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 2, 1995 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 April 2, 1995:
Common stock, no par value: 86,782,177 *
------------------------------------------
* The Company's stock began trading on the New York Stock Exchange, Inc. on
March 8, 1995.
2
SONOCO PRODUCTS COMPANY
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - April 2, 1995 and
December 31, 1994 3
Consolidated Statements of Income -
Three Months Ended April 2, 1995 and
April 3, 1994 4
Consolidated Statements of Cash Flows -
Three Months Ended April 2, 1995 and
April 3, 1994 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 - 12
SIGNATURE 13
3
SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars and shares in thousands)
April 2, December 31,
ASSETS 1995 1994
------ ------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 37,503 $ 28,444
Trade accounts receivable, net of allowances 310,474 270,439
Other receivables 18,504 20,211
Inventories
Finished and in process 98,688 86,238
Materials and supplies 127,978 121,424
Prepaid expenses 26,045 29,943
Deferred income taxes 13,694 14,012
------------- -------------
632,886 570,711
PROPERTY, PLANT AND EQUIPMENT, NET 789,608 763,109
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 380,591 358,965
OTHER ASSETS 148,289 142,268
------------- -------------
Total Assets $ 1,951,374 $ 1,835,053
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payable to suppliers $ 172,969 $ 158,098
Accrued expenses and other 87,296 72,345
Accrued wages and other compensation 15,700 30,855
Restructuring reserve 10,490 10,923
Notes payable and current portion of
long-term debt 71,763 59,421
Taxes on income 38,873 17,001
------------- -------------
397,091 348,643
LONG-TERM DEBT, NET OF CURRENT MATURITIES 529,986 487,959
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 105,313 104,179
DEFERRED INCOME TAXES AND OTHER 65,528 62,054
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 62,264 60,908
Translation of foreign currencies (44,422) (46,252)
Retained earnings 720,724 697,299
Treasury shares at cost
(1995 - 5,059 shares; 1994 - 4,933 shares) (64,785) (59,412)
------------ -------------
Total shareholders' equity 853,456 832,218
------------ -------------
Total liabilities and shareholders' equity $ 1,951,374 $ 1,835,053
============ =============
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 2, April 3,
1995 1994
------------ ----------
Sales $645,142 $537,372
Cost of sales 504,803 423,763
Selling, general and administrative expenses 70,030 59,287
Interest expense 9,776 8,648
Interest income (495) (319)
--------- --------
Income from operations before income taxes 61,028 45,993
Taxes on income 23,950 18,000
--------- --------
Income from operations before equity in
earnings of affiliates 37,078 27,993
Equity in earnings of affiliates 459 107
--------- --------
Net income 37,537 28,100
Preferred dividends (1,941) (1,941)
--------- --------
Net income available to common shareholders $ 35,596 $ 26,159
========= ========
Earnings per common share:
- --------------------------
Assuming no dilution $.41 $.30
Assuming full dilution $.39 $.29
Dividends - common $.14 $.135
Average common shares outstanding 86,841 87,178
See accompanying Notes to Consolidated Financial Statements
- 4 -
5
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended
-------------------------------
April 2, April 3,
1995 1994
----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 37,537 $ 28,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 31,024 27,603
Equity in earnings of affiliates (459) (107)
Deferred taxes 34 (75)
Loss on disposition of assets 121 674
Changes in assets and liabilities, net of
effects from acquisitions, dispositions
and foreign currency adjustments:
Accounts receivable (28,523) (20,316)
Inventories (9,672) (1,473)
Prepaid expenses 4,202 (1,199)
Payables and taxes 22,824 7,553
Other assets and liabilities (6,972) (7,245)
-------- --------
Net cash provided by operating activities 50,116 33,515
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (34,677) (25,479)
Cost of acquisitions, exclusive of cash (37,904)
Proceeds from the sale of assets 304 1,636
-------- --------
Net cash used by investing activities (72,277) (23,843)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 61,312 39,018
Principal repayment of debt (10,569) (8,926)
Cash dividends (14,092) (13,618)
Treasury shares acquired (8,398) (17,813)
Treasury shares issued 2,426 1,533
-------- --------
Net cash provided by financing activities 30,679 194
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 541 (225)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,059 9,641
Cash and cash equivalents at beginning of period 28,444 25,858
-------- --------
Cash and cash equivalents at end of period $ 37,503 $ 35,499
======== ========
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:
Three Months Ended
-------------------------------
April 2, April 3,
1995 1994
--------- ---------
Interest paid $8,872 $ 8,577
Income taxes paid 1,593 3,628
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,
1994.
NOTE 2: DIVIDEND DECLARATIONS
On April 19, 1995, the Board of Directors declared a five percent
common stock dividend for all shareholders of record May 19, to be
distributed June 9. As a result of the stock dividend, the
conversion price for holders of the Company's $2.25 Series A
Cumulative Convertible Preferred Stock will be adjusted
accordingly.
At the April meeting, the Board also increased the regular
quarterly common stock dividend from $.14 to $.15 per share,
payable June 9 to shareholders of record May 19 on all shares
outstanding after the stock dividend. The Board declared a
dividend of $.5625 per share on the $2.25 Series A Cumulative
Convertible Preferred Stock payable August 1, 1995, to shareholders
of record as of July 14, 1995.
NOTE 3: ACQUISITIONS
In January 1995, the Company acquired the remaining 50% interest in
the CMB Sonoco joint venture. CMB Sonoco is a producer of
composite cans with manufacturing facilities in Manchester, U.K.,
and Lieven, France. In March 1995, the Company completed the
purchase of a flexible packaging plant in Edinburgh, Indiana, that
was formerly owned by Hargro Flexible Packaging Corporation. The
Edinburgh plant manufactures packaging for the confection, snack
food and pharmaceutical markets and had sales of more than $30
million in 1994. The pro forma impact of these acquisitions is not
material.
- 7 -
8
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
FIRST QUARTER 1995 COMPARED WITH FIRST QUARTER 1994
RESULTS OF OPERATIONS
Consolidated net sales for the first quarter of 1995 were $645.1 million, a
20.1% increase over the $537.4 million reported for the same period last year.
Net income available to common shareholders was $35.6 million compared with
$26.2 million in 1994's first quarter. Earnings per share (assuming no
dilution) for the quarter were up 36.7% to $.41 compared with $.30 in the same
quarter last year.
The 1995 results reflect increased volume in practically every business and the
continuing realization of the benefits of over $100 million in restructuring
programs over the past few years. The continued increases in raw material
costs remain a major factor affecting the Company's businesses. Generally, the
Company has been able to recoup the cost increases through timely selling price
increases. However, future quarterly increase percentage comparisons to prior
year are not expected to be as strong as the first quarter due to the
relatively weak first quarter of 1994 and the improved performance the Company
experienced in the second half of last year.
CONVERTED PRODUCTS SEGMENT
Trade sales for the converted products segment were $475.9 million, a 12.9%
increase over 1994's first-quarter sales of $421.4 million. Operating profits
were $51.5 million compared with $41.1 million in 1994. Volume continued to
increase in all business lines in response to a strong United States economy.
These businesses were able to keep up with the rapidly increasing raw material
costs through timely price increases.
Volume in the tube and core business was very strong in the first quarter,
reflecting increases in textile, film and paper markets. In addition,
technology leadership led to share gains in the higher-end tube markets during
the quarter. Higher volume has led to productivity gains in this group, which
is continuing to benefit from the cost saving actions taken the last few years.
Paperboard costs are continuing to increase and second quarter selling price
increases are being implemented to offset the latest (April) paperboard cost
increase.
The composite can business improved in the first quarter of 1995 due to volume
and productivity increases. The primary volume increases were in the food and
snack segments coupled with new product introductions that helped to increase
overall unit growth.
Sales and profits were up in the industrial container business led by volume
increases in both plastic drums and intermediate bulk containers. Price
increases were required to keep pace with the rising cost of paperboard, steel
and plastic resin. The volume increases, combined with capital and other
productivity programs, resulted in improved earnings in the first quarter.
- 8 -
9
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED), CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Engraph's sales and profits were also up for the quarter. In the label group,
the extended-text label business was strong, particularly in the agricultural
chemical business. The Morristown, Tennessee, operation of Morrill Press
continued to increase its productivity levels and the screen process printing
operations increased penetration of the beverage-bottler market. Business in
the glass cover and coaster operations remained good and the paperboard carton
business increased over the first quarter of last year. During the first
quarter, Engraph acquired the Edinburgh, Indiana, plant of Hargro Flexible
Packaging Corporation. This plant will add a third operation to Morrill Press.
A new Cerutti press was part of the acquisition and is expected to be in
operation by the end of September 1995.
Sales were up in the Crellin Molded and Extrusion Plastics operation with
increased volume and sales prices. The increased sales prices were the result
of higher resin costs. The Sebro operation, which serves the automotive
industry, saw strong volume gains during the quarter. The Company's wire and
cable reel operation, the Baker Division, increased volume over the first
quarter of last year benefiting from the continuing expansion of cable
television. In the protective packaging operations, fibre partitions and
packaging forms increased sales and earnings on higher volumes. The group's
new engineered cushion fibre product continued to experience start-up losses,
but has now gained volume commitments that will fully utilize existing United
States capacity.
The Company's plastic bag operations saw unit volume grow as it picked up some
of the business resulting from a large competitor's exit from the high density
plastic bag market. Price increases, resulting from increased resin costs,
also boosted sales. The division is continuing an expansion program at three
of its plants. The new capacity should be on line at two plants in June and
the third plant in September. In May 1994, a plastic bag competitor filed a
patent infringement suit against the Company. There has been no substantive
development in this suit. The Company continues to aggressively defend its
position and believes the lawsuit is without merit.
PAPER SEGMENT
The Company's domestic paper mills operated at nearly 100% capacity during the
first quarter of 1995 with total sales of $105.6 million, up 48% from $71.3
million in 1994. Operating profits were $18.6 million, compared with $13.7
million in 1994. Accounting for approximately one third of the quarter's
profit increase was the improved pricing for corrugating medium that is
produced as a joint venture with Georgia-Pacific. The division has also
increased prices in response to the continuing increases in the cost of
recovered paper grades, especially old corrugated containers (OCC) and old
newspapers. Another significant factor in the performance of the paper segment
has been the increased external sales of Sonoco's Paper Stock Dealer
sudsidiary. This group has benefited from the increased demand for recovered
newsprint and other recovered grades of paper. The division has invested in
programs to increase its access to recovered paper and expects to continue
growing this portion of the business.
- 9 -
10
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED), CONTINUED
RESULTS OF OPERATIONS, CONTINUED
INTERNATIONAL SEGMENT
The Company's international operations continued strong performance through the
first quarter of 1995 with sales of $125.6 million, up 40.5% from $89.4 million
in 1994. Operating profits were $8.0 million, up 57.1% from $5.1 million in
1994. This performance was led by the composite can business in Latin America
and Europe, the tube, core and paperboard business in Asia, Canada, Mexico,
Europe, Australia and New Zealand. The Company's molded plastics operations in
the Netherlands and Germany experienced significant improvement in volume
during the period. The 1995 results include the Harland acquisition, which was
completed in June 1994, and the purchase of the remaining 50% of our composite
can operations in Europe, which was acquired January 1, 1995.
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 $17.1 million, up from $13.9 million in 1994. Corporate interest expense
increased in the first quarter of 1995, as compared to the first quarter of
1994, because of higher average borrowing costs and increased spending on
acquisitions. General corporate expense in the quarter was also up because of
increased costs, primarily associated with premiums for the company's
broad-based, company-owned life insurance program. The tax benefit from this
program is reflected in the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first quarter.
The debt to capital percentage increased to 39.8% at April 2, 1995, from 38.1%
at December 31, 1994. Debt increased primarily as a result of spending $37.9
million on acquisitions and capital expenditures of $34.7 million. Working
capital increased to $235.8 million at April 2, 1995, from $222.1 million at
December 31, 1994. Current assets and current liabilities increased primarily
as a result of base business growth.
Subsequent to quarter end, the Company increased the amount available for issue
under its commercial paper program from $250 million to $300 million and
increased the fully committed bank lines of credit supporting the program by a
like amount.
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.
- 10 -
11
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting was held on April 19, 1995. At this meeting the
following matters were approved by the shareholders, as described in more
detail in the Company's Proxy Statement:
(1) Directors elected to three-year terms included Leo
Benatar, P. C. Browning, F. L. H. Coker, T. C. Coxe,
III, B. L. M. Kasriel, E. H. Lawton, Jr. and E. C. Wall,
Jr.
(2) Coopers & Lybrand, L.L.P., Certified Public Accountants,
was re-elected as the independent auditors of the
corporation.
(3) Amendments to the 1991 Key Employee Stock Plan were
approved with the following effects:
-Extended the term of the Plan indefinitely unless
terminated by the Board of Directors.
-Increased the number of shares available for
issuance. The amendments also cause the number
of shares available for issuance to increase
annually without further shareholder approval.
-Imposed certain limits on the number of shares
that can be granted as stock options, stock
appreciation rights or stock grants.
-Expanded the circumstances under which a grant
under the Plan may be transferable.
-Made other changes to the Plan for the purpose of
clarifying various aspects of the Plan and
removing certain restrictions.
(4) The following Annual Incentive Compensation terms were
approved:
-ELIGIBLE EMPLOYEES: All executive officers (17),
as defined by Rule 16a-1(f) of the Securities
Exchange Act of 1934 are eligible to be named by
the Executive Compensation Committee
as participants for any fiscal year.
-PERFORMANCE CRITERION: Performance goals shall
be based on the Company's earnings per share from
ongoing operations.
-MAXIMUM PAYMENT AMOUNT: The maximum payment
amount to any one individual shall be limited to
0.75% of income from operations before income
taxes and cumulative effect of changes in
accounting principles, exclusive of unusual
items, for the applicable fiscal year.
- 11 -
12
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION, CONTINUED
Item 6. Exhibits and Reports on Form 8-K Page
-------------------------------- ----
(a) Exhibit (11) - Computation of Earnings Per Share 14
Exhibit (27) - Financial Data Schedule 15
(b) There were no reports on Form 8-K filed by the Company
for the three months ended April 2, 1995.
- 12 -
13
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 15, 1995 By: /s/ F. T. Hill, Jr.
---------------------- ---------------------------
F. T. Hill, Jr.
Chief Financial Officer
- 13 -
1
EXHIBIT (11)
SONOCO PRODUCTS COMPANY
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Dollars in thousands, except per share)
Three Months Ended
--------------------------------------
April 2, April 3,
1995 1994
------- ---------
PRIMARY EARNINGS*
- ----------------
Net income available to common shareholders $ 35,596 $ 26,159
=========== ===========
Common shares
Weighted average number of shares outstanding 86,841,446 87,177,770
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 1,290,960 1,269,834
----------- -----------
Weighted average number of shares
outstanding as adjusted 88,132,406 88,447,604
=========== ===========
Primary earnings per common share $ .40 $ .30
=========== ===========
ASSUMING FULL DILUTION
- ----------------------
Net income available to common shareholders $ 35,596 $ 26,159
Elimination of preferred dividends 1,941 1,941
----------- -----------
Fully diluted net income $ 37,537 $ 28,100
=========== ===========
Common shares
Weighted average number of shares outstanding 86,841,446 87,177,770
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 1,551,214 1,269,834
Assuming conversion of preferred stock 6,814,785 6,814,785
----------- -----------
Weighted average number of shares
outstanding as adjusted 95,207,445 95,262,389
=========== ===========
Earnings per common share assuming full dilution $ .39 $ .29
=========== ===========
* 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%.
- 14 -
5
1,000
U.S. Dollars
3-MOS
DEC-31-1995
JAN-01-1995
APR-02-1995
1
32,941
4,562
315,766
(6,102)
226,666
632,886
1,474,121
(684,513)
1,951,374
397,091
529,986
7,175
0
172,500
673,781
1,951,374
645,142
645,142
504,803
504,803
0
519
9,776
61,028
23,950
37,537
0
0
0
37,537
$.41
$.39
