1
UNITED STATES
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 30, 1997 Commission File No. 1-11261
SONOCO PRODUCTS COMPANY
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock at May 4, 1997:
Common stock, no par value: 90,145,320
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SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 30, 1997 and
December 31, 1996
Consolidated Statements of Income -
Three Months Ended March 30, 1997 and
March 31, 1996
Consolidated Statements of Cash Flows -
Three Months Ended March 30, 1997 and
March 31, 1996
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
3
SONOCO PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
(unaudited)
March 30, December 31,
ASSETS 1997 1996
------ ----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 81,730 $ 71,260
Trade accounts receivable, net of allowances 346,910 329,963
Other receivables 33,248 38,240
Inventories
Finished and in process 122,417 123,224
Materials and supplies 132,853 137,236
Prepaid expenses 23,324 26,121
Deferred income taxes 11,436 11,605
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751,918 737,649
PROPERTY, PLANT AND EQUIPMENT, NET 996,667 995,415
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 438,001 455,567
OTHER ASSETS 218,095 198,909
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Total Assets $ 2,404,681 $ 2,387,540
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payable to suppliers $ 216,684 $ 205,741
Accrued expenses and other 153,929 111,804
Accrued wages and other compensation 11,916 29,428
Notes payable and current portion of
long-term debt 97,183 102,062
Taxes on income 35,672 26,081
----------- -----------
515,384 475,116
LONG-TERM DEBT 750,161 791,026
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 107,305 107,265
DEFERRED INCOME TAXES AND OTHER 96,846 93,520
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
2,394 and 2,395 shares issued and outstanding as of
March 30, 1997 and December 31, 1996, respectively 119,706 119,756
Common shares, no par value
Authorized 150,000 shares
90,058 and 89,864 shares issued and outstanding as of
March 30, 1997 and December 31, 1996, respectively 7,175 7,175
Capital in excess of stated value 54,035 50,378
Translation of foreign currencies (71,136) (56,572)
Retained earnings 825,205 799,876
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Total shareholders' equity 934,985 920,613
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Total Liabilities and Shareholders' Equity $ 2,404,681 $ 2,387,540
=========== ===========
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share)
Three Months Ended
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March 30, March 31,
1997 1996
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Net sales $ 687,648 $ 669,231
Cost of sales 535,677 512,876
Selling, general and administrative expenses 71,806 73,793
Interest expense 13,549 11,578
Interest income (1,098) (1,219)
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Income from operations before income taxes 67,714 72,203
Taxes on income 26,205 28,448
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Income from operations before equity in
earnings of affiliates/Minority interest
in subsidiaries 41,509 43,755
Equity in earnings of affiliates/
Minority interest in subsidiaries (263) (507)
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Net income 41,246 43,248
Preferred dividends (1,066) (1,941)
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Net income available to common shareholders $ 40,180 $ 41,307
========= =========
Average common shares outstanding:
Assuming no dilution 89,976 91,137
Assuming full dilution 96,741 100,367
Earnings per common share:
Assuming no dilution $ .45 $ .45
========= =========
Assuming full dilution $ .43 $ .43
========= =========
Dividends per common share $ .165 $ .15
========= =========
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Three Months Ended
--------------------------
March 30, March 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 41,246 $ 43,248
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 37,910 34,125
Equity in earnings of affiliates/
Minority interest in subsidiaries 263 507
Deferred taxes 1,872 2,049
Loss on disposition of assets 403 37
Changes in assets and liabilities, net of effects from acquisitions,
dispositions and foreign currency adjustments:
Accounts receivable (26,341) (20,482)
Inventories (7,453) (5,752)
Prepaid expenses 2,704 7,490
Payables and taxes 22,176 (10,741)
Other assets and liabilities (14,640) 8,785
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Net cash provided by operating activities 58,140 59,266
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (50,365) (46,354)
Cost of acquisitions, exclusive of cash (1,870) (33,073)
Other, net 570 0
Proceeds from the sale of assets 62,634 134
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Net cash provided (used) by investing activities 10,969 (79,293)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in commercial paper borrowings (44,091) 57,700
Proceeds from issuance of debt 17,138 6,790
Principal repayment of debt (17,891) (13,197)
Cash dividends - common and preferred (15,917) (15,616)
Shares acquired - common and preferred (50) (11,805)
Common shares issued 3,121 5,755
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Net cash (used) provided by financing activities (57,690) 29,627
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EFFECTS OF EXCHANGE RATE CHANGES ON CASH (949) (107)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 10,470 9,493
Cash and cash equivalents at beginning of period 71,260 61,624
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Cash and cash equivalents at end of period $ 81,730 $ 71,117
======== ========
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Three Months Ended
---------------------------------
March 30, March 31,
1997 1996
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Interest paid $10,066 $10,085
Income taxes paid $ 6,652 $ 9,052
See accompanying Notes to Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: BASIS OF INTERIM PRESENTATION
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position and results of operations for
the interim periods reported hereon. Operating results for the
three months ended March 30, 1997, are not necessarily indicative
of the results that may be expected for the year ending December
31, 1997. 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, 1996.
NOTE 2: DIVIDEND DECLARATIONS
On April 16, 1997, the Board of Directors declared and increased
the regular quarterly dividend from $.165 per share to $.18 per
share, payable June 10, to shareholders of record May 16. On
February 5, 1997, 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 11.
NOTE 3: ACQUISITIONS/DISPOSITIONS
In March of 1997, the Company completed the sale of its screen
print operations acquired in the October 1993 acquisition of
Engraph, Inc. This division was sold because the business did not
fit with the Company's overall focus on the packaging industry. In
addition, the Company signed a letter of intent to form a joint
venture with the Rock-Tenn Company, combining their fibre
partitions businesses into a joint venture company called RTS
Packaging, owned 35% by Sonoco and 65% by Rock-Tenn, with combined
annual sales of approximately $150 million. This transaction is
awaiting regulatory approval.
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SONOCO PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 4: FINANCIAL SEGMENT INFORMATION
As of the 1996 second quarter, the Company has been reporting its
operations in two segments, Industrial Packaging and Consumer
Packaging. 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 30, March 31,
1997 1996
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Total Revenue
Industrial Packaging $ 390,946 $ 384,515
Consumer Packaging 306,372 295,511
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Consolidated $ 697,318 $ 680,026
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Net Sales
Industrial Packaging $ 381,300 $ 374,170
Consumer Packaging 306,348 295,061
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Consolidated $ 687,648 $ 669,231
========= =========
Operating Profit
Industrial Packaging $ 50,194 $ 51,775
Consumer Packaging 29,971 30,787
Interest, net (12,451) (10,359)
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Consolidated $ 67,714 $ 72,203
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SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations that are not historical in nature, are
intended to be, and are hereby identified as "forward looking statements" for
purposes of the safe harbor provided by section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
RESULTS OF OPERATIONS
Consolidated net sales for the first quarter of 1997 were $687.6 million,
compared with $669.2 million recorded for the first quarter of 1996. Net income
available to common shareholders for the first quarter was $40.2 million,
compared with $41.3 million in the first quarter of 1996. Fully diluted earnings
per share for the first quarter of 1997 were $.43, equal to the all-time high
first quarter results of 1996. First quarter earnings per share were favorably
impacted by the repurchase of 3.44 million common share equivalents during 1996.
First quarter performance was in line with Management's expectations that
earnings for the first two quarters of 1997 would be flat to slightly down,
compared with 1996, and then improve in the second half of the year.
INDUSTRIAL PACKAGING SEGMENT
The Industrial Packaging segment includes tubes; cores; cones; roll wrap; molded
plugs and related products and services; fibre drums; plastic drums;
intermediate bulk containers; injection molded and extruded plastics; paper
manufacturing and recovered paper collections; fibre partitions; molded pulp;
corner posts; reels for wire and cable packaging; adhesives; converting
machinery; and forest products.
Trade sales for the Industrial Packaging segment were $381.3 million, a 1.9%
increase over the $374.2 million recorded in the first quarter of 1996.
Operating profits were $50.2 million for the first quarter of 1997 compared with
$51.8 million in the first quarter of 1996.
Volume continued improving in the first quarter in nearly every product line in
the global tube and core business, led by strong increases in sales to textile
carriers, particularly in the United States and Europe. Profits in industrial
products were negatively impacted by further declines in selling prices,
although such prices appear to be stabilizing. Although improving, start-up and
consolidation costs in Brazil and China continued to negatively impact segment
results. The industrial segment began seeing some of the benefits of the plant
consolidations that took place during 1996 in conjunction with the Company's
Process Excellence initiative. Continued improvement is expected from this and
other initiatives undertaken over the past couple of years.
In the paper operations, lower selling prices for corrugating medium and
linerboard, which is sold by the Company to external markets, reduced sales and
profits by approximately $4 million for the quarter. Approximately 85% of the
paperboard produced by the Company is for internal consumption.
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SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Volume was excellent in the injection molded and extruded plastics business, led
by sales of a new heating tray used in the fast food industry. Volume also
increased in both the textile and filtration markets. In addition, the
automotive business continues to be strong.
Volume in the industrial container group was nearly even with the first quarter
1996, but sales dollars were down because of declining prices and product mix.
Performance in this group is also being impacted by start-up costs for the new
plastic drum plant that began operations in Pennsylvania during 1996. However,
volume was up significantly in the first quarter in the group's intermediate
bulk container business.
CONSUMER PACKAGING SEGMENT
The Consumer Packaging segment includes composite cans; fibre and plastic caulk
cartridges; capseals; flexible packaging; pressure-sensitive labels; label
application machinery; paperboard cartons, sleeves, blister packs, coasters and
glass covers; and high density film products.
Trade sales for the consumer packaging segment were $306.3 million for the first
quarter of 1997, a 3.8% increase over 1996's first quarter sales of $295.1
million. Operating profits were $30.0 million for the first quarter of 1997,
compared with $30.8 million in the first quarter of 1996.
The Company's composite can operations continued their strong performance during
the first quarter of 1997, led by sales increases in the snack food, powdered
beverages and adhesives and sealants markets. Volume was also up in the
Capseals business, which is located in England.
This segment is still being negatively impacted by reorganization in the label
and flexible packaging businesses. Costs associated with the reorganization and
consolidation of its label business, which previously operated as multiple
independent companies, should improve throughout 1997 as the Company continues
to build a label business under a unified brand. Sales and profits in the
flexible packaging operations improved over the fourth quarter of 1996 and
should continue improving throughout 1997.
Volume was off in the high density film products business as several customers
had built inventories during the previous quarter. This business was also
impacted by increased resin costs, which have not been fully recovered through
selling price increases.
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SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
CORPORATE
General corporate expenses have been allocated as operating costs to each of the
segments. Interest expense increased in the first quarter of 1997 over 1996 due
to higher debt resulting from the 1996 share repurchase program, capital
spending and acquisitions.
FINANCIAL POSITION, 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, decreased to 45.1% at March 30,
1997, from 47.2% at December 31, 1996. Debt decreased primarily as a result of
proceeds from the sale of the screen print operations.
Working capital decreased $26 million to $236.5 million during the first three
months of 1997 primarily due to the sale of the screen print operations and
seasonal increases in payables to suppliers.
The Company expects internally generated cash flows along with borrowings
available under its commercial paper and other existing credit facilities to be
sufficient to meet operating and normal capital expenditure requirements.
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128 "Earnings Per Share" (FAS 128). This standard is
effective for financial statements issued for periods ending after December 15,
1997 and will be implemented in the Company's 10K for the year ended December
31, 1997. The Company does not expect that FAS No. 128 will have a material
impact on the earnings per share computation.
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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, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on April 16,
1997. The following matters, as described in more detail in the
Company's Proxy Statement, were approved by the shareholders at this
meeting:
(1) The following directors were elected:
VOTES
---------------------
Term For Withheld
---- --------- --------
C. W. Coker 3-year 72,786,353 361,628
A. T. Dickson 3-year 72,777,991 369,990
R. E. Elberson 3-year 72,792,535 355,446
J. C. Fort 3-year 72,686,552 461,429
Dona Davis Young 3-year 72,751,895 396,086
(2) Coopers & Lybrand L.L.P., Certified Public Accountants, was
re-elected as the independent auditors of the corporation for
the fiscal year ending December 31, 1997. The shareholders
voted 73,060,008 for and 27,438 against this appointment,
with 60,535 votes abstaining.
There were 16,873,508 non-votes for each matter voted upon.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (3) - By-laws
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 30, 1997.
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SONOCO PRODUCTS COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONOCO PRODUCTS COMPANY
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(Registrant)
Date: May 13, 1997 By: /s/ F. Trent Hill, Jr.
---------------- ----------------------------
F. Trent Hill, Jr.
Vice President and
Chief Financial Officer
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SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
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3 By-laws
11 Computation of Earnings per Share
27 Financial Data Schedule (for SEC use only)