Exhibit 99.2
Item 8. Financial Statements and Supplementary Data for the Fiscal Years Ended
December 31, 2004, 2003 and 2002
Page Number
Financial Statements
Report of Independent Registered Public Accounting Firm 17
Consolidated Balance Sheets as of December 31, 2004 and 2003 20
Consolidated Statements of Income for the Years Ended December 31, 21
2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years Ended December 22
31, 2004, 2003 and 2002
Consolidated Statements of Shareholders' Equity and Comprehensive 23
Income for the Years Ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements 24
Supplementary Data:
Quarterly Unaudited Financial Data 52
16
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
of Gibraltar Industries, Inc.:
We have completed an integrated audit of Gibraltar Industries, Inc.'s
2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2004 and audits of its 2003 and
2002 consolidated financial statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Gibraltar Industries, Inc. and its subsidiaries
at December 31, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America. 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
the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
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 our opinion.
17
Internal control over financial reporting
Also, in our opinion, management's assessment, included in
"Management's Annual Report on Internal Control Over Financial
Reporting", appearing under Item 9A, that the Company maintained
effective internal control over financial reporting as of December 31,
2004 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the Company
maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on criteria
established in Internal Control - Integrated Framework issued by the
COSO. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on
the effectiveness of the Company's internal control over financial
reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit
of internal control over financial reporting includes obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
18
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
PricewaterhouseCoopers LLP
Buffalo, New York
March 9, 2005, except Note 2, as to which the date is November 7, 2005.
19
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2004 2003
________ ________
ASSETS
Current assets:
Cash and cash equivalents $ 10,892 $ 29,019
Accounts receivable 146,021 102,591
Inventories 207,215 107,531
Other current assets 15,479 10,309
_________ _________
Total current assets 379,607 249,450
Property, plant and equipment, net 269,019 250,029
Goodwill 285,927 267,157
Investments in partnerships 8,211 5,044
Other assets 14,937 6,063
_________ _________
$957,701 $777,743
_________ _________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,775 $ 49,879
Accrued expenses 51,885 29,029
Current maturities of long-term debt 8,859 14,014
Current maturities of related party debt 5,833 5,834
_________ _________
Total current liabilities 137,352 98,756
Long-term debt 289,514 210,736
Long-term related party debt 5,833 11,666
Deferred income taxes 66,485 55,982
Other non-current liabilities 4,774 6,422
Shareholders' equity:
Preferred stock $.01 par value; authorized:
10,000,000 shares; none outstanding - -
Common stock, $.01 par value; authorized
50,000,000 shares; issued 29,665,780 and 28,911,103 shares
in 2004 and 2003 respectively 297 289
Additional paid-in capital 209,765 199,110
Retained earnings 242,585 196,138
Unearned compensation (572) (818)
Accumulated other comprehensive income (loss) 1,668 (538)
_________ _________
453,743 394,181
Less: cost of 40,500 and 28,500 common shares held in
treasury in 2004 and 2003, respectively - -
_________ _________
Total shareholders' equity 453,743 394,181
_________ _________
$957,701 $777,743
_________ _________
The accompanying notes are an integral part of these consolidated financial
statements
20
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year Ended December 31,
2004 2003 2002
_________ _________ _________
Net sales $976,255 $729,806 $602,707
Cost of sales 774,970 587,128 484,244
_________ _________ _________
Gross profit 201,285 142,678 118,463
Selling, general and administrative expense 111,737 85,802 71,693
_________ _________ _________
Income from operations 89,548 56,876 46,770
Other (income) expense
Interest expense 12,915 13,096 8,283
Equity in partnerships' income (4,846) (685) (559)
_________ _________ _________
Total other expense 8,069 12,411 7,724
_________ _________ _________
Income before taxes 81,479 44,465 39,046
Provision for income taxes 31,768 17,562 15,615
_________ _________ _________
Income from continuing operations $ 49,711 $ 26,903 $ 23,431
Discontinued operations
Income from discontinued operations before taxes $ 1,770 $ 85 $ 711
Income tax expense 699 35 288
_________ _________ _________
Income from discontinued operations 1,071 50 423
Net income $ 50,782 $ 26,953 $ 23,854
_________ _________ _________
Net income per share - Basic
Income from continuing operations- $ 1.69 $ 1.12 $ 1.02
Income from discontinued operations .04 .00 .02
_________ _________ _________
Net income $ 1.73 $ 1.12 $ 1.04
_________ _________ _________
Weighted average shares outstanding - Basic 29,362 24,143 22,921
_________ _________ _________
Net income per share - Diluted
Income from continuing operations $ 1.68 $ 1.11 $ 1.00
Income from discontinued operations .04 .00 .02
_________ _________ _________
Net income - $ 1.72 $ 1.11 $ 1.02
_________ _________ _________
Weighted average shares outstanding - Diluted 29,596 24,387 23,279
_________ _________ _________
The accompanying notes are an integral part of these consolidated financial
statements
21
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2004 2003 2002
________ __________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,782 $ 26,953 $ 23,854
Income from discontinued operations 1,071 50 423
_________ __________ _________
Income from continuing operations 49,711 26,903 23,431
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 24,198 21,783 19,547
Provision for deferred income taxes 6,773 6,502 5,800
Equity in partnerships' income (4,846) (685) (559)
Distributions from partnerships' income 1,680 1,001 899
Tax benefit from exercise of stock options 1,249 949 349
Unearned compensation 153 212 258
Other non-cash adjustments 394 114 9
(Decrease) increase in cash resulting from changes in (net of
acquisitions):
Accounts receivable (26,975) (2,716) (6,295)
Inventories (88,145) 11,813 (30,317)
Other current assets (2,442) (2,011) (1,865)
Accounts payable and accrued expenses 37,896 1,396 4,393
Other assets (1,416) (4) (2,973)
_________ __________ _________
Net cash (used in) provided by continuing operations (1,770) 65,257 12,677
Net cash (used in) provided by discontinued operations (214) (594) (472)
_________ __________ _________
Net cash (used in) provided by operating activities (1,984) 64,663 12,205
_________ __________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (65,525) (84,243) (8,847)
Purchases of equity investment - (7,797) -
Purchases of property, plant and equipment (24,330) (22,050) (15,294)
Net proceeds from sale of property and equipment 1,388 423 2,111
_________ __________ _________
Net cash used in investing activities from continuing
operations (88,467) (113,667) (22,030)
Net cash used in investing activities for discontinued
operations (866) (508) (694)
_________ __________ _________
Net cash used in investing activities (89,333) (114,175) (22,724)
_________ __________ _________
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt reduction (64,992) (118,100) (129,945)
Proceeds from long-term debt 132,302 122,144 84,571
Net proceeds from issuance of common stock 9,600 73,558 53,674
Payment of dividends (3,720) (2,733) (2,269)
_________ __________ _________
Net cash provided by financing activities 73,190 74,869 6,031
_________ __________ _________
Net (decrease) increase in cash and cash equivalents (18,127) 25,357 (4,488)
Cash and cash equivalents at beginning of year 29,019 3,662 8,150
_________ __________ _________
Cash and cash equivalents at end of year $ 10,892 $ 29,019 $ 3,662
_________ __________ _________
The accompanying notes are an integral part of these consolidated financial
statements
22
26
GIBRALTAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Accumu-
lated
Other
Compre-
Compre- Common stock Additional Retained hensive Treasury Stock Total
hensive _________________ Paid-in Unearned Compen- ___________________ Shareholders
Income Shares Amount Capital Earnings sation Loss Shares Amount Equity
_______ _______ _______ _______ _______ ________ _______ ____ ___ _________
Balance at December 31, 2001 18,910 $ 189 $70,000 $150,578 $ (842) $(1,578) - $ - $218,347
Comprehensive income (loss):
Net income $23,854 - - - 23,854 - - - - 23,854
Other comprehensive loss:
Foreign currency translation
adjustment, net of tax of $0 (369) - - - - - - - - -
Unrealized loss on interest
rate swaps, net of tax of $629 (982) - - - - - - - - -
________
Other comprehensive loss (1,351) - - - - - (1,351) - - (1,351)
________
Total comprehensive income $22,503
________
Issuance of stock associated with
public offering 4,725 47 50,663 - - - - - 50,710
Stock options exercised 227 2 2,302 - - - - - 2,304
Tax benefit from exercise of stock
options - - 349 - - - - - 349
Cash dividends-$.103 per share - - - (2,466) - - - - (2,466)
Issuance of restricted stock 84 1 1,303 - (782) - - - 522
Earned portion of restricted stock - - - - 258 - - - 258
Forfeiture of restricted stock
awards (23) - (348) - 280 - 23 - (68)
Issuance of stock in connection
with acquisition 49 1 476 181 - - - - 658
_______ _______ _______ _______ ________ _______ ____ ___ _________
Balance at December 31, 2002 23,972 240 124,745 172,147 (1,086) (2,929) 23 - 293,117
Comprehensive income (loss):
Net income $26,953 - - - 26,953 - - - - 26,953
Other comprehensive income
(loss):
Foreign currency translation
adjustment, net of tax of
$637 1,346 - - - - - - - - -
Minimum pension liabilility
adjustment, net of tax of $38 (58) - - - - - - - - -
Unrealized gain on interest
rate swaps, net of tax of
$706 1,103 - - - - - - - - -
________
Other comprehensive income 2,391 - - - - - 2,391 - - 2,391
________
Total comprehensive income $29,344
________
Issuance of stock associated
with public offering 4,500 45 69,952 - - - - - 69,997
Stock options exercised 416 4 3,557 - - - - - 3,561
Tax benefit from exercise of
stock options - - 949 - - - - - 949
Cash dividends-$.117 per share - - - (2,962) - - - - (2,962)
Earned portion of restricted
stock - - - - 212 - - - 212
Forfeiture of restricted stock
awards (6) - (93) - 56 - 6 - (37)
_______ _______ _______ _______ ________ _______ ____ ___ _________
Balance at December 31, 2003 28,882 289 199,110 196,138 (818) (538) 29 - 394,181
Comprehensive income (loss):
Net income $50,782 - - - 50,782 - - - - 50,782
Other comprehensive income
(loss):
Foreign currency translation
adjustment, net of tax of $319 958 - - - - - - - - -
Minimum pension liability
adjustment, net of tax of $43 (67) - - - - - - - - -
Unrealized gain on interest
rate swaps, net of tax of
$841 1,315 - - - - - - - - -
_______
Other comprehensive income 2,206 - - - - - 2,206 - - 2,206
_______
Total comprehensive income $52,988
_______
Issuance of stock associated
with public offering 322 4 5,043 - - - - - 5,047
Stock options exercised 433 4 4,549 - - - - - 4,553
Tax benefit from exercise of
stock options - - 1,249 - - - - - 1,249
Cash dividends-$.146 per share - - - (4,335) - - - - (4,335)
Earned portion of restricted stock - - - - 153 - - - 153
Forfeiture of restricted stock
awards (12) - (186) - 93 - 12 - (93)
_______ _______ _______ _______ ________ _______ ____ ___ _________
Balance at December 31, 2004 29,625 $ 297 $209,765 $242,585 $ (572) $ 1,668 41 $ - $453,743
_______ _______ _______ _______ ________ _______ ____ ___ _________
The accompanying notes are integral part of these consolidated financial
statements
23
GIBRALTAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Gibraltar
Industries, Inc. and subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized when products are shipped or service is provided,
the customer takes ownership and assumes the risk of loss, collection
of the relevant receivable is probable, persuasive evidence of an
arrangement exists and the sales price is fixed or determinable. Sales
returns, allowances and customer incentives are treated as reductions
to sales and are provided for based on historical experience and
current estimates.
Promotional Allowances
The Company promotes its branded products through cooperative
advertising programs with retailers. Retailers also are offered
in-store promotional allowances and rebates based on sales volumes.
Promotion costs (including allowances and rebates) incurred during the
year are expensed to interim periods in relation to revenues and are
recorded as a reduction of net sales.
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.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's
existing accounts receivable. The Company determines the allowance
based on a number of factors, including historical experience, credit
worthiness of customers and current market and economic conditions. The
Company reviews the allowance for doubtful accounts on a regular basis.
Account balances are charged against the allowance after all means of
collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance sheet
exposure related to its customers.
Accounts receivable are expected to be collected within one year and
are net of the allowance for doubtful accounts of $3,090,000 and
$2,610,000 at December 31, 2004 and 2003, respectively.
Inventories
Inventories are valued at the lower of cost or market. The cost basis
of the inventory is determined on a first-in, first-out basis using
either actual costs or a standard cost methodology which approximates
actual cost.
24
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated over
their estimated useful lives using the straight-line method.
Expenditures that extend the useful lives of assets are capitalized,
while repair and maintenance costs are expensed as incurred. The
estimated useful lives of land improvements and buildings and building
improvements is 15 to 40 years, while machinery and equipment is 3 to
20 years. Accelerated methods are used for income tax purposes.
Depreciation expense aggregated $22,883,000, $20,979,000 and
$18,993,000 in 2004, 2003 and 2002, respectively.
Interest is capitalized in connection with construction of qualified
assets. Interest of $258,000, $156,000 and $105,000 was capitalized in
2004, 2003 and 2002, respectively.
Acquisition Related Assets and Liabilities
Accounting for the acquisition of a business as a purchase transaction
requires an allocation of the purchase price to the assets acquired and
the liabilities assumed in the transaction at their respective
estimated fair values. The most difficult estimations of individual
fair values are those involving long-lived assets, such as property,
plant and equipment and intangible assets. We use all available
information to make these fair value determinations and, for major
business acquisitions, engage an independent valuation specialist to
assist in the fair value determination of the acquired long-lived
assets.
Goodwill and Other Intangible Assets
The Company tests goodwill for impairment at the reporting unit level
on an annual basis during the fourth quarter or more frequently if an
event occurs or circumstances change that indicate that the fair value
of a reporting unit could be below its carrying amount. The impairment
test consists of comparing the fair value of a reporting unit,
determined using discounted cash flows, with its carrying amount
including goodwill, and, if the carrying amount of the reporting unit
exceeds its fair value, comparing the implied fair value of goodwill
with its carrying amount. An impairment loss would be recognized for
the carrying amount of goodwill in excess of its implied fair value.
Acquired identifiable intangible assets are recorded at cost.
Identifiable intangible assets with finite useful lives are amortized
over their estimated useful lives.
25
Impairment of Long-Lived Assets
Long-lived assets, including acquired identifiable intangible assets,
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of those assets may not be
recoverable. The Company uses undiscounted cash flows to determine
whether impairment exists and measures any impairment loss using
discounted cash flows.
Investments in Partnerships
The Company's investments in partnerships are accounted for using the
equity method of accounting, under which the Company's share of the
earnings of the partnership is recognized in income as earned, and
distributions are credited against the investment when received.
Equity method goodwill arises when the Company's investment in the
partnership exceeds its applicable share of the fair market value of
the partnership's net assets at the date the partnership was formed. In
accordance with SFAS 142, Goodwill and Other Intangible Assets, equity
method goodwill is not amortized or tested for impairment in accordance
with this standard. The Company reviews the equity method goodwill in
accordance with Accounting Principles Board Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock (APB Opinion No.
18), under which the Company would recognize an impairment loss when
there is a loss in the value of the equity method investment which is
deemed to be other than a temporary decline. No impairments were
recognized in the years ended December 31, 2004, 2003 and 2002.
Interest Rate Exchange Agreements
Interest rate swap agreements are used by the Company in the management
of interest rate risk. The interest rate swaps are not used for trading
purposes and are accounted for as cash flow hedges under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. The
Company has determined that there is no ineffectiveness in these
hedging relationships based on the criteria set forth in SFAS 133. The
fair values of interest rate swap agreements are recognized as other
current liabilities and aggregated $232,000 and $2,387,000 at December
31, 2004 and 2003, respectively. Gains or losses from changes in the
fair value of the swap agreements are recorded, net of taxes, as
components of Accumulated Other Comprehensive Income or Loss.
Translation of Foreign Currency
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at the rate of exchange in effect at the
balance sheet date. Income and expense items are translated at the
average exchange rates prevailing during the period. Gains and losses
resulting from foreign currency transactions are recognized currently
in income and those resulting from the translation of financial
statements are accumulated as a separate component of comprehensive
income net of related taxes.
Shareholders' Equity
During 2004 and 2003, the Company declared dividends of $4,335,000 and
$2,962,000, respectively, of which $1,484,000 and $869,000 are accrued
at December 31, 2004 and 2003, respectively.
The Company reacquired 12,000 shares and 6,000 shares of forfeited
restricted common stock in 2004 and 2003 respectively, at a cost of
$.01 per share and reduced additional paid-in capital for an amount
equal to the gross unvested portion of the restricted stock award at
the date of forfeiture. These reacquired shares and related cost are
reflected as treasury stock in the consolidated balance sheets at
December 31, 2004 and 2003.
26
Comprehensive Income
Comprehensive income includes net income as well as accumulated other
comprehensive income (loss). The Company's accumulated other
comprehensive income (loss) consists of unrealized gains and losses on
interest rate swaps, minimum pension liability and foreign currency
translation adjustments, which are recorded net of related taxes.
Net Income Per Share
Share and per share data for all periods presented have been adjusted
for the three-for-two stock split further discussed at Note 13.
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. A reconciliation between basic
net income per share and diluted net income per share for the years
ended December 31, 2004, 2003 and 2002 is displayed in Note 14.
Income Taxes
The consolidated 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.
Fair Market Value Disclosures
SFAS 107, Disclosures About Fair Market Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between
willing parties. The Company's cash and cash equivalents and accounts
receivable are stated at cost which approximates fair value at December
31, 2004. The fair value of the Company's debt approximated
$319,029,000 at December 31, 2004.
Fair market value estimates are made at a specific point in time based
on relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect these
estimates.
Stock Based Compensation
Stock options
In December 2002, the Financial Accounting Standards Board (FASB)
issued SFAS 148, Accounting for Stock-Based Compensation-Transition and
Disclosure which amends SFAS 123, Accounting for Stock-Based
Compensation. SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation and amends the disclosure
requirements of SFAS 123 to require disclosures in both the annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. As allowed by SFAS 123, the Company follows the
disclosure requirements of SFAS 123 and SFAS 148, but continues to
account for its stock options using the intrinsic value-based method of
accounting as prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB Opinion No. 25). Accordingly, no compensation
cost has been recognized for the stock option plans, as stock options
granted under these plans have an exercise price equal to 100% of the
market price of the underlying stock on the date of grant. The
Company's stock option plans are discussed in more detail in Note 15.
27
Restricted stock plan
The Company has a restricted stock plan for the grant of restricted
stock awards to employees and non-employee directors at a purchase
price of $.01 per share. Upon issuance of the restricted shares, a
charge equivalent to the market value of the shares on the date of
grant less the purchase price of $.01 per share is charged to
shareholders' equity (net of applicable tax effects), as unearned
compensation (a contra equity account) and is amortized on a
straight-line basis over the related share restriction period. The
Company's restricted stock plan is discussed in more detail in Note 16.
The following table illustrates the pro forma effect on net income and
net income per share, had the Company used the Black-Scholes option
pricing model to calculate the fair value of stock based employee
compensation pursuant to the provisions of SFAS 123 and SFAS 148 (in
thousands, except per share data):
Year Ended December 31,
2004 2003 2002
________ ________ ________
Net income as reported $50,782 $26,953 $23,854
Add: Compensation expense recognized in net
income, net of related tax effects 153 212 258
Deduct: Stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects (344) (569) (1,258)
________ ________ ________
Pro forma net income $50,591 $26,596 $22,854
________ ________ ________
Net income per share:
Basic - as reported $ 1.73 $ 1.12 $ 1.04
________ ________ ________
Basic - pro forma $ 1.72 $ 1.10 $ 1.00
________ ________ ________
Diluted - as reported $ 1.72 $ 1.11 $ 1.02
________ ________ ________
Diluted - pro forma $ 1.71 $ 1.09 $ .98
________ ________ ________
The fair values and assumptions used in the Black-Scholes option pricing model
are as follows:
Risk-Free
Fair Value Expected Life Stock Volatility Interest Rate Dividend Yield
__________ _____________ ________________ _____________ ______________
2000 Grant $4.21 5 Years 43.7% 6.3% .7%
1999 Grant $6.12 5 Years 45.1% 4.4% .2%
28
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 123 (Revised 2004) (SFAS No.
123R), Share-Based Payment, in December 2004. SFAS No. 123R is a
revision of FASB Statement 123, Accounting for Stock-Based Compensation
and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees and its related implementation guidance. The Statement
focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. SFAS No.
123R requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required
to provide service in exchange for the award. This statement is
effective as of the beginning of the first interim or annual reporting
period that begins after June 15, 2005 and the Company will adopt the
standard in the third quarter of fiscal 2005. The Company has not
determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions (SFAS 153). SFAS 153 eliminates the exception
from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting
for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153 specifies
that a nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of
the exchange. SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005 and is
required to be adopted by the Company for such exchanges in the third
quarter of fiscal 2005. The Company is currently evaluating the effect
that the adoption of SFAS 153 will have on its consolidated results of
operations and financial condition but does not expect it to have a
material impact.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4, (SFAS 151) which clarifies the
types of costs that should be expensed rather than capitalized as
inventory. This statement also clarifies the circumstances under which
fixed overhead costs associated with operating facilities involved in
inventory processing should be capitalized. The provisions of SFAS No.
151 are effective for fiscal years beginning after June 15, 2005 and
the Company will adopt this standard in the first quarter of fiscal
2006. The Company has not determined the impact, if any, that this
statement will have on its consolidated financial position or results
of operations.
In May 2004, the FASB released FASB Staff Position No. FAS 106-2
Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (FSP
106-2). The Medicare Prescription Drug Improvement and Modernization
Act of 2003 (the "Medicare Act") was enacted December 8, 2003. On
January 21, 2005 the Centers for Medicare and Medicaid Services
released the final regulations for implementing the Medicare Act. FSP
106-2 provides authoritative guidance on accounting for the federal
subsidy specified in the Medicare Act. The Medicare Act provides for a
federal subsidy equal to 28% of certain prescription drug claims for
sponsors of retiree health care plans with drug benefits that are at
least actuarially equivalent to those to be offered under Medicare Part
D, beginning in 2006. The Company was unable to conclude whether the
benefits provided by the plan are actuarially equivalent to Medicare
Part D under the Act, and therefore we have not determined whether we
will need to amend our plan, nor what effect the Act will have on our
consolidated financial position, results of operations or cash flows.
In December 2003, the FASB issued SFAS 132 (revised 2003), Employer's
Disclosures About Pensions and Other Postretirement Benefits. SFAS 132
(revised 2003), revises employers' disclosures about pension plans and
other postretirement benefit plans. SFAS 132 (revised 2003), does not
change the measurement and recognition of those plans required by SFAS
87, Employers' Accounting for Pensions, SFAS 88, Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, and SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. SFAS 132 (revised 2003),
retains the original disclosure requirements of SFAS 132 and requires
additional expanded annual and interim disclosures to those in the
original SFAS 132 about the assets, obligations, cash flows, and net
periodic benefit costs of defined benefit pension plans and other
defined benefit postretirement benefit plans. The adoption of this
Statement is required for financial statements with fiscal years ending
after December 15, 2003. Implementation of SFAS 132 (revised 2003) did
not have a material impact on the Company's consolidated financial
statements. The revised disclosure requirements of this Statement are
reflected in Notes 9 and 10.
29
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS
150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity. SFAS 150 applies specifically to a number of financial
instruments that companies have historically presented within their
financial statements either as equity or between the liabilities
section and the equity section, rather than as liabilities. SFAS 150 is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Implementation of SFAS
150 did not have a material impact on the Company's consolidated
financial statements.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 clarifies the
accounting for derivatives, amending the previously issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149
clarifies under what circumstances a contract with an initial net
investment meets the characteristics of a derivative, amends the
definition of any underlying contract, and clarifies when a derivative
contains a financing components in order to increase the comparability
of accounting practices under SFAS 133. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Company's consolidated
financial statements.
In December 2003, the FASB issued FIN 46(R), Consolidation of Variable
Interest Entities. This interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, replaced FIN 46 and
addresses consolidation of variable interest entities. FIN 46(R)
requires certain variable interest entities to be consolidated by the
primary beneficiary if the entity does not effectively disperse risks
among the parties involved. The provisions of FIN 46(R) are effective
immediately for those variable interest entities created after January
31, 2003. The provisions are effective for financial statements issued
for the first interim or annual period ending after December 15, 2003
for those variable interests held prior to February 1, 2003. The
adoption of this Interpretation did not have any effect on the
Company's financial position or results of operations.
In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an Amendment of SFAS No. 123.
SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require more prominent and more frequent disclosures in
the financial statements regarding the effects of stock-based
compensation. SFAS 148 is effective for financial statements for fiscal
years ending after December 15, 2002, including certain amendments to
required disclosures related to stock-based compensation included in
condensed financial statements for interim periods beginning after
December 15, 2002. Adoption of SFAS 148 did not have a material impact
on the Company's financial position, results of operations or cash
flows. For further discussion of the Company's stock-based compensation
arrangements, see above in Note 1.
In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN
45 requires the fair-value measurement and recognition of a liability
for the issuance of certain guarantees issued or modified on January 1,
2003 or after. Implementation of the fair-value measurement and
recognition provisions of FIN 45 did not have a material impact on the
Company's financial position or results of operations.
In June 2002, the FASB issued SFAS 146, Accounting for Exit or Disposal
Activities. SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is
incurred. The provisions of SFAS 146 are effective for exit or disposal
activities that were initiated after December 31, 2002 and did not have
a material impact on the Company's financial position or results of
operations.
30
2. DISCONTINUED OPERATIONS
As part of its continuing evaluation of its business, the Company
determined that its Milcor subsidiary was not positioned to obtain a
leadership position in its marketplace. The Company was approached by a
market leader from Milcor's marketplace and on January 27, 2005, the
Company sold the net assets of Milcor, which included Portals Plus, for
approximately $42,594,000. In accordance with the provisions of
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the results
of operations for Milcor have been classified as discontinued
operations in the consolidated statements of income and cash flows for
all periods presented. This reclassification has been reflected in
Notes 1, 3, 4, 9, 11 and 17.
During the second quarter of 2005, the Company reached an agreement
with the purchaser regarding the final working capital adjustment,
which resulted in a loss of $728,000 on the sale. As the Company
previously disclosed, a contingent liability related to a potential tax
liability due to the recognition of a built in gain for Portals Plus
had been identified. During the third quarter of 2005, the Company
determined that a $4.5 million unrecognized built in gain existed when
the former owners of Portals Plus converted the businesses from
C-Corp's to S-Corp's. The Company made a payment of $1,457,000 to the
Internal Revenue Service on behalf of the former owners pursuant to the
original purchase agreement. This amount has been reflected as a loss
on the discontinued operations during the third quarter of 2005. The
carrying amounts of the assets and liabilities sold were as follows (in
thousands):
Current Assets $ 14,176
Property, Plant and Equipment 11,861
Intangible Assets 1,774
Goodwill 18,760
Current Liabilities (1,792)
________
Net Assets $ 44,779
________
The results of operations for Milcor for the years ended December 31,
2004, 2004 and 2002 have been classified as discontinued operations in
the consolidated statements of income. Components of the income from
discontinued operations of Milcor are as follows (in thousands):
December 31,
2004 2003 2002
_______ _______ _______
Net sales $38,409 $28,455 $42,407
Expenses 37,338 28,405 41,984
_______ _______ _______
Income (loss) from
discontinued operations $ 1,071 $ 50 $ 423
_______ _______ ________
3. ACQUISITIONS
On July 1, 2002, the Company purchased all of the outstanding capital
stock of B&W Thermal Processing (1975) Limited (B&W) for approximately
$9,200,000. The purchase price consisted of approximately $8,500,000
payable in cash and 48,982 shares of the Company's common stock valued
at $700,000, including 18,858 treasury shares. B&W, located in Ontario,
Canada, specializes in commercial thermal processing. The results of
operations of B&W (included in the Company's Thermal Processing
segment) have been included in the Company's consolidated financial
statements since the date of acquisition.
On April 1, 2003, the Company acquired all of the outstanding stock of
Construction Metals, Inc. (Construction Metals). Construction Metals is
headquartered in Ontario, California and is a manufacturer of a wide
array of building and construction products that are sold to retail and
wholesale customers throughout the western United States. The
acquisition of Construction Metals allowed the Company to eliminate a
competitor and strengthen its distribution network in the building
products market. The results of operations of Construction Metals
(included in the Company's Building Products segment) have been
included in the Company's consolidated financial statements since the
date of acquisition.
31
The aggregate purchase consideration for the acquisition of
Construction Metals was approximately $29,185,000, which was comprised
of approximately $11,685,000 in cash, including direct acquisition
costs, and $17,500,000 of unsecured subordinated debt, payable to the
former owners of Construction Metals. The purchase price was allocated
to the assets acquired and liabilities assumed based upon respective
fair market values. The fair market values of the property, plant and
equipment and identifiable intangible assets were determined with the
assistance of an independent valuation. The identifiable intangible
assets consisted of non-competition agreements with an aggregate fair
market value of approximately $830,000 (5-year weighted average useful
life). The excess consideration over such fair value was recorded as
goodwill and aggregated approximately $19,546,000, none of which is
deductible for tax purposes. The allocation of purchase consideration
to the assets acquired and liabilities assumed is as follows (in
thousands):
Working capital $ 3,485
Property, plant and equipment 5,669
Intangible assets 830
Goodwill 19,546
________
$29,530
________
As part of the purchase agreement between the Company and the former
owners of Construction Metals, the Company may be required to pay
additional consideration if certain net sales levels as defined in the
purchase agreement are achieved during the period from acquisition up
to March 31, 2006. During the second quarter of 2004, a payment of
$345,000 was made as a result of the net sales achieved. This payment
was recorded as additional goodwill.
On May 1, 2003, the Company acquired all of the outstanding stock of
Air Vent Inc. (Air Vent). Air Vent is headquartered in Dallas, Texas
and is primarily engaged in the manufacture and distribution of a
complete line of ventilation products and accessories. The acquisition
of Air Vent allowed the Company to eliminate a competitor and
strengthen its position in the building products market. The results of
operations of Air Vent (included in the Company's Building Products
segment) have been included in the Company's consolidated financial
statements since the date of acquisition.
The aggregate purchase consideration for the acquisition of Air Vent
was approximately $117,798,000, which was comprised of approximately
$75,503,000 in cash, including direct acquisition costs, and
$42,295,000 of unsecured subordinated debt, payable to the former owner
of Air Vent. The purchase price was allocated to the assets acquired
and liabilities assumed based upon respective fair market values. The
fair market values of the property, plant and equipment and
identifiable intangible assets were determined with the assistance of
an independent valuation. The identifiable intangible assets consisted
of non-competition agreements with an aggregate fair market value of
approximately $1,400,000 (10-year weighted average useful life). The
excess consideration over such fair value was recorded as goodwill and
aggregated approximately $103,104,000. The allocation of purchase
consideration to the assets acquired and liabilities assumed is as
follows (in thousands):
Working capital $ 2,997
Property, plant and equipment 10,297
Intangible assets 1,400
Goodwill 103,104
________
$117,798
________
32
The Company and the former owner of Air Vent have made a joint election
under Internal Revenue Code (IRC) Section 338(h)(10) which allows the
Company to treat the stock purchase as an asset purchase for tax
purposes. As a result of the 338(h)(10) election, goodwill in the
amount of $103,104,000 is expected to be fully deductible for tax
purposes.
On January 6, 2004, the Company acquired all of the outstanding stock
of Renown Specialties Company Ltd. (Renown). Renown is headquartered in
Thornhill, Ontario and is a designer, manufacturer and distributor of
construction hardware products in Canada. The acquisition of Renown
served to broaden the Company's product lines and strengthen its
existing position in the building products market. The results of
operations of Renown (included in the Company's Building Products
segment) have been included in the Company's consolidated financial
statements since the date of acquisition.
The aggregate purchase consideration for the acquisition of Renown was
approximately $6,370,000 which was comprised solely of cash, including
direct acquisition costs. The purchase price was allocated to the
assets acquired and liabilities assumed based upon respective fair
market values. The fair market values of the property, plant and
equipment and identifiable intangible assets were determined with the
assistance of an independent valuation. The identifiable intangible
assets consisted of non-competition agreements with an aggregate fair
market value of $35,000 (5-year weighted average useful life),
trademarks / trade names with an aggregate fair market value of
$100,000 (2-year weighted average useful life), and customer
relationships with an aggregate fair market value of $80,000 (5-year
weighted average useful life). See Note 4 for further discussion.
The excess consideration over such fair value was recorded as goodwill
and aggregated approximately $3,701,000, none of which is deductible
for tax purposes. The allocation of purchase consideration to the
assets acquired and liabilities assumed is as follows (in thousands):
Working capital $1,504
Property, plant and equipment 950
Intangible assets 215
Goodwill 3,701
______
$6,370
______
On June 1, 2004, the Company acquired the net assets of SCM Metal
Products, Inc. (SCM). SCM is headquartered in Research Triangle Park,
North Carolina and manufactures, markets and distributes non-ferrous
metal powder products to customers in a number of different industries,
including the automotive, aerospace, electronics and consumer products
industries. The results of operations of SCM (included in the Company's
Processed Metal Products segment) have been included in the Company's
consolidated financial statements since the date of acquisition.
The aggregate purchase consideration for the acquisition of SCM was
approximately $42,882,000 in cash and acquisition costs. The purchase
price was allocated to the assets acquired and liabilities assumed
based upon respective fair market values. The fair market values of the
property, plant and equipment and identifiable intangible assets were
determined with the assistance of an independent valuation. The
identifiable intangible assets consisted of trademarks/trade names with
an aggregate value of $440,000 (indeterminable useful life), unpatented
technology with a value of $900,000 (10-year weighted average useful
life) and customer relationships with a value of $5,560,000 (15-year
weighted average useful life). See Note 4 for further discussion. The
excess consideration over such fair value was recorded as goodwill and
aggregated approximately $4,238,000, which is fully deductible for tax
purposes. The allocation of purchase consideration to the assets
acquired and liabilities assumed is as follows (in thousands):
Working capital $15,863
Property, plant and equipment 15,881
Intangible assets 6,900
Goodwill 4,238
_______
$42,882
_______
33
On August 13, 2004 the Company acquired all of the outstanding stock of
Portals Plus Incorporated and its affiliated companies, Roofing
Products & Systems Corporation and J.L.R. Services, Inc. (Portals
Plus). Portals Plus is headquartered in Chicago, Illinois, and
manufactures a diverse line of roofing products. The acquisition of
Portals Plus served to strengthen the Company's position in the roofing
products markets. The results of operations of Portals Plus (included
in the Company's Building Products segment) have been included in the
Company's consolidated financial statements since the date of
acquisition.
The aggregate purchase consideration of Portals Plus was approximately
$15,167,000, subject to final adjustment for payment of the sellers tax
liability, and was comprised solely of cash, including direct
acquisition costs. The purchase price was allocated to the assets
acquired and liabilities assumed based upon respective fair values. The
fair market values of the property, plant and equipment and
identifiable intangible assets were determined with the assistance of
an independent valuation. The identifiable intangible assets consisted
of customer relationships with a value of $1,830,000 (10-year weighted
average useful life), and patents with a value of $21,000 (18-year
weighted average useful life). The excess consideration over such fair
value was recorded as goodwill and aggregated approximately $9,396,000.
The preliminary allocation of purchase consideration to the assets
acquired and liabilities assumed is as follows (in thousands):
Working capital $ 2,905
Property, plant and equipment 1,015
Intangible assets 1,851
Goodwill 9,396
_______
$15,167
_______
The Company and the former owner of Portals Plus have made a joint
election under Internal Revenue Code (IRC) Section 338(h)(10) which
allows the Company to treat the stock purchase as an asset purchase for
tax purposes. As a result of the 338(h)(10) election, goodwill in the
amount of $9,396,000 is expected to be fully deductible for tax
purposes.
On January 27, 2005, the Company disposed of the operations of Portals
Plus as discussed Note 2.
The following unaudited pro forma financial information presents the
combined results of operations as if the acquisitions had occurred at
the beginning of each period presented. Portals Plus has been excluded
from this Proforma financial information due to its disposal and
classification as discontinued operations as discussed in Note 2. The
pro forma information includes certain adjustments, including
depreciation expense, interest expense and certain other adjustments,
together with related income tax effects. 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, 2003 and are not necessarily
indicative of future results of the combined companies (in thousands,
except per share data):
Year Ended December 31,
2004 2003
__________ ________
(unaudited)
Net sales $1,039,994 $838,073
__________ ________
Net income $ 52,381 $ 30,227
__________ ________
Net income per share - Basic $ 1.78 $ 1.25
__________ ________
Net income per share - Diluted $ 1.77 $ 1.24
__________ ________
34
On February 16, 2004, the Company acquired the net assets of Covert
Operations, Inc. (Covert), a manufacturer of epoxies and crack
injection systems for concrete and masonry. The aggregate purchase
consideration of Covert was approximately $1,336,000, including direct
acquisition costs. The acquisition of Covert resulted in approximately
$640,000 in goodwill, which is fully deductible for tax purposes. The
acquisition of Covert is not considered to be material to the Company's
consolidated results of operations.
4. GOODWILL AND RELATED INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill by reportable segment
for the years ended December 31, 2004 and 2003 are as follows (in
thousands):
Processed Building Thermal
Metal Products Processing
Products Segment Segment Segment Total
________________ ________ __________ _________
Balance as of December 31, 2002 $ 8,058 $ 79,401 $45,993 $133,452
Goodwill acquired 11,289 122,305 111 133,705
_______ ________ _______ _________
Balance as of December 31, 2003 19,347 201,706 46,104 267,157
Goodwill acquired 4,270 14,081 - 18,351
Foreign currency translation - 419 - 419
_______ ________ _______ _________
Balance as of December 31, 2004 $23,617 $216,206 $46,104 $285,927
_______ ________ _______ _________
As described in Note 7, the Company entered into a joint venture with
Duferco Farrell Corporation in 2003, in which the Company acquired a
50% partnership interest in Gibraltar DFC Strip Steel, LLC. The
Company's investment in Gibraltar DFC Strip Steel, LLC. (included in
the Company's Processed Metals Products segment) exceeded its
applicable share of the fair market value of the partnership's net
assets at the date the partnership was formed and resulted in equity
method goodwill of approximately $11,320,000. There was no impairment
associated with this equity method goodwill in 2004 or 2003.
Intangible Assets
Intangible assets related to the Company's acquisitions are included as
part of the total other assets on the Company's condensed consolidated
balance sheet. Intangible assets subject to amortization at December 31
are as follows (in thousands):
2004 2003
_______________________________ _____________________________
Gross Gross
Carrying Accumulated Carrying Accumulated Estimated
Amount Amortization Amount Amortization Life
_________ ____________ ________ ____________ __________
Trademark / Patent $ 141 $ (54) $ - $ - 2 to 18 years
Unpatented Technology 1,075 (63) - - 15 years
Customer Relationships 7,470 (293) - - 5 to 15 years
Non-Competition
Agreements 2,365 (549) $2,230 (218) 5 to 10 years
_______ _____ ______ _____
$11,051 $(959) $2,230 $(218)
_______ _____ ______ _____
35
Intangible asset amortization expense for the years ended December 31,
2004 and 2003 aggregated approximately $680,000 and $218,000,
respectively.
Amortization expense related to intangible assets subject to
amortization at December 31, 2004 for the next five years is estimated
as follows (in thousands):
Year Ended December 31,
_______________________
2005 $875
2006 $825
2007 $825
2008 $701
2009 $614
Intangible assets not subject to amortization consist of a trademark
valued at $440,000.
5. INVENTORIES
Inventories at December 31 consist of the following:
(in thousands)
______________
2004 2003
________ ________
Raw material $121,614 $ 53,737
Work-in-process 27,279 21,033
Finished goods 58,322 32,761
________ ________
Total inventory $207,215 $107,531
________ ________
6. PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment at December 31 consisted
of the following:
(in thousands)
____________
2004 2003
________ ________
Land and land improvements $ 12,106 $ 9,046
Building and improvements 85,936 79,099
Machinery and equipment 310,271 283,271
Construction in progress 12,765 9,670
________ ________
421,078 381,086
Less accumulated depreciation and amortization 152,059 131,057
________ ________
Property, plant and equipment, net $269,019 $250,029
________ ________
36
7. INVESTMENTS IN PARTNERSHIPS
The Company has a 31% partnership interest in a steel pickling joint
venture with Samuel Manu-Tech, Inc. The partnership provides a steel
cleaning process called pickling to steel mills and steel processors.
The investment is included in the Company's Processed Metal Products
segment and is accounted for using the equity method of accounting. The
Company's investment in the partnership was approximately $3,127,000
and $3,454,000 at December 31, 2004 and 2003, respectively.
In December 2003, the Company entered into a joint venture with Duferco
Farrell Corporation, in which the Company acquired a 50% partnership
interest in Gibraltar DFC Strip Steel, LLC. The joint venture was
formed for the purpose of manufacturing and distributing cold-rolled
strip steel products. The investment is accounted for using the equity
method of accounting. The Company's proportionate share in the net
assets of the joint venture was approximately $5,084,000 and $1,590,000
at December 31, 2004 and 2003, respectively.
8. DEBT
Long-term debt at December 31 consists of the following:
(in thousands)
______________
2004 2003
________ _________
Revolving credit facility $157,636 $125,000
Senior secured notes 55,000 -
Acquisition notes payable 45,503 59,795
Private placement demand notes 50,000 50,000
Industrial Development Revenue Bonds 1,900 2,400
Short-term borrowings - 5,000
Other debt - 55
________ ________
310,039 242,250
Less current maturities 14,692 19,848
________ ________
Total long-term debt $295,347 $222,402
________ ________
The Company's revolving credit facility of $290,000,000 is
collateralized by the Company's accounts receivable, inventories, and
personal property and equipment, and is committed through June 2007 and
contains a $10,000,000 expansion feature at the Company's option,
subject to approval by the participating financial institutions. A
commitment fee of 30 basis points of the unused portion of the facility
is payable quarterly. This facility has various interest rate options,
which are no greater than the bank's prime rate (5.25% at December 31,
2004). 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, 2004, the Company had interest rate
swap agreements outstanding which expire in 2005 and effectively
converted $20,000,000 of floating rate debt to fixed rates ranging from
7.22% to 7.70%. Additional borrowings under the revolving credit
facility of $130,000,000 and $75,000,000 had an interest rate of LIBOR
plus a fixed rate at December 31, 2004 and 2003, respectively. There
were additional borrowings of $7,636,000 at the prime rate at December
31, 2004. The weighted average interest rate of these borrowings was
4.59% and 3.55% at December 31, 2004 and 2003, respectively. $7,725,000
of standby letters of credit have been issued under the revolving
credit agreement to third parties on behalf of the Company at December
31, 2004. These letters of credit reduce the amount otherwise
available.
In June 2004, the Company entered into a $75,000,000 private placement
of debt with The Prudential Insurance Company of America. This senior
secured note bears interest at 5.75% annually and has a seven year
term. The Company drew down $55,000,000 which was outstanding at
December 31, 2004, and will draw down the remaining $20,000,000 at
specified dates and amounts which coincide with the expiration of the
interest rate swap agreements currently outstanding under the Company's
existing revolving credit facility. The initial $55,000,000 borrowing
under this note was used to pay down a portion of the existing
revolving credit facility.
37
The Company's acquisition notes payable consists of debt incurred in
connection with the 2003 acquisitions of Construction Metals and Air
Vent. In connection with the acquisition of Construction Metals, the
Company entered into two unsecured subordinated notes payable each in
the amount of $8,750,000 (aggregate total of $17,500,000). These notes
are payable to the two former owners of Construction Metals and are
considered related party in nature due to the former owners' current
employment relationship with the Company. These notes are payable in
equal annual principal installments of $2,917,000 per note on April 1,
with the final principal payment due on April 1, 2006. These notes
require quarterly interest payments at an interest rate of 5.0% per
annum. Interest expense related to these notes payable aggregated
approximately $658,000 and $660,000 in 2004 and 2003, respectively. At
December 31, 2004, the current portion of these notes aggregated
approximately $5,834,000 and accrued interest aggregated approximately
$147,000 and $221,000 at December 31, 2004 and 2003, respectively.
In connection with the acquisition of Air Vent, the Company entered
into an unsecured subordinated note payable to the former owner of Air
Vent, in the amount of $42,295,000. The note is payable in annual
principal installments of $8,459,000 on May 1, with the final principal
payment due on May 1, 2008. The unpaid principal balance of $33,836,000
accrues interest at a rate of 5.0% per annum.
The Company's private placement demand notes consist of a $25,000,000
senior secured note bearing interest at 7.35% annually, due on July 3,
2007 and a $25,000,000 senior subordinated note bearing interest at
8.98% annually, due on January 3, 2008.
In addition, the Company has an Industrial Development Revenue Bond
payable in installments through September 2018, with interest rates
ranging from a fixed rate of 4.22% to a variable rate of 2.13% at
December 31, 2004, which financed the cost of the expansion of its
Coldwater, Michigan heat-treating facility under a capital lease
agreement. The cost of the facility and equipment equals the amount of
the bonds and includes accumulated amortization of $843,000. The
agreement provides for the purchase of the facility and equipment at
any time during the lease term at scheduled amounts or at the end of
the lease for a nominal amount.
In connection with the Company's purchase of a 50% partnership interest
in Gibraltar DFC Strip Steel, LLC, the Company entered into a
short-term note payable to Duferco Farrell Corporation in the amount of
$5,000,000. The note bore no interest and was satisfied in 2004.
The aggregate maturities on long-term debt for the next five years and
thereafter are as follows: 2005 - $14,692,000; 2006 - $14,493,000; 2007
- $191,295,000; 2008 - $33,559,000; 2009 - $100,000; and $55,900,000,
thereafter.
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.
Total cash paid for interest in the years ended December 31, 2004, 2003
and 2002 was $14,620,000, $12,632,000 and $10,050,000, respectively.
38
9. EMPLOYEE RETIREMENT PLANS
Certain subsidiaries participate in the Company's 40l(k) Plan. In
addition, certain subsidiaries have multi-employer non-contributory
retirement plans providing for defined contributions to union
retirement funds.
The Company has an unfunded supplemental pension plan which provides
defined pension benefits to certain salaried employees upon retirement.
Benefits under the plan are based on the salaries of individual plan
participants. The Company is accruing for these benefit payments based
upon an independent actuarial calculation. The following table presents
the changes in the plan's projected benefit obligation, fair value of
plan assets and funded status for the years ended December 31:
(in thousands)
______________
2004 2003 2002
_______ _______ _______
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $ 1,791 $ 1,652 $ 1,269
Service cost 171 156 151
Interest cost 107 107 92
Actuarial (gain) loss 110 (106) 140
Benefits paid (25) (18) -
_______ _______ _______
Projected benefit obligation at end of year $ 2,154 $ 1,791 $ 1,652
_______ _______ _______
Fair value of plan assets $ - $ - $ -
_______ _______ _______
Funded status: $(2,154) $(1,791) $(1,652)
Unrecognized loss 206 96 206
_______ _______ _______
Net amount recognized $(1,948) $(1,695) $(1,446)
_______ _______ _______
Amounts recognized in the consolidated financial
statements consist of:
Accrued pension liability $(2,154) $(1,791) $(1,652)
Accumulated other comprehensive loss-
additional minimum pension liability
(pre-tax) 206 96 206
_______ _______ _______
Net amount recognized $(1,948) $(1,695) $(1,446)
_______ _______ _______
The plan's accumulated benefit obligation was $2,154,000, $1,791,000
and $1,652,000 at December 31, 2004, 2003 and 2002, respectively.
The measurement date used to determine pension benefit measures is
December 31.
39
Components of net periodic pension cost for the years ended December 31
are as follows:
(in thousands)
______________
2004 2003 2002
Service cost $ 171 $ 156 $ 151
Interest cost 107 107 92
Loss amortization - 4 -
______ ______ ______
Net periodic pension cost $ 278 $ 267 $ 243
______ ______ ______
Weighted average assumptions:
Discount rate 5.75% 6.00% 6.50%
Expected return on plan assets - - -
Rate of compensation increase - - -
Employer contributions to the plan for 2005 are expected to be $25,000.
Expected benefit payments from the plan are as follows:
Year Ended December 31,
_______________________
2005 $ 25,000
2006 $ 25,000
2007 $ 35,000
2008 $ 73,000
2009 $ 148,000
Years 2010 - 2014 $1,677,000
Total expense for all retirement plans was $3,044,000, $2,676,000 and
$2,322,000 for the years ended December 31, 2004 2003 and 2002,
respectively.
40
10. OTHER POSTRETIREMENT 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 following table presents the changes in the accumulated
postretirement benefit obligation related to the Company's unfunded
postretirement healthcare benefits at December 31:
(in thousands)
______________
2004 2003 2002
_______ _______ _______
Benefit obligation at beginning of year $ 3,404 $ 2,974 $ 2,272
Service cost 92 99 81
Interest cost 214 191 177
Amendments (57) - -
Actuarial loss 465 227 499
Benefits paid (72) (87) (55)
_______ _______ _______
Benefit obligation at end of year $ 4,046 $ 3,404 $ 2,974
_______ _______ _______
Fair value of plan assets $ - $ - $ -
_______ _______ _______
Under funded status $(4,046) $(3,404) $(2,974)
Unrecognized prior service costs (142) (106) (120)
Unrecognized loss 1,721 1,362 1,225
_______ _______ _______
Accumulated postretirement benefit
obligation $(2,467) $(2,148) $(1,869)
_______ _______ _______
41
Components of net periodic postretirement benefit cost charged to
expense for the years ended December 31 are as follows:
(in thousands)
______________
2004 2003 2002
______ ______ ______
Service cost $ 92 $ 99 $ 81
Interest cost 214 191 177
Amortization of unrecognized prior service cost (21) (14) (14)
Loss amortization 107 90 71
______ ______ ______
Net periodic pension cost $ 392 $ 366 $ 315
______ ______ ______
Weighted average assumptions:
Discount rate 5.75% 6.00% 6.50%
Expected return on plan assets - - -
Rate of compensation increase - - -
The medical inflation rate was assumed to be 8.0% in 2004, decreasing
gradually to 5.0% in 2011. The effect of a 1% increase or decrease in
the annual medical inflation rate would increase or decrease the
accumulated postretirement benefit obligation at December 31, 2004, by
approximately $651,000 and $562,000, respectively and increase or
decrease the annual service and interest costs by approximately $56,000
and $48,000, respectively.
The measurement date used to determine postretirement benefit
obligation measures is December 31.
The Company expects to make contributions of $144,000 to the plan in
2005.
Expected benefit payments from the plan are as follows:
Year Ended December 31,
_______________________
2005 $ 144,000
2006 $ 147,000
2007 $ 154,000
2008 $ 168,000
2009 $ 183,000
Years 2010 - 2014 $1,239,000
On December 18, 2003 the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Medicare Act) was passed. On January 21,
2005 the Centers for Medicare and Medicaid Services released the final
regulations for implementing the Medicare Act. Net periodic benefit
costs for postretirement benefits above do not reflect any amount
associated with the federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least actuarially
equivalent to the Medicare benefit because the Company was unable to
conclude whether the benefits provided by the plan are actuarially
equivalent to Medicare Part D under the Medicare Act.
One of the Company's subsidiaries also provides postretirement
healthcare benefits to its unionized employees through contributions to
a multi-employer healthcare plan.
42
11. INCOME TAXES
The provision for income taxes for the years ending December 31
consisted of the following:
(in thousands)
____________
2004 2003 2002
_______ _______ _______
Income Tax Expense from Continuing Operations
Current:
U.S. Federal $22,073 $ 9,892 $ 8,970
State and Foreign 3,441 1,715 1,576
_______ _______ _______
Total current 25,514 11,607 10,546
_______ _______ _______
Deferred:
U.S. Federal 5,202 5,296 4,524
State and Foreign 1,052 659 545
_______ _______ _______
Total deferred 6,254 5,955 5,069
_______ _______ _______
Subtotal 31,768 17,562 15,615
Income Tax Expense from Discontinued Operations:
U.S. Federal 640 43 276
State and Foreign 59 (8) 12
_______ _______ _______
Subtotal 699 35 288
Total income taxes charged to the income statement $32,467 $17,597 $15,903
_______ _______ _______
43
The provision for income taxes differs from the federal statutory rate
of 35% due to the following:
(in thousands)
____________
2004 2003 2002
_______ _______ _______
Statutory rate $29,137 $15,593 $13,915
State income taxes, less federal effect 2,865 1,538 1,333
Other 465 466 655
_______ _______ _______
$32,467 $17,597 $15,903
_______ _______ _______
Deferred tax liabilities (assets) at December 31, consist of the
following:
(in thousands)
____________
2004 2003
_________ ________
Depreciation $ 52,669 $ 48,724
Goodwill 18,284 12,107
Other 1,381 1,193
_________ ________
Gross deferred tax liabilities 72,334 62,024
_________ ________
State taxes (2,491) (2,009)
Other (7,916) (6,544)
_________ ________
Gross deferred tax assets (10,407) (8,553)
_________ ________
Net deferred tax liabilities $ 61,927 $ 53,471
_________ ________
Cash paid for income taxes, net of tax refunds, in the years ended
December 31, 2004, 2003 and 2002 was $17,584,000, $12,823,000 and
$7,320,000, respectively.
No provision has been made for U.S. federal taxes on a foreign
subsidiary's undistributed earnings ($418,000 at December 31, 2004)
considered to be indefinitely invested. If these earnings were
repatriated, the applicable income taxes would be substantially offset
by available foreign tax credits.
On October 22, 2004 the American Jobs Creation Act of 2004 (the "2004
Jobs Act") was passed. The 2004 Jobs Act creates a temporary incentive
for U.S. multinational corporations to repatriate accumulated income
abroad by providing an 85% dividends received deduction for certain
dividends from controlled foreign corporations. The Company has
evaluated the repatriation provisions of the 2004 Jobs Act and has
determined that no repatriations of unremitted earnings will be made.
44
12. COMMON STOCK
In December 2003, the Company completed an offering of 4,500,000 shares
of common stock at a price of $16.50 per share. Net proceeds to the
Company aggregated approximately $70,000,000. In connection with this
common stock offering, the Company granted the underwriters an option
to purchase additional shares of common stock to cover over-allotments.
In January 2004, the underwriters exercised this option and purchased
an additional 321,938 shares of the Company's common stock at a price
of $16.50 per share. Net proceeds to the Company associated with the
purchase of these additional shares aggregated approximately
$5,000,000, and was used to reduce outstanding debt.
13. STOCK SPLIT
On October 5, 2004, the Company's Board of Directors authorized a 3 for
2 stock split in the form of a stock dividend that was distributed on
October 29, 2004 to shareholders of record on October 15, 2004. The
remittance of $1,000 in lieu of fractional shares has been reflected as
a cash dividend and charged to retained earnings during fiscal 2004.
All share and per share data in these consolidated financial statements
and footnotes have been retroactively restated as if the stock split
had occurred as of the earliest period presented.
14. NET INCOME PER SHARE
Basic income per share is based on the weighted average number of
common shares outstanding. Diluted income per share is based on the
weighted average number of common shares outstanding, as well as
dilutive potential common shares which, in the Company's case, comprise
shares issuable under the stock option and restricted stock plans
described in Notes 15 and 16. The treasury stock method is used to
calculate dilutive shares, which reduces the gross number of dilutive
shares by the number of shares purchasable from the proceeds of the
options assumed to be exercised.
The following table sets forth the computation of basic and diluted
earnings per share as of December 31:
2004 2003 2002
___________ ___________ ___________
Numerator:
Income available to common stockholders $50,782,000 $26,953,000 $23,854,000
___________ ___________ ___________
Denominator:
Denominator for basic income per share:
Weighted average shares outstanding 29,362,122 24,142,595 22,920,546
___________ ___________ ___________
Denominator for diluted income per share:
Weighted average shares outstanding 29,362,122 24,142,595 22,920,546
Common stock options and restricted stock 233,472 244,638 357,993
___________ ___________ ___________
Weighted average shares and conversions 29,595,594 24,387,233 23,278,539
___________ ___________ ___________
15. STOCK OPTION PLANS
The Company has a non-qualified stock option plan, whereby the Company
may grant non-qualified stock options to officers, employees,
non-employee directors and advisers. Under the non-qualified stock
option plan, 600,000 shares of common stock were reserved for the
granting of options. Options are granted under this plan at an exercise
price not less than the fair market value of the shares at the date of
grant. These options vest ratably over a four-year period from the
grant date and expire ten years after the date of grant. At December
31, 2004, 228,750 shares remain available for issuance under the
non-qualified stock option plan.
45
In 1993, the Company adopted an incentive stock option plan, whereby
the Company may grant incentive stock options to officers and other key
employees. Under this plan, 2,437,500 shares of common stock were
reserved for the granting of stock options at an exercise price not
less than the fair market value of the shares at the date of grant.
Options granted under this plan vest ratably over a four-year period
from the grant date and expire ten years after the date of grant. In
September 2003, this plan expired. The expiration of this plan did not
modify, amend or otherwise affect the terms of any outstanding options
on the date of the plan's expiration.
In 2003, the Company's Board of Directors approved the adoption of a
new incentive stock option plan, whereby the Company may grant
incentive stock options to officers and other key employees. This plan
was approved by the shareholders in 2004. Under this plan, 2,250,000
shares of common stock were reserved for the granting of stock options.
These options are granted at an exercise price not less than the fair
market value of the shares at the date of grant. Options granted under
this plan vest ratably over a four-year period from the grant date and
expire ten years after the date of grant. As of December 31, 2004,
2,250,000 shares remain available for issuance under this plan.
The following table summarizes the ranges of outstanding and
exercisable options at December 31, 2004:
Range of Weighted Average
Exercise Options Remaining Weighted Average Options Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
________ _________________ ________________ ________________ ________________ ________________
$7.33 - $9.38 114,100 5.3 years $ 9.24 114,100 $ 9.24
$10.42 - $15.00 282,915 3.0 years $13.19 282,915 $13.19
_______ _______
397,015 3.7 years $12.06 397,015 $12.06
_______ _______
The following table summarizes information about stock option
transactions:
Options Weighted Average Options Weighted Average
Outstanding Exercise Price Exercisable Exercise Price
_______________ _________________ ____________ _________________
Balance at December 31, 2001 1,612,020 $ 10.56 1,226,613 $ 10.72
Granted - -
Exercised (226,925) 10.15
Forfeited (24,283) 10.75
___________
Balance at December 31, 2002 1,360,812 $ 10.62 1,190,412 $ 10.80
Granted - -
Exercised (415,605) 8.57
Forfeited (87,473) 13.61
___________
Balance at December 31, 2003 857,734 $ 11.31 784,254 $ 11.49
Granted - -
Exercised (432,124) 10.52
Forfeited (28,595) 12.91
___________
Balance at December 31, 2004 397,015 $ 12.06 397,015 $ 12.06
___________
At December 31, 2004 all exercisable options had an exercise price
below the $23.62 per share market price of the Company's common stock.
At December 31, 2003 all exercisable options had an exercise price
below the $16.78 per share market price of the Company's common stock.
46
Tax benefits of $1,249,000, $949,000 and $349,000 realized in the years
ended December 31, 2004, 2003 and 2002, respectively, associated with
the exercise of certain stock options have been credited to additional
paid-in-capital.
16. RESTRICTED STOCK PLAN
The Company has a restricted stock plan and has reserved for issuance
375,000 common shares for the grant of restricted stock awards to
employees and non-employee directors at a purchase price of $.01 per
share. Shares of restricted stock issued under this plan vest on a
straight-line basis over a period of 5 to 10 years. The Company
recognized compensation expense associated with the lapse of
restrictions in the amounts of $153,000, $212,000 and $258,000, during
2004, 2003 and 2002, respectively. At December 31, 2004, 202,500 shares
remain available for issuance under the restricted stock plan.
17. SEGMENT INFORMATION
The Company is organized into three reportable segments on the basis of
the production process and products and services provided by each
segment, identified as follows:
(i) Processed metal products (formerly referred to as processed
steel products) , which primarily includes the intermediate
processing of wide, open tolerance flat-rolled sheet steel and
other metals through the application of several different
processes to produce high-quality, value-added coiled steel
and other metal products to be further processed by customers.
(ii) Building products, which primarily includes the processing of
sheet steel to produce a wide variety of building and
construction products.
(iii) Thermal processing (formerly referred to as heat treating),
which includes a wide range of metallurgical heat-treating
processes in which customer-owned metal parts are exposed to
precise temperatures, atmospheres and quenchants to improve
their mechanical properties, durability and wear resistance.
During the fourth quarter of 2004, the Company determined that SCM,
which had been included in the Thermal Processing segment since its
acquisition in June 2004, should be included in the Processed Metal
Products segment, given the products and services of this business.
47
The following table illustrates certain measurements used by management to
assess the performance of the segments described above as of and for the years
ended December 31, 2004, 2003 and 2002:
(in thousands)
____________
2004 2003 2002
________ ________ ________
Net sales
Processed metal products $395,287 $268,512 $272,796
Building products 477,316 371,957 249,754
Thermal processing 103,652 89,337 80,157
________ ________ ________
$976,255 $729,806 $602,707
________ ________ ________
Income from operations
Processed metal products $ 43,573 $ 25,214 $ 32,284
Building products 59,068 38,901 18,507
Thermal processing 13,731 9,387 9,904
Corporate (26,824) (16,626) (13,925)
________ ________ ________
$ 89,548 $ 56,876 $ 46,770
________ ________ ________
Depreciation and amortization
Processed metal products $ 6,354 $ 5,590 $ 5,874
Building products 9,364 8,144 6,519
Thermal processing 7,139 6,665 6,057
Corporate 1,341 1,384 1,097
________ ________ ________
$ 24,198 $ 21,783 $ 19,547
________ ________ ________
Total assets
Processed metal products $267,297 $161,334 $163,480
Building products 444,677 371,812 208,281
Thermal processing 149,454 142,575 140,027
Corporate 96,273 102,022 64,780
________ ________ ________
$957,701 $777,743 $576,568
________ ________ ________
Capital expenditures
Processed metal products $ 5,350 $ 5,909 $ 3,211
Building products 10,363 6,472 5,167
Thermal processing 3,947 6,030 6,057
Corporate 4,670 3,639 859
________ ________ ________
$ 24,330 $ 22,050 $ 15,294
________ ________ ________
48
18. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
2004 2003
_______ _______
Compensation $15,545 $10,410
Insurance 8,812 2,586
Customer rebates 7,903 6,107
Other 19,624 9,926
_______ _______
$51,884 $29,029
_______ _______
19. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under operating
leases. Rent expense under operating leases for the years ended
December 31, 2004, 2003 and 2002 aggregated $9,087,000, $6,358,000 and
$3,966,000, respectively. Future minimum lease payments under these
noncancelable operating leases at December 31, 2004 are as follows:
2005 -$9,168,000; 2006 - $8,252,000; 2007 - $6,814,000; 2008 -
$5,534,000; 2009 - $4,018,000; and $10,207,000, thereafter.
The Company entered into certain operating lease agreements, related to
acquired operating locations and facilities, with the former owners of
Construction Metals. These operating leases are considered to be
related party in nature. Rental expense associated with these related
party operating leases aggregated approximately $1,304,000 in 2004.
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 are not clearly determinable at the
present time, would significantly affect the Company's financial
condition or results of operations.
The Company offers various product warranties to its customers
concerning the quality of its products and services. Based upon the
short duration of warranty periods and favorable historical warranty
experience, the Company determined that a related warranty accrual at
December 31, 2004 and 2003 is not required.
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The cumulative balance of each component of accumulated other
comprehensive income (loss) is as follow (in thousands):
Foreign currency Minimum Unrealized Accumulated other
translation pension gain/(loss) on comprehensive
adjustment liability interest rate income (loss)
adjustment swaps
________________ _________ ______________ _________________
Balance at December 31, 2003 $ 977 $ (58) $(1,457) $ (538)
Current period change 958 (67) 1,315 2,206
______ _____ _______ ______
Balance at December 31, 2004 $1,935 $(125) $ (142) $1,668
______ _____ _______ ______
49
21. SUBSEQUENT EVENT
On April 1, 2005, the Company entered into a Credit Agreement with a
consortium of banks that established a revolving line of credit, and
provides for the issuance of letters of credit and swing line loans
through April 2010. There is an aggregate of $250,000,000 available
under the new Credit Agreement, with a $50,000,000 expansion feature at
the Company's option, subject to approval by the participating
financial institutions. The credit facility is secured by substantially
all of the Company's accounts receivable, inventory, equipment and
fixtures and other personal property. In conjunction with the new
Credit Agreement, the Company terminated its existing credit facility.
On September 15, 2005 the Company acquired all of the outstanding stock
of Curie International (Suzhou) Co., Ltd. (SCM Asia). SCM Asia is
located in Suzhou, China and manufactures, markets and distributes
non-ferrous metal powder products to customers in a number of different
industries, including the powder metallurgy and thermal processing
markets. The results of SCM Asia (included in the Company's Processed
Metal Products segment) will be included in the Company's consolidated
financial results from the date of acquisition on a one month lag. The
acquisition of SCM Asia is not considered significant to the Company's
consolidated results of operations. The aggregate purchase
consideration for the acquisition of SCM Asia was approximately
$8,000,000 in cash, a seller note, and acquisition costs.
On September 16, 2005 the Company acquired the net assets of the Gutter
Helmet product line (Gutter Helmet). Gutter Helmet manufactures a
protection system for that is installed over existing full size gutters
by professional installers nationwide. The results of Gutter Helmet
(included in the Company's Building Products segment) have been
included in the Company's consolidated financial results from the date
of acquisition. The acquisition of Gutter Helmet is not considered to
be significant to the Company's consolidated results of operations. The
aggregate purchase consideration for the acquisition of Gutter Helmet
was approximately $21,506,000 in cash and acquisition costs.
On October 3, 2005, the Company acquired all the outstanding shares of
Alabama Metal Industries Corporation (AMICO) for $240,000,000, subject
to adjustment for working capital. AMICO is headquartered in
Birmingham, Alabama, and manufactures, markets and distributes a
diverse line of products used in the commercial and industrial sectors
of the building products market. The results of operations of AMICO
(which are expected to be included in the Company's Building Products
segment) will be included in our consolidated results of operations
from the date of acquisition.
In connection with the acquisition of AMICO, on October 3, 2005 the
Company entered into a term loan agreement with a consortium of banks
pursuant to which the lenders made a senior secured term loan of
$300,000,000 that expires October 4, 2006. The term loan bears
interest, at the Company's option, at (1) LIBOR plus a margin ranging
from 0.75% to 2.25% or (2) the greater of the administrative agent's
prime rate or the federal funds effective rate plus 0.50%, plus a
margin ranging from 0.175% to 0.65%. Increases in the applicable
margins of 0.50% and 1.00% are required at the expiration of 180 days
and 270 days, respectively, if the interim credit facility is not paid
in full. The term loan is secured, on a pari passu basis with the
Company's existing revolving credit facility, by substantially all the
accounts receivable, inventory, equipment, fixtures and other personal
property of the Company and its subsidiaries. The term loan agreement
also contains representations, warranties and covenants which are
substantially similar to the representations, warranties and covenants
contained in the Company's existing revolving credit facility.
50
In connection with the purchase of AMICO, and the interim term loan
agreement, on October 3, 2005 the Company terminated: (i) the Senior
Secured Note with The Prudential Insurance Company of America dated as
of July 3, 2002, as amended; (ii) the Subordinated Note with The
Prudential Insurance Company of America dated as of July 3, 2002, as
amended; and (iii) the Senior Secured Note Purchase Agreement with The
Prudential Life Insurance Company of America and Pruco Life Insurance
Company dated June 18, 2004, as amended. These notes which have been
terminated contained the terms and conditions upon which the Company
borrowed $115,000,000 from The Prudential Insurance Company of America
and Pruco Life Insurance Company. On October 3, 2005, the amount of the
principal and accrued interest on the three note purchase agreements
was equal, in the aggregate, to $116,187,000, which amount was paid in
full by the Company. In addition, the termination of the note purchase
agreements prior to their stated termination dates required "make
whole" payments to be made by the Company to The Prudential Insurance
Company of America and Pruco Life Insurance Company of $6,753,000. On
October 3, 2005 the Company also terminated the $40,000,000
subordinated promissory note, dated May 1, 2003, payable to CertainTeed
Corporation. The subordinated promissory note was delivered to
CertainTeed Corporation in connection with the purchase by Gibraltar
Steel Corporation of New York of the outstanding capital stock of Air
Vent Inc. On October 3, 2005, the amount of the principal and accrued
interest on the subordinated promissory note was equal to $25,920,000,
which amount was paid in full the Company. No early termination or
"make whole" payments were required to be made in connection with the
termination of the subordinated promissory note.
In October 2005, the Company purchased American Wilcon Plastics, Inc.
(American Wilcon"), a privately owned manufacturer of custom-injected
plastic molded products for $4,878,000 subject to adjustment for
working capital. American Wilcon, founded in 1975, currently operates
a manufacturing facility in Orrick, Missouri and a distribution
facility in Richmond, Missouri and has 135 employees.
51
QUARTERLY UNAUDITED FINANCIAL DATA
(in thousands, except per share data)
2004 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
__________________ ___________ ___________ __________ ___________ _________
Net sales $ 204,607 $ 249,092 $ 267,346 $ 255,210 $ 976,255
Gross profit 41,413 56,790 59,406 43,676 201,285
Income from operations 17,814 27,071 27,801 16,862 89,548
Income from continuing operations 9,259 15,294 15,773 9,385 49,711
Income from discontinued operations 86 150 447 388 1,071
Net Income 9,345 15,444 16,220 9,773 50,782
Income per share from continuing operations:
Basic $ .32 $ .52 $ .53 $ .32 $ 1.69
Diluted $ .32 $ .51 $ .53 $ .32 $ 1.68
Income per share from discontinued operations:
Basic $ .00 $ .01 $ .02 $ .01 $ .04
Diluted $ .00 $ .01 $ .02 $ .01 $ .04
2003 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
__________________ ___________ ___________ __________ ___________ _________
Net sales $ 154,803 $ 196,068 $ 200,432 $ 178,503 $ 729,806
Gross profit 28,033 39,236 41,425 33,984 142,678
Income from operations 10,490 16,982 16,571 12,833 56,876
Income from continuing operations 4,993 8,230 7,826 5,854 26,903
Income (loss) from discontinued operations (89) 21 152 (34) 50
Net Income 4,904 8,251 7,978 5,820 26,953
Income per share from continuing operations:
Basic $ .21 $ .34 $ .32 $ .24 $ 1.12
Diluted $ .20 $ .34 $ .32 $ .23 $ 1.11
Income per share from discontinued operations:
Basic $ .00 $ .00 $ .01 $ .00 $ .00
Diluted $ .00 $ .00 $ .01 $ .00 $ .00
52