10-Q 1 gibraltar025370-10q.txt GIBRALTAR PACKAGING GROUP, INC. FORM 10-Q 9-30-02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2002 ------------------ Commission File Number: 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 WWW.GIBRALTARPACKAGINGGROUP.COM (Registrant's telephone (Registrant's website) number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No As of September 30, 2002, there were 5,041,544 shares of the Company's common stock, par value $0.01 per share, issued and outstanding. GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES INDEX Page Number ----------- PART I. FINANCIAL INFORMATION ------- --------------------- Item 1. Financial Statements Consolidated Balance Sheets 1 As of September 30, 2002 (Unaudited) and June 29, 2002 Consolidated Statements of Operations (Unaudited) for the 2 Three Months Ended September 30, 2002 and 2001 Consolidated Statements of Cash Flows (Unaudited) for the 3 Three Months Ended September 30, 2002 and 2001 Notes to Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial 6 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4. Controls and Procedures 13 PART II. OTHER INFORMATION -------- ----------------- Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15 Certifications Pursuant to 17 CFR Section 240.13a-14 16 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) September 30, June 29, 2002 2002 -------- -------- ASSETS (Unaudited) CURRENT ASSETS: Cash $ 64 $ 45 Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $553 AND $521, RESPECTIVELY) 5,689 5,432 Inventories 7,474 7,317 Deferred income taxes 703 703 Prepaid and other current assets 474 423 -------- -------- Total current assets 14,404 13,920 PROPERTY, PLANT AND EQUIPMENT - NET 15,130 15,687 GOODWILL 4,112 4,112 OTHER ASSETS (NET OF ACCUMULATED AMORTIZATION OF $115 AND $83, RESPECTIVELY) 792 825 -------- -------- TOTAL $ 34,438 $ 34,544 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Checks not yet presented $ 998 $ 718 Current portion of long-term debt 3,346 3,349 Accounts payable 3,533 4,036 Accrued expenses 2,597 3,254 -------- -------- Total current liabilities 10,474 11,357 LONG-TERM DEBT - Net of current portion 14,614 14,917 DEFERRED INCOME TAXES 1,321 932 OTHER LONG-TERM LIABILITIES 430 430 -------- -------- Total liabilities 26,839 27,636 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued -- -- Common stock, $.01 par value; 10,000,000 shares authorized; 5,041,544 issued and outstanding 50 50 Additional paid-in capital 28,162 28,162 Accumulated deficit (20,613) (21,304) -------- -------- Total stockholders' equity 7,599 6,908 -------- -------- TOTAL $ 34,438 $ 34,544 ======== ======== See notes to unaudited consolidated financial statements. 1 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS EXCEPT SHARE DATA) Three Months Ended September 30, ----------------------- 2002 2001 ---------- ---------- NET SALES $ 17,288 $ 15,356 COST OF GOODS SOLD 13,863 12,357 ---------- ---------- GROSS PROFIT 3,425 2,999 ---------- ---------- OPERATING EXPENSES: Selling, general and administrative 1,983 1,896 Amortization of goodwill -- 34 ---------- ---------- Total operating expenses 1,983 1,930 ---------- ---------- INCOME FROM OPERATIONS 1,442 1,069 ---------- ---------- OTHER EXPENSE: Interest expense 272 432 Other expense - net 18 16 ---------- ---------- Total other expense 290 448 ---------- ---------- INCOME BEFORE INCOME TAXES 1,152 621 INCOME TAX PROVISION 461 262 ---------- ---------- NET INCOME $ 691 $ 359 ========== ========== BASIC AND DILUTED PER COMMON SHARE AMOUNTS: Net Income $ 0.14 $ 0.07 ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING (basic and diluted) 5,041,544 5,041,544 ========== ========== See notes to unaudited consolidated financial statements. 2 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (IN THOUSANDS) Three Months Ended September 30, ------------------ 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 691 $ 359 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 535 559 Provision for losses on accounts receivable 32 38 Loss on sale of property, plant and equipment 84 3 Deferred income taxes 389 216 Changes in operating assets and liabilities: Accounts receivable - net (289) 465 Inventories (157) (243) Prepaid expenses and other assets (51) 373 Accounts payable (223) 12 Accrued expenses and other liabilities (657) 138 ------- ------- Net Cash Flows from Operating Activities 354 1,920 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment 30 6 Purchases of property, plant and equipment (59) (250) ------- ------- Net Cash Flows from Investing Activities (29) (244) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (payments) under revolving credit facility 264 (1,037) Net principal repayments of long-term debt (555) (687) Net repayments under capital leases (15) (5) ------- ------- Net Cash Flows from Financing Activities (306) (1,729) ------- ------- NET INCREASE (DECREASE) IN CASH 19 (53) CASH AT BEGINNING OF PERIOD 45 144 ------- ------- CASH AT END OF PERIOD $ 64 $ 91 ======= ======= See notes to unaudited consolidated financial statements. 3 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES A. GENERAL The accompanying unaudited consolidated financial statements of Gibraltar Packaging Group, Inc. ("Gibraltar" or the "Company") have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by accounting principals generally accepted in the United States of America for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2002, and the results of its operations and cash flows for the periods presented herein. Results of operations for the three months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full fiscal year. The financial statements should be read in conjunction with the audited financial statements for the year ended June 29, 2002 and the notes thereto contained in the Company's Annual Report on Form 10-K. B. INVENTORIES Inventories consisted of the following (IN THOUSANDS): September 30, June 29, 2002 2002 ------------- -------------- Finished goods $ 5,241 $ 4,665 Work in process 917 935 Raw materials 1,027 1,414 Manufacturing supplies 289 303 ------------- -------------- $ 7,474 $ 7,317 ============= ============== 4 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On June 30, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Company's related amortization consists solely of goodwill amortization, which has no income tax effect. Following is a reconciliation of net income as originally reported for the three month periods ended September 30, 2002 and 2001, to adjusted net income (IN THOUSANDS): Three Months Ended September 30, 2002 2001 ------- -------- Reported net income $ 691 $ 359 Goodwill amortization - 34 ------- -------- Adjusted net income $ 691 $ 393 ======= ======== In accordance with SFAS No. 142, the Company has completed its transitional goodwill impairment test using a discounted cash flow valuation as of June 30, 2002. No impairment charges resulted from the transitional impairment test. During the first quarter of fiscal 2003, the Company adopted SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. This standard addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. The adoption of this standard did not have a material impact on the Company's financial position or results of operations. During the first quarter of fiscal 2003, the Company adopted SFAS No. 144, ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of this standard did not have a material impact on the Company's financial position or results of operations. During the first quarter of fiscal 2003, the Company adopted SFAS No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. This standard concludes that debt extinguishments used as part of a company's risk management strategy should not be classified as an extraordinary item. SFAS No. 145 also requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity is recognized at fair value when the liability is incurred and is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect its adoption of this standard in fiscal 2003 to have a significant impact on its financial statements. 5 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES D. LONG-TERM DEBT The credit facility provides for an excess cash flow payment to be applied against the Special Advance Loan after each fiscal year-end until it is repaid. The $1.1 million excess cash flow payment for fiscal 2002 was paid out of unused borrowing capacity in October 2002. At September 30, 2002, the Company had available to it unused borrowing capacity of $5.0 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires the Company to select and apply accounting policies that best provide the framework to report the Company's results of operations and financial position. The selection and application of those policies require management to make difficult subjective or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. The judgments and uncertainties inherent in this process affect the application of those policies. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Management has identified the following accounting policies that it deems critical to the portrayal of the Company's financial condition and results of operations and that involve significant subjectivity. Management believes that its selection and application of these policies best represent the operating results and financial position of the Company. The following discussion provides information on the processes utilized by management in making judgments and assumptions as they apply to its critical accounting policies. ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts is based on management's assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a customer's credit worthiness or actual defaults are higher than historical experience, estimates of the recoverability of amounts due the Company could be adversely affected. INCOME TAXES The Company records deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax basis of assets and liabilities. If enacted tax rates changed, the Company would adjust the deferred tax assets and liabilities, through the provision for income taxes in the period of change, to reflect the enacted tax rate expected to be in effect when the deferred tax items reverse. The Company records a valuation allowance on deferred tax assets to reflect the expected future tax benefits to be realized. In determining the appropriate valuation allowance, the Company takes into account the level of expected future taxable income and available tax planning strategies. If future taxable income is lower than expected or if expected tax planning strategies are not 6 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES available as anticipated, the Company may record additional valuation allowance through income tax expense in the period such determination was made. IMPAIRMENT OF LONG-LIVED ASSETS The Company's long-lived assets consist primarily of property, plant, and equipment. Management believes the useful lives assigned to these assets, which range from 2 to 40 years, are reasonable. Management evaluates the long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. If management's assumptions about these assets change as a result of events or circumstances, and management believes the assets may have declined in value, then the Company may record impairment charges, resulting in lower profits. GOODWILL AND INTANGIBLE ASSETS The Company is required to make certain assumptions and estimates regarding the fair value of intangible assets, namely goodwill, when assessing such assets for impairment. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of impairment losses on intangible assets. CONTINGENT LIABILITIES There are various claims and lawsuits pending against the Company. The Company has recorded a liability where the effect of litigation can be estimated and where an outcome is considered probable. Management's estimates are based on its knowledge of the relevant facts at the time of the issuance of the Company's Consolidated Financial Statements. Subsequent developments could materially alter management's assessment of a matter's probable outcome and the estimate of the Company's liability. 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. 7 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 ------------------------------------- In the first quarter of fiscal 2003, the Company had net sales of $17.3 million compared with $15.4 million in the corresponding period of fiscal 2002, an increase of $1.9 million or 12.6%. This increase is primarily attributable to gains from a group of existing and new customers. Gross profit for the first quarter of fiscal 2003 increased to 19.8% of net sales from 19.5% in the corresponding period of fiscal 2002. This increase can be attributed to the fact that the Company was able to leverage its existing cost structure while increasing sales volume. This benefit was partially offset by lower margins from some customers, due to a change in the customer mix. Income from operations for the first quarter of fiscal 2003 was $1.4 million compared with $1.1 million in the corresponding period of fiscal 2002, an increase of $0.4 million or 34.9%. This increase was primarily a result of the increase in sales, as well as continuing cost containment efforts. Selling, general, and administrative costs increased primarily as a result of a $0.1 million loss on disposal of fixed assets. Also, with the adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, the Company stopped amortizing goodwill in the first quarter of fiscal 2003. Total interest expense decreased $0.2 million or 37.0% to $0.3 million in the first quarter of fiscal 2003 from $0.4 million in the corresponding period of fiscal 2002. This decrease is due to $3.2 million in lower average borrowings and a reduction in the average interest rate to 5.4% from 7.6%. The income tax provision as a percentage of pre-tax income for the first quarter of fiscal 2003 was 40.0%, compared with an income tax provision of 42.2% for the corresponding period in fiscal 2002. Prior to the adoption of SFAS No. 142 in the first quarter of fiscal 2003, the effective tax rate typically differed from the statutory rate primarily as a result of non-deductible amortization of goodwill. Net income for the first quarter of fiscal 2003 was $0.7 million or $0.14 per share, compared to $0.4 million or $0.07 per share in the first quarter of fiscal 2002. FINANCIAL CONDITION On December 20, 2001, the Company entered into a three-year renewable credit facility with LaSalle Business Credit, Inc ("LaSalle"). This facility provides for an $11.6 million Term Loan, a $4.0 million Special Advance Loan, and a $12.0 million working capital revolving line-of-credit ("Revolver"). The Term Loan and Special Advance Loan combined are to be repaid over seven years, but are callable after three years. The Special Advance Loan, which is to be repaid first, requires monthly principal payments of $185,155 plus interest. Additionally, the credit facility provides for an excess cash flow payment to be applied against the Special Advance Loan after each fiscal year-end until it is repaid. The $1.1 million excess cash flow payment for fiscal 2002 was paid 8 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES out of unused borrowing capacity in October 2002. Until the Special Advance Loan is repaid, only monthly interest payments will be applied against the Term Loan. Upon repayment of the Special Advance Loan, monthly principal payments based on the remaining amortization period plus interest will be applied against the Term Loan. The credit facility is secured by a first priority perfected security interest in and lien on all assets (real and personal, tangible and intangible) of the Company, excluding its Burlington, North Carolina property. The initial proceeds of the new facility were used to repay the outstanding indebtedness under the Company's previous credit facility with First Source Financial LLP. 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 $5.0 million, as of September 30, 2002. The Revolver bears interest at LaSalle's prime rate plus 0.50% or the London Interbank Offered Rate ("LIBOR") plus 2.75%. The Term Loan bears interest at LaSalle's prime rate plus 0.75% or LIBOR plus 3.00%. The Special Advance Loan bears interest at LaSalle's prime rate plus 1.00% or LIBOR plus 3.25%. The Company also pays a commitment fee of 0.50% on the unused portion of the Revolver. The interest rates at September 30, 2002 were a combination of prime and LIBOR. LaSalle's prime and LIBOR rates for the Revolver and Special Advance Loan were 4.75% and 1.81%, respectively, at September 30, 2002. LaSalle's prime and LIBOR rates for the Term Loan were 4.75% and 2.20%, respectively, at September 30, 2002. As of September 30, 2002, 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 September 30, 2002 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 September 30, 2002, the Company was in compliance with all financial covenants. In addition, the Company's credit facility restricts the ability of the Company to pay dividends. At September 30, 2002, the Company had working capital of $3.9 million, as compared to $2.6 million at June 29, 2002. Historically, the Company's liquidity requirements have been met by a combination of funds provided by operations and its revolving credit agreements. Funds provided by operations during the three months ended September 30, 2002 were $0.4 million compared with funds provided of $1.9 million in the corresponding period of fiscal 2002. Although net income was higher in the first quarter of fiscal 2003, fluctuations in accounts receivable and accrued liabilities had a significant impact on working capital and cash flows from operating activities, as compared to the previous year. Operating cash flow was also affected by the settlement of the Anthem Health 9 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES Plans litigation. In addition, fluctuation in accounts receivable, due to timing, resulted in a significant increase to operating cash flows during the first quarter of fiscal 2002. During the three months ended September 30, 2002, capital expenditures totaled $59,000 compared with $250,000 in the corresponding period of fiscal 2002. The Company makes capital improvements to increase efficiency and product quality, and periodically upgrades its equipment by purchasing or leasing new or previously used equipment. The Company's current strategy is to continue to focus its efforts on its core business of folding cartons, as well as the supporting product lines of flexible, litho-laminated, and corrugated products. The Company intends to expand these product lines by utilizing the maximum capacity at each facility, while continually identifying, researching, and, when applicable, implementing new technologies and equipment that will enable the Company to continue to improve performance, productivity, and profitability. 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. 10 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES 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 September 30, 2002:

~~Page Number~~ ------------------------------------------------------------------------------------------------------------------ ~~PART~~PAYMENTS I.DUE ~~FINANCIAL~~BY ~~INFORMATION~~PERIOD ------ ----------------------------------------------------------- ~~Item~~CONTRACTUAL 1.CASH ~~Financial~~OBLIGATIONS ~~Statements~~AFTER ~~Consolidated~~5 ~~Balance~~(THOUSANDS ~~Sheets~~OF ~~1 As of December 31, 2001 (Unaudited~~DOLLARS) ~~and~~TOTAL ~~June~~1 ~~30,~~YEAR ~~2001~~2 ~~Consolidated~~YEARS ~~Statements~~3 ofYEARS ~~Operations~~4 ~~(Unaudited)~~YEARS ~~for~~5 ~~the~~YEARS ~~Three~~YEARS ~~and~~------------------------------------------------------------------------------------------------------------------ 2Term ~~Six~~Loan ~~Months~~$ ~~Ended December 31~~11,553 ~~2001~~$ ~~and~~959 ~~2000~~$ ~~Consolidated~~2,222 ~~Statements~~$ of8,372 ~~Cash~~$ ~~Flows~~- ~~(Unaudited)~~$ ~~for~~- ~~the~~$ 3- ~~Six~~Special ~~Months~~Advance ~~Ended~~Loan ~~December~~2,334 312,334 ~~2001~~- ~~and~~- ~~2000~~- ~~Notes~~- to- ~~Consolidated~~Revolving ~~Financial~~Line-of-Credit ~~Statements~~ (~~Unaudited~~a) 43,846 ~~Item~~- 2.- ~~Management's~~3,846 ~~Discussion~~- ~~and~~- ~~Analysis~~- ofCapital ~~Financial~~lease 7obligations ~~Condition~~227 ~~and~~53 ~~Results~~46 of48 ~~Operations~~52 ~~Item~~28 3.- ~~Quantitative~~Operating ~~and~~leases ~~Qualitative~~3,247 ~~Disclosures~~1,249 ~~About~~989 ~~Market~~579 ~~Risk~~185 13135 ~~PART~~110 ~~II. OTHER INFORMATION~~ ------- ----------------------------------------------------------------------------------------------------------- ~~Item~~Total 1.contractual ~~Legal~~cash ~~Proceedings~~obligations 14$ ~~Item~~21,207 $4.,595 ~~Submission~~$ of3,257 ~~Matters~~$12,845 to$ a237 ~~Vote~~$ of163 ~~Security~~$ ~~Holders~~110 ~~14 Item 6. Exhibits and Reports on Form 8~~-~~K 15 Signature 16~~-----------------------------------------------------------------------------------------------------------------

~~December~~------------------------------------------------------------------------------------------------------------------ ~~31,~~AMOUNT ~~June~~OF ~~30,~~COMMITMENT ~~2001~~EXPIRATION ~~2001~~PER PERIOD ------------ ----------------------------------------------------- ~~ASSETS~~OTHER ~~(Unaudited)~~COMMERCIAL ~~CURRENT~~COMMITMENTS ~~ASSETS:~~TOTAL ~~Cash~~AMOUNTS $AFTER ~~114~~5 ~~$ 144 Accounts receivable~~ (~~Net~~THOUSANDS ofOF ~~allowance for doubtful accounts of $410 and $508, respectively~~DOLLARS) ~~5,274~~COMMITTED ~~6,285~~1 ~~Inventories~~YEAR ~~6,867~~2 ~~6,693~~YEARS ~~Deferred~~3 ~~income~~YEARS ~~taxes~~4 ~~725~~YEARS ~~725~~5 ~~Prepaid~~YEARS ~~and~~YEARS ~~other current assets 406 766~~ ------------ ------------------------------------------------------------------------------------------------------ ~~Total~~Revolving ~~current~~Line-of-Credit ~~assets~~(b) ~~13,386~~$ 144,~~613~~962 ~~PROPERTY,~~$ ~~PLANT AND EQUIPMENT~~ - ~~NET 16,091 16,590 GOODWILL (Net of accumulated amortization of~~ $~~2,157~~ ~~and~~- $~~2,090,~~ ~~respectively)~~ 4,~~180~~962 ~~4,247~~$ ~~DEFERRED~~- ~~INCOME~~$ ~~TAXES~~ - ~~105~~$ ~~OTHER~~- ~~ASSETS~~Standby ~~(Net~~letters of ~~accumulated~~credit ~~amortization~~148 of148 ~~$18~~- ~~and~~- ~~$487,~~- ~~respectively)~~- ~~872~~- ~~819~~ ------------ ------------ ~~TOTAL $ 34,529 $ 36,374 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Checks not yet presented $ 402 $ 1,115 Current portion of long~~-~~term debt 2,241 2,769 Accounts payable 3,815 4,925 Accrued expenses 3,402 3,401~~ ------------ ------------ ~~Total current liabilities 9,860 12,210 LONG~~-~~TERM DEBT~~ - ~~Net of current portion 18,232 18,578 DEFERRED INCOME TAXES 252~~ - ~~OTHER LONG~~-~~TERM LIABILITIES 430 431~~ ------------ ------------ ~~Total liabilities 28,774 31,219~~ ------------ ------------------------- ~~STOCKHOLDERS'~~Total ~~EQUITY:~~commercial ~~Preferred~~commitment ~~stock,~~ $~~.01~~ ~~par value; 1~~5,~~000,000~~110 ~~shares~~$ ~~authorized;~~148 ~~none~~$ ~~issued~~ - -$ ~~Common stock~~4,962 $~~.01~~ ~~par~~- ~~value;~~$ ~~10,000,000~~- ~~shares~~$ ~~authorized; 5,041,544 issued and outstanding 50 50 Additional paid~~-in ~~capital 28,162 28,162 Accumulated deficit (22,457) (23,057)~~ ------------ ------------ ~~Total stockholders' equity 5,755 5,155~~ ------------ ------------ ~~TOTAL $ 34,529 $ 36,374 ============ ============~~------------------------------------------------------------------

(a) The revolving line-of-credit represents the actual outstanding balance, as of September 30, 2002. (b) The revolving line-of-credit represents the unused borrowing capacity available to the Company, as of September 30, 2002. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During the first quarter of fiscal 2003, the Company adopted SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. This standard addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. The adoption of this standard did not have a material impact on the Company's financial position or results of operations. During the first quarter of fiscal 2003, the Company adopted SFAS No. 144, ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of this standard did not have a material impact 11 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES on the Company's financial position or results of operations. During the first quarter of fiscal 2003, the Company adopted SFAS No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS. This standard concludes that debt extinguishments used as part of a company's risk management strategy should not be classified as an extraordinary item. SFAS No. 145 also requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity is recognized at fair value when the liability is incurred and is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect its adoption of this standard in fiscal 2003 to have a significant impact on its financial statements. FORWARD-LOOKING STATEMENTS Statements that are not historical facts, including statements about our confidence in the Company's prospects and strategies and our expectations about the Company's sales expansion, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, but are not limited to: (1) softened demand for the Company's products due to overall economic conditions; (2) the Company's ability to execute its business plan; (3) market acceptance risks, including whether or not the Company will be able to successfully gain market share against competitors, many of which have greater financial and other resources than the Company, and the continuing trend of customers to increase their buying power by consolidating the number of vendors they maintain; (4) manufacturing capacity constraints, including whether or not, as the Company increases its sales, it will be able to successfully integrate its new customers into its existing manufacturing and distribution system; (5) the introduction of competing products by other firms; (6) pressure on pricing from competition or purchasers of the Company's products; (7) whether the Company will be able to pass on to its customers price increases for paper and paperboard products; (8) continued stability in other raw material prices, including oil-based resin and plastic film; (9) the impact of government regulation on the Company's manufacturing processes, including whether or not additional capital expenditures will be needed to comply with applicable environmental laws and regulations as the Company's production increases; and (10) the Company's ability to continue to comply with the restrictive covenants in its credit facility or to obtain waivers if it is not in compliance in the future. Investors and potential investors are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's analysis only as of the date of this report. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this report. These risks and others that are detailed in this Form 10-Q and other documents that the Company files from time to time with the Securities and Exchange Commission, including its annual report on Form 10-K, quarterly reports on Form 10-Q, and any current reports on Form 8-K, must be considered by any investor or potential investor in the Company. 12 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk is fluctuation in interest rates. All of the Company's debt at September 30, 2002 was at variable interest rates. A hypothetical 10% change in interest rates would have had a $24,000 impact on interest expense and cash flows for the three months ended September 30, 2002. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer, Walter E. Rose, and Vice President Finance, Brett E. Moller, have reviewed the Company's disclosure controls and procedures within 90 days prior to the filing of this report. Based upon this review, these officers believe that the Company's disclosure controls and procedures are effective in ensuring that material information related to the Company is made known to them by others responsible for reporting such material information within the Company. There were no 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. 13 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is a party to certain lawsuits and administrative proceedings that arise in the conduct of its business. While the outcome of these lawsuits and proceedings cannot be predicted with certainty, management believes that, if adversely determined, the lawsuits and proceedings, either singularly or in the aggregate, would not have a material adverse effect on the financial condition, results of operations or net cash flows of the Company. On April 28, 1999, the Company filed a lawsuit captioned Gibraltar Packaging Group, Inc. v. Anthem Health Plans, d.b.a. Anthem Blue Cross and Blue Shield of Connecticut ("Anthem"), in the United States District Court for the District of Connecticut. The Company was seeking damages for Anthem's alleged breach of a contract for health insurance for employees of the Company. In October 2000, Anthem filed a counterclaim for unpaid premiums. Discovery revealed that a third party may be liable to indemnify the Company for all or part of the counterclaim, and the Company brought a third party claim against this party in the litigation. The lawsuit was settled in September 2002, and did not have a material adverse effect of 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 Gibraltar's stockholders in the quarter ended September 30, 2002. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: None (b) Reports on Form 8-K: None 14 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GIBRALTAR PACKAGING GROUP, INC. By: /s/ Brett E. Moller ----------------------------- Brett E. Moller Vice President Finance (Principal Financial and Accounting Officer) Date: November 12, 2002 15 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES CERTIFICATIONS CERTIFICATIONS PURSUANT TO 17 CFR SECTION 240.13a-14 ---------------------------------------------------- I, Walter E. Rose, Chairman of the Board and Chief Executive Officer of Gibraltar Packaging Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gibraltar Packaging Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 16 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Walter E. Rose -------------------------------------------- WALTER E. ROSE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (Principal Executive Officer) I, Brett E. Moller, Vice President Finance of Gibraltar Packaging Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gibraltar Packaging Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): 17 GIBRALTAR PACKAGING GROUP, INC. AND SUBSIDIARIES a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Brett E. Moller -------------------------------------------- BRETT E. MOLLER VICE PRESIDENT FINANCE (Principal Financial Officer) CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 ------------------------------------------------- Simultaneously with the filing of this quarterly report on Form 10-Q, the Company submitted to the Securities and Exchange Commission the certification of this report by its chief executive and chief financial officer required by 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002. 18

Three Months Ended Six Months Ended December 31, December 31, ------------------------- ------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- NET SALES $ 15,325 $ 16,416 $ 30,681 $ 32,812 COST OF GOODS SOLD 12,362 13,018 24,719 25,878 ----------- ----------- ----------- ----------- GROSS PROFIT 2,963 3,398 5,962 6,934 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Selling, general and administrative 1,886 1,959 3,782 3,973 Amortization of excess of purchase price over net assets acquired 33 33 67 68 ----------- ----------- ----------- ----------- Total operating expenses 1,919 1,992 3,849 4,041 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS 1,044 1,406 2,113 2,893 OTHER EXPENSE (INCOME): Interest expense 349 683 781 1,378 Other expense - net 12 31 28 45 ----------- ----------- ----------- ----------- Other expense - net 361 714 809 1,423 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 683 692 1,304 1,470 INCOME TAX PROVISION 286 177 548 393 ----------- ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 397 515 756 1,077 EXTRAORDINARY ITEM, NET OF TAX (Note D) (156) - (156) - ----------- ----------- ----------- ----------- NET INCOME $ 241 $ 515 $ 600 $ 1,077 =========== =========== =========== =========== BASIC AND DILUTED PER COMMON SHARE AMOUNTS: Income Before Extraordinary Item $ 0.08 $ 0.10 $ 0.15 $ 0.21 =========== =========== =========== =========== Extraordinary Item $ (0.03) $ - $ (0.03) $ - =========== =========== =========== =========== Net Income $ 0.05 $ 0.10 $ 0.12 $ 0.21 =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING: (basic and diluted) 5,041,544 5,041,544 5,041,544 5,041,544 =========== =========== =========== ===========

Six Months Ended December 31, ---------------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 600 $ 1,077 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 1,117 1,111 Provision for losses on accounts receivable 101 60 Loss on sale of property, plant and equipment 3 18 Extraordinary item 260 - Deferred income taxes 357 320 Changes in operating assets and liabilities: Accounts receivable 910 47 Inventories (174) (691) Prepaid expenses and other assets 281 (132) Accounts payable (1,823) 83 Accrued expenses and other liabilities - (302) -------- -------- Net Cash Flows from Operating Activities 1,632 1,591 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment 6 70 Purchases of property, plant and equipment (484) (417) -------- -------- Net Cash Flows from Investing Activities (478) (347) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments under revolving credit facility (1,684) 144 Principal repayments of long-term debt (14,734) (1,374) Repayments under capital leases (9) (13) Proceeds from refinancing 15,553 - Refinancing costs (310) - -------- -------- Net Cash Flows from Financing Activities (1,184) (1,243) -------- -------- NET INCREASE (DECREASE) IN CASH (30) 1 CASH AT BEGINNING OF PERIOD 144 160 -------- -------- CASH AT END OF PERIOD $ 114 $ 161 ======== ========

Excluding Impact of Change in Tax Valuation As Reported Allowance ------------------ ------------------ Income Before Income Taxes $ 692 $ 692 Provision for Income Taxes 177 290 ------------------ ------------------ Net Income $ 515 $ 402 ================== ================== Net Income Per Share $0.10 $0.08 ================== ==================

Excluding Impact of Change in Tax Valuation As Reported Allowance ------------------ ------------------ Income Before Income Taxes $1,470 $1,470 Provision for Income Taxes 393 615 ------------------ ------------------ Net Income $1,077 $ 855 ================== ================== Net Income Per Share $ 0.21 $ 0.17 ================== ==================

----------------------------------------------------------------------------------------------------- Payments Due by Period --------------------------------------------- Contractual Cash Obligations After 5 (Thousands of Dollars) Total 1 Year 2-3 Years 4-5 Years Years ----------------------------------------------------------------------------------------------------- Long-term debt $ 15,553 $ 2,222 $ 13,331 $ - $ - Revolving Line-of-Credit (a) 4,891 4,891 - - - Capital lease obligations 29 19 10 - - Operating leases 4,271 1,354 2,136 573 208 Unconditional purchase obligations 234 234 - - - ----------------------------------------------------------------------------------------------------- Total contractual cash obligations $ 24,978 $ 8,720 $ 15,477 $ 573 $ 208 -----------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------- Amount of Commitment Expiration Per Period ----------------------------------------- Other Commercial Commitments Total Amounts After 5 (Thousands of Dollars) Committed 1 Year 2-3 Years 4-5 Years Years ----------------------------------------------------------------------------------------------------- Revolving Line-of-Credit (b) $ 3,000 $ - $ 3,000 $ - $ - Standby letters of credit 148 148 - - - ----------------------------------------------------------------------------------------------------- Total commercial commitment $ 3,148 $ 148 $ 3,000 $ - $ - -----------------------------------------------------------------------------------------------------

Filing Compare · GIBRALTAR PACKAGING GROUP INC