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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2003
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) (I.R.S. Employer
Identification Number)
2000 SUMMIT AVENUE
HASTINGS, NEBRASKA 68901
(Address of principal (Zip Code)
executive offices)
(402) 463-1366
(Registrant's telephone number, www.gibraltarpackaginggroup.com
including area code) (Registrant's website)
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 all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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. [X]
The aggregate market value of the voting and non-voting common equity
stock held by nonaffiliates of the registrant on June 28, 2003 was $8,876,117
(based upon the June 28, 2003 closing sale price of the common stock as reported
on the Over-The-Counter Bulletin Board).
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). YES [_] NO [X]
The number of shares of common stock of the registrant outstanding as
of September 15, 2003 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 2003, which definitive proxy statement will be filed
within 120 days of the end of the registrant's fiscal year.
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TABLE OF CONTENTS
PART I
Page
----
Item 1. Business............................................................1
Item 2. Properties..........................................................7
Item 3. Legal Proceedings...................................................7
Item 4. Submission of Matters to a Vote of Security Holders.................8
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
Forward-Looking Statements.........................................18
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........19
Item 8. Financial Statements and Supplementary Data........................19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................19
Item 9A. Controls and Procedures............................................19
PART III
Item 10. Directors and Executive Officers of the Registrant.................20
Item 11. Executive Compensation.............................................20
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters....................................20
Item 13. Certain Relationships and Related Transactions.....................20
PART IV
Item 15. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.................................21
PART I
ITEM 1. BUSINESS
--------
GENERAL
Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") designs,
manufactures, and markets packaging products nationwide, for numerous
industries. The Company produces four types of packaging products at three
manufacturing facilities. These facilities are: Gibraltar Packaging Group, Inc.
(dba "Great Plains Packaging", or "Great Plains") in Hastings, Nebraska;
RidgePak Corporation (dba "Flashfold Carton") in Fort Wayne, Indiana; and
Standard Packaging & Printing Corp. ("Standard Packaging") in Mount Gilead,
North Carolina. Folding cartons is the primary product line for the Company;
however, Standard Packaging also manufactures flexible packaging, and Great
Plains Packaging also manufactures litho-laminated cartons and corrugated
containers.
In August 1998, the Company announced its strategy to refocus on its
core capabilities of folding cartons and to leverage the success of the
Company's Great Plains division to improve the performance of the Company's
other folding carton divisions. As a result, the Company initiated a plan to
divest its facilities that manufactured non-folding carton related products.
This included the sale of two of the Company's subsidiaries: Niemand Industries,
Inc. ("Niemand") in Marion, Alabama; and GB Labels, Inc. ("GB Labels"), in
Burlington, North Carolina. Niemand, a manufacturer of tubular paper packaging
as well as contract packaging and filling, was sold in two stages. The sale of
the operating assets of its container business was finalized in June 1999 and
the remaining operating assets were sold in February 2000. The operating assets
of GB Labels, a manufacturer of pressure-sensitive labels, were sold in August
1999.
Through the implementation of this strategy, the Company has improved
operations and positioned itself for future growth. Over the past fiscal year
the Company has continued to evaluate capacity levels at its three facilities
and has implemented new technologies and equipment that add value to the
products it provides and positions the Company to increase its performance,
productivity, and profitability. These improvements include the purchase and
installation of a blanking die cutter and a sheeter for the Hastings, Nebraska
facility. In conjunction with these purchases, existing equipment was relocated
to the Fort Wayne, Indiana facility which increases capabilities and improves
the productivity of this facility. In addition, the Company also purchased a
flexible packaging laminator and other equipment for the manufacture of flexible
pouches at the Company's Mount Gilead, North Carolina facility. Gibraltar will
continue to focus its efforts on its core business of folding cartons, as well
as the supporting product lines of flexible, litho-laminated, and corrugated
products. The Company intends to continue to expand these product lines by
utilizing the maximum capacity at each facility, while continually identifying,
researching, and when applicable, implementing new technologies and equipment.
The Company markets its products to customers located throughout the
United States, with the majority of its sales located within the central,
southern and eastern regions of the nation. The Company's sales are derived from
a variety of industries including the following markets: food products, paper
and allied products, pharmaceuticals and medical instruments, textiles,
automotive, household, tobacco, and industrial products. The Company believes
its three folding carton facilities are strategically located to enhance its
competitive position by providing broad geographic coverage to serve larger,
nationwide customers.
Gibraltar's predecessor was incorporated under the name GPC Co. in
Hastings, Nebraska in 1967, and subsequently changed its name to Great Plains
Packaging Co. in 1986. In 1991
1
Great Plains Packaging Co. was reincorporated in Delaware, and its name was
changed to Gibraltar Packaging Group, Inc.
The Company's principal executive offices are located at 2000 Summit
Avenue, Hastings, Nebraska 68901, its phone number is 402-463-1366, and its
website is www.gibraltarpackaginggroup.com.
Unless otherwise stated in this Annual Report, references to fiscal
2003, 2002, and 2001 relate to the fiscal years ended June 28, 2003, June 29,
2002, and June 30, 2001, respectively.
MANUFACTURING PRODUCTS AND PROCESSES
Gibraltar offers four types of packaging products, which are described
in the following sections.
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 product
packaging and retail display of products. Sales of folding cartons represented
approximately 77%, 78%, and 79% of the Company's net sales for fiscal 2003,
2002, and 2001, respectively.
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, multiple colors, and innovative structural designs. The
Company's internal structural 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 its competitiveness in the folding carton
market, and result in increased profitability. The Company's facilities also
offer specialty features for its folding cartons including windowing, security
label application, Velcro application, and coupon application.
Folding cartons are produced at each of the Company's three production
facilities utilizing offset printing presses. The Hastings, Nebraska facility
also utilizes flexographic printing for the manufacture of folding cartons. For
offset printing, once a customer's order is received, paperboard rolls are
purchased from outside suppliers and converted into sheets with sheeting
equipment, in sizes determined for each order. Customers supply graphic disks,
artwork, or film to the Company, and then specialized printing plates are
created to use in the printing of paperboard sheets on multicolor offset
printing presses. The printed board is then cut, creased, embossed, folded, and
glued into individual cartons per the carton specifications, and then packaged
for shipment to customers. For the flexographic printing, the process differs
slightly. Once a customer's order is received, paperboard rolls are purchased
from outside suppliers. Folding cartons are then produced directly from the roll
stock by printing and die cutting in line to output blanks for gluing or flat
packing. This printing process utilizes UV ink and coating, which is an
additional feature the Company offers to its customers.
2
In June 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. This facility renewed its certification
in June 1999, and in June 2002 achieved certification to the ISO 9001:2000
standard, the organization's most recent standard. In January 1998, the
Company's Fort Wayne, Indiana facility also achieved ISO 9001 certification,
renewed its certification in January 2001, and in December 2002 received
certification to the ISO 9001:2000 standard. The facility in Mount Gilead, North
Carolina received ISO 9001 certification in June 2001 and achieved certification
to the ISO 9001:2000 standard in December 2001. ISO (International Organization
for Standardization) has steadily become a worldwide standard for quality
management. The ISO standards require a company to codify its quality programs
by defining and documenting its quality system.
The Company's Hastings, Nebraska facility also initiated and formalized
programs for compliance with the American Institute of Baking's Standards for
Packaging Facilities. This standard covers adequacy of the product safety
program, pest control, operation methods, personnel practices, maintenance for
product safety, and cleaning practices. In December 2001 the facility achieved
an Excellent rating following its first American Institute of Baking audit. In
November 2002 at the facility's first annual follow-up audit, the facility
improved its rating to Superior.
FLEXIBLE POLY-FILM PACKAGING
Flexible packaging sales represented approximately 11% of the Company's
net sales for fiscal years 2003, 2002, and 2001.
The flexible packaging industry has experienced significant historical
growth due to advances in plastic technology and the popularity of convenient
packaging. 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, with a see-through feature that enables the
consumer to see the product within the package, along with the package graphics.
Although the Company sells most of its flexible packaging for use in the food,
textile, and household products markets, flexible packaging is also used by many
other industries.
Flexible packaging is produced at the Standard Packaging facility in
Mount Gilead, North Carolina. The Company purchases its plastic films including
polyethylene, polypropylene, and similar materials, from film manufacturers
rather than producing its own plastic films. The film is printed at the
Company's facilities using multicolor printing presses. The printed rolls are
then slit into smaller rolls, or shipped in roll form, to customers who then
convert it into its final package form (for example, bags, pouches or overwrap).
The Company also converts the printed film rolls into bags or pouches, and then
ships the final package forms to its customers. The Company has additional
capabilities which can be incorporated into poly-film packaging, which include
affixing pressure-sensitive labels, attaching hanging display hooks, grommets,
zip-lock closures, Velcro, and tape seals.
SPECIALTY LAMINATED CARTONS
At the Hastings, Nebraska facility, the Company manufactures specialty
laminated cartons, which it markets to customers throughout the United States,
primarily in the food, automotive, household, and industrial markets. Laminated
cartons are used for the retail sale of products and offer customers a number of
visual marketing benefits. Specialty laminated carton sales represented
approximately 7% of the Company's net sales for fiscal 2003 and 6% for fiscal
years 2002 and 2001.
3
During the manufacturing process, laminated sheets, which are composed
of a printed paperboard sheet glued onto single face corrugate, are die cut,
glued, and folded into cartons per the carton specifications. 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
without sacrificing the protection of the product.
CORRUGATED CONTAINERS
The Company's Hastings, Nebraska facility also designs and manufactures
printed corrugated containers, which it markets to customers located in the
mid-western United States. The primary markets for this product line are the
automotive, industrial, and agricultural markets. Corrugated container sales
represented approximately 5% of the Company's net sales for fiscal years 2003
and 2002 and 4% for fiscal year 2001.
The Company purchases corrugated sheets from outside suppliers, then
prints, cuts, creases, folds, and glues the sheets into individual containers
per the carton specifications. The Company also manufactures corrugated inserts,
which require specialty die-cutting and gluing, and are used to provide
additional strength and protection of packaged products. Corrugated containers
offer a structurally strong package, suitable for protecting products during
shipping, or meeting other packaging performance needs.
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
multiple 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,
and in many cases also work with the customer in designing the 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 price. The Company
believes that its expertise and reputation within the packaging industry for
providing timely, personalized service and high-quality packaging enables it to
compete effectively with other non-integrated packaging companies.
The Company has continued to be impacted by the increasing trends of
customers to leverage their buying power through vendor consolidations. These
customers have taken advantage of the overcapacity within the packaging industry
in order to lower their packaging price. The Company has responded to these
changes by continuing to control its internal costs and acquiring equipment that
improves efficiencies. Through these efforts the Company has been able to
enhance its competitiveness within the current market dynamics, but cannot
guarantee success in future strategic sourcing efforts.
4
Many of the Company's competitors have greater resources, financial and
otherwise, 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, inks, flexible films, resin, and adhesives, all of which the Company
purchases from more than one supplier. In fiscal 2003, prices remained
relatively steady with increases experienced for some materials in the second
half. The Company expects increases in some materials for the first half of
fiscal 2004. Although the Company has historically been able to pass material
increases on to its customers, any future price increases could have an adverse
impact on the Company's results of operations, if the Company is unable to
continue to pass these increases on to its customers.
The supply of materials such as polyethylene, polypropylene, and other
plastic films and resins used in the manufacture of flexible packaging, 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. In addition, if the supply of
oil-based resins or plastic films should tighten in the future, 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.
Although the Company's supply of raw materials is presently sufficient,
a prolonged shortage of raw materials, the resulting higher costs, or diminished
availability of such materials could adversely affect its business.
PRODUCTION BACKLOG AND INVENTORY CONTROL
The majority of demand for the Company's products does not fluctuate
significantly throughout the fiscal year. However, the Company occasionally
experiences a slight increase in production backlog due to the seasonal business
of some of its customers. Because the Company produces according to firm
purchase orders, as do the majority of manufacturers within the industry,
fluctuations in production, shipments, and inventory levels are not significant.
CUSTOMERS
The Company derives its sales from a diverse market base. In fiscal
2003, the Company sold its products throughout the United States to over 468
different customers for use in a variety of industries. The table below sets
forth the Company's approximate percent of net sales by market for each of the
years indicated.
5
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JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
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Food products 28% 23% 19%
Paper and allied products 17% 18% 18%
Pharmaceutical and medical instruments 15% 15% 15%
Textiles 10% 11% 14%
Tobacco products 8% 10% 8%
Automotive products 8% 9% 10%
Household products 8% 7% 9%
Industrial products 1% 2% 2%
Other 5% 5% 5%
--- --- ---
Total net sales 100% 100% 100%
=== === ===
======================================================================
Sales to the Company's top three customers accounted for approximately
34% of the Company's net sales for fiscal 2003. Sales to Smead Manufacturing
represented approximately 15% of net sales in fiscal 2003.
The Company believes that developing long-term relationships with
customers is critical to its 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 one to three years.
EMPLOYEES
As of June 28, 2003, the Company employed approximately 423 full-time
employees - 90 salaried and 333 hourly. The Company primarily markets its
products and services through 15 employee sales representatives, as well as
several commissioned brokers or agents.
The Graphics Communication Union, No. 19-M, represents approximately
80 hourly employees at the Fort Wayne, Indiana facility. The current three-year
union contract was ratified in January 2003 and is in effect through November
2005. The Company considers its relationship with its employees and the union to
be generally satisfactory. Although there are no difficulties anticipated, the
Company is unable to forecast the outcome of future negotiations between the
Company and the Graphics Communication 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
generally had a material effect on the Company's capital expenditures, earnings
or competitive position. However, as part of the environmental due diligence
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.
6
Groundwater testing performed in 1995 revealed the presence of
tetrachlorethelene ("PCE") and related compounds in the groundwater at the site,
and in three of the neighboring properties' wells. The Company notified the
North Carolina Division of Environmental Management and the County Health
Department, provided bottled water to affected residents, and offered to
connect, at its cost, any resident wishing to be connected to the municipal
water supply.
In February 1997, the North Carolina Division of Water Quality ("DWQ")
asked Gibraltar to conduct a follow-up assessment of the GB Labels facility. The
Company 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 Comprehensive Assessment Report
was filed with the DWQ in June 1998. To date, the DWQ has requested no further
updates.
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 $420,000 from $430,000 at June 28,
2003 and June 29, 2002, respectively, reflects legal and environmental
consulting expenses incurred in fiscal 2003. Cumulative incurred expenses as of
June 28, 2003 related to remediation totaled $330,000. Management believes that
the ultimate resolution of this and other environmental matters will not
materially affect the financial position or results of future operations and
cash flows of the Company.
ITEM 2. PROPERTIES
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The Company owns offices and manufacturing facilities in Hastings,
Nebraska; Fort Wayne, Indiana; and Mount Gilead, North Carolina. The Company's
facilities consist of a total of more than 425,000 square feet. The Company also
leases 71,000 square feet of office, production, and warehouse space in
Hastings, Nebraska. Additional warehouse facilities are leased in Fort Wayne,
Indiana.
The Niemand facility, which is owned by the Company and was previously
used in a manufacturing capacity, is currently being leased to the company that
acquired Niemand's operating assets.
The Company's facilities and equipment are generally in good operating
condition, and are suitable for their respective uses and adequate for current
needs.
The Company maintains business property and other insurance coverage
for its facilities and operations, in amounts and for risks 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 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
7
material adverse effect on the financial condition, results of operations or net
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the stockholders of Gibraltar
during the fourth quarter of Gibraltar's fiscal year ended June 28, 2003.
8
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 is currently traded on the Over-The-Counter
Bulletin Board ("OTCBB"). 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 as reported on the OTCBB:
HIGH LOW
FISCAL 2003
Fourth Quarter $ 2.80 $ 2.27
Third Quarter 2.90 2.40
Second Quarter 3.25 1.85
First Quarter 2.05 1.45
FISCAL 2002
Fourth Quarter $ 1.55 $ 1.15
Third Quarter 1.60 1.16
Second Quarter 1.30 1.16
First Quarter 1.32 1.20
There were approximately 163 shareholders of record of the Company's
common stock as of September 15, 2003. The Company believes that the number of
beneficial owners of its common stock is approximately 575.
DIVIDEND POLICY
Historically, the Company has not paid cash dividends on its common
stock. 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 LaSalle Business
Credit, Inc. restricts the ability of the Company to pay dividends.
9
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- ------------------- -------------------------
Equity compensation
plans approved by
security holders:
(a) Incentive Stock
Option Plan 13,000 $ 8.85 272,838
(b) Director Stock
Option Plan 16,000 $ 8.63 9,000
Equity compensation
plans not approved
by security holders: -- -- --
-------------------------------------------------------------------
29,000 $ 8.73 281,838
Total
RECENT SALES OF UNREGISTERED SECURITIES
None.
10
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, JUNE 30, JULY 1, JULY 3,
2003 (1) 2002(2) 2001(3) 2000(4) 1999(5)
-------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Net Sales $67,378 $63,803 $64,084 $67,543 $76,514
Cost of Goods Sold 54,229 51,396 50,908 54,998 65,711
Gross Profit 13,149 12,407 13,176 12,545 10,803
Operating Expenses 7,773 7,864 7,961 7,862 21,802
Income (Loss) From Operations 5,376 4,543 5,215 4,683 (10,999)
Other Expense - Net 1,030 1,659 2,499 3,130 3,324
Provision (Benefit) for Income Taxes 1,601 1,131 (923) 483 (751)
Net Income (Loss) 2,745 1,753 3,639 1,070 (13,572)
Basic and Diluted Per Common Share Amounts:
Net Income (Loss) 0.54 0.35 0.72 0.21 (2.69)
Weighted Average Shares Outstanding 5,042 5,042 5,042 5,042 5,042
BALANCE SHEET DATA:
Working Capital 5,389 2,563 2,403 2,333 3,357
Total Assets 34,260 34,544 36,374 37,654 43,338
Long-Term Debt (net of current portion) 13,339 14,917 18,578 22,498 27,943
Stockholders' Equity 9,436 6,908 5,155 1,516 446
(1) With the adoption of SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, the Company discontinued amortizing
goodwill in the first quarter of fiscal 2003, and is now
testing for impairment on a periodic basis.
(2) Includes a charge of $260 ($156 after tax) reflecting the
write-off of unamortized finance costs related to the First
Source financing.
(3) Includes a $2.0 million reduction to the tax provision. As a
result of earnings improvements, the Company reduced its
deferred income tax asset valuation allowance by $2.0
million in fiscal 2001 to reflect a change in estimate
related to the realizability of its deferred income tax
assets.
(4) Includes the effect of the sale of the operating assets of
Niemand in June 1999 and February 2000 and the sale of the
operating assets of GB Labels in August 1999.
(5) Includes impairment write-downs of long-lived assets related
to Flashfold Carton and GB Labels of $11,861 and $352,
respectively, and restructuring charges of $235 related to
the relocation of the Company's corporate offices.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RECENT EVENTS
Due to increased competition (See "Business - Competition"), the
Company lost two customers in the last quarter of fiscal 2003. This lost
business represented approximately $8.5 million of net sales for fiscal 2003,
which will transition out sometime during fiscal 2004. If the Company's efforts
to replace this business fall substantially short, results of operations would
be materially impacted.
However, the Company is responding to these recent trends by making a
strong push for new business in growth industries, by controlling costs, and by
improving efficiencies. For example, recent and planned acquisitions of new
equipment will play an integral part in the Company achieving these objectives,
and will also help Gibraltar to compete in new growth markets. (See "Business -
General.")
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, JUNE 30,
2003 2002 2001
-------- -------- --------
Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 80.5 80.6 79.4
Gross Profit 19.5 19.4 20.6
Operating Expenses 11.5 12.3 12.5
Income from Operations 8.0 7.1 8.1
Other Expense - Net 1.5 2.6 3.9
Provision (Benefit) for Income Taxes 2.4 1.8 (1.5)
Net Income 4.1% 2.7% 5.7%
FISCAL YEAR 2003 VS. 2002
In fiscal 2003, the Company had net sales of $67.4 million compared
with $63.8 million in fiscal 2002, an increase of $3.6 million or 5.6%. This
increase is primarily attributable to additional business from new and existing
customers, partially offset by a reduction in some existing accounts due to soft
economic conditions and increased competition.
Gross profit for fiscal 2003 increased slightly to $13.1 million, or
19.5% of net sales from $12.4 million, or 19.4% in fiscal 2002. Higher material
costs from changes in customer mix and pricing pressures were offset by $0.2
million in lower maintenance and repair costs and the effect of spreading fixed
costs over higher volume.
Income from operations for fiscal 2003 was $5.4 million compared with
$4.5 million in fiscal 2002, an increase of $0.8 million or 18.3%. This increase
was primarily a result of the increase in gross profit coupled with a slight
decrease in selling, general, and administrative costs. With the adoption of
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, the Company
12
stopped amortizing goodwill in the first quarter of fiscal 2003. Goodwill
amortization was $0.1 million in fiscal 2002.
Total interest expense decreased $0.6 million, or 39.3%, to $1.0
million in fiscal 2003 from $1.6 million in fiscal 2002. In December 2001, the
Company refinanced its credit facility with LaSalle Business Credit, Inc.
("LaSalle"). As part of this refinancing, the Company recorded a charge of
$260,000 in fiscal 2002 reflecting the write-off of unamortized finance costs
relating to the previous credit facility. Excluding the effect of this
write-off, the decrease of $0.4 million is the result of $2.8 million in lower
average borrowings coupled with a decline in the average interest rate to 4.9%
from 6.1%.
The income tax provision as a percentage of pre-tax income for fiscal
2003 was 36.8% compared with an income tax provision of 39.2% for fiscal 2002.
Prior to the adoption of SFAS No. 142 in the first quarter of fiscal 2003, the
effective tax rate typically differed from the statutory rate primarily as a
result of non-deductible amortization of goodwill.
Net income in fiscal 2003 was $2.7 million, or $0.54 per share,
compared to $1.8 million or $0.35 per share in fiscal 2002.
FISCAL YEAR 2002 VS. 2001
In fiscal 2002, the Company had net sales of $63.8 million compared
with $64.1 million in fiscal 2001, a decrease of $0.3 million or 0.4%. Sales
were negatively impacted by the overall slow-down in economic conditions.
Gross profit for fiscal 2002 decreased to 19.4% of net sales from
20.6% in fiscal 2001. This is attributable to higher material costs from changes
in customer mix and pricing pressures, as well as higher repair and maintenance
costs of $0.2 million. However, these increases were partially offset by
continued cost control efforts, such as a substantial reduction in labor cost of
$0.3 million. Cost of goods sold increased $0.5 million, or 1.0%, to $51.4
million in fiscal 2002 compared to $50.9 million in fiscal 2001.
Income from operations for fiscal 2002 was $4.5 million compared with
$5.2 million in fiscal 2001, a decrease of $0.7 million or 12.9%. This decrease
is primarily a result of lower sales, partially offset by a small reduction in
selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million or 1.2% to $7.7 million in fiscal
2002 from $7.8 million in fiscal 2001. Expressed as a percentage of net sales,
selling, general and administrative expenses decreased to 12.1% in fiscal 2002,
compared with 12.2% in fiscal 2001. This is primarily the result of lower bad
debt expense.
Total interest expense decreased $0.9 million, or 36.1%, to $1.6
million in fiscal 2002 from $2.5 million in fiscal 2001. In December 2001, the
Company refinanced its credit facility with LaSalle. As part of this
refinancing, the Company recorded a charge of $260,000 reflecting the write-off
of unamortized finance costs relating to the previous existing credit facility.
Excluding the effect of this write-off, the decrease of $1.2 million is the
result of $3.8 million in lower average borrowings coupled with a decline in the
average interest rate to 6.1% from 9.9%.
The income tax provision as a percentage of pre-tax income for fiscal
2002 was 39.3% compared with an income tax benefit of 34.0% for fiscal 2001. The
effective tax rate typically differs from the statutory rate primarily as a
result of non-deductible amortization of goodwill. However, as a result of
earnings improvements, the Company reduced its deferred income tax asset
valuation allowance by $2.0 million in fiscal 2001 to reflect a change in
estimate related to the realizability of its deferred income tax assets. See
Note 6 of the Notes to Consolidated
13
Financial Statements for a detailed description of the adjustment to the
deferred income tax asset valuation.
Net income in fiscal 2002 was $1.8 million, or $0.35 per share,
compared to $3.6 million or $0.72 per share in fiscal 2001. Net income in fiscal
2001 includes the effect of reducing the deferred income tax asset valuation
allowance by $2.0 million, as a result of earnings improvements. Excluding the
impact of the change in the deferred income tax asset valuation allowance, net
income would have been $1.7 million (or $0.33 per share). The following table
illustrates the effect of the income tax asset valuation allowance (in
thousands, except per share data):
EXCLUDING IMPACT
OF CHANGE IN TAX
VALUATION
AS REPORTED ALLOWANCE
----------- ----------------
Income Before Income Taxes $2,716 $2,716
Provision (Benefit) for Income Taxes (923) 1,046
------ ------
Net Income $3,639 $1,670
====== ======
Net Income Per Share $ 0.72 $ 0.33
====== ======
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's liquidity requirements have been met by a
combination of funds provided by operations and its revolving credit agreements.
At June 28, 2003, the Company's current assets exceeded its current liabilities
by $5.4 million, as compared to $2.6 million at June 29, 2002. This increase is
primarily the result of faster payment of accounts payables with specific
vendors to achieve vendor discounts and a required payment on the Company's
Special Advance Loan accrued at the prior year-end. Funds provided by operations
totaled $4.8 million in fiscal 2003 compared to $4.4 million in fiscal 2002. The
Company also had available to it unused borrowing capacity of $4.1 million as of
June 28, 2003.
During fiscal 2003, capital expenditures totaled $1.7 million compared
with $1.1 million in fiscal 2002. The Company makes capital improvements to
increase efficiency and product quality, and periodically upgrades its equipment
by purchasing or leasing new or previously used equipment.
The Company's on-going strategy is to continue to focus its efforts on
its core business of folding cartons, as well as the supporting product lines of
flexible, litho-laminated, and corrugated products. The Company intends to
expand these product lines by utilizing the maximum capacity at each facility,
while continually identifying, researching, and, when applicable, implementing
new technologies and equipment that will enable the Company to continue to
improve performance, productivity, and profitability. As part of this process,
the Company has added, and has made commitments on, new equipment that adds
capacity and lowers production costs, as well as enables the Company to enter
into new markets.
Under the current strategy, management believes that future funds
generated by operations and borrowings available under its credit facility with
LaSalle will be sufficient to meet working capital and capital expenditure
requirements in the near term.
On December 20, 2001, the Company entered into a three-year renewable
credit facility with LaSalle. This facility provides for an $11.6 million Term
Loan, a $4.0 million Special Advance Loan, and a $12.0 million working capital
revolving line-of-credit ("Revolver"). The
14
Term Loan and Special Advance Loan are to be repaid over seven years, but are
callable after three years. The Special Advance Loan was repaid in April 2003.
Until the Special Advance Loan was repaid, only monthly interest payments were
applied against the Term Loan. After repayment of the Special Advance Loan,
monthly principal payments of $169,897 plus interest are applied against the
Term Loan. The credit facility is secured by a first priority perfected security
interest in and lien on all assets (real and personal, tangible and intangible)
of the Company, excluding its Burlington, North Carolina property.
The Revolver provides for a revolving line of credit under a borrowing
base commitment subject to certain loan availability requirements. Loan
availability under the Revolver may not exceed the lesser of: (1) $12.0 million;
or (2) the sum of (a) 85% of the Company's eligible accounts receivable plus (b)
a percentage of the Company's eligible inventory which ranges from 35% to 70%.
At no time may the sum of aggregated loan advances outstanding under the
Revolver plus the aggregate amount of extended letter of credit guarantees
exceed loan availability.
The Revolver bears interest at LaSalle's prime rate plus 0.50% or the
London Interbank Offered Rate ("LIBOR") plus 2.75%. The Term Loan bears interest
at LaSalle's prime rate plus 0.75% or LIBOR plus 3.00%. The Special Advance Loan
was subject to interest at LaSalle's prime rate plus 1.00% or LIBOR plus 3.25%.
The Company also pays a commitment fee of 0.50% on the unused portion of the
Revolver. The interest rates at June 28, 2003 were a combination of prime and
LIBOR. LaSalle's prime and LIBOR rates for the Revolver were 4.00% and 1.10%,
respectively, at June 28, 2003. LaSalle's prime and LIBOR rates for the Term
Loan were 4.00% and 1.16%, respectively, at June 28, 2003.
As of June 28, 2003, all outstanding letters of credit were guaranteed
by LaSalle. The Company pays an annual letter of credit fee of 2.00% on the
outstanding balance to guarantee availability under the Revolver. Outstanding
letters of credit at June 28, 2003 amounted to $147,500 and related to workman's
compensation insurance policies.
The LaSalle credit facility contains certain restrictive covenants
including financial covenants related to net worth, debt service coverage,
interest coverage and capital expenditures. As of June 28, 2003, the Company was
in compliance with all financial covenants. In addition, the Company's credit
facility restricts the ability of the Company to pay dividends.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company has contractual obligations and commercial commitments
that may affect its financial condition. Based on management's assessment of the
underlying provisions and circumstances of the material contractual obligations
and commercial commitments of the Company, including material off-balance sheet
and structured finance arrangements, there is no known trend, demand,
commitment, event or uncertainty that is reasonably likely to occur which would
have a material effect on the Company's financial condition or results of
operations. The following tables identify material obligations and commitments
as of June 28, 2003:
15
------------------------------------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
----------------------------------------------------------------------
CONTRACTUAL CASH OBLIGATIONS AFTER
(THOUSANDS OF DOLLARS) TOTAL 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 5 YEARS
------------------------------------------------------------------------------------------------------------------------
Term Loan $ 11,213 $ 2,039 $ 9,174 $ -- $ -- $ -- $ --
Revolving Line-of-Credit (a) 3,956 -- 3,956 -- -- -- --
Purchase commitments (b) 2,159 2,159 -- -- -- -- --
Capital lease obligations 289 80 83 83 43 -- --
Operating leases 4,297 1,327 891 673 595 501 310
------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 21,914 $ 5,605 $14,104 $ 756 $ 638 $ 501 $ 310
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
AMOUNT OF COMMITMENT EXPIRATION
PER PERIOD
TOTAL ----------------------------------------------------------------------
OTHER COMMERCIAL COMMITMENTS AMOUNTS AFTER
(THOUSANDS OF DOLLARS) COMMITTED 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 5 YEARS
------------------------------------------------------------------------------------------------------------------------
Revolving Line-of-Credit (c) $ 4,119 $ -- $ 4,119 $ -- $ -- $ -- $ --
Standby letters of credit 148 148 -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Total commercial commitment $ 4,267 $ 148 $ 4,119 $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------------------------------------------
(a) The revolving line-of-credit represents the actual outstanding balance,
as of June 28, 2003.
(b) The Company anticipates that this purchase commitment will be financed
through an operating lease.
(c) The revolving line-of-credit represents the unused borrowing capacity
available to the Company, as of June 28, 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in conformity
with Generally Accepted Accounting Principles ("GAAP") requires the Company to
select and apply accounting policies that best provide the framework to report
the Company's results of operations and financial position. The selection and
application of those policies require management to make difficult subjective or
complex judgments concerning reported amounts of revenue and expenses during the
reporting period and the reported amounts of assets and liabilities at the date
of the financial statements. The judgments and uncertainties inherent in this
process affect the application of those policies. As a result, there exists the
likelihood that materially different amounts would be reported under different
conditions or using different assumptions. Management has identified the
following accounting policies that it deems critical to the portrayal of the
Company's financial condition and results of operations and that involve
significant subjectivity. Management believes that its selection and application
of these policies best represent the operating results and financial position of
the Company. The following discussion provides information on the processes
utilized by management in making judgments and assumptions as they apply to its
critical accounting policies.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on management's
assessment of the collectibility of specific customer accounts and the aging of
the accounts receivable. If there is a deterioration of a customer's credit
worthiness or actual defaults are higher than historical experience, estimates
of the recoverability of amounts due the Company could be adversely affected.
16
INCOME TAXES
The Company records deferred tax assets and liabilities using enacted
tax rates for the effect of temporary differences between the book and tax basis
of assets and liabilities. If enacted tax rates changed, the Company would
adjust the deferred tax assets and liabilities, through the provision for income
taxes in the period of change, to reflect the enacted tax rate expected to be in
effect when the deferred tax items reverse. The Company records a valuation
allowance on deferred tax assets to reflect the expected future tax benefits to
be realized. In determining the appropriate valuation allowance, the Company
takes into account the level of expected future taxable income and available tax
planning strategies. If future taxable income was lower than expected or if
expected tax planning strategies were not available as anticipated, the Company
may record additional valuation allowance through income tax expense in the
period such determination was made.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets consist primarily of property, plant
and equipment. Management believes the useful lives assigned to these assets,
which range from 2 to 40 years, are reasonable. Management evaluates the
long-lived assets for impairment when events or changes in circumstances
indicate, in management's judgment, that the carrying value of such assets may
not be recoverable. If management's assumptions about these assets change as a
result of events or circumstances, and management believes the assets may have
declined in value, then the Company may record impairment charges, resulting in
lower profits.
GOODWILL AND INTANGIBLE ASSETS
The Company is required to make certain assumptions and estimates
regarding the fair value of intangible assets, namely goodwill, when assessing
such assets for impairment. Changes in the fact patterns underlying such
assumptions and estimates could ultimately result in the recognition of
impairment losses on intangible assets.
PENSION ASSETS AND LIABILITIES
In order to measure pension expense as well as the related assets and
liabilities, management must make a variety of estimates including discount
rates used to measure the present value of certain liabilities, assumed rates of
return on assets set aside to fund the expenses, employee turnover rates, and
anticipated mortality rates. The estimates used by management are based on the
Company's historical experience as well as current facts and circumstances. The
Company uses third-party specialists to assist management in appropriately
measuring the expense associated with the plan. Different estimates used by
management could result in the Company recognizing different amounts of expense
over different periods of time.
CONTINGENT LIABILITIES
From time to time, there are various claims and lawsuits pending
against the Company. The Company records a liability when the effect of
litigation can be estimated and when an outcome is considered probable.
Management's estimates are based on its knowledge of the relevant facts at the
time of the issuance of the Company's Consolidated Financial Statements.
Subsequent developments could materially alter management's assessment of a
matter's probable outcome and the estimate of the Company's liability.
17
ENVIRONMENTAL ISSUES
The Company records its environmental liabilities when site
assessments or remedial actions are probable and a range of reasonably likely
cleanup costs can be estimated. The Company reviews its sites and assesses the
liability quarterly, by assessing a range of reasonably likely costs for each
identified site using currently available information, including existing
technology, current laws and regulations and the probable level of involvement
and financial condition of other potentially responsible parties. These
estimates include costs for site investigations, remediation, operations and
maintenance, monitoring and site closure.
INFLATION
Inflation has not had a significant impact on the Company's cost
structure.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES (FIN 46). FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. The adoption of this interpretation did not have a material
impact on the Company's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS
No. 150 establishes standards for classification and measurement in the balance
sheets for certain financial instruments which possess characteristics of both a
liability and equity. Generally, it requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003. The adoption of this standard did not have a material impact
on the Company's financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about
our confidence in the Company's prospects and strategies and our expectations
about the Company's sales expansion, are forward-looking statements that involve
risks and uncertainties. These risks and uncertainties include, but are not
limited to: (1) softened demand for the Company's products due to overall
economic conditions; (2) the Company's ability to obtain new business to replace
lost business; (3) the Company's ability to execute its business plan; (4)
market acceptance risks, including whether or not the Company will be able to
successfully gain market share against competitors, many of which have greater
financial and other resources than the Company, and the continuing trend of
customers to increase their buying power by consolidating the number of vendors
they maintain; (5) 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; (6)
the introduction of competing products by other firms; (7) pressure on pricing
from competition or purchasers of the Company's products; (8) whether the
Company will be able to pass on to its customers price increases for paper and
18
paperboard products; (9) continued stability in other raw material prices,
including oil-based resin and plastic film; (10) the impact of government
regulation on the Company's manufacturing processes, including whether or not
additional capital expenditures will be needed to comply with applicable
environmental laws and regulations as the Company's production increases; (11)
the Company's ability to continue to comply with the restrictive covenants in
its credit facility or to obtain waivers if it is not in compliance in the
future; and (12) the Company's ability to recover from any potential terrorist
attack. Investors and potential investors are cautioned not to place undue
reliance on these forward-looking statements, which reflect the Company's
analysis only as of the date of this report. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date of this report. These risks and
others that are detailed in this Form 10-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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The Company's primary market risk is fluctuation in interest rates.
All of the Company's debt at June 28, 2003 is at variable interest rates. A
hypothetical 10% change in interest rates would have had a $0.1 million impact
on interest expense for the fiscal year ended June 28, 2003.
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.
ITEM 9A. CONTROLS AND PROCEDURES
-----------------------
The Company's Chief Executive Officer, Walter E. Rose, and Vice
President Finance, Brett E. Moller, have reviewed the Company's disclosure
controls and procedures as of June 28, 2003. Based upon this review, these
officers believe that the Company's disclosure controls and procedures are
effective in ensuring that material information related to the Company is made
known to them by others responsible for reporting such material information
within the Company.
In April 2003, the Company identified a significant deficiency in the
design and operation of its internal controls in its accounts payable function
at one of its divisions, and instituted changes to the design and operation of
the internal controls in this area. The Company determined that this deficiency
existed when it discovered that a division employee had been embezzling funds.
The Company determined that approximately $500,000 was embezzled over a period
of seven years, but believes that these embezzled funds will be recovered
through insurance. There were no other significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date that the Company carried out its evaluation.
19
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 Items 401 and 405 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 2003, and is hereby incorporated by reference. If the
definitive proxy statement for the 2003 annual meeting is not filed with the
Securities and Exchange Commission within 120 days of the end of Gibraltar's
2003 fiscal year, Gibraltar will amend this Annual Report and include such
information in the amendment.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information relating to the 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 2003 and is hereby
incorporated by reference. If the definitive proxy statement for the 2003 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of Gibraltar's 2003 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
--------------------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The information relating to security ownership required by Items
201(d) and 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 2003 and is hereby
incorporated by reference. If the definitive proxy statement for the 2003 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of Gibraltar's 2003 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 2003 and is hereby incorporated by reference. If the definitive proxy
statement for the 2003 annual meeting is not filed with the Securities and
Exchange Commission within 120 days of the end of Gibraltar's 2003 fiscal year,
Gibraltar will amend this Annual Report and include such information in the
amendment.
20
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) (1) Financial Statements Page
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets,
June 28, 2003 and June 29, 2002 F-2
Consolidated Statements of Operations,
Years Ended June 28, 2003, June 29, 2002, and June 30, 2001 F-3
Consolidated Statements of Stockholders' Equity,
Years Ended June 28, 2003, June 29, 2002, and June 30, 2001 F-4
Consolidated Statements of Cash Flows,
Years Ended June 28, 2003, June 29, 2002, and June 30, 2001 F-5
Notes to Consolidated Financial Statements F-6
(2) 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.
(3) 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).
21
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)).
**10.3 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)).
**10.4 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)).
10.5 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)).
10.6 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)).
10.7 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)).
10.8 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)).
**10.9 Gibraltar Packaging Group, Inc.1998 Stock Appreciation
Rights Plan, dated November 30, 1998 (incorporated by
reference to Exhibit 10.33 to Gibraltar's Quarterly Report
on Form 10-Q for the period ended December 31, 1998 (File
No. 00-19800)).
**10.10 Employment Agreement, dated January 15, 1999, between
Gibraltar Packaging Group, Inc. and Richard D. Hinrichs
(incorporated by reference to Exhibit 10.35 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended December
31, 1998 (File No. 00-19800)).
**10.11 Stock Appreciation Rights Agreement, dated January 15, 1999,
between Gibraltar Packaging Group, Inc. and John W. Lloyd
(incorporated by reference to Exhibit 10.36 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended December
31, 1998 (File No. 00-19800)).
22
**10.12 Stock Appreciation Rights Agreement, dated January 15, 1999,
between Gibraltar Packaging Group, Inc. and Richard D.
Hinrichs (incorporated by reference to Exhibit 10.37 to
Gibraltar's Quarterly Report on Form 10-Q for the period
ended December 31, 1998 (File No. 00-19800)).
**10.13 Letter of Resignation, dated September 1, 2000, between
Gibraltar Packaging Group, Inc. and John W. Lloyd
(incorporated by reference to Exhibit 10.55 to Gibraltar's
Annual Report on Form 10-K for the period ended July 1, 2000
(File No. 00-19800)).
10.14 Loan and Security Agreement, dated as of December 20, 2001,
between LaSalle Business Credit, Inc. and Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
Packaging and Printing Corp. and Niemand Industries, Inc
(incorporated by reference to Exhibit 10.58 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended March 31,
2002 (File No. 00-19800)).
10.15 Supplement to Loan and Security Agreement, dated as of
December 20, 2001, between LaSalle Business Credit, Inc. and
Gibraltar Packaging Group, Inc., RidgePak Corporation,
Standard Packaging and Printing Corp. and Niemand
Industries, Inc (incorporated by reference to Exhibit 10.59
to Gibraltar's Quarterly Report on Form 10-Q for the period
ended March 31, 2002 (File No. 00-19800)) .
10.16 Revolving Note, dated as of December 20, 2001, in favor of
LaSalle Business Credit, Inc., executed by Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
Packaging and Printing Corp. and Niemand Industries, Inc. in
the principal amount of $12,000,000 (incorporated by
reference to Exhibit 10.60 to Gibraltar's Quarterly Report
on Form 10-Q for the period ended March 31, 2002 (File No.
00-19800)).
10.17 Term Note, dated as of December 20, 2001, in favor of
LaSalle Business Credit, Inc., executed by Gibraltar
Packaging Group, Inc., RidgePak Corporation, Standard
Packaging and Printing Corp. and Niemand Industries, Inc. in
the principal amount of $11,553,000 (incorporated by
reference to Exhibit 10.61 to Gibraltar's Quarterly Report
on Form 10-Q for the period ended March 31, 2002 (File No.
00-19800)).
10.18 Special Advance Note, dated as of December 20, 2001, in
favor of LaSalle Business Credit, Inc., executed by
Gibraltar Packaging Group, Inc., RidgePak Corporation,
Standard Packaging and Printing Corp. and Niemand
Industries, Inc. in the principal amount of $4,000,000
(incorporated by reference to Exhibit 10.62 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended March 31,
2002 (File No. 00-19800)).
10.19 First Amendment to Loan and Security Agreement, dated
January 1, 2003, between LaSalle Business Credit, Inc. and
Gibraltar Packaging Group, Inc., RidgePak Corporation,
Standard Packaging and Printing Corp. and Niemand
Industries, Inc (incorporated by reference to Exhibit 10.63
to Gibraltar's Quarterly Report on Form 10-Q for the period
ended December 31, 2002 (File No. 00-19800)).
**10.20 Gibraltar Packaging Group, Inc. Non-Qualified Deferred
Incentive Compensation Plan, dated January 22, 2003
(incorporated by reference to Exhibit 10.64 to Gibraltar's
Quarterly Report on Form 10-Q for the period ended December
31, 2002 (File No. 00-19800)).
23
21.1 Subsidiaries of Gibraltar Packaging Group, Inc.
(incorporated by reference to Exhibit 21.1 to Gibraltar's
Annual Report on Form 10-K for the period ended June 29,
2002 (File No. 00-19800)).
*23.1 Consent of Deloitte & Touche LLP.
*31 Certification Pursuant to 17 CFR Section 240.13a-14
*32 Certification Pursuant to 18. U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
*Filed herewith.
**Indicates management contract or compensatory plan.
(b) Reports on Form 8-K.
Form 8-K, dated May 14, 2003, the Company's press release
for quarterly earnings and the financial information release
relating to certain financial information for the quarter
ended March 31, 2003.
24
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/ Brett E. Moller
--------------------------
Brett E. Moller
Vice President Finance
(Principal Financial and
Accounting Officer)
Date: September 23, 2003
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/ Richard D. Hinrichs
-------------------------------- ------------------------------------
Walter E. Rose Richard D. Hinrichs
Chief Executive Officer and Chief Operating Officer and Director
Chairman of the Board September 23, 2003
(Principal Executive Officer)
September 23, 2003
/s/ Robert G. Shaw /s/ John D. Strautnieks
-------------------------------- ------------------------------------
Robert G. Shaw John D. Strautnieks
Director Director
September 23, 2003 September 23, 2003
/s/ John W. Lloyd
--------------------------------
John W. Lloyd
Director
September 23, 2003
25
INDEPENDENT AUDITORS' REPORT
Board of Directors
Gibraltar Packaging Group, Inc.
Hastings, Nebraska
We have audited the accompanying consolidated balance sheets of Gibraltar
Packaging Group, Inc. and its subsidiaries as of June 28, 2003 and June 29,
2002, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 28,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those 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 present fairly, in all
material respects, the financial position of Gibraltar Packaging Group, Inc. and
subsidiaries at June 28, 2003 and June 29, 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
June 28, 2003 in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 15, 2003
F-1
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 28, JUNE 29,
2003 2002
-------- --------
ASSETS
CURRENT ASSETS:
Cash $ 453 $ 45
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $492
AND $521, RESPECTIVELY) 4,988 5,432
Inventories 7,144 7,317
Deferred income taxes 730 703
Prepaid and other current assets 795 423
-------- --------
Total current assets 14,110 13,920
PROPERTY, PLANT AND EQUIPMENT - Net 15,294 15,687
GOODWILL 4,112 4,112
OTHER ASSETS (NET OF ACCUMULATED AMORTIZATION OF $213 AND
$83, RESPECTIVELY) 744 825
-------- --------
TOTAL $ 34,260 $ 34,544
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks not yet presented $ 931 $ 718
Current portion of long-term debt 2,119 3,349
Accounts payable 2,688 4,036
Accrued expenses 2,983 3,254
-------- --------
Total current liabilities 8,721 11,357
LONG-TERM DEBT - Net of current portion 13,339 14,917
DEFERRED INCOME TAXES 1,994 932
OTHER LONG-TERM LIABILITIES 770 430
-------- --------
Total liabilities 24,824 27,636
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued -- --
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,041,544 issued and outstanding 50 50
Additional paid-in capital 28,162 28,162
Accumulated other comprehensive loss (Note 7) (217) --
Accumulated deficit (18,559) (21,304)
-------- --------
Total stockholders' equity 9,436 6,908
-------- --------
TOTAL $ 34,260 $ 34,544
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 28, 2003, JUNE 29, 2002, AND JUNE 30, 2001
(IN THOUSANDS EXCEPT SHARE DATA)
2003 2002 2001
NET SALES $ 67,378 $ 63,803 $ 64,084
COST OF GOODS SOLD 54,229 51,396 50,908
----------- ----------- -----------
GROSS PROFIT 13,149 12,407 13,176
----------- ----------- -----------
OPERATING EXPENSES:
Selling, general, and administrative 7,773 7,729 7,826
Amortization of goodwill -- 135 135
----------- ----------- -----------
Total operating expenses 7,773 7,864 7,961
----------- ----------- -----------
INCOME FROM OPERATIONS 5,376 4,543 5,215
----------- ----------- -----------
OTHER EXPENSE:
Interest expense 970 1,597 2,499
Other expense - net 60 62 --
----------- ----------- -----------
Total other expense 1,030 1,659 2,499
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,346 2,884 2,716
INCOME TAX PROVISION (BENEFIT) 1,601 1,131 (923)
----------- ----------- -----------
NET INCOME $ 2,745 $ 1,753 $ 3,639
=========== =========== ===========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Net Income $ 0.54 $ 0.35 $ 0.72
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(basic and diluted) 5,041,544 5,041,544 5,041,544
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 28, 2003, JUNE 29, 2002, AND JUNE 30, 2001
(IN THOUSANDS EXCEPT SHARE DATA)
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER
NUMBER OF PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL INCOME
--------- --------- ---------- ------------- ----------- --------- -------------
Balance at
July 1, 2000 5,041,544 $ 50 $ 28,162 $ -- $ (26,696) $ 1,516
Net income -- -- -- -- 3,639 3,639 $ 3,639
--------- --------- --------- --------- --------- --------- ---------
Balance at
June 30, 2001 5,041,544 50 28,162 -- (23,057) 5,155 3,639
=========
Net income -- -- -- -- 1,753 1,753 1,753
--------- --------- --------- --------- --------- --------- ---------
Balance at
June 29, 2002 5,041,544 50 28,162 -- (21,304) 6,908 1,753
=========
Net income -- -- -- -- 2,745 2,745 2,745
Minimum pension
liability, net of
taxes of $133 -- -- -- (217) -- (217) (217)
--------- --------- --------- --------- --------- --------- ---------
Balance at
June 28, 2003 5,041,544 $ 50 $ 28,162 $ (217) $ (18,559) $ 9,436 $ 2,528
========= ========= ========= ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 28, 2003, JUNE 29, 2002, AND JUNE 30, 2001
(IN THOUSANDS)
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,745 $ 1,753 $ 3,639
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 2,079 2,240 2,212
Provision for losses on accounts receivable 194 216 342
(Gain)/loss on sale of property, plant and equipment 75 2 (55)
Write-off of refinancing costs -- 260 --
Deferred income taxes 1,168 1,059 (1,142)
Changes in operating assets and liabilities:
Accounts receivable - net 250 637 (185)
Inventories 173 (624) 117
Prepaid expenses and other assets (420) 263 (519)
Accounts payable (1,135) (1,286) 35
Accrued expenses and other liabilities (281) (148) (158)
-------- -------- --------
Net Cash Flows from Operating Activities 4,848 4,372 4,286
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 48 13 403
Purchases of property, plant and equipment (1,573) (842) (803)
-------- -------- --------
Net Cash Flows from Investing Activities (1,525) (829) (400)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving credit facility 374 (2,993) (798)
Principal repayments of long-term debt (3,229) (15,845) (3,081)
Net repayments under capital leases (60) (30) (23)
Proceeds from refinancing -- 15,553 --
Refinancing costs -- (327) --
-------- -------- --------
Net Cash Flows from Financing Activities (2,915) (3,642) (3,902)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 408 (99) (16)
CASH AT BEGINNING OF YEAR 45 144 160
-------- -------- --------
CASH AT END OF YEAR $ 453 $ 45 $ 144
======== ======== ========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ 187 $ 113 $ 191
======== ======== ========
Interest paid $ 866 $ 1,186 $ 2,365
======== ======== ========
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations $ 107 $ 234 $ --
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 28, 2003, JUNE 29, 2002, AND JUNE 30, 2001
1. NATURE OF OPERATIONS AND 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 (dba "Flashfold Carton") and
Standard Packaging & Printing Corporation ("Standard Packaging"). 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, and
North Carolina, and markets these products primarily to customers throughout the
United States. The Company's products include folding cartons, specialty
laminated containers, and flexible packaging for a wide range of businesses.
Based on the nature of the product, the production processes, types of
customers, and methods used to distribute products, the Company operates in one
reportable segment.
FISCAL YEAR - The Company ends its fiscal year on the Saturday closest to June
30.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid financial
instruments purchased with a maturity of three months or less to be cash
equivalents. The Company utilizes a cash management system that includes zero
balance accounts. Negative cash balances for such accounts, resulting from
outstanding checks, are reclassified to checks not yet presented in the
consolidated financial statements.
ACCOUNTS RECEIVABLE - The changes in the allowance for doubtful accounts
receivable consist of the following (in thousands):
YEARS ENDED
--------------------------------
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Allowance, Beginning of Year $ 521 $ 508 $ 185
Provision for Uncollectible Accounts 194 216 342
Write-off of Uncollectible Accounts (223) (203) (19)
------ ------ -----
Allowance, End of Year $ 492 $ 521 $ 508
====== ====== =====
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is provided using the straight-line
method over the following estimated useful lives:
Buildings and improvements 3-40 years
Machinery and equipment 2-20 years
Vehicles 2-8 years
Furniture and fixtures 2-10 years
F-6
GOODWILL - Goodwill is not amortized, but rather tested at least annually for
impairment. The test for impairment of goodwill is a two-step process that
identifies potential impairment and then measures the amount of such impairment
to be recorded in the financial statements. There were no impairment losses
recognized during fiscal 2003.
IMPAIRMENT OF LONG-LIVED ASSETS - Recoverability of long-lived assets not held
for sale are evaluated by measuring the carrying amount of the assets against
the estimated undiscounted future cash flows associated with them. The
evaluation of the recoverability of long-lived assets that are held for sale are
based on comparing the assets' carrying amount with its fair value less cost to
sell. Based on these evaluations, there were no adjustments to the carrying
value of long-lived assets in fiscal years 2003, 2002 and 2001.
OTHER ASSETS - Costs associated with obtaining financing arrangements are
included in other assets. In December 2001, the Company capitalized
approximately $0.4 million, representing the cost of refinancing its debt under
a new credit facility, as described in Note 5. This amount is being amortized
over thirty-six months. As part of the refinancing, the Company recorded a
charge of $260,000 or $0.06 per share ($156,000 after tax loss or $0.03 per
share) in fiscal 2002 reflecting the write-off of unamortized finance costs
relating to the previous credit facility.
REVENUE RECOGNITION - Revenue is recognized when title to finished product
passes to the customer.
SHIPPING AND HANDLING COSTS - Shipping and handling costs are included in cost
of goods sold in the consolidated statements of operations.
STOCK BASED COMPENSATION - The Company accounts for its employees' stock-based
compensation plans under the recognition and measurement principles of APB
Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. The expense reported in net income under APB Opinion No. 25 is
the same as under FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. In accordance with APB Opinion No. 25, there is no stock-based
employee compensation cost associated with any plan, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of the grant. Additionally, all outstanding
options became fully vested prior to the periods presented. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123 to
stock-based employee compensation.
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Reported net income per APB 25 $ 2,745 $ 1,753 $ 3,639
Add back: Stock-based employee
compensation expense included in
reported net income, net of tax 34 -- --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (34) -- --
----- ------- -------
Pro forma net income per FASB 123 $ 2,745 $ 1,753 $ 3,639
======= ======= =======
Net income per basic and diluted common
share
As reported $ 0.54 $ 0.35 $ 0.72
Pro forma $ 0.54 $ 0.35 $ 0.72
F-7
At June 28, 2003, the stock option exercise prices for all options outstanding
under the 1992 Plan and Directors Plan exceeded the market value of the
Company's common stock and therefore the options are considered anti-dilutive
and are excluded from the Company's earnings per share calculation.
EARNINGS PER SHARE - Basic earnings per share data are based on the weighted
average outstanding common shares during the period. Diluted earnings per share
data are based on the weighted average outstanding common shares and the effect
of all dilutive potential common shares, including stock options.
NEW ACCOUNTING PRONOUNCEMENTS - In January 2003, the FASB issued Interpretation
No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES (FIN 46). FIN 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. FIN 46 also requires disclosures about variable interest entities that a
company is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year or interim
period beginning after June 15, 2003. The adoption of this interpretation did
not have a material impact on the Company's financial position or results of
operations, as the Company has no variable interest entities.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150
establishes standards for classification and measurement in the balance sheets
for certain financial instruments which possess characteristics of both a
liability and equity. Generally, it requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003. The Company's adoption of this standard did not have a
material impact on the Company's financial position or results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
RECLASSIFICATION - Certain amounts in the fiscal 2002 financial statements have
been reclassified to conform with the fiscal 2003 presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
JUNE 28, JUNE 29,
2003 2002
Finished goods $ 5,078 $ 4,665
Work in process 877 935
Raw materials 880 1,414
Manufacturing supplies 309 303
------- -------
$ 7,144 $ 7,317
======= =======
F-8
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consisted of the following (in
thousands):
JUNE 28, JUNE 29,
2003 2002
Land $ 632 $ 632
Buildings and improvements 12,021 12,016
Machinery, equipment
and vehicles 22,627 21,439
Furniture and fixtures 1,596 1,598
Construction-in-progress 91 9
-------- --------
36,967 35,694
Less accumulated depreciation 21,673 20,007
-------- --------
$ 15,294 $ 15,687
======== ========
4. GOODWILL
On June 30, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, which establishes the accounting for acquired goodwill and
other intangible assets, and provides that goodwill and indefinite-lived
intangible assets will not be amortized, but will be tested for impairment on an
annual basis. The Company's related amortization consists solely of goodwill
amortization, which has no income tax effect. Following is a reconciliation of
the historical impact of the change in accounting principle for net income and
net income per share for fiscal years 2003, 2002, and 2001 (IN THOUSANDS):
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Reported Net Income $ 2,745 $ 1,753 $ 3,639
Goodwill amortization - 135 135
------- ------- -------
Adjusted net income $ 2,745 $ 1,888 $ 3,774
======= ======= =======
Reported basic and diluted income per share $ 0.54 $ 0.35 $ 0.72
Goodwill amortization - 0.03 0.03
------- ------- -------
Adjusted basic and diluted income per share $ 0.54 $ 0.38 $ 0.75
======= ======= =======
Goodwill is allocated to the Company's reporting units for purposes of testing
goodwill for impairment. The goodwill recorded at June 28, 2003 is assigned to
the reporting unit Standard Packaging. No impairment losses were recognized
during fiscal 2003.
5. FINANCING AGREEMENTS
Long-term debt consisted of (columnar amounts in thousands):
JUNE 28, JUNE 29,
2003 2002
Term Loan $ 11,213 $ 11,553
Special Advance Loan -- 2,889
Revolving credit facility 3,956 3,582
Capital lease obligations (Note 9) 289 242
-------- --------
Total 15,458 18,266
Less current portion 2,119 3,349
--------- --------
Long-term debt $ 13,339 $ 14,917
========= ========
F-9
On December 20, 2001, the Company entered into a three-year renewable credit
facility with LaSalle. This facility provides for an $11.6 million Term Loan, a
$4.0 million Special Advance Loan, and a $12.0 million working capital revolving
line-of-credit ("Revolver"). The Term Loan and Special Advance Loan combined are
to be repaid over seven years, but are callable after three years. The Special
Advance Loan was repaid in April 2003. Until the Special Advance Loan was
repaid, only monthly interest payments were applied against the Term Loan. After
repayment of the Special Advance Loan, monthly principal payments of $169,897
plus interest are applied against the Term Loan. The credit facility is secured
by a first priority perfected security interest in and lien on all assets (real
and personal, tangible and intangible) of the Company, excluding its Burlington,
North Carolina property.
The Revolver provides for a revolving line of credit under a borrowing base
commitment subject to certain loan availability requirements. Loan availability
under the Revolver may not exceed the lesser of: (1) $12.0 million; or (2) the
sum of (a) 85% of the Company's eligible accounts receivable plus (b) a
percentage of the Company's eligible inventory which ranges from 35% to 70%. At
no time may the sum of aggregated loan advances outstanding under the Revolver
plus the aggregate amount of extended letter of credit guarantees exceed loan
availability. The Company had available to it unused borrowing capacity of $4.1
million as of June 28, 2003.
The Revolver bears interest at LaSalle's prime rate plus 0.50% or the London
Interbank Offered Rate ("LIBOR") plus 2.75%. The Term Loan bears interest at
LaSalle's prime rate plus 0.75% or LIBOR plus 3.00%. The Special Advance Loan
was subject to interest at LaSalle's prime rate plus 1.00% or LIBOR plus 3.25%.
The Company also pays a commitment fee of 0.50% on the unused portion of the
Revolver. The interest rates at June 28, 2003 were a combination of prime and
LIBOR. LaSalle's prime and LIBOR rates for the Revolver were 4.00% and 1.10%,
respectively, at June 28, 2003. LaSalle's prime and LIBOR rates for the Term
Loan were 4.00% and 1.16%, respectively, at June 28, 2003.
As of June 28, 2003, all outstanding letters of credit were guaranteed by
LaSalle. The Company pays an annual letter of credit fee of 2.00% on the
outstanding balance to guarantee availability under the Revolver. Outstanding
letters of credit at June 28, 2003 amounted to $147,500 and related to workman's
compensation insurance policies.
The LaSalle credit facility contains certain restrictive covenants including
financial covenants related to net worth, debt service coverage, interest
coverage and capital expenditures. As of June 28, 2003, the Company was in
compliance with all financial covenants. In addition, the Company's credit
facility restricts the ability of the Company to pay dividends.
Anticipated maturities of long-term debt subsequent to June 28, 2003, pursuant
to the credit facility and future minimum payments under finance leases, are as
follows (in thousands):
AMOUNTS
2004 $ 2,119
2005 13,213
2006 83
2007 43
-------
Total $ 15,458
========
F-10
6. INCOME TAXES
The provision (benefit) for income taxes, after extraordinary item, consists of
the following (in thousands):
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Current:
Federal $ 276 $ -- $ 62
State 157 72 157
Deferred 1,168 1,059 (1,142)
------- ------- --------
$ 1,601 $ 1,131 $ (923)
======= ======= ========
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 before income taxes:
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Statutory rate $ 1,478 $ 981 $ 923
State income tax effect 121 81 95
Change in valuation allowance (41) (7) (1,969)
Amortization of goodwill -- 46 46
Other - net 43 30 (18)
------- ------- --------
Total $ 1,601 $ 1,131 $ (923)
------- ------- --------
Deferred income tax assets and liabilities result from reporting income and
expenses in different periods for tax and financial reporting purposes. The
deferred tax assets and liabilities are comprised of the following (in
thousands):
JUNE 28, JUNE 29,
2003 2002
Deferred income tax assets:
Difference in basis of amortizable assets $ 195 $ 195
Non-deductible accrued liabilities 761 996
State net operating loss carryforwards 1,393 1,427
State tax credits carryforward 136 369
Federal net operating loss carryforward -- 925
AMT credit carryforward -- 411
Differences in the basis of inventory
for tax purposes 174 153
Additional minimum pension liability 133 -
Other - net -- 11
-------- ------
Total 2,792 4,487
Deferred tax asset valuation allowance (1,535) (1,804)
-------- -------
Net 1,257 2,683
-------- -------
Deferred tax liabilities:
Difference in basis of property,
plant and equipment (2,355) (2,725)
Other (166) (187)
-------- -------
Total (2,521) (2,912)
-------- -------
Net deferred income tax liability $ (1,264) $ (229)
======== =======
At June 28, 2003, the Company had a state investment tax credit carryforward of
approximately $0.1 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.
F-11
7. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan (the
"benefit plan") covering substantially all of the RidgePak Corporation hourly
union 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 change in benefit obligation and plan assets and the reconciliation of
funded status for the years presented included the following components (in
thousands):
JUNE 28, JUNE 29,
2003 2002
Change in benefit obligations:
Benefit obligation at beginning of year $ 573 $ 598
Service cost 48 48
Interest cost 36 40
Actuarial loss 115 6
Benefits paid (31) (119)
-------- -------
Benefit obligation at end of year 741 573
-------- ------
Change in plan assets:
Fair value of plan assets at beginning of year 577 666
Actual loss on plan assets (23) (10)
Employer contribution 40 40
Benefits paid (31) (119)
-------- ------
Fair value of plan assets at end of year 563 577
-------- ------
Reconciliation of funded status:
Funded (unfunded) status (178) 4
Unrecognized loss 350 179
Contributions made after the measurement date -- 40
-------- ------
Prepaid pension cost recognized on balance sheet $ 172 $ 223
======== ======
Amounts recognized in Consolidated Balance Sheets:
Prepaid benefit cost $ 172 $ 223
Accrued benefit liability (350) --
Accumulated other comprehensive loss 350 --
-------- ------
Net amount recognized $ 172 $ 223
======== ======
Discount rate used to calculate the above liability 6.25% 7.25%
The components of net periodic benefit costs are as follows (dollars in
thousands):
JUNE 28, JUNE 29, JUNE 30,
2003 2002 2001
Service cost-benefits earned during the period $ 48 $ 48 $ 43
Interest cost on projected benefit obligation 37 40 43
Expected return on plan assets (44) (52) (58)
Amortization of loss 11 4 -
----- ----- -----
Net periodic pension cost $ 52 $ 40 $ 28
===== ===== =====
F-12
The weighted-average actuarial assumptions for the years presented were as
follows:
Discount rate used to calculate expense 7.25% 7.25% 8.00%
Expected long-term rate of return on plan assets 8.00% 8.00% 8.00%
As a result of lower asset returns and a lower discount rate, the Company was
required to recognize an additional minimum pension liability in fiscal 2003.
The liability was recorded as a $350,000 ($217,000 net of tax) reduction to
common shareholders' equity as part of accumulated other comprehensive loss.
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. An employee may contribute any
amount 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. Participants fully vest in Company contributions after
five years with partial vesting after one year.
The Company's contributions to the Gibraltar Plan for the years ended June 28,
2003, June 29, 2002, and June 30, 2001 were approximately $83,000, $88,000 and
$83,000 respectively.
The Company established a non-qualified deferred compensation plan during fiscal
2003, whereby participants will share in 5% of the net growth of the Fair Market
Value of the Company, as defined by the Plan, over the base year. Compensation
expense related to this plan of $149,000 was recorded in fiscal 2003.
8. STOCK BASED COMPENSATION
The 1992 Incentive Stock Option Plan (the "1992 Plan") provides for grants to
key employees of the Company of options to purchase in the aggregate up to
300,000 shares of the Company's common stock with exercise prices equal to or
greater than the market price at the date of grant. Options granted under the
1992 Plan are exercisable no earlier than six months and no later than ten years
from the grant date.
The Director Stock Option Plan (the "Directors Plan") provides for each
independent director to receive a grant of an option to purchase 3,000 shares of
the Company's common stock at an exercise price equal to the market price 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.
The 1998 Stock Appreciation Rights Plan (the "Stock Appreciation Rights Plan")
provides for the discretionary granting of stock appreciation rights ("SAR") to
key employees of the Company, and is administered by the Compensation Committee
of the Company's Board of Directors. SARs held by grantees under the Stock
Appreciation Rights Plan entitle the holder to cash payments only. Effective
January 15, 1999, 150,000 SARs valued at $2.25 each and 150,000 SARs valued at
$3.00 each were granted to certain officers of the Company. The SARs vested at
20% per year through the maturity date of June 30, 2003. Compensation expense
related to the Stock Appreciation Rights Plan of $57,000 was recorded in fiscal
2003, and will be paid out in three equal installments beginning in fiscal 2004.
A summary of stock option transactions under the Company's employee option plans
and the Director's stock plan for each of the three years in the period ended
June 28, 2003 is as follows:
F-13
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
Outstanding at July 1, 2000 51,334 $ 7.55
Granted -- --
Exercised -- --
Canceled or Lapsed -- --
-------- ------
Outstanding at June 30, 2001 51,334 7.55
Granted -- --
Exercised -- --
Canceled or Lapsed -- --
-------- ------
Outstanding at June 29, 2002 51,334 $ 7.55
Granted -- --
Exercised -- --
Canceled or Lapsed (22,334) 6.02
-------- ------
Outstanding at June 28, 2003 29,000 $ 8.73
======== ======
Shares exercisable at June 30, 2001 51,334 $ 7.55
Shares exercisable at June 29, 2002 51,334 $ 7.55
Shares exercisable at June 28, 2003 29,000 $ 8.73
The following table summarizes information about stock options outstanding at
June 28, 2003:
Weighted
Range of Avg. Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercisable
-------- ----------- -------------- -------------- ----------- -----------
$8.00 - $9.00 29,000 0.7 years $ 8.73 29,000 $ 8.73
9. LEASES
The Company leases certain manufacturing equipment under non-cancelable capital
leases. As a result, the present value of the remaining future minimum lease
payments is recorded as a capitalized lease asset and related capitalized lease
obligation. Assets under these capital leases are included as part of Property,
Plant and Equipment in the Consolidated Balance Sheets and are identified as
follows (dollars in thousands):
JUNE 30, JUNE 29,
2003 2002
Machinery, equipment
and vehicles $ 338 $ 270
Furniture and fixtures 40 37
----- -----
378 307
Less accumulated amortization 65 47
----- -----
$ 313 $ 260
===== =====
The Company leases office and manufacturing space, manufacturing equipment,
computer equipment, vehicles and warehouse space under non-cancelable operating
leases. Rent expense for the fiscal years ended June 28, 2003, June 29, 2002,
and June 30, 2001 under operating lease agreements was approximately $1.4
million, $1.5 million, and $1.4 million, respectively.
F-14
As of June 28, 2003, approximate minimum future lease commitments under capital
and operating leases were as follows (in thousands):
CAPITAL OPERATING
2004 $ 98 $ 1,327
2005 95 891
2006 89 673
2007 43 595
2008 -- 501
Thereafter -- 310
----- -------
Total minimum lease payments 325 $ 4,297
=======
Amount representing interest 36
-----
Present value of minimum lease payments 289
Less current portion 80
-----
Long-term lease obligation $ 209
=====
OPERATING LEASES (AS LESSOR) - The Company leases its Niemand facility to the
company that acquired the operating assets of Niemand's container packaging and
filling business. The non-cancelable lease term is for five years and contains a
five-year renewal option. The lessee also has the option to purchase the
facility during this period for $1.1 million. The carrying value of the facility
at June 28, 2003 is $1.5 million. As of June 28, 2003, approximate future
minimum lease payments were as follows (in thousands):
AMOUNTS
2004 $ 160
2005 93
-----
Total $ 253
=====
10. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS - From time to time, the Company is a party to certain
lawsuits and administrative proceedings that arise in the conduct of its
business. While the outcome of these lawsuits and proceedings cannot be
predicted with certainty, management believes that, if adversely determined, the
lawsuits and proceedings, either singularly or in the aggregate, would not have
a material adverse effect on the financial condition, results of operations, or
net cash flows of the Company.
ENVIRONMENTAL MATTERS - In May 1995, the Company discovered groundwater
contamination at its Burlington, North Carolina facility. Based on work
performed by its environmental consultants, the Company established a reserve of
$750,000 for such remediation costs in fiscal 1995. The Company's accrual for
such remediation costs included in other long-term liabilities on the
Consolidated Balance Sheet approximates $420,000 and $430,000 as of June 28,
2003 and June 29, 2002, respectively. Cumulative incurred expenses as of June
28, 2003 related to remediation totaled $330,000. In June 1998, the Company
completed a follow-up assessment of the facility, which was then filed with the
Division of Water Quality ("DWQ"). The Company is awaiting a reply from the DWQ.
Management believes that the ultimate resolution of this and other environmental
matters will not materially affect the financial position or results of future
operations and cash flows of the Company.
OTHER - At June 28, 2003, the Company was obligated to purchase equipment
totaling $2,159,000. The Company anticipates that this purchase commitment will
be financed through an operating lease.
F-15
11. RELATED PARTY TRANSACTIONS
The Company's CEO holds an equity interest in Rostra Technologies, Inc.
("Rostra"). During fiscal 2002, the Company paid $100,000 to Rostra in
management fees for services provided by the Company's CEO in fiscal years 2000
and 2001. The Company incurred an additional $50,000 of expenses to Rostra in
fiscal 2002 for services provided by the Company's CEO, which were paid in
fiscal 2003. The Company incurred no expenses to Rostra in fiscal 2003.
12. MAJOR CUSTOMERS
Sales to the Company's top three customers accounted for approximately 34%, 39%,
and 36% of net sales for fiscal years 2003, 2002, and 2001, respectively. Sales
to one customer represented approximately 15%, 17%, and 17% of net sales for
fiscal years 2003, 2002, and 2001, respectively. Sales to another customer
represented approximately 11% of net sales for fiscal year 2001.
13. 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 based on
quoted market prices for the same or similar instruments.
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, 2003, the fair value of the letters of credit
was $147,500.
F-16
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 28, 2003 and June 29, 2002 (in thousands, except per share data):
QUARTER ENDED
-------------------------------------------------------------
2003 SEPTEMBER 30(1) DECEMBER 31(1) MARCH 31(1) JUNE 28(1) YEAR
Net Sales $ 17,288 $ 17,416 $ 16,694 $ 15,980 $ 67,378
Gross Profit 3,425 3,470 3,213 3,041 13,149
Net Income 691 754 591 709 2,745
Per Common Share Amounts:
(basic and diluted)
Net Income $ 0.14 $ 0.15 $ 0.12 $ 0.14 $ 0.54
QUARTER ENDED
-------------------------------------------------------------
2002 SEPTEMBER 30 DECEMBER 31(2) MARCH 31 JUNE 29 YEAR
Net Sales $ 15,356 $ 15,325 $ 16,139 $ 16,983 $ 63,803
Gross Profit 2,999 2,963 3,095 3,350 12,407
Net Income 359 241 479 674 1,753
Per Common Share Amounts:
(basic and diluted)
Net Income $ 0.07 $ 0.05 $ 0.10 $ 0.13 $ 0.35
(1) With the adoption of SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, the Company discontinued amortizing
goodwill in the first quarter of fiscal 2003 and is now
testing for impairment on a periodic basis.
(2) In the second quarter of fiscal 2002, the Company refinanced
its credit facility with LaSalle. As part of the
refinancing, the Company recorded a charge of $260,000 or
$0.06 per share ($156,000 after tax loss or $0.03 per share)
reflecting the write-off of unamortized finance costs
relating to the previous credit facility.
F-17