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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES ACT OF 1934
For The Fiscal Year Ended December 31, 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 incorporation organization (I.R.S. Employer
Identification No.)
3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228
(address of principal executive offices) (Zip Code)
(716) 826-6500
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value NASDAQ National Market System
Securities registered pursuant to Section 12(g) of the Act:
NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. ( )
As of December 31, 1999, the aggregate market value of the voting
stock held by nonaffiliates of the Registrant amounted to
$148,108,000.
As of December 31, 1999, the number of common shares outstanding
was: 12,577,464.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 23, 2000, are incorporated by
reference into Part III of this report.
Exhibit Index is on Page 37
1
PART I
Item 1. Description of Business
General
The Company is a processor of a broad array of high value-
added, technically sophisticated steel and other metal
products. The Company utilizes any one or a combination
of several different processes at each of its operating
facilities to add substantial margin and value to raw
material acquired from primary steel and other metal
producers. Underlying each of these processes is a common
set of steel and metal processing core competencies.
These core competencies are the foundation upon which all
the Company's operations and customer offerings are based.
Industry Overview
Steel and metal processors occupy a market niche that
exists between the primary steel and metal producers and
end-users and others. Primary steel and metal producers
typically focus on the sale of standard size and tolerance
steel and other metals to large volume purchasers,
including steel and metal processors. At the same time,
end-users require steel with closer tolerances and with
shorter lead times than the primary steel and metal
producers can provide efficiently.
Metal Processes, Products and Services
The Company produces and delivers a variety of products
and services on a just-in-time basis for industrial
manufacturers, fabricators and other end-users in the
automotive, automotive supply, building and construction,
machinery, and steel industries.
The following table sets forth certain information
regarding sales of products and services as a percentage
of net sales for the past three years:
Year ended December 31,
Products and Services 1997 1998 1999
Cold-rolled strip steel 35% 30% 29%
Building and construction products 20% 32% 35%
Precision metal products 36% 31% 26%
Heat treating and other services 9% 7% 10%
2
The following steel and metal products, processes and
services are provided by the Company:
Cold-Rolled Strip Steel
The Company produces a broad range of fully processed cold-
rolled strip steel products. The Company buys wide, open
tolerance sheet steel in coils from primary steel producers
and processes it to specific customer orders by performing
such computer-aided processes as cold reduction, annealing,
temper rolling, edge rolling and slitting. Cold reduction
is the rolling of steel to a specified thickness, tolerance
and finish. Annealing is a thermal process which changes
hardness and certain metallurgical characteristics of steel.
Temper rolling is the rolling of steel to a specific
hardness. Edge rolling involves conditioning edges of
processed steel into square, fully round or partially round
shapes. Slitting is the cutting of steel to specified
widths. Depending on customer specifications, one or more
of these processes are utilized to produce steel strip of a
precise grade, temper, tolerance and finish.
The Company operates 10 rolling mills at its facilities in
Cleveland, Ohio, Chattanooga, Tennessee and Buffalo, New
York, all of which are QS9000 certified, and is capable of
rolling widths of up to 50 inches. The Company has the
capability to process coils up to a maximum of 72 inch
outside diameter. The Company's rolling mills include
automatic gauge control systems with hydraulic screwdowns
allowing for microsecond adjustments during processing. The
Company operates a 56 inch reversing mill which the Company
believes is the widest of its type in the industry.
The Company's computerized mills produce products meeting
the most stringent statistical quality control standards,
enabling it to satisfy a growing industry demand for a range
of steel from thicker to thinner, low carbons to alloy
grades, all with precision gauge tolerances as close as +/-
.0002 inches.
The Company's rolling facilities are further complemented by 15
high convection annealing furnaces, which shorten annealing
times over conventional annealers. The Company's newest
furnaces incorporate the use of a hydrogen atmosphere for the
production of cleaner and more uniform steel. As a result of
its annealing capabilities, the Company is able to produce cold-
rolled strip steel with improved consistency in terms of
hardness, molecular grain structure and surface.
3
The Company can produce certain of its strip steel products
on oscillated coils which wind the steel strip in a manner
similar to the way thread is wound on a spool. Oscillating
the steel enables the Company to put at least six times
greater volume of finished product on a coil than standard
ribbon winding, allowing customers to achieve longer
production runs by reducing the number of equipment shut-
downs to change coils. Customers are thus able to increase
productivity, reduce downtime, improve yield and lengthen die
life.
Building and Construction Products
The Company processes steel and other metal to manufacture
a wide array of products for the building and construction
industry. Building and construction industry products are
manufactured primarily from galvanized steel, as well as
from aluminum, copper and other metals. Building and
construction products manufactured include metal trims,
utility sheds, steel lumber connectors, metal roofing,
drywall products, gutters and down spouts, ventilation
products and storm panel systems for residential and
commercial properties.
The Company's existing building and construction products
operations - comprised of Southeastern Metals
Manufacturing Company, Inc. (SEMCO), with facilities
located in Florida, Tennessee, Texas and Mississippi, The
Solar Group (Solar), with three facilities located in
Mississippi, Appleton Supply Co., Inc. (Appleton), with
facilities located in Wisconsin and Missouri, and United
Steel Products Company (USP), with facilities located in
Minnesota, California, North Carolina and New Jersey -
expanded during 1999 with the acquisition of two
additional building and construction products companies.
K & W Metal Fabricators, Inc., d/b/a Weather Guard
Building Products (Weather Guard), acquired in July 1999,
manufactures and distributes a full line of metals
building products for industrial, commercial and
residential applications. With operations based in
Colorado, Weather Guard strengthens the Company's business
in the Western United States and provides a strong
presence in the fast-growing Rocky Mountain region.
Hughes Manufacturing, Inc. (Hughes), acquired in December
1999, manufactures a broad line of fully engineered, code-
approved steel lumber connectors and other metal hardware
products at its Florida facility which compliment those
produced by SEMCO. Hughes' lumber connector products also
compliment those produced at USP.
Precision Metal Products
The Company's precision metal products are comprised primarily of
higher value-added flat-rolled sheet steel, as well as steel
strapping and other products.
4
Precision Metal Processing. The Company operates precision
metals facilities in New York and Tennessee which primarily
process flat-rolled sheet steel. In addition to slitting and
cutting to length, these precision metals facilities can produce
higher value-added products which are held to close tolerances
and tight specifications through cold-rolling, annealing,
blanking, oscillating and edge rolling.
The Company also operates precision metals facilities in
Illinois and Alabama which process galvanized, Galvalume
and prepainted steel and can slit and cut to length
material based upon customer specifications.
Steel Strapping. Steel strapping is banding and packaging
material that is used to close and reinforce shipping units
such as bales, boxes, cartons, coils, crates and skids. The
Company manufactures high tensile strapping that is subject to
strength requirements imposed by the American Society for
Testing and Materials for packaging of different products for
common carrier transport. This high tensile steel strapping is
essential to producers of large, heavy products such as steel,
paper and lumber where reliability of the packaging material is
critical to the safe transport of the product.
The Company's QS9000 certified strapping facility manufactures
high tensile steel strapping by slitting, oscillating, heat
treating, painting and packaging cold-rolled coils.
Steel strapping is cold-rolled to precise gauge on one of the
Company's rolling mills, which incorporates hydraulic screw
downs and automatic gauge controls with statistical charting.
This process ensures strapping product of the most uniform
gauge available and produces the maximum amount of strapping
per pound of steel. All products are tested by on-site
laboratory personnel for width, thickness and other physical
and metallurgical properties.
To meet the differing needs of its customers, the Company
offers its strapping products in various thicknesses, widths
and coil sizes. The Company also manufactures custom color and
printed strapping. In addition, the Company offers related
strapping products, such as seals and tools, and is able to
manufacture tensional strapping for lighter duty applications.
Other Products. The Company's Solar operation produces a
complete line of mailboxes manufactured primarily with
galvanized steel.
5
Heat Treating and Other Services
Metallurgical Heat Treating Services. The Company provides a
wide range of metallurgical heat treating services in which
customer-owned parts are exposed to precise temperatures,
atmospheres and quenchants and other conditions to improve
their mechanical properties, durability and wear resistance.
These services include case-hardening, neutral-hardening and
through-hardening processes for customers in a wide variety of
industries. Using methods such as annealing, normalizing,
vacuum hardening, carbonizing, nitriding and brazing, as well
as a host of other services, these heat treating processes can
harden, soften or otherwise impart desired properties on parts
made of steel, copper and various alloys and other metals.
During 1999, the Company acquired three heat treating
companies - Southeastern Heat Treating, Inc. in April
1999, Hi-Temp Incorporated (Hi-Temp) in August 1999 and
Brazing Concepts Company (Brazing Concepts) in November
1999 - and now operates fifteen heat treating facilities
in North Carolina, South Carolina, Tennessee, Georgia,
Alabama, Michigan, Indiana and Illinois. The Company
maintains a metallurgical laboratory at each facility with
trained metallurgists providing a range of testing
capabilities to add value to treated parts and enhance
quality control. Consistent quality control is maintained
by application of a statistical process control system and
registered to QS/ISO 9002. Additionally, the Company
maintains a fleet of trucks and trailers to provide rapid
turnaround time for its customers.
Due to time and costs associated with transporting
materials and customers' need for just-in-time delivery of
heat treated products, the commercial heat treating
industry has developed as a regional industry concentrated
in major industrial areas of the country. In addition,
the commercial heat treating industry has realized
significant growth in recent years as many companies
involved in the manufacture of metal components outsource
their heat treating requirements. The Company believes
that its heat treating facilities are strategically
located to meet the needs of customers from a
geographically diverse base of operations and to
capitalize on the growing trend in outsourcing of heat
treating operations.
Materials Management Services. The Company operates two
materials management facilities that link primary steel
producers and end-user manufacturers by integrating the
inventory purchasing, receiving, inspection, billing, storage
and shipping functions and producing true just-in-time delivery
of materials. These facilities receive shipments of steel by
rail and truck from steel producers, which retain ownership of
the steel until it is delivered to the end-user manufacturer.
The Company inspects the steel and stores it in a climate-
controlled environment through the use of a specialized stacker
crane and racking system. When an order is placed, the Company
often delivers the steel to the end-user manufacturer within
one hour using Company-owned trucks that have been custom
designed to facilitate the loading and unloading process.
6
Steel Pickling Joint Venture. The Company is a minority
partner with a 31% interest in two steel pickling operations in
Ohio. After the hot-rolling process, the surface of sheet
steel is left with a residue known as scale, which must be
removed prior to further processing by a cleaning process known
as pickling. This joint venture pickles steel on a toll basis,
receiving fees for its pickling services without acquiring
ownership of the steel.
Quality Control
The Company carefully selects its raw material vendors and uses
computerized inspection and analysis to assure that the steel
and other metals which it processes will be able to meet the
most critical specifications of its customers. The Company
uses documented procedures during the production process, along
with statistical process control computers linked directly to
processing equipment, to monitor that such specifications are
met. Physical, chemical and metallographic analyses are
performed during the production process to verify that
mechanical and dimensional properties, cleanliness, surface
characteristics and chemical content are within specification.
Suppliers and Raw Materials
Steel and metal processing companies are required to maintain
substantial inventories of raw materials in order to
accommodate the short lead times and just-in-time delivery
requirements of their customers. Accordingly, the Company
generally maintains its inventory of raw materials at levels
that it believes are sufficient to satisfy the anticipated
needs of the customers based upon historic buying practices and
market conditions. The primary raw material processed by the
Company is flat rolled steel purchased at regular intervals
primarily from approximately 20 major North American suppliers
and a limited number of foreign steel companies. The Company
has no long-term commitments with any of its suppliers.
Technical Services
The Company employs a staff of engineers and other technical
personnel and maintains fully-equipped, modern laboratories to
support its operations. These laboratories enable the Company to
verify, analyze and document the
physical, chemical, metallurgical and mechanical properties of
its raw materials and products. Technical service personnel also
work in conjunction with the sales force to determine the types
of steel required for the particular needs of the Company's
customers.
7
Sales and Marketing
The Company's products and services are sold primarily by
Company sales personnel and outside sales representatives
located throughout the United States and Mexico.
Customers and Distribution
The Company has approximately 9,000 customers located
throughout the United States, Canada and Mexico principally in
the automotive, automotive supply, appliance, building and
construction, machinery and steel industries. Major customers
include automobile manufacturers and suppliers, building and
construction product distributors, and commercial and
residential contractors. No customer of the Company
represented 10% or more of the Company's net sales for 1997,
1998 or 1999.
The Company manufactures its products exclusively to customer
order rather than for inventory, except for building and
construction products. Although the Company negotiates annual
sales orders with a majority of its customers, these orders are
subject to customer confirmation as to product amounts and
delivery dates.
Competition
The steel processing market is highly competitive. The Company
competes with a small number of other steel processors, some of
which also focus on fully processed, high value-added steel
products. The Company competes on the basis of the precision
and range of achievable tolerances, quality, price and the
ability to meet delivery schedules dictated by customers.
The Company also competes with a small number of other steel
strapping manufacturers on the basis of quality, price,
products, range of sizes offered and the ability to meet
delivery schedules dictated by customers.
The Company competes with numerous suppliers of building and
construction products in its market based on the broad range of
products offered, quality, price and delivery.
8
The Company competes with a small number of suppliers of heat
treating services in its market areas on the basis of processes
offered, quality, price, and delivery.
Employees
At December 31, 1999, the Company employed approximately 3,100
people, of which approximately 300 are represented by
collective bargaining agreements.
Backlog
Because of the nature of the Company's products and the short
lead time order cycle, backlog is not a significant factor in
the Company's business. The Company believes that
substantially all of its firm orders existing on December 31,
1999 will be shipped prior to the end of 2000.
Governmental Regulation
The Company's processing centers and manufacturing facilities
are subject to many federal, state and local requirements
relating to the protection of the environment. The Company
believes that it is in material compliance with all
environmental laws, does not anticipate any material
expenditures in order to meet environmental
requirements and does not believe that future compliance with
such laws and regulations will have a material adverse effect
on its results of operations or financial condition.
The Company's operations are also governed by many other laws
and regulations. The Company believes that it is in material
compliance with these laws and regulations and does not believe
that future compliance with such laws and regulations will have
a material adverse effect on its results of operations or
financial condition.
9
Item 2. Description of Properties
The Company maintains its corporate headquarters in Buffalo,
New York and conducts its business operations in facilities
located throughout the United States.
The Company believes that its primary existing facilities,
listed below, and their equipment are effectively utilized,
well maintained, in good condition and will be able to
accommodate its capacity needs through 2000.
Square Owned
Location Utilization Footage or Leased
Buffalo, New York Headquarters 23,000 Leased
Cheektowaga, New York Cold-rolled strip
steel processing and
strapping products 148,000 Owned
Tonawanda, New York Cold-rolled strip steel
and precision metals
processing 128,000 Owned
Cleveland, Ohio Cold-rolled strip steel
processing 259,000 Owned
Dearborn, Michigan Strapping tool products 3,000 Owned
Lackawanna, New York Materials management
facility 65,000 Leased
Woodhaven, Michigan Materials management
facility 100,000 Owned
Franklin Park, Illinois Precision metals
processing 99,000 Owned
Birmingham, Alabama Precision metals
processing 97,900 Leased
Chattanooga, Tennessee Precision metals
processing 65,000 Owned
Brownsville, Texas Distribution warehouse 15,000 Leased
Troy, Michigan Sales office 800 Leased
Fountain Inn,
S. Carolina Heat treating 77,400 Owned
Reidsville,
N. Carolina Heat treating 53,500 Owned
Arden, N. Carolina Heat treating 20,400 Leased
Charlotte, N. Carolina Administrative office 3,400 Leased
Morristown, Tennessee Heat treating 24,200 Owned
Conyers, Georgia Heat treating 18,700 Leased
Athens, Alabama Heat treating 20,000 Owned
Coldwater, Michigan Administrative office
and heat treating 89,000 Owned
Benton Harbor, Michigan Administrative office
and heat treating 56,700 Owned
Benton Harbor, Michigan Warehouse 25,000 Leased
Greensburg, Indiana Heat treating 30,000 Leased
South Bend, Indiana Heat treating 33,900 Owned
Rockford, Illinois Heat treating 15,600 Owned
Rockford, Illinois Heat treating 54,400 Owned
Northlake, Illinois Administrative office
and heat treating 200,000 Leased
Jacksonville, Florida Administrative office
and construction products
manufacturing 261,400 Leased
Miami, Florida Construction products
manufacturing 77,000 Leased
Tampa, Florida Construction products
manufacturing 50,000 Leased
Nashville, Tennessee Construction products
manufacturing 52,500 Leased
San Antonio, Texas Construction products
manufacturing 70,000 Leased
Houston, Texas Construction products
manufacturing 48,200 Leased
Vidalia, Georgia Warehouse 34,000 Leased
Taylorsville,
Mississippi Construction products
manufacturing 53,600 Owned
Taylorsville,
Mississippi Construction products
manufacturing 238,700 Owned
Port Gibson, Mississippi Warehouse 40,000 Leased
10
Enterprise, Mississippi Construction products
manufacturing 194,300 Owned
Appleton, Wisconsin Construction products
manufacturing 100,300 Owned
Appleton, Wisconsin Construction products
manufacturing 42,600 Owned
Joplin, Missouri Construction products
manufacturing 45,400 Owned
Montgomery, Minnesota Administrative office
and construction
products manufacturing 115,600 Owned
Montgomery, Minnesota Construction products
manufacturing 22,000 Leased
LeCenter, Minnesota Construction products
manufacturing 15,000 Leased
Livermore, California Construction products
manufacturing 103,500 Leased
Rancho Cucamonga,
California Warehouse 20,600 Leased
North Wilkesboro,
N. Carolina Construction products
manufacturing 23,500 Leased
Hainesport, New Jersey Warehouse 10,800 Leased
Denver, Colorado Administrative office and
construction products
manufacturing 90,000 Leased
Largo, Florida Administrative office and
construction products
manufacturing 100,000 Owned
Item 3. Legal Proceedings
From time to time, the Company is named a defendant in legal
actions arising out of the normal course of business. The
Company is not a party to any pending legal proceeding the
resolution of which the management of the Company believes will
have a material adverse effect on the Company's results of
operations or financial condition or to any other pending legal
proceedings other than ordinary, routine litigation incidental
to its business. The Company maintains liability insurance
against risks arising out of the normal course of business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
11
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
As of December 31, 1999, there were 137 shareholders of record
of the Company's common stock. However, the Company believes
that it has a significantly higher number of shareholders
because of the number of shares that are held by nominees.
The Company's common stock is traded in the over-the-counter
market and quoted on the National Association of Securities
Dealers Automated Quotation System - National Market System
("Nasdaq"). Its trading symbol is "ROCK". The following table
sets forth the high and low sales prices per share for the
Company's common stock for each quarter of 1999 and 1998:
1999 1998
High Low High Low
Fourth Quarter $ 26 $ 21 3/4 $ 22 7/8 $ 15
Third Quarter 25 3/4 20 1/8 23 14 3/8
Second Quarter 25 1/4 19 3/4 25 1/4 20 1/2
First Quarter 23 1/2 17 25 3/4 18 1/2
The Company declared dividends of $.05 per share in the first
quarter of 1999 and $.025 per share in each of the second,
third and fourth quarters of 1999. No dividends were declared
in 1998.
12
Item 6. Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,
1999 1998 1997 1996 1995
Net Sales $ 621,918 $ 557,944 $ 449,700 $ 342,974 $ 282,833
Income from
operations 55,469 44,455 32,603 30,617 20,368
Interest expense 13,439 11,389 5,115 3,827 3,984
Income before income
taxes 42,030 33,066 27,488 26,790 16,384
Income taxes 17,022 13,226 11,072 10,815 6,662
Net income 25,008 19,840 16,416 15,975 9,722
Net income per
share-Basic $ 1.99 $ 1.59 $ 1.33 $ 1.42 $ .96
Weighted average shares
outstanding-Basic 12,540 12,456 12,357 11,261 10,164
Net income per
share-Diluted $ 1.95 $ 1.57 $ 1.30 $ 1.39 $ .95
Weighted average shares
outstanding-Diluted 12,806 12,651 12,591 11,464 10,213
Cash dividends per
common share $ .125 $ - $ - $ - $ -
Current assets $ 182,591 $ 175,834 $ 130,746 $ 109,526 $ 86,995
Current liabilities 69,668 51,598 43,101 40,853 29,480
Total assets 522,080 438,435 281,336 222,507 167,423
Total debt 236,621 200,746 83,024 49,841 59,054
Shareholders' equity 185,459 160,308 140,044 121,744 70,244
Capital expenditures $ 21,999 $ 22,062 $ 21,784 $ 15,477 $ 14,504
Depreciation 14,613 11,221 7,475 5,581 4,196
Amortization 2,839 2,112 1,003 665 342
13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Year Ended 1999 Compared to Year Ended 1998
Net sales increased $64.0 million, or 11.5%, to a record
$621.9 million in 1999 from $557.9 million in 1998. This
increase primarily resulted from including the net sales
of Southeastern Heat Treating (acquired April 1, 1999),
Weather Guard (acquired July 1, 1999), Hi-Temp (acquired
August 1, 1999), Brazing Concepts (acquired November 1,
1999) and Hughes (acquired December 1, 1999) (the 1999
acquisitions) from their respective acquisition dates, and
a full year of net sales of Solar (acquired March 1,
1998), Appleton (acquired April 1, 1998), USP (acquired
June 1, 1998) and Harbor (acquired October 1, 1998) (the
1998 acquisitions), together with sales growth at existing
operations.
Cost of sales increased $37.5 million, or 8.2%, to $493.9
million in 1999 from $456.4 million in 1998. Cost of
sales as a percentage of net sales decreased to 79.4% in
1999 from 81.8% in 1998. This improvement was due to the
1999 and 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 increased
$15.5 million, or 27.1%, to $72.5 million in 1999 from
$57.0 in 1998. Selling, general and administrative
expenses as a percentage of net sales increased to 11.7%
in 1999 from 10.2% in 1998. This increase was due to
higher costs as a percentage of net sales attributable to
the 1999 and 1998 acquisitions, and due to performance
based compensation linked to the Company's sales and
profitability.
Interest expense increased by $2.0 million from 1998 to
1999 primarily due to higher borrowings in 1999 as a
result of the Company's current year acquisitions and
capital expenditures and due to a higher effective
interest rate in 1999 than in 1998.
As a result of the above, income before taxes increased
$9.0 million, or 27.1%, to a record $42.0 million in 1999
from $33.1 million in 1998.
Income taxes approximated $17.0 million in 1999, based on
a 40.5% effective rate compared with a 40.0% effective
rate in 1998.
Year Ended 1998 Compared to Year Ended 1997
Net sales increased $108.2 million, or 24%, to $557.9
million in 1998 from $449.7 million in 1997. This
increase primarily resulted from including the net sales
of Solar (acquired March 1, 1998), Appleton (acquired
April 1, 1998), USP (acquired June 1, 1998) and Harbor
(acquired October 1, 1998) (the 1998 acquisitions) from
their respective acquisition dates with the net sales of
the Company's existing operations, and from sales growth
at existing operations.
Cost of sales increased $80.9 million, or 22%, to $456.4
million in 1998 from $375.5 million in 1997. Cost of
sales as a percentage of net sales decreased to 81.8% in
1998 from 83.5% in 1997. This improvement was 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.
14
Selling, general and administrative expenses increased
$15.5 million, or 37%, to $57.0 million in 1998 from $41.6
million in 1997. Selling, general and administrative
expenses as a percentage of net sales increased to 10.2%
in 1998 from 9.2% in 1997. This increase was primarily
due to higher costs as a percentage of net sales due to
acquisitions and performance based compensation linked to
the Company's sales and profitability.
Interest expense increased by $6.3 million from 1997 to
1998 primarily due to higher average borrowings during
1998 as a result of current year acquisitions and capital
expenditures, partially offset by a decrease in interest
rates in the fourth quarter of 1998.
As a result of the above, income before taxes increased by
$5.6 million, or 20%, to $33.1 million in 1998 from $27.5
million in 1997.
Income taxes approximated $13.2 million in 1998, based on
a 40.0% effective rate compared with a 40.3% effective
rate in 1997.
Liquidity and Capital Resources
During 1999, the Company's working capital decreased to
$112.9 million due to an increase in accounts payable to
support higher sales levels and an increase in accrued
income taxes. Long-term debt increased by $35.9 million
to $235.3 million and to 56% of total capitalization at
December 31, 1999. Additionally, shareholders' equity
increased by 16% to $185.5 million.
The Company's principal capital requirements are to fund
its operations, including working capital requirements,
the purchase and funding of improvements to its property
and equipment, and to fund acquisitions.
The Company's primary sources of liquidity are from cash
provided by operating activities and the Company's
revolving credit facility. Net cash provided by
operations of $60.7 million resulted primarily from net
income of $25.0 million, depreciation and amortization of
$17.5 million, a decrease in inventory of $6.9 million,
exclusive of acquisitions, and an increase in accounts
payable and accrued expenses of $10.2 million.
During 1999, the Company amended its revolving credit
agreement with its bank group to increase the capacity of
its revolver to $280 million. Borrowings thereunder are
secured with its accounts receivable, inventories and
property and equipment. At December 31, 1999, the Company
had interest rate swap agreements outstanding which
effectively converted $75 million of borrowings under the
revolving credit agreement to fixed rates ranging from
6.37% to 7.08% and which terminate at different dates
beginning in November 2000. The Company accounts for
interest rate swap agreements on an accrual basis.
Additional borrowings under the revolving credit facility
carry interest at LIBOR plus a fixed rate. The weighted
average interest rate of these borrowings was 7.07% at
December 31, 1999.
Net cash provided by operations of $60.7 million combined
with net proceeds from long-term debt of $26.9 million
were primarily used for the acquisition of Southeastern
Heat Treating, Weather Guard, Hi-Temp, Brazing Concepts
and Hughes, and for capital expenditures.
15
The Company believes that availability under its credit
facility, together with funds generated from operations,
will be more than sufficient to provide the Company with
the liquidity and capital resources necessary to fund its
anticipated working capital requirements, acquisitions and
capital expenditure commitments for the next twelve
months.
The Company believes that environmental issues will not
require the expenditure of material amounts for
environmental compliance in the future.
Impact of Year 2000
The Year 2000 issue concerns the ability of computer
hardware and software to distinguish between the year
1900 and the year 2000. An inability to make this
distinction could result in computer application failure.
During 1999, the Company completed a detailed assessment
of all its information technology and non-information
technology hardware and software with regard to the Year
2000 issue, with special emphasis on mission critical
systems. Information and non-information technology
hardware and software were inventoried and those not Year
2000 ready were identified, remediated (i.e., corrected
or replaced) and tested to ensure that they would, in
fact, operate as desired according to Year 2000
requirements. The Company expensed approximately
$500,000 during 1999 in connection with remediating its
systems.
As a result of its Year 2000 readiness efforts, the
Company's mission critical information technology and non-
information technology systems successfully distinguished
between the year 1900 and the year 2000 on January 1,
2000, without any mission critical application failure.
However, the Company will continue to monitor its mission
critical computer applications throughout the year 2000
to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
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. FAS No. 133 will not have a
material impact on the Company's 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 matter; and changes in interest or tax
rates.
16
Company Responsibility For Financial Statements
The accompanying consolidated financial statements of
Gibraltar Steel Corporation have been prepared by
management, which is responsible for their integrity and
objectivity. The statements have been prepared in
conformity with generally accepted accounting principles
and include amounts based on management's best estimates
and judgments. Financial information elsewhere in this
Annual Report is consistent with that in the consolidated
financial statements.
The Company has established and maintains a system of
internal control designed to provide reasonable assurance
that assets are safeguarded and that the financial records
reflect the authorized transactions of the Company.
The financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants. As
part of their audit of the Company's 1999 financial
statements, PricewaterhouseCoopers LLP considered the
Company's system of internal control to the extent they
deemed necessary to determine the nature, timing and
extent of their audit tests.
The Board of Directors pursues its responsibility for the
Company's financial reporting through its Audit Committee,
which is composed entirely of outside directors. The
independent accountants have direct access to the Audit
Committee, with and without the presence of management
representatives, to discuss the results of their audit
work and their comments on the adequacy of internal
accounting controls and the quality of financial
reporting.
Brian J. Lipke
Chairman of the Board
and Chief Executive Officer
Walter T. Erazmus
President
John E. Flint
Vice President
and Chief Financial Officer
17
Item 8. Financial Statements and Supplementary Data
Page
Number
Index to Financial Statements:
Financial Statements:
Report of Independent Accountants 19
Consolidated Balance Sheet at December 31,
1999 and 1998 20
Consolidated Statement of Income for the
three years ended December 31, 1999 21
Consolidated Statement of Cash Flows for
the three years ended December 31, 1999 22
Consolidated Statement of Shareholders'
Equity for the three years ended
December 31, 1999 23
Notes to Consolidated Financial Statements 24
Supplementary Data:
Quarterly Unaudited Financial Data 33
18
Report of Independent Accountants
To the Board of Directors and
Shareholders of Gibraltar Steel Corporation
In our opinion, the consolidated financial statements
listed in the accompanying index present fairly, in
all material respects, the financial position of
Gibraltar Steel Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three
years in the period ended December 31, 1999, in
conformity with accounting principles generally
accepted in the United States. These financial
statements are the responsibility of the Company's
management; our responsibility is to express an
opinion on these financial statements based on our
audits. We conducted our audits of these statements
in accordance with auditing standards generally
accepted in the United States, which require that we
plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements,
assessing the accounting principles used and
significant estimates made by management, and
evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Buffalo, New York
January 21, 2000
19
GIBRALTAR STEEL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
December 31,
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 4,687 $ 1,877
Accounts receivable 78,418 71,070
Inventories 94,994 99,351
Other current assets 4,492 3,536
Total current assets 182,591 175,834
Property, plant and equipment, net 216,030 176,221
Goodwill 115,350 79,971
Other assets 8,109 6,409
$ 522,080 $ 438,435
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,857 $ 38,601
Accrued expenses 19,492 11,646
Current maturities of long-
term debt 1,319 1,351
Total current liabilities 69,668 51,598
Long-term debt 235,302 199,395
Deferred income taxes 29,328 25,289
Other non-current liabilities 2,323 1,845
Shareholders' equity
Preferred shares, $.01 par value;
authorized: 10,000,000 shares;
none outstanding - -
Common shares, $.01 par value;
authorized: 50,000,000 shares;
issued and outstanding:
12,577,464 shares in 1999
and 12,484,418 shares in 1998 126 125
Additional paid-in capital 68,323 66,613
Retained earnings 117,010 93,570
Total shareholders' equity 185,459 160,308
$ 522,080 $ 438,435
The accompanying notes are an integral part of these financial statements.
20
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Year Ended December 31,
1999 1998 1997
Net sales $ 621,918 $ 557,944 $ 449,700
Cost of sales 493,945 456,449 375,537
Gross profit 127,973 101,495 74,163
Selling, general and
administrative expense 72,504 57,040 41,560
Income from operations 55,469 44,455 32,603
Interest expense 13,439 11,389 5,115
Income before taxes 42,030 33,066 27,488
Provision for income taxes 17,022 13,226 11,072
Net income $ 25,008 $ 19,840 $ 16,416
Net income per share - Basic $ 1.99 $ 1.59 $ 1.33
Weighted average shares 12,540 12,456 12,357
outstanding - Basic
Net income per share - Diluted $ 1.95 $ 1.57 $ 1.30
Weighted average shares 12,806 12,651 12,591
outstanding - Diluted
The accompanying notes are an integral part of these financial statements.
21
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 25,008 $ 19,840 $ 16,416
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 17,452 13,333 8,478
Provision for deferred income taxes 2,383 1,693 2,227
Undistributed equity
investment income (466) (284) (444)
Other noncash adjustments 697 304 239
Increase (decrease) in cash
resulting from changes in (net
of effects from acquisitions):
Accounts receivable (118) (5,363) (176)
Inventories 6,873 (6,309) 1,607
Other current assets (272) (1,430) (726)
Accounts payable and
accrued expenses 10,242 (7,572) (2,597)
Other assets (1,130) (899) (289)
Net cash provided by
operating activities 60,669 13,313 24,735
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (65,380) (99,415) (26,475)
Investments in property, plant
and equipment (21,999) (22,062) (21,784) )
Net proceeds from sale of
property and equipment 2,838 187 1,050
Net cash used in investing
activities (84,541) (121,290) (47,209)
CASH FLOWS FROM FINANCING
ACTIVITIES
Long-term debt reduction (67,160) (61,508) (79,962)
Proceeds from long-term debt 94,081 168,825 98,417
Net proceeds from issuance of
common stock 1,014 100 911
Payment of dividends (1,253) - -
Net cash provided by
financing activities 26,682 107,417 19,366
Net increase (decrease) in cash
and cash equivalents 2,810 (560) (3,108)
Cash and cash equivalents at
beginning of year 1,877 2,437 5,545
Cash and cash equivalents at end
of year $ 4,687 $ 1,877 $ 2,437
The accompanying notes are an integral part of these financial statements.
22
GIBRALTAR STEEL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings
Balance at December 31, 1996 12,322 $ 123 $ 64,307 $ 57,314
Net income - - - 16,416
Stock options exercised
and tax benefit 73 1 1,562 -
Stock awards 4 - 82 -
Profit sharing plan
contribution 11 - 239 -
Balance at December 31, 1997 12,410 124 66,190 73,730
Net income - - - 19,840
Stock options exercised
and tax benefit 8 - 119 -
Restricted stock granted 55 1 - -
Earned portion of
restricted stock - - 87 -
Profit sharing plan
contribution 11 - 217 -
Balance at December 31, 1998 12,484 125 66,613 93,570
Net income - - - 25,008
Stock options exercised
and tax benefit 72 1 1,124 -
Cash dividend -
$.125 per share - - - (1,568)
Earned portion of
restricted stock - - 116 -
Profit sharing plan
contributions 21 - 470 -
Balance at December 31, 1999 12,577 $ 126 $ 68,323 $ 117,010
The accompanying notes are an integral part of these financial statements.
23
GIBRALTAR STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of Gibraltar Steel Corporation and subsidiaries (the
Company). Significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, checking
accounts and all highly liquid investments with a maturity
of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost
is determined using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and
depreciated over their estimated useful lives using the
straight-line method. Accelerated methods are used for
income tax purposes. Interest is capitalized in connection
with construction of qualified assets. Under this policy,
interest of $357,000, $404,000 and $963,000 was capitalized
in 1999, 1998 and 1997, respectively.
Goodwill
Goodwill is amortized over 35 years. Amortization expense
was $2,647,000, $1,949,000 and $880,000 in 1999, 1998, and
1997, respectively. Accumulated amortization was $6,251,000
and $3,604,000 at December 31, 1999 and 1998.
Shareholders' Equity
In 1999, 1998 and 1997, the Company issued 20,572, 11,000
and 11,000, respectively, of its common shares as
contributions to its profit sharing plans.
During 1999, the Company declared dividends of $1,568,000,
of which $315,000 is accrued at December 31, 1999.
24
Interest Rate Exchange Agreements
Interest rate swap agreements, which are used by the Company in
the management of interest rate risk, are accounted for on an
accrual basis. Amounts to be paid or received under interest
rate swap agreements are recognized as interest expense or
income in the periods in which they accrue. Swaps are not used
for trading purposes.
Income Taxes
The financial statements of the Company have been prepared
using the asset and liability approach in accounting for
income taxes which requires the recognition of deferred tax
assets and liabilities for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of other assets and liabilities.
Earnings Per Share
Basic net income per share equals net income divided by the
weighted average shares outstanding during the year. The
computation of diluted net income per share includes all
dilutive common stock equivalents in the weighted average
shares outstanding.
2. ACQUISITIONS
On December 1, 1999, the Company purchased all the
outstanding capital stock of Hughes Manufacturing, Inc.
(Hughes) for approximately $11.5 million in cash. Hughes
manufactures a broad line of fully engineered, code-approved
steel lumber connectors and other metal hardware products.
On November 1, 1999, the Company purchased all the
outstanding capital stock of Brazing Concepts Company
(Brazing Concepts) for approximately $25 million in cash.
Brazing Concepts provides a wide variety of value-added
brazing (i.e., metal joining), assembly and other
metallurgical heat treating services on customer-owned
materials.
On August 1, 1999, the Company purchased the assets and
business of Hi-Temp Incorporated (Hi-Temp) for approximately
$24 million in cash. Hi-Temp 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 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. Weather Guard manufactures a full line of
metal building products, including rain-carrying systems,
metal roofing and roofing accessories, for industrial,
commercial and residential applications.
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 is a metallurgical heat treating service
provider.
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 steel lumber connector
products for the building construction market.
25
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.
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, manufactured primarily with galvanized steel.
These acquisitions have been accounted for under the
purchase method with the results of their operations
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)
Year Ended December 31,
1999 1998
(unaudited)
Net sales $ 664,162 $ 651,224
======== =======
Income before taxes $ 43,524 $ 35,531
====== ======
Net income $ 25,834 $ 20,772
====== ======
Net income per share - Basic $ 2.06 $ 1.67
====== ======
3. ACCOUNTS RECEIVABLE
Accounts receivable are expected to be collected within one
year and are net of reserves for doubtful accounts of
$1,511,000 and $1,230,000 at December 31, 1999 and 1998,
respectively.
4. INVENTORIES
Inventories at December 31 consist of the following:
(in thousands)
1999 1998
Raw material $ 59,899 $ 60,665
Finished goods and work-in-process 35,095 38,686
Total inventories $ 94,994 $ 99,351
====== ======
26
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost less accumulated
depreciation, at December 31 consists of the following:
(in thousands)
1999 1998
Land and land improvements $ 6,961 $ 5,290
Building and improvements 54,782 48,506
Machinery and equipment 204,012 160,633
Construction in progress 8,758 8,730
274,513 223,159
Less accumulated depreciation
and amortization 58,483 46,938
Property, plant and
equipment, net $216,030 $176,221
======= =======
6. OTHER ASSETS
Other assets at December 31 consist of the following:
(in thousands)
1999 1998
Equity interest in partnership $ 4,485 $ 4,020
Other 3,624 2,389
Total other assets $ 8,109 $ 6,409
====== ======
The Company's 31% partnership interest is accounted for
using the equity method of accounting. The partnership
provides a steel cleaning process called pickling to steel
mills and steel processors, including the Company.
7. DEBT
Long-term debt at December 31 consists of the following:
(in thousands)
1999 1998
Revolving credit notes payable $228,128 $196,047
Industrial Development Revenue Bonds 6,362 3,905
Note payable 1,529 -
Other debt 602 794
236,621 200,746
Less current maturities 1,319 1,351
Total long-term debt $235,302 $199,395
======== ========
27
In 1999, the Company amended its debt agreement increasing
its revolving credit facility to $280,000,000. The facility
is secured by the Company's accounts receivable,
inventories, and property and equipment and is committed
through April 2003. This facility has various interest rate
options which are no greater than the bank's prime rate. In
addition, the Company may enter into interest rate exchange
agreements (swaps) to manage interest costs and exposure to
changing interest rates. At December 31, 1999 the Company
had interest rate swap agreements outstanding which
effectively converted $75,000,000 of floating rate debt to
fixed rates ranging from 6.37% to 7.08% and which terminate
at different dates beginning November 2000. At December 31,
1999, additional borrowings consisted of $153,128,000 with
an interest rate of LIBOR plus a fixed rate. The weighted
average interest rate of these borrowings was 7.07% at
December 31, 1999.
In addition, the Company has Industrial Development Revenue
Bonds payable in installments through September 2018, with
interest rates ranging from a fixed rate of 4.22% to
variable rates of up to 7.10% at December 31, 1999, which
financed the cost of its Tennessee expansion and the
expansion of the Coldwater, Michigan facility, both under
capital lease agreements. The cost of the facilities and
equipment equal the amount of the bonds and include
accumulated amortization of $1,648,000. The agreements
provide for the purchase of the facilities and equipment at
any time during the lease terms at scheduled amounts or at
the end of the leases for nominal amounts.
The aggregate maturities on long-term debt including lease
purchase obligations for the five years following December
31, 1999 are as follows: 2000, $1,319,000; 2001, $1,469,000;
2002, $1,289,000; 2003, $228,752,000; and 2004, $629,000.
The Company had no amounts outstanding under short-term
borrowing for the years ended December 31, 1999 and 1998.
The various loan agreements, which do not require
compensating balances, contain provisions that limit
additional borrowings and require maintenance of minimum net
worth and financial ratios. The Company is in compliance
with the terms and provisions of all its financing
agreements.
Total cash paid for interest in the years ended December 31,
1999, 1998 and 1997 was $13,357,000, $11,257,000 and
$6,155,000, respectively.
8. LEASES
The Company leases certain facilities and equipment under
operating leases. Rent expense under operating leases for
the years ended December 31, 1999, 1998 and 1997 was
$4,899,000, $3,554,000 and $3,771,000, respectively. Future
minimum lease payments under these operating leases are
$4,514,000, $3,979,000, $3,108,000, $2,615,000 and
$1,758,000 for the years 2000, 2001, 2002, 2003 and 2004,
respectively, and $6,985,000 thereafter through 2038.
9. EMPLOYEE RETIREMENT PLANS
Non-union employees participate in various profit sharing
plans. Contributions to these plans are funded annually and
are based on a percentage of pretax income or amounts
determined by the Board of Directors.
Certain subsidiaries have multi-employer non-contributory
retirement plans providing for defined contributions to
union retirement funds.
A supplemental pension plan provides defined pension
benefits to certain salaried employees upon retirement. Net
unfunded periodic pension costs of $199,000 and $166,000
were accrued under this plan in 1999 and 1998, respectively,
and consisted primarily of service cost using a discount
rate of 8.0% and 6.5%, respectively.
28
Total expense for all retirement plans was $1,957,000,
$1,774,000 and $1,258,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
During 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 132
Employers' Disclosures about Pensions and other Post-
Retirement Benefits (FAS No. 132). Adoption of FAS No. 132
did not effect the Company's results of operations or
financial position.
10. OTHER POST-RETIREMENT BENEFITS
Certain subsidiaries of the Company provide health and life
insurance to substantially all of their employees and to a
number of retirees and their spouses. The net periodic post-
retirement benefit cost charged to expense consisting of
service cost, interest cost and amortization of transition
obligations was $291,000, $255,000 and $223,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
The approximate unfunded accumulated post-retirement benefit
obligation at December 31, consists of the following (in
thousands):
Benefit Obligation Service Interest Actuarial Benefit Benefit Obligation
at January 1 Cost Cost (Gain)/Loss Payments at December 31
1999 $2,105 90 135 (445) (41) $1,844
1998 $1,808 76 125 152 (56) $2,105
The accumulated post-retirement benefit obligation was
determined using a weighted average discount rate of 8.0% in
1999 and 6.5% in 1998. The medical inflation rate was
assumed to be 7% in 1999 and to decrease to 5% in 2000 and
thereafter. The effect of a 1% increase or decrease in the
annual medical inflation rate would increase or decrease the
accumulated post-retirement benefit obligation at December
31, 1999 by approximately $320,000 and $271,000,
respectively, and increase or decrease the annual service
and interest costs by approximately $40,000.
One of the Company's subsidiaries also provides post-
retirement health care benefits to its unionized employees
through contributions to a multi-employer health care plan.
11. INCOME TAXES
The provision for income taxes consists of the following:
(in thousands)
1999 1998 1997
Current tax expense
Federal $ 12,332 $ 9,749 $ 7,514
State 2,307 1,784 1,331
Total current 14,639 11,533 8,845
Deferred tax expense
Federal 2,040 1,628 2,036
State 343 65 191
Total deferred 2,383 1,693 2,227
Total provision $ 17,022 $ 13,226 $ 11,072
====== ====== ======
29
Deferred tax liabilities (assets) at December 31, consist of
the following:
(in thousands)
1999 1998
Depreciation $ 29,460 $ 25,088
Goodwill 1,770 916
Inventory method change 740 1,344
Other 945 1,095
Gross deferred tax liabilities 32,915 28,443
State taxes (1,382) (1,062)
Other (4,999) (3,849)
Gross deferred tax assets (6,381) (4,911)
Net deferred tax liabilities $ 26,534 $ 23,532
====== ======
The provision for income taxes differs from the amount of
income tax determined by applying the applicable U.S.
statutory federal income tax rate to income before taxes as
a result of the following differences:
(in thousands)
1999 1998 1997
Statutory U.S. tax rates $ 14,711 $ 11,573 $ 9,621
Increase in rates resulting from:
State and local taxes, net 1,723 1,202 989
Other 588 451 462
$17,022 $13,226 $ 11,072
====== ====== ======
Cash paid for income taxes, net of tax refunds, in the years
ended December 31, 1999, 1998 and 1997 was $11,857,000,
$9,180,000 and $9,100,000, respectively.
12. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 Earnings
Per Share requires dual presentation of basic and diluted
earnings per share on the face of the income statement. The
reconciliation between the computations is as follows:
Basic Diluted Diluted
Income Shares Basic EPS Shares EPS
1999 $25,008,000 12,540,105 $1.99 12,806,338 $1.95
1998 $19,840,000 12,455,554 $1.59 12,651,119 $1.57
1997 $16,416,000 12,357,186 $1.33 12,591,019 $1.30
Included in diluted shares are common stock equivalents of
266,233, 195,565, and 233,833 relating to options for the
years ended December 31, 1999, 1998 and 1997, respectively.
30
13. STOCK OPTIONS
The Company may grant non-qualified stock options to
officers, employees, non-employee directors and advisers at
an exercise price equal to 100% of market price, and
incentive stock options to officers and other key employees
at an exercise price not less than 100% of market price, up
to an aggregate of 400,000 and 850,000 shares, respectively.
The options may be exercised over a four year period from
the grant date and expire ten years after the date of grant.
The following table summarizes information about stock
option transactions:
Options Weighted Average Options Weighted Average
Outstanding Exercise Price Exercisable Exercise Price
Balance at
January 1, 1997 556,250 $12.63 201,875 $10.80
Granted 220,450 21.75
Exercised (72,219) 11.49
Cancelled (11,250) 10.75
Balance at
December 31, 1997 693,231 $15.68 282,781 $11.55
Granted 336,650 17.36
Exercised (8,749) 11.12
Cancelled (24,502) 17.48
Balance at
December 31, 1998 996,630 $16.24 406,993 $13.30
Granted 10,000 20.56
Exercised (72,474) 13.99
Cancelled (11,450) 18.54
Balance at
December 31, 1999 922,706 $16.44 528,819 $14.88
=======
The Company realized tax benefits of $111,000 and $20,000 in
the years ended December 31, 1999 and 1998, respectively,
associated with the exercise of certain stock options which
have been credited to additional paid-in-capital.
Options outstanding at December 31, 1999 consisted of:
Weighted Weighted
Range of Weighted Average Average Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Contractual Life Price Exercisable Price
$10 - $11 258,752 4.3 years $10.77 258,752 $10.77
$15.63 - $22.50 663,954 7.9 years $18.65 270,067 $18.81
922,706 6.9 years $16.44 528,819 $14.88
======= =======
31
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation (FAS No. 123).
Accordingly, no compensation cost has been recognized for
the option plans as stock options granted under these plans
have an exercise price equal to 100% of the market price on
the date of grant. If the compensation cost for these plans
had been determined based on the fair value at the grant
dates for awards consistent with the method of FAS No. 123,
the unaudited pro forma effect on the years ended December
31, 1999 and 1998 is as follows:
As Reported Pro forma As Reported Pro forma
1999 1999 1998 1998
Net Income $25,008,000 $23,566,000 $19,840,000 $18,976,000
Net Income per
Share-Basic $1.99 $1.88 $1.59 $1.52
The Black-Scholes option-pricing model was used to estimate
the fair value of the options granted on the date of grant.
The fair values and assumptions used in the model, assuming
no dividends, are as follows:
Expected Stock Risk-Free Dividend
Fair Value Life Volatility Interest Rate Yield
1999 Grant $9.18 5 years 45.1% 4.4% .2%
1998 Grant $7.74 5 years 43.7% 4.4% -
1997 Grant $9.77 5 years 40.2% 6.1% -
The Company also has a Restricted Stock Plan reserved for
issuance of 100,000 common shares for the grant of
restricted stock awards to employees and non-employee
directors at a purchase price of $.01 per share. In 1997,
4,000 shares were awarded to non-employee directors under
this plan and in 1998, 55,000 shares were awarded to
employees.
14. COMMITMENTS AND CONTINGENCIES
The Company is a party to certain claims and legal actions
generally incidental to its business. Management does not
believe that the outcome of these actions, which is not
clearly determinable at the present time, would
significantly affect the Company's financial condition or
results of operations.
32
QUARTERLY UNAUDITED FINANCIAL DATA
(in thousands, except per share data)
1999 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
Net Sales $143,804 $160,241 $162,909 $154,964 $621,918
Gross Profit 28,418 33,001 34,245 32,309 127,973
Income From
Operations 11,683 15,353 15,426 13,007 55,469
Net Income 4,977 7,288 7,205 5,538 25,008
Net Income
Per Share-Basic $ .40 $ .58 $ .57 $ .44 $ 1.99
Net Income
Per Share-Diluted $ .39 $ .57 $ .56 $ .43 $ 1.95
1998 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Total
Net Sales $116,383 $144,882 $152,628 $144,051 $557,944
Gross Profit 20,160 26,893 27,691 26,751 101,495
Income From
Operations 8,474 12,330 11,914 11,737 44,455
Net Income 4,121 5,751 5,146 4,822 19,840
Net Income
Per Share-Basic $ .33 $ .46 $ .41 $ .39 $ 1.59
Net Income
Per Share-Diluted $ .33 $ .45 $ .41 $ .38 $ 1.57
33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the
Company is incorporated herein by reference to the information
included in the Company's definitive proxy statement which will
be filed with the Commission within 120 days after the end of
the Company's 1999 fiscal year.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated
herein by reference to the information included in the
Company's definitive proxy statement which will be filed with
the Commission within 120 days after the end of the Company's
1999 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to
the information included in the Company's definitive proxy
statement which will be filed with the Commission within 120
days after the end of the Company's 1999 fiscal year.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions is incorporated herein by reference to the
information included in the Company's definitive proxy
statement which will be filed with the Commission within 120
days after the end of the company's 1999 fiscal year.
34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K Page Number
(a) (1) Financial Statements:
Report of Independent Accountants 19
Consolidated Balance Sheet at December 31, 1999 and
1998 20
Consolidated Statement of Income for the three
years ended December 31, 1999 21
Consolidated Statement of Cash Flows for the three
years ended December 31, 1999 22
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1999 23
Notes to Consolidated Financial Statements 24
(2) Supplementary Data
Quarterly Unaudited Financial Data 33
(3) Exhibits
The exhibits to this Annual Report on Form 10-K
included herein are set forth on the
attached Exhibit Index beginning on page 37.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the three month period ended
December 31, 1999.
35
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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
By /s/Brian J. Lipke
Brian J. Lipke
Chief Executive Officer
and Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
/s/ Brian J. Lipke Chief Executive Officer January 31, 2000
Brian J. Lipke and Chairman of the Board
(principal executive officer)
/s/ Walter T. Erazmus President January 31, 2000
Walter T. Erazmus
/s/ John E. Flint Vice President and January 31, 2000
John E. FLint Chief Financial Officer
(principal financial and
accounting officer)
/s/ Neil E. Lipke Director January 31, 2000
Neil E. Lipke
/s/ Gerald S. Lippes Director January 31, 2000
Gerald S. Lippes
/s/ Arthur A. Russ, Jr. Director January 31, 2000
Arthur A. Russ, Jr.
/s/ David N. Campbell Directr January 31, 2000
David N. Campbell
/s/ William P. Montague Director January 31, 2000
William P. Montague
36
Exhibit Index
Exhibit Sequentially
Number Exhibit Numbered Page
3.1 Certificate of Incorporation of Registrant
(incorporated by
reference to the same exhibit number to the Company's
Registration Statement on Form S-1 (Registration
No. 33-69304))
3.2 Amended and Restated By-Laws of the Registrant effective
August 11, 1998 (incorporated by reference to Exhibit 3(ii)
to the Company's Quarterly Report on Form 10-Q forthe
quarter ended September 30, 1998)
4.1 Specimen Common Share Certificate (incorporated by
reference to the same exhibit number to the Company's
Registration Statement on Form S-1 (Registration
No. 33-69304))
10.1 Partnership Agreement of Samuel Pickling Management
Company dated June 1, 1988 between Cleveland Pickling, Inc.
and Samuel Manu-Tech, Inc. (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.2 Partnership Agreement dated May 1988 among Samuel
Pickling Management Company, Universal Steel Co.
and Ruscon Steel Corp., creating Samuel Steel
Pickling Company, a general partnership
(incorporated by reference to Exhibit 10.8
to the Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.3 Bond Purchase Agreement dated June 16, 1994 among
the Industrial Development Board of the County
of Hamilton, Tennessee, Fleet Bank of New York and
Gibraltar Steel of Tennessee (incorporated by
reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration
No. 333-03979))
10.4 Lease dated September 1, 1990 between Erie County
Industrial Development Agency and
Integrated Technologies International, Ltd.
(incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.5 Lease dated June 4, 1993 between Buffalo Crushed
Stone, Inc. and Gibraltar Steel Corporation
(incorporated by reference to
Exhibit 10.14 to the Company's Registration Statement
on Form S-1(Registration No. 33-69304))
37
Exhibit Sequentially
Number Exhibit Numbered Page
10.6* Employment Agreement dated as of July 9, 1998 between
the Registrant and Brian J. Lipke (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)
10.7 Gibraltar Steel Corporation Executive Incentive Bonus
Plan (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.8 Agreement dated June 29, 1992 for Adoption by
Gibraltar Steel Corporation of Chase Lincoln
First Bank, N.A. (now Chase Manhattan
Bank, N.A.) Non-Standardized Prototype 401(k)
Retirement Savings Plan (incorporated by
reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1(Registration No.
33-69304))
10.9* Gibraltar Steel Corporation Incentive Stock Option
Plan, Fourth Amendment and Restatement
(incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999)
10.10* Gibraltar Steel Corporation Restricted Stock Plan
(incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.11* Gibraltar Steel Corporation Restricted Stock Plan,
First Amendment and Restatement (incorporated by
reference to Exhibit 10.13 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997)
10.12* Gibraltar Steel Corporation Non-Qualified Stock
Option Plan (incorporated by reference to
Exhibit 10.20 to the Company's
Registration Statement on Form S-1
(Registration No. 33-69304))
10.13* Gibraltar Steel Corporation Non-Qualified
Stock Option Plan, First Amendment and Restatement
(incorporated by reference to Exhibit 10.17 to
the Company's Registration Statement on
Form S-1 (Registration No. 333-03979))
10.14* Gibraltar Steel Corporation Profit Sharing Plan dated
August 1, 1984, as Amended April 14, 1986 and May 1,
1987 (incorporated by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1
(Registration No. 33-69304))
10.15* Changed in Control Agreement dated July 9, 1998
between Registrant and Brian J. Lipke (incorporated
by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998)
38
Exhibit Sequentially
Number Exhibit Numbered Page
10.16* Form of Change in Control Agreement dated July 9,
1998 between Registrant and each of Neil E. Lipke,
Eric R. Lipke, Walter T. Erazmus, Joseph A. Rosenecker,
Carl P. Spezio and Andrew S. Tsakos (incorporated
by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
10.17 Second Amended and Restated Credit Agreement dated
August 16, 1999 among Gibraltar Steel Corporation,
Gibraltar Steel Corporation of New York,
Chase Manhattan Bank, N.A., as Administrative
Agent, and various financial institutions that
are signatories thereto 40
10.18 First Amendment, dated November 1, 1999, to the
Second Amended and Restated Credit Agreement dated
August 16, 1999 among Gibraltar Steel Corporation,
Gibraltar Steel Corporation of New York,
Chase Manhattan Bank, N.A., as Administrative Agent,
and various financial institutions that are
signatories thereto 117
10.19 Second Amendment, dated December 1, 1999, to the
Second Amended and Restated Credit Agreement
dated August 16, 1999 among Gibraltar Steel
Corporation, Gibraltar Steel Corporation of New York,
Chase Manhattan Bank, N.A., as Administrative Agent,
and various financial institutions that are
signatories thereto 125
10.20 First Amendment, dated May 28, 1999, to the Partnership
Agreement dated May 1988 among Samuel Pickling
Management Company, Universal Steel Co., and Ruscon Steel
Corp., creating Samuel Steel Pickling Company, a
general partnership 130
10.21* Gibraltar Steel Corporation 401(k) Plan (incorporated
by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 33-87034))
10.22* First Amendment, dated January 20, 1995, to Gibraltar
Steel Corporation 40l(k) Plan (incorporated by
reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994)
21 Subsidiaries of the Registrant 133
27 Financial Data Schedule
________________________________
* Document is a management contract or compensatory
plan or arrangement
39