UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
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Commission File Number: 00-19800
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GIBRALTAR PACKAGING GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0496290
(State of incorporation) (I.R.S. Employer
Identification Number)
2000 Summit Avenue
Hastings, Nebraska 68901
(Address of principal executive offices) (Zip Code)
(402) 463-1366 www.gibraltarpackaginggroup.com
(Registrant's telephone number, including area code) (Registrant's website)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
As of April 30, 2001, there were 5,041,544 shares of the Company's
common stock, par value $0.01 per share, issued and outstanding.
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
As of March 31, 2001 and July 1, 2000
Consolidated Statements of Operations for the 2
Three Months Ended March 31, 2001 and 2000
Nine Months Ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows for the 3
Nine Months Ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share and per share data)
March 31, July 1,
2001 2000
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ASSETS
CURRENT ASSETS:
Cash $ 149 $ 160
Accounts receivable (Net of allowance for
doubtful accounts of $330 and $185, respectively) 6,842 6,442
Inventories 6,837 6,810
Deferred income taxes 582 582
Prepaid and other current assets 569 578
-------- --------
Total current assets 14,979 14,572
PROPERTY, PLANT AND EQUIPMENT - NET 17,068 18,031
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED (Net of accumulated
amortization of $2,056 and $1,955, respectively) 4,281 4,382
OTHER ASSETS (Net of accumulated amortization
of $439 and $306, respectively) 795 669
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TOTAL $ 37,123 $ 37,654
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 684 $ 797
Current portion of long-term debt 2,770 2,751
Accounts payable 4,967 5,208
Accrued expenses 3,452 3,483
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Total current liabilities 11,873 12,239
LONG-TERM DEBT - Net of current portion 20,407 22,498
DEFERRED INCOME TAXES 1,319 894
OTHER LONG-TERM LIABILITIES 437 507
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Total liabilities 34,036 36,138
======== ========
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 (25,125) (26,696)
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Total stockholders' equity 3,087 1,516
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TOTAL $ 37,123 $ 37,654
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See notes to unaudited consolidated financial statements.
1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
NET SALES $ 16,275 $ 17,414 $ 49,087 $ 51,665
COST OF GOODS SOLD 12,957 14,058 38,847 41,954
---------- ---------- ---------- ----------
GROSS PROFIT 3,318 3,356 10,240 9,711
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 1,983 1,998 5,944 5,947
Amortization of excess of purchase price
over net assets acquired 33 42 101 123
---------- ---------- ---------- ----------
Total operating expenses 2,016 2,040 6,045 6,070
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,302 1,316 4,195 3,641
---------- ---------- ---------- ----------
OTHER EXPENSE:
Interest expense 608 749 1,986 2,329
Other expense - net 20 22 65 8
---------- ---------- ---------- ----------
Total other expense - net 628 771 2,051 2,337
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 674 545 2,144 1,304
INCOME TAX PROVISION 180 235 573 571
---------- ---------- ---------- ----------
NET INCOME $ 494 $ 310 $ 1,571 $ 733
========== ========== ========== ==========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Net Income $ 0.10 $ 0.06 $ 0.31 $ 0.15
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
(basic and diluted) 5,041,544 5,041,544 5,041,544 5,041,544
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31,
--------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,571 $ 733
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,672 1,823
(Gain)/loss on sale of property, plant and equipment 17 (25)
Deferred income taxes 425 548
Changes in operating assets and liabilities:
Accounts receivable - net (400) (650)
Inventories (27) (192)
Prepaid expenses and other assets (249) (202)
Accounts payable (354) 554
Accrued expenses and other liabilities (101) (594)
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Net Cash Flows from Operating Activities 2,554 1,995
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 74 2,938
Purchases of property, plant and equipment (567) (256)
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Net Cash Flows from Investing Activities (493) 2,682
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit facility 7 (621)
Net principal repayments of long-term debt (2,061) (4,140)
Net repayments under capital leases (18) (26)
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Net Cash Flows from Financing Activities (2,072) (4,787)
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NET DECREASE IN CASH (11) (110)
CASH AT BEGINNING OF PERIOD 160 198
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CASH AT END OF PERIOD $ 149 $ 88
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See notes to unaudited consolidated financial statements.
3
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. GENERAL
The accompanying unaudited consolidated financial statements of
Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") have
been prepared in accordance with Rule 10-01 of Regulation S-X for
interim financial statements required to be filed with the Securities
and Exchange Commission and do not include all information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. However, in
the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position of the Company as of March 31, 2001, and the results of its
operations and cash flows for the periods presented herein. Results of
operations for the nine months ended March 31, 2001 are not necessarily
indicative of the results to be expected for the full fiscal year. The
financial statements should be read in conjunction with the audited
financial statements for the year ended July 1, 2000 and the notes
thereto contained in the Company's Annual Report on Form 10-K.
B. INVENTORIES
Inventories consisted of the following (In thousands):
March 31, July 1,
2001 2000
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Finished goods $ 5,043 $ 4,995
Work in process 621 676
Raw materials 878 848
Manufacturing supplies 295 291
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$ 6,837 $ 6,810
============= ==============
C. NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of fiscal 2001, the Company adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
The adoption of this statement did not have a material impact on the
Company's financial position or results of operations.
During the first quarter of fiscal 2001, the Company also implemented
SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." The
implementation of this SAB did not have a material impact on the
Company's financial position or results of operations.
D. RECLASSIFICATION
Certain amounts in the fiscal 2000 financial statements have been
reclassified to conform with the current fiscal 2001 presentation.
4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 2001 Compared to
Three Months Ended March 31, 2000
---------------------------------------------
In the third quarter of fiscal 2001, the Company had net sales of $16.3
million compared with $17.4 million in the corresponding period of
fiscal 2000, a decrease of $1.1 million or 6.5%. The sale of the
operating assets of Niemand Industries, Inc. ("Niemand") in February
2000 accounted for $0.3 million of the decrease. The Company also
considers the remaining reduction in net sales from retained operations
to be consistent with the overall slow-down in economic conditions.
Gross profit for the third quarter of fiscal 2001 increased to 20.4% of
net sales from 19.3% in the corresponding period of fiscal 2000. This
increase was due primarily to the divestiture of low margin business
from the sale of the operating assets of Niemand. Additionally, the
Company still benefits from continuing cost control efforts and
productivity gains carried over from the previous year. Despite the
reduction in sales from retained operations, the Company was able to
maintain a consistent gross profit percentage. Cost of goods sold
decreased $1.1 million, or 7.8%, to $13.0 million in the third quarter
of fiscal 2001 compared to $14.1 million in the third quarter of fiscal
2000. The sale of the operating assets of Niemand accounted for $0.5
million of the decrease.
Operating income for both the third quarter of fiscal 2001 and 2000 was
$1.3 million. Selling, general and administrative expenses remained
consistent at $2.0 million for both the third quarter of fiscal 2001
and 2000. This is the result of an increase in third party brokers
commissions, offset by decreases from the sale of the operating assets
of Niemand and reduced payroll.
Total interest expense decreased $0.1 million, or 18.8%, to $0.6
million in the third quarter of fiscal 2001 from $0.7 million in the
corresponding period of fiscal 2000. The decrease is primarily the
result of a blend of $4.0 million in lower average borrowings coupled
with a decrease in the average interest rate of 0.8%.
The income tax provision as a percentage of pre-tax income for the
third quarter of fiscal 2001 was 26.7% compared with 43.1% for the
corresponding period in fiscal 2000. The effective tax rate typically
differs from the statutory rate primarily as a result of non-deductible
amortization of the excess of purchase price over net assets acquired.
However, as a result of earnings improvements, the Company reduced its
deferred income tax asset valuation allowance by $0.1 million in the
third quarter of fiscal 2001 to reflect a change in estimate related to
the realizability of its deferred income tax assets.
5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Nine Months Ended March 31, 2001 Compared to
Nine Months Ended March 31, 2000
---------------------------------------------
In the first nine months of fiscal 2001, the Company had net sales of
$49.1 million compared with $51.7 million in the corresponding period
of fiscal 2000, a decrease of $2.6 million or 5.0%. An increase in
sales from retained operations of $1.3 million was offset by a
reduction in sales of $3.9 million following the sale of the operating
assets of GB Labels, Inc. ("GB Labels") in August 1999 and Niemand in
February 2000.
Gross profit for the first nine months of fiscal 2001 increased to
20.9% of net sales from 18.8% in the corresponding period of fiscal
2000. This increase was due primarily to an influx of new business with
higher margins and the divestiture of low margin business from the sale
of the operating assets of Niemand. Additionally, the Company still
benefits from continuing cost control efforts and productivity gains
carried over from the previous year. Cost of goods sold decreased $3.1
million, or 7.4%, to $38.8 million in the first nine months of fiscal
2001 compared to $42.0 million in the same period for fiscal 2000. The
sale of the operating assets of GB Labels and Niemand accounted for
$3.8 million of the decrease, partially offset by increases related to
higher sales from retained operations.
Operating income for the first nine months of fiscal 2001 was $4.2
million compared with $3.6 million in the corresponding period of
fiscal 2000, an increase of $0.6 million or 15.2%. 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 remained consistent at $5.9 million
for both the first nine months of fiscal 2001 and 2000. This is the
result of an increase in third party brokers commissions, offset by a
decrease due to the sale of the operating assets of Niemand and GB
Labels.
Total interest expense decreased $0.3 million, or 14.7%, to $2.0
million in the first nine months of fiscal 2001 from $2.3 million in
the corresponding period of fiscal 2000. The decrease is primarily the
result of $4.9 million in lower average borrowings.
The income tax provision as a percentage of pre-tax income for the
first nine months of fiscal 2001 was 26.7% compared with 43.8% for the
corresponding period in fiscal 2000. The effective tax rate typically
differs from the statutory rate primarily as a result of non-deductible
amortization of the excess of purchase price over net assets acquired.
However, as a result of earnings improvements, the Company reduced its
deferred income tax asset valuation allowance by $0.3 million in the
first nine months of fiscal 2001 to reflect a change in estimate
related to the realizability of its deferred income tax assets.
6
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Financial Condition
The Company's credit facility with First Source Financial LLP ("First
Source"), as amended, provides for a five-year $25 million term loan
and a five-year $12 million working capital revolving line of credit
("Revolver"). The loan requires monthly principal payments of $229,167
through April 2003, with the balance of $10,023,435 due on July 31,
2003. The credit facility is secured by a first priority perfected
security interest in and lien on all assets (real and personal,
tangible and intangible) of the Company excluding its Burlington, North
Carolina property.
The Revolver provides for a revolving line of credit under a borrowing
base commitment subject to certain loan availability requirements. Loan
availability under the Revolver may not exceed the lesser of (1) $12
million or (2) the sum of (a) up to 85% of the Company's eligible
accounts receivable plus (b) up to 60% of the Company's eligible
inventory. At no time may the sum of aggregated loan advances
outstanding under the Revolver plus the aggregate amount of extended
letter of credit guarantees exceed loan availability. The Company had
available to it unused borrowing capacity of $1.6 million as of March
31, 2001.
The Revolver currently bears interest at First Source's prime rate plus
1.25% or the London Interbank Offered Rate ("LIBOR") plus 3.25%. The
term loan currently bears interest at First Source's prime rate plus
1.75% or LIBOR plus 3.75%. The Company also pays a commitment fee of
0.5% on the unused portion of the Revolver. The interest rates at March
31, 2001 were a combination of prime and LIBOR. First Source's prime
and LIBOR rates were 8.00% and 5.05%, respectively, at March 31, 2001.
As of March 31, 2001, all outstanding letters of credit were guaranteed
by First Source. The Company pays a letter of credit fee of 2.75% to
guarantee availability under the Revolver. Outstanding letters of
credit at March 31, 2001 amounted to $160,000 and relate to workman's
compensation insurance policies.
The First Source credit facility contains certain restrictive covenants
including financial covenants related to net worth, minimum interest
coverage ratio, capital expenditures, debt ratio and fixed charge
coverage. As of March 31, 2001, the Company was in compliance with all
financial covenants. In addition, the Company's credit facility
restricts the ability of the Company to pay dividends.
At March 31, 2001, the Company had working capital of $3.1 million, as
compared to $2.3 million at July 1, 2000. Historically, the Company's
liquidity requirements have been met by a combination of funds provided
by operations and its revolving credit agreements. Funds provided by
operations during the nine months ended March 31, 2001 were $2.6
million compared with funds provided of $2.0 million in the
corresponding period in fiscal 2000.
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
During the nine months ended March 31, 2001, capital expenditures
totaled $0.6 million compared with $0.3 million in the corresponding
period in fiscal 2000, and consisted primarily of additions to
machinery and equipment. The Company makes capital improvements to
improve efficiency and product quality, and periodically upgrades its
equipment by purchasing or leasing new or previously used equipment.
The Company's current strategy is to continue to focus its efforts on
its core business of folding cartons, as well as the supporting product
lines of flexible, litho-laminated, and corrugated products. The
Company intends to expand these product lines by utilizing the maximum
capacity at each facility, while continually identifying, researching,
and when applicable, implementing new technologies and equipment that
will enable the Company to continue to improve performance,
productivity, and profitability.
Under the current strategy, management believes that future funds
generated by operations and borrowings available under its credit
facility with First Source will be sufficient to meet working capital
and capital expenditure requirements in the near term.
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) the Company's
ability to execute its business plan; (2) 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; (3) 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; (4) the introduction of
competing products by other firms; (5) pressure on pricing from
competition or purchasers of the Company's products; (6) whether the
Company will be able to pass on to its customers price increases for
paper and paperboard products; (7) continued stability in other raw
material prices, including oil-based resin and plastic film; (8) the
impact of government regulation on the Company's manufacturing,
including whether or not additional capital expenditures will be needed
to comply with applicable environmental laws and regulations as the
Company's production increases; (9) the Company's ability to continue
to comply with the restrictive covenants in its credit facility or to
obtain waivers if it is not in compliance in the future; and (10) the
outcome of the Anthem Health Plans litigation. Investors and potential
investors are cautioned not to place undue reliance on these
forward-looking statements, which reflect the Company's analysis only
as of the date of this report. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report. These risks and
others that are detailed in this Form 10-Q and other documents that the
Company files from time to time with the Securities and Exchange
Commission, including its annual report on Form 10-K and any current
reports on Form 8-K, must be considered by any investor or potential
investor in the Company.
8
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk is fluctuation in interest rates. All
of the Company's debt at March 31, 2001 was at variable interest rates.
A hypothetical 10% change in interest rates would have had a $0.2
million impact on interest expense for the nine months ended March 31,
2001.
9
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to lawsuits and
administrative proceedings that arise in the conduct of its business.
While the outcome of these lawsuits and proceedings cannot be predicted
with certainty, management believes that, if adversely determined, the
lawsuits and proceedings, either singularly or in the aggregate, would
not have a material adverse effect on the financial condition, results
of operations or net cash flows of the Company.
On April 28, 1999, the Company filed a lawsuit captioned Gibraltar
Packaging Group, Inc. v. Anthem Health Plans, d.b.a. Anthem Blue Cross
and Blue Shield of Connecticut ("Anthem"), in the United States
District Court for the District of Connecticut. The Company is seeking
damages for Anthem's alleged breach of a contract for health insurance
for employees of the Company. In October 2000, Anthem filed a
counterclaim for unpaid premiums. The amount of the counterclaim is
unknown. Discovery has revealed that a third party may be liable to
indemnify the Company for all or part of the counterclaim, and the
Company has brought a third party claim against this party in the
litigation. There can be no assurances that the outcome of the
litigation would not have an adverse impact on the Company. The parties
participated in a settlement mediation in December 1999. It was
determined that more information be gathered through depositions, which
are ongoing. The Company anticipates another settlement mediation will
be scheduled before the end of calendar 2001.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Gibraltar's stockholders in the
quarter ended March 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GIBRALTAR PACKAGING GROUP, INC.
By: /s/ Lyle O. Halstead /s/ Brett E. Moller
------------------------- -------------------------
Lyle O. Halstead Brett E. Moller
V. P. Finance - Operations V. P. Finance - Corporate
(Principal Accounting Officer) (Principal Financial Officer)
Date: May 9, 2001 May 9, 2001
11