UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
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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 68901-2148
(Address of principal executive offices) (Zip Code)
(402) 463-1366
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
As of September 30, 2000, there were 5,041,544 shares of the Company's
common stock, par value $0.01 per share, issued and outstanding.
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
As of September 30, 2000 and July 1, 2000
Consolidated Statements of Operations for the 2
Three Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows for the 3
Three Months Ended September 30, 2000 and 1999
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 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
September 30, July 1,
2000 2000
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ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 138 $ 160
Accounts receivable (Net of allowance for
doubtful accounts of $199 and $185, respectively) 6,471 6,442
Inventories 7,426 6,810
Deferred income taxes 582 582
Prepaid and other current assets 485 578
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Total current assets 15,102 14,572
PROPERTY, PLANT AND EQUIPMENT - NET 17,719 18,031
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED (Net of accumulated
amortization of $1,989 and $1,955, respectively) 4,348 4,382
OTHER ASSETS (Net of accumulated amortization
of $345 and $306, respectively) 709 669
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TOTAL $ 37,878 $ 37,654
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 662 $ 797
Current portion of long-term debt 2,771 2,751
Accounts payable 6,495 5,208
Accrued expenses 3,064 3,483
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Total current liabilities 12,992 12,239
LONG-TERM DEBT - Net of current portion 21,236 22,498
DEFERRED INCOME TAXES 1,089 894
OTHER LONG-TERM LIABILITIES 483 507
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Total liabilities 35,800 36,138
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued - -
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,041,544 issued and outstanding 50 50
Additional paid-in capital 28,162 28,162
Accumulated deficit (26,134) (26,696)
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Total stockholders' equity 2,078 1,516
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TOTAL $ 37,878 $ 37,654
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</TABLE>
See notes to unaudited consolidated financial statements.
1
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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<S> <C> <C>
NET SALES $ 16,396 $ 17,573
COST OF GOODS SOLD 12,866 14,296
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GROSS PROFIT 3,530 3,277
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OPERATING EXPENSES:
Selling, general and administrative 2,060 2,067
Amortization of excess of purchase price
over net assets acquired 35 36
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Total operating expenses 2,095 2,103
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INCOME FROM OPERATIONS 1,435 1,174
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OTHER (INCOME) EXPENSE:
Interest expense 695 814
Other income - net (38) -
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Other expense - net 657 814
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INCOME BEFORE INCOME TAXES 778 360
INCOME TAX PROVISION 216 158
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NET INCOME $ 562 $ 202
============= =============
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Net Income $ 0.11 $ 0.04
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WEIGHTED AVERAGE SHARES OUTSTANDING
(basic and diluted) 5,041,544 5,041,544
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
2
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 562 $ 202
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 553 600
Deferred income taxes 195 157
Changes in operating assets and liabilities:
Accounts receivable - net (29) 83
Inventories (616) (19)
Prepaid expenses and other assets 14 (142)
Accounts payable 1,152 497
Accrued expenses and other liabilities (443) (399)
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Net Cash Flows from Operating Activities 1,388 979
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment - 623
Purchases of property, plant and equipment (168) (135)
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Net Cash Flows from Investing Activities (168) 488
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit facility (567) (324)
Net principal repayments of long-term debt (667) (1,188)
Net repayments under capital leases (8) (9)
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Net Cash Flows from Financing Activities (1,242) (1,521)
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NET DECREASE IN CASH (22) (54)
CASH AT BEGINNING OF PERIOD 160 198
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CASH AT END OF PERIOD $ 138 $ 144
========== =========
</TABLE>
See notes to unaudited consolidated financial statements.
3
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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 generally accepted accounting principles for
complete financial statements. However, in the opinion of management,
the accompanying unaudited consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of
September 30, 2000, and the results of its operations and cash flows
for the periods presented herein. Results of operations for the three
months ended September 30, 2000 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):
September 30, July 1,
2000 2000
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Finished goods $ 5,210 $ 4,995
Work in process 844 676
Raw materials 1,106 848
Manufacturing supplies 266 291
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$ 7,426 $ 6,810
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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 fiscal 2001 presentation.
4
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 30, 2000 Compared to
Three Months Ended September 30, 1999
In the first quarter of fiscal 2001, the Company had net sales of $16.4
million compared with $17.6 million in the corresponding period of
fiscal 2000, a decrease of $1.2 million or 6.7%. An increase in sales
from retained operations of $0.9 million was offset by a reduction in
sales of $2.1 million following the sale of the operating assets of GB
Labels, Inc. ("GB Labels") in August 1999 and Niemand Industries, Inc.
("Niemand") in February 2000.
Gross margin for the first quarter of fiscal 2001 increased to 21.5% of
net sales from 18.6% in the corresponding period of fiscal 2000. This
increase was due primarily to continuing cost control efforts and
productivity gains carried over from the previous year, and an influx
of new business with higher margins. Cost of goods sold decreased $1.4
million or 10.0% to $12.9 million in the first quarter of fiscal 2001
compared to $14.3 million in the first quarter of fiscal 2000. The sale
of the operating assets of GB Labels and Niemand accounted for $1.9
million of the decrease.
Operating income for the first quarter of fiscal 2001 was $1.4 million
compared with $1.2 million in the corresponding period of fiscal 2000,
an increase of $0.2 million or 22.2%. This increase was the result of
operating improvements from the retained operations and the sale of the
operating assets of GB Labels and Niemand. Selling, general and
administrative expenses remained level at $2.1 million as compared to
the corresponding period in fiscal 2000. This is the result of a
decrease due to the sale of the operating assets of GB Labels and
Niemand, offset by an increase in third party brokers commissions.
Total interest expense decreased $0.1 million or 14.6% to $0.7 million
in the first quarter of fiscal 2001 from $0.8 million in the
corresponding period of fiscal 2000. The decrease is primarily the
result of a blend of $5.8 million in lower average borrowings coupled
with an increase in the average interest rate of 1.0%.
The income tax provision as a percentage of pre-tax income for the
first quarter of fiscal 2001 was 27.8%, which differs from the
statutory rate primarily as a result of non-deductible amortization of
the excess of purchase price over net assets acquired. The equivalent
tax rate for the first quarter of fiscal 2000 was 43.9%. The decrease
in the effective income tax rate in the first quarter of fiscal 2001
compared to the same period in fiscal 2000 is the result of the
decrease in the valuation reserve based upon a change in estimate
related to the realizability of net operating loss carryforwards.
5
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Financial Condition
The Company's credit facility with First Source Financial LLP ("First
Source") provides for a five year $25 million term loan and a five year
$15 million working capital revolving line of credit ("Revolver"). The
term loan required quarterly principal payments of $562,500 in the
first year of the loan through July 15, 1999. As amended, the balance
of the term loan was due in quarterly installments of $625,000 through
October 1999 and in monthly installments of $208,333 through July 2000.
Monthly installments of $229,167 are required through April 2003, with
the balance of $10,043,435 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) $15
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.
As of September 30, 2000, all outstanding letters of credit were
guaranteed by First Source. The Company pays a letter of credit fee of
2.75% to guarantee availability under the Revolver. Outstanding letters
of credit at September 30, 2000 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 September 30, 2000, 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.
The Revolver currently bears interest at First Source's prime rate plus
1.25% or the London Interbank Offered Rate ("LIBOR") plus 3.25%. The
term loan currently bears interest at First Source's prime rate plus
1.75% or LIBOR plus 3.75%. The Company also pays a commitment fee of
0.5% on the unused portion of the Revolver. The interest rates at
September 30, 2000 were a combination of prime and LIBOR. First
Source's prime and LIBOR rates were 9.50% and 6.62%, respectively, at
September 30, 2000.
6
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
At September 30, 2000, the Company had working capital of $2.1 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 three months ended September 30, 2000
were $1.4 million compared with funds provided of $1.0 million in the
corresponding period in fiscal 2000. This increase is primarily
attributable to higher profitability during the first three months of
fiscal 2001 when compared to the corresponding period in fiscal 2000.
The Company had available to it unused borrowing capacity of $2.1
million as of September 30, 2000.
During the three months ended September 30, 2000, capital expenditures
totaled $0.2 million compared with $0.1 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
7
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk is fluctuation in interest rates. All
of the Company's debt at September 30, 2000 was at variable interest
rates. A hypothetical 10% change in interest rates would have had a
$0.1 million impact on interest expense for the three months ended
September 30, 2000.
8
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business.
While the outcome of these lawsuits and proceedings cannot be predicted
with certainty, management believes that, if adversely determined, the
lawsuits and proceedings, either singularly or in the aggregate, would
not have a material adverse effect on the financial condition, results
of operations or net cash flows of the Company.
On April 28, 1999, the Company filed a lawsuit captioned Gibraltar
Packaging Group, Inc. v. Anthem Health Plans, d.b.a. Anthem Blue Cross
and Blue Shield of Connecticut ("Anthem"), in the United States
District Court for the District of Connecticut. The Company is seeking
damages for Anthem's alleged breach of a contract for health insurance
for employees of the Company. In October 2000, Anthem filed a
counterclaim for unpaid premiums. The amount of the counterclaim is
unknown and the Company has filed a motion for a more definitive
statement, in part to determine the amount and basis of this
counterclaim. Moreover, recent discovery has revealed that a third
party may be liable to indemnify the Company for all or part of the
counterclaim. 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. We anticipate another settlement mediation will be
scheduled before the end of 2000.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Gibraltar's stockholders in the
quarter ended September 30, 2000.
9
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GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None
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
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Lyle O. Halstead Brett E. Moller
V. P. Finance - Operations V. P. Finance - Corporate
(Principal Accounting Officer) (Principal Financial Officer)
Date: November 13, 2000 November 13, 2000
