<PAGE>
PROSPECTUS
3,000,000 SHARES
GIBRALTAR STEEL CORPORATION [LOGO OF GIBRALTAR]
COMMON STOCK
($.01 PAR VALUE)
Of the 3,000,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), of Gibraltar Steel Corporation (the "Company") being offered hereby,
2,000,000 shares are being issued and sold by the Company and 1,000,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders".
The Common Stock is traded on the NASDAQ Stock Market ("NASDAQ") under the
symbol "ROCK". On June 20, 1996, the last reported sale price of the Common
Stock was $20.50 per share. See "Price Range of Common Stock".
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1) SELLING STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............ $18.00 $.90 $17.10 $17.10
Total(2)............. $54,000,000 $2,700,000 $34,200,000 $17,100,000
- -------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $800,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 450,000 shares of Common Stock at the Price to Public,
less the Underwriting Discount, solely to cover over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $62,100,000,
$3,105,000 and $41,895,000, respectively. See "Underwriting".
The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock will be
made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company, on
or about June 26, 1996.
SALOMON BROTHERS INC SMITH BARNEY INC.
The date of this Prospectus is June 20, 1996.
<PAGE>
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING".
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors". Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the over-allotment
option. Unless the context otherwise requires, the "Company" refers to
Gibraltar Steel Corporation and its subsidiaries.
THE COMPANY
Gibraltar Steel Corporation (the "Company"), through its subsidiaries, is a
leading processor of high value-added steel products. The Company's primary
focus is on a broad range of products and services based on cold-rolled strip
and coated sheet steel, and also heavy duty steel strapping. To complement
these products and services, the Company offers specialized metallurgical heat
treating services, operates two state-of-the-art materials management
facilities, and has an equity interest in two commercial steel pickling
operations.
Processed cold-rolled strip steel products comprise a segment of the cold-
rolled sheet steel market that is defined by more precise widths, improved
surface conditions and tighter gauge tolerances than are supplied by primary
manufacturers of flat-rolled steel products. The Company's cold-rolled strip
steel products are sold to manufacturers in the automotive, hand tool,
appliance and hardware industries, as well as to other customers who demand
critical specifications in their raw material needs. The Company's coated steel
products, which include galvanized, galvalume and pre-painted sheet products,
are sold primarily to the commercial and residential metal building industry
for roofing and siding applications. The Company's strapping products are used
in heavy duty industrial applications. Heat treating, which refines the
metallurgical properties of steel and other metals, is required to achieve
critical performance characteristics in a wide variety of consumer and
industrial applications.
The Company attributes its operating and financial success to the aggressive
pursuit of its business strategy, the key elements of which include: a focus on
high value-added, high margin products and services; a commitment to internal
growth and continuous cost reductions; a commitment to external expansion
through the acquisition of related businesses with long-term growth potential;
and a dedication to quality, service and customer satisfaction.
The pursuit of its business strategy has allowed the Company to limit the
impact of the cyclical nature of the steel industry and has enabled the Company
to achieve pre-tax profits in every year since 1976. In addition, over the past
five years the Company has increased its revenues and pre-tax profits by
compound annual growth rates of approximately 22% and 38%, respectively.
In implementing its business strategy, the Company has:
. Acquired the Wm. R. Hubbell Steel Corporation ("Hubbell Steel") in April
1995, a leading national supplier and processor of coated sheet steel
products for the commercial and residential metal building industry.
Hubbell Steel contributed approximately $63 million to the Company's
revenues in 1995.
. Acquired Carolina Commercial Heat Treating, Inc. ("CCHT") in February
1996, a leading metallurgical heat treater in the southeastern United
States. CCHT had 1995 revenues from processing customer-owned parts and
materials of approximately $21.5 million.
. Started up a new cold-rolled processing facility in Chattanooga,
Tennessee in late 1994, increasing the Company's customer base and
product distribution in the southeastern United States. This facility
has a design capacity of approximately 84,000 tons per year.
. Opened a second state-of-the-art materials management facility in
Woodhaven, Michigan in the second half of 1995, which provides
dedicated, specialized inventory management services and has a design
throughput capacity of approximately 600,000 tons per year.
3
<PAGE>
. Through its joint venture, started up a second steel pickling operation
in the second half of 1995, which added over 400,000 tons of annual
pickling capacity.
. During the second quarter of 1996, committed to substantially increase
its cold-rolling capacity at its Cleveland operation through the
construction of a new mill. The Company believes that this new mill,
with a design capacity of approximately 120,000 tons per year and a
maximum rolling width of 50 inches, will be the widest mill for the
production of cold-rolled strip steel in North America, yielding
substantial production efficiencies. Start-up of the new mill is
expected in late 1997.
The Company was incorporated under the laws of the State of Delaware in 1993.
The Company's executive offices are located at 3556 Lake Shore Road, Buffalo,
New York 14219, and its telephone number is (716) 826-6500.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by:
The Company....................... 2,000,000 shares
The Selling Stockholders.......... 1,000,000 shares
----------------
Total........................... 3,000,000 shares
================
Common Stock to be outstanding after
the offering......................... 12,173,900 shares(1)
Use of proceeds from the sale of
Common Stock by the Company.......... To repay outstanding bank indebtedness.
See "Use of Proceeds".
NASDAQ symbol......................... ROCK
</TABLE>
- --------
(1) Excludes (i) an aggregate of 400,000 shares of Common Stock reserved for
issuance under the Non-Qualified Plan (as hereinafter defined), of which
200,000 shares were subject to outstanding options as of June 17, 1996 at a
weighted average exercise price of $10.75 per share, (ii) an aggregate of
600,000 shares of Common Stock reserved for issuance under the Incentive
Plan (as hereinafter defined) of which 270,000 shares were subject to
outstanding options as of June 17, 1996 at a weighted average exercise
price of $10.81 per share, and (iii) an aggregate of 100,000 shares of
Common Stock reserved for issuance under the Restricted Stock Plan (as
hereinafter defined). See "Management--Employee Plans".
4
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31,(a) ENDED MARCH 31,
------------------------------------------------ ---------------------
1991 1992 1993 1994 1995(b) 1995 1996(c)
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(d):
Net Sales............... $128,982 $145,680 $167,883 $200,142 $282,833 $58,765 $82,034
Cost of Sales........... 110,222 120,311 138,559 166,443 240,370 48,579 68,005
-------- -------- -------- -------- -------- ------- -------
Gross Profit............ 18,760 25,369 29,324 33,699 42,463 10,186 14,029
Selling, General and
Administrative......... 11,924 14,915 16,390 17,520 22,095 5,090 7,354
-------- -------- -------- -------- -------- ------- -------
Income from Operations.. 6,836 10,454 12,934 16,179 20,368 5,096 6,675
Other Income (Expense):
Interest Expense....... (2,262) (1,873) (1,621) (1,374) (3,984) (559) (1,073)
Other Income........... -- -- 200 -- -- -- --
-------- -------- -------- -------- -------- ------- -------
(2,262) (1,873) (1,421) (1,374) (3,984) (559) (1,073)
-------- -------- -------- -------- -------- ------- -------
Income Before Taxes..... 4,574 8,581 11,513 14,805 16,384 4,537 5,602
Income Taxes(e)......... 454 339 6,300 5,996 6,662 1,860 2,268
-------- -------- -------- -------- -------- ------- -------
Net Income............. $ 4,120 $ 8,242 $ 5,213 $ 8,809 $ 9,722 $ 2,677 $ 3,334
======== ======== ======== ======== ======== ======= =======
Net Income Per Share... $ .87 $ .96 $ .26 $ .33
======== ======== ======= =======
Pro Forma Net
Income(f).............. $ 3,278 $ 5,853 $ 7,337
======== ======== ========
Pro Forma Net Income Per
Share(g)............... $ .32 $ .58 $ .72
======== ======== ========
OTHER DATA:
Capital
Expenditures(h)........ $ 3,478 $ 5,750 $ 10,468 $ 16,171 $ 14,504 $ 5,527 $ 3,262
Depreciation and
Amortization........... 3,217 3,226 3,399 3,445 4,538 924 1,395
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
MARCH 31,
1994 1995 1996
-------- ------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA(i):
Current Assets....................................... $ 70,552 $86,995 $101,472
Current Liabilities.................................. 22,028 29,480 40,048
Total Assets......................................... 126,380 167,423 208,370
Total Debt........................................... 38,658 59,054 82,847
Stockholders' Equity................................. 60,396 70,244 73,578
</TABLE>
- --------
(a) One of the Company's subsidiaries historically had a fiscal year end of
October 31. Effective with the year ended December 31, 1993, such entity
adopted a calendar year end. See Note 1 to the Consolidated Financial
Statements (as hereinafter defined). As a result of such change, other
income for the year ended December 31, 1993 includes $200,000 of net income
attributable to November and December 1992 for such entity.
(b) Includes the results of Hubbell Steel from its acquisition on April 3,
1995.
(c) Includes the results of CCHT from its acquisition on February 14, 1996.
(d) See "Selected Financial Data" for unaudited pro forma presentations of the
results of operations had the following occurred on January 1, 1995: (i)
the consummation of the acquisitions of both Hubbell Steel and CCHT and
borrowings to finance such acquisitions; and (ii) the consummation of this
offering and the application of the net proceeds therefrom to reduce
indebtedness and the related reduction in interest expense.
(e) Includes $5,100,000 for reinstatement of deferred income taxes upon
termination of the S Corporation status of certain of the Company's
subsidiaries during the year ended December 31, 1993.
(f) Certain of the Company's subsidiaries historically were treated as S
Corporations for federal and certain state income tax purposes. Immediately
prior to consummation of the Company's initial public offering in November
1993, such S Corporation status was terminated. Pro forma net income
assumes that each of the Company's subsidiaries had been subject to
corporate income taxation as a C Corporation during periods prior to
November 1993. See "Unaudited Pro Forma Financial Data".
5
<PAGE>
(g) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares
outstanding during 1993. Such pro forma weighted average number of common
shares was computed giving effect to the number of shares the Company would
have had to issue to retire $15,576,000 of indebtedness and pay an S
Corporation distribution of $10,485,000 to the pre-public offering
stockholders.
(h) Excludes expenditures for acquisition of Hubbell Steel during 1995 of
$20,859,000, net of cash acquired, and expenditures for acquisition of CCHT
during the first three months of 1996 of $23,715,000, net of cash acquired.
(i) See "Capitalization" for unaudited pro forma balance sheet data assuming
that consummation of this offering and application of the estimated net
proceeds therefrom to reduce indebtedness had occurred on March 31, 1996.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers should evaluate the following risk factors.
IMPACT OF CHANGING STEEL PRICES
The principal raw material used by the Company is flat-rolled carbon steel,
which the Company purchases from certain primary steel producers. The steel
industry as a whole is very cyclical, and at times pricing in the steel
industry can be volatile due to numerous factors beyond the control of the
Company, including general economic conditions, labor costs, competition,
import duties, tariffs and currency exchange rates. This volatility can
significantly affect the Company's raw material costs.
Steel processing companies are required to maintain substantial inventories
of steel to accommodate the short lead times and just-in-time delivery
requirements of their customers. Accordingly, the Company purchases steel on a
regular basis in an effort to maintain its inventory at levels that it
believes to be sufficient to satisfy the anticipated needs of its customers
based upon historic buying practices and market conditions. In an increasing
price environment, competitive conditions will determine how much of the steel
price increases can be passed on to the Company's customers. If the Company is
unable to pass on to its customers some or all of future steel price
increases, the Company's business, financial condition and results of
operations could be adversely affected.
DEPENDENCE ON AUTOMOTIVE INDUSTRY; CYCLICALITY OF DEMAND
Sales of the Company's products for use in the automotive industry accounted
for approximately 58%, 61% and 51% of the Company's net sales in 1993, 1994
and 1995, respectively, and approximately 48% of net sales for the first three
months of 1996. Such sales include sales directly to auto manufacturers and to
manufacturers of automotive components and parts. The automotive industry
experiences significant fluctuations in demand based on numerous factors such
as general economic conditions and consumer confidence. The automotive
industry is also subject, from time to time, to labor problems. The contracts
between the United Automobile Workers ("UAW") and the Canadian Auto Workers
("CAW") and General Motors Corporation ("GM"), Chrysler Corporation
("Chrysler") and The Ford Motor Company ("Ford") in both the United States and
Canada expire in September 1996 and there can be no assurance that new
agreements will be ratified by the UAW and CAW without a work stoppage. Any
prolonged disruption in business arising from such a work stoppage could have
a material adverse effect on the Company's results of operations.
The Company also sells its products to customers in other industries that
experience cyclicality in demand for products, such as the steel, appliance,
metal building and office equipment industries. None of these industries
individually represented more than 10% of the Company's annual net sales in
1995, with the exception of the metal building industry, which accounted for
approximately 18% of net sales in 1995 and 19% in the first quarter of 1996.
Downturns in demand from these industries, or in the prices that the Company
can realize from sales of its products to customers in these industries, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RELIANCE ON CERTAIN CUSTOMERS
The Company's largest customer is GM, which accounted for approximately 16%,
14% and 11% of the Company's net sales for 1993, 1994 and 1995, respectively,
and approximately 10% of net sales for the first three months of 1996. The
loss of GM as a customer or a significant reduction in the business generated
by GM would have a material adverse effect on the Company's results of
operations. Sales to GM are made through various subsidiaries, divisions and
affiliates that the Company believes act independently in their purchasing
decisions. Accordingly, the Company believes that it is unlikely that it would
lose all of the business generated by GM. There can be no assurance, however,
that the historic levels of business from GM will be maintained.
7
<PAGE>
No other customer accounted directly or indirectly for more than 10% of the
Company's annual net sales in 1993, 1994 or 1995; however, the Company's
materials management facilities provide services almost exclusively to Ford.
If Ford terminated or significantly decreased its use of the materials
management facilities, the Company might not be able to fully utilize these
facilities.
RISKS ASSOCIATED WITH FUTURE EXPANSION
Historically, the Company has grown through a combination of internal growth
and external expansion through acquisitions and a joint venture. The Company
intends to actively pursue its growth strategy in the future and currently has
certain new projects and facilities in various stages of development. See
"Business--Business Strategy". The expansion of an existing facility or
construction of a new facility could have adverse effects on the Company's
results of operations due to the impact of start-up costs and the potential
for under-utilization in the start-up phase of a facility. A substantial
portion of the Company's recent growth has been the result of its ability to
acquire businesses and successfully integrate them into the operations of the
Company. There can be no assurance that suitable acquisition candidates will
continue to be available or, if they are, that the Company will have
sufficient qualified personnel and financial resources available when needed
to successfully complete any acquisition and integration of these businesses
into its operations. Acquisitions could divert a disproportionate amount of
management time and attention. Moreover, the incurrence of additional
indebtedness to pay for expansion costs or acquisition costs could adversely
affect the Company's liquidity and financial stability. The issuance of Common
Stock to effect acquisitions could result in dilution to the Company's
stockholders. There can be no assurance that any new facility or operation
would be profitable.
COMPETITION
The steel processing market is highly competitive. The Company competes with
a number of other steel processors, some of which have greater financial and
other resources than the Company. The Company competes primarily on the basis
of the precision and range of achievable tolerances, quality, price and the
ability to meet delivery schedules dictated by customers. See "Business--
Competition".
CONTROL BY CERTAIN STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS
Upon the consummation of this offering, 51.7% of the outstanding Common
Stock (including shares of Common Stock issuable under options granted which
are exercisable within 60 days) of the Company (approximately 49.8% if the
Underwriters' over-allotment option is exercised in full) will be owned by
Brian J. Lipke, Curtis W. Lipke, Neil E. Lipke and Eric R. Lipke, each an
executive officer of the Company, and Meredith A. Lipke-de Blok, an employee
of the Company (collectively, the "Lipke Family"), all of whom are siblings;
certain trusts for the benefit of each of them; and a trust under the will of
Kenneth E. Lipke for the benefit of his widow, Patricia K. Lipke (the "Lipke
Trusts"). See "Management". As a result, the Lipke Family will continue to
have the effective power to elect the Company's Board of Directors and to
approve all actions requiring stockholder approval. See "Principal and Selling
Stockholders" and "Description of Capital Stock". In addition, certain
provisions of the Company's Certificate of Incorporation and By-Laws, as well
as provisions of the Delaware General Corporation Law, could have the effect
of deterring takeovers or delaying or preventing changes in control or
management of the Company. See "Description of Capital Stock".
DEPENDENCE ON KEY MANAGEMENT
The success of the Company's business is dependent upon the management and
leadership skills of Brian J. Lipke, the Company's Chairman of the Board,
President and Chief Executive Officer, and
8
<PAGE>
other members of the Company's senior management team. The loss of any of
these individuals or an inability to attract, retain and maintain additional
personnel could adversely affect the Company. There can be no assurance that
the Company will be able to retain its existing senior management personnel or
to attract additional qualified personnel. For a discussion of the terms of
the Company's employment agreement with Brian J. Lipke, see "Management--
Employment Agreement".
HOLDING COMPANY STRUCTURE AND RELIANCE ON DISTRIBUTIONS FROM SUBSIDIARIES
The Company has no direct business operations other than its ownership of
the capital stock of its subsidiaries. As a holding company, the Company is
dependent on dividends or other intercompany transfers of funds from its
subsidiaries to enable it to pay dividends and to meet its direct obligations.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by the Company or certain
stockholders could adversely affect the prevailing market price of the Common
Stock. The Company, each of its directors and executive officers and the
Selling Stockholders have entered into "lock-up" agreements ("Lock-up
Agreements") with Salomon Brothers Inc, as representative of the Underwriters
(the "Representative"), whereby the Company and such directors, executive
officers and Selling Stockholders have agreed not to offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, or announce the offering
of, any Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock, except for the shares of Common Stock
offered hereby and in each case other than that of the Company, shares of
Common Stock disposed of as bona fide gifts, for a period of 90 days from the
date of this Prospectus, without the prior written consent of the
Representative. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Shares Eligible
for Future Sale".
ENVIRONMENTAL COMPLIANCE
The Company's processing centers and manufacturing facilities are subject to
many federal, state and local requirements relating to the protection of the
environment, and the Company has made, and will continue to make, expenditures
to comply with such provisions. The Company believes that its facilities are
in material compliance with these laws and regulations and does not believe
that future compliance with such laws and regulations will have a material
adverse effect on its results of operations or financial condition. If
environmental laws become more stringent, the Company's environmental capital
expenditures and costs for environmental compliance could increase in the
future. In addition, due to the possibility of unanticipated factual or
regulatory developments, the amount and timing of future environmental
expenditures could vary substantially from those currently anticipated.
Moreover, certain of the Company's facilities have been in operation for many
years and, over such time, the Company and other predecessor operators of such
facilities have generated and disposed of wastes which are or may be
considered hazardous. Accordingly, it is possible that additional
environmental liabilities may arise in the future. The Company does not have
sufficient information to estimate its potential liability in connection with
any potential future remediation; however, the Company believes that if any
such remediation were required, it would occur over an extended period of
time.
The Company has been named as a potentially responsible party with respect
to the disposal of hazardous wastes at one site. Based on the facts currently
known to the Company, management expects that the costs to the Company of
remedial actions at this site will not have a material adverse effect on the
Company's results of operations or financial condition. See "Business--
Governmental Regulation".
9
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from this offering, amounting
to approximately $33.4 million after deduction of underwriting discounts,
commissions and expenses associated with this offering, will be used to repay
certain existing indebtedness under the Credit Facility (described below), a
substantial portion of which was incurred to finance its recent acquisitions.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders.
The Company has a $125.0 million revolving credit facility (the "Credit
Facility") with Chase Manhattan Bank, N.A., Fleet Bank and Mellon Bank, N.A.
which matures in November 1997. The amounts outstanding under the Credit
Facility bear interest either at various amounts above the London InterBank
Offered Rate ("LIBOR") or at the agent bank's prime rate, as selected by the
Company. At March 31, 1996, amounts outstanding under the Credit Facility were
approximately $75.1 million bearing interest at a weighted average interest
rate of 6.2%. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
The Credit Facility is secured by substantially all of the accounts
receivable, inventory, equipment and fixtures (but not real property) of the
Company now owned or hereafter acquired. The Credit Facility contains
covenants restricting the ability of the Company to make capital expenditures,
incur additional indebtedness, sell a substantial portion of its assets, merge
or make acquisitions or investments in an amount in excess of $25.0 million,
and obligates the Company to meet certain financial requirements. In addition,
the Credit Facility contains certain restrictions on Gibraltar Steel
Corporation's ability to pay dividends.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 (i) on an actual basis, and (ii) as adjusted to give effect to this
offering and the application of the net proceeds received by the Company to
repay indebtedness under the Credit Facility. See "Use of Proceeds". This
table should be read in conjunction with the Consolidated Financial Statements
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Short-Term Debt:
Current portion of long-term debt....................... $ 1,215 $ 1,215
-------- --------
Total Short-Term Debt................................. $ 1,215 $ 1,215
======== ========
Long-Term Debt, Net of Current Portion.................... $ 81,632 $ 48,232
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 10,173,900 shares issued and outstanding
(12,173,900 shares issued and outstanding as
adjusted)(a)........................................... 102 122
Additional paid-in capital.............................. 28,803 62,183
Retained earnings....................................... 44,673 44,673
-------- --------
Total Stockholders' Equity............................ 73,578 106,978
-------- --------
Total Capitalization.................................. $155,210 $155,210
======== ========
</TABLE>
- --------
(a) Excludes (i) an aggregate of 400,000 shares of Common Stock reserved for
issuance under the Non-Qualified Plan, of which 200,000 shares were
subject to outstanding options as of June 17, 1996 at a weighted average
exercise price of $10.75 per share, (ii) an aggregate of 600,000 shares of
Common Stock reserved for issuance under the Incentive Plan of which
270,000 shares were subject to outstanding options as of June 17, 1996 at
a weighted average exercise price of $10.81 per share, and (iii) an
aggregate of 100,000 shares of Common Stock reserved for issuance under
the Restricted Stock Plan. See "Management--Employee Plans".
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on NASDAQ under the symbol "ROCK". The following
table sets forth, for the fiscal periods indicated, the high and low sale
prices for the Common Stock on NASDAQ.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter................................................ $16 1/4 $12 1/2
Second Quarter............................................... 15 10 3/4
Third Quarter................................................ 13 3/4 10 1/2
Fourth Quarter............................................... 11 1/2 9 3/4
1995
First Quarter................................................ 11 1/4 10 1/2
Second Quarter............................................... 13 1/2 10 1/2
Third Quarter................................................ 14 1/4 12 3/4
Fourth Quarter............................................... 13 1/2 10
1996
First Quarter................................................ 15 3/4 12 1/8
Second Quarter (through June 20, 1996)....................... 22 15
</TABLE>
On June 20, 1996, the last reported sale price of the Common Stock on NASDAQ
was $20.50 per share. As of June 19, 1996, there were approximately 142 record
holders of Common Stock.
DIVIDEND POLICY
The Company's present policy is to invest its earnings in the future
development and growth of the Company and the Company currently does not
anticipate paying cash dividends on the Common Stock. As a holding company,
the Company's ability to pay dividends is dependent on the receipt of payments
from its subsidiaries. Any determination to pay cash dividends in the future
will be dependent on the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at that time by the
Company's Board of Directors. In any event, the payment of dividends by
Gibraltar Steel Corporation is subject to restrictions under the Credit
Facility. See "Use of Proceeds".
12
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below have been derived from the
Company's financial statements which have been audited by Price Waterhouse
LLP, except that the data for the three months ended March 31, 1995 and 1996
are derived from unaudited consolidated financial statements which, in the
opinion of the Company, reflect all adjustments necessary for a fair
presentation. The consolidated balance sheets as of December 31, 1994 and 1995
and March 31, 1996 and the related consolidated statements of income, cash
flow and shareholders' equity for the three years ended December 31, 1995 and
the three months ended March 31, 1995 and 1996, and notes thereto (the
"Consolidated Financial Statements") appear elsewhere in this Prospectus.
Results for the three-month periods are not necessarily indicative of results
for the full year. The selected financial data presented below should be read
in conjunction with, and are qualified in their entirety by, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31,(a) ENDED MARCH 31,
------------------------------------------------ ----------------
1991 1992 1993 1994 1995(b) 1995 1996(c)
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales............... $128,982 $145,680 $167,883 $200,142 $282,833 $58,765 $82,034
Cost of Sales........... 110,222 120,311 138,559 166,443 240,370 48,579 68,005
-------- -------- -------- -------- -------- ------- -------
Gross Profit............ 18,760 25,369 29,324 33,699 42,463 10,186 14,029
Selling, General and
Administrative......... 11,924 14,915 16,390 17,520 22,095 5,090 7,354
-------- -------- -------- -------- -------- ------- -------
Income from Operations.. 6,836 10,454 12,934 16,179 20,368 5,096 6,675
Other Income (Expense):
Interest Expense....... (2,262) (1,873) (1,621) (1,374) (3,984) (559) (1,073)
Other Income........... -- -- 200 -- -- -- --
-------- -------- -------- -------- -------- ------- -------
(2,262) (1,873) (1,421) (1,374) (3,984) (559) (1,073)
-------- -------- -------- -------- -------- ------- -------
Income Before Taxes..... 4,574 8,581 11,513 14,805 16,384 4,537 5,602
Income Taxes(d)......... 454 339 6,300 5,996 6,662 1,860 2,268
-------- -------- -------- -------- -------- ------- -------
Net Income............. $ 4,120 $ 8,242 $ 5,213 $ 8,809 $ 9,722 $ 2,677 $ 3,334
======== ======== ======== ======== ======== ======= =======
Net Income Per Share... $ .87 $ .96 $ .26 $ .33
======== ======== ======= =======
Pro Forma Net
Income(e).............. $ 3,278 $ 5,853 $ 7,337
======== ======== ========
Pro Forma Net Income Per
Share(f)............... $ .32 $ .58 $ .72
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(g):
Current Assets.............. $44,908 $44,941 $50,502 $ 70,552 $ 86,995 $101,472
Current Liabilities......... 28,116 26,111 21,905 22,028 29,480 40,048
Total Assets................ 81,325 83,407 92,868 126,380 167,423 208,370
Total Debt.................. 26,854 26,313 14,179 38,658 59,054 82,847
Stockholders' Equity........ 34,930 38,010 51,587 60,396 70,244 73,578
</TABLE>
- --------
(a) One of the Company's subsidiaries historically had a fiscal year end of
October 31. Effective with the year ended December 31, 1993, such entity
adopted a calendar year end. See Note 1 to the Consolidated Financial
Statements. As a result of such change, other income for the year ended
December 31, 1993 includes $200,000 of net income attributable to November
and December 1992 for such entity.
(b) Includes the results of Hubbell Steel from its acquisition on April 3,
1995.
(c) Includes the results of CCHT from its acquisition on February 14, 1996.
(d) Includes $5,100,000 for reinstatement of deferred income taxes upon
termination of the S Corporation status of certain of the Company's
subsidiaries during the year ended December 31, 1993.
(e) Certain of the Company's subsidiaries historically were treated as S
Corporations for federal and certain state income tax purposes.
Immediately prior to consummation of the Company's initial public offering
in November 1993, such S Corporation status was terminated. Pro forma net
income assumes that each of the Company's subsidiaries had been subject to
corporate income taxation as a C Corporation during periods prior to
November 1993. See "Unaudited Pro Forma Financial Data".
(f) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares
outstanding during 1993. Such pro forma weighted average number of common
shares was computed giving effect to the number of shares the Company
would have had to issue to retire $15,576,000 of indebtedness and pay an S
Corporation distribution of $10,485,000 to the pre-public offering
stockholders.
(g) See "Capitalization" for unaudited pro forma balance sheet data assuming
that consummation of this offering and application of the net proceeds
therefrom to reduce indebtedness had occurred on March 31, 1996.
13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma statements of income for the year ended December 31,
1995 and the three-month period ended March 31, 1996 set forth below present
the results of operations for such year and such period as if the following
had occurred on January 1, 1995: (i) the consummation of the acquisitions of
both Hubbell Steel and CCHT and borrowings to finance such acquisitions; and
(ii) the consummation of this offering and the application of the net proceeds
therefrom to reduce indebtedness and the related reduction in interest
expense. The unaudited pro forma statement of income for the year ended
December 31, 1995 includes: (i) the Company's consolidated results of
operations for the year then ended which includes Hubbell Steel since April 3,
1995; (ii) the consolidated results of operations for Hubbell Steel for the
period January 1, 1995 through April 2, 1995; and (iii) the consolidated
results of operations of CCHT for the year ended December 31, 1995. The
unaudited pro forma statement of income for the three months ended March 31,
1996 includes: (i) the Company's consolidated results of operations for such
period, which includes CCHT since February 14, 1996; and (ii) the consolidated
results for CCHT for the period January 1, 1996 through February 13, 1996.
See "Capitalization" for unaudited pro forma balance sheet data assuming
that consummation of this offering and application of the net proceeds
therefrom to reduce indebtedness had occurred on March 31, 1996.
The unaudited pro forma data has been prepared on the basis of certain
assumptions and estimates. Accordingly, pro forma data may not be indicative
of the actual results the Company would have obtained had such events occurred
on January 1, 1995 with respect to income statement adjustments, or March 31,
1996 with respect to balance sheet adjustments, or the future results of the
Company. The unaudited pro forma financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus.
14
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE HUBBELL ACQUISITION OFFERING PRO FORMA
COMPANY(a) STEEL(b) CCHT(c) ADJUSTMENTS PRO FORMA ADJUSTMENTS(h) AS ADJUSTED
---------- -------- ------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 282,833 $17,445 $21,459 $ 321,737 $ 321,737
Cost of Sales........... 240,370 15,215 15,285 $ (497)(d) 270,373 270,373
---------- ------- ------- ------ ---------- ----------
Gross Profit............ 42,463 2,230 6,174 497 51,364 51,364
Selling, General and
Administrative......... 22,095 4,239 3,137 (3,804)(e) 25,667 25,667
---------- ------- ------- ------ ---------- ----------
Income (Loss) from
Operations............. 20,368 (2,009) 3,037 4,301 25,697 25,697
Other Income (Expense):
Interest Expense....... (3,984) (327) - (2,530)(f) (6,841) $2,672 (4,169)
Other Income........... - - 14 - 14 - 14
---------- ------- ------- ------ ---------- ------ ----------
(3,984) (327) 14 (2,530) (6,827) 2,672 (4,155)
---------- ------- ------- ------ ---------- ------ ----------
Income (Loss) Before
Taxes.................. 16,384 (2,336) 3,051 1,771 18,870 2,672 21,542
Income Taxes (Benefit).. 6,662 (960) 38 2,056(g) 7,796 1,082 8,878
---------- ------- ------- ------ ---------- ------ ----------
Net Income (Loss)...... $ 9,722 $(1,376) $ 3,013 $ (285) $ 11,074 $1,590 $ 12,664
========== ======= ======= ====== ========== ====== ==========
Net Income Per Share... $ .96 $ 1.09 $ 1.04(i)
========== ========== ==========
Weighted Average Common
Shares Outstanding.... 10,163,817 10,163,817 12,163,817
========== ========== ==========
</TABLE>
- --------
(a) Represents the Company's consolidated results of operations for the year
ended December 31, 1995.
(b) Represents Hubbell Steel's unaudited consolidated results of operations
for the period from January 1, 1995 through April 2, 1995.
(c) Represents CCHT's consolidated results of operations for the year ended
December 31, 1995.
(d) Represents adjustment of depreciation based upon the fair value and
depreciable lives of assets acquired.
(e) Represents adjustment of nonrecurring expenses, including a $3.3 million
payment to certain Hubbell Steel employees and a $900,000 reduction of
CCHT salaries and expenses to normalized levels, offset by amortization of
goodwill.
(f) Represents additional interest expense, with a weighted average interest
rate of 8.0% during 1995, resulting from incremental debt incurred to
finance the acquisitions of Hubbell Steel and CCHT, as if such
acquisitions had occurred on January 1, 1995.
(g) Represents the tax effects of acquisition adjustments assuming that
Hubbell Steel and CCHT had been subject to corporate income taxation as C
Corporations, calculated using the Company's effective tax rate as
adjusted for amortization of goodwill. Historically, CCHT and certain
affiliates of Hubbell Steel had been treated as S Corporations for federal
and certain state income tax purposes.
(h) Represents the reduction in interest expense resulting from application of
the net proceeds of this offering on January 1, 1995 to repay
approximately $33,400,000 of indebtedness having a weighted average
interest rate of 8.0% during 1995. See "Use of Proceeds".
(i) Pro forma net income per share, as adjusted, has been calculated by
dividing pro forma net income, as adjusted, by the weighted average number
of shares of Common Stock that the Company would have to issue to retire
approximately $33,400,000 of indebtedness on January 1, 1995. See "Use of
Proceeds".
15
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THE ACQUISITION OFFERING PRO FORMA
COMPANY(a) CCHT(b) ADJUSTMENTS PRO FORMA ADJUSTMENTS(g) AS ADJUSTED
---------- ------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 82,034 $2,245 $ 84,279 $ 84,279
Cost of Sales........... 68,005 1,815 $ (59)(c) 69,761 69,761
---------- ------ ----- ---------- ----------
Gross Profit............ 14,029 430 59 14,518 14,518
Selling, General and
Administrative......... 7,354 464 44(d) 7,862 7,862
---------- ------ ----- ---------- ----------
Income (Loss) from
Operations............. 6,675 (34) 15 6,656 6,656
Other Income (Expense):
Interest Expense....... (1,073) -- (253)(e) (1,326) $585 (741)
Other Income........... -- 3 -- 3 -- 3
---------- ------ ----- ---------- ---- ----------
(1,073) 3 (253) (1,323) 585 (738)
---------- ------ ----- ---------- ---- ----------
Income (Loss) Before
Taxes.................. 5,602 (31) (238) 5,333 585 5,918
Income Taxes (Benefit).. 2,268 4 (95)(f) 2,177 237 2,414
---------- ------ ----- ---------- ---- ----------
Net Income (Loss)...... $ 3,334 $ (35) $(143) $ 3,156 $348 $ 3,504
========== ====== ===== ========== ==== ==========
Net Income Per Share... $ .33 $ .31 $ .29(h)
========== ========== ==========
Weighted Average Common
Shares Outstanding.... 10,173,900 10,173,900 12,173,900
========== ========== ==========
</TABLE>
- --------
(a) Represents the Company's unaudited consolidated results of operations for
the three months ended March 31, 1996.
(b) Represents CCHT's unaudited consolidated results of operations for the
period from January 1, 1996 through February 13, 1996.
(c) Represents adjustment of depreciation based upon the fair value and
depreciable lives of assets acquired.
(d) Represents amortization of goodwill resulting from the CCHT acquisition as
if such acquisition occurred on January 1, 1995.
(e) Represents additional interest expense, with a weighted average interest
rate of 7.0% during the period presented, resulting from incremental debt
incurred to finance the acquisition of CCHT.
(f) Represents the tax effect of acquisition adjustments, assuming that CCHT
had been subject to corporate income taxation as a C Corporation,
calculated using the Company's effective tax rate as adjusted for
amortization of goodwill. Historically, CCHT had been treated as an S
Corporation for federal and certain state income tax purposes.
(g) Represents the reduction in interest expense resulting from application of
the net proceeds of this offering to repay approximately $33,400,000 of
indebtedness having a weighted average interest rate of 7.0%. See "Use of
Proceeds".
(h) Pro forma net income per share, as adjusted, has been calculated by
dividing pro forma net income, as adjusted, by the weighted average number
of shares of Common Stock that the Company would have to issue to retire
approximately $33,400,000 of indebtedness. See "Use of Proceeds".
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Since the Company's inception in 1972, its operations have been
characterized by the four key elements of its business strategy: a focus on
high value-added, high margin products and services; a commitment to internal
growth and continuous cost reductions; a commitment to external expansion
through the acquisition of related businesses with long-term growth potential;
and a dedication to quality, service and customer satisfaction. Because of
changes in the Company's activities from year to year, the results of
operations for prior periods may not necessarily be comparable to, or
indicative of, results of operations for current or future periods.
Implementation of the Company's business strategy has resulted in a compound
annual growth rate for sales of approximately 16% for the years 1972 through
1995, and a compound annual growth rate for pre-tax earnings of approximately
23% during the same period.
RESULTS OF OPERATIONS
The following table sets forth for each of the periods presented certain
income statement data for the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales................. 82.5 83.2 85.0 82.7 82.9
------- ------- ------- ------- -------
Gross Profit.................. 17.5 16.8 15.0 17.3 17.1
Selling, General and
Administrative............... 9.8 8.8 7.8 8.7 9.0
------- ------- ------- ------- -------
Income from Operations........ 7.7 8.0 7.2 8.6 8.1
Other Income (Expense):
Interest Expense............ (1.0) (.6) (1.4) (.9) (1.3)
Other Income................ .2 - - - -
------- ------- ------- ------- -------
(.8) (.6) (1.4) (.9) (1.3)
------- ------- ------- ------- -------
Income Before Taxes........... 6.9 7.4 5.8 7.7 6.8
Income Taxes.................. 3.8 3.0 2.4 3.1 2.7
------- ------- ------- ------- -------
Net Income.................. 3.1% 4.4% 3.4% 4.6% 4.1%
======= ======= ======= ======= =======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Net sales of $82.0 million for the first quarter ended March 31, 1996
increased 39.6% from sales of $58.8 million for the prior year's first
quarter. This increase resulted primarily from the net sales of Hubbell Steel
(acquired in April 1995) for the quarter and the net sales of CCHT since its
acquisition (February 1996) during the first quarter.
Cost of sales increased slightly to 82.9% of net sales for the first three
months of 1996 from 82.7% for the prior year's first quarter. The decrease in
gross profit margin to 17.1% for the first quarter in 1996 was primarily due
to including Hubbell Steel's results. Hubbell Steel's products and services
historically have generated slightly lower margins than the Company's other
products and services.
Selling, general and administrative expenses as a percentage of net sales
increased to 9.0% for the first quarter from 8.7% the prior year comparable
period primarily due to performance-based compensation linked to the Company's
sales and profitability.
17
<PAGE>
Interest expense increased by $.5 million for the three months ended March
31, 1996 primarily due to higher average borrowings resulting from the Hubbell
and CCHT acquisitions.
As a result of the above, income before taxes increased by $1.1 million for
the three months ended March 31, 1996 to $5.6 million.
Income taxes for the three months ended March 31, 1996 approximated $2.3
million and was based on a 40.5% effective tax rate in 1996.
Year Ended 1995 Compared to Year Ended 1994
Net sales increased by $82.7 million, or 41%, to a record $282.8 million in
1995 from $200.1 million in 1994. This increase includes $63.2 million in net
sales of Hubbell since the acquisition at the beginning of the second quarter.
The remaining net sales increase was attributable to sales growth from
existing operations and new operations begun during 1995.
Cost of sales increased by $73.9 million, or 44%, to $240.3 in 1995 from
$166.4 million in 1994. As a percentage of net sales, cost of sales increased
to 85% of net sales from 83.2%. This increase was primarily due to lower
margins attributable to sales from Hubbell and lower margins generated by
start-up operations.
Selling, general and administrative expense increased by $4.6 million, or
26%, to $22.1 million in 1995 from $17.5 million in 1994. As a percentage of
net sales, selling, general and administrative expense decreased to 7.8% from
8.8% in 1994 primarily as a result of the lower costs as a percentage of sales
attributable to Hubbell.
Interest expense increased by $2.6 million primarily as a result of the
Hubbell acquisition which resulted in higher average borrowings, in addition
to higher interest rates compared to 1994 and additional borrowings resulting
from higher inventory levels to service increased sales and capital
expenditures.
As a result of the above, income before taxes increased by $1.6 million, or
11%, to a record $16.4 million in 1995 from $14.8 million in 1994.
Income taxes approximated $6.7 million in 1995, an effective rate of 40.7%
in comparison with 40.5% for 1994.
Year Ended 1994 Compared to Year Ended 1993
Net sales increased by $32.2 million, or 19%, to $200.1 million in 1994 from
$167.9 million in 1993. This increase reflects a 16% increase in tons sold
attributed to an improving economy, increased auto production and improved
demand for consumer durables, and the Company's efforts to increase market
share. Selling prices also increased as a result of tighter steel markets and
the Company's success in passing raw material price increases from steel mills
through to customers.
Cost of sales increased by $27.8 million, or 20%, to $166.4 million in 1994
from $138.6 million in 1993. As a percentage of net sales, cost of sales
increased to 83.2% of net sales from 82.5%. The Company was able to offset a
portion of the raw material price increases not immediately passed on to its
customers due to timing differences through continued improvements in
productivity and yield.
Selling, general and administrative expense increased by $1.1 million, or
7%, to $17.5 million in 1994 from $16.4 million in 1993. This increase was
primarily due to incentive-based compensation plans linked to the Company's
sales and profitability and start-up expenses related to the new cold-rolled
steel processing facility in Tennessee which began operations in late 1994. As
a percentage of net sales, selling, general and administrative expenses
decreased by 1% in 1994 primarily due to the Company's cost control programs.
18
<PAGE>
Interest expense decreased by $247,000 to $1.4 million in 1994 as a result
of initially lower debt levels in the earlier part of 1994 resulting from the
application of the proceeds of the Company's initial public stock offering in
November 1993, subsequently offset by additional borrowings resulting from
increased inventory levels to service increased sales and capital
expenditures.
Other income of $200,000 in 1993 was a result of a change in the year end of
a subsidiary.
As a result of the above, income before taxes increased by $3.3 million, or
29%, to $14.8 million in 1994 from $11.5 million in 1993. As a percentage of
net sales, income before taxes increased to 7.4% of sales in 1994 from 6.9% in
1993.
Income taxes approximated $6.0 million in 1994, an effective tax rate of
40.5%, during the Company's first full year as a C Corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund its working capital
needs and raw material inventory requirements, and to fund acquisitions and
the purchase and improvement of facilities, machinery and equipment.
Historically, the Company has used income generated by operations as well as
bank financing to fund these capital needs.
Net cash provided by operating activities primarily represents net income
plus non-cash charges for depreciation and amortization and changes in working
capital positions. Because of the capital intensive nature of the Company's
business, non-cash charges for depreciation and amortization are substantial.
Net cash provided by operating activities for 1993, 1994, 1995 and the three
months ended March 31, 1996 was $10.1 million, $(8.6) million, $35.7 million
and $1.3 million, respectively.
Net cash used by investing activities for 1993, 1994, 1995 and the three
months ended March 31, 1996 was $6.6 million, $16.0 million, $35.0 million and
$27.0 million, respectively. A significant portion of the net cash used for
investment activities represents capital expenditures, such as the Company's
investment in a new warehouse facility in 1993, a new steel processing
facility in 1994 and the acquisitions of Hubbell Steel in April 1995 and CCHT
in February 1996.
The net proceeds of this offering (after deduction of underwriting
discounts, commissions and expenses associated with this offering) will be
approximately $33.4 million (approximately $41.1 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the
net proceeds of this offering to repay outstanding indebtedness under the
Credit Facility. See "Use of Proceeds".
Upon consummation of this offering and application of the net proceeds
therefrom, aggregate borrowings outstanding under the Credit Facility are
approximately $49.4 million. The Company anticipates that it will be able to
satisfy such obligations out of funds generated from operations.
The availability under the Credit Facility after application of the net
proceeds of this offering will be approximately $75.6 million. The Company
believes that this availability, together with funds generated from
operations, will be sufficient to provide the Company with the liquidity and
capital resources necessary to fund its anticipated working capital
requirements for at least the next twelve months. In addition, the Company
believes that it will have the financial capability to incur additional long-
term indebtedness if that becomes appropriate in connection with its internal
and external expansion strategies. See "Risk Factors--Risks Associated with
Future Expansion".
The Company has financed its Chattanooga facility with industrial revenue
bonds in the aggregate amount of $8.0 million, repayable in equal monthly
installments through May 2002. At March 31, 1996,
19
<PAGE>
the outstanding principal amount of these bonds was approximately $7.0
million, bearing interest at an annual rate of LIBOR plus a fixed rate (6.0%
at March 31, 1996). These bonds are secured by the Company's leasehold
interest in the Chattanooga facility, as well as by fixtures and equipment
located at such facility.
The Company's Credit Facility limits the amount of the Company's capital
expenditures. The Company does not believe that these limitations will affect
its ability to implement its internal growth and external expansion
strategies.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations over the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation". SFAS No. 123 establishes a fair-value-based method of
accounting for stock-based compensation plans and encourages, but does not
require, entities to adopt that method in place of the provisions of
Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to Employees", for all arrangements under which employees receive
shares of stock or other equity instruments of the employer or the employer
incurs liabilities to employees in amounts based on the price of the stock.
SFAS No. 123 also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from nonemployees
in exchange for equity instruments.
An entity may continue to apply APBO No. 25 in accounting for stock-based
employee compensation arrangements. However, entities doing so will be
required to disclose pro forma net income and earnings per share determined as
if the fair-value-based method established by SFAS No. 123 had been applied in
measuring compensation cost.
The provisions of SFAS No. 123 are effective for fiscal years beginning
after December 15, 1995. Following adoption of SFAS No. 123, the Company
expects to continue measuring compensation cost for employee stock
compensation plans in accordance with the provisions of APBO No. 25.
SEASONALITY
Historically, the Company has experienced stronger first half of the year
results from its business, primarily due to customer scheduled plant shutdowns
for vacations, holidays and automotive model changeovers in the third and
fourth quarters.
20
<PAGE>
BUSINESS
GENERAL
The Company, through its subsidiaries, is a leading processor of high value-
added steel products. The Company's primary focus is on a broad range of
products and services based on cold-rolled strip and coated sheet steel, and
also heavy duty steel strapping. To complement these products and services,
the Company offers specialized metallurgical heat treating services, operates
two state-of-the-art materials management facilities, and has an equity
interest in two commercial steel pickling operations.
Processed cold-rolled strip steel products comprise a segment of the cold-
rolled sheet steel market that is defined by more precise widths, improved
surface conditions and tighter gauge tolerances than are supplied by primary
manufacturers of flat-rolled steel products. The Company's cold-rolled strip
steel products are sold to manufacturers in the automotive, hand tool,
appliance and hardware industries, as well as to other customers who demand
critical specifications in their raw material needs. The Company's coated
sheet steel products, which include galvanized, galvalume and pre-painted
sheet products, are sold primarily to the commercial and residential metal
building industry for roofing and siding applications. The Company's strapping
products are used in heavy duty industrial applications. Heat treating, which
refines the metallurgical properties of steel and other metals, is required to
achieve critical performance characteristics in a wide variety of consumer and
industrial applications.
The following table sets forth the principal products and services provided
by each of the business areas of the Company and their respective end-user
markets.
<TABLE>
<CAPTION>
BUSINESS AREA PRODUCTS/SERVICES END-USER MARKETS
- ------------- ----------------- ----------------
<S> <C> <C>
Cold-rolled Strip Steel Precision-rolled high and low carbon and Automotive, hand tool,
alloy steel from 3/8" to 38" wide, .010" appliance, hardware
to .250" thick, with special edges and
finishes on ribbon wound and oscillated
coils
Coated Sheet Steel Galvanized, galvalume and pre-painted Metal buildings and
(Hubbell Steel) sheet steel in coils and cut lengths roofs, HVAC, trailers
Heat Treating Carburizing, martempering, gas Automotive, hardware,
(CCHT) nitriding, stress relieving, hardening, office equipment,
brazing and austempering of customer- military, consumer
owned parts and materials products
Strapping High-tensile steel strapping, packaging Steel, aluminum, forest
supplies, tools and tool repairs products
Precision Metals Hot-rolled, cold-rolled and coated Automotive, office
sheets and coils which are slit, edged, equipment, power
cut-to-length and oscillated transmission,
independent stampers,
electrical
Materials Management Inbound inspection, storage, just-in- Automotive
time delivery, electronic data
interchange and communication with
supplier and end-user
Pickling Removal of oxide scale from hot-rolled Automotive, service
(Joint Venture) steel, slitting, oiling and application centers, independent
of pre-lubes to customer-owned steel stampers
</TABLE>
21
<PAGE>
HISTORICAL GROWTH
The predecessor to the Company was established in 1972 by the late Dr.
Kenneth E. Lipke to acquire a Buffalo-based company that provided cold-rolling
services, distributed steel coils and blanks and manufactured and sold steel
strapping. This business grew from approximately $9 million in net sales at
the time of acquisition to approximately $22 million in fiscal 1975. In 1976,
following the acquisition by the Company of three steel processing businesses,
the Company had combined net sales of approximately $45 million. Over the next
few years, the Company successfully integrated the acquired companies with its
existing businesses, generating combined net sales of approximately $77
million in fiscal 1979.
During the period from 1980 through 1986, the Company focused on expanding
internally and positioning its operations for continued growth. Advances
implemented during this period include the addition of equipment that the
Company considered integral to its growth strategy, including a 72-inch wide
slitter for heavy gauge steel, a 60-inch wide slitter for light gauge steel, a
72-inch roll and cut line and a single head oscillator. In addition, the
Company modernized certain of its rolling mills, added several new annealing
furnaces and built an addition in which it installed a coil racking system at
its precision metals facility. As a result of these internal expansion efforts
and the economies realized following the integration of the acquired
businesses, the Company generated net sales of approximately $103 million in
fiscal 1986.
Since 1987, the Company has developed or acquired the following operations:
. The Company acquired a Cleveland based cold-rolling operation in December
1987. Since that time, this operation has increased its annual sales more
than fivefold while reducing the amount of production space by
approximately 29%.
. In 1989, the Company, through a subsidiary, became a minority joint
venture partner in Samuel Steel Pickling. In 1995, this venture installed
a second pickling line that more than doubled its steel pickling capacity
from 360,000 to approximately 800,000 tons annually.
. The Company opened a materials management facility in Buffalo in 1990,
providing inventory management, quality control and just-in-time delivery
services to a major automobile manufacturer and certain other customers.
The Company opened a second facility in Woodhaven, Michigan in 1995,
intended primarily to service the same end-user.
. In 1993, the Company opened a warehouse facility in Brownsville, Texas to
service a major customer and to expand its geographic presence to the
southwestern United States and Mexico.
. The Company constructed a new steel processing facility in Chattanooga,
Tennessee which became operational in late 1994. This facility will
enable the Company to expand its geographic coverage and diversify its
customer base in the southeastern United States.
. During April 1995, the Company acquired Hubbell Steel, a processor and
supplier of galvanized, galvalume and pre-painted sheet steel products.
This acquisition expanded the Company's product lines and provided it
with access to the commercial and residential metal building industry.
. The Company acquired CCHT, a metallurgical heat treater, in February
1996. CCHT's services complement the existing products and services of
the Company, provide access to new customers and expand its geographic
coverage in the southeastern United States.
INDUSTRY OVERVIEW
Steel processors occupy a market niche that exists between primary steel
producers and end-user manufacturers. Primary steel producers typically focus
on the sale of standard size and tolerance steel to large volume purchasers,
including steel processors. At the same time, end-user manufacturers require
steel with closer tolerances and on shorter lead times than the primary steel
producers can
22
<PAGE>
provide efficiently. The Company believes that many end-user manufacturers are
unwilling to commit to the investment in technology, equipment and labor
required to further process steel for use in their manufacturing operations.
The Company believes that these factors have caused many end-user
manufacturers to find it more beneficial, from a cost, quality and
manufacturing flexibility standpoint, to purchase more fully processed steel
products from steel processors.
BUSINESS STRATEGY
Since the Company's first acquisition in 1972 of a Buffalo-based steel
processor with approximately $9 million in sales, management's strategy has
been to continuously grow and enhance the profitability of existing operations
and to expand into related value-added businesses with long-term growth
potential. The Company attributes its operating and financial success to its
aggressive pursuit of this strategy, the key elements of which include the
following:
Focus on High Value-Added, High Margin Products and Services: The Company
concentrates on fully processed, high value-added steel products and services
that typically generate high margins. This focus, together with the Company's
ability to deliver consistently reliable products and services, has
significantly contributed to profitability.
Commitment to Internal Growth and Continuous Cost Reductions: The Company
has an ongoing commitment to grow and improve the profitability of its
existing operations. To achieve this goal, management seeks to expand its
existing product lines into new markets and related products and focuses on
rigorous cost containment. The Company has made ongoing investments in new and
existing production equipment to improve yield, lower overall manufacturing
costs and expand capacity. Additionally, the Company seeks to reduce costs in
the area of inventory management by using a proprietary inventory control
system to purchase, monitor and allocate inventory throughout the entire
production process.
Commitment to External Expansion: The Company remains committed to expansion
into related businesses that offer long-term growth potential while providing
profits within a short period of time. Since its formation, the Company has
pursued this strategy by starting up new ventures as well as acquiring
existing businesses. In the last three years, the Company has developed or
acquired six significant operations. Of these, five have contributed, or are
expected to contribute, to the Company's net income within the first full year
of operation, and the new facility in Chattanooga is expected to be profitable
within two years of start-up. In April 1993, the Company opened a warehouse
facility in Brownsville, Texas to service a major customer and a growing
industrial base in Mexico and the southwestern United States. The Company also
built a new steel processing facility in Chattanooga, Tennessee, which it
opened in late 1994 to service five manufacturing plants of two existing
customers as well as other manufacturers in the region's expanding automobile
and appliance industries. During April 1995, the Company acquired Hubbell
Steel, a Franklin Park, Illinois based supplier of galvanized, galvalume and
pre-painted sheet steel products. During the third quarter of 1995, the
Company opened a new materials management facility in Woodhaven, Michigan
which more than doubled the Company's capacity to over 950,000 tons per year.
Also during the third quarter of 1995, the Company's joint venture opened its
second pickling operation, which increased its total pickling capacity to
approximately 800,000 tons per year. Finally, in February 1996, the Company
acquired CCHT, a metallurgical heat treater serving the southeastern United
States. The Company believes that there are numerous attractive acquisition
candidates and plans to pursue strategic acquisitions of businesses whose
operations and product lines are complementary to those of the Company, with
an emphasis on expanding its geographic coverage and diversifying its customer
base.
Dedication to Quality, Service and Customer Satisfaction: The Company is
dedicated to providing its customers with high quality products for just-in-
time delivery, enabling it to establish strong
23
<PAGE>
relationships with existing customers as well as attract new customers.
Accordingly, the Company has made significant investments in state-of-the-art
equipment, technology and facilities. In addition, the Company utilizes an
experienced team of skilled computer technicians and managers to provide
solutions to its customers' inventory control problems. The Company has an
inventory control system that allows customers to directly enter orders,
monitor work in progress and receive invoices electronically. In addition, the
Company has received preferred supplier awards from many of its customers,
including each of the major domestic automobile manufacturers. These awards
include the Chrysler Pentastar Award, the Ford Q1 Award and GM's Target for
Excellence Award. The Company also was informed by Emerson Electric Company
that it has been selected as an Emerson Distinguished Supplier for 1995.
PRODUCTS AND SERVICES
The Company utilizes any one or a combination of 20 different processes and
services to produce and deliver a variety of products on a just-in-time basis
to industrial manufacturers and fabricators in the automotive, automotive
supply, hand tool, steel, appliance, metal building, communications, hardware,
electrical, leisure time, machinery and office equipment industries. The
Company focuses on fully processed, high value-added steel products and
services, which it believes results in high profit margins and enhanced
profitability.
COLD-ROLLED STRIP STEEL
Consistent with the Company's strategy of focusing on high value-added
products and services, the Company produces a broad range of fully processed
cold-rolled strip steel products. The Company buys wide, open tolerance sheet
steel in coils from primary steel producers and processes it to specific
customer orders by performing such computer-aided processes as cold reduction,
annealing, edge rolling, roller leveling, slitting and cutting to length. Cold
reduction is the rolling of steel to a specified thickness, temper and finish.
Annealing is a thermal process which changes hardness and certain
metallurgical characteristics of steel. Edge rolling involves conditioning
edges of processed steel into square, full round or partially round shapes.
Roller leveling applies pressure across the width of the steel to achieve
precise flatness tolerances. Slitting is the cutting of steel to specified
widths. Depending on customer specifications, one or more of these processes
are utilized to produce steel strip of a precise grade, temper, tolerance and
finish. Customers for the Company's strip steel products include manufacturers
in the automotive, hand tool, appliance, hardware and other industries.
The Company has committed to substantially increase its cold-rolling
capacity at its Cleveland operation through the construction of a new rolling
mill. The Company believes that this new mill, with a design capacity of
approximately 120,000 tons per year and a maximum rolling width of 50 inches,
will be the widest mill for the production of cold-rolled strip steel in North
America, increasing productivity and yield and reducing raw materials costs.
Start-up of the new mill is expected in late 1997.
The Company operates ten rolling mills at its facilities in Cleveland, Ohio,
Chattanooga, Tennessee and Buffalo, New York, and believes it is one of only a
few steel processors capable of rolling widths of up to 38 inches. The Company
has the capability to process coils up to a maximum 72-inch outside diameter,
a size increasingly in demand by customers. Equipment at these facilities
includes a computerized, three-stand, four-high tandem mill and nine single-
stand, two- and four- high mills. The Company's rolling mills include a
hydraulic roll force system and an automatic gauge control system which is
linked to a statistical process control computer, allowing microsecond
adjustments during processing. The Company's computerized mills enable it to
satisfy industry demand for a range of steel from heavier gauge and special
alloy steels to low carbon and light gauge steels, in each case having a high-
quality finish and precision gauge tolerance. This equipment can process flat-
rolled steel to specific customer requirements for thickness tolerances as
close as .00025 inches.
24
<PAGE>
The Company's rolling facilities are further complemented by 15 high
convection annealing furnaces, which allow for shorter annealing times than
conventional annealers. The Company's three newest furnaces and bases employ
state-of-the-art technology, incorporating the use of a hydrogen atmosphere
for the production of cleaner and more uniform steel. As a result of its
annealing capabilities, the Company is able to produce cold-rolled strip with
improved consistency in terms of thickness, hardness, molecular grain
structure and surface.
The Company can produce certain of its strip steel products on oscillated
coils, which wind steel strip similar to winding thread on a spool.
Oscillating the steel strips enables the Company to put at least six times
greater volume of finished product on a coil than standard ribbon winding,
allowing customers to achieve longer production runs by reducing the number of
equipment shut-downs to change coils. Customers are thus able to increase
productivity, reduce downtime, improve yield and lengthen die life. These
benefits to customers allow the Company to achieve higher margins on
oscillated products. To the Company's knowledge, only a few other steel
processors are able to produce oscillated coils, and the Company is not aware
of any competitor that can produce up to a 12,000 pound oscillated coil, which
is the maximum size produced by the Company.
OTHER PROCESSED METALS PRODUCTS AND SERVICES
Hubbell Steel. In April 1995, the Company acquired Hubbell Steel. From its
plant in Franklin Park, Illinois, Hubbell Steel supplies coated sheet steel,
including galvanized, galvalume and pre-painted products which Hubbell Steel
slits and cuts to length to customer specifications. Hubbell Steel's products
are sold primarily to over 400 customers in the commercial and residential
metal building industry for use in pre-fabricated buildings and metal roofs.
The Company believes that Hubbell Steel has the largest sales volume in
galvalume products of any steel processor in the United States. Hubbell Steel
operates an office in Monterrey, Mexico, through which it sells products to
customers in Mexico. A Hubbell Steel subsidiary, Mill Transportation Company
("MTC"), operates 23 terminals, including a major storage facility in
Charleston, S.C. Through contract owner-operators, MTC provides transportation
services for steel and other products.
Carolina Commercial Heat Treating. In February 1996, the Company acquired
CCHT. At four facilities located in North Carolina, South Carolina, Tennessee
and Georgia, CCHT provides metallurgical heat treating services, including
case-hardening, surface-hardening and through-hardening processes, for
customers in a wide variety of industries. Using methods such as annealing,
flame hardening, vacuum hardening, carburizing and nitrating, as well as a
host of other services, CCHT can harden, soften or otherwise impart desired
properties on parts made of steel, copper, and various alloys and other
metals. In addition, CCHT offers a variety of brazing services to join
metallic objects together. All parts treated by CCHT are customer-owned. CCHT
maintains a metallurgical laboratory at each facility, providing a range of
testing capabilities to add value to treated parts and enhance quality
control. Consistent quality control is maintained by application of a
statistical process control system. CCHT maintains a fleet of trucks and
trailers to provide rapid turnaround time for its customers.
Precision Metals. The Company operates two precision metals facilities in
Buffalo, New York and Chattanooga, Tennessee for flat-rolled steel and other
processed metal products that are sold to manufacturers in the automotive,
hand tool, appliance, electronics and other industries. In addition to
slitting and cutting to length, the Company's precision metals facilities
produce higher value-added products that are held to close tolerances and
tight specifications through cold-rolling, annealing, oscillating and edge
rolling. The Buffalo facility also incorporates a coil storage racking system
that holds over 1,200 coils, allowing instant access with a stacker crane,
thereby resulting in less coil damage than typical pyramid stacking.
Materials Management. The Company operates two state-of-the-art materials
management facilities that link primary steel producers and end-user
manufacturers by integrating the inventory
25
<PAGE>
purchasing, receiving, inspection, billing, storage and shipping functions and
producing true just-in-time delivery of materials. The Company's facilities
receive shipments of steel by rail and truck from primary steel producers,
which retain ownership of the steel until it is delivered to the end-user
manufacturer. The Company inspects the steel and stores it in a climate-
controlled environment on a specialized stacker crane and rack system. When an
order is placed, the Company is capable of delivering the steel to the end-
user manufacturer within one hour using Company-owned trucks that have been
custom designed to facilitate the loading and unloading process.
These facilities have a proprietary computer system that links the primary
steel producer with the end-user manufacturer and also links both parties to
the facilities. This gives them direct computer access to inventory on hand,
in transit and on order, and enables such manufacturers to transmit their
required release schedule through the computer. The shipping personnel are
then notified via computer of customer orders that have been released and
materials are promptly retrieved and shipped.
The Company believes its materials management facilities provide benefits to
primary steel producers and end-user manufacturers. The primary steel
producers can ship materials to the facilities by rail rather than by truck,
thereby enabling them to ship products more efficiently. In addition,
utilizing the specialized facilities allows primary steel producers to deliver
shipments just-in-time and with minimal transportation damage. The end-user
manufacturers can devote space previously used for raw material storage to
more productive uses. The end-user manufacturers also reduce their inventory
carrying costs because possession of inventory is not taken until shipped from
the facilities. This enables end-user manufacturers to reduce their raw
material inventory from several days or weeks to hours.
The Company's materials management facilities primarily service Ford. See
"Risk Factors--Reliance on Certain Customers".
Cleveland Pickling Joint Venture. Through a subsidiary, the Company is a
minority partner in Samuel Steel Pickling Company, a Cleveland-based steel
pickling operation.
After the hot-rolling process, the surface of sheet steel is left with a
residue known as scale, which must be removed prior to further processing by a
cleaning process known as pickling. Samuel Steel Pickling pickles steel on a
toll basis, receiving fees for its services without acquiring ownership of the
steel. Substantially all of the steel processed by the Company's Cleveland
operation and a small amount of steel processed by the Company's Buffalo
operations are pickled at Samuel Steel Pickling.
In 1995, Samuel Steel Pickling installed a second pickling operation, more
than doubling its capacity from 360,000 to approximately 800,000 tons
annually.
STEEL STRAPPING PRODUCTS
Steel strapping is banding and packaging material that is used to close and
reinforce shipping units such as bales, boxes, cartons, coils, crates and
skids. The Company is one of three major domestic manufacturers of high
tensile steel strapping, which is used in heavy duty applications. High
tensile steel strapping is subject to strength requirements imposed by the
American Association of Railroads ("AAR") for packaging of different products
for common carrier transport. This high tensile steel strapping is essential
to producers of large, heavy products such as steel, aluminum, paper and
lumber where reliability of the packaging material is critical to the safe
transport of the product.
The Company's strapping facility, located in Buffalo, New York, is ISO-9002
certified. This facility manufactures high tensile steel strapping by
slitting, oscillating, heat treating, painting and packaging
26
<PAGE>
cold-rolled coils. In pursuit of its business strategy, the Company focuses on
high value-added strapping products and superior customer service. Through
consistent equipment upgrades and employee-driven productivity improvements,
this facility has been able to maintain high quality products while reducing
costs and increasing yields.
Steel strapping is cold-rolled to precise gauge on the Company's rolling
mills, which incorporate hydraulic screw downs and automatic gauge controls
with statistical charting. This process ensures strapping of the most uniform
gauge available and produces the maximum amount of strapping per pound of
steel. All products are tested hourly by on-site laboratory personnel for
width, thickness and metallurgical properties. The facility's detailed
attention to the manufacturing process and product testing results in the
production of high quality strapping that meets or exceeds AAR specifications.
To meet the differing needs of its customers, the Company offers its
strapping products in various thicknesses, widths and coil sizes. The Company
also seeks to offer innovative products to its customers, including custom
color and printed strapping. In addition, the Company offers related strapping
products, such as seals and tools. At the request of customers, the Company is
also able to manufacture tensional strapping for lighter duty applications.
QUALITY CONTROL
The Company places great importance on providing its customers with high
quality products for critical use applications. By carefully selecting its raw
material vendors and using computerized inspection and analysis, the Company
ensures that the steel that enters its production processes will be able to
meet the most critical specifications of its customers. The Company uses
carefully documented procedures at all steps of the production process, along
with statistical process control systems linked directly to processing
equipment, to monitor and ensure that such specifications are met. Physical,
chemical and metallographic analyses are performed at all stages of the
production process to verify that mechanical and dimensional properties,
cleanliness, surface characteristics and chemical content are within
specification. The Company has received numerous awards and citations from its
customers recognizing its ability to consistently produce high quality
products, including the Chrysler Pentastar Award, the Ford Q1 Award and the GM
Target for Excellence Award, which are among the most prestigious awards in
the automotive industry. In addition, the Company was recently notified by
Emerson Electric Company that it has been selected as an Emerson Distinguished
Supplier for 1995.
MANAGEMENT INFORMATION SYSTEMS; INVENTORY MANAGEMENT
The Company operates a proprietary data processing system to purchase,
monitor and allocate inventory throughout its production facilities, enabling
it to effectively manage inventory costs and consistently achieve a high
annual inventory turnover rate. For the 12 months ended March 31, 1996, the
Company's inventory turned approximately five times.
The system also includes a computerized order entry system enabling
customers to link their computer system to the Company's system for direct
electronic communication with respect to order entry, inventory status, work-
in-process status, billing and payment. This service is designed to improve
productivity for both customers and the Company. A number of key customers
have taken advantage of this service, and the Company believes the
availability of this service is becoming an important consideration in
customers' purchasing decisions.
In addition, the Company has linked its production equipment to its computer
system to allow for the gathering of production data as each order is being
processed. This information is stored in a database to be used as a basis for
preparing cost estimates for future orders. This system enhances the Company's
ability to analyze costs on an ongoing basis and allows for expeditious
response time on quotation requests.
27
<PAGE>
SUPPLIERS AND RAW MATERIALS
Steel processing companies are required to maintain substantial inventories
of raw materials to accommodate the short lead times and just-in-time delivery
requirements of their customers. Accordingly, the Company generally maintains
its inventory of raw materials at levels that it believes are sufficient to
satisfy the anticipated needs of its customers based upon historic buying
practices and market conditions. The primary raw material utilized by the
Company in its processing operations is flat-rolled steel. The Company
purchases flat-rolled steel at regular intervals from a number of suppliers;
however, a majority of its steel is purchased from twelve major North American
suppliers. The Company has no long-term commitments with any of its suppliers.
The Company believes that it has adequate sources of supplies of raw materials
for its operations. See "Risk Factors--Impact of Changing Steel Prices".
TECHNICAL SERVICES
The Company employs a staff of engineers and other technical personnel and
maintains fully-equipped, modern laboratories to support its operations. These
facilities enable the Company to verify, analyze and document the physical,
chemical, metallurgical and mechanical properties of its raw materials and
products. Technical service personnel also work in connection with the
Company's sales force to determine the types of flat-rolled steel required for
the needs of the Company's customers.
SALES AND MARKETING
The Company has 25 salespeople located in Buffalo, New York; Cleveland,
Ohio; Detroit, Michigan; Bloomfield Hills, Michigan; Chicago, Illinois;
Chattanooga, Tennessee; Charlotte, North Carolina and Bethlehem, Pennsylvania
and one independent sales representative located in Simsbury, Connecticut.
This marketing staff is supported by a vice president of sales for each of the
Company's principal product lines, as well as by technical services and
metallurgical personnel. This approach enables the Company to provide a
specific sales focus on each of its principal product lines. In addition, the
Company's Executive Vice President-Commercial acts as a coordinator of all
sales activities.
CUSTOMERS AND DISTRIBUTION
The Company services more than 3,400 customers located primarily in the
midwestern, northeastern and southeastern United States, Mexico and Ontario,
Canada. In 1995, sales to automakers and automotive supply manufacturers
accounted for approximately 17% and 34%, respectively, of net sales. The
Company also sells its products to customers in the steel, appliance, hand
tool, metal building, communications, hardware, electrical, leisure time,
machinery and office equipment industries.
The Company manufactures its products almost exclusively to customer order
rather than for inventory. Although the Company negotiates annual sales orders
with a majority of its customers, these orders are subject to customer
confirmation as to product amounts and delivery dates.
The Company's largest customer is GM which, through its various subsidiaries
and affiliates, accounted for approximately 16%, 14% and 11% of the Company's
net sales in 1993, 1994 and 1995, respectively. No other customer of the
Company represented more than 10% of the Company's net sales during this
period. See "Risk Factors--Reliance on Certain Customers". The Company's
export sales were primarily to customers in Canada and Mexico and accounted
for approximately 9%, 7% and 6% of net sales in 1993, 1994 and 1995,
respectively, and 6% for the first three months of 1995 and 1996.
28
<PAGE>
COMPETITION
The steel processing market is highly competitive and fragmented. The
Company principally competes with a small number of other steel processors who
also focus on fully processed, high value-added steel products. The Company
competes on the basis of the precision and range of achievable tolerances,
quality, price and the ability to meet delivery schedules dictated by
customers. The Company's principal competitors are Worthington Industries,
Inc. and Steel Technologies, Inc., each of which may have greater financial
and other resources than the Company.
The only other major domestic manufacturers of high tensile steel strapping
are Acme Metals Incorporated and Signode Corporation, a subsidiary of Illinois
Tool Works Inc., each of whom may have greater financial and other resources
than the Company.
Hubbell Steel competes with a small number of other companies, some of which
may have greater financial and other resources.
CCHT competes with a large number of small competitors. See "Risk Factors--
Competition".
EMPLOYEES
At March 31, 1996, the Company employed 887 people. Approximately 170 of the
Company's hourly plant personnel are represented by Local No. 55 of the United
Automobile Workers under two separate contracts at the precision metals
facility and the Buffalo-based cold-rolled strip steel and strapping facility,
which expire in April 1997 and July 1999, respectively. In addition, under a
contract which expires in February 1998, approximately 25 hourly plant
personnel are represented by the Local Union No. 101, Chicago Truck Drivers,
Helpers and Warehouse Workers at the Hubbell Steel facility. The Company has
never experienced a work stoppage. The Company believes that its relationship
with its employees is good.
Approximately 700 of the Company's employees participate in performance-
based incentive compensation programs. The Company is committed to such
programs because it believes such programs motivate employees to enhance
profitability.
BACKLOG
Because of the nature of the Company's products and the short lead time
order cycle, backlog is not a significant factor in the Company's business.
The Company believes that substantially all of its backlog of firm orders
existing on March 31, 1996 will be shipped prior to the end of 1996.
29
<PAGE>
PROPERTIES
The Company currently operates 16 facilities located in New York, Michigan,
Ohio, Texas, Illinois, South Carolina, North Carolina, Tennessee and Georgia
and, through a subsidiary, is a minority partner in a joint venture with two
operations in Ohio.
The Company believes that its primary existing facilities, listed below, and
equipment are effectively utilized, well maintained, in good condition and,
together with planned capital expenditures, will be able to accommodate its
capacity needs through 1999.
<TABLE>
<CAPTION>
LOCATION FUNCTION SQUARE FOOTAGE OWNED OR LEASED
-------- -------- -------------- ---------------
<C> <S> <C> <C>
Buffalo, NY........... Headquarters 23,000 Leased
Cleveland, OH......... Cold-rolled strip steel 226,200 Leased
processing
Buffalo, NY........... Precision metals 207,000 Owned
processing; warehouse
North Charleston, SC.. Distribution warehouse 190,000 Leased
Cheektowaga, NY....... Cold-rolled strip steel 148,000 Owned
processing and strapping
products
Tonawanda, NY......... Cold-rolled strip steel 128,000 Owned
and precision metals
processing
Woodhaven, MI......... Materials management 100,000 Owned
facility
Franklin Park, IL..... Coated sheet steel and 99,000 Owned
precision metals
processing
Fountain Inn, SC...... Heat treating services 77,400 Leased
Chattanooga, TN....... Steel processing 65,000 Owned
Lackawanna, NY........ Materials management 65,000 Leased
facility
Reidsville, NC........ Heat treating services 53,500 Leased
Morristown, TN........ Heat treating services 24,200 Owned
Conyers, GA........... Heat treating services 18,700 Leased
Brownsville, TX....... Distribution warehouse 15,000 Leased
Charlotte, NC......... Administrative offices 3,400 Leased
Dearborn, MI.......... Strapping tool products 3,000 Owned
</TABLE>
GOVERNMENTAL REGULATION
The Company's processing centers and manufacturing facilities are subject to
many federal, state and local requirements relating to the protection of the
environment. The Company believes that it is in material compliance with all
environmental laws, does not anticipate any material expenditures to meet
environmental requirements and does not believe that future compliance with
such laws and regulations will have a material adverse effect on its results
of operations or financial condition.
CERCLA and similar state superfund statutes generally impose joint and
several liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault. The
Company has been designated, along with others, as a potentially responsible
party under CERCLA, or comparable state statutes, at one site. Based on the
facts currently known to the Company, management expects that those costs to
the Company of remedial actions at the site where it has been named a
potentially responsible party will not have a material adverse effect on the
Company's results of operations or financial condition.
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<PAGE>
The Company's operations are also governed by many other laws and
regulations, including those relating to workplace safety and worker health,
principally the Occupational Safety and Health Act and regulations thereunder
which, among other requirements, establish noise and dust standards. The
Company believes that it is in material compliance with these laws and
regulations and does not believe that future compliance with such laws and
regulations will have a material adverse effect on its results of operations
or financial condition.
LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal actions arising
out of the normal course of business. The Company is not a party to any
pending legal proceeding the resolution of which the management of the Company
believes will have a material adverse effect on the Company's results of
operations or financial condition or to any other pending legal proceedings
other than ordinary, routine litigation incidental to its business. The
Company maintains liability insurance against risks arising out of the normal
course of business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<C> <C> <S>
Brian J. Lipke(a)....... 44 Chairman of the Board, President, Chief Executive
Officer and Director
Neil E. Lipke(a)........ 39 Executive Vice President--Marketing and Director
Walter T. Erazmus....... 49 Executive Vice President--Finance, Chief
Financial Officer, Secretary and Treasurer
Joseph A. Rosenecker.... 52 Executive Vice President--Commercial
Carl P. Spezio.......... 51 Executive Vice President--Manufacturing
Curtis W. Lipke(a)...... 41 Vice President--Corporate Development and
Director
Joseph W. Wark.......... 65 Vice President--Automotive
Eric R. Lipke(a)........ 36 Vice President--Transportation
Gerald S. Lippes(b)(c).. 56 Director
Arthur A. Russ, Jr.(b).. 53 Director
David N. Campbell(b).... 54 Director
William P. Montague(c).. 49 Director
</TABLE>
- --------
(a)Brian J. Lipke, Neil E. Lipke, Curtis W. Lipke and Eric R. Lipke are
brothers.
(b)Member of the Audit Committee.
(c)Member of the Compensation Committee.
The Board of Directors of the Company is divided into three classes serving
staggered terms. One-third of the directors are elected at each annual meeting
of stockholders for a term of three years to hold office until their
successors are elected and qualified. The terms of office of Curtis W. Lipke
and David N. Campbell expire in 1997; the terms of office of Neil E. Lipke and
Gerald S. Lippes expire in 1998; and the terms of office of Brian J. Lipke,
Arthur A. Russ, Jr. and William P. Montague expire in 1999. All officers serve
at the discretion of the Board of Directors.
Brian J. Lipke has been Chairman of the Board, President, Chief Executive
Officer and a director of the Company since its formation. He has been
President and Chief Executive Officer of Gibraltar Steel Corporation of New
York ("Gibraltar New York"), a predecessor and current subsidiary of the
Company, since 1987, and has been in charge of the Company's other
subsidiaries since their formation. From 1972 to 1987, Mr. Lipke held various
positions with Gibraltar New York in production, purchasing and divisional
management. He is a director of Dunlop Tire Corporation and a member of the
Chase Manhattan Bank, N.A. Regional Advisory Board.
Neil E. Lipke has been an Executive Vice President--Marketing and a director
of the Company since its formation. He has been Executive Vice President of
Gibraltar New York since 1988 and has been employed by Gibraltar New York
since 1973 in various production, sales and marketing capacities.
Walter T. Erazmus has been Executive Vice President--Finance and Chief
Financial Officer of the Company since November 1994 and of Gibraltar New York
since 1977 and has served as Secretary and Treasurer of the Company since its
formation. He was Vice President--Finance and Chief Financial Officer of the
Company from its formation to November 1994.
Joseph A. Rosenecker has been Executive Vice President--Commercial of the
Company since November 1994. He served as Vice President--Sales of the Company
from its formation until
32
<PAGE>
November 1994 and has been the director of Gibraltar New York's cold-rolled
strip operations since 1989. He was President of Gibraltar New York's strip
and strapping divisions from 1978 to 1989.
Carl P. Spezio has been Executive Vice President--Manufacturing of the
Company since November 1994. Prior thereto, he was Vice President--
Manufacturing and Quality Control of the Company since its formation. He has
been the director of Gibraltar New York's metal processing operations since
1989. He was President of the precision metals division of Gibraltar New York
from 1977 to 1989.
Curtis W. Lipke has been Vice President--Corporate Development and a
director of the Company since its formation and the director of Gibraltar New
York's Strapping Division since 1989. Prior thereto, Mr. Lipke held various
positions with Gibraltar New York, primarily in the areas of sales and
divisional management.
Joseph W. Wark has been Vice President--Automotive of the Company since its
formation and has been in charge of automotive sales for Gibraltar New York
since 1986.
Eric R. Lipke has been Vice President--Transportation of the Company since
its formation. Mr. Lipke has held various positions with Gibraltar New York
since 1976 primarily in the areas of administration and executive support.
Gerald S. Lippes has served as a director of the Company since its
formation. He has been engaged in the private practice of law since 1965 and
is a partner of the firm of Lippes, Silverstein, Mathias & Wexler LLP,
Buffalo, New York. Mr. Lippes is also a director of Mark IV Industries, Inc.
Arthur A. Russ, Jr. has served as a director of the Company since its
formation. He has been engaged in the private practice of law since 1969 and
is a member of the firm of Albrecht, Maguire, Heffern & Gregg, P.C., Buffalo,
New York.
David N. Campbell has served as a director of the Company since the
consummation of the Company's initial public offering in November 1993. Since
July 1995, Mr. Campbell has served a President of BBN Systems Technologies, a
networking technology company based in Cambridge, Massachusetts. From November
1994 to July 1995, he served as Chairman of the Board of Dunlop Tire
Corporation, and prior thereto, from March 1984 to September 1994, he served
as the Chairman of the Board and Chief Executive Officer of Computer Task
Group, Incorporated. Mr. Campbell is also a director of National Fuel Gas
Company and an advisory director of First Empire State Corporation.
William P. Montague has served as a director of the Company since
consummation of its initial public offering. He served as Executive Vice
President and Chief Financial Officer of Mark IV Industries, Inc., from 1986
to February 1996 and, since March 1, 1996, as President of said company. He is
also a director of International Imaging Materials, Inc. and a member of the
Chase Manhattan Bank, N.A. Regional Advisory Board.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
DIRECTORS' COMPENSATION
All directors other than directors who are employees of the Company receive
a retainer of $12,000 per year. In addition, each such director also receives
a fee of $1,000 for each Board of Directors or committee meeting attended and
is reimbursed for any reasonable expenses incurred in attending such meetings.
33
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1993, 1994 and 1995 for the chief executive officer and the other
four most highly compensated executive officers of the Company. The amounts
shown include compensation for services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ------------
OTHER ALL
ANNUAL SECURITIES OTHER
NAME AND FISCAL COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS SATION(a)
- ------------------ ------ -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Lipke......... 1995 $215,000 $140,000 -- -- $ 3,844
Chairman of the Board,
President 1994 204,750 110,000 -- 15,000(b) 8,154
and Chief Executive
Officer 1993 332,292 101,000 $798 -- 10,591
Joseph A. Rosenecker... 1995 153,000 215,620 -- 12,500(c) 9,524
Executive Vice
President-- 1994 153,000 207,605 -- 10,000(c) 10,208
Commercial 1993 152,000 168,846 798 37,500(c) 9,783
Joseph W. Wark......... 1995 175,000 171,174 -- -- 7,938
Vice President--
Automotive 1994 177,692 124,428(d) -- 10,000(c) 9,934
1993 239,519 52,800(d) 488 25,000(c) 9,882
Neil E. Lipke.......... 1995 183,474 115,000 -- -- 7,186
Executive Vice
President 1994 140,000 85,000 -- 10,000(b) 8,016
and Director 1993 274,868 58,000 632 -- 9,180
Walter T. Erazmus...... 1995 152,548 130,000 -- 12,500(c) 8,069
Executive Vice
President-- 1994 141,025 85,000 -- 10,000(c) 9,350
Finance, Secretary and
Treasurer 1993 110,641 78,000 798 37,500(c) 7,364
</TABLE>
- --------
(a) Composed of: (i) the allocation in 1995 of contributions made by the
Company pursuant to the Gibraltar Steel Corporation of New York Profit
Sharing Plan in the amount of $3,318 to the account of each of Messrs.
Brian J. Lipke, Rosenecker, Wark, Neil E. Lipke and Erazmus; (ii) the
matching contributions made by the Company in 1995 pursuant to the
Gibraltar Steel Corporation of New York 401(k) Retirement Savings Plan to
Messrs. Brian J. Lipke, Rosenecker, Wark, Neil E. Lipke and Erazmus in the
amount of $0, $4,620, $4,620, $3,868 and $3,963, respectively; and (iii)
the payment in 1995 of insurance premiums on term life insurance policies
provided for Messrs. Brian J. Lipke, Rosenecker, Wark, Neil E. Lipke and
Erazmus in the amount of $526, $1,586, $0, $0 and $788, respectively.
(b) Represents options issued to Messrs. Brian J. Lipke and Neil E. Lipke
pursuant to the Non-Qualified Plan.
(c) Represents options granted to Messrs. Rosenecker, Wark and Erazmus
pursuant to the Incentive Plan.
(d) Includes sales commissions paid to Mr. Wark in the sum of $115,428 in 1994
and $52,800 in 1993.
34
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options in 1995 to the executives named in the table above. The exercise price
of all such options is equal to the market value of Common Stock on the date
of the grant.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF STOCK
NUMBER OF GRANTED TO EXERCISE PRICE APPRECIATION
SECURITIES EMPLOYEES IN PRICE FOR OPTION TERM
NAME AND PRINCIPAL UNDERLYING FISCAL PER EXPIRATION ----------------------
POSITION OPTIONS YEAR SHARE DATE 5%(a) 10%(b)
- ------------------ ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brian J. Lipke,
Chairman of the Board,
President and Chief
Executive Officer..... -- -- -- -- -- --
Joseph A. Rosenecker,
Executive Vice
President--
Commercial............ 12,500 16.67% $11.00 11/05/05 $ 86,473 $ 219,140
Joseph W. Wark,
Vice President--
Automotive............ -- -- -- -- -- --
Neil E. Lipke,
Executive Vice
President
and Director.......... -- -- -- -- -- --
Walter T. Erazmus,
Executive Vice
President--Finance,
Secretary and
Treasurer............. 12,500 16.67% $11.00 11/05/05 $ 86,473 $ 219,140
</TABLE>
- --------
(a) Represents the potential appreciation of the options, determined by
assuming an annual compounded rate of appreciation of 5% per year over the
ten-year term of the grants, as prescribed by the rules. The amount set
forth above is not intended to forecast future appreciation, if any, of
the stock price. There can be no assurance that the appreciation reflected
in this table will be achieved.
(b) Represents the potential appreciation of the options, determined by
assuming an annual compounded rate of appreciation of 10% per year over
the ten-year term of the grant. The amounts set forth above are not
intended to forecast future appreciation, if any, of the stock price.
There can be no assurance that the appreciation reflected in this table
will be achieved.
35
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the exercise of
options during 1995 and unexercised options held at the end of 1995 by the
executives named above.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN THE
UNEXERCISED OPTIONS MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(a)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brian J. Lipke,
Chairman of the Board,
President and Chief
Executive Officer......... 3,750 11,250 $ 7,969 $23,906
Joseph A. Rosenecker,
Executive Vice President--
Commercial................ 21,250 38,750 26,407 51,095
Joseph W. Wark,
Vice President--
Automotive................ 15,000 20,000 19,375 30,001
Neil E. Lipke,
Executive Vice President
and Director.............. 2,500 7,500 5,313 15,938
Walter T. Erazmus,
Executive Vice President--
Finance, Secretary and
Treasurer................. 21,250 38,750 26,407 51,095
</TABLE>
- --------
(a) Represents the difference between $12.125, the closing market value of
Common Stock as of December 31, 1995, and the exercise price of such
options.
EMPLOYMENT AGREEMENT
Pursuant to an Employment Agreement effective as of November 1, 1993 between
the Company and Brian J. Lipke (the "Employment Agreement"), Mr. Lipke will
serve as Chairman of the Board, President and Chief Executive Officer of the
Company at an annual base salary of $195,000, subject to annual adjustment as
determined by the Compensation Committee in its discretion. Currently,
Mr. Lipke's salary is $235,000 per year. In addition to his base salary, Mr.
Lipke will be eligible to participate in the Company's bonus compensation
plans and other employee benefit plans available to the Company's executive
officers. The Employment Agreement has an initial term of five years, which
automatically is extended for an additional one-year period on each
anniversary date, unless either party gives notice of intent to terminate.
The Employment Agreement provides that if the Company terminates Mr. Lipke
without cause, he shall be entitled to receive a lump sum benefit equal to 2
1/2 times his total cash compensation for the 12-month period immediately
preceding the date of his termination.
The Employment Agreement further provides for severance benefits upon a
change in control of the Company. Events that trigger a "change in control"
under the Employment Agreement include (i) certain consolidations or mergers,
(ii) certain sales or transfers of substantially all of the Company's assets,
(iii) the approval of the Company's shareholders of a plan of dissolution or
liquidation of the Company, (iv) the acquisition of 20% or more of the
Company's outstanding common stock by certain persons (other than the
Company's executive officers and directors, whether individually or as a
group) and (v) certain changes in the membership of the Company's Board of
Directors. If Mr. Lipke's employment is terminated within three years of a
change in control, he may be entitled to receive a
36
<PAGE>
lump sum severance payment equal to $100 less than three times the average of
his total cash compensation during the three-year period immediately preceding
his termination, plus medical, disability and life insurance benefits for the
rest of his life. The payments and benefits otherwise payable in the event of
a change in control are subject to an overall limitation so that the value
thereof would not constitute parachute payments that would be subject to
excise tax payments or corporate deduction disallowance under the Code. In
addition, upon a termination of Mr. Lipke's employment other than by the
Company for cause and other than voluntarily by Mr. Lipke, if he becomes
entitled to receive benefits under any of the Company's tax-qualified
retirement plans (the "Plans"), he will be entitled to receive from the
general assets of the Company an additional benefit computed as if the Plans
were not subject to any applicable limits imposed on such plans by the Code or
the Employee Retirement Income Security Act of 1974, as amended.
If Mr. Lipke dies during the term of the Employment Agreement, in addition
to any death benefits payable under life insurance maintained by the Company
and any death benefits payable under the Company's employee benefit plans, the
Company will pay to the estate of Mr. Lipke a death benefit equal to 50% of
his annual base salary plus an amount equal to all bonuses he would have
received through the end of the then current fiscal year. If he becomes
permanently disabled, Mr. Lipke will be entitled to receive from the Company
annual benefits equal to his base salary, subject to a cap of $200,000
(adjusted for cost of living increases), less amounts received under any
pension, profit sharing or disability plan or insurance policy.
In the event Mr. Lipke's employment with the Company is terminated other
than for cause, the Company will continue to provide medical, disability and
life insurance benefits to Mr. Lipke for life, subject to reduction to the
extent he receives such benefits from other sources.
Mr. Lipke has agreed in the Employment Agreement that, in the event he
terminates his employment other than following a change in control, he will
not, for a period of one year after the date of termination, participate in
any "competitive operation," as defined in the Employment Agreement.
EMPLOYEE PLANS
Non-Qualified Stock Option Plan: The Company maintains the Gibraltar Steel
Corporation Non-Qualified Stock Option Plan (the "Non-Qualified Plan") and has
reserved 400,000 shares of Common Stock for issuance thereunder. Under the
terms of the Non-Qualified Plan, options may be granted to officers and
employees of the Company as well as to non-employee directors and advisors.
The Company has granted options under the Non-Qualified Plan to certain of its
officers and directors to purchase an aggregate of 200,000 shares of Common
Stock. All of such options are exercisable pro rata over a four-year period
commencing upon consummation of this offering at an exercise price equal to
the initial public offering price of Common Stock. In the event of certain
extraordinary transactions, including a change of control of the Company,
vesting of such options would automatically accelerate.
Incentive Stock Option Plan: The Company's Gibraltar Steel Corporation
Incentive Stock Option Plan (the "Incentive Plan"), authorizes grants to
officers and other key employees of the Company and its subsidiaries of stock
options that are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code. The Incentive Plan authorizes the granting
of stock options for up to an aggregate of 600,000 shares. Options granted
under the Incentive Plan become exercisable over a four-year period at the
rate of 25% per year commencing one year from the date of grant at an exercise
price of not less than 100% of the fair market value of the Common Stock on
the date of grant. The options will expire ten years from the date of grant.
The Company has granted to certain of its officers options to purchase an
aggregate of 215,000 shares of Common Stock. In the event of certain
extraordinary transactions, including a change of control of the Company, the
vesting of such options would automatically accelerate.
37
<PAGE>
Restricted Stock Plan: Gibraltar Steel Corporation Restricted Stock Plan
(the "Restricted Stock Plan") has reserved for issuance 100,000 shares of
Common Stock to be issued upon the grant of restricted stock awards
thereunder. Under the terms of the Restricted Stock Plan, the Compensation
Committee may grant to employees of the Company and its subsidiaries
restricted stock awards to purchase shares of Common Stock at a purchase price
of $.01 per share. Such shares, when and if issued, are subject to
restrictions on transfer and to risk of forfeiture until the shares become
vested. Grantees who remain continuously employed with the Company or its
subsidiaries become vested in their shares five years after the date of the
grant, or earlier upon death, disability, retirement or other special
circumstances. No awards have been made under the Restricted Stock Plan. The
restrictions on any such stock awards automatically lapse in the event of
certain extraordinary transactions, including a change of control of the
Company.
Executive Incentive Bonus Plan: In September 1993, the Company adopted the
Gibraltar Steel Corporation Executive Incentive Bonus Plan (the "Bonus Plan")
to provide an incentive compensation program to its executive officers
commencing with the quarter ending March 31, 1994. The Bonus Plan provides for
a quarterly bonus pool (the "Bonus Pool") in an amount equal to the lesser of
(a) 60% of the aggregate base compensation of the participating executive
officers; or (b) 15% of the Company's net income before taxes and any
incentive bonuses for the quarter on which the bonuses are based. The Bonus
Pool is then adjusted as follows: 50% of the Bonus Pool is available for bonus
allocations regardless of the Company's performance; 25% is available only if
the Company satisfied its operating profit goal for the quarter as established
by the Board of Directors; and 25% is available only if the Company satisfies
its return on equity goal for the quarter as established by the Board of
Directors. Within these parameters, the Compensation Committee determines the
amount to be paid to each officer, considering such factors as the officer's
performance during the quarter and the Company's overall performance during
the quarter.
Profit Sharing Plans: Gibraltar Steel Corporation and certain of its
subsidiaries maintain profit sharing plans covering certain salaried and
hourly employees. Employer contributions are subject to determination by the
Board of Directors each year.
401(k) Plans: Gibraltar Steel Corporation and certain of its subsidiaries
also maintain 401(k) retirement savings plans covering certain salaried and
hourly employees who have completed at least six months of service. Employees
may contribute up to 10% of their annual compensation, subject to an annual
limitation as adjusted by the Code. Employee contributions may be matched by
the Company as determined by the Board of Directors prior to the beginning of
each calendar year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the executive officers of the Company serve on the compensation
committee of another entity or on any other committee of the board of
directors of another entity performing similar functions.
38
<PAGE>
CERTAIN TRANSACTIONS
On March 6, 1996, (i) 26,455 shares of Common Stock beneficially owned by
Eric R. Lipke were sold to Gerald S. Lippes, a director of the Company, (ii)
26,455 shares of Common Stock beneficially owned by Neil E. Lipke were sold to
William P. Montague, a director of the Company and (iii) 26,455 shares of
Common Stock beneficially owned by Brian J. Lipke were sold to a third party,
not affiliated with the Company. In each of these private resale transactions,
the shares of Common Stock were sold at $12.60 per share, reflecting an
approximate 10% discount from the approximate then-current NASDAQ price to
account for, among other things, the limited transferability of such shares of
Common Stock, which are "restricted" for purposes of Rule 144 under the
Securities Act.
The Lipke Family, the Lipke Trusts, the Estate of Kenneth E. Lipke
(collectively the "Lipke Interests") and the Company have entered into an
Indemnification Agreement relating to their respective tax liabilities. The
agreement provides, among other things, for (a) the indemnification by the
Company of the Lipke Interests against all losses, liabilities, interest,
penalties, attorneys' and accountants' fees resulting from any additional
federal or state income taxes imposed upon the Lipke Interests as a result of
any change in S Corporation income of any of the subsidiaries of the Company
for any period in which any such subsidiary was treated for federal and
certain state income tax purposes as an S Corporation (the "S Corporation
Periods"); and (b) indemnification of the Company by the Lipke Interests
against certain liabilities and losses with respect to federal and state
income taxes, including interest (but excluding penalties and attorneys' and
accountants' fees), resulting from any decrease in the S Corporation income of
the Lipke Interests from any of such subsidiaries during the S Corporation
Periods.
The law firm of Albrecht, Maguire, Heffern & Gregg, P.C., of which Arthur A.
Russ, Jr. is a member, provided services to the Company in 1995 and the
current year. Mr. Russ also serves as a trustee of the Lipke Trusts, which
hold shares of Common Stock. Mr. Russ shares voting and investment power with
respect to the shares of Common Stock held by the Lipke Trusts and disclaims
beneficial ownership of such shares.
The law firm of Lippes, Silverstein, Mathias & Wexler LLP, of which Gerald
S. Lippes is a partner, provided services to the Company in 1995 and the
current year.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1996, and as adjusted to
reflect the sale of 2,000,000 shares of Common Stock by the Company and the
sale of 1,000,000 shares of Common Stock by the Selling Stockholders, by (i)
each person who is known by the Company to own beneficially more than five
percent of the outstanding Common Stock; (ii) each director of the Company;
(iii) each executive officer of the Company; and (iv) all current directors
and executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
-------------------- SHARES --------------------
NAME NUMBER(a) PERCENTAGE OFFERED NUMBER PERCENTAGE
---- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Brian J. Lipke(b)(c)........ 1,303,298 12.60% 200,000 1,103,298 8.94%
Eric R. Lipke(b)(d)......... 1,301,148 12.58 200,000 1,101,148 8.92
Neil E. Lipke(b)(e)......... 1,300,248 12.57 200,000 1,100,248 8.92
Curtis W. Lipke(b)(f)....... 1,314,203 12.71 200,000 1,114,203 9.03
Meredith A. Lipke-de
Blok(b)(g)................. 1,313,503 12.70 200,000 1,113,503 9.02
Patricia K. Lipke(b)(h)..... 844,485 8.17 -- 844,485 6.84
Walter T. Erazmus(b)(i)..... 27,052 * -- 27,052 *
Joseph A. Rosenecker(b)(j).. 25,594 * -- 25,594 *
Carl P. Spezio(b)(k)........ 24,915 * -- 24,915 *
Joseph W. Wark(b)(l)........ 16,603 * -- 16,603 *
Gerald S. Lippes(m)......... 61,768 * -- 61,768 *
700 Guaranty Building
28 Church Street Buffalo,
New York 14202
Arthur A. Russ, Jr.(n)...... 28,813 * -- 28,813 *
2100 Main Place Tower
Buffalo, New York 14202
William P. Montague(o)...... 51,268 * -- 51,268 *
501 John James Audubon Pky.
P.O. Box 810
Amherst, New York 14226
David N. Campbell(p)........ 15,313 * -- 15,313 *
800 Delaware Avenue
Buffalo, New York 14202
All Directors and Executive
Officers as a Group
(12 persons)(q)............ 5,470,223 52.90 800,000 4,670,223 37.85
</TABLE>
- --------
* Less than 1%.
(a) Unless otherwise indicated in the footnotes, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned by such stockholder, except to the
extent that authority is shared by spouses under applicable law.
(b) The address of each of the executive officers listed in the Summary
Compensation Table, Meredith A. Lipke-de Blok, Carl P. Spezio, Curtis W.
Lipke, Eric R. Lipke and Patricia K. Lipke is 3556 Lake Shore Road, P.O.
Box 2028, Buffalo, New York 14219-0228.
40
<PAGE>
(c) Includes (i) 1,275,948 shares of Common Stock held by two trusts for the
benefit of Brian J. Lipke (of which 200,000 shares are being sold in this
offering), (ii) 1,800 shares of Common Stock held by a trust for the
benefit of the daughter of Brian J. Lipke, (iii) 1,800 shares of Common
Stock held in a custodial account for the benefit of the daughter of Brian
J. Lipke and (iv) 3,750 shares of Common Stock issuable under currently
exercisable options pursuant to the Non-Qualified Plan. Excludes 11,250
shares of Common Stock issuable under options granted to Brian J. Lipke
pursuant to the Non-Qualified Plan which are not exercisable within 60
days. Also excludes (i) 842,985 shares of Common Stock held by the Trust
U/W of Kenneth E. Lipke f/b/o Patricia K. Lipke (the "Kenneth E. Lipke
Trust"), as to which Brian J. Lipke serves as one of three trustees and
shares voting and investment power and as to which he disclaims beneficial
ownership, (ii) 4,934,182 shares of Common Stock held by several trusts
for the benefit of each of Neil E. Lipke, Curtis W. Lipke, Eric R. Lipke
and Meredith A. Lipke-de Blok, as to each of which Brian J. Lipke serves
as one of three trustees and shares voting and investment power and as to
which he disclaims beneficial ownership, (iii) 30,000 shares of Common
Stock held by a trust for the benefit of Meredith A. Lipke-de Blok, as to
which Brian J. Lipke serves as one of five trustees and shares voting and
investment power and as to which he disclaims beneficial ownership, (iv)
1,800 shares of Common Stock held by a trust for the benefit of the
daughter of Meredith A. Lipke-de Blok, as to which Brian J. Lipke serves
as one of four trustees and shares voting and investment power and as to
which he disclaims beneficial ownership and (v) 900 shares of Common Stock
held by a trust for the benefit of the son of Eric R. Lipke, as to which
Brian J. Lipke serves as one of three trustees and shares voting and
investment power and as to which he disclaims beneficial ownership.
(d) Includes (i) 1,222,568 shares of Common Stock held by a trust for the
benefit of Eric R. Lipke (of which 200,000 shares are being sold in this
offering), (ii) 900 shares of Common Stock held by a trust for the benefit
of the son of Eric R. Lipke and (iii) 2,500 shares of Common Stock
issuable under currently exercisable options granted to Eric R. Lipke
pursuant to the Non-Qualified Plan. Excludes 7,500 shares of Common Stock
issuable under options granted to Eric R. Lipke pursuant to the Non-
Qualified Plan which are not exercisable within 60 days. Also excludes (i)
1,215,068 shares of Common Stock held by a trust for the benefit of Brian
J. Lipke, as to which Eric R. Lipke serves as one of three trustees and
shares voting and investment power and as to which Eric R. Lipke disclaims
beneficial ownership, (ii) 60,880 shares of Common Stock held by a trust
for the benefit of Brian J. Lipke and 30,000 shares of Common Stock held
by a trust for the benefit of Meredith A. Lipke-de Blok, as to each of
which Eric R. Lipke serves as one of five trustees and shares voting and
investment power and as to which he disclaims beneficial ownership and
(iii) 1,800 shares of Common Stock held by a trust for the benefit of the
daughter of Brian J. Lipke, as to which Eric R. Lipke serves as one of
three trustees and shares voting and investment power and as to which he
disclaims beneficial ownership.
(e) Includes (i) 1,228,568 shares of Common Stock held by a trust for the
benefit of Neil E. Lipke (of which 200,000 shares are being sold in this
offering) and (ii) 2,500 shares of Common Stock issuable under currently
exercisable options granted to Neil E. Lipke pursuant to the Non-Qualified
Plan. Excludes 7,500 shares of Common Stock issuable under options granted
to Neil E. Lipke pursuant to the Non-Qualified Plan which are not
exercisable within 60 days. Also excludes (i) 60,880 shares of Common
Stock held by a trust for the benefit of Brian J. Lipke and 30,000 shares
of Common Stock held by a trust for the benefit of Meredith A. Lipke-de
Blok, as to each of which Neil E. Lipke serves as one of five trustees and
shares voting and investment power and as to which he disclaims beneficial
ownership, (ii) 1,800 shares of Common Stock held by a trust for the
benefit of the daughter of Brian J. Lipke, as to which Neil E. Lipke
serves as one of three trustees and shares voting and investment power and
as to which he disclaims beneficial ownership and (iii) 900 shares of
Common Stock held by a trust for the benefit of the son of Eric R. Lipke,
as to which Neil E. Lipke serves as one of three trustees and shares
voting and investment power and as to which he disclaims beneficial
ownership.
(f) Includes (i) 1,241,523 shares of Common Stock held by a trust for the
benefit of Curtis W. Lipke (of which 200,000 shares are being sold in this
offering) and (ii) 2,500 shares of Common Stock
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<PAGE>
issuable under currently exercisable options granted to Curtis W. Lipke
pursuant to the Non-Qualified Plan. Excludes 7,500 shares of Common Stock
issuable under options granted to Curtis W. Lipke pursuant to the Non-
Qualified Plan which are not exercisable within 60 days. Also excludes (i)
60,880 shares of Common Stock held by a trust for the benefit of Brian J.
Lipke and 30,000 shares of Common Stock held by a trust for the benefit of
Meredith A. Lipke-de Blok, as to each of which Curtis W. Lipke serves as
one of five trustees and shares voting and investment power and as to which
he disclaims beneficial ownership, (ii) 1,800 shares of Common Stock held
by a trust for the benefit of the daughter of Meredith A. Lipke-de Blok, as
to which Curtis W. Lipke serves as one of four trustees and shares voting
and investment power and as to which he disclaims beneficial ownership,
(iii) 1,800 shares of Common Stock held by a trust for the benefit of the
daughter of Brian J. Lipke, as to which Curtis W. Lipke serves as one of
three trustees and shares voting and investment power and as to which he
disclaims beneficial ownership and (iv) 900 shares of Common Stock held by
a trust for the benefit of the son of Eric R. Lipke, as to which Curtis W.
Lipke serves as one of three trustees and shares voting and investment
power and as to which he disclaims beneficial ownership.
(g) Includes (i) 1,300,603 shares of Common Stock held by three trusts for the
benefit of Meredith A. Lipke-de Blok (of which 200,000 shares are being
sold in this offering), (ii) 3,600 shares of Common Stock held in a
custodial account for the benefit of the daughter of Meredith A. Lipke-de
Blok and (iii) 1,800 shares of Common Stock held by a trust for the
benefit of the daughter of Meredith A. Lipke-de Blok. Excludes 60,880
shares of Common Stock held by a trust for the benefit of Brian J. Lipke,
as to which Meredith A. Lipke-de Blok serves as one of five trustees and
shares voting and investment power and as to which she disclaims
beneficial ownership.
(h) Includes 842,985 shares of Common Stock held by the Kenneth E. Lipke
Trust. Excludes 1,800 shares of Common Stock held by a trust for the
benefit of the daughter of Meredith A. Lipke-de Blok, as to which Patricia
K. Lipke serves as one of four trustees and shares voting and investment
power and as to which she disclaims beneficial ownership.
(i) Includes (i) 21,250 shares of Common Stock issuable under currently
exercisable options granted to Mr. Erazmus under the Incentive Plan, (ii)
800 shares of Common Stock held by an Individual Retirement Account for
the benefit of Mr. Erazmus, (iii) 500 shares of Common Stock held by an
Individual Retirement Account for the benefit of the spouse of Mr. Erazmus
and (iv) 1,502 shares of Common Stock allocated to Mr. Erazmus's self-
directed account under the Company's 401(k) Retirement Savings Plan.
Excludes 38,750 shares of Common Stock issuable under options granted to
Mr. Erazmus pursuant to the Incentive Plan which are not exercisable
within 60 days.
(j) Includes 21,250 shares of Common Stock issuable under currently
exercisable options granted to Mr. Rosenecker under the Incentive Plan and
(ii) 1,844 shares of Common Stock allocated to Mr. Rosenecker's self-
directed account under the Company's 401(k) Retirement Savings Plan.
Excludes 38,750 shares of Common Stock issuable under options granted to
Mr. Rosenecker pursuant to the Incentive Plan which are not exercisable
within 60 days.
(k) Includes (i) 21,250 shares of Common Stock issuable under currently
exercisable options granted to Mr. Spezio under the Incentive Plan and
(ii) 1,638 shares of Common Stock allocated to Mr. Spezio's self-directed
account under the Company's 401(k) Retirement Savings Plan. Excludes
38,750 shares of Common Stock issuable under options granted to Mr. Spezio
pursuant to the Incentive Plan which are not exercisable within 60 days.
(l) Includes (i) 15,000 shares of Common Stock issuable under currently
exercisable options granted to Mr. Wark under the Incentive Plan and (ii)
1,603 shares of Common Stock allocated to Mr. Wark's self-directed account
under the Company's 401(k) Retirement Savings Plan. Excludes 20,000 shares
of Common Stock issuable under options granted to Mr. Wark pursuant to the
Incentive Plan which are not exercisable within 60 days.
(m) Includes 25,313 shares of Common Stock issuable under currently
exercisable options granted to Mr. Lippes pursuant to the Non-Qualified
Plan. Excludes 25,937 shares of Common Stock
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<PAGE>
issuable under options granted to Mr. Lippes pursuant to the Non-Qualified
Plan which are not exercisable within 60 days.
(n) Includes (i) 25,313 shares of Common Stock issuable under currently
exercisable options granted to Mr. Russ pursuant to the Non-Qualified Plan
and (ii) an aggregate of 1,500 shares of Common Stock held by three (3)
trusts for the benefit of Mr. Russ' children as to each of which Mr. Russ
serves as a trustee. Excludes 25,937 shares of Common Stock issuable under
options granted to Mr. Russ pursuant to the Non-Qualified Plan which are
not exercisable within 60 days. Also excludes an aggregate of (i)
6,149,250 shares of Common Stock owned by the Lipke Trusts, as to each of
which Mr. Russ serves as one of three trustees and shares voting and
investment power and as to which he disclaims beneficial ownership and
(ii) 842,985 shares of Common Stock held by the Kenneth E. Lipke Trust, as
to which Mr. Russ serves as one of three trustees and shares voting and
investment power and as to which he disclaims beneficial ownership.
(o) Includes 12,813 shares of Common Stock issuable under currently
exercisable options granted to Mr. Montague pursuant to the Non-Qualified
Plan. Excludes 13,437 shares of Common Stock issuable under options
granted to Mr. Montague pursuant to the Non-Qualified Plan which are not
exercisable within 60 days.
(p) Includes 12,813 shares of Common Stock issuable under currently
exercisable options granted to Mr. Campbell pursuant to the Non-Qualified
Plan. Excludes 13,437 shares of Common Stock issuable under options
granted to Mr. Campbell pursuant to the Non-Qualified Plan which are not
exercisable within 60 days.
(q) Includes options to purchase an aggregate of 78,750 shares of Common Stock
issuable to certain executive officers under the Incentive Plan and an
aggregate of 87,502 shares of Common Stock issuable to certain executive
officers and directors under the Non-Qualified Plan, all of which are
exercisable within 60 days. Excludes options to purchase an aggregate of
136,250 shares of Common Stock issued to certain executive officers under
the Incentive Plan and an aggregate of 112,498 shares of Common Stock
issued to certain executive officers and directors under the Non-Qualified
Plan, none of which are exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this offering, the authorized capital stock of the
Company will consist of 50.0 million shares of Common Stock and 10.0 million
shares of preferred stock, $.01 par value per share (the "Preferred Stock").
As of May 31, 1996, there were 10,173,900 shares of Common Stock issued and
outstanding. Upon completion of this offering, there will be 12,173,900 shares
of Common Stock issued and outstanding, assuming no exercise of the
Underwriters' over-allotment option. There are no shares of the Company's
Preferred Stock outstanding.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares being
offered by the Company hereby will be, upon payment therefor, duly authorized,
validly issued, fully paid and nonassessable. Each outstanding share of Common
Stock entitles the holder to one vote on all matters submitted to a vote of
stockholders. The holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such times
and in such amounts as the Board of Directors may from time to time determine.
See "Dividend Policy". The shares of Common Stock are neither redeemable nor
convertible, and the holders thereof have no preemptive or subscription rights
to purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive
pro rata the assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of preferred stock then outstanding. There is
no cumulative voting. Therefore, the holders of a majority of the shares of
Common Stock voted in an election of directors can elect all of the directors
then standing for election, subject to any rights of the holders of any
outstanding preferred stock. See "Risk Factors--Control by Certain
Stockholders; Anti-Takeover Provisions".
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PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, to issue the Preferred Stock in one or more classes or series and to
fix the designations, powers, preferences, rights, qualifications, limitations
or restrictions of any such class or series. Presently, no shares of Preferred
Stock are outstanding.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Company's Certificate of Incorporation, upon consummation of this
offering (assuming no exercise of the Underwriters' over-allotment option)
there will be 36,726,100 shares of Common Stock and 10,000,000 shares of
Preferred Stock available for future issuance without stockholder approval.
These additional shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital or to facilitate
corporate acquisitions. See "Risk Factors--Risks Associated with Future
Expansion".
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of the
Company.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. The purpose of authorizing the Board of
Directors to determine such rights and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The Board of
Directors may issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock, and
which could, among other things, have the effect of delaying, deterring or
preventing a change in control of the Company.
The Company currently has no plans to issue additional shares of Common
Stock or Preferred Stock other than shares of Common Stock which may be issued
upon the exercise of options which have been granted or which may be granted
in the future to the Company's employees or directors.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation of the Company provides that the Company
shall indemnify each officer and director of the Company to the fullest extent
permitted by applicable law. The Certificate of Incorporation also provides
that, to the fullest extent permitted by the Delaware General Corporation Law,
a director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Certificate of Incorporation and By-Laws of the Company contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors and which may
have the effect of delaying, deterring or preventing a future takeover or
change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors. Such provisions may also render
the removal of the current Board of Directors and of management more
difficult.
Pursuant to the Certificate of Incorporation, the Board of Directors of the
Company is divided into three classes serving staggered three-year terms.
Directors can be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally
in the election of directors (the "Voting Stock"), voting together as a single
class. Vacancies on the Board of Directors may only be filled by the remaining
directors and not by the stockholders.
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<PAGE>
The By-Laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice must be received by the Company not less than 60 nor more than 90 days
prior to the date of the prior year's annual meeting and must contain certain
specified information concerning the person to be nominated or the matter to
be brought before the meeting and concerning the stockholder submitting the
proposal.
Special meetings of stockholders may be called only by the Chairman of the
Board, the President of the Company or a majority of the Board of Directors.
The Certificate of Incorporation provides that stockholders may act only at an
annual or special meeting and stockholders may not act by written consent.
The Certificate of Incorporation also provides that certain mergers, sales
of assets, issuances of securities, liquidations or dissolutions,
reclassifications or recapitalizations involving Interested Stockholders must
be approved by holders of at least 80% of the outstanding Voting Stock, unless
such transactions are approved by a majority of the Disinterested Directors
(as defined in the Company's Certificate of Incorporation) of the Company or
certain minimum price, form of consideration and procedural requirements are
satisfied. An Interested Stockholder is defined as a holder of stock
representing 20% or more of the shares of Voting Stock then outstanding. The
Certificate of Incorporation provides that the affirmative vote of the holders
of 80% of the total votes eligible to be cast in the election of directors is
required to amend, alter, change or repeal such provisions. The requirement of
such a super-majority vote could enable a minority of the Company's
stockholders to exercise veto powers over such amendments, alterations,
changes or repeals.
DELAWARE ANTI-TAKEOVER LAW
The Company is a Delaware corporation subject to the provisions of Section
203 of the Delaware General Corporation Law. Section 203 provides that, with
certain exceptions, a Delaware corporation may not engage in any of a broad
range of "business combinations" with a person or affiliate or associate of
such person who is an "interested stockholder" for a period of three years
from the time that such person became an interested stockholder unless: (a)
the transaction resulting in a person's becoming an interested stockholder or
the business combination is approved by the board of directors of the
corporation before the person became an interested stockholder; (b) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the corporation outstanding at the time the transaction commenced in the same
transaction that makes it an interested stockholder (excluding shares owned by
persons who are both officers and directors of the corporation and shares held
by employee stock ownership plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (c) at or after the time
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election
or elected to succeed such directors by a majority of such directors.
An "interested stockholder" is defined as any person that is (a) the owner
of 15% or more of the outstanding voting stock of the corporation; or (b) an
affiliate or associate of the corporation and was
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<PAGE>
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A "business combination" is defined to encompass a wide variety of
transactions with or committed by an interested stockholder in which the
interested stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the interested stockholder,
transactions with the corporation which increase the proportionate interest in
the corporation directly owned by the interested stockholder, transactions
with the corporation which increase the proportionate interest in the
corporation directly owned by the interested stockholder or transactions in
which the interested stockholder receives certain other benefits.
Section 203 could have the effect of delaying, deterring or preventing a
change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or By-Laws of the Company, may
elect not to be governed by Section 203, effective 12 months after adoption.
Neither the Certificate of Incorporation nor the By-Laws of the Company
currently exclude the Company from the restrictions imposed by Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 12,173,900 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). Of these shares, the 3,000,000 shares of Common Stock
(3,450,000 shares if the Underwriters' over-allotment option is exercised in
full) sold in this offering, plus 2,662,900 shares sold in the Company's
initial public offering in November 1993 (other than any shares sold then or
subsequently to, and not resold by, any Affiliates, as defined below), will be
freely transferable by persons other than Affiliates without restriction or
further registration under the Securities Act. 7,461,959 shares of outstanding
Common Stock (the "Affiliate Shares") are held by "affiliates" of the Company,
as that term is defined under the Securities Act ("Affiliates"), of which
52,910 shares are also "restricted securities" within the meaning of Rule 144
under the Securities Act; an additional 26,455 shares of Common Stock, held by
a third party not affiliated with the Company, are also "restricted
securities" (together, "Restricted Shares"). The Restricted Shares may not be
sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption afforded by
Rule 144, as described below. The Affiliate Shares also may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available; however, due to the length of time for which they
have been held by the Affiliates, the Affiliate Shares (other than the 52,910
shares which are also Restricted Shares) are transferable, subject to the
Lock-up Agreements described below, in accordance with the volume and other
requirements (but not the holding period requirement) of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years, including an Affiliate, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding Common Stock or the average weekly trading volume in the Common
Stock in composite trading on all exchanges during the four calendar weeks
preceding such sale. A person (or persons whose shares are aggregated) who is
not deemed an Affiliate and who has beneficially owned shares for at least
three years is entitled to sell such shares under Rule 144 without regard to
the volume limitations described above.
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<PAGE>
The Securities and Exchange Commission has recently proposed amendments to
Rule 144 and 144(k) that would permit resales of Restricted Shares under Rule
144 after a one-year, rather than a two-year holding period, subject to
compliance with the other provisions of Rule 144, and would permit resale of
such Common Stock by non-affiliates under Rule 144(k) after a two-year, rather
than a three-year holding period. Adoption of such amendments could result in
resales of any existing or future Restricted Shares sooner than would be the
case under Rule 144 and 144(k) as currently in effect.
The Company and each of its directors and executive officers and the Selling
Stockholders have entered into Lock-up Agreements wherein they have agreed not
to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or announce the offering of, any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of
Common Stock, except for the shares of Common Stock offered hereby, and in
each case other than that of the Company, shares of Common Stock disposed of
as bona fide gifts, for a period of 90 days from the date of this Prospectus,
without the prior written consent of the Representative.
The Company has reserved 400,000 shares of Common Stock to be issued under
its Non-Qualified Plan and 600,000 shares to be issued under its Incentive
Plan. Options to purchase an aggregate of 200,000 and 270,000 shares of Common
Stock, respectively, are currently outstanding under the Non-Qualified Plan
and the Incentive Plan.
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UNDERWRITING
Upon the terms and subject to the conditions set forth in the Underwriting
Agreement, the Company and the Selling Stockholders have agreed to sell to
each of the Underwriters named below (the "Underwriters"), for whom Salomon
Brothers Inc is acting as Representative, and each of the Underwriters has
severally agreed to purchase from the Company and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------------- ----------------
<S> <C>
Salomon Brothers Inc........................................ 900,000
Smith Barney Inc............................................ 900,000
CS First Boston Corporation................................. 100,000
Deutsche Morgan Grenfell/C.J. Lawrence Inc. ................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 100,000
Goldman, Sachs & Co. ....................................... 100,000
Prudential Securities Incorporated.......................... 100,000
UBS Securities.............................................. 100,000
J.C. Bradford & Co. ........................................ 75,000
EVEREN Securities, Inc. .................................... 75,000
Fahnestock & Co. Inc. ...................................... 75,000
McDonald & Company Securities, Inc. ........................ 75,000
The Robinson-Humphrey Company, Inc. ........................ 75,000
Arnhold and S. Bleichroeder, Inc. .......................... 25,000
The Buckingham Research Group, Incorporated................. 25,000
Fechtor, Detwiler & Co., Inc. .............................. 25,000
Gabelli & Company, Inc. .................................... 25,000
J.J.B. Hilliard W.L. Lyons, Inc. ........................... 25,000
C.L. King & Associates, Inc. ............................... 25,000
The Ohio Company............................................ 25,000
Olde Discount Corporation................................... 25,000
Ragen Mackenzie Incorporated................................ 25,000
---------
Total..................................................... 3,000,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the above-
listed shares of Common Stock offered hereby (other than the shares of Common
Stock covered by the Underwriters' over-allotment option described below) if
any such shares are purchased. In the event of a default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances the
purchase commitments of the non defaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have been advised by the
Representative that the several Underwriters propose initially to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $.54 per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $.10 per share to
other dealers. After this initial offering, the public offering price and such
concessions may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock from the Company at the same price per share
as the initial shares of Common Stock to be purchased by
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<PAGE>
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments, if any, in the sale of the shares of Common Stock that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the same proportion of the option shares as
the number of shares of Common Stock to be purchased and offered by such
Underwriter in the above table bears to the total number of shares of Common
Stock initially offered by the Underwriters hereby.
The Company, each of its directors and executive officers, the Selling
Stockholders and certain other stockholders of the Company have agreed not to
offer, sell, contract to sell or otherwise dispose of, directly or indirectly,
or announce the offering of, any other shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock, except
the shares of Common Stock offered hereby, for a period of 90 days following
the commencement of this offering, without the prior written consent of the
Representative. See "Shares Eligible for Future Sale".
In connection with this offering, certain Underwriters and selling group
members who are qualifying registered market makers on NASDAQ may engage in
passive market making transactions in Common Stock on NASDAQ in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), during the two business day period before commencement of
offers or sales of Common Stock in this offering. Passive market making
transactions must comply with certain volume and price limitations and must be
identified as such. In general, a passive market maker may display its bid at
a price not in excess of the highest independent bid for the security, and if
all independent bids are lowered below the passive market maker's bid, then
such bid must be lowered when certain purchase limits are exceeded.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Lippes, Silverstein, Mathias & Wexler
LLP, Buffalo, New York. Certain legal matters related to this offering will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New
York, New York.
Gerald S. Lippes, a partner of Lippes, Silverstein, Mathias & Wexler LLP, is
a director of the Company, and beneficially owns 36,455 shares and has been
awarded options to purchase an additional 51,250 shares of Common Stock. See
"Management--Employee Plans--Non-Qualified Stock Option Plan".
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been so included in reliance upon the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing. The financial statements of
Hubbell Steel as of December 31, 1993 and 1994 and for each of the two years
in the period ended December 31, 1994 included in this Prospectus have been so
included in reliance upon the report of KPMG Peat Marwick LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing. The financial statements of CCHT as of December 31, 1994 and 1995
and for each of the two years in the period ended December 31, 1995 included
in this Prospectus have been so included in reliance upon the report of Scharf
Pera & Co., independent accountants, given on the authority of said firm as
experts in accounting and auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the information reporting requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy amendments and other information filed by
the Company may be examined without charge at, or copies obtained upon payment
of prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549 and
are also available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
The Company has filed with the Commission a Registration Statement on Form
S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the shares
of Common Stock offered pursuant to this Prospectus. This Prospectus does not
contain all of the information, exhibits and undertakings contained in the
Registration Statement, to which reference is hereby made. For further
information concerning the Company and the shares of Common Stock offered
hereby, reference is made to the Registration Statement, which may be examined
without charge at, or copies obtained upon payment of prescribed fees from,
the Commission and its regional offices at the locations listed above. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GIBRALTAR STEEL CORPORATION--CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheet at December 31, 1995 and 1994............... F-3
Consolidated Statement of Income for the years ended December 31, 1995,
1994
and 1993.............................................................. F-4
Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994
and 1993.............................................................. F-5
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993...................................... F-6
Notes to Consolidated Financial Statements............................. F-7
GIBRALTAR STEEL CORPORATION--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 (UNAUDITED)
Condensed Consolidated Balance Sheet at March 31, 1996 and December 31,
1995.................................................................. F-15
Condensed Consolidated Statement of Income for the three months ended
March 31, 1996 and 1995............................................... F-16
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and 1995......................................... F-17
Notes to Condensed Consolidated Financial Statements................... F-18
WM. R. HUBBELL STEEL CORPORATION--COMBINED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1994
Independent Auditors' Report........................................... F-20
Combined Balance Sheets at December 31, 1994 and 1993.................. F-21
Combined Statements of Earnings and Retained Earnings for the years
ended December 31, 1994 and 1993...................................... F-22
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1993.............................................................. F-23
Notes to Combined Financial Statements................................. F-24
CAROLINA COMMERCIAL HEAT TREATING, INC.--FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995
Independent Auditors' Report........................................... F-30
Balance Sheets at December 31, 1995 and 1994........................... F-31
Statements of Income for the years ended December 31, 1995 and 1994.... F-33
Statements of Stockholders' Equity for the years ended December 31,
1995 and 1994......................................................... F-34
Statements of Cash Flows for the years ended December 31, 1995 and
1994.................................................................. F-35
Notes to Financial Statements.......................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Gibraltar Steel Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Gibraltar
Steel Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Buffalo, New York January 25, 1996
F-2
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 4,123 $ 1,124
Accounts receivable........................................ 35,634 26,007
Inventories................................................ 45,274 41,988
Other current assets....................................... 1,964 1,433
-------- --------
Total current assets..................................... 86,995 70,552
Property, plant and equipment, net........................... 67,275 52,503
Other assets................................................. 13,153 3,325
-------- --------
$167,423 $126,380
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 25,845 $ 19,025
Accrued expenses........................................... 2,367 1,987
Current maturities of long-term debt....................... 1,214 740
Deferred income taxes...................................... 54 276
-------- --------
Total current liabilities................................ 29,480 22,028
Long-term debt............................................... 57,840 37,918
Deferred income taxes........................................ 9,251 5,544
Other non-current liabilities................................ 608 494
Shareholders' equity
Preferred shares, $.01 par value; authorized:
10,000,000 shares; none outstanding....................... -- --
Common shares, $.01 par value; authorized:
50,000,000 shares; issued and outstanding:
10,173,900 shares in 1995 and 10,162,900 in 1994.......... 102 102
Additional paid-in capital................................. 28,803 28,677
Retained earnings.......................................... 41,339 31,617
-------- --------
Total shareholders' equity............................... 70,244 60,396
-------- --------
$167,423 $126,380
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $ 282,833 $ 200,142 $ 167,883
Cost of sales............................. 240,370 166,443 138,559
---------- ---------- ----------
Gross profit............................ 42,463 33,699 29,324
Selling, general and administrative
expense................................... 22,095 17,520 16,390
---------- ---------- ----------
Income from operations.................. 20,368 16,179 12,934
Other income (expense):
Interest expense.......................... (3,984) (1,374) (1,621)
Other income, net......................... -- -- 200
---------- ---------- ----------
(3,984) (1,374) (1,421)
---------- ---------- ----------
Income before taxes..................... 16,384 14,805 11,513
Income taxes:
Taxes on income........................... 6,662 5,996 1,200
Reinstatement of deferred income taxes.... -- -- 5,100
---------- ---------- ----------
6,662 5,996 6,300
---------- ---------- ----------
Net income.............................. $ 9,722 $ 8,809 $ 5,213
========== ========== ==========
Net income per share...................... $ .96 $ .87
========== ==========
Pro forma (unaudited):
Income before taxes....................... $ 11,513
Pro forma interest savings................ 818
Pro forma provision for taxes............. 4,994
----------
Pro forma net income...................... $ 7,337
==========
Pro forma net income per share............ $ .72
==========
Weighted average shares outstanding
(Pro forma at December 31, 1993)......... 10,163,817 10,162,900 10,162,900
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 9,722 $ 8,809 $ 5,213
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 4,538 3,445 3,399
Provision for deferred taxes.................. 218 676 5,100
Equity investment income...................... (641) (882) (909)
Dividends from equity investment.............. 275 377 370
(Gain) loss on disposition of property and
equipment....................................... (146) (37) (177)
Increase (decrease) in cash resulting from
changes in
(net of effects from acquisition in Hubbell):
Accounts receivable......................... 838 (6,451) 1,137
Inventories................................. 17,979 (13,354) (6,633)
Other current assets........................ (503) (390) (232)
Accounts payable and accrued expenses....... 3,390 (497) 3,835
Other assets................................ 70 (318) (1,026)
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 35,740 (8,622) 10,077
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Hubbell, net of cash acquired.... (20,859) -- --
Purchases of property, plant and equipment...... (14,504) (16,171) (10,468)
Proceeds from sale of property and equipment.... 317 173 1,817
Proceeds from sale of marketable securities..... -- -- 131
Payments received on mortgages and notes
receivable, net................................. -- -- 1,913
-------- -------- --------
Net cash used in investing activities......... (35,046) (15,998) (6,607)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable....................... -- -- (8,598)
Long-term debt reduction........................ (64,527) (15,381) (17,832)
Proceeds from notes payable..................... -- -- 3,848
Proceeds from long-term debt.................... 66,832 39,860 10,242
Net proceeds from initial public stock
offering........................................ -- -- 26,061
Distributions to shareholders................... -- -- (17,252)
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 2,305 24,479 (3,531)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalent...................................... 2,999 (141) (61)
Cash and cash equivalents at beginning of year.. 1,124 1,265 1,326
-------- -------- --------
Cash and cash equivalents at end of year........ $ 4,123 $ 1,124 $ 1,265
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1992........... -- $-- $ 2,718 $ 35,292
Net income............................ -- -- -- 5,213
Distributions to shareholders......... -- -- -- (17,697)
Reorganization........................ 7,500,000 75 (75) --
Public sale of common shares at $11
per share, net......................... 2,662,900 27 26,034 --
---------- ---- ------- --------
Balance at December 31, 1993........... 10,162,900 102 28,677 22,808
Net income............................ -- -- -- 8,809
---------- ---- ------- --------
Balance at December 31, 1994........... 10,162,900 102 28,677 31,617
Net income............................ -- -- -- 9,722
Issuance of common shares to profit
sharing plan
at $11.50 per share.................. 11,000 -- 126 --
---------- ---- ------- --------
Balance at December 31, 1995........... 10,173,900 $102 $28,803 $ 41,339
========== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Gibraltar Steel Corporation is an intermediate steel processor which
primarily supplies high quality flat rolled steel to industrial customers,
located in the midwest, northeast and southeast United States, Canada and
Mexico, who require steel of precise thickness, width, length, edge, shape,
surface finish and temper for their own manufacturing processes.
SHAREHOLDERS' EQUITY
In November 1993, Gibraltar Steel Corporation issued 7,500,000 of its common
shares to the shareholders of several companies under common control in a tax-
free exchange for all of their outstanding common shares (the Reorganization).
Since the combining entities were under common control, the historical cost
basis was used in these consolidated financial statements.
Immediately after the Reorganization, Gibraltar Steel Corporation completed
its initial public offering of 2,662,900 common shares. The net proceeds from
the offering of approximately $26,061,000 were used for the repayment of debt.
In December 1995, the Company issued 11,000 of its common shares as a
contribution to one of its profit sharing plans.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Gibraltar
Steel Corporation and its wholly-owned subsidiaries (the Company) and require
the use of management's estimates for preparation in conformity with generally
accepted accounting principles. Significant intercompany accounts and
transactions have been eliminated.
The effect of changing the accounting year end of a subsidiary from October
31 to a calendar year end was to include $200,000 of net income of that
subsidiary in other income for the year ended December 31, 1993.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, checking accounts and all
highly liquid investments with a maturity of three months or less.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated over
their estimated useful lives using the straight-line method. Accelerated
methods are used for income tax purposes. Interest is capitalized in
connection with construction of qualified assets. Under this policy, interest
of $683,000, $361,000 and $113,000 was capitalized in 1995, 1994 and 1993,
respectively.
F-7
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTEREST RATE EXCHANGE AGREEMENTS
Interest rate swap agreements, which are used by the Company in the
management of interest rate risk, are accounted for on an accrual basis.
Amounts to be paid or received under interest rate swap agreements are
recognized as interest expense or income in the periods in which they accrue.
Swaps are not used for trading purposes.
INCOME TAXES
Prior to the Reorganization and the initial public offering, certain
subsidiaries were taxed as S Corporations under the provisions of the Internal
Revenue Code and where permitted for state purposes. Accordingly, no provision
was made for income taxes for these subsidiaries and taxable income was taxed
directly to shareholders.
In November 1993, the Company terminated the S Corporation status of the
applicable subsidiaries and became fully subject to corporate income taxes on
its earnings as a C Corporation. A final distribution was paid to pre-public
offering shareholders in the amount of $10,485,000, which represented the
Company's undistributed S Corporation earnings at the time of the S
Corporation termination. Total distributions to pre-public offering
shareholders for the year ended December 31, 1993 aggregated $17,697,000,
including a dividend in kind of approximately $445,000.
Upon termination of S Corporation status, $5,100,000 in cumulative deferred
tax liabilities were reinstated with an offsetting charge to net income.
The financial statements of the Company have been prepared using the assets
and liability approach in accounting for income taxes which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of other assets and liabilities.
EARNINGS PER SHARE
Net income per share in 1995 and 1994 is based upon the weighted average
number of shares outstanding during the year. As certain of the subsidiaries
were S Corporations during 1993 and were not subject to Federal and State
income taxes, historical per share data for 1993 is not considered meaningful,
and accordingly, has not been presented. See Note 15 for discussion of
unaudited pro forma per share data.
2. ACQUISITION
On April 3, 1995, the Company purchased all of the outstanding capital stock
of Wm. R. Hubbell Steel Company and its subsidiary and certain of its
affiliates (Hubbell) for an aggregate cash purchase price of $21 million. In
addition, the Company repaid approximately $18 million of Hubbell's existing
bank indebtedness. Hubbell, headquartered in Chicago, Illinois, is a processor
and supplier of galvanized, galvalume and prepainted steel to the commercial
and residential metal building industries.
The acquisition has been accounted for under the purchase method, and
Hubbell's results of operations have been consolidated with the Company's
results of operations from the acquisition date. The excess of the aggregate
purchase price ($21 million) over the fair market value of assets acquired
($37 million) less liabilities assumed ($26 million) of Hubbell approximated
$10 million and will be amortized over 35 years using the straight-line
method.
F-8
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following information presents the pro forma consolidated condensed
results of operations as if the acquisition of Hubbell had occurred on January
1, 1994. The pro forma amounts may not be indicative of the results that
actually would have been achieved had the acquisition occurred as of January
1, 1994 and is not necessarily indicative of future results of the combined
companies.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $300,278 $273,079
=========== ===========
Income before taxes..................................... $ 16,868 $ 18,017
=========== ===========
Net income.............................................. $ 10,025 $ 10,590
=========== ===========
Net income per share.................................... $ .99 $ 1.04
=========== ===========
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable are expected to be collected within one year and are net
of reserves for doubtful accounts of $491,000 and $327,000 for 1995 and 1994,
respectively.
4. INVENTORIES
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
1995 1994
------- -------
<S> <C> <C>
Raw material.................................................... $28,307 $25,791
Finished goods and work-in-process.............................. 16,967 16,197
------- -------
Total inventories............................................. $45,274 $41,988
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost less accumulated depreciation, at
December 31 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
1995 1994
------- -------
<S> <C> <C>
Land and land improvements..................................... $ 2,776 $ 2,260
Building and improvements...................................... 24,031 15,537
Machinery and equipment........................................ 60,267 48,353
Construction in progress....................................... 5,135 7,384
------- -------
92,209 73,534
Less accumulated depreciation and amortization................. 24,934 21,031
------- -------
Total property, plant and equipment.......................... $67,275 $52,503
======= =======
</TABLE>
F-9
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. OTHER ASSETS
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
1995 1994
------- ------
<S> <C> <C>
Equity interest in partnership.................................. $ 2,764 $2,398
Goodwill, net................................................... 9,656 --
Other........................................................... 733 927
------- ------
Total other assets............................................ $13,153 $3,325
======= ======
</TABLE>
The Company's 26% partnership interest is accounted for using the equity
method of accounting. The partnership provides a steel cleaning process called
pickling to steel processors, including the Company. Goodwill is amortized
over 35 years using the straight-line method.
7. DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
1995 1994
------- -------
<S> <C> <C>
Revolving credit notes payable.................................. $51,000 $30,150
Industrial Development Revenue Bond............................. 7,333 8,000
Other debt...................................................... 721 508
------- -------
59,054 38,658
Less current maturities......................................... 1,214 740
------- -------
Total long-term debt.......................................... $57,840 $37,918
======= =======
</TABLE>
In December 1995, the Company increased its working capital credit facility
available to $125 million expiring on November 17, 1997. This credit facility
has various interest rate options which are no greater than the bank's prime
rate and may be converted to a four year amortizing loan at any time prior to
expiration. In addition, the Company entered into an interest rate exchange
agreement (swap), as a means of managing interest rate risk related to
borrowings under the Company's revolving credit agreement. Interest rate swaps
allow the Company to convert long-term borrowings at floating rates into fixed
rates. This enables the Company to minimize the impact of interest rate
fluctuations on its operations. At December 31, 1995, the Company had one
interest rate swap agreement outstanding with a financial institution, having
a nominal amount of $25 million and a termination date of November 20, 2000 or
2002 at the option of the financial institution. At December 31, 1995,
borrowings outstanding consisted of $51 million with an interest rate of LIBOR
plus a fixed rate. The weighted average interest rate of these borrowings was
6.6% at December 31, 1995. Borrowings are secured by accounts receivable,
inventory, property, plant and equipment and other assets of the Company.
In addition, the Company has an Industrial Development Revenue Bond payable
in equal installments through May 2002, with an interest rate of LIBOR plus a
fixed rate (6.7% at December 31, 1995), which financed the cost of its
Tennessee expansion under a capital lease agreement. The cost of the facility
and equipment equal the amount of the bond and includes accumulated
amortization of $404,000. The agreement provides for the purchase of the
facility and equipment at any time during the term of the lease at scheduled
amounts or at the end of the lease in 2002 for a nominal amount.
F-10
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities on long-term debt including lease purchase
obligations for the five years following December 31, 1995 are as follows:
1996, $1,214,000; 1997, $2,282,000; 1998, $13,974,000; 1999, $14,056,000; and
2000, $13,908,000.
The Company had no amounts outstanding under short-term borrowing for the
year ended December 31, 1995 and 1994.
The various loan agreements, which do not require compensating balances,
contain provisions that limit additional borrowings, capital expenditures and
require maintenance of minimum net worth and financial ratios. The Company is
in compliance with the terms and provisions of all its financing agreements.
Total cash paid for interest in the years ended December 31, 1995, 1994 and
1993 was $4,715,000, $1,345,000 and $1,801,000, respectively.
8. LEASES
The Company leases certain facilities and equipment under operating leases.
Rent expense under operating leases for the years ended December 31, 1995,
1994 and 1993 was $1,693,000, $824,000 and $795,000, respectively. Future
minimum lease payments under these operating leases are $1,587,000,
$1,393,000, $551,000, $461,000 and $471,000 for the years 1996, 1997, 1998,
1999 and 2000, respectively, and $2,832,000 thereafter through 2038.
9. EMPLOYEE RETIREMENT PLANS
Non-union employees participate in various profit sharing plans.
Contributions to these plans are funded annually and are based on a percentage
of pretax income or amounts determined by the Board of Directors.
Certain subsidiaries have multi-employer non-contributory retirement plans
providing for defined contributions to union retirement funds.
A supplemental pension plan, established in 1992, provides defined pension
benefits to certain salaried employees upon retirement. Net unfunded periodic
pension costs of $201,000 were accrued under this plan since the inception of
the plan and consisted primarily of service cost using a discount rate of 8%.
Total expense for all plans was $637,000, $699,000 and $682,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
10. OTHER POST-RETIREMENT BENEFITS
The Company provides health and life insurance to substantially all of its
employees, and to a number of retirees and their spouses from certain of its
subsidiaries. A summary of the components of the net periodic post-retirement
benefit cost charged to expense consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................... $ 64 $ 53 $ 60
Interest cost................................................... 98 72 70
Amortization of transition obligations.......................... 45 45 45
---- ---- ----
Net periodic post-retirement benefit cost....................... $207 $170 $175
==== ==== ====
</TABLE>
F-11
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The approximate unfunded accumulated post-retirement benefit obligation at
December 31, consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
1995 1994
------- -------
<S> <C> <C>
Retirees....................................................... $ 476 $ 324
Other fully eligible participants.............................. 181 185
Other active participants...................................... 684 527
------- -------
$1,341 $1,036
======= =======
</TABLE>
The accumulated post-retirement benefit obligation was determined using a
weighted average discount rate of 7.5%. The medical inflation rate was assumed
to be 10% in 1995, with a gradual reduction to 5% over five years. The effect
of a 1% annual increase in the medical inflation rate would increase the
accumulated post-retirement benefit obligation by approximately $217,000 and
$150,000 and the annual service and interest costs by approximately $31,000
and $20,000 for 1995 and 1994, respectively.
One of the Company's subsidiaries also provides post-retirement health care
benefits to its unionized employees through contributions to a multi-employer
health care plan.
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current tax expense
Federal................................................. $5,611 $4,275 $ 915
State................................................... 833 1,045 285
------ ------ ------
Total current........................................... 6,444 5,320 1,200
------ ------ ------
Deferred tax expense
Federal................................................. 198 740 4,077
State................................................... 20 (64) 1,023
------ ------ ------
Total deferred.......................................... 218 676 5,100
------ ------ ------
Total provision......................................... $6,662 $5,996 $6,300
====== ====== ======
</TABLE>
Deferred tax liabilities (assets) at December 31, consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------
1995 1994
------- -------
<S> <C> <C>
Depreciation.................................................. $ 7,560 $ 6,014
Inventory..................................................... 1,989 --
Other......................................................... 1,168 1,103
------- -------
Gross deferred tax liabilities................................ 10,717 7,117
------- -------
State taxes................................................... (450) (460)
Other......................................................... (962) (837)
------- -------
Gross deferred tax assets..................................... (1,412) (1,297)
------- -------
Net deferred tax liabilities................................ $ 9,305 $ 5,820
======= =======
</TABLE>
F-12
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Statutory U.S. tax rates................................. $5,734 $5,182 $ 3,914
Increase (decrease) in rates resulting from:
State and local taxes, net............................. 554 638 83
Effect of S Corporation status......................... -- -- (2,797)
Reinstatement of deferred income taxes................. -- -- 5,100
Other.................................................. 374 176 --
------ ------ -------
$6,662 $5,996 $ 6,300
====== ====== =======
</TABLE>
Prior to the Reorganization and the public offering, the Company and its
pre-public offering shareholders entered into a tax indemnification agreement
relating to changes in their respective tax liabilities for the periods in
which any subsidiary was treated for federal and certain state income tax
purposes as an S Corporation.
Total cash paid for income taxes in the years ended December 31, 1995, 1994
and 1993 was $6,250,000, $6,100,000 and $379,000, respectively.
12. SIGNIFICANT CUSTOMERS
The Company sells its products to a wide variety of customers, primarily in
the automobile manufacturing and supply industries. Sales of processed steel
to a major automobile manufacturer purchasing through decentralized divisions
and subsidiaries in different geographical areas were $32,100,000 in 1995,
$28,700,000 in 1994 and $26,600,000 in 1993.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to certain claims and legal actions generally
incidental to its business. Management does not believe that the outcome of
these actions, which is not clearly determinable at the present time, would
significantly affect the Company's financial condition or results of
operations.
14. STOCK OPTIONS
Non-Qualified Stock Option Plan: The Company's Non-Qualified Stock Option
Plan, adopted in September 1993, provides for granting officers and employees
as well as non-employee directors and advisers to acquire an aggregate of
200,000 common shares at an exercise price equal to 100% of the market price
on the date of grant. The Company granted options to certain officers and non-
employee directors to purchase an aggregate of 200,000 shares (200,000 shares
outstanding at both December 31, 1995 and 1994) at prices ranging from $10 to
$11 per share. The options may be exercised in cumulative annual increments of
25% commencing one year after the date of grant. None of these options have
been exercised.
Incentive Stock Option Plan: The Company's Incentive Stock Option Plan,
adopted in September 1993, provides for granting officers and other key
employees stock options to acquire an aggregate of 400,000 common shares at an
exercise price of not less than 100% of the fair market value of the shares on
the date of grant. These options are exercisable at the rate of 25% per year
commencing one year from the date of grant and expire ten years from date of
grant. The Company granted options
F-13
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to certain officers and employees to purchase 270,000 shares (270,000 and
197,500 shares outstanding at December 31, 1995 and 1994, respectively) at
prices ranging from $10 to $11 per share. None of these options have been
exercised.
Restricted Stock Plan: The Company's Restricted Stock Plan, adopted in
September 1993, reserved for issuance 100,000 common shares for the grant of
restricted stock awards to employees at a purchase price of $.01 per share.
Compensation expense will be measured at the date of grant of the restricted
shares for the difference between the market price of the shares and the $.01
exercise price and charged to income over the period during which the shares
vest. Such shares are subject to restrictions on transfer and to risk of
forfeiture until the shares vest. No awards have been granted under this plan.
15. UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma net income for the year ended December 31, 1993
assumes (i) a reduction in interest expense resulting from the application of
a portion of the net proceeds of the initial public offering to repay
$15,576,000 of indebtedness having a weighted average interest rate of 6%, and
(ii) that all subsidiaries have been subject to income taxation as C
Corporations during 1993.
Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares outstanding
during 1993. Such pro forma weighted average number of common shares was
computed giving effect to the Reorganization, and the number of shares the
Company would have had to issue to retire the above-mentioned indebtedness and
pay an S Corporation distribution of $10,485,000 to the pre-public offering
shareholders.
F-14
<PAGE>
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 2,215 $ 4,123
Accounts receivable.................................. 45,639 35,634
Inventories.......................................... 51,101 45,274
Other current assets................................. 2,517 1,964
-------- --------
Total current assets............................... 101,472 86,995
-------- --------
Property, plant and equipment, net..................... 81,465 67,275
Other assets........................................... 25,433 13,153
-------- --------
$208,370 $167,423
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 33,224 $ 25,845
Accrued expenses..................................... 5,467 2,367
Current maturities of long-term debt................. 1,215 1,214
Deferred income taxes................................ 142 54
-------- --------
Total current liabilities.......................... 40,048 29,480
-------- --------
Long-term debt......................................... 81,632 57,840
Deferred income taxes.................................. 12,418 9,251
Other non-current liabilities.......................... 694 608
Shareholders' equity
Preferred shares..................................... -- --
Common shares........................................ 102 102
Additional paid-in capital........................... 28,803 28,803
Retained earnings.................................... 44,673 41,339
-------- --------
Total shareholders' equity......................... 73,578 70,244
-------- --------
$208,370 $167,423
======== ========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE>
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 82,034 $ 58,765
Cost of sales............................................ 68,005 48,579
---------- ----------
Gross profit........................................... 14,029 10,186
Selling, general and administrative expense.............. 7,354 5,090
---------- ----------
Income from operations................................. 6,675 5,096
Interest expense......................................... 1,073 559
---------- ----------
Income before taxes.................................... 5,602 4,537
Provision for income taxes............................... 2,268 1,860
---------- ----------
Net income............................................. $ 3,334 $ 2,677
========== ==========
Net income per share..................................... $ .33 $ .26
========== ==========
Weighted average number of shares outstanding............ 10,173,900 10,162,900
========== ==========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE>
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 3,334 $ 2,677
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,395 924
Provision for deferred income taxes.................... 424 (55)
Equity investment income............................... (136) (209)
Gain on disposition of property and equipment.......... (25) (27)
Increase (decrease) in cash resulting from changes in
(net of effects from acquisition of CCHT):
Accounts receivable.................................. (6,758) (2,420)
Inventories.......................................... (5,827) (2,232)
Other current assets................................. (848) (52)
Accounts payable and accrued expenses................ 9,814 1,445
Other assets......................................... (47) 26
--------- --------
Net cash provided by operating activities.............. 1,326 77
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of CCHT, net of cash acquired................ (23,715) --
Purchases of property, plant and equipment............... (3,262) (5,527)
Proceeds from sale of property and equipment............. 26 60
--------- --------
Net cash used in investing activities.................. (26,951) (5,467)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt reduction................................. (12,283) (2,013)
Proceeds from long-term debt............................. 36,000 7,332
--------- --------
Net cash provided by financing activities.............. 23,717 5,319
--------- --------
Net decrease in cash and cash equivalents................ (1,908) (71)
Cash and cash equivalents at beginning of year........... 4,123 1,124
--------- --------
Cash and cash equivalents at end of period............... $ 2,215 $ 1,053
========= ========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements as of March 31,
1996 and 1995 have been prepared by the Company without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1996 and 1995 have
been included.
Certain information and footnote disclosures including significant
accounting policies normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. It is suggested that these condensed financial statements be read
in conjunction with the financial statements included in the Company's Annual
Report to Shareholders for the year ended December 31, 1995.
The results of operations for the three month period ended March 31, 1996
are not necessarily indicative of the results to be expected for the full
year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Raw material........................................... $34,739 $28,307
Finished goods and work-in-process..................... 16,362 16,967
------- -------
Total inventories...................................... $51,101 $45,274
======= =======
</TABLE>
3. RETAINED EARNINGS
The change in retained earnings consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, 1996
------------------
(UNAUDITED)
<S> <C>
Balance, beginning of year................................... $41,339
Net income................................................... 3,334
-------
Balance, end of period....................................... $44,673
=======
</TABLE>
4. EARNINGS PER SHARE
Net income per share for the three months ended March 31, 1996 and 1995 was
computed by dividing net income by the weighted average number of common
shares outstanding.
5. ACQUISITION
On April 3, 1995, the Company purchased all of the outstanding capital stock
of Wm. R. Hubbell Steel Company and its subsidiary and certain of its
affiliates (Hubbell) for an aggregate cash purchase price of $21 million. In
addition, the Company repaid approximately $18 million of Hubbell's existing
bank indebtedness.
F-18
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
On February 14, 1996, the Company purchased all of the outstanding capital
stock of Carolina Commercial Heat Treating, Inc. (CCHT) for an aggregate cash
purchase price of approximately $25 million. The funding for the purchase was
provided by borrowings under the Company's existing credit facility. CCHT,
headquartered in Charlotte, North Carolina, provides heat treating, brazing
and related metal-processing services to a broad range of industries,
including the automotive, hand tools, construction equipment and industrial
machinery industries.
These acquisitions have been accounted for under the purchase method, and
Hubbell's and CCHT's results of operations have been consolidated with the
Company's results of operations from the respective acquisition dates. The
excess of the aggregate purchase price over the fair market value of net
assets of Hubbell and CCHT approximated $10 million and $12 million,
respectively, and is being amortized over 35 years from the respective
acquisition dates using the straight-line method.
The following information presents the pro forma consolidated condensed
results of operations as if the acquisitions had occurred on January 1, 1995.
The pro forma amounts may not be indicative of the results that actually would
have been achieved had the acquisitions occurred as of January 1, 1995 and are
not necessarily indicative of future results of the combined companies.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $ 84,279 $ 81,964
=========== ===========
Income before taxes..................................... $ 5,333 $ 5,747
=========== ===========
Net income.............................................. $ 3,156 $ 3,376
=========== ===========
Net income per share.................................... $ .31 $ .33
=========== ===========
</TABLE>
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wm. R. Hubbell Steel Corporation
and Affiliated Entities:
We have audited the accompanying combined balance sheets of Wm. R. Hubbell
Steel Corporation and affiliated entities as of December 31, 1994 and 1993,
and the related combined statements of earnings and retained earnings and cash
flows for the years then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Wm. R. Hubbell
Steel Corporation and affiliated entities as of December 31, 1994 and 1993,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 17, 1995
F-20
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 112,865 125,094
Marketable securities................................. 472,551 504,497
Trade accounts receivable, net of allowance for
doubtful accounts of $100,000 in 1994 and 1993....... 9,292,290 8,821,191
Current portion of net investment in direct financing
leases (note 3)...................................... 156,718 151,135
Due from affiliates................................... 19,570 82,226
Inventories........................................... 15,306,779 10,887,870
Prepaid expenses and other current assets............. 468,587 505,866
Refundable income taxes............................... 125,036 --
Deferred income taxes (note 6)........................ 78,000 69,600
----------- ----------
Total current assets.................................... 26,032,396 21,147,479
----------- ----------
Net investment in direct financing leases, excluding
current portion (note 3)............................... 359,889 398,476
Property, plant, and equipment, net (note 4)............ 3,266,584 3,406,306
----------- ----------
$29,658,869 24,952,261
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 5)................................ $10,624,164 10,752,411
Current installments of long-term debt (note 5)....... 1,030,060 1,278,084
Trade accounts payable................................ 8,152,503 5,289,795
Accrued liabilities................................... 359,452 590,999
Due to affiliates..................................... -- 3,941
Income taxes payable.................................. -- 69,256
----------- ----------
Total current liabilities............................... 20,166,179 17,984,486
----------- ----------
Long-term debt, excluding current installments (note
5)..................................................... 1,033,057 1,880,960
Deferred income taxes (note 6).......................... 654,000 663,100
----------- ----------
Total liabilities....................................... 21,853,236 20,528,546
----------- ----------
Stockholders' equity:
Wm. R. Hubbell Steel Corp. common stock, no par value.
Authorized 1,000 shares; issued and outstanding 200
shares............................................... 10,000 10,000
Hubbell International Trading Company common stock,
$1 par value.
Authorized, issued, and outstanding 1,000 shares..... 1,000 1,000
Hubbell Leasing Company common stock, no par value.
Authorized 100,000 shares; issued and outstanding
1,000 shares......................................... 1,000 1,000
Retained earnings..................................... 7,793,633 4,411,715
----------- ----------
Total stockholders' equity.............................. 7,805,633 4,423,715
----------- ----------
Commitments and contingencies (notes 8 and 9)........... -- --
----------- ----------
$29,658,869 24,952,261
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-21
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Net sales/revenues..................................... $72,936,884 81,328,958
Cost of sales.......................................... 61,258,022 69,632,044
----------- ----------
Gross profit........................................... 11,678,862 11,696,914
Selling, general, and administrative expenses.......... 6,831,561 8,559,353
----------- ----------
Operating income....................................... 4,847,301 3,137,561
Other income (expense):
Interest expense..................................... (983,281) (705,809)
Life insurance proceeds (note 10).................... 1,000,000 --
Other income net..................................... 197,898 135,452
----------- ----------
Earnings before income taxes........................... 5,061,918 2,567,204
Income taxes........................................... 1,574,000 1,152,000
----------- ----------
Net earnings........................................... 3,487,918 1,415,204
Retained earnings at beginning of year................. 4,411,715 3,646,511
Dividends paid......................................... (106,000) (650,000)
----------- ----------
Retained earnings at end of year....................... $ 7,793,633 4,411,715
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings......................................... $3,487,918 1,415,204
Adjustments to reconcile net earnings to net cash
provided by
(used in) operating activities:
Depreciation and amortization...................... 475,201 475,378
Gain on sale of equipment.......................... (93,537) (17,076)
Deferred income taxes.............................. (17,500) (600)
Change in assets and liabilities:
Trade accounts receivable, net................... (471,099) (992,049)
Net investment in direct financing leases........ 33,004 394,472
Inventories...................................... (4,418,909) (2,149,680)
Prepaid expenses and other current assets........ 37,279 64,140
Refundable income taxes.......................... (125,036) --
Trade accounts payable........................... 2,862,708 (4,841,737)
Income taxes payable............................. (69,256) (494,861)
Accrued liabilities.............................. (231,547) (58,505)
---------- ----------
Net cash provided by (used in) operating activities.... 1,469,226 (6,205,314)
---------- ----------
Cash flows from investing activities:
Net proceeds from sales of marketable securities..... 31,946 (273,321)
Additions to property, plant, and equipment.......... (369,014) (840,692)
Net proceeds from sale of equipment.................. 127,072 98,758
---------- ----------
Net cash used in investing activities.................. (209,996) (1,015,255)
---------- ----------
Cash flows from financing activities:
Net proceeds (repayments) of notes payable........... (128,247) 8,077,178
Net repayments of long-term debt..................... (1,095,927) (243,141)
Net proceeds of due to affiliates.................... 58,715 14,835
Dividends paid....................................... (106,000) (650,000)
---------- ----------
Net cash provided by (used in) financing activities.... (1,271,459) 7,198,872
---------- ----------
Net decrease in cash................................... (12,229) (21,697)
Cash at beginning of year.............................. 125,094 146,791
---------- ----------
Cash at end of year.................................... $ 112,865 125,094
========== ==========
Supplemental disclosures of cash flow information--
cash paid during the year for:
Interest............................................. $ 996,094 704,522
========== ==========
Income taxes, net of refunds received................ 1,785,792 1,619,861
========== ==========
Supplemental disclosures of noncash investing and fi-
nancing activities-- equipment acquired under capital
lease obligations..................................... $ 35,540 57,788
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Wm. R.
Hubbell Steel Corporation (Hubbell Steel) and its wholly owned
subsidiary, Mill Transportation Company (MTC), Hubbell International
Trading Company (Hubbell International), and Hubbell Leasing Company
(Hubbell Leasing), collectively referred to as the Company. These
entities are combined on the basis of common ownership and control. All
significant intercompany balances and transactions have been eliminated
in combination.
(b) MARKETABLE SECURITIES
Marketable securities consist principally of common stocks and are
stated at fair value based on quoted market prices. Realized and
unrealized gains and losses on marketable securities are included in
other income.
(c) INVENTORIES
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the last-in, first-out (LIFO) method.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost less accumulated
depreciation.
Building depreciation is computed using the straight-line method over
35 years. Depreciation on equipment and furniture and fixtures is
computed principally using accelerated methods, generally over five to
ten years.
(e) INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 (Statement No.
109), Accounting for Income Taxes. Under the asset and liability method
of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Hubbell Steel and MTC have elected to be treated as C Corporations and
file consolidated federal and state tax returns.
Hubbell International and Hubbell Leasing have elected to be treated as
S Corporations under the provisions of subchapter S of the Internal
Revenue Code. The stockholders of these companies are responsible for
federal and certain state income tax liabilities arising from company
earnings.
F-24
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(f) LEASE-RELATED POLICIES
Hubbell Leasing's lease transactions are classified in accordance with
FASB Statement of Financial Accounting Standards No. 13.
Hubbell Leasing primarily enters into direct financing leases. The
present value of the future lease payments and the present value of the
residual value are recorded as the initial investment in such leases
(however, residual values are generally assumed to have no value). This
initial investment generally represents Hubbell Leasing's leased
equipment cost. Unearned lease income is equal to the difference
between the future minimum lease payments plus the residual value and
their corresponding present values. Unearned lease income is amortized
and recorded as revenue over the term of the lease by applying a
constant periodic rate of return to the declining net investment.
(g) RECLASSIFICATIONS
Certain amounts included in the 1993 financial statements have been
reclassified to conform with the 1994 presentation.
(2)INVENTORIES
Had the specific cost identification method (replacement cost) been used,
inventories would have been $6,552,000 greater than reported at December
31, 1994, and $5,197,000 greater than reported at December 31, 1993.
(3)NET INVESTMENT IN DIRECT FINANCING LEASES
Net investment in direct financing leases is as follows:
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Minimum lease payments receivable (less allowance for
lease receivable bad debts of $158,900 and $291,000 at
December 31, 1994 and 1993, respectively)............. $ 643,655 681,285
Unearned lease income.................................. (127,048) (131,674)
--------- --------
Net investment in direct financing leases.............. 516,607 549,611
Less current portion................................... 156,718 151,135
--------- --------
$ 359,889 398,476
========= ========
</TABLE>
At December 31, 1994, future minimum lease payments to be received are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ---------
<S> <C>
1995.............................................................. $ 374,979
1996.............................................................. 224,139
1997.............................................................. 131,157
1998.............................................................. 53,124
1999.............................................................. 19,156
---------
802,555
Less allowance for lease receivable bad debts..................... (158,900)
---------
$ 643,655
=========
</TABLE>
F-25
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4)PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment is as follows:
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Land.................................................. $ 380,000 380,000
Building and improvements............................. 2,743,574 2,711,791
Warehouse equipment................................... 2,188,215 2,041,238
Automobiles, trucks, and other equipment.............. 514,820 538,611
Furniture and fixtures................................ 266,100 266,100
Office equipment...................................... 597,237 541,266
----------- ----------
6,689,946 6,479,006
Less accumulated depreciation......................... 3,423,362 3,072,700
----------- ----------
$ 3,266,584 3,406,306
=========== ==========
(5)DEBT OBLIGATIONS
NOTES PAYABLE
A summary of notes payable is as follows:
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Notes payable to bank................................. $10,340,001 10,546,127
Other notes payable................................... 284,163 206,284
----------- ----------
$10,624,164 10,752,411
=========== ==========
</TABLE>
Hubbell Steel, MTC, and Hubbell International maintain a line of credit
with their primary bank which provides for borrowings equal to the lesser
of $15,000,000 or a calculated amount based upon qualifying accounts
receivable and inventories with interest at prime (8.5% at December 31,
1994) plus 1/2%. Borrowings, which are payable upon demand, are secured by
a subordinated interest in certain of Hubbell Steel's property, plant, and
equipment and a primary interest in substantially all other assets. The
loan agreement contains various covenants. At December 31, 1994, all
covenants have been met or waived.
Borrowings under the line of credit are subject to cross default provisions
with all long-term debt.
Other notes payable represent unsecured notes payable due upon demand to
employees and persons related to employees with interest at prime.
F-26
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Mortgage note issued in connection with Industrial
Development Revenue Bond with interest at 92.26% of
prime, due in monthly installments of $11,111 plus
interest through July, 1996 and a final installment
on August 1, 1996.................................... $ 211,125 344,457
Mortgage note issued in connection with a building
purchase with interest at 8%, due in monthly
installments of $3,429 through September 2002 and a
final balloon payment of $286,389 due November 1,
2002................................................. 390,626 400,019
$1,500,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $46,725 plus interest through
May 1996, secured by substantially all the assets of
Hubbell Steel, MTC, and Hubbell International........ 749,125 1,309,825
$1,200,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, paid in
1994................................................. -- 281,398
$500,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $8,333 plus interest through
September 1997, secured by substantially all the
assets of Hubbell Leasing and guaranteed by Hubbell
Steel and MTC........................................ 275,009 375,005
$330,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $9,167 plus interest through
August 1996, secured by substantially all the assets
of Hubbell Leasing and guaranteed by Hubbell Steel
and MTC.............................................. 192,500 302,500
$250,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $6,944 plus interest through
September 1995, secured by substantially all the
assets of Hubbell Leasing and guaranteed by Hubbell
Steel and MTC........................................ 62,512 145,840
$100,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $1,667 plus interest through
August 1999 secured by substantially all the assets
of Hubbell Leasing and guaranteed by Hubbell Steel
and MTC.............................................. 93,332 --
$100,000 term note payable which bears interest at
prime (8.5% at December 31, 1994) plus 1/2%, due in
monthly installments of $2,778 plus interest through
August 1997 secured by substantially all the assets
of Hubbell Leasing and guaranteed by Hubbell Steel
and MTC.............................................. 88,888 --
---------- ---------
Total long-term debt.................................. 2,063,117 3,159,044
Less current installments............................. 1,030,060 1,278,084
---------- ---------
$1,033,057 1,880,960
========== =========
</TABLE>
F-27
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Hubbell Steel's mortgage note issued in connection with the Industrial
Development Revenue Bond is secured by Hubbell Steel's property, plant, and
equipment, substantially all other assets of Hubbell Steel, and the
unconditional guarantees of MTC and Hubbell International. The loan
agreement contains covenants regarding maintenance of minimum net worth and
restrictions on dividends, stock repurchases, and capital expenditures. At
December 31, 1994, all covenants have been met or waived.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ----------
<S> <C>
1995............................................................. $1,030,060
1996............................................................. 513,075
1997............................................................. 129,182
1998............................................................. 32,946
1999............................................................. 27,337
Thereafter....................................................... 330,517
----------
$2,063,117
==========
</TABLE>
(6) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ---------
<S> <C> <C> <C>
1994:
Federal...................................... $1,288,500 (35,500) 1,253,000
State........................................ 303,000 18,000 321,000
---------- ------- ---------
$1,591,500 (17,500) 1,574,000
========== ======= =========
1993:
Federal...................................... 848,000 20,000 868,000
State........................................ 277,000 7,000 284,000
---------- ------- ---------
$1,125,000 27,000 1,152,000
========== ======= =========
</TABLE>
Consolidated income tax expense for the Company amounted to $1,574,000 for
1994 (an effective rate of 31%) and $1,152,000 for 1993 (an effective rate
of 42.0%). The actual tax expense differs from the "expected" tax expense
as shown below:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Computed "expected" income tax expense at 34%........ $1,721,000 873,000
Increase (reduction) in income taxes resulting from:
Nontaxable life insurance proceeds................. (340,000) --
Subchapter S Corporations' losses.................. 7,000 60,000
State income taxes, net of related federal income
taxes............................................. 211,900 187,400
Nondeductible travel and entertainment expenses.... 12,600 7,500
Other.............................................. (38,500) 24,100
---------- ---------
$1,574,000 1,152,000
========== =========
</TABLE>
F-28
<PAGE>
WM. R. HUBBELL STEEL CORPORATION
AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 42,000 42,000
Other................................................... 36,000 27,600
-------- -------
78,000 69,600
-------- -------
Deferred tax liabilities:
Excess tax over financial statement depreciation........ 173,000 166,800
Excess of tax loss in limited partnership over book
loss................................................... 481,000 496,300
-------- -------
654,000 663,100
-------- -------
Net deferred tax liabilities.............................. $576,000 593,500
======== =======
</TABLE>
The Company has not recorded a valuation allowance related to its deferred
tax assets. In assessing the realizability of deferred tax assets,
management considered whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
(7)EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan (Plan) covering all of
its employees. The Company contributes a percentage of participants'
earnings to the Plan. Contributions amounted to approximately $26,000 and
$28,000 for the years ended December 31, 1994 and 1993, respectively.
(8)LEASE COMMITMENTS
The Company leases certain warehouse and office facilities. Total rent
expense under these operating lease agreements was approximately $427,000
and $398,000 for the years ended December 31, 1994 and 1993, respectively.
Minimum annual rental commitments under these leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1995................................................................ $505,000
1996................................................................ 72,000
1997................................................................ 33,000
--------
$610,000
========
</TABLE>
(9)CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's combined financial position.
(10)LIFE INSURANCE PROCEEDS
In 1994, the Company received $1,000,000 of life insurance proceeds on a
policy related to the death of a key officer. This amount is included in
other income.
F-29
<PAGE>
Board of Directors
Carolina Commercial Heat Treating, Inc.
Charlotte, North Carolina
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Carolina Commercial Heat
Treating, Inc. as of December 31, 1995 and 1994, and the related statements of
income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carolina Commercial Heat
Treating, Inc. as of December 31, 1995 and 1994, and the results of its
operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Scharf Pera & Co.
Charlotte, North Carolina
January 18, 1996
F-30
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments....................... $ 1,361,491 $ 1,166,003
Trade accounts receivable............................ 2,294,394 2,261,594
Current portion of notes receivable.................. 20,453 10,453
Prepaid and other assets............................. 10,312 60,215
----------- -----------
Total current assets............................... 3,686,650 3,498,265
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land................................................. 339,236 295,175
Buildings............................................ 446,352 446,352
Building equipment................................... 432,682 428,570
Shop equipment....................................... 15,416,261 13,737,233
Sales equipment...................................... 55,624 56,175
Office equipment..................................... 459,142 446,547
Motor vehicles....................................... 423,720 457,941
Leasehold improvements............................... 168,185 167,408
Equipment deposits................................... 65,798 450,853
----------- -----------
17,807,000 16,486,254
Less--accumulated depreciation..................... 10,991,277 10,072,635
----------- -----------
6,815,723 6,413,619
----------- -----------
OTHER ASSETS:
Long-term portion of notes receivable................ 616,434 458,044
Cash surrender value of officers' life insurance..... 1,037,824 872,177
Intangible assets.................................... 10,592 11,412
----------- -----------
1,664,850 1,341,633
----------- -----------
$12,167,223 $11,253,517
=========== ===========
</TABLE>
F-31
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 652,588 $ 555,418
Current portion of long-term debt.................. 214,681 465,305
Accrued pension contribution....................... 129,851 109,211
Accrued expenses................................... 328,354 767,928
Accrued withholdings and taxes, other than income.. 121,308 120,626
Income taxes payable............................... 11,849 5,009
----------- -----------
Total current liabilities........................ 1,458,631 2,023,497
----------- -----------
LONG-TERM DEBT--less current portion................. 273,786 676,863
----------- -----------
DEFERRED INCOME TAXES................................ 18,000 14,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 75,000 shares
authorized,
49,200 shares issued and outstanding............ 49,200 49,200
Additional paid-in capital......................... 102,414 102,414
Retained earnings.................................. 10,506,235 8,628,586
----------- -----------
10,657,849 8,780,200
Less treasury stock at cost--2,100 shares.......... (241,043) (241,043)
----------- -----------
10,416,806 8,539,157
----------- -----------
$12,167,223 $11,253,517
=========== ===========
</TABLE>
See Notes to Financial Statements
F-32
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET SALES............................................. $21,458,596 $20,621,268
COST OF SALES......................................... 15,293,976 15,011,995
----------- -----------
Gross profit........................................ 6,164,620 5,609,273
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE........... 3,274,209 3,462,784
----------- -----------
Income from operations.............................. 2,890,411 2,146,489
OTHER INCOME (EXPENSE):
Interest expense.................................... (54,183) (90,579)
Other income, net................................... 215,028 73,709
----------- -----------
160,845 (16,870)
----------- -----------
Income before taxes................................. 3,051,256 2,129,619
Taxes on income..................................... 38,200 29,825
----------- -----------
NET INCOME.......................................... $ 3,013,056 $ 2,099,794
=========== ===========
</TABLE>
See Notes to Financial Statements
F-33
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------- ----------------
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993, as previously
stated.................. 49,200 $49,200 2,100 $(241,043) $102,414 $ 7,754,150 $ 7,664,721
Prior period
adjustment.............. -- -- -- -- -- (225,358) (225,358)
------ ------- ----- --------- -------- ----------- -----------
Balance at December 31,
1993, as restated....... 49,200 49,200 2,100 (241,043) 102,414 7,528,792 7,439,363
Dividends paid........ -- -- -- -- -- (1,000,000) (1,000,000)
Net income, as
previously stated....... -- -- -- -- -- 2,301,581 2,301,581
Prior period
adjustment.............. -- -- -- -- -- (201,787) (201,787)
------ ------- ----- --------- -------- ----------- -----------
Net income, as
restated................ -- -- -- -- -- 2,099,794 2,099,794
------ ------- ----- --------- -------- ----------- -----------
Balance at December 31,
1994, as restated....... 49,200 49,200 2,100 (241,043) 102,414 8,628,586 8,539,157
Dividends paid........ -- -- -- -- -- (1,135,407) (1,135,407)
Net income............ -- -- -- -- -- 3,013,056 3,013,056
------ ------- ----- --------- -------- ----------- -----------
Balance at December 31,
1995.................... 49,200 $49,200 2,100 $(241,043) $102,414 $10,506,235 $10,416,806
====== ======= ===== ========= ======== =========== ===========
</TABLE>
See Notes to Financial Statements
F-34
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $3,013,056 $2,099,794
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization..................... 1,311,762 1,113,383
(Gain) loss on sale of equipment.................. (13,352) 84,103
(Increase) decrease in:
Trade accounts receivable....................... (32,800) (636,820)
Prepaid and other assets........................ 49,903 (27,886)
Income tax refund receivable.................... -- 3,108
Increase (decrease) in:
Accounts payable................................ 97,170 109,396
Accrued pension contribution.................... 20,640 10,250
Accrued salaries and wages...................... (439,574) 415,625
Accrued taxes other than income................. 682 29,731
Income tax payable.............................. 6,840 5,009
Deferred income taxes........................... 4,000 7,144
---------- ----------
Net cash provided by operations................... 4,018,327 3,212,837
---------- ----------
Cash flows from investing activities:
Payments received on notes receivable............... 15,641 11,258
Additions on notes receivable....................... (184,031) (44,100)
Increase in cash surrender value of officers' life
insurance............................................. (165,647) (121,923)
Proceeds from the sale of property, plant and
equipment............................................. 67,227 48,470
Purchase of property, plant and equipment........... (1,766,920) (1,768,573)
---------- ----------
Net cash used in investing activities............. (2,033,730) (1,874,868)
---------- ----------
Cash flows from financing activities:
Distributions to shareholders....................... (1,135,407) (1,000,000)
Payments on long-term debt obligations.............. (510,803) (316,181)
Proceeds from long-term debt obligations............ 15,996 245,000
Payments on notes payable........................... (158,895) --
---------- ----------
Net cash flows used in financing activities....... (1,789,109) (1,071,181)
---------- ----------
Net increase in cash.................................. 195,488 266,788
Cash--beginning of year............................... 1,166,003 899,215
---------- ----------
Cash--end of year..................................... $1,361,491 $1,166,003
========== ==========
</TABLE>
See Notes to Financial Statements
F-35
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY:
Carolina Commercial Heat Treating, Inc. (the Company) is engaged in heat
treating industrial users' metal parts. The Company's corporate headquarters
and marketing division are located in Charlotte, North Carolina. The Company
operates heat treating plants in Fountain Inn, South Carolina; Morristown,
Tennessee; Reidsville, North Carolina; and Conyers, Georgia. The Company's
primary customers are manufacturers.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Depreciation is recorded
on the straight-line method over the estimated useful lives of 25-32 years for
buildings and building equipment, 5-7 years for shop equipment, sales
equipment and office equipment, 5 years for motor vehicles and 32 years for
leasehold improvements. Equipment deposits consists of commercial heat
treating equipment not yet placed in service. Maintenance and repair costs are
expensed as incurred. Gains or losses on dispositions are reflected in income.
INTANGIBLE ASSETS:
During 1993, the Company acquired intangible assets of $12,300 in connection
with the acquisition of the Conyers, Georgia heat treating plant. These
intangible assets are being amortized on the straight-line method over the
estimated useful lives of 15 years.
INCOME TAXES:
The Company's stockholders have elected for the corporation to be taxed
under the provision of Subchapter S of the Internal Revenue Code. Under this
provision, the stockholders are taxed on their proportionate share of the
Company's taxable income.
The State of Tennessee does not recognize the Subchapter S provision of the
Internal Revenue Code. Income taxes have been provided on the proportionate
share of income attributable to Tennessee. Deferred income taxes are provided
on timing differences between financial and taxable income and result
principally from the use of different depreciation methods for tax and
financial reporting purposes. The Company has adopted SFAS 109, Accounting for
Income Taxes, to account for deferred income taxes. Deferred taxes are
computed based on the tax liability or benefit in future years of the reversal
of temporary differences in the recognition of income or deduction of expenses
between financial and tax reporting purposes. Under the provisions of SFAS
109, the Company elected not to restate prior years' financial statements
because the effect was not significant.
SELF-INSURANCE:
The company is generally self-insured for losses and liabilities related to
workers' compensation and health insurance claims. The Company's maximum self-
insured exposure for workers' compensation claims is limited to $100,000 per
individual and $1,000,000 in aggregate. The Company's maximum self-insured
exposure for health insurance claims is limited to $35,000 per individual and
$960,000 in aggregate. Losses are accrued based upon the Company's estimates
of the aggregate liability for claims incurred based on Company experience.
F-36
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2--PRIOR PERIOD ADJUSTMENT:
Prior period adjustments have been made to reflect a change in accounting
for bonuses payable to the Company's executive officers. The net effect of
this change in accounting policy has been to decrease ending retained earnings
for the year ended December 31, 1993 by $225,358, increase selling, general
and administrative expense for the year ended December 31, 1994 by $201,787,
and to increase accrued expenses at December 31, 1994 by $427,145, from
amounts previously reported. All amounts affected have been restated in the
financial statements.
NOTE 3--RELATED PARTY TRANSACTIONS:
The Company leases its corporate headquarters from Old Pineville Properties.
Rents paid to this partnership were $27,000 during the years ended December
31, 1995 and 1994. The Company leases its Fountain Inn, South Carolina, and
Reidsville, North Carolina heat treating plants from Blacksmith Leasing.
During the years ended December 31, 1995 and 1994, the Company paid this
partnership rents totaling $243,000. These partnerships are comprised of
certain of the Company's shareholders.
NOTE 4--NOTES RECEIVABLE--RELATED PARTIES:
Notes receivable from related parties at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Note receivable from Old Pineville Properties dated December,
1986,
due in 120 monthly payments of $1,187 including interest at
9 percent;
secured by the corporate headquarters building.............. $ 14,647 $ 26,959
Note receivable--trust; increased monthly by a portion of the
life insurance
policies premiums; payment due out of the life insurance
proceeds upon
death of the insured........................................ 460,568 441,538
Note receivable--stockholder dated July, 1995, due in 180
monthly payments
of $1,430 including interest at 6.42 percent; unsecured..... 161,672 --
-------- --------
636,887 468,497
Less current portion......................................... 20,453 10,453
-------- --------
$616,434 $458,044
======== ========
</TABLE>
NOTE 5--DEFINED CONTRIBUTION PLAN:
The Company sponsors a defined contribution plan covering substantially all
of its employees which have met certain specified service qualifications. All
contributions to this plan are at the discretion of the Company's Board of
Directors and are limited to the maximum amount allowable under Internal
Revenue Service regulations. The expense for the contribution to this plan for
the years ended December 31, 1995 and 1994, was $130,686 and $109,211,
respectively.
F-37
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 6--LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Commercial note payable dated December 21, 1993; due in 60
monthly
installments of $12,023, including interest at 7.5
percent; secured by
equipment costing $6,963,429.............................. $386,366 $ 497,168
Promissory note payable dated December 31, 1993; due in 3
annual installments of $200,000 plus interest payable
quarterly at 8 percent; first installment due December 31,
1994; secured by equipment costing $1,017,700............. -- 400,000
Promissory note payable dated December 31, 1994; due in 19
monthly installments of $12,895; first installment due
January 1, 1995; unsecured................................ 90,260 245,000
Capitalized lease payable dated February, 1995; payable in
36 monthly installments of $486.75 plus interest at 6
percent beginning April, 1995; secured by shop equipment.. 11,841 --
-------- ----------
488,467 1,142,168
Less current portion....................................... 214,681 465,305
-------- ----------
$273,786 $ 676,863
======== ==========
</TABLE>
At December 31, 1995, long-term debt was due in aggregate annual installments
as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996....................................................... 214,681
1997....................................................... 134,143
1998....................................................... 139,643
Thereafter.................................................. --
--------
$488,467
========
</TABLE>
NOTE 7--INCOME TAXES:
The provision for Tennessee state income taxes at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
State income tax at statutory rates........................ $40,121 $27,816
Tax credits................................................ (5,921) (5,135)
Deferred income taxes...................................... 4,000 7,144
------- -------
$38,200 $29,825
======= =======
</TABLE>
F-38
<PAGE>
CAROLINA COMMERCIAL HEAT TREATING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 8--COMMITMENTS AND CONTINGENCIES:
The Company occupies certain facilities and uses certain equipment under
operating leases. Commitments under operating leases with terms extending
beyond one year at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
RELATED PARTIES REAL
REAL PROPERTY PROPERTY VEHICLES
--------------- -------- --------
<S> <C> <C> <C>
1996......................................... 270,000 60,219 147,240
1997......................................... 270,000 64,130 132,990
1998......................................... 256,500 65,412 113,715
1999......................................... 256,500 38,598 108,240
2000......................................... 256,500 -- 97,265
Thereafter.................................... 702,000 -- 35,913
</TABLE>
For the years ended December 31, 1995 and 1994, operating lease expense was
$358,619 and $352,290, respectively. Operating lease expenses paid to related
parties for the years ended December 31, 1995 and 1994 was $270,000.
NOTE 9--OTHER MATTERS:
MAJOR CUSTOMERS:
For the years ended December 31, 1995 and 1994, respectively, the Company
had sales to one customer representing 16 percent and 15 percent of its total
for the years then ended.
F-39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON BY ANY-
ONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY
BE MADE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 10
Capitalization........................................................... 11
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Selected Financial Data.................................................. 13
Unaudited Pro Forma Financial Data....................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 21
Management............................................................... 32
Certain Transactions..................................................... 39
Principal and Selling Stockholders....................................... 40
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Additional Information................................................... 50
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL JULY 15, 1996 (25 DAYS AFTER THE DATE OF THIS OFFERING), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
3,000,000 SHARES
GIBRALTAR STEEL CORPORATION
COMMON STOCK
($.01 PAR VALUE)
[LOGO]
GIBRALTAR
SALOMON BROTHERS INC
SMITH BARNEY INC.
PROSPECTUS
DATED JUNE 20, 1996
