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 March 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
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 April 30, 1998, the number of common shares outstanding was:
12,465,293.
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GIBRALTAR STEEL CORPORATION
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (unaudited) and
December 31, 1997 (audited) 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1998 and
1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
(unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
PART II. OTHER INFORMATION 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
March 31, December 31,
1998 1997
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 937 $ 2,437
Accounts receivable 64,833 49,151
Inventories 90,589 76,701
Other current assets 3,149 2,457
------- -------
Total current assets 159,508 130,746
Property, plant and equipment, net 131,190 115,402
Other assets 47,909 35,188
------- -------
$ 338,607 $ 281,336
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 43,910 $ 38,233
Accrued expenses 7,997 3,644
Current maturities of long-term debt 1,266 1,224
------- -------
Total current liabilities 53,173 43,101
Long-term debt 124,391 81,800
Deferred income taxes 15,478 15,094
Other non-current liabilities 1,395 1,297
Shareholders' equity
Preferred shares - -
Common shares 124 124
Additional paid-in capital 66,195 66,190
Retained earnings 77,851 73,730
------- -------
Total shareholders' equity 144,170 140,044
------- -------
$ 338,607 $ 281,336
======== ========
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
March 31,
1998 1997
(unaudited)
Net sales $ 116,383 $ 108,277
Cost of sales 96,223 89,579
Gross profit 20,160 18,698
Selling, general and
administrative expense 11,686 10,076
Income from operations 8,474 8,622
Interest expense 1,606 1,149
Income before taxes 6,868 7,473
Provision for income taxes 2,747 3,027
Net income $ 4,121 $ 4,446
======= =======
Net income per share-Basic $ .33 $ .36
======= =======
Weighted average shares outstanding-Basic 12,410 12,325
======= =======
Net income per share-Diluted $ .33 $ .35
======= =======
Weighted average shares outstanding-Diluted 12,608 12,555
======= =======
See accompanying notes to financial statements
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GIBRALTAR STEEL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1998 1997
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,121 $ 4,446
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 2,561 1,932
Provision for deferred income taxes 336 304
Undistributed equity investment income (209) (216)
Increase (decrease) in cash resulting from
changes in (net of acquisitions):
Accounts receivable (9,723) (10,936)
Inventories (7,176) (4,346)
Other current assets (882) (1,019)
Accounts payable and accrued expenses 6,709 3,304
Other assets (222) (193)
-------- --------
Net cash used in operating activities (4,485) (6,724)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (35,040) (24,907)
Purchases of property, plant and equipment (4,338) (4,421)
Net proceeds from sale of property and equipment 65 58
-------- --------
Net cash used in investing activities (39,313) (29,270)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt reduction (2,101) (27,397)
Proceeds from long-term debt 44,394 61,743
Net proceeds from issuance of common stock 5 26
-------- -------
Net cash provided by financing activities 42,298 34,372
-------- -------
Net decrease in cash and cash equivalents (1,500) (1,622)
Cash and cash equivalents at beginning of year 2,437 5,545
-------- -------
Cash and cash equivalents at end of period $ 937 $ 3,923
======== =======
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 March
31, 1998 and 1997 have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1998
and 1997 have been included.
Certain information and footnote disclosures including significant
accounting policies normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements included in
the Company's Annual Report to Shareholders for the year ended December 31,
1997.
The results of operations for the three month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the full
year.
2. INVENTORIES
Inventories consist of the following:
(in thousands)
March 31, December 31,
1998 1997
(unaudited) (audited)
Raw material $ 62,151 $ 51,804
Finished goods and work-in-process 28,438 24,897
------ ------
Total inventories $ 90,589 $ 76,701
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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, 1997 12,410 $ 124 $ 66,190 $ 73,730
Net income - - - 4,121
Stock options exercised - - 5 -
------ ---- ------ ------
March 31, 1998 12,410 $ 124 $ 66,195 $ 77,851
====== ==== ====== ======
4. EARNINGS PER SHARE
Basic net income per share equals net income divided by the weighted
average shares outstanding for the three months ended March 31, 1998 and
1997. The computation of diluted net income per share includes all
dilutive common stock equivalents in the weighted average shares
outstanding. The reconciliation between basic and diluted earnings per
share is as follows:
Basic Basic Diluted Diluted
Income Shares EPS Shares EPS
1998 $4,121,000 12,409,776 $.33 12,608,138 $.33
1997 $4,446,000 12,324,594 $.36 12,555,059 $.35
Included in diluted shares are common stock equivalents relating to options
of 198,362 and 230,465 for 1998 and 1997, respectively.
5. ACQUISITIONS
On March 1, 1998, the Company purchased the assets and business of The
Solar Group (Solar) for approximately $35 million in cash. Solar
manufactures a line of construction products as well as a complete line of
mailboxes, primarily manufactured with galvanized steel.
On January 31, 1997, the Company purchased all of the outstanding capital
stock of Southeastern Metals Manufacturing Company, Inc. (SEMCO) for
approximately $25 million in cash. SEMCO manufactures a wide array of metal
products for the residential and commercial construction markets.
These acquisitions have been accounted for under the purchase method.
Results of operations of Solar and SEMCO have been consolidated with the
Company's results of operations from the respective acquisition dates. The
excess of the aggregate purchase price over the fair
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market value of net assets of Solar and SEMCO approximated $12 million and
$11 million, respectively, and is being amortized over 35 years from the
acquisition dates using the straight-line method.
The following information presents the pro forma consolidated
condensed results of operations as if the acquisitions had occurred on
January 1, 1997. The pro forma amounts may not be indicative of the
results that actually would have been achieved had the acquisitions
occurred as of January 1, 1997 and are not necessarily indicative of future
results of the combined companies.
(in thousands, except per share data)
Three Months Ended
March 31,
1998 1997
(unaudited)
Net sales $ 123,155 $ 125,561
======== ========
Income before taxes $ 6,770 $ 7,338
======== ========
Net income $ 4,062 $ 4,356
======== ========
Net income per share $ .33 $ .35
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6. SUBSEQUENT EVENT
On April 1, 1998, the Company purchased the assets and business of Appleton
Supply Company, Inc. (Appleton) for approximately $28.5 million in cash.
The results of operations of Appleton will be consolidated with the
Company's results of operations from the acquisition date for the quarter
ending June 30, 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales of $116.4 million for the first quarter ended March 31, 1998
increased 7.5% from sales of $108.3 million for the prior year's first
quarter. This increase resulted from including net sales of SEMCO (acquired
January 31, 1997) for the entire quarter, net sales of Solar (acquired
March 1, 1998) and sales growth at existing operations.
Cost of sales as a percentage of net sales remained constant at 82.7% for
the first quarter of 1998 and 1997. Higher raw material costs associated
with inventory purchased during 1997 which were not fully passed through to
customers and inefficiences due to the start-up and transition of the
Company's new cold-rolling mill at its Cleveland, Ohio facility to a two-
shift operation were primarily offset by higher margins at SEMCO and Solar.
SEMCO and Solar sales historically have generated higher margins than the
Company's other products and services.
Selling, general and administrative expenses as a percentage of net sales
increased to 10.0% for the first quarter ended March 31, 1998, from 9.3%
for the same period of 1997. This increase was primarily due to higher
costs as a percentage of sales attributable to SEMCO (included for the
entire quarter) and Solar (included for March 1998).
Interest expense increased by $.5 million for the first quarter ended March
31, 1998 primarily due to higher borrowings. This increase in borrowings
was due to the SEMCO acquisition being included for the entire quarter, the
Solar acquisition and the new mill which began operations in January 1998.
As a result of the above, income before taxes decreased by $.6 million
for the quarter ended March 31, 1998.
Income taxes for the three months ended March 31, 1998 approximated $2.7
million and were based on a 40.0% effective tax rate for 1998 compared to
an effective tax rate of 40.5% for the same period in 1997.
Liquidity and Capital Resources
During the first three months of 1998, the Company increased its working
capital to $106.3 million. Additionally, shareholders' equity increased to
$144.2 million at March 31, 1998.
The Company's principal capital requirements are to fund its operations,
including working capital, the purchase and funding of improvements to its
facilities, machinery and equipment and to fund acquisitions.
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Net income of $4.1 million and depreciation and amortization of $2.6
million combined with an increase in accounts payable and accrued expenses
(net of acquisition) of $6.7 million to provide cash of $13.4 million.
This was primarily offset by increases in inventory and accounts receivable
totaling $16.9 million to service increased sales levels resulting in net
cash used for operations of approximately $4.5 million.
Cash used in operations of $4.5 million, capital expenditures of $4.3
million and the acquisition of Solar for approximately $35 million were
funded by net proceeds from long-term debt of $42.3 million and cash on
hand.
During March 1998, the Company increased its bank credit facility to $210
million to provide additional funds to grow its business. At March 31,
1998 the Company's aggregate credit facilities available approximated $214
million with borrowings of approximately $124 million and an additional
availability of approximately $90 million.
The Company used approximately $28.5 million of the facility on
April 1, 1998 for the acquisition of Appleton Supply Company.
The Company believes that availability under its credit facilities together
with funds generated from operations will be sufficient to provide the
Company with the liquidity and capital resources necessary to support its
existing operations. The Company also believes it has the financial
capability to increase its long-term borrowing capacity due to changes in
capital requirements.
Impact of Year 2000
The Company is in the process of evaluating its management information
systems to determine Year 2000 compliancy. The Company currently believes
that costs required to achieve Year 2000 compliancy will not be material to
its financial statements.
Safe Harbor Statement
The Company wishes to take advantage of the Safe Harbor provisions included
in the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements by the Company, other than historical information, constitute
"forward looking statements" within the meaning of the Act and may be
subject to a number of risk factors. Factors that could affect these
statements include, but are not limited to, the following: the impact of
changing steel prices on the Company's results of operations; changing
demand for the Company's products and services; and changes in interest or
tax rates.
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PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits - None
a. Exhibit 27 - Financial Data Schedule
2. Reports on Form 8-K. There were no reports on Form 8-K
during the three months ended March 31, 1998.
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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 /s/Brian J. Lipke
Brian J. Lipke
President, Chief Executive Officer
and Chairman of the Board
By /s/Walter T. Erazmus
Walter T. Erazmus
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Date May 8, 1998
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