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 July 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 July 3, 1994:
Common stock, no par value: 86,994,693
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SONOCO PRODUCTS COMPANY
INDEX
Page
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PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - July 3, 1994 and
December 31, 1993 3
Consolidated Statements of Income -
Three Months and Six Months Ended July 3, 1994
and July 4, 1993 4
Consolidated Statements of Cash Flows -
Six Months Ended July 3, 1994 and
July 4, 1993 5-6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION 12
SIGNATURE 13
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SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars and shares in thousands)
July 3, December 31,
1994 1993
---------- ----------
ASSETS
------
Current Assets
Cash and cash equivalents $ 27,120 $ 25,858
Trade accounts receivable, net of
allowances for doubtful amounts
of $6,286 and $6,514, respectively 280,322 232,628
Other receivables 21,642 22,989
Inventories:
Finished and in process 88,146 83,660
Materials and supplies 103,683 102,465
Prepaid expenses 25,852 30,750
Deferred income taxes 13,528 14,760
---------- ----------
560,293 513,110
Property, Plant and Equipment 752,877 737,154
Cost in Excess of Fair Value of Assets
Purchased 363,813 339,653
Other Assets 133,856 117,208
---------- ----------
$1,810,839 $1,707,125
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities
Payable to suppliers 149,377 129,389
Accrued expenses and other 78,376 60,407
Accrued wages and other compensation 21,479 22,633
Restructuring reserve 18,300 27,114
Notes payable and current portion of
long-term debt 52,227 60,564
Taxes on income 12,396 3,071
---------- ----------
332,155 303,178
Long-Term Debt 505,881 455,262
Postretirement Benefit Obligation 101,433 99,165
Deferred Income Taxes and Other 63,795 61,156
Shareholders' Equity
Serial preferred stock, no par value
Authorized 30,000 shares
Issued 3,450 shares 172,500 172,500
Common stock, no par value
Authorized 150,000 shares
Issued 91,841 shares 7,175 7,175
Capital in excess of stated value 63,869 62,277
Translation of foreign currencies (39,714) (39,016)
Retained earnings 656,663 623,500
Treasury shares at cost (1994 - 4,846
shares; 1993 - 4,394 shares) (52,918) (38,072)
---------- ----------
Total shareholders' equity 807,575 788,364
---------- ----------
Total liabilities and shareholders' equity $1,810,839 $1,707,125
========== ==========
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share)
Three Months Ended Six Months Ended
---------------------------- ---------------------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
-------- -------- ---------- --------
Sales $564,391 $478,508 $1,101,763 $945,446
Cost of sales 442,397 371,073 866,160 736,295
Selling, general and administrative expenses 60,084 49,799 119,371 100,974
Interest expense 8,924 7,319 17,572 14,970
Interest income (602) (1,388) (921) (2,811)
-------- -------- ---------- --------
Income from operations before
income taxes 53,588 51,705 99,581 96,018
Taxes on income 20,800 20,100 38,800 37,800
-------- -------- ---------- --------
Income from operations before
equity in earnings of affiliates 32,788 31,605 60,781 58,218
Equity in earnings of affiliates 48 203 155 498
-------- -------- ---------- --------
Net Income 32,836 31,808 60,936 58,716
Preferred Dividends (1,941) (3,882)
-------- -------- ---------- --------
Net income available to
common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716
======== ======== ========== ========
Average shares outstanding 87,059 87,260
Per share
- - ---------
Net income available to
common shareholders $ .36 $ .36 $ .66 $ .67
======== ======== ========== ========
Dividends - common $ .14 $ .135 $ .275 $ .26
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
SIX MONTHS ENDED
------------------------------
July 3, July 4,
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60,936 $ 58,716
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 54,882 45,257
Equity in earnings of affiliates (153) (498)
Deferred taxes 2,997 2,507
Changes in assets and liabilities net of
effects from acquisitions/dispositions
and foreign currency adjustments:
Accounts receivable (42,189) (9,665)
Inventories (530) 1,780
Prepaid expenses 5,825 13,660
Payables and taxes 21,202 (23,310)
Other assets and liabilities (8,324) (11,387)
-------- ---------
Net cash provided by operating activities 94,646 77,060
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (54,067) (56,558)
Cost of acquisitions, exclusive of cash (26,457) (101,296)
Proceeds from the sale of assets 1,743 29,480
-------- ---------
Net cash used by investing activities (78,781) (128,374)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 61,538 114,233
Principal repayment of debt (28,889) (47,045)
Cash dividends (27,730) (22,689)
Treasury shares acquired (17,813)
Treasury shares issued 1,910 1,778
-------- ---------
Net cash (used) provided by financing activities (10,984) 46,277
-------- ---------
Effects of exchange rate changes on cash (3,619) (1,117)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,262 (6,154)
Cash and cash equivalents at beginning of period 25,858 38,068
-------- ---------
Cash and cash equivalents at end of period $ 27,120 $ 31,914
======== =========
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:
- - -----------------------------------
SIX MONTHS ENDED
---------------------------
July 3, July 4,
1994 1993
------- -------
Interest paid $16,923 $14,435
Income taxes paid $23,746 $31,864
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
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 DECLARATION
On July 20, 1994, the Board of Directors declared a regular dividend
of $.14 per share, payable September 9 to shareholders of record
August 19, 1994. The Board also declared a dividend of $.5625 per
share on the $2.25 Series A Cumulative Convertible Preferred Stock
payable November 1, 1994, to shareholders of record as of October 14,
1994.
NOTE 3: ACQUISITION
During the second quarter of 1994, the Company completed the purchase
of M. Harland & Son Limited, a leading producer of pressure-sensitive
roll labels and roll-label application equipment headquartered in the
United Kingdom. This acquisition is expected to add $33 million in
sales annually. The acquisition was accounted for as a purchase;
accordingly, the results of operations have been included in the
consolidated statements since the date of acquisition. The pro forma
impact of this purchase is not material.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- - --------------------------------------------------------------------------
OPERATIONS (UNAUDITED)
- - ----------
SECOND QUARTER 1994 COMPARED WITH SECOND QUARTER 1993
- - -----------------------------------------------------
Results of Operations
- - ---------------------
Consolidated net sales for the second quarter of 1994 were $564.4 million
compared with $478.5 million reported for the same period last year. Net
income for the second quarter was $32.8 million, compared with $31.8 million
reported in 1993. Net income available to common shareholders after preferred
dividends was $30.9 million in 1994. Earnings per share for the quarter ended
July 3, 1994, were $.36, the same as last year's second quarter.
Converted Products Segment
Trade sales for the converted products segment were $364.3 million, a 26.7%
increase over 1993's second-quarter sales of $287.5 million. Operating profits
were $42.3 million, compared with $31.5 million in 1993. Sales and profits for
this segment increased primarily due to the acquisition of Engraph in October
of 1993 and increased demand in most of the Company's traditional product
lines.
Volume remained strong in the consumer products operations. These operations
continue to benefit from productivity and scrap reduction programs that are
part of the company's overall quality improvement efforts.
Engraph, which was not part of Sonoco during last year's second quarter,
reported increased business during the quarter. Engraph produces
pressure-sensitive labels, coupons and package inserts, screen process
printing, paperboard cartons and specialties and flexible packaging. The label
and package insert business continues to grow. The flexible packaging business
has been good and the new press in Tennessee is expected to be profitable
during the second half. The paperboard carton business has been strong with
added business in the cosmetics and personal-care markets.
Sales volume in the industrial products businesses (tubes and cores) was up in
the second quarter led by increases in paper mill cores, film cores, tape cores
and textile tubes. This increase was driven by improved market conditions for
many customers. Sales were still off in the textile cone area, but this
business did show improvement during the second quarter.
Sales in the industrial container business were up in the second quarter with
significant increases in plastic drums and intermediate bulk containers.
Volume increased in the protective packaging businesses led by the packaging
forms operation, which continues to make significant conversions among
appliance manufacturers. The engineered cushion fibre operation reported
start-up losses but has begun supplying customers and should continue growing
throughout the year.
Crellin, a major manufacturer of a variety of injection molded plastic
products, continued its growth with sales increasing in most product lines,
including textile, wire, filtration and automotive.
A common thread through most of the converted products segment is an
increase in materials cost. These increases are generally in paper,
steel and resin. Most operations have announced price increases, which will
offset portions of the materials increase.
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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 $75.7 million, compared with $70.0 million in
the second quarter of 1993. Operating profits were $12.6 million, down from
$14.3 million in the second quarter of 1993. The increase in sales for this
segment is primarily due to very strong demand, which has paper mills
operating at 97% of capacity. However, there has been a decline in
profitability that is directly related to the increases in recovered paper
costs. Price increases in cylinder paperboard have been announced and
implemented but they will not have an impact until the third quarter. Much of
the increased demand is coming from the increased sales in Sonoco's industrial
packaging businesses. Approximately 85% of Sonoco's board is sold internally.
Corrugated medium prices are up from last year and this business is strong.
The major concern in this segment is focused on the unprecedented rise in
recovered paper prices. Factors that are currently affecting the recovered
paper market include an increased demand for recycled content for most paper
grades and an increased demand in export markets.
International Segment
Sales in the international segment were $108.0 million in the second quarter of
1994, compared with $102.8 million in the same period of 1993. The increase
in sales is a result of acquisitions and growth in several geographic areas.
Operating profits in the second quarter of 1994 were $4.9 million, down from
$6.5 million reported in the same period of 1993. Gains in converting
operations in certain geographic areas were more than offset by the decline in
profits from the paper operations. International paper operations are
experiencing the same price problems with recovered paper as the U.S. mills.
European operations continue to be negatively affected by the consolidation and
restructuring of several operations, although some improvement in operational
efficiencies has been noted. There should be additional profit improvement as
consolidation results begin to take effect later this year.
Miscellaneous Segment
Trade sales for the miscellaneous segment were $63.1 million, compared
with $62.1 million reported in the same period of last year. Profits were $7.5
million, down from $9.6 million in 1993. The increase in sales is driven by
the increase in volume in the Baker reel division. The cable TV business has
been expanding dramatically, which directly affects the demand for reels.
Volume in the plastic grocery bag business was up with most plants operating at
capacity. However, lower selling prices for plastic grocery bags resulted in
an overall decrease in profits for this segment.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- - --------------------------------------------------------------------------
OPERATIONS (UNAUDITED), continued
- - ----------
JUNE 1994 YEAR-TO-DATE COMPARED WITH JUNE 1993 YEAR-TO-DATE
- - -----------------------------------------------------------
Results of Operations
- - ---------------------
Consolidated net sales for the first six months of 1994 were $1,102 million,
compared with $945 million reported for the same period last year. Net income
for the first six months was $60.9 million, compared with $58.7 million
reported for the same period last year. Income available to common
shareholders, after preferred dividends, was $57.1 million in the first half of
1994. Earnings per share for the first six months were $.66, compared with $.67
in last year's first half.
On a consolidated basis, gross profit margin decreased from 22.1% for the
first six months of 1993 to 21.4% for the same period in 1994. This decrease
in profit reflects the rapidly rising material costs. The cost of recovered
paper has more than tripled since January 1994. These unprecedented increases,
along with increases in steel and resin prices, are affecting short-term
profitability. Most operations implemented price increases during the second
quarter of 1994 and will be forced to raise prices again. However, the Company
does not expect to fully recover these increased costs over the balance of the
year.
Converted Products Segment
Trade sales for the converted products segment were $729.6 million, a 27.6%
increase over 1993's first-half sales of $571.6 million. Operating profits
were $77.9 million, compared with $61.2 million in 1993. The increase in sales
and profits for this segment reflects the addition of Engraph, an October 1993
acquisition. In addition the consumer operations, as well as most of the
industrial products businesses, experienced volume gains for the first half of
1994 compared with the same period in 1993.
Paper Segment
Total domestic paper sales were $147.1 million, compared with $142.1 million in
the first half of 1993. The increase in sales is primarily due to increased
demand in Sonoco's industrial packaging businesses. Operating profits were
$26.2 million, down from $29.1 million for the same period in 1993 due to the
increase in recovered paper costs.
International Segment
Sales in the international segment were $197.5 million, down from $199.9
million in 1993. The decrease in sales is due to the disposition of several
business units during 1993. Sales from ongoing operations were ahead of prior
year because of acquisitions and growth in several geographic areas. This
sales improvement was partially offset by the closing of two paper mills and
lower selling prices. Operating profits were $10.1 million compared with $9.6
million recorded for the first half of 1993 due to improved profits in the
converting operations. Profits in this segment are being adversely impacted by
significant increases for recovered paper.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- - --------------------------------------------------------------------------
OPERATIONS (UNAUDITED), continued
- - ----------
Results of Operations, continued
- - ---------------------
Miscellaneous Segment
Sales in this segment were $119.3 million for the first half of 1994, up
slightly from $119.1 million reported in the same period last year. Operating
profits were $13.0 million compared with $17.0 million reported for the first
half of 1993. The decline in profits is attributed to lower selling prices for
plastic grocery bags.
In May a plastic bag competitor filed a patent infringement suit against
Sonoco. Sonoco believes this lawsuit is without merit and will vigorously
defend its position. Sonoco expects to prevail in this matter.
Corporate
Interest income, interest expense and unallocated corporate expenses are
excluded from the operating profits by segment and are shown under Corporate.
Total expenses, net of interest income, for the corporate segment were $27.6
million, up from $20.9 million for the same period last year. Corporate
interest expense increased, reflecting rising short-term rates and 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. General
corporate expense is up over second quarter 1993 due to a broad-based
company-owned life insurance program. The tax advantages of this program are
more than offsetting the costs.
Liquidity and Capital Resources
- - -------------------------------
The Company's financial position remained strong through the first six months.
The debt to capital percentage increased to 39.3% at July 3, 1994, from 38.0%
at December 31, 1993. Debt increased in 1994 primarily as a result of the
purchase of M. Harland & Son Limited during the second quarter and the Company's
purchase of $17.8 million of its common shares during the first quarter.
Working capital increased $18.2 million during the first six months of 1994
primarily due to an increase in accounts receivable partially offset by
increased payables. The increase in receivables and payables in 1994 is a
result of sales growth and seasonal fluctuations.
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.
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SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
A civil action was filed against the Company in the United States
District Court for the District of Massachusetts on May 3, 1994, by
Integrated Bagging Systems Corporation and BPI Packaging Technologies,
Inc. (the "Plaintiffs"). The suit seeks to have a patent owned by the
Company covering certain plastic grocery bag products and mounting
systems declared invalid. The complaint also asserts that the Company
has willfully infringed a patent covering a method for making a bag
pack owned by one of the Plaintiffs and seeks treble damages which the
Plaintiff has estimated to be more than $120 million ($40 million
trebled). The Company believes this lawsuit is without merit. The
Company will vigorously defend its position and expects to prevail.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K Page
-------------------------------- ----
(a) Exhibit (11) - Computation of Earnings per Share 14
(b) There were no reports on Form 8-K filed by the
Company for the three months ended July 3, 1994.
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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: August 16, 1994 By: /s/ F.T. Hill, Jr.
--------------------------- --------------------------
F.T. Hill, Jr.
Vice President - Finance
(and Principal Accounting
Officer, in his respective
capacities as such)
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Exhibit (11)
SONOCO PRODUCTS COMPANY
Computation of Earnings Per Share* (unaudited)
(Dollars in thousands, except per share)
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 3, July 4, July 3, July 4,
1994 (A) 1993 1994 (A) 1993
----------- ----------- ----------- -----------
Primary earnings
- - ----------------
Net income available to common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716
=========== =========== =========== ===========
Common shares
Weighted average number
of shares outstanding 87,059,440 87,259,527 87,059,440 87,259,527
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 593,785 669,405 932,429 699,141
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 87,653,225 87,928,932 87,991,869 87,958,668
=========== =========== =========== ===========
Primary earnings per share common $ 0.35 $ 0.36 $ 0.65 $ 0.67
=========== =========== =========== ===========
Assuming full dilution
- - ----------------------
Net income available to common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716
=========== =========== =========== ===========
Common shares
Weighted average number of
shares outstanding 87,059,440 87,259,527 87,059,440 87,259,527
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 647,575 756,737 932,429 756,737
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding as adjusted 87,707,015 88,016,264 87,991,869 88,016,264
=========== =========== =========== ===========
Earnings per common share assuming full dilution
Net income $ 0.35 $ 0.36 $ 0.65 $ 0.67
=========== =========== =========== ===========
(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-dulitive effect on earnings per share
in 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%.
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