SEC Filing | Gibraltar Industries, Inc.

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, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ______ Commission file number 0-22462 Gibraltar Steel Corporation (Exact name of Registrant as specified in its charter) Delaware 16-1445150 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228 (Address of principal executive offices) (716) 826-6500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of June 30, 1999, the number of common shares outstanding was: 12,549,502. 1 of 14

GIBRALTAR STEEL CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1999 (unaudited) and December 31, 1998 (audited) 3 Condensed Consolidated Statements of Income Six months ended June 30, 1999 and 1998 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Six months ended June 30, 1999 and 1998 (unaudited) 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 PART II. OTHER INFORMATION 13 2 of 14

PART I. FINANCIAL INFORMATION Item 1. Financial Statements GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) June 30, December 31, 1999 1998 (unaudited) (audited) Assets Current assets: Cash and cash equivalents $ 6,065 $ 1,877 Accounts receivable 87,032 71,070 Inventories 89,535 99,351 Other current assets 3,888 3,536 Total current assets 186,520 175,834 Property, plant and equipment, net 179,590 176,221 Other assets 86,747 86,380 $ 452,857 $ 438,435 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 48,612 $ 38,601 Accrued expenses 17,990 11,646 Current maturities of long-term debt 1,315 1,351 Total current liabilities 67,917 51,598 Long-term debt 183,724 199,395 Deferred income taxes 26,495 25,289 Other non-current liabilities 2,016 1,845 Shareholders' equity Preferred shares - - Common shares 125 125 Additional paid-in capital 67,684 66,613 Retained earnings 104,896 93,570 Total shareholders' equity 172,705 160,308 $ 452,857 $ 438,435 ======== ======== See accompanying notes to financial statements 3 of 14

GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 (unaudited) (unaudited) Net sales $ 160,241 $ 144,882 $ 304,045 $ 261,265 Cost of sales 127,240 117,989 242,626 214,212 Gross profit 33,001 26,893 61,419 47,053 Selling, general and administrative expense 17,648 14,563 34,383 26,249 Income from operations 15,353 12,330 27,036 20,804 Interest expense 3,103 2,745 6,422 4,351 Income before taxes 12,250 9,585 20,614 16,453 Provision for income taxes 4,962 3,834 8,349 6,581 Net income $ 7,288 $ 5,751 $ 12,265 $ 9,872 ========= ========= ========= ======== Net income per share-Basic $ .58 $ .46 $ .98 $ .79 ========= ========= ========= ========= Weighted average number of shares outstanding-Basic 12,530 12,451 12,513 12,431 ========= ========= ========= ========= Net income per share-Diluted $ .57 $ .45 $ .96 $ .78 ========= ========= ========= ========= Weighted average number of shares outstanding-Diluted 12,796 12,698 12,754 12,653 ========= ========= ========= ========= See accompanying notes to financial statements 4 of 14

GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Six Months Ended June 30, 1999 1998 (unaudited) Cash flows from operating activities Net income $ 12,265 $ 9,872 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 8,162 5,767 Provision for deferred income taxes 1,088 627 Undistributed equity investment income (173) (185) Other noncash adjustments 364 - Increase (decrease) in cash resulting from changes in (net of acquisitions): Accounts receivable (15,962) (13,705) Inventories 9,816 (17,797) Other current assets (256) (1,270) Accounts payable and accrued expenses 16,530 11,687 Other assets (1,473) (640) Net cash provided by (used in) operating activities 30,361 (5,644) Cash flows from investing activities Acquisitions, net of cash acquired - (86,799) Purchases of property, plant and equipment (12,641) (8,253) Net proceeds from sale of property and equipment 2,407 104 Net cash used in investing activities (10,234) (94,948) Cash flows from financing activities Long-term debt reduction (42,660) (8,312) Proceeds from long-term debt 26,953 109,394 Payment of dividends (939) - Net proceeds from issuance of common stock 707 40 Net cash (used in) provided by financing activities (15,939) 101,122 Net increase in cash and cash equivalents 4,188 530 Cash and cash equivalents at beginning of year 1,877 2,437 Cash and cash equivalents at end of period $ 6,065 $ 2,967 ======= ======= See accompanying notes to financial statements 5 of 14

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, 1999 and 1998 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at June 30, 1999 and 1998 have been included. Certain information and footnote disclosures including significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements included in the Company's Annual Report to Shareholders for the year ended December 31, 1998. The results of operations for the six month period ended June 30, 1999 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, 1999 1998 (unaudited) (audited) Raw material $ 55,287 $ 60,665 Finished goods and work-in-process 34,248 38,686 Total inventories $ 89,535 $ 99,351 ======= ======= 6 of 14

3. STOCKHOLDERS' EQUITY The changes in stockholders' equity consist of: (in thousands) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings December 31, 1998 12,484 $ 125 $ 66,613 $ 93,570 Net Income - - - 12,265 Stock options exercised 53 - 737 - Earned portion of restricted stock - - 58 - Profit sharing plan contribution 13 - 276 - Cash dividends-$.075 per share - - - (939) June 30, 1999 12,550 $ 125 $ 67,684 $104,896 ==================================== 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, 1999 and 1998. The computation of diluted net income per share includes all dilutive common stock equivalents in the weighted average shares outstanding. The reconciliation between basic and diluted earnings per share is as follows: Basic Basic Diluted Diluted Income Shares EPS Shares EPS 1999 $12,265,000 12,513,101 $ .98 12,754,377 $ .96 1998 $ 9,872,000 12,430,671 $ .79 12,653,190 $ .78 Included in diluted shares are common stock equivalents relating to options of 241,276 and 222,519 for 1999 and 1998, respectively. 5. ACQUISITIONS On October 1, 1998, the Company purchased all the outstanding capital stock of Harbor Metal Treating Co., Inc. and its affiliates (Harbor) for $13.5 million in cash. Harbor provides metallurgical heat treating services in which customer-owned parts are exposed to precise temperature and other conditions to improve their material properties, strength and durability. On June 1, 1998, the Company purchased all the outstanding common stock of United Steel Products Company (USP) for approximately $24 million in cash. USP designs and manufacturers lumber connector products for the wholesale market and plastic molded products for component manufacturers. On April 1, 1998, the Company purchased the assets and business of Appleton Supply Co., Inc. (Appleton) for approximately $28 million in cash. Appleton manufactures louvers, roof edging, soffitts and other metal building products for wholesale distribution. 7 of 14

On March 1, 1998, the Company purchased the assets and business of The Solar Group (Solar) for approximately $35 million in cash. Solar manufactures a line of construction products as well as a complete line of mailboxes, primarily manufactured with galvanized steel. These acquisitions have been accounted for under the purchase method. Results of operations of Harbor, USP, Appleton and Solar have been consolidated with the Company's results of operations from the respective acquisition dates. The aggregate excess of the purchase prices of these acquisitions over the fair market values of the net assets of the acquired companies is being amortized over 35 years from the acquisition dates using the straight- line method. The following information presents the pro forma consolidated condensed results of operations as if the acquisitions had occurred on January 1, 1998. The pro forma amounts may not be indicative of the results that actually would have been achieved had the acquisitions occurred as of January 1, 1998 and are not necessarily indicative of future results of the combined companies. (in thousands,except per share data) Six Months Ended June 30, 1998 (unaudited) Net sales $ 296,556 ========= Income before taxes $ 17,604 ========= Net income $ 10,480 ========= Net income per share-Basic $ .84 ========= 6. SUBSEQUENT EVENT 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. The results of operations of Weather Guard will be consolidated with the Company's results of operations from the acquisition date for the quarter ending September 30, 1999. 8 of 14

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $160.2 million for the second quarter ended June 30, 1999 increased 10.6% from net sales of $144.9 million for the prior year's second quarter. Net sales of $304.0 million for the six months ended June 30, 1999 increased 16.4% from net sales of $261.3 million for the same period of 1998. These increases resulted from including net sales of Solar (acquired March 1, 1998), Appleton (acquired April 1, 1998), USP (acquired June 1, 1998) and Harbor (acquired October 1, 1998) (collectively, the 1998 Acquisitions) with sales growth at existing operations. Cost of sales as a percentage of net sales decreased to 79.4% and 79.8%, respectively, for the second quarter and six months ended June 30, 1999 from 81.4% and 82.0% for the same periods in 1998. This improvement was primarily due to the 1998 acquisitions, which have historically generated higher margins than the Company's existing operations, and due to lower raw material costs at existing operations. Selling, general and administrative expenses as a percentage of net sales increased to 11.0% and 11.3%, respectively, for the second quarter and six months ended June 30, 1999 from 10.1% and 10.0% for the same periods of 1998. This increase was primarily due to higher costs as a percentage of sales attributable to the 1998 Acquisitions and performance based compensation linked to the Company's sales and profitability. Interest expense for the second quarter and six months ended June 30, 1999 increased by $.4 million and $2.1 million, respectively, from the same periods in 1998 primarily due to higher borrowings during 1999 to finance the 1998 Acquisitions and capital expenditures. As a result of the above, income before taxes increased by $2.7 and $4.2 million for the second quarter and six months ended June 30, 1999 from the same periods of 1998. Income taxes for the second quarter and six months ended June 30, 1999 approximated $5.0 million and $8.3 million, respectively, and were based on a 40.5% effective tax rate compared to an effective tax rate of 40.0% for the same periods in 1998. Liquidity and Capital Resources During the first six months of 1999, the Company's working capital decreased to $118.6 million. Additionally, shareholders' equity increased by $12.4 million at June 30, 1999 to $172.7 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 14 Net cash provided by operations of $30.4 million resulted primarily from net income of $12.3 million, depreciation and amortization of $8.2 million, an increase in accounts payable and accrued expenses of $16.5 million and a decrease in inventory of $9.8 million, offset by an increase in accounts receivable of $16.0 million necessary to service increased sales levels. The $30.4 million of net cash provided by operations was used to fund capital expenditures of $12.6 million and cash dividends of $.9 million and to pay down $15.7 million of the Company's credit facility. At June 30, 1999 the Company's aggregate credit facilities available approximated $243 million, with borrowings of approximately $184 million and an additional availability of approximately $59 million. The Company believes that availability of funds under its credit facilities together with cash generated from operations will be sufficient to provide the Company with the liquidity and capital resources necessary to support its existing operations. Impact of Year 2000 The Year 2000 issue concerns computer hardware and software being able to distinguish between the year 1900 and the year 2000 and the resultant effect on operations. The Company has conducted a detailed assessment of all of its information technology and non-information technology hardware and software with regard to Year 2000 issues, with special emphasis on mission critical hardware and software. The Company's plan to ensure that its systems are Year 2000 ready is comprised of: inventorying all processes and systems which may have a date-related component and identifying those which are not Year 2000 ready; remediating (i.e., correcting or replacing) those systems which are not Year 2000 ready; and testing the remediated processes and systems to insure that they will, in fact, operate as desired according to Year 2000 requirements. The Company is in various stages of its Year 2000 readiness process for information technology and non-information technology hardware and software at its corporate headquarters and at each of the subsidiaries. Information technology and non-information technology hardware and software have been inventoried and those not Year 2000 ready have been identified. Mission critical processes and systems were given the highest priority for remediation and testing. Therefore, the Company believes that it will be fully Year 2000 ready with all such mission critical processes and systems at its corporate headquarters and at all of these subsidiaries. The following table summarizes the status as of June 30, 1999 of the Year 2000 efforts with respect to identified items that may materially impact operations. 10 of 14

Estimated current completion % and month of expected completion: Area Inventorying & Assessment Remediation & Testing % Expected % Expected Complete Completion Complete Completion IT Hardware and Software: Financial 100% Complete 100% Complete Non-Financial 100% Complete 95% July 1999 Non-IT Hardware and Software 100% Complete 95% July 1999 Third-Party Systems* 100% Complete * * Products N/A N/A N/A N/A * The Company has third party relationships with numerous large customers and vendors, including raw material suppliers and utility companies, many of which are publicly traded corporations subject to disclosure requirements. The Company continues to communicate with these third parties to assess their internal state of Year 2000 readiness and monitors Year 2000 disclosures in their SEC filings. These third party communications and disclosures are then evaluated for possible risk to, or effect on, the Company's operations and are incorporated into the Company's own detailed Year 2000 readiness assessment. Costs specifically associated with modifying internal use software for Year 2000 readiness are expensed as incurred but have not been, and are not expected to be, material to the Company's net income. The Company has budgeted approximately $750,000 to remediate its affected systems, of which approximately $400,000 was expensed through June 30, 1999. Costs of replacing some of the Company's systems with Year 2000 ready systems have been capitalized as these new systems were acquired for business reasons and not to remediate Year 2000 problems, if any, in the former systems. Based upon the results of Year 2000 readiness efforts and internal audit processes currently underway, the Company believes that all mission critical information and non- information technology systems and processes will allow the Company to continue operations beyond the Year 2000 without a material impact on its results of operations or financial position. However, unanticipated problems which may be identified in the ongoing Year 2000 readiness process could result in an undetermined financial risk. 11 of 14

A worst case scenario could include the possible shut down of an operation for a period of time. However, in that event, customer orders may be serviced through use of other Company owned facilities with similar manufacturing capabilities and inventories or, alternatively, by out-sourcing some manufacturing to third parties. The Company's Year 2000 readiness process includes contingency planning for all mission critical issues in order to minimize such a risk to the Company. Detailed contingency plans will be finalized during the third quarter of 1999. 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 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; the impact of the Year 2000 issue; and changes in interest or tax rates. 12 of 14

PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 1. Exhibits 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, 1999. 13 of 14

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 July 29, 1999 14 of 14

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-31-1999 JAN-01-1999 JUN-30-1999 1 6,065 0 88,447 1,415 89,535 186,520 230,578 50,988 452,857 67,917 183,724 0 0 125 172,580 452,857 304,045 304,045 242,626 242,626 34,383 0 6,422 20,614 8,349 12,265 0 0 0 12,265 .98 .96