Annual Report (Form 10-K), fiscal year 1994

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 14 manufacturing plants in the United States and Europe. Through licensees, agents and direct exporters, Liqui-Box serves markets in many countries worldwide.
In August, 1993, Liqui-Box purchased the assets of the Liquid Packaging Divisions of Sonoco Products Company and its wholly-owned subsidiary Sonoco Limited (Sonoco), which have production facilities in Romiley, England, and Elk Grove, California. The two production facilities manufacture plastic bags for the wine, aseptic food and other miscellaneous markets. The Company believes the acquisition broadens its access to European markets and will contribute meaningfully to the Company's growth in future years. Further discussion can be found on Pages 16 [Management's Discussion and Analysis] and 29 [Note 8 of the Notes to Consolidated Financial Statements] of the Company's Annual Report to Shareholders for the fiscal year ended December 31, 1994 (the "1994 Annual Report"), which information is herein incorporated by reference.
DESCRIPTION OF PRINCIPAL PRODUCTS - The principal product of the Company is plastic packaging. Such packaging includes specialty plastic bags and plastic blow molded containers and equipment for filling such packaging products (less than 2% of total net sales), injection molded plastic products used in liquid packaging and a variety of industrial and commercial plastic packaging films. 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 1994, the Company maintained a strong sales momentum 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. Sales from our European subsidiary also showed increased unit growth during the year.
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 15%, 13% and 13% of total sales in 1994, 1993 and 1992, 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 1994, 1993 and 1992 were $2,151,000, $1,954,000 and $1,487,000, 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 16 and 17 [Management's Discussion and Analysis] and on Page 24 [Note 1, Accounting Policies, of the Notes to Consolidated Financial Statements] of the 1994 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 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 nonfood 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 818 individuals in its operations throughout the United States and in Europe on December 31, 1994. Approximately 14% 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 18% of consolidated identifiable assets as of and for the year ended December 31, 1994. European operations constituted less than 10% of net sales and income before taxes for the year ended January 1, 1994 and 19% of identifiable assets as of January 1, 1994.
Item 2.



Item 2. Properties:
At December 31, 1994, the Company owned or leased property at eighteen (18) locations for manufacturing, warehousing, and offices with a total of approximately 670,000 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:
Not applicable
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 28, 1995, 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.
PART II
Pages -------------- The following items are incorporated herein by reference from the indicated pages of the 1994 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 16-17
Item 8.


Item 8. Financial Statements and Supplementary Data 18-31
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure N/A
PART III
The following items are incorporated herein by reference from the indicated pages of the Registrant's definitive Proxy Statement for its 1995 Annual Meeting filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.
Item 10.



Item 10. Directors and Executive Officers of the Registrant 4 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". The Registrant is not required to make any disclosure pursuant to Item 405 of Regulation S-K.
Item 11.

Item 11. Executive Compensation 7 - 10 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 1995 Annual Meeting, are incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners 2 - 3 and Management
Item 13.

Item 13. Certain Relationships and Related Transactions 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 1994 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 1994 Annual Report.
Consolidated Balance Sheets --December 31, 1994 and January 1, 1994 18-19
Consolidated Statements of Income --Fifty-two weeks ended December 31, 1994, Fifty-two weeks ended January 1, 1994 and Fifty-two weeks ended January 2, 1993 20
Consolidated Statements of Cash Flows --Fifty-two weeks ended December 31, 1994, Fifty-two weeks ended January 1, 1994 and Fifty-two weeks ended January 2, 1993 21
Consolidated Statements of Stockholders' Equity --Fifty-two weeks ended December 31, 1994, Fifty-two weeks ended January 1, 1994 and Fifty-two weeks ended January 2, 1993 22-23
Notes to Consolidated Financial Statements 24-30
Report of Independent Auditors 31
(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 10
Schedules other than those listed above are omitted because they are not required or are not applicable.
Item 14. (continued)
(b) No report on Form 8-K was filed during the fourteen weeks ended December 31, 1994. N/A
(c) Exhibits filed with this Annual Report on Form 10-K are attached hereto. See Index to Exhibits at page 53.
(d) Financial Statement Schedules -- See Item 14.(a)(2)