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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 00-19800
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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
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. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. |X|
The aggregate market value of the voting and non-voting common equity
stock held by nonaffiliates of the registrant on September 13, 2002 was
$4,509,874 (based upon the September 13, 2002 closing sale price of the common
stock as reported on the NASDAQ Over-The-Counter Bulletin Board).
The number of shares of common stock of the registrant outstanding as
of September 13, 2002 was 5,041,544 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference to
the definitive proxy statement relating to the registrant's Annual Meeting of
Stockholders for fiscal 2002, which definitive proxy statement will be filed
within 120 days of the end of the registrant's fiscal year.
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TABLE OF CONTENTS
PART I
Page
----
Item 1. Business..............................................................1
Item 2. Properties............................................................7
Item 3. Legal Proceedings.....................................................7
Item 4. Submission of Matters to a Vote of Security Holders...................8
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.......................................9
Item 6. Selected Financial Data..............................................10
Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations.......................11
Item 7A. Quantitative and Qualitative Disclosure About Market Risk............17
Item 8. Financial Statements and Supplementary Data..........................18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...............................18
PART III
Item 10. Directors and Executive Officers of the Registrant...................19
Item 11. Executive Compensation...............................................19
Item 12. Security Ownership of Certain
Beneficial Owners and Management.....................................19
Item 13. Certain Relationships and Related Transactions.......................19
PART IV
Item 15. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K...................................20
PART I
ITEM 1. BUSINESS
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GENERAL
Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") designs,
manufactures, and markets packaging products nationwide, for numerous
industries. The Company produces four types of packaging products at three
manufacturing facilities. These facilities are: Gibraltar Packaging Group, Inc.
(dba "Great Plains Packaging", or "Great Plains") in Hastings, Nebraska;
RidgePak Corporation (dba "Flashfold Carton") in Fort Wayne, Indiana; and
Standard Packaging & Printing Corp. ("Standard Packaging") in Mount Gilead,
North Carolina. Folding cartons is the primary product line for the Company;
however, Standard Packaging also manufactures flexible packaging, and Great
Plains Packaging also manufactures litho-laminated cartons and corrugated
containers.
In August 1998, the Company announced its strategy to refocus on its
core capabilities of folding cartons and to leverage the success of the
Company's Great Plains division to improve the performance of the Company's
other folding carton divisions. As a result, the Company initiated a plan to
divest its facilities that manufactured non-folding carton related products.
This included the sale of two of the Company's subsidiaries: Niemand Industries,
Inc. ("Niemand") in Marion, Alabama; and GB Labels, Inc. ("GB Labels"), in
Burlington, North Carolina. Niemand, a manufacturer of tubular paper packaging
as well as contract packaging and filling, was sold in two stages. The sale of
the operating assets of its container business was finalized in June 1999 and
the remaining operating assets were sold in February 2000. The operating assets
of GB Labels, a manufacturer of pressure-sensitive labels, were sold in August
1999.
Through the implementation of this strategy, the Company has improved
operations and positioned itself for future growth. Over the past fiscal year
the Company has continued to evaluate capacity levels at its three facilities
and has implemented new technologies and equipment that will position the
Company to increase its performance, productivity, and profitability. One such
improvement is the installation of a narrow web flexographic printing press at
the Hastings, Nebraska facility. In addition, the Company installed equipment
and software at the Hastings facility that allows the Company to generate
customers' film in-house; a process that was formerly outsourced to other
companies. Gibraltar will 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 continue 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.
The Company markets its products to customers located throughout the
United States, with the majority of its sales located within the central,
southern and eastern regions of the nation. The Company's sales are derived from
a variety of industries including the following markets: food products, paper
and allied products, pharmaceuticals and medical instruments, textiles,
automotive, household, tobacco, and industrial products. The Company believes
its three folding carton facilities are strategically located to enhance its
competitive position by providing broad geographic coverage to serve larger,
nationwide customers.
Gibraltar's predecessor was incorporated under the name GPC Co. in
Hastings, Nebraska in 1967, and subsequently changed its name to Great Plains
Packaging Co. in 1986. In 1991 Great Plains Packaging Co. was reincorporated in
Delaware, and its name was changed to Gibraltar Packaging Group, Inc.
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The Company's principal executive offices are located at 2000 Summit
Avenue, Hastings, Nebraska 68901, its phone number is 402-463-1366, and its
website is www.gibraltarpackaginggroup.com.
Unless otherwise stated in this Annual Report, references to fiscal
2002, 2001, and 2000 relate to the fiscal years ended June 29, 2002, June 30,
2001, and July 1, 2000, respectively.
MANUFACTURING PRODUCTS AND PROCESSES
Gibraltar offers four types of packaging products, which are described
in the following sections. The Company no longer offers the three product lines
which were produced by GB Labels and Niemand due to the sale of these divisions,
as mentioned above. Fluctuations in the percent of net sales for each product
line can be attributed, in part, to the sale of these divisions.
FOLDING CARTONS
The Company designs, manufactures, and markets a variety of printed
folding cartons, which are purchased by customers in a variety of consumer and
industrial markets. The Company's customers use folding cartons for both product
packaging and retail display of products. Sales of folding cartons represented
approximately 78%, 79%, and 73% of the Company's net sales for fiscal 2002,
2001, and 2000, respectively.
The Company believes that recent trends in the folding carton market
favor manufacturers that can produce creative graphics to enhance visual
presentation, point-of-sale appeal, and product differentiation. Specialty
packaging designed to address these needs often includes graphics with
high-resolution print, multiple colors, and innovative structural designs. The
Company's internal structural design teams have won numerous industry awards,
due in part, to the Company's emphasis on product design. The Company believes
that its design resources enhance its competitiveness in the folding carton
market, and result in increased profitability. The Company's facilities also
offer specialty features for its folding cartons including windowing, security
label application, velcro application, and coupon application.
Folding cartons are produced at each of the Company's three production
facilities utilizing offset printing presses. The Hastings, Nebraska facility
also utilizes flexographic printing for the manufacture of folding cartons. For
offset printing, once a customer's order is received, paperboard rolls are
purchased from outside suppliers and converted into sheets with sheeting
equipment, in sizes determined for each order. Customers supply graphic disks,
artwork, or film to the Company, and then specialized printing plates are
created to use in the printing of paperboard sheets on multicolor offset
printing presses. The printed board is then cut, creased, embossed, folded, and
glued into individual cartons per the carton specifications, and then packaged
for shipment to customers. For the flexographic printing, the process differs
slightly. Once a customer's order is received, paperboard rolls are purchased
from outside suppliers. Folding cartons are then produced directly from the roll
stock by printing and die cutting in line to output blanks for gluing or flat
packing. This printing process utilizes UV inks and coatings, which is an
additional feature the Company can now offer to its customers.
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In June 1996, the Company's Hastings, Nebraska facility became the
sixth folding carton plant in the United States to achieve ISO 9001
certification, the rigorous international quality standard. This facility
renewed their certification in June 1999, and in June 2002 achieved
certification to the ISO 9001:2000 standard. In January 1998, the Company's Fort
Wayne, Indiana facility also achieved ISO 9001 certification, and then renewed
their certification in January 2001. The facility in Mount Gilead, North
Carolina received ISO 9001 certification in June 2001 and achieved certification
to the ISO 9001:2000 standard in December 2001. ISO (International Organization
for Standardization) has steadily become a worldwide standard for quality
management. The ISO standards require a company to codify its quality programs
by defining and documenting its quality system.
The Company's Hastings, Nebraska facility also initiated and formalized
programs for compliance with the American Institute of Baking's Standards for
Packaging Facilities. This standard covers adequacy of the product safety
program, pest control, operation methods, personnel practices, maintenance for
product safety, and cleaning practices. In December 2001 the facility achieved
an Excellent rating following its first American Institute of Baking audit.
FLEXIBLE POLY-FILM PACKAGING
Flexible packaging sales represented approximately 11% of the Company's
net sales for fiscal years 2002, 2001, and 2000.
The flexible packaging industry has experienced significant historical
growth due to advances in plastic technology and the popularity of convenient
packaging. Flexible packaging offers light-weight, low-bulk, resource-conserving
packaging that also protects perishable products, by creating a barrier against
air and moisture. For consumer marketing purposes, flexible packaging combines
high-quality, multicolor graphics, with a see-through feature that enables the
consumer to see the product within the package, along with the package graphics.
Although the Company sells most of its flexible packaging for use in the food,
textile, and household products markets, flexible packaging is also used by many
other industries.
Flexible packaging is produced at the Standard Packaging facility in
Mount Gilead, North Carolina. The Company purchases its plastic films including
polyethylene, polypropylene, and similar materials, from film manufacturers
rather than producing its own plastic films. The film is printed at the
Company's facilities using multicolor printing presses. The printed rolls are
then slit into smaller rolls, or shipped in roll form, to customers who then
convert it into its final package form (for example, bags, pouches or overwrap).
The Company also converts the printed film rolls into bags or pouches, and then
ships the final package forms to its customers. The Company has additional
capabilities which can be incorporated into poly-film packaging, which include
affixing pressure-sensitive labels, attaching hanging display hooks, grommets,
zip-lock closures, and tape seals.
SPECIALTY LAMINATED CARTONS
At the Hastings, Nebraska facility, the Company manufactures specialty
laminated cartons, which it markets to customers throughout the United States,
primarily in the food, automotive, household, and industrial markets. Laminated
cartons are used for the retail sale of products and offer customers a number of
visual marketing benefits. Specialty laminated carton sales represented
approximately 6% of the Company's net sales for fiscal years 2002, 2001, and
2000.
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During the manufacturing process, laminated sheets, which are composed
of a printed paperboard sheet glued onto single face corrugate, are die cut,
glued, and folded into cartons per the carton specifications. Laminated
packaging offers a structurally stronger package suitable for packaging heavier
contents, protecting products during shipping, or meeting other package
performance needs, while at the same time providing high-resolution graphics.
The Company believes that the resolution of the print and graphics enhances the
product's appeal, and that the lamination provides increased product visibility
without sacrificing the protection of the product.
CORRUGATED CONTAINERS
The Company's Hastings, Nebraska facility also designs and manufactures
printed corrugated containers, which it markets to customers located in the
mid-western United States. The primary markets for this product line are the
automotive, industrial, and agricultural markets. Corrugated container sales
represented approximately 5% of the Company's net sales for fiscal year 2002 and
4% for fiscal years 2001 and 2000.
The Company purchases corrugated sheets from outside suppliers, then
prints, cuts, creases, folds, and glues the sheets into individual containers
per the carton specifications. The Company also manufactures corrugated inserts,
which require specialty die-cutting and gluing, and are used to provide
additional strength and protection of packaged products. Corrugated containers
offer a structurally strong package, suitable for protecting products during
shipping, or meeting other packaging performance needs.
COMPETITION
The packaging markets in which the Company competes are highly
fragmented and increasingly competitive. The Company competes with numerous
small, non-integrated companies that produce one or more packaging products and,
to a lesser extent, with divisions or subsidiaries of large integrated packaging
producers, as well as in-house packaging operations. The vertically integrated
paperboard, oil, and chemical companies that the Company competes with may have
multiple lines of business and produce their own raw materials. In general, the
integrated companies focus primarily on producing large quantities of basic,
commodity packaging and often provide their products to large companies
nationwide. The non-integrated manufacturers generally operate only one or two
production facilities and emphasize higher-margin, value-added packaging, often
with specialized or customized graphics. Unlike the integrated manufacturers,
these manufacturers produce smaller orders of packaging with quick turnaround,
and in many cases also work with the customer in designing the packaging.
Competition among the non-integrated packaging manufacturers, against
which the Company primarily competes, is based on product quality, service,
timeliness of delivery, manufacturing capabilities and, to a lesser extent than
with commodity packaging, price. The Company believes that its expertise and
reputation within the packaging industry for providing timely, personalized
service and high-quality packaging enables it to compete effectively with other
non-integrated packaging companies.
The Company has also been impacted by the increasing trends of
customers to improve their buying power through vendor consolidation. The
Company has been successful in several of these initiatives, but cannot
guarantee success in future vendor consolidation efforts.
Many of the Company's competitors have greater resources, financial and
otherwise, than the Company. In addition, to the extent that packaging methods
are developed and successfully marketed as alternatives to the Company's
products, the Company may compete with producers of such alternative packaging
methods.
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RAW MATERIALS
Raw materials used in the Company's production process include
paperboard, inks, flexible films, resin, and adhesives, all of which the Company
purchases from more than one supplier. In fiscal 2002, prices remained
relatively steady with increases experienced for some materials. The company
expects increases in some materials for the first quarter of fiscal 2003 with
the second quarter remaining stable. Although the Company has historically been
able to pass material increases on to its customers, any future price increases
could have an adverse impact on the Company's results of operations, if the
Company is unable to continue to pass these increases on to its customers.
The supply of materials such as polyethylene, polypropylene, and other
plastic films and resins used in the manufacture of flexible packaging, is
subject to the disruptions generally associated with the petroleum and petroleum
product markets. The supply of plastic materials depends upon factors beyond the
control of the Company, including, directly or indirectly, changes in the
economy, price levels and seasons, the level of domestic oil production, the
availability of imports, and the actions of OPEC. In addition, if the supply of
oil-based resins or plastic films should tighten in the future, vertically
integrated producers may have an advantage over the Company, as such competitors
could allocate scarce resin resources to their own flexible packaging units, or
transfer them at advantageous prices to their own flexible packaging units.
Although the Company's supply of raw materials is presently sufficient,
a prolonged shortage of raw materials, the resulting higher costs, or diminished
availability of such materials could adversely affect its business.
PRODUCTION BACKLOG AND INVENTORY CONTROL
The majority of demand for the Company's products does not fluctuate
significantly throughout the fiscal year. However, the Company occasionally
experiences a slight increase in production backlog due to the seasonal business
of some of its customers. Because the Company produces according to firm
purchase orders, as do the majority of manufacturers within the industry,
fluctuations in production, shipments, and inventory levels are not significant.
CUSTOMERS
The Company derives its sales from a diverse market base. In fiscal
2002, the Company sold its products throughout the United States to over 467
different customers for use in a variety of industries. The table below sets
forth the Company's approximate percent of net sales by market for each of the
years indicated. In fiscal 2001, the company reviewed its industry
classifications to better represent the customer base it currently serves. These
changes are reflected in each of the fiscal years listed below. Fluctuations in
the percentage of net sales for certain industries can be attributed, in part,
to the sale of the GB Labels and Niemand Industries divisions.
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JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
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Food products 23% 19% 17%
Paper and allied products 18% 18% 17%
Pharmaceutical and medical instruments 15% 15% 15%
Textiles 11% 14% 18%
Tobacco products 10% 8% 3%
Automotive products 9% 10% 11%
Household products 7% 9% 11%
Industrial products 2% 2% 2%
Other 5% 5% 6%
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Total net sales 100% 100% 100%
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Sales to the Company's top three customers accounted for approximately
39% of the Company's net sales for fiscal 2002. Sales to Smead Manufacturing
represented approximately 17%, and sales to McCain Foods Limited represented
approximately 13% of net sales in fiscal 2002.
The Company believes that developing long-term relationships with
customers is critical to its success in the packaging industry. Customers
generally purchase products and services under firm purchase orders rather than
long-term contracts, although the Company does have several customers with
contracts ranging from one to three years.
EMPLOYEES
As of June 29, 2002, the Company employed approximately 468 full-time
employees - 94 salaried, and 374 hourly. The Company primarily markets its
products and services through 14 employee sales representatives, as well as
several commissioned brokers or agents.
The Graphics Communication Union, No. 19-M, represents approximately 86
hourly employees at the Fort Wayne, Indiana facility. The current three-year
union contract remains in effect through November 7, 2002. Management for the
Company and union representatives are currently in negotiations concerning the
renewal of the union contract. The Company considers its relationship with its
employees and the union to be generally satisfactory. Although there are no
difficulties anticipated, the Company is unable to forecast the outcome of
future negotiations between the Company and the Graphics Communication Union, or
the potential impact any dispute could have on the Company's financial position
or results of operations.
REGULATION
The Company's activities are subject to various environmental, health
and worker safety laws. The Company has expended resources, both financial and
managerial, to comply with applicable environmental, health and worker safety
laws in its operations and at its facilities, and anticipates that it will
continue to do so in the future. Compliance with environmental laws has not
generally had a material effect on the Company's capital expenditures, earnings
or competitive position. However, as part of the environmental due diligence
carried out in fiscal 1995 in connection with a proposed merger, the Company
became aware of groundwater contamination at its GB Labels facility in
Burlington, North Carolina.
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Groundwater testing performed in 1995 revealed the presence of
tetrachlorethelene ("PCE") and related compounds in the groundwater at the site,
and in three of the neighboring properties' wells. The Company notified the
North Carolina Division of Environmental Management and the County Health
Department, provided bottled water to affected residents, and offered to
connect, at its cost, any resident wishing to be connected to the municipal
water supply.
In February 1997, the North Carolina Division of Water Quality ("DWQ")
asked Gibraltar to conduct a follow-up assessment of the GB Labels facility. The
Company arranged with its environmental consultants to install additional
groundwater monitoring wells, conduct additional investigative work at the GB
Labels site and prepare an updated report. The Comprehensive Assessment Report
was filed with the DWQ in June 1998. To date, the DWQ has requested no further
updates.
Following the August 1995 preliminary site assessment, the Company had
its environmental consultants prepare an estimate of likely remediation costs
based on all of the information known at that time. These estimated costs ranged
from $750,000 to $1.1 million over a period of seven to ten years. Accordingly,
the Company recorded a liability for such remediation costs of $750,000 in
fiscal year 1995. This estimate may be affected by new information learned, any
modifications to any remediation plan that may be proposed by the DWQ and the
actual costs incurred as part of evaluation and remediation. The reduction in
the accrual for such remediation costs to $430,000 from $431,000 at June 29,
2002 and June 30, 2001, respectively, reflects legal and environmental
consulting expenses incurred in fiscal 2002. Cumulative incurred expenses as of
June 29, 2002 related to remediation totaled $320,000. Management believes that
the ultimate resolution of this and other environmental matters will not
materially affect the financial position or results of future operations and
cash flows of the Company.
ITEM 2. PROPERTIES
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The Company owns offices and manufacturing facilities in Hastings,
Nebraska; Fort Wayne, Indiana; and Mount Gilead, North Carolina. The Company's
facilities consist of a total of more than 425,000 square feet. The Company also
leases 71,000 square feet of office, production, and warehouse space in
Hastings, Nebraska. Additional warehouse facilities are leased in Fort Wayne,
Indiana, and Mebane, North Carolina.
The Niemand facility, which is owned by the Company and was previously
used in a manufacturing capacity, is currently being leased to the company that
acquired Niemand's operating assets.
The Company's facilities and equipment are generally in good operating
condition, and are suitable for their respective uses and adequate for current
needs.
The Company maintains business property and other insurance coverage
for its facilities and operations, in amounts and for risks generally consistent
with industry practice for companies of similar size.
ITEM 3. LEGAL PROCEEDINGS
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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
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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 is presently in settlement discussions with Anthem.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the stockholders of Gibraltar
during the fourth quarter of Gibraltar's fiscal year ended June 29, 2002.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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PRICE RANGE OF COMMON STOCK
The Company's common stock is currently traded on the NASDAQ
Over-The-Counter Bulletin Board. The trading symbol for the Company's common
stock is "PACK." The following table sets forth, for the periods indicated, the
high and low sale prices for the Company's common stock as reported by NASDAQ:
HIGH LOW
FISCAL 2002
Fourth Quarter $ 1.55 $ 1.15
Third Quarter 1.60 1.16
Second Quarter 1.30 1.16
First Quarter 1.32 1.20
FISCAL 2001
Fourth Quarter $ 1.56 $ 1.25
Third Quarter 1.75 1.25
Second Quarter 1.56 0.88
First Quarter 1.06 0.63
There were approximately 163 shareholders of record of the Company's
common stock as of September 13, 2002. The Company believes that the number of
beneficial owners of its common stock is approximately 650.
DIVIDEND POLICY
Historically, the Company has not paid cash dividends on its common
stock. Any payment of cash dividends in the future will depend upon the terms of
the Company's debt instruments, the financial condition, capital requirements
and earnings of the Company, as well as other factors the Board of Directors may
deem relevant. In addition, the Company's credit facility with LaSalle Business
Credit, Inc. restricts the ability of the Company to pay dividends.
RECENT SALES OF UNREGISTERED SECURITIES
None.
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ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected historical financial information has been
derived from the Company's audited consolidated financial statements. This
information should be read in connection with the Company's Consolidated
Financial Statements and the Notes thereto, as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere in this Annual Report.
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED
--------------------------------------------------------------
JUNE 29, JUNE 30, JULY 1, JULY 3, JUNE 27,
2002(1) 2001(2) 2000(3) 1999(4) 1998(5)
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net Sales $ 63,803 $ 64,084 $ 67,543 $ 76,514 $ 75,890
Cost of Goods Sold 51,396 50,908 54,998 65,711 64,138
Gross Profit 12,407 13,176 12,545 10,803 11,752
Operating Expenses 7,864 7,961 7,862 21,802 26,411
Income (Loss) From Operations 4,543 5,215 4,683 (10,999) (14,659)
Other Expense - Net 1,399 2,499 3,130 3,324 3,989
Provision (Benefit) for Income Taxes 1,235 (923) 483 (751) (1,435)
Income (Loss) before Extraordinary Item 1,909 3,639 1,070 (13,572) (17,213)
Net Income (Loss) 1,753 3,639 1,070 (13,572) (17,213)
Basic and Diluted Per Common Share Amounts:
Income (Loss) before Extraordinary Item 0.38 0.72 0.21 (2.69) (3.41)
Net Income (Loss) 0.35 0.72 0.21 (2.69) (3.41)
Weighted Average Shares Outstanding 5,042 5,042 5,042 5,042 5,042
BALANCE SHEET DATA:
Working Capital 2,563 2,403 2,333 3,357 4,969
Total Assets 34,544 36,374 37,654 43,338 59,371
Long-Term Debt (net of current portion) 14,917 18,578 22,498 27,943 27,872
Stockholders' Equity 6,908 5,155 1,516 446 14,018
(1) Includes an extraordinary after-tax loss of $156 reflecting the
write-off of unamortized finance costs related to the First Source
financing.
(2) Includes a $2.0 million reduction to the tax provision. As a result
of earnings improvements, the Company reduced its deferred income
tax asset valuation allowance by $2.0 million in fiscal 2001 to
reflect a change in estimate related to the realizability of its
deferred income tax assets.
(3) Includes the effect of the sale of the operating assets of Niemand
in June 1999 and February 2000 and the sale of the operating assets
of GB Labels in August 1999.
(4) Includes impairment write-downs of long-lived assets related to
Flashfold Carton and GB Labels of $11,861 and $352, respectively,
and restructuring charges of $235 related to the relocation of the
Company's corporate offices.
(5) Includes a charge for severance and relocation costs of
approximately $500 and a restructuring charge of $170 consisting of
severance costs for divisional personnel. Results also include an
impairment write-down of long-lived assets related to Niemand of
approximately $14,083 and a write-off of unamortized finance costs
related to the Harris Bank refinancing of approximately $854.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in conformity
with Generally Accepted Accounting Principles ("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 of operations 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 significant 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 40 years, are reasonable. Management evaluates the
long-lived assets for impairment when events or changes in circumstances
indicate, in management's 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 management believes the assets may have
declined in value, then the Company may record impairment charges, resulting in
lower profits.
- 11 -
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
The following table presents, for the periods indicated, the percentage
relationship that certain items in the Company's Consolidated Statement of
Operations bear to net sales. This information should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Annual Report.
YEARS ENDED
--------------------------------------
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 80.6 79.4 81.4
Gross Profit 19.4 20.6 18.6
Operating Expenses 12.3 12.4 11.6
Income from Operations 7.1 8.1 6.9
Other Expense - Net 2.2 3.9 4.6
Provision (Benefit) for Income Taxes 1.9 (1.4) 0.7
Net Income 2.7% 5.7% 1.6%
FISCAL YEAR 2002 VS. 2001
In fiscal 2002, the Company had net sales of $63.8 million compared
with $64.1 million in fiscal 2001, a decrease of $0.3 million or 0.4%. Sales
were negatively impacted by the overall slow-down in economic conditions.
Gross profit for fiscal 2002 decreased to 19.4% of net sales from 20.6%
in fiscal 2001. This is attributable to higher material costs from changes in
customer mix and pricing pressures, as well as higher repair and maintenance
costs of $0.2 million. However, these increases were partially offset by
continued cost control efforts, such as a substantial reduction in labor cost of
$0.3 million. Cost of goods sold increased $0.5 million, or 1.0%, to $51.4
million in fiscal 2002 compared to $50.9 million in fiscal 2001.
Income from operations for fiscal 2002 was $4.5 million compared with
$5.2 million in fiscal 2001, a decrease of $0.7 million or 12.9%. This decrease
is primarily a result of lower sales, partially offset by a small reduction in
- 12 -
selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million or 1.2% to $7.7 million in fiscal
2002 from $7.8 million in fiscal 2001. Expressed as a percentage of net sales,
selling, general and administrative expenses decreased to 12.1% in fiscal 2002,
compared with 12.2% in fiscal 2001. This is primarily the result of lower bad
debt expense.
Total interest expense decreased $1.2 million, or 46.5%, to $1.3
million in fiscal 2002 from $2.5 million in fiscal 2001. The decrease is
primarily the result of $3.8 million in lower average borrowings coupled with a
decline in the lower average interest rate to 6.1% from 9.9%.
The income tax provision as a percentage of pre-tax income for fiscal
2002 was 39.3% compared with an income tax benefit of 34.0% for 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 $2.0 million in fiscal 2001 to reflect a change in
estimate related to the realizability of its deferred income tax assets. See
Note 5 of the Notes to Consolidated Financial Statements for a detailed
description of the adjustment to the deferred income tax asset valuation.
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 in fiscal 2002 was $1.8 million, or $0.35 per share,
compared to $3.6 million or $0.72 per share in fiscal 2001. Net income in fiscal
2001 includes the effect of reducing the deferred income tax asset valuation
allowance by $2.0 million, as a result of earnings improvements. Excluding the
impact of the change in the deferred income tax asset valuation allowance, net
income would have been $1.7 million (or $0.33 per share). The following table
illustrates the effect of the income tax asset valuation allowance (in
thousands, except per share data):
EXCLUDING IMPACT
OF CHANGE IN TAX
VALUATION
AS REPORTED ALLOWANCE
---------------- ----------------
Income Before Income Taxes $2,716 $2,716
Provision (Benefit) for Income Taxes (923) 1,046
---------------- ----------------
Net Income $3,639 $1,670
================ ================
Net Income Per Share $0.72 $0.33
================ ================
FISCAL YEAR 2001 VS. 2000
In fiscal 2001, the Company had net sales of $64.1 million compared
with $67.5 million in fiscal 2000, a decrease of $3.5 million or 5.1%. An
increase in sales from retained operations of $0.4 million was offset by a
reduction in sales of $3.9 million following the sale of the operating assets of
GB Labels in August 1999 and Niemand in February 2000. See "Item 1.
Business-General." Sales from retained operations were strong in the first half
of the fiscal year, but were negatively impacted by the overall slow-down in
economic conditions in the second half.
Gross profit for fiscal 2001 increased to 20.6% of net sales from 18.6%
in fiscal 2000. This increase was due primarily to an influx of new business
with higher margins, reduced payroll costs, and the divestiture of low margin
business from the sale of the operating assets of Niemand and GB Labels.
- 13 -
Additionally, the Company continued to benefit from cost control efforts and
productivity gains carried over from the previous year. Cost of goods sold
decreased $4.1 million, or 7.4%, to $50.9 million in fiscal 2001 compared to
$55.0 million in fiscal 2000. The sale of the operating assets of GB Labels and
Niemand accounted for $3.9 million of the decrease.
Income from operations for fiscal 2001 was $5.2 million compared with
$4.7 million in fiscal 2000, an increase of $0.5 million or 11.4%. This increase
was the result of the operating improvements from the retained operations and
the sale of the operating assets of GB Labels and Niemand. Selling, general and
administrative expenses increased $0.1 million or 1.6% to $7.8 million in fiscal
2001 from $7.7 million in fiscal 2000. Expressed as a percentage of net sales,
selling, general and administrative expenses increased to 12.2% in fiscal 2001,
compared with 11.4% in fiscal 2000. This is the result of an increase in third
party brokers commissions and bad debt expense, partially offset by decreases
due to the sale of the operating assets of Niemand and GB Labels.
Total interest expense decreased $0.5 million, or 17.9%, to $2.5
million in fiscal 2001 from $3.0 million in fiscal 2000. The decrease is
primarily the result of $5.8 million in lower average borrowings and lower
average interest rates.
The income tax benefit as a percentage of pre-tax income for fiscal
2001 was 34.0% compared with an income tax provision of 31.1% for fiscal 2000.
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 $2.0 million in fiscal 2001 to reflect a change in
estimate related to the realizability of its deferred income tax assets. See
Note 5 of the Notes to Consolidated Financial Statements for a detailed
description of the adjustment to the deferred income tax asset valuation.
Net income in fiscal 2001 was $3.6 million, or $0.72 per share,
compared to $1.1 million or $0.21 per share in fiscal 2000. Net income in fiscal
2001 includes the effect of reducing the deferred income tax asset valuation
allowance by $2.0 million, as a result of earnings improvements. Excluding the
impact of the change in the deferred income tax asset valuation allowance, net
income would have been $1.7 million (or $0.33 per share). The following table
illustrates the effect of the income tax asset valuation allowance (in
thousands, except per share data):
EXCLUDING IMPACT
OF CHANGE IN TAX
VALUATION
AS REPORTED ALLOWANCE
---------------- ----------------
Income Before Income Taxes $2,716 $2,716
Provision (Benefit) for Income Taxes (923) 1,046
---------------- ----------------
Net Income $3,639 $1,670
================ ================
Net Income Per Share $0.72 $0.33
================ ================
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 are to be repaid over seven years,
but are callable after three years. The Special Advance Loan, which is to be
- 14 -
repaid first, requires monthly principal payments of $185,155 plus interest.
Additionally, the credit facility provides for an Excess Cash Flow Payment to be
applied against the Special Advance Loan after each fiscal year-end until it is
repaid. The Excess Cash Flow Payment for fiscal 2002 is approximately $1.1
million and will be paid in October 2002. Until the Special Advance is repaid,
monthly interest payments will be made on the Term Loan. Upon repayment of the
Special Advance Loan, monthly principal payments based on the remaining
amortization period plus interest will be applied against the Term Loan. 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 in fiscal
2002.
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 $4.9 million as of June 29, 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 Loan
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 June 29, 2002 were a combination of prime and
LIBOR. LaSalle's prime and LIBOR rates for the Revolver and Special Advance Loan
were 4.75% and 1.96%, respectively, at June 29, 2002. LaSalle's prime and LIBOR
rates for the Term Loan were 4.75% and 2.20%, respectively, at June 29, 2002.
As of June 29, 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 June 29, 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 June 29, 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 June 29, 2002, the Company had working capital of $2.6 million, as
compared to $2.4 million at June 30, 2001. The current portion of the Company's
long-term debt includes an Excess Cash Flow Payment which the Company will pay
to LaSalle as a prepayment on the Special Advance Loan. 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 totaled $4.4 million in fiscal 2002 and $4.3 million in fiscal 2001.
This increase is primarily attributable to higher profitability during fiscal
2002 when compared to fiscal 2001.
During fiscal 2002, capital expenditures totaled $1.1 million compared
with $0.8 million in fiscal 2001, and consisted primarily of additions to
machinery and equipment as well as improvements to existing facilities. The
- 15 -
Company makes capital improvements to increase 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.
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 June 29, 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 $ 14,442 $ 3,293 $ 11,149 $ -- $ --
Revolving Line-of-Credit (a) 3,582 -- 3,582 -- --
Capital lease obligations 242 56 93 93 --
Operating leases 3,608 1,288 1,793 384 143
--------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 21,874 $ 4,637 $ 16,617 $ 477 $ 143
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
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) $ 4,873 $ -- $ 4,873 $ -- $ --
Standby letters of credit 148 148 -- -- --
--------------------------------------------------------------------------------------------------------
Total commercial commitment $ 5,021 $ 148 $ 4,873 $ -- $ --
--------------------------------------------------------------------------------------------------------
(a) The revolving line-of-credit represents the actual outstanding balance,
as of June 29, 2002.
(b) The revolving line-of-credit represents the unused borrowing capacity
available to the Company, as of June 29, 2002.
- 16 -
INFLATION
Inflation has not had a significant impact on the Company's cost
structure.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
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 fiscal years
2002, 2001, and 2000 by $135,000, $135,000, and $161,000, 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 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 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.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. This standard concludes that debt extinguishments used as part of a
company's risk management strategy should not be classified as an extraordinary
item. SFAS No. 145 also requires sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. In fiscal 2002, the Company recorded an extraordinary loss of $260,000
($156,000 after tax) reflecting the write-off of unamortized finance costs. For
the purpose of comparability, the presentation of this amount will be changed to
reflect the requirements of SFAS No. 145 in future filings.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity is recognized
at fair value when the liability is incurred and is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not expect its adoption of this standard in fiscal 2003 to have a significant
impact on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The Company's primary market risk is fluctuation in interest rates. All
of the Company's debt at June 29, 2002 is at variable interest rates. A
hypothetical 10% change in interest rates would have had a $0.1 million impact
on interest expense for the fiscal year ended June 29, 2002.
- 17 -
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; and
(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. 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-K and other documents that the Company
files from time to time with the Securities and Exchange Commission, including
quarterly reports on Form 10-Q and any current reports on Form 8-K, must be
considered by any investor or potential investor in the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Reference is made to the financial statements, the report thereon, the
notes thereto, and supplementary data commencing at page F-1 of this Annual
Report on Form 10-K which financial statements, report, notes, and data are
incorporated herein by reference.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
- 18 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information relating to the identification, business experience and
directorships of each director and nominee for director of Gibraltar and the
information relating to the identification and business experience of
Gibraltar's executive officers, required by Items 401 and 405 of Regulation S-K,
will be presented in the sections entitled "Election of Directors - Nominees for
Director" and "Executive Compensation and Other Information - Executive
Officers" of Gibraltar's definitive proxy statement for the Annual Meeting of
Stockholders for fiscal 2002, and is hereby incorporated by reference. If the
definitive proxy statement for the 2002 annual meeting is not filed with the
Securities and Exchange Commission within 120 days of the end of Gibraltar's
2002 fiscal year, Gibraltar will amend this Annual Report and include such
information in the amendment.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information relating to the compensation of directors and officers
required by Item 402 of Regulation S-K will be presented in the sections
entitled "Election of Directors - Director Compensation" and "Executive
Compensation and Other Information" of Gibraltar's definitive proxy statement
for the Annual Meeting of Stockholders for fiscal 2002 and is hereby
incorporated by reference. If the definitive proxy statement for the 2002 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of Gibraltar's 2002 fiscal year, Gibraltar will amend this Annual
Report and include such information in the amendment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information relating to security ownership required by Item 403 of
Regulation S-K will be presented in the section entitled "Voting Securities and
Principal Stockholders" of Gibraltar's definitive proxy statement for the Annual
Meeting of Stockholders for fiscal 2002 and is hereby incorporated by reference.
If the definitive proxy statement for the 2002 annual meeting is not filed with
the Securities and Exchange Commission within 120 days of the end of Gibraltar's
2002 fiscal year, Gibraltar will amend this Annual Report and include such
information in the amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information relating to certain relationships and transactions
required by Item 404 of Regulation S-K will be presented in the section
"Executive Compensation and Other Information - Certain Transactions" of
Gibraltar's definitive proxy statement for the Annual Meeting of Stockholders
for fiscal 2002 and is hereby incorporated by reference. If the definitive proxy
statement for the 2002 annual meeting is not filed with the Securities and
Exchange Commission within 120 days of the end of Gibraltar's 2002 fiscal year,
Gibraltar will amend this Annual Report and include such information in the
amendment.
- 19 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) (1) Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets,
June 29, 2002 and June 30, 2001 F-2
Consolidated Statements of Operations,
Years Ended June 29, 2002, June 30, 2001, and July 1, 2000 F-3
Consolidated Statements of Stockholders' Equity,
Years Ended June 29, 2002, June 30, 2001, and July 1, 2000 F-4
Consolidated Statements of Cash Flows,
Years Ended June 29, 2002, June 30, 2001, and July 1, 2000 F-5
Notes to Consolidated Financial Statements F-6
(2) All schedules of the Registrant for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable, or have been disclosed in the Notes to Consolidated
Financial Statements and, therefore, have been omitted.
(3) Exhibits
EXHIBITS
--------
3.1 Certificate of Incorporation, as amended, of Gibraltar Packaging
Group, Inc. (incorporated by reference to Exhibit 3.1 to Gibraltar's
Registration Statement on Form S-1 (File No. 33-44965), as amended,
filed January 9, 1992).
3.2 By-Laws of Gibraltar Packaging Group, Inc. (incorporated by
reference to Exhibit 3.2 to Gibraltar's Registration Statement on
Form S-1 (File No. 33-44965), as amended, filed January 9, 1992).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Gibraltar's Registration Statement on Form S-1 (File
No. 33-44965), as amended, filed January 9, 1992).
10.1 Agreement and Plan of Reorganization, dated as of January 7, 1992,
among Gibraltar Packaging Group, Inc., RidgePak Acquisition
Corporation, RidgePak Corporation, and the Shareholders of RidgePak
Corporation (incorporated by reference to Exhibit 10.1 to
Gibraltar's Registration Statement on Form S-1 (File No. 33-44965),
as amended, filed January 9, 1992).
10.2 Registration Rights Agreement, dated March 4, 1992, by and among
Gibraltar Packaging Group, Inc. and certain stockholders of
Gibraltar Packaging Group, Inc. (incorporated by reference to
Exhibit 4.2 to Gibraltar's Annual Report on Form 10-K for the year
ended June 30, 1992 (File No. 00-19800)).
- 20 -
**10.4 Gibraltar Packaging Group, Inc. 1992 Incentive Stock Option Plan,
dated March 5, 1992 and amended as of April 28, 1994 (incorporated
by reference to Exhibit 10.5 to Gibraltar's Annual Report on Form
10-K for the year ended July 2, 1994 (File No. 00-19800)).
**10.5 Gibraltar Packaging Group, Inc. Director Stock Option Plan dated
July 13, 1992 and amended as of April 28, 1994 (incorporated by
reference to Exhibit 10.6 to Gibraltar's Annual Report on Form 10-K
for the year ended July 2, 1994 (File No. 00-19800)).
10.7 Stock Purchase Agreement, dated January 28, 1993, by and among
Gibraltar Packaging Group, Inc., Standard Packaging and Printing
Corp. and each of the shareholders of Standard Packaging and
Printing Corp. (incorporated by reference to Exhibit 2.1 to
Gibraltar's Current Report on Form 8-K dated January 28, 1993 (File
No. 00-19800)).
10.8 Registration Rights Agreement, dated as of January 28, 1993, between
Gibraltar Packaging Group, Inc. and Brady W. Dickson and Joan H.
Dickson (incorporated by reference to Exhibit 28.1 to Gibraltar's
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1993 (File No. 00-19800)).
10.9 Agreement and Plan of Reorganization, dated April 28, 1993, by and
among Gibraltar Packaging Group, Inc., Niemand Acquisition
Corporation, Niemand Holdings, Inc., Niemand Industries, Inc., and
each of the stockholders of Niemand Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to Gibraltar's Current Report on Form 8-K
dated April 28, 1993 (File No. 00-19800)).
10.10 Registration Rights Agreement, dated April 28, 1993, by and among
Gibraltar Packaging Group, Inc. and the former stockholders of
Niemand Holdings, Inc. listed on Schedule I thereto (incorporated by
reference to Exhibit 28.1 to Gibraltar's Current Report on Form 8-K
dated April 28, 1993 (File No. 00-19800)).
10.17 Secured Credit Agreement, dated July 31, 1998, among Gibraltar
Packaging Group, Inc., various financial institutions and First
Source Financial LLP, Individually and as Agent ("The Credit
Agreement") (incorporated by reference to Exhibit 10.17 to
Gibraltar's Annual Report on Form 10-K for the year ended June 27,
1998 (File No. 00-19800)).
**10.33 Gibraltar Packaging Group, Inc.1998 Stock Appreciation Rights
Plan, dated November 30, 1998 (incorporated by reference to Exhibit
10.33 to Gibraltar's Quarterly Report on Form 10-Q for the period
ended December 31, 1998 (File No. 00-19800)).
**10.34 Employment Agreement, dated January 15, 1999, between Gibraltar
Packaging Group, Inc. and John W. Lloyd (incorporated by reference
to Exhibit 10.34 to Gibraltar's Quarterly Report on Form 10-Q for
the period ended December 31, 1998 (File No. 00-19800)).
**10.35 Employment Agreement, dated January 15, 1999, between Gibraltar
Packaging Group, Inc. and Richard D. Hinrichs (incorporated by
reference to Exhibit 10.35 to Gibraltar's Quarterly Report on Form
10-Q for the period ended December 31, 1998 (File No. 00-19800)).
- 21 -
**10.36 Stock Appreciation Rights Agreement, dated January 15, 1999,
between Gibraltar Packaging Group, Inc. and John W. Lloyd
(incorporated by reference to Exhibit 10.36 to Gibraltar's Quarterly
Report on Form 10-Q for the period ended December 31, 1998 (File No.
00-19800)).
**10.37 Stock Appreciation Rights Agreement, dated January 15, 1999,
between Gibraltar Packaging Group, Inc. and Richard D. Hinrichs
(incorporated by reference to Exhibit 10.37 to Gibraltar's Quarterly
Report on Form 10-Q for the period ended December 31, 1998 (File No.
00-19800)).
10.42 Asset Purchase Agreement, dated February 25, 1999, between Robinson
JDM Ltd. (Buyer) and Niemand Industries, Inc. (Seller) (incorporated
by reference to Exhibit 10.42 to Gibraltar's Annual Report on Form
10-K for the year ended July 3, 1999 (File No. 00-19800)).
10.43 Escrow Agreement, dated March 29, 1999, among Robinson JDM Ltd.
(Buyer), Niemand Industries, Inc. (Seller) and Chicago Title
Insurance Company (incorporated by reference to Exhibit 10.43 to
Gibraltar's Annual Report on Form 10-K for the year ended July 3,
1999 (File No. 00-19800)).
10.44 First Amendment to Asset Purchase Agreement, dated April 20, 1999,
between Robinson JDM Ltd. (Buyer) and Niemand Industries, Inc.
(Seller) (incorporated by reference to Exhibit 10.44 to Gibraltar's
Annual Report on Form 10-K for the year ended July 3, 1999 (File No.
00-19800)).
10.45 Non-Competition and Non-Solicitation Agreement, dated May 28, 1999,
among Robinson JDM Ltd., Gibraltar Packaging Group, Inc. and Niemand
Industries, Inc. (incorporated by reference to Exhibit 10.45 to
Gibraltar's Annual Report on Form 10-K for the year ended July 3,
1999 (File No. 00-19800)).
10.46 Asset Purchase Agreement, dated September 1, 1999, between JIT
Manufacturing, Inc. (Buyer) and GB Labels, Inc. (Seller)
(incorporated by reference to Exhibit 10.46 to Gibraltar's Annual
Report on Form 10-K for the year ended July 3, 1999 (File No.
00-19800)).
10.47 Non-Competition Agreement, dated September 1, 1999, between JIT
Manufacturing, Inc. and Gibraltar Packaging Group, Inc.
(incorporated by reference to Exhibit 10.47 to Gibraltar's Annual
Report on Form 10-K for the year ended July 3, 1999 (File No.
00-19800)).
10.48 Guaranty Agreement, dated September 1, 1999, between JIT
Manufacturing, Inc. and Gibraltar Packaging Group, Inc.
(incorporated by reference to Exhibit 10.48 to Gibraltar's Annual
Report on Form 10-K for the year ended July 3, 1999 (File No.
00-19800)).
**10.52 Further Agreement Concerning Employment, dated January 23, 2000,
between Gibraltar Packaging Group, Inc. and John W. Lloyd
(incorporated by reference to Exhibit 10.52 to Gibraltar's Quarterly
Report on Form 10-Q for the period ended December 31, 1999 (File No.
00-19800)).
10.53 Asset Purchase Agreement, dated November 3, 1999, among TEKPAK,
Inc., Niemand Industries, Inc. and Gibraltar Packaging Group, Inc.
(incorporated by reference to Exhibit 10.53 to Gibraltar's Quarterly
Report on Form 10-Q for the period ended December 31, 1999 (File No.
00-19800)).
- 22 -
**10.54 Memorandum of Understanding, dated July 3, 2000, between Gibraltar
Packaging Group, Inc. and John W. Lloyd (incorporated by reference
to Exhibit 10.54 to Gibraltar's Annual Report on Form 10-K for the
period ended July 1, 2000 (File No. 00-19800)).
**10.55 Letter of Resignation, dated September 1, 2000, between Gibraltar
Packaging Group, Inc. and John W. Lloyd (incorporated by reference
to Exhibit 10.55 to Gibraltar's Annual Report on Form 10-K for the
period ended July 1, 2000 (File No. 00-19800)).
10.57 Amendment to Asset Purchase Agreement, dated April 6, 2001, among
TEKPAK, Inc., Niemand Industries, Inc. and Gibraltar Packaging
Group, Inc (incorporated by reference to Exhibit 10.57 to
Gibraltar's Annual Report on Form 10-K for the period ended June 30,
2001 (File No. 00-19800)).
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 (incorporated by reference to Exhibit 10.58
to Gibraltar's Quarterly Report on Form 10-Q for the period ended
March 31, 2002 (File No. 00-19800)).
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 (incorporated by reference to
Exhibit 10.59 to Gibraltar's Quarterly Report on Form 10-Q for the
period ended March 31, 2002 (File No. 00-19800)).
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(incorporated by reference to Exhibit 10.60 to
Gibraltar's Quarterly Report on Form 10-Q for the period ended March
31, 2002 (File No. 00-19800)).
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(incorporated by reference to Exhibit 10.61 to
Gibraltar's Quarterly Report on Form 10-Q for the period ended March
31, 2002 (File No. 00-19800)).
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(incorporated by reference to Exhibit 10.62 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended March 31, 2002
(File No. 00-19800)).
* 21.1 Subsidiaries of Gibraltar Packaging Group, Inc. (incorporated by
reference to Exhibit 21.1 to Gibraltar's Annual Report on Form 10-K
for the year ended July 3, 1999 (File No. 00-19800)).
* 23.1 Consent of Deloitte & Touche LLP.
------------------
*Filed herewith.
**Indicates management contract or compensatory plan.
(b) Reports on Form 8-K.
NONE
- 23 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Brett E. Moller
----------------------------------
Brett E. Moller
Vice President Finance
(Principal Financial and Accounting Officer)
Date: September 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Walter E. Rose /s/ Richard D. Hinrichs
------------------------------------ ------------------------------------
Walter E. Rose Richard D. Hinrichs
Chief Executive Officer and Chief Operating Officer and Director
Chairman of the Board September 25, 2002
(Principal Executive Officer)
September 25, 2002
/s/ David G. Chandler /s/ Robert G. Shaw
------------------------------------ ------------------------------------
David G. Chandler Robert G. Shaw
Director Director
September 25, 2002 September 25, 2002
/s/ John D. Strautnieks /s/ John W. Lloyd
------------------------------------ ------------------------------------
John D. Strautnieks John W. Lloyd
Director Director
September 25, 2002 September 25, 2002
- 24 -
CERTIFICATIONS PURSUANT TO 17 CFR SECTION 240.13a-14
----------------------------------------------------
I, Walter E. Rose, Chairman of the Board and Chief Executive Officer of
Gibraltar Packaging Group, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Gibraltar Packaging Group,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 25, 2002
/s/ Walter E. Rose
---------------------------
WALTER E. ROSE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
I, Brett E. Moller, Vice President Finance of Gibraltar Packaging Group, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Gibraltar Packaging Group,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
Date: September 25, 2002
/s/ Brett E. Moller
---------------------------
BRETT E. MOLLER
VICE PRESIDENT FINANCE
(Principal Financial Officer)
Simultaneously with the filing of this annual report on Form 10-K, the Company
submitted to the Securities and Exchange Commission the certification of this
report by its chief executive and chief financial officer required by 18 U.S.C.
ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002.
- 25 -
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gibraltar Packaging Group, Inc.
Hastings, Nebraska
We have audited the accompanying consolidated balance sheets of Gibraltar
Packaging Group, Inc. and its subsidiaries as of June 29, 2002 and June 30,
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 29,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Gibraltar Packaging Group, Inc. and
subsidiaries at June 29, 2002 and June 30, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 29, 2002 in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 8, 2002
F-1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 29, JUNE 30,
2002 2001
ASSETS
CURRENT ASSETS:
Cash $ 45 $ 144
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $521
AND $508, RESPECTIVELY) 5,432 6,285
Inventories 7,317 6,693
Deferred income taxes 703 725
Prepaid and other current assets 423 766
-------- --------
Total current assets 13,920 14,613
PROPERTY, PLANT AND EQUIPMENT - Net 15,687 16,590
GOODWILL (NET OF ACCUMULATED AMORTIZATION OF $2,225 AND
$2,090, RESPECTIVELY) 4,112 4,247
DEFERRED INCOME TAXES -- 105
OTHER ASSETS (NET OF ACCUMULATED AMORTIZATION OF $83 AND
$487, RESPECTIVELY) 825 819
-------- --------
TOTAL $ 34,544 $ 36,374
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 718 $ 1,115
Current portion of long-term debt 3,349 2,769
Accounts payable 4,036 4,925
Accrued expenses 3,254 3,401
-------- --------
Total current liabilities 11,357 12,210
LONG-TERM DEBT - Net of current portion 14,917 18,578
DEFERRED INCOME TAXES 932 --
OTHER LONG-TERM LIABILITIES 430 431
-------- --------
Total liabilities 27,636 31,219
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
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 (21,304) (23,057)
-------- --------
Total stockholders' equity 6,908 5,155
-------- --------
TOTAL $ 34,544 $ 36,374
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000
(IN THOUSANDS EXCEPT SHARE DATA)
2002 2001 2000
NET SALES $ 63,803 $ 64,084 $ 67,543
COST OF GOODS SOLD 51,396 50,908 54,998
---------- ---------- ----------
GROSS PROFIT 12,407 13,176 12,545
---------- ---------- ----------
OPERATING EXPENSES:
Selling, general, and administrative 7,729 7,826 7,701
Amortization of goodwill 135 135 161
---------- ---------- ----------
Total operating expenses 7,864 7,961 7,862
---------- ---------- ----------
INCOME FROM OPERATIONS 4,543 5,215 4,683
---------- ---------- ----------
OTHER EXPENSE:
Interest expense 1,337 2,499 3,043
Other expense - net 62 -- 87
---------- ---------- ----------
Total other expense 1,399 2,499 3,130
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 3,144 2,716 1,553
INCOME TAX PROVISION (BENEFIT) 1,235 (923) 483
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 1,909 3,639 1,070
EXTRAORDINARY ITEM, NET OF TAX (Note 4) (156) -- --
---------- ---------- ----------
NET INCOME $ 1,753 $ 3,639 $ 1,070
========== ========== ==========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Income Before Extraordinary Item $ 0.38 $ 0.72 $ 0.21
========== ========== ==========
Extraordinary Item $ (0.03) $ -- $ --
========== ========== ==========
Net Income $ 0.35 $ 0.72 $ 0.21
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,041,544 5,041,544 5,041,544
========== ========== ==========
(basic and diluted)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000
(IN THOUSANDS EXCEPT SHARE DATA)
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
BALANCE, July 3, 1999 5,041,544 $ 50 $ 28,162 $ (27,766) $ 446
Net income -- -- -- 1,070 1,070
--------- --------- --------- --------- ---------
BALANCE, July 1, 2000 5,041,544 50 28,162 (26,696) 1,516
Net income -- -- -- 3,639 3,639
--------- --------- --------- --------- ---------
BALANCE, June 30, 2001 5,041,544 50 28,162 (23,057) 5,155
Net income -- -- -- 1,753 1,753
--------- --------- --------- --------- ---------
BALANCE, June 29, 2002 5,041,544 $ 50 $ 28,162 $ (21,304) $ 6,908
========= ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1, 2000
(IN THOUSANDS)
2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,753 $ 3,639 $ 1,070
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 2,240 2,212 2,359
Provision for losses on accounts receivable 216 342 28
(Gain)/loss on sale of property, plant and equipment 2 (55) (13)
Extraordinary item 260 -- --
Deferred income taxes 1,059 (1,142) 450
Changes in operating assets and liabilities:
Accounts receivable - net 637 (185) 73
Inventories (624) 117 69
Prepaid expenses and other assets 263 (519) (289)
Accounts payable (1,286) 35 (815)
Accrued expenses and other liabilities (148) (158) (11)
-------- -------- --------
Net Cash Flows from Operating Activities 4,372 4,286 2,921
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 13 403 38
Proceeds from sale of Niemand and GB Labels -- -- 2,907
Purchases of property, plant and equipment (842) (803) (331)
-------- -------- --------
Net Cash Flows from Investing Activities (829) (400) 2,614
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit facility (2,993) (798) (777)
Net principal repayments of long-term debt (15,845) (3,081) (4,764)
Net repayments under capital leases (30) (23) (32)
Proceeds from refinancing 15,553 -- --
Refinancing costs (327) -- --
-------- -------- --------
Net Cash Flows from Financing Activities (3,642) (3,902) (5,573)
-------- -------- --------
NET DECREASE IN CASH (99) (16) (38)
CASH AT BEGINNING OF YEAR 144 160 198
-------- -------- --------
CASH AT END OF YEAR $ 45 $ 144 $ 160
======== ======== ========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ 113 $ 191 $ 8
======== ======== ========
Interest paid $ 1,186 $ 2,365 $ 2,969
======== ======== ========
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations $ 234 $ -- $ --
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 29, 2002, JUNE 30, 2001, AND JULY 1 2000
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of Gibraltar Packaging Group, Inc. (the "Company") and its
wholly owned subsidiaries; RidgePak Corporation (dba "Flashfold Carton") and
Standard Packaging & Printing Corporation ("Standard Packaging"). The activity
of Niemand Industries, Inc. ("Niemand") and GB Labels, Inc. ("GB Labels") have
been included in the consolidated financial statements through the date of
disposition. All significant intercompany accounts and transactions have been
eliminated.
DESCRIPTION OF BUSINESS - The Company designs and manufactures high quality
specialty packaging products in facilities located in Nebraska, Indiana, and
North Carolina, and markets these products primarily to customers throughout the
United States. The Company's products include folding cartons, specialty
laminated containers, and flexible packaging for a wide range of businesses.
Based on the nature of the product, the production processes, types of
customers, and methods used to distribute products, the Company operates in one
reportable segment.
FISCAL YEAR - The Company ends its fiscal year on the Saturday closest to June
30.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid financial
instruments purchased with a maturity of three months or less to be cash
equivalents. The Company utilizes a cash management system that includes zero
balance accounts. Negative cash balances for such accounts, resulting from
outstanding checks, are reclassified to checks not yet presented in the
consolidated financial statements.
ACCOUNTS RECEIVABLE - The changes in the allowance for doubtful accounts
receivable consist of the following (in thousands):
YEARS ENDED
-----------------------------------
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
Allowance, Beginning of Year $ 508 $ 185 $ 194
Provision for Uncollectible Accounts 216 342 28
Write-off of Uncollectible Accounts (203) (19) (37)
-------- -------- --------
Allowance, End of Year $ 521 $ 508 $ 185
======== ======== ========
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is provided using the straight-line
method over the following estimated useful lives:
Buildings 40 years
Machinery and equipment 2-20 years
Vehicles 3-8 years
Furniture and fixtures 3-10 years
F-6
GOODWILL - Through fiscal 2002, goodwill was being amortized over a forty-year
period on a straight-line basis. The carrying value of goodwill was evaluated in
relation to the operating performance and future undiscounted net cash flows of
the related acquired businesses. Starting in fiscal 2003 and in accordance with
SFAS 142, GOODWILL AND OTHER INTANGIBLE ASSETS, goodwill will no longer be
amortized, but will be tested for impairment on an annual basis.
IMPAIRMENT OF LONG-LIVED ASSETS - Recoverability of long-lived assets not held
for sale are evaluated by measuring the carrying amount of the assets against
the estimated undiscounted future cash flows associated with them. The
evaluation of the recoverability of long-lived assets that are held for sale are
based on comparing the assets' carrying amount with its fair value less cost to
sell. Based on these evaluations, there were no adjustments to the carrying
value of long-lived assets in fiscal years 2002, 2001 and 2000.
DISPOSAL OF ASSETS - In connection with a modification of the Company's
strategic plan, the Company previously divested itself of the operating assets
of two of its subsidiaries, GB Labels and Niemand.
In the fourth quarter of fiscal 1999, the sale of the container business of
Niemand was finalized. The remainder of the operating assets were sold effective
February 1, 2000. No gain or loss was recorded on the sales in either fiscal
2000 or fiscal 1999.
The sale of the operating assets of GB Labels was effective August 30, 1999. No
gain or loss was recorded on the sale in fiscal 2000.
Individually and in total, the assets disposed of were not material to the
Company's financial statements. Accordingly, pro forma financial statements are
not presented.
OTHER ASSETS - Costs associated with obtaining financing arrangements are
included in other assets. In December 2001, the Company capitalized
approximately $0.4 million, representing the cost of refinancing its debt under
a new credit facility, as described in Note 4. This amount is being amortized
over thirty-six months. 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 in fiscal 2002.
REVENUE RECOGNITION - Revenue is recognized when title to finished product
passes to the customer which is primarily upon shipment of products.
SHIPPING AND HANDLING COSTS - Shipping and handling costs are included in cost
of goods sold in the consolidated statements of operations.
EARNINGS PER SHARE - Basic earnings per share data are based on the weighted
average outstanding common shares during the period. Diluted earnings per share
data are based on the weighted average outstanding common shares and the effect
of all dilutive potential common shares, including stock options.
NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting Standards
Board ("FASB") issued 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 fiscal years 2002, 2001, and 2000 by $135,000, $135,000, and
$161,000, respectively.
F-7
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 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.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS NO.
4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS.
This standard concludes that debt extinguishments used as part of a company's
risk management strategy should not be classified as an extraordinary item. SFAS
No. 145 also requires sale-leaseback accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. SFAS
No. 145 is effective for fiscal years beginning after May 15, 2002. In fiscal
2002, the Company recorded an extraordinary loss of $260,000 ($156,000 after
tax) reflecting the write-off of unamortized finance costs. For the purpose of
comparability, the presentation of this amount will be changed to reflect the
requirements of SFAS No. 145 in future filings.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity is recognized at fair value when
the liability is incurred and is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not expect its adoption
of this standard in fiscal 2003 to have a significant impact on its financial
statements.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATION - Certain amounts in the fiscal 2001 financial statements have
been reclassified to conform with the fiscal 2002 presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
JUNE 29, JUNE 30,
2002 2001
Finished goods $ 4,665 $ 4,846
Work in process 935 797
Raw materials 1,414 764
Manufacturing supplies 303 286
-------- --------
$ 7,317 $ 6,693
======== ========
F-8
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consisted of the following (in
thousands):
JUNE 29, JUNE 30,
2002 2001
Land $ 632 $ 632
Buildings 12,016 11,852
Machinery, equipment
and vehicles 21,439 20,711
Furniture and fixtures 1,598 1,516
Construction-in-progress 9 19
-------- --------
35,694 34,730
Less accumulated depreciation 20,007 18,140
-------- --------
$ 15,687 $ 16,590
======== ========
4. FINANCING AGREEMENTS
Long-term debt consisted of (columnar amounts in thousands):
JUNE 29, JUNE 30,
2002 2001
Term Loan $ 11,553 $ 14,734
Special Advance Loan 2,889 --
Revolving credit facility 3,582 6,575
Capital lease obligations (Note 8) 242 38
-------- --------
Total 18,266 21,347
Less current portion 3,349 2,769
-------- --------
Long-term debt $ 14,917 $ 18,578
======== ========
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 are to be repaid over seven years, but are
callable after three years. The Special Advance Loan, which is to be repaid
first, requires monthly principal payments of $185,155 plus interest.
Additionally, the credit facility provides for an Excess Cash Flow Payment to be
applied against the Special Advance Loan after each fiscal year-end until it is
repaid. The Excess Cash Flow Payment for fiscal 2002 is approximately $1.1
million and will be paid in October 2002. Until the Special Advance is repaid,
monthly interest payments will be made on the Term Loan. Upon repayment of the
Special Advance Loan, monthly principal payments based on the remaining
amortization period plus interest will be applied against the Term Loan. 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 in fiscal
2002.
The Revolver provides for a revolving line of credit under a borrowing base
commitment subject to certain loan availability requirements. Loan availability
F-9
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
$4.9 million as of June 29, 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 Loan
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 June 29, 2002 were a combination of prime and
LIBOR. LaSalle's prime and LIBOR rates for the Revolver and Special Advance Loan
were 4.75% and 1.96%, respectively, at June 29, 2002. LaSalle's prime and LIBOR
rates for the Term Loan were 4.75% and 2.20%, respectively, at June 29, 2002.
As of June 29, 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 June 29, 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 June 29, 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.
Anticipated maturities of long-term debt subsequent to June 29, 2002, pursuant
to the credit facility and future minimum payments under finance leases, are as
follows (in thousands):
AMOUNTS
2003 $ 3,349
2004 2,268
2005 12,556
2006 51
2007 42
--------
Total $ 18,266
========
5. INCOME TAXES
The provision (benefit) for income taxes, after extraordinary item, consists of
the following (in thousands):
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
Current:
Federal $ -- $ 62 $ --
State 72 157 33
Deferred 1,059 (1,142) 450
-------- -------- --------
$ 1,131 $ (923) $ 483
======== ======== ========
F-10
The following represents a reconciliation between the actual income tax expense
and income taxes computed by applying the statutory federal income tax rate to
income (loss) before income taxes:
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
Statutory rate $ 981 $ 923 $ 528
State income tax effect 81 95 45
Change in valuation allowance (7) (1,969) (127)
Amortization of goodwill 46 46 55
Other - net 30 (18) (18)
-------- -------- --------
Total $ 1,131 $ (923) $ 483
-------- -------- --------
Deferred income tax assets and liabilities result from reporting income and
expenses in different periods for tax and financial reporting purposes. The
deferred tax assets and liabilities are comprised of the following (in
thousands):
JUNE 29, JUNE 30,
2002 2001
Deferred income tax assets:
Difference in basis of amortizable assets $ 195 $ 210
Non-deductible accrued liabilities 996 939
State net operating loss carryforwards 1,427 1,502
State tax credits carryforward 369 875
Federal net operating loss carryforward 925 2,223
AMT credit carryforward 411 454
Differences in the basis of inventory
for tax purposes 153 178
Other - net 11 12
-------- --------
Total 4,487 6,393
Deferred tax asset valuation allowance (1,804) (2,313)
-------- --------
Net 2,683 4,080
-------- --------
Deferred tax liabilities:
Difference in basis of property, plant
and equipment (2,725) (3,061)
Other (187) (189)
-------- --------
Total (2,912) (3,250)
-------- --------
Net deferred income tax asset (liability) $ (229) $ 830
======== ========
At June 29, 2002, the Company had the following tax net operating loss
carryforwards for federal income tax purposes (in thousands):
EXPIRATION AMOUNTS
2013 $ 2,571
2019 71
2020 78
--------
Total $ 2,720
========
At June 29, 2002, the Company had a state investment tax credit carryforward of
approximately $0.4 million which expires if unutilized by the year 2005. These
credits are available to offset both Nebraska state income tax and Nebraska
sales tax on qualifying purchases.
F-11
6. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan (the
"benefit plan") covering substantially all of the RidgePak Corporation hourly
union employees fulfilling participation requirements. Benefits are based on the
employee's years of credited service. The Company's funding policy is to
contribute annually the minimum amount required under ERISA. Plan assets are
held by an independent trustee and consist of U.S. Government securities, time
deposits, common stocks, corporate bonds and collective investment funds.
The change in benefit obligation and plan assets and the reconciliation of
funded status for the years presented included the following components (dollars
in thousands):
JUNE 29, JUNE 30,
2002 2001
Change in benefit obligations:
Benefit obligation at beginning of year $ 598 $ 555
Service cost 48 43
Interest cost 40 43
Actuarial gain 6 54
Benefits paid (119) (97)
------- -------
Benefit obligation at end of year 573 598
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year 666 685
Actual return (loss) on plan assets (10) 13
Employer contribution 40 65
Benefits paid (119) (97)
------- -------
Fair value of plan assets at end of year 577 666
------- -------
Reconciliation of funded status:
Plan assets in excess of projected benefit obligation 4 68
Unrecognized loss 179 115
Contributions made after the measurement date 40 40
------- -------
Prepaid pension cost recognized on balance sheet $ 223 $ 223
======= =======
Discount rate used to calculate the above liability 7.25% 7.25%
The net periodic pension cost and assumptions used for the years presented
included the following components (dollars in thousands):
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
Service cost-benefits earned during the period $ 48 $ 43 $ 45
Interest cost on projected benefit obligation 40 43 39
Expected return on plan assets (52) (58) (52)
Amortization of loss 4 -- --
------ ------ ------
Net periodic pension cost $ 40 $ 28 $ 32
====== ====== ======
Discount rate used to calculate expense 7.25% 8.00% 7.50%
Expected long-term rate of return on plan assets 8.00% 8.00% 8.00%
F-12
The Company also sponsors a defined contribution 401(k) plan (the "Gibraltar
Plan"). Employees are eligible to participate in the Gibraltar Plan upon
completion of six months of credited service. An employee may contribute up to
15% of his or her earnings on a pre-tax basis subject to IRS limitations. The
Company matches 25% of an employee's contribution up to a maximum of 4% of
eligible compensation. Participants fully vest in Company contributions after
five years with partial vesting after one year.
The Company's contributions to the Gibraltar Plan for the years ended June 29,
2002, June 30, 2001, and July 1, 2000 were approximately $88,000, $83,000 and
$86,000 respectively.
7. STOCK OPTION PLANS
The 1992 Incentive Stock Option Plan (the "1992 Plan") provides for grants to
key employees of the Company of options to purchase in the aggregate up to
300,000 shares of the Company's common stock with exercise prices equal to or
greater than the market price at the date of grant. Options granted under the
1992 Plan are exercisable no earlier than six months and no later than ten years
from the grant date.
The Director Stock Option Plan (the "Directors Plan") provides for each
independent director to receive a grant of an option to purchase 3,000 shares of
the Company's common stock at an exercise price equal to the market price at the
date such person is elected to the board. Options granted under the Directors
Plan are exercisable no earlier than six months and no later than ten years from
the grant date.
The 1998 Stock Appreciation Rights Plan (the "Plan") provides for the
discretionary granting of stock appreciation rights ("SAR") to key employees of
the Company, and is to be administered by the Compensation Committee of the
Company's Board of Directors. SARs held by grantees under the Plan entitle the
holder to cash payments only. Effective January 15, 1999, 150,000 SARs valued at
$2.25 each and 150,000 SARs valued at $3.00 each were granted to officers of the
Company. The SARs vest at 20% per year through the maturity date of June 30,
2003. No compensation expense has been recorded related to this plan, since the
value of the SARs exceed the current trading price of the stock.
A summary of stock option transactions under the Company's employee option plans
and the Director's stock plan for each of the three years in the period ended
June 29, 2002 is as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at July 3, 1999 52,834 $ 7.59
Granted -- --
Exercised -- --
Canceled or Lapsed (1,500) 9.00
-------- --------
Outstanding at July 1, 2000 51,334 7.55
Granted -- --
Exercised -- --
Canceled or Lapsed -- --
-------- --------
Outstanding at June 30, 2001 51,334 $ 7.55
Granted -- --
Exercised -- --
Canceled or Lapsed -- --
-------- --------
Outstanding at June 29, 2002 51,334 $ 7.55
======== ========
Shares exercisable at July 1, 2000 51,334 $ 7.55
Shares exercisable at June 30, 2001 51,334 $ 7.55
Shares exercisable at June 29, 2002 51,334 $ 7.55
F-13
The following table summarizes information about stock options outstanding at
June 29, 2002:
Weighted
Range of Avg. Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercisable
------ ----------- ---- -------------- ----------- -----------
$6.00 - $6.50 22,334 0.1 years $ 6.02 22,334 $ 6.02
$8.00 - $9.00 29,000 1.7 years 8.73 29,000 8.72
------ --------- -------- ------ --------
51,334 1.0 Years $ 7.55 51,334 $ 7.55
The Company accounts for its stock-based compensation under the provisions of
APB Opinion 25, "Accounting for Stock Issued to Employees" and related
interpretations, which utilize the intrinsic value method. No compensation cost
has been recognized related to the Company's stock option plans. Had
compensation cost been determined based on the fair value of the options at the
date of grant consistent with the requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income (loss) and earnings per share would have been changed to
the pro forma amounts indicated below:
JUNE 29, JUNE 30, JULY 1,
2002 2001 2000
Net income (loss) applicable to common shareholders
As reported $ 1,753 $ 3,639 $ 1,070
Pro forma $ 1,753 $ 3,639 $ 1,070
Net income (loss) per basic and diluted common share
As reported $ 0.35 $ 0.72 $ 0.21
Pro forma $ 0.35 $ 0.72 $ 0.21
At June 29, 2002, the stock option exercise prices for the two existing plans
exceeded the market value of the Company's common stock and therefore the
options are excluded from the Company's earnings per share calculation.
8. LEASES
The Company leases certain manufacturing equipment under non-cancelable capital
leases. As a result, the present value of the remaining future minimum lease
payments is recorded as a capitalized lease asset and related capitalized lease
obligation. Assets under these capital leases are included as part of Property,
Plant and Equipment in the Consolidated Balance Sheets and are identified as
follows (dollars in thousands):
JUNE 29, JUNE 30,
2002 2001
Machinery, equipment
and vehicles $ 270 $ 73
Furniture and fixtures 37 --
-------- --------
307 73
Less accumulated amortization 47 27
-------- --------
$ 260 $ 46
======== ========
F-14
The Company leases office and manufacturing space, manufacturing equipment,
computer equipment, vehicles and warehouse space under non-cancelable operating
leases. Rent expense for the fiscal years ended June 29, 2002, June 30, 2001,
and July 1, 2000 under operating lease agreements was approximately $1.5
million, $1.4 million, and $1.3 million, respectively.
As of June 29, 2002, approximate minimum future lease commitments under capital
and operating leases were as follows (in thousands):
CAPITAL OPERATING
2003 $ 73 $ 1,288
2004 60 1,086
2005 57 707
2006 57 244
2007 43 140
Thereafter -- 143
-------- --------
Total minimum lease payments 290 $ 3,608
========
Amount representing interest 48
--------
Present value of minimum lease payments 242
Less current portion 56
--------
Long-term lease obligation $ 186
--------
OPERATING LEASES (AS LESSOR) - The Company leases its Niemand facility to the
company that acquired the operating assets of Niemand's container packaging and
filling business. The non-cancelable lease term is for five years and contains a
five-year renewal option. The lessee also has the option to purchase the
facility during this period for $1.1 million. The carrying value of the facility
at June 29, 2002 is $1.7 million. As of June 29, 2002, approximate future
minimum lease payments were as follows (in thousands):
AMOUNTS
2003 $ 160
2004 160
2005 93
--------
Total $ 413
========
9. COMMITMENTS AND CONTINGENCIES
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.
ENVIRONMENTAL MATTERS - In May 1995, the Company discovered groundwater
contamination at its Burlington, North Carolina facility. Based on work
performed by its environmental consultants, the Company established a reserve of
$750,000 for such remediation costs in fiscal 1995. The Company's accrual for
such remediation costs included in other long-term liabilities on the
Consolidated Balance Sheet approximates $430,000 and $431,000 as of June 29,
2002 and June 30, 2001, respectively. Cumulative incurred expenses as of June
29, 2002 related to remediation totaled $320,000. In June of 1998, the Company
completed a follow-up assessment of the facility, which was then filed with the
Division of Water Quality ("DWQ"). The Company is awaiting a reply from the DWQ.
Management believes that the ultimate resolution of this and other environmental
matters will not materially affect the financial position or results of future
operations and cash flows of the Company.
F-15
10. RELATED PARTY TRANSACTIONS
The Company's CEO holds an equity interest in Rostra Technologies, Inc.
("Rostra"). During fiscal 2002, the Company paid $100,000 to Rostra in
management fees for services provided by the Company's CEO in fiscal years 2000
and 2001. At June 29, 2002, the Company owed Rostra $50,000 in management fees
for services provided by the Company's CEO during fiscal 2002.
11. SEVERANCE, OFFICE MOVING AND RESTRUCTURING CHARGES
In recent years, the Company has restructured its corporate headquarters and
certain aspects of its business in an effort to reduce its cost structure and
remain competitive in its markets. Restructuring charges primarily involve the
separation of employees, moving costs and similar actions. Costs for
restructuring activities are limited to incremental costs that directly result
from the restructuring activities and provide no future benefit to the Company.
In fiscal 1996, the Company recorded a pre-tax charge of $1,038,000 for
severance of nine members of senior management ($937,000) and other costs with
no future benefits resulting from the move of the corporate office ($101,000)
from Charlotte, North Carolina to Westport, Connecticut. The move was completed
by June 29, 1996.
At June 29, 2002, June 30, 2001, and July 1, 2000, accrued liabilities and other
long-term liabilities included approximately $0, $53,000, and $116,000,
respectively, related to the severance portion of these restructuring charges.
The change in these reserves is the direct result of cash outflows related to
the restructuring.
12. MAJOR CUSTOMERS
Sales to the Company's top three customers accounted for approximately 39%, 36%,
and 28% of net sales for fiscal years 2002, 2001, and 2000, respectively. Sales
to one customer represented approximately 17%, 17%, and 16% of net sales for
fiscal years 2002, 2001, and 2000, respectively. Sales to another customer
represented approximately 13% and 11% of net sales for fiscal years 2002 and
2001, respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short-term maturity of these instruments.
The carrying value of the Company's borrowings under its long-term revolving
credit agreement and other long-term borrowings approximates fair value based on
quoted market prices for the same or similar instruments.
The fair value of the Company's letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate or settle
the obligations. As of June 29, 2002, the fair value of the letters of credit
was $147,500.
F-16
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 29, 2002 and June 30, 2001 (in thousands, except per share data):
QUARTER ENDED
------------------------------------------------------------
2002 SEPTEMBER 30 DECEMBER 31(1) MARCH 31 JUNE 30 YEAR
Net Sales $ 15,356 $ 15,325 $ 16,139 $ 16,983 $ 63,803
Gross Profit 2,999 2,963 3,095 3,350 12,407
Net Income 359 241 479 674 1,753
Per Common Share Amounts:
(basic and diluted)
Net Income $ 0.07 $ 0.05 $ 0.10 $ 0.13 $ 0.35
QUARTER ENDED
------------------------------------------------------------
2001 SEPTEMBER 30(2) DECEMBER 31(2) MARCH 31(2) JUNE 30(2) YEAR
Net Sales $ 16,396 $ 16,416 $ 16,275 $ 14,997 $ 64,084
Gross Profit 3,530 3,392 3,318 2,936 13,176
Net Income 562 515 494 2,068 3,639
Per Common Share Amounts:
(basic and diluted)
Net Income $ 0.11 $ 0.10 $ 0.10 $ 0.41 $ 0.72
(1) In the second quarter of fiscal 2002, 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.
(2) As a result of earnings improvements, the Company reduced its deferred
tax asset valuation allowance by $2.0 million in fiscal 2001 to reflect
a change in estimate related to the realizability of its deferred income
tax assets. Of this change, $109,000, $113,000, $103,000, and $1,644,000
was made in the first, second, third, and fourth quarters of fiscal
2001, respectively.
F-17