UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
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Commission File Number: 00-19800
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GIBRALTAR PACKAGING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0496290
(State of incorporation) (I.R.S. Employer Identification Number)
2000 Summit Avenue
Hastings, Nebraska 68901
(Address of principal executive offices) (Zip Code)
(402) 463-1366 www.gibraltarpackaginggroup.com
(Registrant's telephone number, including area code) (Registrant's website)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
As of September 30, 2001, there were 5,041,544 shares of the Company's
common stock, par value $0.01 per share, issued and outstanding.
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets 1
As of September 30, 2001 (Unaudited) and June 30, 2001
Consolidated Statements of Operations (Unaudited) for the 2
Three Months Ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) for the 3
Three Months Ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
September 30, June 30,
2001 2001
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ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 91 $ 144
Accounts receivable (Net of allowance for
doubtful accounts of $352 and $508, respectively) 5,782 6,285
Inventories 6,936 6,693
Deferred income taxes 725 725
Prepaid and other current assets 314 766
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Total current assets 13,848 14,613
PROPERTY, PLANT AND EQUIPMENT - NET 16,345 16,590
GOODWILL (Net of accumulated amortization of $2,124
and $2,090, respectively) 4,213 4,247
DEFERRED INCOME TAXES -- 105
OTHER ASSETS (Net of accumulated amortization
of $501 and $487, respectively) 859 819
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TOTAL $ 35,265 $ 36,374
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 489 $ 1,115
Current portion of long-term debt 2,768 2,769
Accounts payable 5,563 4,925
Accrued expenses 3,539 3,401
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Total current liabilities 12,359 12,210
LONG-TERM DEBT - Net of current portion 16,850 18,578
DEFERRED INCOME TAXES 111 --
OTHER LONG-TERM LIABILITIES 431 431
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Total liabilities 29,751 31,219
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,041,544 issued and outstanding 50 50
Additional paid-in capital 28,162 28,162
Accumulated deficit (22,698) (23,057)
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Total stockholders' equity 5,514 5,155
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TOTAL $ 35,265 $ 36,374
======== ========
See notes to unaudited consolidated financial statements.
1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share data)
Three Months Ended
September 30,
-------------------------------
2001 2000
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NET SALES $ 15,356 $ 16,396
COST OF GOODS SOLD 12,357 12,860
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GROSS PROFIT 2,999 3,536
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OPERATING EXPENSES:
Selling, general and administrative 1,896 2,014
Amortization of goodwill 34 35
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Total operating expenses 1,930 2,049
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INCOME FROM OPERATIONS 1,069 1,487
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OTHER EXPENSE:
Interest expense 432 695
Other expense - net 16 14
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Total other expense - net 448 709
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INCOME BEFORE INCOME TAXES 621 778
INCOME TAX PROVISION 262 216
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NET INCOME $ 359 $ 562
============= =============
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Net Income $ 0.07 $ 0.11
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
(basic and diluted) 5,041,544 5,041,544
============= =============
See notes to unaudited consolidated financial statements.
2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
September 30,
------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 359 $ 562
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 559 553
Provision for losses on accounts receivable 38 10
Loss on sale of property, plant and equipment 3 --
Deferred income taxes 216 195
Changes in operating assets and liabilities:
Accounts receivable - net 465 (39)
Inventories (243) (616)
Prepaid expenses and other assets 373 14
Accounts payable 12 1,152
Accrued expenses and other liabilities 138 (443)
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Net Cash Flows from Operating Activities 1,920 1,388
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 6 --
Purchases of property, plant and equipment (250) (168)
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Net Cash Flows from Investing Activities (244) (168)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving facility (1,037) (567)
Net principal repayments of long-term debt (687) (667)
Net repayments under capital leases (5) (8)
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Net Cash Flows from Financing Activities (1,729) (1,242)
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NET DECREASE IN CASH (53) (22)
CASH AT BEGINNING OF PERIOD 144 160
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CASH AT END OF PERIOD $ 91 $ 138
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See notes to unaudited consolidated financial statements.
3
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. GENERAL
The accompanying unaudited consolidated financial statements of
Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") have
been prepared in accordance with Rule 10-01 of Regulation S-X for
interim financial statements required to be filed with the Securities
and Exchange Commission and do not include all information and
footnotes required by accounting principals generally accepted in the
United States of America for complete financial statements. However, in
the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position of the Company as of September 30, 2001, and the results of
its operations and cash flows for the periods presented herein. Results
of operations for the three months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full
fiscal year. The financial statements should be read in conjunction
with the audited financial statements for the year ended June 30, 2001
and the notes thereto contained in the Company's Annual Report on Form
10-K.
B. INVENTORIES
Inventories consisted of the following (In thousands):
September 30, June 30,
2001 2001
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Finished goods $ 5,033 $ 4,846
Work in process 667 797
Raw materials 945 764
Manufacturing supplies 291 286
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$ 6,936 $ 6,693
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C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB")
approved the issuance of SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." These standards
establish accounting and reporting for business combinations, goodwill
and other intangibles. SFAS No. 141 requires all business combinations
entered into subsequent to June 30, 2001 to be accounted for using the
purchase method of accounting. SFAS No. 142 provides that goodwill and
other intangible assets with indefinite lives will not be amortized,
but will be tested for impairment on an annual basis. SFAS No. 142 is
effective for the Company beginning July 1, 2002. The Company has not
quantified the impact resulting from the adoption of these standards
including the impact, if any, of completion of the annual impairment
test. However, the historical impact of not amortizing goodwill would
have been to increase net income for the three months ended September
30, 2001 and September 30, 2000 by $34,000 and $35,000, respectively.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This standard addresses financial accounting
and reporting for obligations related to the retirement of
4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
tangible long-lived assets and the related asset retirement costs. SFAS
143 is effective for fiscal years beginning after June 15, 2002. The
Company does not expect its adoption of this standard in fiscal 2003 to
have a significant impact on the financial statements.
In addition, in August 2001, the FASB issued SFAS No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets". The standard
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and is effective for fiscal years
beginning after December 15, 2001. The Company does not expect its
adoption of this standard in fiscal 2003 to have a significant impact
on the financial statements.
D. RECLASSIFICATION
Certain amounts in the fiscal 2001 financial statements have been
reclassified to conform with the fiscal 2002 presentation.
5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended September 30, 2001 Compared to
Three Months Ended September 30, 2000
-------------------------------------
In the first quarter of fiscal 2002, the Company had net sales of $15.4
million compared with $16.4 million in the corresponding period of
fiscal 2001, a decrease of $1.0 million or 6.3%. Sales continue to be
negatively impacted by the overall slow-down in the economy.
Gross profit for the first quarter of fiscal 2002 decreased to 19.5% of
net sales from 21.6% in the corresponding period of fiscal 2001. This
decrease was due primarily to spreading fixed manufacturing costs over
a smaller revenue base, partially offset by continuing cost control
efforts. Cost of goods sold decreased $0.5 million or 4.0% to $12.4
million in the first quarter of fiscal 2002 compared to $12.9 million
in the first quarter of fiscal 2001, primarily as a result of the
reduction in net sales.
Income from operations for the first quarter of fiscal 2002 was $1.1
million compared with $1.5 million in the corresponding period of
fiscal 2001, a decrease of $0.4 million or 28.1%. This decrease was
primarily a result of the reduction in net sales, partially offset by
continuing cost control efforts. Selling, general and administrative
expenses decreased $0.1 million or 5.9% to $1.9 million in the first
quarter of fiscal 2002, compared to $2.0 million in the corresponding
period of fiscal 2001. This decrease was primarily the result of
reduced personnel costs and continuing cost control efforts.
Total interest expense decreased $0.3 million or 37.8% to $0.4 million
in the first quarter of fiscal 2002 from $0.7 million in the
corresponding period of fiscal 2001. The decrease is primarily the
result of $3.9 million in lower average borrowings and lower average
interest rates.
The income tax provision as a percentage of pre-tax income for the
first quarter of fiscal 2002 was 42.2%, compared with an income tax
provision of 27.8% for the corresponding period in fiscal 2001. The
effective tax rate typically differs from the statutory rate primarily
as a result of non-deductible amortization of goodwill. However, as a
result of earnings improvements, the Company reduced its deferred
income tax asset valuation allowance by $0.1 million in the first
quarter of fiscal 2001 to reflect a change in estimate related to the
realizability of its deferred income tax assets.
6
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Net income for the first quarter of fiscal 2002 was $0.4 million or
$0.07 per share, compared to $0.6 million or $0.11 per share in the
first quarter of fiscal 2001. Net income for the first quarter of
fiscal 2001 includes the effect of reducing the deferred income tax
asset valuation allowance by $0.1 million, as a result of earnings
improvements. Excluding the impact of the change in the deferred income
tax asset valuation allowance, net income for the first quarter of
fiscal 2001 would have been $0.5 million or $0.09 per share. The
following table illustrates the effect of the income tax asset
valuation allowance on the first quarter of fiscal 2001 (in thousands,
except per share data):
Excluding Impact
of Change in Tax
Valuation
As Reported Allowance
--------------- ------------------
Income Before Income Taxes $ 778 $ 778
Provision for Income Taxes 216 325
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Net Income $ 562 $ 453
=============== ==================
Net Income Per Share $0.11 $0.09
=============== ==================
Financial Condition
The Company's credit facility with First Source Financial LLP ("First
Source"), as amended, provides for a five-year $25 million term loan
and a five-year $12 million working capital revolving line of credit
("Revolver"). The loan requires monthly principal payments of $229,167
through April 2003, with the balance of $9,692,435 due on July 31,
2003. The credit facility is secured by a first priority perfected
security interest in and lien on all assets (real and personal,
tangible and intangible) of the Company excluding its Burlington, North
Carolina property.
The Revolver provides for a revolving line of credit under a borrowing
base commitment subject to certain loan availability requirements. Loan
availability under the Revolver may not exceed the lesser of (1) $12
million or (2) the sum of (a) up to 85% of the Company's eligible
accounts receivable plus (b) up to 60% of the Company's eligible
inventory. At no time may the sum of aggregated loan advances
outstanding under the Revolver plus the aggregate amount of extended
letter of credit guarantees exceed loan availability. The Company had
available to it unused borrowing capacity of $3.0 million as of
September 30, 2001.
The Revolver currently bears interest at First Source's prime rate plus
1.25% or the London Interbank Offered Rate ("LIBOR") plus 3.25%. The
term loan currently bears interest at First Source's prime rate plus
1.75% or LIBOR plus 3.75%. The Company also pays a commitment fee of
0.5% on the unused portion of the Revolver. The interest rates at
September 30, 2001 were a combination of prime and LIBOR. First
Source's prime and LIBOR rates were 6.00% and 3.58%, respectively, at
September 30, 2001.
As of September 30, 2001, all outstanding letters of credit were
guaranteed by First Source. The Company pays a letter of credit fee of
2.75% to guarantee availability under the Revolver. Outstanding letters
of credit at September 30, 2001 amounted to $160,000 and relate to
workman's compensation insurance policies.
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
The First Source credit facility contains certain restrictive covenants
including financial covenants related to net worth, minimum interest
coverage ratio, capital expenditures, debt ratio and fixed charge
coverage. As of September 30, 2001, the Company was in compliance with
all financial covenants. In addition, the Company's credit facility
restricts the ability of the Company to pay dividends.
At September 30, 2001, the Company had working capital of $1.5 million,
as compared to $2.4 million at June 30, 2001. Historically, the
Company's liquidity requirements have been met by a combination of
funds provided by operations and its revolving credit agreements. Funds
provided by operations during the three months ended September 30, 2001
were $1.9 million compared with funds provided of $1.4 million in the
corresponding period in fiscal 2001.
During the three months ended September 30, 2001, capital expenditures
totaled $0.3 million compared with $0.2 million in the corresponding
period in fiscal 2001, and consisted primarily of additions to
machinery and equipment. The Company makes capital improvements to
improve efficiency and product quality, and periodically upgrades its
equipment by purchasing or leasing new or previously used equipment.
The Company's current strategy is to continue to focus its efforts on
its core business of folding cartons, as well as the supporting product
lines of flexible, litho-laminated, and corrugated products. The
Company intends to expand these product lines by utilizing the maximum
capacity at each facility, while continually identifying, researching,
and when applicable, implementing new technologies and equipment that
will enable the Company to continue to improve performance,
productivity, and profitability.
Under the current strategy, management believes that future funds
generated by operations and borrowings available under its credit
facility with First Source will be sufficient to meet working capital
and capital expenditure requirements in the near term.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB")
approved the issuance of SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." These standards
establish accounting and reporting for business combinations, goodwill
and other intangibles. SFAS No. 141 requires all business combinations
entered into subsequent to June 30, 2001 to be accounted for using the
purchase method of accounting. SFAS No. 142 provides that goodwill and
other intangible assets with indefinite lives will not be amortized,
but will be tested for impairment on an annual basis. SFAS No. 142 is
effective for the Company beginning July 1, 2002. The Company has not
quantified the impact resulting from the adoption of these standards
including the impact, if any, of completion of the annual impairment
test. However, the historical impact of not amortizing goodwill would
have been to increase net income for the three months ended September
30, 2001 and September 30, 2000 by $34,000 and $35,000, respectively.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This standard addresses financial accounting
and reporting for obligations related to the retirement of
8
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
tangible long-lived assets and the related asset retirement costs. SFAS
143 is effective for fiscal years beginning after June 15, 2002. The
Company does not expect its adoption of this standard in fiscal 2003 to
have a significant impact on the financial statements.
In addition, in August 2001, the FASB issued SFAS No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets". The standard
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and is effective for fiscal years
beginning after December 15, 2001. The Company does not expect its
adoption of this standard in fiscal 2003 to have a significant impact
on the financial statements.
Forward-Looking Statements
Statements that are not historical facts, including statements about
our confidence in the Company's prospects and strategies and our
expectations about the Company's sales expansion, are forward-looking
statements that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to: (1) softened demand for
the Company's products due to overall economic conditions; (2) the
Company's ability to execute its business plan; (3) market acceptance
risks, including whether or not the Company will be able to
successfully gain market share against competitors, many of which have
greater financial and other resources than the Company, and the
continuing trend of customers to increase their buying power by
consolidating the number of vendors they maintain; (4) manufacturing
capacity constraints, including whether or not, as the Company
increases its sales, it will be able to successfully integrate its new
customers into its existing manufacturing and distribution system; (5)
the introduction of competing products by other firms; (6) pressure on
pricing from competition or purchasers of the Company's products; (7)
whether the Company will be able to pass on to its customers price
increases for paper and paperboard products; (8) continued stability in
other raw material prices, including oil-based resin and plastic film;
(9) the impact of government regulation on the Company's manufacturing,
including whether or not additional capital expenditures will be needed
to comply with applicable environmental laws and regulations as the
Company's production increases; (10) the Company's ability to continue
to comply with the restrictive covenants in its credit facility or to
obtain waivers if it is not in compliance in the future; and (11) the
outcome of the Anthem Health Plans litigation. Investors and potential
investors are cautioned not to place undue reliance on these
forward-looking statements, which reflect the Company's analysis only
as of the date of this report. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report. These risks and
others that are detailed in this Form 10-Q and other documents that the
Company files from time to time with the Securities and Exchange
Commission, including its annual report on Form 10-K and any current
reports on Form 8-K, must be considered by any investor or potential
investor in the Company.
9
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk is fluctuation in interest rates. All
of the Company's debt at September 30, 2001 was at variable interest
rates. A hypothetical 10% change in interest rates would have had an
immaterial impact on interest expense for the three months ended
September 30, 2001.
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business.
While the outcome of these lawsuits and proceedings cannot be predicted
with certainty, management believes that, if adversely determined, the
lawsuits and proceedings, either singularly or in the aggregate, would
not have a material adverse effect on the financial condition, results
of operations or net cash flows of the Company.
On April 28, 1999, the Company filed a lawsuit captioned Gibraltar
Packaging Group, Inc. v. Anthem Health Plans, d.b.a. Anthem Blue Cross
and Blue Shield of Connecticut ("Anthem"), in the United States
District Court for the District of Connecticut. The Company is seeking
damages for Anthem's alleged breach of a contract for health insurance
for employees of the Company. In October 2000, Anthem filed a
counterclaim for unpaid premiums. The amount of the counterclaim is
unknown. Discovery has revealed that a third party may be liable to
indemnify the Company for all or part of the counterclaim, and the
Company has brought a third party claim against this party in the
litigation. There can be no assurances that the outcome of the
litigation would not have an adverse impact on the Company. The parties
participated in a settlement mediation in December 1999. The parties
determined to gather additional information through depositions, ___
which are ongoing. The Company anticipates another settlement mediation
will be scheduled before the end of 2001.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Gibraltar's stockholders in the
quarter ended September 30, 2001.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GIBRALTAR PACKAGING GROUP, INC.
By: /s/ Lyle O. Halstead /s/ Brett E. Moller
------------------------- -------------------------
Lyle O. Halstead Brett E. Moller
V. P. Finance - Operations V. P. Finance - Corporate
(Principal Accounting Officer) (Principal Financial Officer)
Date: November 9, 2001 November 9, 2001