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 October 2, 1994 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 October 2, 1994.
Common stock, no par value: 87,312,353
2
SONOCO PRODUCTS COMPANY
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - October 2, 1994 and
December 31, 1993 3
Consolidated Statements of Income -
Three Months and Nine Months Ended October 2,
1994 and October 3, 1993 4
Consolidated Statements of Cash Flows -
Nine Months Ended October 2, 1994 and
October 3, 1993 5 - 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 12
PART II. OTHER INFORMATION 13
SIGNATURE 14
3
SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars and shares in thousands)
October 2, December 31,
1994 1993
------------ -------------
ASSETS
------
Current Assets
Cash and cash equivalents $ 25,908 $ 25,858
Trade accounts receivable, net of allowances for
doubtful amounts of $6,971 and $6,514, respectively 287,727 232,628
Other receivables 23,090 22,989
Inventories:
Finished and in process 86,002 83,660
Materials and supplies 115,450 102,465
Prepaid expenses 19,442 30,750
Deferred income taxes 13,413 14,760
---------- ----------
571,032 513,110
Property, Plant and Equipment 771,795 737,154
Cost in Excess of Fair Value of Assets Purchased 362,935 339,653
Other Assets 131,306 117,208
---------- ----------
Total assets $1,837,068 $1,707,125
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Payable to suppliers $ 160,494 $ 129,389
Accrued expenses and other 84,820 60,407
Accrued wages and other compensation 23,779 22,633
Restructuring reserve 16,900 27,114
Notes payable and current portion of long-term debt 55,090 60,564
Taxes on income 16,047 3,071
---------- ----------
357,130 303,178
Long-Term Debt 474,492 455,262
Postretirement Benefit Obligation 102,555 99,165
Deferred Income Taxes and Other 64,809 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 66,417 62,277
Translation of foreign currencies (33,129) (39,016)
Retained earnings 675,009 623,500
Treasury shares at cost (1994 - 4,529 shares; 1993 - 4,394 shares) (49,890) (38,072)
---------- ----------
Total shareholders' equity 838,082 788,364
---------- ----------
Total liabilities and shareholders' equity $1,837,068 $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 Nine Months Ended
---------------------------------- -------------------------------
October 2, October 3, October 2, October 3,
1994 1993* 1994 1993*
----------- ----------- ------------- ------------
Sales $591,178 $462,324 $1,692,941 $1,407,770
Cost of sales 466,468 361,763 1,332,628 1,098,058
Selling, general and
administrative expense 63,254 49,246 182,626 150,220
Interest expense 9,435 6,937 27,007 21,907
Interest income (538) (1,603) (1,459) (4,414)
-------- -------- ---------- ----------
Income from operations before
income taxes 52,559 45,981 152,139 141,999
Taxes on income 20,500 17,600 59,300 55,400
-------- -------- ---------- ----------
Income from operations before
equity in earnings of affiliates 32,059 28,381 92,839 86,599
Equity in earnings of affiliates 450 123 605 621
-------- -------- ---------- ----------
Net income 32,509 28,504 93,444 87,220
Preferred dividends (1,941) (5,823)
-------- -------- ---------- ----------
Net income available to
common shareholders $ 30,568 $ 28,504 $ 87,621 $ 87,220
======== ======== ========== ==========
Average shares outstanding 87,099 87,289
Per share
- - ---------
Net income available to
common shareholders $ .35 $ .33 $ 1.01 $ 1.00
======== ======== ========== ==========
Dividends $ .14 $ .135 $ .415 $ .395
* 1993 results have been 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)
Nine Months Ended
-------------------------------
October 2, October 3,
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 93,444 $ 87,220
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 82,130 66,030
Loss on disposition of assets 1,100 227
Equity in earnings of affiliates (605) (621)
Deferred taxes 2,737 4,742
Changes in assets and liabilities net of
effects from acquisitions/dispositions
and foreign currency adjustments:
Receivables (52,795) (13,751)
Inventories (9,278) 4,937
Prepaid expenses 12,320 14,115
Payables and taxes 42,533 (34,603)
Other assets and liabilities (3,284) 209
--------- ---------
Net cash provided by operating activities 168,302 128,505
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (90,252) (83,722)
Cost of acquisitions, exclusive of cash (26,457) (101,296)
Proceeds from the sale of assets 2,912 39,980
--------- ---------
Net cash used by investing activities (113,797) (145,038)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 72,734 139,213
Principal repayment of debt (70,478) (82,869)
Cash dividends (41,893) (34,476)
Treasury shares acquired (18,602) (2,361)
Treasury shares issued 2,728 2,277
--------- ---------
Net cash (used) provided by financing activities (55,511) 21,784
--------- ---------
Effects of exchange rate changes on cash 1,056 (9,801)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 50 (4,550)
Cash and cash equivalents at beginning of period 25,858 38,068
--------- ---------
Cash and cash equivalents at end of period $ 25,908 $ 33,518
========= =========
See accompanying Notes to Consolidated Financial Statements
- 5 -
6
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Nine Months Ended
----------------------------------
October 2, October 3,
1994 1993
------------- ------------
Interest paid $ 27,522 $ 23,121
Income taxes paid * 40,033 55,254
NONCASH ACTIVITY:
During the third quarter of 1994, the Company acquired approximately 4,300 acres
of timberland through the issuance of 255,564 shares of treasury stock valued
at $5,111.
The Company assumed approximately $6,000 and $9,000 in debt in connection with
acquisitions during 1994 and 1993, respectively.
* Income taxes were overpaid in 1993, and the resulting credits were utilized
in 1994.
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 October 19, 1994, the Board of Directors declared a regular
common stock dividend of $.14 per share, payable December 9 to
shareholders of record November 18, 1994. The Board also
declared a dividend of $.5625 per share on the $2.25 Series A
Cumulative Convertible Preferred Stock payable February 1,
1995, to shareholders of record as of January 13, 1995.
NOTE 3: ACQUISITIONS
During 1994, the Company made several acquisitions, the most
notable being 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 was completed during the second
quarter and 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.
- 7 -
8
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED)
THIRD QUARTER 1994 COMPARED WITH THIRD QUARTER 1993
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter of 1994 were $591.2 million, up
27.9% over the third quarter of last year, partially due to the Engraph
acquisition. Net income for the third quarter was up 14.1% to $32.5 million
from the $28.5 million reported in 1993. Income available to common
shareholders was $30.6 million, after preferred stock dividends, compared with
the $28.5 million in last year's third quarter. Earnings per share for the
quarter, which ended October 2, were $.35, compared with $.33 in last year's
third quarter.
The following segment discussion compares 1994's third-quarter performance with
the third quarter of 1993. Sonoco is changing its segmental reporting this
quarter by combining the Miscellaneous Segment with the Converted Products
Segment. The Company believes that operations in both segments are converting
in nature and, given the relative size of the Miscellaneous Segment, separate
reporting is no longer necessary. If the Miscellaneous Segment had been
reported separately, sales would be $69.3 million, up 12% from last year.
Operating profits would be $9.8 million, up 14% from last year.
Converted Products Segment
Trade sales for the converted products segment were $442.1 million, a 27%
increase over 1993's third-quarter sales of $348.1 million. Operating profits
were $49.6 million, compared with $36.9 million in 1993. The major factor
affecting the increase in this segment's sales and profits is the added volume
in nearly every operation. Other factors include the addition of Engraph,
which was acquired in October 1993, and higher selling prices.
Sales volume in the tube and core businesses increased approximately 10% with
all product lines showing strength. Rising paperboard and other costs
necessitated selling price increases during the quarter. Efficiencies achieved
through the introduction of new technologies and cost control programs added to
this group's much improved performance.
The composite can operations experienced overall volume gains led by increases
in frozen concentrate, snack, refrigerated dough and caulk. Selling price
increases during the quarter were required to recover some raw material cost
increases. Continued cost pressure is expected. Improved productivity and
lower scrap rates added to this group's profitability.
Engraph, acquired in October 1993, was not included in last year's third
quarter financial results. 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 recover from the loss of high-margin tobacco coupon business.
Flexible packaging volume increased with the opening of the new plant in
Tennessee. This new plant continued to show efficiency improvement. The
paperboard carton business has been strong with added business in the cosmetics
and personal-care and home-furnishing markets.
- 8 -
9
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
THIRD QUARTER 1994 COMPARED WITH THIRD QUARTER 1993, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Overall unit volume in the industrial container business increased over last
year. Selling price increases have recovered most cost increases in paper,
resin and steel; however, announced fourth-quarter cost increases are likely
to reduce profit margins.
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, Sonoco's
newest product, continued to experience start-up losses. While sales volume is
off slightly in fibre partitions, the division reported productivity
improvements during the quarter.
The Baker Division, the leading manufacturer of reels for wire packaging,
recorded good results during the quarter, led by the continuing expansion of
cable television service.
Crellin, a major manufacturer of a variety of injection molded plastic
products, saw sales increases in the automotive and filtration segments.
Selling prices have increased as a result of resin cost increases.
The High Density Film Products group, the leading U.S. manufacturer of plastic
bags for the grocery and retail industries, had a strong quarter with volume
gains in all market segments. These gains are from the continuing conversion
from paper to plastic and also the result of a major producer curtailing
production. Capacity in this industry is now fully utilized. Pricing has
increased to offset higher resin costs, though prices remained below 1993
levels for most of the quarter. Sonoco announced that it would be increasing
its manufacturing capacity for plastic grocery bags by about two billion bags.
This expanded capacity is expected to be on line by the second quarter of 1995.
In May, a plastic bag competitor filed a patent infringement suit against
Sonoco. There are no new developments and Sonoco continues to believe this
lawsuit is without merit. The Company is aggressively defending its position
and expects to prevail.
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 implemented price increases to offset all or a portion of the
materials cost increase.
- 9 -
10
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
THIRD QUARTER 1994 COMPARED WITH THIRD QUARTER 1993, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Paper Segment
Total domestic paper sales were $90.2 million, compared with $67.8 million in
the third quarter of 1993. Operating profits were $15.7 million, up from $14
million in 1993. Sales in this segment, both internal and external, were up as
the paper operations saw strong demand with mills operating at 98% of capacity,
approximately five percentage points higher than last year. Much of the
increased demand is coming from the increased sales in Sonoco's industrial
packaging businesses. Approximately 85% of Sonoco's paper is sold internally.
Corrugated medium prices are up from last year and this business remains very
strong.
The major concern in this segment is the unprecedented rise in recovered paper
costs. Selling price increases that took effect in the second quarter improved
third-quarter profits. Recovered paper costs have been very volatile in 1994,
with current prices lingering at nearly three times 1993 cost levels. With
the price increase in the third quarter, recovered paper costs will be fully
recovered in the fourth quarter.
International Segment
Third quarter sales from international operations were $114.6 million,
up from 1993 sales of $90.1 million primarily due to acquisitions. Operating
profits were $1.5 million in the third quarter of 1994, down from $4.5 million
in 1993. The decline in profits is largely due to the poor performance of the
European and Canadian paper operations. These operations have experienced
increased recovered paper costs much the same as in the United States, but the
European paper operations have achieved little selling price relief. Price
increases have been announced in both the paper and converting operations, and
the Company expects improved performance in the fourth quarter. The Company's
German converting operation remains well behind last year; however, operating
efficiencies have improved, scrap rates are reduced and the cost reduction
program continues. The German operation should show improved results in the
fourth quarter. Sonoco's Latin American and Far East operations reported
improved performances.
- 10 -
11
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
SEPTEMBER 1994 YEAR-TO-DATE COMPARED WITH SEPTEMBER 1993 YEAR-TO-DATE
RESULTS OF OPERATIONS
Consolidated net sales for the first three quarters of 1994 were $1,693
million, a 20.3% increase over the first three quarters of 1993 when sales were
$1,408 million. Net income for the first three quarters was $93.4 million, a
7.1% increase over the $87.2 million recorded in the same period of 1993.
Income available to common shareholders, after preferred dividends, was $87.6
million in 1994. Earnings per share for the first nine months of 1994 were
$1.01, compared with $1.00 in the first three quarters of 1993.
On a consolidated basis, the gross profit margin decreased from 22% for the
first nine months of 1993 to 21.3% for the same period in 1994. This decrease
in gross profit percentage reflects the rapidly rising material costs,
primarily in recovered paper, steel and resin. Most operations have
implemented price increases during 1994 to offset all or a portion of the
materials cost increase. However, the Company does not expect to fully recover
the full-year impact of these increased costs over the balance of the year.
Converted Products Segment
Trade sales for the converted products segment were $1,291 million, a 24.3%
increase over 1993's sales of $1,038.8 million. Operating profits were $140.5
million, compared with $115.1 million in 1993. The increase in sales and
profits for this segment reflects the addition of Engraph, an October 1993
acquisition, as well as volume gains in nearly all of the traditional
operations in this segment. In addition, most operations have implemented
price increases during the second and third quarters of 1994 due to the rising
raw material costs. Selling prices for plastic grocery bags, however, have
remained below 1993 levels for most of the year.
Paper Segment
Total domestic paper sales were $237.3 million, up from $209.9 million reported
for the first three quarters of 1993. The increase in sales is due to
increased demand in Sonoco's industrial packaging businesses, coupled with
price increases implemented during the second and third quarters in response to
the rapidly rising recovered paper costs. Operating profits were $42 million,
down from $43.1 million in 1993 due to the unrecovered portion of the recovered
paper cost increases.
- 11 -
12
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
SEPTEMBER 1994 YEAR-TO-DATE COMPARED WITH SEPTEMBER 1993 YEAR-TO-DATE, CONTINUED
International Segment
Sales in the international segment were $312.1 million, up from $289.9 million
in 1993. The increase in sales is due to aquisitions and growth in several
geographic areas partially offset by the disposition of several business units
in 1993 as part of the Company's restructuring program. Operating profits were
$11.5 million, compared with $14 million reported for the first three quarters
of 1993. Profits in this segment are being adversely impacted by significant
increases in recovered paper costs. Price increases in both the paper and
converting operations will result in improved performance in the fourth quarter.
RESULTS OF OPERATIONS, CONTINUED
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 $41.9
million, up from $30.3 million in 1993. Corporate interest expense increased,
reflecting rising short-term rates and the debt incurred with the Engraph
aquisition. Interest income decreased due to the early payment of the Sonoco
Graham note in November 1993. General corporate expense increased over 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 three
quarters of 1994. The debt to capital percentage decreased to 37.2% at October
2, 1994, from 38.0% at December 31, 1993, primarily due to the increase in
capital resulting from year-to-date earnings retained by the Company. Debt
increased only slightly as cash provided by operations has been sufficient to
cover dividends, capital spending (including acquisitions) and the purchase of
$18.6 million of Company stock.
Working capital was $213.9 million at October 2, 1994, up from $209.9
million at December 31, 1993. Significant increases in accounts receivable and
payables during 1994 is primarily due to increased sales and seasonal
fluctuations. In addition, income taxes payable increased $13 million due to
an overpayment in December 1993, resulting in a lower payable balance at
December 31, 1993.
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.
- 12 -
13
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - ------- -----------------
Reference is made to Item 1 of Part II of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1994.
Item 6. Exhibits and Reports on Form 8-K Page
- - ------- -------------------------------- ----
(a) Exhibit (11) - Computation of Earnings Per Share 15
Exhibit (27) - Financial Data Schedule (for SEC purposes only) 16
(b) There were no reports on Form 8-K filed by the Company during the quarter ended
October 2, 1994.
- 13 -
14
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 15, 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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1
EXHIBIT (11)
SONOCO PRODUCTS COMPANY
COMPUTATION OF EARNINGS PER SHARE* (UNAUDITED)
(Dollars in thousands, except per share)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
------------ ------------- ------------- --------------
Primary earnings
- - ----------------
Net income available to common shareholders $ 30,568 $ 28,504 $ 87,621 $ 87,220
============ ============ ============ ============
Common shares:
Weighted average number
of shares outstanding 87,099,497 87,289,326 87,099,497 87,289,326
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 872,387 769,606 885,593 886,463
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding as adjusted 87,971,884 88,058,932 87,985,090 88,175,789
============ ============ ============ ============
Primary earnings per common share $ 0.35 $ 0.32 $ 1.00 $ 0.99
============ ============ ============ ============
Assuming full dilution
- - ----------------------
Net income available to common shareholders $ 30,568 $ 28,504 $ 87,621 $ 87,220
============ ============ ============ ============
Common shares:
Weighted average number of
shares outstanding 87,099,497 87,289,326 87,099,497 87,289,326
Assuming exercise of options reduced by the
number of shares which could have been
purchased (at the higher of end-of-period
price or average) with proceeds from
exercise of such options 1,067,274 769,606 1,067,274 886,463
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding as adjusted 88,166,771 88,058,932 88,166,771 88,175,789
============ ============ ============ ============
Earnings per common share assuming
full dilution $ 0.35 $ 0.32 $ 0.99 $ 0.99
============ ============ ============ ============
(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
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%.
- 15 -
5
1,000
9-MOS
DEC-31-1994
JAN-01-1994
OCT-02-1994
22,450
3,458
294,698
(6,971)
201,452
571,032
1,405,319
(633,524)
1,837,068
357,130
474,492
7,175
0
172,500
658,407
1,837,068
1,692,941
1,692,941
1,332,628
1,332,628
0
656
27,007
152,139
59,300
93,444
0
0
0
93,444
1.00
.99
