SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES ACT OF 1934
For The Fiscal Year Ended December 31, 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 Identification No.)
incorporation organization)
3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228
(address of principal executive offices) (Zip Code)
(716) 826-6500
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value NASDAQ National Market System
Securities registered pursuant to Section 12(g) of the Act:
NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. ( )
As of December 31, 1998, the aggregate market value of the voting
stock held by nonaffiliates of the Registrant amounted to
$140,803,000.
As of December 31, 1998, the number of common shares outstanding
was: 12,484,418.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the
Annual Meeting of Shareholders
to be held May 18, 1999, are incorporated by reference into Part III
of this report.
Exhibit Index is on Page 39
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PART I
Item 1. Description of Business
General
The Company is a processor of a broad array of high value-
added, technically sophisticated steel and other metal
products. The Company utilizes any one or a combination
of several different processes at each of its operating
facilities to add substantial margin and value to raw
material acquired from primary steel and other metal
producers. Underlying each of these processes is a common
set of steel and metal processing core competencies.
These core competencies are the foundation upon which all
the Company's operations and customer offerings are based.
Expertise in these core competencies has allowed the
Company to successfully expand beyond its original cold-
rolled strip steel and steel strapping processing
operations to the processing of building and construction
products and providing of metallurgical heat treating and
materials management services.
Industry Overview
Steel and metal processors occupy a market niche that
exists between the primary steel and metal producers and
end-users and others. Primary steel and metal producers
typically focus on the sale of standard size and tolerance
steel and other metals to large volume purchasers,
including steel and metal processors. At the same time,
end-users require steel with closer tolerances and with
shorter lead times than the primary steel and metal
producers can provide efficiently.
Metal Processes, Products and Services
The Company produces and delivers a variety of products
and services on a just-in-time basis for industrial
manufacturers, fabricators and other end-users in the
automotive, automotive supply, appliance, building and
construction, machinery, and steel industries.
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The following table sets forth certain information
regarding sales of products and services as a percentage
of net sales for the past three years:
Year ended December 31,
Products and Services 1996 1997 1998
Cold-rolled strip steel 43% 35% 30%
Building and construction products - 20% 32%
Precision metal products 44% 36% 31%
Other processes and services 13% 9% 7%
The following steel and metal products, processes, and
services are provided by the Company:
Cold-Rolled Strip Steel
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,
temper rolling, edge rolling and slitting. Cold reduction
is the rolling of steel to a specified thickness, tolerance
and finish. Annealing is a thermal process which changes
hardness and certain metallurgical characteristics of steel.
Temper rolling is the rolling of steel to a specific
hardness. Edge rolling involves conditioning edges of
processed steel into square, fully round or partially round
shapes. 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.
The Company operates 10 rolling mills at its facilities in
Cleveland, Ohio, Chattanooga, Tennessee and Buffalo, New
York, all of which are QS9000 certified, and is capable of
rolling widths of up to 50 inches. The Company has the
capability to process coils up to a maximum of 72 inch
outside diameter. The Company's rolling mills include
automatic gauge control systems with hydraulic screwdowns
allowing for microsecond adjustments during processing. In
January 1998, the Company began operating a 56 inch
reversing mill which the Company believes is the widest of
its type in the industry.
The Company's computerized mills produce products meeting
the most stringent statistical quality control standards,
enabling it to satisfy a growing industry demand for a range
of steel from thicker to thinner, low carbons to alloy
grades, all with precision gauge tolerances as close as +/-
.0002 inches.
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The Company's rolling facilities are further complemented by 15
high convection annealing furnaces, which shorten annealing
times over conventional annealers. The Company's newest
furnaces incorporate 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 steel 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 the steel strip in a manner
similar to the way thread is wound on a spool. Oscillating
the steel 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.
Building and Construction Products
The Company processes steel and other metal to manufacture
a wide array of products for the building and
construction industry. Building and construction industry
products are manufactured primarily from galvanized steel,
as well as from aluminum, copper and other metals.
Building and construction products manufactured include
metal trims, prefab homes and utility sheds, steel lumber
connectors, metal roofing, drywall products, gutters and
down spouts, ventilation products and storm panel systems
for residential and commercial properties.
During 1998, the Company acquired three building and
construction products companies which broaden its product
line, extends its geographic reach and further diversifies
and builds its customer base. The Solar Group (Solar),
acquired in March 1998, operates three facilities located
in Mississippi and primarily manufactures wind turbines,
power vents, other ventilation products and accessories.
Appleton Supply Co., Inc. (Appleton), acquired in April
1998 with facilities located in Wisconsin and Missouri,
also manufacturers ventilation products and accessories,
as well as roofing products and other construction
products. United Steel Products Company (USP), acquired
in June 1998 with facilities located in Minnesota,
California, North Carolina and New Jersey, is a leading
producer of steel lumber connectors and gives the Company
its first manufacturing and distribution facility on the
West Coast. These three acquisitions compliment the
Company's existing building and construction products
business comprised of Southeastern Metals Manufacturing
Company, Inc. (SEMCO), with facilities located in Florida,
Georgia, Tennessee and Texas. All of these facilities
use precision engineering combined with slitting,
stamping, roll forming and other processes to manufacture
their various products.
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Precision Metal Products
The Company's precision metal products are comprised primarily of
higher value-added flat-rolled sheet steel, as well as steel
strapping and other products.
Precision Metal Processing. The Company operates two precision
metals facilities in New York and Tennessee which primarily
process flat-rolled sheet steel. In addition to slitting and
cutting to length, these precision metals facilities can produce
higher value-added products which are held to close tolerances
and tight specifications through cold-rolling, annealing,
blanking, oscillating and edging rolling.
The Company also operates two precision metals facilities
in Illinois and Alabama which process galvanized,
Galvalume and prepainted steel and can slit and cut to
length material based upon customer specifications.
Steel Strapping. 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 believes that it is one of four major domestic
manufacturers of high tensile steel strapping, which is used in
heavy duty applications. High tensile strapping is subject to
strength requirements imposed by the American Society for
Testing and Materials 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,
paper and lumber where reliability of the packaging material is
critical to the safe transport of the product.
The Company's QS9000 certified strapping facility manufactures
high tensile steel strapping by slitting, oscillating, heat
treating, painting and packaging cold-rolled coils.
Steel strapping is cold-rolled to precise gauge on one of the
Company's rolling mills, which incorporates hydraulic screw
downs and automatic gauge controls with statistical charting.
This process ensures strapping product of the most uniform
gauge available and produces the maximum amount of strapping
per pound of steel. All products are tested by on-site
laboratory personnel for width, thickness and other physical
and metallurgical properties.
To meet the differing needs of its customers, the Company
offers its strapping products in various thicknesses, widths
and coil sizes. The Company also manufactures custom color and
printed strapping. In addition, the Company offers related
strapping products, such as seals and tools, and is able to
manufacture tensional strapping for lighter duty applications.
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Other Products. The Company's Solar acquisition produces
a complete line of mailboxes manufactured primarily with
galvanized steel. The Company believes it is the largest
manufacturer of mailboxes in the United States.
Other Processes and Services
Metallurgical Heat Treating Services. The Company provides a
wide range of metallurgical heat treating services in which
customer-owned parts are exposed to precise temperature and
other conditions to improve their mechanical properties,
durability and wear resistance. These services include 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 nitriding,
as well as a host of other services, these heat treating
processes can harden, soften or otherwise impart desired
properties on parts made of steel, copper and various alloys
and other metals. A variety of brazing services to join
metallic objects together is also provided.
The Company acquired Harbor Metal Treating Co., Inc.
(Harbor) in October 1998 and now operates nine heat
treating facilities in North Carolina, South Carolina,
Tennessee, Georgia, Alabama, Michigan, Indiana and
Illinois. The Company 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.
Additionally, the Company maintains a fleet of trucks and
trailers to provide rapid turnaround time for its
customers.
Due to time and costs associated with transporting
materials and customers' need for just-in-time delivery of
heat treated products, the commercial heat treating
industry has developed as a regional industry concentrated
in major industrial areas of the country. In addition,
the commercial heat treating industry has realized
significant growth in recent years as many companies
involved in the manufacture of metal components outsource
their heat treating requirements. The Company believes
that its heat treating facilities are strategically
located to meet the needs of customers from a
geographically diverse base of operations and to
capitalize on the growing trend in outsourcing of heat
treating operations.
Materials Management Services. The Company operates two
materials management facilities that link primary steel
producers and end-user manufacturers by integrating the
inventory purchasing, receiving, inspection, billing, storage
and shipping functions and producing true just-in-time delivery
of materials. These facilities receive shipments of steel by
rail and truck from 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 through the use of a specialized stacker
crane and racking system. When an order is placed, the Company
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often delivers 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.
Steel Pickling Joint Venture. The Company is a minority
partner in two steel pickling operations in Ohio. 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. This joint
venture pickles steel on a toll basis, receiving fees for its
pickling services without acquiring ownership of the steel.
Quality Control
The Company carefully selects its raw material vendors and uses
computerized inspection and analysis to assure that the steel
and other metals which it processes will be able to meet the
most critical specifications of its customers. The Company
uses documented procedures during the production process, along
with statistical process control computers linked directly to
processing equipment, to monitor that such specifications are
met. Physical, chemical and metallographic analyses are
performed during the production process to verify that
mechanical and dimensional properties, cleanliness, surface
characteristics and chemical content are within specification.
Suppliers and Raw Materials
Steel and metal processing companies are required to maintain
substantial inventories of raw materials in order 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 the customers based upon historic buying practices and
market conditions. The primary raw material processed by the
Company is flat rolled steel purchased at regular intervals
primarily from 18 major North American suppliers and a limited
number of foreign steel companies. The Company has no long-
term commitments with any of its suppliers.
Technical Services
The Company employs a staff of engineers and other technical
personnel and maintains fully-equipped, modern laboratories to
support its operations. These laboratories 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 conjunction with the sales
force to determine the types of steel required for the particular needs of
the Company's customers.
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Sales and Marketing
The Company's products and services are sold primarily by
Company sales personnel located throughout the United States
and Mexico. This marketing staff is supported by a vice
president of sales for each of the Company's principal product
lines.
Customers and Distribution
The Company has approximately 9,000 customers located
throughout the United States, Canada and Mexico principally in
the automotive, automotive supply, appliance, building and
construction, machinery and steel industries. Major customers
include automobile manufacturers and suppliers, building and
construction product distributors, and commercial and
residential contractors. No customer of the Company
represented 10% or more of the Company's net sales for 1996,
1997 or 1998.
The Company manufactures its products exclusively to customer
order rather than for inventory, except for building and
construction products. 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.
Competition
The steel processing market is highly competitive. The Company
competes with a small number of other steel processors, some of
which 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 also competes with a small number of other steel
strapping manufacturers on the basis of quality, price, product
variety and the ability to meet delivery schedules dictated by
customers.
The Company competes with numerous suppliers of building and
construction products in its market on the basis of quality,
price and delivery.
The Company competes with a small number of suppliers of heat
treating services in its market areas on the basis of quality,
price, and delivery.
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Employees
At December 31, 1998, the Company employed approximately 2,700
people, of which approximately 200 are represented by
collective bargaining agreements.
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
December 31, 1998 will be shipped prior to the end of 1999.
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 in order 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.
The Company's operations are also governed by many other laws
and regulations. 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.
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Item 2. Description of Properties
The Company maintains its corporate headquarters in Buffalo,
New York and conducts its business operations in facilities
located throughout the United States.
The Company believes that its primary existing facilities,
listed below, and their equipment are effectively utilized,
well maintained, in good condition and will be able to
accommodate its capacity needs through 1999.
Square Owned or
Location Utilization Footage Leased
Buffalo, New York Headquarters 23,000 Leased
Buffalo, New York Precision metals processing;
warehouse 207,000 Owned
Cheektowaga, New York Cold-rolled strip steel
processing and strapping
products 148,000 Owned
Tonawanda, New York Cold-rolled strip steel
and precision metals
processing 128,000 Owned
Lackawanna, New York Materials management facility 65,000 Leased
Dearborn, Michigan Strapping tool products 3,000 Owned
Woodhaven, Michigan Materials management facility 100,000 Owned
Franklin Park, Illinois Coated sheet steel and
precision metals processing 99,000 Owned
Birmingham, Alabama Coated sheet steel and
precision metals processing 97,900 Leased
Cleveland, Ohio Cold-rolled strip steel
processing 259,000 Owned
Chattanooga, Tennessee Steel processing 65,000 Owned
Brownsville, Texas Distribution warehouse 15,000 Leased
Troy, Michigan Sales office 800 Leased
Fountain Inn,
S. Carolina Heat treating services 77,400 Leased
Reidsville,
N. Carolina Heat treating services 53,500 Leased
Morristown, Tennessee Heat treating services 24,200 Owned
Conyers, Georgia Heat treating services 18,700 Leased
Athens, Alabama Heat treating services 20,000 Leased
Charlotte, N. Carolina Administrative office 3,400 Leased
Benton Harbor,
Michigan Administration office
and heat treating services 56,700 Owned
Benton Harbor,
Michigan Warehouse 25,000 Leased
South Bend, Indiana Heat treating services 33,900 Owned
Rockford Illinois Heat treating services 15,600 Owned
Rockford, Illinois Heat treating services 54,400 Owned
Jacksonville, Florida Administrative office and
construction products
manufacturing 261,400 Leased
Miami, Florida Construction products
manufacturing 77,000 Leased
Tampa, Florida Construction products
manufacturing 50,000 Leased
Nashville, Tennessee Construction products
manufacturing 52,500 Leased
San Antonio, Texas Construction products
manufacturing 70,000 Leased
Houston, Texas Construction products
manufacturing 48,200 Leased
Vidalia, Georgia Construction products
manufacturing 34,000 Leased
Taylorsville,
Mississippi Construction products
manufacturing 53,600 Owned
Taylorsville,
Mississippi Construction products
manufacturing 238,700 Owned
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Enterprise, Mississippi Construction products
manufacturing 194,300 Owned
Appleton, Wisconsin Construction products
manufacturing 100,300 Owned
Appleton, Wisconsin Construction products
manufacturing 42,600 Owned
Joplin, Missouri Construction products
manufacturing 45,400 Owned
Montogomery, Minnesota Administrative office and
construction products
manufacturing 115,600 Owned
Montogomery, Minnesota Construction products
manufacturing 22,000 Leased
LeCenter, Minnesota Construction products
manufacturing 15,000 Leased
Livermore, California Construction products
manufacturing 103,500 Leased
North Wilkesboro,
N.Carolina Warehouse 23,500 Leased
Hainesport, New Jersey Warehouse 10,800 Leased
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
As of December 31, 1998, there were 140 shareholders of record
of the Company's common stock. However, the Company believes
that it has a significantly higher number of shareholders
because of the number of shares that are held by nominees.
The Company's common stock is traded in the over-the-counter
market and quoted on the National Association of Securities
Dealers Automated Quotation System - National Market System
("Nasdaq"). Its trading symbol is "ROCK". The following table
sets forth the high and low sales prices per share for the
Company's common stock for each quarter of 1998 and 1997:
1998 High Low
Fourth Quarter $ 22 7/8 $15
Third Quarter 23 14 3/8
Second Quarter 25 1/4 20 1/2
First Quarter 25 3/4 18 1/2
1997
Fourth Quarter $ 25 1/2 $17 3/4
Third Quarter 28 20 3/4
Second Quarter 25 1/2 18 7/8
First Quarter 26 3/4 18 1/4
The Company has never paid cash dividends on its common stock
as it has been the Company's policy to invest earnings in the
future development and growth of the Company.
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Item 6. Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,
1998 1997 1996 1995 1994
<TABLE>
<S><S> <C> <C> <C> <C> <C>
Net Sales $ 557,944 $ 449,700 $ 342,974 $ 282,833 $ 200,142
Income from operations 44,455 32,603 30,617 20,368 16,179
Interest expense 11,389 5,115 3,827 3,984 1,374
Income before income
taxes 33,066 27,488 26,790 16,384 14,805
Income taxes 13,226 11,072 10,815 6,662 5,996
Net income 19,840 16,416 15,975 9,722 8,809
Net income per share-
Basic $ 1.59 $ 1.33 $ 1.42 $ .96 $ .87
Weighted average shares
outstanding-Basic 12,456 12,357 11,261 10,164 10,163
Net income per share-
Diluted $ 1.57 $ 1.30 $ 1.39 $ .95 $ .86
Weighted average shares
outstanding- Diluted 12,651 12,591 11,464 10,213 10,200
Current assets $ 175,834 $ 130,746 $ 109,526 $ 86,995 $ 70,552
Current liabilities 51,598 43,101 40,853 29,480 22,028
Total assets 438,435 281,336 222,507 167,423 126,380
Total debt 200,746 83,024 49,841 59,054 38,658
Shareholders' equity 160,308 140,044 121,744 70,244 60,396
Capital expenditures $ 22,062 $ 21,784 $ 15,477 $ 14,504 $ 16,171
Depreciation and
amortization 13,333 8,478 6,246 4,538 3,445
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Year Ended 1998 Compared to Year Ended 1997
Net sales increased $108.2 million, or 24%, to a record
$557.9 million in 1998 from $449.7 million in 1997. This
increase primarily resulted from including the net sales
of Solar (acquired March 1, 1998), Appleton (acquired
April 1, 1998), USP (acquired June 1, 1998) and Harbor
(acquired October 1, 1998) (collectively, the 1998
acquisitions) from their respective acquisition dates with
the net sales of the Company's existing operations, and
from sales growth at existing operations.
Cost of sales increased $80.9 million, or 22%, to $456.4
million in 1998 from $375.5 million in 1997. Cost of
sales as a percentage of net sales decreased to 81.8% in
1998 from 83.5% in 1997. This improvement was due to the
1998 acquisitions, which have historically generated
higher margins than the Company's existing operations, and
due to lower raw material costs at existing operations.
Selling, general and administrative expenses increased
$15.5 million, or 37%, to $57.0 million in 1998 from $41.6
million in 1997. Selling, general and administrative
expenses as a percentage of net sales increased to 10.2%
in 1998 from 9.2% in 1997. This increase was primarily
due to higher costs as a percentage of net sales due to
acquisitions and performance based compensation linked to
the Company's sales and profitability.
Interest expense increased by $6.3 million from 1997 to
1998 primarily due to higher average borrowings during
1998 as a result of current year acquisitions and capital
expenditures, partially offset by a decrease in interest
rates in the fourth quarter of 1998.
As a result of the above, income before taxes increased by
$5.6 million, or 20%, to a record $33.1 million in 1998
from $27.5 million in 1997.
Income taxes approximated $13.2 million in 1998, based on
a 40.0% effective rate compared with a 40.3% effective
rate in 1997.
Year Ended 1997 Compared to Year Ended 1996
Net sales increased by $106.7 million, or 31%, to $449.7
million in 1997 from $343.0 million in 1996. This
increase primarily resulted from the inclusion of net
sales of SEMCO (acquired January 1997) and sales growth at
existing operations.
Cost of sales increased $93.8 million, or 33%, to $375.5
million in 1997 from $281.7 million in 1996. Cost of
sales increased to 83.5% of net sales in 1997 from 82.1%
of net sales in 1996. This increase was due to higher raw
material costs which were not fully passed through to
customers, partially offset by higher margins on SEMCO
sales.
Selling, general and administrative expense increased by
$10.9 million, or 36%, to $41.6 million in 1997 from $30.6
million in 1996. As a percentage of net sales, selling,
general and administrative expenses increased from 8.9% in
1996 to 9.2% in 1997. This increase was primarily due to
higher costs as a percentage of sales attributable to
SEMCO.
Interest expense increased by $1.3 million from 1996 to
1997 primarily due to higher average borrowings as a
result of the SEMCO acquisition and capital expenditures.
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As a result of the above, income before taxes increased by
$.7 million, or 3%, to $27.5 million in 1997 from $26.8
million in 1996.
Income taxes approximated $11.1 million in 1997, an
effective rate of 40.3% in comparison with 40.4% in 1996.
Liquidity and Capital Resources
During 1998, the Company increased its working capital by
$36.6 million to $124.2 million as a result of the
addition of working capital from the 1998 acquisitions and
due to working capital increases at the Company's existing
operations. As a result, the Company's current ratio
improved to 3.4 to 1 at December 31, 1998 from 3.0 to 1 at
December 31, 1997. Long-term debt increased by $117.6
million to $199.4 million and to 55% of total
capitalization at December 31, 1998. Additionally,
shareholders' equity increased by 14% to $160.3 million.
The Company's principal capital requirements are to fund
its operations, including working capital requirements,
the purchase and funding of improvements to its property
and equipment, and to fund acquisitions.
The Company's primary sources of liquidity are from cash
provided by operating activities and the Company's
revolving credit facility. Net cash provided by
operations of $13.3 million resulted primarily from net
income of $19.8 million and depreciation and amortization
of $13.3 million, offset by increases in accounts
receivable and inventories of $11.7 million, necessary to
service increased sales levels, and the decrease in
accounts payable and accrued expenses of $7.6 million.
During 1998, the Company amended its revolving credit
agreement with its bank group to increase the capacity of
its revolver to $240 million and secure borrowings
thereunder with its accounts receivable, inventories and
property. At December 31, 1998, the Company had five
interest rate swap agreements outstanding which
effectively converted $75 million of borrowings under the
revolving credit agreement to fixed rates ranging from
6.60% to 7.31% and which terminate at different dates
beginning in November 2000. The Company accounts for
interest rate swap agreements on an accrual basis.
Additional borrowings under the revolving credit facility
carry interest at LIBOR plus a fixed rate. The weighted
average interest rate of these borrowings was 6.71% at
December 31, 1998.
Net cash provided by operations of $13.3 million combined
with net proceeds from long-term debt of $107.3 million
and $.6 million of cash on hand were primarily used for
the acquisition of Solar, Appleton, USP and Harbor, and
for capital expenditures.
The Company believes that availability under its credit
facility, together with funds generated from operations,
will be more than sufficient to provide the Company with
the liquidity and capital resources necessary to fund its
anticipated working capital requirements, acquisitions and
capital expenditure commitments for the next twelve
months.
The Company believes that environmental issues will not
require the expenditure of material amounts for
environmental compliance in the future.
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Impact of Year 2000
The Year 2000 issue concerns the inability of some
computer hardware and software to distinguish between the
year 1900 and the year 2000. If not corrected, computer
applications could fail or create erroneous results.
The Company is conducting a detailed assessment of all of
its information technology and non-information technology
hardware and software with regard to Year 2000 issues.
The Company's plan to ensure that its systems are Year
2000 ready is comprised of: cataloging all processes and
systems which may have a date-related component and
identifying those which are not Year 2000 ready;
correcting or replacing those systems which are not Year
2000 ready; and testing the corrected or replaced
processes and systems to insure that they will, in fact,
operate as desired according to Year 2000 requirements.
The Company is in various stages of its Year 2000
readiness process at each of its facilities and expects to
complete testing of the corrected or replaced systems and
be fully Year 2000 ready by July 1999. In addition, the
Company is working with its major customers and major
vendors, including raw material suppliers and utility
companies, to assess their internal state of Year 2000
readiness. These customer and vendor responses are
evaluated for any possible risk to, or effect on, the
Company's operations and are incorporated into its own
detailed Year 2000 readiness assessment.
Costs specifically associated with modifying internal use
software for Year 2000 readiness are expensed as incurred
but have not been, and are not expected to be, material to
the Company's net income. Costs of replacing some of the
Company's systems with Year 2000 ready systems have been
capitalized as these new systems were acquired for
business reasons and not to remediate Year 2000 problems,
if any, in the former systems.
Based upon the results of Year 2000 readiness efforts
underway, the Company believes that all critical
information and non-information technology systems and
processes will be Year 2000 ready and allow the Company to
continue operations beyond the Year 2000 without a
material impact on its results of operations or financial
position. However, unanticipated problems which may be
identified in the ongoing Year 2000 readiness process
could result in an undetermined financial risk.
Contingency plans to counter these unanticipated problems
will be developed as part of the ongoing Year 2000
readiness process.
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. FAS No. 133 will not have a material impact
on the Company's earnings or other comprehensive income.
16
<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; the impact
of the Year 2000 issue; and changes in interest or tax
rates.
17
<PAGE>
Company Responsibility For Financial Statements
The accompanying consolidated financial statements of
Gibraltar Steel Corporation have been prepared by
management, which is responsible for their integrity and
objectivity. The statements have been prepared in
conformity with generally accepted accounting principles
and include amounts based on management's best estimates
and judgments. Financial information elsewhere in this
Annual Report is consistent with that in the consolidated
financial statements.
The Company has established and maintains a system of
internal control designed to provide reasonable assurance
that assets are safeguarded and that the financial records
reflect the authorized transactions of the Company.
The financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. As
part of their audit of the Company's 1998 financial
statements, PricewaterhouseCoopers LLP considered the
Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and
extent of their audit tests.
The Board of Directors pursues its responsibility for the
Company's financial reporting through its Audit Committee,
which is composed entirely of outside directors. The
independent accountants have direct access to the Audit
Committee, with and without the presence of management
representatives, to discuss the results of their audit
work and their comments on the adequacy of internal
accounting controls and the quality of financial
reporting.
Brian J. Lipke
Chairman of the Board
and Chief Executive Officer
Walter T. Erazmus
Executive Vice President
and Chief Financial Officer
18
<PAGE>
Item 8. Financial Statements and Supplementary Data Page Number
Index to Financial Statements:
Financial Statements:
Report of Independent Accountants 20
Consolidated Balance Sheet at December 31, 1998 and 1997 21
Consolidated Statement of Income for the three years
ended December 31, 1998 22
Consolidated Statement of Cash Flows for the three
years ended December 31, 1998 23
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1998 24
Notes to Consolidated Financial Statements 25
Supplementary Data:
Quarterly Unaudited Financial Data 35
19
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Gibraltar Steel Corporation
In our opinion, the consolidated financial statements
listed in the accompanying index present fairly, in
all material respects, the financial position of
Gibraltar Steel Corporation and its subsidiaries at
December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three
years in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
Buffalo, New York
January 21, 1999
20
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
December 31,
1998 1997
<TABLE>
<S> <S> <S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,877 $ 2,437
Accounts receivable 71,070 49,151
Inventories 99,351 76,701
Other current assets 3,536 2,457
Total current assets 175,834 130,746
Property, plant and equipment, net 176,221 115,402
Other assets 86,380 35,188
$ 438,435 $ 281,336
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,601 $ 38,233
Accrued expenses 11,646 3,644
Current maturities of long-term debt 1,351 1,224
Total current liabilities 51,598 43,101
Long-term debt 199,395 81,800
Deferred income taxes 25,289 15,094
Other non-current liabilities 1,845 1,297
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:
12,484,418 shares in 1998
and 12,409,619 in 1997 125 124
Additional paid-in capital 66,613 66,190
Retained earnings 93,570 73,730
Total shareholders' equity 160,308 140,044
$ 438,435 $ 281,336
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Year Ended December 31,
1998 1997 1996
<TABLE>
<S> <S> <C> <C> <C>
Net sales $ 557,944 $ 449,700 $ 342,974
Cost of sales 456,449 375,537 281,717
Gross profit 101,495 74,163 61,257
Selling, general and 57,040 41,560 30,640
administrative expense
Income from operations 44,455 32,603 30,617
Interest expense 11,389 5,115 3,827
Income before taxes 33,066 27,488 26,790
Provision for income taxes 13,226 11,072 10,815
Net income $ 19,840 $ 16,416 $ 15,975
Net income per share - Basic $ 1.59 $ 1.33 $ 1.42
Weighted average shares 12,456 12,357 11,261
outstanding - Basic
Net income per share - Diluted $ 1.57 $ 1.30 $ 1.39
Weighted average shares 12,651 12,591 11,464
outstanding - Diluted
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1998 1997 1996
<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <S><S> <C> <C> <C>
Net income $ 19,840 $ 16,416 $ 15,975
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 13,333 8,478 6,246
Provision for deferred
income taxes 1,693 2,227 774
Undistributed equity
investment income (284) (444) (528)
Other noncash adjustments 304 239 184
Increase (decrease) in cash
resulting from changes in
(net of effects from
acquisitions):
Accounts receivable (5,363) (176) (1,225)
Inventories (6,309) 1,607 (17,077)
Other current assets (1,430) (726) 411
Accounts payable and
accrued expenses (7,572) (2,597) 9,275
Other assets (899) (289) (244)
Net cash provided by
operating activities 13,313 24,735 13,791
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (99,415) (26,475) (23,715)
Investments in property, plant
and equipment (22,062) (21,784) (15,477)
Net proceeds from sale of
property and equipment 187 1,050 771
Net cash used in investing
activities (121,290) (47,209) (38,421)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt reduction (61,508) (79,962) (78,195)
Proceeds from long-term debt 168,825 98,417 68,906
Net proceeds from issuance of
common stock 100 911 35,341
Net cash provided by
financing activities 107,417 19,366 26,052
Net (decrease) increase in cash
and cash equivalents (560) (3,108) 1,422
Cash and cash equivalents at
beginning of year 2,437 5,545 4,123
Cash and cash equivalents at end
of year $ 1,877 $ 2,437 $ 5,545
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings
<TABLE>
<S> <S><S> <C> <C> <C> <C>
Balance at December 31, 1995 10,174 $ 102 $ 28,803 $ 41,339
Net income - - - 15,975
Public offering 2,050 20 34,370 -
Stock options exercised 87 1 950 -
Profit sharing plan
contribution 11 - 184 -
Balance at December 31, 1996 12,322 123 64,307 57,314
Net income - - - 16,416
Stock options exercised
and related tax
benefit 73 1 1,562 -
Stock awards 4 - 82 -
Profit sharing plan
contribution 11 - 239 -
Balance at December 31, 1997 12,410 124 66,190 73,730
Net income - - - 19,840
Stock options exercised
and related tax
benefit 8 - 119 -
Restricted stock granted 55 1 - -
Earned portion of
restricted stock - - 87 -
Profit sharing plan
contribution 11 - 217 -
Balance at December 31, 1998 12,484 $ 125 $ 66,613 $ 93,570
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of Gibraltar Steel Corporation and subsidiaries (the
Company). Significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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 using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and
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 $404,000, $963,000 and $522,000 was capitalized
in 1998, 1997 and 1996, respectively.
Other Assets
Goodwill is amortized over 35 years. Amortization expense
was $1,949,000, $880,000 and $557,000 in 1998, 1997, and
1996, respectively.
25
<PAGE>
Shareholders' Equity
In both July 1998 and 1997, the Company issued 11,000 of its
common shares as a contribution to one of its profit sharing
plans.
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
The financial statements of the Company have been prepared
using the asset 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
Basic net income per share equals net income divided by the
weighted average shares outstanding during the year. The
computation of diluted net income per share includes all
dilutive common stock equivalents in the weighted average
shares outstanding.
2. ACQUISITIONS
On October 1, 1998, the Company purchased all the
outstanding capital stock of Harbor Metal Treating Co.,
Inc. and its affiliates (Harbor) for $13.5 million in
cash. Harbor provides metallurgical heat treating
services in which customer-owned parts are exposed to
precise temperature and other conditions to improve
their material properties, strength and durability.
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 steel lumber connector
products for the building construction market.
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.
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, manufactured primarily 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.
26
<PAGE>
These acquisitions have been accounted for under the
purchase method. Results of operations of Harbor, 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 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)
Year Ended December 31,
1998 1997
(unaudited)
Net sales $ 596,437 $580,447
====== ======
Income before taxes $ 34,309 $ 29,242
====== ======
Net income $ 20,495 $ 17,260
====== ======
Net income per share - Basic $ 1.65 $ 1.40
====== ======
3. ACCOUNTS RECEIVABLE
Accounts receivable are expected to be collected within one
year and are net of reserves for doubtful accounts of
$1,230,000 and $990,000 at December 31, 1998 and 1997,
respectively.
4. INVENTORIES
Inventories at December 31 consist of the following:
(in thousands)
1998 1997
<TABLE>
<S> <S> <C> <C>
Raw material $ 60,665 $ 51,804
Finished goods and work-in-process 38,686 24,897
Total inventories $ 99,351 $ 76,701
====== ======
</TABLE>
27
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost less accumulated
depreciation, at December 31 consists of the following:
(in thousands)
1998 1997
<TABLE>
<S><S> <C> <C>
Land and land improvements $ 5,290 $ 2,984
Building and improvements 48,506 32,420
Machinery and equipment 160,633 99,737
Construction in progress 8,730 16,503
223,159 151,644
Less accumulated depreciation
and amortization 46,938 36,242
Property, plant and equipment, net $ 176,221 $ 115,402
====== ======
6. OTHER ASSETS
Other assets at December 31 consist of the following:
(in thousands)
1998 1997
</TABLE>
<TABLE>
<S> <S> <C> <C>
Goodwill, net $ 79,971 $ 30,275
Equity interest in partnership 4,020 3,736
Other 2,389 1,177
Total other assets $ 86,380 $ 35,188
====== ======
</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
mills and steel processors, including the Company.
28
<PAGE>
7. DEBT
Long-term debt at December 31 consists of the following:
(in thousands)
1998 1997
<TABLE>
<S> <S> <C> <C>
Revolving credit notes payable $196,047 $ 77,400
Industrial Development Revenue Bond 3,905 5,048
Other debt 794 576
200,746 83,024
Less current maturities 1,351 1,224
Total long-term debt $199,395 $ 81,800
====== ======
</TABLE>
In October 1998, the Company amended its debt agreement
increasing its revolving credit facility to $240,000,000.
The facility is secured by the Company's accounts
receivable, inventories, property and equipment and is
committed through April 2003. This facility has various
interest rate options which are no greater than the bank's
prime rate. In addition, the Company may enter into
interest rate exchange agreements (swaps) to manage interest
costs and exposure to changing interest rates. At December
31, 1998 the Company had five interest rate swap agreements
outstanding which effectively converted $75,000,000 of
floating rate debt to fixed rates ranging from 6.60% to
7.31% and which terminate at different dates beginning
November 2000. At December 31, 1998, additional borrowings
consisted of $121,047,000 with an interest rate of LIBOR
plus a fixed rate. The weighted average interest rate of
these borrowings was 6.71% at December 31, 1998.
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 (6.67% at
December 31, 1998), 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 $1,321,000. 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 for a nominal
amount.
The aggregate maturities on long-term debt including lease
purchase obligations for the five years following December
31, 1998 are as follows: 1999, $1,351,000; 2000, $1,203,000;
2001, $1,209,000; 2002, $825,000 and 2003, $196,102,000.
The Company had no amounts outstanding under short-term
borrowing for the years ended December 31, 1998 and 1997.
The various loan agreements, which do not require
compensating balances, contain provisions that limit
additional borrowings 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.
29
<PAGE>
Total cash paid for interest in the years ended December 31,
1998, 1997 and 1996 was $11,257,000, $6,155,000 and
$4,701,000, respectively.
8. LEASES
The Company leases certain facilities and equipment under
operating leases. Rent expense under operating leases for
the years ended December 31, 1998, 1997 and 1996 was
$3,554,000, $3,771,000 and $2,358,000, respectively. Future
minimum lease payments under these operating leases are
$2,899,000, $2,446,000, $2,159,000, $1,916,000 and
$1,817,000 for the years 1999, 2000, 2001, 2002 and 2003,
respectively, and $4,979,000 thereafter through 2038.
9. EMPLOYEE RETIREMENT PLANS
During 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 132
Employers' Disclosures about Pensions and other Post-
Retirement Benefits (FAS No. 132). Adoption of FAS No. 132
did not effect the Company's results of operations or
financial position.
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 provides defined pension
benefits to certain salaried employees upon retirement. Net
unfunded periodic pension costs of $166,000 and $154,000
were accrued under this plan in 1998 and 1997, respectively,
and consisted primarily of service cost using a discount
rate of 6.5% and 7.0%, respectively.
Total expense for all retirement plans was $1,774,000,
$1,258,000 and $1,066,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
10. OTHER POST-RETIREMENT BENEFITS
Certain subsidiaries of the Company provide health and life
insurance to substantially all of their employees and to a
number of retirees and their spouses. The net periodic post-
retirement benefit cost charged to expense consisting of
service cost, interest cost and amortization of transition
obligations was $255,000, $223,000 and $237,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
30
<PAGE>
The approximate unfunded accumulated post-retirement benefit
obligation at December 31, consists of the following:
(in thousands)
1998 1997
<TABLE>
<S> <C> <C>
Retirees $ 474 $ 482
Other fully eligible participants 341 308
Other active participants 1,290 1,018
$ 2,105 $ 1,808
===== =====
</TABLE>
The accumulated post-retirement benefit obligation was
determined using a weighted average discount rate of 6.5% in
1998 and 7.0% in 1997. The medical inflation rate was
assumed to be 7% in 1998, with a gradual reduction to 5%
over two years. The effect of a 1% increase or decrease in
the annual medical inflation rate would increase or decrease
the accumulated post-retirement benefit obligation at
December 31, 1998 by approximately $371,000 and increase or
decrease the annual service and interest costs by
approximately $39,000.
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:
(in thousands)
1998 1997 1996
<TABLE>
<S> <S> <C> <C> <C>
Current tax expense
Federal $ 9,749 $ 7,514 $ 8,774
State 1,784 1,331 1,267
Total current 11,533 8,845 10,041
Deferred tax expense
Federal 1,628 2,036 670
State 65 191 104
Total deferred 1,693 2,227 774
Total provision $ 13,226 $ 11,072 $ 10,815
===== ===== =====
</TABLE>
31
<PAGE>
Deferred tax liabilities (assets) at December 31, consist of
the following:
(in thousands)
1998 1997
<TABLE>
<S> <S> <C> <C>
Depreciation $ 25,088 $ 14,129
Inventory method change 1,344 1,588
Other 2,011 1,371
Gross deferred tax liabilities 28,443 17,088
State taxes (1,062) (656)
Other (3,849) (2,074)
Gross deferred tax assets (4,911) (2,730)
Net deferred tax liabilities $ 23,532 $ 14,358
===== =====
</TABLE>
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 income before taxes as
a result of the following differences:
(in thousands)
1998 1997 1996
<TABLE>
<S><S> <C> <C> <C>
Statutory U.S. tax rates $ 11,573 $ 9,621 $ 9,376
Increase in rates resulting
from:
State and local taxes, net 1,202 989 891
Other 451 462 548
$13,226 $11,072 $10,815
===== ===== =====
</TABLE>
Total cash paid for income taxes in the years ended December
31, 1998, 1997 and 1996 was $9,180,000, $9,100,000 and
$9,639,000, respectively.
32
<PAGE>
12. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 Earnings
Per Share requires dual presentation of basic and diluted
earnings per share on the face of the income statement. The
reconciliation between the computations is as follows:
Basic Diluted Diluted
Income Shares Basic EPS Shares EPS
<TABLE>
<C> <C> <C> <C> <C> <C>
1998 $19,840,000 12,455,554 $1.59 12,651,119 $1.57
1997 $16,416,000 12,357,186 $1.33 12,591,019 $1.30
1996 $15,975,000 11,260,956 $1.42 11,463,508 $1.39
</TABLE>
Included in diluted shares are common stock equivalents of
195,565, 233,833, and 202,552 relating to options for the
years ended December 31, 1998, 1997 and 1996, respectively.
13. STOCK OPTIONS
The Company may grant non-qualified stock options to
officers, employees, non-employee directors and advisers at
an exercise price equal to 100% of market price, and
incentive stock options to officers and other key employees
at an exercise price not less than 100% of market price, up
to an aggregate of 400,000 and 850,000 shares, respectively.
The options may be exercised in cumulative annual increments
of 25% commencing one year from the date of grant and expire
ten years from the date of grant.
The following table summarizes the option plans' activity
for the years ended December 31:
Options Weighted Average Options Weighted Average
Outstanding Exercise Price Exercisable Exercise Price
<TABLE>
Balance at
<S><S> <C> <C> <C> <C>
January 1, 1996 470,000 $10.78 171,875 $10.85
Granted 173,750 16.75
Exercised (87,500) 10.87
Balance at
December 31, 1996 556,250 $12.63 201,875 $10.80
Granted 220,450 21.75
Exercised (72,219) 11.49
Forfeited (11,250) 10.75
Balance at
December 31, 1997 693,231 $15.68 282,781 $11.55
Granted 336,650 17.36
Exercised (8,749) 11.12
Forfeited (24,502) 17.48
Balance at
December 31, 1998 996,630 $16.24 406,993 $13.30
======
</TABLE>
The Company realized tax benefits of $20,000 and $733,000 in
the years ended December 31, 1998 and 1997, respectively,
associated with the exercise of certain stock options which
have been credited to paid in capital.
33
<PAGE>
Options outstanding at December 31, 1998 consisted of:
<TABLE>
<C> <C> <C> <C> <C> <C>
Range of Weighted Average
Exercise Options Remaining Weighted Average Options Weighted Average
Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$10 - $11 297,001 5.3 years $10.79 280,439 $10.77
$15.63 - $22.50 699,629 8.8 years $18.56 126,554 $18.88
996,630 7.8 years $16.24 406,993 $13.30
====== ======
</TABLE>
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation (FAS No. 123).
Accordingly, no compensation cost has been recognized for
the option plans as stock options granted under these plans
have an exercise price equal to 100% of the market price on
the date of grant. If the compensation cost for these plans
had been determined based on the fair value at the grant
dates for awards consistent with the method of FAS No. 123,
the pro forma effect on the years ended December 31, 1998
and 1997 is as follows:
As Reported Pro Forma As Reported Pro forma
1998 1998 1997 1997
<TABLE>
<S><S> <C> <C> <C> <C>
Net Income $19,840,000 $18,976,000 $16,416,000 $16,108,000
Net Income per
Share-Basic $1.59 $1.52 $1.33 $1.30
</TABLE>
The Black-Scholes option-pricing model was used to estimate
the fair value of the options granted on the date of grant.
The fair values and assumptions used in the model, assuming
no dividends, are as follows:
Expected Risk-Free
Fair Value Life Volatility Interest Rate
<TABLE>
<S> <C> <C> <C> <C>
1998 Grant $7.71 5 years 43.7% 4.4%
1997 Grant $9.77 5 years 40.2% 6.1%
1996 Grant $7.44 5 years 38.1% 6.6%
1995 Grant $4.56 5 years 36.2% 5.7%
</TABLE>
The Company also has a Restricted Stock Plan reserved for
issuance of 100,000 common shares for the grant of
restricted stock awards to employees and non-employee
directors at a purchase price of $.01 per share. In 1997,
4,000 shares were awarded to non-employee directors under
this plan and in 1998, 55,000 shares were awarded to
employees.
14. 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.
34
<PAGE>
QUARTERLY UNAUDITED FINANCIAL DATA
(in thousands, except per share data)
1998 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
<TABLE>
<S><S> <C> <C> <C> <C> <C>
Net Sales $116,383 $144,882 $152,628 $144,051 $557,944
Gross Profit 20,160 26,893 27,691 26,751 101,495
Income From
Operations 8,474 12,330 11,914 11,737 44,455
Net Income 4,121 5,751 5,146 4,822 19,840
Net Income Per
Share-Basic $ .33 $ .46 $ .41 $ .39 $ 1.59
Net Income Per
Share-Diluted $ .33 $ .45 $ .41 $ .38 $ 1.57
1997 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
Net Sales $108,277 $119,213 $114,249 $107,961 $449,700
Gross Profit 18,698 19,917 18,147 17,401 74,163
Income From
Operations 8,622 9,341 7,622 7,018 32,603
Net Income 4,446 4,697 3,787 3,486 16,416
Net Income Per
Share-Basic $ .36 $ .38 $ .31 $ .28 $ 1.33
Net Income Per
Share-Diluted $ .35 $ .37 $ .30 $ .28 $ 1.30
</TABLE>
35
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the
Company is incorporated herein by reference to the information
included in the Company's definitive proxy statement which will
be filed with the Commission within 120 days after the end of
the Company's 1998 fiscal year.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated
herein by reference to the information included in the
Company's definitive proxy statement which will be filed with
the Commission within 120 days after the end of the Company's
1998 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to
the information included in the Company's definitive proxy
statement which will be filed with the Commission within 120
days after the end of the Company's 1998 fiscal year.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions is incorporated herein by reference to the
information included in the Company's definitive proxy
statement which will be filed with the Commission within 120
days after the end of the company's 1998 fiscal year.
36
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K Page Number
(a) (1) Financial Statements:
Report of Independent Accountants 20
Consolidated Balance Sheet at December 31, 1998 and
1997 21
Consolidated Statement of Income for the three
years ended December 31, 1998 22
Consolidated Statement of Cash Flows for the three
years ended December 31, 1998 23
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1998 24
Notes to Consolidated Financial Statements 25
(2) Supplementary Data
Quarterly Unaudited Financial Data 35
(3) Exhibits
The exhibits to this Annual Report on Form 10-K
included herein are set forth on the
attached Exhibit Index beginning on page 39.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the three month period ended December 31, 1998.
37
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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
By /s/Brian J. Lipke
Brian J. Lipke
President, Chief Executive Officer
and Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
/s/ Brian J. Lipke President, Chief Executive Officer February 3, 1999
Brian J. Lipke and Chairman of the Board
(principal executive officer)
/s/ Walter T. Erazmus Treasurer and February 3, 1999
Walter T. Erazmus Chief Financial Officer
(principal financial and accounting officer)
/s/ Neil E. Lipke Director February 3, 1999
Neil E. Lipke
/s/ Gerald S. Lippes Director February 3, 1999
Gerald S. Lippes
/s/ Arthur A. Russ, Jr. Director February 3, 1999
Arthur A. Russ, Jr.
/s/ David N. Campbell Director February 3, 1999
David N. Campbell
/s/ William P. Montague Director February 3, 1999
William P. Montague
38
<PAGE>
Exhibit Index
Exhibit Sequentially
Number Exhibit Numbered Page
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to the same exhibit number to the Company's
Registration Statement on Form S-1 (Registration
No. 33-69304))
3.2 Amended and Restated By-Laws of the Registrant effective
August 11, 1998 (incorporated by reference to Exhibit 3(ii)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
4.1 Specimen Common Share Certificate (incorporated by
reference to the same exhibit number to the Company's
Registration Statement on Form S-1 (Registration
No. 33-69304))
10.1 Partnership Agreement of Samuel Pickling Management Company
dated June 1, 1988 between Cleveland Pickling, Inc. and
Samuel Manu-Tech, Inc. (incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.2 Partnership Agreement dated May 1988 among Samuel Pickling
Management Company, Universal Steel Co. and Ruscon Steel
Corp., creating Samuel Steel Pickling Company, a general
partnership (incorporated by reference to Exhibit 10.8
to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.3 Lease dated September 1, 1990 between Erie County Industrial
Development Agency and Integrated Technologies International,
Ltd. (incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1(Registration No. 33-69304))
10.4 Lease dated June 4, 1993 between Buffalo Crushed
Stone, Inc. and Gibraltar Steel Corporation
(incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.5* Employment Agreement dated as of July 9, 1998 between
the Registrant and Brian J. Lipke (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)
39
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.6 Gibraltar Steel Corporation Executive Incentive Bonus
Plan (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1(Registration
No. 33-69304))
10.7 Agreement dated June 29, 1992 for Adoption by
Gibraltar Steel Corporation of Chase Lincoln
First Bank, N.A. (now Chase Manhattan
Bank, N.A.) Non-Standardized Prototype 401(k)
Retirement Savings Plan (incorporated by reference
to Exhibit 10.17 to the Company's Registration
Statement on Form S-1(Registration No. 33-69304))
10.8* Gibraltar Steel Corporation Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.18
to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.9* Gibraltar Steel Corporation Incentive Stock Option
Plan, Second Amendment and Restatement
(incorporated by reference to Exhibit 10.16
to the Company's Registration Statement on
Form S-1 (Registration No. 333-03979))
10.10* Gibraltar Steel Corporation Incentive Stock Option
Plan, Third Amendment and Restatement
(incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997)
10.11* Gibraltar Steel Corporation Restricted Stock Plan
(incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.12* Gibraltar Steel Corporation Restricted Stock Plan,
First Amendment and Restatement (incorporated by
reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year
ended December 31, 1997)
10.13* Gibraltar Steel Corporation Non-Qualified Stock
Option Plan (incorporated by reference to
Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (Registration
No. 33-69304))
10.14* Gibraltar Steel Corporation Non-Qualified Stock Option
Plan, First Amendment and Restatement (incorporated by
reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1
(Registration No. 333-03979))
10.15* Gibraltar Steel Corporation Profit Sharing Plan dated
August 1, 1984, as Amended April 14, 1986 and May 1,
1987 (incorporated by reference to Exhibit 10.21
to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
40
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.16* Changed in Control Agreement dated July 9, 1998
between Registrant and Brian J. Lipke (incorporated
by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
10.17* Form of Change in Control Agreement dated July 9,
1998 between Registrant and each of Neil E. Lipke,
Eric R. Lipke, Walter T. Erazmus, Joseph A. Rosenecker,
Carl P. Spezio and Andrew S. Tsakos (incorporated
by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)
10.18 Credit Agreement dated as of September 15, 1997 among
Gibraltar Steel Corporation, Gibraltar Steel
Corporation of New York, Chase Manhattan Bank, N.A.,
as Administrative Agent and various financial
institutions that are signatories thereto
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997)
10.19 Bond Purchase Agreement dated June 16, 1994 among the
Industrial Development Board of the County of Hamilton,
Tennessee, Fleet Bank of New York and Gibraltar Steel
of Tennessee (incorporated by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1
(Registration No. 333-03979))
10.20* Gibraltar Steel Corporation 401(k) Plan (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 33-87034))
10.21* First Amendment, dated January 20, 1995, to Gibraltar
Steel Corporation 40l(k) Plan (incorporated by
reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994)
10.22 Real Property Lease Agreement dated February 14, 1996
between Blacksmith Leasing and Carolina Commercial
Heat Treating, Inc. (incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 333-03979))
10.23 Real Property Lease Agreement dated February 14, 1996
between Blacksmith Leasing and Carolina Commercial Heat
Treating, Inc. (incorporated by reference to
Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 333-03979))
41
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.24 Lease dated as of August 12, 1995 between
John W. Rex and Carolina Commercial Heat
Treating, Inc. (incorporated by reference
to Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (Registration No. 333-03979))
21 Subsidiaries of the Registrant 43
27 Financial Data Schedule
________________________________
* Document is a management contract or compensatory plan or arrangement
42
<PAGE>
2
Subsidiaries
The following is a list of the subsidiaries of Gibraltar Steel
Corporation. The names of indirectly owned subsidiaries are indented
under the names of their respective parent corporations:
Gibraltar Steel Corporation of New York New York
Wm. R. Hubbell Steel Corporation Illinois
Carolina Commercial Heat Treating, Inc. Nevada
Southeastern Metals Manufacturing Company, Inc. Florida
Gibraltar Steel Corporation Flight Services Corp. New York
Solar Group, Inc. Delaware
Appleton Supply Co., Inc. Delaware
United Steel Products Company Minnesota
Harbor Metal Treating Co. Michigan
Rock River Heat Treating Company Michigan
Harbor Metal Treating of Indiana, Inc. Michigan
Gibraltar Strip Steel, Inc. Delaware
Integrated Technologies International, Ltd. Delaware
Cleveland Pickling, Inc. Delaware
GIT Limited New York
Gibraltar Steel Corporation of Tennessee Tennessee
43
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,877
<SECURITIES> 0
<RECEIVABLES> 72,300
<ALLOWANCES> 1,230
<INVENTORY> 99,351
<CURRENT-ASSETS> 175,834
<PP&E> 223,159
<DEPRECIATION> 46,938
<TOTAL-ASSETS> 438,435
<CURRENT-LIABILITIES> 51,598
<BONDS> 199,395
0
0
<COMMON> 125
<OTHER-SE> 160,183
<TOTAL-LIABILITY-AND-EQUITY> 438,435
<SALES> 557,944
<TOTAL-REVENUES> 557,944
<CGS> 456,449
<TOTAL-COSTS> 456,449
<OTHER-EXPENSES> 57,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,389
<INCOME-PRETAX> 33,066
<INCOME-TAX> 13,226
<INCOME-CONTINUING> 19,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,840
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.57
</TABLE>
