GIBRALTAR INDUSTRIES, INC.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For The Fiscal Year Ended December 31, 2009 | ||
|
OR
|
||
|
o
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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 INDUSTRIES,
INC.
(Exact name of Registrant as
specified in its charter)
|
Delaware
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16-1445150 | |
|
(State or other jurisdiction
of incorporation organization) |
(I.R.S. Employer
Identification No.) |
|
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3556 Lake Shore Road, P.O. Box 2028, Buffalo, New
York
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14219-0228 | |
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(address of principal executive
offices)
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(zip code) |
Registrant’s telephone number, including area code:
(716) 826-6500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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|
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Common Stock, $0.01 par value
|
NASDAQ Stock Exchange Global Select Market ® |
Securities registered pursuant to Section 12(g) of the
Act:
None
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes
o
No
þ
.
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes
o
No
þ
.
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
þ
No
o
.
Indicate by checkmark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
o
No
o
.
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.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes
o
No
þ
.
The aggregate market value of the Common Stock outstanding held
by non-affiliates computed by reference to the price the Common
Stock was last sold on the NASDAQ Stock Exchange Global Select
Market
®
on June 30, 2009, the last business day of the
registrant’s most recently completed second quarter, was
approximately $170.7 million.
As of February 22, 2010, the number of common shares
outstanding was: 30,238,310.
DOCUMENTS
INCORPORATED BY REFERENCE
The information required to be furnished pursuant to
Part III of this Annual Report on
Form 10-K
will be set forth in, and is incorporated by reference to, the
registrant’s Definitive Proxy Statement for the Annual
Meeting of Stockholders (2009 Proxy Statement), which will be
filed no later than 120 days after the end of the
registrant’s 2009 fiscal year.
Exhibit Index
begins on Page 96
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). Certain information set forth herein,
other than historical statements, contains forward-looking
statements within the meaning of the Act that are based, in
whole or in part, on current expectations, estimates, forecasts,
and projections about the Company’s business, and
management’s beliefs about future operations, results, and
financial position. These statements are not guarantees of
future performance and are subject to a number of risk factors,
uncertainties, and assumptions. Risk factors that could affect
these statements include, but are not limited to, the following:
the availability of raw materials and the effects of changing
raw material prices on the Company’s results of operations;
energy prices and usage; changing demand for the Company’s
products and services; changes in the liquidity of the capital
and credit markets; risks associated with the integration of
acquisitions; and changes in interest or tax rates. In addition,
such forward-looking statements could also be affected by
general industry and market conditions, as well as general
economic and political conditions. The Company undertakes no
obligation to update any forward-looking statements, whether as
a result of new information, future events or otherwise, except
as may be required by applicable law or regulation.
2
Table of Contents
| Item 1. | Business |
General
In 2009 and prior years, we have been a leading manufacturer,
processor, and distributor of residential and commercial
building products and processed metal products for the building
and construction, industrial, and automotive markets. Our
building products are used by homeowners and builders to provide
structural and architectural enhancements for residential and
commercial building projects. Our processed metal products are
comprised primarily of steel shaped to specific widths and
hardened to certain tolerances as required by our customers. We
serve customers in a variety of industries in all 50 states
and throughout the world. As of December 31, 2009, we
operated 53 facilities in 23 states, Canada, England,
Germany, and Poland, giving us a broad platform for
just-in-time
delivery and support to our customers.
Subsequent to year-end, we disposed of the majority of the
assets of our Processed Metal Products segment. See the
discussion of this disposition below under the heading
“Recent Developments”. As a result of this
disposition, the Company will no longer report results of the
Processed Metal Products segment beginning in 2010. Unless the
context otherwise requires, all information herein regarding the
Processed Metal Products segment is as of December 31, 2009.
Our strategy is to position Gibraltar as the low-cost provider
and market share leader in niche product areas that offer the
opportunity for margin enhancement and sales growth over the
long-term. We focus on operational excellence including lean
initiatives throughout the Company to position Gibraltar as our
customer’s low-cost provider of products. We also strive to
develop new products, enter new markets, and better penetrate
existing markets to strengthen our niche product leadership
positions. In 2009, Gibraltar reported two business segments:
Building Products and Processed Metal Products.
Our Building Products segment focuses on expanding market share
in the residential markets, further penetrating domestic and
international commercial building, industrial, and architectural
markets, participating as a buyer in our industry consolidation,
and improving its productivity and efficiency through both
operational excellence and facility consolidation. The majority
of the products offered by the Building Products segment have a
leading market share in niche markets. Our Building Products
segment distributes its products to customers in North America
and Europe by operating 48 facilities in 21 states, Canada,
England, Germany, and Poland.
Our Processed Metal Products segment focuses on increasing
penetration with domestic automotive manufacturers, expanding
international market opportunities, serving the global shift
toward automatic transmissions which require more components
manufactured using products offered by our business, and
increasing its productivity and efficiency through operational
excellence. The Processed Metal Products segment is a supplier
to “Blue Chip” customers in North America, which are
served from the segment’s four facilities operating in four
states.
The following table sets forth the selected products, industries
served and customers for each segment:
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Building Products
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Processed Metal Products
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Selected Products
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• Ventilation Products
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• Cold-Rolled Strip Steel for: | ||
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• Mailboxes
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• Clutch Plates
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• Gutter Protection
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• Weather Stripping
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• Structural Connectors
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• Tools
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• Bar Grating
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• Coinage
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• Expanded Metal
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• Metal Building Accessories
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Selected Markets Served
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• Home Improvement
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• Automotive | ||
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• Residential, Commercial,
and Industrial Construction |
• Power and Hand Tool
Hardware Coinage |
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• Building Materials
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• Architectural
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3
Table of Contents
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Building Products
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Processed Metal Products
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|||
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Selected Customers
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• The Home Depot
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• Ford Motor Company | ||
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• Lowe’s Companies
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• Honda | |||
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• Menard Cashway Lumber
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• General Motors | |||
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• U.S. Postal Service
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• Chrysler |
Note 19 of the Company’s consolidated financial
statements included in Item 8 of this Annual Report on
Form 10-K
provides information related to the Company’s business
segments in accordance with accounting principles generally
accepted in the United States of America.
Recent
Developments
Throughout 2008 and intensifying during 2009, prolonged
financial market and economic turmoil impacting the United
States and the rest of the world caused a significant downturn
in the key markets we serve, building and construction,
industrial, and automotive. During the past two years, continued
illiquidity in the financial markets contributed to the
significant downturn in key markets we serve. The United States
Government offered incentive programs during 2009 to increase
consumer spending in these markets, including the new home buyer
and cash for clunker programs. However, as shown below, the
residential construction and automotive markets in North America
continued to experience significant declines in volume:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
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Residential Housing Starts
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0.6 million | 0.9 million | 1.3 million | |||||||||
|
Light Vehicle Sales
|
10.3 million | 13.2 million | 16.1 million | |||||||||
The decrease in residential housing starts and light vehicle
sales had a significant impact on the operations of our Building
Products and Processed Metal Products segments, respectively, by
contributing to decreased sales volumes in each segment.
Additionally, commodity raw material prices for materials such
as steel, aluminum, and resins, have fluctuated significantly
during the past two years. These raw material prices impact the
cost of raw materials we purchase and also impact the pricing we
offer to customers on sales of our products. During the first
three quarters of 2008, we were able to successfully manage
significant increases in raw material costs. However, commodity
prices fell precipitously during the fourth quarter of 2008 and
continued to fall during the first two quarters of 2009. The
rapid decrease in commodity prices led to lower sales prices
offered to customers and falling margins on our product sales
during the fourth quarter of 2008 and the first half of 2009.
Commodity prices stabilized over the last six months of 2009 and
the effect commodity raw material prices had on our operating
results lessened. We expect our gross margins to improve in 2010
if commodity prices continue to stabilize.
In an effort to respond to these market forces, we have focused
on operational excellence and continued to take steps to
position the Company as a low-cost provider of our products. Our
efforts have resulted in the closing or consolidation of 25
facilities since January 2008, including six during 2009. We
have also aggressively reduced operating costs to adjust to the
decreased sales volume and maximize cash flows generated from
operating activities. Actions implemented during 2009 included
further staff reductions of 25%, 10% reductions in the salaries
of the Chief Executive Officer and Chief Operation Officer, 10%
reduction in fees paid to the Board of Directors, suspension of
salary increases and the Company’s match on 401(k)
contributions, furloughs at many business units, limitations on
capital expenditures, travel restrictions, and many other
discretionary spending reductions. We believe these actions have
helped us meet our priorities for 2009: serving our customers
and maximizing our liquidity.
Many of our lean manufacturing initiatives for 2009 focused on
reducing the working capital required to manage our business.
Our achievements in this effort and reduced sales volume
resulted in an $81 million reduction in working capital
from $223 million as of December 31, 2008 to
$142 million as of December 31, 2009. This reduction
in working capital has allowed us to reduce our total debt
outstanding by approximately $99 million from
$356 million as of December 31, 2008 to
$257 million as of December 31, 2009.
4
Table of Contents
As a result of our efforts to reduce costs, operating income for
our most recent three month period ended December 31, 2009
improved from the same period in the prior year excluding the
non-cash intangible asset impairment charges of $35 million
in the fourth quarter of 2009. The following summarizes results
of operation for the three months ended December 31 (in
thousands):
|
Percentage
|
||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Net sales
|
$ | 187,168 | $ | 249,374 | (25 | )% | ||||||
|
Cost of sales
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153,597 | 221,397 | (31 | )% | ||||||||
|
Gross profit
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33,571 | 27,977 | 20 | % | ||||||||
|
Selling, general, and administrative expense
|
32,990 | 35,756 | (8 | )% | ||||||||
|
Intangible asset impairment
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34,597 | — | 100 | % | ||||||||
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Loss from operations
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$ | (34,016 | ) | $ | (7,779 | ) | 337 | % | ||||
Net sales for the three months ended December 31, 2009
declined by 25% compared to the three months ended
December 31, 2008 due to a significant decline in volume
plus lower pricing as a result of the economic conditions
described above which have severely impacted the markets we
serve and the price of products we sell. Despite the decrease in
net sales, we were able to increase the Company’s gross
margin percentage from 11% in fourth quarter of 2008 to 18%
during the last three months of 2009. The increase in gross
margin percentage was a result of stability of costs within the
commodity markets and operating cost reductions the Company made
during 2009. Selling, general, and administrative expenses also
decreased by 8% as a result of the cost reductions we made
during 2009. Excluding the non-cash intangible impairment
charges, we generated income from operations in the fourth
quarter of $0.6 million compared to the significant loss
from operations in the prior year.
Additionally, we entered into the Third Amended and Restated
Credit Agreement (the Senior Credit Agreement) on July 24,
2009 to convert our previous credit arrangement into a secured
asset-based credit facility that allowed us to remove many
financial covenants contained in the Second Amended and Restated
Credit Agreement before it was amended and restated. The Senior
Credit Agreement provides for a revolving credit facility and
letters of credit in an aggregate amount that does not exceed
the lesser of (i) $200 million or (ii) a
borrowing base determined by reference to the trade receivables,
inventories, and property, plant, and equipment of the
Company’s significant domestic subsidiaries. The Senior
Credit Agreement also provided for a term loan that originally
aggregated $58.7 million, which has subsequently been
repaid in full. We believe the availability of funds under our
Senior Credit Agreement together with cash generated from
operations provide the Company with sufficient liquidity to meet
our goal of positioning Gibraltar as the low-cost provider and
market share leader in niche product areas that offer the
opportunity for margin enhancement and sales growth.
Subsequent to year-end, we entered into an asset purchase
agreement to sell the majority of the assets of our Processed
Metal Products segment. The completion of this transaction on
February 1, 2010 finalized our exit from the steel
processing business. This asset sale was part of our ongoing
strategic plan to build a company with optimal operating
characteristics and improved shareholder value. Our strategic
transition included four other divestitures of steel processing
businesses over the last four years including our former thermal
processing, steel strapping, steel service center, and powdered
metal businesses. We used the proceeds from the sale of these
assets to further reduce our outstanding debt.
Industry
Overview
Building products manufacturers occupy an intermediate market
between the primary steel, aluminum, resin, and other material
producers and the wholesale, retail building supply, and
industrial manufacturing markets. The primary producers
typically focus on producing high volumes of their product. We
purchase raw materials from these producers and, through various
production processes, convert these raw materials into
specialized products for use in the construction or repair of
residential and commercial buildings and industrial products. We
distribute our products through wholesale distributors,
retailers, and industrial manufacturers.
5
Table of Contents
Steel and other metal processors occupy a market niche that
exists between the primary steel and metal producers and
end-user manufacturers, such as automotive manufacturers.
Primary steel and metal producers typically focus on the sale of
standard size and tolerance of steel and other metals to large
volume purchasers, including steel and metal processors.
End-user manufacturers require steel with closer tolerances and
with shorter lead times than the primary steel and metal
producers can provide efficiently. Steel processors like our
Processed Metal Products segment, through the application of
various higher value-added processes such as cold-rolling and
specialized heat-treating methods, process steel to a precise
grade, temper, tolerance, and finish. End-user manufacturers
incorporate this processed steel into finished goods.
Products
and Services
Building
Products
The Building Products segment is primarily, but not exclusively
composed of manufacturers of metal products used in the
residential and commercial building and industrial manufacturing
markets. We operate 48 facilities in 21 states, Canada,
England, Germany, and Poland, giving us a base of operations to
provide customer support, delivery, service, and quality to a
number of regional and national customers, and providing us with
manufacturing and distribution efficiencies in North America, as
well as a presence in the European market.
We manufacture an extensive variety of products that are sold
through a number of sales channels including lumber and building
material wholesalers, buying groups, discount and major retail
home centers, major home builders, heating, ventilation and air
conditioning and roofing distributors, residential, industrial
and commercial contractors, and industrial manufacturers. Our
product offerings include a full line of bar grating and safety
plank grating used in walkways, platforms, safety barriers,
drainage covers, and ventilation grates; expanded metal used in
walkways, shelving, barriers, patio furniture, and other
applications where both visibility and security are necessary;
perforated metal and metal lath products; fiberglass grating
used in areas where high strength, light weight, low
maintenance, and corrosion resistance are required; ventilation
products and accessories; storage solutions, including mailboxes
and package delivery products; roof edging, underlayment and
flashing; soffit; drywall corner bead; structural support
products; coated coil stock; metal roofing and accessories;
steel framing; rain-carrying systems, including gutters and
accessories; builders’ hardware, shelving and closet rods;
lawn and garden products; diffusers and fasteners, each of which
can be sold separately or as an integral part of a package or
program sale.
We improve our offerings of building products by launching new
products, enhancing existing products and adjusting product
specifications to respond to building code and regulatory
changes. During 2009, our USP subsidiary launched new products,
including the Deck Tie Back and Lumber Lok Screw, to provide
solutions for contractors involved in the installation of decks.
Our Florence Corporation (Florence) subsidiary added new
accessories to its versatile 4C mailbox line and now offers
additional modules that complement the use of this product line.
We also continued to develop new mailbox and post products that
were first marketed to our retail customers during 2009. Our
Expanded Metal Company subsidiary developed window guard and
roof tile clips marketed to the European markets we serve.
Another subsidiary, Southeastern Metals Manufacturing Company,
Inc. began offering a commercial series gutter protection system
called the
Micro-CS
tm
system, which is marketed under our Gutter
Helmet
®
product line. Our Building Products segment continues to develop
new products and offerings to expand its product lines and to
provide additional solutions to homeowners and contractors.
Many of our building products are used by home owners and
builders to provide structural and architectural enhancements
for residential and commercial building projects, including
projects in geographic locations subject to severe weather or
seismic activity, and facilitate compliance with increasingly
stringent building codes and insurance requirements. Our
building products are manufactured primarily from galvanized and
painted steel, anodized and painted aluminum, copper, brass,
zinc, and various plastic compounds. These metal purchases, when
added to our existing Processed Metal Products segment purchases
of cold-rolled steel, enhance our purchasing position due to the
increased total volume and value-added component of these
purchases.
6
Table of Contents
Our production capabilities allow us to process the wide range
of metals and plastics necessary for manufacturing building
products. Our equipment includes automatic roll forming
machines, stamping presses, shears, press brakes, paint lines,
milling, welding, injection molding, and numerous automated
assembly machines. We maintain our equipment through a thorough
preventive maintenance program, including in-house tool and die
shops, allowing us to meet the demanding service requirements of
many of our customers.
Processed
Metal Products
Our Processed Metal Products segment manufactures cold-rolled
strip steel and provides materials management. Through a joint
venture, the segment also offers steel pickling services. We
operate this segment through four locations in four states.
Our cold-rolled strip steel is used in applications that demand
more precise widths, improved surface conditions and tighter
gauge tolerances than are typically supplied by primary
producers of flat-rolled steel products. Consistent with our
strategy of focusing on value-added products and services, we
produce a broad range of fully processed cold-rolled strip steel
products. We buy wide sheet steel in coils from primary
producers and process it to specific customer orders by
performing computer-aided processes such as cold reduction,
annealing, edge rolling and slitting. Cold reduction is the
rolling of steel to a specified thickness, tolerance and finish.
Annealing is a thermal process that changes hardness and certain
metallurgical characteristics of steel. Edge rolling involves
conditioning edges of processed steel into square, full round or
partially round shapes. Slitting is the cutting of steel to
specified widths. Depending on customer specifications, we use
one or more of these processes to produce steel strip of a
precise grade, temper, tolerance, and finish. Customers for our
strip steel products include manufacturers in the automotive,
automotive supply, power and hand tool, hardware, coinage, and
other industries.
Our rolling mills include automatic gauge control systems with
hydraulic screw downs allowing for micro-second adjustments
during processing. Our computerized mills enable us to satisfy
an industry demand for a wide range of steel from heavier gauge
and special alloy steels to low carbon and light gauge steels,
in each case having a high quality finish and precision gauge
tolerance.
Our rolling facilities are further complemented by high
convection annealing furnaces, which allow for shorter annealing
times than conventional annealers. Our furnaces employ advanced
technology that incorporates the use of a hydrogen atmosphere
for the production of cleaner and more uniform steel. As a
result of our annealing capabilities, we are able to produce
cold-rolled strip steel with improved consistency in terms of
thickness, hardness, and molecular grain structure and surface.
We can produce certain strip steel products on oscillated coils,
which wind strip steel similar to the way fishing line is wound
on a reel. Oscillating the strip steel enables us to put a
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. These benefits
to customers allow us to achieve higher margins on oscillated
products. To our knowledge, few steel producers are able to
produce oscillated coils, and we are not aware of any competitor
that can produce 6,000-pound oscillated coils, the maximum size
we produce.
We also operate a materials management facility in Michigan that
links primary steel producers and end-user manufacturers by
integrating the inventory purchasing, receiving, inspection,
billing, storage, and shipping functions and producing
just-in-time
delivery of materials.
We have a 31% interest in the Samuel Steel Pickling Company, a
joint venture with Samuel Manu-Tech, Inc. that has 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 pickling services without
acquiring ownership of the steel.
7
Table of Contents
Quality
Assurance
We place great importance on providing our customers with
high-quality products for use in critical applications. We
carefully select our raw material vendors and use computerized
inspection and analysis to maintain our quality standards so
that our products will meet critical customer specifications. To
meet customer specifications, we use documented procedures
utilizing statistical process control systems linked directly to
processing equipment to monitor all stages of production.
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. In addition, all
of our facilities that provide services or products to the
automotive industry are either TS
16949-2002
or ISO
9001-2000
registered and many of our building products facilities are ISO
9001-2000
registered.
Technical
Services
We employ a staff of engineers, metallurgists, and other
technical personnel and maintain fully-equipped, modern
laboratories to support our operations. These laboratories
enable us to verify, analyze and document the physical,
chemical, metallurgical, and mechanical properties of our raw
materials and products. In addition, our engineering staff
employs a range of CAD/CAM programs to design highly specialized
and technically precise products. Technical service personnel
also work in conjunction with our sales force to determine the
types of products and services required for the particular needs
of our customers.
Suppliers
and Raw Materials
Steel and metal processing companies are required to maintain
substantial inventories of raw material in order to accommodate
the short lead times and
just-in-time
delivery requirements of their customers. Accordingly, we plan
our purchases to maintain an inventory of raw materials at
sufficient levels to satisfy the anticipated needs of our
customers. We manage our inventory levels through forecasts of
customer orders, efficient supply chain management, and an
ongoing assessment of market conditions.
The primary raw material we purchase is flat-rolled steel which
is used in our Building Products and Processed Metal Products
segments. To a lesser extent, we purchase aluminum and resins
for use in our Building Products segment.
We purchase flat-rolled steel at regular intervals on an
as-needed basis, primarily from the major North American
suppliers, as well as a limited amount from foreign steel
producers. Because of our strategy to develop longstanding
relationships in our supply chain, we have been able to adjust
our deliveries of flat-rolled steel to match our required
inventory position.
In 2009, we purchased all of our aluminum requirements from
several domestic mills with a small amount sourced with
off-shore mills. Our resin purchases are all domestic, primarily
through distributors with a small amount direct from the
manufacturer. Supply has been adequate from these sources to
fulfill our needs.
We purchase natural gas and electricity from suppliers in
proximity to our operations.
We have no long-term contractual commitments with our suppliers.
Our Vice President of Supply Chain Management continually
examines and improves our purchasing practices across our
geographically dispersed facilities in order to streamline
purchasing across like commodities.
Intellectual
Property
We protect our intellectual property by trademark, copyright,
and patent registrations and use our intellectual property in
the business activities of each operating segment. While no
individual item of our intellectual property is considered
material, we do believe our trademarks, copyrights, and patents
provide us with a competitive advantage when marketing our
products to customers.
8
Table of Contents
Sales and
Marketing
Our products and services are sold primarily by our sales
personnel and outside sales representatives located throughout
the United States, Canada, Mexico, and Europe. We have organized
sales teams to focus on specific customers and national accounts
to allow us to provide enhanced supply solutions, and enhance
our ability to increase the number of products that we provide
to those customers and accounts. Our sales staff works with
certain retail customers to optimize shelf space for our
products which is expected to increase sales at these locations.
Customers
and Distribution
We have numerous customers located throughout the United States,
Canada, Mexico, Europe, and Central America, principally in the
building and construction, general manufacturing, automotive,
automotive supply, steel, and machinery industries. Major
customers include home improvement retailers, building product
distributors, automobile manufacturers and suppliers, and
commercial and residential contractors.
The Home Depot represented 13%, 8%, and 10% of our consolidated
net sales for 2009, 2008, and 2007, respectively. No other
customer accounted for more than 10% of our net sales.
During 2009, 2008, and 2007, The Home Depot accounted for
approximately 16%, 10%, and 13%, respectively, of the net sales
of our Building Products segment. No other customer accounted
for more than 10% of our Building Products segment’s net
sales during these periods.
During 2009, Ford Motor Company accounted for 18% of the net
sales of the Processed Metal Products segment. No customer
represented 10% or more of this segment’s net sales in
2008. And, General Motors accounted for 11% of the net sales of
this segment in 2007. No other customer accounted for more than
10% of our Processed Metal Products segment’s net sales
during these periods.
Although we negotiate annual sales orders with the majority of
our customers, these orders are subject to customer confirmation
as to product amounts and delivery dates. We do not have
long-term contracts with any of our customers.
Backlog
Because of the nature of our products and the short lead time
order cycle, backlog is not a significant factor in our
business. We believe that substantially all of our firm orders
existing on December 31, 2009 will be shipped prior to the
end of the first quarter of 2010.
Competition
Both segments operate in highly competitive markets. We compete
in the building products and processed metal products markets
with several domestic suppliers and, in the case of processed
metal products, some foreign manufacturers. A few of our
competitors in the Building Products and Processed Metal
Products segments may be larger, have greater financial
resources or have less financial leverage than we do. As a
result, these competitors may be better positioned to respond to
any downward pricing pressure or other adverse economic or
industry conditions or to identify and acquire companies or
product lines compatible with their businesses. Our competition
in both segments differs according to unique characteristics of
each segment. We describe the competitive conditions for both
segments in detail below.
Building
Products
We compete with numerous suppliers of building products based on
the range of products offered, quality, price, and delivery.
Although some of these competing suppliers are large companies,
the majority are small to medium-sized and do not offer the
range of building products we do.
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The prices for the raw materials we use in our Building Products
operations, primarily steel, aluminum, and plastic, are volatile
due to a number of factors beyond our control, including supply
shortages, general industry and economic conditions, labor
costs, import duties, tariffs, and currency exchange rates.
Although we have strategies to deal with volatility in raw
material costs such as reducing inventory levels, other
competitors in this segment who do not have to maintain
inventories as large as ours may be better able to mitigate the
effects of this volatility and thereby compete effectively
against us on product price.
We believe our broad range of products, high product quality,
and sustained ability to meet exacting customer delivery
requirements gives us a competitive advantage over many
competitors in this segment.
Processed
Metal Products
The metal processing market is highly competitive. We compete
with a small number of other metal processors, including
Worthington Industries and Steel Technologies. These processors
also focus on fully processed, high value-added metal products
like we do. We compete in this market on the basis of precision
and range of achievable tolerances, quality, price, and the
ability to meet delivery schedules dictated by customers.
The prices for the raw materials we use in our Processed Metal
Products operations, primarily steel, are volatile due to the
same factors described above with respect to our Building
Products segment. Although we have strategies to deal with
volatility in raw material costs such as indexing pricing on
certain customer orders to steel costs to reduce the impact of
market volatility on our margins and matching purchase
commitments with sales orders, other competitors in this segment
which do not have to maintain inventories as large as ours may
be better able to mitigate the effects of this volatility and
thereby compete effectively against us on product price during
times of price volatility.
We believe our ability to meet stringent process specifications
and the quality of our processed metal products give us a
competitive advantage over competitors in this segment.
Employees
At December 31, 2009, we employed approximately
2,450 people, of which 2,190 and 230 were employed in the
Building Products and Processed Metal Products segments,
respectively. Approximately 22% of our workforce was represented
by unions through various collective bargaining agreements
(CBAs) as of December 31, 2009. Unions represent 62% and
18% of our Processed Metal Products and Building Products
employees, respectively. Three CBAs, representing 4% of our
workforce, expire during 2010. Our other CBAs expire between
January 31, 2011 and March 31, 2012. We historically
have had good relationships with our unions. We expect the
current and future negotiations with our unions to result in
contracts that provide benefits that are consistent with those
provided in our current agreements.
Seasonality
Our net sales are generally lower in the first and fourth
quarters primarily due to customer plant shutdowns in the
automotive industry due to holidays and model changeovers, as
well as reduced activity in the building and construction
industry due to colder and more inclement weather.
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Governmental
Regulation
Our processing centers and manufacturing facilities are subject
to many federal, state, and local requirements relating to the
protection of the environment and we use environmentally
sensitive materials in our production processes. For example, we
lubricate our machines with oil and use oil baths to treat some
of our products. We believe that we operate our business in
material compliance with all environmental laws and regulations,
do not anticipate any material expenditures to meet
environmental requirements and do not believe that future
compliance with such laws and regulations will have a material
adverse effect on our financial condition or results of
operations. However, we could incur operating costs or capital
expenditures in complying with new or more stringent
environmental requirements in the future or with current
requirements if they are applied to our facilities in a way we
do not anticipate. In addition, new or more stringent regulation
of our energy suppliers could cause them to increase the cost of
energy they supply us.
Our operations are also governed by many other laws and
regulations covering our labor relationships, the zoning of our
facilities, our general business practices, and other matters.
We believe that we are in material compliance with these laws
and regulations and do not believe that future compliance with
such laws and regulations will have a material adverse effect on
our financial condition or results of operations.
Internet
Information
Copies of the Company’s Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge through the Company’s Web
site (www.gibraltar1.com) as soon as reasonably practicable
after the Company electronically files the material with, or
furnishes it to, the Securities and Exchange Commission.
| Item 1A. | Risk Factors |
As noted above in the “Recent Developments” section of
Item 1 of this Annual Report on
Form 10-K,
we sold the majority of the assets of our Processed Metal
Products segment on February 1, 2010, and have exited this
business subsequent to year-end. The risk factors below include
risks related to the Processed Metal Products segment as this
business was owned and operated as a continuing operation for
all relevant periods covered by this Annual Report on
Form 10-K.
These risk factors may not be relevant to the Company in future
periods as a result of our sale of assets of the Processed Metal
Products segment.
The
United States and worldwide capital and credit markets have
experienced significant price and credit availability
volatility, dislocations, and disruptions.
These events have caused market prices of many stocks to
fluctuate substantially, the spreads on prospective debt
financings to widen considerably, and have materially impacted
liquidity in the financial markets, making terms for certain
financings less attractive, and in some cases have resulted in
the unavailability of financing. Continued uncertainty in the
capital and credit markets may negatively impact our business,
including our ability to access additional financing at
reasonable terms, which may negatively affect our ability to
make future acquisitions. A prolonged downturn in the financial
markets may cause us to seek alternative sources of potentially
less attractive financing, and may require us to further adjust
our business plan accordingly. These events may also make it
more difficult or costly for us to raise capital through the
issuance of our equity securities and could reduce our net
income by increasing our interest expense and other costs of
capital. The disruptions in the financial markets may have a
material adverse effect on the market value of our common stock.
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The diminished availability of credit and other capital is also
affecting the key end markets we serve including the residential
and commercial construction and North American automotive
markets. There is continued uncertainty as to sustained recovery
of the worldwide capital and credit markets and the impact this
period of volatility will continue to have on our key end
markets. The effects of the U.S. Government’s measures
to aid economic recovery including economic stimulus legislation
and financial assistance to automotive original equipment
manufacturers (OEMs) continue to be unknown. Further volatility
in the worldwide capital and credit markets may continue to
significantly impact the key end markets we serve and could
result in further reductions in sales volumes, increased credit
and collection risks, and may have other adverse effects on our
business.
The
building and construction industry and the automotive industry
account for a significant portion of our sales, and reduced
demand from these industries is likely to adversely affect our
profitability and cash flow.
The residential construction and automotive markets in North
America experienced the following declines in volume beginning
in 2008 and continuing throughout 2009:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Residential Housing Starts
|
0.6 million | 0.9 million | 1.3 million | |||||||||
|
Light Vehicle Sales
|
10.3 million | 13.2 million | 16.1 million | |||||||||
Net sales of our Building Products segment, which primarily
sells products for use in the building and construction
industry, accounted for approximately 83%, 80%, and 78% of our
net sales in 2009, 2008, and 2007, respectively. The majority of
these sales are made to retail home improvement centers and
wholesale distributors. In 2009, 2008, and 2007, The Home Depot
accounted for approximately 13%, 8%, and 10% of our net sales,
respectively. A loss of sales to the building and construction
industry, or to the specified customer, would adversely affect
our profitability and cash flow as it did throughout the year
ended December 31, 2009. Our sales of building products
decreased during 2009 and 2008 due to a decline in demand in the
new build residential building industry, causing a decrease in
net sales in our historic building products businesses. This
reduction in volume caused a decrease in our operating margins
in that segment compared to prior years. This industry is
cyclical, with product demand based on numerous factors such as
availability of credit, interest rates, general economic
conditions, consumer confidence, and other factors beyond our
control.
Net sales of our Processed Metal Products segment, which
primarily sells products for use in the automotive industry,
accounted for approximately 17%, 20%, and 22% of our net sales
in 2009, 2008, and 2007, respectively. We estimate that net
sales of our products for use in the automotive industry
accounted for approximately 74%, 67%, and 77% of our Processed
Metal Products segment’s net sales in 2009, 2008, and 2007,
respectively. Such sales include shipments directly to
automotive manufacturers and to manufacturers of automotive
components and parts. We had accounts receivable balances of
$20.7 million and $18.0 million from these customers
as of December 31, 2009 and 2008, respectively. The
automotive industry experiences significant fluctuations in
demand based on numerous factors such as general economic
conditions, availability of credit, consumer confidence, and
other factors beyond their control. The domestic automotive
industry is currently experiencing a difficult operating
environment that has resulted and may continue to result in
lower levels of vehicle production and continued decreases in
demand for the products sold by our Processed Metal Products
segment.
Many automotive manufacturers and their suppliers have received
additional capital to continue operations from the
U.S. Government and filed bankruptcy within the past twelve
months. The financial difficulties of certain customers and any
failed efforts under way by our customers to improve their
overall financial condition could result in numerous changes
that are beyond our control, including additional bankruptcies,
customer plant closings, decreased production, changes in the
product mix or distribution patterns, labor disruptions,
unfavorable changes in our pricing, terms, or service
conditions, as well as other changes we may not currently
anticipate. The occurrence of any of these events have, and
would continue to, adversely impact our financial results.
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Downturns in demand from the building and construction industry,
the automotive industry, or any of the other industries we
serve, or a decrease in the prices that we can realize from
sales of our products to customers in any of these industries,
could continue to adversely affect our profitability and cash
flows.
Our
level of indebtedness could adversely affect our ability to
raise additional capital to fund our operations, limit our
ability to react to changes in the economy, or our industry and
prevent us from meeting our obligations.
We have total indebtedness of $257.3 million as of
December 31, 2009. The following chart shows our level of
indebtedness and certain other information as of
December 31, 2009 (dollars in millions):
|
As of
|
||||
| December 31, 2009 | ||||
|
Revolving credit facility
|
$ | 50.0 | ||
|
Senior subordinated notes
|
201.7 | |||
|
Other
|
5.6 | |||
|
Total debt
|
$ | 257.3 | ||
|
Shareholders’ equity
|
$ | 528.2 | ||
|
Ratio of earnings to fixed charges(1)
|
0.4 | x | ||
| (1) | For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before taxes minus net undistributed equity earnings minus capitalized interest plus intangible asset impairment charges plus fixed charges. Fixed charges include interest expense (including amortization of debt issuance costs), capitalized interest, and the portion of operating rental expense that management believes is representative of the interest component of rent expense. |
We may not be able to generate sufficient cash flow from
profitability and other sources to service all of our
indebtedness and we could be forced to take other actions to
satisfy our obligations under our indebtedness, which may not be
successful.
Our ability to make scheduled payments or to refinance our debt
obligations depends on our financial and operating performance,
which is subject to prevailing economic and competitive
conditions and to certain financial, business, and other factors
beyond our control. We cannot assure you that we will maintain a
level of cash flows from operating activities sufficient to
permit us to pay the principal, premium, if any, and interest on
our indebtedness.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay capital expenditures, sell assets or operations, seek
additional capital or restructure or refinance our indebtedness.
We cannot assure you that we would be able to take any of these
actions, that these actions would be successful and permit us to
meet our scheduled debt service obligations or that these
actions would be permitted under the terms of our existing or
future debt agreements. In the absence of such operating results
and resources, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet our debt service and other obligations. Our Third Amended
and Restated Credit Agreement dated July 24, 2009 (the
Senior Credit Agreement) and our indenture agreement for our
Senior Subordinated 8% Notes restrict our ability to
dispose of assets and use the proceeds from the disposition. We
may not be able to consummate those dispositions or to obtain
the proceeds which we could realize from them and these proceeds
may not be adequate to meet any debt service obligations then
due.
If we cannot make scheduled payments on our debt, we will be in
default and, as a result:
| • | our debt holders could declare all outstanding principal and interest to be due and payable; | |
| • | the lenders under our Senior Credit Agreement could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and | |
| • | we could be forced into bankruptcy or liquidation. |
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Relative to current indebtedness levels, we may still be able to
incur substantially more debt. This could further exacerbate the
risks described above.
The terms of the indenture for our Senior Subordinated
8% Notes do not fully prohibit us or our subsidiaries from
incurring additional debt. Additionally, our Senior Credit
Agreement provides us with a revolving credit facility
commitment of $200 million with borrowings limited to the
lesser of (i) $200 million or (ii) a borrowing
base determined by reference to the trade receivables,
inventories, and property, plant, and equipment of our
significant domestic subsidiaries. At December 31, 2009, we
had $69.7 million of availability under our revolving
credit facility. Under the terms of our Senior Credit Agreement,
we are required to repay all amounts outstanding under the
revolving credit facility by August 30, 2012. Our principal
operating subsidiary, Gibraltar Steel Corporation of New York,
is also a borrower under our Senior Credit Agreement and the
full amount of our commitments under the revolving credit
facility may be borrowed by that subsidiary.
In addition, our substantial degree of indebtedness could have
other important consequences, including the following:
| • | it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; | |
| • | a substantial portion of our cash flows from operations have been and are expected to be dedicated to the payment of principal and interest on our indebtedness and may not be available for other purposes, including our operations, capital expenditures, and future business opportunities; | |
| • | certain of our borrowings, including borrowings under our Senior Credit Agreement, are at variable rates of interest, exposing us to the risk of increased interest rates; and | |
| • | it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt. |
Restrictive
covenants may adversely affect our operations.
Our Senior Credit Agreement and the indenture governing our
Senior Subordinated 8% Notes contain various covenants that
limit our ability to, among other things:
| • | incur additional debt or provide guarantees in respect of obligations of other persons; | |
| • | pay dividends or distributions or redeem or repurchase capital stock; | |
| • | prepay, redeem, or repurchase debt; | |
| • | make loans, investments, and capital expenditures; | |
| • | incur debt that is senior to our Senior Subordinated 8% Notes but junior to our indebtedness under our Senior Credit Agreement and other senior indebtedness; | |
| • | incur liens; | |
| • | restrict distributions from our subsidiaries; | |
| • | sell assets and capital stock of our subsidiaries; | |
| • | consolidate or merge with or into, or sell substantially all of our assets to, another person; and | |
| • | enter into new lines of business. |
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In addition, the restrictive covenants in the Senior Credit
Agreement require us to maintain minimum Earnings Before
Interest, Taxes, Depreciation, and Amortization (EBITDA as
defined in the Senior Credit Agreement) levels, or a specified
financial ratio. In 2009, the Senior Credit Agreement required
us to maintain the following minimum EBITDA levels for the
following periods:
| Minimum EBITDA | ||||
|
Six-months ended June 30, 2009
|
$ | 0 | ||
|
Nine-months ended September 30, 2009
|
$ | 13,000,000 | ||
|
Year ended December 31, 2009
|
$ | 28,000,000 | ||
The minimum EBITDA level covenant will not be tested after
December 31, 2009. Beginning on March 31, 2010 and
quarterly thereafter on a trailing four-quarter basis, the
Senior Credit Agreement includes a single financial covenant
that requires the Company to maintain a minimum fixed charge
coverage ratio of 1.25 to 1.00.
Our ability to meet these restrictive covenants in the future
can be affected by events beyond our control and we cannot
assure you that we will meet those financial ratios and tests. A
breach of any of these covenants would result in a default under
the Senior Credit Agreement. Upon the occurrence of an event of
default under the Senior Credit Agreement, we would attempt to
receive a waiver from our lenders, which could result in us
incurring additional financing fees that would be costly and
adversely affect our profitability and cash flows. If a waiver
was not provided, the lenders could elect to declare all amounts
outstanding under such facility to be immediately due and
payable and terminate all commitments to extend further credit.
If such event of default and election occurs, the lenders under
the Senior Credit Agreement would be entitled to be paid before
current Senior Subordinated 8% Note holders receive any
payment under our notes. In addition, if we were unable to repay
those amounts, the lenders under the Senior Credit Agreement
could proceed against the collateral granted to them to secure
that indebtedness. We have pledged substantially all our assets
as collateral under our Senior Credit Agreement. If the lenders
under our Senior Credit Agreement accelerate the repayment of
borrowings, we cannot assure you that we will have sufficient
assets to repay debt outstanding under our Senior Credit
Agreement and our other indebtedness, including our Senior
Subordinated 8% Notes, or borrow sufficient funds to
refinance such indebtedness. An acceleration of the amounts
outstanding under the Senior Credit Agreement would result in an
event of default under our Senior Subordinated 8% Notes
which would then entitle the holders thereof to accelerate and
demand repayment of the notes as well. Even if we are able to
obtain new financing to pay the amounts due under the Senior
Credit Agreement and Senior Subordinate 8% Notes, it may
not be on commercially reasonable terms, or terms that are
acceptable to us. A breach of any of our covenants would have an
adverse effect on our business, results of operations, and cash
flow.
Variable
rate indebtedness subjects us to interest rate risk which could
cause our debt service obligations to increase
significantly.
Certain of our borrowings, primarily borrowings under our Senior
Credit Agreement, are, and are expected to continue to be, at
variable rates of interest and expose us to interest rate risk.
If interest rates increase, our debt service obligations on the
variable rate indebtedness would increase even if the amount
borrowed remained the same, and our net income would decrease.
Assuming all revolving loans were fully drawn or funded on
December 31, 2009, as applicable, each 25 basis point
change in interest rates would result in a $0.5 million
change in annual interest expense on debt outstanding under our
Senior Credit Agreement.
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We
rely on a few customers for a significant portion of our net
sales, and the loss of those customers would adversely affect
us.
Some of our customers are material to our business and results
of operations. In 2009, 2008, and 2007, our ten largest
customers accounted for approximately 34%, 27%, and 28% of our
net sales, respectively. Our percentage of net sales to our
major customers may increase if we are successful in pursuing
our strategy of broadening the range of products we sell to
existing customers. In such an event, or in the event of any
consolidation in the markets we serve, including retailers
selling building products and the automotive industry, our net
sales may be increasingly sensitive to deterioration in the
financial condition of, or other adverse developments with, one
or more of our top customers. These customers are also able to
exert pricing and other influences on us, requiring us to
market, deliver and promote our products in a manner that may be
more costly to us. Moreover, we generally do not have long-term
contracts with our customers. As a result, although our
customers periodically provide indications of their product
needs and purchases, they generally purchase our products on an
order-by-order
basis, and the relationship, as well as particular orders, can
be terminated at any time. The loss, bankruptcy, or significant
decrease in business from any of our major customers has had and
would continue to have a material adverse effect on our
business, results of operations, and cash flow.
Our
business is highly competitive, and increased competition could
reduce our gross profit, net income, and cash
flow.
The principal markets that we serve are highly competitive.
Competition is based primarily on the precision and range of
achievable tolerances, quality, price, raw materials and
inventory availability, and the ability to meet delivery
schedules dictated by customers. Our competition in the markets
in which we participate comes from companies of various sizes,
some of which have greater financial and other resources than we
do and some of which have more established brand names in the
markets we serve. Increased competition could force us to lower
our prices or to offer additional services or enhanced products
at a higher cost to us, which could reduce our gross profit, net
income, and cash flow and cause us to lose market share.
Our
future operating results may be affected by fluctuations in raw
material costs. We may not be able to pass on increases in raw
material costs to our customers.
Our principal raw materials are steel, aluminum, and resins,
which we purchase from multiple primary suppliers. The steel
industry as a whole is cyclical, and at times availability and
pricing can be volatile due to a number of factors beyond our
control, including general economic conditions, domestic and
worldwide demand, labor costs, competition, import duties,
tariffs, and currency exchange rates. This volatility can
significantly affect our steel costs. Our other significant raw
materials, including aluminum and resins, are also subject to
price volatility.
Global consolidation of the primary steel producers and
increased demand from other nations such as China and India
continue to put upward pressure on market prices for steel and
other commodities. Additionally, we are required to maintain
substantial inventories to accommodate the short lead times and
just-in-time
delivery requirements of our customers. Accordingly, we purchase
raw materials on a regular basis in an effort to maintain our
inventory at levels that we believe are sufficient to satisfy
the anticipated needs of our customers based upon historic
buying practices and market conditions. In an environment of
increasing raw material prices, competitive conditions will
impact how much of the steel price increases we can pass on to
our customers. To the extent we are unable to pass on future
price increases in our raw materials to our customers, the
profitability of our business and resulting cash flows could be
adversely affected. In the event of rapidly decreasing raw
material prices, which occurred in the fourth quarter of 2008
and during the first half of 2009, we may be left to absorb the
cost of higher cost inventory as customers receive reduced
pricing related to decreases in raw material costs. To the
extent we are unable to match our costs to purchase raw
materials to prices given to our customers, the profitability of
our business and resulting cash flows could be adversely
affected.
16
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Lead
time and the cost of our products could increase if we were to
lose one of our primary suppliers.
If, for any reason, our primary suppliers of steel, aluminum, or
other metals should curtail or discontinue deliveries to us in
quantities we need and at prices that are competitive, our
business could suffer. The number of available suppliers has
been reduced in recent years due to industry consolidation and
bankruptcies affecting steel and metal producers and this trend
may continue. Our top ten suppliers accounted for 36% of our
purchases during 2009. We could be significantly and adversely
affected if delivery were disrupted from a major supplier or
several suppliers. In addition, we do not have long-term
contracts with any of our suppliers. If, in the future, we were
unable to obtain sufficient amounts of the necessary metals at
competitive prices and on a timely basis from our traditional
suppliers, we may not be able to obtain such metals from
alternative sources at competitive prices to meet our delivery
schedules, which would have a material adverse effect on our
results, profitability, and cash flow.
Increases
in energy and freight prices would increase our operating costs,
and we may be unable to pass all these increases on to our
customers in the form of higher prices for our
products.
We use energy to manufacture and transport our products. In
particular, our building products and processed metal products
plants use considerable electricity. Our operating costs
increase if energy costs rise. Although we do not believe we
have experienced materially higher energy costs as a result of
new or more stringent environmental regulations of our energy
suppliers, such regulations could increase the cost of
generating energy that is passed on to us. During periods of
higher freight and energy costs, we may not be able to recover
our operating cost increases through price increases without
reducing demand for our products. In addition, we do not hedge
our exposure to higher prices via energy futures contracts.
Increases in energy prices will increase our operating costs and
may reduce our profitability and cash flows if we are unable to
pass all the increases on to our customers.
We may
not be able to identify, manage, and integrate future
acquisitions successfully, and if we are unable to do so, we are
unlikely to sustain growth in net sales or profitability and our
ability to repay our outstanding indebtedness may
decline.
Historically, we have grown through a combination of internal
growth plus external expansion through acquisitions. Although we
intend to actively pursue our growth strategy in the future, we
cannot provide any assurance that we will be able to identify
appropriate acquisition candidates or, if we do, that we will be
able to negotiate successfully the terms of an acquisition,
finance the acquisition, or integrate the acquired business
profitably into our existing operations. Integration of an
acquired business could disrupt our business by diverting
management away from
day-to-day
operations and could result in liabilities that were not
anticipated. Further, failure to integrate any acquisition
successfully may cause significant operating inefficiencies and
could adversely affect our profitability and our ability to
repay our outstanding indebtedness. Consummating an acquisition
could require us to raise additional funds through additional
equity or debt financing. Additional debt financing would
increase our interest expense and reduce our cash flow otherwise
available to reinvest in our business and neither debt nor
equity financing may be available on satisfactory terms when
required.
We are
subject to information system security risks and systems
integration issues could disrupt our internal
operations.
We are dependent upon information technology for the
distribution of information internally and also to our customers
and suppliers. This information technology is subject to theft,
damage, or interruption from a variety of sources, including but
not limited to malicious computer code, such as worms, viruses
and Trojan horses, security breaches, and defects in design. The
implementation of new information technology solutions could
lead to interruptions of information flow internally and to our
customers and suppliers while the implementation project is
being completed. We implemented new systems in 2009 and plan to
continue with new system implementations in 2010 at several
additional business units. Various measures have been taken to
manage our risks related to information system and network
disruptions, but a security breach, system failure, or failure
to implement new systems properly could negatively impact our
operations and financial results.
17
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Our
principal stockholders have the ability to exert significant
influence in matters requiring a stockholder vote and could
delay, deter, or prevent a change in control of the
Company.
Approximately 17% of our outstanding common stock, including
shares of common stock issuable under options and similar
compensatory instruments granted which are exercisable, or which
are vested or will vest within 60 days, are owned by Brian
J. Lipke, who is the Chairman of the Board and Chief Executive
Officer of the Company and Eric R. Lipke, Neil E. Lipke,
Meredith A. Lipke, and Curtis W. Lipke, all of whom are
siblings, and certain trusts for the benefit of each of them. As
a result, the Lipke family has influence over all actions
requiring stockholder approval, including the election of our
board of directors. Through their concentration of voting power,
the Lipke family could delay, deter, or prevent a change in
control of our Company or other business combinations that might
otherwise be beneficial to our Company. In deciding how to vote
on such matters, the Lipke family may be influenced by interests
that conflict with the interests of other shareholders. In
addition, the Lipke family may have an interest in pursuing
transactions that, in their judgment, enhance the value of their
equity investment in the Company, even though those transactions
may involve risks to our other shareholders.
We
depend on our senior management team, and the loss of any member
could adversely affect our operations.
Our success is dependent on the management and leadership skills
of our senior management team. The loss of any of these
individuals or an inability to attract, retain, and maintain
additional personnel could prevent us from successfully
executing our business strategy. We cannot assure you that we
will be able to retain our existing senior management personnel
or to attract additional qualified personnel when needed. We
have not entered into employment agreements with any of our
senior management personnel other than Brian J. Lipke, our
Chairman of the Board and Chief Executive Officer, and Henning
Kornbrekke, our President and Chief Operating Officer.
We
could incur substantial costs in order to comply with, or to
address any violations of, environmental laws.
Our operations and facilities are subject to a variety of
federal, state, local, and foreign laws and regulations relating
to the protection of the environment and human health and
safety. Failure to maintain or achieve compliance with these
laws and regulations or with the permits required for our
operations could result in substantial operating costs and
capital expenditures, in addition to fines and civil or criminal
sanctions, third-party claims for property damage or personal
injury, cleanup costs or temporary or permanent discontinuance
of operations. Certain of our facilities have been in operation
for many years and, over time, we and other predecessor
operators of these facilities have generated, used, handled, and
disposed of hazardous and other regulated wastes. Environmental
liabilities could exist, including cleanup obligations at these
facilities or at off-site locations where materials from our
operations were disposed of or at facilities we divested, which
could result in future expenditures that cannot be currently
quantified and which could reduce our profits and cash flow. We
may be held strictly liable for the contamination of these
sites, and the amount of that liability could be material. Under
the “joint and several” liability principle of certain
environmental laws, we may be held liable for all remediation
costs at a particular site, even with respect to contamination
for which we are not responsible. Changes in environmental laws,
regulations or enforcement policies, including without
limitation new or more stringent regulations affecting
greenhouse gas emissions, could have a material adverse effect
on our business, financial condition, or results of operations.
Labor
disruptions at any of our major customers or at our own
manufacturing facilities could adversely affect our results of
operations and cash flow.
Many of our important customers, including customers in the
automotive industry, have heavily unionized workforces and have
sometimes experienced significant labor disruptions such as work
stoppages, slow-downs, and strikes. A labor disruption at one or
more of our major customers could interrupt production or sales
by that customer and cause the customer to halt or limit orders
for our products and services. Any such reduction in the demand
for our products and services would adversely affect our net
sales, results of operations, and cash flow.
18
Table of Contents
In addition, approximately 22% of our own employees are
represented by unions through various collective bargaining
agreements that are scheduled to expire between June 30,
2010 and March 31, 2012. Unions represent 62% and 18% of
our Processed Metal Products and Building Products employees,
respectively. It is likely that our unionized employees will
seek an increase in wages and benefits at the expiration of
these agreements, and we may be unable to negotiate new
agreements without labor disruption. In addition, labor
organizing activities could occur at any of our facilities. If
any labor disruption were to occur at our facilities, we could
lose sales due to interruptions in production and could incur
additional costs, which would adversely affect our net sales,
results of operations, and cash flow.
Our
operations are subject to seasonal fluctuations that may impact
our cash flow.
Our net sales are generally lower in the first and fourth
quarters primarily due to reduced activity in the building and
construction industry due to colder, more inclement weather, as
well as customer plant shutdowns in the automotive industry due
to holidays and model changeovers. In addition, quarterly
results may be affected by the timing of large customer orders.
Therefore, our cash flow from operations may vary from quarter
to quarter. If, as a result of any such fluctuation, our
quarterly cash flows were significantly reduced, we may not be
able to service our indebtedness or meet covenant compliance. A
default under any of our indebtedness could prevent us from
borrowing additional funds and limit our ability to pay interest
or principal, and allow our senior secured lenders to enforce
their liens against our personal property.
Economic,
political, and other risks associated with foreign operations
could adversely affect our financial results.
Although the majority of our business activity takes place in
the United States, we derive a portion of our revenues and
earnings from operations in foreign countries, and are subject
to risks associated with doing business internationally. Our
sales originating outside the United States represented
approximately 11% of our consolidated net sales during the year
ended December 31, 2009. We have facilities in Canada,
England, Germany, and Poland. We believe that our business
activities outside of the United States involve a higher degree
of risk than our domestic activities. The risks of doing
business in foreign countries include the potential for adverse
changes in the local political climate, in diplomatic relations
between foreign countries and the United States or in
governmental policies, laws or regulations, terrorist activity
that may cause social disruption, logistical and communications
challenges, costs of complying with a variety of laws and
regulations, difficulty in staffing and managing geographically
diverse operations, deterioration of foreign economic
conditions, currency rate fluctuations, foreign exchange
restrictions, differing local business practices and cultural
considerations, restrictions on imports and exports or sources
of supply, and changes in duties or taxes. Adverse changes in
any of these risks could adversely affect our net sales, results
of operations, and cash flows.
Disruptions
to our business or the business of our customers or suppliers,
could adversely impact our operations and financial
results.
Business disruptions, including increased costs for or
interruptions in the supply of energy or raw materials,
resulting from severe weather events such as hurricanes, floods,
blizzards, from casualty events, such as fires or material
equipment breakdown, from acts of terrorism, from pandemic
disease, from labor disruptions, or from other events such as
required maintenance shutdowns, could cause interruptions to our
businesses as well as the operations of our customers and
suppliers. Such interruptions could have an adverse effect on
our operations and financial results.
19
Table of Contents
| Item 1B. | Unresolved Staff Comments |
None
| Item 2. | Description of Properties |
We maintain our corporate headquarters in Buffalo, New York and
conduct business operations in facilities located throughout the
United States and in Canada, England, Germany, and Poland.
We believe the facilities we operate, listed below, and their
equipment are effectively utilized, well maintained, in good
condition, and will be able to accommodate our capacity needs
through 2010.
|
Location
|
Utilization
|
Square Footage | ||||
|
Corporate
|
||||||
|
Buffalo, New York
|
Headquarters | 24,490 | (1) | |||
|
Processed Metal Products
|
||||||
|
Woodhaven, Michigan
|
Materials management facility | 100,000 | (2) | |||
|
Cheektowaga, New York
|
Administrative office and strip steel processing | 148,000 | ||||
|
Cleveland, Ohio
|
Administrative office and strip steel processing | 259,000 | (2) | |||
|
Brownsville, Texas
|
Warehouse | 15,000 | (1,2) | |||
|
Building Products
|
||||||
|
U.S. Locations
|
||||||
|
Birmingham, Alabama
|
Administrative office and building products manufacturing | 202,000 | ||||
|
Fontana, California
|
Building products manufacturing | 80,000 | ||||
|
Fontana, California
|
Administrative office and warehouse | 69,720 | (1) | |||
|
Livermore, California
|
Building products manufacturing | 103,470 | (1) | |||
|
Stockton, California
|
Administrative office and building products manufacturing | 318,320 | ||||
|
Visalia, California
|
Building products manufacturing | 80,000 | ||||
|
Denver, Colorado
|
Administrative office and building products manufacturing | 119,442 | (1) | |||
|
Wilmington, Delaware
|
Building products manufacturing and warehouse | 27,500 | (1) | |||
|
Jacksonville, Florida
|
Administrative office and building products manufacturing | 261,400 | (1) | |||
|
Lakeland, Florida
|
Warehouse | 90,835 | ||||
|
Largo, Florida
|
Administrative office and building products manufacturing | 100,000 | ||||
|
Miami, Florida
|
Warehouse | 48,893 | (1) | |||
|
Honolulu, Hawaii
|
Warehouse | 18,200 | (1) | |||
|
Bourbonnais, Illinois
|
Building products manufacturing | 280,000 | (1) | |||
|
Peoria, Illinois
|
Administrative office | 1,610 | (1) | |||
|
Clinton, Iowa
|
Building products manufacturing | 100,000 | ||||
|
Junction City, Kansas
|
Warehouse | 20,000 | (1) | |||
|
Manhattan, Kansas
|
Administrative office and building products manufacturing | 192,000 | ||||
|
Lafayette, Louisiana
|
Building products manufacturing | 34,000 | ||||
|
Burnsville, Minnesota
|
Administrative office | 21,009 | (1) | |||
|
Montgomery, Minnesota
|
Administrative office and building products manufacturing | 170,000 | ||||
|
Taylorsville, Mississippi
|
Administrative office and building products manufacturing | 397,484 | ||||
|
North Kansas City, Missouri
|
Building products manufacturing | 26,365 | (1) | |||
|
Orrick, Missouri
|
Building products manufacturing | 127,000 | ||||
|
Lumberton, New Jersey
|
Warehouse | 25,805 | (1) | |||
|
Youngstown, Ohio
|
Administrative office and building products manufacturing | 32,424 | ||||
|
Portland, Oregon
|
Administrative office and building products manufacturing | 10,000 | ||||
20
Table of Contents
|
Location
|
Utilization
|
Square Footage | ||||
|
Greenville, South Carolina
|
Warehouse | 18,000 | (1) | |||
|
Dallas, Texas
|
Administrative office and building products manufacturing | 175,000 | (1) | |||
|
Dayton, Texas
|
Building products manufacturing | 45,000 | ||||
|
Houston, Texas
|
Building products manufacturing | 48,000 | (1) | |||
|
Houston, Texas
|
Warehouse/Distribution | 25,000 | (1) | |||
|
San Antonio, Texas
|
Administrative office and building products manufacturing | 120,050 | (1) | |||
|
Orem, Utah
|
Building products manufacturing | 88,685 | ||||
|
Salt Lake City, Utah
|
Warehouse | 30,040 | (1) | |||
|
Fife, Washington
|
Administrative office and building products manufacturing | 324,220 | ||||
|
Kent, Washington
|
Warehouse | 9,600 | (1) | |||
|
Appleton, Wisconsin
|
Administrative office and building products manufacturing | 100,262 | ||||
|
Appleton, Wisconsin
|
Warehouse | 42,582 | ||||
|
Canadian Locations
|
||||||
|
Langley, British Columbia
|
Building products manufacturing | 41,000 | (1) | |||
|
Burlington, Ontario
|
Administrative office and building products manufacturing | 78,000 | (1) | |||
|
Thornhill, Ontario
|
Administrative office and building products manufacturing | 60,500 | (1) | |||
|
Iberville, Quebec
|
Administrative office and building products manufacturing | 32,172 | ||||
|
Iberville, Quebec
|
Warehouse | 15,000 | (1) | |||
|
European Locations
|
||||||
|
Hannover, Germany
|
Administrative office and building products manufacturing | 81,453 | (1) | |||
|
Poznan, Poland
|
Administrative office and warehouse | 3,120 | (1) | |||
|
Hartlepool, United Kingdom
|
Administrative office and building products manufacturing | 258,907 | (1) | |||
|
Redditch, United Kingdom
|
Administrative office | 18,151 | (1) | |||
| (1) | Leased. All other facilities owned. | |
| (2) | These facilities were sold or the lease was assigned as a result of the February 1, 2010 agreement to sell the majority of the assets of our Processed Metal Products segment. |
| 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 proceedings 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 |
No matters were submitted to a vote of security holders during
the fourth quarter of the year ended December 31, 2009.
21
Table of Contents
| Item 5. | Market for Common Equity and Related Stockholder Matters |
As of December 31, 2009 there were 150 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 NASDAQ Stock Exchange —
Global Select Market (“NASDAQ”) under the symbol
“ROCK.” The following table sets forth the high and
low sale prices per share for the Company’s common stock
for each quarter of 2009 and 2008 as reported on the NASDAQ
Stock Exchange.
| 2009 | 2008 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
|
Fourth Quarter
|
$ | 16.74 | $ | 10.51 | $ | 18.98 | $ | 8.40 | ||||||||
|
Third Quarter
|
$ | 15.65 | $ | 5.62 | $ | 24.63 | $ | 11.82 | ||||||||
|
Second Quarter
|
$ | 8.55 | $ | 4.32 | $ | 17.33 | $ | 10.35 | ||||||||
|
First Quarter
|
$ | 12.95 | $ | 3.41 | $ | 15.53 | $ | 9.59 | ||||||||
The Company did not declare cash dividends during 2009 and
declared dividends of $0.05 per share in each of the first,
second, third, and fourth quarters of 2008.
Cash dividends are declared at the discretion of the
Company’s Board of Directors. The Board of Directors
reviews the dividend quarterly and establishes the rate of any
dividend it determines to pay based upon such factors as the
Company’s earnings, financial condition, capital
requirements, debt covenant requirements, and other relevant
conditions. During the first quarter of 2009, the Board of
Directors approved management’s suggestion to suspend
quarterly dividends indefinitely as a result of the impact of
economic conditions on the Company and the markets it serves.
The Company expects to continue to declare and pay cash
dividends on its common stock in the future when earnings are
available. However, the Company cannot assure that either cash
or stock dividends will be paid in the future or that, if paid,
the dividends will be paid in the same amount or at the same
frequency as paid in the past.
Equity
Compensation Plan Information
The following table summarizes information concerning securities
authorized for issuance under the Company’s stock option
plans:
|
Number of Securities
|
||||||||||||
|
Number of Securities
|
Remaining Available
|
|||||||||||
|
to be Issued Upon
|
Weighted-Average
|
for Future
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Issuance Under Equity
|
||||||||||
|
Plan Category
|
Outstanding Options | Outstanding Options | Compensation Plans(1) | |||||||||
|
Equity Compensation Plans Approved by Security Holders
|
630,889 | $ | 17.88 | 1,434,736 | ||||||||
|
Total
|
630,889 | $ | 17.88 | 1,434,736 | ||||||||
| (1) | Consists of the Company’s Third Amendment and Restatement of the Gibraltar Industries, Inc. 2005 Equity Incentive Plan (the Plan). Note 12 of the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K provides additional information regarding the Plan and securities issuable upon exercise of options. The Company has no currently effective equity compensation plans not approved by its shareholders. |
22
Table of Contents
PERFORMANCE
GRAPH
The following information in this Item of the Annual Report on
Form 10-K
is not deemed to be “soliciting material” or to be
“filed” with the Securities and Exchange Commission or
subject to Regulation 14A or 14C under the Securities
Exchange Act of 1934, as amended (the Exchange Act), or to the
liabilities of Section 18 of the Exchange Act, and will not
be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that we specifically incorporate such
information into such a filing.
The performance graph shown below compares the cumulative total
shareholder return on the Company’s common stock, based on
the market price of the common stock, with the total return of
the S&P SmallCap 600 Index and the S&P SmallCap 600
Industrials Index for the five-year period ended
December 31, 2009. The comparison of total return assumes
that a fixed investment of $100 was invested on
December 31, 2004 in common stock and in each of the
foregoing indices and further assumes the reinvestment of
dividends. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Gibraltar Industries Inc., The S&P Smallcap 600 Index
And The S&P SmallCap 600 Industrials
Among Gibraltar Industries Inc., The S&P Smallcap 600 Index
And The S&P SmallCap 600 Industrials
| * | $100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. | |
| Copyright © 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. |
23
Table of Contents
| Item 6. | Selected Financial Data |
The following selected historical consolidated financial data
for each of the five years in the period ended December 31,
2009 have been derived from the Company’s audited financial
statements. The selected historical consolidated financial data
presented in Item 6 are qualified in their entirety by, and
should be read in conjunction with, the Company’s audited
consolidated financial statements and notes thereto contained in
Item 8 and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” set forth
in Item 7 of this Annual Report on
Form 10-K.
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
|
Net sales
|
$ | 834,218 | $ | 1,232,299 | $ | 1,198,715 | $ | 1,125,864 | $ | 902,781 | ||||||||||
|
(Loss) income from operations
|
(52,034 | ) | 81,469 | 75,741 | 111,690 | 77,416 | ||||||||||||||
|
Interest expense
|
25,915 | 29,235 | 32,498 | 26,226 | 19,485 | |||||||||||||||
|
(Loss) income before income taxes
|
(77,633 | ) | 52,958 | 44,415 | 72,564 | 58,197 | ||||||||||||||
|
(Benefit of) provision for income taxes
|
(25,761 | ) | 19,553 | 17,476 | 27,436 | 22,248 | ||||||||||||||
|
(Loss) income from continuing operations
|
(51,872 | ) | 33,405 | 26,939 | 45,128 | 35,949 | ||||||||||||||
|
(Loss) income from continuing operations per share —
Basic
|
$ | (1.72 | ) | $ | 1.11 | $ | 0.90 | $ | 1.52 | $ | 1.21 | |||||||||
|
Weighted average shares outstanding — Basic
|
30,135 | 29,981 | 29,867 | 29,712 | 29,608 | |||||||||||||||
|
(Loss) income from continuing operations per share —
Diluted
|
$ | (1.72 | ) | $ | 1.11 | $ | 0.89 | $ | 1.50 | $ | 1.21 | |||||||||
|
Weighted average shares outstanding — Diluted
|
30,135 | 30,193 | 30,116 | 30,006 | 29,810 | |||||||||||||||
|
Cash dividends declared per common share
|
$ | 0.00 | $ | 0.20 | $ | 0.25 | $ | 0.15 | $ | 0.20 | ||||||||||
|
Current assets
|
$ | 251,151 | $ | 348,229 | $ | 440,745 | $ | 455,780 | $ | 424,004 | ||||||||||
|
Current liabilities
|
109,016 | 125,201 | 134,225 | 124,415 | 157,248 | |||||||||||||||
|
Total assets
|
973,968 | 1,146,359 | 1,281,408 | 1,152,868 | 1,205,012 | |||||||||||||||
|
Total debt
|
257,282 | 356,372 | 487,545 | 399,313 | 461,513 | |||||||||||||||
|
Shareholders’ equity
|
528,226 | 568,487 | 567,760 | 550,228 | 494,025 | |||||||||||||||
|
Capital expenditures
|
$ | 10,813 | $ | 21,595 | $ | 17,691 | $ | 20,579 | $ | 16,566 | ||||||||||
|
Depreciation
|
27,228 | 26,560 | 25,472 | 20,726 | 15,943 | |||||||||||||||
|
Amortization
|
5,185 | 7,347 | 5,480 | 3,896 | 2,314 | |||||||||||||||
During the year ended December 31, 2009, the Company
recorded intangible asset impairment charges of
$60.1 million, which contributed to $1.34 of the loss from
continuing operations per diluted share. No intangible asset
impairment charges were recognized during any other period
presented in the table above.
24
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations should be read in
conjunction with the Company’s risk factors and its
consolidated financial statements and notes thereto included in
Item 1A and Item 8, respectively, of this Annual
Report on
Form 10-K.
Certain information set forth herein Item 7 constitutes
“forward-looking statements” as that term is used in
the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based, in whole or in part, on
management’s beliefs, estimates, assumptions, and currently
available information. For a more detailed discussion of what
constitutes a forward-looking statement and of some of the
factors that could cause actual results to differ materially
from such forward-looking statements, please refer to the
“Safe Harbor Statement” on page 2 of this Annual
Report on
Form 10-K.
Overview
In 2009 and prior years, we have been a leading manufacturer,
processor, and distributor of residential and commercial
building products and processed metal products for the building
and construction, industrial, and automotive markets. Our
building products are used by homeowners and builders to provide
structural and architectural enhancements for residential and
commercial building projects. Our processed metal products are
comprised primarily of steel shaped to specific widths and
hardened to certain tolerances as required by our customers. We
serve customers in a variety of industries in all 50 states
and throughout the world. As of December 31, 2009, we
operate 53 facilities in 23 states, Canada, England,
Germany, and Poland, giving us a broad platform for
just-in-time
delivery and support to our customers.
Subsequent to year-end, we disposed of the majority of the
assets of our Processed Metal Products segment. See the
discussion of this disposition below under the heading
“Divestitures”. As a result of this disposition, the
Company will no longer report results of the Processed Metal
Products segment beginning in 2010. Unless the context otherwise
requires, all information herein regarding the Processed Metal
Products segment is as of December 31, 2009.
Throughout 2008 and intensifying during 2009, prolonged
financial market and economic turmoil impacting the United
States and the rest of the world caused a significant downturn
in the key markets we serve, building and construction,
industrial, and automotive. During the past two years, continued
illiquidity in the financial market contributed to the
significant downturn in key markets we serve. The United States
Government offered incentive programs during 2009 to increase
consumer spending in these markets, including the new home buyer
and cash for clunker programs. However, as shown below, the
residential construction and automotive markets in North America
continued to experience significant declines in volume:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Residential Housing Starts
|
0.6 million | 0.9 million | 1.3 million | |||||||||
|
Light Vehicle Sales
|
10.3 million | 13.2 million | 16.1 million | |||||||||
The decrease in residential housing starts and light vehicle
sales had a significant impact on the operations of our Building
Products and Processed Metal Products segments, respectively, by
contributing to decreased sales volumes in each segment.
Additionally, commodity raw material prices for materials such
as steel, aluminum, and resins, have fluctuated significantly
during the past two years. These raw material prices impact the
cost of raw materials we purchase and also impact the pricing we
offer to customers on sales of our products. During the first
three quarters of 2008, we were able to successfully manage
significant increases in raw material costs. However, commodity
prices fell precipitously during the fourth quarter of 2008 and
continued to fall during the first two quarters of 2009. The
rapid decrease in commodity prices led to lower sales prices
offered to customers and falling margins on our product sales
during the fourth quarter of 2008 and the first half of 2009.
Commodity prices stabilized over the last six months of 2009 and
the effect commodity raw material prices had on our operating
results lessened. We expect our gross margins to improve in 2010
if commodity prices continue to stabilize.
25
Table of Contents
In an effort to respond to these market forces, we have focused
on operational excellence and continued to take steps to
position the Company as a low-cost provider of our products. Our
efforts have resulted in the closing or consolidation of 25
facilities since January 2008, including six during 2009. We
have also aggressively reduced operating costs to adjust to the
decreased sales volume and maximize cash flows generated from
operating activities. Actions implemented during 2009 included
further staff reductions of 25%, 10% reductions in the salaries
of the Chief Executive Officer and Chief Operation Officer, 10%
reduction in fees paid to the Board of Directors, suspension of
salary increases and the Company’s match on 401(k)
contributions, furloughs at many business units, limitations on
capital expenditures, travel restrictions, and many other
discretionary spending reductions. We believe these actions have
helped us meet our priorities for 2009: serving our customers
and maximizing our liquidity.
Many of our lean manufacturing initiatives for 2009 focused on
reducing the working capital required to manage our business.
Our achievements in this effort and reduced sales volume
resulted in an $81 million reduction in working capital
from $223 million as of December 31, 2008 to
$142 million as of December 31, 2009. This reduction
in working capital has allowed us to reduce our total debt
outstanding by approximately $99 million from
$356 million as of December 31, 2008 to
$257 million as of December 31, 2009.
As a result of our efforts to reduce costs, operating income for
our most recent three month period ended December 31, 2009
improved from the same period in the prior year excluding
non-cash intangible asset impairment charges of
$35 million. The following summarizes results of operation
for the three months ended December 31 (in thousands):
|
Percentage
|
||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Net sales
|
$ | 187,168 | $ | 249,374 | (25 | )% | ||||||
|
Cost of sales
|
153,597 | 221,397 | (31 | )% | ||||||||
|
Gross profit
|
33,571 | 27,977 | 20 | % | ||||||||
|
Selling, general, and administrative expense
|
32,990 | 35,756 | (8 | )% | ||||||||
|
Intangible asset impairment
|
34,597 | — | 100 | % | ||||||||
|
Income (loss) from operations
|
$ | (34,016 | ) | $ | (7,779 | ) | 337 | % | ||||
Net sales for the three months ended December 31, 2009
declined by 25% compared to the three months ended
December 31, 2008 due to a significant decline in volume
plus lower pricing as a result of the economic conditions
described above which have severely impacted the markets we
serve and the price of products we sell. Despite the decrease in
net sales, we were able to increase the Company’s gross
margin percentage from 11% in fourth quarter of 2008 to 18%
during the last three months of 2009. The increase in gross
margin percentage was a result of stability of costs within the
commodity markets and operating cost reductions the Company made
during 2009. Selling, general, and administrative expenses also
decreased by 8% as a result of the cost reductions we made
during 2009. Excluding the non-cash intangible impairment
charges, we generated income from operations in the fourth
quarter of $0.6 million compared to the significant loss
from operations in the prior year.
Divestitures
Subsequent to year-end, we entered into an asset purchase
agreement to sell the majority of the assets of our Processed
Metal Products segment. The completion of this transaction on
February 1, 2010 finalized our exit from the steel
processing business. This asset sale was part of our ongoing
strategic plan to build a company with optimal operating
characteristics and improved shareholder value. Our strategic
transition included four other divestitures of steel processing
businesses over the last four years including our former thermal
processing, steel strapping, steel service center, and powdered
metal businesses. We used the proceeds from the sale of these
assets to further reduce our outstanding debt.
As noted above, we sold our powdered metal business, SCM Metal
Products (SCM) October 2008. SCM was previously reported as a
part of our Processed Metal Products segment.
26
Table of Contents
During 2007, we determined that both our steel service center
(formerly part of the Processed Metal Products segment) and
cabinet manufacturing (formerly part of the Building Products
segment) businesses no longer provided a strategic fit with our
long-term growth and operational objectives. In August 2007, we
sold the operating assets of our bath cabinet manufacturing
business. In September 2007, we committed to a plan to dispose
of the assets of our steel service center business. We sold the
majority of the assets of these businesses during the remaining
period of 2007 and 2008.
We expect to continue evaluating our businesses to focus our
resources and capital on those areas that we expect will provide
the best long-term strategic fit.
The divestitures of our powdered metal business, steel service
center, and cabinet manufacturing businesses as described above
are properly classified as discontinued operations in the
Company’s consolidated financial statements and notes
thereto. See Note 14 of the Company’s consolidated
financial statements for more information regarding the
divestitures described above in Item 8 of this Annual
Report on
Form 10-K.
The February 1, 2010 sale of the majority of the assets of
Processed Metal Products segment will be treated as discontinued
operations in our consolidated financial statements beginning
with the first quarter of 2010.
Acquisitions
We did not acquire any new businesses during 2009 and 2008. We
acquired three businesses with complementary market positions in
2007. In March 2007, we acquired the stock of the Dramex
Corporation, a manufacturer, marketer, and distributor of a
diverse line of expanded metal products through its locations in
the United States, Canada, and England. In April 2007, we
acquired certain assets and liabilities of Noll Manufacturing
Company, a manufacturer, marketer, and distributor of products
for the heating, ventilation, and air conditioning, building,
and lawn and garden components of the building products market
through its locations in California, Washington, and Oregon. In
August 2007, we acquired the stock of the Florence Corporation,
a Kansas manufacturer of storage products for mail and package
delivery.
All the acquisitions described above are reported as a part of
our Building Products segment. See Note 4 of the
Company’s consolidated financial statements for more
information regarding the acquisitions described above in
Item 8 of this Annual Report on
Form 10-K.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
The following table sets forth selected results of operations
data (in thousands) and its percentages of net sales for the
years ended December 31:
| 2009 | 2008 | |||||||||||||||
|
Net sales
|
$ | 834,218 | 100.0 | % | $ | 1,232,299 | 100.0 | % | ||||||||
|
Cost of sales
|
709,239 | 85.0 | 1,003,513 | 81.4 | ||||||||||||
|
Gross profit
|
124,979 | 15.0 | 228,786 | 18.6 | ||||||||||||
|
Selling, general, and administrative expense
|
116,915 | 14.0 | 147,317 | 12.0 | ||||||||||||
|
Intangible asset impairment
|
60,098 | 7.2 | — | 0.0 | ||||||||||||
|
(Loss) income from operations
|
(52,034 | ) | (6.2 | ) | 81,469 | 6.6 | ||||||||||
|
Interest expense
|
(25,915 | ) | (3.1 | ) | (29,235 | ) | (2.4 | ) | ||||||||
|
Equity in partnerships’ income(1)
|
316 | 0.0 | 724 | 0.1 | ||||||||||||
|
(Loss) income before taxes
|
(77,633 | ) | (9.3 | ) | 52,958 | 4.3 | ||||||||||
|
(Benefit of) provision for income taxes
|
(25,761 | ) | (3.1 | ) | 19,553 | 1.6 | ||||||||||
|
(Loss) income from continuing operations
|
(51,872 | ) | (6.2 | ) | 33,405 | 2.7 | ||||||||||
|
Discontinued operations, net of taxes(2)
|
(153 | ) | (0.0 | ) | (9,337 | ) | (0.7 | ) | ||||||||
|
Net (loss) income
|
$ | (52,025 | ) | (6.2 | )% | $ | 24,068 | 2.0 | % | |||||||
27
Table of Contents
| (1) | Equity in partnerships’ income represents our proportional interest in the income of our steel pickling joint venture and other income. | |
| (2) | Discontinued operations represent the income or (loss), net of income taxes, attributable to our powdered metal and bath cabinet manufacturing businesses, which we sold in October 2008 and August 2007, respectively. |
The following table sets forth the Company’s net sales by
reportable segment for the years ended December 31 (in
thousands):
| Change Due To | ||||||||||||||||||||
|
Total
|
Foreign
|
|||||||||||||||||||
| 2009 | 2008 | Change | Currency | Operations | ||||||||||||||||
|
Net sales:
|
||||||||||||||||||||
|
Building Products
|
$ | 691,771 | $ | 986,840 | $ | (295,069 | ) | $ | (14,324 | ) | $ | (280,745 | ) | |||||||
|
Processed Metal Products
|
142,447 | 245,459 | (103,012 | ) | — | (103,012 | ) | |||||||||||||
|
Consolidated
|
$ | 834,218 | $ | 1,232,299 | $ | (398,081 | ) | $ | (14,324 | ) | $ | (383,757 | ) | |||||||
Net sales decreased by $398.1 million, or 32.3%, to
$834.2 million in 2009 compared to 1,232.3 million in
2008. The severe economic downturn during the past five quarters
and its effect on the key end markets we serve led to the
significant drop in net sales as demand for our products
decreased and volume fell. A decline in customer selling prices
also contributed to the decrease in net sales as customer
selling prices are based, in part, on raw material costs, which
fell significantly during the fourth quarter of 2008 and the
first half of 2009. Foreign currency also contributed to a
$14.3 million decline in net sales during 2009 compared to
the prior year.
Net sales in our Building Products segment decreased 29.9%, or
$295.1 million, to $691.8 million in 2009 compared to
2008. Excluding the $14.3 million impact of exchange rate
fluctuations, the decrease in net sales was $280.8 million,
or 28.4%, from the prior year. The decrease in net sales from
our recurring operations was primarily the net result of
declining volumes due to a significant slowdown in the
residential building, commercial construction, architectural,
and industrial markets. Declining customer selling prices also
contributed to the decline in net sales during 2009 compared to
2008.
Net sales in our Processed Metal Products segment decreased
$103.0 million, or 42.0%, to $142.4 million in 2009
compared to 2008. The decrease in net sales was primarily a
result of a 31% decrease in tons sold due to the significant
slowdown in the automotive markets. Sales volume generated by
this segment was significantly impacted by Chapter 11
filings of two of our automotive customers, Chrysler and General
Motors, and the resulting plant shut-downs that occurred during
the second and third quarters of 2009. The Processed Metal
Products segment was also impacted by the decline in steel
prices in the commodity market, which contributed to a decrease
in customer selling prices.
Gross margin decreased to 15.0% in 2009 from 18.6% in 2008. The
decrease in gross margin was primarily the result of the
significant decline in sales volume as fixed costs were spread
over less volume. The decrease in sales volume more than offset
our cost cutting initiatives. The precipitous decline in raw
material commodity costs also led to a decline in gross margin
as high cost inventory was sold at lowered customer selling
prices causing material costs as a percentage of net sales to
increase, primarily during the first three quarters of 2009. We
estimate that the misalignment of customer selling prices to raw
material costs from our Processed Metal Products segment
resulted in gross margin decreasing by approximately 2%.
28
Table of Contents
Selling, general, and administrative expenses decreased by
$30.4 million, or 20.6%, to $116.9 million in 2009
compared to $147.3 million in 2008. The $30.4 million
decrease is primarily a result of a $16.9 million decrease
in payroll-related expenses resulting from staffing reductions
and lower incentive compensation costs, $5.7 million of
cost reductions from lower travel, marketing, and outside
professional fees, and the impact of our other cost reduction
initiatives. Our bad debt expense also decreased by
$2.2 million as a result of a charge recorded to reserve
for a Tier 1 automotive supplier that went bankrupt in the
fourth quarter of 2008. Despite our effort to reduce costs, our
selling, general, and administrative expenses as a percentage of
net sales increased to 14.0% during 2009 from 12.0% in 2008 as a
result of the 32.3% reduction in net sales during 2009 compared
to the prior year.
In 2009, due to a change in the estimated fair value of three of
our reporting units resulting from a significant decrease in
sales projections, we recorded intangible asset impairment
charges of $60.1 million.
The following table sets forth the Company’s income from
operations and income from operations as a percentage of net
sales by reportable segment for the years ended December 31 (in
thousands):
| Change Due To | ||||||||||||||||||||||||
|
Total
|
Foreign
|
Intangible
|
||||||||||||||||||||||
| 2009 | 2008 | Change | Currency | Impairment | Operations | |||||||||||||||||||
|
Income from operations:
|
||||||||||||||||||||||||
|
Building Products
|
$ | (16,809 | ) | $ | 94,522 | $ | (111,331 | ) | $ | (1,740 | ) | $ | (60,098 | ) | $ | (49,493 | ) | |||||||
|
Processed Metal Products
|
(14,341 | ) | 17,655 | (31,996 | ) | — | — | (31,996 | ) | |||||||||||||||
|
Corporate
|
(20,884 | ) | (30,708 | ) | 9,824 | — | — | 9,824 | ||||||||||||||||
|
Consolidated
|
$ | (52,034 | ) | $ | 81,469 | $ | (133,503 | ) | $ | (1,740 | ) | $ | (60,098 | ) | $ | (71,665 | ) | |||||||
|
Total
|
||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Income from operations as a percentage of sales:
|
||||||||||||
|
Building Products
|
(2.4 | )% | 9.6 | % | (12.0 | )% | ||||||
|
Processed Metal Products
|
(10.1 | )% | 7.2 | % | (17.3 | )% | ||||||
|
Consolidated
|
(6.2 | )% | 6.6 | % | (12.8 | )% | ||||||
Our Building Products segment generated a negative operating
margin of 2.4% during 2009 compared to a positive operating
margin of 9.6% during 2008. Excluding $60.1 million of
intangible asset impairment charges and $1.7 million of
foreign currency fluctuations, the Building Products segment
generated operating income of $45.0 million during 2009, a
decrease of $49.5 million, or 52.4%, from
$94.5 million in the prior year. The decrease in operating
income was a result of the significant decline in sales volume.
The reduction in sales volume resulted in a decrease in
operating margin as fixed costs were spread over lower sales
volume partially offset by aggressive operating cost reduction
initiatives that reduced the impact of declining sales volume.
Our Processed Metal Products segment incurred a negative
operating margin of 10.1% during 2009 compared to a positive
operating margin of 7.2% during 2008. The Processed Metal
Products segment was most significantly impacted by higher raw
material costs compared to customer selling prices and low sales
volume. The precipitous decline in commodity costs, particularly
in the first six months of 2009, led to high cost inventory
being sold at lowered customer selling prices causing the
operating margin of the Processed Metal Products segment to
decrease 13.0 percentage points during 2009 compared to the
prior year. Operating margin during 2009 was also negatively
impacted as a result of fixed costs being spread over
significantly lower sales volume. These factors more than offset
our cost cutting initiatives and a $2.6 million decrease in
bad debt expense from 2008 when we recorded a significant
reserve for a bankrupt customer’s accounts receivable.
29
Table of Contents
Corporate expenses decreased $9.8 million, or 31.9%, to
$20.9 million for 2009 from $30.7 million for 2008.
The decrease in corporate expenses was primarily due to a
$5.2 million decrease in compensation costs as a result of
staffing reductions and lower incentive compensation costs.
Corporate expenses also decreased as a result of cost cutting
measures and due to a $1.1 million asset impairment charge
recorded during 2008 for software no longer in use.
Interest expense decreased $3.3 million, or 11.3%, to
$25.9 million in 2009 from $29.2 million in 2008.
Interest expense decreased $5.5 million due to lower
average borrowings during 2009 compared to the prior year. We
reduced debt outstanding by $99.1 million, or 27.8%, to
$257.3 million as of December 31, 2009 from
$356.4 million as of December 31, 2008 through debt
repayments. The decrease in interest expense was partially
offset by $1.4 million of charges incurred to write-off a
portion of deferred financing fees arising from our amendment
and restatement of the Senior Credit Agreement on July 24,
2009 and early repayment of our term loan under the Senior
Credit Agreement along with a $0.8 million increase in
losses generated from fair value fluctuations from our interest
rate swap.
The benefit of income taxes for 2009 was $25.8 million, an
effective tax rate of 33.2%, compared with a provision for
income taxes of $19.6 million, an effective tax rate of
36.9%, for 2008. The effective tax rate for 2009 was lower than
the U.S. federal statutory tax rate of 35% due to the
effect of non-deductible permanent differences and recording
intangible asset impairment charges, a portion of which was not
deductible for tax purposes. These items were offset by state
taxes which partially offset the reduction in the effective tax
rate during 2009. The effective tax rate of 36.9% for 2008
exceeded the statutory rate primarily due to the impact of state
taxes partially offset by lower rates paid on foreign-sourced
income.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
The following table sets forth selected results of operations
data (in thousands) and its percentages of net sales for the
years ended December 31:
| 2008 | 2007 | |||||||||||||||
|
Net sales
|
$ | 1,232,299 | 100.0 | % | $ | 1,198,715 | 100.0 | % | ||||||||
|
Cost of sales
|
1,003,513 | 81.4 | 989,925 | 82.6 | ||||||||||||
|
Gross profit
|
228,786 | 18.6 | 208,790 | 17.4 | ||||||||||||
|
Selling, general, and administrative expense
|
147,317 | 12.0 | 133,049 | 11.1 | ||||||||||||
|
Income from operations
|
81,469 | 6.6 | 75,741 | 6.3 | ||||||||||||
|
Interest expense
|
(29,235 | ) | (2.4 | ) | (32,498 | ) | (2.7 | ) | ||||||||
|
Equity in partnerships’ income(1)
|
724 | 0.1 | 1,172 | 0.1 | ||||||||||||
|
Income before taxes
|
52,958 | 4.3 | 44,415 | 3.7 | ||||||||||||
|
Provision for income taxes
|
19,553 | 1.6 | 17,476 | 1.5 | ||||||||||||
|
Income from continuing operations
|
33,405 | 2.7 | 26,939 | 2.2 | ||||||||||||
|
Discontinued operations, net of taxes(2)
|
(9,337 | ) | (0.7 | ) | (13,715 | ) | (1.1 | ) | ||||||||
|
Net income
|
$ | 24,068 | 2.0 | % | $ | 13,224 | 1.1 | % | ||||||||
| (1) | Equity in partnerships’ income represents our proportional interest in the income of our steel pickling joint venture and other income. | |
| (2) | Discontinued operations represents the loss, net of income taxes, attributable to our SCM subsidiaries, our steel service center, cabinet manufacturing business, and our strapping business, which we sold in October 2008, December 2007, and August 2007, respectively. |
30
Table of Contents
The following table sets forth the Company’s net sales by
reportable segment for the years ended December 31 (in
thousands):
| Change Due To | ||||||||||||||||||||||||
|
Total
|
Foreign
|
|||||||||||||||||||||||
| 2008 | 2007 | Change | Currency | Acquisitions | Operations | |||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||
|
Building Products
|
$ | 986,840 | $ | 929,022 | $ | 57,818 | $ | 3,561 | $ | 72,783 | $ | (18,526 | ) | |||||||||||
|
Processed Metal Products
|
245,459 | 269,693 | (24,234 | ) | — | — | (24,234 | ) | ||||||||||||||||
|
Consolidated
|
$ | 1,232,299 | $ | 1,198,715 | $ | 33,584 | $ | 3,561 | $ | 72,783 | $ | (42,760 | ) | |||||||||||
Net sales increased by $33.6 million, or 2.8%, to
$1,232.3 million in 2008 compared to 2007. The increase in
net sales was primarily attributable to the 2007 acquisitions of
Dramex, Noll, and Florence which provided incremental net sales
of $72.8 million during 2008. Excluding foreign currency
fluctuations, net sales by our historic businesses decreased
$42.8 million, or 3.6%. This decrease in net sales was
primarily the result of volume decreases due to the downturn in
residential building and North American auto markets.
Net sales in our Building Products segment increased 6.2%, or
$57.8 million, to $986.8 million in 2008 compared to
2007. Excluding foreign currency fluctuations and the
incremental net sales provided by the 2007 acquisitions of
Dramex, Noll, and Florence, net sales decreased
$18.5 million, or 2.0%, from the prior year. The decrease
in net sales from our recurring operations was the net result of
declining volumes from our residential products due to the
effects of the slowdown in the residential housing market which
offset higher customer selling prices on products used in the
commercial, industrial, architectural, and international markets.
Net sales in our Processed Metal Products segment decreased
$24.2 million, or 9.0%, to $245.5 million in 2008
compared to 2007. Although the cost of steel was higher for much
of 2008 which led to increased selling prices for our strip
steel products, a significant decline in volume due to decreased
North American automotive production led to a decrease in net
sales for our Processed Metal Products segment.
Gross margin increased to 18.6% in 2008 from 17.4% in 2007. The
increase in gross margin was a result of a better alignment of
customer selling prices to raw material costs and lower costs
due to lean manufacturing initiatives and facility
consolidations, partially offset by the effects of a
$3.3 million increase in exit activity and impairment
charges, an increase in freight costs, and reductions in volume.
The 2007 acquisitions of Dramex and Florence also contributed to
higher gross margins for the year ended December 31, 2008.
Selling, general, and administrative expenses increased
approximately $14.3 million, or 10.8%, to
$147.3 million in 2008 compared to 2007. The 2007
acquisitions noted above caused an increase of $8.5 million
in 2008. Excluding the effect of the acquisitions, selling,
general, and administrative costs increased $5.8 million,
or 4.4%, over the prior year. Selling, general, and
administrative expense as a percentage of net sales increased
0.9%, to 12.0%, in 2008 from 11.1% in 2007 as a result of a
$2.7 million charge to bad debt expense due to an
automotive customer filing for bankruptcy, a $0.5 million
increase in exit activity costs, a $1.1 million charge for
software no longer in use, increased amortization of acquired
intangible assets due to the 2007 acquisitions, and higher
incentive compensation costs due to improved operating results.
31
Table of Contents
The following table sets forth the Company’s income from
operations and income from operations as a percentage of sales
by reportable segment for the years ended December 31 (in
thousands):
| Change Due To | ||||||||||||||||||||||||
|
Total
|
Foreign
|
|||||||||||||||||||||||
| 2008 | 2007 | Change | Currency | Acquisitions | Operations | |||||||||||||||||||
|
Income from operations:
|
||||||||||||||||||||||||
|
Building Products
|
$ | 94,522 | $ | 91,589 | $ | 2,933 | $ | 2,758 | $ | 8,873 | $ | (8,698 | ) | |||||||||||
|
Processed Metal Products
|
17,655 | 13,265 | 4,390 | — | — | 4,390 | ||||||||||||||||||
|
Corporate
|
(30,708 | ) | (29,113 | ) | (1,595 | ) | — | — | (1,595 | ) | ||||||||||||||
|
Consolidated
|
$ | 81,469 | $ | 75,741 | $ | 5,728 | $ | 2,758 | $ | 8,873 | $ | (5,903 | ) | |||||||||||
|
Total
|
||||||||||||
| 2008 | 2007 | Change | ||||||||||
|
Income from operations as a percentage of sales:
|
||||||||||||
|
Building Products
|
9.6 | % | 9.9 | % | (0.3 | )% | ||||||
|
Processed Metal Products
|
7.2 | % | 4.9 | % | 2.3 | % | ||||||
|
Consolidated
|
6.6 | % | 6.3 | % | 0.3 | % | ||||||
Income from operations as a percentage of net sales in our
Building Products segment for the year ended December 31,
2008 decreased to 9.6% from 9.9% in 2007. Gross margin
percentage remained flat year over year as result of our efforts
to reduce manufacturing costs through lean manufacturing
initiatives and facility consolidation. These cost reductions
were offset by increased exit activity costs and impairment
charges of $3.9 million. Selling, general, and
administrative costs also increased $1.8 million from the
prior year due to increased amortization of acquired intangible
assets from our 2007 acquisitions.
Income from operations from our Processed Metal Products segment
increased to 7.2% of net sales for the year ended
December 31, 2008 from 4.9% for the prior year. The
increase in operating margin percentage is a result of lower
costs due to the completion of our consolidation of our strip
steel business and a better alignment of customer selling prices
to raw material costs.
Corporate expenses increased $1.6 million, or 5.5%, to
$30.7 million for 2008 from $29.1 million for 2007.
The increase in corporate expenses was largely due to a
$1.1 million charge for software no longer in use and
higher incentive compensation costs due to improved operating
results.
Interest expense decreased 10.2% or $3.3 million, to
$29.2 million in 2008 from $32.5 million in 2007. The
decrease in interest was the result of a combination of lower
average borrowings and lower average interest rates.
The provision for income taxes related to continuing operations
for 2008 approximated $19.6 million, an effective tax rate
of 36.9%, compared to $17.5 million and an effective tax
rate of 39.3% in 2007. The lower effective tax rate for 2008
reflects the benefit of a decrease in our overall state income
tax and foreign income tax as a percentage of pretax income due
to adjustments recorded after completing state and foreign tax
returns, an increase in income generated by foreign locations,
and the result of a higher proportion of permanently
non-deductible expenses as a percentage of pre-tax income in
2007.
Outlook
Due to the volatility and uncertainty of economic and market
conditions, we will not be providing definitive earnings per
common share guidance. Instead, we will provide our expectations
of general trends in the key markets we serve. Regarding 2010,
we expect economic conditions to improve over 2009, but we are
cautious on the pace of recovery. For U.S. new housing
starts, we are concerned about the impact of current
unemployment levels, foreclosure activity, and access to
financing. Therefore, we expect a modest improvement in 2010 to
approximately 740,000 units from a trough of
552,000 units in 2009. We anticipate expenditures on repair
and remodel activity will improve modestly in 2010 from 2009
levels, with pockets of growth in energy-efficient markets while
big-ticket items will continue to be deferred, in the
short-term, until general economic conditions, credit
availability and home prices improve. We also expect commercial
construction to lag behind upturns in the residential housing
construction market. Thus, in the near-term, our financial
results will be highly correlated to changes in customer demand.
Over the long term, we are confident that the fundamentals for
new home construction, home improvement, and commercial and
industrial markets are positive.
32
Table of Contents
Liquidity
and Capital Resources
General
Our principal capital requirements are to fund our operations,
including working capital, the purchase and funding of capital
improvements to our businesses and their facilities, and to fund
acquisitions. During the next twelve months, with the
uncertainty in the general economy and the related negative
effects on the building and construction, industrial, and
automotive markets, we will continue to focus on liquidity
preservation to meet our principal capital requirements. As
noted below in the “Cash Flows” section of Item 7
of this Annual Report on
Form 10-K,
we have been successful in generating positive cash flows from
our operating activities to fund our capital requirements during
the past. In the future, we expect to continue our cost
reduction initiatives and sustain strong working capital
management to continue to generate positive cash flow.
On July 24, 2009, we entered into the Third Amended and
Restated Credit Agreement (the Senior Credit Agreement) to
convert our previous credit arrangement into a secured
asset-based credit facility that allowed us to remove many of
the restrictive financial covenants contained in the Second
Amended and Restated Credit Agreement before it was amended and
restated. We believe that availability of funds under our Senior
Credit Agreement together with the cash generated from
operations should be sufficient to provide the Company with the
liquidity and capital resources necessary to support our
principal capital requirements during the next twelve months.
Our Senior Credit Agreement provides the Company with liquidity
and capital resources for use by our U.S. operations.
Historically, our foreign operations generated cash flow from
operations sufficient to invest in working capital and to
purchase and fund capital improvements to their businesses and
facilities. As of December 31, 2009, our foreign
subsidiaries held $13.5 million of cash. We believe cash
held by our foreign subsidiaries provides our foreign operations
with the necessary liquidity to meet its future obligations and
allows the foreign business units to reinvest in their
operations and could eventually be used to grow our business
internationally through additional acquisitions.
As a result of the turmoil experienced within the credit and
equity markets, we continue to closely monitor the counter party
risk of all of our creditors as a part of our focus on
maintaining adequate liquidity to fund our principal capital
requirements. One of the banks in our syndicate was acquired by
another bank in our syndicate in December 2008. We continue to
monitor the financial condition of all the members in our
syndicate, and based on the monitoring, believe that our current
banking relationships will continue to provide the liquidity
needed to support our principal capital requirements throughout
2010.
Over the longer term, we expect that future obligations,
including strategic business opportunities such as acquisitions,
may be financed through a number of sources, including
internally available cash resources, new debt financing, the
issuance of equity securities, or any combination of the above.
Any potential acquisitions are evaluated on the basis of our
ability to enhance our existing products, operations, or
capabilities, as well as provide access to new products,
markets, and customers. This opinion is a forward-looking
statement based upon currently available information and may
change if conditions in the credit and equity markets further
deteriorate, or other circumstances change. To the extent that
operating cash flows are lower than current levels or sources of
financing are not available or available at acceptable terms,
our future liquidity may be adversely affected.
33
Table of Contents
Cash
Flows
The following table sets forth selected cash flow data for the
year ended December 31 (in millions):
| 2009 | 2008 | |||||||
|
Cash Provided By/(Used In):
|
||||||||
|
Operating Activities from Continuing Operations
|
$ | 131.0 | $ | 98.1 | ||||
|
Investing Activities from Continuing Operations
|
(15.5 | ) | 7.6 | |||||
|
Financing Activities from Continuing Operations
|
(103.8 | ) | (137.9 | ) | ||||
|
Discontinued Operations
|
0.6 | 8.2 | ||||||
|
Net Increase/(Decrease) in Cash and Cash Equivalents
|
$ | 12.3 | $ | (24.0 | ) | |||
During the year ended December 31, 2009, the Company’s
cash flow from continuing operations totaled
$131.0 million, primarily the result of a net decrease in
assets and liabilities of $99.9 million and depreciation
and amortization of $32.4 million. Net cash provided by
operating activities for 2008 was $98.1 million and was
primarily the result of net income from continuing operations of
$33.4 million combined with depreciation and amortization
of $33.9 million and a decrease in working capital
requirements of $18.4 million.
As noted above, the Company generated $99.9 million of cash
flow from a net decrease in assets and liabilities. This cash
flow was primarily a result of a reduction in working capital.
The following table summarizes the changes in working capital
during 2009 (in thousands):
| December 31, | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
|
Cash
|
$ | 23,596 | $ | 11,308 | $ | 12,288 | ||||||
|
Accounts receivable, net
|
93,421 | 123,272 | (29,851 | ) | ||||||||
|
Inventory
|
107,770 | 189,935 | (82,165 | ) | ||||||||
|
Other current assets
|
25,709 | 22,228 | 3,481 | |||||||||
|
Assets from discontinued operations
|
655 | 1,486 | (831 | ) | ||||||||
|
Total current assets
|
251,151 | 348,229 | (97,078 | ) | ||||||||
|
Accounts payable
|
68,464 | 76,168 | 7,704 | |||||||||
|
Accrued expenses
|
40,144 | 46,305 | 6,161 | |||||||||
|
Current portion of long-term debt
|
408 | 2,728 | 2,320 | |||||||||
|
Total current liabilities
|
109,016 | 125,201 | 16,185 | |||||||||
|
Working capital
|
$ | 142,135 | $ | 223,028 | $ | (80,893 | ) | |||||
The 36.3% decrease in working capital during 2009 was primarily
driven by our focus on working capital efficiency and inventory
management. The accounts receivable balance decreased as a
result of the decline in sales volume during the fourth quarter
of 2009 compared to the comparable period in 2008. The
significant decrease in inventory was the result of decreased
raw material costs along with initiatives to reduce raw material
purchases, reduce our investment in inventories on hand, and
maximize liquidity. Accounts payable decreased $7.7 million
as a result of our initiatives to reduce our investment in
inventories. The decrease in accrued expenses is primarily a
result of lower accruals for annual incentive compensation
awards and other compensation. The current portion of debt
decreased as a result of the early repayment of all amounts
outstanding under the term loan included in the Senior Credit
Agreement.
34
Table of Contents
Net cash used in investing activities from continuing operations
during 2009 was $15.5 million. During 2009, investing
activities primarily consisted of capital expenditures of
$10.8 million and $4.9 million of additional
consideration for prior acquisitions. Cash flow from investing
activities of $7.6 million during 2008 primarily resulted
from cash proceeds of $35.2 million received from the sale
of SCM partially offset by capital expenditures of
$21.6 million and additional consideration for prior
acquisitions of $8.7 million. Capital expenditures
decreased $10.8 million, or 50.0%, during 2009 compared to
the prior year as a result of our focus on preserving capital
and liquidity throughout 2009.
Net cash used in financing activities from continuing operations
during 2009 was $103.8 million, consisting primarily of net
payments of $99.4 million on long-term debt, payments of
deferred financing costs of $2.4 million related to the
amendment and restatement of the Senior Credit Agreement, and
dividend payments of $1.5 million. Net cash used in
financing activities from continuing operations for 2008 was
$137.9 million, consisting primarily of net payments of
$131.5 million on long-term debt and dividend payments of
$6.0 million. Payments of long-term debt made during 2009
and 2008 were the result of cash flows generated from operations
offset by investing activities.
Senior
Credit Agreement and Senior Subordinated Notes
Borrowings under the Senior Credit Agreement are secured by the
trade receivables, inventory, personal property and equipment,
and certain real property of the Company’s significant
domestic subsidiaries. The Senior Credit Agreement provides for
a revolving credit facility and letters of credit in an
aggregate amount that does not exceed the lesser of
(i) $200 million or (ii) a borrowing base
determined by reference to the trade receivables, inventories,
and property, plant, and equipment of the Company’s
significant domestic subsidiaries. The Senior Credit Agreement
also provided a term loan originally aggregating
$58.7 million, which has been subsequently repaid in full
during the fourth quarter of 2009. The revolving credit facility
is committed through August 30, 2012. Borrowings on the
revolving credit facility and term loan bear interest at a
variable interest rate based upon the London Interbank Offered
Rate (LIBOR), with a LIBOR floor of 1.50%, plus 3.25% and 3.75%,
respectively, or at the Company’s option, an alternate base
rate. The revolving credit facility also carries an annual
facility fee of 0.50% on the entire facility, whether drawn or
undrawn, and fees on outstanding letters of credit which are
payable quarterly. As of December 31, 2009, we had
$69.7 million of availability under the revolving credit
facility.
As of December 31, 2009, the only amounts outstanding under
the Senior Credit Agreement included borrowings of
$50.0 million under the revolving credit facility and
outstanding letters of credit of $14.2 million as all
amounts outstanding under the term loan were repaid by the end
of 2009. During 2009, we borrowed $83.0 million and repaid
$122.1 million on the revolving credit facility and made
payments of $59.9 million on the term loan.
The Company’s $204.0 million of Senior Subordinated
8% Notes (8% Notes) were issued in December 2005 at a
discount to yield 8.25%. Provisions of the 8% Notes
include, without limitation, restrictions on indebtedness,
liens, and distributions from restricted subsidiaries, asset
sales, affiliate transactions, dividends and other restricted
payments. Dividend payments are subject to annual limits of
$0.25 per share and $10 million. After December 1,
2010, the 8% Notes are redeemable at the option of the
Company, in whole or in part, at the redemption price (as
defined in the Senior Subordinated 8% Notes Indenture),
which declines annually from 104% to 100% on and after
December 1, 2013. In the event of a Change in Control (as
defined in the Senior Subordinated 8% Notes Indenture),
each holder of the 8% Notes may require the Company to
repurchase all or a portion of such holder’s 8% Notes
at a purchase price equal to 101% of the principal amount
thereof. At December 31, 2009, we had $201.7 million,
net of discount, of our 8% Notes outstanding.
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Table of Contents
Each of our significant domestic subsidiaries has guaranteed the
obligations under the Senior Credit Agreement. Debt outstanding
under the Senior Credit Agreement and the related guarantees are
secured by a first priority security interest (subject to
permitted liens as defined in the Senior Credit Agreement) in
substantially all the tangible and intangible assets of our
Company and our material domestic subsidiaries, subject to
certain exceptions, and a pledge of 100% of the stock of our
significant domestic subsidiaries and a pledge of 65% of the
voting stock of our foreign subsidiaries. The 8% Notes are
guaranteed by each of our significant domestic subsidiaries.
The Senior Credit Agreement includes a financial covenant that
requires the Company to maintain a minimum Earnings Before
Interest, Taxes, Depreciation, and Amortization (EBITDA as
defined in the 2009 Senior Credit Agreement) for the
year-to-date
periods ending June 30, 2009, September 30, 2009, and
December 31, 2009. This covenant will not be tested after
December 31, 2009. As of December 31, 2009, the
Company was in compliance with the minimum EBITDA covenant.
Beginning on March 31, 2010 and quarterly thereafter on a
trailing four-quarter basis, the Senior Credit Agreement
includes a single financial covenant that requires the Company
to maintain a minimum fixed charge coverage ratio of 1.25 to
1.00. Management expects to be in compliance with the fixed
charge ratio throughout 2010. The Senior Credit Agreement
contains other provisions and events of default that are
customary for similar agreements and may limit the
Company’s ability to take various actions. The Senior
Subordinated 8% Notes Indenture also contains provisions
that limit additional borrowings based on the Company’s
consolidated coverage ratio.
Off
Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Contractual
Obligations
The following table summarizes by category our Company’s
expected future cash outflows associated with contractual
obligations in effect at December 31, 2009 (in thousands):
| Payments Due by Period | ||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
|
Contractual Obligation
|
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
|
Variable rate debt
|
$ | 55,632 | $ | 428 | $ | 50,804 | $ | 800 | $ | 3,600 | ||||||||||
|
Interest on variable rate debt(1)
|
6,471 | 2,394 | 3,992 | 28 | 57 | |||||||||||||||
|
Fixed rate debt
|
201,650 | — | — | — | 201,650 | |||||||||||||||
|
Interest on fixed rate debt
|
96,560 | 16,320 | 32,640 | 32,640 | 14,960 | |||||||||||||||
|
Operating lease obligations
|
46,394 | 11,990 | 18,014 | 9,514 | 6,876 | |||||||||||||||
|
Pension and other post-retirement obligations
|
6,578 | 537 | 1,265 | 1,365 | 3,411 | |||||||||||||||
|
Performance stock unit awards(2)
|
1,601 | — | 1,601 | — | — | |||||||||||||||
|
Management stock purchase plan(3)
|
890 | 233 | 466 | 191 | — | |||||||||||||||
|
Employment agreements
|
550 | 550 | — | — | — | |||||||||||||||
|
Total(4)
|
$ | 416,326 | $ | 32,452 | $ | 108,782 | $ | 44,538 | $ | 230,554 | ||||||||||
| (1) | Calculated using the interest rate in effect at December 31, 2009, assuming no payments were made to reduce the revolving credit facility until its maturity date. | |
| (2) | Equals the liability accrued as of December 31, 2009 which equals the portion of the awards that have recognized under US GAAP based on a the fair value of the awards, the vesting period of the awards, and the amount of the vesting period that has expired since the grant date. | |
| (3) | Includes amounts due to retired participants of the Management Stock Purchase Plan (MSPP). Excludes the future payments due to active participants of the MSPP, which represents a liability of approximately $3.1 million as of December 31, 2009. Future payments to active participants cannot be accurately estimated as we are uncertain of when active participants’ service to the Company will terminate. | |
| (4) | Excludes liabilities for uncertain tax positions of $2.2 million. We have not included the liabilities for uncertain tax positions as we cannot make reliable estimates of the period of cash settlement. |
36
Table of Contents
Critical
Accounting Policies
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make decisions based upon
estimates, assumptions, and factors it considers relevant to the
circumstances. Such decisions include the selection of
applicable principles and the use of judgment in their
application, the results of which could differ from those
anticipated.
A summary of the Company’s significant accounting policies
are described in Note 1 of the Company’s consolidated
financial statements included in Item 8 of this Annual
Report on
Form 10-K.
Our most critical accounting policies include:
| • | valuation of accounts receivable, which impacts selling, general, and administrative expense; | |
| • | valuation of inventory, which impacts cost of sales and gross margin; | |
| • | the allocation of the purchase price of our acquisition-related assets and liabilities, which affects our depreciation and amortization costs; | |
| • | the assessment of recoverability of goodwill and other intangible and long-lived assets, which impacts write-offs of goodwill, intangibles, and long-lived assets; and | |
| • | accounting for income taxes and deferred tax assets and liabilities, which impacts the provision for income taxes. |
Management reviews the estimates, including the allowance for
doubtful accounts and inventory reserves, on a regular basis and
makes adjustments based on historical experience, current
conditions, and future expectations. Management believes these
estimates are reasonable, but actual results could differ from
these estimates.
Valuation of Accounts Receivable.
Our accounts
receivable represent those amounts that have been billed to our
customers but not yet collected. As of December 31, 2009
and 2008, allowances for doubtful accounts of $7.2 million
and $6.7 million, or 7% and 5% of gross accounts
receivable, were recorded, respectively. We record an allowance
for doubtful accounts based on the portion of those accounts
receivable that we believe are potentially uncollectible based
on various factors, including historical experience,
creditworthiness of customers, and current market and economic
conditions. If the financial condition of customers were to
deteriorate, resulting in impairment of their ability to make
payments, additional allowances may be required. Changes in
judgments on these factors could impact the timing of costs
recognized.
Valuation of Inventories.
We state our
inventories at the lower of cost or market. We determine the
cost basis of our inventory on a
first-in-first-out
basis using either actual costs or a standard cost methodology
that approximates actual cost. On a regular basis, we calculate
an estimated market value of our inventory, considered to be the
prevailing selling price for the inventory less the cost to
complete and sell the product. We compare the current carrying
value of our inventory to the estimated market value to
determine whether a reserve to value inventory at the lower of
cost or market is necessary. We recorded charges of
$2.3 million and $0.3 million during the years ended
December 31, 2009 and 2008, respectively, to value our
inventory at the lower of cost or market. No charges to value
inventory at the lower of cost or market were recorded during
the year ended December 31, 2007.
We regularly review inventory on hand and record provisions for
excess, obsolete, and slow-moving inventory based on historical
and current sales trends. We recorded reserves for excess,
obsolete, and slow-moving inventory of $5.2 million and
$5.0 million, or 5% and 3% of gross inventories, as of
December 31, 2009 and 2008, respectively. Changes in
product demand and our customer base may affect the value of
inventory on hand, which may require higher provisions for
obsolete inventory.
37
Table of Contents
Allocation of Purchase Price to Acquired Assets and
Liabilities.
When we acquire a new business, we
must allocate the purchase price to the assets acquired and the
liabilities assumed in the transaction at their respective
estimated fair market values. We record any premium over the
fair market value of the net assets acquired as goodwill. The
allocation of the purchase price involves judgments and
estimates both in characterizing the assets and in determining
their fair market value. The way we characterize the assets has
important implications, as long-lived assets with definitive
lives, for example, are depreciated or amortized, whereas
goodwill is tested annually for impairment, as explained below.
With respect to determining the fair market value of assets, the
most difficult estimations of individual fair market values are
those involving long-lived assets, such as property, plant, and
equipment and identified intangible assets. We use all available
information to make these fair market value determinations and
engage an independent valuation specialist to assist in the fair
market value determination of the acquired long-lived assets.
The following summarizes the amount of purchase price allocated
to property, plant, and equipment, identified intangible assets,
and goodwill for the acquisitions we completed most recently in
2007 (in millions):
|
Initial
|
Property,
|
Identified
|
||||||||||||||||||
|
Purchase
|
Plant, and
|
Intangible
|
Other Net
|
|||||||||||||||||
|
Acquisition
|
Price | Equipment | Assets | Goodwill | Assets | |||||||||||||||
|
Dramex Corporation
|
$ | 22.7 | $ | 5.2 | $ | 3.7 | $ | 11.5 | $ | 2.3 | ||||||||||
|
Noll Manufacturing Company and affiliates
|
$ | 63.7 | $ | 34.0 | $ | 7.0 | $ | — | $ | 22.7 | ||||||||||
|
Florence Corporation
|
$ | 125.9 | $ | 12.5 | $ | 31.8 | $ | 67.0 | $ | 14.6 | ||||||||||
Due to the subjectivity inherent in determining the estimated
fair market value of long-lived assets and the significant
number of business acquisitions that we have completed, we
believe that the recording of acquired assets and liabilities is
a critical accounting policy.
Impairment of Depreciable and Amortizable Long-lived
Assets.
We test long-lived assets for impairment
when events or changes in circumstances indicate that the
carrying amount of those assets may not be recoverable and
exceed their fair market value. The following summarizes the
value of long-lived assets subject to impairment testing when
events or circumstances indicate potential impairment as of
December 31, 2009 (in millions):
|
Balance as of
|
||||
| December 31, 2009 | ||||
|
Property, plant, and equipment, net
|
$ | 227.4 | ||
|
Acquired intangibles with estimable useful lives
|
$ | 41.6 | ||
|
Other assets
|
$ | 18.0 | ||
Impairment exists if the carrying amount of the asset in
question exceeds the sum of the undiscounted cash flows expected
to result from the use of the asset. The impairment loss would
be measured as the amount by which the carrying amount of a
long-lived asset exceeds its fair value as determined by
discounted cash flow method, an independent market appraisal of
the asset, or another acceptable valuation technique.
Goodwill and Other Indefinite-lived Intangible Asset
Impairment Testing.
Our goodwill and
indefinite-lived intangible asset balances of
$392.7 million and $40.6 million as of
December 31, 2009, respectively, are subject to impairment
testing. We test goodwill and indefinite-lived intangible assets
for impairment at least annually, as of October 31, and
more frequently whenever events occur or circumstances change
that indicate the assets may be impaired. These events or
circumstances could include a significant long-term adverse
change in the business climate, poor indicators of operating
performance, or a sale or disposition of a significant portion
of a reporting unit. During 2009, we tested goodwill and other
indefinite-lived intangible assets for impairment as of March 31
and June 30 based on lower than forecasted sales volume, revised
long-term growth expectations, and a book value of equity in
excess of market capitalization. We also continued to test for
impairment as of our annual assessment date of October 31.
38
Table of Contents
We test goodwill at the reporting unit level, which is one level
below our operating segments. We identify our reporting units by
assessing whether the components of our operating segments
constitute businesses for which discrete financial information
is available and segment management regularly reviews the
operating results of those components. We have identified 11
reporting units with goodwill.
The goodwill impairment test consists of comparing the fair
value of a reporting unit, determined using two valuation
methods, with its carrying amount including goodwill. If the
carrying amount of the reporting unit exceeds the reporting
unit’s fair value, the implied fair value of goodwill is
compared to the carrying amount of goodwill. An impairment loss
would be recognized for the amount by which the carrying amount
of goodwill exceeds the implied fair value of goodwill.
The two valuation methods used to determine the fair value of
each reporting unit consist of an income approach and a market
approach. The income approach includes a discounted cash flow
model which requires us to use significant estimates and
judgmental factors. The key estimates and factors used in our
discounted cash flow model include revenue growth rates and
profit margins based on internal forecasts, terminal value, and
the weighted-average cost of capital used to discount future
cash flows. The market approach consists of applying an EBITDA
(Earnings Before Interest, Taxes, Depreciation, and
Amortization) multiple to the forecasted EBITDA to be generated
by each reporting unit in 2009 and 2010. This approach also
relies on key estimates and judgmental factors including revenue
growth rates and profit margins based on internal forecasts and
the EBITDA multiple selected from an analysis of peer companies.
Revenue growth forecasted for 2010 ranged from a 40% increase to
a 2% decline compared to 2009 revenue amounts with further
increases in revenues forecasted in 2011 and beyond for all
reporting units. The compound annual growth rate for revenue
during the first five years of our projections ranged between 3%
and 18%, with the higher growth rates in those businesses that
have experienced sharp declines due to the downturn in the
residential housing market. The terminal value was calculated
assuming projected growth rates of 3.0% after five years which
reflects our estimate of long-term gross domestic product
growth. Operating profit margins were projected to return to
historical norms by 2014 in the individual reporting units as we
expect the residential housing industry to recover over the next
few years. The estimated weighted-average cost of capital was
determined to be between 11.9% and 12.9% based upon an analysis
of similar companies including their
debt-to-equity
ratio, related volatility, and the size of their market
capitalization. The multiples were estimated between 4.6 and 6.1
times 2009 EBITDA and between 6.0 and 7.5 times 2010 EBITDA
based on an analysis of peer companies, including their EBITDA,
market capitalization, and net debt balance. Each reporting unit
was assigned a different weighted-average cost of capital and
EBITDA multiple based on our perceived risk of each reporting
unit reaching its forecasted cash flow targets. Future changes
in these estimates and assumptions could materially affect the
results of our goodwill impairment tests.
As a result of the significant decline in expected future sales
volume, we determined goodwill was impaired as of our
March 31, 2009 and October 31, 2009 impairment tests
and recorded $59.0 million of goodwill impairment charges
during 2009. We projected a decrease in future sales for three
reporting units, which led to a decreased fair value for each of
these reporting units. If our reporting units do not experience
forecasted revenue growth or do not generate higher operating
margins when economic conditions improve, an additional goodwill
impairment charge could be recorded. The remaining goodwill
assigned to these reporting units equaled $42.9 million as
of December 31, 2009. No goodwill impairments were recorded
during the years ended December 31, 2008 and 2007.
Other than the three reporting which recorded goodwill
impairment charges as a result of our October 31, 2009
test, the fair value of each reporting unit exceeded its
carrying value by more than 10% except for two reporting units
reported as components of our Building Products segment. The
fair value of these reporting units exceeded their carrying
values by 9% and 4%, respectively. Goodwill assigned to these
reporting units equaled $21.7 million and
$18.3 million as of December 31, 2009.
39
Table of Contents
While any assumption could reasonably differ from those we used,
we believe the overall fair values of our reporting units are
reasonable as the values are derived from reasonable
assumptions. The following table provides a sensitivity analysis
regarding the eight reporting units with a fair value in excess
of their carrying value as of our October 31, 2009 goodwill
impairment test:
| Number of Reporting Units | ||||||||||
|
With Fair Value
|
||||||||||
|
Exceeding
|
With Carrying Value
|
|||||||||
|
Change in
|
Carrying Value by Less
|
in Excess of Fair
|
||||||||
|
Assumption
|
Assumption
|
Than 10% | Value | |||||||
| Weighted-average Cost of Capital | 100 Basis Point Increase | 4 | 1 | |||||||
|
Terminal Growth
|
100 Basis Point Decrease | 3 | 1 | |||||||
|
EBITDA Multiple
|
1.0 Decrease | 4 | 1 | |||||||
We test our indefinite-lived intangible assets for impairment by
comparing the fair value of the indefinite-lived intangible
asset, determined using discounted cash flows, with its carrying
amount. An impairment loss would be recognized for the carrying
amount in excess of its fair value. We recognized impairment
charges of $1.1 million for indefinite-lived intangible
assets as a result of our October 31, 2009 impairment test.
No impairment of our indefinite-lived intangible assets was
recorded for the years ended December 31, 2008 and 2007.
Accounting for Income Taxes and Deferred Tax Assets and
Liabilities.
Significant management judgment is
required in determining our provision for income taxes, deferred
tax assets and liabilities, and any valuation allowance. Our
effective tax rates differ from the statutory rate due to the
impact of permanent differences between financial statement and
tax income, provisions for uncertain tax positions, state taxes,
and income generated by international operations. Our effective
tax rate was 33.2%, 36.9%, and 39.3%, for 2009, 2008, and 2007,
respectively. Our future effective tax rates could be adversely
affected by earnings being lower than anticipated in countries
where we have lower statutory rates and vice versa. Changes in
the valuation of our deferred tax assets or liabilities or
changes in tax laws or interpretations thereof may also
adversely affect our future effective tax rate. In addition, we
are subject to the continuous examination of our income tax
returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse
outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes.
Deferred tax assets and liabilities are determined based upon
the differences between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates that
will be in effect when these differences reverse. Valuation
allowances are provided if based upon the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
During the year ended December 31, 2009, deferred income
tax liabilities decreased primarily as a result of the tax
effect of the $60.1 million intangible asset impairment
charges. Deferred income tax assets increased primarily due to
additional equity compensation recognized during 2009. Regarding
deferred income tax assets, we maintained valuation allowances
of $1.7 million and $2.6 million for the years ended
December 31, 2009 and 2008, respectively, due to
uncertainties related to our ability to utilize these assets,
primarily consisting of capital losses and state net operating
losses. The valuation allowances are based on estimates of
taxable income in each of the jurisdictions in which we operate
and the period over which our deferred tax assets will be
recoverable. If market conditions improve and future results of
operations exceed our current expectations, our existing tax
valuation allowances may be adjusted, resulting in future tax
benefits. Alternatively, if market conditions deteriorate
further or future results of operations are less than expected,
future assessments may result in a determination that some or
all of the deferred tax assets are not realizable. As a result,
we may need to establish additional tax valuation allowances for
all or a portion of the gross deferred tax assets, which may
have a material adverse effect on our business, results of
operations and financial condition.
It is the Company’s policy to record estimated interest and
penalties to the tax authorities as income tax expense and tax
credits as a reduction in income tax expense. During the years
ended December 31, 2009, 2008, and 2007, we recognized
$0.2 million, $0.1 million, and $0.1 million of
interest (net of federal tax benefit) and penalties,
respectively.
40
Table of Contents
In June 2006, the Financial Accounting Standards Board issued
guidance now codified in the Accounting Standards Codification
Topic 740, “Income Taxes,” related to “Accounting
for Uncertainty in Income Taxes”, which we adopted
January 1, 2007. The guidance addresses the determination
of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements.
Accordingly, the Company must recognize the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The
tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon
ultimate resolution. The result of the Company’s
reassessment of its tax positions upon adoption of the guidance
resulted in a $0.8 million increase in tax liabilities with
a corresponding reduction in retained earnings as of
January 1, 2007. As of December 31, 2009 and 2008, the
liability for uncertain income tax positions was
$2.2 million and $2.5 million, respectively. We
reduced our reserve for uncertain tax positions after the
Internal Revenue Service concluded their examination of our
income tax returns for 2007, 2006, and 2005 and Her
Majesty’s Revenue and Customs (United Kingdom) concluded
their examination of our tax returns for 2007 and 2006. Due to
the high degree of uncertainty regarding the timing of potential
future cash flows associated with these liabilities, we are
unable to make a reasonably reliable estimate of the amount and
period in which these liabilities might be paid.
Related
Party Transactions
Two members of the Company’s Board of Directors, Gerald S.
Lippes and Arthur A. Russ, Jr., are partners in law firms
that provide legal services to the Company. During the years
ended December 31, 2009, 2008, and 2007, the Company
incurred $1.2 million, $1.7 million, and
$2.2 million for legal services from these firms,
respectively. Of the amounts incurred $0.1 million and
$0.7 million were capitalized as deferred debt issuance
costs and acquisition costs during 2009 and 2007, respectively.
All other amounts were recorded as expenses when incurred. At
December 31, 2009 and 2008, the Company had
$0.2 million and $0.3 million recorded in accounts
payable for these law firms, respectively.
A member of the Company’s Board of Directors, Robert E.
Sadler, Jr., is Vice Chairman of the Board of M&T Bank
Corporation, one of the 11 participating lenders which have
committed capital to our $200 million revolving credit
facility in the Company’s Third Amended and Restated Credit
Agreement dated July 24, 2009 (the Senior Credit
Agreement). The Senior Credit Agreement provides a revolving
credit facility and a term loan. At December 31, 2009,
$50.0 million was outstanding on the revolving credit
facility. All amounts outstanding under the term loan were
repaid as of December 31, 2009. At December 31, 2008,
$89.1 million and $59.9 million were outstanding on
the revolving credit facility and term loan, respectively.
During 2009, the largest aggregate amount of principal
outstanding under the revolving credit facility was
$99.0 million. The aggregate amount of principal and
interest paid during the year ended December 31, 2009 was
$182.0 million and $4.3 million, respectively, for
amounts outstanding under the revolving credit facility and term
loan.
Borrowings under the Senior Credit Agreement bear interest at a
variable rate based upon the London Interbank Offered Rate
(LIBOR), with a LIBOR floor of 1.50%, plus 3.25% for revolving
credit facility borrowings and 3.75% for term loan borrowings
or, at the Company’s option, an alternate base rate. The
revolving credit facility also carries an annual facility fee of
0.50% on the entire facility, whether drawn or undrawn, and fees
on outstanding letters of credit which are payable quarterly.
The Company was party to a consulting agreement it entered into
January 1, 2003 with Neil E. Lipke, a former officer of the
Company and a brother of Brian J. Lipke, a Director and Officer
of the Company, in effect through December 2007. Under this
consulting agreement, Neil E. Lipke received $125,000 per year
in cash and insurance benefits at levels that were provided
during his employment in exchange for providing consulting
services to the Company. During the year ended December 31,
2007, the Company paid Neil E. Lipke $0.1 million to
provide him with these benefits.
41
Table of Contents
Recent
Accounting Pronouncements
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 820, “Fair Value Measurements and Disclosures,”
which provides additional guidance for estimating fair value
when the volume and level of activity for the asset or liability
have significantly decreased. This guidance also includes
provisions for identifying circumstances that indicate a
transaction is not orderly. The provisions of this guidance are
effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively. The
Company adopted the provisions of this guidance during the year
ended December 31, 2009 and its impact on the
Company’s consolidated financial position, cash flows, and
results of operations was not significant.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 825, “Financial Instruments,” which amends
previous Topic 825 guidance to require disclosures about the
fair value of financial instruments for interim periods of
publicly traded companies as well as in annual financial
statements. This guidance also amends previous guidance in FASB
ASC Topic 270, “Interim Reporting,” to require those
disclosures in summarized financial information at interim
reporting periods. The Company adopted the provisions of this
guidance during the year ended December 31, 2009 and its
impact on the Company’s disclosures was not significant.
In May 2009, the FASB issued guidance now codified as FASB ASC
Topic 855, “Subsequent Events,” to establish
principles and requirements for subsequent events. The guidance
sets forth the date after the balance sheet date during which
management of a reporting entity shall evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements. The guidance also
identifies the circumstances under which an entity shall
recognize events or transactions occurring after the balance
sheet date. The guidance is effective for interim or annual
financial periods ending after June 15, 2009, and shall be
applied prospectively. The Company adopted the provisions of the
guidance during the year ended December 31, 2009 and its
impact on the Company’s disclosures was not significant.
In June 2009, the FASB issued guidance now codified as FASB ASC
Topic 810, “Consolidation,” which amends previous
Topic 810 guidance to improve financial reporting by enterprises
involved with variable interest entities and to provide more
relevant and reliable information to users of financial
statements. This guidance shall be effective as of the beginning
of each reporting entity’s first annual reporting period
that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and
annual reporting periods thereafter. The Company does not
believe the provisions of this guidance will have a significant
impact on the Company’s consolidated financial position,
cash flows, or results of operations.
In June 2009, the FASB issued guidance now codified as FASB ASC
Topic 125, “Generally Accepted Accounting Principles,”
identifying the sources of accounting principles and the
framework for selecting the principles used in the preparation
of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles in the United States. This guidance does not change
current US generally accepted accounting principles, but is
intended to simplify user access to all authoritative US
generally accepted accounting principles by providing all
authoritative literature related to a particular topic in one
place. The provisions of FASB ASC Topic 125 are effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. The Company adopted the
provisions of this guidance during the year ended
December 31, 2009, which did not have a significant impact
on the Company’s consolidated financial statements other
than changing the method used to refer to U.S. generally
accepted accounting principles with the Company’s
disclosures.
In August 2009, the FASB issued Accounting Standards Update
(Update)
2009-05,
“Fair Value Measurements and Disclosures (Topic 820)”.
Update
2009-05
provides amendments to Topic 820, “Fair Value Measurements
and Disclosures,” for the fair value measurement of
liabilities. Update
2009-05
is
effective for the first reporting period (including interim
periods) beginning after issuance. The Company adopted the
provisions of Update
2009-05
during the year ended December 31, 2009 and its impact on
the Company’s consolidated financial positions, cash flows,
and results of operations was not significant.
42
Table of Contents
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
In the ordinary course of business, the Company is exposed to
various market risk factors, including changes in general
economic conditions, competition, and raw materials pricing and
availability. In addition, the Company is exposed to market
risk, primarily related to its long-term debt. To manage
interest rate risk, the Company uses both fixed and variable
interest rate debt. The Company also entered into an interest
rate swap agreement that converted a portion of its variable
rate debt to fixed rate debt. During December 31, 2009, we
de-designated borrowings as being hedged under our
$57.5 million interest rate swap agreement as a result of
entering into our Third Amended and Restated Credit Agreement
dated July 24, 2009. Accordingly, beginning in the third
quarter of 2009 and continuing prospectively, changes in the
fair value of the interest rate swap are recorded as gains and
losses through our consolidated statement of operations as
opposed to accumulated other comprehensive income, a component
of shareholders’ equity.
The following table summarizes the principal cash flows and
related interest rates of the Company’s long-term debt at
December 31, 2009 by expected maturity dates. The weighted
average interest rates are based on the actual rates that
existed at December 31, 2009. The variable rate debt
consists primarily of the revolving credit facility, of which
$50.0 million is outstanding at December 31, 2009. A
hypothetical 1% increase or decrease in interest rates would
have changed the 2009 interest expense by approximately
$1.1 million. Dollar amounts in the following are in
thousands:
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
|
Long-term debt (fixed)(1)
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 201,650 | $ | 201,650 | ||||||||||||||
|
Weighted average interest rate
|
8.25 | % | 8.25 | % | 8.25 | % | 8.25 | % | 8.25 | % | 8.25 | % | ||||||||||||||||
|
Long-term debt (variable)(1)
|
$ | 428 | $ | 404 | $ | 50,400 | $ | 400 | $ | 400 | $ | 3,600 | $ | 55,632 | ||||||||||||||
|
Weighted average interest rate
|
4.32 | % | 4.35 | % | 4.22 | % | 0.35 | % | 0.35 | % | 0.35 | % | ||||||||||||||||
|
Interest rate swap (notional amount)(2)
|
$ | 57,500 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 57,500 | ||||||||||||||
|
Interest pay rate
|
5.03 | % | — | — | — | — | — | |||||||||||||||||||||
|
Interest receive rate
|
0.29 | % | — | — | — | — | — | |||||||||||||||||||||
| (1) | The fair value of the Company’s long-term debt was $252.5 million at December 31, 2009. | |
| (2) | Represents the notional amount on which interest payments and receipts are determined under the interest rate swap, there is no exchange of principal under the interest rate swap agreement. |
43
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
|
Page
|
||||
| Number | ||||
|
Financial Statements
|
||||
| 45 | ||||
| 46 | ||||
| 47 | ||||
| 48 | ||||
| 49 | ||||
| 50 | ||||
|
Supplementary Data:
|
||||
| 89 | ||||
44
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Gibraltar Industries,
Inc.
We have audited the accompanying consolidated balance sheets of
Gibraltar Industries, Inc. as of December 31, 2009 and
2008, and the related consolidated statements of operations,
shareholders’ equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Gibraltar Industries, Inc. at
December 31, 2009 and 2008 and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Notes 1 and 16 to the consolidated
financial statements, on January 1, 2007 the Company
changed its method of accounting for uncertainty in income taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Gibraltar Industries, Inc.’s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 25, 2010
expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
Buffalo, New York
February 25, 2010
45
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net sales
|
$ | 834,218 | $ | 1,232,299 | $ | 1,198,715 | ||||||
|
Cost of sales
|
709,239 | 1,003,513 | 989,925 | |||||||||
|
Gross profit
|
124,979 | 228,786 | 208,790 | |||||||||
|
Selling, general, and administrative expense
|
116,915 | 147,317 | 133,049 | |||||||||
|
Intangible asset impairment
|
60,098 | — | — | |||||||||
|
(Loss) income from operations
|
(52,034 | ) | 81,469 | 75,741 | ||||||||
|
Interest expense
|
(25,915 | ) | (29,235 | ) | (32,498 | ) | ||||||
|
Equity in partnerships’ income and other income
|
316 | 724 | 1,172 | |||||||||
|
(Loss) income before taxes
|
(77,633 | ) | 52,958 | 44,415 | ||||||||
|
(Benefit of) provision for income taxes
|
(25,761 | ) | 19,553 | 17,476 | ||||||||
|
(Loss) income from continuing operations
|
(51,872 | ) | 33,405 | 26,939 | ||||||||
|
Discontinued operations:
|
||||||||||||
|
Loss from discontinued operations before taxes
|
(731 | ) | (10,948 | ) | (16,235 | ) | ||||||
|
Benefit of income taxes
|
(578 | ) | (1,611 | ) | (2,520 | ) | ||||||
|
Loss from discontinued operations
|
(153 | ) | (9,337 | ) | (13,715 | ) | ||||||
|
Net (loss) income
|
$ | (52,025 | ) | $ | 24,068 | $ | 13,224 | |||||
|
Net (loss) income per share — Basic:
|
||||||||||||
|
(Loss) income from continuing operations
|
$ | (1.72 | ) | $ | 1.11 | $ | 0.90 | |||||
|
Loss from discontinued operations
|
(0.01 | ) | (0.31 | ) | (0.46 | ) | ||||||
|
Net (loss) income per share — Basic
|
$ | (1.73 | ) | $ | 0.80 | $ | 0.44 | |||||
|
Weighted average shares outstanding — Basic
|
30,135 | 29,981 | 29,867 | |||||||||
|
Net (loss) income per share — Diluted:
|
||||||||||||
|
(Loss) income from continuing operations
|
$ | (1.72 | ) | $ | 1.11 | $ | 0.89 | |||||
|
Loss from discontinued operations
|
(0.01 | ) | (0.31 | ) | (0.46 | ) | ||||||
|
Net (loss) income per share — Diluted
|
$ | (1.73 | ) | $ | 0.80 | $ | 0.43 | |||||
|
Weighted average shares outstanding — Diluted
|
30,135 | 30,193 | 30,116 | |||||||||
The accompanying notes are an integral part of these
consolidated financial statements
46
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 23,596 | $ | 11,308 | ||||
|
Accounts receivable, net
|
93,421 | 123,272 | ||||||
|
Inventories
|
107,770 | 189,935 | ||||||
|
Other current assets
|
25,709 | 22,228 | ||||||
|
Assets of discontinued operations
|
655 | 1,486 | ||||||
|
Total current assets
|
251,151 | 348,229 | ||||||
|
Property, plant, and equipment, net
|
227,420 | 243,619 | ||||||
|
Goodwill
|
392,704 | 443,925 | ||||||
|
Acquired intangibles
|
82,182 | 87,373 | ||||||
|
Investment in partnership
|
2,474 | 2,477 | ||||||
|
Other assets
|
18,037 | 20,736 | ||||||
| $ | 973,968 | $ | 1,146,359 | |||||
| Liabilities and Shareholders’ Equity | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 68,464 | $ | 76,168 | ||||
|
Accrued expenses
|
40,144 | 46,305 | ||||||
|
Current maturities of long-term debt
|
408 | 2,728 | ||||||
|
Total current liabilities
|
109,016 | 125,201 | ||||||
|
Long-term debt
|
256,874 | 353,644 | ||||||
|
Deferred income taxes
|
62,832 | 79,514 | ||||||
|
Other non-current liabilities
|
17,020 | 19,513 | ||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock $.01 par value; authorized
10,000,000 shares; none outstanding
|
— | — | ||||||
|
Common stock, $.01 par value; authorized
50,000,000 shares; 30,295,084 and 30,061,550 shares
issued at December 31, 2009 and 2008, respectively
|
303 | 301 | ||||||
|
Additional paid-in capital
|
227,362 | 223,561 | ||||||
|
Retained earnings
|
303,982 | 356,007 | ||||||
|
Accumulated other comprehensive (loss) income
|
(2,230 | ) | (10,825 | ) | ||||
|
Cost of 150,903 and 75,050 common shares held in treasury at
December 31, 2009 and 2008, respectively
|
(1,191 | ) | (557 | ) | ||||
|
Total shareholders’ equity
|
528,226 | 568,487 | ||||||
| $ | 973,968 | $ | 1,146,359 | |||||
The accompanying notes are an integral part of these
consolidated financial statements
47
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||
|
Net (loss) income
|
$ | (52,025 | ) | $ | 24,068 | $ | 13,224 | |||||
|
Loss from discontinued operations
|
(153 | ) | (9,337 | ) | (13,715 | ) | ||||||
|
(Loss) income from continuing operations
|
(51,872 | ) | 33,405 | 26,939 | ||||||||
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
32,413 | 33,907 | 30,952 | |||||||||
|
Intangible asset impairment
|
60,098 | — | — | |||||||||
|
Provision for deferred income taxes
|
(17,671 | ) | 1,574 | 5,328 | ||||||||
|
Equity in partnerships’ (income) loss
|
(153 | ) | (447 | ) | (911 | ) | ||||||
|
Distributions from partnerships’ income
|
156 | 609 | 712 | |||||||||
|
Stock compensation expense
|
4,407 | 4,586 | 2,886 | |||||||||
|
Non-cash charges to interest expense
|
3,382 | 2,007 | 1,750 | |||||||||
|
Other non-cash adjustments
|
335 | 4,105 | 116 | |||||||||
|
Increase (decrease) in cash from changes in (net of
acquisitions):
|
||||||||||||
|
Accounts receivable
|
34,845 | 12,273 | 22,230 | |||||||||
|
Inventories
|
83,920 | 1,770 | 45,625 | |||||||||
|
Other current assets and other assets
|
(6,782 | ) | 3,913 | 1,832 | ||||||||
|
Accounts payable
|
(7,539 | ) | (8,722 | ) | 7,748 | |||||||
|
Accrued expenses and other non-current liabilities
|
(4,525 | ) | 9,149 | (10,952 | ) | |||||||
|
Net cash provided by continuing operations
|
131,014 | 98,129 | 134,255 | |||||||||
|
Net cash provided by discontinued operations
|
585 | 9,745 | 24,558 | |||||||||
|
Net cash provided by operating activities
|
131,599 | 107,874 | 158,813 | |||||||||
|
Cash Flows from Investing Activities
|
||||||||||||
|
Acquisitions and additional considerations for acquisitions
|
(4,949 | ) | (8,724 | ) | (206,608 | ) | ||||||
|
Net proceeds from sale of business
|
— | 35,202 | 11,859 | |||||||||
|
Purchases of property, plant, and equipment
|
(10,813 | ) | (21,595 | ) | (17,691 | ) | ||||||
|
Net proceeds from sale of property, plant, and equipment
|
299 | 2,692 | 3,477 | |||||||||
|
Net cash (used in) provided by investing activities from
continuing operations
|
(15,463 | ) | 7,575 | (208,963 | ) | |||||||
|
Net cash used in investing activities for discontinued operations
|
— | (501 | ) | (950 | ) | |||||||
|
Net cash (used in) provided by investing activities
|
(15,463 | ) | 7,074 | (209,913 | ) | |||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Long-term debt payments
|
(182,401 | ) | (184,937 | ) | (119,306 | ) | ||||||
|
Proceeds from long-term debt
|
83,022 | 53,439 | 200,074 | |||||||||
|
Payment of deferred financing costs
|
(2,383 | ) | (104 | ) | (1,498 | ) | ||||||
|
Payment of dividends
|
(1,499 | ) | (5,985 | ) | (5,971 | ) | ||||||
|
Net proceeds from issuance of common stock
|
47 | 250 | 137 | |||||||||
|
Tax benefit from equity compensation
|
— | (362 | ) | 121 | ||||||||
|
Purchase of treasury stock at market prices
|
(634 | ) | (164 | ) | (393 | ) | ||||||
|
Net cash (used in) provided by financing activities from
continuing operations
|
(103,848 | ) | (137,863 | ) | 73,164 | |||||||
|
Net cash used in financing activities from discontinued
operations
|
— | (1,064 | ) | (252 | ) | |||||||
|
Net cash (used in) provided by financing activities
|
(103,848 | ) | (138,927 | ) | 72,912 | |||||||
|
Net increase (decrease) in cash and cash equivalents
|
12,288 | (23,979 | ) | 21,812 | ||||||||
|
Cash and cash equivalents at beginning of year
|
11,308 | 35,287 | 13,475 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 23,596 | $ | 11,308 | $ | 35,287 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
48
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands, except per share data)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands, except per share data)
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||||||
|
Comprehensive
|
Common Stock |
Paid-in
|
Retained
|
Comprehensive
|
Treasury Stock |
Shareholder
|
||||||||||||||||||||||||||||||
| Income (Loss) | Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Equity | ||||||||||||||||||||||||||||
|
Balance at January 1, 2007
|
29,884 | $ | 299 | $ | 215,944 | $ | 332,920 | $ | 1,065 | 43 | $ | — | $ | 550,228 | ||||||||||||||||||||||
|
Cumulative effect of adoption of FIN 48
|
— | — | — | (750 | ) | — | — | — | (750 | ) | ||||||||||||||||||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Net income
|
$ | 13,224 | — | — | — | 13,224 | — | — | — | 13,224 | ||||||||||||||||||||||||||
|
Other comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Adjustment for OPEB liability, net of tax of $227
|
365 | |||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
10,633 | |||||||||||||||||||||||||||||||||||
|
Retirement liability adjustment, net of tax of $25
|
39 | |||||||||||||||||||||||||||||||||||
|
Unrealized loss on interest rate swaps, net of tax of $735
|
(1,265 | ) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
9,772 | — | — | — | — | 9,772 | — | — | 9,772 | |||||||||||||||||||||||||||
|
Total comprehensive income
|
$ | 22,996 | ||||||||||||||||||||||||||||||||||
|
Issuance of restricted stock
|
6 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
|
Net settlement of restricted stock units
|
35 | 1 | — | — | — | 12 | (276 | ) | (275 | ) | ||||||||||||||||||||||||||
|
Stock compensation expense
|
— | — | 2,886 | — | — | — | — | 2,886 | ||||||||||||||||||||||||||||
|
Stock options exercised
|
24 | — | 136 | — | — | 5 | (117 | ) | 19 | |||||||||||||||||||||||||||
|
Tax benefit from equity compensation
|
— | — | 121 | — | — | — | — | 121 | ||||||||||||||||||||||||||||
|
Cash dividends-$0.25 per share
|
— | — | — | (7,465 | ) | — | — | — | (7,465 | ) | ||||||||||||||||||||||||||
|
Forfeiture of restricted stock awards
|
— | — | — | — | — | 1 | — | — | ||||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
29,949 | 300 | 219,087 | 337,929 | 10,837 | 61 | (393 | ) | 567,760 | |||||||||||||||||||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Net income
|
$ | 24,068 | — | — | — | 24,068 | — | — | — | 24,068 | ||||||||||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||||||||||||||
|
Adjustment for OPEB liability, net of tax of $45
|
(79 | ) | ||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
(20,290 | ) | ||||||||||||||||||||||||||||||||||
|
Retirement liability adjustment, net of tax of $45
|
(78 | ) | ||||||||||||||||||||||||||||||||||
|
Unrealized loss on interest rate swaps, net of tax of $669
|
(1,215 | ) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive loss
|
(21,662 | ) | — | — | — | — | (21,662 | ) | — | — | (21,662 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
$ | 2,406 | ||||||||||||||||||||||||||||||||||
|
Issuance of restricted stock
|
6 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
|
Net settlement of restricted stock units
|
85 | 1 | (1 | ) | — | — | 14 | (164 | ) | (164 | ) | |||||||||||||||||||||||||
|
Stock compensation expense
|
— | — | 4,586 | — | — | — | — | 4,586 | ||||||||||||||||||||||||||||
|
Stock options exercised
|
22 | — | 201 | — | — | — | — | 201 | ||||||||||||||||||||||||||||
|
Tax adjustment from equity compensation
|
— | — | (312 | ) | — | — | — | — | (312 | ) | ||||||||||||||||||||||||||
|
Cash dividends-$0.20 per share
|
— | — | — | (5,990 | ) | — | — | — | (5,990 | ) | ||||||||||||||||||||||||||
|
Balance at December 31, 2008
|
30,062 | 301 | 223,561 | 356,007 | (10,825 | ) | 75 | (557 | ) | 568,487 | ||||||||||||||||||||||||||
|
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||
|
Net loss
|
$ | (52,025 | ) | — | — | — | (52,025 | ) | — | — | — | (52,025 | ) | |||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Adjustment for OPEB liability, net of tax of $174
|
301 | |||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
7,057 | |||||||||||||||||||||||||||||||||||
|
Retirement liability adjustment, net of tax of $12
|
17 | |||||||||||||||||||||||||||||||||||
|
Unrealized gain on interest rate swaps, net of tax of $719
|
1,220 | |||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
8,595 | — | — | — | — | 8,595 | — | — | 8,595 | |||||||||||||||||||||||||||
|
Total comprehensive loss
|
$ | (43,430 | ) | |||||||||||||||||||||||||||||||||
|
Issuance of restricted stock
|
6 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
|
Net settlement of restricted stock units
|
222 | 2 | (2 | ) | — | — | 76 | (634 | ) | (634 | ) | |||||||||||||||||||||||||
|
Stock compensation expense
|
— | — | 4,407 | — | — | — | — | 4,407 | ||||||||||||||||||||||||||||
|
Stock options exercised
|
5 | — | 47 | — | — | — | — | 47 | ||||||||||||||||||||||||||||
|
Tax adjustment from equity compensation
|
— | — | (651 | ) | — | — | — | — | (651 | ) | ||||||||||||||||||||||||||
|
Balance at December 31, 2009
|
30,295 | $ | 303 | $ | 227,362 | $ | 303,982 | $ | (2,230 | ) | 151 | $ | (1,191 | ) | $ | 528,226 | ||||||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements
49
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles
of consolidation
The consolidated financial statements include the accounts of
Gibraltar Industries, Inc. and subsidiaries (the Company). The
financial position and results of operations of SCM Asia, a
discontinued operation as of October 3, 2008, are
consolidated for the appropriate periods based on its fiscal
year ended November 30. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of
estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue
recognition
Revenue is recognized when products are shipped or service is
provided, the customer takes ownership and assumes the risk of
loss, collection of the corresponding receivable is probable,
persuasive evidence of an arrangement exists, and the sales
price is fixed or determinable. Sales returns, allowances, and
customer incentives are treated as reductions to sales and are
provided for based on historical experience and current
estimates.
Promotional
allowances
The Company promotes its branded products through cooperative
advertising programs with retailers. Retailers also are offered
in-store promotional allowances and rebates based on sales
volumes. Promotion costs (including allowances and rebates)
incurred during the year are expensed to interim periods in
relation to revenues and is recorded as a reduction of net sales.
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.
Accounts
receivable
Accounts receivable are composed of trade receivables recorded
at the invoiced amount, are expected to be collected within one
year, and do not bear interest. The allowance for doubtful
accounts is the Company’s best estimate of the amount of
probable uncollectible amounts in the Company’s existing
accounts receivable. The Company determines the allowance based
on a number of factors, including historical experience, credit
worthiness of customers, and current market and economic
conditions. The Company reviews the allowance for doubtful
accounts on a regular basis. Account balances are charged
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
The following table summarizes activity recorded within the
allowance for doubtful accounts for the years ended December 31
(in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Beginning balance
|
$ | 6,713 | $ | 3,338 | $ | 2,419 | ||||||
|
Bad debt expense
|
2,562 | 5,162 | 768 | |||||||||
|
Acquired reserves
|
— | — | 344 | |||||||||
|
Accounts written-off, net of recoveries and other adjustments
|
(2,092 | ) | (1,787 | ) | (193 | ) | ||||||
|
Ending balance
|
$ | 7,183 | $ | 6,713 | $ | 3,338 | ||||||
50
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Amounts charged to bad debt expense increased in 2008 compared
to 2009 and 2007 due to the bankruptcy of a customer within our
Processed Metal Products segment which led to a $2,700,000
charge to bad debt expense.
Concentrations of credit risk on accounts receivable are limited
to those from significant customers that are believed to be
financially sound. Accounts receivable from The Home Depot were
18.0% and 14.7% of consolidated accounts receivable at
December 31, 2009 and 2008, respectively. Net sales to the
Home Depot, which are solely generated from our Building
Products segment, were 13.0%, 8.2%, and 10.2% of consolidated
net sales for the years ended December 31, 2009, 2008, and
2007, respectively. The Company typically does not require
collateral.
Inventories
Inventories are valued at the lower of cost or market. For the
years ended December 31, 2009 and 2008, the Company
recognized charges of $2,344,000 and $258,000, respectively,
within cost of sales to adjust inventory to the lower of cost or
market because inventory at cost exceeded the Company’s
estimate of net realizable value less normal profit margins.
There was no charge to adjust inventory to the lower of cost or
market for the year ended December 31, 2007.
The cost basis of the inventory is determined on a
first-in,
first-out basis using either actual costs or a standard cost
methodology which approximates actual cost. Inventory on hand is
regularly reviewed and provisions for excess, obsolete, and
slow-moving inventory based on historical and current sales
trends are recorded. The following table summarizes activity
recorded within the reserves for excess, obsolete, and slow
moving inventory for the years ended December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||||||
|
Beginning balance
|
$ | 4,985 | $ | 6,044 | $ | 5,422 | ||||||||||
|
Excess, obsolete, and slow-moving inventory expense
|
1,266 | 2,345 | 1,315 | |||||||||||||
|
Acquired reserves
|
— | — | 527 | |||||||||||||
|
Scrapped inventory, net of recoveries and other adjustments
|
(1,040 | ) | (3,404 | ) | (1,220 | ) | ||||||||||
|
Ending balance
|
$ | 5,211 | $ | 4,985 | $ | 6,044 | ||||||||||
Property,
plant, and equipment
Property, plant, and equipment are stated at cost and
depreciated over their estimated useful lives using the
straight-line method. Expenditures that extend the useful lives
of assets are capitalized, while repair and maintenance costs
are expensed as incurred. The estimated useful lives of land
improvements, buildings, and building improvements are 15 to
40 years, while the estimated useful lives for machinery
and equipment are 3 to 20 years. Accelerated depreciation
methods are used for income tax purposes. Depreciation expense
aggregated $27,228,000, $26,560,000, and $25,472,000 in 2009,
2008, and 2007, respectively.
Interest is capitalized in connection with construction of
qualified assets. Interest of $671,000, $430,000, and $561,000
was capitalized in 2009, 2008, and 2007, respectively.
Acquisition
related assets and liabilities
Accounting for the acquisition of a business as a purchase
transaction requires an allocation of the purchase price to the
assets acquired and the liabilities assumed in the transaction
at their respective estimated fair values. The most difficult
estimations of individual fair values are those involving
long-lived assets, such as property, plant and equipment and
intangible assets. The Company uses all available information to
make these fair value determinations and, for major business
acquisitions, engages independent valuation specialists to
assist in the fair value determination of the acquired
long-lived assets.
51
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Goodwill
and other intangible assets
The Company tests goodwill and other indefinite-lived intangible
assets for impairment at the reporting unit level on an annual
basis at October 31 or more frequently if an event occurs or
circumstances change that indicate that the fair value of a
reporting unit could be below its carrying amount. During 2009,
the Company tested goodwill and other indefinite-lived
intangible assets for impairment as of March 31 and June 30
based on lower than forecasted sales volume, revised long-term
growth expectations, and a book value of equity in excess of
market capitalization, as well as its annual assessment date of
October 31. The reporting units are at the component level,
or one level below the reporting segment level. Goodwill is
assigned to each reporting unit as of the date the reporting
unit is acquired and based upon the expected synergies of the
acquisition. The impairment test consists of comparing the fair
value of a reporting unit, determined using two valuation
techniques, with its carrying amount including goodwill, and, if
the carrying amount of the reporting unit exceeds its fair
value, comparing the implied fair value of goodwill with its
carrying amount. An impairment loss would be recognized for the
carrying amount of goodwill in excess of its implied fair value.
Goodwill impairment charges of $59,008,000 were recognized
during the year ended December 31, 2009. There were no
goodwill impairment charges recorded in 2008 and 2007.
The Company tests its indefinite-lived intangible assets for
impairment on an annual basis during at October 31, or more
frequently if an event occurs or circumstances change that
indicate that the fair value of an indefinite-lived intangible
asset could be below its carrying amount. The impairment test
consists of comparing the fair value of the indefinite-lived
intangible asset, determined using discounted cash flows on a
relief of royalty basis, with its carrying amount. An impairment
loss would be recognized for the carrying amount in excess of
its fair value. Indefinite-lived intangible asset impairment
charges of $1,090,000 were recognized during the year ended
December 31, 2009. No impairments of indefinite-lived
intangible assets were recognized during the years ended
December 31, 2008, and 2007.
Acquired identifiable intangible assets are recorded at
estimated cost. Identifiable intangible assets with finite
useful lives are amortized over their estimated useful lives.
Deferred
charges
Deferred charges associated with initial costs incurred to enter
into new debt arrangements are included in other assets and are
amortized as a part of interest expense over the terms of the
associated debt agreements. During 2009, a portion of these
deferred financing charges were written off as a result of
entering into the Third Amended and Restated Credit Agreement
dated July 24, 2009 (Senior Credit Agreement) and the early
payment of debt outstanding under a term loan under the Senior
Credit Agreement as discussed in Note 8 of the consolidated
financial statements.
Impairment
of long-lived assets
Long-lived assets, including acquired identifiable intangible
assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of those
assets may not be recoverable. The Company uses undiscounted
cash flows to determine whether impairment exists and measures
any impairment loss by approximating fair value using acceptable
valuation techniques, including discounted cash flow models and
third-party appraisals.
Investments
in partnerships
The Company’s investment in partnership is accounted for
using the equity method of accounting, under which the
Company’s share of the earnings of the partnership is
recognized in income as earned, and distributions are credited
against the investment when received.
52
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Interest
rate exchange agreements
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. Interest rate
swaps are entered into to manage interest rate risk associated
with the Company’s variable-rate borrowings. During the
years ended December 31, 2009, 2008, and 2007, the Company
had an interest rate swap outstanding with a notional amount
$57,500,000, which expires on December 22, 2010.
Additionally, the Company had an interest rate swap with a
notional amount of $57,500,000 expire in 2007.
In connection with the execution of the Company’s Third
Amended and Restated Credit Agreement dated July 24, 2009
and based on the Company’s prospective assessment of the
effectiveness of the remaining interest rate swap, the Company
deemed the swap to be ineffective in offsetting variability in
future interest payments on $57,500,000 of the Company’s
variable-rate borrowings during the year ended December 31,
2009. Changes in the fair value of the swap were recorded in
earnings during the six months ended December 31, 2009 and
will continue to be on a prospective basis. Commencing in the
fourth quarter of 2008, 4.3% of the interest rate swap was
determined to be ineffective. During the nine months ended
September 30, 2008 and all of 2007, no ineffectiveness
existed and the Company determined the interest rate swap
effectively converted $57,500,000 of variable-rate borrowings to
a fixed rate of 6.78%. No ineffectiveness existed for the
interest rate swap that expired during the year ended
December 31, 2007 and the Company determined that the
interest rate swap effectively converted another $57,500,000 of
variable-rate borrowings to a fixed rate during this period.
Assets or liabilities are recognized in the consolidated balance
sheet at fair value for all derivative instruments. The Company
designated its interest rate swap as a cash flow hedge at
inception. The determination of the fair value of the interest
rate swap is disclosed in Note 13. As of December 31,
2009, the Company recorded a liability of $2,564,000 as an
accrued expense on the consolidated balance sheet. As of
December 31, 2008, the Company recorded a liability of
$3,998,000 as an other non-current liability on the consolidated
balance sheet.
The effective portion of the gain or loss on the interest rate
swap was reported as a component of other comprehensive income
and reclassified into earnings as interest expense accrued on
the applicable variable-rate borrowings. The remaining amounts
reported within accumulated other comprehensive income will be
reclassified into earnings on a straight-line basis throughout
the remaining term of the instrument. As of December 31,
2009, all losses will be reclassified from accumulated other
comprehensive income to interest expense within the next twelve
months. Gains or losses on the interest rate swap representing
hedge ineffectiveness were recognized in current earnings as
interest expense or income. The following table summarizes the
gains and losses recorded in interest expense and other
comprehensive income as a result of the interest rate swap for
the years ended December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Adjustments to interest expense:
|
||||||||||||
|
Loss (gain) reclassified from accumulated other comprehensive
income
|
$ | 2,010 | $ | 1,032 | $ | (195 | ) | |||||
|
Loss from changes in the fair value of the ineffective portion
of the interest rate swap
|
896 | 131 | — | |||||||||
|
Total loss (gain) included in interest expense
|
$ | 2,906 | $ | 1,163 | $ | (195 | ) | |||||
|
Adjustments to other comprehensive income (loss):
|
||||||||||||
|
Realized loss (gain) reclassified to interest expense, net of
taxes
|
$ | 1,264 | $ | 646 | $ | (123 | ) | |||||
|
Unrealized loss from changes in the fair value of the effective
portion of the interest rate swap, net of taxes
|
(44 | ) | (1,861 | ) | (1,142 | ) | ||||||
|
Gain (loss) included in other comprehensive income (loss)
|
$ | 1,220 | $ | (1,215 | ) | $ | (1,265 | ) | ||||
53
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Translation
of foreign currency
The assets and liabilities of the Company’s foreign
subsidiaries are translated into U.S. dollars at the rate
of exchange in effect at the balance sheet date. Income and
expense items are translated at the average exchange rates
prevailing during the period. Gains and losses resulting from
foreign currency transactions are recognized currently in income
and those resulting from the translation of financial statements
are accumulated as a separate component of comprehensive income.
During 2009, the Company recorded a foreign currency transaction
loss of $192,000. During 2008 and 2007, the Company recorded
foreign currency transaction income of $404,000 and $425,000,
respectively.
Shareholders’
equity
During the year ended December 31, 2009, the Company did
not declare any dividends to maximize cash flows as a response
to the economic turmoil impacting the markets the Company
serves. During 2008 and 2007, the Company declared dividends of
$5,990,000 and $7,465,000, respectively, of which $1,499,000 was
accrued at December 31, 2008.
During 2009, 2008, and 2007, the Company acquired 75,853,
13,583, and 17,367 shares of stock, respectively, as
satisfaction of statutory minimum tax withholdings related to
equity compensation. The Company reacquired 1,500 shares of
forfeited restricted common stock in 2007. These reacquired
shares and related cost are reflected as treasury stock in the
consolidated balance sheets at December 31, 2009 and 2008.
Comprehensive
income (loss)
Comprehensive income (loss) includes net income (loss) as well
as other comprehensive income (loss). The Company’s other
comprehensive income (loss) consists of unrealized gains and
losses on interest rate swaps and retirement liability
adjustments, which are recorded net of related taxes, along with
foreign currency translation adjustments.
Net
income 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. A reconciliation between basic net income per share
and diluted net income per share for the years ended
December 31, 2009, 2008, and 2007 is displayed in
Note 17 of the consolidated financial statements.
Income
taxes
The provision for income taxes is determined using the asset and
liability approach. Under this approach, deferred income taxes
represent the expected future tax consequences of temporary
differences between the carrying amounts and tax basis of assets
and liabilities. The Company records a valuation allowance to
reduce deferred tax assets when uncertainty exists regarding
their being realized.
The Company adopted provisions now codified as Topic 740,
“Income Taxes,” related to “Accounting for
Uncertainty in Income Taxes” of the Financial Accounting
Standard Board’s (FASB) Accounting standards codification
(ASC), effective January 1, 2007 which effectively changed
the accounting for uncertain tax positions and related
disclosures. See Note 16 for further details relating to
the impact adopting FIN 48 had on the Company’s
consolidated financial statements.
54
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Equity-based
compensation
In accordance with Statement of FASB ASC Topic 718, “Stock
Compensation,” the Company measures the cost of
equity-based compensation based on grant date fair value and
recognizes the cost over the period in which the employee is
required to provide service in exchange for the award.
Equity-based compensation consists of grants of stock options,
restricted stock, restricted stock units, and performance stock
units. Equity-based compensation expense is included in selling,
general, and administrative expenses. The Company’s
equity-based compensation plans are discussed in more detail in
Note 12 of the consolidated financial statements.
Collective
bargaining agreements
At December 31, 2009, the Company employed approximately
2,450 people, of which approximately 22% were represented
by unions through various collective bargaining agreements
(CBAs). Unions represent 62% and 18% of our Processed Metal
Products and Building Products employees, respectively. Three
CBAs, representing 4% of our workforce, expire during 2010. The
employees represented through CBAs expiring in 2010 are
primarily from our Processed Metal Products segment. Our other
CBAs expire between January 31, 2011 and March 31,
2012. We historically have had good relationships with our
unions. We expect the current and future negotiations with our
unions to result in contracts that provide benefits that are
consistent with those provided in our current and expired
agreements.
Recent
accounting pronouncements
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 820, “Fair Value Measurements and Disclosures,”
which provides additional guidance for estimating fair value
when the volume and level of activity for the asset or liability
have significantly decreased. This guidance also includes
provisions for identifying circumstances that indicate a
transaction is not orderly. The provisions of this guidance are
effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively. The
Company adopted the provisions of this guidance during the year
ended December 31, 2009 and its impact on the
Company’s consolidated financial position, cash flows, and
results of operations was not significant.
In April 2009, the FASB issued guidance now codified as FASB ASC
Topic 825, “Financial Instruments,” which amends
previous Topic 825 guidance to require disclosures about the
fair value of financial instruments for interim periods of
publicly traded companies as well as in annual financial
statements. This guidance also amends previous guidance in FASB
ASC Topic 270, “Interim Reporting,” to require those
disclosures in summarized financial information at interim
reporting periods. The Company adopted the provisions of this
guidance during the year ended December 31, 2009 and its
impact on the Company’s disclosures was not significant.
In May 2009, the FASB issued guidance now codified as FASB ASC
Topic 855, “Subsequent Events,” to establish
principles and requirements for subsequent events. The guidance
sets forth the date after the balance sheet date during which
management of a reporting entity shall evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements. The guidance also
identifies the circumstances under which an entity shall
recognize events or transactions occurring after the balance
sheet date. The guidance is effective for interim or annual
financial periods ending after June 15, 2009, and shall be
applied prospectively. The Company adopted the provisions of the
guidance during the year ended December 31, 2009 and its
impact on the Company’s disclosures was not significant.
55
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
In June 2009, the FASB issued guidance now codified as FASB ASC
Topic 810, “Consolidation,” which amends previous
Topic 810 guidance to improve financial reporting by enterprises
involved with variable interest entities and to provide more
relevant and reliable information to users of financial
statements. This guidance shall be effective as of the beginning
of each reporting entity’s first annual reporting period
that begins after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and
annual reporting periods thereafter. The Company does not
believe the provisions of this guidance will have a significant
impact on the Company’s consolidated financial position,
cash flows, or results of operations.
In June 2009, the FASB issued guidance now codified as FASB ASC
Topic 125, “Generally Accepted Accounting Principles,”
identifying the sources of accounting principles and the
framework for selecting the principles used in the preparation
of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles in the United States. This guidance does not change
current US generally accepted accounting principles, but is
intended to simplify user access to all authoritative US
generally accepted accounting principles by providing all
authoritative literature related to a particular topic in one
place. The provisions of FASB ASC Topic 125 are effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. The Company adopted the
provisions of this guidance during the year ended
December 31, 2009, which did not have a significant impact
on the Company’s consolidated financial statements other
than changing the method used to refer to U.S. generally
accepted accounting principles with the Company’s
disclosures.
In August 2009, the FASB issued Accounting Standards Update
(Update)
2009-05,
“Fair Value Measurements and Disclosures (Topic 820)”.
Update
2009-05
provides amendments to Topic 820, “Fair Value Measurements
and Disclosures,” for the fair value measurement of
liabilities. Update
2009-05
is
effective for the first reporting period (including interim
periods) beginning after issuance. The Company adopted the
provisions of Update
2009-05
during the year ended December 31, 2009 and its impact on
the Company’s consolidated financial positions, cash flows,
and results of operations was not significant.
Reclassifications
Certain 2008 and 2007 amounts have been reclassified to conform
to the 2009 presentation. The Company reclassified warehousing
costs from selling, general, and administrative expense to cost
of sales for 2008 and 2007. The warehousing costs reclassified
amounted to $7,320,000 and $6,430,000 for the years ended
December 31, 2008 and 2007, respectively. Warehousing costs
were also reclassified for the quarterly periods reported in our
Quarterly Reports on
Form 10-Q
for each quarterly period in 2009. The quarterly information
provided in Note 21 of the consolidated financial
statements for the quarters ended March 31, 2009,
June 30, 2009, and September 30, 2009 amounted to
$1,741,000, $1,579,000, and $2,156,000, respectively.
| 2. | INVENTORIES |
Inventories at December 31 consist of the following (in
thousands):
| 2009 | 2008 | |||||||
|
Raw material
|
$ | 37,605 | $ | 78,768 | ||||
|
Work-in-process
|
16,224 | 25,966 | ||||||
|
Finished goods
|
53,941 | 85,201 | ||||||
|
Total inventory
|
$ | 107,770 | $ | 189,935 | ||||
56
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
| 3. | PROPERTY, PLANT, AND EQUIPMENT |
Components of property, plant, and equipment at December 31
consisted of the following (in thousands):
| 2009 | 2008 | |||||||
|
Land and land improvements
|
$ | 17,759 | $ | 17,889 | ||||
|
Building and improvements
|
98,230 | 97,543 | ||||||
|
Machinery and equipment
|
306,510 | 287,978 | ||||||
|
Construction in progress
|
4,488 | 8,919 | ||||||
| 426,987 | 412,329 | |||||||
|
Less accumulated depreciation and amortization
|
199,567 | 168,710 | ||||||
|
Property, plant and equipment, net
|
$ | 227,420 | $ | 243,619 | ||||
| 4. | ACQUISITIONS |
On June 8, 2006, the Company acquired all of the
outstanding stock of Home Impressions, Inc. (Home Impressions).
Home Impressions was based in Hickory, North Carolina and
marketed and distributed mailboxes and postal accessories. The
acquisition of Home Impressions served to strengthen the
Company’s position in the mailbox and storage systems
markets, and provided marketing, manufacturing, and distribution
synergies with our existing operations. The results of Home
Impressions (included in the Company’s Building Products
segment) have been included in the Company’s consolidated
financial results from the date of acquisition. The acquisition
of Home Impressions is not considered significant to the
Company’s consolidated results of operations.
As part of the purchase agreement with the former owners of Home
Impressions, the Company was required to pay additional
consideration based upon the operating results of Home
Impressions. The Company paid $4,949,000, $923,000, and $159,000
of such additional consideration during the years ended
December 31, 2009, 2008, and 2007, respectively. These
payments were recorded as additional goodwill. No more
additional consideration payments are necessary under the
purchase agreement.
On March 9, 2007 the Company acquired all of the
outstanding stock of Dramex Corporation (Dramex). Dramex had
locations in Ohio, Canada, and England and manufactured,
marketed and distributed a diverse line of expanded metal
products used in the commercial building and industrial sectors
of the building products market. The acquisition of Dramex
strengthened the Company’s position in the expanded metal
market and provided additional opportunity for both
Dramex’s products and products manufactured by certain
business units of the Company. The results of Dramex (included
in the Company’s Building Products segment) are included in
the Company’s consolidated financial results from the date
of acquisition. The acquisition of Dramex was not considered
significant to the Company’s consolidated results of
operations.
The aggregate purchase consideration for the acquisition of
Dramex was $22,677,000 in cash and acquisition costs. The
purchase price was allocated to the assets acquired and
liabilities assumed based upon respective fair values. The
identifiable intangible assets consisted of a trademark with a
value of $1,795,000 (indefinite useful life), a trademark with a
value of $111,000 (5 year estimated useful life), and
customer relationships with a value of $1,828,000 (10 year
estimated useful life).
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The excess consideration over fair value was recorded as
goodwill and aggregated approximately $11,514,000, none of which
is deductible for tax purposes. The allocation of purchase
consideration to the assets acquired and liabilities assumed is
as follows (in thousands):
|
Working capital
|
$ | 5,566 | ||
|
Property, plant and equipment
|
5,175 | |||
|
Other long term liabilities, net
|
(3,313 | ) | ||
|
Identifiable intangible assets
|
3,735 | |||
|
Goodwill
|
11,514 | |||
| $ | 22,677 | |||
On April 10, 2007, the Company acquired certain assets and
liabilities of Noll Manufacturing Company and its affiliates
(Noll) with locations in California, Oregon, and Washington. The
assets the Company acquired from Noll are used to manufacture,
market, and distribute products for the building; heating,
ventilation, and air conditioning; and lawn and garden
components of the building products market. The acquisition of
Noll strengthened the Company’s manufacturing, marketing,
and distribution capabilities and provided manufacturing and
distribution synergies with the Company’s existing business
units. The results of Noll (included in the Company’s
Building Products segment) have been included in the
Company’s consolidated financial results from the date of
acquisition. The acquisition of Noll was not considered
significant to the Company’s consolidated results of
operations.
The aggregate purchase consideration was approximately
$63,726,000 in cash and direct acquisition costs. The purchase
price has been allocated to the assets acquired and liabilities
assumed based upon respective fair values. The valuation
resulted in negative goodwill of $9,491,000 which has been
allocated to property, plant and equipment and intangibles on a
pro rata basis. After giving effect to the allocation of the
negative goodwill, the identifiable intangible assets consisted
of patents with a value of $57,000 (8 year estimated useful
life), customer relationships with a value of $2,679,000
(15 year estimated useful life), non-compete agreements
valued at $726,000 (5 year estimated useful life), and
trademarks with a value of $3,490,000 (indefinite useful life).
The allocation of the purchase consideration to the assets
acquired and liabilities assumed is as follows (in thousands):
|
Working capital
|
$ | 22,820 | ||
|
Property, plant and equipment
|
33,954 | |||
|
Identifiable intangible assets
|
6,952 | |||
| $ | 63,726 | |||
On August 31, 2007, the Company acquired all of the
outstanding stock of the Florence Corporation (Florence).
Florence, located in Manhattan, Kansas, designed and
manufactured storage solutions, including mail and package
delivery products. The acquisition of Florence strengthened the
Company’s position in the storage solutions market. The
results of Florence (included in the Company’s Building
Products segment) have been included in the Company’s
consolidated financial results since the date of acquisition.
The acquisition of Florence was not considered significant to
the Company’s results of operations.
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The initial aggregate purchase consideration for the acquisition
of Florence was $125,939,000, which included $119,443,000 of
cash, including direct acquisition costs, and the assumption of
a $6,496,000 capital lease. The purchase price was allocated to
the assets acquired and liabilities assumed based upon
respective fair values. The identifiable intangible assets
consisted of unpatented technology and patents with a value of
$2,200,000 (10 year estimated useful life), customer
contracts with a value of $15,700,000 (13 year estimated
useful life), customer relationships with a value of $7,200,000
(15 year estimated useful life) and trademarks with a value
of $6,700,000 (indefinite useful life). The excess consideration
was recorded as goodwill and approximated $66,977,000. The
allocation of purchase consideration to the assets acquired and
liabilities assumed is as follows (in thousands):
|
Working capital
|
$ | 20,451 | ||
|
Property, plant and equipment
|
12,514 | |||
|
Other assets
|
265 | |||
|
Other long term liabilities
|
(6,068 | ) | ||
|
Identifiable intangible assets
|
31,800 | |||
|
Goodwill
|
66,977 | |||
| $ | 125,939 | |||
The Company and the former owners of Florence have made a joint
election under Internal Revenue Code (IRC)
Section 338(h)(10) which allowed the Company to treat the
stock purchase as an asset purchase for tax purposes. In
connection with the 338(h)(10) election, and pursuant to the
terms of the Stock Purchase Agreement, the Company made
additional cash payments to the former shareholders of Florence
totaling $7,801,000 during the year ended December 31,
2008. This additional consideration was recorded as additional
goodwill. As a result of the 338(h)(10) election, goodwill in
the amount of $74,778,000 is fully deductible for tax purposes.
| 5. | GOODWILL AND RELATED INTANGIBLE ASSETS |
Goodwill
All goodwill reported on the balance sheet relates to the
Building Products segment. The changes in the carrying amount of
goodwill for the years ended December 31, 2009 and 2008 are
as follows (in thousands):
| 2009 | 2008 | |||||||
|
Balance at beginning of year
|
$ | 443,925 | $ | 445,073 | ||||
|
Goodwill acquired/ acquisition adjustment
|
4,838 | 5,411 | ||||||
|
Impairment
|
(59,008 | ) | — | |||||
|
Foreign currency translation
|
2,949 | (6,559 | ) | |||||
|
Balance at end of year
|
$ | 392,704 | $ | 443,925 | ||||
The December 31, 2009 balance noted above is net of
accumulated impairment losses of $59,008,000, which was
generated as a result of the impairment charges noted below. No
accumulated impairment losses were recognized prior to the year
ended December 31, 2009.
As noted in Note 14, the Company disposed of its SCM Metal
Products subsidiaries (SCM) during the year ended
December 31, 2008. SCM was comprised of two reporting units
with $8,418,000 of goodwill as of the date of disposal.
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Based on lower than forecasted sales volume, revised long-term
growth expectations, and a book value of equity in excess of
market capitalization, the Company concluded there were
indicators of goodwill impairment requiring an interim
impairment test for its eleven reporting units as of
June 30, 2009 and March 31, 2009. The Company also
performed its annual goodwill impairment test as of
October 31, 2009.
Step one of the goodwill impairment test consists of comparing
the fair value of a reporting unit, determined using two
valuation techniques, with its carrying amount including
goodwill. The fair value of each reporting unit with goodwill
was estimated using assumptions including a weighted average
cost of capital (WACC). The WACC is calculated based upon the
capital structure of eight market participants in our peer
group. The following table was used during the goodwill
impairment tests performed during 2009 compared to the last
impairment test performed in 2008:
|
Date of Impairment Test
|
WACC | |
|
December 31, 2008
|
11.0% | |
|
March 31, 2009
|
11.50% to 12.00% | |
|
June 30, 2009
|
12.2% to 12.6% | |
|
October 31, 2009
|
11.9% to 12.9% |
Other assumptions used to calculate a fair value for each
reporting unit include projected revenue growth, forecasted cash
flows, and earnings multiples based on the market value of the
Company and eight market participants in our peer group. A
third-party forecast of housing starts was utilized to prepare
the estimated revenue growth for future periods. The reporting
unit that serves the automotive market does not have goodwill.
During our goodwill impairment tests, we determined three
reporting units had a carrying amount exceeding the reporting
unit’s fair value due to a decrease in projected revenues
to be generated by the reporting units. Therefore, the Company
initiated step two of the goodwill impairment test which
involves calculating the implied fair value of goodwill by
allocating the fair value of the reporting unit to its assets
and liabilities other than goodwill and comparing it to the
carrying amount of goodwill. As a result of step two of the
goodwill impairment test, the Company estimated that the implied
fair value of goodwill for the reporting units was less than
their carrying values by $59,008,000, which has been recorded as
an impairment charge during 2009. The impairment charges
recorded during the fourth quarter of 2009 were estimates based
on the preliminary allocation of fair value in the second step
of the goodwill impairment test. If any adjustment to these
estimated impairment charges are required due to the final
determination of fair value for intangible assets, it will be
recorded during the first quarter of 2010. All other reporting
units with goodwill had an estimated fair value in excess of
their carrying value for all goodwill impairment tests performed
during 2009. No goodwill impairment charges were recorded in
2008 and 2007.
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The following sensitivity analysis discloses the WACC that would
lead to a reporting unit failing step one of the goodwill
impairment test along with the amount of goodwill associated
with the reporting unit:
|
March 31, 2009
|
June 30, 2009
|
October 31, 2009
|
||||||||||||||||||||||
| Impairment Test | Impairment Test | Impairment Test | ||||||||||||||||||||||
|
Number of
|
Goodwill
|
Number of
|
Goodwill
|
Number of
|
Goodwill
|
|||||||||||||||||||
|
Reporting Units
|
Associated
|
Reporting Units
|
Associated
|
Reporting Units
|
Associated With
|
|||||||||||||||||||
|
That Would Fail
|
With These
|
That Would
|
With These
|
That Would Fail
|
These Reporting
|
|||||||||||||||||||
|
WACC
|
Step One(1) | Reporting Units | Fail Step One | Reporting Units | Step One(2) | Units | ||||||||||||||||||
|
11.50%
|
1 | $ | 74,778,000 | — | $ | — | 1 | $ | 4,468,000 | |||||||||||||||
|
11.75%
|
1 | $ | 74,778,000 | — | $ | — | 3 | $ | 76,376,000 | |||||||||||||||
|
12.00%
|
1 | $ | 74,778,000 | — | $ | — | 3 | $ | 76,376,000 | |||||||||||||||
|
12.25%
|
3 | $ | 116,978,000 | — | $ | — | 3 | $ | 76,376,000 | |||||||||||||||
|
12.50%
|
4 | $ | 136,677,000 | 1 | $ | 22,631,000 | 3 | $ | 76,376,000 | |||||||||||||||
|
12.75%
|
5 | $ | 248,176,000 | 3 | $ | 93,629,000 | 3 | $ | 76,376,000 | |||||||||||||||
|
13.00%
|
5 | $ | 248,176,000 | 6 | $ | 227,857,000 | 4 | $ | 94,637,000 | |||||||||||||||
| (1) | The reporting unit shown above as failing the goodwill impairment test at a WACC of 11.50%, 11.75%, and 12.00% is the reporting unit that was impaired during the March 31, 2009 impairment test. The reporting unit had a goodwill balance of $74,778,000 prior to the impairment charge and $49,277,000 after the impairment charge. | |
| (2) | The reporting units shown above as failing the goodwill impairment test as of October 31, 2009 at a WACC lower than 13.00% were all impaired during the October 31, 2009 impairment test. The impaired reporting units had an aggregate goodwill balance of $76,376,000 prior to the impairment charges and an aggregate goodwill balance of $42,869,000 after the impairment charge. |
The Company will continue to monitor impairment indicators and
financial results in future periods. If cash flows change or if
the market value of the Company’s stock does not increase,
there may be additional impairment charges. Impairment charges
could be based on factors such as the Company’s stock
price, forecasted cash flows, assumptions used, control premiums
or other variables.
Acquired
Intangible Assets
Acquired intangible assets consist of the following (in
thousands):
| 2009 | 2008 | |||||||||||||||||||
|
Gross
|
Gross
|
|||||||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
|||||||||||||||||
| Amount | Amortization | Amount | Amortization | Estimated Life | ||||||||||||||||
|
Trademark
|
$ | 40,612 | $ | — | $ | 41,119 | $ | — | indefinite | |||||||||||
|
Trademark
|
2,115 | (744 | ) | 2,089 | (562 | ) | 2 to 15 years | |||||||||||||
|
Unpatented technology/patent
|
5,732 | (1,795 | ) | 5,731 | (1,272 | ) | 5 to 20 years | |||||||||||||
|
Customer relationships
|
48,086 | (12,910 | ) | 47,339 | (8,511 | ) | 5 to 15 years | |||||||||||||
|
Non-competition agreements
|
2,799 | (1,713 | ) | 3,624 | (2,184 | ) | 5 to 10 years | |||||||||||||
| $ | 99,344 | $ | (17,162 | ) | $ | 99,902 | $ | (12,529 | ) | |||||||||||
Acquired intangible asset amortization expense for the years
ended December 31, 2009, 2008, and 2007 aggregated
approximately $5,185,000, $5,566,000, and $3,816,000,
respectively. The Company also recognized a $1,090,000
impairment charge during the year ended December 31, 2009
related to the indefinite-lived intangible assets.
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Amortization expense related to acquired intangible assets
subject to amortization at December 31, 2009 for the next
five years ended December 31 is estimated as follows (in
thousands):
|
2010
|
$ | 5,163 | ||
|
2011
|
$ | 5,103 | ||
|
2012
|
$ | 4,980 | ||
|
2013
|
$ | 4,682 | ||
|
2014
|
$ | 3,772 |
| 6. | INVESTMENTS IN PARTNERSHIPS |
The Company has a 31% partnership interest in a steel pickling
joint venture with Samuel Manu-Tech, Inc. The partnership
provides a steel cleaning process called “pickling” to
steel mills and steel processors. The investment is included in
the Company’s Processed Metal Products segment and is
accounted for using the equity method of accounting. The
Company’s investment in the partnership was approximately
$2,474,000 and $2,477,000 at December 31, 2009 and 2008,
respectively. As explained in Note 20 of the consolidated
financial statements, on February 1, 2010, this investment
and the majority of the other assets held by the Processed Metal
Products segment were sold.
| 7. | ACCRUED EXPENSES |
Accrued expenses at December 31 consist of the following (in
thousands):
| 2009 | 2008 | |||||||
|
Compensation
|
$ | 11,867 | $ | 16,798 | ||||
|
Insurance
|
9,209 | 10,395 | ||||||
|
Customer rebates
|
7,724 | 6,840 | ||||||
|
Other
|
11,344 | 12,272 | ||||||
| $ | 40,144 | $ | 46,305 | |||||
| 8. |
|
Long-term debt at December 31 consists of the following (In
thousands):
| 2009 | 2008 | |||||||
|
Revolving credit facility
|
$ | 50,000 | $ | 89,079 | ||||
|
Term loan
|
— | 59,880 | ||||||
|
8% Senior Subordinated Notes due December 1, 2015 with
interest payable in semiannual installments at an 8.25%
effective rate, recorded net of unamortized discount of $2,350
and $2,647 at December 31, 2009 and 2008, respectively
|
201,650 | 201,353 | ||||||
|
Other debt
|
5,632 | 6,060 | ||||||
|
Total debt outstanding
|
257,282 | 356,372 | ||||||
|
Less current maturities
|
408 | 2,728 | ||||||
|
Total long-term debt
|
$ | 256,874 | $ | 353,644 | ||||
62
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The Company’s Third Amended and Restated Credit Agreement
dated July 24, 2009 (the Senior Credit Agreement) provided
a revolving credit facility and a term loan. The Senior Credit
Agreement was amended and restated in order to convert it into a
secured asset-based credit facility that allowed the Company to
remove most of the restrictive covenants contained in the Second
Amended and Restated Credit Agreement prior to its amendment and
restatement. Borrowings under the Senior Credit Agreement are
secured by the trade receivables, inventory, personal property
and equipment, and certain real property of the Company’s
significant domestic subsidiaries. The Senior Credit Agreement
provides for a revolving credit facility and letters of credit
in an aggregate amount that does not exceed the lesser of
(i) $200 million or (ii) a borrowing base
determined by reference to the trade receivables, inventories,
and property, plant, and equipment of the Company’s
significant domestic subsidiaries. The Senior Credit Agreement
also provided a term loan originally aggregating $58,730,000.
The revolving credit facility is committed through
August 30, 2012 and the term loan was originally due
December 8, 2012.
Borrowings under the revolving credit facility bear interest at
a variable rate based upon the London Interbank Offered Rate
(LIBOR), with a LIBOR floor of 1.50%, plus 3.25% or, at the
Company’s option, an alternate base rate. The revolving
credit facility also carries an annual facility fee of 0.50% on
the entire facility, whether drawn or undrawn, and fees on
outstanding letters of credit which are payable quarterly. At
December 31, 2009, amounts outstanding under the revolving
credit facility bore interest at an annual rate of 4.75%. At
December 31, 2008, the Company had $85,000,000 outstanding
under the revolving credit facility at interest rates of LIBOR
plus a margin ranging from 2.075% to 3.075% and additional
borrowings of $4,079,000 outstanding at 3.25%. Standby letters
of credit of $14,153,000 have been issued under the Senior
Credit Agreement to third parties on behalf of the Company at
December 31, 2009. These letters of credit reduce the
amount otherwise available under the revolving credit facility.
At December 31, 2009, the Company had $69,726,000 of
availability under the revolving credit facility.
Borrowings under the term loan bear interest at LIBOR, with a
LIBOR floor of 1.50%, plus 3.75% or, at the Company’s
option, an alternate base rate. The Company was required to
repay $575,000 on the term loan each quarter until the remaining
balance comes due in 2012. On October 30, 2009, the Company
paid off its term loan balance with funds available under the
revolving credit facility. During the three years ended
December 31, 2009, the Company entered into interest rate
swaps to fix a portion of the variable-rate debt outstanding
under this term loan. See Note 1 for more information
regarding these interest rate swaps. As a result of the interest
rate swaps, at December 31, 2008, $55,000,000 of term loan
borrowings were fixed at 6.78% and the remaining balance of
$4,880,000 bore interest at a rate of 4.938%, LIBOR plus a fixed
rate.
As a result of the modification of terms under the revolving
credit facility and the early payment of the term loan, the
Company incurred a $1,424,000 charge to write off deferred
financing costs during the year ended December 31, 2009.
The Senior Credit Agreement includes a financial covenant that
required the Company to maintain the following minimum Earnings
Before Interest, Taxes, Depreciation, and Amortization (EBITDA
as defined in the Senior Credit Agreement) for the following
periods:
|
Minimum
|
||||
| EBITDA | ||||
|
Six-months ended June 30, 2009
|
$ | 0 | ||
|
Nine-months ended September 30, 2009
|
$ | 13,000,000 | ||
|
Year ending December 31, 2009
|
$ | 28,000,000 | ||
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
As of December 31, 2009, the Company was in compliance with
this financial covenant. This covenant will not be tested after
December 31, 2009. Beginning on March 31, 2010, and
quarterly thereafter on a trailing four-quarter basis, the
Senior Credit Agreement includes a single financial covenant
that requires the Company to maintain a minimum fixed charge
coverage ratio of 1.25 to 1.00. The Senior Credit Agreement
contains other provisions and events of default that are
customary for similar agreements and may limit the
Company’s ability to take various actions. The
Company’s significant domestic subsidiaries have guaranteed
the obligations under the Senior Credit Agreement.
On December 8, 2005, the Company issued $204,000,000 of
Senior Subordinated 8% Notes (8% Notes), due
December 1, 2015, at a discount to yield 8.25%. Provisions
of the 8% Notes include, without limitation, restrictions
on indebtedness liens, distributions from restricted
subsidiaries, asset sales, affiliate transactions, dividends in
excess of $10,000,000 in a fiscal year, and other restricted
payments. After December 1, 2010, the 8% Notes are
redeemable at the option of the Company, in whole or in part, at
the redemption price, which declines annually from 104% to 100%
on and after December 1, 2013. In the event of a Change of
Control, each holder of the 8% Notes may require the
Company to repurchase all or a portion of such holder’s
8% Notes at a purchase price equal to 101% of the principal
amount thereof. The 8% Notes are guaranteed by certain
existing and future domestic subsidiaries and are not subject to
any sinking fund requirements.
The aggregate maturities of long-term debt for the next five
years and thereafter are as follows:
|
2010
|
$ | 428 | ||
|
2011
|
$ | 404 | ||
|
2012
|
$ | 50,400 | ||
|
2013
|
$ | 400 | ||
|
2014
|
$ | 400 | ||
|
Thereafter
|
$ | 205,050 |
Total cash paid for interest in the years ended
December 31, 2009, 2008, and 2007, was $20,374,000,
$32,528,000 and $36,628,000, respectively.
64
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
| 9. | EMPLOYEE RETIREMENT PLANS |
The Company has an unfunded supplemental pension plan which
provides defined pension benefits to certain salaried employees
upon retirement. Benefits under the plan are based on the
salaries of individual plan participants in the year they were
admitted into the plan. No additional participants will be added
to the plan in the future. The following table presents the
changes in the plan’s projected benefit obligation, fair
value of plan assets, and funded status for the years ended
December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Change in projected benefit obligation:
|
||||||||||||
|
Projected benefit obligation at beginning of year
|
$ | 2,989 | $ | 2,609 | $ | 2,439 | ||||||
|
Service cost
|
111 | 147 | 165 | |||||||||
|
Interest cost
|
175 | 162 | 139 | |||||||||
|
Prior service costs
|
125 | 134 | — | |||||||||
|
Actuarial gain
|
(87 | ) | (10 | ) | (64 | ) | ||||||
|
Benefits paid
|
(182 | ) | (53 | ) | (70 | ) | ||||||
|
Projected benefit obligation at end of year
|
3,131 | 2,989 | 2,609 | |||||||||
|
Fair value of plan assets
|
— | — | — | |||||||||
|
Under funded status
|
(3,131 | ) | (2,989 | ) | (2,609 | ) | ||||||
|
Unamortized prior service costs
|
192 | 134 | — | |||||||||
|
Unrecognized actuarial gain
|
(162 | ) | (75 | ) | (65 | ) | ||||||
|
Net amount recognized
|
$ | (3,101 | ) | $ | (2,930 | ) | $ | (2,674 | ) | |||
|
Amounts recognized in the consolidated financial statements
consist of (in thousands):
|
||||||||||||
|
Accrued pension liability
|
$ | (3,131 | ) | $ | (2,989 | ) | $ | (2,609 | ) | |||
|
Pre-tax accumulated other comprehensive income
— retirement liability adjustment
|
30 | 59 | (65 | ) | ||||||||
|
Net amount recognized
|
$ | (3,101 | ) | $ | (2,930 | ) | $ | (2,674 | ) | |||
The plan’s accumulated benefit obligation equaled the
projected benefit obligation at December 31, 2009, 2008,
and 2007. The measurement date used to determine pension benefit
measures is December 31.
Components of net periodic pension cost for the years ended
December 31 are as follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Service cost
|
$ | 111 | $ | 147 | $ | 165 | ||||||
|
Interest cost
|
175 | 162 | 139 | |||||||||
|
Amortization of prior service costs
|
67 | — | — | |||||||||
|
Net periodic pension cost
|
$ | 353 | $ | 309 | $ | 304 | ||||||
|
Assumptions used to calculate the benefit obligation:
|
||||||||||||
|
Discount rate
|
5.75 | % | 6.00 | % | 6.25 | % | ||||||
65
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Expected benefit payments from the plan for the years ended
December 31 are as follows (in thousands):
|
2010
|
$ | 309 | ||
|
2011
|
$ | 339 | ||
|
2012
|
$ | 441 | ||
|
2013
|
$ | 437 | ||
|
2014
|
$ | 426 | ||
|
Years 2015 — 2019
|
$ | 1,989 |
All U.S. subsidiaries participate in the Company’s
401(k) Plan. In addition, certain subsidiaries have
multi-employer non-contributory retirement plans providing for
defined contributions to union retirement funds.
Total expense for all retirement plans was $1,780,000,
$2,526,000, and $3,887,000 for the years ended December 31,
2009, 2008, and 2007, respectively. Total expense for all
retirement plans decreased from the year ended December 31,
2008 to the year ended December 31, 2009 as a result of
staffing reductions and the suspension of the Company’s
matching contributions to the Gibraltar 401(k) Plan beginning on
April 18, 2009.
| 10. | OTHER POSTEMPLOYMENT BENEFITS |
The Company has an unfunded postretirement healthcare plan which
provides health insurance to certain employees and their spouses
upon retirement. This plan has been frozen and no additional
participants will be added to the plan in the future. The
following table presents the changes in the accumulated
postretirement benefit obligation related to the Company’s
unfunded postretirement healthcare benefits at December 31 (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Benefit obligation at beginning of year
|
$ | 4,446 | $ | 4,172 | $ | 4,558 | ||||||
|
Service cost
|
65 | 71 | 72 | |||||||||
|
Interest cost
|
269 | 255 | 246 | |||||||||
|
Plan amendments and curtailments
|
(857 | ) | — | (318 | ) | |||||||
|
Actuarial loss (gain)
|
432 | 161 | (222 | ) | ||||||||
|
Benefits paid
|
(240 | ) | (213 | ) | (164 | ) | ||||||
|
Benefit obligation at end of year
|
4,115 | 4,446 | 4,172 | |||||||||
|
Fair value of plan assets
|
— | — | — | |||||||||
|
Under funded status
|
(4,115 | ) | (4,446 | ) | (4,172 | ) | ||||||
|
Unrecognized prior service costs
|
(17 | ) | (51 | ) | (70 | ) | ||||||
|
Unrecognized actuarial loss
|
621 | 1,130 | 1,035 | |||||||||
|
Accumulated postretirement benefit obligation
|
$ | (3,511 | ) | $ | (3,367 | ) | $ | (3,207 | ) | |||
Amounts recognized in the consolidated financial statements at
December 31 consist of (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Accrued post retirement benefit liability
|
$ | (4,115 | ) | $ | (4,446 | ) | $ | (4,172 | ) | |||
|
Pre-tax accumulated other comprehensive loss —
retirement liability adjustment
|
604 | 1,079 | 965 | |||||||||
|
Net amount recognized
|
$ | (3,511 | ) | $ | (3,367 | ) | $ | (3,207 | ) | |||
66
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Components of net periodic postretirement benefit cost charged
to expense for the years ended December 31 are as follows (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Service cost
|
$ | 65 | $ | 71 | $ | 72 | ||||||
|
Interest cost
|
269 | 255 | 246 | |||||||||
|
Amortization of unrecognized prior service cost
|
(18 | ) | (18 | ) | (20 | ) | ||||||
|
Curtailment cost
|
(17 | ) | — | (10 | ) | |||||||
|
Loss amortization
|
84 | 65 | 83 | |||||||||
|
Net periodic post retirement benefit cost
|
$ | 383 | $ | 373 | $ | 371 | ||||||
|
Assumptions used to calculate the benefit obligation:
|
||||||||||||
|
Discount rate
|
5.75 | % | 6.00 | % | 6.25 | % | ||||||
For measurement purposes, an 8.25%, 7.00% and 9.50% annual rate
of increase in the per capita cost of medical costs before
age 65, medical costs after age 65, and prescription
drug costs, respectively, were assumed for 2010, gradually
decreasing to 5.00% in 2016. The effect of a 1% increase or
decrease in the annual medical inflation rate would increase or
decrease the accumulated postretirement benefit obligation at
December 31, 2009, by approximately $510,000 and $458,000,
respectively, and increase or decrease the annual service and
interest costs by approximately $50,000 and $43,000,
respectively.
The measurement date used to determine postretirement benefit
obligation measures is December 31.
Expected benefit payments from the plan for the years ended
December 31 are as follows (in thousands):
|
2010
|
$ | 228 | ||
|
2011
|
$ | 238 | ||
|
2012
|
$ | 247 | ||
|
2013
|
$ | 258 | ||
|
2014
|
$ | 244 | ||
|
Years 2015 — 2019
|
$ | 1,422 |
| 11. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The cumulative balance of each component of accumulated other
comprehensive income (loss) is as follows(in thousands):
|
Unamortized
|
Unrealized
|
|||||||||||||||||||
|
Foreign
|
Minimum
|
Post
|
(Loss)
|
Accumulated
|
||||||||||||||||
|
Currency
|
Pension
|
Retirement
|
Gain on
|
Other
|
||||||||||||||||
|
Translation
|
Liability
|
Health Care
|
Interest Rate
|
Comprehensive
|
||||||||||||||||
| Adjustment | Adjustment | Costs | Swaps | Income | ||||||||||||||||
|
Balance at January 1, 2008
|
$ | 12,610 | $ | 42 | $ | (604 | ) | $ | (1,211 | ) | $ | 10,837 | ||||||||
|
Changes during year ended December 31, 2008
|
(20,290 | ) | (78 | ) | (79 | ) | (1,215 | ) | (21,662 | ) | ||||||||||
|
Balance at December 31, 2008
|
(7,680 | ) | (36 | ) | (683 | ) | (2,426 | ) | (10,825 | ) | ||||||||||
|
Changes during year ended December 31, 2009
|
7,057 | 17 | 301 | 1,220 | 8,595 | |||||||||||||||
|
Balance at December 31, 2009
|
$ | (623 | ) | $ | (19 | ) | $ | (382 | ) | $ | (1,206 | ) | $ | (2,230 | ) | |||||
67
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
| 12. | EQUITY-BASED COMPENSATION |
Equity-based payments to employees and directors, including
grants of stock options, are recognized in the statements of
operations based on the grant date fair value of the award. The
Company uses the straight-line method of attributing the value
of stock-based compensation expense over the vesting periods.
Stock compensation expense recognized during the period is based
on the value of the portion of equity-based awards that is
ultimately expected to vest during the period. Vesting
requirements vary for directors, executives, and key employees
with a range that typically equals three to four years.
The Third Amendment and Restatement of the Gibraltar Industries,
Inc. 2005 Equity Incentive Plan (the Plan) is an incentive
compensation plan that allows the Company to grant equity-based
incentive compensation awards to eligible participants to
provide them an additional incentive to promote the business of
the Company, to increase their proprietary interest in the
success of the Company, and to encourage them to remain in the
Company’s employ. Awards under the plan may be in the form
of options, restricted shares, restricted units, performance
shares, performance units, and rights. The Plan provides for the
issuance of up to 3,000,000 shares of common stock. Of the
total number of shares of common stock issuable under the plan,
the aggregate number of shares which may be issued in connection
with grants of incentive stock options and rights cannot exceed
900,000 shares. Vesting terms and award life are governed
by the award document.
The Company also has stock options and restricted stock
outstanding under plans that were terminated prior to the Plan
being approved by the Board of Directors and shareholders. The
termination of those plans did not modify, amend, or otherwise
affect the terms of any outstanding awards on the date of
termination. The Company recognized compensation expense of
$47,000, $67,000, and $135,000, in connection with awards that
vested under those previously terminated plans during the years
ended December 31, 2009, 2008, and 2007, respectively.
During the years ended December 31, the following tables
provides the number of restricted stock units (that will convert
to shares upon vesting), restricted shares, and non-qualified
stock options that were issued during the years ended December
31 along with the weighted average grant date fair value of each
type of award:
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||
|
Average
|
Average
|
Average
|
||||||||||||||||||||||
|
Number of
|
Grant Date
|
Number of
|
Grant Date
|
Number of
|
Grant Date
|
|||||||||||||||||||
|
Awards
|
Awards | Fair Value | Awards | Fair Value | Awards | Fair Value | ||||||||||||||||||
|
Restricted Stock Units
|
287,153 | $ | 11.89 | 167,274 | $ | 15.23 | 116,372 | $ | 22.67 | |||||||||||||||
|
Restricted Shares
|
6,000 | $ | 7.92 | 6,000 | $ | 14.84 | 6,000 | $ | 21.46 | |||||||||||||||
|
Non-qualified Stock Options
|
146,850 | $ | 7.88 | 244,800 | $ | 6.72 | 166,800 | $ | 6.86 | |||||||||||||||
At December 31, 2009, 1,434,736 shares were available
for issuance under the Plan. Of this amount, 900,000 are
available for incentive stock options. The Company recognized
compensation expense in connection with the vesting of stock
options and the lapse of restrictions on restricted shares and
restricted stock units issued under the Plan in the amounts of
$4,360,000, $4,519,000, and $2,751,000 in the years ended
December 31, 2009, 2008, and 2007, respectively.
68
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The fair value of the restricted shares and restricted stock
units issued during the three years ended December 31, 2009
was based on the grant date market price. The fair value of
stock options granted was estimated on the date of grant using
the Black-Scholes option pricing model. The following table
provides the weighted average assumptions used to value stock
options issued during the years ended December 31, 2009,
2008, and 2007:
|
Stock
|
Risk-free
|
Annual
|
||||||||||||||||||||||
| Fair Value | Expected Life | Volatility | Interest Rate | Forfeiture Rate | Dividend Yield | |||||||||||||||||||
|
2009 Grants
|
$ | 7.88 | 5.20 Years | 67.6 | % | 2.3 | % | 8.2 | % | 0.1 | % | |||||||||||||
|
2008 Grants
|
$ | 6.72 | 5.00 Years | 49.3 | % | 3.0 | % | 4.3 | % | 1.4 | % | |||||||||||||
|
2007 Grants
|
$ | 6.86 | 5.10 Years | 43.7 | % | 4.3 | % | 4.2 | % | 1.1 | % | |||||||||||||
The tax benefits recognized related to equity compensation
expense in the years ended December 31, 2009, 2008, and
2007 were $1,675,000, $1,743,000 and $1,097,000, respectively.
The Company awarded 905,000 performance stock units during the
year ended December 31, 2009. The final number of
performance stock units earned will be determined based on the
Company’s total stockholder returns relative to a peer
group for three separate performance periods, consisting of the
years ending December 31, 2009, 2010, and 2011. The
performance stock units earned will be converted to cash based
on the trailing
90-day
closing price of the Company’s common stock as of the last
day of the third performance period and will be paid in January
2012. The cost of the awards will be accrued over the vesting
period which ends December 31, 2011. During the first
performance period consisting of the year ended
December 31, 2009, participants earned 34% of target, or
102,567 performance stock units. At December 31, 2009, the
value of the performance stock units accrued was based on a fair
value of $13.73 per share. During the year ended
December 31, 2009, the Company recognized $1,601,000 of
compensation in connection with the vesting of performance stock
units.
The Management Stock Purchase Plan (MSPP) is an integral
component of the Plan and provides participants the ability to
defer a portion of their salary, a portion of their annual bonus
under the Management Incentive Compensation Plans, and
Directors’ fees. The deferral is converted to restricted
stock units and credited to the participant’s account
together with a Company match in restricted stock units equal to
a percentage of the deferral amount. The account is converted to
cash at the trailing
200-day
average closing price of the Company’s stock and payable to
the participants upon a termination of their employment with the
Company. The matching portion vests only if the participant has
reached their sixtieth (60th) birthday. If a participant
terminates prior to age sixty (60), the match is forfeited. Upon
termination, the account is converted to a cash account that
accrues interest at 2% over the then current
10-year
U.S. Treasury note rate. The account is then paid out in
five equal annual cash installments.
The fair value of restricted stock units held in the MSPP equals
the trailing
200-day
average closing price of our common stock as of the last day of
the period. During the years ended December 31, 2009, 2008,
and 2007, respectively, 130,437, 75,781, and 74,365 restricted
stock units that will convert to cash upon vesting were credited
to participant accounts. At December 31, 2009 and 2008, the
value of the restricted stock units in the MSPP was $10.52 and
$14.73 per unit, respectively. At December 31, 2009 and
2008, 303,961 and 173,524 restricted stock units were credited
to participant accounts including 33,368 and 9,997,
respectively, of unvested restricted stock units.
69
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The following table summarizes the ranges of outstanding and
exercisable options at December 31, 2009:
|
Weighted
|
||||||||||||||||||||
|
Average
|
||||||||||||||||||||
|
Remaining
|
Weighted
|
Weighted
|
||||||||||||||||||
|
Options
|
Contractual
|
Average
|
Options
|
Average
|
||||||||||||||||
|
Range of Exercise Prices
|
Outstanding | Life in Years | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
|
$9.38
|
33,380 | 0.5 | $ | 9.38 | 32,255 | $ | 9.38 | |||||||||||||
|
$11.98 - $14.90
|
228,150 | 9.0 | $ | 13.29 | 13,949 | $ | 13.11 | |||||||||||||
|
$18.78 - $23.78
|
369,359 | 7.5 | $ | 21.54 | 205,955 | $ | 21.68 | |||||||||||||
| 630,889 | 252,159 | |||||||||||||||||||
The following table summarizes information about stock option
transactions:
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
Aggregate
|
||||||||||||||
| Options | Exercise Price | Remaining Life | Intrinsic Value | |||||||||||||
|
Balance at January 1, 2007
|
425,832 | $ | 18.32 | |||||||||||||
|
Granted
|
166,800 | 19.19 | ||||||||||||||
|
Exercised
|
(48,500 | ) | 14.03 | |||||||||||||
|
Forfeited
|
(21,312 | ) | 21.90 | |||||||||||||
|
Balance at December 31, 2007
|
522,820 | $ | 18.84 | |||||||||||||
|
Granted
|
244,800 | 17.81 | ||||||||||||||
|
Exercised
|
(23,560 | ) | 10.36 | |||||||||||||
|
Forfeited
|
(145,653 | ) | 17.79 | |||||||||||||
|
Balance at December 31, 2008
|
598,407 | $ | 19.01 | |||||||||||||
|
Granted
|
146,850 | 13.56 | ||||||||||||||
|
Exercised
|
(5,025 | ) | 9.38 | |||||||||||||
|
Forfeited
|
(109,343 | ) | 18.93 | |||||||||||||
|
Balance at December 31, 2009
|
630,889 | $ | 17.88 | 7.7 | $ | 762,000 | ||||||||||
The aggregate intrinsic value in the preceding table represents
the total pre-tax intrinsic value, based on the $15.73 per share
market price of the Company’s common stock as of
December 31, 2009, which would have been received by the
option holders had all option holders exercised their options as
of that date.
The aggregate intrinsic value of options exercised during the
years ended December 31, 2009, 2008, and 2007 were $32,000,
$249,000, and $408,000, respectively. The aggregate fair value
of restricted stock units that vested during 2009, 2008, and
2007 was $1,930,000, $976,000, and $564,000, respectively. The
aggregate fair value of restricted shares that vested during the
years ended December 31, 2009, 2008, and 2007 was $48,000,
$245,000, and $167,000, respectively.
The following table summarizes information about restricted
stock:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
| Restricted Stock | Fair Value | |||||||
|
Balance at January 1, 2009
|
18,000 | $ | 15.52 | |||||
|
Granted
|
6,000 | 7.92 | ||||||
|
Vested
|
(12,000 | ) | 11.72 | |||||
|
Balance at December 31, 2009
|
12,000 | $ | 15.52 | |||||
70
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The following table summarizes information about restricted
stock units that will convert to shares upon vesting:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Restricted Stock
|
Grant Date
|
|||||||
| Units | Fair Value | |||||||
|
Balance at January 1, 2009
|
514,527 | $ | 19.38 | |||||
|
Granted
|
287,153 | 11.89 | ||||||
|
Converted
|
(222,509 | ) | 18.06 | |||||
|
Balance at December 31, 2009
|
579,171 | $ | 16.17 | |||||
As of December 31, 2009, there was $6,652,000 of total
unrecognized compensation cost related to non-vested options,
restricted shares, and restricted share units. That cost is
expected to be recognized over a weighted average period of
2.3 years.
| 13. | FAIR VALUE MEASUREMENTS |
FASB ASC Topic 820, “Fair Value Measurements and
Disclosures,” defines fair value, sets out a framework for
measuring fair value, and requires certain disclosures about
fair value measurements. A fair value measurement assumes that
the transaction to sell an asset or transfer a liability occurs
in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for
the asset or liability. Fair value is defined based upon an exit
price model.
The provisions FASB ASC of Topic 820 are effective for fiscal
years beginning after November 15, 2008, for all
nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.
The Company adopted the provision of FASB ASC Topic 820 as of
January 1, 2008, for all financial assets and liabilities
and as of January 1, 2009, for all nonfinancial assets and
liabilities. Nonfinancial assets and nonfinancial liabilities
for which we applied the provisions of Topic 820 include those
measured at fair value in goodwill impairment testing,
indefinite lived intangible assets measured at fair value for
impairment testing, and those initially measured at fair value
in a business combination.
FASB ASC Topic 820 establishes a valuation hierarchy for
disclosure of the inputs used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as
follows: Level 1 inputs are quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on
our own assumptions used to measure assets and liabilities at
fair value. A financial asset or liability’s classification
within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried
at fair value measured on a recurring basis as of
December 31, 2009 (in thousands):
| Asset (Liability) | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Interest rate swap
|
$ | (2,564 | ) | $ | — | $ | (2,564 | ) | $ | — | ||||||
Interest rate swaps are
over-the-counter
securities with no quoted readily available Level 1 inputs
and, therefore, are measured at fair value using inputs that are
directly observable in active markets and are classified within
Level 2 of the valuation hierarchy, using the income
approach adjusted for the credit worthiness of the parties
involved in the transaction. See Note 1 for a description
of where changes in the fair value of the interest rate swap are
recorded within the Company’s consolidated financial
statements.
71
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The Company applied the provisions of FASB ASC Topic 820 during
the goodwill impairment tests performed as of March 31,
2009, June 30, 2009, and October 31, 2009. Step one of
the goodwill impairment test consists of determining a fair
value for each of the Company’s eleven reporting units. The
fair value for the Company’s reporting units cannot be
determined using readily available quoted Level 1 inputs or
Level 2 inputs that are observable in active markets.
Therefore, the Company used two valuation models to estimate the
fair values of its reporting units, using Level 3 inputs.
To estimate the fair values of reporting units, the Company uses
significant estimates and judgmental factors. The key estimates
and factors used in the valuation models include revenue growth
rates and profit margins based on internal forecasts, terminal
value, the weighted-average cost of capital used to discount
future cash flows, and earnings multiples. As a result of the
goodwill impairment tests performed during 2009, the Company
recognized goodwill impairment charges for three reporting units
to the implied fair value of goodwill. The fair value
measurements of the reporting units under the step one and step
two analyses include unobservable inputs defined above that are
classified as Level 3 inputs. See Note 5 of the
consolidated financial statements for the results of the
Company’s March 31, 2009, June 30, 2009, and
October 31, 2009 goodwill impairment tests.
During 2009, the Company also wrote down to fair value
indefinite-lived trade name intangible assets of two reporting
units. The fair value measurements were calculated using
unobservable inputs including discounted cash flow analyses
classified as Level 3 inputs. See Note 5 of the
consolidated financial statements for more disclosure regarding
the impairment of indefinite-lived intangible assets.
The Company’s financial instruments primarily consist of
cash and cash equivalents, accounts receivable, a note
receivable, accounts payable, long-term debt, and interest rate
swaps. The carrying values for our financial instruments
approximate fair value with the exception, at times, of
long-term debt. At December 31, 2009, the fair value of
outstanding debt was $252,492,000 compared to its carrying value
of $257,282,000. The fair value of the Company’s Senior
Subordinated 8% Notes was estimated based on quoted market
prices. Borrowings under the Company’s Third Amended and
Restated Credit Agreement dated June 24, 2009, bear
interest at recently negotiated variable rates and, therefore,
the carrying value of the borrowings approximate fair value.
| 14. | DISCONTINUED OPERATIONS |
As a part of the Company’s continuing evaluation of its
business units, the Company determined that its SCM Metal
Products subsidiaries (SCM) no longer provided a strategic fit
with its long-term growth and operational objectives during
2008. On October 3, 2008, the Company entered into a
definitive agreement to sell the issued and outstanding capital
stock of SCM, a copper powdered metal business, for a purchase
price of $43,702,000. The final purchase price is net of working
capital adjustments and transaction fees. The purchase price was
payable by delivery of a promissory note in the principal amount
of $8,500,000 payable March 31, 2012 and cash. Interest is
payable on the promissory note quarterly at interest rates that
increase over time from 8% to 12% per annum. The promissory note
is recorded as an other asset on the December 31, 2009 and
2008 balance sheets. The sale resulted in a pre-tax loss of
$12,995,000 recorded in 2008. During 2009, the Company recorded
a $376,000 gain as a result of purchase price adjustments
related to the sale of SCM. SCM was previously included in the
Processed Metal Products segment.
72
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
During 2007, the Company committed to a plan to dispose of the
assets of its bath cabinet manufacturing and steel service
center businesses. The Company received proceeds of $10,179,000
and $1,680,000, and incurred pretax losses of $14,260,000 and
$3,520,000 on the disposal of these assets and the reduction to
estimated fair market value of the assets remaining at
December 31, 2007 for the steel service center business and
the bath cabinet manufacturing business, respectively. The steel
service center business was previously included in the Processed
Metal Products segment and the bath cabinet manufacturing
business was previously reported in the Building Products
segment. Certain assets of the bath cabinet manufacturing
business have not been disposed of as of December 31, 2009,
and the Company recognized a $730,000 impairment charge to
recognize the assets at fair value during the year ended
December 31, 2009. The Company continues to incur costs
related to these assets.
The results of operations for SCM, the bath cabinet
manufacturing business, and the steel service business have been
classified as discontinued operations in the consolidated
balance sheets, consolidated statements of operations, and cash
flows for all periods presented. This reclassification has been
reflected in all relevant Notes.
The Company allocates interest to its discontinued operations in
accordance with FASB ASC Subtopic
205-20,
“Presentation of Financial Statements —
Discontinued Operations.” Interest expense of $1,465,000
and $3,501,000 was allocated to discontinued operations during
the years ended December 31, 2008 and 2007, respectively.
Components of income from discontinued operations for the years
ended December 31 are as follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Net sales
|
$ | — | $ | 110,380 | $ | 159,264 | ||||||
|
Expenses
|
731 | 121,328 | 175,499 | |||||||||
|
Loss from discontinued operations before taxes
|
(731 | ) | (10,948 | ) | (16,235 | ) | ||||||
|
Benefit of income taxes
|
(578 | ) | (1,611 | ) | (2,520 | ) | ||||||
|
Loss from discontinued operations
|
$ | (153 | ) | $ | (9,337 | ) | $ | (13,715 | ) | |||
| 15. | EXIT ACTIVITY COSTS AND ASSET IMPAIRMENTS |
Beginning in 2007, the Company has focused on becoming the
low-cost provider of its products by reducing operating costs
and implementing lean manufacturing initiatives, which have in
part led to the consolidation of its facilities and product
lines. The Company consolidated six, nineteen, and ten
facilities during 2009, 2008, and 2007, respectively, in this
effort. During this process, the Company has incurred exit
activity costs, including contract termination costs, severance
costs, and other moving and closing costs. As of
December 31, 2009, the Company did not decide to close or
consolidate any specific facilities and, therefore, does not
expect to incur any material exit activity costs in the future,
unless future opportunities for cost savings are identified.
The Processed Metal Products segment incurred a $1,420,000 asset
impairment charge during the year ended December 31, 2009
related to the sale of an unoccupied facility. The Company
incurred $2,509,000 of asset impairment charges for year ended
December 31, 2008 including a $1,370,000 impairment charge
for a plant closed in the Building Products segment and a
$1,139,000 impairment charge for a corporate software
application no longer in use. The Company recorded $391,000 of
asset impairment charges for the year ended December 31,
2007, related to $351,000 and $40,000 impairments of machinery
and equipment due to two separate plant closures in the
Processed Metal Products and Building Products segments,
respectively.
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The following table provides a summary of exit activity costs
and asset impairment charges incurred by segment for the years
ended December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Building Products
|
$ | 2,292 | $ | 4,632 | $ | 696 | ||||||
|
Processed Metal Products
|
2,061 | 1,583 | 1,761 | |||||||||
|
Corporate
|
293 | 1,139 | — | |||||||||
|
Total exit activity costs
|
$ | 4,646 | $ | 7,354 | $ | 2,457 | ||||||
The following table provides a summary of the statement of
operations classification where the above exit activity costs
and asset impairments are recorded for the years ended December
31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Cost of sales
|
$ | 2,126 | $ | 5,740 | $ | 2,420 | ||||||
|
Selling, general, and administrative expense
|
2,520 | 1,614 | 37 | |||||||||
|
Total exit activity costs and asset impairment charges
|
$ | 4,646 | $ | 7,354 | $ | 2,457 | ||||||
The following table reconciles the beginning and ending
liability for exit activity costs relating to the Company’s
facility consolidation efforts (in thousands):
| 2009 | 2008 | |||||||
|
Accrued costs at beginning of year
|
$ | 1,371 | $ | 12 | ||||
|
Exit activity costs recognized
|
3,226 | 4,845 | ||||||
|
Cash payments
|
(2,694 | ) | (3,486 | ) | ||||
|
Accrued costs at end of year
|
$ | 1,903 | $ | 1,371 | ||||
| 16. | INCOME TAXES |
The components of (loss) income before income taxes from
continuing operations consisted of the following for the years
ended December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Domestic
|
$ | (76,042 | ) | $ | 43,881 | $ | 35,089 | |||||
|
Foreign
|
(1,591 | ) | 9,077 | 9,326 | ||||||||
|
Total
|
$ | (77,633 | ) | $ | 52,958 | $ | 44,415 | |||||
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
The (benefit of) provision for income taxes for the years ended
December 31 consisted of the following (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Income tax expense (benefit) from continuing operations
|
||||||||||||
|
Current:
|
||||||||||||
|
U.S. Federal
|
$ | (9,521 | ) | $ | 12,788 | $ | 5,683 | |||||
|
State
|
557 | 2,759 | 1,615 | |||||||||
|
Foreign
|
(104 | ) | 3,286 | 3,057 | ||||||||
|
Total current
|
(9,068 | ) | 18,833 | 10,355 | ||||||||
|
Deferred:
|
||||||||||||
|
U.S. Federal
|
(10,276 | ) | 1,565 | 6,746 | ||||||||
|
State
|
(6,012 | ) | (193 | ) | 1,012 | |||||||
|
Foreign
|
(405 | ) | (652 | ) | (637 | ) | ||||||
|
Total deferred
|
(16,693 | ) | 720 | 7,121 | ||||||||
|
Total
|
$ | (25,761 | ) | $ | 19,553 | $ | 17,476 | |||||
The benefit of income taxes from discontinued operations for the
years ended December 31 consisted of the following (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Current:
|
||||||||||||
|
U.S. Federal
|
$ | (530 | ) | $ | (2,159 | ) | $ | (1,464 | ) | |||
|
State
|
— | (453 | ) | (15 | ) | |||||||
|
Foreign
|
— | 236 | 797 | |||||||||
|
Total current
|
(530 | ) | (2,376 | ) | (682 | ) | ||||||
|
Deferred:
|
||||||||||||
|
U.S. Federal
|
(16 | ) | 698 | (1,789 | ) | |||||||
|
State
|
(32 | ) | 56 | 1 | ||||||||
|
Foreign
|
— | 11 | (50 | ) | ||||||||
|
Total deferred
|
(48 | ) | 765 | (1,838 | ) | |||||||
|
Total
|
$ | (578 | ) | $ | (1,611 | ) | $ | (2,520 | ) | |||
The (benefit of) provision for income taxes from continuing
operations differs from the federal statutory rate of 35% for
the years December 31 due to the following (in thousands):
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Statutory rate
|
$ | (27,172 | ) | 35.0 | % | $ | 18,535 | 35.0 | % | $ | 15,545 | 35.0 | % | |||||||||||
|
State income taxes, less federal effect
|
(3,546 | ) | 4.6 | % | 1,668 | 3.2 | % | 1,707 | 3.8 | % | ||||||||||||||
|
Foreign rate differential
|
60 | (0.1 | )% | (776 | ) | (1.5 | )% | (185 | ) | (0.4 | )% | |||||||||||||
|
Uncertain tax positions
|
107 | (0.1 | )% | 420 | 0.8 | % | 509 | 1.1 | % | |||||||||||||||
|
Intangible asset impairment
|
4,081 | (5.3 | )% | — | 0.0 | % | — | 0.0 | % | |||||||||||||||
|
Other
|
709 | (0.9 | )% | (294 | ) | (0.6 | )% | (100 | ) | (0.2 | )% | |||||||||||||
| $ | (25,761 | ) | 33.2 | % | $ | 19,553 | 36.9 | % | $ | 17,476 | 39.3 | % | ||||||||||||
75
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Deferred tax liabilities (assets) at December 31 consist of the
following (in thousands):
| 2009 | 2008 | |||||||
|
Depreciation
|
$ | 36,320 | $ | 37,701 | ||||
|
Goodwill
|
18,912 | 32,007 | ||||||
|
Intangible assets
|
19,094 | 20,173 | ||||||
|
Other
|
247 | 38 | ||||||
|
Gross deferred tax liabilities
|
74,573 | 89,919 | ||||||
|
Equity compensation
|
(7,311 | ) | (6,402 | ) | ||||
|
Other
|
(14,672 | ) | (15,337 | ) | ||||
|
Valuation allowances
|
1,779 | 2,614 | ||||||
|
Gross deferred tax assets
|
(20,204 | ) | (19,125 | ) | ||||
|
Net deferred tax liabilities
|
$ | 54,369 | $ | 70,794 | ||||
Net current deferred tax assets of $8,463,000 and $8,720,000 are
included in other current assets in the consolidated balance
sheet at December 31, 2009 and 2008, respectively. The
Company maintains valuation allowances due to the uncertainty of
its ability to utilize the deferred tax assets identified above.
The valuation allowances primarily relate to capital loss carry
forwards for federal and state tax purposes of $3,795,000 that
expire in 2013 and state net operating losses.
During the year ended December 31, 2009, the Company
received income tax refunds, net of cash paid for income taxes,
of $3,516,000. Cash paid for income taxes, net of tax refunds,
in the years ended December 31, 2008 and 2007 was
$15,825,000, and $10,011,000, respectively.
Provision has not been made for U.S. taxes on $25,516,000
of undistributed earnings of foreign subsidiaries. Those
earnings have been and will continue to be reinvested. As of
December 31, 2009, the Company’s foreign operations
held $13,491,000 of cash that provides foreign operations with
liquidity to reinvest in working capital and capital
expenditures for their operations. Any excess earnings could be
used to grow the Company’s foreign operations through
launches of new capital projects or additional acquisitions.
Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable due to the
complexities associated with its hypothetical calculation.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
| 2009 | 2008 | |||||||
|
Balance at beginning of year
|
$ | 2,499 | $ | 1,894 | ||||
|
Additions for tax positions of the current year
|
242 | 518 | ||||||
|
Additions for tax positions of prior years
|
408 | 135 | ||||||
|
Reductions for tax positions of prior years for:
|
||||||||
|
Settlements during the period
|
(972 | ) | — | |||||
|
Lapses of applicable statute of limitation
|
(12 | ) | (48 | ) | ||||
|
Balance at end of year
|
$ | 2,165 | $ | 2,499 | ||||
The company and its U.S. subsidiaries file a
U.S. federal consolidated income tax return. The Internal
Revenue Service (IRS) is in the process of examining the
Company’s income tax return for 2008. Foreign and
U.S. state jurisdictions have statute of limitations
generally ranging from 4 to 6 years. Currently, we do not
have any returns under examinations in our U.S. state
jurisdictions.
76
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
During 2009, the IRS concluded their examination of the
Company’s income tax returns for 2007, 2006, and 2005 and
Her Majesty’s Revenue and Customs (United Kingdom)
concluded their examination on the Company’s tax returns
for 2007 and 2006. As a result of these audits, the Company
recognized a $972,000 reduction in its reserve for unrecognized
tax benefits.
We adopted the provisions of FASB ASC Topic 740, “Income
Taxes,” relating to accounting for uncertainty in income
taxes effective January 1, 2007. As a result of the
implementation of these provisions, the Company recognized a
$750,000 increase in tax liabilities with a corresponding
reduction in retained earnings. The recognition was caused by
uncertain tax positions of $408,000 and the provision for
related interest and penalties of $342,000.
The total amount of unrecognized tax benefits that would affect
the effective tax rate, if recognized, was $2,165,000 and
$1,933,000 as of December 31, 2009 and 2008, respectively.
We report accrued interest and penalties related to unrecognized
tax benefits in income tax expense. We recognized interest (net
of federal tax benefit) and penalties of $171,000 and $123,000
in the years ended December 31, 2009 and 2008, respectively.
| 17. | NET (LOSS) INCOME PER SHARE |
Basic (loss) income per share is based on the weighted average
number of common shares outstanding. Diluted (loss) income per
share is based on the weighted average number of common shares
outstanding, as well as dilutive potential common shares which,
in the Company’s case, comprise of shares issuable under
the equity compensation plans described in Note 12. The
weighted average number of shares and conversions utilized in
the calculation of diluted earnings per share does not include
potential anti-dilutive common shares aggregating 1,222,060,
676,325, and 465,365 at December 31, 2009, 2008, and 2007,
respectively. The treasury stock method is used to calculate
dilutive shares, which reduces the gross number of dilutive
shares by the number of shares purchasable from the proceeds of
the options assumed to be exercised.
The following table sets forth the computation of basic and
diluted earnings per share for the years ended December 31:
| 2009 | 2008 | 2007 | ||||||||||
|
Numerator:
|
||||||||||||
|
(Loss) income from continuing operations
|
$ | (51,872,000 | ) | $ | 33,405,000 | $ | 26,939,000 | |||||
|
Loss from discontinued operations
|
(153,000 | ) | (9,337,000 | ) | (13,715,000 | ) | ||||||
|
(Loss) income available to common stockholders
|
$ | (52,025,000 | ) | $ | 24,068,000 | $ | 13,224,000 | |||||
|
Denominator:
|
||||||||||||
|
Denominator for basic (loss) income per share:
|
||||||||||||
|
Weighted average shares outstanding
|
30,135,125 | 29,981,265 | 29,866,712 | |||||||||
|
Denominator for diluted (loss) income per share:
|
||||||||||||
|
Weighted average shares outstanding
|
30,135,125 | 29,981,265 | 29,866,712 | |||||||||
|
Potentially dilutive securities
|
— | 212,223 | 249,547 | |||||||||
|
Weighted average shares and conversions
|
30,135,125 | 30,193,488 | 30,116,259 | |||||||||
For the year ended December 31, 2009, all stock options,
unvested restricted stock, and unvested restricted stock units
were anti-dilutive and, therefore, not included in the dilutive
loss per share calculation. The number of weighted average stock
options, unvested restricted stock, and unvested restricted
stock units that were not included in the dilutive loss per
share calculation because the effect would have been
anti-dilutive was 193,131 shares for the year ended
December 31, 2009.
77
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
| 18. | COMMITMENTS, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS |
The Company leases certain facilities and equipment under
operating leases. Rent expense under operating leases for the
years ended December 31, 2009, 2008, and 2007 aggregated
$14,437,000, $14,253,000, and $14,808,000, respectively. Future
minimum lease payments under these non-cancelable operating
leases at December 31, 2009, are as follows:
|
2010
|
$ | 11,990 | ||
|
2011
|
$ | 10,545 | ||
|
2012
|
$ | 7,469 | ||
|
2013
|
$ | 5,697 | ||
|
2014
|
$ | 3,817 | ||
|
Thereafter
|
$ | 6,876 |
The Company offers various product warranties to its customers
concerning the quality of its products and services. Based upon
the short duration of warranty periods and favorable historical
warranty experience, the Company determined that a related
warranty accrual at December 31, 2009 and 2008 is not
required.
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 are not clearly
determinable at the present time, would significantly affect the
Company’s financial condition or results of operations.
Two members of the Company’s Board of Directors, Gerald S.
Lippes and Arthur A. Russ, Jr., are partners in law firms
that provide legal services to the Company. During the years
ended December 31, 2009, 2008, and 2007, the Company
incurred $1,162,000, $1,729,000, and $2,217,000 for legal
services from these firms, respectively. Of the amounts
incurred, $113,000 and $652,000 were capitalized as deferred
debt issuance costs and acquisition costs during 2009 and 2007,
respectively. All other amounts were recorded as expenses when
incurred. At December 31, 2009 and 2008, the Company had
$160,000 and $342,000 recorded in accounts payable for these law
firms, respectively.
A member of the Company’s Board of Directors, Robert E.
Sadler, Jr., is Vice Chairman of the Board of one of the
participating lenders in the Company’s Senior Credit
Agreement. See Note 8 to the financial statements for the
terms of the Senior Credit Agreement and the amounts outstanding
as of December 31, 2009 and 2008.
The Company was party to a consulting agreement it entered into
January 1, 2003 with Neil E. Lipke, a former officer of the
Company and a brother of Brian J. Lipke, a Director and Officer
of the Company, in effect through December 2007. Under this
consulting agreement, Neil E. Lipke received $125,000 per year
in cash and insurance benefits at the levels that were provided
during his employment in exchange for providing consulting
services to the Company. During the year ended December 31,
2007, the Company paid Neil E. Lipke $125,000 in cash and
incurred $6,000 to provide him with insurance benefits.
78
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GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
| 19. | SEGMENT INFORMATION |
The Company is organized into two reportable segments on the
basis of the production process and products and services
provided by each segment, identified as follows:
(i) Building Products, which primarily includes the
processing of sheet steel, aluminum, and other materials to
produce a wide variety of building and construction
products; and
(ii) Processed Metal Products, which primarily includes the
intermediate processing of wide, open tolerance flat-rolled
sheet steel through the application of several different
processes to produce high-quality, value-added coiled steel to
be further processed by customers.
The following table illustrates certain measurements used by
management to assess the performance of the segments described
above as of and for the years ended December 31 (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Net sales
|
||||||||||||
|
Building Products
|
$ | 691,771 | $ | 986,840 | $ | 929,022 | ||||||
|
Processed Metal Products
|
142,447 | 245,459 | 269,693 | |||||||||
| 834,218 | $ | 1,232,299 | $ | 1,198,715 | ||||||||
|
(Loss) income from operations
|
||||||||||||
|
Building Products
|
$ | (16,809 | ) | $ | 94,522 | $ | 91,589 | |||||
|
Processed Metal Products
|
(14,341 | ) | 17,655 | 13,265 | ||||||||
|
Corporate
|
(20,884 | ) | (30,708 | ) | (29,113 | ) | ||||||
| $ | (52,034 | ) | $ | 81,469 | $ | 75,741 | ||||||
|
Depreciation and amortization
|
||||||||||||
|
Building Products
|
$ | 25,193 | $ | 25,790 | $ | 23,364 | ||||||
|
Processed Metal Products
|
6,169 | 5,384 | 5,023 | |||||||||
|
Corporate
|
1,051 | 2,733 | 2,565 | |||||||||
| $ | 32,413 | $ | 33,907 | $ | 30,952 | |||||||
|
Total assets*
|
||||||||||||
|
Building Products
|
$ | 821,557 | $ | 961,967 | $ | 1,001,541 | ||||||
|
Processed Metal Products
|
98,665 | 140,282 | 145,748 | |||||||||
|
Corporate
|
53,746 | 44,110 | 134,119 | |||||||||
| $ | 973,968 | $ | 1,146,359 | $ | 1,281,408 | |||||||
|
Capital expenditures
|
||||||||||||
|
Building Products
|
$ | 9,318 | $ | 16,927 | $ | 12,560 | ||||||
|
Processed Metal Products
|
1,038 | 1,710 | 3,936 | |||||||||
|
Corporate
|
457 | 2,958 | 1,195 | |||||||||
| $ | 10,813 | $ | 21,595 | $ | 17,691 | |||||||
| * | Total assets of discontinued operations have been included in Corporate assets for all periods. |
79
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
Net sales by region or origin and long-lived assets by region of
domicile for the years ended and as of December 31 are as
follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Net sales
|
||||||||||||
|
North America
|
$ | 785,534 | $ | 1,157,780 | $ | 1,123,100 | ||||||
|
Europe
|
48,684 | 74,519 | 75,615 | |||||||||
| 834,218 | $ | 1,232,299 | $ | 1,198,715 | ||||||||
|
Long-lived assets
|
||||||||||||
|
North America
|
$ | 682,171 | $ | 758,626 | $ | 762,953 | ||||||
|
Europe
|
40,646 | 39,504 | 45,849 | |||||||||
| $ | 722,817 | $ | 798,130 | $ | 808,802 | |||||||
| 20. | SUBSEQUENT EVENT |
On February 1, 2010, the Company closed on the sale of the
majority of the assets of the Processed Metals Products segment.
The assets were sold for $30,100,000, which was net of a working
capital adjustment. This transaction finalized the
Company’s exit from the steel processing business and
establishes the Company as a manufacturer and distributor of
products for the building and industrial markets. The net book
value of the assets sold was approximately $52 million as
of December 31, 2009. The Company expects to incur a
pre-tax loss of approximately $18 million from the
transaction. The results of operations for the Processed Metal
Products segment were included in continuing operations in the
consolidated financial statements because they did not meet the
criteria of a discontinued operation as of December 31,
2009. However, the results of operation for the Processed Metal
Products segment will be classified as discontinued operations
in the consolidated balance sheets, consolidated statements of
income, and statements of cash flows for the first quarter of
2010.
| 21. | SUPPLEMENTAL FINANCIAL INFORMATION |
The following information sets forth the consolidating summary
financial statements of the issuer (Gibraltar Industries, Inc.)
and guarantors, which guarantee the Senior Subordinated
8% Notes due December 1, 2015, and the non-guarantors.
The guarantors are wholly owned subsidiaries of the issuer and
the guarantees are full, unconditional, joint and several.
Investments in subsidiaries are accounted for by the parent
using the equity method of accounting. The guarantor
subsidiaries and non-guarantor subsidiaries are presented on a
combined basis. The principal elimination entries eliminate
investments in subsidiaries and intercompany balances and
transactions.
80
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GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2009
(In thousands)
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2009
(In thousands)
|
Gibraltar
|
Guarantor
|
Non-Guarantor
|
||||||||||||||||||
| Industries, Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Net sales
|
$ | — | $ | 759,515 | $ | 88,596 | $ | (13,893 | ) | $ | 834,218 | |||||||||
|
Cost of sales
|
— | 643,270 | 78,781 | (12,812 | ) | 709,239 | ||||||||||||||
|
Gross profit
|
— | 116,245 | 9,815 | (1,081 | ) | 124,979 | ||||||||||||||
|
Selling, general, and administrative expense
|
(85 | ) | 107,092 | 9,908 | — | 116,915 | ||||||||||||||
|
Intangible asset impairment
|
— | 60,098 | — | — | 60,098 | |||||||||||||||
|
Income (loss) from operations
|
85 | (50,945 | ) | (93 | ) | (1,081 | ) | (52,034 | ) | |||||||||||
|
Interest (expense) income
|
(15,840 | ) | (10,099 | ) | 24 | — | (25,915 | ) | ||||||||||||
|
Equity in partnerships’ income and other income
|
— | 301 | 15 | — | 316 | |||||||||||||||
|
Loss before taxes
|
(15,755 | ) | (60,743 | ) | (54 | ) | (1,081 | ) | (77,633 | ) | ||||||||||
|
Benefit of income taxes
|
(6,132 | ) | (19,130 | ) | (499 | ) | — | (25,761 | ) | |||||||||||
|
Loss from continuing operations
|
(9,623 | ) | (41,613 | ) | 445 | (1,081 | ) | (51,872 | ) | |||||||||||
|
Discontinued operations:
|
||||||||||||||||||||
|
Loss from discontinued operations before taxes
|
— | (731 | ) | — | — | (731 | ) | |||||||||||||
|
Benefit of income taxes
|
— | (578 | ) | — | — | (578 | ) | |||||||||||||
|
Income from discontinued operations
|
— | (153 | ) | — | — | (153 | ) | |||||||||||||
|
Equity in losses from subsidiaries
|
(41,321 | ) | 445 | — | 40,876 | — | ||||||||||||||
|
Net loss
|
$ | (50,944 | ) | $ | (41,321 | ) | $ | 445 | $ | 39,795 | $ | (52,025 | ) | |||||||
81
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2008
(In thousands)
CONSOLIDATING STATEMENTS OF OPERATIONS
DECEMBER 31, 2008
(In thousands)
|
Gibraltar
|
Guarantor
|
Non-Guarantor
|
||||||||||||||||||
| Industries, Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Net sales
|
$ | — | $ | 1,115,562 | $ | 134,430 | $ | (17,693 | ) | $ | 1,232,299 | |||||||||
|
Cost of sales
|
— | 909,537 | 110,470 | (16,494 | ) | 1,003,513 | ||||||||||||||
|
Gross profit
|
— | 206,025 | 23,960 | (1,199 | ) | 228,786 | ||||||||||||||
|
Selling, general, and administrative expense
|
(397 | ) | 134,885 | 12,829 | — | 147,317 | ||||||||||||||
|
Income from operations
|
397 | 71,140 | 11,131 | (1,199 | ) | 81,469 | ||||||||||||||
|
Interest expense
|
(15,100 | ) | (12,704 | ) | (1,431 | ) | — | (29,235 | ) | |||||||||||
|
Equity in partnerships’ income and other income
|
— | 714 | 10 | — | 724 | |||||||||||||||
|
(Loss) income before taxes
|
(14,703 | ) | 59,150 | 9,710 | (1,199 | ) | 52,958 | |||||||||||||
|
(Benefit of) provision for income taxes
|
(5,440 | ) | 22,285 | 2,708 | — | 19,553 | ||||||||||||||
|
(Loss) income from continuing operations
|
(9,263 | ) | 36,865 | 7,002 | (1,199 | ) | 33,405 | |||||||||||||
|
Discontinued operations:
|
||||||||||||||||||||
|
(Loss) income from discontinued operations before taxes
|
— | (12,289 | ) | 1,341 | — | (10,948 | ) | |||||||||||||
|
(Benefit of) provision for income taxes
|
— | (1,855 | ) | 244 | — | (1,611 | ) | |||||||||||||
|
(Loss) income from discontinued operations
|
— | (10,434 | ) | 1,097 | — | (9,337 | ) | |||||||||||||
|
Equity in earnings from subsidiaries
|
34,530 | 8,099 | — | (42,629 | ) | — | ||||||||||||||
|
Net income
|
$ | 25,267 | $ | 34,530 | $ | 8,099 | $ | (43,828 | ) | $ | 24,068 | |||||||||
82
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
December 31, 2007
CONSOLIDATING STATEMENTS OF OPERATIONS
December 31, 2007
(In thousands)
|
Gibraltar
|
Guarantor
|
Non-Guarantor
|
||||||||||||||||||
| Industries, Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Net sales
|
$ | — | $ | 1,081,603 | $ | 129,415 | $ | (12,303 | ) | $ | 1,198,715 | |||||||||
|
Cost of sales
|
— | 896,193 | 106,035 | (12,303 | ) | 989,925 | ||||||||||||||
|
Gross profit
|
— | 185,410 | 23,380 | — | 208,790 | |||||||||||||||
|
Selling, general, and administrative expense
|
332 | 120,356 | 12,361 | — | 133,049 | |||||||||||||||
|
(Loss) income from operations
|
(332 | ) | 65,054 | 11,019 | — | 75,741 | ||||||||||||||
|
Interest expense
|
(16,421 | ) | (14,569 | ) | (1,508 | ) | — | (32,498 | ) | |||||||||||
|
Equity in partnerships’ income and other income
|
— | 1,159 | 13 | — | 1,172 | |||||||||||||||
|
(Loss) income before taxes
|
(16,753 | ) | 51,644 | 9,524 | — | 44,415 | ||||||||||||||
|
(Benefit of) provision for income taxes
|
(6,241 | ) | 21,253 | 2,464 | — | 17,476 | ||||||||||||||
|
(Loss) income from continuing operations
|
(10,512 | ) | 30,391 | 7,060 | — | 26,939 | ||||||||||||||
|
Discontinued operations:
|
||||||||||||||||||||
|
(Loss) income from discontinued operations before taxes
|
— | (16,665 | ) | 430 | — | (16,235 | ) | |||||||||||||
|
(Benefit of) provision for income taxes
|
— | (2,425 | ) | (95 | ) | — | (2,520 | ) | ||||||||||||
|
(Loss) income from discontinued operations
|
— | (14,240 | ) | 525 | — | (13,715 | ) | |||||||||||||
|
Equity in earnings from subsidiaries
|
23,736 | 7,585 | — | (31,321 | ) | — | ||||||||||||||
|
Net income
|
$ | 13,224 | $ | 23,736 | $ | 7,585 | $ | (31,321 | ) | $ | 13,224 | |||||||||
83
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
December 31, 2009
CONSOLIDATING BALANCE SHEETS
December 31, 2009
(In thousands)
|
Gibraltar
|
Guarantor
|
Non-Guarantor
|
||||||||||||||||||
| Industries, Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 10,105 | $ | 13,491 | $ | — | $ | 23,596 | ||||||||||
|
Accounts receivable, net
|
— | 81,208 | 12,213 | — | 93,421 | |||||||||||||||
|
Intercompany balances
|
21,321 | 5,734 | (27,055 | ) | — | — | ||||||||||||||
|
Inventories
|
— | 100,935 | 6,835 | — | 107,770 | |||||||||||||||
|
Other current assets
|
6,132 | 17,719 | 1,858 | — | 25,709 | |||||||||||||||
|
Assets of discontinued operations
|
— | 655 | — | — | 655 | |||||||||||||||
|
Total current assets
|
27,453 | 216,356 | 7,342 | — | 251,151 | |||||||||||||||
|
Property, plant, and equipment, net
|
— | 211,122 | 16,298 | — | 227,420 | |||||||||||||||
|
Goodwill
|
— | 359,182 | 33,522 | — | 392,704 | |||||||||||||||
|
Acquired intangibles
|
— | 70,287 | 11,895 | — | 82,182 | |||||||||||||||
|
Investments in partnerships
|
— | 2,474 | — | — | 2,474 | |||||||||||||||
|
Other assets
|
4,335 | 13,699 | 3 | — | 18,037 | |||||||||||||||
|
Investment in subsidiaries
|
699,448 | 53,368 | — | (752,816 | ) | — | ||||||||||||||
| $ | 731,236 | $ | 926,488 | $ | 69,060 | $ | (752,816 | ) | $ | 973,968 | ||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | — | $ | 60,316 | $ | 8,148 | $ | — | $ | 68,464 | ||||||||||
|
Accrued expenses
|
1,360 | 36,699 | 2,085 | — | 40,144 | |||||||||||||||
|
Current maturities of long-term debt
|
— | 408 | — | — | 408 | |||||||||||||||
|
Total current liabilities
|
1,360 | 97,423 | 10,233 | — | 109,016 | |||||||||||||||
|
Long-term debt
|
201,650 | 55,224 | — | — | 256,874 | |||||||||||||||
|
Deferred income taxes
|
— | 57,765 | 5,067 | — | 62,832 | |||||||||||||||
|
Other non-current liabilities
|
— | 16,628 | 392 | — | 17,020 | |||||||||||||||
|
Shareholders’ equity
|
528,226 | 699,448 | 53,368 | (752,816 | ) | 528,226 | ||||||||||||||
| $ | 731,236 | $ | 926,488 | $ | 69,060 | $ | (752,816 | ) | $ | 973,968 | ||||||||||
84
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEETS
December 31, 2008
CONSOLIDATING BALANCE SHEETS
December 31, 2008
(In thousands)
|
Gibraltar
|
Guarantor
|
Non-Guarantor
|
||||||||||||||||||
| Industries, Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | — | $ | 1,781 | $ | 9,527 | $ | — | $ | 11,308 | ||||||||||
|
Accounts receivable, net
|
— | 108,004 | 15,268 | — | 123,272 | |||||||||||||||
|
Intercompany balances
|
5,959 | 23,894 | (29,853 | ) | — | — | ||||||||||||||
|
Inventories
|
— | 180,332 | 9,603 | — | 189,935 | |||||||||||||||
|
Other current assets
|
— | 21,720 | 508 | — | 22,228 | |||||||||||||||
|
Assets of discontinued operations
|
— | 1,486 | — | — | 1,486 | |||||||||||||||
|
Total current assets
|
5,959 | 337,217 | 5,053 | — | 348,229 | |||||||||||||||
|
Property, plant, and equipment, net
|
— | 227,448 | 16,171 | — | 243,619 | |||||||||||||||
|
Goodwill
|
— | 413,584 | 30,341 | — | 443,925 | |||||||||||||||
|
Acquired intangibles
|
— | 75,371 | 12,002 | — | 87,373 | |||||||||||||||
|
Investments in partnerships
|
— | 2,477 | — | — | 2,477 | |||||||||||||||
|
Other assets
|
25,525 | (4,938 | ) | 149 | — | 20,736 | ||||||||||||||
|
Investment in subsidiaries
|
739,716 | 47,577 | — | (787,293 | ) | — | ||||||||||||||
| $ | 771,200 | $ | 1,098,736 | $ | 63,716 | $ | (787,293 | ) | $ | 1,146,359 | ||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | — | $ | 67,512 | $ | 8,656 | $ | — | $ | 76,168 | ||||||||||
|
Accrued expenses
|
1,360 | 43,377 | 1,568 | — | 46,305 | |||||||||||||||
|
Current maturities of long-term debt
|
— | 2,728 | — | — | 2,728 | |||||||||||||||
|
Total current liabilities
|
1,360 | 113,617 | 10,224 | — | 125,201 | |||||||||||||||
|
Long-term debt
|
201,353 | 152,291 | — | — | 353,644 | |||||||||||||||
|
Deferred income taxes
|
— | 74,575 | 4,939 | — | 79,514 | |||||||||||||||
|
Other non-current liabilities
|
— | 18,537 | 976 | — | 19,513 | |||||||||||||||
|
Shareholders’ equity
|
568,487 | 739,716 | 47,577 | (787,293 | ) | 568,487 | ||||||||||||||
| $ | 771,200 | $ | 1,098,736 | $ | 63,716 | $ | (787,293 | ) | $ | 1,146,359 | ||||||||||
85
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2009
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2009
(In thousands)
|
Gibraltar
|
Non-
|
|||||||||||||||||||
|
Industries,
|
Guarantor
|
Guarantor
|
||||||||||||||||||
| Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||||||||||
|
Net cash (used in) provided by continuing operations
|
$ | (15,384 | ) | $ | 137,062 | $ | 9,336 | $ | — | $ | 131,014 | |||||||||
|
Net cash provided by discontinued operations
|
— | 585 | — | — | 585 | |||||||||||||||
|
Net cash (used in) provided by operating activities
|
(15,384 | ) | 137,647 | 9,336 | — | 131,599 | ||||||||||||||
|
Cash Flows from Investing Activities
|
||||||||||||||||||||
|
Additional consideration for acquisitions
|
— | (4,949 | ) | — | — | (4,949 | ) | |||||||||||||
|
Purchases of property, plant, and equipment
|
— | (9,927 | ) | (886 | ) | — | (10,813 | ) | ||||||||||||
|
Net proceeds from sale of property, plant, and equipment
|
— | 272 | 27 | — | 299 | |||||||||||||||
|
Net cash used in investing activities
|
— | (14,604 | ) | (859 | ) | — | (15,463 | ) | ||||||||||||
|
Cash Flows from Financing Activities
|
||||||||||||||||||||
|
Long-term debt payments
|
— | (182,401 | ) | — | — | (182,401 | ) | |||||||||||||
|
Proceeds from long-term debt
|
— | 83,022 | — | — | 83,022 | |||||||||||||||
|
Intercompany financing
|
17,470 | (12,957 | ) | (4,513 | ) | — | — | |||||||||||||
|
Payment of deferred financing costs
|
— | (2,383 | ) | — | — | (2,383 | ) | |||||||||||||
|
Purchase of treasury stock at market rates
|
(634 | ) | — | — | — | (634 | ) | |||||||||||||
|
Net proceeds from issuance of common stock
|
47 | — | — | — | 47 | |||||||||||||||
|
Payment of dividends
|
(1,499 | ) | — | — | — | (1,499 | ) | |||||||||||||
|
Net cash (used in) provided by financing activities
|
15,384 | (114,719 | ) | (4,513 | ) | — | (103,848 | ) | ||||||||||||
|
Net increase in cash and cash equivalents
|
— | 8,324 | 3,964 | — | 12,288 | |||||||||||||||
|
Cash and cash equivalents at beginning of year
|
— | 1,781 | 9,527 | — | 11,308 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | — | $ | 10,105 | $ | 13,491 | $ | — | $ | 23,596 | ||||||||||
86
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2008
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2008
(In thousands)
|
Gibraltar
|
Non-
|
|||||||||||||||||||
|
Industries,
|
Guarantor
|
Guarantor
|
||||||||||||||||||
| Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||||||||||
|
Net cash (used in) provided by continuing operations
|
$ | (14,905 | ) | $ | 105,344 | $ | 7,690 | $ | — | $ | 98,129 | |||||||||
|
Net cash provided by discontinued operations
|
— | 10,716 | (971 | ) | — | 9,745 | ||||||||||||||
|
Net cash (used in) provided by operating activities
|
(14,905 | ) | 116,060 | 6,719 | — | 107,874 | ||||||||||||||
|
Cash Flows from Investing Activities
|
||||||||||||||||||||
|
Additional consideration for acquisitions
|
— | (8,724 | ) | — | — | (8,724 | ) | |||||||||||||
|
Net proceeds from sale of business
|
— | 23,208 | 11,994 | — | 35,202 | |||||||||||||||
|
Purchases of property, plant, and equipment
|
— | (18,427 | ) | (3,168 | ) | — | (21,595 | ) | ||||||||||||
|
Net proceeds from sale of property, plant, and equipment
|
— | 2,662 | 30 | — | 2,692 | |||||||||||||||
|
Net cash (used in) provided by investing activities from
continuing operations
|
— | (1,281 | ) | 8,856 | — | 7,575 | ||||||||||||||
|
Net cash used in investing activities for discontinued operations
|
— | (440 | ) | (61 | ) | — | (501 | ) | ||||||||||||
|
Net cash (used in) provided by investing activities
|
— | (1,721 | ) | 8,795 | — | 7,074 | ||||||||||||||
|
Cash Flows from Financing Activities
|
||||||||||||||||||||
|
Long-term debt payments
|
— | (184,447 | ) | (490 | ) | — | (184,937 | ) | ||||||||||||
|
Proceeds from long-term debt
|
— | 53,000 | 439 | — | 53,439 | |||||||||||||||
|
Intercompany financing
|
20,804 | 8,265 | (29,069 | ) | — | — | ||||||||||||||
|
Payment of deferred financing costs
|
— | (104 | ) | — | — | (104 | ) | |||||||||||||
|
Tax adjustment from equity compensation
|
— | (362 | ) | — | — | (362 | ) | |||||||||||||
|
Purchase of treasury stock at market rates
|
(164 | ) | — | — | — | (164 | ) | |||||||||||||
|
Net proceeds from issuance of common stock
|
250 | — | — | — | 250 | |||||||||||||||
|
Payment of dividends
|
(5,985 | ) | — | — | — | (5,985 | ) | |||||||||||||
|
Net cash provided by (used in) financing activities from
continuing operations
|
14,905 | (123,648 | ) | (29,120 | ) | — | (137,863 | ) | ||||||||||||
|
Net cash used in financing activities from discontinued
operations
|
— | — | (1,064 | ) | — | (1,064 | ) | |||||||||||||
|
Net cash provided by (used in) financing activities
|
14,905 | (123,648 | ) | (30,184 | ) | — | (138,927 | ) | ||||||||||||
|
Net decrease in cash and cash equivalents
|
— | (9,309 | ) | (14,670 | ) | — | (23,979 | ) | ||||||||||||
|
Cash and cash equivalents at beginning of year
|
— | 11,090 | 24,197 | — | 35,287 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | — | $ | 1,781 | $ | 9,527 | $ | — | $ | 11,308 | ||||||||||
87
Table of Contents
GIBRALTAR
INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2007
CONSOLIDATING STATEMENTS OF CASH FLOWS
December 31, 2007
(In thousands)
|
Gibraltar
|
Non-
|
|||||||||||||||||||
|
Industries,
|
Guarantor
|
Guarantor
|
||||||||||||||||||
| Inc. | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||||||||||
|
Net cash (used in) provided by continuing operations
|
$ | (15,942 | ) | $ | 134,615 | $ | 15,582 | $ | — | $ | 134,255 | |||||||||
|
Net cash provided by discontinued operations
|
— | 24,356 | 202 | — | 24,558 | |||||||||||||||
|
Net cash (used in) provided by operating activities
|
(15,942 | ) | 158,971 | 15,784 | — | 158,813 | ||||||||||||||
|
Cash Flows from Investing Activities
|
||||||||||||||||||||
|
Acquisitions, net of cash acquired
|
— | (185,416 | ) | (21,192 | ) | — | (206,608 | ) | ||||||||||||
|
Net proceeds from sale of business
|
— | 11,859 | — | — | 11,859 | |||||||||||||||
|
Purchases of property, plant, and equipment
|
— | (16,195 | ) | (1,496 | ) | — | (17,691 | ) | ||||||||||||
|
Net proceeds from sale of property, plant, and equipment
|
— | 3,237 | 240 | — | 3,477 | |||||||||||||||
|
Net cash used in investing activities from continuing operations
|
— | (186,515 | ) | (22,448 | ) | — | (208,963 | ) | ||||||||||||
|
Net cash used in investing activities for discontinued operations
|
— | (656 | ) | (294 | ) | — | (950 | ) | ||||||||||||
|
Net cash used in investing activities
|
— | (187,171 | ) | (22,742 | ) | — | (209,913 | ) | ||||||||||||
|
Cash Flows from Financing Activities
|
||||||||||||||||||||
|
Long-term debt payments
|
— | (119,252 | ) | (54 | ) | — | (119,306 | ) | ||||||||||||
|
Proceeds from long-term debt
|
— | 200,074 | — | — | 200,074 | |||||||||||||||
|
Intercompany financing
|
22,169 | (45,137 | ) | 22,968 | — | — | ||||||||||||||
|
Payment of deferred financing costs
|
— | (1,498 | ) | — | — | (1,498 | ) | |||||||||||||
|
Tax benefit from equity compensation
|
— | 121 | — | — | 121 | |||||||||||||||
|
Purchase of treasury stock at market rates
|
(393 | ) | — | — | — | (393 | ) | |||||||||||||
|
Net proceeds from issuance of common stock
|
137 | — | — | — | 137 | |||||||||||||||
|
Payment of dividends
|
(5,971 | ) | — | — | — | (5,971 | ) | |||||||||||||
|
Net cash provided by financing activities from continuing
operations
|
15,942 | 34,308 | 22,914 | — | 73,164 | |||||||||||||||
|
Net cash used in financing activities for discontinued operations
|
— | — | (252 | ) | — | (252 | ) | |||||||||||||
|
Net cash provided by financing activities
|
15,942 | 34,308 | 22,662 | — | 72,912 | |||||||||||||||
|
Net increase in cash and cash equivalents
|
— | 6,108 | 15,704 | — | 21,812 | |||||||||||||||
|
Cash and cash equivalents at beginning of year
|
— | 4,982 | 8,493 | — | 13,475 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | — | $ | 11,090 | $ | 24,197 | $ | — | $ | 35,287 | ||||||||||
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GIBRALTAR
INDUSTRIES, INC.
QUARTERLY UNAUDITED FINANCIAL DATA
QUARTERLY UNAUDITED FINANCIAL DATA
(In thousands, except per share data)
| 2009 Quarter Ended | Mar. 31(1,2) | Jun. 30(1) | Sep. 30(1) | Dec. 31(2) | Total | |||||||||||||||
|
Net sales
|
$ | 204,843 | $ | 217,055 | $ | 225,152 | $ | 187,168 | $ | 834,218 | ||||||||||
|
Gross profit
|
11,272 | 35,872 | 44,264 | 33,571 | 124,979 | |||||||||||||||
|
(Loss) income from operations
|
(43,168 | ) | 10,295 | 14,855 | (34,016 | ) | (52,034 | ) | ||||||||||||
|
(Loss) income from continuing operations
|
(27,552 | ) | (584 | ) | 4,948 | (28,684 | ) | (51,872 | ) | |||||||||||
|
(Loss) income from discontinued operations
|
(64 | ) | 656 | (36 | ) | (709 | ) | (153 | ) | |||||||||||
|
Net (loss) income
|
(27,616 | ) | 72 | 4,912 | (29,393 | ) | (52,025 | ) | ||||||||||||
|
(Loss) income per share from continuing operations:
|
||||||||||||||||||||
|
Basic
|
$ | (0.92 | ) | $ | (0.02 | ) | $ | 0.16 | $ | (0.95 | ) | $ | (1.72 | ) | ||||||
|
Diluted
|
$ | (0.92 | ) | $ | (0.02 | ) | $ | 0.16 | $ | (0.95 | ) | $ | (1.72 | ) | ||||||
|
(Loss) income per share from discontinued operations:
|
||||||||||||||||||||
|
Basic
|
$ | (0.00 | ) | $ | 0.02 | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||||
|
Diluted
|
$ | (0.00 | ) | $ | 0.02 | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||||
| 2008 Quarter Ended | Mar. 31(1) | Jun. 30(1) | Sep. 30(1) | Dec. 31(1) | Total(1) | |||||||||||||||
|
Net sales
|
$ | 293,938 | $ | 347,173 | $ | 341,814 | $ | 249,374 | $ | 1,232,299 | ||||||||||
|
Gross profit
|
50,311 | 76,996 | 73,502 | 27,977 | 228,786 | |||||||||||||||
|
Income (loss) from operations
|
17,028 | 37,351 | 34,869 | (7,779 | ) | 81,469 | ||||||||||||||
|
Income (loss) from continuing operations
|
6,024 | 18,983 | 18,362 | (9,964 | ) | 33,405 | ||||||||||||||
|
Income (loss) from discontinued operations
|
676 | 1,130 | 872 | (12,015 | ) | (9,337 | ) | |||||||||||||
|
Net income (loss)
|
6,700 | 20,113 | 19,234 | (21,979 | ) | 24,068 | ||||||||||||||
|
Income (loss) per share from continuing operations:
|
||||||||||||||||||||
|
Basic
|
$ | 0.20 | $ | 0.63 | $ | 0.61 | $ | (0.33 | ) | $ | 1.11 | |||||||||
|
Diluted
|
$ | 0.20 | $ | 0.63 | $ | 0.61 | $ | (0.33 | ) | $ | 1.11 | |||||||||
|
Income (loss) per share from discontinued operations:
|
||||||||||||||||||||
|
Basic
|
$ | 0.02 | $ | 0.04 | $ | 0.03 | $ | (0.40 | ) | $ | (0.31 | ) | ||||||||
|
Diluted
|
$ | 0.02 | $ | 0.04 | $ | 0.03 | $ | (0.40 | ) | $ | (0.31 | ) | ||||||||
| (1) | Refer to Note 1 of the consolidated financial statements for disclosure of reclassifications that impacted the quarterly periods ended March 31, 2009, June 30, 2009, and September 30, 2009 and all quarterly periods in 2008. | |
| (2) | During the quarters ended March 31, 2009 and December 31, 2009, the Company recorded $25,501,000 and $34,597,000 of intangible asset impairment charges, respectively, as a result of interim and annual impairment tests performed as of March 31, 2009 and October 31, 2009. |
89
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A. | Controls and Procedures |
Evaluation
of Disclosure Control and Procedures
The Company maintains a system of disclosure controls and
procedures (as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934) designed to
provide reasonable assurance as to the reliability of the
financial statements and other disclosures contained in this
report. The Company’s Chairman of the Board and Chief
Executive Officer, President and Chief Operating Officer, and
Senior Vice President and Chief Financial Officer evaluated the
effectiveness of the Company’s disclosure controls as of
the end of the period covered in this report. Based upon that
evaluation, the Company’s Chairman of the Board and Chief
Executive Officer, President and Chief Operating Officer and
Senior Vice President and Chief Financial Officer have concluded
that as of the end of such period, the Company’s disclosure
controls and procedures were effective.
Management’s
Annual Report on Internal Control over Financial
Reporting
The management of Gibraltar Industries, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company, as such term is defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Under the supervision
and with the participation of management, including the
Company’s Chief Executive Officer, Chief Operating Officer,
and Chief Financial Officer, the Company conducted an evaluation
of the effectiveness of internal control over financial
reporting based on the framework in
Internal
Control — Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on the Company’s evaluation, management
concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2009.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009 has been
audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report
which is included in Item 9A of this Annual Report on
Form 10-K.
Gibraltar Industries. Inc.
Buffalo, New York
February 25, 2010
Changes
in Internal Control over Financial Reporting
There have been no changes in the Company’s internal
control over financial reporting (as defined by
Rule 13a-15(f))
that occurred during the three months ended December 31,
2009, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
90
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Gibraltar Industries,
Inc.
We have audited Gibraltar Industries, Inc.’s internal
control over financial reporting as of December 31, 2009
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO
criteria)
.
Gibraltar Industries, Inc.’s management
is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Gibraltar Industries, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on the COSO
criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Gibraltar Industries, Inc. as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders’ equity and
comprehensive income, and cash flows for each of the three years
in the period ended December 31, 2009, and our report dated
February 25, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Buffalo, New York
February 25, 2010
91
Table of Contents
| Item 10. | Directors, Executive Officers, and Corporate Governance |
Information regarding directors and executive officers of the
Company, as well as the required disclosures with respect to the
Company’s audit committee financial expert, is incorporated
herein by reference to the information included in the
Company’s 2009 Proxy Statement which will be filed with the
Commission within 120 days after the end of the
Company’s 2009 fiscal year.
The Company has adopted a Code of Ethics that applies to the
Chairman of the Board and Chief Executive Officer, President and
Chief Operating Officer, Senior Vice President and Chief
Financial Officer, and other senior financial officers and
executives of the Company. A complete text of this Code of
Ethics is available in the corporate governance section of our
website at www.gibraltar1.com. The Company does not intend to
incorporate the contents of our website into this Annual Report
on
Form 10-K.
| Item 11. | Executive Compensation |
Information regarding executive compensation is incorporated
herein by reference to the information included in the
Company’s 2009 Proxy Statement which will be filed with the
Commission within 120 days after the end of the
Company’s 2009 fiscal year.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to the
information included in the Company’s 2009 Proxy Statement
which will be filed with the Commission within 120 days
after the end of the Company’s 2009 fiscal year.
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
Information regarding certain relationships and related
transactions is incorporated herein by reference to the
information included in the Company’s 2009 Proxy Statement
which will be filed with the Commission within 120 days
after the end of the Company’s 2009 fiscal year.
| Item 14. | Principal Accounting Fees and Services |
Information regarding principal accountant’s fees and
services is incorporated herein by reference to the information
included in the Company’s 2009 Proxy Statement which will
be filed with the Commission within 120 days after the end
of the Company’s 2009 fiscal year.
92
Table of Contents
| (a | ) | Documents filed as part of this report: | ||||||||||
| (1 | ) | The following financial statements are included: | ||||||||||
| (i | ) | Report of Independent Registered Public Accounting Firm | ||||||||||
| (ii | ) | Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008, and 2007 | ||||||||||
| (iii | ) | Consolidated Balance Sheets as of December 31, 2009 and 2008 | ||||||||||
| (iv | ) | Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007 | ||||||||||
| (v | ) | Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2009, 2008, and 2007 | ||||||||||
| (vi | ) | Notes to Consolidated Financial Statements | ||||||||||
| (2 | ) | The following Financial Statement Schedules for the years ended December 31, 2009, 2008, and 2007 are included in this Annual Report on Form 10-K: | ||||||||||
| (i | ) | Quarterly Unaudited Financial Data (included in notes to consolidated financial statements) | ||||||||||
| (ii | ) | Schedule II. Valuation and Qualifying Accounts (included on page 94) | ||||||||||
| Schedules other than that listed above are omitted because the conditions requiring their filing do not exist, or because the required information is provided in the consolidated financial statement, including the notes thereto. | ||||||||||||
| (3 | ) | Exhibits: the index of exhibits to this Annual Report on Form 10-K included herein is set forth on the attached Exhibit Index beginning on page 96. | ||||||||||
| (b | ) | Other Information: | ||||||||||
| Not applicable | ||||||||||||
93
Table of Contents
SCHEDULE II
VALUATION
AND QUALIFYING ACCOUNTS
(in thousands)
(in thousands)
|
Balance at the
|
Charged to
|
Balance at
|
||||||||||||||||||||||
|
Beginning of
|
Cost and
|
(Write-Offs)
|
End of
|
|||||||||||||||||||||
|
Year
|
Description
|
Period | Acquisitions | Expense | Recoveries | Period | ||||||||||||||||||
| 2009 | Allowance for Doubtful Accounts | $ | 6,713 | $ | — | $ | 2,562 | $ | (2,092 | ) | $ | 7,183 | ||||||||||||
| Reserve for Slow-moving Inventory | $ | 4,985 | $ | — | $ | 1,266 | $ | (1,040 | ) | $ | 5,211 | |||||||||||||
| Deferred Tax Valuation Allowance | $ | 2,614 | $ | — | $ | 157 | $ | (992 | ) | $ | 1,779 | |||||||||||||
| 2008 | Allowance for Doubtful Accounts | $ | 3,338 | $ | — | $ | 5,162 | $ | (1,787 | ) | $ | 6,713 | ||||||||||||
| Reserve for Slow-moving Inventory | $ | 6,044 | $ | — | $ | 2,345 | $ | (3,404 | ) | $ | 4,985 | |||||||||||||
| Deferred Tax Valuation Allowance | $ | 925 | $ | — | $ | 2,239 | $ | (550 | ) | $ | 2,614 | |||||||||||||
| 2007 | Allowance for Doubtful Accounts | $ | 2,419 | $ | 344 | $ | 768 | $ | (193 | ) | $ | 3,338 | ||||||||||||
| Reserve for Slow-moving Inventory | $ | 5,422 | $ | 527 | $ | 1,315 | $ | (1,220 | ) | $ | 6,044 | |||||||||||||
| Deferred Tax Valuation Allowance | $ | 846 | $ | — | $ | 138 | $ | (59 | ) | $ | 925 | |||||||||||||
94
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GIBRALTAR INDUSTRIES, INC.
| By |
/s/ Brian
J. Lipke
|
Brian J. Lipke
Chairman of the Board and Chief Executive Officer
Dated : February 25, 2010
In accordance with the Securities and 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.
|
SIGNATURE
|
TITLE
|
DATE
|
||||
|
/s/ Brian
J. Lipke
|
Chairman of the Board and
Chief Executive Officer (principal executive officer) |
February 25, 2010 | ||||
|
/s/ Henning
N. Kornbrekke
|
President and Chief Operating Officer | February 25, 2010 | ||||
|
/s/ Kenneth
W. Smith
|
Senior Vice President and
Chief Financial Officer (principal financial and accounting officer) |
February 25, 2010 | ||||
|
/s/ David
N. Campbell
|
Director | February 25, 2010 | ||||
|
/s/ William
J. Colombo
|
Director | February 25, 2010 | ||||
|
/s/ Gerald
S. Lippes
|
Director | February 25, 2010 | ||||
|
/s/ William
P. Montague
|
Director | February 25, 2010 | ||||
|
/s/ Arthur
A. Russ, Jr.
|
Director | February 25, 2010 | ||||
|
/s/ Robert
E. Sadler, Jr.
|
Director | February 25, 2010 | ||||
95
Table of Contents
Exhibit Index
|
Exhibit
|
||||
|
Number
|
Exhibit | |||
| 3 | .1 | Certificate of Incorporation of registrant (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-135908)) | ||
| 3 | .2 | Amended and Restated By-Laws of the Registrant effective August 11, 1998 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (Registration No. 333-135908)) | ||
| 4 | .1 | Specimen Common Share Certificate (incorporated by reference number to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Registration No. 33-69304)) | ||
| 4 | .2 | Indenture dated as of December 8, 2005, among the Company, the Guarantors (as defined therein) and the Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 13, 2005). | ||
| 10 | .1* | Amended and Restated Employment Agreement dated as of August 21, 2007 between the Registrant and Brian J. Lipke (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 24, 2007) | ||
| 10 | .2* | Employment Agreement dated as of August 21, 2007 between the Registrant and Henning Kornbrekke (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 24, 2007) | ||
| 10 | .3* | Gibraltar Industries, Inc. Incentive Stock Option Plan, Fifth Amendment and Restatement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000), as amended by First Amendment to the Fifth Amendment and Restatement of the Gibraltar Steel Corporation Incentive Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 20, 2007) | ||
| 10 | .4* | Gibraltar Industries, Inc. 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 | .5 | 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 (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999) | ||
| 10 | .6* | Gibraltar 401(k) Plan Amendment and Restatement Effective October 1, 2004 as amended by the First, Second, and Third Amendments to the Amendment and Restatement Effective October 1, 2004 (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004) | ||
| 10 | .7* | The 2003 Gibraltar Incentive Stock Option Plan (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-3 (333-110313)) as amended by First Amendment to 2003 Gibraltar Industries Incentive Stock Option Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed May 25, 2006) | ||
| 10 | .8* | Change in Control Agreement between the Company and Brian J. Lipke (incorporated by reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K filed April 13, 2005) | ||
| 10 | .9* | Change in Control Agreement between the Company and Henning N. Kornbrekke (incorporated by reference to Exhibit 10.02 to the Company’s Current Report on Form 8-K filed April 13, 2005). | ||
| 10 | .10* | Amended and Restated Gibraltar Industries, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 21, 2006) | ||
| 10 | .11* | Gibraltar Industries, Inc. 2005 Equity Incentive Plan Form of Award of Restricted Units (Long Term Incentive) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed May 25, 2005) | ||
| 10 | .12* | Gibraltar Industries, Inc. 2005 Equity Incentive Plan Form of Award of Non-Qualified Option (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed May 25, 2005) | ||
96
Table of Contents
|
Exhibit
|
||||
|
Number
|
Exhibit | |||
| 10 | .13* | Gibraltar Industries, Inc. 2005 Equity Incentive Plan Form of Award (Retirement) (incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed May 25, 2005) | ||
| 10 | .14 | Registration Rights Agreement, dated as of December 8, 2005, among the Company, the Guarantors and J.P. Morgan Securities Inc., McDonald Investments Inc. and Harris Nesbitt Corp., as initial purchasers of the Notes (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 13, 2005) | ||
| 10 | .15 | Consulting Agreement by and between Gibraltar Industries, Inc. and Neil E. Lipke dated January 1, 2003 (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K/A Amendment No. 1 for the year ended December 31, 2007) | ||
| 10 | .16 | Stock Purchase Agreement among Gibraltar Steel Corporation of New York, Gibraltar International, Inc., SCM Metal Products, Inc., Gibraltar Pacific Inc., Bison Acquisition Corporation and Appleby Trust (Mauritius) Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 9, 2008) | ||
| 10 | .17* | Second Amendment and Restatement of the Gibraltar Industries, Inc. Management Stock Purchase Plan, dated December 30, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 6, 2009) | ||
| 10 | .18* | Second Amendment and Restatement of the Gibraltar Industries, Inc. 2005 Equity Incentive Plan, dated December 30, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 6, 2009) | ||
| 10 | .19 | Gibraltar Industries, Inc. Omnibus Code Section 409A Compliance Policy, dated December 30, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 6, 2009) | ||
| 10 | .20* | Gibraltar Industries, Inc. 2005 Equity Incentive Plan Award of Restricted Stock Units, dated January 5, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 9, 2009) | ||
| 10 | .21* | Summary Description of Annual Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 24, 2009) | ||
| 10 | .22* | Gibraltar Deferred Compensation Plan Amended and Restated, effective January 1, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 24, 2009) | ||
| 10 | .23* | Change in Control Agreement between the Company and Kenneth W. Smith (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 24, 2009) | ||
| 10 | .24* | Change in Control Agreement between the Company and Timothy J. Heasley (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 24 , 2009) | ||
| 10 | .25* | Change in Control Agreement between the Company and Paul M. Murray (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed February 24, 2009) | ||
| 10 | .26* | Third Amendment and Restatement of the Gibraltar Industries, Inc., 2005 Equity Incentive Plan, dated May 18, 2009, (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 21, 2009) | ||
| 10 | .27 | Third Amended and Restated Credit Agreement, dated July 24, 2009, among the Company, Gibraltar Steel Corporation of New York, as co-borrower, the lenders parties thereto, Keybank National Association, as administrative agent, JPMorganChase Bank, N.A., as co-syndication agent, BMO Capital Markets Financing, Inc., as co-syndication agent, HSBC Bank USA, National Association, as co-syndication agent, and Manufacturers and Traders Trust Company, as co-documentation agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 29, 2009) | ||
97
Table of Contents
|
Exhibit
|
||||
|
Number
|
Exhibit | |||
| 10 | .28* | Gibraltar Industries, Inc., 2005 Equity Incentive Plan Form of Award of Performance Units (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 23, 2009) | ||
| 10 | .29 | Asset Purchase Agreement among Gibraltar Industries, Inc., Gibraltar Steel Corporation of New York, a New York corporation, and Gibraltar Strip Steel, Inc., a Delaware corporation and Worthington Steel Company, LLC, an Ohio limited liability company, and The Worthington Steel Company Inc., an Ohio corporation dated January 29, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 2, 2010) | ||
| 10 | .30 | Amendment No. 1 to the Third Amended and Restated Credit Agreement among Gibraltar Industries, Inc., Gibraltar Steel Corporation of New York and KeyBank National Association and the other lenders named therein, dated as of January 29, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 2, 2010) | ||
| 21 | Subsidiaries of the Registrant | |||
| 23 | .1 | Consent of Independent Registered Public Accounting Firm | ||
| 31 | .1 | Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2 | Certification of President and Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .3 | Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1 | Certification of Chairman of the Board and Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2 | Certification of President and Chief Operating Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .3 | Certification of Senior Vice President and Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
* Document is a management contract or compensatory plan or
agreement
98
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. Description Of PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPart IIIItem 10. Directors, Executive Officers, and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules