10-Q 1 d83608e10-q.txt FORM 10-Q FOR QUARTER ENDED DECEMBER 31, 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 December 31, 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 January 31, 2001 ---------------------------- ----------------- 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 months ended December 31, 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 10-K previously filed with the Securities and Exchange Commission. 3. Inventories The composition of inventories at December 31, 2000 is as follows: Raw materials . . . . . . . . . . . . . . . . $ 6,477 Work-in-process . . . . . . . . . . . . . . . 7,112 Finished goods . . . . . . . . . . . . . . . 9,303 ---------- Total . . . . . . . . . . . . . . . . . . $ 22,892 ==========

4 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company has made forward-looking statements in this Form 10-Q, including this section entitled "Management's Discussion and Analysis of Financial Conditions and Results of Operations," that are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations, financing plans, competitive position, potential growth opportunities, business strategies, benefits resulting from the transactions completed and the effects of competition. Forward looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believes," "expects," "anticipates," "intends," "plans," "estimates," or other similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. Undue reliance should not be put on any forward-looking statements. The Company does not have any intention or obligation to update forward-looking statements after distribution of this Form 10-Q. Many important factors could cause the Company's results to differ materially from those expressed in forward-looking statements. These factors include, but are not limited to, fluctuations in operating results and customer orders, competitive environment, reliance on our largest customers, our ability to obtain raw materials, our ability to protect our patents and trade secrets, environmental laws and regulations, risk associated with our acquisition strategy, our substantial indebtedness and control by our largest stockholders. The following discussion and analysis includes the results of operations for the three months ended December 31, 2000 and 1999 for LLS Corp.

Three Months Ended December 31, 2000 Compared to Three Months Ended December 31, 1999 Net sales for the three months ended December 31, 2000 were $33.8 million, representing a $2.1 million or 6.0% decrease compared to the same period in the prior year. This net decrease primarily reflected the impact of inventory adjustments made by certain customers. Cost of sales decreased $0.5 million or 1.8%, to $24.7 million during the three months ended December 31, 2000 compared to the same period in the prior year. Cost of sales expressed as a percentage of net sales increased to 72.9% for the three months ended December 31, 2000 from 69.9% for the comparable period in the prior year. The overall increase in cost of sales as a percentage of net sales during the first quarter of fiscal 2001, was due to non-contributing costs incurred in connection with the delay of a major project. These non-contributing 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 as a percentage of sales was due to certain selling price pressure and higher average resin prices. Because we pass a significant portion of 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 $0.2 million or 4.2% to $4.2 million for the three months ended December 31, 2000 compared to the same period in the prior year. Selling, general and administrative expenses expressed as a percentage of sales increased to 12.5% for the three months ended December 31, 2000 from 11.3% for the comparable period in the prior year. Contributing to these increases were higher fixed general and administrative costs resulting from annual wage increases and rising employee benefits costs. 5 8 Depreciation and amortization increased $0.3 million to $3.7 million for the three months ended December 31, 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 $(0.3) million for the three months ended December 31, 2000, compared to $4.8 million for the three months ended December 31, 1999. The fluctuation was primarily due to an increase in interest costs related to the Senior Credit Facility as well as working capital fluctuations. Net cash from investing activities, representing capital expenditures, was $(1.9) million for the three months ended December 31, 2000, compared to $(6.0) million during the comparable period for the prior year. Net cash flows from financing activities were $2.2 for the three months ended December 31, 2000, compared to $0 used in financing activities for the same period in the prior year. Cash from financing activities during the three months ended December 31, 2000 represented net borrowings from the Senior Credit Facility. 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 December 31, 2000, approximately $152.5 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 three months ended December 31, 2000 would have increased by approximately $0.8 million, resulting in a decrease to the Company's net income and after tax cash flow of approximately $0.5 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 polypropylene and polyethylene. 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 our customers or that we will be able to obtain sufficient quantities of plastic resin for production. 7 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings In accordance with the recapitalization agreement (the "Agreement") entered into in connection with the 1999 recapitalization of the Company, the Company is seeking recovery of claims filed against Walter J. Kreiseder and Gerald J. Sommers and certain related trusts (the "Shareholders"), for breaches by the Shareholders of representations, that include the distribution of monies placed in escrow established under the Agreement. A court case is currently pending to resolve these issues in circuit court in Chicago, Illinois. Item 6. Exhibits and Reports on Form 8-K. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the three months ended December 31, 2000. 8 11 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. By: /s/ DAVID M. SINDELAR -------------------------------- Dated: February 14, 2001 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

LLS CORP 10-Q