<PAGE> 1
UNITED STATES
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 March 28, 1999 Commission File No. 1-11261
SONOCO PRODUCTS COMPANY
----------------
Incorporated under the laws I.R.S. Employer Identification
of South Carolina No. 57-0248420
Post Office Box 160
Hartsville, South Carolina 29551-0160
Telephone: 843-383-7000
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 May 2, 1999:
Common stock, no par value: 101,858,173
---------------------------------------
<PAGE> 2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - March 28, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Income - Three Months
Ended March 28, 1999 (unaudited) and March 29,
1998 (unaudited)
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 28, 1999 (unaudited) and March 29, 1998
(unaudited)
Notes to Condensed Consolidated Financial Statements
Report of Independent Accountants
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE> 3
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
March 28,
1999 December 31,
(unaudited) 1998 *
----------- -----------
<S> <C> <C>
Assets
------
Current Assets
Cash and cash equivalents $ 68,607 $ 57,249
Trade and other accounts receivable, net of allowances 340,725 352,147
Inventories:
Finished and in process 103,006 93,829
Materials and supplies 125,126 123,432
Prepaid expenses and other 30,177 29,465
Net assets held for sale -- 5,294
----------- -----------
667,641 661,416
Property, Plant and Equipment, Net 997,003 1,013,843
Cost in Excess of Fair Value of Assets Purchased, Net 175,012 170,361
Other Assets 245,984 237,363
----------- -----------
Total Assets $ 2,085,640 $ 2,082,983
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Payable to suppliers $ 174,234 $ 174,218
Accrued expenses and other 152,670 149,467
Notes payable and current portion of long-term debt 98,387 96,806
Taxes on income 26,259 15,578
----------- -----------
451,550 436,069
Long-Term Debt 645,995 686,826
Postretirement Benefits Other than Pensions 42,167 43,689
Deferred Income Taxes and Other 120,933 94,807
Shareholders' Equity
Common stock, no par value
Authorized 150,000 shares
101,849 and 101,683 shares issued and outstanding at
March 28, 1999 and December 31, 1998, respectively 7,175 7,175
Capital in excess of stated value 433,745 431,465
Accumulated other comprehensive loss (119,631) (95,139)
Retained earnings 503,706 478,091
----------- -----------
Total shareholders' equity 824,995 821,592
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,085,640 $ 2,082,983
=========== ===========
</TABLE>
* The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 4
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 560,479 $ 673,315
Cost of sales 425,902 518,058
Selling, general and administrative expenses 59,270 67,337
Gain on assets held for sale (3,500) --
--------- ---------
Income before interest and taxes 78,807 87,920
Interest expense 12,470 14,356
Interest income (1,038) (808)
--------- ---------
Income before income taxes 67,375 74,372
Provision for income taxes 24,591 29,005
--------- ---------
Income before equity in earnings of affiliates/
Minority interest in subsidiaries 42,784 45,367
Equity in earnings of affiliates/Minority
interest in subsidiaries 1,163 1,128
--------- ---------
Net income $ 43,947 $ 46,495
========= =========
Average common shares outstanding:*
Basic 101,815 103,915
Assuming exercise of options 1,001 3,040
--------- ---------
Diluted 102,816 106,955
========= =========
Per common share*
Net income:
Basic $ 0.43 $ 0.45
========= =========
Diluted $ 0.43 $ 0.43
========= =========
Dividends per common share $ .18 $ .164
========= =========
</TABLE>
* Prior year's figures have been restated to reflect the 10% stock dividend paid
on June 10, 1998.
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 5
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 73,405 $ 54,229
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (31,472) (43,402)
Cost of acquisitions, exclusive of cash (24,322) (45,097)
Proceeds from non-operating notes receivable 34,000 --
Proceeds from the sale of assets 14,477 183
Other, net (933) (250)
--------- ---------
Net cash used by investing activities (8,250) (88,566)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of debt 37,578 45,249
Principal repayment of debt (36,407) (10,532)
Net increase (decrease) in commercial paper borrowings (38,000) 108,200
Cash dividends (18,332) (16,844)
Common shares acquired -- (108,441)
Common shares issued 2,301 20,245
--------- ---------
Net cash (used) provided by financing activities (52,860) 37,877
--------- ---------
Effects of Exchange Rate Changes on Cash (937) (358)
--------- ---------
Net Increase in Cash and Cash Equivalents 11,358 3,182
Cash and cash equivalents at beginning of period 57,249 53,600
--------- ---------
Cash and cash equivalents at end of period $ 68,607 $ 56,782
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
<PAGE> 6
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: Basis of Interim Presentation
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position and results of operations for the interim periods
reported hereon. Operating results for the three months ended March 28,
1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These condensed
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,
1998.
Note 2: Dividend Declarations
On February 3, 1999, the Board of Directors declared a regular
quarterly dividend of $.18 per share. This dividend was paid March 10,
1999 to shareholders of record as of February 19, 1999.
On April 21, 1999, the Board of Directors voted to raise the regular
quarterly dividend to $.19 per share payable June 10, 1999, to all
shareholders of record May 21, 1999.
Note 3: Acquisitions/Dispositions
During the first quarter of 1999, Sonoco completed the acquisition of
Wood Composite Technology, a manufacturer of composite (i.e. wood and
plastic) reels serving the wire and cable markets. The acquisition is
expected to add approximately $10 million of sales annually. Sonoco
also acquired tube and core operations in Brazil and Taiwan from
Conitex, a wholly owned subsidiary of Texpack, a joint venture partner.
In May 1999, Sonoco reached a definitive agreement to purchase for cash
all of the composite can assets of Crown Cork & Seal, Inc. The
purchase, which is pending regulatory approval, consists of three
manufacturing facilities in the United States with annual sales of
approximately $32 million.
Also in the first quarter of 1999, Sonoco completed the sale of its
labels and label machinery businesses in the United Kingdom and a label
machinery business in the United States. These operations had sales of
approximately $34 million in 1998 and $4.4 million in 1999. The sale of
these operations resulted in the recognition of a $3.5 million gain.
<PAGE> 7
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
Note 4: Comprehensive Income
The following table provides a reconciliation from net income available
to common shareholders to comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net income $ 43,947 $ 46,495
Other comprehensive loss:
Foreign currency translation adjustments (24,492) (5,622)
-------- --------
Comprehensive income $ 19,455 $ 40,873
======== ========
</TABLE>
The following table summarizes the components of the current period
change in the accumulated other comprehensive income balance:
<TABLE>
<CAPTION>
Minimum Accumulated
Foreign Pension Other
Currency Liability Comprehensive
Translation Adjustment Loss
----------- ---------- -------------
<S> <C> <C> <C>
Balance at January 1, 1999 $ (88,228) $ (6,911) $ (95,139)
Current period change (24,492) -- (24,492)
--------- --------- ---------
Balance at March 28, 1999 $(112,720) $ (6,911) $(119,631)
========= ========= =========
</TABLE>
Note 5: New Accounting Pronouncement
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 is
effective for all fiscal years beginning after June 15, 1999 and
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to its limited use of derivative
instruments, the adoption of FAS 133 will not have a significant effect
on the Company's results of operations or its financial position.
<PAGE> 8
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
Note 6: Financial Segment Information
The Financial Segment Information provided below should be read in
conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations immediately following the Notes to
Condensed Consolidated Financial Statements.
FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 28, 1999 March 29, 1998
-------------- --------------
<S> <C> <C>
Net Sales
Industrial Packaging $ 307,890 $ 302,575
Consumer Packaging 245,676 250,859
Other* 6,913 119,881
--------- ---------
Consolidated $ 560,479 $ 673,315
========= =========
Operating Profit
Industrial Packaging $ 43,435 $ 49,348
Consumer Packaging 31,744 30,644
Other* 128 7,928
Gain on assets held for sale 3,500 --
Interest, net (11,432) (13,548)
--------- ---------
Consolidated $ 67,375 $ 74,372
========= =========
</TABLE>
* Includes net sales and operating profits of divested businesses and
entities previously consolidated which have been contributed to joint
ventures and are no longer consolidated by Sonoco.
<PAGE> 9
Report of Independent Accountants
To the Shareholders and Directors of Sonoco Products Company
We have reviewed the accompanying condensed consolidated balance sheet of Sonoco
Products Company as of March 28, 1999, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 28,
1999 and March 29, 1998. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet at December 31, 1998, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
January 27, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Charlotte, North Carolina
May 7, 1999
<PAGE> 10
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited)
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations that are not historical in nature, are
intended to be, and are hereby identified as "forward looking statements" for
purposes of the safe harbor provided by section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, income, and successful implementation of the Year 2000 Plan, are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward looking statements.
First Quarter 1999 Compared with First Quarter 1998
Results of Operations
Consolidated net sales for the first quarter of 1999 were $560.5 million,
compared with $673.3 million in the first quarter of 1998. Last year's first
quarter included sales from divested operations including the Company's former
labels and label machinery businesses in North America and the United Kingdom,
and the Industrial Containers business. It also included sales from the
Company's paper cone and roll wrap operations, both of which were subsequently
contributed to joint ventures in which Sonoco is a minority or equal owner. The
first quarter of 1998 also included sales of corrugating medium to
Georgia-Pacific. Beginning in July 1998, corrugating medium was sold to
Georgia-Pacific under a new cost-plus fixed management fee arrangement under
which Sonoco no longer reports sales. On a comparable basis, excluding divested
businesses, sales for the first quarter of 1999 from ongoing operations were
$553.6 million, versus $553.4 million in the first quarter of 1998. Net income
for the first quarter of 1999 was $43.9 million, compared with $46.5 million in
the same quarter last year. Sonoco reported earnings per diluted share of $.43
for the first quarter of 1998, even with the record $.43 reported in the first
quarter of 1998.
Sonoco's reported net income for the first quarter of 1999 includes a gain of
$3.5 million from the sale of the Company's labels business in the United
Kingdom and its label machinery businesses in the United Kingdom and the United
States. In addition, the first quarter of 1999 reflects reduced interest expense
from lower debt levels and lower average interest rates; and the reduction in
the number of outstanding shares of common stock resulting from $169.1 million
of stock repurchases during 1998. Excluding the gain, earnings per diluted share
were $.39 for the first quarter of 1999.
Consumer Packaging Segment
The consumer packaging segment in the first quarter of 1999 included composite
cans; plastic and fibre cartridges; capseals; flexible packaging; high density
film products; folding cartons; packaging services; and coasters and glass
covers.
<PAGE> 11
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
First Quarter 1999 Compared with First Quarter 1998, continued
First quarter sales were $252.6 million, compared with $295.9 million in the
same quarter of 1998. Last year's sales included the North American labels
operations, which were sold at the beginning of the second quarter of 1998, and
sales from the labels operations in the United Kingdom and label machinery
operations in the United Kingdom and the United States, which were sold in the
first quarter of 1999. On a comparable basis, first quarter 1999 sales were
$245.7 million, versus $250.9 million in the same quarter last year. Reported
operating profits in this segment were $31.9 million, compared with $33.4
million in the first quarter of 1998. On a comparable basis, operating profits
were $31.7 million in the first quarter of 1999, versus $30.6 million in the
same quarter last year.
The modest first quarter sales decline in the consumer segment resulted
primarily from the pass through of lower raw material costs. Volume was up in
the European and Latin American composite can operations as well as in the
flexible packaging business. The increase in operating profits reflected
improved productivity in most of the businesses in this segment.
Volume in the domestic composite can business was weaker in the snack and
concentrate markets compared with the strong volumes reported in the first
quarter of 1998. These weaknesses were offset in part by strong volume in nuts
and foods and volume gains in Europe and South America.
Volume in the high density film products operations was lower in the first
quarter of 1999 compared with the same period last year, particularly in the
retail segment of the business. Selling prices were significantly lower, but
earnings improved due to lower resin costs and productivity improvements.
Industrial Packaging Segment
The industrial packaging segment for the first quarter of 1999 included
engineered carriers (tubes and cores); molded plugs and related products and
services; injection molded and extrusion molded plastics; paper manufacturing;
recovered paper operations; designed interior packaging; wood, plywood, and
metal reels for wire and cable packaging; adhesives; converting machinery; and
forest products.
First quarter sales for the industrial packaging segment were $307.9 million,
compared with $377.4 million in the first quarter of 1998. The Company's paper
cone and roll wrap businesses, both of which were included in last year's first
quarter sales, were contributed to joint ventures in 1998, affecting first
quarter sales comparisons. Last year's first quarter also included sales of
corrugating medium which, beginning in July 1998, is sold under
<PAGE> 12
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
First Quarter 1999 Compared with First Quarter 1998, continued
a cost-plus fixed management fee arrangement under which Sonoco no longer
reports sales. On a comparable basis, excluding these items and sales from
divested operations, sales were $307.9 million in the first quarter of 1999
compared with $302.6 million in the same quarter of 1998. Operating profits for
this segment were $43.4 million, compared with $54.5 million in the same period
of 1998. On a comparable basis, operating profits were $43.4 million in the
first quarter of 1999 compared with $49.3 million last year.
Sales in the industrial segment were favorably impacted by acquisitions and
growth in the Company's Asian and Latin American operations. Earnings for the
segment were unfavorably affected by lower volumes in the domestic and European
engineered carriers and paper operations.
In the domestic integrated paper and engineered carriers business, first quarter
unit volume decreased approximately two percent from the same period last year.
However, on a per billing day basis, volume was even with last year's first
quarter. Selling prices for engineered carriers were lower compared with last
year's first quarter when selling prices were raised to pass through higher
recovered paper costs. Lower selling prices in the first quarter of 1999,
however, were largely offset by lower raw material costs.
The domestic paper operations were not able to run at full capacity during the
first quarter of 1999, unfavorably impacting earnings in this segment. The
shortfall was primarily in sales to the Company's joint venture operations and
slightly lower trade sales. Sales to the joint venture operations are projected
to increase over the balance of 1999.
Sales and earnings were also down, compared with the first quarter of 1998, in
the Company's recovered paper operations. During last year's first quarter,
recovered paper costs were at their highest for the year as were sales and
profits. Recovered paper costs declined over the remainder of 1998 and into the
first quarter of 1999. Recovered paper costs in the first quarter of 1999 were
about 40% below 1998's first quarter, lowering both sales and profits compared
with the first quarter of 1998. Profits in the recovered paper operations should
be ahead of last year for the balance of 1999.
The Company's paper operations in Europe experienced a similar situation with
recovered paper cost at much lower levels in the first quarter of 1999 versus
the same quarter last year. Volume was down in the engineered carriers business
and paper operations in the first quarter of 1999 due to softness in the textile
industry and over-capacity in the paper industry as producers shifted tonnage
previously exported to Asia into the European market.
<PAGE> 13
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
First Quarter 1999 Compared with First Quarter 1998, continued
Corporate
General corporate expenses have been allocated as operating costs to each of the
segments. Interest expense was lower in the first quarter of 1999 compared with
the same quarter of 1998 due to lower average borrowings and a lower average
interest rate on those borrowings. Debt levels were higher in the first quarter
of 1998 due to borrowings associated with the share repurchase program which was
completed in 1998.
Financial Position, Liquidity and Capital Resources
The Company's financial position remained strong through the first quarter of
1999. The debt-to-capital ratio, after adjusting debt levels for excess cash
related to the issuance of restricted purpose bonds, decreased to 45.4% at March
28, 1999, from 46.7% at December 31, 1998. The decrease is primarily
attributable to the reduction in total debt made possible by the cash proceeds
received in the first quarter of 1999 from the sale of the Intermediate Bulk
Containers business and the proceeds from the sale of the labels and labels
machinery business in the United Kingdom.
Working capital decreased $9.2 million to $216.1 million during the first
quarter of 1999, driven by net increases in current liabilities, particularly
federal income taxes payable.
The Company expects internally generated cash flows along with borrowings
available under its commercial paper and other existing credit facilities to be
sufficient to meet operating and normal capital expenditure requirements.
Year 2000 Readiness Disclosure and Euro Compliance
The "Year 2000 issue" relates to the inability of certain computerized
information and production systems to properly recognize and process date
sensitive information. This is because most of the world's computer hardware and
software have historically used only two digits to identify the year, resulting
in the computers' inability to distinguish between dates in the 1900's and dates
in the 2000's.
In May 1997, the Company adopted a Year 2000 Plan ("Plan") to identify and
address the Company's various Year 2000 issues throughout its domestic and
international operations, including financial and administrative systems,
process control and operating systems and information systems infrastructure.
The Plan provides for six phases: (i) an inventory of all systems that might be
affected by the Year 2000; (ii) assessment of Year 2000 readiness of each
application identified in the inventory; (iii) planning for corrective action,
which includes reviewing and
<PAGE> 14
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
Year 2000 Readiness Disclosure and Euro Compliance, continued
prioritizing the various corrective actions based on their relative impact on
the Company's operations and profitability; (iv) initiation of corrective
actions to replace or repair systems that are not Year 2000 compliant; (v)
testing the new, upgraded or repaired systems; and (vi) implementation of tested
systems and post-implementation support, including contingency plans for those
systems most critical to the Company's ongoing operations and/or most at risk to
fail. The Plan is being implemented on a Company-wide basis under the direction
of the Information Services Department in cooperation with senior management and
with the review of the Board of Directors' Audit Committee.
The Company has completed the inventory, assessment and planning phases for all
of its material systems that may involve a Year 2000 issue. Based on the
information developed, of the total system-related expenditures, the Company
estimates that the total cost of achieving Year 2000 compliance in substantially
all of its information technology and production systems will be approximately
$30 million, of which $28 million has been spent through March 28, 1999, a
portion of which was capitalized and will be amortized to earnings in future
periods. Management anticipates that the remainder will be spent in the second
and third quarters of 1999, and believes that the total cost of achieving Year
2000 compliance will not have a material impact on the Company's financial
condition, results of operations, or cash flows. However, the Company currently
is in the process of completing corrective actions and testing the new, upgraded
or repaired systems. The Company may need to take additional corrective action
arising out of the results of the testing, the costs of which it cannot yet
predict. Testing of material systems is scheduled to be completed in the second
quarter of 1999.
The Company is deploying its internal and external resources to install and test
new or upgraded equipment necessary to address the Year 2000 issues in its
operations. Management believes its existing personnel and outside resources are
sufficient to implement the Plan on a timely basis, assuming that no
unanticipated delays are encountered.
The Company's facilities utilize various control systems to monitor and regulate
production operations. Although the production impact of a Year 2000 related
failure varies significantly among the facilities, any such failure could cause
manufacturing delays or similar inefficiencies. Due to the decentralized nature
of its operations, however, management believes the potential impact of such a
failure would be isolated to the affected facility. In most cases, production
could be shifted to other Company facilities that have similar production
capabilities and capacity until the Year 2000 issue is remedied. It is not
possible to predict the
<PAGE> 15
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
Year 2000 Readiness Disclosure and Euro Compliance, continued
reasonable likelihood of such an event occurring or the related financial
impact. Based on information developed to date, the Company does not believe it
has a significant amount of software imbedded in its production equipment that
is date dependent. The Company is continuing to assess its equipment for
imbedded software and, consequently, may find additional software that requires
correction. The Company intends to have contingency plans for its production
facilities and equipment finalized by the third quarter of 1999.
The Company also maintains a wide variety of administrative and financial
applications that require corrective actions to handle Year 2000 dates. The
Company is in the process of installing and testing new, more centralized
software systems throughout its North American operations that are designed to
address Year 2000 issues. Management anticipates that the implementation of
these systems will be complete within the time frames established by the Plan.
Such applications generally are decentralized in the Company's international
operations. Consequently, any Year 2000 failure would be isolated to a single
facility or operation. In most instances, the Company has the ability to run
these applications off-line with the assistance of additional Company personnel,
if necessary.
The Company relies on third party suppliers for certain raw materials,
utilities, transportation and other key services. Under the Plan, the Company
has initiated efforts to evaluate the Year 2000 readiness of its key suppliers
so that it can make contingency plans to reduce risks of disruption in its
production and delivery processes. Paper, the Company's primary raw material, is
produced internally; therefore, the Company believes it will not be subject to
many of the risks attendant to companies that are substantially dependent on
third party suppliers for raw materials. To date, approximately 78% of those
suppliers that the Company has contacted have responded to the surveys. All have
indicated that they are, or reasonably believe they will be, Year 2000 compliant
with respect to operations that impact the Company.
Although possible Year 2000 interruptions in customers' operations could result
in reduced sales, increased inventory or receivable levels and reduction in cash
flow, the Company believes that its customer base is broad enough to minimize
the effects of such occurrences. Nevertheless, the Company is taking steps to
monitor the status of its more significant customers in order to devise adequate
contingency plans where necessary.
<PAGE> 16
SONOCO PRODUCTS COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Unaudited), continued
Year 2000 Readiness Disclosure and Euro Compliance, continued
There is a risk that the Company's plans for achieving Year 2000 compliance may
not be completed on time, particularly in certain of the Company's European
operations that are more dependent on third parties. However, the Company
anticipates that if one or more of the milestones are not met with respect to
any system, the Plan timetable will provide adequate advance notice to permit
the Company to take those steps necessary to implement alternative plans, which
could include taking the systems off-line temporarily, stockpiling inventories
of raw materials or finished goods, or devoting additional Company personnel to
resolve or substantially mitigate the issues. The Company is also examining the
extent to which its insurance coverages may protect against or offset Year
2000-related risks.
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and the
Euro and adopted the Euro as their common legal currency (the "Euro
Conversion"). Although the Company is currently unsure of the potential impact
that the Euro Conversion will have on its business, financial condition, results
of operations, and cash flows, particularly as it relates to the Company's
European operations, the Company does not anticipate the Euro Conversion will
have a material adverse effect on the Company. The corrective actions that the
Company is taking to address Year 2000 issues with respect to its European
operations already include changes in its administrative and financial
applications necessary to deal with the Euro Conversion at an immaterial
incremental cost.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
Plan include the availability of resources, the Company's ability to discover
and correct the potential Year 2000-sensitive problems that could have a serious
impact on specific systems or facilities, and the ability of suppliers to bring
their systems into Year 2000 compliance. All statements made herein regarding
our Year 2000 efforts are "Year 2000 Readiness Disclosures" made pursuant to the
Year 2000 Information and Readiness Disclosures Act, and to the extent
applicable, are entitled to the protections of such act.
<PAGE> 17
SONOCO PRODUCTS COMPANY
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about the Company's exposure to market risk was disclosed
in its 1998 Annual Report on Form 10-K which was filed with the
Securities and Exchange Commission on March 26, 1999. There have been
no material quantitative changes in market risk exposures since the
date of that filing.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on April 21,
1999. The following matters, as described more fully in the Company's
Proxy Statement, were approved by the shareholders at this meeting:
(1) The following directors were elected:
VOTES
-------------------------
Term For Withheld
------ ---------- --------
C. J. Bradshaw 3-year 88,708,346 513,985
R. J. Brown 3-year 88,717,432 504,899
J. L. Coker 3-year 88,751,601 470,730
Paul Fulton 3-year 88,721,761 500,570
H. L. McColl, Jr. 3-year 88,733,950 488,381
C. D. Spangler, Jr. 1-year 88,708,413 513,918
(2) An amendment to the Company's Restated Articles of Incorporation
was approved by the shareholders increasing the number of
shares of Common Stock the Company is authorized to issue from
150,000,000 shares to 300,000,000 shares. The shareholders
voted 79,554,854 for and 8,794,071 against this amendment,
with 873,406 votes abstaining.
(3) PricewaterhouseCoopers LLP, Certified Public Accountants,
was approved as the independent auditors of the
corporation for the fiscal year ending December 31, 1999.
The shareholders voted 88,955,210 for and 110,907 against
this appointment, with 156,214 votes abstaining.
There were 12,621,079 non-votes for each matter voted upon.
<PAGE> 18
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (27) - Financial Data Schedule (for SEC use only)
(b) No Current Reports on Form 8-K were filed by the Company
during the first quarter of 1999.
<PAGE> 19
S O N O C O P R O D U C T S C O M P A N Y
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONOCO PRODUCTS COMPANY
-----------------------
(Registrant)
Date: May 7, 1999 By: /s/ F. T. Hill, Jr.
----------------------- --------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
<PAGE> 20
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27.199 Financial Data Schedule for the first quarter of 1999
(for SEC use only)
27.198 Restated Financial Data Schedule for the first
quarter of 1998 (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SONOCO PRODUCTS FOR THE THREE MONTHS ENDED MARCH 28,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-28-1999
<CASH> 58,087
<SECURITIES> 10,520
<RECEIVABLES> 340,725
<ALLOWANCES> 5,654
<INVENTORY> 228,132
<CURRENT-ASSETS> 667,641
<PP&E> 1,954,837
<DEPRECIATION> 957,834
<TOTAL-ASSETS> 2,085,640
<CURRENT-LIABILITIES> 451,550
<BONDS> 645,995
0
0
<COMMON> 7,175
<OTHER-SE> 817,820
<TOTAL-LIABILITY-AND-EQUITY> 2,085,640
<SALES> 560,479
<TOTAL-REVENUES> 560,479
<CGS> 425,902
<TOTAL-COSTS> 425,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 601
<INTEREST-EXPENSE> 12,470
<INCOME-PRETAX> 67,375
<INCOME-TAX> 24,591
<INCOME-CONTINUING> 43,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,947
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SONOCO PRODUCTS FOR THE THREE MONTHS ENDED MARCH 29,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 32,419
<SECURITIES> 24,363
<RECEIVABLES> 319,427
<ALLOWANCES> 6,026
<INVENTORY> 234,042
<CURRENT-ASSETS> 905,068
<PP&E> 1,842,159
<DEPRECIATION> 861,886
<TOTAL-ASSETS> 2,269,176
<CURRENT-LIABILITIES> 431,738
<BONDS> 846,415
0
0
<COMMON> 7,175
<OTHER-SE> 778,007
<TOTAL-LIABILITY-AND-EQUITY> 2,269,176
<SALES> 637,315
<TOTAL-REVENUES> 673,315
<CGS> 518,058
<TOTAL-COSTS> 518,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 905
<INTEREST-EXPENSE> 14,356
<INCOME-PRETAX> 74,372
<INCOME-TAX> 29,005
<INCOME-CONTINUING> 46,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,495
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.43
</TABLE>
