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 28, 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 November 2, 2003:

Common stock, no par value: 97,031,485

SONOCO PRODUCTS COMPANY

INDEX


PART I.	FINANCIAL INFORMATION
Item 1.		Financial Statements:
			Condensed Consolidated Balance Sheets - September 28, 2003 (unaudited) and December 31, 2002
			Condensed Consolidated Statements of Income - Three Months and Nine Months Ended September 28, 2003 (unaudited) and September 29, 2002 (unaudited)
			Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 28, 2003 (unaudited) and September 29, 2002 (unaudited)
			Notes to Condensed Consolidated Financial Statements
			Report of Independent Auditors
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 5.		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 28, 2003			December 31,
				(Unaudited)			2002 *

Assets
Current Assets
	Cash and cash equivalents			$	37,629		$	31,405
	Trade accounts receivable, net of allowances				338,148			314,429
	Other receivables				40,103			32,724
	Inventories:
		Finished and in process			110,117			118,512
		Materials and supplies			136,871			126,042
	Prepaid expenses and other				56,962			40,155
	Assets held for sale				75,630			—

					795,460			663,267
Property, Plant and Equipment, Net					905,754			975,368
Goodwill					373,515			359,418
Other Assets					418,572			438,386

			Total Assets	$	2,493,301		$	2,436,439

Liabilities and Shareholders’ Equity
Current Liabilities
	Payable to suppliers			$	215,073		$	248,640
	Accrued expenses and other				207,595			169,817
	Notes payable and current portion of long-term debt				136,433			134,500
	Taxes on income				25,061			5,639
	Liabilities associated with assets held for sale				20,176			—

					604,338			558,596
Long-Term Debt					639,496			699,346
Pension and Other Postretirement Benefits					136,943			121,176
Deferred Income Taxes and Other					199,371			189,896
Shareholders’ Equity
	Common stock, no par value
		Authorized 300,000 shares, 96,906 and 96,640 shares outstanding, of which 96,659 and 96,380 are issued at September 28,2003 and December 31, 2002, respectively			7,175			7,175
	Capital in excess of stated value				330,261			324,295
	Accumulated other comprehensive loss				(177,128	)		(212,164	)
	Retained earnings				752,845			748,119

			Total Shareholders’ Equity		913,153			867,425

			Total Liabilities and Shareholders’ Equity	$	2,493,301		$	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 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 28,			September 29,			September 28,			September 29,
				2003			2002			2003			2002

Net sales				$	688,077		$	686,798		$	2,028,121		$	2,001,506
Cost of sales					567,662			558,558			1,660,030			1,607,210
Selling, general and administrative expenses					71,611			68,496			210,295			206,666
Restructuring (see Note 7)					24,170			6,327			33,135			7,465

Income before interest and taxes					24,634			53,417			124,661			180,165
Interest expense					13,141			14,106			39,850			40,767
Interest income					(630	)		(453	)		(1,586	)		(1,138	)

Income before income taxes					12,123			39,764			86,397			140,536
Provision for income taxes					4,267			14,315			33,223			50,561

Income before equity in earnings of affiliates/Minority interest in subsidiaries					7,856			25,449			53,174			89,975
Equity in earnings of affiliates/Minority interest in subsidiaries					2,559			1,521			5,883			4,978

Income from continuing operations					10,415			26,970			59,057			94,953
Income from discontinued operations (net of income taxes)					3,285			2,234			6,472			5,525

Net income				$	13,700		$	29,204		$	65,529		$	100,478

Average common shares outstanding:
		Basic			96,858			96,524			96,743			96,294

		Diluted			97,226			97,205			97,047			97,267

Per common share
	Net income:
			Basic	$	0.14		$	0.30		$	0.68		$	1.04

			Diluted	$	0.14		$	0.30		$	0.68		$	1.03

	Cash dividends			$	0.21		$	0.21		$	0.63		$	0.62

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 28,			September 29,
			2003			2002

Cash Flows from Operating Activities:
Net income			$	65,529		$	100,478
Adjustments to reconcile net income to net cash provided by operating activities:
	Restructuring reserve (noncash)			3,556			444
	Depreciation, depletion and amortization			119,962			118,140
	Equity in earnings of affiliates/Minority interest in subsidiaries			(5,883	)		(4,978	)
	Cash dividends from affiliated companies			5,071			2,031
	Loss on disposition of assets			479			758
	Deferred taxes			7,671			8,263
	Changes in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments
		Receivables		(45,499	)		(57,719	)
		Inventories		(8,910	)		5,016
		Prepaid expenses		(15,256	)		(1,370	)
		Payables and taxes		40,767			62,040
		Other assets and liabilities		38,064			(18,809	)

Net cash provided by operating activities				205,551			214,294

Cash Flows From Investing Activities:
Purchase of property, plant and equipment				(81,564	)		(84,071	)
Cost of acquisitions, exclusive of cash acquired				(1,374	)		—
Proceeds from the sale of assets				2,704			754

Net cash used by investing activities				(80,234	)		(83,317	)

Cash Flows From Financing Activities:
Proceeds from issuance of debt				13,989			16,980
Principal repayment of debt				(19,130	)		(12,425	)
Net decrease in commercial paper borrowings				(52,500	)		(102,000	)
Net (decrease) increase in bank overdrafts				(4,935	)		7,629
Cash dividends				(60,803	)		(59,591	)
Common shares issued				4,988			18,257

Net cash used by financing activities				(118,391	)		(131,150	)

Effects of Exchange Rate Changes on Cash				(702	)		98

Net Increase (decrease) in Cash and Cash Equivalents				6,224			(75	)
Cash and cash equivalents at beginning of period				31,405			36,130

Cash and cash equivalents at end of period			$	37,629		$	36,055

See accompanying Notes to Condensed Consolidated Financial Statements

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 28, 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 and third quarters 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.

		The Company announced during the third quarter 2003 that it had entered into a definitive agreement to sell its High Density Film business to Hilex Poly Co., LLC, Los Angeles, California. Operating results of this business have been presented for all periods as “Income from discontinued operations, net of income taxes” in the Company’s Condensed Consolidated Statements of Income. The assets and liabilities of the business unit have been presented separately on the Company’s Condensed Consolidated Balance Sheet as “Assets held for sale” and “Liabilities associated with assets held for sale”, respectively.

Note 2:	Subsequent Event

		In October 2003, the Company’s subsidiary, Paper Stock Dealers, Inc., purchased the equity of Southern Paper Recovery, Inc., a recovered paper operation, located in Savannah, Georgia in exchange for approximately 122 shares of Company common stock valued at approximately $2,700 and the assumption of approximately $1,700 in debt. This acquisition will be reported in the Company’s Industrial Packaging segment.

Note 3:	Third Party Debt Guarantees

		At September 28, 2003, the Company had third party debt guarantees, not included in the Company’s Consolidated Financial Statements, of approximately $4,000 related to debt of independent contractors supporting the Company’s forest operations and debt of equity affiliates.

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(Unaudited)


Note 4:	Earnings Per Share

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


			Three Months Ended				Nine Months Ended

			September 28,		September 29,		September 28,		September 29,
			2003		2002		2003		2002

Numerator:
	Income from continuing operations		$	10,415	$	26,970	$	59,057	$	94,953
	Income from discontinued operations (net of income taxes)			3,285		2,234		6,472		5,525

	Net Income		$	13,700	$	29,204	$	65,529	$	100,478

Denominator:
	Average common shares outstanding			96,858		96,524		96,743		96,294
	Dilutive effect of:
		Employee stock options		308		239		211		645
		Contingent employee share awards		60		442		93		328

Diluted outstanding shares				97,226		97,205		97,047		97,267

Basic earnings per common share:
	Income from continuing operations		$	0.11	$	0.28	$	0.61	$	0.98
	Income from discontinued operations			0.03		0.02		0.07		0.06

	Net Income		$	0.14	$	0.30	$	0.68	$	1.04

Diluted earnings per common share:
	Income from continuing operations		$	0.11	$	0.28	$	0.61