1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File No. 1-11261
SONOCO PRODUCTS COMPANY
-------------------
Incorporated under the laws I.R.S. Employer Identification
of South Carolina No. 57-0248420
Post Office Box 160
Hartsville, South Carolina 29550-0160
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 March 31, 1996:
Common stock, no par value: 91,123,034
----------------------------------------
2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - March 31,1996 and
December 31, 1995
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and
April 2, 1995
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and
April 2, 1995
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
SIGNATURE
3
SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars and shares in thousands)
March 31, December 31,
ASSETS 1996 1995
--------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 71,117 $ 61,624
Trade accounts receivable, net of allowances 335,094 314,207
Other receivables 16,798 17,074
Inventories
Finished and in process 116,982 103,073
Materials and supplies 120,599 128,403
Prepaid expenses 13,740 21,277
Deferred income taxes 15,270 16,125
---------- ----------
689,600 661,783
PROPERTY, PLANT AND EQUIPMENT, NET 907,643 865,629
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 416,953 411,343
OTHER ASSETS 176,488 176,658
---------- ----------
Total Assets $2,190,684 $2,115,413
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 157,297 $ 149,512
Accrued expenses and other 109,577 105,750
Accrued wages and other compensation 12,646 30,885
Notes payable and current portion of
long-term debt 85,558 94,898
Taxes on income 47,034 51,410
---------- ----------
412,112 432,455
LONG-TERM DEBT 651,759 591,894
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 105,017 103,898
DEFERRED INCOME TAXES AND OTHER 83,495 68,417
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
91,123 shares issued and outstanding 7,175 7,175
Capital in excess of stated value 95,484 100,318
Translation of foreign currencies (59,291) (55,925)
Retained earnings 722,433 694,681
---------- ----------
Total shareholders' equity 938,301 918,749
---------- ----------
Total Liabilities and Shareholders' Equity $2,190,684 $2,115,413
========== ==========
See accompanying Notes to Consolidated Financial Statements
4
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share)
Three Months Ended
-------------------
March 31, April 2,
1996 1995
-------- --------
Sales $669,231 $645,142
Cost of sales 512,876 504,803
Selling, general and administrative expenses 73,793 70,030
Interest expense 11,578 9,776
Interest income (1,219) (495)
-------- --------
Income from operations before income taxes 72,203 61,028
Taxes on income 28,448 23,950
-------- --------
Income from operations before equity in
earnings of affiliates 43,755 37,078
Equity in earnings of affiliates (507) 459
-------- --------
Net income 43,248 37,537
Preferred dividends (1,941) (1,941)
-------- --------
Net income available to common shareholders $ 41,307 $ 35,596
======== ========
Average common shares outstanding:
Assuming no dilution 91,137 91,184
Assuming full dilution 100,367 99,968
Earnings per common share:
Assuming no dilution $ .45 $ .39
======== ========
Assuming full dilution $ .43 $ .37
======== ========
Dividends per common share $ .15 $ .133
======== ========
Shares outstanding and per share data have been restated to reflect the 5%
common stock dividend on June 9, 1995.
See accompanying Notes to Consolidated Financial Statements
5
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
-------------------
March 31, April 2,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $43,248 $37,537
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 34,125 31,024
Equity in earnings of affiliates 507 (459)
Deferred taxes 2,049 34
Changes in assets and liabilities, net of
effects from acquisitions, dispositions
and foreign currency adjustments:
Accounts receivable (20,482) (28,523)
Inventories (5,752) (9,672)
Prepaid expenses 7,490 4,202
Payables and taxes (10,741) 22,824
Other assets and liabilities 8,822 (6,851)
------- -------
Net cash provided by operating activities 59,266 50,116
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (46,354) (34,677)
Cost of acquisitions, exclusive of cash (33,073) (37,904)
Proceeds from the sales of assets 134 304
------- -------
Net cash used by investing activities (79,293) (72,277)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in commercial paper borrowings 57,700 43,455
Proceeds from issuance of debt 6,790 17,857
Principal repayment of debt (13,197) (10,569)
Cash dividends (15,616) (14,092)
Common shares acquired (11,805) (8,398)
Common shares issued 5,755 2,426
------- -------
Net cash provided by financing activities 29,627 30,679
------- -------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (107) 541
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,493 9,059
Cash and cash equivalents at beginning of period 61,624 28,444
------- -------
Cash and cash equivalents at end of period $71,117 $37,503
======= =======
See accompanying Notes to Consolidated Financial Statements
6
SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Three Months Ended
------------------------
March 31, April 2,
1996 1995
--------- --------
Interest paid $10,085 $8,872
Income taxes paid 9,052 1,593
See accompanying Notes to Consolidated Financial Statements
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, 1995.
NOTE 2: DIVIDEND DECLARATIONS
On April 17, 1996, the Board of Directors declared and increased the
regular quarterly dividend 10% from $.15 per share to $.165 per share,
payable June 10 to shareholders of record May 17. On February 7,
1996, the Board declared a quarterly dividend of $.5625 per share on
the $2.25 Series A Cumulative Convertible Preferred Stock, payable May
1, to shareholders of record April 12.
NOTE 3: ACQUISITIONS
During the first quarter, the Company finalized the Sonoco Hongwen
joint venture to produce paperboard in Shanghai, China, and initiated a
joint venture in Indonesia that will manufacture composite cans, tubes
and cores. The Company also acquired Moldwood Products Company, of
York, Alabama, formerly owned by Gulf States Paper Corporation.
Moldwood Products is a producer of moldwood plugs for the paper
industry with annual sales of approximately $12 million. The pro forma
impact of these acquisitions is not material.
Subsequent to March 31, 1996, the Company acquired Hamilton Hybar,
Inc., of Richmond, Va. Hamilton, with annual sales of approximately
$32 million, is a leading supplier of vapor barrier packaging materials
to the paper industry.
NOTE 4: TREASURY SHARES
A change in South Carolina law, effective in 1989, eliminated the legal
distinction between treasury shares and authorized but unissued shares.
At the time of the change, the Company elected to continue to present
its Consolidated Balance Sheets showing treasury shares as it had
historically done. In 1996 the Company changed the presentation of
reacquired shares to better reflect the legal status of such shares.
Accordingly, shares acquired by the Company are now treated as
retirements of such shares, and the cost of such shares is charged to
Capital in Excess of Stated Value. The prior-year Consolidated Financial
Statements have been reclassified to conform with the current-year
presentation.
8
SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 5: FINANCIAL SEGMENT INFORMATION
The Financial Segment Information provided below should be read in
conjunction with the Management's Discussion and Analysis immediately
following the Notes to Consolidated Financial Statements.
FINANCIAL SEGMENT INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31, April 2,
-------------------
1996 1995
-------- --------
Total Revenue
Converted Products $505,968 $483,636
Paper 95,472 105,556
International 140,817 126,952
-------- --------
Consolidated $742,257 $716,144
======== ========
Sales to Unaffiliated Customers
Converted Products $498,329 $475,869
Paper 32,622 43,633
International 138,280 125,640
-------- --------
Consolidated $669,231 $645,142
======== ========
Operating Profit
Converted Products $ 55,951 $ 51,531
Paper 23,611 18,550
International 13,022 8,049
Corporate(*) (20,381) (17,102)
-------- --------
Consolidated $ 72,203 $ 61,028
======== ========
(*)Includes interest income, interest expense and unallocated corporate
expenses.
9
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED)
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
RESULTS OF OPERATIONS
Consolidated net sales for the first quarter of 1996 were $669.2 million, a
3.7% increase over the $645.1 million recorded in the first quarter of 1995.
Net income available to common shareholders was up 16% to $41.3 million from
the $35.6 million reported in 1994. Earnings per share (assuming no dilution)
for the quarter were up 15.4% to $.45, compared with $.39 in the same quarter
last year. Fully diluted earnings per share were $.43, up from $.37 in the
first quarter of 1995. Prior-year earnings per share numbers have been
restated to reflect the 5% common stock dividend issued in June 1995. These
results show the strength of the Company's geographic and product
diversification, particularly in light of the general slow-growth economic
environment.
CONVERTED PRODUCTS SEGMENT
Trade sales for the converted products segment were $498.3 million, a 4.7%
increase over 1995's first quarter sales of $475.9 million. Operating profits
increased 8.6% to $56 million, compared with $51.5 million in the first
quarter of 1995. This segment includes both industrial and consumer-related
converting operations, with sales and profits split about evenly between the
two. Due to the different dynamics impacting these operations, each is
discussed in more detail below.
Industrial Packaging Operations
The first quarter of 1995 was the strongest volume quarter last year for the
industrial packaging businesses. Due to the general economic strength at that
time, raw material costs, primarily paperboard, increased. As a result,
selling prices were increased by industrial packaging businesses. Portions of
this pass-through carried forward into the first quarter of 1996. Since last
year, volume has slowed, in line with the weak industrial economies, plateauing
at a level 5% to 7% below 1995's first quarter. Sales dollars for these
businesses declined 2.3%.
During the first quarter of 1996, the Company's Industrial Products Division
acquired Moldwood Products, a producer of moldwood plugs for the paper
industry. In addition, Hamilton Hybar, Inc., a leading supplier of vapor
barrier packaging materials for use as protective wrap for products like paper
rolls, was acquired effective April 1, 1996. These acquisitions position the
Company as a full-line, one-stop supplier for the roll packaging needs of paper
mills.
The Industrial Products Division, in conjunction with the Paper Division,
continued work on Process Excellence, the bottom-up review of critical
processes within the divisions. Decisions from the initial phases of this
multi-year project will be finalized during the second quarter, with
implementation scheduled to occur during the next two years. In April the
Company announced a realignment of its Industrial Products Division's plant
network. The realignment will result in expanded operations for approximately
20 facilities, which will absorb production responsibilities as well as
equipment and other assets from seven
10
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
RESULTS OF OPERATIONS, CONTINUED
plants which will be closing. The Company expects the 1996 savings resulting
from its Process Excellence Program to cover much of the current year costs
associated with this major growth initiative. In the future, major savings and
revenue growth are expected from the Company's development of new markets,
expansion of existing markets and utilization of new technology to meet and
anticipate rapidly changing customer requirements.
Several industrial packaging operations reported increased volume for the first
quarter. In the Protective Packaging Division, additional conversions by
appliance makers to Sonopost(r) corner protectors and increased sales of
engineered cushion fibre led to increased volume. Crellin's Sebro operation
grew with more value-added assembly work for the automotive industry. Lastly,
Baker Reels completed two small, tactical acquisitions that added to sales in
the first quarter.
Consumer Packaging Operations
Volume growth from internal expansion, new products and acquisitions led to a
12% gain in sales in the consumer packaging businesses. Composite cans grew
from increased demand in several food and beverage markets and the conversion
of a major self manufacturer to the Company's cans. The division
commercialized the new rectangular, paper-bottom composite cans for Lipton iced
tea mix during the first quarter of 1996. This can takes advantage of recent
technological developments that will enable the Company to continue penetrating
new markets with innovative composite can packaging. The division also
announced a new plant that is under construction in Belgium, expansion of a
plant in Jackson, Tenn., and relocation of the plastic caulk cartridge
production from Canandaigua, N.Y., to Winchester, Ky. In the flexible
packaging business, the addition of two new Cerutti presses is helping meet
customer needs for ever higher quality graphics for their packages. The
acquisition of the Edinburgh, Ind., plant from Hargro in March of 1995 also
resulted in added first-quarter sales for flexible packaging.
The High Density Film Products operation increased unit volume about 25% in the
first quarter of 1996, resulting in full utilization of the two billion bag
expansion project completed in 1995. Excellent productivity from this
investment was achieved in the first quarter of 1996. Market growth came
primarily from further penetration of the independent wholesaler/distributor
market. Plans are in place to continue expanding this operation.
Sonoco Engraph's label business benefitted from the acquisition of Cricket
Converters in the fourth quarter of 1995. This acquisition is contributing to
sales and profits as expected. Sonoco Engraph's paperboard packaging business
installed a new web press at its Charlotte, N.C. plant late in 1995 and began
producing high-quality cartons for several different customers during the first
quarter of 1996.
PAPER SEGMENT
Total domestic paper sales decreased 9.6% in the first quarter of 1996 to $95.5
million, compared with $105.6 million reported in the first quarter of 1995.
Operating profits were $23.6 million, up 27.3% from the $18.6 million in 1995.
Approximately 80% of the Company's paperboard sales are to internal converting
operations. As noted earlier, the lower volume in the industrial packaging
operations resulted
11
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(UNAUDITED), CONTINUED
RESULTS OF OPERATIONS, CONTINUED
in lower demand for the paper operations. The majority of outside paperboard
volume involves a joint venture with Georgia-Pacific Corporation for
corrugating medium where both volume and selling prices were down in the
quarter, compared with the same quarter in 1995. Cylinderboard capacity
utilization dropped to 94% for the quarter from 100% in the first quarter of
1995. With the weakness in paper demand, recovered paper costs decreased in
the second half of 1995. Reduced operating costs in the first quarter helped
to sustain profits in the paper and recovered paper operations.
The paper segment, in conjunction with the industrial products division of the
converted products segment, continues to work on the Process Excellence
initiative, which was described above in the converted products segment review.
In line with the growth initiatives of Process Excellence, the Company has
begun construction on the fluidized bed, multi-fuel burning boiler that is part
of the major capital improvement at the Hartsville, S.C. paper mills. In
addition to the new boiler, innovations are taking place on several of the
paper machines to increase quality and capacity.
INTERNATIONAL SEGMENT
The Company's international operations continued strong performance through the
first quarter of 1996 with sales of $138.3 million, 10.1% ahead of 1995's first
quarter sales of $125.6 million. Operating profits improved to $13.0 million
for the quarter, up 61.8% from $8.0 million in 1995. The international
operations consist mainly of paperboard mills and converted product operations
with paperboard, fiber tubes and composite cans comprising most of the segment.
As in the domestic operations, strong international economies in the first
quarter of 1995 resulted in increased raw material costs and subsequent selling
price increases, portions of which carried forward into the first quarter of
1996. Sales also increased as a result of acquisitions of paper mills and
converting operations in Brazil and France that were not included in 1995's
first quarter. During the first quarter of 1996, the Company finalized the
Sonoco Hongwen joint venture to produce paperboard in Shanghai, China, and
initiated a joint venture in Indonesia that will manufacture composite cans,
tubes and cores. The composite can operations in Canada, Europe and Latin
America also continued to grow in the first quarter of 1996.
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 $20.4
million, up from $17.1 million for the same period last year. Corporate
interest expense increased, reflecting higher debt levels. General corporate
expense in the quarter was also up because of increased costs associated with
premiums for the Company's broad-based company-owned life insurance program and
higher incentive and benefit costs.
12
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED),
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first quarter.
The debt to capital percentage, after adjusting debt levels for excess cash
related to the issuance of restricted purpose bonds, increased to 40.7% at
March 31, 1996, from 39.6% at December 31, 1995. Debt increased primarily as a
result of increased capital expenditures and acquisition funding. Working
capital increased $48.2 million to $277.5 million during the first three months
of 1996 primarily due to the increase in accounts receivable and the decrease
in current liabilities.
Subsequent to the end of the first quarter, the Company issued $35 million of
6.0% Industrial Revenue Bonds due April 1, 2026, with the proceeds invested in
marketable securities until qualified capital expenditures take place.
The Company expects internally generated cash flow along with borrowings
available under its commercial paper and other existing credit facilities to be
sufficient to meet operating and normal capital expenditure requirements.
13
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, 1995. The patent infringement
action filed against the Company in the United States District Court
for the District of Massachusetts, which has been discussed in
previous reports, has been dismissed.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on April 17,
1996. 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 C. J.
Bradshaw, R. J. Brown, J. L. Coker, Paul Fulton and H. L. McColl,
Jr. Dona Davis Young was elected to serve a one-year term.
(2) Coopers & Lybrand L.L.P., Certified Public Accountants,
was re-elected as the independent auditors of the corporation.
(3) The 1996 Non-Employee Directors' Stock Plan was approved.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (10) - Material Contracts
Exhibit (11) - Computation of Earnings Per Share
Exhibit (27) - Financial Data Schedule (for SEC use only)
(b) There were no reports on Form 8-K filed by the Company
during the quarter ended March 31, 1996.
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: May 13, 1996 By: /s/ F. T. Hill, Jr.
------------ ----------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
15
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
10 Material Contracts
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)
1
EXHIBIT (10)
SONOCO PRODUCTS COMPANY
MATERIAL CONTRACTS
SONOCO PRODUCTS COMPANY 1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The 1996 Non-Employee Directors' Stock Plan, as approved by the shareholders on
April 17 at the 1996 Annual Shareholders' Meeting, is included as Exhibit 1 of
the Company's Proxy Statement dated March 15, 1996 (filed March 14, 1996), and
is hereby incorporated by reference herein.
1
EXHIBIT (11)
SONOCO PRODUCTS COMPANY
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Dollars in thousands, except per share)
Three Months Ended
------------------------
March 31, April 2,
1996 1995
----------- ----------
PRIMARY EARNINGS
Net income available to common shareholders $ 41,307 $ 35,596
============ ==========
Weighted average number of common shares
outstanding 91,136,586 91,183,518
Assuming exercise of options reduced by the
number of shares which could have been
purchased (at average price) with proceeds
from exercise of such options 2,071,449 1,355,508
------------ ----------
Weighted average number of common shares
outstanding as adjusted 93,208,035 92,539,026
============ ==========
Primary earnings per common share $ 0.44 $ 0.38
============ ==========
ASSUMING FULL DILUTION
Net income available to common shareholders $ 41,307 $ 35,596
Elimination of preferred dividends 1,941 1,941
------------ ----------
Fully diluted net income $ 43,248 $ 37,537
============ ==========
Weighted average number of common shares
outstanding 91,136,586 91,183,518
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 2,074,957 1,628,775
Assuming conversion of preferred stock 7,155,300 7,155,300
------------ ----------
Weighted average number of common shares
outstanding as adjusted 100,366,843 99,967,593
============ ==========
Earnings per common share assuming
full dilution $ 0.43 $ 0.37
============ ==========
Shares outstanding and per share data have been restated to reflect the 5%
stock dividend on June 9, 1995.
5
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
40,798
30,319
340,816
6,535
237,581
689,600
1,696,819
789,176
2,190,684
412,112
651,759
0
172,500
7,175
758,626
2,190,684
669,231
669,231
512,876
512,876
0
852
11,578
72,203
28,448
43,248
0
0
0
43,248
.45
.43
