-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cQLcw2nDudBBNJmtavbRrrOflnSVrBH/4gOb2Ph4JP8ZmurN3gtHez4I/peIzMfh ZKUuzYJNLpXwWJrogWS/8w== 0000950144-94-001525.txt : 19940819 0000950144-94-001525.hdr.sgml : 19940819 ACCESSION NUMBER: 0000950144-94-001525 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940703 FILED AS OF DATE: 19940816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONOCO PRODUCTS CO CENTRAL INDEX KEY: 0000091767 STANDARD INDUSTRIAL CLASSIFICATION: 2631 IRS NUMBER: 570248420 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11261 FILM NUMBER: 94544652 BUSINESS ADDRESS: STREET 1: NORTH SECOND ST STREET 2: P O BOX 160 CITY: HARTSVILLE STATE: SC ZIP: 29551-0160 BUSINESS PHONE: 8033837000 10-Q 1 SONOCO PRODUCTS 10-Q - JULY 3, 1994 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 3, 1994 Commission File No. 0-516 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 3, 1994: Common stock, no par value: 86,994,693 --------------------------------------- 2 SONOCO PRODUCTS COMPANY INDEX Page ---- PART I. FINANCIAL INFORMATION Consolidated Balance Sheets - July 3, 1994 and December 31, 1993 3 Consolidated Statements of Income - Three Months and Six Months Ended July 3, 1994 and July 4, 1993 4 Consolidated Statements of Cash Flows - Six Months Ended July 3, 1994 and July 4, 1993 5-6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II. OTHER INFORMATION 12 SIGNATURE 13 -2- 3 SONOCO PRODUCTS COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) (Dollars and shares in thousands) July 3, December 31, 1994 1993 ---------- ---------- ASSETS ------ Current Assets Cash and cash equivalents $ 27,120 $ 25,858 Trade accounts receivable, net of allowances for doubtful amounts of $6,286 and $6,514, respectively 280,322 232,628 Other receivables 21,642 22,989 Inventories: Finished and in process 88,146 83,660 Materials and supplies 103,683 102,465 Prepaid expenses 25,852 30,750 Deferred income taxes 13,528 14,760 ---------- ---------- 560,293 513,110 Property, Plant and Equipment 752,877 737,154 Cost in Excess of Fair Value of Assets Purchased 363,813 339,653 Other Assets 133,856 117,208 ---------- ---------- $1,810,839 $1,707,125 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - - ------------------------------------ Current Liabilities Payable to suppliers 149,377 129,389 Accrued expenses and other 78,376 60,407 Accrued wages and other compensation 21,479 22,633 Restructuring reserve 18,300 27,114 Notes payable and current portion of long-term debt 52,227 60,564 Taxes on income 12,396 3,071 ---------- ---------- 332,155 303,178 Long-Term Debt 505,881 455,262 Postretirement Benefit Obligation 101,433 99,165 Deferred Income Taxes and Other 63,795 61,156 Shareholders' Equity Serial preferred stock, no par value Authorized 30,000 shares Issued 3,450 shares 172,500 172,500 Common stock, no par value Authorized 150,000 shares Issued 91,841 shares 7,175 7,175 Capital in excess of stated value 63,869 62,277 Translation of foreign currencies (39,714) (39,016) Retained earnings 656,663 623,500 Treasury shares at cost (1994 - 4,846 shares; 1993 - 4,394 shares) (52,918) (38,072) ---------- ---------- Total shareholders' equity 807,575 788,364 ---------- ---------- Total liabilities and shareholders' equity $1,810,839 $1,707,125 ========== ========== See accompanying Notes to Consolidated Financial Statements -3- 4 SONOCO PRODUCTS COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Dollars and shares in thousands except per share)
Three Months Ended Six Months Ended ---------------------------- --------------------------- July 3, July 4, July 3, July 4, 1994 1993 1994 1993 -------- -------- ---------- -------- Sales $564,391 $478,508 $1,101,763 $945,446 Cost of sales 442,397 371,073 866,160 736,295 Selling, general and administrative expenses 60,084 49,799 119,371 100,974 Interest expense 8,924 7,319 17,572 14,970 Interest income (602) (1,388) (921) (2,811) -------- -------- ---------- -------- Income from operations before income taxes 53,588 51,705 99,581 96,018 Taxes on income 20,800 20,100 38,800 37,800 -------- -------- ---------- -------- Income from operations before equity in earnings of affiliates 32,788 31,605 60,781 58,218 Equity in earnings of affiliates 48 203 155 498 -------- -------- ---------- -------- Net Income 32,836 31,808 60,936 58,716 Preferred Dividends (1,941) (3,882) -------- -------- ---------- -------- Net income available to common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716 ======== ======== ========== ======== Average shares outstanding 87,059 87,260 Per share - - --------- Net income available to common shareholders $ .36 $ .36 $ .66 $ .67 ======== ======== ========== ======== Dividends - common $ .14 $ .135 $ .275 $ .26
See accompanying Notes to Consolidated Financial Statements -4- 5 SONOCO PRODUCTS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands)
SIX MONTHS ENDED ------------------------------ July 3, July 4, 1994 1993 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 60,936 $ 58,716 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 54,882 45,257 Equity in earnings of affiliates (153) (498) Deferred taxes 2,997 2,507 Changes in assets and liabilities net of effects from acquisitions/dispositions and foreign currency adjustments: Accounts receivable (42,189) (9,665) Inventories (530) 1,780 Prepaid expenses 5,825 13,660 Payables and taxes 21,202 (23,310) Other assets and liabilities (8,324) (11,387) -------- --------- Net cash provided by operating activities 94,646 77,060 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (54,067) (56,558) Cost of acquisitions, exclusive of cash (26,457) (101,296) Proceeds from the sale of assets 1,743 29,480 -------- --------- Net cash used by investing activities (78,781) (128,374) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 61,538 114,233 Principal repayment of debt (28,889) (47,045) Cash dividends (27,730) (22,689) Treasury shares acquired (17,813) Treasury shares issued 1,910 1,778 -------- --------- Net cash (used) provided by financing activities (10,984) 46,277 -------- --------- Effects of exchange rate changes on cash (3,619) (1,117) -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,262 (6,154) Cash and cash equivalents at beginning of period 25,858 38,068 -------- --------- Cash and cash equivalents at end of period $ 27,120 $ 31,914 ======== =========
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: - - ----------------------------------- SIX MONTHS ENDED --------------------------- July 3, July 4, 1994 1993 ------- ------- Interest paid $16,923 $14,435 Income taxes paid $23,746 $31,864 See accompanying Notes to Consolidated Financial Statements -6- 7 SONOCO PRODUCTS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1: BASIS OF INTERIM PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations for the interim periods reported hereon. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report for the fiscal year ended December 31, 1993. NOTE 2: DIVIDEND DECLARATION On July 20, 1994, the Board of Directors declared a regular dividend of $.14 per share, payable September 9 to shareholders of record August 19, 1994. The Board also declared a dividend of $.5625 per share on the $2.25 Series A Cumulative Convertible Preferred Stock payable November 1, 1994, to shareholders of record as of October 14, 1994. NOTE 3: ACQUISITION During the second quarter of 1994, the Company completed the purchase of M. Harland & Son Limited, a leading producer of pressure-sensitive roll labels and roll-label application equipment headquartered in the United Kingdom. This acquisition is expected to add $33 million in sales annually. The acquisition was accounted for as a purchase; accordingly, the results of operations have been included in the consolidated statements since the date of acquisition. The pro forma impact of this purchase is not material. -7- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - - -------------------------------------------------------------------------- OPERATIONS (UNAUDITED) - - ---------- SECOND QUARTER 1994 COMPARED WITH SECOND QUARTER 1993 - - ----------------------------------------------------- Results of Operations - - --------------------- Consolidated net sales for the second quarter of 1994 were $564.4 million compared with $478.5 million reported for the same period last year. Net income for the second quarter was $32.8 million, compared with $31.8 million reported in 1993. Net income available to common shareholders after preferred dividends was $30.9 million in 1994. Earnings per share for the quarter ended July 3, 1994, were $.36, the same as last year's second quarter. Converted Products Segment Trade sales for the converted products segment were $364.3 million, a 26.7% increase over 1993's second-quarter sales of $287.5 million. Operating profits were $42.3 million, compared with $31.5 million in 1993. Sales and profits for this segment increased primarily due to the acquisition of Engraph in October of 1993 and increased demand in most of the Company's traditional product lines. Volume remained strong in the consumer products operations. These operations continue to benefit from productivity and scrap reduction programs that are part of the company's overall quality improvement efforts. Engraph, which was not part of Sonoco during last year's second quarter, reported increased business during the quarter. Engraph produces pressure-sensitive labels, coupons and package inserts, screen process printing, paperboard cartons and specialties and flexible packaging. The label and package insert business continues to grow. The flexible packaging business has been good and the new press in Tennessee is expected to be profitable during the second half. The paperboard carton business has been strong with added business in the cosmetics and personal-care markets. Sales volume in the industrial products businesses (tubes and cores) was up in the second quarter led by increases in paper mill cores, film cores, tape cores and textile tubes. This increase was driven by improved market conditions for many customers. Sales were still off in the textile cone area, but this business did show improvement during the second quarter. Sales in the industrial container business were up in the second quarter with significant increases in plastic drums and intermediate bulk containers. Volume increased in the protective packaging businesses led by the packaging forms operation, which continues to make significant conversions among appliance manufacturers. The engineered cushion fibre operation reported start-up losses but has begun supplying customers and should continue growing throughout the year. Crellin, a major manufacturer of a variety of injection molded plastic products, continued its growth with sales increasing in most product lines, including textile, wire, filtration and automotive. A common thread through most of the converted products segment is an increase in materials cost. These increases are generally in paper, steel and resin. Most operations have announced price increases, which will offset portions of the materials increase. -8- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - - -------------------------------------------------------------------------- OPERATIONS (UNAUDITED), continued - - ---------- Results of Operations, continued - - --------------------- Paper Segment Total domestic paper sales were $75.7 million, compared with $70.0 million in the second quarter of 1993. Operating profits were $12.6 million, down from $14.3 million in the second quarter of 1993. The increase in sales for this segment is primarily due to very strong demand, which has paper mills operating at 97% of capacity. However, there has been a decline in profitability that is directly related to the increases in recovered paper costs. Price increases in cylinder paperboard have been announced and implemented but they will not have an impact until the third quarter. Much of the increased demand is coming from the increased sales in Sonoco's industrial packaging businesses. Approximately 85% of Sonoco's board is sold internally. Corrugated medium prices are up from last year and this business is strong. The major concern in this segment is focused on the unprecedented rise in recovered paper prices. Factors that are currently affecting the recovered paper market include an increased demand for recycled content for most paper grades and an increased demand in export markets. International Segment Sales in the international segment were $108.0 million in the second quarter of 1994, compared with $102.8 million in the same period of 1993. The increase in sales is a result of acquisitions and growth in several geographic areas. Operating profits in the second quarter of 1994 were $4.9 million, down from $6.5 million reported in the same period of 1993. Gains in converting operations in certain geographic areas were more than offset by the decline in profits from the paper operations. International paper operations are experiencing the same price problems with recovered paper as the U.S. mills. European operations continue to be negatively affected by the consolidation and restructuring of several operations, although some improvement in operational efficiencies has been noted. There should be additional profit improvement as consolidation results begin to take effect later this year. Miscellaneous Segment Trade sales for the miscellaneous segment were $63.1 million, compared with $62.1 million reported in the same period of last year. Profits were $7.5 million, down from $9.6 million in 1993. The increase in sales is driven by the increase in volume in the Baker reel division. The cable TV business has been expanding dramatically, which directly affects the demand for reels. Volume in the plastic grocery bag business was up with most plants operating at capacity. However, lower selling prices for plastic grocery bags resulted in an overall decrease in profits for this segment. -9- 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - - -------------------------------------------------------------------------- OPERATIONS (UNAUDITED), continued - - ---------- JUNE 1994 YEAR-TO-DATE COMPARED WITH JUNE 1993 YEAR-TO-DATE - - ----------------------------------------------------------- Results of Operations - - --------------------- Consolidated net sales for the first six months of 1994 were $1,102 million, compared with $945 million reported for the same period last year. Net income for the first six months was $60.9 million, compared with $58.7 million reported for the same period last year. Income available to common shareholders, after preferred dividends, was $57.1 million in the first half of 1994. Earnings per share for the first six months were $.66, compared with $.67 in last year's first half. On a consolidated basis, gross profit margin decreased from 22.1% for the first six months of 1993 to 21.4% for the same period in 1994. This decrease in profit reflects the rapidly rising material costs. The cost of recovered paper has more than tripled since January 1994. These unprecedented increases, along with increases in steel and resin prices, are affecting short-term profitability. Most operations implemented price increases during the second quarter of 1994 and will be forced to raise prices again. However, the Company does not expect to fully recover these increased costs over the balance of the year. Converted Products Segment Trade sales for the converted products segment were $729.6 million, a 27.6% increase over 1993's first-half sales of $571.6 million. Operating profits were $77.9 million, compared with $61.2 million in 1993. The increase in sales and profits for this segment reflects the addition of Engraph, an October 1993 acquisition. In addition the consumer operations, as well as most of the industrial products businesses, experienced volume gains for the first half of 1994 compared with the same period in 1993. Paper Segment Total domestic paper sales were $147.1 million, compared with $142.1 million in the first half of 1993. The increase in sales is primarily due to increased demand in Sonoco's industrial packaging businesses. Operating profits were $26.2 million, down from $29.1 million for the same period in 1993 due to the increase in recovered paper costs. International Segment Sales in the international segment were $197.5 million, down from $199.9 million in 1993. The decrease in sales is due to the disposition of several business units during 1993. Sales from ongoing operations were ahead of prior year because of acquisitions and growth in several geographic areas. This sales improvement was partially offset by the closing of two paper mills and lower selling prices. Operating profits were $10.1 million compared with $9.6 million recorded for the first half of 1993 due to improved profits in the converting operations. Profits in this segment are being adversely impacted by significant increases for recovered paper. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - - -------------------------------------------------------------------------- OPERATIONS (UNAUDITED), continued - - ---------- Results of Operations, continued - - --------------------- Miscellaneous Segment Sales in this segment were $119.3 million for the first half of 1994, up slightly from $119.1 million reported in the same period last year. Operating profits were $13.0 million compared with $17.0 million reported for the first half of 1993. The decline in profits is attributed to lower selling prices for plastic grocery bags. In May a plastic bag competitor filed a patent infringement suit against Sonoco. Sonoco believes this lawsuit is without merit and will vigorously defend its position. Sonoco expects to prevail in this matter. 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 $27.6 million, up from $20.9 million for the same period last year. Corporate interest expense increased, reflecting rising short-term rates and the debt incurred with the Engraph acquisition. There was also reduced interest income due to the early payment of the Sonoco Graham note in November 1993. General corporate expense is up over second quarter 1993 due to a broad-based company-owned life insurance program. The tax advantages of this program are more than offsetting the costs. Liquidity and Capital Resources - - ------------------------------- The Company's financial position remained strong through the first six months. The debt to capital percentage increased to 39.3% at July 3, 1994, from 38.0% at December 31, 1993. Debt increased in 1994 primarily as a result of the purchase of M. Harland & Son Limited during the second quarter and the Company's purchase of $17.8 million of its common shares during the first quarter. Working capital increased $18.2 million during the first six months of 1994 primarily due to an increase in accounts receivable partially offset by increased payables. The increase in receivables and payables in 1994 is a result of sales growth and seasonal fluctuations. 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. -11- 12 SONOCO PRODUCTS COMPANY PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- A civil action was filed against the Company in the United States District Court for the District of Massachusetts on May 3, 1994, by Integrated Bagging Systems Corporation and BPI Packaging Technologies, Inc. (the "Plaintiffs"). The suit seeks to have a patent owned by the Company covering certain plastic grocery bag products and mounting systems declared invalid. The complaint also asserts that the Company has willfully infringed a patent covering a method for making a bag pack owned by one of the Plaintiffs and seeks treble damages which the Plaintiff has estimated to be more than $120 million ($40 million trebled). The Company believes this lawsuit is without merit. The Company will vigorously defend its position and expects to prevail. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 6. Exhibits and Reports on Form 8-K Page -------------------------------- ---- (a) Exhibit (11) - Computation of Earnings per Share 14 (b) There were no reports on Form 8-K filed by the Company for the three months ended July 3, 1994. -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: August 16, 1994 By: /s/ F.T. Hill, Jr. --------------------------- -------------------------- F.T. Hill, Jr. Vice President - Finance (and Principal Accounting Officer, in his respective capacities as such) -13- EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit (11) SONOCO PRODUCTS COMPANY Computation of Earnings Per Share* (unaudited) (Dollars in thousands, except per share)
Three Months Ended Six Months Ended -------------------------- -------------------------- July 3, July 4, July 3, July 4, 1994 (A) 1993 1994 (A) 1993 ----------- ----------- ----------- ----------- Primary earnings - - ---------------- Net income available to common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716 =========== =========== =========== =========== Common shares Weighted average number of shares outstanding 87,059,440 87,259,527 87,059,440 87,259,527 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 593,785 669,405 932,429 699,141 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding as adjusted 87,653,225 87,928,932 87,991,869 87,958,668 =========== =========== =========== =========== Primary earnings per share common $ 0.35 $ 0.36 $ 0.65 $ 0.67 =========== =========== =========== =========== Assuming full dilution - - ---------------------- Net income available to common shareholders $ 30,895 $ 31,808 $ 57,054 $ 58,716 =========== =========== =========== =========== Common shares Weighted average number of shares outstanding 87,059,440 87,259,527 87,059,440 87,259,527 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 647,575 756,737 932,429 756,737 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding as adjusted 87,707,015 88,016,264 87,991,869 88,016,264 =========== =========== =========== =========== Earnings per common share assuming full dilution Net income $ 0.35 $ 0.36 $ 0.65 $ 0.67 =========== =========== =========== ===========
(A) The Company issued 3,450,000 shares of Series A Cumulative Convertible Preferred Stock in October 1993. The convertible preferred stock and the related dividend had an anti-dulitive effect on earnings per share in 1994 and are therefore excluded from the above computation. * This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. -14- -----END PRIVACY-ENHANCED MESSAGE-----