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1 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 April 3, 1994 Commission File No. 0-516 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 April 3, 1994: Common stock, no par value: 86,890,841 --------------------------------------- 2 SONOCO PRODUCTS COMPANY INDEX Page ---- PART I. FINANCIAL INFORMATION Consolidated Balance Sheets - April 3, 1994 and December 31, 1993 3 Consolidated Statements of Income - Three Months Ended April 3, 1994 and April 4, 1993 4 Consolidated Statements of Cash Flows - Three Months Ended April 3, 1994 and April 4, 1993 5 - 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 PART II. OTHER INFORMATION 11 SIGNATURE 12 3 SONOCO PRODUCTS COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (Dollars and shares in thousands) April 3, December 31, Assets 1994 1993 ------ -------- ------------ Current Assets Cash and cash equivalents $ 35,499 $ 25,858 Receivables 275,323 255,617 Inventories Finished and in process 88,108 83,660 Materials and supplies 99,631 102,465 Prepaid expenses 31,920 30,750 Deferred income taxes 14,240 14,760 ---------- ---------- 544,721 513,110 Property, Plant and Equipment 734,846 737,154 Cost in Excess of Fair Value of Assets Purchased 336,780 339,653 Other Assets 126,775 117,208 ---------- ---------- Total Assets $1,743,122 $1,707,125 ========== ========== Liabilities and Shareholders' Equity ------------------------------------ Current Liabilities Payable to suppliers $ 128,197 $ 129,389 Accrued expenses and other 70,524 60,407 Accrued wages and other compensation 14,650 22,633 Restructuring reserve 19,600 27,114 Notes payable and current portion of long-term debt 53,555 60,564 Taxes on income 17,397 3,071 ---------- ---------- 303,923 303,178 Long-Term Debt 491,852 455,262 Postretirement Benefit Obligation 100,311 99,165 Deferred Income Taxes and Other 60,096 61,156 Shareholders' Equity Serial preferred stock, no par value Authorized 30,000 shares Issued 3,450 shares 172,500 172,500 Common shares, no par value Authorized 150,000 shares Issued 91,841 shares 7,175 7,175 Capital in excess of stated value 63,416 62,277 Translation of foreign currencies (39,961) (39,016) Retained earnings 637,960 623,500 Treasury shares at cost (1994 - 4,950 shares; 1993 - 4,394 shares) (54,150) (38,072) ---------- ---------- Total shareholders' equity 786,940 788,364 ---------- ---------- Total liabilities and shareholders' equity $1,743,122 $1,707,125 ========== ========== See accompanying Notes to Consolidated Financial Statements -3- 4 SONOCO PRODUCTS COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Dollars and shares in thousands except per share) Three Months Ended ------------------------ April 3, April 4, 1994 1993 * -------- -------- Sales $537,372 $466,938 Cost of sales 423,763 365,222 Selling, general and administrative expenses 59,287 51,175 Interest expense 8,648 7,651 Interest income (319) (1,423) -------- -------- Income from operations before income taxes 45,993 44,313 Taxes on income 18,000 17,700 -------- -------- Income from operations before equity in earnings of affiliates 27,993 26,613 Equity in earnings of affiliates 107 295 -------- -------- Net income 28,100 26,908 Preferred dividends (1,941) -------- -------- Net income available to common shareholders $ 26,159 $ 26,908 ======== ======== Per common share - - ---------------- Net income available to common shareholders $.30 $.31 Dividends - common $.135 $.125 Average common shares outstanding 87,178 87,196 * First quarter of 1993 restated to reflect the reclassification of certain costs. See accompanying Notes to Consolidated Financial Statements -4- 5 SONOCO PRODUCTS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) See accompanying Notes to Consolidated Financial Statements -5-
Three Months Ended ----------------------------- April 3, April 4, 1994 1993 -------- -------- Cash Flows From Operating Activities - - ------------------------------------ Net income $ 28,100 $ 26,908 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 27,603 21,687 Equity in earnings of affiliates (107) (295) Deferred taxes (75) 525 Loss on retired assets 674 Changes in assets and liabilities, net of effects from acquisitions, dispositions and foreign currency adjustments: Accounts receivable (20,316) (6,957) Inventories (1,473) 2,662 Prepaid expenses (1,199) 5,652 Payables and taxes 7,553 (4,366) Other assets and liabilities (7,245) (1,334) -------- --------- Net cash provided by operating activities 33,515 44,482 Cash Flows From Investing Activities - - ------------------------------------ Purchase of property, plant and equipment (25,479) (21,875) Cost of acquisitions, exclusive of cash (100,500) Proceeds from sale of assets 1,636 -------- --------- Net cash used by investing activities (23,843) (122,375) Cash Flows From Financing Activities - - ------------------------------------ Proceeds from issuance of debt 39,018 91,039 Principal repayment of debt (8,926) (14,498) Cash dividends (13,618) (10,900) Treasury shares acquired (17,813) Treasury shares issued 1,533 1,012 -------- --------- Net cash provided by financing activities 194 66,653 Effects of Exchange Rate Changes on Cash (225) (3,999) -------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 9,641 (15,239) Cash and cash equivalents at beginning of period 25,858 38,068 -------- --------- Cash and cash equivalents at end of period $ 35,499 $ 22,829 ======== ========= 6 SONOCO PRODUCTS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued (Dollars in thousands) Supplemental Cash Flow Disclosures: Three Months Ended ------------------------ April 3, April 4, 1994 1993 -------- -------- Interest paid $8,577 $8,019 Income taxes paid 3,628 3,695 See accompanying Notes to Consolidated Financial Statements -6- 7 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 financial 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. 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, 1993. NOTE 2: Dividend Declarations On April 20, 1994, the Board of Directors increased the quarterly common stock dividend from $.135 to $.14 per share, payable June 10 to shareholders of record May 20. The Board also declared a dividend of $.5625 per share on the $2.25 Series A Cumulative Convertible Preferred Stock payable August 1, 1994, to shareholders of record as of July 15, 1994. NOTE 3: Pending Acquisition On March 2, 1994, the Company announced the offer made to purchase M. Harland & Son Limited, one of the United Kingdom's leading producers of pressure-sensitive roll labels and one of the world's leading manufacturers of roll-label application equipment. Headquartered in the United Kingdom, the Harland Group has estimated annual sales of $32 million. The offer is subject to approval of each company's board of directors, satisfactory due diligence by Sonoco and negotiation and execution of a definitive purchase agreement. -7- 8 SONOCO PRODUCTS COMPANY Management's Discussion and Analysis of Financial Condition and Results of - - -------------------------------------------------------------------------- Operations (unaudited) - - ---------- April 1994 Year-to-Date Compared with April 1993 Year-to-Date ------------------------------------------------------------- Results of Operations - - --------------------- Consolidated net sales for the first quarter of 1994 were $537.4 million compared with $466.9 million reported for the same period last year. Net income for the quarter was $28.1 million compared with 1993 first quarter's $26.9 million. First quarter income available to common shareholders after preferred dividends was $26.2 million in 1994. Earnings per share (EPS) were $.30 compared with $.31 in last year's first quarter. Converted Products Segment Trade sales for the converted products segment were $365.2 million, a 28.6% increase over 1993's first-quarter sales of $284.1 million. Operating profits were $35.6 million compared with $29.7 million in 1993. The increase in sales and profits for this segment reflects the year-to-year impact of the acquisitions of Engraph and Crellin, as well as increased demand in some traditional product lines. Volume has remained strong in the consumer operations. The composite can operations continued the good performance of recent quarters with strong volume in nuts, snacks and juice concentrates, offsetting shortfalls in the powdered beverages and shortening markets. Sales of caulking cartridges, which are tied closely to housing construction, remained strong. Engraph, Sonoco's newest acquisition and a producer of pressure-sensitive labels and coupons, screen process printing, flexible packaging and paperboard cartons and specialties, had a good first quarter with increased business in the health-care and personal-care markets in both labels and cartons. The coupon business has been down since the loss of significant volume in the tobacco industry. Engraph has been slowly replacing the tobacco coupon business with increased sales in beverage coupons and extended text labels. Volume was up in the tube and core business, reflecting increased demand for paper mill cores, textile tubes and tape cores. Volume was off in textile cones. Sales of packaging forms increased with the addition of several major appliance manufacturers as customers. Fibre drum volume declined as sales shifted in part to plastic drums and intermediate bulk containers, which both had volume increases during the quarter. Crellin, a manufacturer of injection molded plastic products, experienced good growth in most product segments during the quarter, especially textiles, wire, filtration and automotive. -8- 9 SONOCO PRODUCTS COMPANY Management's Discussion and Analysis of Financial Condition and Results of - - -------------------------------------------------------------------------- Operations (unaudited), continued - - ---------- Results of Operations, continued - - --------------------- Paper Segment Total domestic paper sales were $71.3 million compared with $72.1 million in 1993. Operating profits were $13.7 million, down from $14.8 million in 1993. The decline in sales and profits is primarily the result of lower selling prices in specialty paperboard grades. A corrugating medium price increase was implemented late in 1993, but prices in the first quarter of 1994 were still below first quarter 1993 levels. Another corrugating medium industry price increase is scheduled for May and should result in improvement in this segment. Volume was up in cylinder board as internal sales increased with the improving business in the converting operations. International Segment Sales in the international segment were $89.4 million, down from $97.1 million in 1993. The decrease in sales is due to the disposition of several business units during 1993, as well as the stronger dollar. Sales from ongoing operations were ahead of the prior year because of acquisitions and growth in several geographic areas. Sales were down in international paper operations due to the closing of two paper mills and lower selling prices. Operating profits for the international segment were $5.1 million compared with $3.1 million in 1993. Profits were down in the paper operations, but they were offset by improved profits in the converting operations in certain geographic areas. Despite the profit increase, European operations continue to be negatively affected by the consolidation and restructuring of several operations. Significant effort is being focused on operating efficiencies, and there should be additional profit improvement as consolidation results begin to take effect later this year. Also, a major portion of the increase is due to the elimination of the one-month reporting lag in late 1993. Miscellaneous Segment Trade sales for the miscellaneous segment were $56.2 million compared with $57 million in 1993. Operating profits were $5.5 million, down from $7.5 million reported last year. Lower selling prices for plastic grocery bags were a factor in the decline of sales and profits in the miscellaneous segment. Volume was up slightly in this segment with the plastic bag plants operating at near-capacity levels. Sonoco's Baker Division, which manufactures reels for the wire and cable industry, showed a good increase in sales as the CATV business and home construction have been very strong. -9- 10 SONOCO PRODUCTS COMPANY Management's Discussion and Analysis of Financial Condition and Results of - - -------------------------------------------------------------------------- Operations (unaudited), continued - - ---------- Results of Operations, continued - - --------------------- Corporate Interest income, interest expense and unallocated corporate expenses are excluded from the operating profits by segment and are captured in the corporate segment. Total expenses, net of income, for the corporate segment were $13.9 million, up from $10.8 million in 1993. Corporate interest expense increased, reflecting the debt incurred with the Engraph acquisition. There was also reduced interest income due to the early payment of the Sonoco Graham note in November 1993. Liquidity and Capital Resources - - ------------------------------- The Company's financial position remained strong through the first quarter. The debt to capital percentage increased to 39.5% at April 3, 1994, from 38% at December 31, 1993. Debt increased primarily as a result of purchasing $17.8 million of the Company's common shares during the first quarter of 1994. The Company expects internally generated cash flow along with borrowings available under its existing credit facilities to be sufficient to meet operating and normal capital expenditure requirements, as well as the funds needed for the pending acquisition of M. Harland & Son Limited described in Note 3. -10- 11 SONOCO PRODUCTS COMPANY PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company's annual meeting was held on April 20, 1994. At this meeting the following matters were approved by the shareholders: (1) Directors elected to three-year terms included C. W. Coker, A. T. Dickson, R. E. Elberson, J. C. Fort, and R. C. King, Jr. Elected to a one-year term was Leo Benatar. (2) Coopers & Lybrand, Certified Public Accountants, was re-elected as the independent auditors of the corporation. (3) The shareholders of the Company also approved amendments to the Company's Restated Articles of Incorporation and By Laws to the following effect: - Deletes the present fifteen person maximum number of directors the Company can have, - Gives the directors the ability to set the size of the Board of Directors, as well as to create and fill vacancies on the Board of Directors, - Requires that nominations for directors to be elected at any Annual Meeting of Shareholders, other than incumbent directors, be made in writing at least sixty days prior to the Annual Meeting, and - Recognizes that the holders of the Company's $2.25 Cumulative Convertible Preferred Stock have been given the right to elect two directors during any period in which payment of dividends on the Preferred Stock is in arrears, and makes it clear that any such directors are in addition to the directors elected by the Common Shareholders. Item 6. Exhibits and Reports on Form 8-K Page -------------------------------- ---- (a) Exhibit (11) - Computation of Earnings Per Share 13 (b) There were no reports on Form 8-K filed by the Company for the three months ended April 3, 1994. -11- 12 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: May 13, 1994 By: /s/ F. T. Hill, Jr. ----------------- ------------------------------------- F. T. Hill, Jr. Vice President - Finance (and Principal Accounting Officer, in his respective capacities as such) -12-
1 Exhibit (11) SONOCO PRODUCTS COMPANY Computation of Earnings Per Share* (unaudited) (Dollars in thousands, except per share) Three Months Ended ----------------------- April 3, April 4, 1994 (A) 1993 -------- -------- Primary earnings - - ---------------- Net income available to common shareholders $ 26,159 $ 26,908 ======== ======== Common shares Weighted average number of shares outstanding 87,177,770 87,196,164 Assuming exercise of options (at average price) reduced by the number of shares which could have been purchased with proceeds from exercise of such options 1,269,834 1,019,981 ---------- ---------- Weighted average number of shares outstanding as adjusted 88,447,604 88,216,145 ========== ========== Primary earnings per common share $.30 $.31 ==== ==== Assuming full dilution - - ---------------------- Net income available to common shareholders $26,159 $26,908 ======= ======= Common shares Weighted average number of shares outstanding 87,177,770 87,196,164 Assuming exercise of options (at the higher of the end-of-period price or the average) reduced by the number of shares which could have been purchased with proceeds from exercise of such options 1,269,834 1,019,981 ---------- ---------- Weighted average number of shares outstanding as adjusted 88,447,604 88,216,145 ========== ========== Earnings per common share assuming full dilution $.30 $.31 ==== ==== (A) The Company issued 3,450,000 shares of Series A Cumulative Convertible Preferred Stock in October 1993. The convertible preferred stock and the related dividend had an anti-dilutive effect on earnings per share in first quarter 1994 and are therefore excluded from the above computation. * This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. -13-