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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| /x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the thirteen week period ended April 1, 2000
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
LIQUI-BOX CORPORATION
(Exact name of registrant as specified in its charter)
| OHIO | 31-0628033 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 6950 Worthington-Galena Road, Worthington, Ohio |
|
43085 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (614) 888-9280
Not Applicable
(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 / /
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, 2000 |
|
|---|---|---|
| Common Stock, no par value | 4,457,733 shares |
Exhibit Index at Page 10
LIQUI-BOX CORPORATION
INDEX
| |
|
Page No. |
||
|---|---|---|---|---|
| Part I—Financial Information: | ||||
| Item 1. |
|
Financial Statements |
|
|
| |
|
Condensed Consolidated Balance Sheets (unaudited) April 1, 2000 and January 1, 2000 |
|
3 |
| |
|
Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) For the thirteen week periods ended April 1, 2000 and April 3, 1999 |
|
4 |
| |
|
Condensed Consolidated Statements of Cash Flows (unaudited) For the thirteen week periods ended April 1, 2000 and April 3, 1999 |
|
5 |
| |
|
Notes to Unaudited Condensed Consolidated Financial Statements |
|
6 |
| Item 2. |
|
Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
7-9 |
| Item 3. |
|
Quantitative and Qualitative Disclosure About Market Risk |
|
9-10 |
| Part II—Other Information—Items 1-6 |
|
10 |
||
| |
|
Signatures |
|
11 |
| |
|
Exhibit 27—Financial Data Schedule |
|
12 |
2
Liqui-Box Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
| |
April 1, 2000 |
January 1, 2000 |
|||||
|---|---|---|---|---|---|---|---|
| |
UNAUDITED |
||||||
| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 14,271,000 | $ | 11,635,000 | |||
| Accounts receivable: | |||||||
| Trade, net of allowance for doubtful accounts of $1,062,000 and $730,000, respectively | 16,613,000 | 19,579,000 | |||||
| Other | 758,000 | 446,000 | |||||
| Total receivables | 17,371,000 | 20,025,000 | |||||
| Inventories: | |||||||
| Raw materials and supplies | 10,516,000 | 8,256,000 | |||||
| Work in process | 3,153,000 | 2,460,000 | |||||
| Finished goods | 4,753,000 | 3,334,000 | |||||
| Total Inventories | 18,422,000 | 14,050,000 | |||||
| Deferred tax assets | 2,602,000 | 2,602,000 | |||||
| Other current assets | 415,000 | 808,000 | |||||
| Total Current Assets | 53,081,000 | 49,120,000 | |||||
| Property, Plant and Equipment—at Cost | |||||||
| Land, buildings and leasehold improvements | 17,933,000 | 15,158,000 | |||||
| Equipment and vehicles | 77,164,000 | 77,122,000 | |||||
| Equipment leased to customers | 16,730,000 | 16,691,000 | |||||
| Construction in process | 4,237,000 | 2,706,000 | |||||
| Total | 116,064,000 | 111,677,000 | |||||
| Less accumulated depreciation and amortization | (79,515,000 | ) | (78,448,000 | ) | |||
| Property, plant and equipment—net | 36,549,000 | 33,229,000 | |||||
| Other Assets | |||||||
| Goodwill, net of amortization | 7,648,000 | 7,855,000 | |||||
| Deferred charges and other assets, net | 4,215,000 | 4,686,000 | |||||
| Total other assets | 11,863,000 | 12,541,000 | |||||
| Total Assets | $ | 101,493,000 | $ | 94,890,000 | |||
| Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
| Current Liabilities | |||||||
| Accounts payable | $ | 10,595,000 | $ | 10,955,000 | |||
| Short-term borrowings | 3,578,000 | 3,283,000 | |||||
| Dividends payable | 891,000 | 903,000 | |||||
| Salaries, wages and related liabilities | 5,053,000 | 1,971,000 | |||||
| Federal, state and local taxes | 2,163,000 | 0 | |||||
| Other accrued liabilities | 3,773,000 | 2,766,000 | |||||
| Total Current Liabilities | 26,053,000 | 19,878,000 | |||||
| Other Noncurrent Liabilities | |||||||
| Deferred income taxes | 1,303,000 | 1,468,000 | |||||
| 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 | 9,601,000 | 9,505,000 | |||||
| Accumulated other comprehensive income | 1,253,000 | 1,596,000 | |||||
| Retained earnings | 155,284,000 | 151,608,000 | |||||
| Less: | |||||||
| Treasury stock, at cost—2,808,041 and 2,751,439 shares, respectively | (93,211,000 | ) | (90,375,000 | ) | |||
| Total Stockholders' Equity | 74,137,000 | 73,544,000 | |||||
| Total Liabilities and Stockholders' Equity | $ | 101,493,000 | $ | 94,890,000 | |||
The accompanying notes are an integral part of the financial statements.
3
Liqui-Box Corporation and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
| |
Thirteen Weeks Ended |
||||||
|---|---|---|---|---|---|---|---|
| |
April 1, 2000 |
April 3, 1999 |
|||||
| |
UNAUDITED |
||||||
| Net Sales | $ | 36,554,000 | $ | 36,666,000 | |||
| Cost of Sales | 22,446,000 | 21,722,000 | |||||
| Gross Margin | 14,108,000 | 14,944,000 | |||||
| Selling, administrative and development expenses | 6,526,000 | 7,321,000 | |||||
| Operating income | 7,582,000 | 7,623,000 | |||||
| Other Income (Expense): | |||||||
| Interest and dividend income | 161,000 | 105,000 | |||||
| Interest expense | (29,000 | ) | (155,000 | ) | |||
| Other, net | (165,000 | ) | (88,000 | ) | |||
| Income Before Income Taxes | 7,549,000 | 7,485,000 | |||||
| Taxes on income | 2,982,000 | 3,061,000 | |||||
| Net Income | 4,567,000 | 4,424,000 | |||||
| Other Comprehensive Income (Expense), Net of Tax: | |||||||
| Foreign currency translation (loss) | (95,000 | ) | (434,000 | ) | |||
| Unrealized (loss) on marketable securities | (248,000 | ) | (158,000 | ) | |||
| Other comprehensive (expense) | (343,000 | ) | (592,000 | ) | |||
| Comprehensive Income | $ | 4,224,000 | $ | 3,832,000 | |||
| Earnings per share | |||||||
| Basic | $ | 1.02 | $ | 0.95 | |||
| Diluted | $ | 0.98 | $ | 0.91 | |||
| Cash dividends per common share | $ | 0.20 | $ | 0.18 | |||
| Weighted average number of shares used in computing earnings per share: | |||||||
| Basic | 4,473,992 | 4,652,120 | |||||
| Diluted | 4,667,007 | 4,876,707 | |||||
The accompanying notes are an integral part of the financial statements.
4
Liqui-Box Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| |
April 1, 2000 |
April 3, 1999 |
|||||
|---|---|---|---|---|---|---|---|
| |
UNAUDITED |
||||||
| Cash Flows from Operating Activities: | |||||||
| Net income | $ | 4,567,000 | $ | 4,424,000 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation and amortization | 2,040,000 | 1,882,000 | |||||
| Provision for loss on accounts receivable | 20,000 | 132,000 | |||||
| Amortization of other noncurrent assets | 229,000 | 209,000 | |||||
| Loss on disposal of property, plant and equipment | 5,000 | 3,000 | |||||
| Deferred compensation | 47,000 | 70,000 | |||||
| Changes in deferred income tax accounts | (165,000 | ) | (110,000 | ) | |||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 2,610,000 | (3,696,000 | ) | ||||
| Inventories | (4,371,000 | ) | (2,300,000 | ) | |||
| Other current assets | 393,000 | 915,000 | |||||
| Accounts payable | (338,000 | ) | 4,108,000 | ||||
| Salaries, wages and related liabilities | 3,082,000 | 2,458,000 | |||||
| Other accrued liabilities | 3,169,000 | 1,929,000 | |||||
| Net cash provided by operating activities | 11,288,000 | 10,024,000 | |||||
| Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
| Purchase of property, plant and equipment | (5,569,000 | ) | (712,000 | ) | |||
| Proceeds from sale of property, plant and equipment | 203,000 | 126,000 | |||||
| Other changes, net | 202,000 | 198,000 | |||||
| Net cash used in investing activities | (5,164,000 | ) | (388,000 | ) | |||
| Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
| Acquisition of treasury shares | (2,901,000 | ) | (551,000 | ) | |||
| Sale of treasury shares | 3,000 | 5,000 | |||||
| Exercise of stock options, including tax benefit | 111,000 | 109,000 | |||||
| Cash dividends | (903,000 | ) | (837,000 | ) | |||
| Proceeds from short-term borrowings | 295,000 | 0 | |||||
| Repayment of short-term borrowings | 0 | (10,800,000 | ) | ||||
| Net cash used in financing activities | (3,395,000 | ) | (12,074,000 | ) | |||
| Effect of Exchange Rate Changes on Cash |
|
|
(93,000 |
) |
|
(435,000 |
) |
| Increase (Decrease) in cash and cash equivalents |
|
|
2,636,000 |
|
|
(2,873,000 |
) |
| Cash and cash equivalents, Beginning of year |
|
|
11,635,000 |
|
|
8,685,000 |
|
| Cash and cash equivalents, End of first quarter | $ | 14,271,000 | $ | 5,812,000 | |||
The accompanying notes are an integral part of the financial statements.
5
LIQUI-BOX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the First Quarter 2000, Liqui-Box Corporation and its subsidiaries (the "Company") experienced a slight decrease in sales dollars and units compared to the First Quarter 1999. Late in 1999 many of its customers built inventory levels to be prepared for potential Y2K (Year 2000) problems. Since there were no Y2K problems, these customers decreased inventory to normal levels during the First Quarter of 2000, thus resulting in decreased sales by the Company.
Gross margin, as a percentage of net sales, was 38.6% for the First Quarter 2000 and 40.8% for the First Quarter 1999. The decrease in gross margin is again attributable to Y2K and partly due to not being able to pass raw material price increases along to its customers in a timely manner in the First Quarter of 2000.
For the First Quarter of 2000, selling, administrative, and development expenses were $6,526,000 as compared to $7,321,000 in the First Quarter of 1999, a decrease of 10.9%. The decrease is due to the Company adjusting reserves to a level management believes is appropriate. The majority of the decrease to reserves was due to the reversal of the 1997 judgment against the Company by the Texas appellate court in February of 2000. This litigation is described more fully in Note 3 to the Consolidated Financial Statements in the Company's 1999 Annual Report to Shareholders.
Income before taxes as a percentage of net sales was 20.7% in the First Quarter 2000 and 20.4% in the First Quarter 1999, due to the decrease in gross margin, offset by the decrease in selling, administrative, and development expenses.
The provision for income taxes was 39.5% of before taxable income for the First Quarter of 2000 and 40.9% for the First Quarter 1999. The effective tax rate for the First Quarter 2000 is based on the Company's anticipated tax rate for the 2000 fiscal year.
At the end of the First Quarter 2000 and 1999, the Company had no significant backlog of orders, which is industry typical.
Liquidity and Capital Resources
Total working capital at April 1, 2000, was $27,028,000 compared to $29,242,000 at January 1, 2000. This decrease reflects the seasonal needs of the Company. The ratio of current assets to current liabilities was 2.0 to 1 at the end of the First Quarter 2000 and 2.5 to 1 at year-end 1999. Net cash provided by operations was $11,288,000 for the three months ended April 1, 2000, compared to $10,024,000 for the three months ended April 3, 1999. Net cash used in investing activities was $5,164,000 for the three months ended April 1, 2000 compared to $388,000 for the three months ended April 3, 1999. 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 $3,395,000 for the three months ended April 1, 2000, compared to cash used of $12,074,000 for the three months ended April 3, 1999. The cash used in financing activities was primarily for the repurchase of outstanding shares and payment of cash dividends.
The Company's major commitments for capital expenditures as of April 1, 2000 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 credit facilities as of April 1, 2000. Barclays Bank PLC provides a secured credit facility to the Company's European subsidiary, which was fully utilized. The amount outstanding under this facility was $3,578,000 at April 1, 2000.
7
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 2000.
There have been no significant changes in capitalization during the first three months of 2000, except for the repurchase of outstanding common shares in the aggregate amount of $2,901,000 which were acquired throughout the First Quarter 2000 on the open market. 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 is based on 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 $4,224,000 and $3,832,000 in First Quarter 2000 and First Quarter 1999, respectively. Comprehensive income differs from net income per the Consolidated Statements of Income due to foreign currency translation losses in the First Quarter 2000 and First Quarter 1999, and losses on marketable securities in the First Quarter 2000 and First Quarter 1999. Other comprehensive income is derived from the change in foreign currency translation and the change in the value of marketable securities held for investment.
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 market value. The statement requires that changes in the derivative's fair market 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 2001.
8
The Company does not believe the adoption of this statement by the Company will have a significant impact, if any, 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 such 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; 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. The Company is not obligated to update or revise forward-looking statements relating to the Company to reflect new events or circumstances.
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 2000, 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 borrows from a bank the amounts of its foreign currency sales in that foreign currency. Upon collection of the related accounts receivable, the corresponding bank loan is repaid in that foreign currency. Reference is made to Note 1—Accounting Policies—Foreign Currency Translation, in the Notes to Consolidated Financial Statements in the Company's 1999 Annual Report to shareholders 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 1, 2000 was approximately $840,000 with the corresponding unrealized gain included as a component of stockholders' equity. A hypothetical 10% decrease in the quoted market price of the marketable securities would not materially impact operating results or cash flow.
9
Interest Rate Risk
The interest payable for the Company's revolving credit facilities is principally 50 basis points above the London Interbank Offered Rate and therefore affected by changes in market interest rates. A hypothetical 10% increase in the interest rate would not materially impact operating results or cash flow.
For a description of pending legal proceedings, see the Company's response under Item 3 of its Annual Report on Form 10-K for its fiscal year ended January 1, 2000 as previously filed with the Securities and Exchange Commission.
Item 2. Changes in Securities:
Not applicable
Item 3. Defaults Upon Senior Securities:
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 3A. 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 27. Financial Data Schedule (page 13)
10
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 (Registrant) |
|||
| Date May 11, 2000 |
|
By |
/s/ C. WILLIAM MCBEE C. William McBee President and Chief Operating Officer (Duly Authorized Officer) |
| Date May 11, 2000 |
|
By |
/s/ PETER J. LINN Peter J. Linn (Principal Accounting Officer) |
11
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