Gibraltar Industries, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. Gibraltar manufactures building, residential, industrial and infrastructure products and reports Residential Products and Industrial and Infrastructure Products segments.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $827.6 million | $790.1 million |
| Gross profit / margin | $158.1 million / 19.1% | $149.6 million / 18.9% |
| Operating income / margin | $21.5 million / 2.6% | $40.3 million / 5.1% |
| Net income (loss) | $(5.6) million | $12.6 million |
| Diluted earnings (loss) per share | $(0.18) | $0.41 |
| Cash from continuing operating activities | $60.3 million | $50.2 million |
| Capital expenditures | $14.9 million | $11.4 million |
Sales rose 4.7%, but acquisitions added $52.4 million while sales from businesses operating in both periods declined $14.9 million (1.9%), reflecting lower pricing that more than offset modest volume growth. Gross margin edged up, while SG&A rose 8.4% to $113.5 million and 13.7% of sales.
Operating results included $23.2 million of intangible-asset impairment charges, mainly related to the European business, versus $4.6 million in 2012. Interest expense increased to $22.5 million and included a $7.2 million charge associated with redeeming the prior 8% notes. The company recorded a $4.8 million tax provision despite a pretax loss; the unusually high effective tax rate reflected largely non-deductible impairment charges and state taxes.
Segments and fourth quarter
- Residential Products: Sales increased 5.0% to $392.4 million. Operating income rose to $35.0 million from $23.9 million; management attributed improvement largely to West Coast operating performance and lower restructuring and inventory charges.
- Industrial and Infrastructure Products: Sales increased 4.5% to $435.2 million, principally from acquisitions. Operating income fell to $7.2 million from $34.6 million, reflecting impairment charges and weaker underlying performance, including pricing pressure and European weakness.
- Fourth quarter: Sales were $188.8 million versus $172.6 million in Q4 2012; operating income was $6.2 million versus $1.2 million. Net income was $4.0 million, compared with a $3.9 million net loss.
Cash, liquidity and debt
At year-end, cash was $97.0 million, total debt was $214.0 million and shareholders’ equity was $471.7 million. Cash plus available revolver capacity provided approximately $199.8 million of liquidity; $102.8 million was available under the $200 million revolving facility, with no revolver borrowings outstanding. Current assets were $322.4 million and current liabilities $119.9 million.
Operating cash flow from continuing operations increased to $60.3 million. Investing activities used $7.9 million, including $14.9 million of capital expenditures and $5.5 million for the 2013 acquisition, partly offset by property-sale proceeds. Cash increased by $49.0 million during the year. The company issued $210 million of 6.25% senior subordinated notes due 2021 and redeemed its $204 million 8% notes. The revolver’s minimum fixed-charge coverage covenant was 1.25-to-1.00; Gibraltar reported compliance at year-end and expected continued compliance over the next 12 months.
Outlook, commentary and risks
- Management forecast 2014 sales growth of 4%–7% and diluted EPS of $0.73–$0.87, with modest margin expansion. It expected residential demand to lead growth and industrial/infrastructure demand to improve mainly in the second half.
- Management cautioned that Q1 2014 would be less favorable because harsh weather was slowing residential construction and industrial and transportation infrastructure markets remained weak.
- Markets remained below long-term activity levels. Results are exposed to construction cyclicality, seasonality, fluctuating steel, aluminum and resin costs, competitive pricing, and the ability to pass cost changes to customers.
- The Home Depot represented about 12% of 2013 sales; the ten largest customers represented about 29%. Most customer relationships are not supported by long-term contracts.
- Other material risks include European weakness, acquisition integration and impairment risk, debt service and covenant restrictions, supplier concentration, environmental obligations, and possible higher contributions to underfunded multiemployer pension plans.
- The 2013 solar-ventilation acquisition included contingent earn-out consideration, valued at $1.9 million at year-end and payable based on future performance through 2015. Delaware and other states were conducting unclaimed-property audits; the exposure was not determinable. Management said pending ordinary-course litigation was not expected to materially affect results or financial condition.
Most important facts for investors to verify
- Whether sales and earnings growth can be achieved organically, given that 2013 sales growth was more than explained by acquisitions and comparable-business sales declined.
- Whether Industrial and Infrastructure operating performance stabilizes, particularly in Europe, and whether further impairment charges occur.
- Whether the 2014 sales and EPS outlook was achieved, including the anticipated second-half improvement in industrial and infrastructure demand.
- Cash generation, working-capital trends, debt service capacity, and continued compliance with the revolver covenant.
- The resolution and potential cost of state escheat audits, environmental matters and multiemployer pension obligations.
Assurance: Ernst & Young issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The acquired U.S. Sunlight business was excluded from management’s and the auditor’s internal-control assessment for 2013.