemberus-gaap:SalesRevenueNetMember2018-01-012018-09-30cbpx:geographic_area0001592480us-gaap:OperatingSegmentsMembercbpx:WallboardMember2019-07-012019-09-300001592480us-gaap:OperatingSegmentsMembercbpx:WallboardMember2018-07-012018-09-300001592480us-gaap:OperatingSegmentsMembercbpx:WallboardMember2019-01-012019-09-300001592480us-gaap:OperatingSegmentsMembercbpx:WallboardMember2018-01-012018-09-300001592480us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2019-07-012019-09-300001592480us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2018-07-012018-09-300001592480us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2019-01-012019-09-300001592480us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2018-01-012018-09-300001592480us-gaap:MaterialReconcilingItemsMember2019-07-012019-09-300001592480us-gaap:MaterialReconcilingItemsMember2018-07-012018-09-300001592480us-gaap:MaterialReconcilingItemsMember2019-01-012019-09-300001592480us-gaap:MaterialReconcilingItemsMember2018-01-012018-09-300001592480country:US2019-07-012019-09-300001592480country:US2018-07-012018-09-300001592480country:US2019-01-012019-09-300001592480country:US2018-01-012018-09-300001592480country:CA2019-07-012019-09-300001592480country:CA2018-07-012018-09-300001592480country:CA2019-01-012019-09-300001592480country:CA2018-01-012018-09-300001592480country:US2019-09-300001592480country:US2018-12-310001592480country:CA2019-09-300001592480country:CA2018-12-310001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:FairValueInputsLevel2Memberus-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-09-300001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:CommodityContractMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:CommodityContractMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:CommodityContractMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-09-300001592480us-gaap:CommodityContractMemberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:FairValueMeasurementsRecurringMember2019-09-300001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:FairValueInputsLevel2Memberus-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2018-12-310001592480us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:CommodityContractMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:CommodityContractMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:CommodityContractMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2018-12-310001592480us-gaap:CommodityContractMemberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480us-gaap:FairValueMeasurementsRecurringMember2018-12-310001592480cbpx:EquipmentMalfunctionMember2019-01-012019-09-300001592480cbpx:EquipmentMalfunctionBusinessInterruptionMember2019-01-012019-09-300001592480cbpx:EquipmentMalfunctionRebuildofPropertyPlantandEquipmentDamagedMember2019-01-012019-09-300001592480cbpx:EquipmentMalfunctionRebuildofPropertyPlantandEquipmentDamagedMember2019-09-300001592480cbpx:EquipmentMalfunctionDirectCostsAssociatedwithBusinessInterruptionMember2019-01-012019-09-300001592480cbpx:EquipmentMalfunctionDirectCostsAssociatedwithBusinessInterruptionMember2019-09-300001592480cbpx:EquipmentMalfunctionBusinessInterruptionMember2019-09-300001592480cbpx:EquipmentMalfunctionMember2019-09-300001592480us-gaap:SubsequentEventMember2019-11-122019-11-12
As filed with the Securities and Exchange Commission on November 12, 2019
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 September 30, 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: 001-36293
| Securities Registered Pursuant to Section 12(b) of the Act: | ||||||||||||||||||||||||||
| Title of Each Class | Trading Symbol (s) | Name of Exchange on Which Registered | ||||||||||||||||||||||||
| Common Stock, $0.001 par value per share | CBPX | New York Stock Exchange | ||||||||||||||||||||||||
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.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of November 10, 2019, the registrant had outstanding 34,688,206 shares of the registrant’s common stock, which amount excludes 9,851,553 shares of common stock held by the registrant as treasury shares.
1
Table of Contents to Third Quarter 2019 Form 10-Q
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Continental Building Products, Inc.
Consolidated Statements of Operations
(unaudited)
|
For the Three Months Ended
|
For the Nine Months Ended
|
||||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data and per share amounts) | |||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 127,439 | $ | 131,234 | $ | 373,677 | $ | 387,304 | |||||||||||||||||||||||||||||||||
| Cost of goods sold | 99,532 | 94,306 | 286,288 | 279,185 | |||||||||||||||||||||||||||||||||||||
| Gross profit | 27,907 | 36,928 | 87,389 | 108,119 | |||||||||||||||||||||||||||||||||||||
| Selling and administrative expense | 9,626 | 9,957 | 28,397 | 29,826 | |||||||||||||||||||||||||||||||||||||
| Loss on intangible asset impairment | — | — | 2,911 | — | |||||||||||||||||||||||||||||||||||||
| Gain from insurance recoveries, net | — | — | 1,513 | — | |||||||||||||||||||||||||||||||||||||
| Gain from business interruption insurance | 1,623 | — | 4,861 | — | |||||||||||||||||||||||||||||||||||||
| Operating income | 19,904 | 26,971 | 62,455 | 78,293 | |||||||||||||||||||||||||||||||||||||
| Other expense, net | (66) | (29) | (168) | (256) | |||||||||||||||||||||||||||||||||||||
| Interest expense, net | (2,220) | (2,549) | (7,107) | (7,963) | |||||||||||||||||||||||||||||||||||||
| Income before losses from equity method investment and provision for income taxes | 17,618 | 24,393 | 55,180 | 70,074 | |||||||||||||||||||||||||||||||||||||
| Losses from equity method investment | (191) | (393) | (603) | (1,148) | |||||||||||||||||||||||||||||||||||||
| Income before provision for income taxes | 17,427 | 24,000 | 54,577 | 68,926 | |||||||||||||||||||||||||||||||||||||
| Provision for income taxes | (3,979) | (5,436) | (12,355) | (14,821) | |||||||||||||||||||||||||||||||||||||
| Net income | $ | 13,448 | $ | 18,564 | $ | 42,222 | $ | 54,105 | |||||||||||||||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.39 | $ | 0.51 | $ | 1.21 | $ | 1.46 | |||||||||||||||||||||||||||||||||
| Diluted | $ | 0.39 | $ | 0.50 | $ | 1.21 | $ | 1.46 | |||||||||||||||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||||||||||||||||||||
| Basic | 34,688,206 | 36,732,746 | 34,911,640 | 37,012,536 | |||||||||||||||||||||||||||||||||||||
| Diluted | 34,775,451 | 36,918,904 | 34,996,694 | 37,181,387 | |||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
4
Continental Building Products, Inc.
Consolidated Statements of Comprehensive Income
(unaudited)
|
For the Three Months Ended
|
For the Nine Months Ended
|
||||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 13,448 | $ | 18,564 | $ | 42,222 | $ | 54,105 | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (179) | 298 | 450 | (496) | |||||||||||||||||||||||||||||||||||||
| Derivative instrument adjustments, net of taxes | (7) | (8) | (2,047) | 1,489 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss)/income | (186) | 290 | (1,597) | 993 | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | $ | 13,262 | $ | 18,854 | $ | 40,625 | $ | 55,098 | |||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
5
Continental Building Products, Inc.
Consolidated Balance Sheets
| September 30, 2019 | December 31, 2018 | ||||||||||||||||
| (unaudited) | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| Assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 126,433 | $ | 102,633 | |||||||||||||
| Trade receivables, net | 43,098 | 38,454 | |||||||||||||||
| Inventories, net | 35,486 | 32,225 | |||||||||||||||
| Prepaid and other current assets | 7,275 | 19,805 | |||||||||||||||
| Total current assets | 212,292 | 193,117 | |||||||||||||||
| Property, plant and equipment, net | 281,802 | 288,368 | |||||||||||||||
| Customer relationships and other intangibles, net | 54,450 | 62,680 | |||||||||||||||
| Goodwill | 119,945 | 119,945 | |||||||||||||||
| Equity method investment | 7,216 | 7,975 | |||||||||||||||
| Operating lease - right of use assets | 760 | — | |||||||||||||||
| Debt issuance costs | 160 | 296 | |||||||||||||||
| Total Assets | $ | 676,625 | $ | 672,381 | |||||||||||||
| Liabilities and Shareholders' Equity: | |||||||||||||||||
| Liabilities: | |||||||||||||||||
| Accounts payable | $ | 31,037 | $ | 48,060 | |||||||||||||
| Accrued and other liabilities | 13,165 | 12,815 | |||||||||||||||
| Debt, current portion | 1,695 | 1,669 | |||||||||||||||
| Operating lease liabilities, current portion | 633 | — | |||||||||||||||
| Total current liabilities | 46,530 | 62,544 | |||||||||||||||
| Deferred taxes and other long-term liabilities | 19,173 | 20,204 | |||||||||||||||
| Debt, non-current portion | 260,617 | 261,886 | |||||||||||||||
| Operating lease liabilities, non-current portion | 690 | — | |||||||||||||||
| Total Liabilities | 327,010 | 344,634 | |||||||||||||||
| Shareholders' Equity: | |||||||||||||||||
| Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding | — | — | |||||||||||||||
|
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of September 30, 2019 and December 31, 2018, respectively
|
44 | 44 | |||||||||||||||
| Additional paid-in capital | 328,781 | 327,515 | |||||||||||||||
| Less: Treasury stock | (229,073) | (209,050) | |||||||||||||||
| Accumulated other comprehensive loss | (4,988) | (3,391) | |||||||||||||||
| Accumulated earnings | 254,851 | 212,629 | |||||||||||||||
| Total Shareholders' Equity | 349,615 | 327,747 | |||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 676,625 | $ | 672,381 | |||||||||||||
See accompanying notes to unaudited consolidated financial statements.
6
Continental Building Products, Inc.
Consolidated Statements of Cash Flows
(unaudited)
|
For the Nine Months Ended
|
|||||||||||||||||
| September 30, 2019 | September 30, 2018 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 42,222 | $ | 54,105 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 32,234 | 32,966 | |||||||||||||||
| Amortization of debt issuance costs and debt discount | 930 | 931 | |||||||||||||||
| Gain from insurance recoveries, net | (1,513) | — | |||||||||||||||
| Loss on intangible asset impairment | 2,911 | — | |||||||||||||||
| Losses from equity method investment | 603 | 1,148 | |||||||||||||||
| Amortization of deferred gain on terminated swaps | (873) | (632) | |||||||||||||||
| Share-based compensation | 1,706 | 2,459 | |||||||||||||||
| Deferred taxes | — | (457) | |||||||||||||||
| Change in assets and liabilities: | |||||||||||||||||
| Trade receivables | (4,678) | (914) | |||||||||||||||
| Inventories | (3,190) | (7,627) | |||||||||||||||
| Prepaid expenses and other current assets | 12,453 | 1,264 | |||||||||||||||
| Accounts payable | (16,451) | (52) | |||||||||||||||
| Accrued and other current liabilities | (433) | 1,089 | |||||||||||||||
| Other long-term liabilities | (176) | (226) | |||||||||||||||
| Net cash provided by operating activities | 65,745 | 84,054 | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Payments for property, plant and equipment | (19,287) | (19,761) | |||||||||||||||
| Payments for intangible assets | (1,551) | (1,359) | |||||||||||||||
| Proceeds from insurance recoveries | 1,589 | 125 | |||||||||||||||
| Capital contributions to equity method investment | (407) | (548) | |||||||||||||||
| Distributions from equity method investment | 564 | 468 | |||||||||||||||
| Net cash used in investing activities | (19,092) | (21,075) | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from exercise of stock options | 118 | 145 | |||||||||||||||
| Tax withholdings on share-based compensation | (1,165) | (547) | |||||||||||||||
| Principal payments for debt | (2,037) | (2,037) | |||||||||||||||
| Payments to repurchase common stock | (20,023) | (27,425) | |||||||||||||||
| Net cash used in financing activities | (23,107) | (29,864) | |||||||||||||||
| Effect of foreign exchange rates on cash and cash equivalents | 254 | (184) | |||||||||||||||
| Net change in cash and cash equivalents | 23,800 | 32,931 | |||||||||||||||
| Cash, beginning of period | 102,633 | 72,521 | |||||||||||||||
| Cash, end of period | $ | 126,433 | $ | 105,452 | |||||||||||||
See accompanying notes to unaudited consolidated financial statements.
7
Continental Building Products, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Accumulated Earnings | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except share data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2017 | 37,532,959 | $ | 44 | $ | 325,391 | $ | (143,357) | $ | (2,649) | $ | 138,597 | $ | 318,026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 13,646 | 13,646 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 564 | — | 564 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (530,600) | — | — | (14,550) | — | — | (14,550) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercise | 781 | — | 11 | — | — | — | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 85,838 | — | 213 | — | — | — | 213 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2018 | 37,088,978 | $ | 44 | $ | 325,615 | $ | (157,907) | $ | (2,085) | $ | 152,243 | $ | 317,910 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 21,895 | 21,895 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 139 | — | 139 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (344,908) | — | — | (10,012) | — | — | (10,012) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercise | 2,706 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 2,103 | — | 979 | — | — | — | 979 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2018 | 36,748,879 | $ | 44 | $ | 326,594 | $ | (167,919) | $ | (1,946) | $ | 174,138 | $ | 330,911 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 18,564 | 18,564 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 290 | — | 290 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (76,600) | — | — | (2,863) | — | — | (2,863) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercise | 9,600 | — | 199 | — | — | — | 199 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 850 | — | — | — | 850 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2018 | 36,681,879 | $ | 44 | $ | 327,643 | $ | (170,782) | $ | (1,656) | $ | 192,702 | $ | 347,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
8
Continental Building Products, Inc.
Consolidated Statements of Changes in Shareholders' Equity - continued
(unaudited)
See accompanying notes to unaudited consolidated financial statements.
9
Continental Building Products, Inc.
Notes to the Unaudited Consolidated Financial Statements
1. BACKGROUND AND NATURE OF OPERATIONS
Description of Business
Continental Building Products, Inc. (the "Company") is a Delaware corporation. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at one plant in the United States and at another plant in Canada.
2. SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Presentation
The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
(b)Basis of Presentation for Interim Periods
Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and the results of operations and cash flows for the periods presented.
The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Seasonal changes and other conditions can affect the sales volumes of the Company's products. Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.
The financial statements should be read in conjunction with Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company's Annual Report on Form 10-K for the fiscal year then ended (the "2018 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.
(c)Supplemental Cash Flow Disclosure
| Table 2.1: Certain Cash Transactions and Other Activity | ||||||||||||||||||||
|
For the Nine Months Ended
|
||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating lease cash outflows | $ | 464 | $ | 451 | ||||||||||||||||
| Other activity: | ||||||||||||||||||||
| Acquisition of property, plant and equipment included in liabilities | $ | 2,486 | $ | 3,432 | ||||||||||||||||
(d) Recent Accounting Pronouncements
Accounting Standards Recently Adopted
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, "Leases," as of January 1, 2019. The Company elected the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed the Company to carryforward the historical lease classification. In addition, the Company elected the comparative period practical expedient, which allowed the Company to implement the guidance as of the effective date without having to adjust the comparative financial statements. Instead, under this expedient, companies recognize the cumulative effect adjustment in equity. The Company also made an accounting policy election that leases with an initial term of 12 months or less will not be recorded on the balance sheet and will result in the recognition of those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. The adoption of the standard resulted in recognition of approximately $1.0 million in right of use assets and $1.7 million in lease liabilities for
10
operating leases on the Company's Consolidated Balance Sheet, with no impact to its retained earnings, Consolidated Statement of Operations and Consolidated Statement of Cash Flows.
The Company adopted ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities," as of January 1, 2019. This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company early adopted this ASU. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments." This ASU is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurements (Topic 820), Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on the Company's Consolidated Financial Statements.
(e) Reclassifications
Certain reclassifications of prior year information were made to conform to the 2019 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.
3. TRADE RECEIVABLES, NET
| Table 3: Details of Trade Receivables, Net | ||||||||||||||||||||
| September 30, 2019 | December 31, 2018 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Trade receivables, gross | $ | 44,042 | $ | 39,426 | ||||||||||||||||
| Allowance for cash discounts and doubtful accounts | (944) | (972) | ||||||||||||||||||
| Trade receivables, net | $ | 43,098 | $ | 38,454 | ||||||||||||||||
Trade receivables are recorded net of credit memos issued during the normal course of business.
11
4. INVENTORIES, NET
5. PROPERTY, PLANT AND EQUIPMENT, NET
Depreciation expense was $9.0 million and $25.5 million for the three and nine months ended September 30, 2019, respectively, compared to $9.1 million and $25.4 million for the three and nine months ended September 30, 2018, respectively.
6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET
Amortization expense was $2.1 million and $6.8 million for the three and nine months ended September 30, 2019, respectively, compared to $2.5 million and $7.5 million for the three and nine months ended September 30, 2018, respectively.
12
7. INVESTMENT IN SEVEN HILLS
The Company is a party with an unaffiliated third party to a paperboard liner venture named Seven Hills Paperboard, LLC ("Seven Hills") that, pursuant to a paper supply agreement, provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.
The Company has evaluated the characteristics of its investment and determined that Seven Hills is a variable interest entity, but that it does not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.
Paperboard liner purchased from Seven Hills was $12.8 million and $38.2 million for the three and nine months ended September 30, 2019, respectively, compared to $12.3 million and $37.4 million for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019, the Company had certain purchase commitments for paper from Seven Hills totaling $29.5 million through 2022.
8. ACCRUED AND OTHER LIABILITIES
13
9. DEBT
| Table 9.1: Details of Debt | ||||||||||||||||||||
| September 30, 2019 | December 31, 2018 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Amended and Restated Credit Agreement (1) | $ | 250,620 | $ | 252,658 | ||||||||||||||||
| Industrial revenue bonds (2) | 16,200 | 16,200 | ||||||||||||||||||
| Less: Original issue discount (net of amortization) | (1,092) | (1,285) | ||||||||||||||||||
| Less: Debt issuance costs | (3,416) | (4,018) | ||||||||||||||||||
| Total debt | 262,312 | 263,555 | ||||||||||||||||||
| Less: Current portion of long-term debt | (1,695) | (1,669) | ||||||||||||||||||
| Long-term debt | $ | 260,617 | $ | 261,886 | ||||||||||||||||
(1)As of September 30, 2019 and December 31, 2018, the Amended and Restated Credit Agreement, as amended, had a maturity date of August 18, 2023 and an interest rate of LIBOR (with a 0.75% floor) plus 2.00%.
(2)As of September 30, 2019 and December 31, 2018, Industrial revenue bonds had a maturity date of December 1, 2025 and an interest rate of LIBOR plus 1.50% less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders.
On August 18, 2016, the Company, Continental Building Products Operating Company, LLC and Continental Building Products Canada Inc. and the lenders party thereto and Credit Suisse, as Administrative Agent, entered into an Amended and Restated Credit Agreement amending and restating the Company's existing first lien credit agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement provides for a $275 million senior secured first lien term loan facility (the "Term Loan") and a $75.0 million senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. The interest rate under the Amended and Restated Credit Agreement was a spread over LIBOR of 2.75% and floor of 0.75%.
On February 21, 2017, the Company repriced its Term Loan lowering its interest rate by 25 basis points to LIBOR plus 2.50%. Subsequently, on December 6, 2017, the Company further repriced its Term Loan lowering its interest rate by an additional 25 basis points to LIBOR plus 2.25% and allowing for a further reduction in the interest rate to LIBOR plus 2.00% based on the attainment of a total leverage ratio of 1.1 or better. All other terms and conditions under the Amended and Restated Credit Agreement remained the same.
During both the nine months ended September 30, 2019 and 2018, the Company made $2.0 million of scheduled mandatory principal payments. Because the Company attained a total leverage ratio of less than 1.1 to 1 during the fourth quarter of 2018, the interest rate was further reduced pursuant to the terms of the Amended and Restated Credit Agreement to LIBOR plus 2.00% as of December 31, 2018. As of September 30, 2019, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 4.5%.
In December 2018, the Company completed a financing of industrial revenue bonds due December 1, 2025 with a total commitment of $28.0 million. The bonds were issued by the County of Campbell, Kentucky and Putnam County Development Authority, pursuant to a trust indenture between the issuers and Huntington National Bank, as trustee. Proceeds of the bonds are loaned by the issuers to the Company under a loan agreement, whereby the Company is obligated to make loan payments to the issuers sufficient to pay all debt service and expenses related to the bonds. The Company's obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR plus 1.50% less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders. The loan agreement contains restrictions and covenants on our operations that are consistent with those contained in the Amended and Restated Credit Agreement mentioned below.
There were no amounts outstanding under the Revolver as of September 30, 2019 or December 31, 2018. Interest under the Revolver is floating, based on LIBOR plus 2.25%. In addition, the Company pays a facility fee of 50 basis points per annum on the total capacity under the Revolver. Availability under the Revolver as of September 30, 2019, based on draws and outstanding letters of credit and absence of violations of covenants, was $73.7 million.
14
Under the terms of the Amended and Restated Credit Agreement, the Company is required to comply with certain covenants, including among others, the limitation of indebtedness, limitation on liens, and limitations on certain cash distributions. One single financial covenant governs all of the Company's debt and only applies if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than $22.5 million as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, taxes, depreciation and amortization. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than $22.5 million at September 30, 2019, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at September 30, 2019. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement and the loan agreement related to the industrial revenue bonds as of September 30, 2019.
10. DERIVATIVE INSTRUMENTS
Commodity Derivative Instruments
As of September 30, 2019, the Company had 3.0 million mmBTUs (millions of British Thermal Units) in aggregate notional amount outstanding natural gas swap contracts to manage commodity price exposures. All of these contracts mature by September 30, 2020. The Company elected to designate these derivative instruments as cash flow hedges in accordance with ASC 815-20, "Derivatives – Hedging". No ineffectiveness was recorded on these contracts during the three and nine months ended September 30, 2019 and 2018.
Interest Rate Derivative Instrument
In September 2016, the Company entered into interest rate swap agreements for a combined notional amount of $100.0 million with a term of four years, which hedged the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 1.323% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
On March 29, 2018, the Company terminated its interest rate swap agreements that were previously designated as a cash flow hedge and received $3.2 million in cash, the fair value of the swap on the termination date. The unrealized gain at termination remains in accumulated other comprehensive income and will be amortized into interest expense over the life of the original hedged instrument. During the three and nine months ended September 30, 2019, $0.2 million and $0.7 million of the unrealized gain, net of tax related to the terminated swaps was amortized into interest expense, compared to $0.2 million and $0.5 million for the same periods of 2018. Also on March 29, 2018, the Company entered into new interest rate swap agreements for a combined notional amount of $100.0 million, which expire on September 30, 2020 and hedge the floating LIBOR on a portion of the Term Loan to an average fixed rate of 2.46% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. No ineffectiveness was recorded on these contracts during the three and nine months ended September 30, 2019 and 2018.
15
Counterparty Risk
The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company's derivative instruments. As of September 30, 2019, the Company's derivatives were in a $1.7 million net liability position and recorded in other current liabilities. All of the Company's counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company's agreements outline the conditions upon which it or the counterparties are required to post collateral. As of September 30, 2019, the Company had no collateral posted with its counterparties related to the derivatives.
11. LEASES
The Company leases certain buildings and equipment. The Company's facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Certain building leases also include options to renew, with renewal terms that can extend the lease term up to 5 years. The exercise of lease renewal options is at the Company's sole discretion.
16
| Table 11.2: Maturities of lease liabilities | ||||||||
| Operating leases | ||||||||
| (in thousands) | ||||||||
| October 1, 2019 through December 31, 2019 | $ | 156 | ||||||
| 2020 | 637 | |||||||
| 2021 | 600 | |||||||
| 2022 | — | |||||||
| 2023 | — | |||||||
| Total lease payments | $ | 1,393 | ||||||
| Less imputed interest | (70) | |||||||
| Present value of lease liabilities | $ | 1,323 | ||||||
| Table 11.3: Details of lease term and discount rate | ||||||||
| As of September 30, 2019 | ||||||||
| Weighted-average remaining lease term: | ||||||||
| Operating leases | 3 years | |||||||
| Weighted-average discount rate: | ||||||||
| Operating leases | 4.52 | % | ||||||
12. TREASURY STOCK
On November 4, 2015, the Company announced that the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $50 million of its common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. Pursuant to this authorization, the Company has repurchased shares of its common stock in the open market and in private transactions.
Since the initial authorization, the Company' Board of Directors has expanded and extended the stock repurchase program. The most recent authorization on February 21, 2018 expanded the program to a total of $300 million and also extended the expiration date to December 31, 2019. As of September 30, 2019, there was approximately $111.0 million of capacity remaining under this repurchase authorization.
All repurchased shares are held in treasury, reducing the number of shares of common stock outstanding and used in the Company's earnings per share calculation.
17
13. SHARE-BASED COMPENSATION
For the three and nine months ended September 30, 2019, the Company recognized share-based compensation expenses of $0.6 million and $1.7 million, respectively, compared to $0.8 million and $2.5 million for the three and nine months ended September 30, 2018, respectively. The expenses related to share-based compensation awards were recorded in selling and administrative expenses. As of September 30, 2019, there was $4.2 million of total unrecognized compensation cost related to non-vested stock options, restricted stock awards, restricted stock units and performance-based restricted stock units. This cost is expected to be recognized over a weighted average period of 2.5 years.
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
15. INCOME TAXES
The Company’s estimated annual effective tax rate is 22.4%. The Company is subject to federal income taxes and various state, provincial and local income taxes. The Company is subject to audit examinations at the U.S. federal, state and local levels by tax authorities in those jurisdictions. In addition, the Canadian operations are subject to audit examinations at federal and provincial levels by tax authorities in those jurisdictions. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcome of any challenges would be subject to uncertainty. The Company has not identified any issues that did not meet the recognition threshold or would be impacted by the measurement provisions of the uncertain tax position guidance.
16. EARNINGS PER SHARE
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of potentially dilutive securities. Potentially dilutive common stock has no effect on income available to common stockholders. There were no anti-dilutive awards during the three months ended September 30, 2019 and 2018. For the nine months ended September 30, 2019 and 2018, awards that had an anti-dilutive impact on the Company's dilutive earnings per share computation excluded from the weighted average shares outstanding were 28,000 and 21,000, respectively.
18
17. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has non-capital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials. The total amounts purchased under such commitments were $20.8 million and $62.2 million for the three and nine months ended September 30, 2019, respectively, compared to $22.7 million and $69.5 million for the three and nine months ended September 30, 2018, respectively.
| Table 17: Details of Purchase Commitments | ||||||||
| As of September 30, 2019 | ||||||||
| (in thousands) | ||||||||
| October 1, 2019 through December 31, 2019 | $ | 11,460 | ||||||
| 2020 | 44,533 | |||||||
| 2021 | 42,358 | |||||||
| 2022 | 28,033 | |||||||
| 2023 | 12,254 | |||||||
| Thereafter | 48,144 | |||||||
| Total | $ | 186,782 | ||||||
Contingent obligations
Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of September 30, 2019 and December 31, 2018, the Company had outstanding letters of credit of approximately $1.3 million and $1.4 million, respectively.
Legal Matters
In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry. These indemnifications might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
19
In the ordinary course of business, the Company is involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total liability for these legal actions and claims cannot be determined with certainty. When the Company determines that it is probable that a liability for environmental matters, legal actions or other contingencies has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in the financial statements. As of September 30, 2019 and December 31, 2018, such liabilities were not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. While management believes its accruals for such liabilities are adequate, the Company may incur costs in excess of the amounts provided. Although the ultimate amount of liability that may result from these matters or actions is not ascertainable, any amounts exceeding the recorded accruals are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
18. SEGMENT REPORTING
Segment information is presented in accordance with ASC 280, Segment Reporting, which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. The Company's primary reportable segment is wallboard, which represented approximately 97.4% of the Company's revenues for both the three and nine months ended September 30, 2019, compared to 97.6% and 97.3% of the Company's revenues for the three and nine months ended September 30, 2018, respectively. This segment produces wallboard for the commercial and residential construction sectors. The Company also manufactures finishing products, which complement the Company's full range of wallboard products.
Revenues from the major products sold to external customers include gypsum wallboard and finishing products.
The Company's two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets.
The Company evaluates operating performance based on profit or loss from operations before certain adjustments as shown below. Revenues are attributed to geographic areas based on the location of the customer generating the revenue. The Company did not provide asset information by segment as its Chief Operating Decision Maker does not use such information for purposes of allocating resources and assessing segment performance.
| Table 18.1: Segment Reporting | ||||||||||||||||||||||||||||||||||||||||||||
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Sales: | ||||||||||||||||||||||||||||||||||||||||||||
| Wallboard | $ | 124,145 | $ | 128,101 | $ | 363,837 | $ | 376,739 | ||||||||||||||||||||||||||||||||||||
| Other | 3,294 | 3,133 | 9,840 | 10,565 | ||||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 127,439 | $ | 131,234 | $ | 373,677 | $ | 387,304 | ||||||||||||||||||||||||||||||||||||
| Operating Income: | ||||||||||||||||||||||||||||||||||||||||||||
| Wallboard | $ | 20,635 | $ | 27,551 | $ | 64,116 | $ | 79,702 | ||||||||||||||||||||||||||||||||||||
| Other | (731) | (580) | (1,661) | (1,409) | ||||||||||||||||||||||||||||||||||||||||
| Total operating income | $ | 19,904 | $ | 26,971 | $ | 62,455 | $ | 78,293 | ||||||||||||||||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | $ | (2,220) | $ | (2,549) | $ | (7,107) | $ | (7,963) | ||||||||||||||||||||||||||||||||||||
| Losses from equity investment | (191) | (393) | (603) | (1,148) | ||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (66) | (29) | (168) | (256) | ||||||||||||||||||||||||||||||||||||||||
| Income before provision for income taxes | $ | 17,427 | $ | 24,000 | $ | 54,577 | $ | 68,926 | ||||||||||||||||||||||||||||||||||||
| Depreciation and Amortization: | ||||||||||||||||||||||||||||||||||||||||||||
| Wallboard | $ | 10,837 | $ | 11,299 | $ | 31,440 | $ | 32,016 | ||||||||||||||||||||||||||||||||||||
| Other | 306 | 281 | 794 | 950 | ||||||||||||||||||||||||||||||||||||||||
| Total depreciation and amortization | $ | 11,143 | $ | 11,580 | $ | 32,234 | $ | 32,966 | ||||||||||||||||||||||||||||||||||||
20
19. FAIR VALUE DISCLOSURES
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. As of September 30, 2019 and December 31, 2018, the carrying value reported in the consolidated balance sheet for the Company's notes payable approximated its fair value. The only assets or liabilities the Company had at September 30, 2019 that are recorded at fair value on a recurring basis are the natural gas hedges and interest rate swaps. Generally, the Company obtains its Level 2 pricing inputs from its counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value when they are considered to be impaired.
There were no fair value adjustments for assets and liabilities measured on a non-recurring basis. The Company discloses fair value information about financial instruments for which it is practicable to estimate that value.
21
22
20. BUCHANAN PLANT OUTAGE
On January 24, 2019, Company's Buchanan, New York plant experienced a significant equipment malfunction, resulting in an outage at the plant. The plant was off-line while repairs were made through March 15, 2019. While the Buchanan plant was down, the Company increased production at its plants in Silver Grove, Kentucky and Palatka, Florida to offset a portion of the lost production from the Buchanan plant.
The Company has standard insurance coverage that is intended to cover circumstances such as these, including business interruption insurance. The Company's insurance coverage is designed to cover the direct costs of rebuilding the damaged equipment, costs incurred to re-direct products from the Company's other plants, and the lost contribution margin of the sales that otherwise would have been made if the plant was operating normally.
During the nine months ended September 30, 2019, the Company recorded a $4.9 million gain from business interruption insurance. As of September 30, 2019, the Company has fully settled all claims related to the outage and has received all anticipated insurance payments associated with the outage.
(a)The rebuild of property, plant and equipment damaged and related net recovery resulted in a net gain of $1.5 million.
(b)Direct costs associated with the business interruption include various expenses such as additional freight to ship to customers at greater distances from other plants, additional freight costs to reroute incoming raw materials and other various costs that were incurred as a result of the Buchanan outage and have been covered by the Company's insurance policy. The net recovery of direct costs associated with business interruption were netted against actual costs incurred resulting in a net impact of zero to the income statement.
(c)This represents the insurance proceeds for the lost operating income the Company received related to the Buchanan outage.
| Table 20.2: Details of Gain from Insurance Recoveries, Net | ||||||||
|
For the Nine Months Ended
|
||||||||
| September 30, 2019 | ||||||||
| (in thousands) | ||||||||
| Cost to rebuild property, plant and equipment (capitalized) | $ | 1,839 | ||||||
| Insurance deductible | 250 | |||||||
| Net recoveries from insurance policy | 1,589 | |||||||
| Write-off of property, plant and equipment | 76 | |||||||
| Gain from insurance recoveries, net | $ | 1,513 | ||||||
21. SUBSEQUENT EVENT
On November 12, 2019, the Company announced that it has entered into a definitive merger agreement with CertainTeed Gypsum and Ceilings USA, Inc., Cupertino Merger Sub, Inc. ("Merger Sub") and Compagnie de Saint-Gobain S.A. pursuant to which the Company will be merged with and into Merger Sub and each issued and outstanding share of the Company's common stock will be converted into the right to receive $37 in cash per share. Consummation of the transaction is subject to certain closing conditions, including approval by antitrust authorities and approval by the holders of a majority of the Company's issued and outstanding shares of common stock.
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," "Selected Historical Financial and Operating Data," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2018 filed with the Securities and Exchange Commission on February 22, 2019 (the "2018 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.
Overview
We are a leading manufacturer of gypsum wallboard and complementary finishing products in the eastern United States and eastern Canada. We operate highly efficient and automated manufacturing facilities that produce a full range of gypsum wallboard products for our diversified customer base. We sell our products in the new residential, repair and remodel, or R&R, and commercial construction markets.
Our primary reportable segment is wallboard, which accounted for approximately 97.4% of our net sales for both the three and nine months ended September 30, 2019, compared to 97.6% and 97.3% of our net sales for the three and nine months ended September 30, 2018, respectively. We also operate other business activities, primarily the production of finishing products, which complement our full range of wallboard products. See Note 18 to the Consolidated Financial Statements for additional information on our reporting segments.
Factors Affecting Our Results
Market
For the new residential construction market, housing starts are a good indicator of demand for our gypsum products. Installation of our gypsum products into a single family home typically follows a housing start by 90 to 120 days. The R&R market includes renovation of both residential and nonresidential buildings. Many buyers begin to remodel an existing home within two years of purchase. The generally rising levels of existing home sales and home resale values in recent years have contributed to an increase in demand for our products from the R&R market. The commercial construction market encompasses areas such as office, retail, heath care, hospitality, educational and government projects. Demand for our products from commercial construction typically follows signing of construction contracts by 12 to 18 months.
The rate of growth in the new residential construction market, R&R market, and the new nonresidential construction market remains uncertain and will depend on broader economic circumstances, including employment, household formation, the home ownership rate, existing home price trends, availability of mortgage financing, interest rates, consumer confidence, job growth, availability of skilled labor and discretionary business investment.
Wallboard pricing can be impacted by overall industry capacity in the United States. Currently, there is excess wallboard production capacity industry-wide in the United States which can lead to downward pressure on wallboard prices. We estimate that industry capacity utilization was approximately 77% and 76% for the three and nine months ended September 30, 2019, respectively, compared to 73% and 74% for the same period of 2018.
Market Outlook
Industry Analysts' forecasts for 2019 housing starts in the United States included in the October 2019 Blue Chip Economic Indicators are 1.22 million to 1.28 million units, based on the average of the bottom ten and top ten forecasts included in the report, respectively. This forecast range represents a decrease of 2% to an increase of 2% over the 2018 housing starts of 1.25 million. We expect that the R&R and new commercial markets will grow in percentage by low single digits from 2018 to 2019.
Industry shipments of gypsum wallboard in the United States as reported by the Gypsum Association were an estimated 6.6 billion square feet and 6.2 billion square feet for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019, industry shipments were 19.4 billion square feet, up 3.3% from the same prior year period. We estimate that industry shipments in the United States for all of 2019 will increase in percentage by low single digits from 24.9 billion square feet in 2018.
24
Manufacturing and Distribution Costs
Paper and synthetic gypsum are our principal wallboard raw materials. Paper constitutes our most significant input cost and the most significant driver of our variable manufacturing costs. Energy costs, consisting of natural gas and electricity, are the other key input costs. In total, manufacturing cash costs represented 65% and 64% of our costs of goods sold for the three and nine months ended September 30, 2019, respectively, compared to 63% and 64% for the same periods of 2018, respectively. Depreciation and amortization represented 11% of our costs of goods sold for both the three and nine months ended September 30, 2019, compared to 12% and 11% for the same periods of 2018, respectively. Distribution costs to deliver products to our customers represented 24% and 25% of our costs of goods sold for both the three and nine months ended September 30, 2019, respectively, compared to 25% for both three and nine months ended September 30, 2018.
Variable manufacturing costs, including inputs such as paper, gypsum, natural gas, and other raw materials, represented 68% of our manufacturing cash costs for both the three and nine months ended September 30, 2019, compared to 67% and 68% for the same periods of 2018, respectively. Fixed production costs excluding depreciation and amortization consisted of labor, maintenance, and other costs that represented 32% of our manufacturing cash costs for both the three and nine months ended September 30, 2019, compared to 33% and 32% for the same periods of 2018, respectively. Recently we have experienced increases in the costs of gypsum related to the need to source from additional suppliers at higher delivered costs. We expect to experience continued inflationary pressures on these costs for the foreseeable future.
We currently purchase most of our paperboard liner from Seven Hills, a joint venture between us and WestRock Company. Under the paper supply agreement with Seven Hills, the price of paper adjusts based on changes in the underlying costs of production of the paperboard liner, of which the two most significant are recovered waste paper and natural gas. The largest waste paper source used by the operation is old cardboard containers (known as OCC). Seven Hills has the capacity to supply us with approximately 80% of our paper needs at our full capacity utilization and most of our needs at current capacity utilization on market-based pricing terms. We also purchase additional paper on the spot market or under short-term contracts at competitive prices. See Note 7 to the Consolidated Financial Statements for additional information regarding our investment in Seven Hills.
25
Results of Operations
| Table M1: Results of Operations | ||||||||||||||||||||||||||||||||||||||||||||
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except mill net) | ||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 127,439 | $ | 131,234 | $ | 373,677 | $ | 387,304 | ||||||||||||||||||||||||||||||||||||
| Cost of goods sold | 99,532 | 94,306 | 286,288 | 279,185 | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 27,907 | 36,928 | 87,389 | 108,119 | ||||||||||||||||||||||||||||||||||||||||
| Selling and administrative expense | 9,626 | 9,957 | 28,397 | 29,826 | ||||||||||||||||||||||||||||||||||||||||
| Loss on intangible asset impairment | — | — | 2,911 | — | ||||||||||||||||||||||||||||||||||||||||
| Gain from insurance recoveries, net | — | — | 1,513 | — | ||||||||||||||||||||||||||||||||||||||||
| Gain from business interruption insurance | 1,623 | — | 4,861 | — | ||||||||||||||||||||||||||||||||||||||||
| Operating income | 19,904 | 26,971 | 62,455 | 78,293 | ||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (66) | (29) | (168) | (256) | ||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (2,220) | (2,549) | (7,107) | (7,963) | ||||||||||||||||||||||||||||||||||||||||
| Income before losses from equity method investment and provision for income taxes | 17,618 | 24,393 | 55,180 | 70,074 | ||||||||||||||||||||||||||||||||||||||||
| Losses from equity method investment | (191) | (393) | (603) | (1,148) | ||||||||||||||||||||||||||||||||||||||||
| Income before provision for income taxes | 17,427 | 24,000 | 54,577 | 68,926 | ||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | (3,979) | (5,436) | (12,355) | (14,821) | ||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 13,448 | $ | 18,564 | $ | 42,222 | $ | 54,105 | ||||||||||||||||||||||||||||||||||||
| Other operating data: | ||||||||||||||||||||||||||||||||||||||||||||
| Capital expenditures and software purchased or developed | $ | 7,473 | $ | 7,324 | $ | 20,838 | $ | 21,120 | ||||||||||||||||||||||||||||||||||||
| Wallboard sales volume (million square feet) | 705 | 674 | 2,032 | 2,011 | ||||||||||||||||||||||||||||||||||||||||
| Mill net sales price (a) | $ | 142.41 | $ | 155.43 | $ | 145.13 | $ | 153.70 | ||||||||||||||||||||||||||||||||||||
(a)Mill net sales price represents average selling price per thousand square feet net of freight and delivery costs.
Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Net Sales. Net sales decreased by $3.8 million, down 2.9% from $131.2 million for the three months ended September 30, 2018, to $127.4 million for the three months ended September 30, 2019. The decrease was primarily attributable to a $9.7 million unfavorable impact of a decrease in the average net selling price for gypsum wallboard at constant exchange rates. This decrease was partially offset by a $5.8 million favorable impact of higher wallboard volumes driven by higher demand and a favorable impact of $0.1 million related to higher non-wallboard products sales.
Cost of Goods Sold. Cost of goods sold increased $5.2 million, up 5.5% from $94.3 million for the three months ended September 30, 2018, to $99.5 million for the three months ended September 30, 2019. Higher input costs increased cost of goods sold by $2.4 million and higher wallboard volumes increased input costs and freight costs by $2.8 million.
Selling and Administrative Expense. Selling and administrative expense decreased $0.4 million, down 4.0% from $10.0 million for the three months ended September 30, 2018, to $9.6 million for the three months ended September 30, 2019. The decrease was primarily driven by lower bonus and stock compensation expenses.
Gain from Business Interruption Insurance. During the third quarter of 2019, the Company recorded a gain of $1.6 million related to business interruption insurance proceeds for lost profits as a result of the Buchanan plant outage in the first quarter of 2019. See Note 20 to the Consolidated Financial Statements for further details.
Operating Income. Operating income of $19.9 million for the three months ended September 30, 2019 decreased by $7.1 million or 26.3% from operating income of $27.0 million for the three months ended September 30, 2018 primarily due to lower average net sales price and cost inflation, partially offset by higher wallboard volumes, insurance proceeds for business interruption and lower bonus and stock compensation expenses.
Other Expense, Net. Other expense, net, was materially consistent when compared to prior year.
26
Interest Expense, Net. Interest expense, net, was $2.2 million for the three months ended September 30, 2019, a decrease of $0.3 million from $2.5 million for the three months ended September 30, 2018. The decrease was primarily driven by a $0.1 million increase in interest income on short term liquid investments and a $0.2 million decrease in interest expense on our Term Loan primarily related to decrease in the spread.
See Note 9 to the Consolidated Financial Statements for further details on the repricing.
Provision for Income Taxes. Provision for income taxes decreased $1.4 million to $4.0 million for the three months ended September 30, 2019, compared to $5.4 million in the prior period. The lower provision for income taxes was primarily driven by lower pretax income.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
Net Sales. Net sales decreased by $13.6 million, down 3.5% from $387.3 million for the nine months ended September 30, 2018, to $373.7 million for the nine months ended September 30, 2019. The decrease was primarily attributable to a $16.2 million unfavorable impact of a lower average net selling price for gypsum wallboard at constant exchange rates. In addition, there were unfavorable impacts of $0.6 million related to non-wallboard products and $0.6 million related to foreign currency exchange rates. This overall decrease was partially offset by a $3.8 million favorable impact of higher wallboard volumes.
Cost of Goods Sold. Cost of goods sold increased $7.1 million, up 2.5% from $279.2 million for the nine months ended September 30, 2018, to $286.3 million for the nine months ended September 30, 2019. Higher per unit freight and input costs increased cost of goods sold by $4.5 million and higher wallboard volumes increased input costs and freight costs by $1.9 million. In addition, labor cost increased cost of goods sold by $1.1 million. Changes in other components of cost of goods sold resulted in a net decrease of $0.4 million.
Selling and Administrative Expense. Selling and administrative expense decreased $1.4 million, down 4.7% from $29.8 million for the nine months ended September 30, 2018, to $28.4 million for the nine months ended September 30, 2019. The decrease was primarily driven by lower bonus and stock compensation expenses.
Loss on Intangible Asset Impairment. During the second quarter of 2019, the Company recorded a $2.9 million non-cash impairment loss related to two of its trademarks, which it discontinued the use of in the branding of its products.
Gain from Insurance Recoveries, Net . On January 24, 2019, the Company's Buchanan, New York plant experienced a significant equipment malfunction, and operations at the facility were temporarily suspended while the equipment was repaired and replaced. The Company resumed operations on March 15, 2019. Gain from insurance recoveries, net of losses incurred, relate to $1.8 million of insurance proceeds received for repairs to the Buchanan plant in excess of the $0.3 million for insurance deductible and asset write-off. Various additional expenditures related to the plant outage were netted against insurance coverage on a dollar for dollar basis. See Note 20 to the Consolidated Financial Statements for further details.
Gain from Business Interruption Insurance. During the nine months of 2019, the Company recorded a gain of $4.9 million related to lost profits as a result of the Buchanan plant outage in the first quarter of 2019. See Note 20 to the Consolidated Financial Statements for further details.
Operating Income. Operating income of $62.5 million for the nine months ended September 30, 2019 decreased by $15.8 million or 20.2% from operating income of $78.3 million for the nine months ended September 30, 2018 due to a lower average net sales price, cost inflation, and the recognition of a one time non-cash impairment loss, partially offset by the gain from insurance recoveries, higher wallboard volumes and a decrease in bonus and stock compensation expenses.
Other Expense, Net. Other expense, net, decreased by $0.1 million for the nine months ended September 30, 2019.
Interest Expense, Net. Interest expense, net, was $7.1 million for the nine months ended September 30, 2019, a decrease of $0.9 million from $8.0 million for the nine months ended September 30, 2018. The decrease was primarily driven by a $0.6 million increase in interest income on short term liquid investments, a $0.5 million decrease in interest expense on our Term Loan primarily related to decrease in the spread, a $0.2 million increase in capitalized interest, a $0.1 million decrease related to lower average outstanding borrowings compared to 2018, and a $0.2 million decrease due to the replacement of some of the Term Loan with industrial revenue bonds that have lower interest rates. These decreases were partially offset by a $0.7 million increase on the unhedged portion of the Term Loan as a result of the rise in LIBOR.
See Note 9 and Note 10 to the Consolidated Financial Statements for further details on the repricing and interest rate swap, respectively.
27
Provision for Income Taxes. Provision for income taxes decreased $2.4 million to $12.4 million for the nine months ended September 30, 2019, compared to $14.8 million in the prior period. The lower provision for income taxes was primarily driven by lower pretax income.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash from operations, and borrowings under our debt financing arrangements. As of September 30, 2019, we had $126.4 million in cash and cash equivalents. We believe that our current cash position, availability under our Revolver, access to the long-term debt capital markets and cash flow generated from operations should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs, fund share repurchases and any required long-term debt payments through the next several fiscal years. See Note 9 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.
| Table M2: Net Change in Cash and Cash Equivalents | ||||||||||||||||||||
|
For the Nine Months Ended
|
||||||||||||||||||||
| September 30, 2019 | September 30, 2018 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net cash provided by operating activities | 65,745 | 84,054 | ||||||||||||||||||
| Net cash used in investing activities | (19,092) | (21,075) | ||||||||||||||||||
| Net cash used in financing activities | (23,107) | (29,864) | ||||||||||||||||||
| Effect of foreign exchange rates on cash and cash equivalents | 254 | (184) | ||||||||||||||||||
| Net change in cash and cash equivalents | $ | 23,800 | $ | 32,931 | ||||||||||||||||
Net Cash Provided By Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2019 and 2018 was $65.7 million and $84.1 million, respectively. The decrease of $18.3 million in 2019 compared to 2018 was primarily driven by a decrease in operating income due to a decrease in the average net selling price for gypsum wallboard. The remaining decrease is due to changes in working capital.
Net Cash Used In Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2019 was $19.1 million, compared to $21.1 million for the nine months ended September 30, 2018. Capital expenditures and software purchased increased by $0.3 million from $21.1 million in 2018 to $20.8 million in 2019. Capital expenditures in 2019 included $1.8 million to repair the Buchanan plant. The Company received $1.6 million of insurance proceeds, net of the deductible, for reimbursement of these repair costs. The remaining change was driven by distributions and contributions related to our equity investment in Seven Hills.
Net Cash Used In Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2019 and 2018 was $23.1 million and $29.9 million, respectively. The change for the nine months ended September 30, 2019 primarily reflects an aggregate of $20.0 million deployed to repurchase common stock, compared to $27.4 million in the same period 2018. See Note 12 to the Consolidated Financial Statements for more detailed discussion of share repurchase activity.
28
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses during the periods presented. The 2018 Form 10-K includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the nine months ended September 30, 2019.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are included throughout this Quarterly Report on Form 10-Q, and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "contemplate," "continue," "could," "estimate," "expect," "future," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
•cyclicality in our markets, especially the new residential construction market;
•disruptions in our supply of synthetic gypsum due to regulatory changes or coal-fired power plants ceasing or reducing operations or switching to natural gas;
•changes in the costs and availability of transportation;
•the competitive labor market and resulting employee turnover;
•disruptions to our supply of paperboard liner, including termination of the WestRock contract;
•significant buying power of certain customers;
•potential losses of customers;
•the highly competitive nature of our industry and the substitutability of competitors' products;
•material disruptions at our facilities or the facilities of our suppliers;
•changes in energy, transportation and other input costs;
•changes to environmental and safety laws and regulations requiring modifications to our manufacturing systems;
•changes in, cost of compliance with or the failure or inability to comply with governmental laws and regulations, in particular environmental regulations;
•our involvement in legal and regulatory proceedings;
•our ability to attract and retain key management employees;
•cybersecurity risks;
•disruptions in our information technology systems;
•labor disruptions;
•seasonal nature of our business; and
•additional factors discussed under the sections captioned Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations and Business in our SEC filings.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management's current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those described in Item 1A. Risk Factors in the 2018 Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the 2018 Form 10-K have not changed materially during the nine month period ended September 30, 2019.
Item 4. Controls and Procedures
Management's Evaluation of Disclosure Controls and Procedures. The Company's management carried out the evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act), required by paragraph (b) of Exchange Act Rules 13a-15, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2019.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Limitations in Control Systems. The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we have been, and may in the future become involved in, litigation or other legal proceedings relating to claims arising in the normal course of business. In the opinion of management, there are no pending or threatened legal proceedings which would reasonably be expected to have a material adverse effect on our business or results of operations. We may become involved in material legal proceedings in the future.
See Note 17 to the Consolidated Financial Statements for a description of certain legal proceedings.
Item 1A. Risk Factors
There were no material changes during the three months ended September 30, 2019 to the risk factors previously disclosed in the 2018 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) On November 4, 2015, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $50 million of our common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. On August 3, 2016, our Board of Directors increased the aggregate authorization from up to $50 million to up to $100 million and extended the expiration date to December 31, 2017. On February 21, 2017, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $200 million of its common stock and extended the expiration date to December 31, 2018. On February 21, 2018, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $300 million of its common stock and extended the expiration date to December 31, 2019. As of September 30, 2019, there was approximately $111.0 million of capacity remaining under the repurchase program.
Item 3. Defaults Upon Senior Securities
(a) None.
(b) None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
31
Item 6. Exhibits
|
Exhibit
No. |
Description of Exhibit | ||||||||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | * | |||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | * | |||||||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | * | |||||||||
| 101.DEF | Inline XBRL Taxonomy Definition Linkbase Document. | * | |||||||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | * | |||||||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | * | |||||||||
| 104 | Cover Page Interactive Data File - The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 is formatted in Inline XBRL (included as Exhibit 101). | * | |||||||||
| * | Filed herewith. | |||||||
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CONTINENTAL BUILDING PRODUCTS, INC. | ||||||||||||||
| /s/ James Bachmann | November 12, 2019 | |||||||||||||
| By: | James Bachmann | |||||||||||||
| President and Chief Executive Officer | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
| /s/ Dennis Schemm | November 12, 2019 | |||||||||||||
| By: | Dennis Schemm | |||||||||||||
| Senior Vice President and Chief Financial Officer | ||||||||||||||
| (Principal Financial Officer) | ||||||||||||||
33