10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ______ Commission file number 0-22462 Gibraltar Steel Corporation (Exact name of Registrant as specified in its charter) Delaware 16-1445150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228 (Address of principal executive offices) (716) 826-6500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of June 30, 2000, the number of common shares outstanding was: 12,579,719. 1 of 12 GIBRALTAR STEEL CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 2000 (unaudited) and December 31, 1999 (audited) 3 Condensed Consolidated Statements of Income Three and Six months ended June 30, 2000 and 1999 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2000 and 1999 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 10 PART II. OTHER INFORMATION 11 2 of 12 PART I. FINANCIAL INFORMATION Item 1. Financial Statements GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) June 30, December 31, 2000 1999 (unaudited) (audited) Assets Current assets: Cash and cash equivalents $ 5,952 $ 4,687 Accounts receivable 96,591 78,418 Inventories 96,307 94,994 Other current assets 5,398 4,492 Total current assets 204,248 182,591 Property, plant and equipment, net 209,747 216,030 Goodwill 115,372 115,350 Other assets 9,549 8,109 $ 538,916 $ 522,080 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 61,561 $ 48,857 Accrued expenses 18,816 19,492 Current maturities of long-term debt 202 1,319 Total current liabilities 80,579 69,668 Long-term debt 226,467 235,302 Deferred income taxes 30,604 29,328 Other non-current liabilities 2,537 2,323 Shareholders' equity Preferred shares - - Common shares 126 126 Additional paid-in capital 68,416 68,323 Retained earnings 130,187 117,010 Total shareholders' equity 198,729 185,459 $ 538,916 $ 522,080 ======== ======== See accompanying notes to financial statements 3 of 12 GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (unaudited) (unaudited) Net sales $ 181,523 $ 160,241 $ 349,157 $ 304,045 Cost of sales 144,907 127,240 277,993 242,626 Gross profit 36,616 33,001 71,164 61,419 Selling, general and administrative expense 19,200 17,648 39,430 34,383 Income from operations 17,416 15,353 31,734 27,036 Interest expense 4,217 3,103 8,425 6,422 Income before taxes 13,199 12,250 23,309 20,614 Provision for income taxes 5,345 4,962 9,440 8,349 Net income $ 7,854 $ 7,288 $ 13,869 $ 12,265 ========= ========= ========= ========= Net income per share-Basic $ .62 $ .58 $ 1.10 $ .98 ========= ========= ========= ========= Weighted average number of shares outstanding-Basic 12,580 12,530 12,580 12,513 ========= ========= ========= ========= Net income per share-Diluted $ .62 $ .57 $ 1.09 $ .96 ========= ========= ========= ========= Weighted average number of shares outstanding -Diluted 12,674 12,796 12,696 12,754 ======== ========= ========= ========= See accompanying notes to financial statements 4 of 12 GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Six Months Ended June 30, 2000 1999 (unaudited) Cash flows from operating activities Net income $ 13,869 $ 12,265 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,291 8,162 Provision for deferred income taxes 1,050 1,088 Undistributed equity investment income (232) (173) Other noncash adjustments 58 364 Increase (decrease) in cash resulting from changes in (net of acquisitions): Accounts receivable (18,173) (15,962) Inventories (1,313) 9,816 Other current assets (681) (256) Accounts payable and accrued expenses 12,244 16,530 Other assets (3,150) (1,473) Net cash provided by operating activities 13,963 30,361 Cash flows from investing activities Purchases of property, plant and equipment (9,338) (12,641) Net proceeds from sale of property and equipment 7,249 2,407 Net cash used in investing activities (2,089) (10,234) Cash flows from financing activities Long-term debt reduction (32,363) (42,660) Proceeds from long-term debt 22,411 26,953 Payment of dividends (692) (939) Net proceeds from issuance of common stock 35 707 Net cash used in financing activities (10,609) (15,939) Net increase in cash and cash equivalents 1,265 4,188 Cash and cash equivalents at beginning of year 4,687 1,877 Cash and cash equivalents at end of period $ 5,952 $ 6,065 ======= ======= See accompanying notes to financial statements 5 of 12 GIBRALTAR STEEL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements as of June 30, 2000 and 1999 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at June 30, 2000 and 1999 have been included. Certain information and footnote disclosures including significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements included in the Company's Annual Report to Shareholders for the year ended December 31, 1999. The results of operations for the six month period ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. 2. INVENTORIES Inventories consist of the following: (in thousands) June 30, December 31, 2000 1999 (unaudited) (audited) Raw material $ 59,782 $ 59,899 Finished goods and work-in-process 36,525 35,095 Total inventories $ 96,307 $ 94,994 ======= ======= 6 of 12 3. SHAREHOLDERS' EQUITY The changes in shareholders' equity consist of: (in thousands) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings December 31, 1999 12,577 $ 126 $ 68,323 $117,010 Net Income - - - 13,869 Stock options exercised 3 - 35 - Earned portion of restricted stock - - 58 - Cash dividends - $.055 per share - - - (692) June 30, 2000 12,580 $ 126 $ 68,416 $130,187 ================================== 4. EARNINGS PER SHARE Basic net income per share equals net income divided by the weighted average shares outstanding for the six months ended June 30, 2000 and 1999. The computation of diluted net income per share includes all dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between basic and diluted earnings per share is as follows: Basic Basic Diluted Diluted Income Shares EPS Shares EPS 2000 $13,869,000 12,579,569 $1.10 12,695,586 $1.09 1999 $12,265,000 12,513,101 $ .98 12,754,377 $ .96 Included in diluted shares are common stock equivalents relating to options of 116,017 and 241,276 for 2000 and 1999, respectively. 5. ACQUISITIONS On December 1, 1999, the Company purchased all the outstanding capital stock of Hughes Manufacturing, Inc.(Hughes) for approximately $11.5 million in cash. Hughes manufactures a broad line of fully engineered, code- approved steel lumber connectors and other metal hardware products. On November 1, 1999, the Company purchased all the outstanding capital stock of Brazing Concepts Company (Brazing Concepts) for approximately $25 million in cash. Brazing Concepts provides a wide variety of value-added brazing (i.e., metal joining), assembly and other metallurgical heat treating services on customer-owned materials. On August 1, 1999, the Company purchased the assets and business of Hi-Temp Incorporated (Hi-Temp) for approximately $24 million in cash. Hi-Temp provides metallurgical heat treating services in which customer-owned parts are exposed to precise temperature and other conditions to improve their material properties, strength and durability. 7 of 12 On July 1, 1999, the Company purchased all the outstanding capital stock of K & W Metal Fabricators, Inc. d/b/a Weather Guard Building Products (Weather Guard) for approximately $7 million in cash. Weather Guard manufactures a full line of metal building products, including rain-carrying systems, metal roofing and roofing accessories, for industrial, commercial and residential applications. These acquisitions have been accounted for under the purchase method with the results of their operations consolidated with the Company's results of operations from the respective acquisition dates. The aggregate excess of the purchase prices of these acquisitions over the fair market values of the net assets of the acquired companies is being amortized over 35 years from the acquisition dates using the straight-line method. The following information presents the pro forma consolidated condensed results of operations as if the acquisitions had occurred on January 1, 1999. 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, 1999 and are not necessarily indicative of future results of the combined companies. (in thousands, except per share data) Six Months Ended June 30, 1999 (unaudited) Net sales $ 334,785 ========= Income before taxes $ 22,004 ========= Net income $ 13,057 ========= Net income per share-Basic $ 1.04 ========= 6. SUBSEQUENT EVENT On July 17, 2000, the Company purchased all the outstanding capital stock of Milcor Limited Partnership (Milcor) for approximately $42.5 million in cash. The results of operations of Milcor will be consolidated with the Company's results of operations from the acquisition date for the quarter ending September 30, 2000. Also on July 17, 2000, the Company increased the availability under its revolving credit facility to $290 million. 8 of 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $181.5 million for the second quarter ended June 30, 2000 increased 13.3% from net sales of $160.2 million for the prior year's second quarter despite the elimination of approximately $5 million in sales from disposed of operations that were included in the prior year's second quarter sales. Net sales of $349.2 million for the six months ended June 30, 2000 increased 14.8% from net sales of $304.0 million for the same period of 1999. These increases resulted from including net sales of Weather Guard (acquired July 1, 1999), Hi-Temp (acquired August 1, 1999), Brazing Concepts (acquired November 1, 1999) and Hughes (acquired December 1, 1999) (collectively, the Acquisitions) together with sales growth at existing operations. Cost of sales as a percentage of net sales increased to 79.8% for the second quarter ended June 30, 2000 from 79.4% for the prior year's second quarter. Cost of sales decreased to 79.6% for the six months ended June 30, 2000 from 79.8% for the same period in 1999. The improvement for the six months ended June 30, 2000 was primarily due to the Acquisitions, which have historically generated higher margins than the Company's existing operations, partially offset by product mix and higher raw material costs at existing operations during the second quarter of 2000. Selling, general and administrative expenses as a percentage of net sales decreased to 10.6% for the second quarter ended June 30, 2000 from 11.0% for the same period of 1999 and were 11.3% for the six month periods ended June 30, 2000 and June 30, 1999. The decrease for the second quarter was primarily due to decreases in expenses of existing operations as a percentage of net sales, slightly offset by higher costs attributable to the Acquisitions. Interest expense for the second quarter and six months ended June 30, 2000 increased by $1.1 million and $2.0 million, respectively, from the same periods in 1999 primarily due to higher interest rates in effect and higher average borrowings during 2000 to finance the Acquisitions and capital expenditures. As a result of the above, income before taxes increased by $.9 million and $2.7 million for the second quarter and six months ended June 30, 2000 from the same periods of 1999. Income taxes for the second quarter and six months ended June 30, 2000 approximated $5.3 million and $9.4 million, respectively, and were based on a 40.5% effective tax rate in both periods. Liquidity and Capital Resources During the first six months of 2000, the Company's working capital increased to $123.7 million. Additionally, shareholders' equity increased by $13.3 million at June 30, 2000 to $198.7 million. The Company's principal capital requirements are to fund its operations, including working capital, the purchase and funding of improvements to its facilities, machinery and equipment and to fund acquisitions. 9 of 12 Net cash provided by operations of $14.0 million resulted primarily from net income of $13.9 million, depreciation and amortization of $10.3 million, and an increase in accounts payable and accrued expenses of $12.2 million, offset by increases in accounts receivable of $18.2 million and inventory of $1.3 million, necessary to service increased sales levels, and an increase in other assets of $3.2 million. The $14.0 million of net cash provided by operations and $7.2 million in net proceeds from the sale of property and equipment were used to fund capital expenditures of $9.3 million and cash dividends of $.7 million and to pay down $10.0 million of the Company's credit facility. At June 30, 2000 the Company's revolving credit facility available approximated $280 million, with borrowings of approximately $221 million and an additional availability of approximately $59 million. On July 17, 2000, the Company increased the availability under its revolving credit facility to $290 million. The Company believes that availability of funds under its credit facilities together with cash generated from operations will be sufficient to provide the Company with the liquidity and capital resources necessary to support its existing operations. Recent Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (FAS No. 133) which requires recognition of the fair value of derivatives in the statement of financial position, with changes in the fair value recognized either in earnings or as a component of other comprehensive income dependent upon the hedging nature of the derivative. Implementation of FAS No. 133 is required for the first quarter of fiscal 2001. The Company does not believe that FAS No. 133 will have a material impact on its earnings or other comprehensive income. Safe Harbor Statement The Company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the "Act"). Statements by the Company, other than historical information, constitute "forward looking statements" within the meaning of the Act and may be subject to a number of risk factors. Factors that could affect these statements include, but are not limited to, the following: the impact of changing steel prices on the Company's results of operations; changing demand for the Company's products and services; and changes in interest or tax rates. 10 of 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 1. Exhibits a. Exhibit 10.1 - Gibraltar Steel Corporation Incentive Stock Option Plan Fifth Amendment and Restatement b. Exhibit 27 - Financial Data Schedule 2. Reports on Form 8-K. There were no reports on Form 8-K during the six months ended June 30, 2000. 11 of 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GIBRALTAR STEEL CORPORATION (Registrant) By /x/ Brian J. Lipke Brian J. Lipke Chief Executive Officer and Chairman of the Board By /x/ Walter T. Erazmus Walter T. Erazmus President By /x/ John E. Flint Vice President Chief Financial Officer (Principal Financial and Chief Accounting Officer) Date August 11, 2000 12 of 12