Gibraltar Industries Inc (ROCK) 2002 Q1 法說會逐字稿

Thank you, Paula. We want to thank everyone for joining us on this morning's call. Before we begin, I want to remind you that this call may contain forward-looking statements about future financial results. Our actual results may differ materially as a result of factors over which Gibralter has no control. These factors are outlined in the news release we issued last night and in our filings with the SEC. At this point, I'd like to turn the call over to Gibralter's Chairman and CEO, Brian Lipke. Brian.

Thanks John. Good morning everyone. On behalf of Walter Erazmus, our President, Jack Flint, our CFO and Ken Houseknecht, our Director of Investor Relations who are all with me in the room today, let me thank you for joining us on our call this morning.

I'd like to give a special welcome to our newest shareholders, the many individuals and institutions that purchased stock during and after our recent, secondary offering. And, on behalf of the 3300 men and women on the Gibralter Team, we want to thank you for your confidence in our company. And rest assured that all of us are focused on continuing to meet our performance goals and to increase the value of your investments in Gibralter.

This morning, we're gonna focus our comments on four main areas. Number one, our first quarter results, which we released last night; secondly, our recently completed stock offering; third, our outlet for the second quarter and balance of the year; and fourth, some general comments before we then

00:2:00

open the call up to any questions that any of you may have. If by chance you haven't received a copy of our news release on our first quarter results, you can get a copy on our website at www. gibralter1.com. As we reported in our release, sales in the first quarter were 144.7 million. Net income was 4.1 million and diluted earnings per share were .30 cents. Our net income was up 41% from the first quarter in 2001 and our diluted earnings per share were up 33%, even though we had 763,649 more shares outstanding or 6% more shares in total as a result of the secondary offering that we completed in early March. With our earnings starting to grow again, a much stronger balance sheet as a result of our very successful stock offering, our ongoing efforts to reduce debt and more signs that the business climate continues to improve, we think we are off to a good start in 2002. We are clearly benefiting from the many steps that we took during the last half and, last year and a half, to respond to the slowdown and we've reduced our debt by more than 100 million dollars during the last twelve months and together with lower interest rates, this has driven down our interest expense. We've also attacked our expenses, including adjusting our overhead levels, to our current volume levels and re-engineering our healthcare plan to control and reduce annual costs. We've cut our inventories and we've incurred one time costs in 2001, for example to consolidate some facilities by shipping sales to some other locations, that will not reoccur in 2002. The

00:4:00

streamlining of our operations last year allowed us to enter 2002 in a far stronger position. That's a quick result, or quick review of our first quarter results. Walt's going to provide a lot more specific detail in just a couple of minutes.

At this point, I'd like to touch on a couple of highlights from our recently completed stock offering. While we restarted our offering in mid February, we initially registered to sell 2.5 million shares or 2,950,000 shares with the over allotment option. As a result of a highly successful road show that included 49 presentations in nine days, presentations that, I'm sure many of you on this call heard, we were able to increase the size of the offering to 3,150,000 shares including the over allotment option. And even though we increased the final size of the offering, we had a significant amount of demand that we were not able to fill, including a substantial amount of European interest, which all added to create a strong after-market for the stock and we hope that that strength will be maintained. The success of this offering, which generated net proceeds of approximately 51 million dollars allowed us to substantially strengthen our balance sheet. We also believe that with the solid affirmation of support by the investment community, driven by our consistent growth since going public, our performance during a difficult operating environment in 2001 and a belief in our strategic position. Importantly, this offering put 4 million additional shares, including the shares from the selling shareholders, in the public float, which gave us many new individual and institutional investors and significantly improved our stocks' liquidity, which we've seen in higher trading volume since the offering. So, from every vantage point, we consider our secondary offering a success. As a point of reference, and this is important, Gibralter doubled it's sales in the three years after our IPO in '93 and then doubled sales again in 4 years after our secondary offering in 1996. We've clearly found ways to use the proceeds from these past offerings to accelerate growth and we see several opportunities following this offering.

Before I turn the call over to Walt, I want to give a quick overview of the current business conditions. In the first quarter, we began to see our business strengthen, albeit slowly and modestly as the economy begins it's climb out of the severe and prolonged slowdown. And while things are starting to improve, there's a long way to go before the economy is back to where it was in 1999 and the first half of 2000.

One clear bright spot the first quarter was higher automotive production, which we're starting to see in our auto business. As you recall, auto represented about 27% of our sales last year and automotive production levels were down sharply in 2001. At the beginning of this year, there was great caution and a lot of uncertainty due to the economy and concerns that zero interest financing offers in 2001 had actually pulled sales forward and at the beginning of this year, most of the analysts, auto analysts were forecasting sales in the 15 to 15 1/2 million range, and some were even a little bit more pessimistic than that. As the first quarter has progressed and consumers have continued to purchase vehicles at a brisk rate, confidence has grown and so have production rates. Last week, General Motors, our largest automotive customer, said that as a result of stronger than expected first quarter sales and improving economic indicators they were now forecasting 2002 sales of approximately 16.5 million units for the industry. Coupled with still lean inventories they're now planning second

00:8:00

quarter production that will be 10% higher than a year ago. So, this is good news for our auto business. The housing market, which is driven historically by low interest rates, which are projected to remain low, at least until the Fall, has also been fairly steady. And spending on home improvement projects has also held up which helps to drive sales at Home Depot, Lowe's, Bernard's and many of our other customers. And finally, the ambition, growth objectives at many of these companies like Home Depot, which is our largest customer, is opening new stores every 43 hours is fueling our growth. And in our Heat Treating segment, which serves a true cross-section of industrial America, we saw some pick-up in the first quarter activity compared to the fourth quarter.

So, all in all, the business total is improving, albeit slowing, and there is some firming, some nice firming under areas like automotive, but there is still a lot of upside.

That's a quick overview of the business. At this point, I'll turn the call over to Walt, who'll provide a more detailed review of our first quarter results and give you a better sense of our expectations for the second quarter. Walt.

Thanks Brian. Net sales of 144.7 million for the first quarter ended March 31, 2002 decreased by 5.9 million or 3.9% from net sales of 150.6 million for the prior year's first quarter. However, sales improved by 3% from 140.4 million in the fourth quarter of 2001 indicating the positive trend, which we believe will continue. Gross margin, and a percentage of net sales were at 18.8% in the first quarter of 2002 comparable to 18.9% in the first quarter of 2001 despite slightly lower sales. Gross margin, as a percentage of sales increased from 17.9% in the fourth quarter of 2001. SG&A expenses as a percentage of sales were 12.2% in the first quarter of 2002 compared to 12.4% in the first quarter of 2001. A decrease by approximately 1.150, or 1,150,000 dollars or 6.1% during the quarter primarily as a result of the elimination of 1 million in goodwill amortization. EBITA was 14.6 million in the first quarter of 2002 compared to 11.8 million in the fourth quarter of 2001. Interest expense decreased by 2.1 million from the first quarter of 2001 to the first quarter of 2002 due to reduced interest rates and much lower average braw lings and also by approximately 500,000 compared to the fourth quarter of 2001. A result of all of the above, income before taxes was 6.9 million in the first quarter of 2002 compared to 4.9 million in the first quarter of 2001. Income taxes were 2.8 million in the first quarter based on a 40.5% effective rate. As Brian mentioned, that income in the first quarter was 4.1 million, an increase of approximately 41% from 2.9 million in the first quarter 2001 and an increase of 166% from the fourth quarter of this past year. Earnings per diluted share were 30 cents in the first quarter of 2002 an increase of 33% compared to 23 cents per diluted share in the first quarter of 2001 and up 153% from 12 cents in the fourth quarter. Also, as a result of our recently completed stock offering our weighted average shares outstanding increased by 6% to 13,444,324 shares in the first quarter of 2002 from 12,680,675 shares in the first quarter of 2001. And should approximate 16 million for the subsequent quarters. Information on the sales activity in each of the three business segments follows: In our Processed Steel Products segment, which represents approximately 43% of total sales, net sales in the first quarter of 2002 were 63 million compared to net sales of 62.8 million in the first quarter of 2001. Increased volume due to increased oil production schedules was offset by selling price decreases resulting in approximately same net sales during the periods. Note: sales for GM, Ford and Chrysler were up approximately 25% compared to last year's first quarter. Income from operations in the first quarter of 2002 was 7.5 million,

up 12% from 6.7 million in the first quarter of 2001 primarily as a result of reduced raw material costs. In our Building Products segment, which represents approximately 44% of our total sales, net sales decreased by 5.3 million or 8% to 63.2 million in the first quarter of 2002 from 68.5 million in the first quarter of 2001. This is primarily due to the timing of releases by customers in fluctuations in business as a result of fewer shipping days. Sales to Home Depot, Lowe's, Bernard's and Walmart represented 30.5% of total Building Product sales compared to 27.8% during last year's first quarter and total dollar sales were comparable between the two periods. Income from operations decreased by 36% to 2.5 million in the first quarter of 2002 from 3.9 million in the first quarter of 2001 as a result of higher direct labor, healthcare and fixed costs as a percentage of lower net sales. In our Heat Treating segment, which represents approximately 13% of our total sales, net sales decreased 700,000 or 4% to 18.5 million in the first quarter of 2002 from 19.2 million from the first quarter of 2001. This decreased was primarily due to general economic conditions and fewer shipping days during the first quarter of 2002. Income from operations was 2.6 million in the first quarter of 2002, a 15% decrease from 3.1 million in the first quarter of 2001 as a result of higher direct labor and fixed costs as a percentage of lower net sales. As a general comment regarding income from operations for all three segments, all three segments of our business experienced increased income from operations during the first quarter of 2002 compared to the fourth quarter of 2001. In fact, excluding the impact of the benefit for non-amortization of goodwill, operating income actually increased close to 50% in the first quarter versus the fourth quarter of 2001. We expect this trend to continue during subsequent quarters. At this point, let me provide some additional detail on asset management including accounts receivable, inventory, CAPEX and our debt levels. Accounts receivable on March 31st 2002 were 91 million compared to 76.7 million at year end due primarily to increased sales for the last month of the first quarter compared to the last month of the fourth quarter. March against December. Average day sales outstanding were 50.8 days for the first quarter of 2002.

Inventory investment was basically unchanged at 77 million on March 31st 2002 compared to 76 million at December 31st. Our inventory turnover for the quarter improved to 5.4 times versus 4.5 times at March 31st 2001 and 5.2 times for the fourth quarter. This is calculated using only those operations which sell inventory. Our turnover would have been greater if we included Heat Treating and other services in sales. CAPEX for the quarter was 2.4 million and we are anticipating CAPEX to be in the range of 10 to 13 million for 2002 compared to 14.3 million in 2001 and approximately 21 million on average for 1999 and 2000. There are no major capital leads in our Processed Steel Products segment, and our Building Products and Heat Treating segments are much less capital intensive. Depreciation and amortization for the quarter are approximated 5 million compared to 5.7 million for the same period in 2001. This expense was reduced by approximately 1 million in the 2002 period with the elimination of goodwill amortization. Our long-term debt decreased by approximately 52 million in the first quarter of 2002 to approximately 160 million at March 31st 2002 from 212 million at December 31st. This was largely the result of use of the proceeds from our secondary offering to pay down debt. Our outstanding debt at March 31st includes approximately 155 million usage of our 310 million credit facility, which we subsequently reduced to 275 million to reduce charges for non-usage of the facility leaving approximately 120 million of availability. As of March 31st 2002, our debt to cap ratio decreased to approximately 37%, which is the lowest it has been since 1996.

At this point, let me provide some perspective on our outlook for the second quarter and the balance of 2002. While the economy is clearly stabilizing and moving towards growth, there is still a great deal of uncertainty and volatility. None-the-less, the continued improvement in the economy, especially in improving outlook for automotive production in the second quarter and balance of the year, give us increased confidence for 2002. We are also moving into the seasonally strong quarters for our Building Products business, the second and third quarters, and anticipate marked improvement in operating margins as a result of higher sales volumes and selling price increases instituted during the second quarter. In addition, year-to-date mortgage applications for new home purchases are up 11% this year, and interest rates on thirty year fixed rate mortgages are down from a year ago. As a result of lower borrowings and interest rates and the steps we've taken last year to consolidate facilities, control and reduce costs and our strategic decision to move our business into higher value at a higher margin products, processing, services, we expect to generate higher sales and earnings in 2002. Having said that, we expect our second diluted earnings per share will be in the range of 35 to 45 cents a share on additional shares outstanding as a result of the offering, approximately 16 million for subsequent quarters, barring a significant change in business conditions. Our constant focus on asset management and return on investment positions us to take advantage of business opportunities as the economy continues to improve.

At this point, I'll turn the call back over to Brian.

Thanks Walt. Before we open the call to your questions, let me make just a few final comments. First of all, the success of our stock offering gives us a much stronger balance sheet. And coupled with our tight operating controls and 250 to 300 million dollars worth of available capacity in our existing facilities and numerous acquisition opportunities, we think we're well positioned for continued growth.

With respect to the acquisition marketplace, let me make just a couple of key points here. With a significantly D-leveraged balance sheet and more than 100 million of available credit capacity, we're in a great position to fund acquisitions. In the wake of a slowdown, valuation expectations have changed and acquisition pricing is much more favorable. But many companies hobbled from the recession there is also much less competition for acquisitions. And finally, our track record of successfully completing 15 acquisitions over the last seven years, where we leave the existing managements in place and make investments to grow and strengthen those acquired businesses, it often makes us the acquirer of choice.

Let me reiterate some of the positives that should enable us to generate improved results this year. First of all, we've reduced our borrowings by more than 100 million dollars over the last twelve months and together with significantly lower interest rates that should substantially lower our interest expense in 2002. Utility costs have come down from what they were at the peak in 2001. We've incurred one-time costs in 2001 that we will not have again in 2002. And finally, we are aggressively attack, continuing to aggressively attack expenses on many fronts: two noteworthy examples include matching our workforce to our current volumes and the re-engineering our healthcare plans to control rising healthcare costs. These actions and steady improvements in the business climate give us increased confidence that we will generate higher sales and earnings in 2002. Even though the economy is starting to improve, and our business is beginning to show some signs of growth, we remain clearly focused on those areas that successfully brought us through the recession, controlling and cutting costs, debt reduction, tight control of our inventories and asset management. We remain committed to driving our gross and operating margins higher and continuing our efforts to generate improvements in our returns on invested capital, assets and equity.

And I want to again welcome our newest shareholders and thank them for their vote of confidence. And we'll continue to work very hard to earn your ongoing support.

Before I open the line up to your questions, I'd like to offer just a couple of final comments on what impact, if any, the section 201 ruling has has on our business. Bottom line, we believe that the strategic positioning of the company has mitigated against any impact of 201. We've never been inventory speculators, we earn our profits on the services we provide and the value that we add to the raw steel that we buy. By looking at our three business segments - starting with Heat Treating. Heat Treating is strictly a tolling business so, there's no raw material cost component in it. Overall, approximately 15% of our total sales have no raw material cost component. Unaffected by 201. With our Building Products business, which is another 44% of our overall sales, we buy steel on the stock market, or quarterly or sometimes at a semi-annual basis, and we sell our products the same way, giving us the flexibility to adjust quickly to changes in raw material prices. And we have already begun very successfully to implement price increases in this part of our business. Finally, in our Processed Steel Products business, our strategy has always been to link our raw material purchasing arrangements to our selling price arrangements to the greatest extent possible. This has allowed us to lock in our margins and minimizes our exposure to raw material price fluctuations. And we adhere to that plan in 2002.

A couple final points, over the last few years we have significantly expanded our supply base. Last year for example, we purchased 1 million dollars or more of steel and other metals from 39 different suppliers. And importantly, no one supplier represented more than 15% of our business and our top supplier varies from year to year. In our foreign purchases, we consider those to be purchases from not NAFTA countries are less than 5% of our total, very insignificant. So because of the way we've built and run this business, we think that we're well positioned to respond to the 201 ruling and do not feel it will have any significant impact on our business, particularly over an extended period.

That concludes our prepared comments for our call today and at this point we'd be glad to answer any questions that any of you may have.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. We will proceed in the order that you signal us and will take as many questions as time permits. Once again, please press star one to ask a question. And we'll pause for just a moment.

And our first question comes from Becky Heights from Solomon Smith Barney.

Hey, can I just follow up on the acquisition comments a little bit. Can you talk, you said that valuations had become more reasonable. Can you talk about what they are and what size acquisitions look like they're kind of in the pipeline?

We're currently looking at a number of opportunities in the acquisition area. In the past, we've always stated that our goals for acquisitions is in the area of four to seven times EBITA and what we're looking at are acquisitions, right now, in the lower end of that range. It appears at this point in time that there are a lot less potential purchasers out there and there is a little bit more leverage for the companies that are financially capable of making acquisitions. In addition, we are seeing the same type of opportunities that we have in the past and we've continued to focus on the same type of size acquisitions for the near future but, we're not, and I think Brian will add additional to it, we're not totally looking at only smaller acquisitions.

In the past, Becky, this is Brian, our, our, the sweet spot of our acquisition activity has been in the smaller, privately held companies in the range of 5 to 90 million dollars in sales. And, we believe and have antidotal evidence that many of these smaller, privately held businesses - the older ones of them have gotten shaken up pretty badly during this slowdown in the economy and as a result have relaxed their valuation expectations. And as Walt pointed out, with what we think will be a smaller number of competitors and quite possibly competitors who are somewhat capital constrained, we expect to see less competition for acquisitions. Walt also pointed out that, while that has been the sweet spot of our acquisition approach over the years, we have never ruled out the possibility of something larger. But again, our number one criteria has been every single acquisition that we make will be immediately accreted to our earnings per share at the time of the acquisition based on historical earnings before any operating synergies are brought to bear so, whether it's a small one or a bigger one we're gonna stick to that number one criteria. We think the pipeline is as good as ever and we are reviewing a number of candidates as we speak.

Great, thanks. I'll wait and come back in the next pulse of the next question.

Moving on, we'll go to Mark Parr of McDonald Investments.

Hey guys, congratulations. Can you hear me okay?

Hear ya loud and clear, Mark.

Okay, that's terrific.

Thank you, Mark.

Hey, uh, just from a housekeeping Walt, could you go over the sales and EBIT for the operations again for metal processing, building products and heat treat.

Okay, sales for the quarter for processed steel was 63 million for building products they were 63.2 million.

Okay.

Heat treating they were 18.5 million.

Okay.

Yeah.

Processed steel 7.5 million.

Okay.

Building Products 2.5 million.

Okay.

Heat treating 2.6 million.

Okay.

And the corporate operating income was approximately 3 million negative.

Okay. That corporate number is a smaller number than it has been running, is there any reason for that?

We've continued to take costs out of the operations. Incentive compensation has been down and we're continuing to monitor that area very closely. And, in addition to that, the SG&A costs, because of the non-amortization amortization of goodwill impacted that by a million dollars.

Okay. So, the corporate number is down a million bucks because of lack of goodwill amortization.

Right.

And it's down approximately, a little bit over a million, or about a million dollars from the first quarter.

Okay. All right. Just another housekeeping, when you said sales to, or shipments to GM, Ford and Chrysler were up 25%, was that compared to the fourth quarter or compared to last year?

That was compared to last year, Mark.

Okay. Wow. Is there anything that we should be reading into the fact that even with all the, Brian you had indicated that Home Depot is opening a new store every, ya know, whatever, every 43 hours, and that whole infrastructure of the big box home improvement guys just continues to move ahead, and year over year your sales to those big box customers are basically flat, so I'm assuming on the same store basis they were down somewhat - what does that represent? Is that just customers not buyin' the products or is that loss of shelf space? What's goin' on there?

That would, Mark, in terms of the big, those big box retailers, on a year to year basis, same store sales, they were flat. They were not down. In fact, they were up very slightly, not much to talk about, approximately two hundred thousand dollars.

Okay. Well, I misunderstood 'cause I thought you said that the, that the sales dollars to Home Depot, Lowe's and Bernard's were flat compared to the first quarter of last year.

I think I said that the sales percentage was up over the first quarter of last year of those Home Depot, Lowe's and Bernard's but it was based on lower sales volume, in total.

Lower corporate sales overall, Mark, for Gibralter, with flat sales to Home Depot and Lowe's resulting in a higher percentage of participation in our sales.

Right. So, that's what I'm sayin' so, if your sales to those guys were flat compared to last year, is that what you said? I think that's what you said, isn't it?

We said that...

Right.

Compared to 27.8% during last year's first quarter.

Okay, but...

Their total dollar sales were comparable between the two periods.

Okay, so if the two dollars sales were comparable, and the store basis of, ya know, the customer store basis are obviously greater today than they were last year, so, I mean, that implies lower sales per store, but the same store sales numbers you're using are flat, now, I don't understand that. Could you help me understand, please?

We're not selling every single new store that they open up. So, really, what we have to focus on is the same store sales. They were flat. We were flat with them. So, we didn't lose any participation if that's the, heart of your question.

The other situation, Mark is and I don't want to throw a crazy situation in there, is that there is a difference with the number of days of shipping this year versus last year, and I think, as you're aware we had Good Friday and the Easter period came in to this year, versus last year so, there's, ya know, the fact that it was flat you really can't make any correlation between the two at this point in time.

Okay. All right, thanks. I don't want to beat on it, but I was just curious. Thank you very much. Again, congratulations, man, you guys had an awesome quarter and it looks like the second quarter outlook's awesome, too so uh, you guy's are doin', obviously doin' the right things.

WALTER ERAZMUS and BRIAN LIPKE: Thanks Mark. Thank you.

Once again, if you would like to ask a question, please press star one. And moving on, we'll hear from Adam Weiss of Childon Investment Company.

Morning.

WALTER ERAZMUS and BRIAN LIPKE: Morning. Morning Adam.

Can you address the issue of 201 impact, if I understood you correctly, you don't match your purchases and sales the way you do on the steel processing side, so now, basically, you're faced with rising raw material costs and you're gonna have to go to your building products customers, Home Depot, Lowe's and others, and ask for price increases. Is that basically what you're saying?

If I heard you right, yeah, that's what we're saying. We sell those products either in the stock market, in the, on a quarterly basis, or a semi-annual basis and we're, as a result, and we buy basically the same way so, and right now we have been successful in going out and getting price increases. I think it's important to note too, Walt mentioned that Home Depot, Lowe's and Bernard's represented about 30% of our building product sales so, there's 70% of our sales from that part of our business go to other customers and we have announced price increases and we are collecting those price increases.

In addition to instituting new products, we're selling prices maybe higher than our existing product lines.

Okay. So, you're not concerned about margin compression.

With respect to 201. Okay. Great, and secondly, the follow-up on Mark's question, did you have some kind of fill-in, initial fill-in last year to some of those large customers to explain why your business is flat year over year while their store basis is up significantly?

Uh, I can't, I don't know the exact answer to that question. I'm not sure where all of the new Home Depot stores were located and if they were located in areas that we were supplying them. We do supply them on a national basis with some of our products, particularly the mailboxes, but, but, overall, I don't know where all the stores went in and so I can't provide you with a clear answer on that part of it, Adam. I don't believe there was a lot of additional fill-in business for starting these new stores up that was included in our sales numbers for last year.

Okay, because if the sales to those big customers that that would sort of explain why your receivables are sort of flat versus last year.

The receivables are up quite a bit versus last year primarily because of March sales being a lot higher than December sales for the end of the fourth quarter.

No, I'm talking about of March, '01. I think you're receivables are actually down a million bucks.

No, our receivables for March are 91 million versus 77 million as of December.

Yeah, I know. I'm talking about March of '01.

Oh, March of '01.

So, on a year over year basis your receivables are flat, which is more in line with sales trends.

I don't have last years quarterly, or monthly sales and that may be an answer, depending on where the sales fell, January may have been a lot stronger month or it may have been a lot weaker month, and it really depends on how those sales fell last year.

I would think the autos are one of your slower paying customers, no?

The auto, no, they're in the average range.

So it's really the large building products customers that are the slowest payers.

They are in the same, it's, it's, they are comparable. The areas that are the slower payers are the smaller companies.

Okay. That's all I got. Thank you.

Welcome Adam.

And moving on, we have a final reminder from, I'm sorry, we have a follow-up question from Becky Heights from Solomon Smith Barney.

Hey, you guys talked about re-engineering the healthcare plan to try and save costs there, can you give us an idea of what the magnitude of what that cost increase was going to be and what it's going to be now?

I annualized 2002 expense which, what we're looking at this year should probably be in the 12 million dollar area, which we also had experienced there in 2001. We may see increases in some segments and decreases in the other segments during the quarter but overall for the year, we're expecting the same amount of expense for 2002 versus 2001. Also, depending on where claims fell during the first quarters would have an impact versus what we're expecting for the balance of the year.

Okay, and the one time cost that you incurred in 2001 for the restructuring, that was a SG&A expense, presumably?

Yes. And that occurred during the course of the year. of 2001.

Right. Have we ever gotten the total magnitude of what that was for 2001?

It's in the one million plus area.

Okay, and so your SG&A expense going forward, are you expecting it to stay at the seventeen five, seventeen six level quarter to quarter, or is there something else that we should expect there?

I would expect, based on increased sales that, and increased earnings that, sales commissions as well as incentive-based compensation should improve or increase.

Okay, so maybe keep it fixed at the 12.2% of sales or something?

That would probably be a good expectation.

Okay, and you guys have talked about, and I'm not going to harp on the construction products, but it was down 7.7%, looks like quarter to quarter in sales. How many fewer shipping days were there?

Approximately two fewer shipping days. Some operations had a day and a half, some had two.

So, it looks like your other businesses there, the other 70% of the sales were weaker year over year, is that a fair statement?

Building Products was the weaker part of the sales decrease.

Okay. That's fine. And the last question is, back on pricing. You've talked a lot about being able to pass on the increase in prices and that you're not worried about margin compression, is there a time lag on how fast you can pass on price increases as they're announced in the marketplace? Are you keeping up, so far, with what's been announced?

We're keeping up fairly close to what's been announced as closely as possible. And there may be, in some cases prior to what has been announced, and in some cases a little bit subsequent to what's been announced, but we, we expect to improve our operating margins for the companies that have any type of raw material fluctuation in terms of raw material prices, primarily in our building and construction and products group.

Okay. If I look just at the operating margins in the second quarter of '01, which in the second, in the, compared to the first quarter were up in both processed steel and construction products, would you expect to see improvements quarter to quarter the same way this year?

Absolutely, because of higher sales volumes.

Okay, and it looks like from the first quarter to the second quarter in '01 you had margin compression in heat treat. Is that also a seasonal pattern?

No. That was driven by increasing utility costs.

Okay, so would you expect your margins in heat treat to stay flat quarter to quarter this year?

They should be, they should improve this year.

So, second quarter's heat treat margin should be better than first quarter's.

We would expect that to happen.

Great. Thanks.

Just as a final reminder, if you would like to ask a question, please press star one.

And next, we'll go to Mark Rogensinger from Merrill Lynch.

Good morning, Gentlemen.

WALTER ERAZMUS and BRIAN LIPKE: Morning Mark. Morning.

Just a couple of quick questions on, well, the first one really is effecting the steel pricing issue, we heard a couple of people suggesting that some of the foreign producers may be looking to come back into the market, back half of this year, when the domestic prices reached a sort of 320 upwards level. Any comment you can give us on that situation.

I think your analysis is insightful and accurate. The domestic steel producers have ratcheted prices up dramatically to a level now where, if you go back to pricing in the fourth quarter from the foreign producers, and add 30% to that, they can bring steel into this country today.

Yeah.

There is a, there is a delay, Mark, they have somewhat pulled out of the market to see how things settled out, don't want to disrupt what's in place now but, from discussions that we've had and now as we gain in our research of this, we think in the third quarter, we'll start to see foreign steel coming back into the marketplace.

Yeah. That's great. Another thing on the (unintelligible) of business, in terms of capacity of utilization and, and sort of, volume increase you could get in that line of business going forward, what are you looking at in terms of volume growth?

Last year, we, our sales, on that note, were down approximately 36 million and we expect to make up a good chunk of that this year.

Ok. Would that be mainly on volume or on price?

It would not be on price.

Ok. Ok. Ok great.

In as far as total capacity, we weren't capacity constrained either going back to 2001 for sure, even in 2000.

Ok. Thanks a lot.

You're welcome, Mark.

And Deborah Fine of Lowe's has our next question.

Good morning. Could you comment a little bit about which segments of your industrial customers are showing strength, perhaps more than others?

Right now, the one that is showing the greatest amount of strength is the automotive.

Aside from automotive.

Aside from automotive. Right now, there isn't anybody that is distinguishing themselves from the pack. There seems to be positive trends developing, but they are developing slowly and at a modest rate. Out heat treating business, which serves truly a cross section of manufacturing in this country has only felt modest improvements from their customers across the board.

Are they any regions that are reacting more strongly than others or are you saying it's across the board by industry and region.

Across the board by industry and region at this point.

Okay. Thank you.

You're welcome.

It appears there are no further questions at this time. I'll turn the conference back over to you again, Mr. Lipke.

Thank you, Paula. Thank you for joining us on the call today. Thanks to all the new shareholders for showing confidence in Gibralter. Rest assured we are focused on creating shareholder value with everything that we do and we're looking forward to improved performance in 2002 over what we generated during 2001. Stay tuned for the rest of the year. Thank you.