Sonoco Products Company
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 20, 2007
SONOCO PRODUCTS COMPANY
Commission File No. 0-516
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Incorporated under the laws
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I.R.S. Employer Identification |
of South Carolina
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No. 57-0248420 |
1 N. Second St.
Hartsville, South Carolina 29550
Telephone: 843/383-7000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Section 2 Financial Information
Item 2.02 Results of Operations and Financial Condition.
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On April 20, 2007, Sonoco Products Company issued a news release reporting the financial
results of the Company for the quarter ended April 1, 2007. A copy of that release is
attached as an exhibit hereto. |
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibit 99 Registrants 2007 First Quarter Earnings Release
2
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 hereunto duly authorized.
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SONOCO PRODUCTS COMPANY |
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Date: April 20, 2007
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By:
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/s/ C.J. Hupfer |
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C.J. Hupfer
Senior Vice President and Chief Financial Officer |
3
EXHIBIT INDEX
99 Registrants 2007 First Quarter Earnings Release
4
Exhibit 99
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#___ April 20, 2007
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Contact:
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Roger Schrum
+843/339-6018
roger.schrum@sonoco.com |
Sonoco Reports First Quarter 2007 Financial Results
Company Increases Full-year Earnings Guidance
Hartsville, S.C. Sonoco (NYSE: SON), the global packaging company, today reported first quarter
2007 earnings of $.52 per diluted share, an 18 percent increase over first quarter 2006 earnings of
$.44 per diluted share. As a result of the Companys accounting calendar, the first quarter of
2007 included 91 days, six more days than the same period in 2006. Results for the first quarter
included after-tax restructuring charges of $4.8 million ($.05 per diluted share) related to
previously announced cost-reduction measures. Prior year results included $1.4 million ($.02 per
diluted share) of after-tax restructuring charges.
Base earnings for the first quarter of 2007 increased 24 percent to $.57 per diluted share,
compared with $.46 per diluted share in the same period in 2006. Base earnings is a non-GAAP
financial measure that excludes restructuring charges and certain non-recurring or infrequent and
unusual expenses, as applicable. Additional information about base earnings and base earnings per
share along with reconciliations to the most closely applicable GAAP financial measure is provided
later in this news release.
Net sales for the first quarter of 2007 were $956 million, a 17 percent increase over the $819
million posted in the same period of 2006. Approximately half of the increase in sales during the
first quarter of 2007 was a result of the longer quarter, while acquisitions, primarily in our
Tubes and Cores/Paper and Consumer Packaging segments, added $32 million in revenue, said Harris
E. DeLoach, Jr., chairman, president and chief executive officer. In addition, we were pleased to
be able to recover much of the materials and other cost increases experienced during the quarter
through higher selling prices.
Net income, which included the above-mentioned restructuring charges, for the first quarter of 2007
was $53.1 million, up 18 percent, compared with $45.1 million for the same period in 2006. Base
earnings were $57.9 million, up 25 percent, compared with $46.5 million in the prior year period.
In addition to the longer quarter, first quarter 2007 base earnings were aided by $5.5 million
($.04 per diluted share) for the recovery of certain benefit costs from a third party that had not
been included in the Companys prior guidance. The first quarter of 2006 included a favorable
adjustment to certain state taxes that increased prior year quarterly earnings per diluted share by
$.03.
Through manufacturing productivity improvements and attention to cost management, we were able to
successfully navigate our way through what was a volatile first-quarter environment. The price for
our largest cost component, old corrugated containers (OCC), increased significantly during the
quarter, DeLoach said.
-more-
1 North Second Street
Hartsville, S.C. 29550 USA
843/383-7794
www.sonoco.com
Sonoco Reports 2007 First Quarter Financial Results page 2
While OCC prices have declined modestly in April, we expect them to remain elevated and
unpredictable. We believe that managing price swings in OCC will likely be one of our greatest
challenges over the next few quarters.
Cash generated from operations for the first quarter of 2007 was $58.0 million, compared with $69.0
million for the same period in 2006. The decrease was primarily due to increased working capital
partially offset by improved earnings. Capital expenditures and cash dividends totaled $36.9
million and $24.0 million, respectively, in the first quarter of 2007. In addition, on February 8,
2007, the Company completed the repurchase of 1.5 million shares of its common stock at a cost of
$56.7 million. The Company has five million shares remaining under its current board
authorization.
Second Quarter Outlook
Despite spiking OCC costs, we were pleased with our first quarter financial results as base
earnings were well above our previously announced guidance of between $.47 to $.50 per diluted
share, DeLoach said. Sonoco expects second quarter 2007 base earnings to be in the range of $.55
to $.58 per diluted share, assuming no significant change in Companywide volumes and/or prices or a
change in general economic conditions. As a result, the Company expects full-year 2007 base
earnings per diluted share to be in the range of $2.36 to $2.40 per share. Sonoco previously had
provided full-year 2007 base earnings guidance in the range of $2.28 to $2.31 per diluted share.
Segment Review
Consumer Packaging
Sonocos Consumer Packaging segment includes the following products: round and shaped rigid
packaging (both composite and plastic); printed flexible packaging; and metal and plastic ends and
closures.
First quarter 2007 sales for the Consumer Packaging segment increased 12 percent to $333 million,
compared to $298 million for the same period in 2006. Operating profit for this segment was $29.6
million, up 15 percent from $25.8 million in the first quarter of 2006.
In addition to the impact of more days in 2007s first quarter, sales in the Consumer Packaging
segment were up year-over-year due to sales from acquisitions, higher selling prices and favorable
foreign currency rates. The increase in Consumer Packaging operating profit was primarily due to
the additional days in the quarter, savings from productivity and purchasing initiatives and the
allocation of a portion of the previously mentioned recovery of certain benefit costs. Price
increases were mostly offset by higher material, labor, energy and freight costs.
Tubes and Cores/Paper
The Tubes and Cores/Paper segment includes the following products: high-performance paper and
composite paperboard tubes and cores; fiber-based construction tubes and forms; recycled
paperboard, linerboard, recovered paper and other recycled materials.
First quarter 2007 sales for the Tubes and Cores/Paper segment were up 20 percent to $406 million,
compared with $338 million for the same period in 2006. First quarter operating profit for Tubes
and Cores/Paper increased 49 percent to $41.0 million, compared with $27.5 million for the first
quarter of 2006.
-more-
Sonoco Reports 2007 First Quarter Financial Results page 3
First quarter sales in this segment benefited from acquisitions, higher selling prices,
particularly in recovered paper, favorable foreign currency rates, and the impact of the additional
days. Factors contributing to the year-over-year improvement in operating profits included volume
gains in Europe, Asia and North America tubes and cores, due both to acquisitions and additional
days in the quarter; productivity improvements, most notably in our European operations; the
allocation of a portion of the recovery of certain benefit costs; and higher selling prices,
particularly on recovered paper and North America and European tubes and cores. These higher
selling prices were essentially offset by higher material costs, including the higher OCC prices,
along with increased energy, freight and labor costs.
Packaging Services
The Packaging Services segment includes the following products and services: designing,
manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent
point-of-purchase displays; brand artwork management; and supply chain management services
including contract packing, fulfillment and scalable service centers.
First quarter 2007 sales for the Packaging Services segment increased 28 percent to $124 million,
compared with $97 million for the same period in 2006. Operating profit for this segment was $11.5
million, up 26 percent over the $9.1 million earned in the first quarter of 2006.
In addition to the impact of more days in 2007s first quarter, sales in the Packaging Services
segment benefited from higher volume in both point-of-purchase displays and service center
operations along with the favorable impact of foreign currency rates. First quarter operating
profit increased due to the longer quarter, higher volume in point-of-purchase displays and
productivity improvements, partially offset by increased energy, freight and labor costs. Because
the increased volume in service center operations was mostly on a pass-through basis, with little
margin, these increased sales did not have a material impact on operating profits.
All Other Sonoco
All Other Sonoco includes businesses that are not aggregated in a reportable segment and include
the following products: wooden, metal and composite wire and cable packaging reels, molded and
extruded plastics, custom-designed protective packaging, and paper amenities such as coasters and
glass covers.
First quarter 2007 sales for All Other Sonoco were $93 million, up 9 percent over first quarter
2006 sales of $85 million. Operating profit for All Other Sonoco was $13.7 million, an increase of
10 percent when compared with operating profit of $12.4 million for the first quarter of 2006.
The first quarter sales increase in All Other Sonoco was due to higher volume, mostly as a result
of the additional days, along with the favorable impact of foreign currency translation. The
increase in operating profits reflects the impact of additional days along with productivity
improvements, partially offset by the increased costs of energy, freight and labor.
Corporate
Depreciation and amortization expense for the first quarter of 2007 was $42.7 million, compared
with $38.2 million in the first quarter of 2006. Net interest expense for the first quarter of
2007 increased to $11.5 million, compared with $10.9 million during the same period in 2006, due to
higher interest rates and the additional days in 2007s first quarter, partially offset by lower
debt levels.
-more-
Sonoco Reports 2007 First Quarter Financial Results page 4
The effective tax rate for the Company for the first quarter of 2007 was 34.4 percent, compared
with 31.2 percent for the same period in 2006. The year-over-year increase in the effective tax
rate was due primarily to a favorable adjustment to certain state taxes recorded in the first
quarter of 2006. The Companys earnings guidance for 2007, as discussed above, reflects an
expected tax rate of approximately 34 percent.
Conference Call Webcast
Sonoco will host its regular quarterly conference call today, Friday, April 20, 2007, at 11 a.m.
Eastern time, to review its first quarter 2007 financial results. The live conference call can be
accessed in a listen only mode via the Internet at http://www.sonoco.com/, under the Latest
News section. A telephonic replay of the call will be available at 1:30 p.m. Eastern time on April
20, 2007, to U.S. callers at 888/286-8010 and for international callers at +617/801-6888. The
access code for both replays is 45939258. The call will be archived on the investor information
section of the Sonoco Web site for 30 days.
About Sonoco
Founded in 1899, Sonoco is a $3.7 billion global manufacturer of industrial and consumer
packaging products and provider of packaging services, with more than 300 operations in 35
countries, serving customers in 85 nations. Additional information about Sonoco is available at
http://www.sonoco.com.
Forward-looking Statements
Statements included herein 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 and Exchange Act of 1934, as amended. The words estimate, project, intend,
expect, believe, consider, plan, anticipate, objective, goal, guidance and similar
expressions identify forward-looking statements. Forward-looking statements include, but are not
limited to, statements regarding offsetting high raw material costs, improved productivity and cost
containment, adequacy of income tax provisions, refinancing of debt, adequacy of cash flows,
anticipated amounts and uses of cash flows, effects of acquisitions and dispositions, adequacy of
provisions for environmental liabilities, financial strategies and the results expected from them,
continued payments of dividends, stock repurchases and producing improvements in earnings.
These forward-looking statements are based on current expectations, estimates and projections about
our industry, managements beliefs and assumptions made by management. Such information includes,
without limitation, discussions as to guidance and other estimates, expectations, beliefs, plans,
strategies and objectives concerning our future financial and operating performance. These
statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking
statements. The risks and uncertainties include, without limitation:
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availability and pricing of raw materials; |
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success of new product development and introduction; |
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ability to maintain or increase productivity levels and contain or reduce costs; |
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international, national and local economic and market conditions; |
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fluctuations of obligations and earnings of pension and postretirement benefit plans; |
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ability to maintain market share; |
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pricing pressures and demand for products; |
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continued strength of our paperboard-based tubes and cores and composite can operations; |
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anticipated results of restructuring activities; |
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resolution of income tax contingencies; |
-more-
Sonoco Reports 2007 First Quarter Financial Results page 5
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ability to successfully integrate newly acquired businesses into the Companys operations; |
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currency stability and the rate of growth in foreign markets; |
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use of financial instruments to hedge foreign currency, interest rate and commodity price risk; |
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liability for and anticipated costs of environmental remediation; |
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actions of government agencies and changes in laws and regulations affecting the Company; |
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loss of consumer confidence; and |
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economic disruptions resulting from terrorist activities. |
The Company undertakes no obligation to publicly update or revise forward-looking statements,
whether as a result of new information, future events or otherwise.
Additional information concerning some of the factors that could cause materially different results
is included in the Companys reports on forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission. Such reports are available from the Securities and Exchange Commissions
public reference facilities and its Web site, http://www.sec.gov, the Companys investor relations
department and the Companys Web site, http://www.sonoco.com.
References to our Web Site Address
References to our Web site address and domain names throughout this report are for informational
purposes only, or to fulfill specific disclosure requirements of the Securities and Exchange
Commissions rules or the New York Stock Exchange Listing Standards. These references are not
intended to, and do not, incorporate the contents of our Web sites by reference into this
report.
-more-
Sonoco Reports 2007 First Quarter Financial Results page 6
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars and shares in thousands except per share)
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THREE MONTHS ENDED |
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April 1, |
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March 26, |
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2007 |
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2006 |
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Sales |
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$ |
955,679 |
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$ |
818,769 |
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Cost of sales |
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770,514 |
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662,593 |
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Selling, general and administrative expenses |
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89,686 |
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81,337 |
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Restructuring charges |
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6,806 |
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2,355 |
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Income before interest and taxes |
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88,673 |
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72,484 |
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Interest expense |
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14,124 |
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12,118 |
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Interest income |
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(2,636 |
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(1,265 |
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Income before income taxes |
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77,185 |
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61,631 |
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Provision for income taxes |
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26,549 |
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19,236 |
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Income before equity in earnings of affiliates/minority interest in subsidiaries |
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50,636 |
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42,395 |
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Equity in earnings of affiliates/minority
interest in subsidiaries |
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2,468 |
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2,749 |
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Net income |
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$ |
53,104 |
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$ |
45,144 |
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Average shares outstanding diluted |
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102,293 |
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101,929 |
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Diluted earnings per share |
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$ |
.52 |
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$ |
.44 |
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Dividends per common share |
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$ |
.24 |
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$ |
.23 |
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FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
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THREE MONTHS ENDED |
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April 1, |
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March 26, |
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2007 |
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2006 |
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Net Sales |
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Consumer Packaging |
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$ |
333,205 |
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$ |
298,301 |
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Tubes and Cores/Paper |
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405,575 |
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338,488 |
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Packaging Services |
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123,763 |
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96,667 |
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All Other Sonoco |
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93,136 |
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85,313 |
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Consolidated |
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$ |
955,679 |
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$ |
818,769 |
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Income before income taxes |
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Operating Profit Consumer Packaging |
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$ |
29,569 |
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$ |
25,824 |
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Operating Profit Tubes and Cores/Paper |
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40,743 |
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27,518 |
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Operating Profit Packaging Services |
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11,485 |
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9,128 |
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Operating Profit All Other Sonoco |
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13,682 |
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12,369 |
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Restructuring charges |
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(6,806 |
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(2,355 |
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Interest, net |
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(11,488 |
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(10,853 |
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Consolidated |
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$ |
77,185 |
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$ |
61,631 |
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Sonoco Reports 2007 First Quarter Financial Results page 7
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
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April 1, |
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December 31, |
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2007 |
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2006 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
82,337 |
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$ |
86,498 |
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Trade accounts receivables |
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491,999 |
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459,022 |
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Other receivables |
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32,344 |
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33,287 |
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Inventories |
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313,444 |
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303,848 |
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Prepaid expenses and deferred taxes |
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62,153 |
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60,143 |
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982,277 |
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942,798 |
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Property, plant and equipment, net |
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1,019,702 |
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1,019,594 |
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Goodwill |
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668,784 |
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667,288 |
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Other intangible assets |
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93,651 |
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95,885 |
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Other assets |
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202,485 |
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191,113 |
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$ |
2,966,899 |
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$ |
2,916,678 |
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Liabilities and Shareholders Equity |
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Current Liabilities: |
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Payable to suppliers and others |
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$ |
579,392 |
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$ |
601,243 |
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Notes payable and current portion of long-term debt |
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49,228 |
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51,903 |
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Accrued taxes |
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13,680 |
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6,678 |
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642,300 |
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659,824 |
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Long-term debt |
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754,779 |
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712,089 |
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Pension and other postretirement benefits |
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214,577 |
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209,363 |
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Deferred income taxes and other |
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132,429 |
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116,334 |
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Shareholders equity |
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1,222,814 |
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1,219,068 |
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$ |
2,966,899 |
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$ |
2,916,678 |
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Sonoco Reports 2007 First Quarter Financial Results page 8
Definition and Reconciliation of Non-GAAP Financial Measures
The Companys results determined in accordance with U.S. generally accepted accounting principles
(GAAP) are referred to as as reported results. Some of the information presented in the press
release reflects the Companys as reported results adjusted to exclude certain amounts related to
the Companys restructuring initiatives and certain non-recurring or infrequent and unusual
expenses. These adjustments result in the non-GAAP financial measures referred to in this press
release as Base Earnings and Base Earnings per Diluted Share.
These non-GAAP measures are not in accordance with, or an alternative for, generally accepted
accounting principles and may be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or
principles. Sonoco continues to provide all information required by GAAP, but it believes that
evaluating its ongoing operating results may not be as useful if an investor or other user is
limited to reviewing only GAAP financial measures. Accordingly, Sonoco uses these non-GAAP
financial measures for internal planning and forecasting purposes, to evaluate its ongoing
operations, and to evaluate the ultimate performance of each business unit against budget all the
way up through the evaluation of the Chief Executive Officers performance by the Board of
Directors. In addition, these same non-GAAP measures are used in determining incentive
compensation for the entire management team and in providing earnings guidance to the investing
community.
Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP
financial measures in isolation from, or as a substitute for, financial information prepared in
accordance with GAAP. Sonoco presents these non-GAAP financial measures to provide users
information to evaluate Sonocos operating results in a manner similar to how management evaluates
business performance. Material limitations associated with the use of such measures are that they
do not reflect all period costs included in operating expenses and may not reflect financial
results that are comparable to financial results of other companies that present similar costs
differently. Furthermore, the calculations of these non-GAAP measures are based on subjective
determinations of management regarding the nature and classification of events and circumstances
that the investor may find material and view differently. To compensate for these limitations,
management believes that it is useful in understanding and analyzing the results of the business to
review both GAAP information that includes the impact of restructuring charges and certain unusual
items, and the non-GAAP measures that exclude them. Whenever Sonoco uses a non-GAAP financial
measure, it provides a reconciliation of the non-GAAP financial measure to the most closely
applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial
measures and the reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measures as detailed below.
-more-
Sonoco Reports 2007 First Quarter Financial Results page 9
Reconciliation of GAAP1 to Non-GAAP Financial Measures
(Dollars in millions, except per share data)
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Base Earnings Per Diluted Share2 |
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Three Months Ended |
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(Unaudited) |
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April 1, 2007 |
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March 26, 2006 |
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Diluted Earnings Per Share, as reported (GAAP) |
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$ |
.52 |
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$ |
.44 |
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Adjusted for: |
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Restructuring charges, net of tax4 |
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.05 |
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.02 |
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|
Base Earnings Per Share (Non-GAAP) |
|
$ |
.57 |
|
|
$ |
.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Earnings3 |
|
Three Months Ended |
|
(Unaudited) |
|
April 1, 2007 |
|
|
March 26, 2006 |
|
|
Net Income, as reported (GAAP) |
|
$ |
53.1 |
|
|
$ |
45.1 |
|
Adjusted for: |
|
|
|
|
|
|
|
|
Restructuring charges, net of tax4 |
|
|
4.8 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
Base Earnings (Non-GAAP) |
|
$ |
57.9 |
|
|
$ |
46.5 |
|
|
|
|
|
|
|
|
1Generally Accepted Accounting Principles
2Base Earnings Per Diluted Share is a non-GAAP financial measure of earnings per share
which excludes the impact of restructuring charges and certain non-recurring or infrequent and
unusual expenses. Management believes it is useful to exclude these charges when evaluating
financial performance because it believes these expenses are not reflective of the core
profitability of our business.
3Base Earnings is a non-GAAP financial measure of net income, which excludes the
impact of restructuring charges and certain non-recurring or infrequent and unusual expenses.
Management believes it is useful to exclude these charges when evaluating financial performance
because it believes these expenses are not reflective of the core profitability of our business.
4Restructuring charges are a recurring item as Sonocos restructuring programs usually
require several years to fully implement and the Company is continually seeking to take actions
that could enhance its efficiency. Accordingly, these charges are subject to significant
fluctuations from period to period due to the varying levels of restructuring activity and the
inherent imprecision in the estimates used to recognize the impairment of assets and the wide
variety of costs and taxes associated with severance and termination benefits in the countries in
which the restructuring actions occur.
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