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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 00-19800
GIBRALTAR PACKAGING GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0496290
(State of incorporation) (IRS Employer Identification No.)
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274 Riverside Avenue
Westport, Connecticut 06880
(Address of principal executive offices) (Zip Code)
(203) 227-0400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. |_|
The aggregate market value of voting stock held by nonaffiliates of the
registrant on September 24, 1997 was $9,653,546 (based upon the September 24,
1996 closing sale price of the common stock as reported by the NASDAQ National
Market System).
The number of shares of common stock of the registrant outstanding as
of September 24, 1997 was 5,041,544 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference to
the definitive proxy statement relating to the registrant's Annual Meeting of
Stockholders for fiscal 1997, which definitive proxy statement will be filed
within 120 days of the end of the registrant's fiscal year.
Table of Contents
PART I
Page
Item 1 Business.............................................................................................1
Item 2. Properties...........................................................................................8
Item 3. Legal Proceedings....................................................................................8
Item 4. Submission of Matters to a Vote of Security Holders..................................................9
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters......................................................................9
Item 6. Selected Financial Data.............................................................................11
Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations......................................................12
Item 8. Financial Statements and Supplementary Data.........................................................16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................................................16
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................17
Item 11. Executive Compensation..............................................................................17
Item 12. Security Ownership of Certain
Beneficial Owners and Management....................................................................17
Item 13. Certain Relationships and Related Transactions......................................................17
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K..................................................................18
PART I
Item 1. Business
General
Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") designs,
manufactures and markets packaging products for a number of consumer and
industrial markets. The Company is the combination of several previously
independent packaging companies, each with its own distinctive products,
customer base and geographic focus. The acquisitions of Standard Packaging &
Printing Corp. ("Standard"), Niemand Industries, Inc. ("Niemand"), and GB
Labels, Inc. ("GB Labels") in 1993 expanded the Company's products from folding
cartons and specialty laminated containers to include tubular, spiral-wound
paper packaging, flexible poly-film packaging, contract packaging and filling
and pressure-sensitive labels. Although most of the Company's sales are made to
customers located in the central and southern regions of the United States, the
Company sells its products to customers throughout the nation. The Company
derives its sales from a diverse market base, primarily comprised of the
following markets: textiles, pharmaceutical, office supplies and paper products,
auto aftermarket parts, food, cosmetics and personal care, household and
industrial products and toys.
The Company serves approximately 1,200 customers from five divisions:
Great Plains Packaging in Hastings, Nebraska; RidgePak Corporation (Flashfold
Carton) in Fort Wayne, Indiana; Niemand in Marion, Alabama; Standard in Mount
Gilead, North Carolina and GB Labels in Burlington, North Carolina. The Company
believes that its five divisions enhance its competitive position by providing
it with multiple products and broader geographic coverage, enabling the Company
to serve customers that operate from several locations.
The Company's business strategy is to grow internally through increased
sales and profitability of its existing packaging products.
Gibraltar's predecessor was incorporated under the name GPC Co. in
Nebraska in 1967 and subsequently changed its name to Great Plains Packaging Co.
in 1986. In 1991, Great Plains Packaging Co. was reincorporated in Delaware, and
its name was changed to Gibraltar Packaging Group, Inc. Gibraltar relocated its
executive offices in June 1996, the new offices are located at 274 Riverside
Avenue, Westport, Connecticut 06880 and its telephone number is (203) 227-0400.
Manufacturing Products and Processes
The Company offers its customers six types of packaging products, as
described below.
Folding Cartons
The Company designs, manufactures and markets a variety of printed
folding cartons, which are purchased by customers in a variety of consumer and
industrial markets. The Company's customers use folding cartons for both the
shipment and retail display of the customers' products. Sales of folding cartons
represented approximately 63% of the Company's net sales for the twelve months
ended June 28, 1997, approximately 62% of the Company's net sales for the twelve
months ended June 29, 1996 and approximately 56% of the Company's net sales for
the twelve months ended July 1, 1995.
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The Company believes that recent trends in the folding carton market
favor manufacturers that can produce creative graphics to enhance visual
presentation, point-of-sale appeal and product differentiation. Specialty
packaging designed to address these needs often includes graphics with
high-resolution print, more colors and innovative designs. The Company's
internal design teams have won numerous industry awards, due, in part, to the
Company's emphasis on product design. The Company believes that its design
resources enhance the Company's competitiveness in the folding carton market and
result in increased profitability.
Folding cartons are produced at the Company's production facilities in
Hastings, Fort Wayne and Mount Gilead. After a customer's order is received,
paperboard purchased from outside suppliers in rolled form is converted into
sheets of specified sizes by sheeting equipment. Specialized printing plates are
created from specifications, artwork or film supplied by the Company's customers
or developed by the Company's design teams. The paperboard sheets are then
printed on multicolor offset printing presses. The printed board is then cut,
creased, embossed, folded and glued into individual cartons and packaged for
shipment to customers.
In fiscal 1996, the Company's Hastings, Nebraska facility became the
sixth folding carton plant in the United States to achieve ISO 9001
certification, the rigorous international quality standard. ISO (International
Organization for Standardization) is steadily becoming a worldwide standard for
quality management. It requires a company to codify its quality program by
defining and documenting its quality system.
Tubular, Spiral-Wound Paper Packaging
The Company began offering its customers tubular paper packaging
products with the 1993 acquisition of Niemand. Tubular paper packaging products
represented approximately 17% of the Company's net sales for the twelve-month
period ended June 28, 1997 and approximately 18% of the Company's net sales for
each of the twelve month periods ended June 29, 1996 and July 1, 1995.
The Company's tubular packaging is structurally strong, high-quality,
spiral-wound paper packaging that is suitable for direct labeling with
high-quality graphics. Tubular paper packaging offers a biodegradable product
that is, in smaller quantities, generally cheaper than plastic alternatives.
Tubular paper packaging is used widely for personal care products (talcum
powders, bath powders and scented products), for food products (spices,
breadcrumbs and non-dairy creamer) and for household products (carpet freshener
and wildflower seeds). Additionally, these products are used as gift boxes, as
well as having uses in the toy/game industry. The Company believes that it is a
leading supplier of tubular paper packaging to the cosmetics and personal care
markets.
The Company manufactures tubular paper packaging at its Marion, Alabama
facility. Several pieces of equipment used in this process are proprietary to
the Company. The process of producing tubular paper packaging begins with
slitting various types of rolled paper, then winding the paper into tubes by
gluing the individual strips or plies of paper together. The tubes are then
labeled with printed paper labels (typically of higher graphic quality) and cut
into individual canisters. Canisters may have closure/dispenser tops that offer
a variety of dispensing features - for example, sifting features as in the case
of spice shakers and talcum powder containers. The empty canisters are filled by
the Company or the customer with a variety of products. The canisters are then
sealed with a metal or plastic plug at the bottom.
Flexible Poly-Film Packaging
The Company began offering its customers flexible poly-film packaging
with the 1993 acquisition of Standard. Flexible packaging sales represented
approximately 8% of the Company's net sales for the twelve months ended June 28,
1997, approximately 8% of the
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Company's net sales for the twelve months ended June 29, 1996 and approximately
10% of the Company's net sales for the twelve months ended July 1, 1995.
Flexible packaging offers light-weight, low-bulk, resource-conserving
packaging that also protects perishable products by creating a barrier against
air and moisture. For consumer marketing purposes, flexible packaging combines
high-quality, multicolor graphics, similar to folding carton graphics, with a
see-through feature that enables the consumer to see the product itself along
with the package graphics. Although the Company sells most of its flexible
packaging for use in the textile, food and household products markets, flexible
packaging is also used for many other products, including pharmaceuticals and
other medical products and toys.
Flexible packaging is produced at the Standard plant in Mount Gilead
from polyethylene, polypropylene and similar plastic materials. The Company
purchases its plastic films from film manufacturers rather than producing its
own plastic films. The film is printed at the Company's facilities using
multicolor printing presses that are functionally similar to those used in
folding carton manufacture. The printed rolls are slit into smaller rolls. Some
printed film is shipped in roll form to customers who then convert it into its
final package form (for example, bags, pouches or overwrap). Some of the printed
film is converted into bags or pouches by the Company and then shipped to
customers.
Specialty Laminated Containers
At the Company's Hastings facility, the Company manufactures a
specialized type of folding carton, specialty laminated packaging, which it
markets to customers throughout the United States, primarily in the automotive
aftermarket parts, frozen food and toy markets. Laminated packages are used for
retail sales of products and offer customers a number of visual marketing
benefits. Specialty laminated container sales represented approximately 5% of
the Company's net sales for each of the twelve-month periods ended June 28,
1997, June 29, 1996 and July 1, 1995. During the manufacturing process,
laminated sheets, which are composed of a printed paperboard folding carton
sheet glued onto single face corrugate, are die cut, glued and folded into
containers. Laminated packaging offers a structurally stronger package suitable
for packaging heavier contents, protecting products during shipping or meeting
other package performance needs, while at the same time providing
high-resolution graphics. The Company believes that the resolution of the print
and graphics enhances the product's appeal, and that the lamination provides
increased product visibility with a large, exposed graphics area.
Contract Packaging and Filling
The Company's facility in Marion provides contract packaging and filling
services, which represented approximately 2% of the Company's net sales for the
twelve months ended June 28, 1997, approximately 2% of the Company's net sales
for the twelve months ended June 29, 1996 and approximately 4% of the Company's
net sales for the twelve months ended July 1, 1995. The Company fills, and in
some cases, manufactures tubular spiral-wound paper containers. Contract
packaging and filling can provide a cost-effective alternative for customers
with small in-house purchasing departments with the Company taking
responsibility for obtaining materials as well as packaging the product. The
Company believes that the combination of container manufacture and contract
filling provides an attractive product for its customers. With a single purchase
order, a customer of the Company's Marion facility can contract for container
procurement, product specification and procurement, blending, filling, packaging
and shipment to a distribution center.
The Company fills spices as well as other food products, including
non-dairy creamer and bread crumbs; household products such as carpet freshener
and wildflower seeds; and other types of dry, granular products using a similar
process. The Company may formulate, procure, blend and fill the container or it
may package product supplied by a customer. Machines using gravity or
vacuum-based filling techniques carry out the filling. Once the containers are
filled, the
-3-
Company packs them in shipping containers for delivery to its customers.
In connection with its filling operations, the Company maintains an
environmentally controlled work area for food packaging and other services that
must meet specific cleanliness and quality standards.
Pressure-Sensitive Labels
At the Company's GB Labels plant in Burlington, the Company manufactures
pressure-sensitive labels, which are printed by multicolor printing presses
functionally similar to those used in printing paperboard and flexible films.
Pressure-sensitive labels accounted for approximately 5% of the Company's net
sales in the twelve months ended June 28, 1997, approximately 5% of the
Company's net sales for the twelve months ended June 29, 1996 and approximately
7% of the Company's net sales for the twelve months ended July 1, 1995. The
labels are backed with adhesive, mounted on paper backing and typically shipped
in rolls to customers. Customers use the Company's labels for a variety of
applications, including product promotions, packaging modifications, clothing
packaging and labeling and other applications.
Labels provide a cost-effective means of altering other packaging (for
example, folding cartons or flexible packaging) in connection with product
promotions or tie-ins. Labels also may be used to highlight pricing or product
features or for other purposes. Labels themselves, typically in the form of
adhesive-backed bands, can be used as a form of packaging. Socks and hosiery
represent the most common application for the Company's label packaging.
Competition
The packaging markets in which the Company competes are highly
fragmented and increasingly competitive. The Company competes with numerous
small, non-integrated companies that produce one or more packaging products and,
to a lesser extent, with divisions or subsidiaries of large integrated packaging
producers as well as in-house packaging operations. The vertically integrated
paperboard, oil and chemical companies that the Company competes with may have
many lines of business and produce their own raw materials. In general, the
integrated companies focus primarily on producing large quantities of basic,
commodity packaging and often provide their products to large companies
nationwide. The non-integrated manufacturers generally operate only one or two
production facilities and emphasize higher-margin, value-added packaging, often
with specialized or customized graphics. Unlike the integrated manufacturers,
these manufacturers produce smaller orders of packaging with quick turnaround,
in many cases also working with the customer in designing the packaging. The
Company believes that it offers a broader range of packaging products than most
other non-integrated manufacturers that produce similar packaging.
Competition among the non-integrated packaging manufacturers, against
which the Company primarily competes, is based on product quality, service,
timeliness of delivery, manufacturing capabilities and, to a lesser extent than
with commodity packaging, price. The Company believes that its expertise and
reputation within the packaging industry for providing timely service and
high-quality packaging, as well as its six types of products, enable it to
compete effectively with other non-integrated packaging companies.
The Company's largest competitors in the flexible poly-film packaging
market operate as vertically integrated divisions or subsidiaries of large oil
and chemical companies. If the supply of oil-based resins or plastic films
should tighten in the future, large vertically integrated producers may have an
advantage over the Company, as such competitors could allocate scarce resin
resources to their own flexible packaging units or transfer them at advantageous
prices to their own flexible packaging units. Other competitors in the flexible
packaging market are part of diversified packaging companies like the Company
and offer both paper-based and film-based
-4-
packaging. Some of the Company's other flexible packaging competitors are
smaller packaging companies that offer only flexible film packaging.
Competition in the tubular packaging, contract filling and label markets
is highly fragmented. Tubular packaging is provided by a large number of
relatively small competitors and by a few large packaging companies. Competition
among the smaller, non-integrated packagers is based on product quality,
service, timeliness of delivery, manufacturing capabilities and, to a lesser
extent than with large packagers, price. Contract filling is provided not only
by a large number of relatively small competitors, but also internally by goods
and food producers themselves. The Company's filling capability is limited to
dry-granular types of products, and, therefore, the Company competes only in
this area of the contract filling market. In comparison with the Company's other
packaging markets, the label market is generally characterized by lower barriers
to entry.
During the past fiscal year, the Company has also been impacted by the
increasing trends of customers to increase their buying power by consolidating
the number of vendors they maintain, as well as entering into alliances
with their direct competitors to use their competitors' excess packaging
capacity.
Mergers and acquisitions of packaging suppliers have occurred recently
and may continue to take place in the future. The size of the Company has
increased as a result of its acquisitions, and the average size of the Company's
competitors may also increase as a result of mergers and acquisitions. Many of
the Company's competitors have greater financial and other resources than the
Company. In addition, to the extent that packaging methods are developed and
successfully marketed as alternatives to the Company's products, the Company may
compete with producers of such alternative packaging methods.
Raw Materials
Raw materials used in the Company's production process include
paperboard, paper labels, inks, flexible films, resin and adhesives, all of
which the Company purchases from more than one supplier. Costs for these
materials remained stable over the past year, however, pricing increases for
paper and paperboard products are expected to increase over the first and second
quarters of fiscal 1998. Any such price increases may have an adverse impact on
the Company's results of operations if the Company is unable to pass these
increases on to its customers.
The supply of materials such as polyethylene, polypropylene, other
plastic films and plastic resins used in the Company's flexible packaging and
contract packaging products is subject to the disruptions generally associated
with the petroleum and petroleum product markets. The supply of plastic
materials depends upon factors beyond the control of the Company, including,
directly or indirectly, changes in the economy, price levels and seasons, the
level of domestic oil production, the availability of imports and the actions of
OPEC.
Although the Company's supply of raw materials is presently sufficient,
its business could be adversely affected by a prolonged shortage of raw
materials, the resulting higher costs and diminished availability of such
materials.
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Customers
The Company derives its sales from a diverse market base. The Company
sells its products throughout the United States to over 1,200 different
customers for use in a variety of industries. The table below sets forth the
Company's percent of net sales by market for each of the periods indicated:
Twelve Months Ended
June 28 June 29 July 1
1997 1996 1995
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Textile 17% 15% 16%
Pharmaceutical 17% 19% 15%
Office supplies and paper products 16% 17% 11%
Auto aftermarket parts and hardware 14% 14% 11%
Food 12% 11% 13%
Cosmetics and personal care 7% 7% 11%
Household and industrial 7% 4% 9%
Toy 4% 5% 4%
Other 6% 8% 10%
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Total net sales 100% 100% 100%
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Sales to the Company's top three customers accounted for approximately
18% of the Company's net sales for the twelve-month period ended June 28, 1997.
This compares to approximately 20% and 16% for the twelve-month periods ended
June 29, 1996 and July 1, 1995, respectively. Sales to one customer, Smead
Manufacturing, represented approximately 11.0%, 10.6% and 11.0% of net sales in
fiscal years 1997, 1996 and 1995, respectively.
The Company believes that developing long-term relationships with
customers is critical to success in the packaging industry. Customers generally
purchase products and services under firm purchase orders rather than long-term
contracts, although the Company does have several customers with contracts
ranging from nine months to three years.
Patents
Niemand holds several patents which cover proprietary technology and
packaging solutions, including a patent for the spiral-wound applicator used for
products that treat yeast infections. Although the Company believes these
patents to be economically valuable in the conduct of its business, the Company
does not believe that expiration or invalidation of any of these patents would
have a material adverse effect on the Company.
Employees
As of June 28, 1997, the Company employed approximately 786 full-time
employees of whom 141 are salaried and 645 are hourly. The Graphics
Communication Union, No. 19-M, represents the 114 hourly employees at Fort
Wayne, Indiana and their union contract expires in November 1998. The Retail,
Wholesale and Department Store Workers Union represents approximately 226 hourly
employees at Niemand's Marion, Alabama plant, and their union
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contract expires in August 2000. None of the Hastings, Nebraska, Mount Gilead,
North Carolina or Burlington, North Carolina employees are covered by union
contracts or collective bargaining agreements.
In February 1997 John F. Justice was promoted to division president of
Niemand Industries.
In March 1997 Ronald L. Davis was appointed General Manager of GB
Labels.
In January 1997 Lisa M. Schneider was hired as Corporate Controller.
The Company markets its products and services primarily through about 25
employee salesmen, as well as several commissioned brokers or agents.
The Company considers its relationship with its employees and unions to
be generally satisfactory. The Company is unable to forecast the future outcome
of negotiations between the Company and any union or the potential impact any
dispute could have on the Company's financial position or results of operations.
Regulation
The Company's activities are subject to various environmental, health
and worker safety laws. The Company has expended resources, both financial and
managerial, to comply with applicable environmental, health and worker safety
laws in its operations and at its facilities and anticipates that it will
continue to do so in the future. Compliance with environmental laws has not
historically had a material effect on the Company's capital expenditures,
earnings or competitive position. However, as part of the environmental
investigation carried out in fiscal 1995 in connection with a proposed merger,
the Company became aware of groundwater contamination at its GB Labels facility
in Burlington, North Carolina.
The groundwater testing, performed in May 1995, revealed the presence of
tetrachlorethelene (commonly called "PCE") and related compounds in the
groundwater at the site. Immediately upon receiving the written results of the
tests, the Company notified the North Carolina Division of Environmental
Management ("DEM"), a unit of the Department of Environment, Health and Natural
Resources, of the contamination at the site.
The Company then undertook sampling of water wells on neighboring
properties to determine whether contaminants were present in those wells.
Several wells were tested and contamination was revealed in three neighborhood
wells. The Company notified the County Health Department which notified affected
residents and instructed them not to use the well water. The Company provided
bottled water to any affected residents and offered to interconnect, at its
cost, any resident wishing to be connected to the municipal water supply. The
Company performed sampling and other investigations on vacant land adjacent to
the site and believes that this adjacent parcel also has contaminated
groundwater.
The Company met with a representative of the DEM at the Burlington site
to review the situation and outline a timetable for site assessment and
remediation. In August 1995, the Company filed a preliminary site assessment
with the DEM. This document summarized all that was currently known about the
site at that time, and outlined a plan for additional investigation and
submission of a comprehensive site assessment, which would include a proposed
remediation plan.
In December 1995 the Company had its environmental consultants prepare
an additional report summarizing the additional investigative work performed in
the area since the submission of the August 1995 report. The consultants had
planned to install additional groundwater monitoring wells in the area but were
unable to obtain permission from local property owners.
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In 1996 the North Carolina General Assembly reorganized the state
environmental protection agency (DEHNR) and transferred the groundwater program
to the newly created Division of Water Quality (DWQ). In February 1997 the DWQ
asked Gibraltar to conduct a follow-up assessment of the GB Labels facility. The
DWQ contacted local property owners and was successful in obtaining permission
to install groundwater monitoring wells on their properties. In response to the
DWQ's request for an updated assessment report, to include these off-site
assessments, Gibraltar has arranged with its environmental consultants to
install additional groundwater monitoring wells, conduct additional
investigative work at the GB Labels site and prepare an updated report. The
Company anticipates finalization of this report and submission to the DWQ late
in the Company's second quarter of the upcoming fiscal year.
Following the August 1995 preliminary site assessment, the Company had
its environmental consultants prepare an estimate of likely remediation costs
based on all of the information known at that time. These estimated costs ranged
from $750,000 to $1.1 million over a period of seven to ten years. Accordingly,
the Company recorded a liability for such remediation costs of $750,000 in
fiscal year 1995. This estimate may be affected by new information learned, any
modifications to any remediation plan that may be proposed by the DWQ and the
actual costs incurred as part of evaluation and remediation. The reduction in
the accrual for such remediation costs to $598,000 from $605,000 at June 28,
1997 and June 29, 1996, respectively, reflects legal and environmental
consulting expenses incurred in fiscal 1997 and fiscal 1996.
If the Company's expansion program results in significant growth in
production with associated increases in discharges and emissions, additional
capital expenditures could be required for the Company to comply with applicable
environmental laws and regulations and to maintain, renew or obtain necessary
environmental compliance permits.
Item 2. Properties
The Company owns offices and manufacturing facilities in Hastings,
Nebraska; Fort Wayne, Indiana; Mount Gilead and Burlington, North Carolina; and
Marion, Alabama. It leases warehouse facilities in Hastings, Nebraska; Fort
Wayne, Indiana; and Mebane, North Carolina. The Company's manufacturing
facilities consist of more than 600,000 square feet. In addition, the Company
leases approximately 2,700 square feet of office space in Westport, Connecticut.
The Company owns and leases vehicles for use by sales and delivery personnel and
also owns and leases various manufacturing, computer and other equipment used
for product development, customer technical support services and administrative
purposes. The Company's products are distributed to customers primarily
utilizing commercial transportation and, to a limited extent, Company-owned
trucks.
The Company's facilities have been expanded through a capital
expenditure program, which resulted in total expenditures of approximately $2.6
million, $1.5 million and $2.4 million in fiscal 1997, fiscal 1996 and fiscal
1995, respectively.
The Company's facilities and equipment are in good operating condition,
are suitable for their respective uses and are adequate for current needs.
The Company maintains business property and other insurance, covering
its facilities and its operations, in amounts and covering such risks as are
generally consistent with industry practice for companies of similar size.
Item 3. Legal Proceedings
From time to time the Company is a party to certain lawsuits and
administrative proceedings
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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
or results of operations of the Company.
The Company's income tax returns for the years 1992 through 1995 are
currently under examination by the Internal Revenue Service. The Company
believes that adequate accruals have been provided for all years.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders of Gibraltar during
the fourth quarter of Gibraltar's fiscal year ended June 28, 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Price Range of Common Stock
The Company's common stock has been traded over-the-counter and quoted
on the NASDAQ National Market System since the Company's initial public offering
on March 5, 1992. The trading symbol for the Company's common stock is "PACK."
The following table sets forth, for the periods indicated, the high and low sale
prices for the Company's common stock on the NASDAQ National Market System, as
reported by NASDAQ:
HIGH LOW
FISCAL 1997
First Quarter $ 5 3/4 $ 3 7/8
Second Quarter 4 3/4 3 1/4
Third Quarter 4 1/8 3
Fourth Quarter 3 1/4 2 3/4
FISCAL 1996
First Quarter $ 6 $ 3 3/8
Second Quarter 4 1/2 3 1/2
Third Quarter 5 3 3/4
Fourth Quarter 5 3/4 3 1/2
There were approximately 140 shareholders of record of the Company's
common stock as of September 24, 1997. The Company believes that the number of
beneficial owners of its common stock is greater than 1,500.
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Dividend Policy
The Company has never paid cash dividends on its common stock.
Management currently intends to retain earnings to finance the growth and
development of the Company's business and does not intend to pay cash dividends
in the foreseeable future. Any payment of cash dividends in the future will
depend upon the terms of the Company's debt instruments, the financial
condition, capital requirements and earnings of the Company, as well as other
factors the Board of Directors may deem relevant. In addition, the Company's
credit facility with Harris Trust and Savings Bank restricts the ability of the
Company to pay dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Recent Sales of Unregistered Securities
On August 1, 1996, the Company granted to two of its executive officers
options to purchase an aggregate of 225,000 of the Company's common stock
pursuant to the Company's 1996 Non-Qualified Stock Option Plan (the "1996
Plan"). The exercise price of the options is $4.00 per share and the exercise of
the options is subject to a vesting schedule and specified performance goals as
more fully described in Note 7 to the Company's Consolidated Financial
Statements included elsewhere in this Annual Report. The option grants were made
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1993, as amended. If at the time of the exercise of any option it is
necessary in order to comply with the applicable laws or regulations relating to
the sale of securities, the 1996 Plan provides that any individual exercising an
option agree to hold any shares issued to the individual for investment and
without intention to resell or distribute the shares.
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Item 6. Selected Financial Data
The following selected historical financial information has been derived
from the Company's audited consolidated financial statements. This information
should be read in connection with the Company's Consolidated Financial
Statements and the Notes thereto, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this Annual Report.
Gibraltar Packaging Group, Inc. and Subsidiaries
Selected Consolidated Financial Data
(in thousands, except per share data)
Years Ended
June 28 June 29 July 1 July 2 June 30
1997(3) 1996 1995 1994(1) 1993(2)
---- ---- ---- ---- ----
Statement of Operations Data:
Net Sales $74,710 $74,384 $76,456 $75,574 $51,055
Cost of Goods Sold 59,396 58,328 64,045 58,769 39,712
Gross Profit 15,314 16,056 12,411 16,805 11,343
Operating Expenses 11,362 11,481 14,061 10,143 6,520
Income (Loss) From Operations 3,952 4,575 (1,650) 6,662 4,823
Other Expense - Net 3,061 3,208 3,652 2,624 759
Income Tax Provision (Benefit) 559 666 (1,617) 1,235 1,898
Income (Loss) before Extraordinary Item 332 701 (3,685) 2,803 2,166
Net Income (Loss) 225 701 (3,685) 2,803 2,166
Per Common Share Amounts:
(primary and fully diluted)
Income (Loss) before Extraordinary Item 0.07 0.14 (0.73) 0.56 0.48
Net Income (Loss) Per Share 0.05 0.14 (0.73) 0.56 0.48
Weighted Average
Shares Outstanding 5,042 5,042 5,040 5,037 4,474
Balance Sheet Data:
Working Capital 6,078 6,455 5,940 10,669 7,339
Total Assets 75,058 74,045 79,036 86,934 79,358
Long-Term Debt 27,382 27,834 31,527 34,540 28,058
Stockholders' Equity 31,100 31,006 30,305 33,968 31,086
(1) Includes the assets and liabilities and results of operations of GB
Labels since November 8, 1993.
(2) Includes the assets and liabilities and results of operations of
Standard and Niemand since the respective effective dates of the
acquisition for financial reporting purposes. For Standard the
effective date was January 31, 1993. For Niemand the effective date was
April 25, 1993.
(3) Includes an extraordinary after-tax loss of $107,000 reflecting the
write-off of unamortized finance costs of a previous refinancing.
-11-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Unless otherwise stated in this form 10-K references to the fiscal
years 1997, 1996 and 1995 relate to the fiscal years ended June 28, 1997, June
29, 1996 and July 1, 1995, respectively.
Results of Operations
The following table presents, for the periods indicated, the percentage
relationship that certain items in the Company's Consolidated Statement of
Operations bear to net sales. This information should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Annual Report.
Years Ended
June 28 June 29 July 1
1997(1) 1996 1995
Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 79.5 78.4 83.8
Gross Profit 20.5 21.6 16.2
Operating Expenses 15.2 15.4 18.4
Income (Loss) from Operations 5.3 6.2 (2.2)
Other Expense - Net 4.1 4.3 4.8
Income Tax Provision (Benefit) 1.0 1.0 (2.1)
Income (Loss) before
Extraordinary Item 0.4 1.0 (4.8)
Net Income (Loss) 0.3% 1.0% (4.8)%
(1) Includes an extraordinary after-tax loss of $107,000 reflecting the
write-off of unamortized finance costs of a previous refinancing.
Fiscal Year 1997 vs. 1996
In fiscal 1997 the Company attained net sales of $74.7 million compared
with $74.4 million in fiscal 1996. Net sales increased $0.3 million or 0.4% in
fiscal 1997 compared with a $2.1 million or 2.7% decrease in sales for fiscal
1996.
The increase in sales in 1997 to $74.7 million compared to $74.4 million in
1996 was primarily due to volume increases of approximately $3.5 million
attributable to increased sales from new and existing customers. This increase
however, was negatively impacted primarily by the loss of business with four
major customers as a result of vendor consolidations and changes in customer
packaging designs. Vendor consolidations, increased competition and pricing
pressure continued to affect the Company's marketplace in fiscal 1997 and the
Company expects these trends to continue into the foreseeable future.
Cost of goods sold expressed as a percentage of net sales increased to
79.5% for fiscal 1997 compared to 78.4% for fiscal 1996. The increase in the
cost of products sold is primarily attributable to a less favorable shift in
product mix, and increased labor costs incurred to meet customer needs.
Selling expense increased $0.2 million or 4.2% in fiscal 1997 to $4.3
million from $4.1 million in fiscal 1996, primarily as a result of increases in
marketing and sales efforts.
General and administrative expenses expressed as a percentage of net sales
increased to 8.7% for fiscal 1997 compared with 7.7% for fiscal 1996. The
increase is primarily attributable to additional administrative overhead costs
and the cost of filling positions not staffed in the prior year.
-12-
The Company recorded restructuring charges of approximately $1.0
million during the second half of fiscal 1996 that related primarily to
severance costs for divisional personnel of $0.9 million and $0.1 million of
relocation costs related to the move of the corporate office. The majority of
the cash outlays relative to these restructuring charges were made during 1997.
There were no material changes to accrued restructuring charges for fiscal 1997.
Interest expense for fiscal 1997 decreased $0.2 million or 5.7% to $3.0
million from $3.2 million for fiscal 1996. The decrease is a direct result of
overall lower net borrowings as well as lower interest rates in fiscal 1997 as
compared to the prior year, attributable to the Company's debt refinancing which
was completed September 25, 1996 and is further described in Financial Condition
and Note 4 to the Company's Consolidated Financial Statements included elsewhere
in this Annual Report.
The provision for income taxes as a percentage of pre-tax income for
fiscal 1997 is 62.7%, which differs from the statutory rate primarily as a
result of non-deductible amortization in excess of purchase price over net
assets acquired. This compares with an effective tax rate of 48.7% in the prior
year.
During the first quarter of fiscal 1997 the Company recorded an
extraordinary after tax loss of $107,000 or $0.02 per common share reflecting
the write-off of unamortized finance costs of a previous refinancing.
In fiscal 1997 the Company reported net income of $0.2 million or $0.05
per common share compared with $0.7 million or $0.14 per common share in fiscal
1996. Net income and net income per common share decreased $0.5 million and
$0.09, respectively, in fiscal 1997 compared to fiscal 1996, primarily as a
result of the foregoing factors.
Fiscal Year 1996 vs. 1995
Although the Company experienced a 2.7% decline in sales to $74.4
million in 1996, this was more than offset by a $5.7 million decrease in cost of
goods sold, or 8.9%, as well as reductions in operating and other expenses as
discussed below. As a result net income (loss) improved $4.4 million to $0.7
million, compared with a fiscal 1995 loss of $3.7 million. Additionally, the
Company reduced its total debt in fiscal 1996 by $6.0 million.
Fiscal year 1996 net sales of $74.4 million represented a decrease of
$2.1 million, or 2.7% compared with fiscal year 1995. Sales of folding cartons
increased $3.0 million, or 6.8%, as a result of increased sales to the
pharmaceutical and the office supplies markets. Sales of pressure-sensitive
labels decreased $1.1 million, or 22.8%, due primarily to reduced sales to the
textile market. Laminated product sales decreased $1.1 million, or 23.1%
reflecting lower sales of these products to the foods market. Tubular packaging
and contract filling sales decreased $0.5 million and $0.3 million, or 3.9% and
15.6%, respectively, as sales of these product lines to the cosmetic and
personal care industry declined in fiscal 1996. Flexible packaging sales
decreased $2.0 million, or 25.8%, primarily as a result of decreased demand from
textile customers.
Cost of goods sold decreased $5.7 million in fiscal 1996 compared with
the prior year. As a percentage of sales, cost of goods sold also improved to
78.4% from 83.8%. Significant improvements in this ratio occurred at Niemand and
GB Labels in fiscal 1996. In the prior year, inventory adjustments totaling
$1.6 million and $0.3 million were incurred at Niemand and GB Labels,
respectively. No such adjustments were incurred in fiscal 1996. Niemand
also benefited from a favorable shift in its product mix, lower overhead of $1.8
million primarily as a result of reduced personnel, and an increase in
productivity due to the completed plant consolidation.
Selling expenses decreased $0.3 million in fiscal 1996 compared with
the prior year due to a reduction in personnel.
-13-
General and administrative expenses decreased $1.2 million, or 17.6% in
fiscal year 1996. A reduction in corporate office overhead of $1.0 million
accounted for substantially all of this decrease. Salary, rental, travel and
professional expenses declined reflecting primarily the decentralization of the
corporate office.
In the fourth quarter of fiscal 1995, a charge of $0.8 million was
recorded for the estimated cost of environmental remediation at GB Labels. The
Company has estimated that the total costs to remediate this site will range
from $0.8 million to $1.1 million over a seven to ten year period. No additional
amounts were recorded in fiscal 1996.
In fiscal 1996 a restructuring charge of $1.0 million was recorded as
compared to $1.4 million in fiscal 1995. The fiscal 1996 amount included
severance for nine members of senior management of $0.9 million, and $0.1
million of costs for moving the corporate office from Charlotte, North Carolina,
to Westport, Connecticut.
Interest expense increased $0.2 million. This reflects higher interest
rates on the Company's bank debt in fiscal 1996 partially offset by the impact
of reductions in outstanding long-term debt balances.
In fiscal 1995 other (income) expense, net included $0.7 million of
costs related to a terminated merger agreement. No such charges were incurred in
fiscal 1996.
The provision for income taxes as a percentage of pre-tax income was
48.7%, which differs from the statutory rate primarily as a result of
non-deductible amortization of excess of purchase price over net assets
acquired.
The Company's fiscal 1996 net income of $0.7 million represents an
improvement of $4.4 million compared to fiscal 1995 as a result of the foregoing
factors.
Financial Condition
At June 28, 1997, the Company had working capital of $6.1 million, as
compared to $6.5 million at June 29, 1996. Historically, the Company's liquidity
requirements have been met by a combination of funds provided by operations and
its revolving credit agreements. Funds provided by operations totaled $4.2
million in fiscal 1997 and $7.0 million in fiscal 1996. The decrease in
operating cash flow for fiscal 1997 was primarily due to the Company's net
income of $0.2 million in fiscal 1997 compared with $0.7 million in fiscal 1996
and an increase in accounts receivable of $2.0 million. The increase in accounts
receivable was primarily the result of increased sales in the fourth quarter of
fiscal 1997 of $19.6 million compared with $18.3 million for the corresponding
quarter of fiscal 1996 and extended credit terms as required by some customers.
In June 1996, the Company and NationsBank, N.A. agreed to accelerate
the maturity of the Company's bank credit agreement to October 15, 1996, and to
eliminate several covenants as of June 29, 1996. The Company's bank credit
agreement with NationsBank, N.A. provided for a revolving credit facility of
$17,500,000, and outstanding term loans of $6,500,000 and $6,964,000. The
revolving credit facility and the term loans bore interest at a rate tied to the
bank's prime rate. The bank's prime rate was 8.25% at June 29, 1996, while the
rate paid by the Company at June 29, 1996 was 10.25%.
-14-
On September 25, 1996, the Company refinanced its debt. The new facility
with Harris Trust and Savings Bank consists of a seven year $25 million term
loan and a five year $10 million revolving credit facility. The Company pays a
commitment fee of 0.5% on the unused portion of the revolving credit facility.
The amount available under the revolving credit facility is reduced by the
amount of outstanding standby letters of credit, which was $474,000 as of June
28, 1997. The standby letters of credit relate to workman's compensation
insurance policies. The term loan is a seven-year loan requiring quarterly
principal payments of $625,000 through December 1997. The balance of the term
loan is due in quarterly principal payments of $937,500. The revolving credit
facility matures on September 25, 2001. Both facilities bear interest rates
based on Harris Bank's prime rate or the London Interbank Offered Rate (LIBOR).
At June 28, 1997, the interest rate for the term loan was 8.26% based on the
LIBOR rate, and the effective interest rate for the revolving credit facility
was 8.12%.
The proceeds from the new credit facility were used to refinance the
NationsBank bank credit agreement, to pay the related transaction costs and to
fund the future working capital and capital expenditure needs of the Company.
The new credit facility is secured by substantially all of the assets
of the Company.
During fiscal 1997, the Company amended its financial covenants, and
added a fixed charge coverage test. The most restrictive covenants require the
maintenance of certain minimum levels of interest coverage and debt ratios. The
credit agreement also provides for certain restrictions including sales of
assets, capital expenditures, payment of dividends and incurrence of subsidiary
debt. The Company was in compliance with the amended loan covenants at June 28,
1997.
Outstanding bank borrowings net of existing cash balances decreased
$0.4 million to $30.6 million during fiscal 1997.
During fiscal 1997, capital expenditures totaled $2.6 million as compared
with $1.5 million for fiscal 1996, and consisted primarily of additions to
equipment and a building expansion. In order to accommodate continued growth,
Gibraltar makes capital improvements to improve efficiency and product quality.
Gibraltar frequently upgrades its equipment by purchasing or leasing equipment.
Management believes that funds generated by operations, and borrowings
available under its current credit facility will be sufficient to meet working
capital, and capital expenditure requirements in fiscal 1998 and for the
foreseeable future thereafter. Nevertheless, Gibraltar may require or choose to
obtain additional capital through public or private debt or equity offerings or
additional bank borrowings to fund future developments.
Impact of New Accounting Pronouncements
Adoption of FAS 123 - In 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). FAS 123 encourages, but does not require companies to
record at fair value compensation cost for stock-based employee compensation
plans. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
-15-
Adoption of FAS 128 - The Company will adopt the Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128) in fiscal 1998, as
required. The Company will continue to apply APB Opinion No. 15, "Earnings Per
Share" until the adoption of FAS 128. The new standard specifies the
computation, presentation and disclosure requirements for earnings per share.
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) 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 increasing trends
of customers to increase their buying power by consolidating the number of
vendors they maintain; (2) 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; (3) whether the Company will be able to pass on to its
customers expected price increases for paper and paperboard products in the
first and second quarters of fiscal 1998; (4) continued stability in other raw
material prices,including oil-based resin and plastic film; (5) 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; (6)
pressure on prices from competition or purchasers of the Company's
products; and (7) the introduction of competing products by other firms.
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 hereof. Gibraltar undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. These risks and others that are detailed in this
Form 10-K and other documents that the Company files from time to time with
the Securities and Exchange Commission, including quarterly reports on Form
10-Q and any current reports on Form 8-K must be considered by any investor
or potential investor in the Company.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements, the report thereon, the
notes thereto, and supplementary data commencing at page F-1 of this Annual
Report on Form 10-K which financial statements, report, notes, and data are
incorporated herein by reference.
Item 9. Change in and Disagreements With Accountants on Accounting and Financial
Disclosure
None
-16-
PART III
Item 10. Directors and Executive Officers of the Registrant
The information relating to the identification, business experience and
directorships of each director and nominee for director of Gibraltar and the
information relating to the identification and business experience of
Gibraltar's executive officers, required by Item 401 of Regulation S-K, will be
presented in the sections entitled "Election of Directors - Nominees for
Director" and "Executive Compensation and Other Information Executive Officers"
of Gibraltar's definitive proxy statement for the Annual Meeting of Stockholders
for fiscal 1997, and is hereby incorporated by reference. If the definitive
proxy statement for the 1997 annual meeting is not filed with the Securities and
Exchange Commission within 120 days of the end of Gibraltar's 1997 fiscal year,
Gibraltar will amend this Annual Report and include such information in the
amendment.
Item 11. Executive Compensation
The information relating to the cash compensation of directors and
officers required by Item 402 of Regulation S-K will be presented in the
sections entitled "Election of Directors - Director Compensation" and "Executive
Compensation and Other Information" of Gibraltar's definitive proxy statement
for the Annual Meeting of Stockholders for fiscal 1997 and is hereby
incorporated by reference. If the definitive proxy statement for the 1997 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of Gibraltar's 1997 fiscal year, Gibraltar will amend this Annual
Report and include such information in the amendment.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information relating to security ownership required by Item 403 of
Regulation S-K will be presented in the section entitled "Voting Securities and
Principal Stockholders" of Gibraltar's definitive proxy statement for the Annual
Meeting of Stockholders for fiscal 1997 and is hereby incorporated by reference.
If the definitive proxy statement for the 1997 annual meeting is not filed with
the Securities and Exchange Commission within 120 days of the end of Gibraltar's
1997 fiscal year, Gibraltar will amend this Annual Report and include such
information in the amendment.
Item 13. Certain Relationships and Related Transactions
The information relating to certain relationships and transactions
required by Item 404 of Regulation S-K will be presented in the section
"Executive Compensation and Other Information - Certain Transactions" of
Gibraltar's definitive proxy statement for the Annual Meeting of Stockholders
for fiscal 1997 and is hereby incorporated by reference. If the definitive proxy
statement for the 1997 annual meeting is not filed with the Securities and
Exchange Commission within 120 days of the end of Gibraltar's 1997 fiscal year,
Gibraltar will amend this Annual Report and include such information in the
amendment.
-17-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets,
June 28, 1997 and June 29,1996 F-2
Consolidated Statements of Operations,
Years Ended June 28, 1997, June 29, 1996 and July 1, 1995 F-3
Consolidated Statements of Stockholders' Equity,
Years Ended June 28, 1997, June 29, 1996 and July 1, 1995 F-4
Consolidated Statements of Cash Flows,
Years Ended June 28, 1997, June 29, 1996 and July 1, 1995 F-5
Notes to Consolidated Financial Statements F-6 to F-17
All schedules of the Registrant for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable, or have been
disclosed in the Notes to Consolidated Financial Statements and, therefore, have
been omitted.
(2) Exhibits
Exhibits
3.1 Certificate of Incorporation, as amended, of Gibraltar Packaging
Group, Inc. (incorporated by reference to Exhibit 3.1 to
Gibraltar's Registration Statement on Form S-1 (File No. 33-44965),
as amended, filed January 9, 1992).
3.2 By-Laws of Gibraltar Packaging Group, Inc. (incorporated by
reference to Exhibit 3.2 to Gibraltar's Registration Statement on
Form S-1 (File No. 33-44965), as amended, filed January 9, 1992).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Gibraltar's Registration Statement on Form S-1 (File
No. 33-44965), as amended, filed January 9, 1992).
10.1 Agreement and Plan of Reorganization, dated as of January 7, 1992,
among Gibraltar Packaging Group, Inc., RidgePak Acquisition
Corporation, RidgePak Corporation, and the Shareholders of RidgePak
Corporation (incorporated by reference to Exhibit 10.1 to
Gibraltar's Registration Statement on Form S-1 (File No. 33-44965),
as amended, filed January 9, 1992).
10.2 Registration Rights Agreement, dated March 4, 1992, by and among
Gibraltar Packaging Group, Inc. and certain stockholders of
Gibraltar Packaging Group, Inc. (incorporated by reference to
Exhibit 4.2 to Gibraltar's Annual Report on Form 10-K for the year
ended June 30, 1992 (File No. 00-19800)).
-18-
10.3 Employment Agreement, dated February 10, 1992, between Gibraltar
Packaging Group, Inc. and Deke C. Abbott, Jr. (incorporated by
reference to Exhibit 10.6 to Gibraltar's Registration Statement on
Form S-1 (File No. 33-44965), as amended, filed January 9, 1992).
10.4 Gibraltar Packaging Group, Inc. 1992 Incentive Stock Option Plan,
dated March 5, 1992 and amended as of April 28, 1994 (incorporated
by reference to Exhibit 10.5 to Gibraltar's Annual Report on Form
10-K for the year ended July 2, 1994 (File No. 00-19800)).
10.5 Gibraltar Packaging Group, Inc. Director Stock Option Plan dated
July 13, 1992 and amended as of April 28, 1994 (incorporated by
reference to Exhibit 10.6 to Gibraltar's Annual Report on Form 10-K
for the year ended July 2, 1994 (File No. 00-19800)).
10.6 Employment Agreement, dated December 1, 1992, between Gibraltar
Packaging Group, Inc. and Richard Hinrichs (incorporated by
reference to Exhibit 28.1 to Gibraltar's Quarterly Report on Form
10-Q for the quarterly period ended December 31, 1992 (File No.
00-19800)).
10.7 Stock Purchase Agreement, dated January 28, 1993, by and among
Gibraltar Packaging Group, Inc., Standard Packaging and Printing
Corp. and each of the shareholders of Standard Packaging and
Printing Corp. (incorporated by reference to Exhibit 2.1 to
Gibraltar's Current Report on Form 8-K dated January 28, 1993 (File
No. 00-19800)).
10.8 Registration Rights Agreement, dated as of January 28, 1993,
between Gibraltar Packaging Group, Inc. and Brady W. Dickson and
Joan H. Dickson (incorporated by reference to Exhibit 28.1 to
Gibraltar's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1993 (File No. 00-19800)).
10.9 Agreement and Plan of Reorganization, dated April 28, 1993, by and
among Gibraltar Packaging Group, Inc., Niemand Acquisition
Corporation, Niemand Holdings, Inc., Niemand Industries, Inc., and
each of the stockholders of Niemand Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to Gibraltar's Current Report on Form 8-K
dated April 28, 1993 (File No. 00-19800)).
10.10 Registration Rights Agreement, dated April 28, 1993, by and among
Gibraltar Packaging Group, Inc. and the former stockholders of
Niemand Holdings, Inc. listed on Schedule I thereto (incorporated
by reference to Exhibit 28.1 to Gibraltar's Current Report on Form
8-K dated April 28, 1993 (File No. 00-19800)).
10.11 Stock Sale Agreement, dated November 8, 1993, between Gibraltar
Packaging Group, Inc. and Golden Belt Manufacturing Company
(incorporated by reference to Exhibit 10.35 to Gibraltar's Annual
Report on Form 10-K for the year ended July 2, 1994 (File No.
00-19800)).
10.12 Agreement and Plan of Merger, dated as of March 17, 1995, as
extended by letter agreement dated June 15, 1995 and as terminated
by letter agreement dated August 3, 1995, among Caraustar
Industries, Inc., GibPac Acquisition Company and Gibraltar
Packaging Group, Inc. (incorporated by reference to Exhibit 10.37
to Gibraltar's Annual Report on Form 10-K for the year ended July
1, 1995 (File No. 00-19800)).
10.13 Gibraltar Packaging Group, Inc. 1996 Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 10.39 to Gibraltar's
Annual Report 10-K for the year ended June 29, 1996 (File No.
00-19800)).
-19-
10.14 Credit Agreement, dated September 25, 1996, among Gibraltar
Packaging Group, Inc., various financial institutions and Harris
Trust and Savings Bank, Individually and as Agent (incorporated by
reference to Exhibit 10.40 to Gibraltar's Annual Report on form
10-K for the year ended June 29, 1996 (File No. 00-19800)). (The
"Credit Agreement")
10.15 Revolving Note, dated September 25, 1996, in favor of Harris Trust
and Savings Bank, executed by Gibraltar Packaging Group, Inc. In
the principal amount of $10,000,000 (incorporated by reference to
Exhibit 10.41 to Gibraltar's Annual Report on Form 10-K for the
year ended June 29, 1996 (File No. 00-19800)).
10.16 Term Note, dated September 25, 1996, in favor of Harris Trust and
Savings Bank, executed by Gibraltar Packaging Group, Inc. In the
principal amount of $25,000,000 (incorporated by reference to
Exhibit 10.42 to Gibraltar's Annual Report on Form 10-K for the
year ended June 29, 1996 (File No. 00-19800)).
10.17 Guaranty, dated September 25, 1996, in favor of Harris Trust and
Savings Bank, executed by RidgePak Corporation, Standard Packaging
and Printing Co., Niemand Holdings, Inc., Niemand Industries, Inc.
and GB Labels, Inc. (incorporated by reference to Exhibit 10.43 to
Gibraltar's Annual Report on Form 10-K for the year ended June 29,
1996 (File No. 00-19800)).
10.18 Security Agreement, dated September 25, 1996, among Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard Packaging and
Printing Corp., Niemand Holdings, Inc., Niemand Industries, Inc.,
GB Labels, Inc. And Harris Trust and Savings Bank (incorporated by
reference to Exhibit 10.44 to Gibraltar's Annual Report on Form
10-K for the year ended June 29, 1996 (File No. 00-19800)).
10.19 Pledge Agreement executed by Gibraltar Packaging Group, Inc., dated
September 25, 1996, in favor of Harris Trust and Savings Bank
(incorporated by reference to Exhibit 10.45 to Gibraltar's Annual
Report on Form 10-K for the year ended June 29, 1996 (File No.
00-19800)).
10.20 Pledge Agreement executed by Niemand Holdings, Inc., dated
September 25, 1996, in favor of Harris Trust and Savings Bank
(incorporated by reference to Exhibit 10.46 to Gibraltar's Annual
Report on Form 10-K for the year ended June 29, 1996 (File No.
00-19800)).
10.21 Patent Security Agreement, dated as of September 25, 1996, in favor
of Harris Trust and Savings Bank, executed by Niemand Industries,
Inc. (incorporated by reference to Exhibit 10.47 to Gibraltar's
Annual Report on Form 10-K for the year ended June 29, 1996 (File
No. 00-19800)).
10.22 Letter Agreement, dated September 21, 1996 between Gibraltar
Packaging Group, Inc. and Jon P. Crane regarding employment
(incorporated by reference to Exhibit 10.48 to Gibraltar's Annual
Report on Form 10-K for the year ended June 29, 1996 (File No.
00-19800)).
10.23 Letter Agreement, dated January 29, 1996 between Gibraltar
Packaging Group, Inc. and James A. Stajkowski regarding employment
(incorporated by reference to Exhibit 10.49 to Gibraltar's Annual
Report on Form 10-K for the year ended June 29, 1996 (File No.
00-19800)).
-20-
*10.24 First Amendment to Credit Agreement, dated March 31, 1997, among
Gibraltar Packaging Group, Inc., various financial institutions and
Harris Trust and Savings Bank, Individually and as Agent.
*10.25 Second Amendment to Credit Agreement, dated July 18, 1997, among
Gibraltar Packaging Group, Inc., various financial institutions and
Harris Trust and Savings Bank, Individually and as Agent.
21. Subsidiaries of Gibraltar Packaging Group, Inc. (incorporated by
reference to Exhibit 21.1 to Gibraltar's Annual Report on Form 10-K
for the year ended July 1, 1995 (File No. 00-19800)).
*23.1 Consent of Deloitte & Touche LLP.
*27.1 Financial Data Schedule.
- -----------------
* Filed herewith.
(b) Reports on Form 8-K.
None.
-21-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GIBRALTAR PACKAGING GROUP, INC.
By: /s/ John W. Lloyd
John W. Lloyd
Chief Financial Officer
Date: September 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Walter E. Rose /s/ John W. Lloyd
Walter E. Rose John W. Lloyd
Chief Executive Officer and Chief Financial Officer
President (Principal Financial and
(Principal Executive Officer) Accounting Officer)
September 24, 1997 September 24, 1997
/s/ David G. Chandler /s/ Robert G. Shaw
David G. Chandler Robert G. Shaw
Chairman of the Board Director
September 24, 1997 September 24, 1997
/s/ Edgar D. Jannotta, Jr. /s/ John D. Strautnieks
Edgar D. Jannotta, Jr. John D. Strautnieks
Director Director
September 24, 1997 September 24, 1997
-22-
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gibraltar Packaging Group, Inc.
We have audited the accompanying consolidated balance sheets of Gibraltar
Packaging Group, Inc. and its subsidiaries (the Company) as of June 28, 1997 and
June 29, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended June 28, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Gibraltar Packaging Group, Inc. and subsidiaries at June 28, 1997 and June 29,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended June 28, 1997 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 25, 1997
F-1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
June 28 June 29
1997 1996
ASSETS
CURRENT ASSETS:
Cash $ 110 $ --
Accounts receivable (Net of allowance for doubtful accounts of $127
and $231, respectively) 8,840 6,860
Inventories 9,006 9,172
Deferred income taxes 412 713
Prepaid and other current assets 437 809
-------- --------
Total current assets 18,805 17,554
PROPERTY, PLANT AND EQUIPMENT - Net 34,544 35,167
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
(Net of accumulated amortization of $2,783 and
$2,197, respectively) 20,524 21,109
OTHER ASSETS (Net of accumulated amortization of $137 and
$84, respectively) 1,185 215
-------- --------
TOTAL $ 75,058 $ 74,045
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ -- $ 1,042
Current portion of long-term debt 3,313 2,115
Accounts payable 5,947 5,261
Accrued expenses 2,775 2,362
Income taxes payable 692 319
-------- --------
Total current liabilities 12,727 11,099
LONG-TERM DEBT - Net of current portion 27,382 27,834
DEFERRED INCOME TAXES 3,028 3,278
OTHER LONG-TERM LIABILITIES 821 828
-------- --------
Total liabilities 43,958 43,039
-------- --------
COMMITMENTS AND CONTINGENCIES
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
Retained earnings 3,019 2,794
Minimum pension liability in excess of unrecognized
prior service costs (131) --
-------- --------
Total stockholders' equity 31,100 31,006
-------- --------
TOTAL $ 75,058 $ 74,045
======== ========
See notes to consolidated financial statements.
F-2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995
(In thousands except share data)
1997 1996 1995
---------- ---------- ----------
NET SALES $ 74,710 $ 74,384 $ 76,456
COST OF GOODS SOLD 59,396 58,328 64,045
---------- ---------- ----------
GROSS PROFIT 15,314 16,056 12,411
---------- ---------- ----------
OPERATING EXPENSES:
Selling 4,301 4,128 4,382
General and administrative 6,475 5,733 6,956
Amortization of excess of purchase price
over net assets acquired 586 582 587
Restructuring charges - 1,038 1,386
Environmental remediation costs - - 750
---------- ---------- -----------
Total operating expenses 11,362 11,481 14,061
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 3,952 4,575 (1,650)
---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Interest expense 3,033 3,218 2,970
Interest income - (5) (5)
Other (income) expense - net 28 (5) 687
---------- ---------- ----------
Other expense - net 3,061 3,208 3,652
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 891 1,367 (5,302)
PROVISION (BENEFIT) FOR INCOME TAXES 559 666 (1,617)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 332 701 (3,685)
EXTRAORDINARY ITEM (net of tax effect of $66)
(Write-off of finance charges as a result of debt repayment) (107) - -
---------- ----------- -----------
NET INCOME (LOSS) $ 225 $ 701 ($ 3,685)
========== ========== ==========
PER COMMON SHARE AMOUNTS:
Income (Loss) Before Extraordinary Item $ 0.07 $ 0.14 ($0.73)
========== ========== ==========
Net Income (Loss) $ 0.05 $ 0.14 ($0.73)
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,042 5,042 5,040
========== ========== ==========
(primary and fully diluted)
See notes to consolidated financial statements.
F-3
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995
(In thousands except share data)
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Other Total
---------- ---------- ---------- -------- ---------- --------
BALANCE, July 2, 1994 5,038,213 $ 50 $ 28,140 $ 5,778 $ -- $ 33,968
Issuance of common stock in
connection with the exercise of
incentive stock options 3,331 22 22
Net loss (3,685) (3,685)
---------- ---------- ---------- -------- ---------- --------
BALANCE, July 1, 1995 5,041,544 50 28,162 2,093 -- 30,305
Net income 701 701
---------- ---------- ---------- -------- ---------- --------
BALANCE, June 29, 1996 5,041,544 50 28,162 2,794 -- 31,006
Net income 225 225
Adjustment for minimum
pension liability (131) (131)
---------- ---------- ---------- -------- ---------- --------
BALANCE, June 28, 1997 5,041,544 $ 50 $ 28,162 $ 3,019 ($ 131) $ 31,100
========== ========== ========== ========== ========== ========
See notes to consolidated financial statements.
F-4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995
(In thousands)
1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 225 $ 701 $ (3,685)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary item - write-off of finance charges 173
Depreciation and amortization 3,977 3,892 3,745
Loss on sale of fixed assets 32 31 293
Deferred income taxes - 551 (1,848)
Non-cash portion of restructuring charge - - 1,125
Changes in operating assets and liabilities:
Accounts receivable - net (1,980) 824 1,428
Inventories 166 1,315 229
Income taxes 424 495 2,070
Prepaid expenses and other assets 213 23 (112)
Accounts payable 686 (806) 1,123
Accrued expenses and other liabilities 275 15 (1,586)
---------- ---------- ----------
Net Cash Provided by Operating Activities 4,191 7,041 2,782
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 28 108 1,171
Purchases of property, plant and equipment (2,640) (1,480) (2,381)
---------- ---------- ----------
Net Cash Used in Investing Activities (2,612) (1,372) (1,210)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving credit facility 356 (2,196) 1,073
Net principal repayments of long-term debt (30,557) (3,765) (3,777)
Net (repayments) borrowings under capital leases (103) (6) 307
Proceeds from refinancing 31,050 - -
Refinancing costs (1,173) - -
Net proceeds from issuance of common stock - - 22
---------- ---------- ----------
Net Cash Used in Financing Activities (427) (5,967) (2,375)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
(CHECKS NOT YET PRESENTED) 1,152 (298) (803)
(CHECKS NOT YET PRESENTED) CASH AT
BEGINNING OF YEAR (1,042) (744) 59
---------- ----------- ----------
CASH (CHECKS NOT YET PRESENTED) AT
END OF YEAR $ 110 $ (1,042) $ (744)
========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ 62 $ 59 $ 71
========== ========== ==========
Interest paid $ 2,376 $ 2,902 $ 2,857
========== ========== ==========
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations $ 198 $ 301 $ 307
========== ========== ==========
See notes to consolidated financial statements.
F-5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 AND JULY 1, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of Gibraltar Packaging Group, Inc. (the Company) and its
wholly owned subsidiaries - RidgePak Corporation (Flashfold Carton), Standard
Packaging & Printing Corporation, Niemand Industries, Inc. and GB Labels, Inc.
All significant intercompany accounts and transactions have been eliminated.
Description of Business - The Company designs and manufactures high quality
specialty packaging products in facilities located in Nebraska, Indiana, Alabama
and North Carolina, and markets these products to customers throughout the
United States and Canada. The Company's products include folding cartons,
specialty laminated containers, pressure-sensitive labels, flexible packaging,
tubular packaging and contract packaging and filling for a wide range of
businesses.
Fiscal Year - The Company ends its fiscal year on the Saturday closest to June
30.
Accounts Receivable - The changes in the allowance for doubtful accounts
receivable consists of the following (in thousands):
Years Ended
June 28 June 29 July 1
1997 1996 1995
Allowance, Beginning of Year $ 231 $ 211 $ 107
Provision for Uncollectible Accounts 74 171 305
Write-off of Uncollectible Accounts (178) (151) (201)
---------- ---------- ----------
Allowance, End of Year $ 127 $ 231 $ 211
========== ========== ==========
Inventories - Inventories are stated at the lower of cost or market on a
first-in, first-out (FIFO) basis.
Property and Equipment - Depreciation is provided using the straight-line method
over the following estimated useful lives:
Buildings 30 years
Machinery and equipment 2-20 years
Vehicles 3-8 years
Furniture and fixtures 3-10 years
Excess of Purchase Price Over Net Assets Acquired - The excess of purchase price
over net assets acquired is being amortized over a forty-year period on a
straight-line basis. The Company regularly evaluates the recoverability of
goodwill using estimates of undiscounted future cash flows and operating
earnings of the businesses acquired. There was no effect on the Company's
financial position or results of operations from the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets."
F-6
Other Assets - At June 28, 1997 other assets is primarily comprised of debt
issuance costs. The Company capitalized approximately $1,173,000, representing
the cost of refinancing its debt under a new credit facility as described in
Note 4. The Company recognizes the cost ratably over the term of the new credit
facility, five to seven years. Accumulated amortization at June 28, 1997 was
$137,000.
Revenue Recognition - Sales and related cost of sales are recognized upon the
earlier of shipment of products or acceptance by the customer.
Net Income (Loss) Per Common Share - Net income (loss) per common share is based
on the weighted average number of shares of common stock and common stock
equivalents outstanding during the period as calculated under the treasury stock
method. Common stock equivalents, which have an antidilutive effect on the
computation for any period, are not included as outstanding for the period.
Adoption of FAS 123 - In 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). FAS 123 encourages, but does not require companies to
record at fair value compensation cost for stock-based employee compensation
plans. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Adoption of FAS 128 - The Company will adopt the Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (FAS 128) in fiscal 1998, as
required. The Company will continue to apply APB Opinion No. 15, "Earnings Per
Share" until the adoption of FAS 128. The new standard specifies the
computation, presentation and disclosure requirements for earnings per share.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVENTORIES
Inventories consisted of the following (in thousands):
June 28 June 29
1997 1996
Finished goods $ 5,262 $ 4,727
Work in process 1,160 1,395
Raw materials 2,160 2,739
Manufacturing supplies 424 311
---------- ----------
$ 9,006 $ 9,172
========== ==========
F-7
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consisted of the following (in
thousands):
June 28 June 29
1997 1996
Land $ 676 $ 676
Buildings 11,703 11,292
Machinery, equipment
and vehicles 33,559 32,445
Furniture and fixtures 1,828 1,584
Construction-in-progress 1,517 682
---------- ----------
49,283 46,679
Less accumulated depreciation 14,739 11,512
---------- ----------
$ 34,544 $ 35,167
========== ==========
4. FINANCING AGREEMENTS
Long-term debt consisted of (in thousands):
June 28 June 29
1997 1996
Bank term loan, quarterly principal payments of $625,000 through December 1997,
$937,500 per quarter thereafter, interest is payable quarterly. $ 23,750 $ -
Revolving credit facility, matures September 25, 2001, interest is
payable quarterly. 5,950 -
Revolving credit facility, proceeds used for working capital needs
and capital expenditures. - 15,329
Bank term loan, proceeds used for the acquisition of Standard. - 6,500
Bank term loan, proceeds used for the acquisition of Niemand. - 6,964
Note payable, for capital expansion of Marion, Alabama facility, due in monthly
principal and interest installments of $8 through June,
2008. Note bears interest at 5% per annum. 797 855
Capital lease obligations 198 301
------------ ------------
Total 30,695 29,949
Less current portion (3,313) (2,115)
------------ ------------
Long-term debt $ 27,382 $ 27,834
============ ============
In June 1996, the Company and NationsBank, N.A. agreed to accelerate the
maturity of the Company's bank credit agreement to October 15, 1996, and to
eliminate several covenants as of June 29, 1996. The Company's bank credit
agreement with NationsBank, N.A. provided for a revolving credit facility of
$17,500,000, and outstanding term loans of $6,500,000 and $ 6,964,000.
The revolving credit facility and the term loans bore interest at a rate tied to
the bank's prime rate. The bank's prime rate was 8.25% at June 29, 1996, while
the rate paid by the Company at June 29, 1996 was 10.25%.
F-8
On September 25, 1996, the Company refinanced its debt. The new facility with
Harris Trust and Savings Bank consists of a seven year $25 million term loan and
a five year $10 million revolving credit facility (the credit agreement). The
Company pays a commitment fee of 0.5% on the unused portion of the revolving
credit facility. The amount available under the revolving credit facility is
reduced by the amount of outstanding standby letters of credit, which was
$474,000 as of June 28, 1997. The standby letters of credit relate to workman's
compensation insurance policies. Both facilities bear interest rates based on
Harris Bank's prime rate or the London Interbank Offered Rate (LIBOR). At June
28, 1997, the interest rate for the term loan was 8.26% based on the LIBOR rate,
and the effective interest rate for the revolving credit facility was 8.12%.
The proceeds from the new credit facility were used to refinance the NationsBank
bank credit agreement, to pay the related transaction costs and to fund the
future working capital and capital expenditure needs of the Company.
The Company's policy is to classify borrowings under the revolving credit
facility as long-term debt since the Company has the ability under its credit
agreement, and the intent, to maintain these obligations for longer than one
year.
The new credit facility is secured by substantially all of the assets of the
Company.
During fiscal 1997, the Company amended its financial covenants, and added a
fixed charge coverage test. The most restrictive covenants require the
maintenance of certain minimum levels of interest coverage and debt ratios. The
credit agreement also provides for certain restrictions including sales of
assets, capital expenditures, payment of dividends and incurrence of subsidiary
debt. The Company was in compliance with the amended loan covenants at June 28,
1997.
The Company has purchased an interest rate cap agreement to reduce the impact of
changes in interest rates. The cap agreement entitles the Company to receive
from the counterparty (major bank) the notional amount multiplied by the
differences between the variable 1-month LIBOR and cap rates when the 1-month
LIBOR exceeds the cap rate. The cap rate in the above agreement is 10% and
matures on June 30, 1998. The premium related to the cap agreement is being
amortized over the life of the agreement.
At June 28, 1997, the scheduled principal repayments under the new credit
facility and future minimum payments under finance leases and note payable were
as follows (in thousands):
Amounts
1998 $ 3,313
1999 3,843
2000 3,823
2001 3,822
2002 9,774
Thereafter 6,120
-----------
Total $ 30,695
===========
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
June 28 June 29 July 1
1997 1996 1995
Current:
Federal $ 478 $ 30 $ 193
State 31 85 38
Deferred 50 551 (1,848)
---------- ---------- ----------
$ 559 $ 666 $(1,617)
========== ========== ==========
F-9
The following represents a reconciliation between the actual income tax expense
and income taxes computed by applying the statutory federal income tax rate to
income (loss) before income taxes:
June 28 June 29 July 1
1997 1996 1995
Statutory rate 34.0% 34.0% (34.0%)
State income tax effect 3.7% 5.9% (1.8%)
Reduction of valuation allowance - (8.7)% -
Amortization of excess of purchase price over
net assets acquired 22.3% 14.5% 3.8%
Other - net 2.7% 3.0% 1.5%
--------- ---------- ---------
Total 62.7% 48.7% (30.5%)
========= ========== ==========
Deferred income tax (liabilities) assets result from reporting income and
expenses in different periods for tax and financial reporting purposes. The
deferred tax liabilities and assets are comprised of the following (in
thousands):
June 28 June 29
1997 1996
Deferred income tax assets:
Difference in basis of amortizable assets $ 846 $ -
Non-deductible accrued liabilities 330 639
Net operating loss carryforwards of
a subsidiary company 699 699
State net operating loss carryforwards 590 579
State tax credits carryforward 615 615
Federal net operating loss carryforward 760 1,520
AMT credit carryforward 385 259
Differences in the basis of inventory
for tax purposes 370 241
Other - net 223 305
----------- -----------
Total 4,818 4,857
Deferred tax asset valuation allowance (147) (137)
----------- -----------
Net 4,671 4,720
----------- -----------
Deferred tax liabilities:
Difference in basis of property, plant
and equipment (7,210) (7,130)
Unamortized balance of
tax LIFO reserve - (39)
Other (77) (116)
----------- -----------
Total (7,287) (7,285)
----------- -----------
Net deferred income tax liability $ (2,616) $ (2,565)
=========== ===========
At June 28, 1997, the Company had the following tax net operating loss
carryfowards for federal income tax purposes (in thousands):
Expiration Amounts
2006 $ 447
2007 664
2008 929
2009 -
2010 1,778
2011 458
-----------
Total $ 4,276
===========
F-10
Approximately $2.1 million of such losses relate to a subsidiary company, which
are available to be utilized only against future taxable income of such
subsidiary.
At June 28, 1997, the Company had a state investment tax credit carryforward of
$0.6 million which expires if unutilized by the year 2005. These credits are
available to offset both Nebraska state income tax and Nebraska sales tax on
qualifying purchases.
The Company's income tax returns for the years 1992 through 1995 are currently
under examination by the Internal Revenue Service. The Company believes that
adequate accruals have been provided for all years.
6. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan (the plan)
covering substantially all of the RidgePak Corporation hourly employees
fulfilling participation requirements. Benefits are based on the employee's
years of credited service. The Company's funding policy is to contribute
annually the minimum amount required under ERISA. Plan assets are held by an
independent trustee and consist of U.S. Government securities, time deposits,
common stocks, corporate bonds and collective investment funds.
The net periodic pension cost and assumptions used for the years presented
included the following components (in thousands):
June 28 June 29 July 1
1997 1996 1995
Service cost-benefits
earned during the period $ 43 $ 36 $ 28
Interest cost on projected
benefit obligation 30 27 24
Actual return on plan assets (25) (53) (29)
Net amortization and deferral (3) 33 10
----------- ----------- -----------
Net periodic pension cost $ 45 $ 43 $ 33
=========== =========== ===========
Discount rate 7.75% 7.5% 7.5%
Expected long-term rate of return 8% 8% 8%
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheets (in thousands):
June 28 June 29 July 1
1997 1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $ 371 $ 319 $ 307
=========== =========== ===========
Accumulated benefit obligation $ 467 $ 397 $ 372
=========== =========== ===========
Projected benefit obligation for
service rendered to date $ (467) $ (397) $ (372)
Plan assets at fair value 428 421 357
----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation (39) 24 (15)
Unrecognized loss 131 113 154
----------- ----------- -----------
Prepaid pension cost $ 92 $ 137 $ 139
=========== =========== ===========
F-11
As is required by Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," for plans where the accumulated benefit obligation exceeds the
fair value of plan assets, the Company has recognized in the June 28, 1997
consolidated balance sheet a minimum liability of the unfunded accumulated
benefit obligation as an accrued liability with an offsetting equity adjustment.
As of June 28, 1997 the minimum liability amounted to $131,000.
The Company also sponsors a defined contribution 401(k) plan (the Gibraltar
Plan). Employees are eligible to participate in the Gibraltar Plan upon
completion of six months of credited service. Participants fully vest in Company
contributions after five years with partial vesting after one year. An employee
may contribute up to 15% of his or her earnings on a pre-tax basis subject to
IRS limitations. The Company matches 25% of an employee's contribution up to a
maximum of 4% of eligible compensation. The Company also makes a quarterly
profit sharing contribution when the earnings per share of Gibraltar stock is
$0.15 per share or higher in any fiscal quarter. The profit sharing portion of
each participant's account is invested in Gibraltar stock.
The Company's contributions to the Gibraltar Plan for the years ended June 28,
1997, June 29, 1996, and July 1, 1995 approximately $77,000, $76,000 and
$119,000, respectively.
7. STOCK OPTION PLANS
Effective January 30, 1992, Gibraltar adopted the Gibraltar Packaging Group,
Inc. 1992 Incentive Stock Option Plan (the Plan). Under the Plan, Gibraltar may
grant to key employees options to purchase in the aggregate up to 300,000 shares
of Gibraltar's common stock with exercise prices equal to or greater than the
market value at the date of grant. Options granted under the Plan are
exercisable no earlier than six months and no later than ten years from the
grant date.
As of June 28, 1997, the following options were outstanding under the plan:
Grant Date Number of Shares Exercise Price
July 13, 1992 35,334 $ 6.00
January 28, 1993 4,000 $ 6.50
July 1, 1993 12,000 $ 8.00
July 1, 1994 18,500 $ 9.00
------------
Total 69,834
============
During fiscal year 1997, no shares were exercised and 47,500 shares were
canceled. As of June 28, 1997, 65,002 shares were exercisable.
Effective July 13, 1992, Gibraltar adopted the Gibraltar Packaging Group, Inc.
Director Stock Option Plan (Directors Plan). Under the Directors Plan, each
independent director may receive a grant of an option to purchase 3,000 shares
of Gibraltar's common stock at an exercise price equal to the fair market value
at the date such person is elected to the board. Options granted under the
Directors Plan are exercisable no earlier than six months and no later than ten
years from the grant date. As of June 28, 1997, the following options were
outstanding under the plan:
Grant Date Number of Shares Exercise Price
July 13, 1992 6,000 $6.00
July 1, 1993 6,000 $8.00
July 1, 1994 10,000 $9.00
------------
Total 22,000
============
During fiscal year 1997, no shares were exercised or canceled. As of June 28,
1997, 18,667 shares were exercisable.
F-12
Effective August 1, 1996, Gibraltar adopted the Gibraltar Packaging Group, Inc.
1996 Non-Qualified Stock Option Plan (1996 Plan). The 1996 Plan is administered
by the Compensation Committee (the Committee) of the Board of Directors of the
Company, who determines the exercise price of options awarded on the
grant date. Gibraltar may grant to key employees options to purchase in the
aggregate up to 300,000 shares of Gibraltar's common stock. Options granted
under the 1996 Plan are exercisable no earlier than six months and no later than
ten years from the grant date. The Committee may further limit the
exercisability of the options in such manner as the Committee deems appropriate,
including, without limitation, the achievement of specified performance goals or
other criteria. As of June 28, 1997, the following options were outstanding
under the plan:
Grant Date Number of Shares Exercise Price
August 1, 1996 225,000 $4.00
During fiscal year 1997, no shares were exercised or canceled. As of June 28,
1997, 45,000 shares were exercisable.
Of the 225,000 shares granted August 1, 1996, all shares were granted at an
exercise price equal to the fair market value on that date. Any exercise of
options must be for a minimum of 500 shares of Stock and shall only be
exercisable in accordance with the following vesting schedule:
Date Shares of Stock May Be Purchased Percentage of Shares of Stock
Six months from Grant Date 20%
1 year from Grant Date 20%
2 years from Grant Date 20%
3 years from Grant Date 20%
4 years from Grant Date 20%
The specific performance criteria which must be met before these shares can be
purchased are as follows:
Shares Vesting Performance Criteria
1 year from Grant Date Fair Market Value of Stock equal to or greater
than $6.00 per share
2 years from Grant Date Fair Market Value of Stock equal to or greater
than $7.00 per share
3 years from Grant Date Fair Market Value of Stock equal to or greater
than $8.00 per share
4 years from Grant Date Fair Market Value of Stock equal to or greater
than $9.00 per share
The 225,000 options shall become immediately fully exercisable if any of the
following occurs:
1. If there occurs any transaction that has the result that
stockholders of the Company cease to own at least 51% of the voting
stock of the Company.
2. The stockholders of the Company approve a plan of merger,
consolidation, reorganization, liquidation or dissolution in which the
Company does not survive.
3. The stockholders of the Company approve a plan for the sale, lease,
exchange, transfer, assignment or other disposition of all or
substantially all the property and assets of the Company.
F-13
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for the Plan and Directors' Plan.
Accordingly, no compensation cost has been recognized for those plans. Had
compensation cost for the 1996 Plan been determined based on the fair
value of the option at date of grant consistent with the requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
June 28
1997
Net income As reported $ 225
Pro forma 199
Net income per share As reported $ 0.05
Pro forma 0.04
The fair value of each stock option has been estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
June 28
1997
Risk free interest rate 6.1%
Expected life 4
Expected volatility 32 %
Expected dividend yield 0
At June 28, 1997 the stock option exercise prices for all three plans exceeded
the market value of the Company's common stock and are therefore excluded from
the Company's earnings per share calculation.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases office space, manufacturing equipment,
computer equipment, vehicles and warehouse space under non-cancelable operating
leases. Rent expense for the years ended June 28, 1997, June 29, 1996, and July
1, 1995 under such lease agreements was approximately $960,000, $933,000 and
$912,000, respectively. In addition, rental income related to sub-leases on
office space for the years ended June 29, 1996 and July 1, 1995 approximated
$139,000 and $92,000, respectively. Due to the relocation of the Corporate
office as described in Note 10, all sub-leases were terminated during fiscal
year 1996. As of June 28, 1997, approximate minimum future lease commitments
were as follows (in thousands):
Amounts
1998 $1,102
1999 911
2000 718
2001 620
2002 410
Thereafter 129
--------
Total $3,890
========
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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 or results of operations of the
Company.
Environmental Matter - In May 1995 the Company discovered groundwater
contamination at its Burlington, North Carolina facility. Based on work
performed by its environmental consultants, the Company estimated that the total
costs to remediate this site will range between $750,000 and $1.1 million over a
seven to ten year period. The Company is currently conducting a follow-up
assessment of the facility. The Company's accrual for such remediation costs
approximates $598,000 and $605,000 as of June 28, 1997 and June 29, 1996,
respectively. The Company is unable to determine whether amounts in excess of
this amount will be incurred as a result of the remediation efforts or other
related claims, if any. Management believes that the ultimate resolution of this
and other environmental matters will not materially affect the financial
position or results of future operations of the Company.
Employment Agreements - The Company has employment agreements with certain
officers and management personnel. The terms of these agreements are specific to
each employee.
9. RELATED PARTY TRANSACTIONS
During fiscal year 1995 the Company paid $175,000 in fees to William Blair &
Company (a major stockholder) for advisory services relating to a terminated
merger agreement.
Certain officers of the Company hold an equity interest in Rostra Technologies,
Inc. (Rostra), a related party. During fiscal year 1997 and 1996, the Company
paid $389,423 and $228,834, respectively, to Rostra in management fees for
services provided by the Company's CEO and CFO. At June 28, 1997, the Company
owed Rostra $179,190 for such fees.
In January of 1997, the Company entered into a note receivable with an officer
of the Company with interest at 5.63% accruing monthly. Principal and interest
are due January 31, 1998. The balance at June 28, 1997 was $111,605.
10. SEVERANCE, OFFICE MOVING AND RESTRUCTURING CHARGES
In the second quarter of fiscal year 1995, the Company recorded a pretax charge
of approximately $1.4 million related to its Niemand Industries division. The
charge was comprised of the following elements: a $0.8 million loss on
disposition of machinery and equipment which was deemed excess following the
consolidation of Niemand's Statesville, North Carolina and Marion, Alabama
facilities, a writedown of $0.4 million in the value of the Statesville building
which was subsequently sold and a charge of $0.2 million related to severance of
personnel as a result of the plant consolidation. All funds related to the 1995
restructuring charges have been spent.
In fiscal 1996, the Company recorded a pre-tax charge of $1,038,000 for
severance of nine members of senior management ($937,000) and other costs with
no future benefits resulting from the move of the corporate office ($101,000)
from Charlotte, North Carolina to Westport, Connecticut. The charge was largely
recorded in the second ($249,000) and third ($745,000) quarters of the fiscal
year. At June 29, 1996, the remaining severance liability approximated $621,000.
The costs related to the office move included amounts for lease terminations and
the write-off of leasehold improvements. The move was completed by June 29,
1996. The remaining liability at June 29, 1996 for this move was approximately
$50,000 and related to the termination of the Charlotte office lease.
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At June 28, 1997 accrued liabilities include approximately $300,000, which
relates to severance costs associated with the Company's fiscal 1996
restructuring charges. The majority of the cash outlays relative to the 1996
restructuring charges were made during 1997. There were no material changes to
accrued restructuring charges for fiscal 1997.
11. CUSTOMER CONCENTRATION
Sales to one customer, Smead Manufacturing, represented approximately 11.0%,
10.6% and 11.0% of net sales in fiscal years 1997, 1996 and 1995, respectively.
12. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK
Concentration of credit risk - Financial instruments that potentially subject
the Company to credit risk consist principally of receivables. The Company
believes the concentration of credit risk in its accounts receivables is
substantially mitigated by the Company's ongoing credit evaluation process and
due to the large number of customers comprising the Company's customer base. The
Company does not generally require collateral from customers. The Company
evaluates the need for an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
Fair value of financial instruments - The carrying amount of cash, accounts
receivable and accounts payable approximates fair value because of the short-
term maturity of these instruments.
The carrying value of the Company's borrowings under its long-term revolving
credit agreement and other long-term borrowings approximates fair value due to
the variable interest rates.
The fair value of the Company's letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate or settle
the obligations. As of June 28, 1997, the fair value of the letters of credit
was $474,000.
The fair value of the Company's interest rate cap agreement is based on the
estimated cost to terminate or settle the obligation. As of June 28, 1997 the
fair value of the agreement was zero.
Derivatives - The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
The Company has purchased an interest rate cap agreement to reduce the impact of
changes in interest rates. The cap agreement entitles the Company to receive
from the counterparty (major bank) the notional amount multiplied by the
differences between the variable 1-month LIBOR and cap rates when the 1-month
LIBOR exceeds the cap rate. The cap rate in the above agreement is 10% and
matures on June 30, 1998. The premium related to the cap agreement is being
amortized over the life of the agreement.
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13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 28, 1997 and June 29, 1996 (in thousands, except per share data):
Quarter Ended
1997 September 30 December 31 March 31 June 28 Year
(1)
Net Sales $ 18,496 $ 17,805 $ 18,817 $ 19,592 $ 74,710
Gross Profit 3,598 3,572 4,095 4,049 15,314
Income (Loss) before
Extraordinary Item (66) 39 235 124 332
Net Income (Loss) (173) 39 235 124 225
Per Common Share Amounts:
(primary and fully diluted)
Income (Loss) before
Extraordinary Item $ (0.02) $ 0.01 $ 0.05 $ 0.03 $ 0.07
Net Income (Loss) $ (0.04) $ 0.01 $ 0.05 $ 0.03 $ 0.05
Quarter Ended
1996 September 30 December 31 March 31 June 29 Year
(2)
Net Sales $ 19,109 $ 17,867 $ 19,135 $ 18,273 $ 74,384
Gross Profit 4,015 3,792 4,282 3,967 16,056
Income (Loss) before
Extraordinary Item 471 84 (66) 212 701
Net Income (Loss) 471 84 (66) 212 701
Per Common Share Amounts:
(primary and fully diluted)
Income (Loss) before
Extraordinary Item $ 0.09 $ 0.02 $ (0.01) $ 0.04 $ 0.14
Net Income (Loss) $ 0.09 $ 0.02 $ (0.01) $ 0.04 $ 0.14
(1) The first quarter of 1997 net income (loss) includes an extraordinary
after-tax loss of $107,000 reflecting the write-off of unamortized finance
costs of a previous refinancing.
(2) Net income (loss) for the third quarter of 1996 includes a restructuring
charge of $745,000 consisting primarily of severance costs for divisional
personnel and expenses related to the move of the corporate office from
Charlotte, North Carolina to Westport, Connecticut.
F-17