FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

o		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		16-1445150
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3556 Lake Shore Road, P.O. Box 2028, Buffalo, New York 14219-0228
(Address of principal executive offices)

(716) 826-6500

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 check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 5, 2007, the number of common shares outstanding was: 29,886,262.

 

 

GIBRALTAR INDUSTRIES, INC.

INDEX

		PAGE
		NUMBER
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006			3
Condensed Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2007 and 2006			4
Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2007 and 2006			5
Notes to Condensed Consolidated Financial Statements			6-23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION			32-33
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

GIBRALTAR INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

		September 30,				December 31,
		2007				2006
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	32,725			$	13,475
Accounts receivable, net			209,481				163,731
Inventories			229,133				220,119
Other current assets			20,101				18,099
Assets of discontinued operations			23,642				40,356
Total current assets			515,082				455,780
Property, plant and equipment, net			260,553				233,249
Goodwill			501,034				366,763
Acquired intangibles			60,504				62,366
Investments in partnership			2,616				2,440
Other assets			14,588				14,307
Assets of discontinued operations			—				17,963
		$	1,354,377			$	1,152,868
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	92,949			$	69,040
Accrued expenses			48,932				50,279
Current maturities of long-term debt			2,964				2,336
Liabilities of discontinued operations			2,555				2,760
Total current liabilities			147,400				124,415
Long-term debt			550,670				398,217
Deferred income taxes			72,512				70,981
Other non-current liabilities			14,837				9,027
Shareholders’ equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none outstanding			—				—
Common stock, $.01 par value; authorized 50,000,000 shares; issued 29,949,229 and 29,883,795 shares in 2007 and 2006, respectively			300				299
Additional paid-in capital			218,122				215,944
Retained earnings			340,749				332,920
Accumulated other comprehensive income			10,180				1,065
			569,351				550,228
Less: cost of 62,967 and 42,600 common shares held in treasury in 2007 and 2006			(393	)			—
Total shareholders’ equity			568,958				550,228
		$	1,354,377			$	1,152,868

See accompanying notes to condensed consolidated financial statements

GIBRALTAR INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales		$	342,570			$	318,442			$	1,003,116			$	955,971
Cost of sales			278,796				250,224				821,539				749,695
Gross profit			63,774				68,218				181,577				206,276
Selling, general and administrative expense			38,409				32,619				110,029				107,199
Income from operations			25,365				35,599				71,548				99,077
Other (income) expense:
Equity in partnerships’ loss (income) and other income			(356	)			103				(1,023	)			(445	)
Interest expense			8,372				6,056				23,063				19,272
Total other expense			8,016				6,159				22,040				18,827
Income before taxes			17,349				29,440				49,508				80,250
Provision for income taxes			5,982				11,210				18,072				30,251
Income from continuing operations			11,367				18,230				31,436				49,999
Discontinued operations:
Income (loss) from discontinued operations before taxes			(18,590	)			(388	)			(21,733	)			9,189
Provision for income taxes			(3,679	)			(154	)			(4,847	)			3,482
Income (loss) from discontinued operations			(14,911	)			(234	)			(16,886	)			5,707
Net income (loss)		$	(3,544	)		$	17,996			$	14,550			$	55,706
Net (loss) income per share — Basic:
Income from continuing operations		$	.38			$	.61			$	1.05			$	1.68
Income (loss) from discontinued operations			(.50	)			(.01	)			(.56	)			.20
Net income (loss)		$	(.12	)		$	.60			$	.49			$	1.88
Weighted average shares outstanding — Basic			29,873				29,747				29,847				29,691
Net (loss) income per share — Diluted:
Income from continuing operations		$	.38			$	.61			$	1.04			$	1.67
Income (loss) from discontinued operations			(.50	)			(.01	)			(.56	)			.19
Net income (loss)		$	(.12	)		$	.60			$	.48			$	1.86
Weighted average shares outstanding — Diluted			30,147				30,040				30,103				29,993

See accompanying notes to condensed consolidated financial statements

GIBRALTAR INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

		Nine Months Ended
		September 30,
		2007				2006
Cash flows from operating activities
Net income		$	14,550			$	55,706
(Loss) income from discontinued operations			(16,886	)			5,707
Income from continuing operations			31,436				49,999
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			23,789				19,430
Provision for deferred income taxes			797				—
Equity in partnerships’ loss (income) and other income			(778	)			400
Distributions from partnerships			603				909
Stock compensation expense			2,043				2,192
Other noncash adjustments			551				782
Increase (decrease) in cash resulting from changes in (net of acquisitions and dispositions):
Accounts receivable			(22,360	)			(34,213	)
Inventories			27,701				(50,741	)
Other current assets and other assets			1,463				2,375
Accounts payable			13,628				11,254
Accrued expenses and other non-current liabilities			(2,977	)			(18,120	)
Net cash provided by (used in) continuing operations			75,896				(15,733	)
Net cash provided by (used in) discontinued operations			15,955				(8,429	)
Net cash provided by (used in) provided by operating activities			91,851				(24,162	)
Cash flows from investing activities
Acquisitions, net of cash acquired			(203,980	)			(13,206	)
Purchases of property, plant and equipment			(12,826	)			(16,943	)
Net proceeds from sale of property and equipment			2,734				388
Net proceeds from sale of business			1,680				151,511
Net cash (used in) provided by investing activities from continuing operations			(212,392	)			121,750
Net cash used in investing activities for discontinued operations			(69	)			(3,433	)
Net cash (used in) provided by investing activities			(212,461	)			118,317
Cash flows from financing activities
Long-term debt reduction			(2,128	)			(114,292	)
Proceeds from long-term debt			147,768				9,604
Payment of deferred financing costs			(1,440	)			(569	)
Payment of dividends			(4,476	)			(4,464	)
Net proceeds from issuance of common stock			136				1,174
Tax benefit from stock options			—				167
Net cash provided by (used in) financing activities from continuing operations			139,860				(108,380	)
Net cash used in financing activities for discontinued operations			—				(1,500	)
Net cash provided by (used in) financing activities			139,860				(109,880	)
Net increase (decrease) in cash and cash equivalents			19,250				(15,725	)
Cash and cash equivalents at beginning of year			13,475				28,529
Cash and cash equivalents at end of period		$	32,725			$	12,804

See accompanying notes to condensed consolidated financial statements

GIBRALTAR INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2007 and 2006 have been prepared by Gibraltar Industries, Inc. (the Company) without audit. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the financial position, results of operations and cash flows for these respective periods have been included.

Certain information and footnote disclosures including significant accounting policies normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements included in the Company’s Annual Report to Shareholders for the year ended December 31, 2006, as filed on Form 10-K.

The consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

Certain 2006 amounts have been reclassified to conform with the 2007 presentation, primarily for operations discontinued during 2007.

The results of operations for the three and nine month periods ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year.

2. SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

The changes in shareholders’ equity and comprehensive income consist of (in thousands):

														Additional								Accumulated												Total
		Comprehensive				Common Stock								Paid-In				Retained				Other Comprehensive				Treasury Stock								Shareholders’
		Income				Shares				Amount				Capital				Earnings				Income				Shares				Amount				Equity
Balance at January 1, 2007							29,841			$	299			$	215,944			$	332,920			$	1,065				43			$	—			$	550,228
Cumulative effect of adoption of FIN 48			—				—												(750	)			—				—				—				(750	)
Comprehensive income:
Net income		$	14,550				—				—				—				14,550				—				—				—				14,550
Other comprehensive income (loss):
Foreign currency translation adjustment			9,535
Amortization of other post retirement health care costs, net of tax of $20			57
Unrealized loss on interest rate swaps, net of tax of $293			(477	)
Other comprehensive income			9,115				—				—				—				—				9,115				—				—				9,115
Total comprehensive income		$	23,665
Issuance of restricted shares							6				—				—				—				—				—				—				—
Equity based compensation expense							—				—				2,043				—				—				—				—				2,043
Stock options exercised							24				—				136				—				—				5				(117	)			19
Settlement of restricted stock units							19				1				(1	)			—				—				14				(276	)			(276	)
Forfeiture of restricted stock awards							—				—				—				—				—				1				—				—
Cash dividends — $.20 per share							—				—				—				(5,971	)			—				—				—				(5,971	)
Balance at September 30, 2007							29,886			$	300			$	218,122			$	340,749			$	10,180				63			$	(393	)		$	568,958

The cumulative balance of each component of accumulated other comprehensive loss, net of tax, is as follows (in thousands):

						Minimum				Unamortized				Unrealized				Accumulated
		Foreign currency				pension				post retirement				gain/(loss) on				other
		translation				liability				health care				interest rate				comprehensive
		adjustment				adjustment				costs				swaps				loss
Balance at January 1, 2007		$	1,977			$	3			$	(969	)		$	54			$	1,065
Current period change			9,535				—				57				(477	)			9,115
Balance at September 30, 2007		$	11,512			$	3			$	(912	)		$	(423	)		$	10,180

Total comprehensive income for the three and nine months ended September 30, 2007, was $87,000 and $23,665,000, respectively and for the three and nine months ended September 30, 2006 was $17,118,000 and $55,545,000, respectively.

3. INCOME TAXES

The Company and its U. S. subsidiaries file a U.S. federal consolidated income tax return. The Internal Revenue Service has concluded its examination of the Company’s income tax returns for the years prior to 2003. The U.S. federal statute of limitations remains open for the 2003 tax year and beyond. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 4 to 6 years. Several of our tax returns are currently under examination in various U.S. state jurisdictions.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48) effective January 1, 2007. As a result of the implementation of FIN 48, 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.

During the three and nine months ended September 30, 2007, the Company incurred an additional $441,000 and $491,000, respectively, to account for uncertain tax positions primarily relating to state income taxes. The Company does not anticipate significant increases or decreases in our uncertain tax positions within the next twelve months.

The Company recognizes penalties and interest relating to uncertain tax positions in the provision for income taxes.

Income taxes for continuing operations for the quarter and nine months ended September 30, 2007 were $5,982,000 and $18,072,000, respectively and were based on an expected annual tax rate of 37.8%, the same rate as in 2006. The income tax rate during the third quarter of 2007 was impacted by a change in German tax law which resulted in a decrease in tax expense of $440,000 and return to provision adjustments which resulted in a decrease of $637,000 in tax expense, partially offset by the provision for an uncertain tax position of $441,000. The tax benefit from discontinued operations is impacted by the write-off of $8,058,000 of non-deductible goodwill.

4. EQUITY-BASED COMPENSATION

On May 19, 2005, the Gibraltar Industries, Inc. 2005 Equity Incentive Plan (the “2005 Equity Incentive Plan”) was approved by the Company’s stockholders. The 2005 Equity Incentive 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 2005 Equity Incentive Plan provides for the issuance of up to 2,250,000 shares of common stock. Of the total number of shares of common stock issuable under the 2005 Equity Incentive Plan, the aggregate number of shares that may be issued in connection with grants of restricted stock or restricted units cannot exceed 1,350,000 shares, and 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 Management Stock Purchase Plan (“MSPP”) was approved by the shareholders in conjunction with the adoption of the 2005 Equity Incentive Plan. The MSPP provides participants the ability to defer up to 50% of their annual bonus under the Management Incentive Compensation Plan. The deferral is converted to restricted stock units and credited to an account along with a match equal to the deferral amount. The account is converted to cash at the current value of the Company’s stock and payable to the participants upon their termination from employment with the Company. The matching portion is payable only if the participant has reached their sixtieth birthday. If a participant terminates prior to age 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. The account is then paid out in five equal annual cash installments.

During the nine months ended September 30, 2007 and 2006, the Company issued 6,000 and 6,000 restricted shares, 176,948 and 167,125 restricted stock units, and granted 166,800 and 174,025 non-qualified stock options, respectively.

The fair value of restricted stock units held in the MSPP equals the trailing 200 day average of the closing market price of our common stock as of the last day of the period. As of September 30, 2007, 120,206 restricted stock units were credited to participant accounts. At September 30, 2007, the trailing 200 day average of the closing market price of our common stock was $21.87 per share.

5. INVENTORIES

Inventories consist of the following (in thousands):

		September 30,				December 31,
		2007				2006
Raw material		$	87,347			$	88,501
Work-in process			45,791				41,097
Finished goods			95,995				90,521
Total inventories		$	229,133			$	220,119

6. NET INCOME PER SHARE

Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net 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 shares issuable under the stock option and restricted stock plans. 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 and applicable tax benefits of the options assumed to be exercised.

The following table sets forth the computation of basic and diluted earnings per share as of:

		Three Months Ended								Nine months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Numerator:
Income from continuing operations		$	11,367,000			$	18,230,000			$	31,436,000			$	49,999,000
Income (loss) from discontinued operations			(14,911,000	)			(234,000	)			(16,886,000	)			5,707,000
Income available to common stockholders		$	(3,544,000	)		$	17,996,000			$	14,550,000			$	55,706,000
Weighted average shares outstanding			29,873,456				29,747,231				29,847,059				29,690,616
Denominator for diluted income per share:
Weighted average shares outstanding common stock options and restricted stock			273,060				292,359				255,451				302,434
Weighted average shares and conversions			30,146,516				30,039,590				30,102,510				29,993,050

7. ACQUISITIONS

On June 8, 2006 the Company acquired all of the outstanding stock of Home Impressions, Inc. (Home Impressions). Home Impressions is based in Hickory, North Carolina and markets and distributes mail boxes and postal accessories. The acquisition of Home Impressions served to strengthen the Company’s position in the mail box and storage systems markets, and is expected to provide marketing, manufacturing and distribution synergies with our existing operations. The results of Home Impressions (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 Home Impressions is not considered significant to the Company’s consolidated results of operations.

The aggregate initial consideration was $12,473,000 which consisted of $9,612,000 in cash, including acquisition costs, and the assumption of $2,861,000 notes payable, with the final purchase price subject to adjustment for operating results through May 2009. The initial purchase price has been allocated to the assets acquired and liabilities assumed based upon respective fair market values. The fair market values of the property, plant and equipment, and identifiable intangible assets were determined with the assistance of an independent valuation. The identifiable intangible assets consisted of a non-compete agreement with a value of $530,000 (8 year estimated useful life), trademarks with a value of $1,340,000 (15 year estimated useful life), patents with a value of $535,000 (20 year estimated useful life), and customer relationships with a value of $1,570,000 (10 year estimated useful life). The excess consideration over fair value was recorded as goodwill and aggregated approximately $6,930,000, 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		$	1,826
Property, plant and equipment			1,660
Other long term liabilities			(1,918	)
Intangibles			3,975
Goodwill			6,930
		$	12,473

As part of the purchase agreement with the former owners of Home Impressions, the Company is required to pay additional consideration through May 2009 based upon the operating results of Home Impressions. The Company paid $128,000 of such additional consideration during the nine months ended September 30, 2007. These payments were recorded as additional goodwill.

On November 1, 2006, the Company acquired all of the outstanding stock of The Expanded Metal Company Limited and Sorst Streckmetall GmbH (“EMC”). EMC has locations in England, Germany and Poland and manufactures, markets and distributes a diverse line of products used in the commercial and industrial sectors of the building products market. The acquisition of EMC is expected to strengthen the Company’s position in the expanded metal market and provide expanded market exposure for both EMC products and certain products currently manufactured by the Company. The results of operations of EMC (included in the Company’s Building Products segment) have been included in the Company’s consolidated results of operations from the date of acquisition.

The aggregate purchase consideration for the acquisition of EMC was approximately $45,231,000 in cash and acquisition costs. The purchase price was allocated to the assets acquired and liabilities assumed based upon respective fair market values. The identifiable intangible assets consisted of a trademark with a value of $4,771,000 (indefinite useful life) and customer relationships with a value of $7,443,000 (7 year estimated useful life). The fair market value of the property, plant and equipment, and identifiable intangible assets were determined with the assistance of an independent valuation. The excess consideration over fair value was recorded as goodwill and aggregated approximately $21,328,000, 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		$	5,405
Property, plant and equipment			11,338
Other long term liabilities, net			(5,054	)
Intangible assets			12,214
Goodwill			21,328
		$	45,231

On March 9, 2007 the Company acquired all of the outstanding stock of Dramex Corporation (“Dramex”). Dramex has locations in Ohio, Canada and England and manufactures, markets and distributes a diverse line of expanded metal products used in the commercial and industrial sectors of the building products market. The acquisition of Dramex is expected to strengthen the Company’s position in the expanded metal market and provide additional exposure for both Dramex’s products and certain products currently manufactured by 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 is not considered significant to the Company’s consolidated results of operations.

The aggregate purchase consideration for the acquisition of Dramex was $22,659,000 in cash and acquisition costs. The purchase price was allocated to the assets acquired and liabilities assumed based upon a preliminary valuation of respective fair values. A final valuation is expected to be completed prior to the end of the Company’s fiscal year. The excess consideration over fair value was recorded as goodwill and aggregated approximately $13,737,000, 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		$	5,571
Property, plant and equipment			4,652
Other long term liabilities, net			(1,301	)
Goodwill			13,737
		$	22,659

On April 10, 2007 the Company acquired certain assets and liabilities of Noll Manufacturing Company, NorWesCo, and M&N Plastics (Noll). The assets the Company acquired from Noll are used to manufacture, market and distribute products for the building, HVAC, and lawn and garden components of the building products market. The acquisition of Noll will serve to strengthen our manufacturing, marketing and distribution capabilities and is expected to provide manufacturing and distribution synergies with our existing businesses. 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 is not considered significant to the Company’s consolidated results of operations.

The aggregate purchase consideration was approximately $63,708,000 in cash and direct acquisition costs. The purchase price has been allocated to the assets acquired and liabilities assumed based upon a preliminary valuation of respective fair values. A final valuation is expected to be completed prior to the end of the Company’s fiscal year. The excess consideration over fair value was recorded as goodwill and aggregated

approximately $18,778,000, which is deductible for tax purposes. The allocation of the purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):

Working capital		$	24,399
Property, plant and equipment			20,531
Goodwill			18,778
		$	63,708

On August 31, 2007, the Company acquired all of the outstanding stock of Florence Corporation (Florence). Florence is located in Manhattan, Kansas and designs and manufactures storage solutions, including mail and package delivery products. The acquisition of Florence strengthens 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 is not considered significant to the Company’s results of operations.

The aggregate purchase consideration for the acquisition of Florence was $116,921,000 in 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 a preliminary estimate of respective fair values. A final valuation is expected to be completed during the next six months. The excess consideration was recorded as goodwill and approximated $96,809,000. The allocation of purchase consideration to the assets acquired and liabilities assumed is as follows (in thousands):

Working capital		$	14,383
Property, plant and equipment			11,960
Other assets			265
Goodwill			96,809
		$	123,417

The company and the former owners of Florence plan to make a joint election under Internal revenue Code (IRC) Section 338(h) (10) which will allow the Company to treat the stock purchase as an asset purchase for tax purposes, and therefore, goodwill should be deductible for tax purposes.

8. DISCONTINUED OPERATIONS

As part of its continuing evaluation of its businesses, during 2007 the Company determined that both its cabinet manufacturing and steel service center businesses no longer provided a strategic fit with its long-term growth and operational objectives.

On August 1, 2007, the Company sold certain assets of its bath cabinet manufacturing business, and committed to a plan to sell the remaining assets of this business. On September 27, 2007 the Company committed to a plan to dispose of the assets of its steel service center business. The Company took a charge of approximately $2,900,000 and $13,900,000, to reduce the value of the assets of the bath cabinet manufacturing and steel service center businesses, respectively, to net recoverable value. We expect to complete the sale of the assets of these businesses during the next six months. The bath cabinet manufacturing business was previously included in the building products segment and the steel service center business was previously included in the processed metal products segment.

On June 16, 2006 and June 30, 2006, in separate transactions, the Company sold certain assets and liabilities of both its strapping and thermal processing businesses, respectively. The strapping business was previously included in the processed metal products segment and the thermal processing business was previously reported as a separate segment.

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for

the Impairment or Disposal of Long-Lived Assets (SFAS 144), the results of operations for the thermal processing business, strapping business, bath cabinet manufacturing business and steel service center business have been classified as discontinued operations in the condensed consolidated financial statements for all periods presented.

The Company allocates interest to its discontinued operations in accordance with the provisions of the Financial Accounting Standards Board’s Emerging Issues Task Force item 87-24, Allocation of Interest to Discontinued Operations. Interest expense of $266,000 and $366,000 and $1,061,000 and $3,682,000 was allocated to discontinued operations during the three and nine months ended September 30, 2007 and 2006, respectively.

Components of income (loss) from discontinued operations are as follows (in thousands):

		Three Months Ended								Nine months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales		$	9,258			$	42,649			$	36,116			$	195,642
Expenses			27,848				43,037				57,849				186,453
Income (loss) from discontinued operations before taxes		$	(18,590	)		$	(388	)		$	(21,733	)		$	9,189

9. GOODWILL AND RELATED INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2007 is as follows (in thousands):

		Building Products				Processed Metal
		Segment				Products Segment				Total
Balance as of January 1, 2007			358,856				7,907				366,763
Goodwill acquired			129,634				—				129,634
Additional acquisition costs, net			381				—				381
Foreign currency translation			4,111				145				4,256
Balance as of September 30, 2007			492,982				8,052				501,034

Intangible Assets

Acquired intangible assets subject to amortization at September 30, 2007 are as follows (in thousands):

		Gross Carrying				Accumulated				Estimated
		Amount				Amortization				Life
Trademark / Trade Name		$	2,000			$	(343	)			2 to 15 years
Unpatented Technology			5,148				(1,191	)			5 to 20 years
Customer Relationships			26,927				(4,444	)			5 to 15 years
Non-Competition Agreements			3,591				(1,748	)			5 to 10 years
Balance as of September 30, 2007		$	37,666			$	(7,726	)

Acquired intangible assets with indefinite useful lives not subject to amortization consist of trademarks and trade names valued at $30,564,000.

Acquired intangible asset amortization expense for the three and nine month periods ended September 30, 2007 and 2006 aggregated approximately $923,000 and $537,000, and $2,738,000 and $1,650,000, respectively.

Amortization expense related to acquired intangible assets for the remainder of fiscal 2007 and the next five years thereafter is as follows (in thousands)

Year Ended December 31,
	2007					$	916
	2008					$	3,537
	2009					$	3,456
	2010					$	3,387
	2011					$	3,218
	2012					$	3,193

10. RELATED PARTY TRANSACTIONS

In connection with the acquisition of Construction Metals, the Company entered into two unsecured subordinated notes each in the amount of $8,750,000 (aggregate total of $17,500,000). These notes were payable to the two former owners of Construction Metals and were considered to be related party transactions due to the former owners’ continuing employment relationship with the Company. These notes were payable in annual principal installments of $2,917,000 per note on April 1, and were satisfied on April 1, 2006. These notes required quarterly interest payments at an interest rate of 5.0% per annum. Interest expense related to these notes was approximately $72,000 for the nine months ended September 30, 2006.

The Company has certain operating lease agreements related to operating locations and facilities with the former owners of Construction Metals or companies controlled by these parties. These operating leases are considered to be related party in nature. Rental expense associated with these related party operating leases aggregated approximately $1,094,000 and $1,015,000 for the nine months ended September 30, 2007 and 2006, respectively.

Two members of our Board of Directors are partners in law firms that provide legal services to the Company. For the nine months ended September 30, 2007 and 2006, the Company incurred $1,692,000 and $1,413,000, respectively, for legal services from these firms. Of the amount incurred, $1,040,000 and $1,116,000, was expensed during the nine months ended September 30, 2007 and 2006, respectively. $652,000 and $297,000 were capitalized as acquisition costs and deferred debt issuance costs during the nine months ended September 30, 2007 and 2006, respectively.

At September 30, 2007 and 2006, the Company had $124,000 and $295,000, respectively, recorded as accounts payable for these law firms.

11. BORROWINGS UNDER REVOLVING CREDIT FACILITY

On August 31, 2007, the Company entered into a second amended and restated credit agreement (the Credit Agreement”). The Credit Agreement provides a revolving credit facility with an aggregate limit of $375,000,000. At September 30, 2007, the Company had $132,776,000 of availability under the revolving credit facility.

12. NET PERIODIC BENEFIT COSTS

The following tables present the components of net periodic pension and other postretirement benefit costs charged to expense (in thousands):

		Pension Benefit
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Service cost		$	41			$	40			$	123			$	120
Interest cost			35				30				105				91
Net periodic benefit costs		$	76			$	70			$	228			$	211

		Other Post Retirement Benefits
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Service cost		$	29			$	26			$	87			$	78
Interest cost			58				56				174				168
Amortization of unrecognized prior service cost			(5	)			(6	)			(15	)			(18	)
Loss amortization			31				28				93				84
Net periodic benefit costs		$	113			$	104			$	339			$	312

13. 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.
	(ii)		Processed Metal Products, which primarily includes the intermediate processing of wide, open tolerance flat-rolled sheet steel and other metals through the application of several different processes to produce high-quality, value-added coiled steel and other metal products to be further processed by customers.

The following table illustrates certain measurements used by management to assess the performance of the segments described above (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales
Building products		$	247,175			$	223,711			$	710,522			$	672,064
Processed metal products			95,395				94,731				292,594				283,907
		$	342,570			$	318,442			$	1,003,116			$	955,971
Income (loss) from operations
Building products		$	28,497			$	34,511			$	78,382			$	106,163
Processed metal products			5,540				7,187				16,089				20,862
Corporate			(8,672	)			(6,099	)			(22,923	)			(27,948	)
		$	25,365			$	35,599			$	71,548			$	99,077
Depreciation and amortization
Building products		$	5,851			$	3,437			$	16,558			$	11,781
Processed metal products			1,666				1,432				5,174				5,325
Corporate			703				780				2,057				2,324
		$	8,220			$	5,649			$	23,789			$	19,430
Capital expenditures (excluding acquisitions)
Building products		$	2,054			$	4,445			$	8,575			$	12,899
Processed metal products			1,314				421				3,350				2,027
Corporate			62				673				901				2,017
		$	3,430			$	5,539			$	12,826			$	16,943

		September 30, 2007				December 31, 2006
		(unaudited)
Total identifiable assets
Building products		$	1,032,321			$	820,728
Processed metal products			239,526				233,296
Corporate *			82,530				98,844
		$	1,354,377			$	1,152,868

14. SUPPLEMENTAL FINANCIAL INFORMATION

The following information sets forth the consolidating summary financial statements of the issuer (Gibraltar Industries, Inc.) and guarantors, which guarantee the 8% senior subordinated 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.

Gibraltar Industries, Inc.
Condensed Consolidating Balance Sheets
September 30, 2007
(in thousands)

		Gibraltar				Guarantor				Non-Guarantor
		Industries, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	—			$	10,836			$	21,889			$	—			$	32,725
Accounts receivable, net			—				183,724				25,757				—				209,481
Intercompany balances			330,009				(315,783	)			(14,226	)			—				—
Inventories			—				216,046				13,087				—				229,133
Other current assets			—				19,381				720								20,101
Assets of discontinued operations			—				23,642				—				—				23,642
Total current assets			330,009				137,846				47,227				—				515,082
Property, plant and equipment, net			—				238,454				22,099				—				260,553
Goodwill			—				453,727				47,307				—				501,034
Acquired intangibles			—				47,112				13,392				—				60,504
Investments in partnerships			—				2,616				—				—				2,616
Other assets			5,961				8,398				229				—				14,588
Investment in subsidiaries			439,782				100,952				—				(540,734	)			—
			775,752				989,105				130,254				(540,734	)			1,354,377
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			—				77,926				15,023				—				92,949
Accrued expenses			5,781				36,345				6,806				—				48,932
Current maturities of long-term debt			—				2,964				—				—				2,964
Liabilities of discontinued operations			—				2,555				—				—				2,555
Total current liabilities			5,781				119,790				21,829				—				147,400
Long-term debt			201,013				348,590				1,067				—				550,670
Deferred income taxes			—				66,550				5,962				—				72,512
Other non-current liabilities			—				14,393				444				—				14,837
Shareholders’ equity			568,958				439,782				100,952				(540,734	)			568,958
		$	775,752			$	989,105			$	130,254			$	(540,734	)		$	1,354,377

Gibraltar Industries, Inc.
Consolidating Balance Sheets
December 31, 2006
(in thousands)

		Gibraltar				Guarantor				Non-Guarantor
		Industries, Inc.				Subsidiaries				Subsidiaries				Eliminations				Total
Assets
Current assets:
Cash and cash equivalents		$	—			$	4,982			$	8,493			$	—			$	13,475
Accounts receivable			—				146,859				16,872				—				163,731
Intercompany balances			335,496				(313,514	)			(21,982	)			—				—
Inventories			—				208,164				11,955				—				220,119
Other current assets			—				17,289				810				—				18,099
Assets of discontinued operations							40,356												40,356
Total current assets			335,496				104,136				16,148				—				455,780
Property, plant and equipment, net			—				213,646				19,603				—				233,249
Goodwill			—				338,050				28,713				—				366,763
Acquired intangibles			—				49,230				13,136				—				62,366
Investments in partnerships			—				2,440				—				—				2,440
Other assets			6,492				6,955				860				—				14,307
Investment in subsidiaries			410,578				56,823				—				(467,401	)			—
Assets of discontinued operations							17,963												17,963
		$	752,566			$	789,243			$	78,460			$	(467,401	)		$	1,152,868
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	—			$	58,469			$	10,571			$	—			$	69,040
Accrued expenses			1,513				45,290				3,476				—				50,279
Current maturities of long-term debt			—				2,336				—				—				2,336
Liabilities of discontinued operations							2,760												2,760
Total current liabilities			1,513				108,855				14,047				—				124,415
Long-term debt			200,825				196,152				1,240				—				398,217
Deferred income taxes			—				64,935				6,046				—				70,981
Other non-current liabilities			—				8,723				304				—				9,027
Liabilities of discontinued operations
Shareholders’ equity			550,228				410,578				56,823				(467,401	)			550,228
		$	752,566			$	789,243			$	78,460			$	(467,401	)		$	1,152,868