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, 2003
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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, (Registrant's website)
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_|Yes |X| No
As of March 31, 2003, 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
Consolidated Balance Sheets 1
As of March 31, 2003 (Unaudited) and June 29, 2002
Consolidated Statements of Operations (Unaudited) for 2
the Three and Nine Months Ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows (Unaudited) for the 3
Nine Months Ended March 31, 2003 and 2002
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Certifications Pursuant to 17 CFR Section 240.13a-14 20
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
March 31, June 29,
2003 2002
-------- --------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 126 $ 45
Accounts receivable (NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $308 AND $521, RESPECTIVELY) 5,126 5,432
Inventories 7,571 7,317
Deferred income taxes 703 703
Prepaid and other current assets 706 423
-------- --------
Total current assets 14,232 13,920
PROPERTY, PLANT AND EQUIPMENT - NET 15,370 15,687
GOODWILL 4,112 4,112
OTHER ASSETS (NET OF ACCUMULATED AMORTIZATION
OF $180 AND $83, RESPECTIVELY) 839 825
-------- --------
TOTAL $ 34,553 $ 34,544
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 293 $ 718
Current portion of long-term debt 2,069 3,349
Accounts payable 3,144 4,036
Accrued expenses 2,945 3,254
-------- --------
Total current liabilities 8,451 11,357
LONG-TERM DEBT - Net of current portion 14,595 14,917
DEFERRED INCOME TAXES 2,134 932
OTHER LONG-TERM LIABILITIES 429 430
-------- --------
Total liabilities 25,609 27,636
-------- --------
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 (19,268) (21,304)
-------- --------
Total stockholders' equity 8,944 6,908
-------- --------
TOTAL $ 34,553 $ 34,544
======== ========
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,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
NET SALES $ 16,694 $ 16,139 $ 51,398 $ 46,820
COST OF GOODS SOLD 13,481 13,044 41,290 37,763
---------- ---------- ---------- ----------
GROSS PROFIT 3,213 3,095 10,108 9,057
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 1,969 1,937 5,898 5,719
Amortization of goodwill -- 35 -- 102
---------- ---------- ---------- ----------
Total operating expenses 1,969 1,972 5,898 5,821
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,244 1,123 4,210 3,236
OTHER EXPENSE:
Interest expense 234 280 757 1,321
Other expense - net 25 21 59 49
---------- ---------- ---------- ----------
Total other expense 259 301 816 1,370
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 985 822 3,394 1,866
INCOME TAX PROVISION 394 343 1,358 787
---------- ---------- ---------- ----------
NET INCOME $ 591 $ 479 $ 2,036 $ 1,079
========== ========== ========== ==========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Net Income $ 0.12 $ 0.10 $ 0.40 $ 0.21
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
(basic and diluted) 5,041,544 5,041,544 5,041,544 5,041,544
========== ========== ========== ==========
See notes to unaudited consolidated financial statements.
2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
Nine Months Ended
March 31,
---------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,036 $ 1,079
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 1,467 1,575
Provision for losses on accounts receivable 10 169
Loss on sale of property, plant and equipment 88 2
Write-off of refinancing costs -- 156
Deferred income taxes 1,202 761
Changes in operating assets and liabilities:
Accounts receivable 296 559
Inventories (254) (33)
Prepaid expenses and other assets (297) 436
Accounts payable (1,317) (1,681)
Accrued expenses and other liabilities (310) 198
-------- --------
Net Cash Flows from Operating Activities 2,921 3,221
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 33 11
Purchases of property, plant and equipment (1,271) (564)
-------- --------
Net Cash Flows from Investing Activities (1,238) (553)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit facility 1,177 (2,643)
Principal repayments of long-term debt (2,737) (15,290)
Repayments under capital leases (42) (14)
Proceeds from refinancing -- 15,553
Refinancing costs -- (325)
-------- --------
Net Cash Flows from Financing Activities (1,602) (2,719)
-------- --------
NET INCREASE (DECREASE) IN CASH 81 (51)
CASH AT BEGINNING OF PERIOD 45 144
-------- --------
CASH AT END OF PERIOD $ 126 $ 93
======== ========
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, 2003, and the results of its
operations and cash flows for the periods presented herein. Results of
operations for the three and nine months ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full
fiscal year. The financial statements should be read in conjunction
with the audited financial statements for the year ended June 29, 2002
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, June 29,
2003 2002
--------- ---------
Finished goods $ 5,172 $ 4,665
Work in process 1,200 935
Raw materials 865 1,414
Manufacturing supplies 334 303
--------- ---------
$ 7,571 $ 7,317
========= =========
C. STOCK-BASED COMPENSATION
The Company accounts for its employees stock-based compensation plans
under the recognition and measurement principles of APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, to stock-based employee compensation.
4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
2003 2002 2003 2002
------- ------- ------- -------
Reported net income per APB 25 $ 591 $ 479 $ 2,036 $ 1,079
Add back: Stock-based employee
compensation expense included in
reported net income, net of tax 32 -- 41 --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (32) -- (41) --
------- ------- ------- -------
Pro forma net income per FASB 123 $ 591 $ 479 $ 2,036 $ 1,079
======= ======= ======= =======
Earnings per share:
As reported $ 0.12 $ 0.10 $ 0.40 $ 0.21
======= ======= ======= =======
Pro forma $ 0.12 $ 0.10 $ 0.40 $ 0.21
======= ======= ======= =======
Pre-tax stock-based employee compensation expense related to the 1998
Stock Appreciation Rights Plan of $53,000 and $68,000 for the third
quarter and nine months ended March 31, 2003, respectively, is
reflected in net income for fiscal 2003. The expense reported in net
income under APB Opinion No. 25 is the same as under FASB Statement No.
123. In accordance with APB Opinion No. 25, there is no stock-based
employee compensation cost associated with any option plan, as all
options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of the grant.
Additionally, all outstanding options became fully vested prior to the
periods presented.
D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 30, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, which establishes the accounting for acquired
goodwill and other intangible assets, and provides that goodwill and
indefinite-lived intangible assets will not be amortized, but will be
tested for impairment on an annual basis. The Company's related
amortization consists solely of goodwill amortization, which has no
income tax effect. Following is a reconciliation of net income as
originally reported for the three and nine month periods ended March
31, 2003 and 2002, to adjusted net income (IN THOUSANDS):
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2003 2002 2003 2002
------ ------ ------ ------
Reported net income $ 591 $ 479 $2,036 $1,079
Goodwill amortization -- 35 -- 102
------ ------ ------ ------
Adjusted net income $ 591 $ 514 $2,036 $1,181
====== ====== ====== ======
5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In accordance with SFAS No. 142, the Company has completed its
transitional goodwill impairment test using a discounted cash flow
methodology as of June 30, 2002. No impairment charges resulted from
the transitional impairment test.
During the first quarter of fiscal 2003, the Company adopted 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. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations.
During the first quarter of fiscal 2003, the Company adopted 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. The adoption of this
standard did not have a material impact on the Company's financial
position or results of operations.
During the first quarter of fiscal 2003, the Company adopted 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. As a result of adopting this standard, the
Company reclassified $260,000 of unamortized finance costs related to a
December 2001 refinancing from an extraordinary loss to interest
expense to conform with fiscal 2003 presentation requirements.
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.
In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURES REQUIREMENTS FOR GUARANTEES, INCLUDING
GUARANTEES OF INDEBTEDNESS OF OTHERS (FIN 45). FIN 45 is effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements of this interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.
FIN 45 expands the disclosures required by a guarantor about its
obligations under the guarantee. The adoption of this interpretation
did not have a material impact on the Company's financial position or
results of operations.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE. SFAS No. 148
provides alternative methods of transition for voluntary changes to the
fair value based method of accounting for stock-based compensation, and
amends the disclosure requirements including a requirement for interim
disclosures. The Company currently
6
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
discloses the effects of stock-based employee compensation and does not
intend to voluntarily change to the alternative accounting principle.
In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES (FIN 46). FIN 46 requires a variable
interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to
consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year or
interim period beginning after June 15, 2003. The adoption of this
interpretation did not have a material impact on the Company's
financial position or results of operations.
E. LONG-TERM DEBT
The Company's 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 $1.1 million excess cash flow payment
for fiscal 2002 was paid out of unused borrowing capacity in October
2002. At March 31, 2003, the Company had available to it unused
borrowing capacity of $3.5 million.
F. RECLASSIFICATION
Certain amounts in the fiscal 2002 financial statements have been
reclassified to conform with the fiscal 2003 presentation.
7
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT EVENTS
Over the last couple of years, the packaging industry has experienced a
downturn, and due to the resulting excess capacity within the industry,
competition for customers has escalated. The Company has not been
immune to the effects of this trend, and in recent months has lost two
customers who are expected to account for approximately $8.5 million in
business this year. One of these customers is expected to represent $5
million of the Company's increase in annual net sales over the previous
year. If the Company's efforts to replace this business fall
substantially short, results of operations would be materially
impacted.
However, the Company is responding to these recent trends by making a
strong push for new business in growth industries, by controlling costs
and by improving efficiencies. For example, recent and planned
acquisitions of new equipment will play an integral part in the Company
achieving these objectives, and will also help Gibraltar to compete in
new growth markets.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2002
---------------------------------
In the third quarter of fiscal 2003, the Company had net sales of $16.7
million compared with $16.1 million in the corresponding period of
fiscal 2002, an increase of $0.6 million or 3.4%. This increase is
attributable to additional business from new and existing customers,
partially offset by a reduction in some existing accounts due to soft
economic conditions and increased competition.
Gross profit for the third quarter of fiscal 2003 remained steady at
19.2% of net sales compared to the corresponding period of fiscal 2002.
Income from operations for the third quarter of fiscal 2003 was $1.2
million compared with $1.1 million in the corresponding period of
fiscal 2002, an increase of $0.1 million or 10.8%. This increase was
primarily a result of the increase in net sales, with selling, general,
and administrative expenses remaining relatively flat. In addition,
with the adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, the Company stopped amortizing goodwill in the first quarter of
fiscal 2003.
Total interest expense decreased $0.1 million or 16.4% to $0.2 million
in the third quarter of fiscal 2003 from $0.3 million in the
corresponding period of fiscal 2002. The decrease is the result of $3.0
million in lower average borrowings and a reduction in average interest
rates to 4.7% from 5.0%.
The income tax provision as a percentage of pre-tax income for the
third quarter of fiscal 2003 was 40.0%, compared with an income tax
provision of 41.7% for the corresponding period in fiscal 2002. Prior
to the adoption of SFAS No. 142 in the first quarter of fiscal 2003,
the effective tax rate typically differed from the statutory rate
primarily as a result of non-deductible amortization of goodwill.
8
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
Net income for the third quarter of fiscal 2003 was $0.6 million or
$0.12 per share, compared to $0.5 million or $0.10 per share in the
third quarter of fiscal 2002.
Nine Months Ended March 31, 2003 Compared to
Nine Months Ended March 31, 2002
--------------------------------
In the first nine months of fiscal 2003, the Company had net sales of
$51.4 million compared with $46.8 million in the corresponding period
of fiscal 2002, an increase of $4.6 million or 9.8%. This increase is
attributable to additional business from new and existing customers,
partially offset by a reduction in some existing accounts due to soft
economic conditions and increased competition.
Gross profit for the first nine months of fiscal 2003 increased to
19.7% of net sales from 19.3% in the corresponding period of fiscal
2002. The Company was able to leverage its existing cost structure by
increasing volume while maintaining relatively stable costs. This
overall improvement was partially offset by a change in the customer
mix, resulting in lower margins from some customers.
Income from operations for the first nine months of fiscal 2003 was
$4.2 million compared with $3.2 million in the corresponding period of
fiscal 2002, an increase of $1.0 million or 30.1%. This increase was
primarily a result of the increase in net sales, with selling, general,
and administrative expenses remaining relatively stable. In addition,
with the adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, the Company stopped amortizing goodwill in the first quarter of
fiscal 2003.
Total interest expense decreased $0.6 million or 42.7% to $0.8 million
in the first nine months of fiscal 2003 from $1.3 million in the
corresponding period of fiscal 2002. In December 2001, the Company
refinanced its credit facility with LaSalle Business Credit, Inc.
("LaSalle"). As part of this refinancing, the Company recorded an
extraordinary loss of $260,000 or $0.06 per share ($156,000 after tax
loss or $0.03 per share) in fiscal 2002 reflecting the write-off of
unamortized finance costs relating to the previous credit facility.
However, with the adoption of SFAS No. 145, the $260,000 extraordinary
loss has been reclassified as interest expense to conform with the
fiscal 2003 presentation requirements. Excluding the effect of this
change in presentation, the decrease of $0.3 million is the result of
$2.1 million in lower average borrowings and a reduction in average
interest rates to 7.1% from 8.9%.
The income tax provision as a percentage of pre-tax income for the
first nine months of fiscal 2003 was 40.0%, compared with an income tax
provision of 42.2% for the corresponding period in fiscal 2002. Prior
to the adoption of SFAS No. 142 in the first quarter of fiscal 2003,
the effective tax rate typically differed from the statutory rate
primarily as a result of non-deductible amortization of goodwill.
Net income for the first nine months of fiscal 2003 was $2.0 million or
$0.40 per share, compared to $1.1 million or $0.21 per share in the
corresponding period of fiscal 2002.
9
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
LIQUIDITY AND FINANCIAL CONDITION
Historically, the Company's liquidity requirements have been met by a
combination of funds provided by operations and its revolving credit
agreements. At March 31, 2003, the Company's current assets exceeded
its current liabilities by $5.8 million, as compared to $2.6 million at
June 29, 2002. This increase is primarily the result of renegotiated
payable terms with specific vendors to achieve vendor discounts and a
one-time excess cash flow recapture payment from the previous fiscal
year. Funds provided by operations during the nine months ended March
31, 2003 were $2.9 million compared with funds provided of $3.2 million
in the corresponding period of fiscal 2002. The Company also had
available to it unused borrowing capacity of $3.5 million as of March
31, 2003.
During the nine months ended March 31, 2003, capital expenditures
totaled $1.3 million compared with $0.6 million in the corresponding
period of fiscal 2002. The 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. As part of this process, the Company
has added, and has made commitments on, new equipment that adds
capacity and lowers production costs, as well as enables the Company to
enter into new markets.
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.
On December 20, 2001, the Company entered into a three-year renewable
credit facility with 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 was repaid in April 2003, required 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 $1.1 million
excess cash flow payment for fiscal 2002 was paid out of unused
borrowing capacity in October 2002. Until the Special Advance Loan was
repaid, only monthly interest payments were applied against the Term
Loan. After repayment of the Special Advance Loan, monthly principal
payments of $169,897 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.
10
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 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 March 31,
2003 were a combination of prime and LIBOR. LaSalle's prime and LIBOR
rates for the Revolver and Special Advance Loan were 4.25% and 1.33%,
respectively, at March 31, 2003. LaSalle's prime and LIBOR rates for
the Term Loan were 4.25% and 1.68%, respectively, at March 31, 2003.
As of March 31, 2003, 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 March 31, 2003 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 March 31,
2003, 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.
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 March 31,
2003:
11
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS AFTER 5
(THOUSANDS OF DOLLARS) TOTAL 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS YEARS
------------------------------------------------------------------------------------------------------------------
Term Loan $ 11,553 $ 1,869 $ 9,684 $ - $ - $ - $ -
Special Advance Loan 152 152 - - - - -
Revolving Line-of-Credit(a) 4,759 - 4,759 - - - -
Purchase commitments(b) 929 929 - - - - -
Capital lease obligations 200 49 46 50 55 - -
Operating leases 3,223 1,214 918 476 322 249 44
------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 20,816 $ 4,213 $ 15,407 $ 526 $ 377 $ 249 $ 44
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
AMOUNT OF COMMITMENT EXPIRATION
PER PERIOD
-----------------------------------------------------------------
TOTAL
OTHER COMMERCIAL COMMITMENTS AMOUNTS AFTER 5
(THOUSANDS OF DOLLARS) COMMITTED 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS YEARS
------------------------------------------------------------------------------------------------------------------
Revolving Line-of-Credit(c) $ 3,530 $ - $ 3,530 $ - $ - $ - $ -
Standby letters of credit 148 148 - - - - -
------------------------------------------------------------------------------------------------------------------
Total commercial commitment $ 3,678 $ 148 $ 3,530 $ - $ - $ - $ -
------------------------------------------------------------------------------------------------------------------
(a) The revolving line-of-credit represents the actual outstanding
balance, as of March 31, 2003.
(b) The Company anticipates that these purchase commitments will be
financed through operating leases.
(c) The revolving line-of-credit represents the unused borrowing
capacity available to the Company, as of March 31, 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America ("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.
12
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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 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 is lower than expected or
if expected tax planning strategies are 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. 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.
GOODWILL AND INTANGIBLE ASSETS
The Company is required to make certain assumptions and estimates
regarding the fair value of intangible assets, namely goodwill, when
assessing such assets for impairment. Changes in the fact patterns
underlying such assumptions and estimates could ultimately result in
the recognition of impairment losses on intangible assets.
CONTINGENT LIABILITIES
From time to time, 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.
13
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 30, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, which establishes the accounting for acquired
goodwill and other intangible assets, and provides that goodwill and
indefinite-lived intangible assets will not be amortized, but will be
tested for impairment on an annual basis. The Company's related
amortization consists solely of goodwill amortization, which has no
income tax effect. Following is a reconciliation of net income as
originally reported for the three and nine month periods ended March
31, 2003 and 2002, to adjusted net income (IN THOUSANDS):
Three Months Ended Nine Months Ended
March 31, March 31,
---------------- ----------------
2003 2002 2003 2002
------ ------ ------ ------
Reported net income $ 591 $ 479 $2,036 $1,079
Goodwill amortization -- 35 -- 102
------ ------ ------ ------
Adjusted net income $ 591 $ 514 $2,036 $1,181
====== ====== ====== ======
In accordance with SFAS No. 142, the Company has completed its
transitional goodwill impairment test using a discounted cash flow
methodology as of June 30, 2002. No impairment charges resulted from
the transitional impairment test.
During the first quarter of fiscal 2003, the Company adopted 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. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations.
During the first quarter of fiscal 2003, the Company adopted 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. The adoption of this
standard did not have a material impact on the Company's financial
position or results of operations.
14
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
During the first quarter of fiscal 2003, the Company adopted 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. As a result of adopting this standard, the
Company reclassified $260,000 of unamortized finance costs related to a
December 2001 refinancing from an extraordinary loss to interest
expense to conform with fiscal 2003 presentation requirements.
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.
In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURES REQUIREMENTS FOR GUARANTEES, INCLUDING
GUARANTEES OF INDEBTEDNESS OF OTHERS (FIN 45). FIN 45 is effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements of this Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.
FIN 45 expands the disclosures required by a guarantor about its
obligations under the guarantee. The adoption of this interpretation
did not have a material impact on the Company's financial position or
results of operations.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE. SFAS No. 148
provides alternative methods of transition for voluntary changes to the
fair value based method of accounting for stock-based compensation, and
amends the disclosure requirements including a requirement for interim
disclosures. The Company currently discloses the effects of stock-based
employee compensation and does not intend to voluntarily change to the
alternative accounting principle.
In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES (FIN 46). FIN 46 requires a variable
interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about
variable interest entities that a company is not required to
consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year or
interim period beginning after June 15, 2003. The adoption of this
interpretation did not have a material impact on the Company's
financial position or results of operations.
15
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
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-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, 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 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, 2003 was at variable interest rates.
A hypothetical 10% change in interest rates would have had a $23,000
impact on interest expense and cash flows for the three months ended
March 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer, Walter E. Rose, and Vice
President Finance, Brett E. Moller, have reviewed the Company's
disclosure controls and procedures within 90 days prior to the filing
of this report. Based upon this review, these officers believe that the
Company's disclosure controls and procedures are effective in ensuring
that material information related to the Company is made known to them
by others responsible for reporting such material information within
the Company.
The Company recently identified a significant deficiency in the design
and operation of its internal controls in its accounts payable function
at one of its divisions, and instituted changes to the design and
16
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
operation of the internal controls in this area. The Company determined
that this deficiency existed when it discovered that a division
employee had been embezzling funds. The Company is still evaluating the
financial statement implications of the embezzlement, but believes that
any embezzled funds will be recovered through insurance. There were no
other significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent
to the date that the Company carried out its evaluation.
17
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders in
the quarter ended March 31, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
99.1 Certification Pursuant to 18. U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
None
18
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/ Brett E. Moller
-----------------------------
Brett E. Moller
Vice President Finance
(Principal Financial and Accounting Officer)
Date: May 13, 2003
19
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CERTIFICATIONS
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 quarterly report on Form 10-Q of Gibraltar Packaging
Group, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
20
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/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 quarterly report on Form 10-Q of Gibraltar Packaging
Group, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
21
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Brett E. Moller
- -------------------------------
BRETT E. MOLLER
VICE PRESIDENT FINANCE
(Principal Financial Officer)
22