Certain information set forth herein, other than historical statements, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are based, in whole or in part, 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 are subject to a number of risk factors, uncertainties, and assumptions. 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 and tax rates. 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 and distributor of products for building and industrial markets. Our products provide structural and architectural enhancements for residential homes, low-rise retail, other commercial and professional buildings, and a wide-variety of other structures. These products include ventilation products, mail storage solutions including mailboxes and package delivery products, rain dispersion products and accessories, bar grating, expanded metal, metal lath, and expansion joints and structural bearings. Our customers are major home improvement retailers and distributors predominantly throughout North America with less than ten percent of revenues from Europe. As of June 30, 2012, we operated 40 facilities in 20 states, Canada, England, and Germany, 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 product areas that offer the opportunity for sales growth and margin enhancement over the long-term. We focus on operational excellence including lean initiatives throughout the Company to position Gibraltar as our customers' low-cost provider of the products we offer. We continuously seek to improve our on-time delivery, quality, and service to position Gibraltar as a preferred supplier to our customers. We also strive to develop new products, enter new markets, expand market share in the residential markets, and further penetrate domestic and international building and industrial markets to strengthen our product leadership positions.

The end markets served by our business are subject to economic conditions that are influenced by interest rates, commodity costs, demand for residential construction, and the level of non-residential construction and infrastructure projects. The United States construction markets continue an uneven recovery from an unprecedented recession that began in 2008, which led to reduced demand for the products we manufacture and distribute. In addition, tightened credit markets over the same period may have limited the ability of end customers to obtain financing for construction projects. While the economy has grown since the recession, the construction markets continue to face significant challenges. Construction markets have only recovered modestly and many economic indicators, such as housing starts, continue to remain at levels well below long-term averages.

Regarding the growth of our business through acquisitions, on February 8, 2012, the Company purchased the assets of the metal grating fabrication and distribution business of Edvan Industries, Inc. (Edvan), based near Edmonton, Alberta, Canada. The acquisition of Edvan, which serves the oil sands region of Western Canada, was acquired for approximately $3 million.

On June 3, 2011, the Company acquired Pacific Award Metals, Inc. (Award Metals) for $13 million. Award Metals is a leading regional manufacturer of roof ventilation, roof trims, flashing and rain ware, drywall trims, and specialized clips and connectors for concrete forms used in the West Coast residential construction markets.

On April 1, 2011, the Company acquired The D.S. Brown Company (D.S. Brown) for $98 million. D.S. Brown is the largest U.S. manufacturer of specialty components for the transportation infrastructure industry and has established a leading market position for many of the products offered. Products manufactured and distributed by D.S. Brown include expansion joint systems, structural bearing assemblies, pavement sealing systems, and other specialty components for bridges, highways, and other infrastructure projects.

Gibraltar's results from operations included Edvan, Award Metals, and D.S. Brown from their respective dates of acquisition.

We have been able to maintain and improve a strong liquidity position as a result of our consolidation of facilities, acquisitions, introduction of new product and expansion of market share. Using cash generated from operations, we made significant repayments against our outstanding debt and had no debt outstanding against our revolving credit facility during the six months ended June 30, 2012. At June 30, 2012, our liquidity was $194 million including $44 million of cash and $150 million of availability under our revolving credit facility.

For the quarter ended June 30, 2012, our net sales improved 5% compared to the prior year. The improvement was attributable to the combined effect from the Edvan and Award Metals acquisitions which were not included or were partially included in revenues for the second quarter of 2011 and from organic sales growth except by businesses serving residential markets on the West Coast and those serving the European markets. The positive earnings impact of this growth was more than offset by the margin compression from raw material costs in relation to pricing as compared to the second quarter last year, as well as, the continued restructuring costs for our West Coast operations relating to the Award Metals integration. As a result, our operating margin declined to 7.4% for the second quarter of 2012 from 8.3% in the second quarter of 2011.

Results of Operations

Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011

The following table sets forth selected data from our statement of operations and the related percentage of net sales for the three months ended June 30 (in thousands):

                                                          2012                          2011
Net sales                                        $ 219,734         100.0 %     $ 208,807         100.0 %
Cost of sales                                      178,008          81.0         163,379          78.2

Gross profit                                        41,726          19.0          45,428          21.8
Selling, general, and administrative expense        25,433          11.6          28,038          13.5

Income from operations                              16,293           7.4          17,390           8.3
Interest expense                                     4,627           2.0           4,998           2.3
Other income                                          (315 )        -0.1             (38 )         0.0

Income before taxes                                 11,981           5.5          12,430           6.0
Provision for income taxes                           4,066           1.9           5,184           2.5

Income from continuing operations                    7,915           3.6           7,246           3.5
(Loss) income from discontinued operations              (9 )         0.0             559           0.2

Net income                                       $   7,906           3.6 %     $   7,805           3.7 %

Net sales increased by $10.9 million, or 5.2%, to $219.7 million for the three months ended June 30, 2012 from net sales of $208.8 million for the three months ended June 30, 2011. The following table sets forth the impact of the Company's acquisitions on net sales for the three months ended June 30 (in thousands):

Total Change Due To 2012 2011 Change Acquisitions Operations Net sales $ 219,734 $ 208,807 $ 10,927 $ 4,299 $ 6,628

The increase in net sales from the prior year was the result of the incremental sales generated by the Edvan and Award Metals acquisitions completed during the past thirteen months, which were not included in the prior year quarter, and contributed $4.3 million of net sales for the second quarter of 2012, along with increases in net sales from operations of $6.6 million, an organic increase of 3.2%. The increase in net sales from operations was the result of a 5.9% increase in volumes, partially offset by 2.6% decrease in pricing to customers. Volumes increased steadily across most of our businesses. Our small exposure to Europe showed a decrease in net sales compared to second quarter last year as the sovereign debt crisis there has suppressed demand for our building products. The lower selling prices were primarily the result of declining commodity costs for steel and aluminum and meeting selective competitive conditions.

Our gross margin decreased to 19.0% for the three months ended June 30, 2012 compared to 21.8% for the three months ended June 30, 2011. The 280 basis point decrease in gross margin from the prior year was attributable, in part, to a less favorable alignment of material costs to customer selling prices. Additionally, as we continue to combine several West Coast locations with similar market characteristics into a single entity, we have incurred costs this quarter related to this consolidation and continued integration of the Award Metals acquisition which included a $2.2 million charge to accelerate the reduction of inventory. The decreases in gross margin from these factors were partially offset by favorable leverage from organic volume growth. We believe the initiatives to restructure our West Coast businesses will lead to improved gross margins in future periods as we complete this consolidation.

Selling, general, and administrative expenses (SG&A) decreased by $2.6 million, or 9.3%, to $25.4 million for the three months ended June 30, 2012 from $28.0 million for the three months ended June 30, 2011. The $2.6 million decrease was the result of a $1.4 million reduction in equity compensation costs and a $0.7 million decrease in restructuring and transactions costs related to acquisitions. SG&A expenses as a percentage of net sales decreased to 11.6% in the second quarter of 2012 compared to 13.5% in 2011.

Interest expense decreased $0.4 million to $4.6 million for the three months ended June 30, 2012 compared to $5.0 million for the three months ended June 30, 2011. Net interest expense in the second quarter of 2011 was higher due to funds borrowed under our revolving credit facility to finance the acquisitions of D.S. Brown and Award Metals. No amounts were outstanding under our revolving credit facility during the three months ended June 30, 2012.

We recognized a provision for income taxes of $4.1 million for the three months ended June 30, 2012, an effective tax rate of 33.9%, compared with a provision for income taxes of $5.2 million, an effective rate of 41.7% for the same time period in 2011. The effective tax rate for the second quarter of 2012 was lower than the second quarter of 2011 and lower than the U.S. federal statutory rate of 35% primarily due to the reversal of an uncertain tax position of $0.6 million during the quarter, plus a reduction in non-deductible expenses. The effective tax rate for the second quarter of 2011 exceeded the U.S. federal statutory rate due to state taxes and non-deductible permanent differences.

Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

The following table sets forth selected data from our statement of operations
and the related percentage of net sales for the six months ended June 30 (in
thousands):



                                                          2012                          2011
Net sales                                        $ 411,905         100.0 %     $ 372,370         100.0 %
Cost of sales                                      334,698          81.3         296,897          79.7

Gross profit                                        77,207          18.7          75,473          20.3
Selling, general, and administrative expense        53,891          13.0          50,861          13.7

Income from operations                              23,316           5.7          24,612           6.6
Interest expense                                     9,301           2.3           9,452           2.5
Other income                                          (346 )        -0.1             (61 )         0.0

Income before taxes                                 14,361           3.5          15,221           4.1
Provision for income taxes                           4,997           1.2           6,534           1.8

Income from continuing operations                    9,364           2.3           8,687           2.3
(Loss) income from discontinued operations             (96 )         0.0           7,527           2.1

Net income                                       $   9,268           2.3 %     $  16,214           4.4 %

Net sales increased by $39.5 million, or 10.6%, to $411.9 million for the six months ended June 30, 2012 from net sales of $372.4 million for the six months ended June, 2011. The following table sets forth the impact of the Company's acquisitions on net sales for the six months ended June 30 (in thousands):

Total Change Due To 2012 2011 Change Acquisitions Operations Net sales $ 411,905 $ 372,370 $ 39,535 $ 26,102 $ 13,433

The increase in net sales from the prior year was primarily the result of the incremental sales generated by three acquisitions completed during the past fifteen months which contributed $26.1 million or 7% of net sales for the first half of 2012. Net sales from business units operating in both periods increased 3.6% or $13.4 million, the result of a 2.6% increase in volumes and a 1.1% increase in pricing to customers. While overall volume increased compared to the first half of 2011 for our products sold into the majority of our geographic markets, these increases were partially offset by the declines in volume sold in the West Coast residential markets and European markets. The modest increase in pricing offered to customers the first half of the year was the result of covering raw material inflation in the earlier part of the year.

Despite our increase in net sales and a modest increase in pricing, our gross margin decreased to 18.7% for the six months ended June 30, 2012 compared to 20.3% for the six months ended June 30, 2011. A less favorable alignment of material costs to customer selling prices contributed to this decline. Additionally, as we continue to consolidate certain of our West Coast locations with similar products and market characteristics and the Award Metals acquisitions into a single entity, we have incurred costs related to this consolidation which included a $2.2 million charge to write-down excess inventory in the second quarter of 2012. These factors were partially offset by favorable leverage from organic volume growth. We believe the initiatives to restructure the West Coast locations will lead to improved gross margins in future periods as we complete this consolidation.

Selling, general, and administrative expenses increased by $3.0 million, or 6.0%, to $53.9 million for the six months ended June 30, 2012 from $50.9 million for the six months ended June 30, 2011. The $3.0 million increase was the net result of $4.2 million of SG&A expense from acquired businesses, offset by a $1.0 million reduction in restructuring and acquisition related costs from the prior year. Although we experienced an increase in expenses, SG&A expenses as a percentage of net sales decreased to 13.0% in the first half of 2012 compared to 13.7% in 2011.

Interest expense decreased $0.2 million to $9.3 million for the six months ended June 30, 2012 compared to $9.5 million for the six months ended June 30, 2011. The interest expense incurred in both periods primarily relates to our $204.0 million of Senior Subordinated 8% Notes. Net interest expense for the six months ended June 30, 2011, was higher due to funds borrowed under our revolving credit facility to finance the acquisitions of D.S. Brown and Award Metals, partially offset by $0.2 million of interest income earned on the $8.5 million note held resulting from the sale of SCM Metal Products in 2008. This note receivable was fully paid in November 2011. No amounts were outstanding under our revolving credit facility during the six months ended June 30, 2012.

We recognized a provision for income taxes of $5.0 million for the six months ended June 30, 2012, an effective tax rate of 34.8%, compared with a provision for income taxes of $6.5 million, an effective rate of 42.9% for the same time period in 2011. The effective tax rate for the first half of 2012 was less than a year ago and less than the U.S. federal statutory rate of 35% due to the reversal of an uncertain tax position of $0.6 million and lower non-deductible expenses during the quarter ended June 30, 2012. The effective tax rate for the same time period in 2011 exceeded the U.S. federal statutory rate due to state taxes and non-deductible permanent differences, along with a $0.9 million charge for the equity compensation surrendered by Gibraltar's Chief Executive Officer which was not deductible for tax purposes.

Outlook

We expect modest improvements in all markets we serve to continue during 2012, including the industrial and infrastructure markets, as well as, the residential and non-residential construction markets. We believe that for the full year 2012, we will have organic revenue growth of approximately 2%, from our core businesses along with incremental revenue from recent acquisitions of approximately $30 million. The extent and timing of any sustained economic recovery in these markets remain uncertain.

We expect full year gross margin to approximate 20% based on our assumption that volatility in raw material costs will level out, as well as, costs to complete our West Coast region reorganization will subside. For 2012, we expect SG&A expense to approximate $26 million per quarter, or 13% of full year revenues.

Our expectations for other financial measures for our continuing operations include net interest expense at a run rate of $4.7 to $4.8 million per quarter, a full year effective tax rate of 37%, and capital expenditures of $16 million for the year.

Over the long-term, we believe that the fundamentals of the industrial and infrastructure markets, along with our residential markets, are positive and the aggressive actions taken to streamline and improve the efficiency of our business have reduced our break-even point and positioned Gibraltar to generate marked improvements in profitability when economic and market conditions return toward historical levels.

Liquidity and Capital Resources

General

Our principal capital requirements are to fund our operations, including working capital, the purchase and funding of capital improvements to our business and facilities, and to fund acquisitions. During the next twelve months, we will focus on investing in growth opportunities while also maintaining working capital efficiency and cost reduction efforts to minimize the cash invested to grow our business. During the first half of 2012, we invested cash in our working capital to meet the upcoming higher seasonal demand from our customers as noted below in the "Cash Flow" section of Item 2 of this Quarterly Report on Form 10-Q.

As of June 30, 2012, our liquidity of $193.9 million consisted of $44.1 million of cash and $149.8 million of availability under our revolving credit facility. We believe this liquidity together with the cash expected to be generated from operations should be sufficient to fund working capital needs and future growth. We continue to search for strategic acquisitions noting that a larger acquisition may require additional borrowings and/or the issuance of our common stock.

Our Senior Credit Agreement provides the Company with liquidity and capital resources for use by our U.S. operations. Historically, our foreign operations generated cash flow from operations sufficient to invest in working capital and to fund capital improvements to their businesses and facilities. As of June 30, 2012, our foreign subsidiaries held $16.9 million of cash. We believe cash held by our foreign subsidiaries and their expected future ability to generate cash from operations provide our foreign operations with the necessary liquidity to meet their future obligations and allow the foreign business units to reinvest in their operations and could eventually be used to help grow our business internationally through transactions similar to our acquisition of Edvan.

Over the long-term, we expect that future obligations, including strategic business opportunities such as acquisitions, may be financed through a number of sources, including internally available cash resources, new debt financing, the issuance of equity securities, or any combination of the above. Any potential acquisitions are evaluated on the basis of our ability to enhance our existing products, operations, or capabilities, as well as provide access to new products, markets, and customers.

These expectations are forward-looking statements based upon currently available information and may change if conditions in the credit and equity markets further deteriorate or other circumstances change. To the extent that operating cash flows are lower than current levels or sources of financing are not available or available at acceptable terms, our future liquidity may be adversely affected.

Cash Flows

The following table sets forth selected cash flow data for the six months ended
June 30 (in thousands):



                                                        2012           2011
      Cash (used in) provided by:
      Operating activities of continuing operations   $  (1,998 )    $  (3,119 )
      Investing activities of continuing operations      (6,853 )      (52,899 )
      Financing activities of continuing operations      (1,303 )       18,791
      Discontinued operations                               (36 )       (3,134 )
      Effect of exchange rate changes                       136            588

      Net decrease in cash and cash equivalents       $ (10,054 )    $ (39,773 )

During the six months ended June 30, 2012, net cash used in continuing operations totaled $2.0 million, primarily driven by a $30.3 million investment in working capital partially offset by net income from continuing operations of $9.4 million and non-cash charges including depreciation, amortization, and stock compensation of $18.9 million. Net cash used in operating activities for the six months ended June 30, 2011 was $3.1 million primarily driven by a $29.9 million investment in working capital, partially offset by income from continuing operations of $8.7 million and non-cash charges including depreciation, amortization, and stock compensation of $18.1 million.

During the six months ended June 30, 2012, the Company invested $30.3 million in its working capital to fund growth in sales and inventory to meet demand in our seasonally strongest periods. Cash invested in working capital and other net assets included $24.9 million and $7.1 million increases in accounts receivable and inventory, respectively, partially offset by a $15.9 million increase in accounts payable. The increase in accounts receivable was a result of increased sales volume. Inventory and accounts payable increased due to increased manufacturing activity. The increased sales volume and manufacturing activity were a direct result of the seasonally higher customer order levels that impact our business. The decrease in accrued expenses and other non-current liabilities of $14.9 million were largely due to performance-based variable compensation awards earned in 2009 and 2011 that were paid during the first quarter of 2012.

Net cash used in investing activities of continuing operations for the six months ended June 30, 2012 of $6.9 million consisted of $2.7 million for the Edvan acquisition and $4.6 million for capital expenditures. Cash used in investing activities during the six months ended June 30, 2011 of $52.9 million consisted primarily of $107.6 million of acquisitions and capital expenditures of $4.5 million offset by $59.0 million of proceeds from the sale of our USP business.

Net cash used in financing activities from continuing operations for the six months ended June 30, 2012 of $1.3 million primarily consisted of tax withholdings paid for stock issued to employees from the vesting of restricted stock units. Cash provided by financing activities for the six months ended June 30, 2011 of $18.8 million primarily consisted of net borrowings of $19.6 million under our Senior Credit Agreement.

Senior Credit Agreement and Senior Subordinated Notes

Borrowings under the Senior Credit Agreement are secured by the trade receivables, inventory, personal property and equipment, and certain real property of the Company's significant domestic subsidiaries. The Senior Credit Agreement provides for a revolving credit facility and letters of credit in an aggregate amount that does not exceed the lesser of (i) $200 million or (ii) a borrowing base determined by reference to the trade receivables, inventories, and property, plant, and equipment of the Company's significant domestic subsidiaries. The Senior Credit Agreement provides the Company with more flexibility by allowing for Gibraltar to request additional financing from the banks to increase the revolving credit facility to $250 million.

The revolving credit facility is currently committed through June 8, 2015, six months prior to the maturity date of the 8% Senior Subordinated Notes. Should the Company choose to refinance the Notes prior to June 8, 2015, the maturity date of the revolving credit facility extends to October 10, 2016. Only one financial covenant is contained within the 2011 Senior Credit Agreement, which requires the Company to maintain a fixed charge ratio (as defined in the agreement) of 1.25 to 1.00 or higher on a trailing four-quarter basis.

Borrowings under the Senior Credit Agreement bear interest at a variable interest rate based upon the London Interbank Offered Rate (LIBOR) plus an additional margin of 2.0% to 2.5% on the revolving credit facility based on the . . .