UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2001
-----------------
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 December 31, 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 December 31, 2001 (Unaudited) and June 30, 2001
Consolidated Statements of Operations (Unaudited) for the Three and 2
Six Months Ended December 31, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) for the 3
Six Months Ended December 31, 2001 and 2000
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 13
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31, June 30,
2001 2001
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 114 $ 144
Accounts receivable (Net of allowance for
doubtful accounts of $410 and $508, respectively) 5,274 6,285
Inventories 6,867 6,693
Deferred income taxes 725 725
Prepaid and other current assets 406 766
------------ ------------
Total current assets 13,386 14,613
PROPERTY, PLANT AND EQUIPMENT - NET 16,091 16,590
GOODWILL (Net of accumulated amortization of $2,157
and $2,090, respectively) 4,180 4,247
DEFERRED INCOME TAXES - 105
OTHER ASSETS (Net of accumulated amortization
of $18 and $487, respectively) 872 819
------------ ------------
TOTAL $ 34,529 $ 36,374
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 402 $ 1,115
Current portion of long-term debt 2,241 2,769
Accounts payable 3,815 4,925
Accrued expenses 3,402 3,401
------------ ------------
Total current liabilities 9,860 12,210
LONG-TERM DEBT - Net of current portion 18,232 18,578
DEFERRED INCOME TAXES 252 -
OTHER LONG-TERM LIABILITIES 430 431
------------ ------------
Total liabilities 28,774 31,219
------------ ------------
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 (22,457) (23,057)
------------ ------------
Total stockholders' equity 5,755 5,155
------------ ------------
TOTAL $ 34,529 $ 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 Six Months Ended
December 31, December 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
NET SALES $ 15,325 $ 16,416 $ 30,681 $ 32,812
COST OF GOODS SOLD 12,362 13,018 24,719 25,878
----------- ----------- ----------- -----------
GROSS PROFIT 2,963 3,398 5,962 6,934
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,886 1,959 3,782 3,973
Amortization of excess of purchase price
over net assets acquired 33 33 67 68
----------- ----------- ----------- -----------
Total operating expenses 1,919 1,992 3,849 4,041
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,044 1,406 2,113 2,893
OTHER EXPENSE (INCOME):
Interest expense 349 683 781 1,378
Other expense - net 12 31 28 45
----------- ----------- ----------- -----------
Other expense - net 361 714 809 1,423
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 683 692 1,304 1,470
INCOME TAX PROVISION 286 177 548 393
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 397 515 756 1,077
EXTRAORDINARY ITEM, NET OF TAX (Note D) (156) - (156) -
----------- ----------- ----------- -----------
NET INCOME $ 241 $ 515 $ 600 $ 1,077
=========== =========== =========== ===========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Income Before Extraordinary Item $ 0.08 $ 0.10 $ 0.15 $ 0.21
=========== =========== =========== ===========
Extraordinary Item $ (0.03) $ - $ (0.03) $ -
=========== =========== =========== ===========
Net Income $ 0.05 $ 0.10 $ 0.12 $ 0.21
=========== =========== =========== ===========
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)
Six Months Ended
December 31,
----------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 600 $ 1,077
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,117 1,111
Provision for losses on accounts receivable 101 60
Loss on sale of property, plant and equipment 3 18
Extraordinary item 260 -
Deferred income taxes 357 320
Changes in operating assets and liabilities:
Accounts receivable 910 47
Inventories (174) (691)
Prepaid expenses and other assets 281 (132)
Accounts payable (1,823) 83
Accrued expenses and other liabilities - (302)
-------- --------
Net Cash Flows from Operating Activities 1,632 1,591
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 6 70
Purchases of property, plant and equipment (484) (417)
-------- --------
Net Cash Flows from Investing Activities (478) (347)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit facility (1,684) 144
Principal repayments of long-term debt (14,734) (1,374)
Repayments under capital leases (9) (13)
Proceeds from refinancing 15,553 -
Refinancing costs (310) -
-------- --------
Net Cash Flows from Financing Activities (1,184) (1,243)
-------- --------
NET INCREASE (DECREASE) IN CASH (30) 1
CASH AT BEGINNING OF PERIOD 144 160
-------- --------
CASH AT END OF PERIOD $ 114 $ 161
======== ========
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 December 31,
2001, and the results of its operations and cash flows for the periods
presented herein. Results of operations for the six months ended December
31, 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):
December 31, June 30,
2001 2001
--------- ------
Finished goods $4,712 $4,846
Work in process 798 797
Raw materials 1,061 764
Manufacturing supplies 296 286
------ ------
$6,867 $6,693
====== ======
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 that all business combinations entered
into subsequent to June 30, 2001 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 by $33,000
and $67,000 for the three months and six months ended, respectively, for
both December 31, 2001 and December 31, 2000.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This
4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 the 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 a $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 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 $3.0 million as of December 31, 2001.
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 December 31, 2001 were at
prime. LaSalle's prime rate was 4.75% at December 31, 2001.
As of December 31, 2001, 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 December 31, 2001 amounted to $147,500 and
related
5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 December 31, 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.
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
Results of Operations
Three Months Ended December 31, 2001 Compared to
Three Months Ended December 31, 2000
------------------------------------
In the second quarter of fiscal 2002, the Company had net sales of $15.3
million compared with $16.4 million in the corresponding period of fiscal
2001, a decrease of $1.1 million or 6.6%. Sales continue to be negatively
impacted by the overall slowdown in the economy.
Gross profit for the second quarter of fiscal 2002 decreased to 19.3% of
net sales from 20.7% in the corresponding period of fiscal 2001. This
decrease was due primarily to spreading fixed manufacturing costs over a
smaller revenue base and changes to customer mix, partially offset by
continuing cost control efforts. Cost of goods sold decreased $0.7 million
or 5.0% to $12.4 million in the second quarter of fiscal 2002 compared to
$13.0 million in the second quarter of fiscal 2001, primarily as a result
of the reduction in net sales.
Income from operations for the second quarter of fiscal 2002 was $1.0
million compared with $1.4 million in the corresponding period of fiscal
2001, a decrease of $0.4 million or 25.7%. 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 3.7% to $1.9 million in the second quarter of fiscal 2002,
compared to $2.0 million in the corresponding period of fiscal 2001. This
decrease was primarily the result of lower sales and continuing cost
control efforts.
Total interest expense decreased $0.3 million or 48.9% to $0.3 million in
the second quarter of fiscal 2002 from $0.7 million in the corresponding
period of fiscal 2001. The decrease is the result of $3.9 million in lower
average borrowings and a reduction in average interest rates from 10.7% to
6.3%.
The income tax provision as a percentage of pre-tax income for the second
quarter of fiscal 2002 was 41.9%, compared with an income tax provision of
25.6% 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 second quarter of fiscal 2001 to reflect a
change in the estimate related to the realizability of its deferred income
tax assets.
In December 2001, the Company refinanced its credit facility with LaSalle
Business Credit, Inc. ("LaSalle"). As part of this refinancing, the Company
recorded an extraordinary after tax loss of $156,000 or $0.03 per share
reflecting the write-off of unamortized finance costs relating to the
previous credit facility.
Net income for the second quarter of fiscal 2002 was $0.2 million or $0.05
per share, compared to $0.5 million or $0.10 per share in the second
quarter of fiscal 2001. Net income for the second quarter of fiscal 2001
includes the effect of reducing the deferred income tax asset valuation
allowance by $0.1
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 second 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 second quarter of fiscal 2001 (in thousands,
except per share data):
Excluding Impact
of Change in Tax
Valuation
As Reported Allowance
------------------ ------------------
Income Before Income Taxes $ 692 $ 692
Provision for Income Taxes 177 290
------------------ ------------------
Net Income $ 515 $ 402
================== ==================
Net Income Per Share $0.10 $0.08
================== ==================
Six Months Ended December 31, 2001 Compared to
Six Months Ended December 31, 2000
----------------------------------
In the first six months of fiscal 2002, the Company had net sales of $30.7
million compared with $32.8 million in the corresponding period of fiscal
2001, a decrease of $2.1 million or 6.5%. Sales continue to be negatively
impacted by the overall slowdown in the economy.
Gross profit for the first six months of fiscal 2002 decreased to 19.4% of
net sales from 21.1% in the corresponding period of fiscal 2001. This
decrease was due primarily to spreading fixed manufacturing costs over a
smaller revenue base and changes to customer mix, partially offset by
continuing cost control efforts. Cost of goods sold decreased $1.2 million
or 4.5% to $24.7 million in the first six months of fiscal 2002 compared to
$25.9 million in the first six months of fiscal 2001, primarily as a result
of the reduction in net sales.
Income from operations for the first six months of fiscal 2002 was $2.1
million compared with $2.9 million in the corresponding period of fiscal
2001, a decrease of $0.8 million or 27.0%. 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
$0.2 million or 4.8% to $3.8 million in the first six months of fiscal
2002, compared to $4.0 million in the corresponding period of fiscal 2001.
This decrease was primarily the result of lower sales and continuing cost
control efforts.
Total interest expense decreased $0.6 million or 43.3% to $0.8 million in
the first six months of fiscal 2002 from $1.4 million in the corresponding
period of fiscal 2001. The decrease is the result of $3.9 million in lower
average borrowings and a reduction in average interest rates from 10.7% to
6.9%.
The income tax provision as a percentage of pre-tax income for the first
six months of fiscal 2002 was 42.0%, 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
8
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
deferred income tax asset valuation allowance by $0.2 million in the first
six 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 after
tax loss of $156,000 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 six months of fiscal 2002 was $0.6 million or
$0.12 per share, compared to $1.1 million or $0.21 per share in the first
six months of fiscal 2001. Net income for the first six months of fiscal
2001 includes the effect of reducing the deferred income tax asset
valuation allowance by $0.2 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 six months of fiscal 2001
would have been $0.9 million or $0.17 per share. The following table
illustrates the effect of the income tax asset valuation allowance on the
first six months of fiscal 2001 (in thousands, except per share data):
Excluding Impact
of Change in Tax
Valuation
As Reported Allowance
------------------ ------------------
Income Before Income Taxes $1,470 $1,470
Provision for Income Taxes 393 615
------------------ ------------------
Net Income $1,077 $ 855
================== ==================
Net Income Per Share $ 0.21 $ 0.17
================== ==================
Financial Condition
On December 20, 2001, the Company entered into a three-year renewable
credit facility with LaSalle. This facility provides for a $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
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 previously existing credit facility. 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 existing
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
9
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
capacity of $3.0 million as of December 31, 2001.
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 December 31, 2001 were at
prime. LaSalle's prime rate was 4.75% at December 31, 2001.
As of December 31, 2001, 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 December 31, 2001 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 December 31, 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 December 31, 2001, the Company had working capital of $3.5 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 six months ended December 31, 2001 were $1.6 million
compared with funds provided of $1.6 million in the corresponding period in
fiscal 2001.
During the six months ended December 31, 2001, capital expenditures totaled
$0.5 million compared with $0.4 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
LaSalle will be sufficient to meet working capital and capital expenditure
requirements in the near term.
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 December 31,
2001:
-----------------------------------------------------------------------------------------------------
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 $ 15,553 $ 2,222 $ 13,331 $ - $ -
Revolving Line-of-Credit (a) 4,891 4,891 - - -
Capital lease obligations 29 19 10 - -
Operating leases 4,271 1,354 2,136 573 208
Unconditional purchase obligations 234 234 - - -
-----------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 24,978 $ 8,720 $ 15,477 $ 573 $ 208
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Amount of Commitment Expiration
Per Period
-----------------------------------------
Other Commercial Commitments Total Amounts After 5
(Thousands of Dollars) Committed 1 Year 2-3 Years 4-5 Years Years
-----------------------------------------------------------------------------------------------------
Revolving Line-of-Credit (b) $ 3,000 $ - $ 3,000 $ - $ -
Standby letters of credit 148 148 - - -
-----------------------------------------------------------------------------------------------------
Total commercial commitment $ 3,148 $ 148 $ 3,000 $ - $ -
-----------------------------------------------------------------------------------------------------
(a) The revolving line-of-credit represents the actual outstanding balance, as
of December 31, 2001.
(b) The revolving line-of-credit represents the unused borrowing capacity
available to the Company, as of December 31, 2001.
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
that all business combinations entered into subsequent to June 30, 2001 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
11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 by $33,000 and $67,000 for the three months and six months
ended, respectively, for both December 31, 2001 and December 31, 2000.
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 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.
12
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 December 31, 2001 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 six months ended
December 31, 2001.
13
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. The Company
anticipates another settlement mediation will be scheduled before the
end of 2002.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on November 7, 2001 a
total of 4,787,732 shares, or 94.97%, of outstanding shares were
represented and entitled to vote.
(a) The following members were elected to the Board of Directors:
FOR WITHHOLD
--- --------
David G. Chandler 4,643,712 144,020
Richard D. Hinrichs 4,744,103 43,629
John W. Lloyd 4,744,203 43,529
Walter E. Rose 4,644,312 143,420
Robert G. Shaw 4,743,603 44,129
John D. Strautnieks 4,644,312 143,142
(b) The following proposal was approved:
Ratification of Deloitte & Touche LLP as the independent
auditors for the Company for the 2002 fiscal year.
Affirmative Votes: 4,764,613
Negative Votes: 100
Abstentions: 23,019
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
15
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: February 11, 2002 February 11, 2002
16