UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15 (d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
The Quarterly Period Ended September 30, 2008





Commission
File No. 1-3920





NORTH
AMERICAN GALVANIZING & COATINGS, INC.


(Exact
name of the registrant as specified in its charter)





Delaware


(State of
Incorporation)





71-0268502


(I.R.S.
Employer Identification No.)





5314
S. Yale Avenue, Suite 1000, Tulsa, Oklahoma 74135


(Address
of principal executive offices)





(918)
494-0964


(Registrant’s telephone
number)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 and 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 xNo___




Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act (Check
one):




Large accelerated
      filer o
            Accelerated filer
      x
            Non-accelerated
      filer o
            Smaller Reporting
      Company 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
x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of September 30, 2008:




Common
Stock $ .10 Par Value . . . .
..     16,215,111














NORTH
AMERICAN GALVANIZING & COATINGS, INC.





Index
to Quarterly Report on Form 10-Q


PagePart  I.
              Financial
      InformationForward
      Looking Statements or Information
              2Item
      1.
              Financial
      StatementsReport
      of Independent Registered Public Accounting Firm
              3Condensed
      Consolidated Balance Sheets as of September 30, 2008(unaudited),
      and December 31, 2007
              4Condensed
      Consolidated Statements of Income for the three- andnine-month
      periods ended September 30, 2008 and 2007 (unaudited)
              5Condensed
      Consolidated Statements of Cash Flows for thenine-month
      periods ended September 30, 2008 and 2007 (unaudited)
              6Condensed
      Consolidated Statement of Stockholders’ Equity for thenine-month
      period ended September 30, 2008 (unaudited)
              7Notes
      to Condensed Consolidated Financial Statements for the three-
      andnine-month
      periods ended September 30, 2008 and 2007 (unaudited)
              8-13Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
              14-20Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              20-21Item
      4.
              Controls
      and Procedures
              21Part
      II.
              Other
      Information
              21-23Signatures
              24


- 1
-


Forward
Looking Statements or Information





Certain
statements in this Form 10-Q, including information set forth under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, constitute “Forward-Looking Statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.  Such statements are
typically punctuated by words or phrases such as “anticipates,” “estimate,”
“should,” “may,” “management believes,” and words or phrases of similar
import.  The Company cautions investors that such forward-looking
statements included in this Form 10-Q, or hereafter included in other publicly
available documents filed with the Securities and Exchange Commission, reports
to the Company’s stockholders and other publicly available statements issued or
released by the Company involve significant risks, uncertainties, and other
factors which could cause the Company’s actual results, performance (financial
or operating) or achievements to differ materially from the future results,
performance (financial or operating) or achievements expressed or implied by
such forward-looking statements.  Factors that could cause or
contribute to such differences could include, but are not limited to, changes in
demand, prices, the raw materials cost of zinc and the cost of natural gas;
changes in economic conditions of the various markets the Company serves, as
well as the other risks detailed herein and in the Company’s Form 10-K filed on
March 7, 2008 with the Securities and Exchange Commission.





- 2
-


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To
the Board of Directors and Stockholders of


North
American Galvanizing & Coatings, Inc.





We have
reviewed the accompanying condensed consolidated balance sheet of North American
Galvanizing & Coatings, Inc. and subsidiary (the “Company”) as of September
30, 2008, and the related condensed consolidated statements of income for the
three- and nine-month periods ended September
30, 2008 and 2007, cash flows for the nine-month periods ended September 30,
2008 and 2007 and stockholders’ equity for the nine-month period ended September
30, 2008.  These interim financial statements are the responsibility
of the Company’s management.





We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters.  It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.





Based on
our reviews, we are not aware of any material modifications that should be made
to such condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.





We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
North American Galvanizing & Coatings, Inc. and subsidiary as of December
31, 2007, and the related consolidated statements of income, stockholders’
equity and cash flows for the year then ended (not presented herein); and in our
report dated March 7, 2008, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2007 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.








/s/Deloitte
& Touche LLP





Tulsa,
Oklahoma


October
20, 2008





- 3
-
 
 NORTH
AMERICAN GALVANIZING & COATINGS, INC.
  CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In
thousands, except share amounts)


UnauditedSeptember
      30,
            
            
            December
      31,ASSETS
            
            2008
            
            
            2007CURRENT
      ASSETS:Cash
            
            $
            9,000
            
            
            $
            2,966Trade
      receivables—less allowances of $174 for 2008 and $112 for
    2007
            
            
            12,459
            
            
            
            10,294Inventories
            
            
            5,885
            
            
            
            6,399Prepaid
      expenses and other assets
            
            
            254
            
            
            
            1,096Deferred
      tax asset—net
            
            
            943
            
            
            
            741Total
      current assets
            
            
            28,541
            
            
            
            21,496PROPERTY,
      PLANT AND EQUIPMENT—AT COST:Land
            
            
            2,167
            
            
            
            2,167Galvanizing
      plants and equipment
            
            
            39,489
            
            
            
            41,33741,656
            
            
            
            43,504Less—allowance
      for depreciation
            
            
            (
      21,670
            )
            
            
            (22,413
            )Construction
      in progress
            
            
            2,126
            
            
            
            1,396Total
      property, plant and equipment—net
            
            
            22,112
            
            
            
            22,487GOODWILL—Net
            
            
            3,448
            
            
            
            3,448OTHER
      ASSETS
            
            
            794
            
            
            
            141TOTAL
      ASSETS
            
            $
            54,895
            
            
            $
            47,572LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Current
      maturities of long-term obligations
            
            $
            –
            
            
            $
            1Trade
      accounts payable
            
            
            4,600
            
            
            
            5,296Accrued
      payroll and employee benefits
            
            
            1,787
            
            
            
            1,513Accrued
      taxes
            
            
            1,142
            
            
            
            1,112Customer
      deposits
            
            
            1,222
            
            
            
            –Other
      accrued liabilities
            
            
            2,211
            
            
            
            2,910Total
      current liabilities
            
            
            10,962
            
            
            
            10,832DEFERRED
      TAX LIABILITY—Net
            
            
            595
            
            
            
            697LONG-TERM
      OBLIGATIONS
            
            
            –
            
            
            
            14Total
      liabilities
            
            
            11,557
            
            
            
            11,543COMMITMENTS
      AND CONTINGENCIES (NOTE 6)STOCKHOLDERS’
      EQUITY(all shares for all periods adjusted for four-for-three stock
      split on September 14, 2008)Common
      stock—$.10 par value, 18,000,000 shares authorized:Issued—16,507,813
      shares in 2008 and 16,489,005 in 2007
            
            
            1,651
            
            
            
            1,237Additional
      paid-in capital
            
            
            13,664
            
            
            
            14,549Retained
      earnings
            
            
            29,845
            
            
            
            20,310Common
      shares in treasury at cost— 292,702 in 2008 and 16,787 in
    2007
            
            
            (1,822
            )
            
            
            (67
            )Total
      stockholders’ equity
            
            
            43,338
            
            
            
            36,029TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            54,895
            
            
            $
            47,572


See notes
to condensed consolidated financial statements.


- 4
-


NORTH
AMERICAN GALVANIZING & COATINGS, INC.




CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(In
thousands, except per share amounts)


For
      the Three Months
              Ended
            
            
            For
      the Nine Months
              EndedSeptember
      30
            
            
            September
      302008
            
            
            2007
            
            
            2008
            
            
            2007SALES
            
            $
            21,845
            
            
            $
            21,541
            
            
            $
            64,525
            
            
            $
            68,161COSTS
      AND EXPENSES:Cost
      of sales
            
            
            13,879
            
            
            
            14,535
            
            
            
            39,656
            
            
            
            46,899Selling,
      general and administrative expenses
            
            
            2,699
            
            
            
            2,193
            
            
            
            7,548
            
            
            
            6,998Depreciation
      and amortization
            
            
            847
            
            
            
            876
            
            
            
            2,556
            
            
            
            2,612Total
      costs and expenses
            
            
            17,425
            
            
            
            17,604
            
            
            
            49,760
            
            
            
            56,509OPERATING
      INCOME
            
            
            4,420
            
            
            
            3,937
            
            
            
            14,765
            
            
            
            11,652Interest
      expense
            
            
            –
            
            
            
            (275
            )
            
            
            –
            
            
            
            (527
            )Interest
      income and other
            
            
            70
            
            
            
            15
            
            
            
            217
            
            
            
            69INCOME  BEFORE
      INCOME TAXES
            
            
            4,490
            
            
            
            3,677
            
            
            
            14,982
            
            
            
            11,194INCOME
      TAX EXPENSE
            
            
            1,453
            
            
            
            1,164
            
            
            
            5,447
            
            
            
            4,129NET
      INCOME
            
            $
            3,037
            
            
            $
            2,513
            
            
            $
            9,535
            
            
            $
            7,065NET
      INCOME PER COMMON SHARE, all periods adjusted for four-for-three
      stock split on September 14, 2008 (Note 1):Basic
            
            $
            0.19
            
            
            $
            0.15
            
            
            $
            0.58
            
            
            $
            0.43Diluted
            
            $
            0.18
            
            
            $
            0.15
            
            
            $
            0.56
            
            
            $
            0.42




See notes
to condensed consolidated financial statements.


- 5
-
 
 NORTH
AMERICAN GALVANIZING & COATINGS, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 NINE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (In
thousands)


2008
            
            
            2007OPERATING
      ACTIVITIES:Net
      income
            
            $
            9,535
            
            
            $
            7,065Loss
      on disposal of assets
            
            
            95
            
            
            
            –Depreciation
      and amortization
            
            
            2,556
            
            
            
            2,612Deferred
      income taxes
            
            
            (304
            )
            
            
            (42
            )Non-cash
      share-based compensation
            
            
            487
            
            
            
            441Non-cash
      directors’ fees
            
            
            306
            
            
            
            321Changes
      in operating assets and liabilities:Accounts
      receivable – net
            
            
            (2,165
            )
            
            
            (120
            )Inventories
      and other assets
            
            
            703
            
            
            
            831Accounts
      payable, accrued liabilities and other
            
            
            (30
            )
            
            
            (3,354
            )Cash
      provided by operating activities
            
            
            11,183
            
            
            
            7,754INVESTING
      ACTIVITIES:Capital
      expenditures
            
            
            (2,137
            )
            
            
            (3,321
            )Proceeds
      from sale of assets
            
            
            22
            
            
            
            –Cash
      used in investing activities
            
            
            (2,115
            )
            
            
            (3,321
            )FINANCING
      ACTIVITIES:Purchase
      of common stock for the treasury
            
            
            (3,417
            )
            
            
            (152
            )Proceeds
      from exercise of stock options
            
            
            343
            
            
            
            194Tax
      benefits realized from stock options exercised
            
            
            62
            
            
            
            232Payments
      on long-term obligations
            
            
            (15
            )
            
            
            (12,388
            )Cash
      paid for fractional shares pursuant to stock split effected by stock
      dividend
            
            
            (7
            )
            
            
            (3
            )Proceeds
      from long-term obligations
            
            
            –
            
            
            
            11,035Payments
      on bonds
            
            
            –
            
            
            
            (5,265
            )Cash
      used in financing activities
            
            
            (3,034
            )
            
            
            (6,347
            )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            6,034
            
            
            
            (1,914
            )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
            
            
            2,966
            
            
            
            1,979End
      of period
            
            $
            9,000
            
            
            $
            65CASH
      PAID DURING THE YEAR FOR:Interest
            
            $
            –
            
            
            $
            444Income
      Taxes
            
            $
            5,166
            
            
            $
            4,214NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Acquisitions
      of fixed assets under capital lease obligations
            
            $
            –
            
            
            $
            137Acquisitions
      of fixed assets included in payables at period end
            
            $
            161
            
            
            $
            411




See notes
to condensed consolidated financial statements.


- 6
-


NORTH
AMERICAN GALVANIZING & COATINGS, INC.
  CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 NINE
MONTHS ENDED SEPTEMBER 30, 2008
 (In
thousands, except share amounts)


Common
      Stock
              
              
              Additional$.10
      Par Value
              
              
              Paid-in
              
              
              Retained
              
              
              Treasury
      StockShares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              Shares
              
              
              Amount
              
              
              TotalBALANCE—December
      31, 2007
              
              
              12,366,754
              
              
              $
              1,237
              
              
              $
              14,549
              
              
              $
              20,310
              
              
              
              12,590
              
              
              $
              (67
              )
              
              $
              36,029Net
      income
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              9,535
              
              
              
              –
              
              
              
              –
              
              
              
              9,535Stock
      split effected by a four for three stock dividend,including cash
      paid for fractional shares
              
              
              4,126,263
              
              
              
              413
              
              
              
              (420
              )
              
              
              –
              
              
              
              53,500
              
              
              
              –
              
              
              
              (7
              )Issuance
      of treasury shares for stock optiontransactions, net of
      shares tendered for payment and including tax
      benefit
              
              
              –
              
              
              
              –
              
              
              
              (1,064
              )
              
              
              –
              
              
              
              (233,712
              )
              
              
              1,469
              
              
              
              405Incentive
      Stock Plan Compensation
              
              
              –
              
              
              
              –
              
              
              
              487
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              487Stock
      units for Director Stock Unit Program
              
              
              –
              
              
              
              –
              
              
              
              306
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              306Issuance
      of common stock for Director Stock UnitProgram
      transactions
              
              
              14,796
              
              
              
              1
              
              
              
              (1
              )
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Issuance
      of treasury shares for Director Stock UnitProgram
      transactions
              
              
              –
              
              
              
              –
              
              
              
              (193
              )
              
              
              –
              
              
              
              (31,969
              )
              
              
              193
              
              
              
              –Purchase
      of common stock for the treasury
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              492,293
              
              
              
              (3,417
              )
              
              
              (3,417
              )BALANCE—September
      30, 2008
              
              
              16,507,813
              
              
              $
              1,651
              
              
              $
              13,664
              
              
              $
              29,845
              
              
              
              292,702
              
              
              $
              (1,822
              )
              
              $
              43,338






- 7
-


NORTH
AMERICAN GALVANIZING & COATINGS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 2008 and 2007


UNAUDITED




Note
1.  Basis of Presentation





The
condensed consolidated financial statements included in this report have been
prepared by North American Galvanizing & Coatings, Inc. (the “Company”)
pursuant to its understanding of the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all normal and recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation. The condensed consolidated financial statements include the
accounts of the Company and its subsidiary.





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations for interim reporting.  The Company believes that the
disclosures are adequate to make the information presented not
misleading.  However, these interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company’s Annual Report on Form


10-K for
the year ended December 31, 2007.  The financial data for the interim
periods presented may not necessarily reflect the results to be anticipated for
the complete year.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenues and expenses for each of the
periods.  Actual results will be determined based on the outcome of
future events and could differ from the estimates. The Company’s sole business
is hot dip galvanizing and coatings which is conducted through its wholly owned
subsidiary, North American Galvanizing Company (“NAGC”).





The board
of directors declared a four-for-three stock split effected by a stock dividend
for all shareholders of record on August 31, 2008, payable on September 14,
2008. All share and per share data (except par value) have been adjusted to
reflect the effect of the stock split for all periods presented. In addition,
the number of shares of common stock issuable upon the exercise of outstanding
stock options and the vesting of other stock awards, as well as the number of
shares of common stock reserved for issuance under our share-based compensation
plans, were proportionately increased, and the pricing of options and other
stock awards was proportionately adjusted, in accordance with the terms of those
respective agreements and plans.





Note
2.  Share-based Compensation





At
September 30, 2008 the Company has two share-based compensation plans, which are
shareholder-approved, the 2004 Incentive Stock Plan and the Director Stock Unit
Program (Note 7).  The Company’s 2004 Incentive Stock Plan (the Plan)
permits the grant of share options and shares to its employees and directors for
up to 2,500,000 shares of common stock.  The Company believes that
such awards better align the interests of its employees and directors with those
of its shareholders.  Option awards are granted with an exercise price
equal to the market price of the Company’s stock at the date of grant; those
option awards usually vest based on 4 years of continuous service and have
10-year contractual terms.





The
compensation cost for the Plan, exclusive of the Director Stock Unit Program
(Note 7), was $217,000 and $161,000 for the three-months ended September 30,
2008 and 2007, respectively, and $487,000 and $441,000 for the nine-months ended
September 30, 2008 and 2007, respectively.  No tax benefit was
recognized in income tax expense for the 2007 incentive stock plan compensation
cost.  There was no share-based compensation cost capitalized during
2007 or 2008.




- 8
-


Non-vested
Shares.During March 2008, the Compensation Committee
recommended and the Board of Directors approved a grant totaling 126,667
non-vested shares for management employees and 66,667 non-vested shares for
directors.  During July 2008, the Compensation Committee recommended
and the Board of Directors approved a grant totaling 80,000 non-vested shares
for directors.  Non-vested shares granted to management employees and
management directors vest and become nonforfeitable on the date that is four
years after the date of grant; or if the participant is a non-employee director
of the Company at the time of the grant, the date that is two years after the
date of the grant. The Company is recognizing this compensation expense over the
two year or four year vesting period, as applicable, on a ratable
basis.  Non-vested shares are valued at market value on the grant
date.





Stock Options.In
the first nine months of 2007, the Company issued stock options for 670,000
shares at $2.60 per share.  No stock options were issued in the first
nine months of 2008.





The fair
value of options granted under the Company’s stock option plans was estimated
using the Black-Scholes option-pricing model with the following assumptions
used:




Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30
                
                
                September
      30Dollars
      in Thousands, Except per Share Amounts
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Volatility
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                66%Discount
      Rate
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4.6%Dividend
      Yield
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Fair
      Value, adjusted for four-for three stock split
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                $1.77


Note
3.  Earnings Per Common Share





Basic
earnings per common share for the periods presented are computed based upon the
weighted average number of shares outstanding.  Diluted earnings per
common share for the periods presented are based on the weighted average shares
outstanding, adjusted for the assumed exercise of stock options and for
non-vested shares using the treasury stock method.  The shares and
earnings per share for all periods have been adjusted to reflect the Company’s
four-for-three stock split effected in the form of a stock dividend on September
14, 2008.




Three Months Ended
      September 30
              
              Number of Shares2008
              
              
              2007Basic
              
              
              16,325,579
              
              
              
              16,467,023Diluted
              
              
              17,034,747
              
              
              
              17,148,692Nine Months Ended
      September 30
              
              Number of Shares2008
              
              
              2007Basic
              
              
              16,356,193
              
              
              
              16,389,691Diluted
              
              
              17,023,924
              
              
              
              16,976,313
  There
were no options priced higher than the share market value at September 30, 2008
or September 30, 2007.




- 9
-


Note
4.  Credit Agreement





The
Company’s credit agreement provides for a revolving credit facility in the
aggregate principal amount of $25 million with future increases of up to an
aggregate principal amount of $10 million at the discretion of the
lender.  The credit facility matures on May 16, 2012, with no
principal payments required before the maturity date and no prepayment
penalty.  The ongoing purpose of the facility is to provide for
issuance of standby letters of credit, acquisitions, and for other general
corporate purposes.





At
September 30, 2008, the Company had unused borrowing capacity
of  $24.8 million, based on  no borrowings outstanding under
the revolving credit facility, and $0.2 million of letters of credit to secure
payment of current and future workers’ compensation claims.





Substantially
all of the Company’s accounts receivable, inventories, fixed assets and the
common stock of its subsidiary are pledged as collateral under the agreement,
and the credit agreement is secured by a full and unconditional guaranty from
NAGC.  The credit agreement provides for an applicable margin ranging
from 0.75% to 2.00% over LIBOR and commitment fees ranging from 0.10% to 0.25%
depending on the Company’s Funded Debt to EBITDA Ratio (as defined). If the
Company had borrowings outstanding under the revolving credit facility at
September 30, 2008, the applicable margin would have been 0.75% and the variable
interest rate including the applicable margin would have been 4.68%.





Note
5.  Bonds Payable




During
the first quarter of 2000, the Company issued $9,050,000 of Harris County
Industrial Development Corporation Adjustable Rate Industrial Development Bonds,
Series 2000 (the “Bonds”). The Bonds were senior to other debt of the
Company.




The
Internal Revenue Service reviewed the Harris County Industrial Development
Corporation Adjustable Rate Industrial Development Bonds and compliance with the
Internal Revenue Code section (IRC) 144(a)(4)(ii)’s dollar limitation on capital
expenditures within a relevant period.  As a result of the review,
during 2006 the Company recorded an estimated liability of $145,000 and in
March, 2007, the Company entered into a settlement agreement (the “Closing
Agreement”) with the Harris County Industrial Development Corporation and the
Commissioner of the Internal Revenue Service (“IRS”) and subsequently redeemed
the bonds on July 2, 2007.  The Company used proceeds from the new
five-year credit facility to redeem the bonds, as specifically contemplated in
the agreement.




Note
6.  Commitments and Contingencies




The
Company has commitments with domestic and foreign zinc producers and brokers to
purchase zinc used in its hot dip galvanizing operations.  Commitments
for the future delivery of zinc reflect rates then quoted on the London Metals
Exchange and are not subject to price adjustment or are based on such quoted
prices at the time of delivery.  At September 30, 2008 the aggregate
commitments for the procurement of zinc at fixed prices were approximately $5.7
million.  The Company reviews these fixed price contracts for losses
using the same methodology employed to estimate the market value of its zinc
inventory.  The Company had no unpriced commitments for zinc purchases
at September 30, 2008.





The
Company’s financial strategy includes evaluating the selective use of derivative
financial instruments to manage zinc and interest costs.  As part of
its inventory management strategy, the Company expects to continue evaluating
hedging instruments to minimize the impact of zinc price
fluctuations.  The Company had no derivative instruments required to
be reported at fair value at September 30, 2008 or December 31, 2007, and did
not utilize derivatives in the nine-month period ended September 30, 2008 or the
year ended December 31, 2007, except for the forward purchase agreements
described above, which are accounted for as normal purchases.





The
Company’s total off-balance sheet contractual obligations at September 30, 2008,
consist of approximately $1.0
million for long-term operating leases for vehicles, office space, office
equipment, galvanizing facilities and g


- 10
-


On August
30, 2004, the Company was informed by counsel for the Metropolitan Water
Reclamation District of Greater Chicago (the “Water District”) that the Water
District had, on August 25, 2004 filed a Second Amended Complaint in the United
States District Court, Northern District of Illinois, Eastern Division, naming
North American Galvanizing & Coatings, Inc. (formerly known as Kinark
Corporation) as an added defendant. Counsel for the Water District also gave the
Company notice of the Water District’s intent to file (or amend the Complaint to
include) a Citizens Suit under the Resource Compensation and Recovery Act
(“RCRA”) against North American Galvanizing & Coatings, Inc., pursuant to
Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint
seeks enforcement of an August 12, 2004 default judgment in the amount of
$1,810,463.34 against Lake River Corporation and Lake River Holding Company,
Inc. in connection with the operation of a storage terminal by Lake River
Corporation in violation of environmental laws. Lake River Corporation conducted
business as a subsidiary of the Company until March 31, 2000, at which time Lake
River Corporation was sold to Lake River Holding Company, Inc. and ceased to be
a subsidiary of the Company. The Second Amended Complaint asserts that prior to
the sale of Lake River Corporation, the Company directly operated the Lake River
facility and, accordingly, seeks to have the Court pierce the corporate veil of
Lake River Corporation and enforce the default judgment order of August 12, 2004
against the Company. The Company denied the assertions set forth in the Water
District’s Complaint and on November 13, 2004 filed a partial motion for
dismissal of the Second Amended Complaint.





In
December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff’s property that present an “imminent and substantial endangerment to
human health and the environment.” In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company’s partial
motion to dismiss plaintiff’s third amended complaint.  The Company
filed an appeal with the Seventh Circuit Court of Appeals requesting dismissal
of the sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court’s April 12, 2005
order.  On January 17, 2007, the Seventh Circuit affirmed the judgment
of the United States District Court, stating that the Water District has a right
of action under CERCLA.





On April
11, 2007, the Company entered into an Agreement in Principle establishing terms
for a conditional settlement. Under the terms of the Agreement in Principle, the
Company has agreed to fund 50% of the cost, up to $350,000, to enroll the site
in the Illinois Voluntary Site Remediation Program.  These funds will
be used to prepare environmental reports for approval by the Illinois
Environmental Protection Agency.  The parties’ shared objective is to
obtain a “no further remediation determination” from the Illinois EPA based on a
commercial / industrial cleanup standard.  If the cost to prepare
these reports equals or exceeds $700,000, additional costs above $700,000
($350,000 per party) will be borne 100% by the Water District.





If a
remediation plan is required based on the site assessment, the Company has also
agreed to fund 50% of the cost to implement the remediation plan, up to a
maximum of $1 million.  If the cost to implement the plan is projected
to exceed $2 million, then the Water District will have the option to terminate
the agreement and resume the litigation.  The Water District will have
to choose whether to accept or reject the $1 million funding commitment from the
Company before accepting any payments from the Company for implementation of the
remediation plan.  The Company does not believe that it can determine
whether any cleanup is required or if any final cleanup cost is likely to exceed
$2 million until additional data has been collected and analyzed in connection
with the environmental reports.  If the Water District elects to
accept the maximum funding commitment, the Company has also agreed to remove
certain piping and other equipment from one of the parcels.  The cost
to remove the piping is estimated to be between $35,000 and
$60,000.





- 11
-


Although
the boards of both the Water District and the Company have approved the
Agreement in Principle, the agreement of the parties must be embodied in a
formal settlement agreement.  The parties have been working since
April 11, 2007 but have not yet reached a final agreement.





The
Company has recorded a liability for $350,000 related to the Water District
claim in recognition of its currently known and estimable funding commitment
under the Agreement in Principle.  In the event that the Water
District rejects the funding commitment described above, the potential claim
could exceed the amount of the previous default judgment.  As neither
a site evaluation nor a remediation plan has been developed, the Company is unable
to make a reasonable estimate of the amount or range of further loss, if any,
that could result.  Such a liability, if any, could have a material
adverse effect on the Company’s financial condition, results of operations, or
liquidity.





In
September 2008, the United States Environmental Protection Agency (EPA) notified
the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of the
Company’s subsidiary and their disposal of waste handled by their
supplier in the early 1980’s.  The EPA offered the Company a special de minimis party settlement
to resolve potential liability that the Company and its subsidiaries may have
under CERCLA at this Site.  The Company has accrued the $112,145 de minimis settlement amount
during the third quarter of 2008 and anticipates that the EPA’s offer will be
accepted on or before the deadline of December 30, 2008.





NAGC was
notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that
it was one of approximately 60 potentially responsible parties (“PRPs”) under
the Comprehensive Environmental Response, Compensation, and Liability
Information System (“CERCLIS”) in connection with cleanup of an abandoned site
formerly owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The
estimated timeframe for resolution of the IEPA contingency is
unknown.  The IEPA has yet to respond to a proposed work plan
submitted in August 2000 by a group of the PRPs or suggest any other course of
action, and there has been no activity in regards to this issue since 2001.
Until the work plan is approved and completed, the range of potential loss or
remediation, if any, is unknown, and in addition, the allocation of potential
loss between the 60 PRPs is unknown and not reasonably
estimable.  Therefore, the Company has no basis for determining
potential exposure and estimated remediation costs at this time and no liability
has been accrued.





The
Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of
frequent changes in environmental technology, laws and regulations management
cannot reasonably quantify the Company’s potential future costs in this
area.





North
American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits and environmental matters which are not discussed
herein.  Management of the Company, based upon their analysis of known
facts and circumstances and reports from legal counsel, does not believe that
any other such matter will have a material adverse effect on the results of
operations, financial conditions or cash flows of the Company.





Note
7. Director Stock Unit Program




At the
Company’s Annual Meeting held July 21, 2004, stockholders approved a Director
Stock Unit Program (“Program”).  Under the Program, effective January
1, 2005, each non-management director is required to defer at least 50%
($17,500) of his or her annual fee, and may elect to defer 75% ($26,250) or 100%
($35,000) of the annual fee.  The director must make the annual
deferral decision before the start of the year. Amounts deferred under the
Program are converted into a deferred Stock Unit grant under the Company’s 2004
Incentive Stock Plan at the average of the closing prices for a share of the
Company’s Common Stock for the 10 trading days before the quarterly director fee
payment dates.





- 12
-


To
encourage deferral of fees by non-management directors, the Company makes a
matching Stock Unit grant ranging from 25% to 75% of the amount deferred by the
director as of the same quarterly payment dates. Under the
Program, the Company automatically defers from the management director’s salary
a dollar amount equal to 50% ($17,500) of the director fees for outside
directors.  The management director may elect to defer an amount equal
to 75% ($26,250) or 100% ($35,000) of the director fees for non-management
directors from his or her compensation, and the Company matches deferrals by the
management director with Stock Units at the same rate as it matches deferrals
for non-management directors.





Deliveries
of the granted stock are made five calendar years following the year for which
the deferral is made subject to acceleration upon the resignation or retirement
of the director or a change in control.





All of
the Company’s Outside Directors elected to defer 100% of the annual board fee
for both 2008 and 2007, and the Company’s chief executive officer and Inside
Director elected to defer a corresponding amount of his salary in 2008 and
2007.  During the first nine months of 2008, fees and salary deferred
by the Directors represented a total of 62,353 stock unit grants valued at $4.91
per stock unit.  During the first nine months of 2007, fees and salary
deferred by the Directors represented a total of 95,265 stock unit grants valued
at $3.38 per stock unit.





Note
8. Certain Relationships and Related Transactions





T.
Stephen Gregory, a director of North American Galvanizing & Coatings, Inc.
from June, 2005 to December, 2007, is the chairman of the board and a
shareholder of Gregory Industries, Inc., a customer of the
Company.  Total sales to Gregory Industries, Inc. for the nine-month
period ended September 30, 2007 were approximately $1.0 million.  The
amount due from Gregory Industries, Inc. included in trade receivables at
September 30, 2007 was approximately $.2 million.





- 13
-


North
American Galvanizing & Coatings, Inc.





Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





GENERAL





North
American Galvanizing is a leading provider of corrosion protection for iron and
steel components fabricated by its customers. Hot dip galvanizing is the process
of applying a zinc coating to fabricated iron or steel material by immersing the
material in a bath consisting primarily of molten zinc.  Based on the
number of its operating plants, the Company is one of the largest merchant
market hot dip galvanizing companies in the United States.





During
the nine-month period ended September 30, 2008, there were no significant
changes to the Company’s critical accounting policies previously disclosed in
Form 10-K for the year ended December 31, 2007.





The
Company’s galvanizing plants offer a broad line of services including centrifuge
galvanizing for small threaded products, sandblasting, chromate quenching,
polymeric coatings, and proprietary INFRASHIELDSM Coating
Application Systems for polyurethane protective linings and coatings over
galvanized surfaces.  The Company’s mechanical and chemical engineers
provide customized assistance with initial fabrication design, project estimates
and steel chemistry selection.





The
Company’s galvanizing and coating operations are composed of eleven facilities
located in Colorado, Kentucky, Missouri, Ohio, Oklahoma, Tennessee and
Texas.  These facilities operate galvanizing kettles ranging in length
from 16 feet to 62 feet, and have lifting capacities ranging from 12,000 pounds
to 40,000 pounds.





The
Company maintains a sales and service network coupled with its galvanizing
plants, supplemented by national account business development at the corporate
level. In 2007, the Company galvanized steel products for approximately 1,700
customers nationwide.





All of
the Company’s sales are generated for customers whose end markets are
principally in the United States.  The Company markets its galvanizing
and coating services directly to its customers and does not utilize agents or
distributors.  Although hot dip galvanizing is considered a mature
service industry, the Company is actively engaged in developing new markets
through participation in industry trade shows, metals trade associations and
presentation of technical seminars by its national marketing service
team.





Hot dip
galvanizing provides metals corrosion protection for many product applications
used in commercial, construction and industrial markets. The Company’s
galvanizing can be found in almost every major application and industry that
requires corrosion protection where iron or steel is used, including the
following end user markets:





·
            highway
      and transportation


·
            power
      transmission and distribution


·
            wireless
      and telecommunications


·
            utilities


·
            petrochemical
      processing


·
            industrial
      grating


·
            infrastructure
      including buildings, airports, bridges and power
  generation


·
            wastewater
      treatment


·
            fresh
      water storage and transportation


·
            pulp
      and paper




- 14
-




·
            pipe
      and tube


·
            food
      processing


·
            agricultural
      (irrigation systems)


·
            recreation
      (boat trailers, marine docks, stadium
scaffolds)


·
            bridge
      and pedestrian handrail


·
            commercial
      and residential lighting poles


·
            original
      equipment manufactured products, including general
      fabrication.





As a
value-added service provider, the Company’s revenues are directly influenced by
the level of economic activity in the various end markets that it
serves.  Economic activity in those markets that results in the
expansion and/or upgrading of physical facilities (i.e., construction) may
involve a time-lag factor of several months before translating into a demand for
galvanizing fabricated components.  Despite the inherent seasonality
associated with large project construction work, the Company maintains a
relatively stable revenue stream throughout the year by offering fabricators,
large and small, reliable and rapid turn-around service.





The
Company records revenues when the galvanizing processes and inspection utilizing
industry-specified standards are completed.  The Company generates all
of its operating cash from such revenues, and utilizes a line of credit secured
by the underlying accounts receivable and zinc inventory to facilitate working
capital needs.





Each of
the Company’s galvanizing plants operate in a highly competitive environment
underscored by pricing pressures, primarily from other public and
privately-owned galvanizers and alternative forms of corrosion protection, such
as paint.  The Company’s long-term response to these challenges has
been a sustained strategy focusing on providing a reliable quality of
galvanizing to standard industry technical specifications and rapid turn-around
time on every project, large and small.  Key to the success of this
strategy is the Company’s continuing commitment and long-term record of
reinvesting earnings to upgrade its galvanizing facilities and provide technical
innovations to improve production efficiencies; and to construct new facilities
when market conditions present opportunities for growth. The Company is
addressing long-term opportunities to expand its galvanizing and coatings
business through programs to increase industry awareness of the proven, unique
benefits of galvanizing for metals corrosion protection.  Each of the
Company’s galvanizing plants is linked to a centralized system involving sales
order entry, facility maintenance and operating procedures, quality assurance,
purchasing and credit and accounting that enable the plant to focus on providing
galvanizing and coating services in the most cost-effective manner.





The
principal raw materials essential to the Company’s galvanizing and coating
operations are zinc and various chemicals which are normally available for
purchase in the open market.





Key
Indicators





Key
industries which historically have provided the Company some indication of the
potential demand for galvanizing in the near-term, (i.e., primarily within a
year) include highway and transportation, power transmission and distribution,
telecommunications and the level of quoting activity for regional metal
fabricators. In general, growth in the commercial/industrial sectors of the
economy generates new construction and capital spending which ultimately impacts
the demand for galvanizing.





Key
operating measures utilized by the Company include new orders, zinc inventory,
tons of steel galvanized, revenue, pounds and labor costs per hour, zinc usage
related to tonnage galvanized, and lost-time safety
performance.  These measures are reported and analyzed on various
cycles, including daily, weekly and monthly.





The
Company utilizes a number of key financial measures to evaluate the operations
at each of its galvanizing plants, to identify trends and variables impacting
operating productivity and current and future business results, which
include:  return on capital employed, sales, gross profit, fixed and
variable costs, selling and general administrative expenses, operating cash
flows, capital expenditures, interest expense, and a number of ratios such as
profit from operations and accounts receivable turnover.  These
measures are reviewed by the Company’s operating and executive management each
month, or more frequently, and compared to prior periods, the current business
plan and to standard performance criteria, as applicable.




- 15
-


RESULTS
OF OPERATIONS




The
following table shows the Company’s results of operations for the three- and
nine-month periods ended September 30, 2008 and 2007:




(Dollars
      in thousands)Three
      Months Ended September 30,2008
            
            
            2007%
      of
            
            
            
            
            
            %
      ofAmount
            
            
            Sales
            
            
            Amount
            
            
            SalesSales
            
            $
            21,845
            
            
            
            100.0%
            
            
            $
            21,541
            
            
            
            100.0%Cost
      of sales
            
            
            13,879
            
            
            
            63.4%
            
            
            
            14,535
            
            
            
            67.5%Selling,
      general and administrative expenses
            
            
            2,699
            
            
            
            12.4%
            
            
            
            2,193
            
            
            
            10.2%Depreciation
      and Amortization
            
            
            847
            
            
            
            3.9%
            
            
            
            876
            
            
            
            4.1%Operating
      income
            
            
            4,420
            
            
            
            20.3%
            
            
            
            3,937
            
            
            
            18.2%Interest
      expense
            
            
            –
            
            
            
            0.0%
            
            
            
            (275
            )
            
            
            (1.3%
            )Interest
      income and other
            
            
            70
            
            
            
            0.3%
            
            
            
            15
            
            
            
            0.1%Income
      from operations before income taxes
            
            
            4,490
            
            
            
            20.6%
            
            
            
            3,677
            
            
            
            17.0%Income
      tax expense
            
            
            1,453
            
            
            
            6.7%
            
            
            
            1,164
            
            
            
            5.4%Net
      income
            
            $
            3,037
            
            
            
            13.9%
            
            
            $
            2,513
            
            
            
            11.6%(Dollars
      in thousands)Nine
      Months Ended September 302008
            
            
            2007%
      of
            
            
            
            
            
            
            %
      ofAmount
            
            
            Sales
            
            
            Amount
            
            
            SalesSales
            
            $
            64,525
            
            
            
            100.0%
            
            
            $
            68,161
            
            
            
            100.0%Cost
      of sales
            
            
            39,656
            
            
            
            61.5%
            
            
            
            46,899
            
            
            
            68.8%Selling,
      general and administrative expenses
            
            
            7,548
            
            
            
            11.6%
            
            
            
            6,998
            
            
            
            10.3%Depreciation
      and Amortization
            
            
            2,556
            
            
            
            4.0%
            
            
            
            2,612
            
            
            
            3.8%Operating
      income
            
            
            14,765
            
            
            
            22.9%
            
            
            
            11,652
            
            
            
            17.1%Interest
      expense
            
            
            –
            
            
            
            0.0%
            
            
            
            (527
            )
            
            
            (0.8%
            )Interest
      income and other
            
            
            217
            
            
            
            0.3%
            
            
            
            69
            
            
            
            0.1%Income
      from operations before income taxes
            
            
            14,982
            
            
            
            23.2%
            
            
            
            11,194
            
            
            
            16.4%Income
      tax expense
            
            
            5,447
            
            
            
            8.4%
            
            
            
            4,129
            
            
            
            6.1%Net
      income
            
            $
            9,535
            
            
            
            14.8%
            
            
            $
            7,065
            
            
            
            10.3%






- 16
-


2008
COMPARED TO 2007





Sales.Third
quarter 2008 volumes were 14% higher than volumes in the third quarter of 2007
and 4% higher than volumes in the second quarter of 2008.  First nine
months’ 2008 volumes were 2.2% higher than volumes in the first nine months of
2007.  Volumes for the 2007 third quarter were lower as a result of
the scheduled shutdown of the Canton plant to replace the kettle and furnace
during the month of July, 2007.  Although higher than 2007, third
quarter 2008 volume was negatively impacted by the nine day shutdown of the
Company’s Houston, Texas plant due to Hurricane Ike.





Sales for
the three-months ended September 30, 2008 increased 1.4% over the same prior
year period primarily due to the volume increase.  Sales for the
nine-month period ended September 30, 2008 decreased 5.3% compared to the same
period prior year due to a lower average sales price compared to the same period
in 2007.  Sales price decreases relate to market decreases in zinc
costs, the Company’s primary variable cost component.





Cost of Goods
Sold.  Cost of goods sold for the three-months ended September
30, 2008 decreased $.7 million over the same prior year period due to a $3.5
million decrease in zinc costs, offset by a $2.0 million cost increase due to
additional galvanizing volume, a $.3 million increase in labor costs, a $0.2
million increase in natural gas costs and a $0.3 million increase in other plant
overhead costs.  For the nine month period ended September 30, 2008,
cost of goods sold decreased $7.2 million over the same period in
2007.  Of the $7.2 million decrease, $9.8 million was due to a
decrease in zinc costs offset by a $.9 million cost increase due to additional
galvanizing volume, a $.7 million increase in other plant overhead costs, a $.6
million increase in natural gas costs and a $.4 million increase in labor
costs.





Selling, General and Administrative
(SG&A) Expenses.SG&A increased $.5 million in the
third quarter and in the nine month period ended September 30, 2008 compared to
the same prior year periods primarily due to increases in accruals for incentive
and share based compensation, $.3 million, and increased legal and professional
expenses, $.2 million.





Operating Income.
For the quarter ended September 30, 2008, operating income was $4.4 million
compared to $4.0 million for the third quarter of 2007. The operating income for
the nine-months ended September 30, 2008 was $14.8 million compared to $11.7
million for the same 2007 period. The increase in operating income is primarily
due to a decrease in zinc costs partially offset by a decrease in sales
price.





Income Taxes.The Company’s
effective income tax rates for the third quarter of 2008 and 2007 were 32.4% and
31.7%, respectively.   For the nine months ended September 30,
2008 and 2007, the effective tax rates were 36.4% and 36.9%,
respectively.  The effective tax rates differ from the federal
statutory rate primarily due to state income taxes and minor adjustments to
previous tax estimates.





Net Income.For the third
quarter of 2008, the Company reported net income of $3.0 million compared to net
income of $2.5 million for the third quarter of 2007.  For the nine
months ended September 30, 2008, the net income was $9.5 million compared to
$7.1 million for the nine months ended September 30, 2007.  The
increase in net income is primarily due to a decrease in zinc costs partially
offset by a decrease in sales price.





LIQUIDITY
AND CAPITAL RESOURCES





The
Company’s cash flow from operations and borrowings under credit facilities have
consistently been adequate to fund its current facilities’ working capital and
base capital spending requirements.  During 2008 and 2007, operating
cash flow and borrowings under credit facilities have been the primary sources
of liquidity.  The Company monitors working capital and planned
capital spending to assess liquidity and minimize cyclical cash
flow.




- 17
-


Cash flow
from operating activities for the first nine months of 2008 and 2007 was $11.2
million and $7.8 million, respectively. The increase of $3.4 million in 2008
cash flow from operations was primarily due to increased net
income.





Cash of
$2.1 million used in 2008 investing activities through September 30 consisted of
capital expenditures for equipment and upgrade of existing galvanizing
facilities.   Investing activities in the first nine months of
2007 included $3.3 million in capital expenditures. The Company expects capital
expenditures for 2008 to approximate $4.7 million.





During
the first nine months of 2008, total debt (current and long-term obligations and
bonds payable) outstanding at December 31, 2007 of $15,000 was
repaid.  The Company has no outstanding debt as of September 30,
2008.  Other financing activity during the first nine months 2008
consisted of purchases of common stock for the treasury totaling $3.4
million.  During the first nine months of 2007, total debt (current
and long-term obligations and bonds payable) decreased $6.6 million to $2.7
million.





The
Company’s credit agreement provides for a revolving credit facility in the
aggregate principal amount of $25 million with future increases of up to an
aggregate principal amount of $10 million at the discretion of the
lender.  The credit facility matures on May 16, 2012, with no
principal payments required before the maturity date and no prepayment
penalty.  The ongoing purpose of the facility is to provide for
issuance of standby letters of credit, acquisitions, and for other general
corporate purposes.





At
September 30, 2008, the Company had unused borrowing capacity
of  $24.8 million, based on no borrowings outstanding under the
revolving credit facility, and $0.2 million of letters of credit to secure
payment of current and future workers’ compensation claims.





Substantially
all of the Company’s accounts receivable, inventories, fixed assets and the
common stock of its subsidiary are pledged as collateral under the agreement,
and the credit agreement is secured by a full and unconditional guaranty from
NAGC.  The credit agreement provides for an applicable margin ranging
from 0.75% to 2.00% over LIBOR and commitment fees ranging from 0.10% to 0.25%
depending on the Company’s Funded Debt to EBITDA Ratio (as defined). If the
Company had borrowings outstanding under the revolving credit facility at
September 30, 2008, the applicable margin would have been 0.75% and the variable
interest rate including the applicable margin would have been
4.68%.





The
Company has various commitments primarily related to vehicle and equipment
operating leases, facilities operating leases, and zinc purchase commitments.
The Company’s off-balance sheet contractual obligations at September 30, 2008,
consist of $.3 million for vehicle and equipment operating leases, $5.7 million
for zinc purchase commitments, and $.7 million for long-term operating leases
for galvanizing and office facilities.  The various leases for
galvanizing facilities, including option renewals, expire from 2008 to 2017. The
vehicle leases expire annually on various schedules through 2012. NAGC
periodically enters into fixed price purchase commitments with domestic and
foreign zinc producers to purchase a portion of its requirements for its hot dip
galvanizing operations; commitments for the future delivery of zinc can be for
up to one year.





ENVIRONMENTAL
MATTERS





The
Company’s facilities are subject to extensive environmental legislation and
regulations affecting their operations and the discharge of
wastes.  The cost of compliance with such regulations in the first
nine months of 2008 and 2007 was approximately $1.3 million and $1.5 million,
respectively, for the disposal and recycling of wastes generated by the
galvanizing operations.




- 18
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On August
30, 2004, the Company was informed by counsel for the Metropolitan Water
Reclamation District of Greater Chicago (the “Water District”) that the Water
District had, on August 25, 2004 filed a Second Amended





In
December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff’s property that present an “imminent and substantial endangerment to
human health and the environment.” In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company’s partial
motion to dismiss plaintiff’s third amended complaint.  The Company
filed an appeal with the Seventh Circuit Court of Appeals requesting dismissal
of the sole CERCLA claim contained in the Third Amended Complaint that was not
dismissed by the United States District Court’s April 12, 2005
order.  On January 17, 2007, the Seventh Circuit affirmed the judgment
of the United States District Court, stating that the Water District has a right
of action under CERCLA.





On April
11, 2007, the Company entered into an Agreement in Principle establishing terms
for a conditional settlement. Under the terms of the Agreement in Principle, the
Company has agreed to fund 50% of the cost, up to $350,000, to enroll the site
in the Illinois Voluntary Site Remediation Program.  These funds will
be used to prepare environmental reports for approval by the Illinois
Environmental Protection Agency.  The parties’ shared objective is to
obtain a “no further remediation determination” from the Illinois EPA based on a
commercial / industrial cleanup standard.  If the cost to prepare
these reports equals or exceeds $700,000, additional costs above $700,000
($350,000 per party) will be borne 100% by the Water District.





If a
remediation plan is required based on the site assessment, the Company has also
agreed to fund 50% of the cost to implement the remediation plan, up to a
maximum of $1 million.  If the cost to implement the plan is projected
to exceed $2 million, then the Water District will have the option to terminate
the agreement and resume the litigation.  The Water District will have
to choose whether to accept or reject the $1 million funding commitment from the
Company before accepting any payments from the Company for implementation of the
remediation plan.  The Company does not believe that it can determine
whether any cleanup is required or if any final cleanup cost is likely to exceed
$2 million until additional data has been collected and analyzed in connection
with the environmental reports.  If the Water District elects to
accept the maximum funding commitment, the Company has also agreed to remove
certain piping and other equipment from one of the parcels.  The cost
to remove the piping is estimated to be between $35,000 and
$60,000.





Although
the boards of both the Water District and the Company have approved the
Agreement in Principle, the agreement of the parties must be embodied in a
formal settlement agreement.  The parties have been working since
April 11, 2007 but have not yet reached a final agreement.





The
Company has recorded a liability for $350,000 related to the Water District
claim in recognition of its currently known and estimable funding commitment
under the Agreement in Principle.  In the event that the Water
District rejects the funding commitment described above, the potential claim
could exceed the amount of the previous default judgment.  As neither
a site evaluation nor a remediation plan has been developed, the Company is unable
to make a reasonable estimate of the amount or range of further loss, if any,
that could result.  Such a liability, if any, could have a material
adverse effect on the Company’s financial condition, results of operations, or
liquidity.




- 19
-


In
September 2008, the United States Environmental Protection Agency (EPA) notified
the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of the
Company’s subsidiary and their disposal of waste handled by their
supplier in the early 1980’s.  The EPA offered the Company a special de minimis party settlement
to resolve potential liability that the Company and its subsidiaries may have
under CERCLA at this Site.  The Company has accrued the $112,145 de minimis settlement amount
during the third quarter of 2008 and anticipates that the EPA’s offer will be
accepted on or before the deadline of December 30, 2008.





NAGC was
notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that
it was one of approximately 60 potentially responsible parties (“PRPs”) under
the Comprehensive Environmental Response, Compensation, and Liability
Information System (“CERCLIS”) in connection with cleanup of an abandoned site
formerly owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The
estimated timeframe for resolution of the IEPA contingency is
unknown.  The IEPA has yet to respond to a proposed work plan
submitted in August 2000 by a group of the PRPs or suggest any other course of
action, and there has been no activity in regards to this issue since 2001.
Until the work plan is approved and completed, the range of potential loss or
remediation, if any, is unknown, and in addition, the allocation of potential
loss between the 60 PRPs is unknown and not reasonably
estimable.  Therefore, the Company has no basis for determining
potential exposure and estimated remediation costs at this time and no liability
has been accrued





The
Company is committed to complying with all federal, state and local
environmental laws and regulations and using its best management practices to
anticipate and satisfy future requirements. As is typical in the galvanizing
business, the Company will have additional environmental compliance costs
associated with past, present and future operations. Management is committed to
discovering and eliminating environmental issues as they arise. Because of
frequent changes in environmental technology, laws and regulations management
cannot reasonably quantify the Company’s potential future costs in this
area.





North
American Galvanizing & Coatings, Inc. and its subsidiary are parties to a
number of other lawsuits and environmental matters which are not discussed
herein.  Management of the Company, based upon their analysis of known
facts and circumstances and reports from legal counsel, does not believe that
any such matter will have a material adverse effect on the results of
operations, financial conditions or cash flows of the Company.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





The
Company’s operations include managing market risks related to changes in
interest rates and zinc commodity prices.





Interest Rate
Risk.  The Company is exposed to financial market risk related
to changes in interest rates to the extent the company has borrowing
outstanding.  At September 30, 2008, the Company had no outstanding
debt.





Zinc Price
Risk.NAGC periodically enters into fixed price purchase
commitments with domestic and foreign zinc producers to purchase a portion of
its zinc requirements for its hot dip galvanizing
operations.  Commitments for the future delivery of zinc, which can be
for up to one (1) year, reflect rates quoted on the London Metals
Exchange.  At September 30, 2008, the aggregate fixed price
commitments for the procurement of zinc were approximately


- 20
-


The
Company’s financial strategy includes evaluating the selective use of derivative
financial instruments to manage zinc and interest costs.  As part of
its inventory management strategy, the Company recognizes that hedging
instruments may be effective in minimizing the impact of zinc price
fluctuations.  The Company’s current zinc forward purchase commitments
are considered derivatives, but the Company has elected to account for these
purchase commitments as normal purchases.





Item
4.  Controls and Procedures





As of the
end of the period covered by this report, management, including our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon,
and as of the date of, the evaluation, our chief executive officer and chief
financial officer concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required to be
disclosed in the reports we file and submit under the Exchange Act is recorded,
processed, summarized and reported as and when required.





The
Company’s certifying officers have indicated that there were no significant
changes in internal controls over financial reporting that have occurred during
the fiscal quarter ended September 30, 2008 that materially affected, or were
reasonably likely to materially affect, internal controls over financial
reporting.





Part
II        Other Information





Item
1.  Legal Proceedings.





On August
30, 2004, the Company was informed by counsel for the Metropolitan Water
Reclamation District of Greater Chicago (the “Water District”) that the Water
District had, on August 25, 2004 filed a Second Amended Complaint in the United
States District Court, Northern District of Illinois, Eastern Division, naming
North American Galvanizing & Coatings, Inc. (formerly known as Kinark
Corporation) as an added defendant. Counsel for the Water District also gave the
Company notice of the Water District’s intent to file (or amend the Complaint to
include) a Citizens Suit under the Resource Compensation and Recovery Act
(“RCRA”) against North American Galvanizing & Coatings, Inc., pursuant to
Section 7002 of RCRA, 42 U.S.C. Section 6972. This Second Amended Complaint
seeks enforcement of an August 12, 2004 default judgment in the amount of
$1,810,463.34 against Lake River Corporation and Lake River Holding Company,
Inc. in connection with the operation of a storage terminal by Lake River
Corporation in violation of environmental laws. Lake River Corporation conducted
business as a subsidiary of the Company until June 30, 2000, at which time Lake
River Corporation was sold to Lake River Holding Company, Inc. and ceased to be
a subsidiary of the Company. The Second Amended Complaint asserts that prior to
the sale of Lake River Corporation, the Company directly operated the Lake River
facility and, accordingly, seeks to have the Court pierce the corporate veil of
Lake River Corporation and enforce the default judgment order of August 12, 2004
against the Company. The Company denied the assertions set forth in the Water
District’s Complaint and on November 13, 2004 filed a partial motion for
dismissal of the Second Amended Complaint.





In
December 2004, the Water District filed a Third Amended complaint in the
litigation, adding two claims: (1) a common law claim for nuisance; and (2) a
claim under the federal Resource Conservation and Recovery Act, in which the
Water District argues that the Company is responsible for conditions on the
plaintiff’s property that present an “imminent and substantial endangerment to
human health and the environment.” In January 2005, the Company filed a partial
motion to dismiss the Third Amended Complaint. On April 12, 2005, the Court
issued an order denying in part and granting in part the Company’s partial
motion to dismiss plaintiff’s third amended


- 21
-


On April
11, 2007, the Company entered into an Agreement in Principle establishing terms
for a conditional settlement. Under the terms of the Agreement in Principle, the
Company has agreed to fund 50% of the cost, up to $350,000, to enroll the site
in the Illinois Voluntary Site Remediation Program.  These funds will
be used to prepare environmental reports for approval by the Illinois
Environmental Protection Agency.  The parties’ shared objective is to
obtain a “no further remediation determination” from the Illinois EPA based on a
commercial / industrial cleanup standard.  If the cost to prepare
these reports equals or exceeds $700,000, additional costs above $700,000
($350,000 per party) will be borne 100% by the Water District.





If a
remediation plan is required based on the site assessment, the Company has also
agreed to fund 50% of the cost to implement the remediation plan, up to a
maximum of $1 million.  If the cost to implement the plan is projected
to exceed $2 million, then the Water District will have the option to terminate
the agreement and resume the litigation.  The Water District will have
to choose whether to accept or reject the $1 million funding commitment from the
Company before accepting any payments from the Company for implementation of the
remediation plan.  The Company does not believe that it can determine
whether any cleanup is required or if any final cleanup cost is likely to exceed
$2 million until additional data has been collected and analyzed in connection
with the environmental reports.  If the Water District elects to
accept the maximum funding commitment, the Company has also agreed to remove
certain piping and other equipment from one of the parcels.  The cost
to remove the piping is estimated to be between $35,000 and
$60,000.





Although
the boards of both the Water District and the Company have approved the
Agreement in Principle, the agreement of the parties must be embodied in a
formal settlement agreement.  The parties have been working since
April 11, 2007 but have not yet reached a final agreement.





The
Company has recorded a liability for $350,000 related to the Water District
claim in recognition of its currently known and estimable funding commitment
under the Agreement in Principle.  In the event that the Water
District rejects the funding commitment described above, the potential claim
could exceed the amount of the previous default judgment.  As neither
a site evaluation nor a remediation plan has been developed, the
Company


is unable
to make a reasonable estimate of the amount or range of further loss, if any,
that could result.  Such a liability, if any, could have a material
adverse effect on the Company’s financial condition, results of operations, or
liquidity.





In
September 2008, the United States Environmental Protection Agency (EPA) notified
the Company of a claim against the Company as a
potentially responsible party related to a Superfund site in Texas City,
Texas.  This matter pertains to galvanizing facilities of the
Company’s subsidiary and their disposal of waste handled by their
supplier in the early 1980’s.  The EPA offered the Company a special de minimis party settlement
to resolve potential liability that the Company and its subsidiaries may have
under CERCLA at this Site.  The Company has accrued the $112,145 de minimis settlement amount
during the third quarter of 2008 and anticipates that the EPA’s offer will be
accepted on or before the deadline of December 30, 2008.





NAGC was
notified in 1997 by the Illinois Environmental Protection Agency (“IEPA”) that
it was one of approximately 60 potentially responsible parties (“PRPs”) under
the Comprehensive Environmental Response, Compensation, and Liability
Information System (“CERCLIS”) in connection with cleanup of an abandoned site
formerly owned by Sandoval Zinc Co., an entity unrelated to NAGC.  The
estimated timeframe for resolution of the IEPA contingency is
unknown.  The IEPA has yet to respond to a proposed work plan
submitted in August 2000 by a group of the PRPs or suggest any other course of
action, and there has been no activity in regards to this issue since 2001.
Until the work plan is approved and completed, the range of potential loss or
remediation, if any, is unknown, and in addition, the allocation of potential
loss between the 60 PRPs is unknown and not reasonably
estimable.  Therefore, the Company has no basis for determining
potential exposure and estimated remediation costs at this time and no liability
has been accrued.




- 22
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Item
1A. Risk Factors.





There are
no material changes from risk factors as previously disclosed in the Company’s
Annual Report on Form 10-K filed on March 7, 2008.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





Issuer
Purchases of Equity Securities




Total
              
              
              ApproximateNumber
      of
              
              
              Dollar
      ValueShares
              
              
              of
      SharesPurchased
              
              
              that
      May YetAverage
              
              
              as
      Part of
              
              
              be
      PurchasedPeriod
              
              Shares
              
              
              Price
      Paid
              
              
              Publicly
              
              
              Under(from/to)
              
              Purchased
              
              
              per
      Share
              
              
              Announced
      Plan
              
              the
      PlanJuly
      1, 2008 - July 30, 2008
              
              
              37,219
              
              
              $
              5.78
              
              
              
              693,817
              
              
              $
              744,278Sept.
      1, 2008 - Sept. 30, 2008
              
              
              266,667
              
              
              $
              5.82
              
              
              
              960,484
              
              
              $
              2,191,395


In August
1998, the Board of Directors authorized $1,000,000 for a share repurchase
program for shares to be purchased in private or open market
transactions.  In March 2008, the Board of Directors authorized the
company to buy back an additional $2,000,000 of its common stock, subject to
market conditions.  The company has completed the August 1998 and
March 2008 share repurchase programs.  In August 2008, the Board of
Directors authorized the company to buy back an additional $3,000,000 of its
common stock, subject to market conditions.  Unless terminated earlier
by resolution of the Board of Directors, the program will expire when the
Company has purchased shares with an aggregate purchase price of no more than
the $2,191,395 remaining under the program at September 30, 2008.  The
shares and per share amounts for all periods have been adjusted to reflect the
Company’s four-for-three stock split effected in the form of a stock dividend on
September 14, 2008.




Item
3.  Defaults Upon Senior Securities – Not applicable.





Item
4.  Submission of Matters to a Vote of Security Holders – Not
applicable.





Item
5.  Other Information.





Item
6.  Exhibits




No.
              Description3.1
              The
      Company’s Restated Certificate of Incorporation (incorporated by reference
      to Exhibit 3.1 to the Company’s Pre-Effective Amendment No. 1 to
      Registration Statement on Form S-3 (Reg. No. 333-4937) filed with the
      Commission on June 7, 1996).





3.2
              The
      Company’s Amended and Restated Bylaws (incorporated by reference to
      Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q dated March 31,
      1996).





15
            Awareness
      Letter of Deloitte & Touche
LLP.





- 23
-


31.1
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.





31.2
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.





32
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
      Sarbanes-Oxley Act of 2002.





SIGNATURES





Pursuant
to the requirements of Section 13 and 15(d) of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized:




NORTH AMERICAN GALVANIZING & COATINGS,
INC.


(Registrant)


By:
              /s/ Beth
      B. HoodVice
      President and
                Chief
      Financial Officer
                (Principal
      Financial Officer)Date:  October
      20, 2008
               - 24
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