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, 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 March 31, 1999, the number of common shares
outstanding was: -- 12,514,131.
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GIBRALTAR STEEL CORPORATION
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 (unaudited) and
December 31, 1998 (audited) 3
Condensed Consolidated Statements of Income
Three months ended
March 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 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)
March 31, December 31,
1999 1998
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 5,578 $ 1,877
Accounts receivable 80,808 71,070
Inventories 90,971 99,351
Other current assets 3,944 3,536
Total current assets 181,301 175,834
Property, plant and equipment, net 177,575 176,221
Other assets 86,211 86,380
$ 445,087 $ 438,435
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 44,646 $ 38,601
Accrued expenses 12,708 11,646
Current maturities of long-term debt 1,333 1,351
Total current liabilities 58,687 51,598
Long-term debt 193,558 199,395
Deferred income taxes 25,849 25,289
Other non-current liabilities 1,963 1,845
Shareholders' equity
Preferred shares - -
Common shares 125 125
Additional paid-in capital 66,984 66,613
Retained earnings 97,921 93,570
Total shareholders' equity 165,030 160,308
$ 445,087 $ 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
March 31,
1999 1998
(unaudited)
Net sales $ 143,804 $ 116,383
Cost of sales 115,386 96,223
Gross profit 28,418 20,160
Selling, general and administrative expense 16,735 11,686
Income from operations 11,683 8,474
Interest expense 3,319 1,606
Income before taxes 8,364 6,868
Provision for income taxes 3,387 2,747
Net income $ 4,977 $ 4,121
========= =========
Net income per share-Basic $ .40 $ .33
========= =========
Weighted average shares outstanding-Basic 12,496 12,410
========= =========
Net income per share-Diluted $ .39 $ .33
========= =========
Weighted average shares outstanding-Diluted 12,712 12,608
========= =========
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,
1999 1998
(unaudited)
Cash flows from operating activities
Net income $ 4,977 $ 4,121
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 4,021 2,561
Provision for deferred income taxes 731 336
Undistributed equity investment income (210) (209)
Other noncash adjustments 29 -
Increase (decrease) in cash resulting from
changes in (net of acquisitions):
Accounts receivable (9,738) (9,723)
Inventories 8,380 (7,176)
Other current assets (595) (882)
Accounts payable and accrued expenses 7,226 6,709
Other assets (250) (222)
Net cash provided by (used in)
operating activities 14,571 (4,485)
Cash flows from investing activities
Acquisitions, net of cash acquired - (35,040)
Purchases of property, plant and equipment (4,878) (4,338)
Net proceeds from sale of property and equipment 147 65
Net cash used in investing activities (4,731) (39,313)
Cash flows from financing activities
Long-term debt reduction (19,808) (2,101)
Proceeds from long-term debt 13,953 44,394
Payment of dividends (626) -
Net proceeds from issuance of common stock 342 5
Net cash (used in) provided by financing
activities (6,139) 42,298
Net increase (decrease) in cash and cash
equivalents 3,701 (1,500)
Cash and cash equivalents at beginning of year 1,877 2,437
Cash and cash equivalents at end of period $ 5,578 $ 937
======= =======
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, 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
March 31, 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 three month period ended
March 31, 1999 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,
1999 1998
(unaudited) (audited)
Raw material $ 55,428 $ 60,665
Finished goods and work-in-process 35,543 38,686
Total inventories $ 90,971 $ 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 - - - 4,977
Stock options exercised 30 - 342 -
Earned portion of restricted
stock - - 29 -
Cash dividends-$.05 per share - - - (626)
March 31, 1999 12,514 $ 125 $ 66,984 $ 97,921
====================================
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, 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 $ 4,977,000 12,495,969 $ .40 12,712,487 $ .39
1998 $ 4,121,000 12,409,776 $ .33 12,608,138 $ .33
Included in diluted shares are common stock equivalents
relating to options of 216,518 and 198,362 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)
Three Months Ended
March 31, 1998
(unaudited)
Net sales $ 140,588
========
Income before taxes $ 7,431
========
Net income $ 4,410
========
Net income per share-Basic $ .36
========
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $27.4 million, or 23.6%, to $143.8
million for the first quarter ended March 31, 1999 from
$116.4 million for the prior year's first quarter. This
increase resulted from including net sales of The Solar
Group (acquired March 1, 1998), Appleton Supply Company
(acquired April 1, 1998), United Steel Products (acquired
June 1, 1998) and Harbor Metal Treating Co. (acquired
October 1, 1998) (collectively, the 1998 Acquisitions) from
their respective acquisition dates with the net sales at
the Company's existing operations, and from sales growth at
existing operations.
Cost of sales as a percentage of net sales decreased to
80.2% from 82.7% for the prior year's first quarter. Gross
profit as a percentage of net sales increased to 19.8% from
17.3% for the prior year's first quarter. 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 11.6% for the first
quarter ended March 31, 1999 from 10.0% for the same period
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 first quarter ended March 31, 1999
increased by $1.7 million from the same period in 1998
primarily due to higher borrowings to finance 1998
Acquisitions and capital expenditures.
As a result of the above, income before taxes increased by
$1.5 million for the first quarter ended March 31, 1999
from the same period of 1998.
Income taxes for the first quarter ended March 31, 1999
approximated $3.4 million and were based on a 40.5%
effective tax rate compared to an effective tax rate of
40.0% for the same period in 1998.
Liquidity and Capital Resources
During the first three months of 1999, the Company's
working capital decreased slightly to $122.6 million.
Additionally, shareholders' equity increased by $4.7
million at March 31, 1999 to $165.0 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.
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Net cash provided by operations of $14.6 million resulted
primarily from net income of $5.0 million, depreciation and
amortization of $4.0 million, an increase in accounts
payable and accrued expenses of $7.2 million and a decrease
in inventory of $8.4 million, offset by an increase in
accounts receivable of $9.7 million necessary to service
increased sales levels.
The $14.6 million of net cash provided by operations was
used to fund capital expenditures of $4.9 million and cash
dividends of $.6 million and to pay down $5.9 million of
the Company's credit facility.
At March 31, 1999 the Company's aggregate credit facilities
available approximated $243 million, with borrowings of
approximately $194 million and an additional availability
of approximately $49 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 at each of its 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 have been given priority for remediation and testing.
Therefore, the Company expects to be fully Year 2000 ready
with all such mission critical processes and systems by July 1999.
The following table summarizes the status as of March 31,
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 95% Complete
Non-Financial 100% Complete 60% July 1999
Non-IT Hardware and Software 100% Complete 85% July 1999
Third-Party Systems* 100% July 1999 * *
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 $250,000 was expensed through March 31, 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 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. 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, after the results of the
assessment, remediation and testing have been completed.
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Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging
Activities (FAS No. 133) which requires recognition of the
fair value of derivatives in the statement of financial
position, with changes in the fair value recognized either
in earnings or as a component of other comprehensive income
dependent upon the hedging nature of the derivative.
Implementation of FAS No. 133 is required for fiscal 2000.
The Company does not believe that FAS No. 133 will have a
material impact on its earnings or other comprehensive
income.
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 10.1 - Gibraltar Steel Corporation Incentive
Stock Option Plan Fourth Amendment and Restatement
2. Reports on Form 8-K. There were no reports on Form 8-K
during the three months ended March 31, 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
President, Chief Executive Officer
and Chairman of the Board
By /x/ Walter T. Erazmus
Walter T. Erazmus
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Date April 23, 1999
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