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 June 29, 2003		Commission File No. 0-516

SONOCO PRODUCTS COMPANY


Incorporated under the laws		I.R.S. Employer Identification
of South Carolina		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 August 3, 2003:

Common stock, no par value: 96,843,669

SONOCO PRODUCTS COMPANY

INDEX


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements:
		Condensed Consolidated Balance Sheets — June 29, 2003 (unaudited) and December 31, 2002
		Condensed Consolidated Statements of Income — Three Months and Six Months Ended June 29, 2003 (unaudited) and June 30, 2002 (unaudited)
		Condensed Consolidated Statements of Cash Flows — Six Months Ended June 29, 2003 (unaudited) and June 30, 2002 (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 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS

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Part I. Financial Information

Item 1. Financial Statements

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


				June 29,
				2003			December 31,
				(unaudited)			2002*

Assets
Current Assets
		Cash and cash equivalents		$	43,981		$	31,405
		Trade accounts receivable, net of allowances			359,633			314,429
		Other receivables			44,989			32,724
		Inventories:
			Finished and in process		134,378			118,512
			Materials and supplies		149,163			126,042
		Prepaid expenses and other			54,726			40,155

					786,870			663,267
Property, Plant and Equipment, Net					972,866			975,368
Goodwill					376,807			359,418
Other Assets					432,730			438,386

			Total Assets	$	2,569,273		$	2,436,439

Liabilities and Shareholders’ Equity
Current Liabilities
		Payable to suppliers		$	268,229		$	248,640
		Accrued expenses and other			171,000			169,817
		Notes payable and current portion of long-term debt			150,332			134,500
		Taxes on income			17,744			5,639

					607,305			558,596
Long-Term Debt					696,830			699,346
Pension and Other Postretirement Benefits					133,838			121,176
Deferred Income Taxes and Other					198,299			189,896
Shareholders’ Equity
	Common stock, no par value
		Authorized 300,000 shares
		96,746 and 96,640 shares outstanding, of which 96,513 and 96,380 are issued at June 29, 2003 and December 31, 2002, respectively			7,175			7,175
	Capital in excess of stated value				326,004			324,295
	Accumulated other comprehensive loss				(159,614	)		(212,164	)
	Retained earnings				759,436			748,119

			Total Shareholders’ Equity		933,001			867,425

			Total Liabilities and Shareholders’ Equity	$	2,569,273		$	2,436,439

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

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


			Three Months Ended						Six Months Ended

			June 29,			June 30,			June 29,			June 30,
			2003			2002			2003			2002

Net sales			$	730,847		$	732,471		$	1,432,611		$	1,405,158
Cost of sales				601,649			587,181			1,173,447			1,124,659
Selling, general and administrative expenses				71,449			74,842			145,053			145,455
Restructuring charges (see Note 5)				7,828			1,715			9,165			3,154

Income before interest and taxes				49,921			68,733			104,946			131,890
Interest expense				13,979			13,154			26,709			26,661
Interest income				(509	)		(258	)		(956	)		(685	)

Income before income taxes				36,451			55,837			79,193			105,914
Provision for income taxes				15,299			20,090			30,686			38,097

Income before equity in earnings of affiliates/Minority interest in subsidiaries				21,152			35,747			48,507			67,817
Equity in earnings of affiliates/Minority interest in subsidiaries				1,681			1,980			3,324			3,457

Net income			$	22,833		$	37,727		$	51,831		$	71,274

Average common shares outstanding:
	Basic			96,696			96,409			96,684			96,179

	Diluted			96,956			97,775			96,957			97,298

Per common share
	Net income:
		Basic	$	0.24		$	0.39		$	0.54		$	0.74

		Diluted	$	0.24		$	0.39		$	0.53		$	0.73

	Cash dividends		$	0.21		$	0.21		$	0.42		$	0.41

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

			June 29,			June 30,
			2003			2002

Cash Flows from Operating Activities:
Net income			$	51,831		$	71,274
Adjustments to reconcile net income to net cash provided by operating activities:
	Restructuring reserve (noncash)			729			1,018
	Depreciation, depletion and amortization			79,149			79,004
	Equity in earnings of affiliates/Minority interest in subsidiaries			(3,324	)		(3,457	)
	Cash dividends from affiliated companies			1,325			2,031
	(Gain) loss on disposition of assets			(502	)		653
	Deferred taxes			5,587			3,009
	Changes in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments
		Receivables		(43,846	)		(46,934	)
		Inventories		(29,002	)		11,236
		Prepaid expenses		(12,476	)		(3,001	)
		Payables and taxes		8,783			17,325
		Other assets and liabilities		26,196			(16,898	)

Net cash provided by operating activities				84,450			115,260

Cash Flows From Investing Activities:
Purchase of property, plant and equipment				(52,787	)		(51,913	)
Cost of acquisitions, exclusive of cash acquired				(1,275	)		—
Proceeds from the sale of assets				1,372			1,136

Net cash used by investing activities				(52,690	)		(50,777	)

Cash Flows From Financing Activities:
Proceeds from issuance of debt				20,938			25,138
Principal repayment of debt				(10,199	)		(11,244	)
Net (decrease) in commercial paper borrowings				(1,500	)		(46,500	)
Net increase (decrease) in bank overdrafts				10,469			(5,359	)
Cash dividends				(40,514	)		(39,326	)
Common shares issued				1,070			16,691

Net cash used by financing activities				(19,736	)		(60,600	)

Effects of Exchange Rate Changes on Cash				552			313

Net Increase in Cash and Cash Equivalents				12,576			4,196
Cash and cash equivalents at beginning of period				31,405			36,130

Cash and cash equivalents at end of period			$	43,981		$	40,326

See accompanying Notes to Condensed Consolidated Financial Statements

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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 six months ended June 29, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

Certain prior year amounts in the Condensed Consolidated Balance Sheet at December 31, 2002 have been reclassified to conform with the current period presentation. Additionally, in the second quarter of 2003, the Company reclassified shipping and handling costs related to third-party shipments from net sales to cost of sales on the Consolidated Statements of Income in all periods presented. Although these reclassifications increased net sales and cost of sales by the same amount, they did not affect reported net income.

Note 2: Earnings Per Share

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


			Three Months Ended				Six Months Ended

			June 29,		June 30,		June 29,		June 30,
			2003		2002		2003		2002

Numerator:
	Net income		$	22,833	$	37,727	$	51,831	$	71,274

Denominator:
	Average common shares outstanding			96,696,000		96,409,000		96,684,000		96,179,000
	Dilutive effect of:
		Employee stock options		201,000		931,000		163,000		849,000
		Contingent employee share awards		59,000		435,000		110,000		270,000

	Diluted outstanding shares			96,956,000		97,775,000		96,957,000		97,298,000

Reported net income per common share:
	Basic		$	0.24	$	0.39	$	0.54	$	0.74
	Diluted		$	0.24	$	0.39	$	0.53	$	0.73

Stock options to purchase approximately 8,119,950 and 2,212,000 shares at June 29, 2003 and June 30, 2002, respectively, were not dilutive and therefore are not included in the computations of diluted income per common share amounts. The increase in stock options that were not dilutive was primarily due to lower average stock prices in this year’s second quarter compared with last year’s second quarter. No adjustments were made to reported net income in the computations of earnings per share.

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

Note 3: Comprehensive Income

The following table reconciles net income to comprehensive income:


		Three Months Ended					Six Months Ended

		June 29,			June 30,		June 29,		June 30,
		2003			2002		2003		2002

Net income		$	22,833		$	37,727	$	51,831	$	71,274
Other comprehensive income (loss):
	Foreign currency translation adjustments		37,487			14,535		51,584		9,560
	Other adjustments, net of tax		(228	)		505		966		1,165

Comprehensive income		$	60,092		$	52,767	$	104,381	$	81,999

The following table summarizes the components of the current period change in the accumulated other comprehensive loss balance:


	Foreign			Minimum					Accumulated
	Currency			Pension					Other
	Translation			Liability					Comprehensive
	Adjustments			Adjustment			Other		Loss

Balance at December 31, 2002	$	(161,809	)	$	(50,423	)	$	68	$	(212,164	)
Year to date change		51,584			—			966		52,550

Balance at June 29, 2003	$	(110,225	)	$	(50,423	)	$	1,034	$	(159,614	)