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, 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 (I.R.S. Employer of 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, 1997, the number of common shares outstanding was:12,401,869. 1 of 12
GIBRALTAR STEEL CORPORATION INDEX PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 1997 (unaudited) and December 31, 1996 (audited) 3 Condensed Consolidated Statements of Income Three months and Nine months ended September 30, 1997 and 1996 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 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 PART II. OTHER INFORMATION 11 2 of 12
PART I. FINANCIAL INFORMATION Item 1. Financial Statements GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) <TABLE> <CAPTION> September 30, December 31, 1997 1996 (unaudited) (audited) <S> <S> <C> <C> Assets Current assets: Cash and cash equivalents $ 2,922 $ 5,545 Accounts receivable 57,824 40,106 Inventories 72,698 62,351 Other current assets 3,240 1,524 -------- -------- Total current assets 136,684 109,526 Property, plant and equipment, net 114,341 88,670 Other assets 35,263 24,311 -------- -------- $ 286,288 $ 222,507 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 37,304 $ 35,397 Accrued expenses 4,836 4,238 Current maturities of long-term debt 1,223 1,218 -------- -------- Total current liabilities 43,363 40,853 -------- -------- Long-term debt 90,652 48,623 Deferred income taxes 14,680 10,364 Other non-current liabilities 1,221 923 Shareholders' equity Preferred shares - - Common shares 124 123 Additional paid-in capital 66,004 64,307 Retained earnings 70,244 57,314 -------- -------- Total shareholders' equity 136,372 121,744 -------- -------- $ 286,288 $ 222,507 ======== ======== </TABLE> See accompanying notes to financial statements 3 of 12
GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands, except share and per share data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 (unaudited) (unaudited) <S> <C> <C> <C> <C> Net sales $ 114,249 $ 87,994 $ 341,739 $ 256,504 Cost of sales 96,102 72,015 284,977 210,629 -------- -------- -------- -------- Gross profit 18,147 15,979 56,762 45,875 Selling, general and administrative expense 10,525 7,708 31,177 22,676 -------- -------- -------- -------- Income from operations 7,622 8,271 25,585 23,199 Interest expense 1,310 852 3,907 3,195 -------- -------- -------- -------- Income before taxes 6,312 7,419 21,678 20,004 Provision for income taxes 2,525 3,005 8,748 8,101 -------- -------- -------- -------- Net income $ 3,787 $ 4,414 $ 12,930 $ 11,903 ========= ========= ========= ========= Net income per share $ .31 $ .36 $ 1.05 $ 1.09 ========= ========= ========= ========= Weighted average number of shares outstanding 12,371,680 12,239,607 12,340,900 10,904,904 ========== ========== ========== ========== </TABLE> See accompanying notes to financial statements 4 of 12
GIBRALTAR STEEL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) <TABLE> <CAPTION> Nine Months Ended September 30, 1997 1996 (unaudited) <S> <C> <C> Cash flows from operating activities Net income $ 12,930 $ 11,903 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,216 4,579 Provision for deferred income taxes 1,230 556 Undistributed equity investment income (383) (481) (Gain) loss on disposition of property and equipment (8) 7 Increase (decrease) in cash resulting from changes in (net of acquisitions): Accounts receivable (8,849) (7,844) Inventories 5,610 (9,411) Other current assets (1,099) 86 Accounts payable and accrued expenses (2,160) 6,686 Other assets (390) (201) -------- -------- Net cash provided by operating activities 13,097 5,880 -------- -------- Cash flows from investing activities Acquisitions, net of cash acquired (26,475) (23,715) Purchases of property, plant and equipment (17,677) (11,909) Proceeds from sale of property and equipment 95 137 -------- -------- Net cash used in investing activities (44,057) (35,487) -------- -------- Cash flows from financing activities Long-term debt reduction (62,059) (65,891) Proceeds from long-term debt 89,365 60,906 Proceeds from issuance of common stock 1,031 35,494 -------- -------- Net cash provided by financing activities 28,337 30,509 -------- -------- Net (decrease) increase in cash and cash equivalents (2,623) 902 Cash and cash equivalents at beginning of year 5,545 4,123 ------- ------- Cash and cash equivalents at end of period $ 2,922 $ 5,025 ======= ======= </TABLE> See accompanying notes to financial statements 5 of 12
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, 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 September 30, 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 nine month period ended September 30, 1997 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, 1997 1996 (unaudited) (audited) Raw material $ 51,776 $ 45,258 Finished goods and work-in-process 20,922 17,093 ------- ------- Total inventories $ 72,698 $ 62,351 ======= ======= 6 of 12
3. STOCKHOLDERS' EQUITY The changes in stockholders' equity consist of: <TABLE> <CAPTION> (in thousands, except share data) Additional Common Shares Paid-in Retained Shares Amount Capital Earnings <C> <S> <S> <S> <S> December 31, 1996 12,322,400 $ 123 $ 64,307 $ 57,314 Net income - - - 12,930 Stock options exercised and related tax benefit 68,469 1 1,458 - Profit sharing plan contribution 11,000 - 239 - ---------- ------ ------- -------- September 30, 1997 12,401,869 $ 124 $ 66,004 $ 70,244 ========== ====== ======= ======= </TABLE> Additional paid-in capital increased approximately $791,000 through the exercise of stock options and approximately $667,000 through a realized tax benefit from the disposition of certain stock options. This benefit also resulted in a corresponding decrease in current income taxes payable. 4. EARNINGS PER SHARE Net income per share for the three and nine months ended September 30, 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 manufactures a wide array of metal products for the residential and commercial construction markets. 7 of 12
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) Nine Months Ended September 30, 1997 1996 (unaudited) Net sales $ 348,263 $ 325,325 ======== ======== Income before taxes $ 21,388 $ 20,924 ======== ======== Net income $ 12,748 $ 12,345 ======== ======== Net income per share $ 1.03 $ 1.13 ======== ======== 8 of 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales of $114.2 million for the third quarter ended September 30, 1997 increased 30% from sales of $88.0 million for the prior year's third quarter. Net sales of $341.7 million for the nine months ended September 30, 1997 increased 33% from net sales of $256.5 million for the same period of 1996. These increases primarily resulted from including net sales of SEMCO (acquired January 31, 1997) and sales growth at existing operations. Cost of sales increased to 84.1% of net sales for the third quarter and to 83.4% for the first nine months of 1997. Gross profit decreased to 15.9% and 16.6% for the third quarter and the nine months ended September 30, 1997 from 18.2% and 17.9% for the comparable periods in 1996. This decrease is primarily due to higher raw material costs which were not fully passed through to customers, offset partially by the inclusion of SEMCO's results. SEMCO's sales 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 9.2% and 9.1% for the third quarter and nine months ended September 30, 1997, respectively, from 8.8% for the same periods of 1996. These increases were primarily due to higher costs as a percentage of sales attributable to SEMCO and performance based compensationy. Interest expense increased by $.5 million for the quarter and $.7 million for the nine months ended September 30, 1997 primarily due to higher average borrowings as a result of the SEMCO acquisition. As a result of the above, income before taxes decreased by $1.1 million and increased $1.7 million for the quarter and nine months ended September 30, 1997. Income taxes for the nine months ended September 30, 1997 approximated $8.8 million and were based on a 40.4% effective tax rate for 1997 compared to an effective tax rate of 40.5% for the same period in 1996. 9 of 12
Liquidity and Capital Resources During the first nine months of 1997, the Company increased its working capital to $93.3 million. Additionally, shareholders' equity increased to $136.4 million at September 30, 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 $12.9 million and depreciation and amortization of $6.2 million combined with a decrease in inventory (net of acquisitions) of $5.6 million to provide cash of $24.7 million. This was partially offset by an increase in accounts receivable of $8.8 million, to service increased sales levels, and a decrease in accounts payable and accrued expenses of $2.2 million. The resulting net cash provided by operations of $13.1 million combined with an additional $28.3 million in net cash provided by financing activities funded the $26.5 million used for acquisitions and $17.7 million for capital expenditures. During September 1997, the Company increased its bank credit facility to $185 million which expires in November 2002. The facility was also changed to an unsecured basis. At September 30, 1997, the Company's aggregate credit facilities available approximated $190 million with borrowings of approximately $91 million and an additional availability of approximately $99 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 12
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 1. Exhibits - a. Exhibit 10.1 - Credit Agreement dated as of September 15, 1997 among Gibraltar Steel Corporation, Gibraltar Steel Corporation of New York, Chase Manhattan Bank, as Administrative Agent and various financial institutions that are signatories thereto b. Exhibit 27 - Financial Data Schedule 2. Reports on Form 8-K. There were no reports on Form 8-K during the three months ended September 30, 1997. 11 of 12
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 23, 1997 12 of 12