UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 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
(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 January 31, 2001, there were 5,041,544 shares of the Company's common
stock, par value $0.01 per share, issued and outstanding.
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
As of December 31, 2000 and July 1, 2000
Consolidated Statements of Operations for the 2
Three Months Ended December 31, 2000 and 1999
Six Months Ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows for the 3
Six Months Ended December 31, 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 9
PART II. OTHER INFORMATION
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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 11
Signature 11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share and per share data)
December 31, July 1,
2000 2000
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ASSETS
CURRENT ASSETS:
Cash $ 161 $ 160
Accounts receivable (Net of allowance for
doubtful accounts of $244 and $185, respectively) 6,335 6,442
Inventories 7,501 6,810
Deferred income taxes 582 582
Prepaid and other current assets 452 578
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Total current assets 15,031 14,572
PROPERTY, PLANT AND EQUIPMENT - NET 17,400 18,031
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED (Net of accumulated
amortization of $2,023 and $1,955, respectively) 4,314 4,382
OTHER ASSETS (Net of accumulated amortization
of $390 and $306, respectively) 844 669
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TOTAL $ 37,589 $ 37,654
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 938 $ 797
Current portion of long-term debt 2,770 2,751
Accounts payable 5,150 5,208
Accrued expenses 3,229 3,483
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Total current liabilities 12,087 12,239
LONG-TERM DEBT - Net of current portion 21,236 22,498
DEFERRED INCOME TAXES 1,214 894
OTHER LONG-TERM LIABILITIES 459 507
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Total liabilities 34,996 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 (25,619) (26,696)
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Total stockholders' equity 2,593 1,516
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TOTAL $ 37,589 $ 37,654
======== ========
See notes to unaudited consolidated financial statements.
1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except share and per share data)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
NET SALES $ 16,416 $ 16,678 $ 32,812 $ 34,251
COST OF GOODS SOLD 13,024 13,600 25,890 27,896
---------- ---------- ---------- ----------
GROSS PROFIT 3,392 3,078 6,922 6,355
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 2,004 1,882 4,064 3,949
Amortization of excess of purchase price
over net assets acquired 33 45 68 81
---------- ---------- ---------- ----------
Total operating expenses 2,037 1,927 4,132 4,030
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,355 1,151 2,790 2,325
OTHER EXPENSE (INCOME):
Interest expense 683 766 1,378 1,580
Other income - net (20) (14) (58) (14)
---------- ---------- ---------- ----------
Other expense - net 663 752 1,320 1,566
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 692 399 1,470 759
INCOME TAX PROVISION 177 178 393 336
---------- ---------- ---------- ----------
NET INCOME $ 515 $ 221 $ 1,077 $ 423
========== ========== ========== ==========
BASIC AND DILUTED PER COMMON
SHARE AMOUNTS:
Net Income $ 0.10 $ 0.04 $ 0.21 $ 0.08
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
(basic and diluted) 5,041,544 5,041,544 5,041,544 5,041,544
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31,
-----------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,077 $ 423
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,111 1,225
(Gain)/loss on sale of property, plant
and equipment 18 (24)
Deferred income taxes 320 333
Changes in operating assets and liabilities:
Accounts receivable - net 107 646
Inventories (691) 123
Prepaid expenses and other assets (132) (175)
Accounts payable 83 (25)
Accrued expenses and other liabilities (302) (1,041)
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Net Cash Flows from Operating Activities 1,591 1,485
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and
equipment 70 954
Purchases of property, plant and equipment (417) (216)
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Net Cash Flows from Investing Activities (347) 738
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving
credit facility 144 (39)
Net principal repayments of long-term debt (1,374) (2,259)
Net repayments under capital leases (13) (14)
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Net Cash Flows from Financing Activities (1,243) (2,312)
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NET (DECREASE) INCREASE IN CASH 1 (89)
CASH AT BEGINNING OF PERIOD 160 198
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CASH AT END OF PERIOD $ 161 $ 109
======= ========
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 December 31,
2000, and the results of its operations and cash flows for the periods
presented herein. Results of operations for the six months ended December
31, 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):
December 31, July 1,
2000 2000
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Finished goods $ 5,435 $ 4,995
Work in process 779 676
Raw materials 981 848
Manufacturing supplies 306 291
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$ 7,501 $ 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 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 December 31, 2000 Compared to
Three Months Ended December 31, 1999
------------------------------------------------
In the second quarter of fiscal 2001, the Company had net sales of $16.4
million compared with $16.7 million in the corresponding period of fiscal
2000, a decrease of $0.3 million or 1.6%. An increase in sales from
retained operations of $1.2 million was offset by a reduction in sales of
$1.4 million following the sale of the operating assets of Niemand
Industries, Inc. ("Niemand") in February 2000.
Gross profit for the second quarter of fiscal 2001 increased to 20.7% of
net sales from 18.5% 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 $0.6 million, or 4.2%, to $13.0 million
in the second quarter of fiscal 2001 compared to $13.6 million in the
second quarter of fiscal 2000. The sale of the operating assets of Niemand
accounted for $1.4 million of the decrease, partially offset by increases
related to higher sales from retained operations.
Operating income for the second 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 17.7%. This increase was the result of
operating improvements from the retained operations and the sale of the
operating assets of Niemand. Selling, general and administrative expenses
increased $0.1 million, or 6.5%, to $2.0 million in the second quarter of
fiscal 2001 from $1.9 million in the corresponding period of fiscal 2000.
This is the result of an increase in third party brokers commissions,
partially offset by a decrease due to the sale of the operating assets of
Niemand.
Total interest expense decreased $0.1 million, or 10.8%, to $0.7 million in
the second 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
$4.8 million in lower average borrowings coupled with an increase in the
average interest rate of 0.6%.
The income tax provision as a percentage of pre-tax income for the second
quarter of fiscal 2001 was 25.6% compared with 44.6% 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 $113,000 in the second 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
Six Months Ended December 31, 2000 Compared to
Six Months Ended December 31, 1999
----------------------------------------------
In the first six months of fiscal 2001, the Company had net sales of $32.8
million compared with $34.3 million in the corresponding period of fiscal
2000, a decrease of $1.5 million or 4.2%. An increase in sales from
retained operations of $2.1 million was offset by a reduction in sales of
$3.6 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 six months of fiscal 2001 increased to 21.1% of
net sales from 18.6% 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 $2.0 million, or 7.2%, to $25.9 million
in the first six months of fiscal 2001 compared to $27.9 million in the
first six months of fiscal 2000. The sale of the operating assets of GB
Labels and Niemand accounted for $3.3 million of the decrease, partially
offset by increases related to higher sales from retained operations.
Operating income for the first six months of fiscal 2001 was $2.8 million
compared with $2.3 million in the corresponding period of fiscal 2000, an
increase of $0.5 million or 20.0%. 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 2.9%, to $4.1 million in
the first six months of fiscal 2001 from $3.9 million in the corresponding
period of fiscal 2000. This is the result of an increase in third party
brokers commissions, partially offset by a decrease due to the sale of the
operating assets of Niemand.
Total interest expense decreased $0.2 million, or 12.8%, to $1.4 million in
the first six months of fiscal 2001 from $1.6 million in the corresponding
period of fiscal 2000. The decrease is primarily the result of a blend of
$5.3 million in lower average borrowings coupled with an increase in the
average interest rate of 0.8%.
The income tax provision as a percentage of pre-tax income for the first
six months of fiscal 2001 was 26.7% compared with 44.3% 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 $222,000 in the first six
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 $1.5 million as of December 31, 2000.
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 December 31, 2000
were a combination of prime and LIBOR. First Source's prime and LIBOR rates
were 9.50% and 6.70%, respectively, at December 31, 2000.
As of December 31, 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
December 31, 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 December 31, 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.
At December 31, 2000, the Company had working capital of $2.9 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 six months ended December 31, 2000 were $1.6 million
compared with funds provided of $1.5 million in the corresponding period in
fiscal 2000.
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
During the six months ended December 31, 2000, capital expenditures totaled
$0.4 million compared with $0.2 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 December 31, 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 six months ended December 31, 2000.
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 certain lawsuits and
administrative proceedings that arise in the conduct of its business. While
the outcome of these lawsuits and proceedings cannot be predicted with
certainty, management believes that, if adversely determined, the lawsuits
and proceedings, either singularly or in the aggregate, would not have a
material adverse effect on the financial condition, results of operations
or net cash flows of the Company.
On April 28, 1999, the Company filed a lawsuit captioned Gibraltar
Packaging Group, Inc. v. Anthem Health Plans, d.b.a. Anthem Blue Cross and
Blue Shield of Connecticut ("Anthem"), in the United States District Court
for the District of Connecticut. The Company is seeking damages for
Anthem's alleged breach of a contract for health insurance for employees of
the Company. In October 2000, Anthem filed a counterclaim for unpaid
premiums. The amount of the counterclaim is unknown. Discovery has revealed
that a third party may be liable to indemnify the Company for all or part
of the counterclaim and the Company is in the process of bringing a 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 fiscal 2001.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders on November 9, 2000, a
total of 3,656,036 shares, or 72.52%, of outstanding shares were
represented and entitled to vote.
(a) The following members were elected to the Board of Directors:
FOR WITHHOLD
--- --------
David G. Chandler 3,525,658 130,378
Richard D. Hinrichs 3,623,758 32,278
John W. Lloyd 3,615,553 40,483
Walter E. Rose 3,513,861 142,175
Robert G. Shaw 3,625,553 30,483
John D. Strautnieks 3,515,862 140,174
(b) The following proposal was approved:
Ratification of Deloitte & Touche LLP as the independent
auditors for the Company for the 2001 fiscal year.
Affirmative Votes: 3,649,338
Negative Votes: 6,698
Abstentions: 0
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.56 Eighth Amendment to Secured Credit Agreement, dated September 30,
2000, among Gibraltar Packaging Group, Inc., various financial
institutions and First Source Financial LLP, Individually and as
agent.
(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
------------------------- -------------------------
Lyle O. Halstead Brett E. Moller
V. P. Finance - Operations V. P. Finance - Corporate
(Principal Accounting Officer) (Principal Financial Officer)
Date: February 7, 2001 February 7, 2001
11