UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported) November 14, 2005
___________________________
GIBRALTAR INDUSTRIES, INC.
__________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 0-22462 16-1445150
___________________________ __________________ ___________________
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3556 Lake Shore Road
P.O. Box 2028
Buffalo, New York 14219-0228
__________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 826-6500
___________________________
Item 7.01 Regulation FD Disclosure
The Registrant is filing under Item 7.01 of this Current Report on Form 8-K the
information included as Exhibit 99.1 through Exhibit 99.2 to this report. This
information has not been previously reported to the public.
This information is furnished pursuant to Item 7.01 of Form 8-K and shall not be
deemed to be "filed" for the purposes of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that Section, unless the
Registrant specifically incorporates it by reference in a document filed under
the Securities Act of 1933 or the Securities Exchange Act of 1934. By filing
this Current Report on Form 8-K and furnishing this information, the Registrant
makes no admission as to the materiality of any information in this report that
is required to be disclosed solely by reason of Regulation FD.
Item 9.01 - Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired - None
(b) Pro Forma Financial Information - None
(c) Exhibits
99.1 - Disclosure concerning operational factors that the
Registrant's management believes could affect the Registrant's
business.
99.2 - Certain historical and pro forma financial data,
including certain pro forma financial data that gives effect
to the recent acquisition of Alabama Metal Industries
Corporation ("AMICO").
99.3 - Certain selected historical financial data of AMICO and
related management's discussion and analysis of results of
operations.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 14, 2005
GIBRALTAR INDUSTRIES, INC.
/S/ David W. Kay
_________________________________
Name: David W. Kay
Title: Chief Financial Officer
3
EXHIBIT INDEX.
99.1 Disclosure concerning operational factors that the Registrant's
management believes could affect the Registrant's business.
99.2 Certain historical and pro forma financial data, including certain pro
forma financial data that gives effect to the recent acquisition of
Alabama Metal Industries Corporation ("AMICO").
99.3 Certain selected historical financial data of AMICO and related
management's discussion and analysis of results of operations.
4
Exhibit 99.1
Operational Factors
We pay close attention to the following operational factors that can
significantly affect our business:
o Raw material prices. When the prices of steel and other raw materials
increase, our costs increase, particularly in our Processed Metal Products
segment, and we attempt to pass on a portion of those cost increases to our
customers in the form of higher prices for our products. However, we are
rarely able to immediately pass on all those cost increases to our
customers, and our operating margins may decrease when steel and other raw
material prices are increasing. In both our Building Products and Processed
Metal Products segments, our material costs rose faster in late 2004 and
early 2005 than our ability to recover those costs through our selling
prices. Moreover, when steel prices decrease, we face immediate pressure to
lower prices in our Processed Metal Products segment, even if we are
selling inventory produced when steel prices were higher. Our cost of sales
lags changes in steel market prices by approximately four months in our
Processed Metal Products segment (and less in our Building Products
segment) because we account for inventory on a FIFO basis and maintain
several months of inventory of steel. In early 2005, when steel prices were
high, we tried to mitigate the effect of potential steel shortages in the
market and continuing steel price increases by purchasing extra steel to
build up our inventory. Since then, however, steel prices have fallen, and
our operating margins have decreased, particularly in our Processed Metal
Products segment, because we have lowered our prices in that segment to
meet market conditions while using inventory built up at higher steel
prices. For example, our income from operations from our Processed Metal
Products segment as a percentage of net sales of that segment decreased to
4.5% in the quarter ended September 30, 2005 from 11.3% in the quarter
ended September 30, 2004, primarily due to these factors. Operating margins
in our Building Products segment also decreased in the third quarter of
2005 compared to the third quarter of 2004 because our selling prices,
though higher, did not fully pass on the costs of the inventory sold. We
will continue to sell inventory in the fourth quarter of 2005 that was
produced with raw materials purchased earlier in 2005, leading to
compressed margins in the fourth quarter, primarily in our Processed Metal
Products segment. Steel prices are unpredictable, and further changes may
continue to affect our operating margins.
o Energy costs. The costs of electricity and natural gas have risen steadily
in 2005, and recent events in the energy sector, including the effect of
the hurricane season, could exacerbate this trend. We depend on electricity
and, to a lesser extent, natural gas to keep our many Building Products and
Processed Metal Products manufacturing facilities in operation. We use
natural gas more extensively in our Thermal Processing business to fuel the
ovens we use to treat steel and other metals. We estimate that increases in
energy costs have raised our cost of sales and, to a lesser degree,
selling, general and administrative expense by an aggregate amount of
approximately $1.7 million in the nine months ended September 30, 2005
compared to the nine months ended September 30, 2004.
o Transportation costs. Our costs to transport our products to our customers
remain a significant component of our cost of sales and are affected by
fluctuations in energy costs. These transportation costs are mitigated by
the distribution of our manufacturing and service facilities throughout 27
states, which gives us a presence near many of our customers. We also
intend to reduce our transportation costs as a percentage of net sales by
further consolidating our freight suppliers, although the benefits of these
reductions may be offset by rising energy costs.
1
o Labor, fringe benefits and workers' compensation. We have approximately
3,500 employees and have added approximately 850 additional employees with
the acquisition of Alabama Metal Industries Corporation ("AMICO"). The
wages, incentive compensation, fringe benefits (including medical benefits)
and workers' compensation we pay are another significant component of our
cost of sales and of our selling, general and administrative expense.
Wages, medical benefits and workers' compensation tend to rise with
inflation, and medical benefit costs and workers' compensation have
sometimes risen faster than inflation due to the rising cost of healthcare
generally. Our incentive compensation costs, which consist primarily of
bonuses paid to senior and middle management, generally rise when our net
sales, operating margin and net income margin rise. In 2004, for example,
our incentive compensation costs increased due to our strong net sales,
operating income and net income margin. Our workers' compensation costs
currently consist of self-insurance accruals, as we are almost fully
self-insured for workers' compensation. We record most of our costs for
wages, medical benefits and workers' compensation in cost of sales, and we
record a smaller portion of those costs attributable to administrative and
management employees in selling, general and administrative expense. We
record almost all our incentive compensation costs in selling, general and
administrative expense.
Recent effect of industry and operational factors. Due to the increase in demand
for steel during 2004, especially in China, steel producers experienced a
shortage of steel scrap and coke, two key materials used in the manufacture of
steel. As a result, we experienced significant increases in steel prices in late
2004 and early 2005. Because of strong demand for our products and our ability
to pass a portion of these steel prices on to customers, our net sales were
significantly higher in 2004 than in 2003. Moreover, we were able to complete
these sales at prices reflecting increases in the price of steel with inventory
acquired at a time when steel prices were lower, which improved our operating
margins. However, we do not expect net sales or operating margins to grow at
similar rates in future years. In addition, because steel prices were rising
quickly and we feared shortages, we purchased extra steel in late 2004 and early
2005 to build up our inventory. These shortages did not materialize, and when
steel prices began to decline in mid-2005, our margins were compressed,
particularly in our Processed Metal Products segment, because we have lowered
our prices in that segment to meet market conditions while using inventory built
up at higher steel prices and have sold at prices in our Building Products
segment that did not fully pass on the higher material costs. This effect on our
margins in 2005 has been exacerbated by the rise in energy costs during this
year.
2
Exhibit 99.2
Certain historical and pro forma financial data
The following table sets forth certain historical and pro forma financial data.
Our unaudited financial statements have been prepared on the same basis as our
audited financial statements and, in our opinion, reflect all adjustments,
consisting only of normal and recurring adjustments, necessary for a fair
presentation of this data in all material respects. The results for any interim
period are not necessarily indicative of the results that may be expected for a
full year.
The unaudited historical statement of income data for the twelve months ended
September 30, 2005 have been calculated by subtracting the applicable unaudited
consolidated statement of income data for the nine months ended September 30,
2005 from the sum of (1) the applicable audited consolidated statement of income
data for the year ended December 31, 2004 and (2) the applicable unaudited
consolidated statement of income data for the nine months ended September 30,
2005.
The unaudited pro forma statement of income data for the twelve months ended
September 30, 2005 has been calculated by subtracting the unaudited pro forma
condensed combined statement of income data for the nine months ended September
30, 2004 from the sum of the (1) unaudited pro forma condensed combined
statement of income data for the year ended December 31, 2004 and (2) the
unaudited pro forma condensed combined statement of income data for the nine
months ended September 30, 2005. The unaudited pro forma condensed combined
statements of income for the nine months ended September 30, 2004 and 2005 and
the year ended December 31, 2004 give effect to the following as if they had
occurred on January 1, 2004:
o the acquisition of AMICO; and
o the incurrence of new long-term debt and the use of proceeds thereof.
The unaudited pro forma condensed combined balance sheet data as of September
30, 2005 give effect to these events as if they had occurred on September 30,
2005.
The unaudited pro forma adjustments are based on available information and
certain assumptions that we believe are reasonable. However, these unaudited pro
forma adjustments do not include an allocation of the purchase price of AMICO
based on fair market value. Therefore, all the acquired assets and liabilities
are reflected at their historical book values with the excess consideration
recorded as goodwill. The allocation of the purchase price to our acquired
assets and liabilities acquired will be completed as soon as reliable
information is available. Preliminary pro forma adjustments have been recorded:
o to record inventory of AMICO under the same accounting method as our
company; and
o to exclude the assets and liabilities not acquired as part of the
transaction from the unaudited pro forma financial data.
3
The adjustments with respect to the new long-term debt we may incur reflect our
estimates of interest rate plus amortization of estimated financing costs. The
final interest rate, financing costs incurred and application of proceeds may
differ.
Our unaudited pro forma financial data do not purport to present what our actual
financial position or results would have been if the events described above had
occurred as of the dates indicated and are not necessarily indicative of our
future financial position or results. For example, we expect our future results
to be affected by the following factors, among others:
o In connection with our acquisition of AMICO in October 2005, we must record
AMICO's inventory on our consolidated balance sheet at fair market value.
Our margins from the AMICO business will be depressed in the fourth quarter
of 2005 as we sell the inventory acquired. Additionally, the recording of
AMICO's acquired inventory at fair market value may result in additional
deferred tax assets or liabilities.
o We will be required to record identifiable intangible assets and property,
plant and equipment acquired in the AMICO acquisition on our consolidated
balance sheet at fair market value. Any resulting write-up of assets will
increase our depreciation and amortization expense when we depreciate or
amortize the acquired assets and will reduce gross profit, operating
income, income from continuing operations and net income, and such
reductions may be significant. Based upon our past acquisitions and the
nature of the assets acquired in the AMICO acquisition, we expect to
recognize, when we complete our fair value calculations, identifiable
intangible assets such as trademarks/patents, unpatented technology and
customer relationships. We will not complete our fair market value
calculations of these assets until early 2006, and we cannot quantify the
amount of the write-up of the acquired assets at this time. Amortization
periods to be used for these identifiable intangible assets and property,
plant and equipment acquired will be based primarily upon the estimated
useful lives of the assets, which at this point are not determinable.
Additionally, the identification of intangible assets and the recording of
the acquired property, plant and equipment at fair market value may give
rise to additional deferred tax assets and liabilities.
o In connection with the transaction, we paid a prepayment premium of $6.7
million to retire our private placement notes. We also wrote off the
deferred financing fees of $0.7 million related to the debt. These charges
are not reflected in the unaudited pro forma condensed combined statements
of income because they are not considered on-going and will not have a
recurring impact on our results of operations. We also will incur charges
in our fourth quarter relating to non-capitalized expenses arising out of
the AMICO acquisition.
4
Fiscal year ended Nine months ended Twelve months ended
December 31, September 30, September 30,
__________________________________ _________________________ ____________________________
(Dollars in thousands) 2002 2003 2004 2004 2005 2005 2005
__________________________ _________ ________ __________ __________ ___________ ____________ _____________
(unaudited) (actual) (pro forma)
(unaudited)
Statement of income data:
Net sales $ 602,707 $729,806 $ 976,255 $ 721,045 $ 844,108 $1,099,318 $1,408,779
Cost of sales 484,244 587,128 774,970 563,436 683,504 895,038 1,129,037
_________ ________ ___________ _________ _________ __________ _________
Gross profit 118,463 142,678 201,285 157,609 160,604 204,280 279,742
Selling, general and
administrative expense 71,693 85,802 111,737 84,923 85,353 112,167 146,756
_________ ________ ___________ _________ _________ __________ _________
Income from operations 46,770 56,876 89,548 72,686 75,251 92,113 132,986
Equity in partnerships'
(income) loss(1) (559) (685) (4,846) (3,492) 469 (885) (951)
Interest expense 8,283 13,096 12,915 9,523 11,102 14,494 37,390
_________ ________ ___________ _________ _________ __________ _________
Income before taxes 39,046 44,465 81,479 66,655 63,680 78,504 96,547
Provision for income taxes 15,615 17,562 31,768 26,329 24,395 29,834 36,801
_________ ________ ___________ _________ _________ __________ _________
Income from continuing
operations 23,431 26,903 49,711 40,326 39,285 48,670 $ 59,746
_________
Discontinued operations, net of
taxes(2) 423 50 1,071 683 (1,209) (820)
_________ ________ ___________ _________ _________ ___________
Net income $ 23,854 $ 26,953 $ 50,782 41,009 $ 38,076 $ 47,850
_________ ________ ___________ _________ _________ ___________
Cash flow data:
Net cash provided by (used in)
operating activities(3) $ 12,677 $ 65,257 $ (1,770) $ (74) $ 59,153
Net cash (used in) provided by
investing activities(3) (22,030) (113,667) (88,467) (80,886) 642
Net cash provided by (used in)
financing activities 6,031 74,869 73,190 64,338 (60,805)
Depreciation and amortization 19,547 21,783 24,198 17,774 19,567 25,991 31,683
Other data:
EBITDA from continuing
operations(4)(5) $ 66,876 $ 79,344 $ 118,592 $ 93,952 $ 94,349 $ 118,989 $ 165,620
Total capital expenditures 15,294 22,050 24,330 16,392 14,799
Selected ratios:
Ratio of earnings to fixed
charges(6) 5.05x 3.90x 5.82x 6.30x 5.58x 5.31x 3.29x
Ratio of total debt to EBITDA
from continuing operations(4) 2.50x 3.05x 2.61x 2.13x 3.09x
Ratio of EBITDA from continuing
operations to interest
expense(4) 8.07x 6.06x 9.18x 9.87x 8.50x 8.21x 4.43x
Balance sheet data (at end of period):
Cash and cash equivalents $ 8,149 $ 8,149
Total assets 933,827 1,221,937
Working capital(7) 230,685 293,163
Total debt 252,906 512,306
Shareholders' equity 489,774 485,214
__________________
(1) Equity in partnerships' (income) loss represents our proportional interest
in the income or losses of our cold-rolled strip steel joint venture and
our steel pickling joint venture and other income.
(2) Discontinued operations represents the income (loss), net of income taxes
(benefits), attributable to our subsidiary Milcor, which we sold in January
2005 for approximately $42.6 million.
5
(3) Reflects continuing operations only.
(4) "EBITDA from continuing operations" represents net income before interest
expense, provision for income taxes, depreciation, amortization and loss
(income) from discontinued operations, net of taxes. EBITDA from continuing
operations should not be considered an alternative to cash flows from operating
activities or income from continuing operations, as determined in accordance
with GAAP. We use EBITDA from continuing operations to facilitate comparisons
from period to period. We believe EBITDA from continuing operations facilitates
company to company comparisons by backing out potential differences caused by
variations in capital structures (affecting net interest expense), taxation and
the age and book depreciation of facilities and equipment (affecting relative
depreciation expense), which may vary for different companies for reasons
unrelated to operating performance or liquidity. We further believe that EBITDA
from continuing operations is frequently used by investors, securities analysts
and other interested parties in their evaluation of companies, many of which
present an EBITDA measure when reporting their cash flows from operating
activities and results. EBITDA from continuing operations is not necessarily
comparable to other similarly titled financial measures of other companies due
to the potential inconsistencies in the method of calculation. In addition,
EBITDA, as defined in our senior credit facility, is not calculated in the same
manner as the EBITDA from continuing operations figures presented in this table.
EBITDA from continuing operations has limitations as an analytical tool, and you
should not consider it either in isolation or as a substitute for analyzing our
cash flows from operating activities and results as reported under GAAP. Some of
these limitations are:
o EBITDA from continuing operations does not reflect historical cash
expenditures or future requirements for capital expenditures or contractual
commitments;
o EBITDA from continuing operations does not reflect changes in, or cash
requirements for, our working capital needs;
o EBITDA from continuing operations does not reflect our interest expense or
cash requirements necessary to service interest or principal payments on
our debt; and
o EBITDA from continuing operations does not reflect our tax expense or the
cash requirements to pay our taxes.
The following is a reconciliation of EBITDA from continuing operations to income
from continuing operations, the most directly comparable GAAP performance
measure, and, for our reported historical periods, to cash flows from operating
activities, the most directly comparable GAAP liquidity measure:
Fiscal Nine
year months
ended Nine months ended ended Twelve months ended
Fiscal year ended December 31, December 31, September 30, September 30, September 30,
______________________________ ____________ __________________ _____________ ____________________
(Dollars in thousands) 2002 2003 2004 2004 2004 2005 2005 2005 2005
______________________ _______ ______ _______ ________ ______ ________ ______ _______ _______
(actual) (pro forma) (actual) (pro forma)
(actual) (pro forma) (unaudited) (unaudited) (unaudited)
Income from
continuing operations $23,431 $26,903 $ 49,711 $ 68,827 $40,326 $ 39,285 $ 50,080 $ 48,670 $ 59,746
Provision for income taxes 15,615 17,562 31,768 37,410 26,529 24,395 28,056 29,834 36,801
Interest expense 8,283 13,096 12,915 43,061 9,523 11,102 31,161 14,494 37,390
Depreciation
and amortization 19,547 21,783 24,198 29,950 17,774 19,567 23,807 25,991 31,683
________ _______ ________ ________ ________ ________ ________ ________ ________
EBITDA from
continuing operations(a) $66,876 $79,344 $118,592 $179,248 $93,952 $ 94,349 $133,104 $118,989 $165,620
Interest expense (8,283) (13,096) (12,915) (11,102)
Provision for
income taxes (15,615) (17,562) (31,768) (24,395)
Changes in assets
and liabilities (37,057) 8,478 (81,082) (2,200)
Other non-cash
adjustments 9 114 394 158
Unearned
compensation 258 212 153 900
Tax benefit from exercise
of stock options(b) 349 949 1,249 90
Undistributed equity in
partnerships' loss
(income) 340 316 (3,166) 1,404
Provision for deferred
income taxes 5,800 6,502 6,773 (51)
_______ _______ ________ _________
Net cash provided by
(used in) operating
activities from
continuing operations $12,677 $65,257 $ (1,770) $ 59,153
_______ _______ ________ _________
(a) EBITDA from continuing operations includes the effect of equity in
partnerships' loss (income). However, the agreements governing one of
our joint ventures restrict the amount of cash that may be distributed
to our company by the joint venture, and a credit agreement entered
into by our other joint venture also restricts the amount of cash that
may be distributed to our company from that joint venture.
6
(b) Represents the tax benefit resulting from the disqualifying
dispositions of incentive stock options that are recorded as a
reduction of income for tax purposes and as a reduction of equity for
book purposes.
(5) In calculating pro forma EBITDA from continuing operations for the twelve
months ended September 30, 2005, we included adjustments to the historical
financial data of AMICO to record AMICO's inventories on the first-in-first-out
(FIFO) basis used by our company, rather than the last-in-first-out basis
historically used by AMICO. The FIFO adjustments include an increase in AMICO's
cost of sales of $7.7 million for the twelve months ended September 30, 2005.
For this reason, pro forma EBITDA from continuing operations is lower than the
sum of our EBITDA from continuing operations and AMICO's EBITDA for the same
period.
(6) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before taxes minus net undistributed equity earnings minus
capitalized interest plus fixed charges. Fixed charges include interest expense
(including amortization of debt issuance costs), capitalized interest and the
portion of operating rental expense that management believes is representative
of the interest component of rent expense.
(7) Working capital is current assets minus current liabilities.
7
Exhibit 99.3
Selected historical financial data of Alabama Metal Industries Corporation
The following table sets forth selected historical financial data of Alabama
Metal Industries Corporation ("AMICO").
AMICO's unaudited financial statements have been prepared on the same basis as
its audited financial statements and, in our opinion, reflect all adjustments,
consisting only of normal and recurring adjustments, necessary for a fair
presentation of this data in all material respects. The results for any interim
period are not necessarily indicative of the results that may be expected for a
full year.
Fiscal year ended Nine months ended
December 31, September 30,
_______________________ _________________________
(Dollars in thousands) 2003 2004 2004 2005
Statement of income data:
Net sales $ 194,391 $ 288,354 $ 218,708 $ 239,815
Cost of sales 158,982 209,766 157,159 174,331
___________ ___________ ___________ ___________
Gross profit 35,409 78,588 61,549 65,484
Selling, general and administrative expense 24,741 37,462 26,460 23,530
Impairment charge(1) 1,354 57 -- --
___________ ___________ ___________ ___________
Income from operations 9,314 41,069 35,089 41,954
Interest expense 5,778 5,115 3,867 3,478
Other (income) expense -- -- 138 72
___________ ___________ ___________ ___________
Income before taxes 3,536 35,954 31,084 38,404
Provision for income taxes 1,512 13,455 11,549 14,751
___________ ___________ ___________ ___________
Net income $ 2,024 $ 22,499 $ 19,535 $ 23,653
___________ ___________ ___________ ___________
Other data:
Depreciation and amortization $ 6,052 $ 5,752 $ 4,300 $ 4,240
EBITDA(2) 15,366 46,821 39,251 46,122
Ratio of earnings to fixed charges(3) 1.53x 7.03x 7.98x 10.27x
Balance sheet data (at end of period):
Cash $ 1,535 $ 2,520 $ 3,429
Total assets 104,644 123,820 123,420
Working capital(4) 16,944 27,775 37,777
Total debt 53,315 43,244 18,331
Shareholders' equity 23,596 46,716 70,637
___________ ___________ ___________
(1) Impairment charges for 2003 arose primarily because a plant was held for
sale on December 31, 2003 at a price less than book value. Impairment charges
for 2004 consist primarily of a write-off of assets of AMICO's Canadian
subsidiary.
(2) EBITDA represents net income before interest expense, provision for income
taxes, depreciation and amortization. EBITDA should not be considered an
alternative to cash flows from operating activities or net income, as determined
in accordance with GAAP. EBITDA is not necessarily comparable to other similarly
titled financial measures of other companies due to the potential
inconsistencies in the method of calculation. EBITDA has limitations as an
analytical tool, and you should not consider it either in isolation or as a
substitute for analyzing AMICO's cash flows from operating activities and
results as reported under GAAP. Some of these limitations are:
o EBITDA does not reflect historical cash expenditures or future requirements
for capital expenditures or contractual commitments;
o EBITDA does not reflect changes in, or cash requirements for, AMICO's
working capital needs;
8
o EBITDA does not reflect AMICO's interest expense or cash requirements
necessary to service interest or principal payments on its debt; and
o EBITDA does not reflect AMICO's tax expense or the cash requirements to pay
its taxes.
The following is a reconciliation of EBITDA to net income, the most directly
comparable GAAP performance measure, and to cash flows from operations, the most
directly attributable GAAP liquidity measure:
Fiscal year ended Nine months ended
December 31, September 30,
_________________________ __________________________
(Dollars in thousands) 2003 2004 2004 2005
Net income $ 2,024 $ 22,499 $ 19,535 $ 23,653
Provision for income taxes 1,512 13,455 11,549 14,751
Interest expense 5,778 5,115 3,867 3,478
Depreciation and amortization 6,052 5,752 4,300 4,240
__________ ___________ ___________ ___________
EBITDA 15,366 46,821 39,251 46,122
Interest expense (5,778) (5,115) (3,867) (3,478)
Provision for income taxes (1,512) (13,455) (11,549) (14,751)
Changes in assets and liabilities 6,420 (12,079) (17,886) 481
Other non-cash adjustments 1,678 429 315 89
Provision for deferred income taxes 52 1,011 528 51
__________ ___________ ___________ ___________
Net cash (used in) provided by operating activities $ 16,227 $ 17,612 $ 6,792 $ 28,514
__________ ___________ ___________ ___________
(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before taxes minus net undistributed equity earnings minus
capitalized interest plus fixed charges. Fixed charges include interest expense
(including amortization of debt issuance costs), capitalized interest and the
portion of operating rental expense that AMICO management believes is
representative of the interest component of rent expense.
(4) Working capital is current assets minus current liabilities.
9
Management's discussion and analysis of financial
condition and results of operations for AMICO
AMICO acquisition
On October 3, 2005, we acquired AMICO, a leading manufacturer of a diverse line
of products for the commercial and industrial building products markets. AMICO's
products and systems are used for a variety of industrial applications and for
residential, multi-family, commercial and high-rise construction applications.
AMICO manufactures products in 15 locations throughout North America with six
distribution centers. For the year ended December 31, 2004, AMICO generated net
sales of $288.4 million, income from operations of $41.1 million and EBITDA of
$46.8 million.
Integration. As in previous acquisitions, we intend to manage AMICO and its
subsidiaries as a stand-alone entity rather than combine AMICO's operations with
those of our other subsidiaries. As a result, we do not currently expect to
incur material integration costs as a result of the AMICO acquisition. However,
as part of our strategy of continuing to increase operating efficiencies, we
will consider AMICO and its subsidiaries as we improve our company-wide supply
chain management, attempt to streamline distribution of our products and explore
further opportunities for sharing administrative services across our company.
Comparability of AMICO financial statements. Before we acquired AMICO, AMICO
determined the cost basis of its inventory on a last-in-first-out (LIFO) basis,
rather than the FIFO accounting we use for our company. Inventories recorded on
the historical balance sheets of AMICO and cost of sales, gross profit, income
from operations and net income recorded on the historical statements of income
of AMICO are therefore not completely comparable to similar line items recorded
in our historical balance sheets and statements of income. As of and for the
year ended December 31, 2004, recording AMICO's inventories on a FIFO basis
would have resulted in a $15.9 million increase in its inventories to $45.6
million, a $13.8 million decrease in its cost of sales to $195.9 million and a
$13.8 million increase in its income before taxes to $49.8 million. As of and
for the nine months ended September 30, 2005, recording AMICO's inventories on a
FIFO basis would have resulted in a $8.5 million increase in its inventories to
$32.8 million, a $7.4 million increase in its cost of sales to $181.7 million
and a $7.4 million decrease in its income before taxes to $31.0 million. From
the date of the AMICO acquisition, we will record AMICO's inventories on a FIFO
basis. This change in AMICO's inventory accounting policy will result in taxable
income to our company, which we will recognize for tax purposes over a four-year
period.
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Results of operations of AMICO
The following table sets forth selected results of operations data for AMICO as
percentages of net sales:
Fiscal year Nine months
ended ended
December 31, September 30,
_________________ _________________
2003 2004 2004 2005
(unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.8 72.7 71.9 72.7
______ ______ ______ ______
Gross profit 18.2 27.3 28.1 27.3
Selling, general and administrative expense 12.7 13.0 12.1 9.8
Impairment charges 0.7 0.0 -- --
______ ______ ______ ______
Income from operations 4.8 14.2 16.0 17.5
Other expenses -- -- 0.1 0.0
Interest expense 3.0 1.8 1.8 1.5
______ ______ ______ ______
Income before taxes 1.8 12.5 14.2 16.0
Provision for income taxes 0.8 4.7 5.3 6.2
______ ______ ______ ______
Net income 1.0% 7.8% 8.9% 9.9%
______ ______ ______ ______
Nine months ended September 30, 2005 compared to nine months ended
September 30, 2004
Net sales increased by approximately $21.1 million, or 9.7%, to $239.8 million
for the nine months ended 2005 from $218.7 million for the nine months ended
September 30, 2004. This increase was due primarily to significant increases in
sales volumes of bar grating products, particularly in the third quarter of
2005, driven by purchases related to the 2005 storm season and, to a lesser
extent, general increases in construction spending. The increase in net sales
was also due to increases in average selling prices in many of AMICO's product
lines, driven by increases in steel prices that occurred over the course of
2004, as well as increases in sales volumes of expanded metal products. These
increases were partially offset by decreases in average selling prices and
volumes of AMICO's metal lath products.
Cost of sales increased by approximately $17.2 million, or 10.9%, to $174.3
million for the nine months ended September 30, 2005 from $157.2 million for the
nine months ended September 30, 2004. This increase was due primarily to
increases in raw material costs as a percentage of sales. Cost of sales as a
percentage of net sales increased to 72.7% for the nine months ended September
30, 2005 from 71.9%, primarily because AMICO's gross margins had reached higher
than historical levels in 2004 as AMICO was able to increase prices quickly in
response to significant increases in the price of steel.
Selling, general and administrative expense decreased $2.9 million, or 11.1%, to
$23.5 million for the nine months ended September 30, 2005 from $26.5 million in
the nine months ended September 30, 2004. This decrease occurred primarily
because AMICO's management incentive compensation was unusually high for the
nine months ended September 30, 2004 due to AMICO's financial performance in
that period. The terms of AMICO's management incentive compensation plan were
changed in 2005, resulting in lower compensation payments for the nine months
ended September 30, 2005. As a percentage of net sales, selling, general and
administrative expense decreased to 9.8% for the nine months ended September 30,
2005 from 12.1% for the nine months ended September 30, 2004, primarily due to
lower incentive compensation payments in the nine months ended September 30,
2005.
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As a result of the above, income from operations as a percentage of net sales
increased to 17.5% for the nine months ended September 30, 2005 from 16.0% for
the nine months ended September 30, 2004.
Interest expense decreased $0.4 million, or 10.1%, to $3.5 million for the nine
months ended September 30, 2005 from $3.9 million for the nine months ended
September 30, 2004. This decrease was due to significant debt repayments
throughout the nine months ended September 30, 2005 using cash generated from
operations.
As a result of the above, income before income taxes increased $7.3 million, or
23.5%, to $38.4 million for the nine months ended September 30, 2005 from $31.1
million for the nine months ended September 30, 2004.
Income taxes were $14.8 million for the nine months ended September 30, 2005,
based upon an effective tax rate of 38.4% for the nine months ended September
30, 2005. Income taxes were $11.5 million for the nine months ended September
30, 2004, based upon an effective tax rate of 37.2% for the nine months ended
September 30, 2004. The effective tax rate was lower in 2004 as AMICO utilized
previously reserved state net operating loss carryforwards.
Net income increased to $23.7 million in the nine months ended September 30,
2005 from $19.5 million in the nine months ended September 30, 2004.
Year ended December 31, 2004 compared to year ended December 31, 2003
Net sales increased $93.9 million, or 48.3%, to $288.4 million in 2004 from
$194.4 million in 2003. This increase was due primarily to significant increases
in selling prices for AMICO's steel-related products, resulting primarily from
the significant increases in steel prices over the course of 2004. This increase
was partially offset by a moderate decrease in sales volumes of AMICO's expanded
metal products due to continuing recovery in the industrial construction market.
Cost of sales increased by approximately $50.8 million, or 31.9%, to $209.8
million in 2004 from $159.0 million in 2003, primarily due to the increases in
raw material costs described above. Cost of sales as a percentage of net sales
decreased to 72.7% in 2004 from 81.8% in 2003. This decrease occurred primarily
because AMICO was able in many cases to increase its selling prices ahead of
anticipated increases in costs of raw materials, as well as because of
efficiency improvements in AMICO's operations in the second half of 2003 that
positively affected AMICO's 2004 cost of sales. These efficiency improvements
included consolidating production of bar grating products by closing two
facilities and moving their production to other facilities and cost reductions
in material and labor inputs to AMICO's metal lath products.
Selling, general and administrative expense increased $12.7 million, or 51.4%,
to $37.5 million in 2004 from $24.7 million in 2003. This increase occurred
primarily because of significant incentive compensation paid to management and
other employees in 2004 due to AMICO's financial performance in that year, as
well as increases in brokerage commissions paid to manufacturers'
representatives due to increased net sales. As a percentage of net sales,
selling, general and administrative expense increased to 13.0% in 2004 from
12.7% in 2003, due primarily to the increase in incentive compensation.
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AMICO recorded impairment charges of $57,023 in 2004 relating to the write-off
of assets of its Canadian subsidiary. In 2003, AMICO recorded impairment charges
of $1.4 million, primarily because a plant was held for sale at December 31,
2003 at a price less than book value.
As a result of the above, income from operations as a percentage of net sales
increased to 14.2% in 2004 from 4.8% in 2003.
Interest expense decreased $0.7 million, or 11.5%, to $5.1 million in 2004 from
$5.8 million in 2003 due to lower average borrowings in 2004.
As a result of the above, income before income taxes increased to $36.0 million
in 2004 from $3.5 million in 2003.
Income taxes increased to $13.5 million in 2004 from $1.5 million in 2003, based
on an effective rate of 37.4% in 2004, compared to 42.8% in 2003. The decrease
in AMICO's effective tax rate was due to the use of previously reserved net
operating losses against state income taxes in 2004, as well as the increase in
valuation allowances to provide for state net operating losses that it did not
expect to realize.
Net income increased to $22.5 million in 2004 from $2.0 million in 2003.
13