SONOCO PRODUCTS CO - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarter Ended September 29, 2002		Commission File No. 0-516

SONOCO PRODUCTS COMPANY


Incorporated under the laws of South Carolina		I.R.S. Employer Identification No. 57-0248420

One North Second Street

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at November 3, 2002:

Common stock, no par value: 96,599,866

SONOCO PRODUCTS COMPANY

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:

		Condensed Consolidated Balance Sheets – September 29, 2002 (unaudited) and December 31, 2001

		Condensed Consolidated Statements of Income — Three Months and Nine Months Ended September 29, 2002 (unaudited) and September 30, 2001 (unaudited)

		Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 29, 2002 (unaudited) and September 30, 2001 (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

Item 4.	Controls and Procedures

PART II. OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURE

CERTIFICATIONS

Part I. Financial Information
Item 1. Financial Statements

SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)


					September 29,
					2002			December 31,
					(unaudited)			2001*

				Assets
Current Assets
		Cash and cash equivalents			$	36,055		$	36,130
		Trade accounts receivable, net of allowances				346,680			289,323
		Other receivables				34,655			30,828
		Inventories:
			Finished and in process			108,839			116,879
			Materials and supplies			149,558			144,842
		Prepaid expenses and other				47,819			47,167

						723,606			665,169
Property, Plant and Equipment, Net						976,855			1,008,944
Cost in Excess of Fair Value of Assets Purchased, Net						355,206			348,846
Other Assets						351,187			329,238

			Total Assets		$	2,406,854		$	2,352,197

			Liabilities and Shareholders’ Equity
Current Liabilities
		Payable to suppliers			$	263,287		$	211,452
		Accrued expenses and other				211,066			190,770
		Notes payable and current portion of long-term debt				37,296			35,849
		Taxes on income				22,595			22,199

						534,244			460,270
Long-Term Debt						789,820			885,961
Postretirement Benefits Other than Pensions						33,079			32,231
Deferred Income Taxes and Other						174,041			169,613
Shareholders’ Equity
	Common stock, no par value
	Authorized 300,000 shares 96,572 and 95,713 shares outstanding, of which 96,313 and 95,453 are issued at September 29, 2002 and December 31, 2001, respectively					7,175			7,175
	Capital in excess of stated value					322,936			302,345
	Accumulated other comprehensive loss					(187,899	)		(197,969	)
	Retained earnings					733,458			692,571

			Total Shareholders’ Equity			875,670			804,122

			Total Liabilities and Shareholders’ Equity		$	2,406,854		$	2,352,197

* 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

SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share data)


					Three Months Ended						Nine Months Ended

					September 29,			September 30,			September 29,			September 30,
					2002			2001			2002			2001

Net sales					$	717,390		$	649,265		$	2,083,980		$	1,929,692
Cost of sales						582,089			514,009			1,668,180			1,520,792
Selling, general and administrative expenses						71,946			63,495			217,401			199,201
Other expense (income) (see Notes 5 and 6)						6,446			(6,121	)		9,600			46,207

Income before interest and taxes						56,909			77,882			188,799			163,492
Interest expense						14,107			11,932			40,768			38,754
Interest income						(453	)		(1,617	)		(1,138	)		(3,056	)

Income before income taxes						43,255			67,567			149,169			127,794
Provision for income taxes						15,572			25,733			53,669			65,011

Income before equity in earnings of affiliates/Minority interest in subsidiaries						27,683			41,834			95,500			62,783
Equity in earnings of affiliates/Minority interest in subsidiaries						1,521			990			4,978			1,645

Net income					$	29,204		$	42,824		$	100,478		$	64,428

Average common shares outstanding:
	Basic					96,524			95,483			96,294			95,291

	Diluted					97,205			95,994			97,267			95,705

Per common share
		Net income:
				Basic	$	.30		$	.45		$	1.04		$	.68

				Diluted	$	.30		$	.45		$	1.03		$	.67

			Cash dividends		$	.21		$	.20		$	.62		$	.60

See accompanying Notes to Condensed Consolidated Financial Statements

SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)


			Nine Months Ended

			September 29,			September 30,
			2002			2001

Cash Flows from Operating Activities:
Net income			$	100,478		$	64,428
Adjustments to reconcile net income to net cash provided by operating activities:
	Restructuring reserve (noncash)			444			12,972
	Depreciation, depletion and amortization			118,140			115,904
	Equity in earnings of affiliates/Minority interest in subsidiaries			(4,978	)		(1,645	)
	Cash dividends from affiliated companies			2,031			6,070
	Loss on disposition of assets			758			1,883
	Deferred taxes			8,263			2,532
	Changes in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments
		Receivables		(57,719	)		11,780
		Inventories		5,016			13,244
		Prepaid expenses		(1,370	)		(4,313	)
		Payables and taxes		62,040			32,941
		Other assets and liabilities		(18,809	)		30,829

Net cash provided by operating activities				214,294			286,625

Cash Flows From Investing Activities:
Purchase of property, plant and equipment				(84,071	)		(74,316	)
Cost of acquisitions, exclusive of cash				—			(171,610	)
Proceeds from the sale of assets				754			4,742
Investments in joint ventures/affiliates				—			(2,308	)

Net cash used by investing activities				(83,317	)		(243,492	)

Cash Flows From Financing Activities:
Proceeds from issuance of debt				16,980			21,480
Principal repayment of debt				(12,425	)		(26,899	)
Net (decrease) increase in commercial paper borrowings				(102,000	)		13,028
Net increase in bank overdrafts				7,629			223
Cash dividends				(59,591	)		(57,015	)
Shares acquired				—			(2,041	)
Common shares issued				18,257			9,529

Net cash used by financing activities				(131,150	)		(41,695	)

Effects of Exchange Rate Changes on Cash				98			141

Net (Decrease) Increase in Cash and Cash Equivalents				(75	)		1,579
Cash and cash equivalents at beginning of period				36,130			35,219

Cash and cash equivalents at end of period			$	36,055		$	36,798

See accompanying Notes to Condensed Consolidated Financial Statements

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(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 herein. Operating results for the three and nine months ended September 29, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001.

		Certain prior year amounts in the Condensed Consolidated Balance Sheet at December 31, 2001 have been reclassified to conform with the current year presentation.

Note 2:		Dividend Declarations

		On July 17, 2002, the Board of Directors declared a regular quarterly dividend of $0.21 per share. This dividend was paid September 10, 2002, to all shareholders of record as of August 16, 2002.

		On October 16, 2002, the Board of Directors declared a regular quarterly dividend of $0.21 per share, payable December 10, 2002 to all shareholders of record November 15, 2002.

Note 3:		Earnings Per Share

		The following table sets forth the computation of basic and diluted earnings per share:


			Three Months Ended				Nine Months Ended

			September 29,		September 30,		September 29,		September 30,
			2002		2001		2002		2001

Numerator:
	Net income		$	29,204	$	42,824	$	100,478	$	64,428

Denominator:
	Average common shares outstanding			96,524		95,483		96,294		95,291
	Dilutive effect of:
		Employee stock options		239		511		645		414
		Contingent employee share awards		442		—		328		—

	Diluted outstanding shares			97,205		95,994		97,267		95,705

Reported net income per common share:
	Basic		$	0.30	$	0.45	$	1.04	$	0.68
	Diluted		$	0.30	$	0.45	$	1.03	$	0.67



		Stock options to purchase approximately 6,716 and 3,608 shares at September 29, 2002 and September 30, 2001, respectively, were not dilutive and therefore are not included in the computations of diluted income per common share amounts. No adjustments were made to reported net income in the computations of earnings per share.

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in thousands except per share data)
(unaudited)


Note 4:		Comprehensive Income

		The following table reconciles net income to comprehensive income:


		Three Months Ended					Nine Months Ended

		September 29,			September 30,		September 29,		September 30,
		2002			2001		2002		2001

Net income		$	29,204		$	42,824	$	100,478	$	64,428
Other comprehensive income (loss):
	Foreign currency translation adjustments		(696	)		9,731		8,864		(5,627	)
	Other adjustments, net of tax		41