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, 1999
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 June 30, 1999, the number of common shares outstanding was:
12,549,502.
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<PAGE>
GIBRALTAR STEEL CORPORATION
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 (unaudited) and
December 31, 1998 (audited) 3
Condensed Consolidated Statements of Income
Six months ended June 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998
(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 - 12
PART II. OTHER INFORMATION 13
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1999 1998
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 6,065 $ 1,877
Accounts receivable 87,032 71,070
Inventories 89,535 99,351
Other current assets 3,888 3,536
Total current assets 186,520 175,834
Property, plant and equipment, net 179,590 176,221
Other assets 86,747 86,380
$ 452,857 $ 438,435
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 48,612 $ 38,601
Accrued expenses 17,990 11,646
Current maturities of long-term debt 1,315 1,351
Total current liabilities 67,917 51,598
Long-term debt 183,724 199,395
Deferred income taxes 26,495 25,289
Other non-current liabilities 2,016 1,845
Shareholders' equity
Preferred shares - -
Common shares 125 125
Additional paid-in capital 67,684 66,613
Retained earnings 104,896 93,570
Total shareholders' equity 172,705 160,308
$ 452,857 $ 438,435
======== ========
See accompanying notes to financial statements
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GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(unaudited)
(unaudited)
Net sales $ 160,241 $ 144,882 $ 304,045 $ 261,265
Cost of sales 127,240 117,989 242,626 214,212
Gross profit 33,001 26,893 61,419 47,053
Selling, general and
administrative expense 17,648 14,563 34,383 26,249
Income from operations 15,353 12,330 27,036 20,804
Interest expense 3,103 2,745 6,422 4,351
Income before taxes 12,250 9,585 20,614 16,453
Provision for income taxes 4,962 3,834 8,349 6,581
Net income $ 7,288 $ 5,751 $ 12,265 $ 9,872
========= ========= ========= ========
Net income per share-Basic $ .58 $ .46 $ .98 $ .79
========= ========= ========= =========
Weighted average number of
shares outstanding-Basic 12,530 12,451 12,513 12,431
========= ========= ========= =========
Net income per share-Diluted $ .57 $ .45 $ .96 $ .78
========= ========= ========= =========
Weighted average number of
shares outstanding-Diluted 12,796 12,698 12,754 12,653
========= ========= ========= =========
See accompanying notes to financial statements
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GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1999 1998
(unaudited)
Cash flows from operating activities
Net income $ 12,265 $ 9,872
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 8,162 5,767
Provision for deferred income taxes 1,088 627
Undistributed equity investment income (173) (185)
Other noncash adjustments 364 -
Increase (decrease) in cash resulting from
changes in (net of acquisitions):
Accounts receivable (15,962) (13,705)
Inventories 9,816 (17,797)
Other current assets (256) (1,270)
Accounts payable and accrued expenses 16,530 11,687
Other assets (1,473) (640)
Net cash provided by (used in)
operating activities 30,361 (5,644)
Cash flows from investing activities
Acquisitions, net of cash acquired - (86,799)
Purchases of property, plant and equipment (12,641) (8,253)
Net proceeds from sale of property and equipment 2,407 104
Net cash used in investing activities (10,234) (94,948)
Cash flows from financing activities
Long-term debt reduction (42,660) (8,312)
Proceeds from long-term debt 26,953 109,394
Payment of dividends (939) -
Net proceeds from issuance of common stock 707 40
Net cash (used in) provided by financing
activities (15,939) 101,122
Net increase in cash and cash equivalents 4,188 530
Cash and cash equivalents at beginning of year 1,877 2,437
Cash and cash equivalents at end of period $ 6,065 $ 2,967
======= =======
See accompanying notes to financial statements
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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, 1999 and 1998 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, 1999 and 1998 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, 1998.
The results of operations for the six month period ended
June 30, 1999 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,
1999 1998
(unaudited) (audited)
Raw material $ 55,287 $ 60,665
Finished goods and work-in-process 34,248 38,686
Total inventories $ 89,535 $ 99,351
======= =======
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3. STOCKHOLDERS' EQUITY
The changes in stockholders' equity consist of:
(in thousands)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings
December 31, 1998 12,484 $ 125 $ 66,613 $ 93,570
Net Income - - - 12,265
Stock options exercised 53 - 737 -
Earned portion of restricted
stock - - 58 -
Profit sharing plan
contribution 13 - 276 -
Cash dividends-$.075 per share - - - (939)
June 30, 1999 12,550 $ 125 $ 67,684 $104,896
====================================
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, 1999 and 1998. 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
1999 $12,265,000 12,513,101 $ .98 12,754,377 $ .96
1998 $ 9,872,000 12,430,671 $ .79 12,653,190 $ .78
Included in diluted shares are common stock equivalents
relating to options of 241,276 and 222,519 for 1999 and
1998, respectively.
5. 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 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.
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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.
These acquisitions have been accounted for under the
purchase method. Results of operations of Harbor, USP,
Appleton and Solar 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, 1998. 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,
1998 and are not necessarily indicative of future results
of the combined companies.
(in thousands,except per share data)
Six Months Ended
June 30, 1998
(unaudited)
Net sales $ 296,556
=========
Income before taxes $ 17,604
=========
Net income $ 10,480
=========
Net income per share-Basic $ .84
=========
6. SUBSEQUENT EVENT
On July 1, 1999, the Company purchased all the outstanding
capital stock of K & W Metal Fabricators, Inc. d/b/a
Weather Guard Building Products (Weather Guard) for
approximately $7 million in cash. The results of
operations of Weather Guard will be consolidated with the
Company's results of operations from the acquisition date
for the quarter ending September 30, 1999.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales of $160.2 million for the second quarter ended
June 30, 1999 increased 10.6% from net sales of $144.9
million for the prior year's second quarter. Net sales of
$304.0 million for the six months ended June 30, 1999
increased 16.4% from net sales of $261.3 million for the
same period of 1998. These increases resulted from
including 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) with sales growth at existing
operations.
Cost of sales as a percentage of net sales decreased to
79.4% and 79.8%, respectively, for the second quarter and
six months ended June 30, 1999 from 81.4% and 82.0% for the
same periods in 1998. This improvement was primarily 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 as a
percentage of net sales increased to 11.0% and 11.3%,
respectively, for the second quarter and six months ended
June 30, 1999 from 10.1% and 10.0% for the same periods of
1998. This increase was primarily due to higher costs as a
percentage of sales attributable to the 1998 Acquisitions
and performance based compensation linked to the Company's
sales and profitability.
Interest expense for the second quarter and six months
ended June 30, 1999 increased by $.4 million and $2.1
million, respectively, from the same periods in 1998
primarily due to higher borrowings during 1999 to finance
the 1998 Acquisitions and capital expenditures.
As a result of the above, income before taxes increased by
$2.7 and $4.2 million for the second quarter and six months
ended June 30, 1999 from the same periods of 1998.
Income taxes for the second quarter and six months ended
June 30, 1999 approximated $5.0 million and $8.3 million,
respectively, and were based on a 40.5% effective tax rate
compared to an effective tax rate of 40.0% for the same
periods in 1998.
Liquidity and Capital Resources
During the first six months of 1999, the Company's working
capital decreased to $118.6 million. Additionally,
shareholders' equity increased by $12.4 million at June 30,
1999 to $172.7 million.
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.
<PAGE> 9 of 14
Net cash provided by operations of $30.4 million resulted
primarily from net income of $12.3 million, depreciation
and amortization of $8.2 million, an increase in accounts
payable and accrued expenses of $16.5 million and a
decrease in inventory of $9.8 million, offset by an
increase in accounts receivable of $16.0 million necessary
to service increased sales levels.
The $30.4 million of net cash provided by operations was
used to fund capital expenditures of $12.6 million and cash
dividends of $.9 million and to pay down $15.7 million of
the Company's credit facility.
At June 30, 1999 the Company's aggregate credit facilities
available approximated $243 million, with borrowings of
approximately $184 million and an additional
availability of approximately $59 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.
Impact of Year 2000
The Year 2000 issue concerns computer hardware and software
being able to distinguish between the year 1900 and the year
2000 and the resultant effect on operations.
The Company has conducted a detailed assessment of all of its
information technology and non-information technology
hardware and software with regard to Year 2000 issues, with
special emphasis on mission critical hardware and software.
The Company's plan to ensure that its systems are Year 2000
ready is comprised of: inventorying all processes and systems
which may have a date-related component and identifying those
which are not Year 2000 ready; remediating (i.e., correcting
or replacing) those systems which are not Year 2000 ready;
and testing the remediated 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 for information technology and
non-information technology hardware and software at its
corporate headquarters and at each of the subsidiaries.
Information technology and non-information technology
hardware and software have been inventoried and those not
Year 2000 ready have been identified. Mission critical
processes and systems were given the highest priority for
remediation and testing. Therefore, the Company believes
that it will be fully Year 2000 ready with all such mission
critical processes and systems at its corporate headquarters
and at all of these subsidiaries.
The following table summarizes the status as of June 30, 1999
of the Year 2000 efforts with respect to identified items
that may materially impact operations.
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Estimated current completion % and month of expected
completion:
Area Inventorying & Assessment Remediation & Testing
% Expected % Expected
Complete Completion Complete Completion
IT Hardware and Software:
Financial 100% Complete 100% Complete
Non-Financial 100% Complete 95% July 1999
Non-IT Hardware and Software 100% Complete 95% July 1999
Third-Party Systems* 100% Complete * *
Products N/A N/A N/A N/A
* The Company has third party relationships with numerous
large customers and vendors, including raw material suppliers
and utility companies, many of which are publicly traded
corporations subject to disclosure requirements. The Company
continues to communicate with these third parties to assess
their internal state of Year 2000 readiness and monitors Year
2000 disclosures in their SEC filings. These third party
communications and disclosures are then evaluated for
possible risk to, or effect on, the Company's operations and
are incorporated into the Company's 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. The Company has budgeted approximately
$750,000 to remediate its affected systems, of which
approximately $400,000 was expensed through June 30, 1999.
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 and
internal audit processes currently underway, the Company
believes that all mission critical information and non-
information technology systems and processes will 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.
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<PAGE>
A worst case scenario could include the possible shut down of
an operation for a period of time. However, in that event,
customer orders may be serviced through use of other Company
owned facilities with similar manufacturing capabilities and
inventories or, alternatively, by out-sourcing some
manufacturing to third parties. The Company's Year 2000
readiness process includes contingency planning for all
mission critical issues in order to minimize such a risk to
the Company. Detailed contingency plans will be finalized
during the third quarter of 1999.
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 2001.
The Company does not believe that FAS No. 133 will have a
material impact on its earnings or other comprehensive
income.
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.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits
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, 1999.
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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
Chief Executive Officer and
Chairman of the Board
By /x/ Walter T. Erazmus
Walter T. Erazmus
President
By /x/ John E. Flint
Vice President
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Date July 29, 1999
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<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>
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