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, 1998
        
                                    OR
                                     
            (  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
            THE SECURITIES EXCHANGE ACT OF 1934
        
            For the transition period from _________ to _________
        
        
        Commission file number  0-22462
        
               Gibraltar Steel Corporation
             (Exact name of Registrant as specified in its charter)
        
               Delaware                               16-1445150
            (State or other jurisdiction of           (I.R.S. Employer
            incorporation or organization)            Identification
                                                      No.)
        
        3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228
            (Address of principal executive offices)
        
               (716) 826-6500
            (Registrant's telephone number, including area code)
        
        
        
        
        Indicate by check mark whether the Registrant (1) has filed all
        reports required to be filed by Section 13 or 15(d) of the
        Securities Exchange Act of 1934 during the preceding 12 months
        (or for such shorter period that the Registrant was required to
        file such reports), and (2) has been subject to such filing
        requirements for the past 90 days.  Yes  X .  No    .
        
        
        As of July 31, 1998, the number of common shares outstanding
        was:12,476,293.
        
        
        
        

        
                                  1 of 13
                                     
                                     
                                     
                                     
                        GIBRALTAR STEEL CORPORATION
                                     
                                   INDEX
                                     
        
                                                                  PAGE NUMBER
        PART I.  FINANCIAL INFORMATION
        
        Item 1.  Financial Statements
        
                 Condensed Consolidated Balance Sheets
                 June 30, 1998 (unaudited) and
                 December 31, 1997 (audited)                            3
        
                 Condensed Consolidated Statements of Income
                 Six months ended June 30, 1998 and
                 1997 (unaudited)                                       4
        
                 Condensed Consolidated Statements of Cash Flows
                 Six months ended June 30, 1998 and 1997
                 (unaudited)                                            5
        
                 Notes to Condensed Consolidated Financial
                 Statements (unaudited)                               6 - 8
        
        
        Item 2.  Management's Discussion and Analysis of
                 Financial Condition and Results of Operations        9 - 11
        
        
        PART II. OTHER INFORMATION                                     12
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        




                                  2 of 13
                                     
                      PART I.  FINANCIAL INFORMATION
                                     
                       Item 1. Financial Statements
                                     
                        GIBRALTAR STEEL CORPORATION
                                     
                    CONDENSED CONSOLIDATED BALANCE SHEET
                               (in thousands)
                                     
                                                      June 30,   December 31,
                                                       1998          1997
                                                    (unaudited)    (audited)
                                                 
     Assets
    
     Current assets:
            Cash and cash equivalents               $   2,967     $   2,437
            Accounts receivable                        77,615        49,151
            Inventories                               110,839        76,701
            Other current assets                        4,428         2,457
     
               Total current assets                   195,849       130,746
     
     Property, plant and equipment, net               151,193       115,402
     
     Other assets                                      84,356        35,188
     
                                                    $ 431,398     $ 281,336
                                                     ========      ========
     
     Liabilities and Shareholders' Equity
     
     Current liabilities:
            Accounts payable                        $  57,402     $  38,233
            Accrued expenses                           12,174         3,644
            Current maturities of long-term debt        1,272         1,224
     
               Total current liabilities               70,848        43,101
     
     Long-term debt                                   189,039        81,800
     
     Deferred income taxes                             19,898        15,094
     
     Other non-current liabilities                      1,657         1,297
     
     Shareholders' equity
            Preferred shares                                -             -
            Common shares                                 125           124
            Additional paid-in capital                 66,229        66,190
            Retained earnings                          83,602        73,730
     
               Total shareholders' equity             149,956       140,044
     
                                                    $ 431,398     $ 281,336
                                                     ========      ========
See accompanying notes to financial statements 3 of 13 GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 (unaudited) (unaudited) Net sales $ 144,882 $ 119,213 $ 261,265 $ 227,490 Cost of sales 117,989 99,296 214,212 188,875 Gross profit 26,893 19,917 47,053 38,615 Selling, general and administrative expense 14,563 10,576 26,249 20,652 Income from operations 12,330 9,341 20,804 17,963 Interest expense 2,745 1,448 4,351 2,597 Income before taxes 9,585 7,893 16,453 15,366 Provision for income taxes 3,834 3,196 6,581 6,223 Net income $ 5,751 $ 4,697 $ 9,872 $ 9,143 ========= ========= ========= ========= Net income per share-Basic $ .46 $ .38 $ .79 $ .74 ========= ========= ========= ========= Weighted average number of shares outstanding-Basic 12,451 12,326 12,431 12,325 ========= ========= ========= ========= Net income per share-Diluted $ .45 $ .37 $ .78 $ .73 ========= ========= ========= ========= Weighted average number of shares outstanding-Diluted 12,698 12,560 12,653 12,557 ========= ========= ========= =========
See accompanying notes to financial statements 4 of 13 GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Six Months Ended June 30, 1998 1997 (unaudited) Cash flows from operating activities Net income $ 9,872 $ 9,143 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 5,767 4,053 Provision for deferred income taxes 627 766 Undistributed equity investment income (185) (220) Increase (decrease) in cash resulting from changes in (net of acquisitions): Accounts receivable (13,705) (8,113) Inventories (17,797) (1,471) Other current assets (1,270) (561) Accounts payable and accrued expenses 11,687 (799) Other assets (640) (257) Net cash (used in) provided by operating activities (5,644) 2,541 Cash flows from investing activities Acquisitions, net of cash acquired (86,799) (26,475) Purchases of property, plant and equipment (8,253) (11,776) Net proceeds from sale of property and equipment 104 62 Net cash used in investing activities (94,948) (38,189) Cash flows from financing activities Long-term debt reduction (8,312) (43,701) Proceeds from long-term debt 109,394 78,365 Net proceeds from issuance of common stock 40 77 Net cash provided by financing activities 101,122 34,741 Net increase (decrease) in cash and cash equivalents 530 (907) Cash and cash equivalents at beginning of year 2,437 5,545 Cash and cash equivalents at end of period $ 2,967 $ 4,638 ======= =======
See accompanying notes to financial statements 5 of 13 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, 1998 and 1997 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at June 30, 1998 and 1997 have been included. Certain information and footnote disclosures including significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements included in the Company's Annual Report to Shareholders for the year ended December 31, 1997. The results of operations for the six month period ended June 30, 1998 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, 1998 1997 (unaudited) (audited) Raw material $ 73,204 $ 51,804 Finished goods and work-in-process 37,635 24,897 Total inventories $110,839 $ 76,701 ======= ======= 6 of 13 3. STOCKHOLDERS' EQUITY The changes in stockholders' equity consist of: (in thousands) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings December 31, 1997 12,410 $ 124 $ 66,190 $ 73,730 Net income - - - 9,872 Stock options exercised - - 10 - Restricted stock granted 55 1 - - Earned portion of restricted stock - - 29 - June 30, 1998 12,465 $ 125 $ 66,229 $ 83,602 ========================================== 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, 1998 and 1997. The computation of diluted net income per share includes all dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between basic and diluted earnings per share is as follows: Basic Basic Diluted Diluted Income Shares EPS Shares EPS 1998 $9,872,000 12,430,671 $.79 12,653,190 $.78 1997 $9,143,000 12,325,255 $.74 12,557,382 $.73 Included in diluted shares are common stock equivalents relating to options of 222,519 and 232,127 for 1998 and 1997, respectively. 5. ACQUISITIONS On June 1, 1998, the Company purchased all the outstanding common stock of United Steel Products Company (USP) for approximately $24 million in cash. USP designs and manufacturers lumber connector products for the wholesale market and plastic molded products for component manufacturers. On April 1, 1998, the Company purchased the assets and business of Appleton Supply Co., Inc. (Appleton) for approximately $28 million in cash. Appleton manufactures louvers, roof edging, soffitts and other metal building products for wholesale distribution. 7 of 13 On March 1, 1998, the Company purchased the assets and business of The Solar Group (Solar) for approximately $35 million in cash. Solar manufactures a line of construction products as well as a complete line of mailboxes, primarily manufactured with galvanized steel. On January 31, 1997, the Company purchased all of the outstanding capital stock of Southeastern Metals Manufacturing Company, Inc. (SEMCO) for approximately $25 million in cash. SEMCO manufactures a wide array of metal products for the residential and commercial construction markets. These acquisitions have been accounted for under the purchase method. Results of operations of USP, Appleton, Solar and SEMCO have been consolidated with the Company's results of operations from the respective acquisition dates. The aggregate excess of the purchase prices of these acquisitions over the fair market values of the net assets of the acquired companies is approximately $58 million and is being amortized over 35 years from the acquisition dates using the straight-line method. The following information presents the pro forma consolidated condensed results of operations as if the acquisitions had occurred on January 1, 1997. The pro forma amounts may not be indicative of the results that actually would have been achieved had the acquisitions occurred as of January 1, 1997 and are not necessarily indicative of future results of the combined companies. (in thousands, except per share data) Six Months Ended June 30, 1998 1997 (unaudited) Net sales $ 289,797 $ 289,714 ======== ======== Income before taxes $ 16,909 $ 15,989 ======== ======== Net income $ 10,079 $ 9,420 ======== ======== Net income per share-Basic $ .81 $ .76 ======== ======== 8 of 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $144.9 million for the second quarter ended June 30, 1998 increased 21.5% from sales of $119.2 million for the prior year's second quarter. This increase resulted from including net sales of Solar (acquired March 1, 1998), Appleton (acquired April 1, 1998) and USP (acquired June 1, 1998) and sales growth at existing operations which combined to more than offset the impact of a strike at an automotive customer in June 1998, which was settled in July 1998. Sales to that automobile manufacturer were less than 7% of the Company's total sales for the six months ended June 30, 1998. Cost of sales as a percentage of net sales decreased to 81.4% for the second quarter and to 82.0% for the first six months of 1998. Gross profit increased to 18.6% and 18.0% for the second quarter and the six months ended June 30, 1998 from 16.7% and 17.0% for the comparable periods in 1997. This increase is primarily due to higher margins at SEMCO, Solar, Appleton and USP, which have historically generated higher margins than the Company's other products and services, and due to lower raw material costs at existing operations. Selling, general and administrative expenses as a percentage of net sales increased to 10.1% for the second quarter ended June 30, 1998, from 8.9% for the same period of 1997. This increase was primarily due to higher costs as a percentage of sales attributable to Solar, Appleton and USP and performance based compensation linked to the Company's sales and profitability. Interest expense increased by $1.3 million for the second quarter ended June 30, 1998 primarily due to higher borrowings to finance the Solar, Appleton and USP acquisitions. As a result of the above, income before taxes increased by $1.7 million for the quarter ended June 30, 1998. Income taxes for the three months ended June 30, 1998 approximated $3.8 million and were based on a 40.0% effective tax rate for 1998 compared to an effective tax rate of 40.5% for the same period in 1997. Liquidity and Capital Resources During the first six months of 1998, the Company increased its working capital to $125.0 million. Additionally, shareholders' equity increased to $150.0 million at June 30, 1998. The Company's principal capital requirements are to fund its operations, including working capital, the purchase and funding of improvements to its facilities, machinery and equipment and to fund acquisitions. 9 of 13 Net income of $9.9 million and depreciation and amortization of $5.8 million combined with an increase in accounts payable and accrued expenses (net of acquisition) of $11.7 million to provide cash of $27.4 million. Increases in inventory, accounts receivable and other current assets of $32.8 million in aggregate, necessary to service increased sales levels, offset the cash generated from operations, resulting in net cash used for operations of approximately $5.6 million. Cash used in operations of $5.6 million, capital expenditures of $8.3 million and the acquisition of Solar, Appleton and USP for approximately $86.8 million in total were primarily funded by net borrowings of $101.1 million under the Company's credit facility. During the second quarter of 1998, the Company increased its bank credit facility to $235 million to provide additional funds to grow its business. At June 30, 1998 the Company's aggregate credit facilities available approximated $239 million with borrowings of approximately $189 million and an additional availability of approximately $50 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. The Company also believes it has the financial capability to increase its long-term borrowing capacity due to changes in capital requirements. Impact of Year 2000 The Company is in the process of evaluating its management information systems to determine Year 2000 compliancy. The Company currently believes that costs required to achieve Year 2000 compliancy will not be material to its financial statements. Recent Accounting Pronouncement In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (FAS No. 133) which requires recognition of the fair value of derivatives in the statement of financial position, with changes in the fair value recognized either in earnings or as a component of other comprehensive income dependent upon the hedging nature of the derivative. Implementation of FAS No. 133 is required for fiscal 2000. The Company does not believe that FAS No. 133 will have a material impact on its earnings or other comprehensive income. 10 of 13 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. 11 of 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 1. Exhibits - None a. Exhibit 27 - Financial Data Schedule 2. Reports on Form 8-K. There were no reports on Form 8-K during the three months ended June 30, 1998. 12 of 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GIBRALTAR STEEL CORPORATION (Registrant) By /x/ Brian J. Lipke Brian J. Lipke President, Chief Executive Officer and Chairman of the Board By /x/ Walter T. Erazmus Walter T. Erazmus Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer) Date August 13, 1998 13 of 13
 

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 US DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 2,967 0 79,028 1,413 110,839 195,849 192,049 40,856 431,398 70,848 189,039 0 0 125 149,831 431,398 261,265 261,265 214,212 214,212 26,249 0 4,351 16,453 6,581 9,872 0 0 0 9,872 .79 .78