FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirteen week period ended APRIL 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________to_______________
Commission File Number 0-8514
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LIQUI-BOX CORPORATION.
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(Exact name of registrant as specified in its charter)
OHIO 31-0628033
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6950 Worthington-Galena Road, Worthington, Ohio 43085
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 888-9280
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Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report.)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 5, 1999
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Common Stock, no par value 4,597,620 shares
Exhibit Index at Page 12
LIQUI-BOX CORPORATION
INDEX
Page No
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Part I - Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
April 3, 1999 and January 2, 1999 3-4
Condensed Consolidated Statements of Income and
Comprehensive Income
For the thirteen week periods ended
April 3, 1999 and April 4, 1998 5
Condensed Consolidated Statements of Cash Flows
For the thirteen week periods ended
April 3, 1999 and April 4, 1998 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosure About 11
Market Risk
Part II - Other Information - Items 1-6 12
Exhibit 11 - Statement Re Computation of Earnings Per Share 13
Exhibit 27 - Financial Data Schedule 14
Signatures 15
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LIQUI-BOX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
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April 3, 1999 January 2, 1999
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,812,000 8,685,000
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $982,000 and $946,000, respectively 18,212,000 14,613,000
Other 388,000 423,000
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Total receivables 18,600,000 15,036,000
Inventories:
Raw materials and supplies 9,455,000 7,551,000
Work in process 2,886,000 3,699,000
Finished goods 4,275,000 3,066,000
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Total Inventories 16,616,000 14,316,000
Other current assets 2,332,000 3,247,000
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TOTAL CURRENT ASSETS 43,360,000 41,284,000
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land, buildings and leasehold improvements 14,986,000 14,986,000
Equipment and vehicles 71,630,000 71,299,000
Equipment leased to customers 18,301,000 18,497,000
Construction in process 2,703,000 2,660,000
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TOTAL 107,620,000 107,442,000
Less accumulated depreciation and amortization (72,321,000) (70,847,000)
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Property, plant and equipment - net 35,299,000 36,595,000
OTHER ASSETS
Goodwill, net of amortization 8,278,000 8,515,000
Deferred charges and other assets, net 5,352,000 5,680,000
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Total other assets 13,630,000 14,195,000
TOTAL ASSETS $ 92,289,000 $ 92,074,000
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The accompanying notes are an integral part of the financial statements.
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LIQUI-BOX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
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April 3, 1999 January 2, 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,746,000 $ 6,638,000
Short-term borrowings 0 10,800,000
Dividends payable 837,000 837,000
Salaries, wages and related liabilities 4,341,000 1,883,000
Federal, state and local taxes 3,094,000 1,172,000
Other accrued liabilities 3,716,000 3,707,000
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TOTAL CURRENT LIABILITIES 22,734,000 25,037,000
OTHER NONCURRENT LIABILITIES
Deferred income taxes 1,161,000 1,271,000
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY
Preferred stock, without par value,
2,000,000 shares authorized; none issued - -
Common stock, $.1667 stated value,
20,000,000 shares authorized,
7,262,598 shares issued 1,210,000 1,210,000
Additional paid-in capital 8,706,000 8,588,000
Cumulative other comprehensive income 1,594,000 2,185,000
Retained earnings 139,516,000 135,929,000
Less:
Treasury stock, at cost - 2,618,035
and 2,611,117 shares, respectively (82,632,000) (82,146,000)
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TOTAL STOCKHOLDERS' EQUITY 68,394,000 65,766,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 92,289,000 $ 92,074,000
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The accompanying notes are an integral part of the financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
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Thirteen Weeks Ended
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April 3, April 4,
1999 1998
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NET SALES $ 36,666,000 $ 35,993,000
Cost of Sales 21,722,000 23,422,000
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Gross Margin 14,944,000 12,571,000
Selling, administrative and
development expenses 7,321,000 6,354,000
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Operating income 7,623,000 6,217,000
OTHER INCOME (EXPENSE):
Interest and dividend income 105,000 103,000
Interest expense (155,000) (154,000)
Other, net (88,000) 20,000
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INCOME BEFORE INCOME TAXES 7,485,000 6,186,000
TAXES ON INCOME 3,061,000 2,530,000
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NET INCOME 4,424,000 3,656,000
OTHER COMPREHENSIVE INCOME (EXPENSE),
NET OF TAX:
Foreign currency translation adjustments (434,000) (190,000)
Unrealized gain (loss) on marketable securities (158,000) 44,000
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Other comprehensive income (expense) (592,000) (146,000)
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COMPREHENSIVE INCOME $ 3,832,000 $ 3,510,000
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EARNINGS PER SHARE
Basic $ 0.95 $ 0.77
Diluted $ 0.91 $ 0.74
Cash dividends per common share $ 0.18 $ 0.15
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTING EARNINGS PER SHARE:
Basic 4,652,120 4,755,645
Diluted 4,876,707 4,934,124
The accompanying notes are an integral part of the financial statements.
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LIQUI-BOX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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Thirteen Weeks Ended
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April 3, April 4,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,424,000 $ 3,656,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,882,000 1,926,000
Provision for loss on accounts receivable 132,000 222,000
Amortization of other noncurrent assets 209,000 226,000
Loss (Gain) on disposal of property, plant and equipment 3,000 (1,000)
Deferred compensation 70,000 111,000
Changes in deferred income tax accounts (110,000) 29,000
Changes in operating assets and liabilities:
Accounts receivable (3,696,000) (2,579,000)
Inventories (2,300,000) (5,005,000)
Other current assets 915,000 74,000
Accounts payable 4,108,000 6,205,000
Salaries, wages and related liabilities 2,458,000 426,000
Other accrued liabilities 1,929,000 2,941,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES 10,024,000 8,231,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (712,000) (1,558,000)
Proceeds from sale of property, plant and equipment 126,000 1,136,000
Other changes, net 198,000 41,000
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NET CASH USED IN INVESTING ACTIVITIES (388,000) (381,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury shares (551,000) (17,940,000)
Sale of treasury shares 5,000 0
Exercise of stock options, including tax benefit 109,000 1,189,000
Cash dividends (837,000) (624,000)
Repayment of short borrowings (10,800,000) 0
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NET CASH USED IN FINANCING ACTIVITIES (12,074,000) (17,375,000)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (435,000) (194,000)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,873,000) (9,719,000)
CASH AND CASH EQUIVALENTS, Beginning of year 8,685,000 17,425,000
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CASH AND CASH EQUIVALENTS, End of first quarter $ 5,812,000 $ 7,706,000
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The accompanying notes are an integral part of the financial statements.
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LIQUI-BOX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements include the accounts of Liqui-Box
Corporation (the "Company") and its subsidiaries.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature) which are, in the opinion of management, necessary
to fairly present the consolidated financial position, results of
operations and changes in cash flows on a consistent basis.
Certain amounts in the prior year's financial statements have been
reclassified to conform to the 1999 presentation.
2. In June 1998, the FASB (Financial Accounting Standards Board) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
The statement establishes accounting and reporting standards requiring that
all derivative instruments (including certain derivative instruments
imbedded in other contracts) be recorded in the balance sheet as either an
asset or a liability measured at its fair market value. The statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
The accounting provisions for qualifying hedges allow a derivative's gains
and losses to offset related results on the hedged item in the income
statement, and requires that the Company formally document, designate and
assess the effectiveness of transactions that qualify for hedge accounting.
The Company is not required to adopt this statement until January 2000. The
Company has not determined its method or timing of adopting this statement
or the impact on its financial statements.
3. The accompanying unaudited consolidated financial statements are presented
in accordance with the requirements for Form 10-Q for interim reporting
purposes. Reference should be made to the Company's Form 10-K for the year
ended January 2, 1999 for additional disclosures including a summary of the
Company's accounting policies, which have not significantly changed.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the First Quarter 1999, Liqui-Box Corporation and its subsidiaries (the
"Company") experienced a 2% increase in sales dollars and a 4% increase in unit
sales compared to the First Quarter 1998. The increase in sales dollars for the
quarter was the result of the increase in unit sales combined with an increase
in machine sales revenue for the Company's Inpaco subsidiary.
Gross profit, as a percentage of net sales, was 40.8% in the First Quarter 1999
and 34.9% in the First Quarter 1998. The increase in gross profit as a percent
of net sales is primarily the result of improvements in plant operating
efficiencies, product mix and improved margins.
For the First Quarter of 1999, selling, administrative, and development expenses
were $7,321,000 as compared to $6,354,000 in the First Quarter of 1998, an
increase of 15.2%. The increase is primarily due to an increase in compensation
related costs.
Income before taxes as a percentage of net sales was 20.4% in the First Quarter
1999 and 17.2% in the First Quarter 1998, due to the increase in gross profits,
offset by the increase in selling, administrative, and development expenses.
The provision for income taxes was 40.9% of before tax income for the First
Quarter of 1999 and 40.9% for the First Quarter 1998. The effective tax rate for
the First Quarter 1999 is based on the Company's anticipated tax rate for the
1999 fiscal year.
At the end of the First Quarter of 1999 and 1998, the Company had no significant
backlog of orders, which is industry typical.
LIQUIDITY AND CAPITAL RESOURCES
Total working capital at April 3, 1999, was $20,626,000 compared to $16,247,000
at January 2, 1999. This increase is the result of improved operating activities
and the seasonal needs of the Company. The ratio of current assets to current
liabilities was 1.9 to 1 at the end of the First Quarter 1999 and 1.6 to 1 at
Year End 1998. Net cash provided by operations was $10,024,000 for the three
months ended April 3, 1999, compared to $8,231,000 for the three months ended
April 4, 1998. Net cash used in investing activities was $388,000 for the three
months ended April 3, 1999 compared to $381,000 for the three months ended April
4, 1998. During both periods, the cash was used primarily for purchases of new
plant equipment and improvements to existing property and plant equipment. Cash
used in financing activities was $12,074,000 for the three months ended April 3,
1999, compared to cash used of $17,375,000 for the three months ended April 4,
1998. The cash used in financing activities was primarily for the repayment of
short term borrowings, in the First Quarter 1999 and the acquisition of treasury
stock, in the First Quarter 1998.
The Company's major commitments for capital expenditures as of April 3, 1999
were, as they have been in the past, primarily for increased capacity at
existing locations, building filler machines for lease and tooling for new
projects. Funds required to fulfill these commitments will be provided
principally by operations with any additional funding needed coming from credit
facilities that aggregate $30,000,000 with The Huntington National Bank. No
amounts were outstanding under these commitments as of April 3, 1999.
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Longer-term cash requirements, other than normal operating expenses, are needed
for financing anticipated growth; increasing capacity at existing plants;
development of new products and enhancement of existing products; dividend
payments and possible continued repurchases of the Company's common shares. The
Company believes that its existing cash and cash equivalents, available credit
facilities and anticipated cash generated from operations will be sufficient to
satisfy its currently anticipated cash requirements for the fiscal year 1999.
There have been no significant changes in capitalization during the first three
months of 1999, except for the repurchase of treasury shares in the aggregate
amount of $551,000 which were acquired throughout the First Quarter 1999. The
common shares were bought at a price considered fair by management and there was
cash available for these purchases. The Company felt the purchases represented a
good investment and would secure common shares for issuance under the Company's
employee benefit plans. The Company has not entered into any significant
financing arrangements not reflected in the financial statements.
COMPREHENSIVE INCOME
Comprehensive income items are revenues, expenses, gains and losses which, under
generally accepted accounting principles, are excluded from net income and
reflected as a component of equity; such as currency translation and gain or
loss on securities adjustments. Comprehensive income, net of tax, was $3,832,000
and $3,510,000 in First Quarter 1999 and First Quarter 1998, respectively.
Comprehensive income differs from net income per the Consolidated Statements of
Income due to foreign currency translation gains in the First Quarter 1999 and
losses in the First Quarter 1998, and loss on marketable securities in the First
Quarter 1999 and gain in the First Quarter 1998. Other comprehensive income is
composed of the change in foreign currency translation and the change in the
value of marketable securities held for investment.
YEAR 2000
In prior years, certain computer programs were written using two digits, rather
than four, to define the applicable year. These programs were written without
considering the impact of the upcoming century and may experience problems
handling dates beyond the year 1999. This could cause computer applications to
fail or to create erroneous results unless corrective measures are taken.
Incomplete or untimely resolution of the Year 2000 issue could have a material
impact on the Company's business, operations or financial condition in the
future.
The Company has identified its Year 2000 risk, in three categories: internal
business software; internal non-financial software and imbedded chip technology;
and external non-compliance by suppliers and customers.
INTERNAL BUSINESS SOFTWARE. The Company has been assessing the impact that the
Year 2000 issue will have on its computer systems since 1995. In response to
these assessments, the Company has replaced all critical systems. The Company's
project plan called for the implementation of an integrated application software
package purchased from a software vendor. This application software has received
ITAA*2000 certification from the Information Technology Association of America
as Year 2000 compliant. In addition, the Company replaced all critical computer
hardware and PC software with Year 2000 compliant products. The project was
implemented in the Second Quarter of 1998, at a total estimated cost of
$1,600,000, of which $1,155,000 has been incurred to date. The project has been
funded through operating cash flows.
INTERNAL NON-FINANCIAL SOFTWARE AND IMBEDDED CHIP TECHNOLOGY. During the First
Quarter, 1999, the Company completed the data-gathering phase, with regard to
non-financial software and imbedded chip technology. The Company has not found
any critical non-financial systems not to be Year 2000 compliant.
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EXTERNAL NONCOMPLIANCE BY SUPPLIERS AND CUSTOMERS. The Company anticipates
completing the process of surveying critical suppliers, service providers and
customers to determine the status of their Year 2000 compliance programs during
the Second Quarter of 1999. To the extent that responses to Year 2000 readiness
are not satisfactory, the Company intends to change suppliers and service
providers to those who have demonstrated Year 2000 readiness, but cannot be
assured that it will be successful in finding such alternative suppliers and
service providers. In the event that any of the Company's major customers and
critical suppliers do not achieve successful and timely Year 2000 compliance,
and the Company is not successful in replacing them with customers or
alternative suppliers, the Company's business or operations could be adversely
affected.
Based on the work to date, the Company's believes future costs relating to the
Year 2000 issue will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
EFFECT OF NEW EUROPEAN CURRENCY
The implementation of the Euro currency in certain European countries in 2002
could adversely impact the Company. In January 1999, a new currency called the
"Euro" was introduced in certain Economic and Monetary Union ("EMU") countries.
During 2002, all EMU countries are expected to be operating with the Euro as
their single currency. Uncertainty exists as to the effect the Euro currency
will have on the marketplace. Additionally, all of the final rules and
regulations have not yet been defined and finalized by the European Commission
with regard to the Euro currency. The Company is still assessing the impact the
EMU formation and Euro implementation will have on internal systems and the sale
of its products. The Company expects to take appropriate actions based on the
results of such assessment. The Company has not become aware of any negative
impact resulting from the EMU formation and Euro implementation. The Company has
not yet determined the cost related to addressing this issue, if any, and there
can be no assurance that this issue and its related costs will not have a
material adverse effect on the Company's business, operating results and
financial condition.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes accounting and reporting standards requiring that all derivative
instruments (including certain derivative instruments imbedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The accounting provisions for qualifying
hedges allow a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that the Company formally
document, designate and assess the effectiveness of transactions that qualify
for hedge accounting. The Company is not required to adopt this statement until
January 2000. The Company has not determined its method or timing of adopting
this statement or the impact on its financial statements.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for
forward-looking statements made by or on behalf of the Company. The Company and
its representatives may from time to time make written or verbal forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to shareholders. All
statements which are not historical fact are forward-looking statements based
upon the Company's current plans and strategies, and reflect the Company's
current assessment of the risks and uncertainties related to its business,
including such things as product demand and market acceptance; the economic and
business environment and the impact of governmental regulations, both in the
United States and abroad; the effects of competitive products and pricing
pressures; the impact of fluctuations in foreign currency exchange rates and the
implementation of the EURO; capacity; efficiency and supply constraints;
effective remediation of Year 2000 issues; weather conditions; and other risks
detailed in the Company's press releases, shareholder communications and
Security and Exchange Commission filings. Actual events affecting the Company
and the impact of such events on the Company's operations may vary from those
currently anticipated.
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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company, in the normal course of business, is exposed to market risks
associated with foreign currency exchange rates, fluctuations in the market
value of equity securities available for sale, and changes in interest rates.
The Company is also exposed to changes in the price of commodities used in its
manufacturing operations. However, commodity price risk is not material as price
changes are customarily passed along to the customer.
FOREIGN CURRENCY EXCHANGE RISK
In the First Quarter 1999, European operations accounted for approximately 13%
of the Company's net sales. As a result, there is exposure to foreign exchange
risk on transactions that are denominated in a currency other than the business
unit's functional currency. The Company enters into forward exchange contracts
to hedge against foreign currency fluctuations wherever economically feasible.
The contracts are generally less than one year. The counter-parties to the
forward contracts are financial institutions with investment grade credit
ratings. At April 3, 1999, the Company had contracts of approximately $210,000
maturing from April 4, 1999 through May 12, 1999 to exchange various currencies
to pounds sterling. In addition, the Company borrows from a bank the amounts of
its foreign currency sales. Upon collection of the related accounts receivable,
the corresponding bank loan is repaid. Reference is made to Note 1 Foreign
Currency Translation, in the Notes to Financial Statements in the 1998 Annual
Report, for further information with respect to foreign currency exchanges. The
Company's hedging activities provide only limited protection against currency
exchange risks, however, a hypothetical 10% foreign exchange fluctuation would
not materially impact operating results or cash flow.
MARKETABLE SECURITIES RISK
The Company maintains a portfolio of marketable equity securities available for
sale. The fair market value of these securities at April 3, 1999 was
approximately $1,400,000 with the corresponding unrealized gain included as a
component of stockholders' equity. A hypothetical 10% decrease in the quoted
market price of marketable securities would not materially impact operating
results or cash flow.
INTEREST RATE RISK
The interest payable for the Company's revolving credit facilities is
principally 50 basis points above the London Interback Offered Rate and
therefore affected by changes in market interest rates. However, the Company has
outstanding borrowings under these revolving credit facilities.
-11-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
See page 17 (Note 3 of the Notes to Consolidated Financial Statements) of the
1998 Annual Report which is incorporated herein by reference.
Item 2-5. Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit3A. Amended Articles of Incorporation of the
Registrant incorporated herein by Reference to
Exhibit 3A to the Registrants Form 10K for the
fiscal year Ended December 30, 1995.
Exhibit 3B. Code of Regulations as Amended of the Registrant
incorporated herein by Reference to Exhibit 3 (B)
to the Registrant's Form 10Q for the fiscal
Quarter ended July 1, 1995.
Exhibit 11. Statement Re Computation of Earnings Per Share
(page 11)
Exhibit 27. Financial Data Schedule (page 12)
(b) No reports on Form 8-K were filed during the quarter ended
April 3, 1999.
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SIGNATURES
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.
LIQUI-BOX CORPORATION
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(Registrant)
Date May 11, 1999 By /s/ C. William McBee
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C. William McBee
President and Chief Operating Officer
(Duly Authorized Officer)
Date May 11, 1999 By /s/ Paul J. Maynard
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Paul J. Maynard
Director of Finance
(Principal Accounting Officer)