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 September 30, 1996 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 September 30, 1996, the number of common shares outstanding was: 12,319,900. 1 of 11
GIBRALTAR STEEL CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 1996 (unaudited) and December 31, 1995 (audited) 3 Condensed Consolidated Statements of Income Three months and Nine months ended September 30, 1996 and 1995 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 1996 and 1995 (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 2 of 11
PART I. FINANCIAL INFORMATION Item 1. Financial Statements GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) September 30, December 31, 1996 1995 (unaudited) (audited) Assets Current assets: Cash and cash equivalents $ 5,025 $ 4,123 Accounts receivable 46,725 35,634 Inventories 54,685 45,274 Other current assets 1,763 1,964 Total current assets 108,198 86,995 Property, plant and equipment, net 87,243 67,275 Other assets 25,616 13,153 $ 221,057 $ 167,423 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 30,141 $ 25,845 Accrued expenses 5,356 2,367 Current maturities of long-term deb 1,218 1,214 Deferred income taxes - 54 Total current liabilities 36,715 29,480 Long-term debt 52,927 57,840 Deferred income taxes 12,907 9,251 Other non-current liabilities 867 608 Shareholders' equity Preferred shares - - Common shares 123 102 Additional paid-in capital 64,276 28,803 Retained earnings 53,242 41,339 Total shareholders' equity 117,641 70,244 $ 221,057 $ 167,423 ======== ======== See accompanying notes to financial statements 3 of 11
GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (unaudited) (unaudited) Net sales $ 87,994 $ 74,691 $ 256,504 $ 209,793 Cost of sales 72,015 64,672 210,629 178,348 Gross profit 15,979 10,019 45,875 31,445 Selling, general and administrative expense 7,708 5,474 22,676 15,812 Income from operations 8,271 4,545 23,199 15,633 Interest expense 852 1,181 3,195 2,980 Income before taxes 7,419 3,364 20,004 12,653 Provision for income taxes 3,005 1,362 8,101 5,170 Net income $ 4,414 $ 2,002 $ 11,903 $ 7,483 ========= ======== ======== ======== Net income per share $ .36 $ .20 $ 1.09 $ .74 ========= ========= ========= ========= Weighted average number of shares outstanding 12,239,607 10,162,900 10,904,904 10,162,900 ========== ========== ========== ========== See accompanying notes to financial statements 4 of 11
GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Nine Months Ended September 30, 1996 1995 (unaudited) Cash flows from operating activities Net income $ 11,903 $ 7,483 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,579 3,247 Provision for deferred income taxes 556 568 Equity investment income (486) (531) Dividends from equity investments 5 275 (Gain) loss on disposition of property and equipment 7 (161) Increase (decrease) in cash resulting from changes in (net of effects from acquisitions): Accounts receivable (7,844) (3,865) Inventories (9,411) 16,799 Other current assets 86 (228) Accounts payable and accrued expenses 6,686 686 Other assets (201) 90 Net cash provided by operating activities 5,880 24,363 Cash flows from investing activities Acquisition of CCHT, net of cash acquired (23,715) - Acquisition of Hubbell, net of cash acquired - (20,859) Purchases of property, plant and equipment (11,909) (11,670) Proceeds from sale of property and equipment 137 260 Net cash used in investing activities (35,487) (32,269) Cash flows from financing activities Payment of Hubbell bank debt at acquisition - (17,779) Long-term debt reduction (65,891) (36,443) Proceeds from long-term debt 60,906 63,832 Proceeds from issuance of common stock 35,494 - Net cash provided by financing activities 30,509 9,610 Net increase in cash and cash equivalents 902 1,704 Cash and cash equivalents at beginning of year 4,123 1,124 Cash and cash equivalents at end of period $ 5,025 $ 2,828 ======= ======= See accompanying notes to financial statements 5 of 11
GIBRALTAR STEEL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements as of September 30, 1996 and 1995 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 September 30, 1996 and 1995 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, 1995. The results of operations for the nine month period ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. 2. INVENTORIES Inventories consist of the following: (in thousands) September 30, December 31, 1996 1995 (unaudited) (audited) Raw material $ 38,514 $ 28,307 Finished goods and work-in-process 16,171 16,967 Total inventories $ 54,685 $ 45,274 ======= ======= 3. STOCKHOLDERS' EQUITY During June 1996, the Company sold 2,050,000 common shares, in a public offering, at $18.00 per share. The net proceeds were approximately $34.4 million and were used to repay existing bank debt. In July 1996, the Company issued 11,000 of its common shares at $16.75 per share as a contribution to one of its profit sharing plans. In September 1996, 85,000 of previously issued stock options were exercised at $10 and $11 per share. 6 of 11
The change in stockholders' equity consists of: (in thousands, except share data) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings Balance at December 31, 1995 10,173,900 $ 102 $ 28,803 $ 41,339 Net income - - - 11,903 Public offering 2,050,000 20 34,365 - Profit sharing plan contribution 11,000 - 184 - Stock options exercised 85,000 1 924 - Balance at September 30,1996 12,319,900 $ 123 $ 64,276 $ 53,242 ========== ======= ======= ======= 4. EARNINGS PER SHARE Net income per share for the three and nine months ended September 30, 1996 and 1995 was computed by dividing net income by the weighted average number of common shares outstanding. 5. ACQUISITION On April 3, 1995, the Company purchased all of the outstanding capital stock of Wm. R. Hubbell Steel Company and its subsidiary and certain of its affiliates (Hubbell) for an aggregate cash purchase price of $21 million. In addition, the Company repaid approximately $18 million of Hubbell's existing bank indebtedness. On February 14, 1996, the Company purchased all of the outstanding capital stock of Carolina Commercial Heat Treating, Inc. (CCHT) for an aggregate cash purchase price of approximately $25 million. The funding for the purchase was provided by borrowings under the Company's existing credit facility. CCHT, headquartered in Charlotte, North Carolina, provides heat treating, brazing and related metal-processing services to a broad range of industries, including the automotive, hand tools, construction equipment and industrial machinery industries. These acquisitions have been accounted for under the purchase method, and Hubbell's and CCHT's results of operations have been consolidated with the Company's results of operations from the respective acquisition dates. The excess of the aggregate purchase price over the fair market value of net assets of Hubbell and CCHT approximated $10 million and $12 million, respectively, and is being amortized over 35 years from the respective acquisition dates using the straight-line method. 7 of 11
The following information presents the pro forma consolidated condensed results of operations as if the acquisitions had occurred on January 1, 1995. 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, 1995 and are not necessarily indicative of future results of the combined companies. (in thousands, except per share data) Nine Months Ended September 30, 1996 1995 (unaudited) Net sales $ 258,749 $ 243,751 ======== ======== Income before taxes $ 19,735 $ 14,914 ======== ======== Net income $ 11,725 $ 8,736 ======== ======== Net income per share $ 1.08 $ .86 ======== ======== 8 of 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $88.0 million for the third quarter ended September 30, 1996 increased 18% from sales of $74.7 million for the prior year's third quarter. Net sales of $256.5 million for the nine months ended September 30, 1996 increased 22% from sales of $209.8 million in the first nine months of 1995. These increases primarily resulted from including nine months of net sales of Hubbell Steel (acquired April 1995) for 1996 compared to six months in 1995, including net sales of CCHT (acquired February 1996) and sales growth at existing operations. Cost of sales decreased to 81.8% of net sales for the third quarter and to 82.1% of net sales for the first nine months of 1996. Gross profit increased to 18.2% in the third quarter and increased to 17.9% for the nine months from 13.4% and 15.0% in the comparable prior periods in 1995. This increase was primarily due to higher margins attributable to sales from CCHT and improvements in margins at our existing operations. Selling, general and administrative expenses as a percentage of net sales increased to 8.8% for the third quarter and the nine months ended September 30, 1996 from 7.3% and 7.5% for the prior year comparable periods primarily due to higher costs as a percentage of sales attributable to CCHT and performance based compensation linked to the Company's sales and profitability. Interest expense decreased by $.3 million for the quarter and increased by approximately $.2 million for the nine months ended September 30, 1996. These changes were primarily due to higher borrowings in the first half of the year as a result of the CCHT acquisition in February 1996 offset by a decrease in borrowings resulting from the repayment of debt in June 1996 with the net proceeds from the public offering. As a result of the above, income before taxes increased by $4.1 million and $7.4 million for the quarter and the nine months ended September 30, 1996 to $7.4 million and $20.0 million. Income taxes for the nine months ended September 30, 1996 approximated $8.1 million and were based on a 40.5% effective tax rate in 1996. 9 of 11
Liquidity and Capital Resources During the first nine months of 1996, the Company increased its working capital to $71.5 million. Long term debt was reduced to $52.9 million. Additionally, shareholders' equity increased to $117.6 million at September 30, 1996. 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. Net cash provided by operations of $5.9 million resulted primarily from net income of $11.9 million and depreciation and amortization of $4.6 million. Additionally accounts receivable and inventory increased by $7.8 million and $9.4 million (net of the effect from the acquisition of CCHT) primarily due to increased sales levels and were offset by an increase of $6.7 million in accounts payable and accrued expenses. The $5.9 million provided by operations and an additional $30.5 million in net cash provided by long term financing activities were primarily used for the $23.7 million acquisition of CCHT and $11.9 million of capital expenditures. In June 1996, the Company sold 2,050,000 shares of common shares in a public offering. The net proceeds from the offering which approximated $34.4 million were used to repay outstanding indebtedness. At September 30, 1996, the Company's aggregate credit facilities available totaled approximately $132 million. The Company had borrowings of approximately $54 million under these credit facilities and an additional availability of approximately $78 million. The Company believes that availability under its credit facilities together with funds generated from operations will be sufficient to provide the Company with the liquidity and capital resources necessary to support its operations and anticipated capital expenditures for the next twelve months. 10 of 11
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 October 28, 1996 11 of 11