Item 1. Business:
GENERAL DEVELOPMENT OF BUSINESS - Liqui-Box Corporation and its subsidiaries ("Liqui-Box" or the "Company") is one of the largest companies in the world specializing in the research, development and manufacture of bag-in-box flexible liquid packaging systems. The Company was incorporated in January, 1962 in the state of Ohio. Its principal offices are located at 6950 Worthington-Galena Road, Worthington, Ohio.
Liqui-Box is a major producer of bag-in-box flexible packaging and related filling equipment systems for the beverage, processed foods, dairy, detergent, wine and other specialty products industries. The Company is also the leading supplier of containers and dispensing systems to the bottled water industry.
The Company and its subsidiaries operate 11 manufacturing plants in the United States and Europe. Through licensees, agents and direct exporters, Liqui-Box serves markets in many countries worldwide.
DESCRIPTION OF PRINCIPAL PRODUCTS - The principal product of the Company is plastic packaging. Such packaging includes specialty plastic bags and plastic blow molded containers; injection molded plastic products used in liquid packaging and a variety of industrial and commercial plastic packaging films. In addition, the Company manufactures equipment for filling such packaging products (less than 2% of total net sales). These products are marketed nationwide primarily to the edible products industries principally through a direct sales force. These products are also marketed internationally through a direct sales force, licensees, agents and the Company's own export operations.
In 1996, the Company maintained its position in its principal markets of beverage, processed foods and specialty industrial products. In addition, the two premium drinking water products under the Alaskan Falls label, introduced in 1991, showed improvement in sales and continue to be introduced onto retail shelves in selected Midwestern states
COMPETITION - The plastic packaging market is large and highly fragmented. There are numerous competitors and the major markets in which the Company sells its products are very competitive. These products are in competition with similar products produced by other manufacturers, and in some instances, with products produced by other industries from other raw materials.
The plastic packaging industry is, therefore, highly price competitive. A substantial number of manufacturers compete in the national and international markets. None are considered to be dominant. According to information in the public domain, Liqui-Box supplies less than one percent of the total plastic packaging market in the United States.
While Liqui-Box's product and customer mix is generally diverse, The Perrier Group of America constitutes a buying group of customers that is a material part of the Company's business to the extent that loss of this buying group, with which the Company has a good relationship, would have a material effect on the Company's business. The risk associated with such a potential loss is mitigated by an exclusive 10 year supply agreement between the Company and The Perrier Group of America. Sales to this customer constituted 18%, 17% and 15% of total sales in 1996, 1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT - Liqui-Box emphasizes applied research and development as a vital aspect of meeting the needs of its customers for plastic packaging. Thus, the Company's research activities focus on the development of new plastic packaging products and packaging systems to increase quality, improve production efficiency and/or reduce costs to its customers and to the ultimate consumer. The Company also devotes significant efforts to the research, development and improvement of plastic packaging machinery and equipment for use by its customers and in its own production operations.
R & D expenditures in 1996, 1995 and 1994 were $1,856,000, $1,265,000 and $2,151,000, respectively. All such activities were entirely Company-funded from operations. It should also be noted that the funding levels only represent costs directly charged to research and development. The amounts do not represent the commitment and work of all employees of Liqui-Box to improving existing products and processes and to developing new products and processes. Many employees who are not part of the research and development organization of the Company spend part of their efforts on developing new products and processes.
Information on research and development can also be found on Pages and [Management's Discussion and Analysis] and on Page [Note 1, Accounting Policies, of the Notes to Consolidated Financial Statements] of the 1996 Annual Report and is incorporated herein by reference.
PATENTS AND LICENSES - Liqui-Box holds and maintains patents for packaging design, fitments and packaging equipment which are used by the Company in its production and which are also licensed to other manufacturers. Revenues from royalties from these patents and licenses are not material to the total revenues of the Company.
ENVIRONMENT - Consumer recognition of environmental friendliness of liquid plastic packaging systems is growing. Compared to a conventional 5-gallon plastic pail, the 5-gallon plastic bag-in-box reduces total plastic use by 90 percent. An empty, collapsed 5-gallon bag requires a small fraction of the disposal space of a comparable number of No. 10 cans, five wide-mouth one gallon jars or one 5-gallon pail occupy. The corrugated box used to transport and store packaged liquids is completely recyclable. Liqui-Box utilizes proper recycling codes on all of its products for quick identification in community recycling programs.
The bag-in-box design is increasingly seen as a major part of the solution to the problem of environmental waste, storage and disposal. In addition, Liqui-Box is asking its suppliers to experiment in the use of reprocessed material in the products furnished to the Company and several promising applications are being actively explored. The Company has also committed to zero scrap in the waste stream of its plant operations through sorting and recycling for use in shipping bags and other non food applications. This commitment represents the elimination of more than one million pounds of waste annually.
As a major player in the solution of societal environmental problems, the Company supports such conscientiousness and is not aware of any federal, state or local statutory or regulatory provisions concerning environmental protection or the discharge of materials into the environment that will have any material effect on the capital expenditures, sales, earnings or competitive position of the Company in the future.
RAW MATERIALS - The primary raw material essential to the Company's business is plastic resin. There are a number of suppliers for this material and the market is highly competitive. The Company is confident that its sources of supply of resin are adequate for its needs in the foreseeable future.
SEASONALITY OF BUSINESS - The demand for some applications of certain plastic packaging products is seasonal in nature. A mild summer, for example, can reduce the Company's sales to the beverage industry. However, experience over the years has shown that these variations generally offset each other and tend to level the total demand for the Company's products throughout the year. As a result, the Company usually experiences only minor variations in sales volume attributable to seasonal demands.
BACKLOG OF ORDERS - Sales of the Company's packaging products generally are closely coordinated with the product production of its customers. Typically, orders are filled within 30 days. Therefore, the backlog of orders is not significant.
EMPLOYEES - Liqui-Box employed 730 individuals in its operations throughout the United States and in Europe on December 28, 1996. Approximately 2% of these employees are members of collective bargaining units. The Company considers itself an industry leader in participative management of its human resources, placing a premium value on innovation, creativity and attentiveness to solving customers' problems in packaging. Accordingly, the Company believes its relations with its employee group to be an asset.
FOREIGN OPERATIONS AND SALES - The Company's European operations constituted 12% of consolidated net sales, less than 10% of consolidated income before taxes and 22% of consolidated identifiable assets as of and for the year ended December 28, 1996. European operations constituted 13% of net sales, less than 10% of consolidated income before taxes and 24% of identifiable assets as of and for the year ended December 30, 1995. Further information can be found on page [Note 9 of the Notes to Consolidated Financial Statements] of the 1996 Annual Report and is incorporated herein by reference.
Item 2.
Item 2. Properties:
At December 28, 1996, the Company owned or leased property at eighteen (18) locations for manufacturing, warehousing, and offices with a total of approximately 659,000 square feet of floor space. The following table summarizes the properties owned or leased.
The Company believes that its properties, plant, and equipment are all in good operating condition and are adequate for its expected needs. Certain of the leases contain renewal options which the Company expects to exercise to maintain its operations at the facilities.
Item 3.
Item 3. Legal Proceedings:
See page [Note 5 of the Notes to Consolidated Financial Statements] of the 1996 Annual Report and is incorporated herein by reference.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable
Executive Officers of the Registrant: - - -------------------------------------
The names, ages, and positions of all of the executive officers of Liqui-Box, as of February 25, 1997, are listed below along with their business experience during the past five years. Executive officers are appointed annually by the Board of Directors at the annual meeting of directors immediately following the annual meeting of shareholders. There are no arrangements or understandings between any executive officer and any other person pursuant to which the executive officer was selected.
Name Age Title --------------------------------------------------------
Samuel B. Davis (1) 55 Chairman of the Board, Chief Executive Officer, President, Treasurer and Director
Robert S. Hamilton (2) 68 Vice Chairman of the Board and Director
Peter J. Linn (3) 55 Secretary and Director
C. William McBee (4) 54 Vice President, Manufacturing and Director
Samuel N. Davis (5) 32 Vice President, Development
Joseph F. Pranckus (6) 36 Vice President, Sales
(1) Samuel B. Davis has been Chairman of the Board, Chief Executive Officer and Treasurer since August, 1982. Mr. Davis became President in September, 1991 upon the retirement of Robert S. Hamilton.
(2) Robert S. Hamilton has been Vice Chairman of the Board since July, 1989. Mr. Hamilton was President and Chief Operating Officer from April, 1984 to September, 1991 with a period of retirement from January, 1990 to May, 1990 and another period of retirement from September, 1991 until May, 1995.
(3) Peter J. Linn has been Secretary since April 1990. Mr. Linn was Senior Vice President from February, 1994 until April 1995. From January, 1983 to February, 1994, he held the position of Executive Vice President.
(4) C. William McBee became a director in April, 1995. Mr. McBee became Vice President, Manufacturing in October, 1994. From February, 1994 to October, 1995, Mr. McBee was Vice President of Administration. Prior to February, 1994, Mr. McBee was a General Manager for Stone Container Corporation, Columbus, Indiana, a manufacturer of corrugated cardboard containers.
(5) Samuel N. Davis became Vice President, Development and an executive officer in April, 1996. From September, 1995 until April, 1996 Mr. Davis held the position of Special Projects Coordinator. From January, 1993 through August, 1995, Mr. Davis was a manager of Zacchaeus Clothiers, Columbus, Ohio, a clothing retailer. Prior to January, 1993, Mr. Davis held various offices with Liqui-Box.
(6) Joseph F. Pranckus became Vice President, Sales and an executive officer in October, 1996. Mr. Pranckus held the position of National Sales Manager from March, 1996 until October, 1996. Prior to March, 1996, Mr. Pranckus held various sales management positions with Liqui-Box.
PART II
Pages ----- The following items are incorporated herein by reference from the indicated pages of the 1996 Annual Report:
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 3
Item 6.
Item 6. Selected Financial Data 3
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation 14-15
Item 8.
Item 8. Financial Statements and Supplementary Data 16-30
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No response required
PART III
The following items are incorporated herein by reference from the indicated pages of the Registrant's definitive Proxy Statement for its 1997 Annual Meeting filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Item 10.
Item 10. Directors and Executive Officers of 3 - 4 the Registrant In addition, certain information concerning the executive officers of the Registrant called for in this Item 10 is set forth in the portion of Part I of this Annual Report on Form 10-K, entitled "Executive Officers of the Registrant".
Item 11.
Item 11. Executive Compensation 7 - 11 Neither the Report of the Board of Directors and Stock Option Committee on executive compensation, nor the performance graph included in the Registrant's definitive Proxy Statement for its 1997 Annual Meeting, are incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain 2 - 3 Beneficial Owners and Management
Item 13.
Item 13. Certain Relationships and Related Transactions 4 and 11
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a)(1) The following consolidated financial statements of Liqui-Box Corporation and Subsidiaries, included in the Registrant's 1996 Annual Report, are incorporated by reference in Item 8 and filed as Exhibit 13 to this report. The page numbers indicate the location of the consolidated financial statements in the Registrant's 1996 Annual Report.
Consolidated Balance Sheets --December 28, 1996 and December 30, 1995 16-17
Consolidated Statements of Income --Fifty-two weeks ended December 28, 1996, Fifty-two weeks ended December 30, 1995 and Fifty-two weeks ended December 31, 1994 18
Consolidated Statements of Cash Flows --Fifty-two weeks ended December 28, 1996, Fifty-two weeks ended December 30, 1995 and Fifty-two weeks ended December 31, 1994 19
Consolidated Statements of Stockholders' Equity --Fifty-two weeks ended December 28, 1996, Fifty-two weeks ended December 30, 1995 and Fifty-two weeks ended December 31, 1994 20-21
Notes to Consolidated Financial Statements 22-29
Report of Independent Auditors 30
Report of Independent Auditors. The page number indicates the location in this Form 10-K 52
(a)(2) The following consolidated financial statement schedules of Liqui-Box Corporation and Subsidiaries are included in Item 14(d). The page number indicates the location in this Form 10-K.
II - Valuation and Qualifying Accounts 9
Schedules other than those listed above are omitted because they are not required or are not applicable.
Item 14. (continued)
(a)(3) Listing of Exhibits - The following exhibits are included in Item 14(c). The page number indicates the location of the exhibit in this Form 10-K.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts rounded to the nearest thousand dollars)
LIQUI-BOX CORPORATION AND SUBSIDIARIES
(1) Uncollectible accounts written off, net of recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LIQUI-BOX CORPORATION
Date: 3/21/97 By: * Samuel B. Davis ----------------------- --------------------------- Samuel B. Davis Chairman of the Board, Chief Executive Officer, President, Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: 3/21/96 By: * Samuel B. Davis ----------------------- --------------------------- Samuel B. Davis Chairman of the Board, Chief Executive Officer, President, Treasurer and Director (Principal Executive and Financial Officer)
Date: 3/25/97 By: * Jeanette A. Davis ----------------------- --------------------------- Jeanette A. Davis Director
Date: 3/19/97 By: * Robert S. Hamilton ----------------------- --------------------------- Robert S. Hamilton Vice Chairman and Director
Date: 3/21/97 By: * Peter J. Linn ----------------------- --------------------------- Peter J. Linn Secretary and Director
Date: 3/20/97 By: * C. William McBee ----------------------- --------------------------- C. William McBee Director
Date: 3/21/97 By: * Carl J. Aschinger, Jr. ----------------------- --------------------------- Carl J. Aschinger, Jr. Director
Date: 3/25/97 By: * Russell M. Gertmenian ----------------------- --------------------------- Russell M. Gertmenian Director
Date: 3/19/97 By: * James B. Holloway ----------------------- --------------------------- James B. Holloway Controller
-----------------------
Date: 3/27/97 *By: /S/ C. William McBee ----------------------- --------------------------- C. William McBee Attorney in Fact
Index to Exhibits
Listing of Exhibits - The following exhibits are included in Item 14(c). The page number indicates the location of the exhibit in this Form 10-K.