Summary of GIBRALTAR INDUSTRIES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the "Act"). Certain information set forth herein contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the Company's business, and management's beliefs about future operations, results and financial position. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. Statements by the Company, other than historical information, constitute "forward-looking statements" within the meaning of the Act and may be subject to a number of risk factors and uncertainty. Risk factors that could affect these statements include, but are not limited to, the following: the availability of raw materials and the effects of changing raw material prices on the Company's results of operations; energy prices and usage; changing demand for the Company's products and services; changes in the liquidity of the capital and credit markets; risks associated with the integration of acquisitions; and changes in interest or tax rate. In addition, such forward-looking statements could also be affected by general industry and market conditions, as well as general economic and political conditions. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law or regulation.
Overview
Gibraltar is a leading manufacturer, processor, and distributor of residential and commercial building products and processed metal products for the building and construction, industrial, and automotive markets. Our building products are used by homeowners and builders to provide structural and architectural enhancements for residential and commercial building projects. Our processed metal products are comprised primarily of steel shaped to specific widths and hardened to certain tolerances as required by our customers. We serve customers in a variety of industries in all 50 states and throughout the world. We operate 56 facilities in 23 states, Canada, England, Germany, and Poland, giving us a broad platform for just-in-time delivery and support to our customers. Our strategy is to position Gibraltar as the low-cost provider and market share leader in niche product areas that offer the opportunity for margin enhancement and sales growth over the long-term. Gibraltar reports in two business segments:
Building Products and Processed Metal Products.
Our Building Products segment focuses on expanding market share in the residential markets, further penetrating domestic and international commercial building, industrial, and architectural markets, participating as a buyer in our industry consolidation, and improving its operational productivity and efficiency through both operational excellence and facility consolidation. Our Processed Metal Products segment focuses on increased penetration with transplant auto manufacturers, expanding international market opportunities, and serving the global shift toward automatic transmissions which require more components manufactured using products offered by our business. This segment is also striving to increase its productivity and efficiency through operational excellence.
We continually evaluate the current and expected performance of each Gibraltar business with the goal that each business contributes to our growth in sales, operating margin and cash flow. On October 3, 2008, we entered into a definitive agreement to sell our powder metals business, SCM Metal Products (SCM). We closed the sale on November 5, 2008. SCM was reported in our Processed Metal Products segment. We expect to continue focusing our resources and capital on those areas that we expect to provide the best long-term strategic fit.

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In the last two months of 2008 and continuing in the first six months of 2009, the continued financial market and economic turmoil impacting the United States and the rest of the world resulted in significant downturns in all of the key end markets we serve, building and construction, industrial, and automotive. The downturns in the residential building and automotive markets worsened during the first six months of 2009 and the continued collapse of the credit markets led to a severe slowdown in the commercial building and industrial markets during this same period. Our sales, earnings, and cash flow were also negatively impacted by volatile commodity prices, including steel, our most significant raw material cost.
Commodity raw material prices, including steel, aluminum, and resins, impact the cost of raw materials we purchase and also impact the pricing we offer to customers on sales of our products. During 2008, we were able to successfully manage dramatic increases in commodity raw material prices during the first three quarters of the year. Commodity prices fell precipitously during the fourth quarter of 2008 and continued to fall during the first six months of 2009. The rapid decrease in commodity prices has led to an increase in material costs as a percentage of sales during the six months ended June 30, 2009 compared to prior periods. Commodity prices began to stabilize during the second quarter of 2009 and the affect commodity raw material prices have on our operating results lessened, leading to improved gross margins during the three months ended June 30, 2009 compared to the three months ended March 31, 2009. We expect our gross margins to continue to improve during the remainder of 2009 as commodity prices continue to stabilize.
During the three months ended March 31, 2009, we recorded a $25.5 million goodwill impairment charge. The impairment was recorded as a result of an expected decrease in our long-term projections of revenues and cash flows to be generated by a reporting unit reported within our Building Products segment. We have taken a number of steps to position the Company as a low-cost provider of our products. Over the past eighteen months, our focus has been on achieving operational excellence through lean initiatives and the consolidation of facilities. We have closed or consolidated a total of 22 facilities since January 2008. Due to the negative impact the significant economic downturn has had on our end markets, we have continued to aggressively reduce costs throughout the Company to adjust to the decreased sales volumes and maximize cash flows generated from operating activities. Actions implemented during the first six months of 2009 to reduce costs and maximize cash included further staff reductions of 19%, 10% reductions in the salaries of the Chief Executive Officer and Chief Operating Officer, 10% reduction in fees paid to the Board of Directors, elimination of salary increases, suspension of the company match on 401(k) contributions, furloughs at many business units, limitations on capital expenditures, travel restrictions, and many other discretionary spending reductions. We believe these actions will help us to meet our priorities for 2009: serving our customers and maximizing our liquidity.
As a result of our efforts to reduce costs, operating results for the three months ended June 30, 2009 improved sequentially from the three months ended March 31, 2009. The following summarizes results of operations for the first two quarters of 2009 (in thousands):

                                                         Three Months          Three Months
                                                            Ended                  Ended              Percentage
                                                        June 30, 2009         March 31, 2009            Change
Net sales                                               $      217,055        $       204,843                 6.0 %
Cost of sales                                                  179,604                191,830                (6.4 )%

Gross profit                                                    37,451                 13,013               187.8 %
Selling, general and administrative expense                     27,156                 30,680               (11.5 )%
Goodwill impairment                                                  -                 25,501              (100.0 )%

Income (loss) from operations                           $       10,295        $       (43,168 )             123.8 %

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Net sales increased $12.2 million, or 6.0%, during the three months ended June 30, 2009 compared to the three months ended March 31, 2009 as a result of increased sales volume from our Building Products segment partially offset by a decrease in sales volume from our Processed Metal Products segment. Gross margin increased to 17.3% for the three months ended June 30, 2009 from 6.4% for the three months ended March 31, 2009 due to a better alignment of customer selling prices to material costs and significant cost reductions. Fluctuations in commodity raw material costs continue to negatively impact our gross margins; however, the impact was less significant in the second quarter of 2009 compared to the first quarter of 2009. We expect our gross margins to continue to improve throughout the remainder of 2009 as commodity raw material costs stabilize. Selling, general, and administrative expenses decreased $3.5 million, or 11.5%, during the three months ended June 30, 2009 compared to the three months ended March 31, 2009 primarily due to decreased payroll-related expenses as a result of staff reductions and furloughs. As a result, operating income as a percentage of net sales increased to 4.7% for the three months ended June 30, 2009 compared to an operating loss as a percentage of net sales of 8.6%, excluding the goodwill impairment charge of $25.5 million, for the three months ended March 31, 2009.
Results of Operations
Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008
The following table sets forth selected results of operations data and its percentage of net sales for the three months ended June 30 (in thousands):

                                                       2009                      2008
Net sales                                     $ 217,055       100.0 %   $ 347,173       100.0 %
Cost of sales                                   179,604        82.7       268,475        77.3

Gross profit                                     37,451        17.3        78,698        22.7
Selling, general and administrative expense      27,156        12.6        41,347        11.9

Income from operations                           10,295         4.7        37,351        10.8
Interest expense                                  5,779         2.6         7,261         2.1
Equity in partnership's income (1)                 (126 )      (0.0 )        (270 )      (0.0 )

Income before taxes                               4,642         2.1        30,360         8.7
Provision for income taxes                        5,226         2.4        11,377         3.2

(Loss) income from continuing operations           (584 )      (0.3 )      18,983         5.5
Discontinued operations, net of taxes (2)           656         0.3         1,130         0.3

Net income                                    $      72         0.0 %   $  20,113         5.8 %

(1) Equity in partnership's income represents our proportional interest in the income of our steel pickling joint venture and other income.

(2) Discontinued operations represent the income, net of income taxes, attributable to our powder metals and bath cabinet manufacturing businesses which we sold in October 2008 and August 2007, respectively.

The following table sets forth the Company's net sales by reportable segment for the three months ended June 30 (in thousands):

                                                                             Change due to
                                                          Total         Foreign
                              2009          2008          Change       Currency      Operations
 Net sales:
 Building Products          $ 190,802     $ 281,058     $  (90,256 )   $  (6,167 )   $   (84,089 )
 Processed Metal Products      26,253        66,115        (39,862 )           -         (39,862 )

                            $ 217,055     $ 347,173     $ (130,118 )   $  (6,167 )   $  (123,951 )

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Net sales decreased by $130.1 million, or 37.5% to $217.1 million for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The economic downturn and its effect on the key end markets we serve led to the significant drop in sales. Foreign currency fluctuations also contributed to a $6.2 million decrease in net sales during the three months ended June 30, 2009 compared to the same period in the previous year.
Net sales in our Building Products segment decreased by $90.3 million, or 32.1%, to $190.8 million for the three months ended June 30, 2009 from net sales of $281.1 million for the three months ended June 30, 2008. Excluding the $6.2 million impact of exchange rate fluctuations, the decrease in net sales was $84.1 million, or 29.9% from the same period in the prior year, as a result of a decrease in sales volume due to a slowdown in the residential building, commercial construction, architectural, and industrial markets.
Net sales in our Processed Metal Products segment decreased by $39.9 million, or 60.4%, to $26.2 million for the three months ended June 30, 2009 from net sales of $66.1 million for the three months ended June 30, 2008. The decrease in net sales was primarily a function of a 54% decrease in tons sold due to a slowdown in the automotive markets. The Processed Metal Products segment was significantly impacted by a decrease in sales volume during the three months ended June 30, 2009 as a result of the bankruptcies filed by two automotive customers, Chrysler and General Motors, and the resultant plant shut-downs that occurred during this period. We expect demand for our products to sequentially improve during the third quarter of 2009 as Chrysler and General Motors resume manufacturing.
Gross margin decreased to 17.3% for the three months ended June 30, 2009 from 22.7% for the three months ended June 30, 2008. The decrease in gross margin was the result of the significant reduction in sales volume and a decrease in the spread between customer selling prices and raw material costs. The reduction in sales volume resulted in a 3.1% decrease in gross margin as fixed costs were spread over less volume partially offset by aggressive cost cutting initiatives that reduced the impact of reduced sales volume. The precipitous decrease in commodity costs has led to high cost inventory being sold at lowered customer selling prices. The decreased spread between material costs and customer selling prices has led to material costs as a percentage of net sales increasing approximately 1.9% during the three months ended June 30, 2009 compared to the same period in 2008.
Selling, general and administrative expenses decreased by $14.2 million, or 34.3%, to $27.2 million for the three months ended June 30, 2009 from $41.4 million for the three months ended June 30, 2008. The $14.2 million decrease is the primarily the result of a $9.4 million decrease in payroll-related expenses resulting from our staff reductions, another $2.1 million of cost reduction from lower marketing and outside professional fees, and a $1.2 million loss on the disposal of fixed assets that was recognized during the three months ended June 30, 2008. Despite our efforts to reduce costs, selling, general and administrative expenses as a percentage of net sales increased to 12.6% for the three months ended June 30, 2009 from 11.9% for the three months ended June 30, 2008 as a result of the 37.5% reduction in net sales.

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The following table sets forth the Company's income from operations and income from operations as a percentage of net sales by reportable segment for the three months ended June 30 (in thousands):