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 September 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 September 30, 1999, the number of common shares
outstanding was: 12,569,689.
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GIBRALTAR STEEL CORPORATION
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and
December 31, 1998 (audited) 3
Condensed Consolidated Statements of Income
Three and nine months ended
September 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
September 30, December 31,
1999 1998
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 3,819 $ 1,877
Accounts receivable 91,570 71,070
Inventories 94,753 99,351
Other current assets 4,230 3,536
Total current assets 194,372 175,834
Property, plant and equipment, net 203,926 176,221
Other assets 96,286 86,380
$ 494,584 $ 438,435
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 54,389 $ 38,601
Accrued expenses 23,615 11,646
Current maturities of long-term debt 1,279 1,351
Total current liabilities 79,283 51,598
Long-term debt 205,431 199,395
Deferred income taxes 27,650 25,289
Other non-current liabilities 2,218 1,845
Shareholders' equity
Preferred shares - -
Common shares 126 125
Additional paid-in capital 68,089 66,613
Retained earnings 111,787 93,570
Total shareholders' equity 180,002 160,308
$ 494,584 $ 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(unaudited) (unaudited)
Net sales $ 162,909 $ 152,628 $ 466,954 $ 413,893
Cost of sales 128,664 124,937 371,290 339,149
Gross profit 34,245 27,691 95,664 74,744
Selling, general and
administrative expense 18,819 15,777 53,202 42,026
Income from operations 15,426 11,914 42,462 32,718
Interest expense 3,318 3,337 9,740 7,688
Income before taxes 12,108 8,577 32,722 25,030
Provision for income taxes 4,903 3,431 13,252 10,012
Net income $ 7,205 $ 5,146 $ 19,470 $ 15,018
========= ========= ========= ========
Net income per share-Basic $ .57 $ .41 $ 1.55 $ 1.21
========= ========= ========= ========
Weighted average number of
shares outstanding-Basic 12,563 12,477 12,530 12,446
========= ========= ========= ========
Net income per share-Diluted $ .56 $ .41 $ 1.52 $ 1.19
========= ========= ========= ========
Weighted average number of
shares outstanding-Diluted 12,862 12,612 12,790 12,640
========= ========= ========= ========
See accompanying notes to financial statements
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GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
1999 1998
(unaudited)
Cash flows from operating activities
Net income $ 19,470 $ 15,018
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,699 9,368
Provision for deferred income taxes 1,921 1,329
Undistributed equity investment income (293) (259)
Other noncash adjustments 587 275
Increase (decrease) in cash resulting from
changes in (net of acquisitions):
Accounts receivable (15,912) (18,238)
Inventories 6,286 (18,958)
Other current assets (597) (1,356)
Accounts payable and accrued expenses 21,849 16,111
Other assets (955) (757)
Net cash provided by operating activities 45,055 2,533
Cash flows from investing activities
Acquisitions, net of cash acquired (31,484) (86,799)
Purchases of property, plant and equipment (17,917) (16,807)
Net proceeds from sale of property and equipment 2,425 108
Net cash used in investing activities (46,976) (103,498)
Cash flows from financing activities
Long-term debt reduction (62,727) (28,002)
Proceeds from long-term debt 66,953 128,778
Payment of dividends (1,253) -
Net proceeds from issuance of common stock 890 66
Net cash provided by financing activities 3,863 100,842
Net increase (decrease) in cash and
cash equivalents 1,942 (123)
Cash and cash equivalents at beginning of year 1,877 2,437
Cash and cash equivalents at end of period $ 3,819 $ 2,314
====== ======
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 September 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
September 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 nine month period ended
September 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)
September 30, December 31,
1999 1998
(unaudited) (audited)
Raw material $ 62,421 $ 60,665
Finished goods and work-in-process 32,332 38,686
Total inventories $ 94,753 $ 99,351
======= =======
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3. SHAREHOLDERS' EQUITY
The changes in shareholders' 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 - - - 19,470
Stock options exercised 65 1 919 -
Earned portion of restricted
stock - - 87 -
Profit sharing plan
contribution 21 - 470 -
Cash dividends-$.10 per share - - - (1,253)
September 30, 1999 12,570 $ 126 $ 68,089 $111,787
====================================
4. EARNINGS PER SHARE
Basic net income per share equals net income divided by the
weighted average shares outstanding for the nine months
ended September 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 $19,470,000 12,529,765 $1.55 12,790,462 $1.52
1998 $15,018,000 12,446,209 $1.21 12,639,655 $1.19
Included in diluted shares are common stock equivalents
relating to options of 260,697 and 193,446 for 1999 and
1998, respectively.
5. ACQUISITIONS
On August 1, 1999, the Company purchased the assets and
business of Hi-Temp Incorporated (Hi-Temp) for
approximately $24 million in cash.
Hi-Temp 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 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. Weather Guard
manufactures a full line of metal building products,
including rain-carrying systems, metal roofing and roofing
accessories, for industrial, commercial and residential
applications.
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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 is a metallurgical heat treating services provider.
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.
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 Hi-Temp, Weather
Guard, 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)
Nine Months Ended September 30,
1999 1998
(unaudited)
Net sales $ 486,047 $ 478,265
========= =========
Income before taxes $ 33,805 $ 27,411
========= =========
Net income $ 20,114 $ 16,356
========= =========
Net income per share-Basic $ 1.61 $ 1.31
========= =========
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales of $162.9 million for the third quarter ended
September 30, 1999 increased 6.7% from net sales of $152.6
million for the prior year's third quarter. Net sales of
$467.0 million for the nine months ended September 30, 1999
increased 12.8% from net sales of $413.9 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), Harbor (acquired October 1, 1998), Weather Guard
(acquired July 1, 1999) and Hi-Temp (acquired August 1,
1999) (collectively, the Acquisitions) with sales growth at
existing operations.
Cost of sales as a percentage of net sales decreased to
79.0% and 79.5%, respectively, for the third quarter and
nine months ended September 30, 1999 from 81.9% for both
periods in 1998. This improvement was primarily due to the
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 11.6% and 11.4%,
respectively, for the third quarter and nine months ended
September 30, 1999 from 10.3% and 10.2% for the same
periods of 1998. This increase was primarily due to higher
costs as a percentage of sales attributable to the
Acquisitions and performance based compensation linked to
the Company's sales and profitability.
Interest expense for the third quarters ended September 30,
1999 and 1998 were approximately the same despite higher
borrowings during 1999 due to a lower effective interest
rate in the third quarter of 1999. Interest expense for the
nine months ended September 30, 1999 increased $2.1 million
from the same period in 1998 due to higher borrowings
during 1999 and due to a higher effective interest rate
during the nine months period in 1999 as compared to 1998.
As a result of the above, income before taxes increased by
$3.5 million and $7.7 million for the third quarter and
nine months ended September 30, 1999 from the same periods
of 1998.
Income taxes for the third quarter and nine months ended
September 30, 1999 approximated $4.9 million and $13.3
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 nine months of 1999, the Company's working
capital decreased slightly by $3.6 million to $115.1
million. Additionally, shareholders' equity increased by
$19.7 million at September 30, 1999 to $180.0 million.
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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.
Net cash provided by operations of $45.1 million resulted
primarily from net income of $19.5 million, depreciation
and amortization of $12.7 million, an increase in accounts
payable and accrued expenses of $21.8 million and a
decrease in inventory of $6.3 million, offset by an
increase in accounts receivable of $15.9 million necessary
to service increased sales levels.
The $45.1 million of net cash provided by operations and
net borrowings of $4.2 million were used to fund the
acquisitions of Weather Guard and Hi-Temp, capital
expenditures of $17.9 million and cash dividends of $1.3
million.
At September 30, 1999 the Company's aggregate credit
facilities available approximated $263 million, with
borrowings of approximately $206 million and an additional
availability of approximately $57 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 has completed it Year 2000 readiness process at
its headquarters and at each of the subsidiaries which it
owned as of June 30, 1999. Information technology and non-information
technology hardware and software of the Company and these
subsidiaries were inventoried and those not Year 2000 ready
were identified. Mission critical processes and systems were
given priority for remediation and testing. Therefore, as of
September 30, 1999, the Company believes that these mission
critical processes and systems are fully Year 2000 ready.
The following table summarizes the status as of September 30,
1999 of the Year 2000 efforts with respect to identified
items that may materially impact operations of the Company
and those subsidiaries that it owned as of June 30, 1999.
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Area Inventorying & Assessment Remediation & Testing
Estimated % Complete Estimated % Complete
IT Hardware and Software:
Financial 100% 100%
Non-Financial 100% 100%
Non-IT Hardware and Software 100% 100%
Third-Party Systems* 100% *
Products 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.
The Company is currently conducting a detailed assessment of
the information technology and non-information technology
hardware and software at Weather Guard and Hi-Temp, which
were both acquired in the third quarter of 1999, with mission
critical processes and systems given priority for testing and
remediation. The Company believes that these subsidiaries'
mission critical processes and systems will be fully Year
2000 ready by December 1999.
The Company's Year 2000 readiness process includes
contingency planning for all mission critical issues in order
to minimize any risk to the Company. Contingency plans have
been developed for each subsidiary and are being reviewed and
incorporated into the Company's consolidated Year 2000
contingency plan and structure. Contingency planning is
expected to be competed in November 1999.
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 $500,000 was expensed through September 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 matters, if any, in the former systems.
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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.
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.
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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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 September 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 October 28, 1999
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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