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 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 July 2, 1995:
Common stock, no par value: 91,201,752
---------------------------------------
2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - July 2, 1995 and
December 31, 1994
Consolidated Statements of Income -
Three Months and Six Months Ended July 2, 1995
and July 3, 1994
Consolidated Statements of Cash Flows -
Six Months Ended July 2, 1995 and
July 3, 1994
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)
July 2, December 31,
1995 1994
---------- -----------
ASSETS
------
Current Assets
Cash and cash equivalents $ 71,073 $ 28,444
Trade accounts receivable, net of allowances 328,448 270,439
Other receivables 21,119 20,211
Inventories:
Finished and in process 114,445 86,238
Materials and supplies 133,634 121,424
Prepaid expenses 22,575 29,943
Deferred income taxes 14,973 14,012
---------- ----------
706,267 570,711
Property, Plant and Equipment, Net 816,349 763,109
Cost in Excess of Fair Value of Assets Purchased, Net 383,123 358,965
Other Assets 159,746 142,268
---------- ----------
Total Assets $2,065,485 $1,835,053
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Payable to suppliers $ 190,256 $ 158,098
Accrued expenses and other 98,839 83,268
Accrued wages and other compensation 20,849 30,855
Notes payable and current portion of
long-term debt 69,287 59,421
Taxes on income 25,555 17,001
---------- ----------
404,786 348,643
Long-Term Debt, Net of Current Maturities 601,585 487,959
Postretirement Benefits Other than Pensions 106,705 104,179
Deferred Income Taxes and Other 65,981 62,054
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 96,433 shares 7,175 7,175
Capital in excess of stated value (Note 2) 171,831 60,908
Translation of foreign currencies (42,054) (46,252)
Retained earnings (Note 2) 643,021 697,299
Treasury shares at cost (1995 - 5,231
shares; 1994 - 5,179 shares*) (66,045) (59,412)
---------- ----------
Total shareholders' equity 886,428 832,218
---------- ----------
Total Liabilities and Shareholders' Equity $2,065,485 $1,835,053
========== ==========
*Restated to reflect the 5% common stock dividend on June 9, 1995.
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 Six Months Ended
----------------------- -------------------------
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
-------- -------- ---------- ----------
Sales $691,726 $564,391 $1,336,868 $1,101,763
Cost of sales 540,719 442,397 1,045,522 866,160
Selling, general and administrative expenses 70,527 60,084 140,557 119,371
Interest expense 10,561 8,924 20,337 17,572
Interest income (1,195) (602) (1,690) (921)
-------- -------- ---------- ----------
Income from operations before
income taxes 71,114 53,588 132,142 99,581
Taxes on income 27,950 20,800 51,900 38,800
-------- -------- ---------- ----------
Income from operations before
equity in earnings of affiliates 43,164 32,788 80,242 60,781
Equity in earnings of affiliates 949 48 1,408 155
-------- -------- ---------- ----------
Net income 44,113 32,836 81,650 60,936
Preferred dividends (1,941) (1,941) (3,882) (3,882)
-------- -------- ---------- ----------
Net income available to
common shareholders $ 42,172 $ 30,895 $ 77,768 $ 57,054
======== ======== ========== ==========
Average common shares outstanding* 91,163 91,412 91,163 91,412
Earnings per common share*
-------------------------
Assuming no dilution $ .46 $ .34 $ .85 $ .63
======== ======== ========== ==========
Assuming full dilution $ .44 $ .33 $ .81 $ .61
======== ======== ========== ==========
Dividends per common share* $ .15 $ .133 $ .283 $ .262
======== ======== ========== ==========
*1994 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)
Six Months Ended
------------------------
July 2, July 3,
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 81,650 $ 60,936
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 63,790 54,882
Equity in earnings of affiliates (1,408) (155)
Deferred taxes (995) 2,997
(Gain) loss on disposition of assets (110) 1,535
Changes in assets and liabilities net of
effects from acquisitions and
foreign currency adjustments:
Accounts receivable (47,534) (42,189)
Inventories (27,616) (530)
Prepaid expenses 7,239 5,825
Payables and taxes 28,339 21,202
Other assets and liabilities (12,287) (9,857)
--------- ---------
Net cash provided by operating activities 91,068 94,646
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (84,667) (54,067)
Cost of acquisitions, exclusive of cash (50,234) (26,457)
Proceeds from the sale of assets 1,477 1,743
--------- ---------
Net cash used by investing activities (133,424) (78,781)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 139,104 61,538
Principal repayment of debt (19,064) (28,889)
Cash dividends (29,696) (27,730)
Treasury shares acquired (12,447) (17,813)
Treasury shares issued 5,371 1,910
--------- ---------
Net cash provided (used) by financing activities 83,268 (10,984)
--------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 1,717 (3,619)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 42,629 1,262
Cash and cash equivalents at beginning of period 28,444 25,858
--------- ---------
Cash and cash equivalents at end of period $ 71,073 $ 27,120
========= =========
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:
-----------------------------------
Six Months Ended
---------------------------------
July 2, July 3,
1995 1994
------- -------
Interest paid $17,576 $16,923
Income taxes paid $41,813 $23,746
NON-CASH TRANSACTION:
---------------------
On June 9, 1995, the Company issued a 5% common stock dividend ($106,213 fair
value).
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, 1994.
NOTE 2: DIVIDEND DECLARATIONS
On July 19, 1995, the Board of Directors declared a regular dividend
of $.15 per share payable September 8 to shareholders of record August
18, 1995. The Board also declared a dividend of $.5625 per share on
the $2.25 Series A cumulative Convertible Preferred Stock payable
November 1, 1995, to shareholders of record as of October 13, 1995.
On June 9, 1995, the Company issued a 5% common stock dividend ($106
million fair value), which was declared April 19 for all shareholders
of record May 19. All 1994 shares and per share data in the
accompanying Consolidated Financial Statements have been restated to
reflect the stock dividend. As a result of the stock dividend, the
conversion price for holders of the Company's $2.25 Series A
Cumulative Convertible Preferred Stock has been adjusted from $25.31
to $24.11 per share of common stock.
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.
During the second quarter of 1995, the Company purchased three
converting operations in Brazil and a converting plant and small paper
mill in France. The Company also purchased two additional recovered
paper collection plants. The pro forma impact of these acquisitions
is not material.
8
SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 4: 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 Six Months Ended
----------------------------- -------------------------------
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
-------- -------- ---------- ----------
Total Revenue
Converted Products $501,536 $434,621 $ 985,172 $ 863,693
Paper 126,060 75,745 231,616 147,081
International 148,152 110,571 275,104 199,988
-------- -------- ---------- ----------
Consolidated $775,748 $620,937 $1,491,892 $1,210,762
======== ======== ========== ==========
Sales to Unaffiliated Customers
Converted Products $492,648 $427,448 $ 968,517 $ 848,875
Paper 52,275 28,910 95,908 55,438
International 146,803 108,033 272,443 197,450
-------- -------- ---------- ----------
Consolidated $691,726 $564,391 $1,336,868 $1,101,763
======== ======== ========== ==========
Operating Profit
Converted Products $ 56,320 $ 49,799 $ 107,851 $ 90,919
Paper 22,847 12,550 41,397 26,237
International 10,716 4,947 18,765 10,070
Corporate* (18,769) (13,708) (35,871) (27,645)
-------- -------- ---------- ----------
Consolidated $ 71,114 $ 53,588 $ 132,142 $ 99,581
======== ======== ========== ==========
*Includes interest income, interest expense and unallocated corporate expenses.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
SECOND QUARTER 1995 COMPARED WITH SECOND QUARTER 1994
RESULTS OF OPERATIONS
Consolidated net sales for the second quarter of 1995 were $691.7 million, a
22.6% increase over the $564.4 million reported for the same period last year.
Net income available to common shareholders was $42.2 million, compared with
$30.9 million in 1994's second quarter. Earnings per share (assuming no
dilution) for the quarter were up 35.3% to $.46, compared with $.34 in the same
quarter last year. Fully diluted earnings per share were $.44, up from $.33 in
the second quarter of 1994. (Prior earnings per share numbers are restated to
reflect the 5% common stock dividend issued in June 1995.)
CONVERTED PRODUCTS SEGMENT
Trade sales for the converted products segment were $492.6 million, a 15.3%
increase over 1994's second-quarter sales of $427.4 million. Operating profits
were $56.3 million compared with $49.8 million in 1994. While volume slowed
in the industrial packaging businesses, it continued to increase in the
consumer businesses. These businesses kept abreast of material costs through
timely price increases.
Sales and profits were up in the tube and core business while volume decreased
somewhat in the second quarter as compared with the second quarter of 1994,
reflecting a slowdown in the domestic economy. These operations benefited from
productivity improvements and cost savings actions implemented the past few
years. Price increases that were implemented during the quarter have allowed
these operations to offset the continuing increases in raw material costs.
Volume in the composite can business improved in the second quarter led by
increases in the snack and food segments that offset decreases in the frozen
concentrate markets. This group continued to penetrate new markets, adding to
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 in all business units to keep pace with the rising cost
of paperboard, steel and plastic resin. The volume increases, combined with
capital investment and cost reduction programs, resulted in improved earnings
in the second quarter.
Engraph's sales and profits were also up for the quarter. During this period,
the label group began consolidating, combining the various label operations
into two larger business groups to enhance cost effectiveness and better meet
customer needs. The screen printing group had a strong quarter, which included
winning a significant fleet graphics contract with the United States Postal
Service. Flexible packaging had good performance from Morrill Press and
received a boost from the first-quarter acquisition of a flexible packaging
plant in Indiana. Business in the glass cover and coaster operations remained
good, and the paperboard carton business increased over the second quarter of
last year.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
SECOND QUARTER 1995 COMPARED WITH SECOND QUARTER 1994, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Sales were up slightly in the Company's molded and extrusion plastics
businesses. Sales were also up in the Company's partitions and protective
packaging businesses. While volume was down in the Company's wire and cable
reel operation, lower fixed costs and productivity increases helped boost
profits.
The Company's plastic bag operations continued unit-volume growth. Price
increases, resulting from increased resin costs, also boosted sales. The
capacity expansion of the North Carolina production facility was completed
during the second quarter, and two other expansions are in process with one
scheduled for completion during the third quarter and the other later in the
year. In May 1994, a plastic bag competitor filed a patent infringement suit
against the Company. There were no substantive developments in this suit
during the quarter. The Company is aggressively defending its position and
believes the lawsuit is without merit.
PAPER SEGMENT
Total domestic paper sales were $126.1 million, up 66.4% from the $75.7 million
reported in the second quarter of 1994. Operating profits were $22.8 million,
an 82% increase over 1994's $12.6 million. The paper mills operated at about
96% capacity during the second quarter of 1995 as several mills took downtime
for maintenance. Also, there was some decrease in demand corresponding to the
drop in orders from the company's industrial packaging operations. Accounting
for about 20% 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. As in the first quarter, a significant factor in the
performance of the paper segment has been the increased external sales of the
Company's Paper Stock Dealer subsidiary. This group has benefited from the
increased demand for recovered newsprint and other recovered grades of paper.
During the quarter, the Company and Weyerhaeuser announced an agreement to
share some recovered paper collection facilities and to strengthen access to
recovered paper supplies for the companies and their customers.
INTERNATIONAL SEGMENT
The Company's international operations continued strong performance through the
second quarter with sales of $146.8 million, up from $108 million in 1994.
Sales were given a strong boost by the addition of Harland, which was acquired
in June 1994, and the European consumer packaging business, which was fully
acquired in January 1995. Operating profits for the international segment were
$10.7 million, up 116.6% from $4.9 million in 1994. International performance
was led by the tube, core and paperboard business in Asia, Canada, Mexico and
Europe and the composite can business in Latin America. Volume was down
slightly in the tube business in Australia and New Zealand because of slowing
economies. The company's molded plastics operations in the Netherlands and
Germany posted a strong performance and experienced significant improvement in
volume during the second quarter.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 1995 YEAR-TO-DATE COMPARED WITH JUNE 1994 YEAR-TO-DATE
RESULTS OF OPERATIONS
Consolidated net sales for the first six months of 1995 were $1,337 million,
compared with $1,102 million reported for the same period last year. Net
income available to common shareholders was $77.8 million in the first half of
1995, compared with $57.1 million in 1994. Earnings per share (assuming no
dilution) for the first six months were $.85 compared with $.63 in last year's
first half. Fully diluted earnings per share were $.81, up from $.61 in 1994.
(Prior earnings per share numbers are restated to reflect the 5% common stock
dividend issued in June 1995.)
On a consolidated basis, the gross profit margin increased from 21.4% for the
first six months of 1994 to 21.8% for the same period in 1995. The first six
months of 1995 were characterized by volatile raw material costs, especially in
recovered paper and plastic resins. Most operations were successful in
recovering the increased costs. While the U.S. economy has weakened the past
couple of months, it is expected to begin to strengthen later in the year. The
Company's businesses are performing at record levels and are expected to remain
strong throughout 1995.
CONVERTED PRODUCTS SEGMENT
Trade sales for the converted products segment during the first six months were
$968.5 million, a 14.1% increase over 1994's first-half sales of $848.9
million. Operating profits were $107.9 million compared with $90.9 million in
1994. The increase in sales for this segment represents both price increases
implemented to meet volatile rising raw material costs and volume increases.
Increased profits resulted from the higher prices and a variety of productivity
improvements and cost reduction programs.
PAPER SEGMENT
Total domestic paper sales were $231.6 million compared with $147.1 million in
the first half of 1994. Operating profits were $41.4 million, up 57.8% from
the $26.2 million reported for the same period in 1994. A contributing factor
to the increase in sales and profits is 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. In addition, the Paper Stock Dealer subsidiary has
benefited from the increased demand for recovered paper. During 1995 the
division has invested in programs to strengthen its access to recovered paper.
While the cost of recovered paper declined at the end of the second quarter,
the Company feels that increases in the cost of OCC are likely during the
remainder of 1995.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 1995 YEAR-TO-DATE COMPARED WITH JUNE 1994 YEAR-TO-DATE, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
INTERNATIONAL SEGMENT
Sales in the international segment were $272.4 million, up 38% from the $197.5
million reported in the first half of 1994. Operating profits were $18.8
million, compared with $10.1 million recorded for the first half of 1994. The
1995 results include the Harland acquisition, which was completed in June 1994,
and the purchase of the remaining 50% of the composite can operations in Europe
effective January 1, 1995. The strong international performance in the first
half of 1995 was led by the tube, core and paperboard business in Asia,
Canada, Mexico and Europe and the composite can business in Latin America. The
molded plastics operations in the Netherlands and Germany also experienced
significant improvement in volume during the first half of 1995.
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 $35.9
million, up from $27.6 million for the same period last year. Corporate
interest expense increased, reflecting higher average borrowing costs,
acquisition funding, and increased spending on capital investments. General
corporate expense is up over the first half of 1994 due to a broad-based
company-owned life insurance program. The tax advantages of this program are
reflected in the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first six months.
The debt to capital percentage increased to 41.5% at July 2, 1995, from 38.1%
at December 31, 1994. Debt increased in 1995 primarily as a result of
increased capital expenditures and acquisition funding. In addition, $35.1
million of 6.125% Industrial Development Revenue Bonds (IRBs) due June 1, 2025
were issued. As of July 2, 1995, the proceeds from the IRBs were invested in
marketable securities, explaining the significant increase in cash and cash
equivalents.
Working capital increased $79.4 million during the first six months of 1995
primarily due to the increases in cash equivalents, accounts receivable and
inventory, partially offset by increased payables. The increases in
receivables, inventory and payables in 1995 is a result of business growth and
price increases.
In April 1995, the Company increased the amount available under its commercial
paper program from $250 million to $300 million and increased 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.
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, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (3) - Articles of Incorporation
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 for the three months ended July 2, 1995.
14
S O N O C O P R O D U C T S C O M P A N Y
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 14, 1995 By: /s/ F. T. Hill, Jr.
------------------------- --------------------------------
F. T. Hill, Jr.
Chief Financial Officer
15
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3 Articles of Incorporation
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)