10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDING JUNE 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 --------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- -------------------- 33-88007 (Commission File Number) LLS Corp. (Exact name of Registrant as specified in its charter) Illinois (State or other jurisdiction of incorporation or organization) 36-2741439 (I.R.S. Employer Identification No.) 101 South Hanley Road St. Louis, MO 63105 (314) 727-1701 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) 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: Outstanding at Class July 31, 2000 ---------------------------- ----------------- Common Stock 55,333,333 2 LLS CORP. INDEX

3 LLS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

See accompanying notes to the condensed consolidated financial statements. 1 4 LLS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited)

See accompanying notes to the condensed consolidated financial statements. 2 5 LLS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

See accompanying notes to the condensed consolidated financial statements. 3 6 LLS CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data) (Unaudited) 1. The Company LLS Corp., an Illinois corporation ("LLS" or the "Company"), is engaged in the design, manufacture and distribution of various types of injection molded plastic parts and custom molds used in plastic injection molding. The Company operates in one industry segment, serving customers located primarily in the United States. 2. Basis of Presentation Unaudited Interim Condensed Consolidated Financial Statements The unaudited interim condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations of the Company. The results for the three and nine months ended June 30, 2000 are not necessarily indicative of the results that may be expected for a full fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form S-4 previously filed with the Securities and Exchange Commission. 3. Inventories The composition of inventories at June 30, 2000 is as follows: Raw materials . . . . . . . . . . . . . . . . $ 7,580 Work-in-process . . . . . . . . . . . . . . . 8,557 Finished goods . . . . . . . . . . . . . . . 10,061 ---------- Total . . . . . . . . . . . . . . . . . . . $ 26,198 ==========

4 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis includes the results of operations for the three and nine months ended June 30, 2000 and 1999 for LLS Corp.

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Net sales for the three months ended June 30, 2000 were $46.7 million, representing a $1.0 million or 2.2% decrease compared to the same period in the prior year. This net decrease was primarily due to delays in a major project and weakened demand from international customers partially offset by increased business from existing customers. Cost of sales increased $1.7 million or 6.1%, to $29.7 million during the three months ended June 30, 2000 compared to the same period in the prior year. Cost of sales expressed as a percentage of net sales increased to 63.5% for the three months ended June 30, 2000 from 58.5% for the comparable period in the prior year. The overall increase in cost of sales and the increase as a percentage of sales was partially due to noncontributing costs incurred in connection with the delay of a major project. These noncontributing costs included the expense of keeping a trained work team in place during the project delay period. In addition, the increase in cost of sales and the increase as a percentage of sales was due to higher average resin prices. Because we pass substantially all resin price fluctuations on to our customers, a higher average resin price leads to a lower gross margin percentage but generally has no significant impact on gross margin dollars. Offsetting these factors were improved manufacturing efficiencies resulting from continuous improvement programs and plant automation projects. Selling, general and administrative expenses decreased $0.4 million or 9.5% to $3.4 million for the three months ended June 30, 2000 compared to the same period in the prior year. Selling, general and administrative expenses expressed as a percentage of sales decreased to 7.3% for the three months ended June 30, 2000 from 7.9% for the comparable period in the prior year. This decrease versus the same period in the prior year is due to the consolidation and centralization of certain administrative functions and decreased spending levels. Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 2000. Net sales for the nine months ended June 30, 2000 were $123.2 million representing a $2.5 million or 2.0% decrease compared to the same period in the prior year. This net decrease was primarily due to delays in a major project and weakened demand from international customers partially offset by increased business from existing customers. Cost of sales increased $.1 million or .2%, to $81.2 million during the nine months ended June 30, 2000 compared to the same period in the prior year. Cost of sales expressed as a percentage of net sales increased to 65.9% for the nine months ended June 30, 2000 from 64.5% for the comparable period in the prior year. The overall increase in cost of sales for the nine months ended June 30, 2000 was partially due to noncontributing costs incurred in connection with the delay of a major project. These noncontributing costs included the expense of keeping a trained work team in place during the project delay period. In addition, the increase in cost of sales and the increase as a percentage of sales was due to higher average resin prices. Because we pass substantially all resin price fluctuations on to our customers, a higher average resin price leads to a lower gross margin percentage but generally has no significant impact on gross margin dollars. Offsetting these factors were improved manufacturing efficiencies resulting from continuous improvement programs and plant automation projects. Selling, general and administrative expenses increased $0.5 million or 4.2% to $11.7 million for the nine months ended June 30, 2000 compared to the same period in the prior year. Selling, general and administrative expenses expressed as a percentage of sales increased to 9.5% for the nine months ended June 30, 2000 from 8.9% for the comparable period in the prior year. Contributing to this increase were higher fixed general and administrative costs resulting from annual wage increases, the addition of management personnel, and incremental costs associated with the addition of two new manufacturing facilities, which occurred during the second half of fiscal 1999. These factors were offset by the consolidation and centralization of certain administrative functions. 5 8 Depreciation and amortization increased $1.1 million to $10.4 million for the nine months ended June 30, 2000 compared to the same period in the prior year. This increase primarily reflects net increases in depreciable assets from new equipment purchases and mold construction costs. LIQUIDITY AND CAPITAL RESOURCES Net cash from operating activities was $4.0 million for the nine months ended June 30, 2000, compared to $30.6 million for the nine months ended June 30, 1999. The fluctuation was primarily due to an increase in interest costs related to the Company's long-term obligations and accounts payable decreases related to the timing of payment transactions. Net cash from investing activities, representing capital expenditures, was $10.9 million for the nine month period ended June 30, 2000, compared to $17.2 million during the comparable period for the prior year. Net cash flows from financing activities were $2.8 million for the nine months ended June 30, 2000, compared to $(14.2) million for the same period in the prior year. Cash from financing activities during the nine months ended June 30, 2000 represented net borrowings under the Company's long-term obligations. During the same period in 1999, cash from financing activities represented net proceeds of $17.9 million from long-term obligations offset by distributions to stockholders of $32.1 million. 6 9 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company does not ordinarily hold market risk sensitive instruments for trading purposes. The Company does, however, recognize market risk from interest rates and raw material price exposure. INTEREST RATE RISK At June 30, 2000, approximately $147.8 million of the Company's long-term obligations, specifically, borrowings outstanding under the Senior Credit Facility, bore interest at variable rates. Accordingly, the Company's net income and after tax cash flow are affected by changes in interest rates. Assuming the current level of borrowings at variable rates and assuming a two percentage point change in the average interest rate under these borrowings, it is estimated that the Company's interest expense for the nine months ended June 30, 2000 would have increased by approximately $2.2 million, resulting in a decrease to the Company's net income and after tax cash flow of approximately $1.4 million. In the event of an adverse change in interest rates, management would likely take actions that would mitigate the Company's exposure; however, due to the uncertainty of the actions that would be taken and their possible effects, this analysis assumes no such actions. Further, this analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. Additionally, there can be no assurances that increases in interest rates will not exceed the interest rates projected above. RAW MATERIAL PRICE RISK The principal raw material used by the Company is plastic resin, particularly polyethylene and polypropylene. The cost of plastic resin fluctuates based upon supply and demand. These fluctuations can be and have been significant in the past. We cannot guarantee that plastic resin prices will not rise significantly in the future or that the supply will remain stable. In the event of an adverse change in the plastic resin market, we also cannot guarantee that we will be able to pass on increased costs of resin to all of our customers or that we will be able to obtain sufficient quantities of plastic resin for production. 7 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 27.1 - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K have been filed during the three months ended June 30, 2000. 8 11 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 hereunto duly authorized. LLS CORP. Dated: August 14, 2000 By: /s/ DAVID M. SINDELAR ----------------------------- Name: David M. Sindelar Title: Senior Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ WESLEY D. DEHAVEN -------------------------------- Name: Wesley D. DeHaven Title: Vice President - Finance (Chief Accounting Officer) 9 12 INDEX TO EXHIBITS

LLS CORP 10-Q