NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 ORGANIZATION
Installed Building Products,
Inc. (IBP), a Delaware corporation formed on October 28, 2011, and its wholly-owned subsidiaries and majority-owned subsidiary (collectively referred to as the Company and we, us and
our), primarily install insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, shower doors, closet shelving and mirrors and other products for residential and commercial builders located in the continental
United States. The Company operates in over 100 locations and its corporate office is located in Columbus, Ohio.
We have one operating segment and a
single reportable segment. Substantially all of our sales come from service-based installation of various products in both the residential and commercial new construction and repair and remodel end markets. Commercial sales have increased primarily
due to the acquisition of Trilok Industries, Inc., Alpha Insulation & Waterproofing, Inc. and Alpha Insulation & Waterproofing Company (Alpha). See Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations for more information. The following table sets forth the percentage of our net revenue by end market:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Residential
|
|
|
82
|
%
|
|
|
89
|
%
|
Commercial
|
|
|
18
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements include all of our wholly owned subsidiaries and majority owned subsidiaries. The
non-controlling
interest relating to a majority owned subsidiary is not significant for presentation. All intercompany accounts and transactions have been eliminated.
The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the rules and regulations of the Securities and Exchange Commission (the SEC) have been
condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to prevent the information presented from being misleading when read in conjunction with our consolidated financial statements and the notes
thereto included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form
10-K
for the fiscal year ended December 31, 2016 (the 2016 Form
10-K),
as filed with the SEC on February 28, 2017. The December 31, 2016 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all
disclosures required by U.S. GAAP.
5
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Our interim operating results for the three months ended March 31, 2017 are not necessarily indicative
of the results to be expected in future operating quarters.
See Item 1A. Risk Factors in our 2016 Form
10-K
for additional information regarding risk factors that may impact our results.
Note 2 to the consolidated financial statements in our 2016 Form
10-K
describes the significant accounting policies
and estimates used in preparation of the consolidated financial statements. There have been no changes to our significant accounting policies during the three months ended March 31, 2017 except in the areas of revenue and cost recognition,
accounts receivable, share-based compensation and use of estimates as described below.
Revenue and Cost Recognition
Revenue from the sale and installation of products is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement
exists; (ii) delivery has occurred or services have been rendered; (iii) the price is fixed or determinable; and (iv) the ability to collect is reasonably assured. We recognize revenue using either the completed contract method or the
percentage-of-completion
method of accounting, depending primarily on length of time required to complete the contract. The completed contract method is used for
short-term contracts for which financial position and results of operations reported on the completed-contract basis would not vary materially from those resulting from use of the
percentage-of-completion
method. Revenue from the sale and installation of products is recognized net of adjustments and discounts and, for revenue using the completed
contract method of accounting, at the time the installation is complete. When the
percentage-of-completion
method is used, we estimate the costs to complete individual
contracts and record as revenue that portion of the total contract price which is considered complete based on the relationship of costs incurred to date to total anticipated costs. The costs of earned revenue include all direct material and labor
costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
Accounts Receivable
We account for trade receivables
based on amounts billed to customers. Past due receivables are determined based on contractual terms. We do not accrue interest on any of our trade receivables.
Retainage receivables represent the amount retained by our customers to ensure the quality of the installation and is received after satisfactory completion
of each installation project. Management regularly reviews aging of retainage receivables and changes in payment trends and records an allowance when collection of amounts due are considered at risk. Amounts retained by project owners under
construction contracts and included in accounts receivable were $21.1 million and $18.3 million as of March 31, 2017 and December 31, 2016, respectively.
Share-Based Compensation
Our share-based compensation
program is designed to attract and retain employees while also aligning employees interests with the interests of our stockholders. Restricted stock awards are periodically granted to certain employees, officers and
non-employee
members of our board of directors under the stockholder-approved 2014 Omnibus Incentive Plan. Most awards are deemed to be equity-based with a service condition and do not contain a market or
performance condition with the exception of performance-based awards granted to certain officers. Fair value of the
non-performance-based
awards to employees and officers is measured at the grant date and
amortized to expense over the vesting period of the awards using the straight-line attribution method for all service-based awards with a graded vesting
6
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
feature. This fair value is reduced by assumed forfeitures and adjusted for actual forfeitures until vesting. We also issue performance stock-based awards to certain officers under our 2014
Omnibus Incentive Plan. The performance-based compensation expense is recorded over the requisite service period using the graded-vesting method for the entire award. Performance-based stock awards are accounted for at fair value at date of grant.
Employees and officers are subject to tax at the vesting date based on the market price of the shares on that date, or on the grant date if an election is made.
Use of Estimates
Preparation of the consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the revenue, costs and reserves established under the
percentage-of-completion
method, allowance for doubtful accounts, valuation allowance on deferred tax assets, valuation of the reporting unit, intangible assets and
other long-lived assets, share-based compensation, reserves for general liability and workers compensation and medical insurance. Management believes the accounting estimates are appropriate and reasonably determined; however, due to the
inherent uncertainties in making these estimates, actual amounts could differ from such estimates.
Advertising Costs
Advertising costs are generally expensed as incurred. Advertising expense was approximately $0.8 million and $0.7 million for the three months ended
March 31, 2017 and 2016, respectively, and is included in selling expense on the Condensed Consolidated Statements of Operations.
Recently
Adopted Accounting Pronouncements
In July 2015, the Federal Accounting Standards Board (the FASB) issued Accounting Standards Update
(ASU)
2015-11,
Inventory (Topic 330). This update requires an entity to measure inventory within the scope of the update at the lower of cost and net realizable value. For public
business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This ASU will not have a material impact on our consolidated
financial statements.
In March 2016, the FASB issued ASU
2016-06,
Derivatives and Hedging (Topic 815):
Contingent Put and Call Options in Debt Instruments. This ASU clarifies the requirement for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to
their debt hosts. An entity performing the assessment under this amendment is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. Consequently, when a call (put) option is contingently
exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. For public business entities, this update is effective for financial statements
issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. This ASU will not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU
2017-03,
Accounting Changes and Error Corrections (Topic 250) and
Investments-Equity Method and Joint Ventures (Topic 323). The portion of this ASU related to Topic 250 states that when a registrant does not know or cannot reasonably estimate the impact that future adoption of certain ASUs (ASU
2014-09,
2016-02,
and
2016-13)
are expected to have on the financial
7
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
statements, then in addition to making a statement to that effect, that registrant should consider additional
qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. We have included such disclosures for ASU
2014-09
but not for ASU
2016-02
or ASU
2016-13
since we have not yet performed sufficient analysis on future effects upon
implementation of the new standards. We have concluded that the portion of this ASU related to Topic 323 is not applicable and, therefore, will not have a material impact on our consolidated financial statements. This ASU is effective upon issuance.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers (Topic 606). ASU
2014-09
sets forth a new revenue recognition model that requires identifying the contract(s) with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating
the transaction price to the performance obligations and recognizing the revenue upon satisfaction of performance obligations. In July 2015, the FASB voted to defer the application of the provisions of this standard for public companies until annual
reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. We have substantially completed our initial assessment of the new standard and we are in the process of developing a plan to assess
our contracts with customers and validate other components of the preliminary assessment. Currently, we intend to adopt the new standard using the modified retrospective approach. We will continue to assess the impact of this standard through our
implementation program and validation process.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic
842). This update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU
2016-02
requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. For public
business entities, this update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standards issuance date. We are
evaluating whether this ASU will have a material impact on our consolidated financial statements. For additional information about potential impact to the condensed consolidated financial statements, see Note 10, Commitments and Contingencies.
In April 2016, the FASB issued ASU
No. 2016-10,
Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing, which provides supplemental adoption guidance and clarification to ASU
2014-09.
ASU
2016-10
must be adopted
concurrently with the adoption of ASU
2014-09.
We are evaluating whether the future adoption of these pronouncements will have a material impact on our consolidated financial statements.
In May 2016, the FASB issued ASU
No. 2016-11,
Revenue Recognition (Topic 605) and Derivatives and Hedging
(Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates
2014-09
and
2014-16
pursuant to Staff announcements at the March 3, 2016 EITF
Meeting. This ASU rescinds from the FASB Accounting Standards Codification certain SEC paragraphs as a result of two SEC Staff Announcements at the March 3, 2016 meeting. For public entities, the amendments related to Topic 605 are
effective for interim and annual reporting periods beginning after December 15, 2017 and amendments related to Topic 815 are effective for interim and annual reporting periods beginning after December 15, 2015. We are evaluating whether
the portion of this ASU related to Topic 605 will have a material impact on our consolidated financial statements but have concluded that the portion of this ASU related to Topic 815 is not applicable and, therefore, will not have a material impact
on our consolidated financial statements.
8
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In May 2016, the FASB issued ASU
2016-12,
Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this ASU provide additional clarification and implementation guidance on the previously issued ASU
2014-09.
This ASU provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration and account for completed and modified contracts at the time of transition.
The amendment also clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption. The effective date and transition requirements for these
amendments are the same as the effective date and transition requirements of ASU
2014-09,
which is effective for fiscal years, and for interim periods within those years, beginning after December 15,
2017. We are evaluating whether this ASU will have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends the accounting for credit losses on
available-for-sale
debt securities and purchased financial assets with credit deterioration. In addition, these amendments require the measurement of all expected credit losses for financial assets, including
trade accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. For public business entities, this update is effective for financial statements issued for fiscal
years beginning after December 15, 2019 and interim periods within those fiscal years. We are evaluating whether this ASU will have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows: Clarification of Certain Cash Receipts and
Cash Payments (Topic 230). This ASU addresses the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows by adding or clarifying guidance on eight specific cash flow issues. For
public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are evaluating whether this ASU will have a material impact
on our consolidated financial statements.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes (Topic
740): Intra-Entity Transfers of Assets Other than Inventory. This ASU aligns the recognition of income tax consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards
(IFRS). For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are evaluating whether this ASU will
have a material impact on our consolidated financial statements.
In December 2016, the FASB issued ASU
2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This ASU makes minor corrections or minor improvements to the new revenue recognition standard (ASU
2014-09
not yet adopted) that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. For public business entities, this
update is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are evaluating whether this ASU will have a material impact on our consolidated financial
statements.
In January 2017, the FASB issued ASU
2017-01,
Business Combinations (Topic 805): Clarifying the
Definition of a Business. This ASU clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public business entities,
this update is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We are evaluating whether this ASU will have a material impact on our consolidated
financial statements.
9
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In January 2017, the FASB issued ASU
2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU removes the second step of the goodwill impairment test. An entity will apply a
one-step
quantitative test and record the amount of goodwill impairment as the excess of a reporting units carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend
the optional qualitative assessment of goodwill impairment. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
We do not believe this ASU will have a material impact on our consolidated financial statements.
NOTE 3 GOODWILL AND INTANGIBLES
Goodwill
The change in carrying amount of goodwill was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
(Gross)
|
|
|
Accumulated
Impairment
Losses
|
|
|
Goodwill
(Net)
|
|
January 1, 2017
|
|
$
|
177,090
|
|
|
$
|
(70,004
|
)
|
|
$
|
107,086
|
|
Business Combinations
|
|
|
36,948
|
|
|
|
|
|
|
|
36,948
|
|
Other
|
|
|
210
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
$
|
214,248
|
|
|
$
|
(70,004
|
)
|
|
$
|
144,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes included in the above table include minor adjustments for the allocation of certain acquisitions still under
measurement and an immaterial acquisition completed during the three months ended March 31, 2017.
We test goodwill for impairment annually during
the fourth quarter of our fiscal year or earlier if there is an impairment indicator. No impairment was recognized during either of the three month periods ended March 31, 2017 and 2016.
Intangibles, net
The following table provides the gross
carrying amount and accumulated amortization for each major class of intangibles (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
|
|
As of December 31, 2016
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
Amortized intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
108,983
|
|
|
$
|
29,659
|
|
|
$
|
79,324
|
|
|
$
|
80,909
|
|
|
$
|
27,533
|
|
|
$
|
53,376
|
|
Covenants
not-to-compete
|
|
|
10,238
|
|
|
|
3,003
|
|
|
|
7,235
|
|
|
|
8,602
|
|
|
|
2,466
|
|
|
|
6,136
|
|
Trademarks and tradenames
|
|
|
52,698
|
|
|
|
11,227
|
|
|
|
41,471
|
|
|
|
37,303
|
|
|
|
10,498
|
|
|
|
26,805
|
|
Backlog
|
|
|
13,400
|
|
|
|
2,233
|
|
|
|
11,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,319
|
|
|
$
|
46,122
|
|
|
$
|
139,197
|
|
|
$
|
126,814
|
|
|
$
|
40,497
|
|
|
$
|
86,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The gross carrying amount of intangibles increased approximately $58.5 million during the three months
ended March 31, 2017 primarily due to business combinations. See Note 11, Business Combinations, for more information. Remaining estimated aggregate annual amortization expense is as follows (amounts, in thousands, are for the fiscal year
ended):
|
|
|
|
|
Remainder of 2017
|
|
$
|
19,437
|
|
2018
|
|
|
21,140
|
|
2019
|
|
|
16,168
|
|
2020
|
|
|
15,568
|
|
2021
|
|
|
14,550
|
|
Thereafter
|
|
|
52,334
|
|
NOTE 4 LONG-TERM DEBT
Debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Term loans, in effect, net of unamortized debt issuance costs of
|
|
|
|
|
|
|
|
|
$399 and $447, respectively
|
|
$
|
94,601
|
|
|
$
|
95,803
|
|
Delayed draw term loans, in effect, net of unamortized debt issuance costs of $499 and $50,
respectively
|
|
|
124,501
|
|
|
|
12,450
|
|
Vehicle and equipment notes, maturing March 2022; payable in various monthly
installments, including interest rates ranging from
|
|
|
|
|
|
2% to 4%
|
|
|
40,311
|
|
|
|
38,186
|
|
Various notes payable, maturing through March 2025; payable in various installments, including
interest rates ranging from 4% to 6%
|
|
|
4,764
|
|
|
|
4,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,177
|
|
|
|
151,427
|
|
Less: current maturities
|
|
|
(27,350
|
)
|
|
|
(17,192
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
$
|
236,827
|
|
|
$
|
134,235
|
|
|
|
|
|
|
|
|
|
|
On February 29, 2016, we entered into a Credit and Security Agreement (the Credit and Security Agreement)
with the lenders named therein. The Credit and Security Agreement amended and restated our previous credit agreement (the 2015 Credit Agreement), which was scheduled to mature in April 2020. We used a portion of the funds from the Credit
and Security Agreement to pay off the outstanding balances under the 2015 Credit Agreement. The Credit and Security Agreement provided for a five-year senior secured credit facility in an aggregate principal amount of up to $325.0 million,
consisting of a $100.0 million revolving line of credit (the Revolving LOC), a $100.0 million term loan (the Term Loan) and a delayed draw term loan facility (the DDTL) providing for up to
$125.0 million in additional term loan draws during the first year of the Credit and Security Agreement. Under the Revolving LOC, up to an aggregate of $20.0 million was available to us for the issuance of letters of credit and up to an
aggregate of $5.0 million was available to us for swing line loans. The Credit and Security Agreement also included an accordion feature which allowed us, at our option but subject to lender and certain other approvals, to add up to an
aggregate of $75.0 million in principal amount of term loans or additional revolving credit commitments, subject to the same terms as the Revolving LOC and Term Loan. As of March 31, 2017, there were approximately $17.9 million in
letters of credit issued and no borrowings outstanding under the Revolving LOC. All of the obligations under the Credit and Security Agreement were guaranteed by our material domestic subsidiaries, other than Suburban Insulations, Inc.
11
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Loans under the Credit and Security Agreement bore interest at either the eurodollar rate (LIBOR)
or the base rate (which approximates prime rate), at our election, plus a margin based on the type of rate applied and our leverage ratio. At December 31, 2016, the outstanding balances on the Term Loan and DDTL bore interest at
1-month
LIBOR, including margin (2.5%), and at March 31, 2017, the outstanding balances on the Term Loan and the DDTL bore interest at
1-month
LIBOR, including margin
(2.69%). In addition to interest, we were required to pay commitment fees on the unused portion of the Revolving LOC. The commitment fee rate for the period from February 29, 2016 through August 31, 2016 was 22.5 basis points. Thereafter,
the commitment fee rate, like the interest rate spreads, was subject to adjustment based on our leverage ratio, with possible future commitment fees ranging from 20 to 30 basis points per annum. The commitment fee rate from September 1, 2016 to
December 31, 2016 was 22.5 basis points and the rate from January 1, 2017 to March 31, 2017 was 25.0 basis points. We were also required to pay a ticking fee of 37.5 basis points per annum on the unused portion of the DDTL until it
was fully drawn in January 2017. Any outstanding principal balances on the Term Loan and DDTL would have been due on February 28, 2021.
The Credit
and Security Agreement contained covenants that required us to (1) maintain a fixed charge coverage ratio of not less than 1.10 to 1.00 and (2) maintain a leverage ratio of no greater than (a) 3.50 to 1.00 through December 30, 2016;
(b) 3.25 to 1.00 on December 31, 2016 through June 29, 2017; (c) 3.00 to 1.00 on June 30, 2017 through December 30, 2017; (d) 2.75 to 1.00 on December 31, 2017 through June 29, 2018; and (e) 2.50 to 1.00 on
June 30, 2018 and thereafter. The Credit and Security Agreement also contained various restrictive
non-financial
covenants and a provision that, upon an event of default (as defined by the Credit and
Security Agreement), amounts outstanding under the Credit and Security Agreement would bear interest at the rate as determined above plus 2.0% per annum.
On April 13, 2017 we entered into a term loan agreement for $300 million and an asset-based lending credit agreement for $100 million with up
to $50 million for letters of credit (the Senior Secured Credit Facilities) with a bank group. We used a portion of the funds from the Senior Secured Credit Facilities to pay off the outstanding balances under our Credit and
Security Agreement. See Note 13, Subsequent Events for further information.
Vehicle and Equipment Notes
We are party to a Master Loan and Security Agreement (Master Loan and Security Agreement), a Master Equipment Lease Agreement (Master
Equipment Agreement) and one or more Master Loan Agreements (Master Loan Agreements) with various lenders to provide financing for the purpose of purchasing or leasing vehicles and equipment used in the normal course of business.
Each financing arrangement under these agreements constitutes a separate note and obligation. Vehicles and equipment purchased or leased under each financing arrangement serve as collateral for the note applicable to such financing arrangement.
Regular payments are due under each note for a period of typically 60 consecutive months after the incurrence of the obligation. The specific terms of each note are based on specific criteria, including the type of vehicle or equipment and the
market interest rates at the time. No termination date applies to these agreements.
Total gross assets relating to our master loan and equipment
agreements were $50.0 million and $48.7 million as of March 31, 2017 and December 31, 2016, respectively, none of which were fully depreciated as of March 31, 2017 or December 31, 2016, respectively. The net book value
of assets under these agreements was $36.7 million and $38.0 million as of March 31, 2017 and December 31, 2016, respectively. Depreciation of assets held under these agreements is included within cost of sales on the Condensed
Consolidated Statements of Operations.
12
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Uncompleted contracts were as follows (in thousands):
|
|
|
|
|
|
|
March 31,
|
|
|
|
2017
|
|
Costs incurred on uncompleted contracts
|
|
$
|
60,187
|
|
Estimated earnings
|
|
|
35,118
|
|
|
|
|
|
|
Total
|
|
|
95,305
|
|
Less: Billings to date
|
|
|
92,631
|
|
|
|
|
|
|
Net under (over) billings
|
|
$
|
2,674
|
|
|
|
|
|
|
Net under (over) billings were as follows (in thousands):
|
|
|
|
|
|
|
March 31,
|
|
|
|
2017
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
6,375
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
|
(3,701
|
)
|
|
|
|
|
|
Net under (over) billings
|
|
$
|
2,674
|
|
|
|
|
|
|
The asset, costs and estimated earnings in excess of billings on uncompleted contracts, represents revenues recognized in
excess of amounts billed and is included in other current assets in our Condensed Consolidated Balance Sheets. The liability, billings in excess of costs and estimated earnings on uncompleted contracts, represents billings in excess of revenues
recognized and is included in other current liabilities in our Condensed Consolidated Balance Sheets.
NOTE 6 FAIR VALUE MEASUREMENTS
Fair Values
Fair value is the price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820, Fair Value Measurement, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.
13
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Level 2: Significant other observable inputs other than Level 1 prices such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
Estimated Fair Value of Financial Instruments
Accounts receivable, accounts payable and accrued liabilities as of March 31, 2017 and December 31, 2016 approximate fair value due to the short-term
maturities of these financial instruments. The carrying amounts of the long-term debt, including the Term Loan, DDTL and Revolving LOC, approximate fair value as of March 31, 2017 and December 31, 2016 due to the short term maturities of
the underlying variable rate LIBOR agreements. The carrying amounts of the obligations associated with our capital leases and vehicle and equipment notes approximate fair value as of March 31, 2017 and December 31, 2016 because we have
incurred the obligations within recent fiscal years when the interest rate markets have been low and stable. All debt classifications represent Level 2 fair value measurements.
NOTE 7 EMPLOYEE BENEFITS
Healthcare
Our healthcare benefit expense (net of employee contributions) for all plans was approximately $4.0 million and $4.3 million for the three months
ended March 31, 2017 and 2016, respectively. An accrual for estimated healthcare claims incurred but not reported (IBNR) is included within accrued compensation on the Condensed Consolidated Balance Sheets and was $1.8 million
and $1.7 million as of March 31, 2017 and December 31, 2016, respectively.
Workers Compensation
Workers compensation expense totaled $4.1 million and $3.0 million for the three months ended March 31, 2017 and 2016, respectively.
Workers compensation known claims and IBNR reserves included on the Condensed Consolidated Balance Sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Included in other current liabilities
|
|
$
|
4,122
|
|
|
$
|
4,595
|
|
Included in other long-term liabilities
|
|
|
9,035
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,157
|
|
|
$
|
11,647
|
|
|
|
|
|
|
|
|
|
|
We also had an insurance receivable for claims that exceeded the stop loss limit included on the Condensed Consolidated
Balance Sheets. That receivable offsets an equal liability included within the reserve amounts noted above and was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Included in other
non-current
assets
|
|
$
|
1,231
|
|
|
$
|
1,249
|
|
14
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Share-Based Compensation
Directors
We periodically grant shares of restricted
stock to members of our Board of Directors. Accordingly, we record compensation expense within administrative expenses on the Condensed Consolidated Statements of Operations at the time of the grant. No shares were granted to our directors during
the three months ended March 31, 2017 or 2016.
Employees
During the three months ended March 31, 2017, our employees surrendered approximately one thousand shares of our common stock to satisfy tax
withholding obligations arising in connection with the vesting of common stock awards issued under our 2014 Omnibus Incentive Plan. Share-based compensation expense associated with
non-performance-based
awards
was $0.4 million for the three months ended March 31, 2017 and $0.5 million for the three months ended March 31, 2016. We recognized excess tax benefits of $0.1 million and $0.2 million within the income tax provision
in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016, respectively.
Nonvested common stock
awards for employees as of December 31, 2016 and changes during the three months ended March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Awards
|
|
|
Weighted
Average Grant
Date Fair
Market Value
Per Share
|
|
Nonvested common stock awards at December 31, 2016
|
|
|
161,174
|
|
|
$
|
26.36
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(9,561
|
)
|
|
|
21.79
|
|
Forfeited
|
|
|
(362
|
)
|
|
|
26.98
|
|
|
|
|
|
|
|
|
|
|
Nonvested common stock awards at March 31, 2017
|
|
|
151,251
|
|
|
$
|
26.65
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017, there was $2.7 million of unrecognized compensation expense related to these nonvested common
stock awards. This expense is subject to future adjustments for forfeitures and is expected to be recognized on a straight-line basis over the remaining weighted-average period of 2.0 years. Shares forfeited are returned as treasury shares and
available for future issuances.
As of March 31, 2017, approximately 2.6 million shares of common stock were available for issuance under the
2014 Omnibus Incentive Plan.
Performance-Based Stock
During the three months ended March 31, 2017, we established, and our Board of Directors approved, performance-based targets in connection with common
stock awards to be issued to certain officers in 2018 contingent upon achievement of these targets. Share-based compensation expense associated with these performance-based awards was $0.1 million for the three months ended March 31, 2017.
15
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nonvested performance-based stock awards for employees as of December 31, 2016 and changes during the
three months ended March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Performance-
Based Stock
Awards
|
|
|
Weighted
Average Grant
Date Fair
Market Value
Per Share
|
|
Nonvested performance-based stock awards at December 31, 2016
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
77,254
|
|
|
|
41.00
|
|
Vested
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested performance-based stock awards at March 31, 2017
|
|
|
77,254
|
|
|
$
|
41.00
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017, there was $3.0 million of unrecognized compensation expense related to nonvested
performance-based common stock awards. This expense is subject to future adjustments for forfeitures and is expected to be recognized over the remaining weighted-average period of 2.6 years using the graded-vesting method.
NOTE 8 INCOME TAXES
Our provision for income
taxes as a percentage of pretax earnings (the effective tax rate) is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items.
During the three months ended March 31, 2017, the effective tax rate was 37.3%. This rate was favorably impacted by deductions related to domestic
production activities and usage of net operating losses for a tax filing entity that previously had a full valuation allowance. The favorable impact was partially offset by separate tax filing entities in a loss position for which a full valuation
allowance will be accounted for against the losses, causing no tax benefit to be recognized on the losses.
NOTE 9 RELATED PARTY TRANSACTIONS
We sell installation services to other companies related to us through common or affiliated ownership and/or Board of Directors and/or management
relationships. We also purchase services and materials and pay rent to companies with common or affiliated ownership.
We lease our headquarters and
certain other facilities from related parties. See Note 10, Commitments and Contingencies, for future minimum lease payments to be paid to these related parties.
For the three months ended March 31, 2017 and 2016, the amount of sales to related parties as well as the purchases from and rent expense paid to related
parties were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Sales
|
|
$
|
2,336
|
|
|
$
|
1,527
|
|
Purchases
|
|
|
291
|
|
|
|
103
|
|
Rent
|
|
|
296
|
|
|
|
155
|
|
16
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2017 and December 31, 2016, we had related party balances of approximately
$1.9 million and $1.5 million, respectively, included in accounts receivable on our Condensed Consolidated Balance Sheets. These balances primarily represent trade accounts receivable arising during the normal course of business with
various related parties. M/I Homes, Inc., a customer whose Chairman, President and Chief Executive Officer is a member of our Board of Directors, accounted for $0.8 million of these balances as of March 31, 2017 and December 31,
2016.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Accrued General Liability
Accrued general insurance
reserves included on the Condensed Consolidated Balance Sheets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Included in other current liabilities
|
|
$
|
1,857
|
|
|
$
|
1,949
|
|
Included in other long-term liabilities
|
|
|
8,108
|
|
|
|
7,104
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,965
|
|
|
$
|
9,053
|
|
|
|
|
|
|
|
|
|
|
We also had insurance receivables included on the Condensed Consolidated Balance Sheets that, in aggregate, offset an equal
liability included within the reserve amounts noted above. The amounts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
Insurance receivable and indemnification asset for claims under a
fully insured policy
|
|
$
|
2,773
|
|
|
$
|
2,773
|
|
Insurance receivable for claims that exceeded the stop loss limit
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total insurance receivables included in other
non-current
assets
|
|
$
|
2,773
|
|
|
$
|
2,799
|
|
|
|
|
|
|
|
|
|
|
Leases
We are obligated
under capital leases covering vehicles and certain equipment. The vehicle and equipment leases generally have terms ranging from four to six years. Total gross assets relating to capital leases were approximately $64.1 million and
$64.2 million as of March 31, 2017 and December 31, 2016, respectively, and a total of approximately $22.3 million and $22.8 million were fully depreciated as of March 31, 2017 and December 31, 2016, respectively.
The net book value of assets under capital leases was approximately $15.1 million and $16.4 million as of March 31, 2017 and December 31, 2016, respectively. Amortization of assets held under capital leases is included within
cost of sales on the Condensed Consolidated Statements of Operations.
We also have several noncancellable operating leases, primarily for buildings,
improvements, equipment and certain vehicles. These leases generally contain renewal options for periods ranging from one to five years and require us to pay all executory costs such as property taxes, maintenance and insurance.
17
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in
excess of one year) with related parties as of March 31, 2017 are as follows (in thousands):
|
|
|
|
|
Remainder of 2017
|
|
$
|
868
|
|
2018
|
|
|
967
|
|
2019
|
|
|
810
|
|
2020
|
|
|
566
|
|
2021
|
|
|
583
|
|
Thereafter
|
|
|
600
|
|
Other Commitments and Contingencies
From time to time, various claims and litigation are asserted or commenced against us principally arising from contractual matters and personnel and employment
disputes. In determining loss contingencies, management considers the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that such a
liability has been incurred and when the amount of loss can be reasonably estimated. As litigation is subject to inherent uncertainties, we cannot be certain that we will prevail in these matters. However, we do not believe that the ultimate outcome
of any pending matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
NOTE 11
BUSINESS COMBINATIONS
As part of our ongoing strategy to increase market share in certain markets, we completed two business combinations during the
three months ended March 31, 2017 and three business combinations during the three months ended March 31, 2016. Acquisition-related costs amounted to $0.6 million and $0.4 million for the three months ended March 31, 2017
and 2016, respectively. The goodwill recognized in conjunction with these business combinations is attributable to expected improvement in the business of these acquired companies. We expect to deduct $36.6 million of goodwill for tax purposes
as a result of 2017 acquisitions.
2017
On
January 5, 2017, we consummated our previously announced acquisition of all of the outstanding shares of Trilok Industries, Inc., Alpha Insulation & Waterproofing, Inc. and Alpha Insulation & Waterproofing Company
(Alpha) for consideration of approximately $103.8 million in cash, including $21.7 million in contingent consideration to satisfy purchase price adjustments related to cash and net working capital requirements, earnout
consideration based on Alphas change in EBITDA from 2015 and a customary holdback, $10.9 million by issuing 282,577 shares of our common stock and other seller obligations totaling $2.0 million. Revenue and net income since the date
of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 were $28.2 million and $0.9 million, respectively.
On March 20, 2017, we acquired substantially all of the assets of Custom Glass Atlanta, Inc. and Atlanta Commercial Glazing, Inc. The purchase price
consisted of cash of $3.3 million and seller obligations of $0.5 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2017
were $0.5 million and $21 thousand, respectively.
18
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2016
On
January 25, 2016, we acquired substantially all of the assets of Key Green Builder Services, LLC d/b/a Key Insulation. The purchase price consisted of cash of $5.0 million and seller obligations of $0.7 million. Revenue and net loss
since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $2.1 million and $(28) thousand, respectively.
On February 2, 2016, we acquired substantially all of the assets of Marshall Insulation, LLC. The purchase price consisted of cash of $0.9 million
and seller obligations of $0.1 million. Revenue and net loss since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $0.6 million and $(86) thousand,
respectively.
On February 29, 2016, we acquired substantially all of the assets of Kern Door Company, Inc. The purchase price consisted of cash of
$2.9 million and seller obligations of $0.1 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 were $0.3 million
and $13 thousand, respectively.
Purchase Price Allocations
The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the
following as of March 31 and may be adjusted during the valuation period since acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Alpha
|
|
|
Other
|
|
|
Total
|
|
|
Total
|
|
Estimated fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
247
|
|
|
$
|
|
|
|
$
|
247
|
|
|
$
|
|
|
Accounts receivable
|
|
|
30,405
|
|
|
|
1,096
|
|
|
|
31,501
|
|
|
|
1,518
|
|
Inventories
|
|
|
1,751
|
|
|
|
772
|
|
|
|
2,523
|
|
|
|
311
|
|
Other current assets
|
|
|
6,030
|
|
|
|
|
|
|
|
6,030
|
|
|
|
8
|
|
Property and equipment
|
|
|
1,528
|
|
|
|
462
|
|
|
|
1,990
|
|
|
|
789
|
|
Intangibles
|
|
|
57,100
|
|
|
|
1,904
|
|
|
|
59,004
|
|
|
|
5,036
|
|
Goodwill
|
|
|
36,452
|
|
|
|
496
|
|
|
|
36,948
|
|
|
|
3,220
|
|
Other
non-current
assets
|
|
|
150
|
|
|
|
82
|
|
|
|
232
|
|
|
|
24
|
|
Accounts payable and other current liabilities
|
|
|
(16,992
|
)
|
|
|
(1,001
|
)
|
|
|
(17,993
|
)
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired and purchase price
|
|
|
116,671
|
|
|
|
3,811
|
|
|
|
120,482
|
|
|
|
9,667
|
|
Less fair value of common stock issued
|
|
|
10,859
|
|
|
|
|
|
|
|
10,859
|
|
|
|
|
|
Less seller obligations
|
|
|
2,002
|
|
|
|
501
|
|
|
|
2,503
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
$
|
103,810
|
|
|
$
|
3,310
|
|
|
$
|
107,120
|
|
|
$
|
8,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party and
internal valuations are finalized, certain tax aspects of the transaction are completed, and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant
adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period.
Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 3Goodwill and Intangibles during the three months ended March 31, 2017 due to minor adjustments to goodwill for the
allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added during the ordinary course of business. In addition, goodwill and intangibles increased during the three months ended March 31, 2017
due to an immaterial
tuck-in
acquisition that does not appear in the above table.
19
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Estimates of acquired intangible assets related to the acquisitions are as follows for the three months ended
March 31 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Acquired intangibles assets
|
|
Estimated
Fair Value
|
|
|
Weighted
Average
Estimated
Useful
Life (yrs.)
|
|
|
Estimated
Fair Value
|
|
|
Weighted
Average
Estimated
Useful
Life (yrs.)
|
|
Customer relationships
|
|
$
|
28,501
|
|
|
|
8
|
|
|
$
|
3,067
|
|
|
|
8
|
|
Trademarks and trade names
|
|
|
15,496
|
|
|
|
15
|
|
|
|
1,535
|
|
|
|
15
|
|
Non-competition
agreements
|
|
|
1,607
|
|
|
|
5
|
|
|
|
434
|
|
|
|
5
|
|
Backlog
|
|
|
13,400
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
Pro Forma Information
The unaudited pro forma information for the combined results of the Company has been prepared as if the 2017 acquisitions had taken place on January 1,
2016 and the 2016 acquisitions had taken place on January 1, 2015. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2016
and 2015, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results. See Note 12, Business Combinations, to our audited financial statements in Item 8 of Part II of our 2016 Form
10-K
for additional information on 2016 acquisitions included in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Pro forma for the three
months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net revenue
|
|
$
|
258,289
|
|
|
$
|
232,345
|
|
Net income
|
|
$
|
6,579
|
|
|
$
|
6,559
|
|
Basic and diluted net income per share
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
Unaudited pro forma net income reflects additional intangible asset amortization expense of $56 thousand and
$4.2 million for the three months ended March 31, 2017 and 2016, respectively, as well as additional income tax expense of $0.1 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively, and
additional interest expense of $0.5 million for the three months ended March 31, 2016 that would have been recorded had the 2017 acquisitions taken place on January 1, 2016 and the 2016 acquisitions taken place on January 1,
2015. There was no additional interest expense for the three months ended March 31, 2017.
NOTE 12 INCOME PER COMMON SHARE
Basic net income per share is calculated by dividing net income by the weighted average shares outstanding during the period, without consideration for common
stock equivalents.
20
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Diluted net income per share is calculated by adjusting weighted average shares outstanding for the dilutive
effect of common stock equivalents outstanding for the period, determined using the treasury stock method. Potential common stock is included in the diluted income per share calculation when dilutive. Diluted net income per share was as follows (in
thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net income - basic and diluted
|
|
$
|
6,364
|
|
|
$
|
5,813
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
31,590,478
|
|
|
|
31,242,237
|
|
Dilutive effect of outstanding common stock awards after application of the Treasury Stock
Method
|
|
|
96,578
|
|
|
|
88,734
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
31,687,056
|
|
|
|
31,330,971
|
|
Basic and diluted net income per share
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
None of the
non-vested
common stock awards had an antidilutive effect on diluted net
income per share for either of the three months ended March 31, 2017 or 2016.
NOTE 13 SUBSEQUENT EVENTS
New Senior Secured Credit Agreements
On April 13,
2017 (the Closing Date), we entered into a term loan credit agreement (the Term Loan Agreement) with the lenders named therein and Royal Bank of Canada as term administrative agent and RBC Capital Markets, UBS Securities LLC
and Jefferies Finance LLC as joint lead arrangers and joint bookrunners. The Term Loan Agreement, subject to the terms and conditions set forth therein, provides for a new seven-year $300,000,000 term loan facility (the Term Loan).
On the Closing Date, we also entered into an asset-based lending credit agreement (the ABL Credit Agreement and together with the Term Loan
Agreement, the Senior Secured Credit Agreements) with the subsidiary guarantors from time to time party thereto, the financial institutions from time to time party thereto, and SunTrust Bank, as issuing bank, swing bank and
administrative agent, with SunTrust Robinson Humphrey, Inc. as left lead arranger and bookrunner. The ABL Credit Agreement provides for a revolving credit facility of up to approximately $100,000,000 with a sublimit up to $50,000,000 for the
issuance of letters of credit (the ABL Revolver), which may be reduced or increased pursuant to the ABL Credit Agreement. The borrowing base for the ABL Revolver, which determines availability under the facility, is based on a percentage
of the value of certain of assets comprising the ABL Priority Collateral (as defined below).
Proceeds from the Senior Secured Credit Facilities were used
to repay in full all amounts outstanding under the Credit and Security Agreement.
The Term Loan amortizes in quarterly principal payments of $750,000
starting on September 30, 2017, with any remaining unpaid balances due on April 15, 2024, which is the maturity date. Loans incurred under the ABL Revolver will have a final maturity of April 13, 2022.
Subject to certain exceptions, the Term Loan will be subject to mandatory
pre-payments
equal to (i) 100% of the net
cash proceeds from issuances or incurrence of debt by the Company or any of its restricted subsidiaries (other than with respect to certain permitted indebtedness); (ii) 100% of the net cash proceeds from certain sales or dispositions of assets by
the Company or any of its restricted subsidiaries in excess
21
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
of a certain amount and subject to customary reinvestment provisions and certain other expenses; and (iii) 50% (with step-downs to 25% and 0% based upon achievement of specified net leverage
ratios) of excess cash flow of the Company and its restricted subsidiaries in excess of $5,000,000, subject to customary exceptions and limitations.
All
of the obligations under the Senior Secured Credit Facilities will be guaranteed by all of our existing and future restricted subsidiaries (the Guarantors).
All obligations under the Senior Secured Credit Facilities, and the guarantees of those obligations, will be secured by substantially all of our assets and
the Guarantors subject to certain exceptions and permitted liens, including (i) with respect to the Term Loan, a first-priority security interest in such assets that constitute Term Loan Priority Collateral and a second-priority security
interest in such assets that constitute ABL Priority Collateral and (ii) with respect to the ABL Revolver, a first-priority security interest in such assets that constitute ABL Priority Collateral and a second-priority security interest in such
assets that constitute Term Loan Priority Collateral.
ABL Priority Collateral includes substantially all presently owned and after-acquired
accounts receivable, inventory, rights of an unpaid vendor with respect to inventory, deposit accounts, commodity accounts, securities accounts and lock boxes, investment property, cash and cash equivalents, and instruments and chattel paper and
general intangibles, books and records, supporting obligations and documents and related letters of credit, commercial tort claims or other claims related to and proceeds of each of the foregoing.
Term Loan Priority Collateral includes all assets that are not ABL Priority Collateral.
Loans under the Senior Secured Credit Facilities will bear interest based on, at the Companys election, either the base rate or the Eurodollar rate
plus, in each case, an applicable margin (the Applicable Margin). The Applicable Margin in respect of loans under (i) the Term Loan Agreement will be (A) 3.00% in the case of Eurodollar rate loans and (B) 2.00% in the case of base
rate loans, and (ii) the ABL Facility will be (A) 1.25%, 1.50% or 1.75% in the case of Eurodollar rate loans (based on a measure of availability under the ABL Facility) and (B) 0.25%, 0.50% or 0.75% in the case of base rate loans (based on a
measure of availability under the ABL Facility).
In addition, we will pay a closing fee of 1.25% of the Term Loan amount and customary commitment fees
and letter of credit fees under the ABL Credit Agreement. The commitment fees will vary based upon a measure of our utilization under the ABL Revolver.
The Senior Secured Credit Facilities each contain a number of customary affirmative and negative covenants that, among other things, limit or restrict our
ability and the Guarantors ability to: incur indebtedness; incur liens; engage in mergers or other fundamental changes; sell certain property or assets; pay dividends or other distributions; make acquisitions, investments, guarantees, loans and
advances; prepay certain indebtedness; change the nature of their business; engage in certain transactions with affiliates; and incur restrictions on contractual obligations limiting interactions between us and our subsidiaries or limit actions in
relation to the Senior Secured Credit Facilities.
The ABL Credit Agreement also contains a financial covenant requiring the satisfaction of a minimum
fixed charge coverage ratio of 1.00 to 1.00 in the event that we do not meet a minimum measure of availability under the ABL Revolver.
22
INSTALLED BUILDING PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Senior Secured Credit Agreements contains customary events of default, subject to certain grace periods,
thresholds and materiality qualifiers. Such events of default include, without limitation:
non-payment
of obligations; the material inaccuracy of any representations or warranties; failure to perform or
observe covenants; a default related to other material debt that could result in the acceleration of that debt; certain events of bankruptcy or insolvency; judgments for the payment of money in excess of $50,000,000 in the aggregate that remains
unpaid or unstayed and undischarged for a period of 60 consecutive days; and a change of control of the Company. The occurrence and continuance of an event of default could result in, among other things, acceleration of amounts owing under the
Senior Secured Credit Agreements and termination of the Senior Secured Credit Agreements.
Under the Term Loan Agreement, if upon the occurrence and
during the continuance of certain events of default, any principal of or interest on any loan under the Term Loan Agreement or any fee or other amount payable by us is not paid when due, whether at stated maturity, upon acceleration or otherwise,
such overdue amount will bear interest at a rate per annum equal to (i) in the case of overdue principal of any loan under the Term Loan Agreement, 2.00% per annum plus the rate otherwise applicable to such loan, or (ii) in the case of any
other amount, 2.00% per annum plus interest rate for base rate loans as described above.
Under the ABL Credit Agreement, during an event of default,
interest on the outstanding and overdue obligations arising under the ABL Credit Agreement and the related loan documents may, at the administrative agents election, and shall, at the request of the Majority Lenders (as defined in the ABL
Credit Agreement), accrue at a simple per annum interest rate equal to, with respect to all outstanding obligations under the ABL Credit Agreement, the sum of (i) the applicable interest rate basis, if any, with respect to the applicable
obligation, plus (ii) the Applicable Margin for such interest rate basis, plus (iii) 2.00% (the ABL Default Rate); provided, however, that the ABL Default Rate will automatically deemed to be invoked at all times with respect to
overdue obligations under the ABL Credit Agreement and the related loan documents that have been accelerated or deemed accelerated under the ABL Credit Agreement.
Business Combinations
On May 1, 2017, we acquired
substantially all of the assets of Legacy Glass & Supply, Inc. for total consideration of approximately $2.2 million, subject to a working capital adjustment. The initial accounting for the business combination was not complete at the
time the financial statements were issued due to the timing of the acquisition and the filing of this Quarterly Report on Form
10-Q.
As a result, disclosures required under ASC
805-10-50,
Business Combinations, cannot be made at this time.
23