<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 July 2, 2000 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 August 6, 2000:
Common stock, no par value: 99,481,306
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SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - July 2, 2000
(unaudited) and December 31, 1999
Condensed Consolidated Statements of Income - Three Months and
Six Months Ended July 2, 2000 (unaudited) and June 27, 1999
(unaudited)
Condensed Consolidated Statements of Cash Flows - Six Months
Ended July 2, 2000 (unaudited) and June 27, 1999 (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
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SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
(unaudited)
July 2, December 31,
2000 1999*
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,803 $ 36,515
Trade accounts receivable, net of allowances 362,471 346,845
Other receivables 22,468 28,847
Inventories:
Finished and in process 113,246 94,133
Materials and supplies 162,272 154,231
Prepaid expenses and other 39,816 62,510
---------- ----------
743,076 723,081
PROPERTY, PLANT AND EQUIPMENT, NET 999,614 1,032,503
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 244,994 254,580
OTHER ASSETS 297,053 286,856
---------- ----------
Total Assets $2,284,737 $2,297,020
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 218,842 $ 192,859
Accrued expenses and other 140,420 139,175
Notes payable and current portion of long-term debt 59,739 84,597
Taxes on income 2,156 --
---------- ----------
421,157 416,631
LONG-TERM DEBT 813,544 819,540
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 32,263 36,278
DEFERRED INCOME TAXES AND OTHER 134,751 123,351
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 300,000 shares
99,461 and 101,448 shares issued and outstanding
at July 2, 2000 and December 31, 1999,
respectively 7,175 7,175
Capital in excess of stated value 382,213 427,591
Accumulated other comprehensive loss (148,121) (123,008)
Retained earnings 641,755 589,462
---------- ----------
Total Shareholders' Equity 883,022 901,220
---------- ----------
Total Liabilities and Shareholders' Equity $2,284,737 $2,297,020
========== ==========
* The December 31, 1999 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 data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -----------------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 688,686 $ 611,754 $ 1,364,985 $ 1,172,233
Cost of sales 533,804 466,632 1,058,442 892,534
Selling, general and administrative expenses 69,369 60,745 136,795 120,015
Gain on assets held for sale -- -- -- 3,500
--------- --------- ----------- -----------
Income before interest and taxes 85,513 84,377 169,748 163,184
Interest expense 15,164 11,846 30,683 24,316
Interest income (735) (1,692) (1,498) (2,730)
--------- --------- ----------- -----------
Income before income taxes 71,084 74,223 140,563 141,598
Provision for income taxes 26,992 28,575 53,414 53,166
--------- --------- ----------- -----------
Income before equity in earnings of affiliates/
Minority interest in subsidiaries 44,092 45,648 87,149 88,432
Equity in earnings of affiliates/Minority
interest in subsidiaries 2,308 1,716 4,268 2,879
--------- --------- ----------- -----------
Net income $ 46,400 $ 47,364 $ 91,417 $ 91,311
========= ========= =========== ===========
Average common shares outstanding:
Basic 99,452 101,867 100,188 101,842
Assuming exercise of options 264 975 220 987
--------- --------- ----------- -----------
Diluted 99,716 102,842 100,408 102,829
========= ========= =========== ===========
Net income per common share:
Basic $.47 $.46 $.91 $.90
==== ==== ==== ====
Diluted $.47 $.46 $.91 $.89
==== ==== ==== ====
Cash dividends per common share $.20 $.19 $.39 $.37
==== ==== ==== ====
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Six Months Ended
----------------------
July 2, June 27,
2000 1999
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 163,338 $ 67,476
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (47,910) (64,437)
Cost of acquisitions, exclusive of cash (1,878) (25,770)
Proceeds from non-operating notes receivable -- 34,000
Proceeds from the sale of assets 856 15,433
Other, net (1,153) (933)
--------- --------
Net cash used by investing activities (50,085) (41,707)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 8,460 46,040
Principal repayment of debt (102,768) (64,796)
Net increase in commercial paper borrowings 70,700 17,000
Cash dividends (39,125) (37,686)
Common shares acquired (46,364) (217)
Common shares issued 2,346 2,854
--------- --------
Net cash used by financing activities (106,751) (36,805)
--------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (214) (1,368)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,288 (12,404)
Cash and cash equivalents at beginning of period 36,515 57,249
--------- --------
Cash and cash equivalents at end of period $ 42,803 $ 44,845
========= ========
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 management of Sonoco Products Company (the
"Company"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial
position, results of operations , and cash flows for the interim
periods reported hereon. Operating results for the three and six months
ended July 2, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. 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,
1999.
NOTE 2: DIVIDEND DECLARATIONS
On April 19, 2000, the Board of Directors declared a regular quarterly
dividend of $.20 per share. This dividend was paid June 9, 2000, to all
shareholders of record May 19, 2000.
On July 19, 2000, the Board of Directors declared a regular quarterly
dividend of $.20 per share payable September 8, 2000, to all
shareholders of record August 18, 2000.
NOTE 3: 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). The effective
date of FAS 133 has been deferred by FAS 137. FAS 133 is now effective
for all fiscal quarters of all fiscal years beginning after June 15,
2000 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. The Company is currently evaluating the effect of adopting
FAS 133.
<PAGE> 7
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 4: COMPREHENSIVE INCOME
The following table reconciles net income to comprehensive income
(dollars in thousands):
Three Months Ended Six Months Ended
------------------ -------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
--------- ------- -------- --------
Net income $46,400 $47,364 $ 91,417 $ 91,311
Other comprehensive income
(loss):
Foreign currency
translation adjustments (8,352) 957 (25,113) (23,535)
------- ------- -------- --------
Comprehensive income $38,048 $48,321 $ 66,304 $ 67,776
======= ======= ======== ========
The following table summarizes the components of the current period
change in the accumulated other comprehensive loss balances (dollars in
thousands):
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Loss
----------- ---------- -------------
Balance at January 1, 2000 $ (118,882) $ (4,126) $ (123,008)
Current period change (25,113) -- (25,113)
---------- -------- ----------
Balance at July 2, 2000 $ (143,995) $ (4,126) $ (148,121)
========== ======== ==========
<PAGE> 8
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 5: FINANCIAL SEGMENT INFORMATION
Sonoco reports its results in two primary segments, Industrial
Packaging and Consumer Packaging. The Industrial Packaging segment
includes engineered carriers (paper and plastic tubes and cores, paper
manufacturing, and recovered paper operations); and protective
packaging (designed interior packaging and protective reels). The
Consumer Packaging segment includes composite cans; flexible packaging
(printed flexibles, high density bag and film products, and container
seals); and packaging services and specialty products (e-marketplace,
graphics management, folding cartons, and paper glass covers and
coasters).
FINANCIAL SEGMENT INFORMATION (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -------------------------------
July 2, 2000 June 27, 1999 July 2, 2000 June 27, 1999
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net Sales
Industrial Packaging $377,289 $338,381 $ 740,651 $ 646,271
Consumer Packaging 311,397 271,613 624,334 517,289
Other* -- 1,760 -- 8,673
-------- -------- ---------- ----------
Consolidated $688,686 $611,754 $1,364,985 $1,172,233
======== ======== ========== ==========
Operating Profit
Industrial Packaging $ 56,437 $ 47,969 $ 109,436 $ 91,404
Consumer Packaging 29,076 36,460 60,312 68,204
Other* -- (52) -- 76
Gain on assets held for sale -- -- -- 3,500
Interest, net (14,429) (10,154) (29,185) (21,586)
-------- -------- ---------- ----------
Consolidated $ 71,084 $ 74,223 $ 140,563 $ 141,598
======== ======== ========== ==========
</TABLE>
* Includes net sales and operating profits of divested businesses.
<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 July 2, 2000, and the related condensed consolidated
statements of income for each of the three-month and six-month periods ended
July 2, 2000 and June 27, 1999, and the condensed consolidated statements of
cash flows for the six-month periods ended July 2, 2000 and June 27, 1999. 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 accompanying condensed consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year then ended (not presented herein), and in our report dated
January 26, 2000, 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, 1999, 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
August 15, 2000
<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. Forward-looking statements include statements regarding
offsetting high raw material costs, adequacy of income tax provision,
refinancing of debt, adequacy of cash flows, and financial strategies and the
results expected from them. Such forward-looking statements are based on current
expectations, estimates and projections about our industry, management's beliefs
and certain assumptions made by management. Such information includes, without
limitation, discussions as to 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 certain 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. Such risks and uncertainties
include, without limitation; availability and pricing of raw materials; success
of new product development and introduction; the accuracy of customer forecasts;
ability to maintain or increase productivity levels; international, national and
local economic and market conditions; ability to maintain market share; pricing
pressures and demand for products; continued strength of our paperboard-based
engineered carrier and composite can operations; currency stability and the rate
of growth in foreign markets; and actions of government agencies.
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999
RESULTS OF OPERATIONS
Consolidated net sales for the second quarter of 2000 were $688.7 million, an
increase of $76.9 million over last year's second quarter sales of $611.8
million. The increase reflects the impact of selling price increases implemented
during the second quarter of 2000 as well as acquisitions made during 1999.
Reported net income for the quarter was $46.4 million versus $47.4 million in
the second quarter of 1999. The quarter-over-quarter decrease resulted primarily
from the impact of increased raw material costs, weaker volumes, and change in
product mix. Earnings benefited in the second quarter of 2000 from higher
pension income and a lower effective tax rate. These benefits, however, were
partially offset by the costs associated with the closure of an engineered
carriers plant, the partial closure of a high density film plant, and
consolidation costs of the composite can operations acquired from Crown, Cork &
Seal in 1999. Earnings per diluted share were $.47 for the second quarter of
2000 versus $.46 for the same period last year. The higher earnings per diluted
share reflects the impact of the Company's repurchase of a total of
approximately 3.1 million shares of its common stock throughout December 1999
and the first quarter of 2000.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999, CONTINUED
CONSUMER PACKAGING SEGMENT
In the second quarter of 2000 the consumer packaging segment included composite
cans; flexible packaging (printed flexibles, high density bag and film products,
and container seals); and packaging services and specialty products
(e-marketplace, graphics management, folding cartons, and paper glass covers and
coasters).
Second quarter sales from ongoing operations in the consumer segment were $311.4
million, compared with $271.6 million in the same quarter of 1999. Operating
profits in this segment were $29.1 million in the second quarter of 2000,
compared with $36.5 million in the same period last year. Last year's second
quarter results included a gain of approximately $2 million on the sale of land
and buildings.
The increase in second quarter sales in the consumer segment resulted primarily
from acquisitions and higher selling prices, compared with the same period in
1999. Sales reflect the third quarter 1999 acquisitions of the flexible
packaging businesses of Graphic Packaging Corporation and the composite can
businesses of Crown, Cork & Seal.
The decrease in operating profits primarily reflects the negative impact of
unrecovered resin price increases in the high density bag and film business.
Average resin prices for the second quarter of 2000 have increased 38% from the
same period last year. The business implemented two 7.5% price increases during
the second quarter of 2000, but fell approximately $4 million short of covering
these raw material price increases. Sales and operating profits increased in the
printed flexibles business, primarily from the September 1999 Graphic Packaging
acquisition. The base flexible operations did experience lower sales and profits
primarily resulting from lower internal sales and fewer new product rollouts
during the second quarter of 2000.
Operating profits were also impacted by declines in volume and changes in
product mix in the Company's composite can business. Composite can volumes were
down in the snack food, refrigerated dough, and powdered beverage markets,
reflecting in part a continued reduction by certain customers of excess
inventories and seasonal demand changes. Composite can volumes increased during
this year's second quarter for nuts and frozen concentrate. Based on current
customer forecasts, composite can volumes are expected to improve during the
second half of 2000.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999, CONTINUED
INDUSTRIAL PACKAGING SEGMENT
The industrial packaging segment for the second quarter of 2000 included
engineered carriers (paper and plastic tubes and cores, paper manufacturing, and
recovered paper operations) and protective packaging (designed interior
packaging and protective reels).
Second quarter sales for the industrial packaging segment were $377.3 million in
2000, an 11.5% increase over the $338.4 million reported in last year's second
quarter. Operating profits for this segment were $56.4 million, an increase of
17.7% over the $48.0 million reported in the second quarter of 1999. Last year's
second quarter results included a $2.4 million charge related to the closing of
a paper mill in the United Kingdom and associated redundancies.
The increase in second quarter sales and profits in the industrial segment
resulted from improved productivity and the impact of selling price increases
for engineered carriers in response to higher general operating and raw material
costs. The price of the Company's principal raw material, old corrugated
containers (OCC), averaged $126 per ton during the second quarter of 2000, a
100% increase over the average price during the second quarter of 1999.
To offset rising energy and transportation costs and other materials and general
operating cost increases, Sonoco implemented selling price increases for its
engineered carriers products in North America of 6 - 9%, effective May 1, 2000,
and in Europe of 8 - 12%, effective May 15, 2000. As a result of these price
increases, the relationship of selling prices relative to material costs
improved in the second quarter of 2000 in both the North American and European
businesses. The second quarter of 2000 also benefited from increased profit in
the recovered paper operations.
Strong volume in the Company's protective packaging operations contributed to
higher sales and earnings in the second quarter of 2000 compared with the second
quarter of 1999. Part of the increase in volume was due to a new designed
interior packaging facility in San Luis Potosi, Mexico, which began production
in the second half of 1999. In addition, productivity improvements contributed
to the improved performance of these operations.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 2000 YEAR-TO-DATE COMPARED WITH JUNE 1999 YEAR-TO-DATE
RESULTS OF OPERATIONS
Consolidated net sales for the first six months of 2000 were $1.36 billion,
compared with $1.17 billion in the first six months of 1999. Strong volume in
the first quarter of 2000, coupled with selling price increases implemented
throughout the first six months of 2000, increased year-over-year sales by $126
million. In addition, acquisitions (net of dispositions) increased sales by $67
million. This year's first half sales included six more calendar days (4 to 6
more billing days, depending on the specific business) than in the previous
year.
Net income for the first half of 2000 was $91.4 million, versus $87.8 million
for the same period in 1999, excluding a $3.5 million non-recurring gain in the
first quarter of 1999. Net income benefited from the higher volume experienced
in the first half of 2000, compared with the same period last year.
Year-over-year raw material costs have increased in virtually every operation
and geography in which the Company operates. Selling prices have been, and are
continuing to be, raised in response to the rising raw material costs. By the
end of the second quarter of 2000, the Company's year-to-date relationship of
selling price to material cost was positive by approximately $3 million. Further
realization of selling price increases is expected during the third quarter of
2000. Unfavorable product mix more than offset this favorable price/cost
relationship for the first half of the year.
Earnings per diluted share for the first six months of 2000 were $.91, versus
$.85 in the same period of 1999, excluding the non-recurring gain. The higher
earnings per diluted share reflects the impact of the Company's repurchase of a
total of approximately 3.1 million shares of its common stock throughout
December 1999 and the first quarter of 2000.
CONSUMER PACKAGING SEGMENT
Trade sales from ongoing operations for the consumer packaging segment were
$624.3 million in the first six months of 2000, compared with $517.3 million in
the first half of 1999. Approximately $75.3 million of the increase in the
year-over-year sales in this segment was due to the 1999 acquisitions of the
composite can businesses of Crown Cork & Seal, Inc. and the flexible packaging
businesses of Graphic Packaging Corporation. Operating profits from ongoing
operations in this segment were $60.3 million for the first half of 2000,
compared with $68.2 million during the same period last year. Last year's second
quarter results included a gain of approximately $2 million on the sale of land
and buildings.
Volume in the Company's global composite can operations in the first half of
2000 remains ahead of levels in the
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 2000 YEAR-TO-DATE COMPARED WITH JUNE 1999 YEAR-TO-DATE, continued
CONSUMER PACKAGING SEGMENT, CONTINUED
same period last year largely due to the acquisition of Crown Cork & Seal's
composite can businesses in 1999. Operating profits in this business were down
in the first six months of 2000 compared with the same period last year as the
increased volume was offset by unfavorable product mix and additional fixed
costs associated with the acquisition.
Volume decreased in Sonoco's high density bag and film products operations for
the first six months of 2000, compared with the same period last year. The
decreases arose primarily in the second quarter in both the grocery and retail
markets. Operating profits have also been negatively impacted by higher resin
prices. The business implemented two 7.5% price increases during the second
quarter of 2000, but has fallen approximately $8 million short of covering these
material price increases on a year-to-date basis.
Volume increased in the Company's printed flexible operations in the first half
of 2000, compared with the first half of 1999. The acquisition of the flexible
packaging operations of the Graphic Packaging Corporation in September 1999
contributed the majority of the additional sales. This acquisition, which was
expected to be earnings neutral in its first year, has become slightly accretive
to 2000 earnings. In addition, productivity improvements contributed to this
group's improved performance over the first half of 1999.
INDUSTRIAL PACKAGING SEGMENT
Trade sales for the industrial packaging segment for the first six months of
2000 were $740.7 million, compared with $646.3 million in the first half of
1999. Operating profits for this segment in the first half of 2000 were $109.4
million, compared with the $91.4 million reported in the same period of 1998.
The increase in sales and profits in this segment resulted primarily from
increased volume in paper and plastic tubes and cores, compared with the first
six months of 1999, which experienced direct and indirect adverse effects from
the downturn in the Asian economy during 1999. In addition, more calendar days
in the first quarter of 2000, productivity improvements, and the impact of price
increases realized, contributed to improved results for the first half of 2000
compared to the first half of 1999.
In the global integrated paper and engineered carriers business, unit volume
increased by approximately two percent on a comparable billing day basis during
the first six months of 2000, compared with the same period last year. The
average price of OCC was approximately twice that of the same period last year.
Selling prices for engineered carriers were higher as prices were raised to pass
through the higher recovered paper costs. OCC prices began to drop late in the
second quarter of 2000 and prices have continued to drop in the third quarter.
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 2000 YEAR-TO-DATE COMPARED WITH JUNE 1999 YEAR-TO-DATE, continued
INDUSTRIAL PACKAGING SEGMENT, CONTINUED
Strong volume in the Company's protective packaging operations contributed to
higher sales and earnings in the first half of 2000 compared with the same
period last year. Part of the increase in volume is due to a new designed
interior packaging facility in Mexico that began production in the second half
of 1999. In addition, productivity improvements contributed to the improved
performance of these operations.
CORPORATE
General corporate expenses have been allocated as operating costs to each of the
segments. Year to date net interest expense was $7.6 million higher in the first
six months of 2000 compared with the same period last year due to higher average
interest rates and higher debt levels associated with funding acquisitions and
stock repurchases.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first half of 2000.
The debt-to-capital ratio, after adjusting debt levels for excess cash related
to the issuance of restricted purpose bonds, decreased to 46.8% at July 2, 2000,
from 47.5% at December 31, 1999. The decrease is due to a net reduction in the
Company's overall debt of $30.9 million in the first half of 2000.
Working capital increased $15.5 million to $321.9 million during the first half
of 2000, driven mainly by decreases in short-term debt and increases in trade
accounts receivable. The increases in accounts receivable are primarily driven
by higher sales.
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.
EURO CONVERSION
There have not been any significant new developments relating to the Euro
Conversion since year-end 1999. Refer to the 1999 Form 10-K for a discussion of
the Euro Conversion.
<PAGE> 16
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 1999 Annual Report on Form 10-K which was filed
with the Securities and Exchange Commission on March 24, 2000.
There have been no material quantitative or qualitative 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
Incorporated by reference to the information set forth under
Item 4 of the Company's Quarterly Report on Form 10-Q for the
quarter ended April 2, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Sonoco filed Form 8-K relating to Item 5 of that form
with respect to other events, filed on July 21, 2000.
<PAGE> 17
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: August 15, 2000 By: /s/ F. Trent Hill, Jr.
-------------------------- --------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
<PAGE> 18
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
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27 Financial Data Schedule for the second quarter
of 2000 (for SEC use only)
