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: March 31, 2002
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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 (Registrant's website)
area code)
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 March 31, 2002, 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 March 31, 2002 (Unaudited) and June 30, 2001
Consolidated Statements of Operations (Unaudited) for the Three and 2
Nine Months Ended March 31, 2002 and 2001
Consolidated Statements of Cash Flows (Unaudited) for the 3
Nine Months Ended March 31, 2002 and 2001
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 18
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
March 31, June 30,
2002 2001
--------- --------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 93 $ 144
Accounts receivable (Net of allowance for
doubtful accounts of $477 and $508, respectively) 5,557 6,285
Inventories 6,726 6,693
Deferred income taxes 725 725
Prepaid and other current assets 358 766
-------- --------
Total current assets 13,459 14,613
PROPERTY, PLANT AND EQUIPMENT - NET 15,902 16,590
GOODWILL (Net of accumulated amortization of $2,192
and $2,090, respectively) 4,145 4,247
DEFERRED INCOME TAXES - 105
OTHER ASSETS (Net of accumulated amortization
of $50 and $487, respectively) 856 819
-------- --------
TOTAL $ 34,362 $ 36,374
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 397 $ 1,115
Current portion of long-term debt 2,278 2,769
Accounts payable 3,962 4,925
Accrued expenses 3,600 3,401
-------- --------
Total current liabilities 10,237 12,210
LONG-TERM DEBT - Net of current portion 16,909 18,578
DEFERRED INCOME TAXES 552 -
OTHER LONG-TERM LIABILITIES 430 431
-------- --------
Total liabilities 28,128 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 (21,978) (23,057)
-------- --------
Total stockholders' equity 6,234 5,155
-------- --------
TOTAL $ 34,362 $ 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 and per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
NET SALES $ 16,139 $ 16,275 $ 46,820 $ 49,087
COST OF GOODS SOLD 13,044 12,957 37,763 38,847
----------- ---------- ----------- ----------
GROSS PROFIT 3,095 3,318 9,057 10,240
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Selling, general and administrative 1,937 1,983 5,719 5,944
Amortization of Goodwill 35 33 102 101
----------- ---------- ----------- ----------
Total operating expenses 1,972 2,016 5,821 6,045
----------- ---------- ----------- ----------
INCOME FROM OPERATIONS 1,123 1,302 3,236 4,195
OTHER EXPENSE (INCOME):
Interest expense 280 608 1,061 1,986
Other expense - net 21 20 49 65
----------- ---------- ----------- ----------
Other expense - net 301 628 1,110 2,051
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 822 674 2,126 2,144
INCOME TAX PROVISION 343 180 891 573
----------- ---------- ----------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 479 494 1,235 1,571
EXTRAORDINARY ITEM, NET OF TAX (Note D) - - (156) -
----------- ---------- ----------- ----------
NET INCOME $ 479 $ 494 $ 1,079 $ 1,571
=========== ========== =========== ==========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Income Before Extraordinary Item $ 0.10 $ 0.10 $ 0.24 $ 0.31
=========== ========== =========== ==========
Extraordinary Item $ - $ - $ (0.03) $ -
=========== ========== =========== ==========
Net Income $ 0.10 $ 0.10 $ 0.21 $ 0.31
=========== ========== =========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
(basic and diluted) 5,041,544 5,041,544 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)
Nine Months Ended
March 31,
---------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,079 $ 1,571
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,683 1,672
Provision for losses on accounts receivable 169 156
Loss on sale of property, plant and equipment 2 17
Extraordinary item, net of tax 156 -
Deferred income taxes 761 425
Changes in operating assets and liabilities:
Accounts receivable 559 (556)
Inventories (33) (27)
Prepaid expenses and other assets 328 (249)
Accounts payable (1,681) (354)
Accrued expenses and other liabilities 198 (101)
-------- --------
Net Cash Flows from Operating Activities 3,221 2,554
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 11 74
Purchases of property, plant and equipment (564) (567)
-------- --------
Net Cash Flows from Investing Activities (553) (493)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit facility (2,643) 7
Principal repayments of long-term debt (15,290) (2,061)
Repayments under capital leases (14) (18)
Proceeds from refinancing 15,553 -
Payment of debt issue costs (325) -
-------- --------
Net Cash Flows from Financing Activities (2,719) (2,072)
-------- --------
NET DECREASE IN CASH (51) (11)
CASH AT BEGINNING OF PERIOD 144 160
-------- --------
CASH AT END OF PERIOD $ 93 $ 149
-------- --------
SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Capital Lease Obligations $ 234 $ -
======== ========
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 March 31, 2002,
and the results of its operations and cash flows for the periods presented
herein. Results of operations for the nine months ended March 31, 2002 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):
March 31, June 30,
2002 2001
------------- --------------
Finished goods $ 4,361 $ 4,846
Work in process 1,056 797
Raw materials 991 764
Manufacturing supplies 318 286
------------- --------------
$ 6,726 $ 6,693
============= ==============
C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") approved
the issuance of SFAS No. 142, "Goodwill and Other Intangible Assets." This
standard establishes accounting and reporting for goodwill and other
intangibles. 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 in fiscal 2003. The Company has not quantified the impact
resulting from the adoption of this standard 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 by
$35,000 and $102,000, respectively, for the three months and nine months
ended March 31, 2002, and $33,000 and $101,000, respectively, for the three
months and nine months ended March 31, 2001.
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 tangible
4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
long-lived assets and the related asset retirement costs. SFAS No. 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 its 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 its financial
statements.
D. LONG-TERM DEBT
On December 20, 2001, the Company entered into a three-year renewable
credit facility with LaSalle Business Credit, Inc. ("LaSalle"). This
facility provides for an $11.6 million Term Loan, a $4.0 million Special
Advance Loan, and a $12.0 million working capital revolving line-of-credit
("Revolver"). The Term Loan and Special Advance Loan combined require
monthly principal payments of $185,155 plus interest through December 2008,
but are callable after three years. 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 initial proceeds of the new
facility were used to repay the outstanding indebtedness under the
Company's previous credit facility with First Source Financial LLP. As part
of the refinancing, the Company recorded an extraordinary loss of $260,000
($156,000 after tax) or $0.03 per share after tax reflecting the write-off
of unamortized finance costs relating to the previous credit facility.
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) $12.0
million; or (2) the sum of (a) 85% of the Company's eligible accounts
receivable plus (b) a percentage of the Company's eligible inventory which
ranges from 35% to 70%. 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 $3.8 million as of March 31, 2002.
The Revolver bears interest at LaSalle's prime rate plus 0.50% or the
London Interbank Offered Rate ("LIBOR") plus 2.75%. The term loan bears
interest at LaSalle's prime rate plus 0.75% or LIBOR plus 3.00%. The
special advance bears interest at LaSalle's prime rate plus 1.00% or LIBOR
plus 3.25%. The Company also pays a commitment fee of 0.50% on the unused
portion of the Revolver. The interest rates at March 31, 2002 were a
combination of prime and LIBOR. LaSalle's prime and LIBOR rate were 4.75%
and 1.88%, respectively, at March 31, 2002.
As of March 31, 2002, all outstanding letters of credit were guaranteed by
LaSalle. The Company pays an annual letter of credit fee of 2.00% on the
outstanding balance to guarantee availability under the Revolver.
Outstanding letters of credit at March 31, 2002 amounted to $147,500 and
related to workman's compensation insurance policies.
5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The LaSalle credit facility contains certain restrictive covenants
including financial covenants related to net worth, debt service coverage,
interest coverage and capital expenditures. As of March 31, 2002, 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.
E. RECLASSIFICATION
Certain amounts in the fiscal 2001 financial statements have been
reclassified to conform with the fiscal 2002 presentation.
6
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires
the Company to select and apply accounting policies that best provide the
framework to report the Company's results of operations and financial
position. The selection and application of those policies require
management to make difficult subjective or complex judgments concerning
reported amounts of revenue and expenses during the reporting period and
the reported amounts of assets and liabilities at the date of the financial
statements. The judgments and uncertainties inherent in this process affect
the application of those policies. As a result, there exists the likelihood
that materially different amounts would be reported under different
conditions or using different assumptions. Management has identified the
following accounting policies that it deems critical to the portrayal of
the Company's financial condition and results and that involve significant
subjectivity. Management believes that its selection and application of
these policies best represent the operating results and financial position
of the Company. The following discussion provides information on the
processes utilized by management in making judgments and assumptions as
they apply to its critical accounting policies.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on management's assessment of
the collectibility of specific customer accounts and the aging of the
accounts receivable. If there is a deterioration of a major customer's
credit worthiness or actual defaults are higher than historical experience,
estimates of the recoverability of amounts due the Company could be
adversely affected.
Income Taxes
The Company records deferred tax assets and liabilities using enacted tax
rates for the effect of temporary differences between the book and tax
basis of assets and liabilities. If enacted tax rates changed, the Company
would adjust the deferred tax assets and liabilities, through the provision
for income taxes in the period of change, to reflect the enacted tax rate
expected to be in effect when the deferred tax items reverse. The Company
records a valuation allowance on deferred tax assets to reflect the
expected future tax benefits to be realized. In determining the appropriate
valuation allowance, the Company takes into account the level of expected
future taxable income and available tax planning strategies. If future
taxable income was lower than expected or if expected tax planning
strategies were not available as anticipated, the Company may record
additional valuation allowance through income tax expense in the period
such determination was made.
Impairment of Long-Lived Assets
The Company's long-lived assets consist primarily of property, plant and
equipment, goodwill and intangible assets that were acquired in business
acquisitions. Management believes the useful lives assigned to these
assets, which range from 2 to 30 years, are reasonable. Management
evaluates the long-lived assets for impairment when events or changes in
circumstances indicate, in management's
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
judgment, that the carrying value of such assets may not be recoverable. If
management's assumptions about these assets change as a result of events or
circumstances, and believe the assets may have declined in value, then the
Company may record impairment charges, resulting in lower profits.
Contingent Liabilities
There are various claims and lawsuits pending against the Company. The
Company has recorded a liability where the effect of litigation can be
estimated and where an outcome is considered probable. Management's
estimates are based on its knowledge of the relevant facts at the time of
the issuance of the Company's Consolidated Financial Statements. Subsequent
developments could materially alter management's assessment of a matter's
probable outcome and the estimate of the Company's liability.
Environmental Issues
The Company records its environmental liabilities when site assessments or
remedial actions are probable and a range of reasonably likely cleanup
costs can be estimated. The Company reviews its sites and assesses the
liability quarterly, by assessing a range of reasonably likely costs for
each identified site using currently available information, including
existing technology, current laws and regulations and the probable level of
involvement and financial condition of other potentially responsible
parties. These estimates include costs for site investigations,
remediation, operations and maintenance, monitoring and site closure.
Results of Operations
Three Months Ended March 31, 2002 Compared to
Three Months Ended March 31, 2001
---------------------------------
In the third quarter of fiscal 2002, the Company had net sales of $16.1
million compared with $16.3 million in the corresponding period of fiscal
2001, a decrease of $0.1 million or 0.8%. Sales continue to be negatively
impacted by the overall slowdown in the economy.
Gross profit for the third quarter of fiscal 2002 decreased to 19.2% of net
sales from 20.4% in the corresponding period of fiscal 2001. The decrease
in gross profit margin was due primarily to spreading slightly higher fixed
manufacturing costs over a smaller revenue base, changes to customer mix,
and pricing pressures, partially offset by continuing cost control efforts.
Fixed manufacturing costs were up slightly because of higher repairs and
maintenance costs and new equipment acquired under operating leases.
Income from operations for the third quarter of fiscal 2002 was $1.1
million compared with $1.3 million in the corresponding period of fiscal
2001, a decrease of $0.2 million or 13.7%. This decrease was primarily a
result of lower sales, partially offset by a reduction in selling, general
and administrative expenses. Selling, general and administrative expenses
decreased slightly to $1.9 million in the third quarter of fiscal 2002,
compared to $2.0 million in the corresponding period of fiscal 2001. This
decrease was primarily the result of continuing cost control efforts.
8
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Total interest expense decreased $0.3 million or 53.9% to $0.3 million in
the third quarter of fiscal 2002 from $0.6 million in the corresponding
period of fiscal 2001. The decrease is the result of $3.5 million in lower
average borrowings and a reduction in average interest rates from 9.6% to
5.0%.
The income tax provision as a percentage of pre-tax income for the third
quarter of fiscal 2002 was 41.7%, compared with an income tax provision of
26.7% 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 third quarter of fiscal 2001 to reflect a
change in the estimate related to the realizability of its deferred income
tax assets.
Net income for the third quarter of fiscal 2002 was $0.5 million or $0.10
per share, compared to $0.5 million or $0.10 per share in the third quarter
of fiscal 2001. Net income for the third 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 third quarter of fiscal 2001 would have been $0.4 million or $0.08
per share. The following table illustrates the effect of the income tax
asset valuation allowance on the third quarter of fiscal 2001 (in
thousands, except per share data):
Excluding Impact
of Change in Tax
Valuation
As Reported Allowance
------------- ----------------
Income Before Income Taxes $ 674 $ 674
Provision for Income Taxes 180 283
------------- ----------------
Net Income $ 494 $ 391
============= ================
Net Income Per Share $0.10 $0.08
============= ================
Nine Months Ended March 31, 2002 Compared to
Nine Months Ended March 31, 2001
--------------------------------
In the first nine months of fiscal 2002, the Company had net sales of $46.8
million compared with $49.1 million in the corresponding period of fiscal
2001, a decrease of $2.3 million or 4.6%. Sales continue to be negatively
impacted by the overall slowdown in the economy.
Gross profit for the first nine months of fiscal 2002 decreased to 19.3% of
net sales from 20.9% in the corresponding period of fiscal 2001. This
decrease was due primarily to spreading fixed manufacturing costs over a
smaller revenue base, changes to customer mix, and pricing pressures,
partially offset by continuing cost control efforts.
Income from operations for the first nine months of fiscal 2002 was $3.2
million compared with $4.2 million in the corresponding period of fiscal
2001, a decrease of $1.0 million or 22.9%. This decrease is primarily a
result of lower sales, partially offset by a reduction in selling, general
and administrative expenses. Selling, general and administrative
9
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
expenses decreased $0.2 million or 3.8% to $5.7 million in the first nine
months of fiscal 2002, compared to $5.9 million in the corresponding period
of fiscal 2001. This decrease was primarily a result of continuing cost
control efforts, including reduced payroll related costs.
Total interest expense decreased $0.9 million or 46.6% to $1.1 million in
the first nine months of fiscal 2002 from $2.0 million in the corresponding
period of fiscal 2001. The decrease is the result of $3.8 million in lower
average borrowings and a reduction in average interest rates from 10.4% to
6.3%.
The income tax provision as a percentage of pre-tax income for the first
nine months of fiscal 2002 was 41.9%, compared with an income tax provision
of 26.7% 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 $0.3 million in the first nine months of fiscal 2001 to
reflect a change in estimate related to the realizability of its deferred
income tax assets.
In December 2001, the Company refinanced its credit facility with LaSalle.
As part of this refinancing, the Company recorded an extraordinary loss of
$260,000 ($156,000 after tax) or $0.03 per share reflecting the write-off
of unamortized finance costs relating to the previous existing credit
facility.
Net income for the first nine months of fiscal 2002 was $1.1 million or
$0.21 per share, compared to $1.6 million or $0.31 per share in the first
nine months of fiscal 2001. Net income for the first nine months of fiscal
2001 includes the effect of reducing the deferred income tax asset
valuation allowance by $0.3 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 nine months of fiscal 2001
would have been $1.2 million or $0.25 per share. The following table
illustrates the effect of the income tax asset valuation allowance on the
first nine months of fiscal 2001 (in thousands, except per share data):
Excluding Impact
of Change in Tax
Valuation
As Reported Allowance
------------- ----------------
Income Before Income Taxes $2,144 $2,144
Provision for Income Taxes 573 898
------------- ----------------
Net Income $1,571 $1,246
============= ================
Net Income Per Share $ 0.31 $ 0.25
============= ================
Financial Condition
On December 20, 2001, the Company entered into a three-year renewable
credit facility with LaSalle Business Credit, Inc. ("LaSalle"). This
facility provides for an $11.6 million Term Loan, a $4.0 million Special
Advance Loan, and a $12.0 million working capital revolving line-of-credit
("Revolver"). The Term Loan and Special Advance Loan combined require
monthly principal payments of $185,155 plus interest through December 2008,
but are callable after three years. The credit facility is secured by a
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 initial proceeds of the new
facility were used to repay the outstanding indebtedness under the
Company's previous credit facility with First Source Financial LLP. As part
of the refinancing, the Company recorded an extraordinary loss of $260,000
($156,000 after tax) or $0.03 per share after tax reflecting the write-off
of unamortized finance costs relating to the previous credit facility.
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) $12.0
million; or (2) the sum of (a) 85% of the Company's eligible accounts
receivable plus (b) a percentage of the Company's eligible inventory which
ranges from 35% to 70%. 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 $3.8 million as of March 31, 2002.
The Revolver bears interest at LaSalle's prime rate plus 0.50% or the
London Interbank Offered Rate ("LIBOR") plus 2.75%. The term loan bears
interest at LaSalle's prime rate plus 0.75% or LIBOR plus 3.00%. The
special advance bears interest at LaSalle's prime rate plus 1.00% or LIBOR
plus 3.25%. The Company also pays a commitment fee of 0.50% on the unused
portion of the Revolver. The interest rates at March 31, 2002 were a
combination of prime and LIBOR. LaSalle's prime and LIBOR rate were 4.75%
and 1.88%, respectively, at March 31, 2002.
As of March 31, 2002, all outstanding letters of credit were guaranteed by
LaSalle. The Company pays an annual letter of credit fee of 2.00% on the
outstanding balance to guarantee availability under the Revolver.
Outstanding letters of credit at March 31, 2002 amounted to $147,500 and
related to workman's compensation insurance policies.
The LaSalle credit facility contains certain restrictive covenants
including financial covenants related to net worth, debt service coverage,
interest coverage and capital expenditures. As of March 31, 2002, 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 March 31, 2002, the Company had working capital of $3.2 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 nine months ended March 31, 2002 were $3.2 million
compared with funds provided of $2.6 million in the corresponding period in
fiscal 2001.
During the nine months ended March 31, 2002, capital expenditures totaled
$0.8 million compared with $0.6 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.
11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 LaSalle will be sufficient to meet working capital and
capital expenditure requirements in the near term.
Contractual Obligations and Commercial Commitments
The Company has contractual obligations and commercial commitments that
may affect its financial condition. Based on management's assessment of
the underlying provisions and circumstances of the material contractual
obligations and commercial commitments of the Company, including
material off-balance sheet and structured finance arrangements, there is
no known trend, demand, commitment, event or uncertainty that is
reasonably likely to occur which would have a material effect on the
Company's financial condition or results of operations. The following
tables identify material obligations and commitments as of March 31,
2002:
--------------------------------------------------------------------------------------------------------------------
Payments Due by Period
----------------------------------------------------
Contractual Cash Obligations After 5
(Thousands of Dollars) Total 1 Year 2-3 Years 4-5 Years Years
--------------------------------------------------------------------------------------------------------------------
Long-term debt $ 14,997 $ 2,222 $ 12,775 $ - $ -
Revolving Line-of-Credit (a) 3,932 - 3,932 - -
Capital lease obligations 258 56 101 101 -
Operating leases 3,669 1,165 1,844 485 175
--------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 22,856 $ 3,443 $ 18,652 $ 586 $ 175
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Amount of Commitment Expiration
Per Period
---------------------------------------------------
Total
Other Commercial Commitments Amounts After 5
(Thousands of Dollars) Committed 1 Year 2-3 Years 4-5 Years Years
--------------------------------------------------------------------------------------------------------------------
Revolving Line-of-Credit (b) $ 3,811 $ - $ 3,811 $ - $ -
Standby letters of credit 148 148 - - -
--------------------------------------------------------------------------------------------------------------------
Total commercial commitment $ 3,959 $ 148 $ 3,811 $ - $ -
--------------------------------------------------------------------------------------------------------------------
(a) The revolving line-of-credit represents the actual outstanding
balance, as of March 31, 2002.
(b) The revolving line-of-credit represents the unused borrowing
capacity available to the Company, as of March 31, 2002.
12
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") approved
the issuance of SFAS No. 142, "Goodwill and Other Intangible Assets."
This standard establishes accounting and reporting for goodwill and
other intangibles. 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 in fiscal 2003. The Company has not quantified
the impact resulting from the adoption of this standard 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 by $35,000 and $102,000, respectively, for the three
months and nine months ended March 31, 2002, and $33,000 and $101,000,
respectively, for the three months and nine months ended March 31, 2001.
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 tangible
long-lived assets and the related asset retirement costs. SFAS No. 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 its 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 its 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 processes,
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
13
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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.
14
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 March 31, 2002 was at variable interest
rates. A hypothetical 10% change in interest rates would have had a
$0.1 million impact on interest expense for the nine months ended
March 31, 2002.
15
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 and are gathering additional information through depositions. A
further settlement mediation is scheduled for June 2002.
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 March 31, 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.58 Loan and Security Agreement, dated as of December 20, 2001,
between LaSalle Business Credit, Inc. and Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
Packaging and Printing Corp. and Niemand Industries, Inc.
10.59 Supplement to Loan and Security Agreement, dated as of
December 20, 2001, between LaSalle Business Credit, Inc.
and Gibraltar Packaging Group, Inc., RidgePak Corporation,
Standard Packaging and Printing Corp. and Niemand
Industries, Inc.
10.60 Revolving Note, dated as of December 20, 2001, in favor of
LaSalle Business Credit, Inc., executed by Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
Packaging and Printing Corp. and Niemand Industries, Inc. in
the principal amount of $12,000,000.
10.61 Term Note, dated as of December 20, 2001, in favor of
LaSalle Business Credit, Inc., executed by Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
16
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Packaging and Printing Corp. and Niemand Industries, Inc. in
the principal amount of $11,553,000.
10.62 Special Advance Note, dated as of December 20, 2001, in
favor of LaSalle Business Credit, Inc., executed by
Gibraltar Packaging Group, Inc., RidgePak Corporation,
Standard Packaging and Printing Corp. and Niemand
Industries, Inc. in the principal amount of $4,000,000.
(b) Reports on Form 8-K:
None
17
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: May 13, 2002 May 13, 2002
18
Exhibit List
10.58 Loan and Security Agreement, dated as of December 20, 2001, between
LaSalle Business Credit, Inc. and Gibraltar Packaging Group, Inc.,
RidgePak Corporation, Standard Packaging and Printing Corp. and
Niemand Industries, Inc.
10.59 Supplement to Loan and Security Agreement, dated as of December 20,
2001, between LaSalle Business Credit, Inc. and Gibraltar Packaging
Group, Inc., RidgePak Corporation, Standard Packaging and Printing
Corp. and Niemand Industries, Inc.
10.60 Revolving Note, dated as of December 20, 2001, in favour of LaSalle
Business Credit, Inc., executed by Gibraltar Packaging Group, Inc.,
RidgePak Corporation, Standard Packaging and Printing Corp. and
Niemand Industries, Inc. in the principal amount of $12,000,000
10.61 Term Note, dated as of December 20, 2001, in favor of LaSalle Business
Credit, Inc., executed by Gibraltar Packaging Group, Inc., RidgePak
Corporation, Standard Packaging and Printing Corp. and Niemand
Industries, Inc. in the principal amount of $11,553,000
10.62 Special Advance Note, dated as of December 20, 2001, in favor of
LaSalle Business Credit, Inc., executed by Gibraltar Packaging Group,
Inc., RidgePak Corporation, Standard Packaging and Printing Corp. and
Niemand Industries, Inc. in the principal amount of $4,000,000