FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-22462
Gibraltar Steel Corporation
(Exact name of Registrant as specified in its charter)
Delaware 16-1445150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228
(Address of principal executive offices)
(716) 826-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
As of July 31, 1998, the number of common shares outstanding
was:12,476,293.
1 of 13
<PAGE>
GIBRALTAR STEEL CORPORATION
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 (unaudited) and
December 31, 1997 (audited) 3
Condensed Consolidated Statements of Income
Six months ended June 30, 1998 and
1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
PART II. OTHER INFORMATION 12
2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1998 1997
(unaudited) (audited)
<TABLE>
<S> <S><S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,967 $ 2,437
Accounts receivable 77,615 49,151
Inventories 110,839 76,701
Other current assets 4,428 2,457
Total current assets 195,849 130,746
Property, plant and equipment, net 151,193 115,402
Other assets 84,356 35,188
$ 431,398 $ 281,336
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 57,402 $ 38,233
Accrued expenses 12,174 3,644
Current maturities of long-term debt 1,272 1,224
Total current liabilities 70,848 43,101
Long-term debt 189,039 81,800
Deferred income taxes 19,898 15,094
Other non-current liabilities 1,657 1,297
Shareholders' equity
Preferred shares - -
Common shares 125 124
Additional paid-in capital 66,229 66,190
Retained earnings 83,602 73,730
Total shareholders' equity 149,956 140,044
$ 431,398 $ 281,336
======== ========
</TABLE>
See accompanying notes to financial statements
3 of 13
<PAGE>
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(unaudited) (unaudited)
<TABLE>
<S><S><S> <C> <C> <C> <C>
Net sales $ 144,882 $ 119,213 $ 261,265 $ 227,490
Cost of sales 117,989 99,296 214,212 188,875
Gross profit 26,893 19,917 47,053 38,615
Selling, general and
administrative expense 14,563 10,576 26,249 20,652
Income from operations 12,330 9,341 20,804 17,963
Interest expense 2,745 1,448 4,351 2,597
Income before taxes 9,585 7,893 16,453 15,366
Provision for income taxes 3,834 3,196 6,581 6,223
Net income $ 5,751 $ 4,697 $ 9,872 $ 9,143
========= ========= ========= =========
Net income per share-Basic $ .46 $ .38 $ .79 $ .74
========= ========= ========= =========
Weighted average number of
shares outstanding-Basic 12,451 12,326 12,431 12,325
========= ========= ========= =========
Net income per share-Diluted $ .45 $ .37 $ .78 $ .73
========= ========= ========= =========
Weighted average number of
shares outstanding-Diluted 12,698 12,560 12,653 12,557
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
4 of 13
<PAGE>
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1998 1997
(unaudited)
<TABLE>
<S><S><S> <C> <C>
Cash flows from operating activities
Net income $ 9,872 $ 9,143
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 5,767 4,053
Provision for deferred income taxes 627 766
Undistributed equity investment income (185) (220)
Increase (decrease) in cash resulting from
changes in (net of acquisitions):
Accounts receivable (13,705) (8,113)
Inventories (17,797) (1,471)
Other current assets (1,270) (561)
Accounts payable and accrued expenses 11,687 (799)
Other assets (640) (257)
Net cash (used in) provided by operating
activities (5,644) 2,541
Cash flows from investing activities
Acquisitions, net of cash acquired (86,799) (26,475)
Purchases of property, plant and equipment (8,253) (11,776)
Net proceeds from sale of property and equipment 104 62
Net cash used in investing activities (94,948) (38,189)
Cash flows from financing activities
Long-term debt reduction (8,312) (43,701)
Proceeds from long-term debt 109,394 78,365
Net proceeds from issuance of common stock 40 77
Net cash provided by financing activities 101,122 34,741
Net increase (decrease) in cash and
cash equivalents 530 (907)
Cash and cash equivalents at beginning of year 2,437 5,545
Cash and cash equivalents at end of period $ 2,967 $ 4,638
======= =======
</TABLE>
See accompanying notes to financial statements
5 of 13
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements as
of June 30, 1998 and 1997 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 June 30, 1998 and 1997 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, 1997.
The results of operations for the six month period ended June
30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. INVENTORIES
Inventories consist of the following:
(in thousands)
June 30, December 31,
1998 1997
(unaudited) (audited)
Raw material $ 73,204 $ 51,804
Finished goods and work-in-process 37,635 24,897
Total inventories $110,839 $ 76,701
======= =======
6 of 13
<PAGE>
3. STOCKHOLDERS' EQUITY
The changes in stockholders' equity consist of:
(in thousands)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings
December 31, 1997 12,410 $ 124 $ 66,190 $ 73,730
Net income - - - 9,872
Stock options exercised - - 10 -
Restricted stock granted 55 1 - -
Earned portion of
restricted stock - - 29 -
June 30, 1998 12,465 $ 125 $ 66,229 $ 83,602
==========================================
4. EARNINGS PER SHARE
Basic net income per share equals net income divided by the
weighted average shares outstanding for the six months ended
June 30, 1998 and 1997. The computation of diluted net income
per share includes all dilutive common stock equivalents in the
weighted average shares outstanding. The reconciliation between
basic and diluted earnings per share is as follows:
Basic Basic Diluted Diluted
Income Shares EPS Shares EPS
1998 $9,872,000 12,430,671 $.79 12,653,190 $.78
1997 $9,143,000 12,325,255 $.74 12,557,382 $.73
Included in diluted shares are common stock equivalents relating
to options of 222,519 and 232,127 for 1998 and 1997,
respectively.
5. ACQUISITIONS
On June 1, 1998, the Company purchased all the outstanding
common stock of United Steel Products Company (USP) for
approximately $24 million in cash. USP designs and
manufacturers lumber connector products for the wholesale market
and plastic molded products for component manufacturers.
On April 1, 1998, the Company purchased the assets and business
of Appleton Supply Co., Inc. (Appleton) for approximately $28
million in cash. Appleton manufactures louvers, roof edging,
soffitts and other metal building products for wholesale
distribution.
7 of 13
<PAGE>
On March 1, 1998, the Company purchased the assets and business of
The Solar Group (Solar) for approximately $35 million in cash.
Solar manufactures a line of construction products as well as a
complete line of mailboxes, primarily manufactured with galvanized
steel.
On January 31, 1997, the Company purchased all of the outstanding
capital stock of Southeastern Metals Manufacturing Company, Inc.
(SEMCO) for approximately $25 million in cash. SEMCO manufactures
a wide array of metal products for the residential and commercial
construction markets.
These acquisitions have been accounted for under the purchase
method. Results of operations of USP, Appleton, Solar and SEMCO
have been consolidated with the Company's results of operations
from the respective acquisition dates. The aggregate excess of
the purchase prices of these acquisitions over the fair market
values of the net assets of the acquired companies is
approximately $58 million and is being amortized over 35 years
from the 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, 1997. 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, 1997 and are not
necessarily indicative of future results of the combined
companies.
(in thousands, except per share data)
Six Months Ended
June 30,
1998 1997
(unaudited)
Net sales $ 289,797 $ 289,714
======== ========
Income before taxes $ 16,909 $ 15,989
======== ========
Net income $ 10,079 $ 9,420
======== ========
Net income per share-Basic $ .81 $ .76
======== ========
8 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales of $144.9 million for the second quarter ended June
30, 1998 increased 21.5% from sales of $119.2 million for the
prior year's second quarter. This increase resulted from
including net sales of Solar (acquired March 1, 1998), Appleton
(acquired April 1, 1998) and USP (acquired June 1, 1998) and
sales growth at existing operations which combined to more than
offset the impact of a strike at an automotive customer in June
1998, which was settled in July 1998. Sales to that automobile
manufacturer were less than 7% of the Company's total sales for
the six months ended June 30, 1998.
Cost of sales as a percentage of net sales decreased to 81.4%
for the second quarter and to 82.0% for the first six months of
1998. Gross profit increased to 18.6% and 18.0% for the second
quarter and the six months ended June 30, 1998 from 16.7% and
17.0% for the comparable periods in 1997. This increase is
primarily due to higher margins at SEMCO, Solar, Appleton and
USP, which have historically generated higher margins than the
Company's other products and services, and due to lower raw
material costs at existing operations.
Selling, general and administrative expenses as a percentage of
net sales increased to 10.1% for the second quarter ended June
30, 1998, from 8.9% for the same period of 1997. This increase
was primarily due to higher costs as a percentage of sales
attributable to Solar, Appleton and USP and performance based
compensation linked to the Company's sales and profitability.
Interest expense increased by $1.3 million for the second
quarter ended June 30, 1998 primarily due to higher borrowings
to finance the Solar, Appleton and USP acquisitions.
As a result of the above, income before taxes increased by $1.7
million for the quarter ended June 30, 1998.
Income taxes for the three months ended June 30, 1998
approximated $3.8 million and were based on a 40.0% effective
tax rate for 1998 compared to an effective tax rate of 40.5% for
the same period in 1997.
Liquidity and Capital Resources
During the first six months of 1998, the Company increased its
working capital to $125.0 million. Additionally, shareholders'
equity increased to $150.0 million at June 30, 1998.
The Company's principal capital requirements are to fund its
operations, including working capital, the purchase and funding
of improvements to its facilities, machinery and equipment and
to fund acquisitions.
9 of 13
<PAGE>
Net income of $9.9 million and depreciation and amortization of
$5.8 million combined with an increase in accounts payable and
accrued expenses (net of acquisition) of $11.7 million to
provide cash of $27.4 million. Increases in inventory, accounts
receivable and other current assets of $32.8 million in
aggregate, necessary to service increased sales levels, offset
the cash generated from operations, resulting in net cash used
for operations of approximately $5.6 million.
Cash used in operations of $5.6 million, capital expenditures of
$8.3 million and the acquisition of Solar, Appleton and USP for
approximately $86.8 million in total were primarily funded by
net borrowings of $101.1 million under the Company's credit
facility.
During the second quarter of 1998, the Company increased its
bank credit facility to $235 million to provide additional funds
to grow its business. At June 30, 1998 the Company's aggregate
credit facilities available approximated $239 million with
borrowings of approximately $189 million and an additional
availability of approximately $50 million.
The Company believes that availability of funds under its credit
facilities together with cash generated from operations will be
sufficient to provide the Company with the liquidity and capital
resources necessary to support its existing operations. The
Company also believes it has the financial capability to
increase its long-term borrowing capacity due to changes in
capital requirements.
Impact of Year 2000
The Company is in the process of evaluating its management
information systems to determine Year 2000 compliancy. The
Company currently believes that costs required to achieve Year
2000 compliancy will not be material to its financial
statements.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 Accounting
for Derivative Instruments and Hedging Activities (FAS No. 133)
which requires recognition of the fair value of derivatives in
the statement of financial position, with changes in the fair
value recognized either in earnings or as a component of other
comprehensive income dependent upon the hedging nature of the
derivative. Implementation of FAS No. 133 is required for
fiscal 2000. The Company does not believe that FAS No. 133 will
have a material impact on its earnings or other comprehensive
income.
10 of 13
<PAGE>
Safe Harbor Statement
The Company wishes to take advantage of the Safe Harbor
provisions included in the Private Securities Litigation
Reform Act of 1995 (the "Act"). Statements by the Company,
other than historical information, constitute "forward
looking statements" within the meaning of the Act and may
be subject to a number of risk factors. Factors that could
affect these statements include, but are not limited to,
the following: the impact of changing steel prices on the
Company's results of operations; changing demand for the
Company's products and services; and changes in interest or
tax rates.
11 of 13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits - None
a. Exhibit 27 - Financial Data Schedule
2. Reports on Form 8-K. There were no reports on Form 8-K
during the three months ended June 30, 1998.
12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GIBRALTAR STEEL CORPORATION
(Registrant)
By /x/ Brian J. Lipke
Brian J. Lipke
President, Chief Executive Officer
and Chairman of the Board
By /x/ Walter T. Erazmus
Walter T. Erazmus
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Date August 13, 1998
13 of 13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,967
<SECURITIES> 0
<RECEIVABLES> 79,028
<ALLOWANCES> 1,413
<INVENTORY> 110,839
<CURRENT-ASSETS> 195,849
<PP&E> 192,049
<DEPRECIATION> 40,856
<TOTAL-ASSETS> 431,398
<CURRENT-LIABILITIES> 70,848
<BONDS> 189,039
0
0
<COMMON> 125
<OTHER-SE> 149,831
<TOTAL-LIABILITY-AND-EQUITY> 431,398
<SALES> 261,265
<TOTAL-REVENUES> 261,265
<CGS> 214,212
<TOTAL-COSTS> 214,212
<OTHER-EXPENSES> 26,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,351
<INCOME-PRETAX> 16,453
<INCOME-TAX> 6,581
<INCOME-CONTINUING> 9,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,872
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
