Gibraltar Industries Inc. Reports Operating Results (10-Q)

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May 06, 2010
Gibraltar Industries Inc. (ROCK, Financial) filed Quarterly Report for the period ended 2010-03-31.

Gibraltar Industries Inc. has a market cap of $450.6 million; its shares were traded at around $14.9 with and P/S ratio of 0.6. ROCK is in the portfolios of NWQ Managers of NWQ Investment Management Co, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Despite the modest decrease in net sales during the first quarter of 2010 from the comparable period in the prior year, gross margin increased to 18.7% for the three months ended March 31, 2010 from 11.2% for the three months ended March 31, 2009. The increase in gross margin was a direct result of a better alignment of customer selling prices to raw material costs. The commodity markets for our raw materials, which principally include steel, aluminum, and resins, experienced a precipitous decline in costs during the three months ended March 31, 2009, which forced us to sell higher cost inventory at a lower customer selling price and led to a decrease in our gross margins. The commodity markets stabilized during second half of 2009 and the first quarter of 2010. As a result, our prices were better aligned to our costs during the three months ended March 31, 2010 which contributed to a significantly better gross margin. Additionally, cost reduction initiatives we put in place during 2009 also contributed to a higher gross margin during the three months ended March 31, 2010 compared to the same period in the prior year.

The benefit of income taxes for the three months ended March 31, 2010 was $2.1 million, an effective tax rate of 47.4%, compared with a benefit from income taxes of $17.8 million, an effective rate of 45.8% for the same period in 2009. The effective tax rates for the three months ended March 31, 2010 and 2009 were both greater than the U.S. federal statutory tax rate of 35% due to state taxes, the impact of discrete tax items, and the impact of non-deductible permanent differences on the forecasted annual pre-tax earnings.

Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property and equipment, and certain real property of the Companys 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 Companys significant domestic subsidiaries. The Senior Credit Agreement also provided a term loan originally aggregating $58.7 million which was subsequently repaid in full during 2009. The revolving credit facility is committed through August 30, 2012. Borrowings on the revolving credit facility 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%, or at the Companys 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 March 31, 2010, we had $106.6 million of availability under the revolving credit facility.

The Companys $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 holders 8% Notes at a purchase price equal to 101% of the principal amount thereof. At March 31, 2010, we had $201.7 million, net of discount, of our 8% Notes outstanding.

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.

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 or, at the Companys 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.

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