1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 29, 1996 Commission File No. 1-11261
SONOCO PRODUCTS COMPANY
------------
Incorporated under the laws I.R.S. Employer Identification
of South Carolina No. 57-0248420
Post Office Box 160
Hartsville, South Carolina 29551-0160
Telephone: 803-383-7000
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 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 at November 3, 1996:
Common stock, no par value: 89,182,362
2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - September 29, 1996 and
December 31, 1995
Consolidated Statements of Income - Three Months and
Nine Months Ended September 29, 1996 and
October 1, 1995
Consolidated Statements of Cash Flows -
Nine Months Ended September 29, 1996 and
October 1, 1995
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
3
SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
September 29,
1996 December 31,
(unaudited) 1995
----------- ------------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 82,900 $ 61,624
Trade accounts receivable, net of allowances 354,967 314,207
Other receivables 36,552 17,074
Inventories:
Finished and in process 126,401 103,073
Materials and supplies 128,178 128,403
Prepaid expenses 19,636 21,277
Deferred income taxes 13,432 16,125
------------ -----------
762,066 661,783
PROPERTY, PLANT AND EQUIPMENT, NET 963,364 865,629
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 445,723 411,343
OTHER ASSETS 256,716 176,658
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Total Assets $ 2,427,869 $ 2,115,413
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 202,629 $ 149,512
Accrued expenses and other 120,269 105,750
Accrued wages and other compensation 19,398 30,885
Notes payable and current portion of
long-term debt 86,912 94,898
Taxes on income 43,934 51,410
------------ -----------
473,142 432,455
LONG-TERM DEBT 832,027 591,894
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 107,530 103,898
DEFERRED INCOME TAXES AND OTHER 47,204 53,472
MINORITY INTEREST 35,618 14,945
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
3,036 and 3,450 shares issued and outstanding at
September 29, 1996 and December 31, 1995, respectively 151,709 172,500
Common stock, no par value
Authorized 150,000 shares
90,070 and 91,117 shares issued and outstanding at
September 29, 1996 and December 31, 1995, respectively 7,175 7,175
Capital in excess of stated value 57,964 100,318
Translation of foreign currencies (59,719) (55,925)
Retained earnings 775,219 694,681
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Total shareholders' equity 932,348 918,749
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Total liabilities and shareholders' equity $ 2,427,869 $ 2,115,413
============ ===========
See accompanying Notes to Consolidated Financial Statements
4
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share)
Three Months Ended Nine Months Ended
-------------------------------- ------------------------------
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
-------------------------------- ------------------------------
Net sales $ 703,422 $ 686,998 $ 2,062,508 $ 2,023,866
Cost of sales 545,476 537,050 1,580,572 1,582,572
Selling, general and administrative expenses 78,838 72,377 230,806 212,934
Interest expense 14,428 11,828 39,620 32,165
Interest income (1,630) (1,409) (4,542) (3,099)
----------- ----------- ----------- -----------
Income from operations before
income taxes 66,310 67,152 216,052 199,294
Taxes on income 26,127 26,370 85,125 78,270
----------- ----------- ----------- -----------
Income from operations before
equity in earnings of affiliates/
minority interest in subsidiaries 40,183 40,782 130,927 121,024
Equity in earnings of affiliates/
Minority interest in subsidiaries (275) (142) (1,016) 1,266
----------- ----------- ----------- -----------
Net income 39,908 40,640 129,911 122,290
Preferred dividends (1,835) (1,941) (5,717) (5,823)
----------- ----------- ----------- -----------
Net income available to
common shareholders $ 38,073 $ 38,699 $ 124,194 $ 116,467
=========== =========== =========== ===========
Average common shares outstanding:
Assuming no dilution 90,960 91,149 90,960 91,149
Assuming full dilution 99,328 100,647 99,328 100,647
Earnings per common share:
Assuming no dilution $ .42 $ .43 $ 1.37 $ 1.28
=========== =========== =========== ===========
Assuming full dilution $ .41 $ .41 $ 1.31 $ 1.22
=========== =========== =========== ===========
Dividends per common share $ .165 $ .15 $ .48 $ .433
=========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements
5
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Nine Months Ended
-----------------------------------------
September 29, October 1,
1996 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 129,911 $ 122,290
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 105,781 93,665
Equity in earnings of affiliates/minority interest in subsidiaries 1,016 (1,266)
Deferred taxes (307) 4,586
Loss on disposition of assets 1,743 123
Changes in assets and liabilities, net of effects from acquisitions,
dispositions and foreign currency adjustments:
Accounts receivable (56,573) (41,444)
Inventories (12,847) (27,907)
Prepaid expenses 1,797 16,286
Payables and taxes 38,238 18,127
Other assets and liabilities 2,307 (3,193)
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Net cash provided by operating activities 211,066 181,267
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (156,560) (122,915)
Cost of acquisitions, exclusive of cash (73,512) (50,234)
Investment in Company-owned life insurance (79,608) (11,576)
Proceeds from the sale of assets 2,327 3,320
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Net cash used by investing activities (307,353) (181,405)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 67,867 135,164
Principal repayment of debt (33,319) (67,530)
Net increase in commercial paper borrowings 195,000 38,300
Cash dividends - common and preferred (49,373) (45,301)
Shares acquired - common and preferred (78,914) (18,307)
Common shares issued 16,449 7,486
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Net cash provided by financing activities 117,710 49,812
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EFFECTS OF EXCHANGE RATE CHANGES ON CASH (147) 1,455
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NET INCREASE IN CASH AND CASH EQUIVALENTS 21,276 51,129
Cash and cash equivalents at beginning of period 61,624 28,444
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Cash and cash equivalents at end of period $ 82,900 $ 79,573
============ ===========
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Nine Months Ended
----------------------------
September 29, October 1,
1996 1995
-------------- ----------
Interest paid $30,971 $28,752
Income taxes paid $92,908 $56,770
Non-cash transaction:
On June 9, 1995, the Company issued a 5% common stock dividend ($106,213 fair
value).
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: BASIS OF INTERIM PRESENTATION
In the opinion of the Company, the accompanying unaudited
consolidated statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations for the interim periods reported
hereon. Operating results for the nine months ended September 29, 1996,
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
annual report for the fiscal year ended December 31, 1995. Certain
amounts in the 1995 Consolidated Financial Statements have been
reclassified to conform with the current year presentation.
NOTE 2: DIVIDEND DECLARATIONS
On October 15, 1996, the Board of Directors declared a regular
quarterly common stock dividend of $.165 per share. This 286th
consecutive dividend will be payable December 10 to shareholders of
record November 15. The Board also declared a quarterly dividend of
$.5625 per share on the $2.25 Series A Cumulative Convertible Preferred
Stock payable January 31, 1997 to shareholders of record as of January
10, 1997.
NOTE 3: ACQUISITIONS
During the first quarter of 1996, the Company finalized the
Sonoco Hongwen joint venture to produce paperboard in Shanghai, China,
and initiated a joint venture in Indonesia that will manufacture
composite cans, tubes and cores. In February of 1996, the Company
acquired Moldwood Products Company of York, Alabama, formerly owned by
Gulf States Paper Corporation. Moldwood Products is a producer of
moldwood plugs for the paper industry with annual sales of
approximately $12 million. The Company also added two operations to its
Baker Division, which produces reels for the wire and cable industry.
During the second quarter of 1996, the Company acquired
Hamilton Hybar, Inc., of Richmond, VA. Hamilton, with annual sales of
approximately $32 million, is a leading supplier of vapor barrier
packaging materials to the paper industry.
During the third quarter of 1996, the Company finalized the
acquisition of Specialty Packaging, a niche producer of specialty
composite cans, specialty lines of metal closures and tubes and cores
with annual sales of approximately $38 million. The Company also
acquired two of Germany's leading paperboard can manufacturers, Dosen
Schmitt of Mayen and Buck Verpackungen GmbH of Freilassing. These
additions to the European consumer packaging operations have combined
sales between $10 and $15 million.
The pro forma impact of these acquisitions is not material.
8
SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 4: TREASURY SHARES
A change in South Carolina law, effective in 1989, eliminated
the legal distinction between treasury shares and authorized but
unissued shares. At the time of the change, the Company elected to
continue to present its Consolidated Balance Sheets showing treasury
shares as it had historically done. In 1996 the Company changed the
presentation of reacquired shares to better reflect the legal status of
such shares. Accordingly, shares acquired by the Company are now
treated as retirements of such shares, and the cost of such shares is
charged to Capital in Excess of Stated Value. The prior year
Consolidated Financial Statements have been reclassified to conform
with the current year presentation.
9
SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 5: FINANCIAL SEGMENT INFORMATION
As of the 1996 second quarter, the Company has been reporting
its operations in two segments, Industrial Packaging and Consumer
Packaging. The Financial Segment Information provided below should be
read in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations immediately following the
Notes to Consolidated Financial Statements.
FINANCIAL SEGMENT INFORMATION (UNAUDITED)
(Dollars in thousands)
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------------
September 29, 1996 October 1, 1995 September 29,1996 October 1, 1995
------------------ --------------- ----------------- ---------------
Total Revenue
Industrial Packaging $ 401,738 $ 416,591 $ 1,188,333 $ 1,237,754
Consumer Packaging 311,643 283,003 905,517 823,840
----------- ----------- ----------- -----------
Consolidated $ 713,381 $ 699,594 $ 2,093,850 $ 2,061,594
=========== =========== =========== ===========
Sales to Unaffiliated Customers
Industrial Packaging $ 391,839 $ 404,262 $ 1,157,957 $ 1,201,445
Consumer Packaging 311,583 282,736 904,551 822,421
----------- ----------- ----------- -----------
Consolidated $ 703,422 $ 686,998 $ 2,062,508 $ 2,023,866
=========== =========== =========== ===========
Operating Profit
Industrial Packaging $ 50,317 $ 50,462 $ 157,828 $ 149,583
Consumer Packaging 28,791 27,109 93,302 78,777
Interest, net (12,798) (10,419) (35,078) (29,066)
----------- ----------- ----------- -----------
Consolidated $ 66,310 $ 67,152 $ 216,052 $ 199,294
=========== =========== =========== ===========
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED)
THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter of 1996 were $703.4 million,
compared with $687.0 million recorded in the third quarter of 1995. Net income
available to common shareholders for the third quarter was $38.1 million,
compared with $38.7 million in the third quarter of 1995. Fully diluted earnings
per share for the third quarter of 1996 were $.41, equal to the all-time high
third quarter results of 1995. These results were in line with estimates the
Company released in mid-September 1996. Third quarter earnings were impacted by
several growth initiatives that are a part of the Company's Vision 2000
objectives, which include the goal of $250 million in earnings by the year 2000.
These initiatives, which will be discussed more fully by segment below, include
start-up and consolidation costs in China and Brazil and significant business
redesign activities in the Company's domestic operations.
INDUSTRIAL PACKAGING SEGMENT
The Industrial Packaging segment includes tubes; cores; cones; roll wrap; molded
plugs and related products and services; fibre drums; plastic drums;
intermediate bulk containers; injection molded and extruded plastics; paper
manufacturing and recovered paper collections; fibre partitions; molded pulp;
corner posts; reels for wire and cable packaging; adhesives; converting
machinery; and forest products.
Trade sales for the Industrial Packaging segment were $391.8 million for the
third quarter of 1996, compared with $404.3 million recorded in the third
quarter of 1995. Operating profits were $50.3 million for the third quarter of
1996, compared with $50.5 million in the third quarter of 1995. While volume was
up modestly, sales dollars declined in this segment during the third quarter.
The sales dollar decline is due to decreases in selling prices for converted
products, cylinder paperboard and corrugating medium in response to lower
material costs.
Third-quarter sales were up in the global tube and core business reflecting
stronger performance in the textile core operations in several regions of the
world. In addition, the domestic acquisitions of Moldwood and Hamilton Hybar
added to both sales and profits of this business. The film core business also
remains strong in North America.
Paper operations have seen some decline in selling prices in most areas of the
world, and the demand has been sporadic in some markets. Due to these slower
market conditions, several mills have been taking down time during the year,
allowing some of these mills to implement productivity upgrades. The Company has
mill upgrades in progress in the United States, France, China and Brazil.
Several growth-oriented initiatives impacted earnings in the Industrial
Packaging segment during the third quarter. Internationally, costs were incurred
in upgrading the recently acquired paper mill in Shanghai, China. The Sonoco
Hongwen joint-venture operation, which will soon include paper converting
operations along with papermaking, is in a start-up mode. The Company is also
experiencing consolidation costs at its facilities in Brazil, which were
acquired during 1995. Consolidation has been slower than desired in Brazil, and
the general economy in that country remains soft.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Domestically, third quarter earnings were affected by costs associated with the
Company's strategies under the Process Excellence and Customer Satisfaction
initiatives, including the closing of seven paper converting plants and the
expansion of 20 others. Process Excellence is the Company's top-to-bottom
examination of its U.S.-based papermaking and tube manufacturing operations.
The Company expects positive contributions from Process Excellence beginning in
the fourth quarter, resulting in the program breaking even for 1996 and then
making a significant contribution in 1997 and beyond. In September of 1996, the
Company announced the formation of a new order fulfillment process that will be
focused on supplying tubes, cores, cones, paperboard and accessory products as
a part of Process Excellence. Three new order fulfillment centers will be
established to process customer orders with just one call and establish an
integrated link between the customers' orders and the Company's production
system. These new centers are expected to reduce the number of customer related
services jobs from 120 to 80. The first of these centers should begin operating
in 1997, after extensive testing and pilot programs.
The industrial container business was off in the third quarter due to weak
demand for fibre drums. Volume was up for both plastic drums and intermediate
bulk containers, but costs associated with the start-up of a new plastic drum
plant in Pennsylvania had an impact on performance. The injection molded and
extruded plastics operations had a strong quarter, led by a rebound in the
plastic textile carrier and filtration tube businesses. The automotive plastics
business also remained strong through the quarter.
CONSUMER PACKAGING SEGMENT
The Consumer Packaging segment includes composite cans; fibre and plastic
caulking cartridges; capseals; plastic tennis ball containers; flexible
packaging; plastic bags; pressure-sensitive labels; screen printing; paperboard
packaging; and label machinery.
Trade sales for the consumer packaging segment were $311.6 million for the third
quarter of 1996, a 10.2% increase over 1995's third quarter sales of $282.7
million. Operating profits increased 6.2% to $28.8 million for the third quarter
of 1996, compared with $27.1 million in the third quarter of 1995.
Volume continued to be strong in the composite can operations as several food
and beverage markets continued to show strong growth for the quarter. Sales in
Europe have expanded in the existing base businesses, with some additional sales
recorded from the German acquisitions that were added at the beginning of the
third quarter. During the third quarter, the Company also completed the
acquisition of the Specialty Packaging Group. Specialty Packaging, a niche
producer of composite cans and specialty lines of metal closures as well as
tubes and cores, is expected to add approximately $38 million to annual sales
and had a positive impact to sales and profits in the third quarter. In Europe,
the Company also acquired the composite can assets of a Danish company.
Customers from this business will be supplied from one of the Company's newly
acquired plants in Germany. The Company also began production at a new composite
can plant in Belgium which supplies the snack food market. Business has
continued to be strong in Mexico, the United Kingdom and Venezuela. Capseals,
headquartered in England, continued its growth as it added sales from the new
poly extrusion machine that began full production in the second quarter and
continues to be fully subscribed.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Sales and profits were off in the flexible packaging operations. The Company
continued to experience costs associated with the installation and start-up of
two new rotogravure presses in the flexible packaging operations. One of these
presses is now operational, and the second should be contributing to operating
performance by the beginning of 1997. The flexible packaging business is
continuously improving, and management expects this operation to improve its
contribution to the Company's results in 1997.
Sales increased in the label business primarily as a result of the October 1995
acquisition of Cricket Converters. The Company is continuing the integration and
consolidation of its label business, which previously operated as multiple
independent companies. Costs associated with this restructuring process included
a plant closing in Moorestown, N.J., severance costs and inefficiencies
resulting from transferring volume among plants. This consolidation program will
continue as the Company works to build a label business under a unified brand.
In addition, drought conditions in the west and southwest caused decreased
demand for fertilizer and agricultural chemicals which resulted in less business
for the extended-text booklet labels. Demand for this business is expected to
improve in the fourth quarter. The Company remains optimistic about the
opportunity for improved volume and margins for this potentially high-growth
business.
The label machinery operation, headquartered in England, was strong during the
third quarter and has orders that will keep this operation running near capacity
through the fourth quarter. The screen printing operations continued having a
strong year with an excellent third quarter. During the third quarter, the
Company announced it is investigating the possible sale of this unit. Although
the screen printing operations are performing well, the industry in which they
operate is printing and not packaging, thus not contributing to the Company's
objective of being a global leader in the packaging industry. The Company's
carton business, which suffered earlier in the year with start-up problems of a
new press, continued to lag behind expectations in the third quarter. With the
new press now running well, prospects are good for improvement in the fourth
quarter.
The high density film products operations continued to operate at full capacity
with some additional shift into plastic grocery bags from the high-volume retail
market and continued growth in the use of high density film for agricultural
markets. Subsequent to the end of the quarter, the Company announced it would be
expanding its plastic bag manufacturing capacity at its North Vernon, IN plant
by over two billion bags per year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
SEPTEMBER 1996 YEAR-TO-DATE COMPARED WITH SEPTEMBER 1995 YEAR-TO-DATE
RESULTS OF OPERATIONS
Consolidated net sales for the first nine months of 1996 were $2.06 billion,
compared with $2.02 billion recorded for the first nine months of 1995. Net
income available to common shareholders for the first three quarters of 1996 was
$124.2 million, a 6.6% increase over the $116.5 million reported during the same
period a year ago. Fully diluted earnings per share for the first three quarters
of the year were $1.31, a 7.4% increase over the $1.22 recorded for the first
nine months of 1995.
The Company's growth in 1996 has not been as dramatic as that achieved during
the first three quarters of 1995, which were three of the strongest quarters on
record for the Company. Despite this slower growth, the Company expects to
achieve another record year in 1996. On a consolidated basis, gross profit
margins improved for the first nine months of 1996 to 23.4% from 21.8% for the
first nine months of 1995. The Company's product and geographic diversity
continue to enhance the Company's strength.
INDUSTRIAL PACKAGING SEGMENT
Trade sales for the first nine months of this year in the Industrial Packaging
segment were $1.16 billion, compared with $1.20 billion in the first three
quarters of 1995. Operating profits in this segment were $157.8 million, a 5.5%
increase over the $149.6 million recorded for the first nine months of last
year. The sales decrease in the first three quarters is primarily the result of
lower selling prices in response to lower material costs, despite generally
stable volume in most product groups.
Sales were up in the global tube and core business in the first nine months,
reflecting increases in the textile carrier business in several regions of the
world as well as strong film core business in North America. There were also
good increases in the injection molded plastics operations during the year.
However, decreases in fibre drum volume, lower recovered paper prices and
reduced selling prices for the Company's paperboard impacted sales growth for
the segment. Except for the start-up operations mentioned below, the
international Industrial Packaging business showed improved performance over
1995's first nine months.
Third quarter and nine months earnings were affected by costs associated with
several ongoing growth-oriented initiatives. The Company experienced
additional costs for the new Sonoco Hongwen paper mill in China that remains in
a start-up mode. In 1995, the Company made several acquisitions in Brazil, and
this year the Company is experiencing consolidation costs in connection with
these operations. In addition, a weak economy in South America impacted demand
in that area.
In April, the Company announced its plans to close seven plants in conjunction
with its Process Excellence initiative. Through the first nine months of 1996,
five of these plants have ceased operations. These plant closings have resulted
in added costs during the first nine months of 1996, largely due to the loss of
efficiency as operations are winding down and volume is being shifted to new
plants. Positive contributions from Process Excellence are expected beginning in
the fourth quarter, resulting in this program breaking even for 1996 and making
significant contributions in 1997 and beyond.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
SEPTEMBER 1996 YEAR-TO-DATE COMPARED WITH SEPTEMBER 1995 YEAR-TO-DATE, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
CONSUMER PACKAGING SEGMENT
Consumer Packaging trade sales for the first nine months of 1996 were $904.6
million, a 10.0% increase over the $822.4 million recorded for the first nine
months of 1995. Operating profits for the first three quarters of 1996 were
$93.3 million, an 18.4% increase over the $78.8 million recorded in the first
three quarters of 1995.
This segment continued to grow with strong performance in the composite can
operations as several food and beverage markets showed strong growth for the
first three quarters of 1996. In addition, sales in Europe have expanded in the
existing base businesses with some additional sales recorded from the German
business added at the beginning of the third quarter. International performance
in the composite can markets remained strong during the first three quarters of
1996. Capseals, headquartered in England, continued its growth as it added
sales from the new poly extrusion machine that began full production during the
second quarter and continues to be fully subscribed.
Performance in the Consumer Packaging segment was impacted by a decline in
sales and profits in the flexible packaging operations, which were affected by
problems with new presses. Business is continuously improving, and the
operations are expected to improve their contributions to the Company's results
in 1997.
The continuing consolidation of the label business has been a major factor in
this segment's performance for the first nine months of 1996. One plant has been
closed in the label group as the Company moves to build a unified label
operation. While the October 1995 acquisition of Cricket Converters has added to
sales, business has been affected by soft pricing and declines in volume related
to drought conditions in the west and southwest. Sales and profits were also
impacted by start-up problems with a press in the paperboard packaging
operations. This press is now fully operational and should be contributing to
performance through the remainder of the year.
The label machinery operation, headquartered in England, was strong during the
first three quarters and has orders that will keep this operation running near
capacity through the fourth quarter. The screen printing operations continued
having a strong year with an excellent third quarter. During the third quarter,
the Company announced it is investigating the possible sale of the screen
printing operations.
In spite of weaker selling prices in 1996, sales and profits increased in the
plastic bag business. Strong demand has allowed this business to produce at
capacity during the first nine months of 1996 and experience productivity gains
as a result of the added volume.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
SEPTEMBER 1996 YEAR-TO-DATE COMPARED WITH SEPTEMBER 1995 YEAR-TO-DATE, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
CORPORATE
General corporate expenses have been allocated as operating costs to each of the
segments. Interest expense increased in the first nine months due to higher debt
levels in 1996 to support increased capital spending, acquisitions and the
Company's share repurchase program discussed below.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first nine months
of 1996. The debt to capital percentage, after adjusting debt levels for excess
cash related to the issuance of restricted purpose bonds, increased to 43.9% at
September 29, 1996, from 39.6% at December 31, 1995. Debt increased primarily as
a result of increased capital spending, acquisitions, stock repurchases and
interest and premiums paid for Company-owned life insurance. On August 21, 1996,
new legislation was enacted which impacts the tax-favored status of the
Company-owned life insurance policies. The impact of the new legislation is
currently being evaluated by the Company.
Working capital increased $59.6 million to $288.9 million during the first nine
months of 1996 primarily due to increases in cash equivalents, accounts
receivable and inventories, partially offset by increased payables. The increase
in cash equivalents is primarily due to the April 1996 issuance of $35 million
of 6.0% Industrial Revenue Bonds due April 1, 2026, to finance the start-up of
some new operations. The proceeds from these bonds have been invested in
marketable securities until qualified capital expenditures take place. The
increases in receivables, inventories and payables are the result of business
growth and acquisitions.
On July 17, 1996, the Company's Board of Directors authorized a public stock
repurchase program that allows the Company to purchase up to $100 million of the
company's common stock and/or Series A Cumulative Convertible Preferred Stock at
current market prices. Under this program, the Company is repurchasing shares by
means of open market purchases and privately negotiated transactions at
prevailing market prices. The timing of repurchases depends on market
conditions, the market price of the company's common stock and management's
assessment of the Company's liquidity and cash flow needs. Through the third
quarter, the total common and preferred stock repurchased under this program
amounted to $53 million.
The Company expects internally generated cash flows along with borrowings
available under its commercial paper and other existing credit facilities to be
sufficient to meet operating and normal capital expenditure requirements.
16
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996. The patent
infringement action filed against the Company in the United
States District Court for the District of Massachusetts, which
has been discussed in previous reports, was dismissed in May
1996.
Item 5. Other Information
Leo Benatar, who retired from the Company in April 1996,
resigned from the Company's Board of Directors effective
September 16, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Computation of Earnings per Share
Exhibit (27) - Financial Data Schedule (for SEC use only)
(b) The Company filed a Current Report on Form 8-K on August 5,
1996, disclosing a change in its segmental reporting format,
effective the second quarter of 1996.
17
SONOCO PRODUCTS COMPANY
SIGNATURE
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.
SONOCO PRODUCTS COMPANY
------------------------------
(Registrant)
Date: November 12, 1996 By: /s/ F. T. Hill, Jr.
-------------------- ------------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
18
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
1
EXHIBIT (11)
SONOCO PRODUCTS COMPANY
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Dollars in thousands, except per share)
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
----------- ----------- ------------ -----------
Primary earnings
Net income available to common shareholders $ 38,073 $ 38,699 $ 124,194 $ 116,467
=========== =========== =========== ===========
Weighted average number
of common shares outstanding 90,959,645 91,148,586 90,959,645 91,148,586
Assuming exercise of options
reduced by the number of shares
which could have been purchased
(at average price) with
proceeds from exercise of such
options 2,072,276 2,155,951 2,072,276 1,740,709
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 93,031,921 93,304,537 93,031,921 92,889,295
=========== =========== =========== ===========
Primary earnings per common share $ 0.41 $ 0.41 $ 1.33 $ 1.25
=========== =========== =========== ===========
Assuming full dilution
Net income available to common shareholders $ 38,073 $ 38,699 $ 124,194 $ 116,467
Elimination of preferred dividends 1,835 1,941 5,717 5,823
----------- ----------- ----------- -----------
Fully diluted net income $ 39,908 $ 40,640 $ 129,911 $ 122,290
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 90,959,645 91,148,586 90,959,645 91,148,586
Assuming exercise of options reduced by the number
of shares which could have been purchased (at the
higher of the end-of-period price or the average)
with proceeds from exercise of such options 2,072,276 2,342,663 2,072,276 2,342,663
Assuming conversion of preferred stock 6,296,499 7,155,300 6,296,499 7,155,300
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding as adjusted 99,328,420 100,646,549 99,328,420 100,646,549
=========== =========== =========== ===========
Earnings per common share assuming full dilution $ 0.41 $ 0.41 $ 1.31 $ 1.22
=========== =========== =========== ===========
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-29-1996
41,953
40,947
362,222
7,255
254,579
762,066
1,798,739
835,375
2,427,869
473,142
832,027
0
151,709
7,175
773,464
2,427,869
2,062,508
2,062,508
1,580,572
1,580,572
0
1,810
39,620
216,052
85,125
129,911
0
0
0
129,911
1.37
1.31
