Sonoco Q4 2013 net income attributable to Sonoco up 28% year-over-year to US$54.7M driven by lower-than-expected effective tax rate, improved volume, strong productivity and a positive price/cost relationship; sales up 3.3% to US$1.21B

HARTSVILLE, South Carolina , February 13, 2014 (press release) – Sonoco (NYSE: SON), one of the largest diversified global packaging companies, today reported financial results for its fourth quarter and full-year 2013.

Fourth Quarter Highlights

  • Fourth quarter 2013 GAAP earnings per diluted share were $.53, compared with $.42 in 2012.
  • Fourth quarter 2013 GAAP results include $.05 per diluted share in after-tax charges related primarily to restructuring activities and previously announced plant closures. Fourth quarter 2012 GAAP results included a net after-tax charge of $.14 per diluted share related to restructuring activities and taxes on the repatriation of offshore cash.
  • Base net income attributable to Sonoco (base earnings) for fourth quarter 2013 was $.58 per diluted share, compared with $.56 in 2012. (See base earnings definition and reconciliation later in this release.) Sonoco previously provided fourth quarter base earnings guidance of $.55 to $.59 per diluted share.
  • Fourth quarter 2013 net sales were $1.22 billion, up 3 percent, compared with $1.18 billion in 2012.
  • Cash flow from operations was $117 million, compared with $111 million in 2012. Free cash flow for the fourth quarter was $58 million, compared with $36 million in 2012. (Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures is defined as capital expenditures minus proceeds from the disposal of capital assets.)

Full-Year 2013 Highlights

  • Full-year 2013 GAAP earnings per diluted share were $2.12, up 11 percent, compared with $1.91 in 2012.
  • Full-year 2013 GAAP earnings per diluted share include $.18 per diluted share in after-tax restructuring charges primarily related to plant closures. In comparison, 2012 GAAP results included $.30 per diluted share in after-tax restructuring charges and tax items, partially offset by excess insurance settlement gains.
  • Full-year 2013 base earnings were $2.30 per diluted share, up 4 percent, compared with $2.21 in 2012.  Sonoco previously provided full-year guidance of $2.27 to $2.31 per diluted share.
  • Net sales reached a record $4.85 billion, compared with $4.79 billion in 2012. 
  • Cash flow from operations was a record $538 million, up 33 percent, compared with $404 million in 2012. Free cash flow was $245 million, up 142 percent, compared with $101 million in 2012.    

2014 Base Earnings Guidance Changed; Business Segments to be Modified

  • Full-year 2014 base earnings are expected to be $2.43 to $2.53 per diluted share and the Company is targeting $2.51 per diluted share. 
  • Base earnings for the first quarter of 2014 are estimated to be $.50 to $.54. Base earnings in the first quarter of 2013 were $.50.
  • Free cash flow in 2014 is projected to be approximately $130 million.
  • Effective Jan. 1, 2014, due to certain operational and related internal reporting changes, Sonoco Alloyd, a retail packaging business that is currently part of the Company's Protective Solutions segment, will be managed and reported as part of Display and Packaging, the Company's consumer-focused retail merchandising segment. As these changes did not take effect until 2014, Sonoco Alloyd is presented in the Protective Solutions segment as of year-end 2013. 

Fourth Quarter Review

 Commenting on the Company's fourth quarter results, Sonoco President and Chief Executive Officer Jack Sanders said, "Sonoco concluded the final quarter of 2013 with slightly better than expected results compared to the prior year quarter, helped by a lower than expected effective tax rate. That said, the Company did achieve improved volume, particularly in our consumer-focused businesses, along with strong productivity and a positive price/cost relationship. These positive factors were partially offset by higher labor, operating and other costs."

"Operating profits from our Consumer Packaging segment increased 21 percent over the prior year's fourth quarter due to volume gains in most of the businesses in the segment, along with strong productivity and a positive price/cost relationship, partially offset by higher labor and other operating expenses. In addition, operating profits from our Display and Packaging segment improved slightly."

"Fourth quarter operating profits declined 8 percent in our Paper and Industrial Converted Products segment as strong productivity improvements, modest volume growth and insurance proceeds were more than offset by higher labor, maintenance and other operating costs, and an increase in profits deferred on intercompany paper sales. Operating profits in our Protective Solutions segment also declined during the fourth quarter as the benefit of improved productivity was more than offset by a negative price/cost relationship and higher labor and other operating expenses, including costs associated with the start up of new operations."

GAAP net income attributable to Sonoco in the fourth quarter was $54.7 million, or $.53 per diluted share, compared with $42.8 million, or $.42 per diluted share, in 2012. Base earnings in the fourth quarter were $59.9 million, or $.58 per diluted share, compared with $57.1 million, or $.56 per diluted share, in 2012. Base earnings and base earnings per diluted share are non-GAAP financial measures adjusted to remove restructuring charges, asset impairment charges, acquisition expenses and other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business.

Fourth quarter base earnings exclude $.06 per diluted share in after-tax charges related to restructuring activities involving previously announced plant closures offset by $0.01 per diluted share in after-tax gains from insurance settlements. Base earnings in the fourth quarter of 2012 excluded after-tax charges of $.14 per diluted share which included a net income tax charge of $.11 per diluted share largely consisting of tax expense related to the repatriation of accumulated offshore cash and $.04 in after-tax restructuring activities, offset by a $.01 per diluted share gain from insurance settlements and a favorable contingent purchase price adjustment. Additional information about base earnings and base earnings per diluted share, along with reconciliation to the most closely applicable GAAP financial measures, is provided later in this release.

Net sales for the fourth quarter were $1.22 billion, compared with $1.18 billion in the same period in 2012. This 3 percent improvement was driven by gains in volume and mix from the Company's Consumer Packaging, Paper and Industrial Converted Products and Protective Solutions segments along with higher selling prices. These improvements were partially offset by the previously announced closure of the Company's European recycling operations.

Gross profits were $221 million in the fourth quarter, up 8 percent, compared with $204 million in the same period in 2012. Gross profit as a percent of sales improved to 18.2 percent, compared with 17.3 percent in the same period in 2012. This improvement was due to strong productivity gains, volume growth and a positive price/cost relationship, partially offset by higher maintenance, labor and other costs. The Company's fourth quarter selling, general and administrative expenses increased 14 percent to $127 million due primarily to wage inflation and higher management incentives, compared with the previous year.

Cash generated from operations in the fourth quarter was $117 million, compared with $111 million in the same period in 2012. Operating cash flow increased during the quarter due to higher GAAP net income and beneficial changes in working capital, partially offset by the impact of federal income tax credits associated with the Company's biomass boiler cogeneration project. Fourth quarter reported cash flows from operations were reduced by $17 million for tax-related operating cash flow benefits received in prior quarters that became a reduction of capital expenditures when the federal income tax credits were earned upon the December 2013 completion of the project.  Including this $17 million, total federal tax credits related to the biomass boiler and reported as a reduction of capital expenditures, were $21.9 million. Net capital expenditures and cash dividends were $27 million and $32 million, respectively, during the quarter, compared with $45 million and $30 million, respectively, during the same period in 2012.

2013 Results

Net sales for 2013 were $4.85 billion, up just over 1 percent, compared with $4.79 billion in 2012. Volume growth in the Display and Packaging, Protective Solutions and Paper and Industrial Converted Products segments and higher sales prices, were partially offset by the closure of the Company's European recycling operations, the sale of a small box plant and lower volume in Consumer Packaging.   

Net income attributable to Sonoco for 2013 was $219.1 million, or $2.12 per diluted share, up 12 percent, compared with $196.0 million, or $1.91 per diluted share, in 2012. Earnings in 2013 were negatively impacted by after-tax restructuring and other charges of $18.4 million, or $.18 per diluted share, compared with $30.9 million, or $0.30 per diluted share, in 2012, primarily resulting from restructuring and other charges, net of gains from property sales and insurance recoveries, and income tax charges relating to the repatriation of offshore cash.

Base earnings for 2013 were $237.5 million, or $2.30 per diluted share, compared with $226.9 million, or $2.21 per diluted share, in 2012. This nearly 5 percent improvement stemmed from productivity improvements, modest volume growth and a positive price/cost relationship, partially offset by higher labor, maintenance, pension and other expenses.

Gross profit increased 4 percent to a record $874 million in 2013, compared with $844 million in 2012. Gross profit as a percent of sales was 18.0 percent, compared with 17.6 percent for 2012.

Cash generated from operations in 2013 was a record $538 million, up 33 percent, compared with $404 million in 2012. The improvement in cash flow from operations was due to higher GAAP earnings, lower cash taxes, working capital changes and lower pension and postretirement benefit plan contributions, which were $42 million in 2013, compared with $75 million in 2012. Net capital expenditures and cash dividends were $169 million and $125 million, respectively, during 2013, compared with $183 million and $120 million, respectively, in 2012. Free cash flow was $245 million in 2013, compared with $101 million last year.

As of December 31, 2013, total debt was approximately $981 million, a $392 million reduction from the Company's 2012 year-end total of $1.37 billion. In 2013, the Company repatriated $260 million of accumulated offshore cash, substantially all of which was used to repay outstanding debt. On November 15, 2013, the Company used approximately $121 million of its domestic cash to settle its maturing 6.5 percent bonds including accrued interest.  In addition, the Company had no commercial paper outstanding at the end of 2013, compared with $152 million at December 31, 2012. The Company's debt-to-total capital ratio was 36.3 percent at December 31, 2013, compared with 47.7 percent at the end of 2012. Cash and cash equivalents were $217.6 million at year-end 2013, compared with $373.1 million at year-end 2012.

2013 Overview

According to Sanders, "We delivered on many of our financial, operational, and strategic commitments in 2013, while launching an effort to re-envision Sonoco to achieve future accelerated growth. We delivered record sales, gross profits and cash flow from operations in 2013, while free cash flow more than doubled. Despite an economic recession in Europe, slowing emerging markets and higher pension and other operating costs, Sonoco's base earnings grew nearly 5 percent and we were able to significantly improve our balance sheet by reducing debt along with pension and post-retirement liabilities. Also during the year, we began to strategically align our diversified organization to facilitate the design and delivery of 360-degree Customized Solutions™ to our customers."

"We are optimistic that 2014 will prove to be another good year for Sonoco. While economic conditions in certain emerging markets may prove difficult, we have identified several global growth opportunities. In addition, consumer packaging volumes have been disappointing over the past few years, but we are pleased with recent positive trends and are proactively working to build our technology and new product funnels to drive future organic growth. As we pursue our re-envisioning, we will continue the cultural, structural and operational changes needed to transform Sonoco from a packaging company that just happens to offer solutions to a solutions company that offers more than just packaging. In addition, we will continue to consider and explore other opportunities to further strengthen and differentiate our organization in the marketplace and return value to our shareholders."

Corporate

Net interest expense for the fourth quarter of 2013 decreased to $13.8 million, compared with $14.5 million during the same period in 2012. The decrease was due to lower year-over-year debt levels. The 2013 fourth-quarter effective tax rate on GAAP earnings was 29.1 percent, compared with 44.4 percent in 2012. The effective tax rates on base earnings for the same periods were 27.6 percent and 30.7 percent, respectively.  The 2013 fourth quarter effective rates for both GAAP and base earnings benefited from a greater portion of income being taxed in jurisdictions with relatively favorable tax rates.  The effective rate on GAAP earnings in the fourth quarter of 2012 was significantly higher due to nearly $12 million in additional tax expense associated with the repatriation of offshore cash.    

First Quarter and Full-Year 2014 Outlook

Sonoco expects first quarter 2014 base earnings to be in the range of $.50 to $.54 per diluted share. The Company's first quarter 2013 base earnings were $.50 per diluted share. Annual base earnings per diluted share are expected to be in the range of $2.43 to $2.53 in 2014, and the Company is targeting $2.51 per diluted share. The Company's revised target guidance reflects a net $.21 per share, or 9.1 percent improvement over 2013 base earnings driven by expected modest growth in volume/mix, lower pension expense, productivity improvements and a slightly positive price/cost relationship. Partially offsetting these improvements are expected higher depreciation and other operating costs and a higher effective tax rate. Included in the above guidance is the Company's previously announced plan to repurchase approximately 2 million shares of common stock in 2014, which, if fully implemented, would add approximately $.02 to earnings per diluted share for the year. Free cash flow is expected to be approximately $130 million for 2014 reflecting expectations for higher cash taxes paid, an increase in pension and post retirement plan contributions and higher working capital levels in line with revenue growth.

Although the Company believes the assumptions reflected in the range of guidance are reasonable, given the uncertainty regarding the weather, global economic factors and potential changes in raw material prices and other costs, as well as other risks and uncertainties, including those described below, actual results could vary substantially.

Commenting on the Company's outlook, Sanders said, "While we expect modest year-over-year improvement for the quarter, there is some uncertainty about the negative impact that severe winter weather may have on our operations along with continued difficult economic conditions in Europe and in certain emerging markets. These headwinds, along with the fact that the first quarter is historically our weakest seasonal demand period particularly for our industrial-focused businesses, could get us off to a somewhat slow start. As usual, our plans for 2014 include identifying opportunities to reduce costs and other potential responses to help offset the uncertainties that may affect our business."

Segment Review

Sonoco reports its financial results in four operating segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. Effective January 1, 2014, Sonoco Alloyd, the Company's retail packaging component and currently part of the Protective Solutions segment, will be reported as part of the Display and Packaging segment. This change reflects the evolving integration occurring between these businesses, enabling them to better leverage the Company's capabilities, products and services to provide complete solutions to our retail merchandising customers. Because these changes did not take effect until 2014, Sonoco Alloyd continues to be presented in the Protective Solutions segment as of December 31, 2013.

Segment operating results do not include restructuring and asset impairment charges, acquisition expenses, interest income and expense, income taxes or certain other items, if any, the exclusion of which the Company believes improves comparability and analysis.

Consumer Packaging

Sonoco's Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); blow-molded plastic bottles and jars; extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.

Fourth quarter 2013 sales for the segment were $482 million, compared with $464 million in 2012. Segment operating profit was $48.4 million in the fourth quarter, compared with $40.1 million in the same quarter of 2012.

The 4 percent increase in sales was due primarily to a combination of solid volume improvement and a positive mix of business in flexible packaging, composite cans and rigid plastic containers, along with higher sales prices and acquisition of a small graphics management business in the U.K., partially offset by the negative impact of foreign exchange. Segment operating profit increased 21 percent due to volume/mix gains, productivity improvements and a positive price/cost relationship, which were partially offset by higher labor and operating costs.  

Display and Packaging

The Display and Packaging segment includes the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; and paper amenities, such as coasters and glass covers.

Fourth quarter 2013 sales for this segment were $132 million, compared with $130 million in 2012. Segment operating profit was $4.7 million in the quarter, compared with $4.5 million in the same quarter of 2012.

Sales were essentially flat during the fourth quarter as volume growth in the U.S. display and packaging business was offset by lower contract packaging volume. Quarterly operating profit for the segment grew slightly year over year on an improved mix of business in U.S. display and packaging activities, which was partially offset by higher labor and other operating costs.

Paper and Industrial Converted Products

The Paper and Industrial Converted Products segment includes the following products: high performance paper and composite paperboard tubes and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and recycling services for  materials.

Fourth quarter 2013 sales for the segment were $464 million, compared with $448 million in 2012. Segment operating profit was $33.4 million in the fourth quarter, compared with $36.2 million in 2012.

The 3 percent increase in sales was due to higher selling prices, primarily associated with a year-over-year increase in recovered paper costs, and volume and mix gains in North America and Europe, partially offset by the closure of our European recycling operations and the negative impact of foreign exchange. Operating profits declined 8 percent year over year as productivity improvements, business interruption insurance proceeds and volume gains were more than offset by higher maintenance, labor and other costs, and an increase in the amount of profit deferred on intercompany paper sales.

Protective Solutions

The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; temperature-assurance packaging; and retail packaging.

Fourth quarter 2013 sales were $138 million, compared with $133 million in 2012. Operating profit was $6.8 million, compared with $9.5 million in the fourth quarter of 2012.

This segment's 3 percent increase in sales was due to volume growth in the industrial and consumer protective businesses, offset by the divestiture of a small box plant. Operating profits declined 29 percent as productivity improvements were more than offset by a negative price/cost relationship, higher labor and other operating costs, including the start-up of a plant in Mexico and an unfavorable mix of business in retail packaging.

About Sonoco

Founded in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging and packaging supply chain services. With annual net sales of approximately $4.9 billion, the Company has 19,900 employees working in 335 operations in 33 countries, serving many of the world's best-known brands in some 85 nations. Sonoco is a proud member of the 2013/2014 Dow Jones Sustainability World Index. For more information on the Company, visit our website at www.sonoco.com.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars and shares in thousands except per share)

                   
     

THREE MONTHS ENDED

 

TWELVE MONTHS ENDED

     

December 31, 2013

 

December 31, 2012

 

December 31, 2013

 

December 31, 2012

                   

Net sales 

$              1,214,874

 

$               1,175,870

 

$              4,848,092

 

$                4,786,129

Cost of sales

993,687

 

971,870

 

3,974,588

 

3,942,497

Gross profit

221,187

 

204,000

 

873,504

 

843,632

Selling, general and administrative expenses

127,377

 

112,025

 

487,171

 

463,715

Restructuring/Asset impairment charges

6,253

 

8,694

 

25,038

 

32,858

Income before interest and income taxes

$                   87,557

 

$                    83,281

 

$                 361,295

 

$                   347,059

Net interest expense

13,765

 

14,464

 

56,726

 

59,985

Income before income taxes and equity in earnings of affiliates

73,792

 

68,817

 

304,569

 

287,074

Provision for income taxes

21,457

 

30,558

 

96,203

 

103,759

Income before equity in earnings of affiliates

52,335

 

38,259

 

208,366

 

183,315

Equity in earnings of affiliates, net of tax

3,796

 

4,569

 

12,029

 

12,805

Net income

56,131

 

42,828

 

220,395

 

196,120

Net income attributable to noncontrolling interests

(1,385)

 

(45)

 

(1,282)

 

(110)

Net income attributable to Sonoco

$                   54,746

 

$                    42,783

 

$                 219,113

 

$                   196,010

                   

Weighted average common shares outstanding – diluted

103,469

 

102,648

 

103,248

 

102,573

                   

Diluted earnings per common share

$0.53

 

$0.42

 

$2.12

 

$1.91

Dividends per common share

$0.31

 

$0.30

 

$1.23

 

$1.19

 

 

FINANCIAL SEGMENT INFORMATION (Unaudited)

(Dollars in thousands)

                   
     

THREE MONTHS ENDED

 

TWELVE MONTHS ENDED

     

December 31, 2013

 

December 31, 2012

 

December 31, 2013

 

December 31, 2012

Net sales

             
 

Consumer Packaging

$                 481,888

 

$                  463,871

 

$              1,893,533

 

$                1,912,621

 

Paper and Industrial Converted Products

463,609

 

448,152

 

1,858,880

 

1,840,827

 

Display and Packaging 

131,694

 

130,365

 

523,532

 

477,632

 

Protective Solutions 

137,683

 

133,482

 

572,147

 

555,049

 

Consolidated

$              1,214,874

 

$               1,175,870

 

$              4,848,092

 

$                4,786,129

                   

Income before interest and income taxes:

             

   Segment operating profit:

             
 

Consumer Packaging

$                   48,399

 

$                    40,107

 

$                 187,130

 

$                   176,768

 

Paper and Industrial Converted Products

33,377

 

36,245

 

138,094

 

141,351

 

Display and Packaging 

4,671

 

4,543

 

23,617

 

18,512

 

Protective Solutions 

6,753

 

9,494

 

37,273

 

38,797

Restructuring/Asset impairment charges

(6,253)

 

(8,694)

 

(25,038)

 

(32,858)

Other non-base charges

610

 

1,586

 

219

 

4,489

Consolidated

$                   87,557

 

$                    83,281

 

$                 361,295

 

$                   347,059

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

(Dollars in thousands)

                   
     

THREE MONTHS ENDED

 

TWELVE MONTHS ENDED

     

December 31, 2013

 

December 31, 2012

 

December 31, 2013

 

December 31, 2012

                   

Net income 

$                   56,131

 

$                    42,828

 

$                 220,395

 

$                   196,120

Asset impairment charges

886

 

2,551

 

8,238

 

8,427

Depreciation, depletion and amortization

52,097

 

51,244

 

197,671

 

200,403

Fox River environmental reserves

(256)

 

(1,476)

 

(1,848)

 

(2,796)

Pension and postretirement plan expense / (contributions), net

3,775

 

2,071

 

19,939

 

(22,203)

Changes in working capital

49,134

 

29,167

 

33,270

 

1,337

Other operating activity

(45,024)

 

(14,997)

 

60,362

 

22,627

   Net cash provided by operating activities

116,743

 

111,388

 

538,027

 

403,915

                   

Purchase of property, plant and equipment, net

(26,955)

 

(44,774)

 

(168,131)

 

(182,895)

(Cost of acquisitions) / Proceeds from dispositions

(277)

 

-

 

2,195

 

(503)

Net borrowings / (debt repayments)

(116,139)

 

135,841

 

(388,396)

 

85,748

Cash dividends

(31,629)

 

(30,234)

 

(124,845)

 

(119,771)

Other, including effects of exchange rates on cash

(11,753)

 

(280)

 

(14,367)

 

11,067

                   

Net increase in cash and cash equivalents

(70,010)

 

171,941

 

(155,517)

 

197,561

Cash and cash equivalents at beginning of period

287,577

 

201,143

 

373,084

 

175,523

Cash and cash equivalents at end of period

$                 217,567

 

$                  373,084

 

$                 217,567

 

$                   373,084

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

                   
     

December 31, 2013

 

December 31, 2012

       

Assets

             

Current Assets:

             
 

Cash and cash equivalents

$                 217,567

 

$                  373,084

       
 

Trade accounts receivable, net of allowances

614,053

 

619,761

       
 

Other receivables

38,995

 

36,311

       
 

Inventories

410,787

 

383,272

       
 

Prepaid expenses and deferred income taxes

97,072

 

87,468

       
     

1,378,474

 

1,499,896

       

Property, plant and equipment, net

1,021,920

 

1,034,906

       

Goodwill

1,099,207

 

1,110,505

       

Other intangible assets, net

243,920

 

276,809

       

Other assets

235,770

 

253,949

       
     

$              3,979,291

 

$               4,176,065

       

Liabilities and Shareholders' Equity

             

Current Liabilities:

             
 

Payable to suppliers and other payables

$                 823,375

 

$                  764,322

       
 

Notes payable and current portion of long-term debt

35,201

 

273,608

       
 

Income taxes payable

8,649

 

6,305

       
     

$                 867,225

 

$               1,044,235

       

Long-term debt, net of current portion

946,257

 

1,099,454

       

Pension and other postretirement benefits

263,718

 

461,881

       

Deferred income taxes and other 

176,766

 

67,281

       

Total equity

1,725,325

 

1,503,214

       
     

$              3,979,291

 

$               4,176,065

       

 

 

Definition and Reconciliation of Non-GAAP Financial Measures         
The Company's results determined in accordance with U.S. generally accepted accounting principles (GAAP) are referred to as "as reported" or "GAAP" results. Some of the information presented in this press release reflects the Company's "as reported" or "GAAP" results adjusted to exclude amounts related to restructuring initiatives, asset impairment charges, environmental charges, acquisition costs, excess insurance recoveries, losses from the early extinguishment of debt, and certain other items, if any, the exclusion of which management believes improves comparability and analysis of the underlying financial performance of the business. 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. 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 Officer's 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 Sonoco's 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 which includes all of the items impacting financial results and the non-GAAP measures that exclude certain elements, as described above. 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. Whenever reviewing a non-GAAP financial measure, investors are encouraged to fully review and consider the related reconciliation as detailed below.         


 

         

Non-GAAP Adjustments

 

Three Months Ended December 31, 2013

GAAP

 

Restructuring / Asset

Impairment

Charges(1)

 

Other Adjustments

 

Base

                   

Income before interest and income taxes

$                   87,557

 

$                     6,253

 

$                    (610)

 

$                     93,200

Interest expense, net

$                   13,765

 

$                             -

 

$                          -

 

$                     13,765

Income before income taxes

$                   73,792

 

$                     6,253

 

$                    (610)

 

$                     79,435

Provision for income taxes

$                   21,457

 

$                        621

 

$                    (149)

 

$                     21,929

Income before equity in earnings of affiliates

$                   52,335

 

$                     5,632

 

$                    (461)

 

$                     57,506

Equity in earnings of affiliates, net of taxes

$                     3,796

 

$                             -

 

$                          -

 

$                       3,796

Net income

$                   56,131

 

$                     5,632

 

$                    (461)

 

$                     61,302

Net (income) / loss attributable to noncontrolling interests

$                   (1,385)

 

$                        (12)

 

$                          -

 

$                     (1,397)

Net income attributable to Sonoco

$                   54,746

 

$                     5,620

 

$                    (461)

 

$                     59,905

                   

Per Diluted Share

$                       0.53

 

$                       0.06

 

$                   (0.01)

 

$                         0.58

 

         

Non-GAAP Adjustments

   

Three Months Ended December 31, 2012

GAAP

 

Restructuring / Asset

Impairment

Charges(1)

 

Other Adjustments

 

Base

                   

Income before interest and income taxes

$                   83,281

 

$                      8,694

 

$                   (1,586)

 

$                     90,389

Interest expense, net

$                   14,464

 

$                              -

 

$                            -

 

$                     14,464

Income before income taxes

$                   68,817

 

$                      8,694

 

$                   (1,586)

 

$                     75,925

Provision for income taxes

$                   30,558

 

$                      3,924

 

$                 (11,166)

 

$                     23,316

Income before equity in earnings of affiliates

$                   38,259

 

$                      4,770

 

$                    9,580

 

$                     52,609

Equity in earnings of affiliates, net of taxes

$                     4,569

 

$                              -

 

$                            -

 

$                       4,569

Net income

$                   42,828

 

$                      4,770

 

$                    9,580

 

$                     57,178

Net (income) / loss attributable to noncontrolling interests

$                        (45)

 

$                           12

 

$                            -

 

$                          (33)

Net income attributable to Sonoco

$                   42,783

 

$                      4,782

 

$                    9,580

 

$                     57,145

                   

Per Diluted Share

$                       0.42

 

$                        0.04

 

$                       0.10

 

$                         0.56

             
         

Non-GAAP Adjustments

 

Twelve Months Ended December 31, 2013

GAAP

 

Restructuring / Asset

Impairment

Charges(1)

 

Other Adjustments

 

Base

                   

Income before interest and income taxes

$                 361,295

 

$                   25,038

 

$                      (219)

 

$                   386,114

Interest expense, net

$                   56,726

 

$                             -

 

$                            -

 

$                     56,726

Income before income taxes

$                 304,569

 

$                   25,038

 

$                      (219)

 

$                   329,388

Provision for income taxes

$                   96,203

 

$                     6,774

 

$                      (323)

 

$                   102,654

Income before equity in earnings of affiliates

$                 208,366

 

$                   18,264

 

$                        104

 

$                   226,734

Equity in earnings of affiliates, net of taxes

$                   12,029

 

$                             -

 

$                            -

 

$                     12,029

Net income

$                 220,395

 

$                   18,264

 

$                       104

 

$                   238,763

Net (income)/loss attributable to noncontrolling interests

$                   (1,282)

 

$                            2

 

$                            -

 

$                     (1,280)

Net income attributable to Sonoco

$                 219,113

 

$                   18,266

 

$                       104

 

$                   237,483

                   

Per Diluted Share

$                       2.12

 

$                       0.18

 

$                      0.00

 

$                         2.30

 

         

Non-GAAP Adjustments

   

Twelve Months Ended December 31, 2012

GAAP

 

Restructuring / Asset

Impairment

Charges(1)

 

Other Adjustments

 

Base

                   

Income before interest and income taxes

$                 347,059

 

$                    32,858

 

$                   (4,489)

 

$                   375,428

Interest expense, net

$                   59,985

 

$                              -

 

$                            -

 

$                     59,985

Income before income taxes

$                 287,074

 

$                    32,858

 

$                   (4,489)

 

$                   315,443

Provision for income taxes

$                 103,759

 

$                      9,836

 

$                 (12,203)

 

$                   101,392

Income before equity in earnings of affiliates

$                 183,315

 

$                    23,022

 

$                     7,714

 

$                   214,051

Equity in earnings of affiliates, net of taxes

$                   12,805

 

$                           22

 

$                            -

 

$                     12,827

Net income

$                 196,120

 

$                    23,044

 

$                     7,714

 

$                   226,878

Net (income) / loss attributable to noncontrolling interests

$                      (110)

 

$                         116

 

$                            -

 

$                              6

Net income attributable to Sonoco

$                 196,010

 

$                    23,160

 

$                     7,714

 

$                   226,884

                   

Per Diluted Share

$                       1.91

 

$                        0.22

 

$                       0.08

 

$                         2.21

 
 

(1) Restructuring/Asset impairment charges are a recurring item as Sonoco's restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency. Although recurring, 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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