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 March 31, 1997 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 April 30, 1996, the number of common shares outstanding was: 12,325,212. 1 of 11
GIBRALTAR STEEL CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets March 31,1997 (unaudited) and December 31, 1996 (audited) 3 Condensed Consolidated Statements of Income Three months ended March 31, 1997 and 1996 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 1997 and 1996 (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) March 31, December 31, 1997 1996 (unaudited) (audited) Assets Current assets: Cash and cash equivalents $ 3,923 $ 5,545 Accounts receivable 59,911 40,106 Inventories 82,654 62,351 Other current assets 3,455 1,524 Total current assets 149,943 109,526 Property, plant and equipment, net 103,808 88,670 Other assets 34,847 24,311 $ 288,598 $ 222,507 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 41,254 $ 35,397 Accrued expenses 6,836 4,238 Current maturities of long-term debt 1,220 1,218 Total current liabilities 49,310 40,853 Long-term debt 97,695 48,623 Deferred income taxes 13,977 10,364 Other non-current liabilities 1,030 923 Shareholders' equity Preferred shares - - Common shares 123 123 Additional paid-in capital 64,703 64,307 Retained earnings 61,760 57,314 Total shareholders' equity 126,586 121,744 $ 288,598 $ 222,507 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 March 31, 1997 1996 (unaudited) Net sales $ 108,277 $ 82,034 Cost of sales 89,579 68,005 Gross profit 18,698 14,029 Selling, general and administrative expense 10,076 7,354 Income from operations 8,622 6,675 Interest expense 1,149 1,073 Income before taxes 7,473 5,602 Provision for income taxes 3,027 2,268 Net income $ 4,446 $ 3,334 Net income per share $ .36 $ .33 Weighted average number of shares outstanding 12,324,594 10,173,900 See accompanying notes to financial statements 4 of 11
GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Three Months Ended March 31, 1997 1996 (unaudited) Cash flows from operating activities Net income $ 4,446 $ 3,334 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,932 1,395 Provision for deferred income taxes 304 424 Equity investment income (216) (136) Gain (loss) on disposition of property and equipment 2 (25) Increase (decrease) in cash resulting from changes in (net of effects from acquisitions): Accounts receivable (10,936) (6,758) Inventories (4,346) (5,827) Other current assets (1,019) (848) Accounts payable and accrued expenses 3,304 9,814 Other assets (193) (47) Net cash (used in) provided by operating activities (6,722) 1,326 Cash flows from investing activities Acquisitions, net of cash acquired (24,907) (23,715) Purchases of property, plant and equipment (4,421) (3,262) Proceeds from sale of property and equipment 56 26 Net cash used in investing activities (29,272) (26,951) Cash flows from financing activities Long-term debt reduction (27,397) (12,283) Proceeds from long-term debt 61,743 36,000 Proceeds from issuance of common stock 26 - Net cash provided by financing activities 34,372 23,717 Net decrease in cash and cash equivalents (1,622) (1,908) Cash and cash equivalents at beginning of year 5,545 4,123 Cash and cash equivalents at end of period $ 3,923 $ 2,215 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 March 31, 1997 and 1996 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 March 31, 1997 and 1996 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, 1996. The results of operations for the three month period ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year. 2. INVENTORIES Inventories consist of the following: (in thousands) March 31, December 31, 1997 1996 (unaudited) (audited) Raw material $ 63,029 $ 45,258 Finished goods and work-in-process 19,625 17,093 Total inventories $ 82,654 $ 62,351 6 of 11
3. STOCKHOLDERS' EQUITY The changes in stockholders' equity consists of: (in thousands, except share data) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings December 31, 1996 balance 12,322,400 $ 123 $ 64,307 $ 57,314 Net income - - - 4,446 Stock options exercised and related tax benefit 2,500 - 396 - March 31, 1997 balance 12,324,900 $ 123 $ 64,703 $ 61,760 The Company realizes an income tax benefit from the disposition of certain stock options. This benefit results in a decrease in current income taxes payable and an increase in additional paid- in capital of approximately $370,000. 4. EARNINGS PER SHARE Net income per share for the three months ended March 31, 1997 and 1996 was computed by dividing net income by the weighted average number of common shares outstanding. 5. ACQUISITIONS On February 14, 1996, the Company purchased all of the outstanding capital stock of Carolina Commercial Heat Treating, Inc. (CCHT) for approximately $25 million in cash. 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. 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 provides the construction industry with galvanized steel, aluminum and copper products. 7 of 11
These acquisitions have been accounted for under the purchase method. Results of operations of CCHT and SEMCO 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 CCHT and SEMCO approximated $12 million and $10 million, respectively, 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, 1996. 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, 1996 and are not necessarily indicative of future results of the combined companies. (in thousands, except per share data) Three Months Ended March 31, 1997 1996 (unaudited) Net sales $ 114,801 $ 103,671 Income before taxes $ 7,183 $ 5,413 Net income $ 4,264 $ 3,175 Net income per share $ .35 $ .31 8 of 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $108.3 million for the first quarter ended March 31, 1997 increased 32% from sales of $82.0 million for the prior year's first quarter. This increase primarily resulted from including two months of net sales of SEMCO (acquired January 31, 1997), including net sales of CCHT (acquired February 14, 1996) for the entire quarter and sales growth at existing operations. Cost of sales decreased slightly to 82.7% of net sales for the first three months of 1997 from 82.9% for the prior year's first quarter. The increase in gross profit margin to 17.3% for the first quarter in 1997 was primarily due to including SEMCO results. SEMCO's products and services historically have generated higher margins than the Company's other products and services. Selling, general and administrative expenses as a percentage of net sales increased to 9.3% for the first quarter from 9.0% the prior year comparable period primarily due to higher costs as a percentage of sales attributable to SEMCO and performance based compensation linked to the Company's sales and profitability. Interest expense approximated $1.1 million for both quarters ended March 31, 1997 and 1996. As a result of the above, income before taxes increased by $1.9 million for the quarter ended March 31, 1997 to $7.5 million. Income taxes for the three months ended March 31, 1997 approximated $3.0 million and were based on a 40.5% effective tax rate for both quarters ended March 31, 1997 and 1996. 9 of 11
Liquidity and Capital Resources During the first three months of 1997, the Company increased its working capital to $100.6 million. Additionally, shareholders' equity increased to $126.6 million at March 31, 1997. 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 income of $4.4 million and depreciation and amortization of $1.9 million combined with increases in accounts payable and accrued expenses (net of the SEMCO acquisition) totaling $3.3 million provided cash of $9.6 million. This was offset by increases in accounts receivable and inventory of $10.9 and $4.3 million respectively, which together with the acquisition of SEMCO for approximately $25 million and $4.4 million of capital expenditures required $34.4 in net financing activities. At March 31, 1997, the Company's aggregate credit facilities available totaled approximately $131 million. The Company had total borrowings of approximately $99 million under these credit facilities and an additional availability of approximately $32 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 /s/ Brian J. Lipke Brian J. Lipke President, Chief Executive Officer and Chairman of the Board By /s/ Walter T. Erazmus Walter T. Erazmus Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer) Date May 7, 1997 11 of 11