SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------
Date of Report (Date of earliest event reported): October 17, 2003
SONOCO PRODUCTS COMPANY
Incorporated under the Commission File No. 0-516 I.R.S. Employer
laws of South Carolina Identification No.
57-0248420
One North Second Street
Post Office Box 160
Hartsville, South Carolina 29551-0160
Telephone: 843-383-7000
Item 7. Financial Statements and Exhibits
(c) Exhibit 99 Registrant's 2003 Third Quarter Earnings Release
Item 12. Results of Operations and Financial Condition
Third Quarter Earnings
Please see Exhibit 99 for the Registrant's 2003 third quarter earnings
release.
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, hereunto duly authorized.
SONOCO PRODUCTS COMPANY
(Registrant)
Date: October 17, 2003 By: /s/ C. J. Hupfer
------------------------------------------
C. J. Hupfer
Vice President and Chief Financial Officer
2
EXHIBIT INDEX
Exhibit 99 Registrant's 2003 Third Quarter Earnings Release
Exhibit 99
NEWS RELEASE
#32N - October 17, 2003 Contact:Allan V. Cecil
Vice President
+843-383-7524
allan.cecil@sonoco.com
SONOCO REPORTS THIRD QUARTER AND NINE MONTHS RESULTS
Hartsville, S.C. - Sonoco (NYSE: SON), the global packaging company, today
reported earnings per diluted share for the third quarter of 2003 of $.14,
versus $.30 for the same period in 2002. Earnings for the third quarter of 2003
included restructuring charges of $.16 per share, compared with restructuring
charges of $.04 per share in the third quarter of 2002, it was announced by
Harris E. DeLoach, Jr., president and chief executive officer.
In September 2003, Sonoco announced that it has entered into a definitive
agreement to sell its High Density Film business. Operating results of this
business have been presented for all periods as "Income from discontinued
operations (net of income taxes)" in the accompanying Condensed Consolidated
Statements of Income. Assets and associated liabilities are shown as "Assets
held for sale" and "Liabilities associated with assets held for sale,"
respectively, in the Condensed Consolidated Balance Sheets. The pending sale is
expected to be completed in the fourth quarter of 2003.
Sales from continuing operations for the third quarter of 2003 were $688.1
million, versus $686.8 million for the same period in 2002. Net income from
continuing operations for the third quarter of 2003 was $10.4 million, versus
$27 million in the third quarter of 2002. Net income from continuing operations
for the third quarter of 2003 included restructuring charges of approximately
$24.2 million ($15.6 million after tax) in connection with the Company's
previously announced restructuring actions, compared with restructuring charges
of $6.3 million ($4 million after tax) during the same period in 2002.
"Earnings results for the third quarter were negatively impacted principally by
restructuring charges. During the quarter, the Company announced the reduction
of approximately 340 global salaried positions and the closure of five plants
expected to result in annual savings of approximately $43 million (pretax). The
Company recorded restructuring charges of approximately $24 million (pretax)
during the quarter and expects to recognize an additional cost of approximately
$17 million (pretax) in the future associated with these actions. This
restructuring is part of the Company's previously announced plans to reduce its
overall cost structure by an additional $60 million (pretax) per year which has
now been modified to a target of $54 million (pretax) as a result of the
expected disposition of the High Density Film business. The Company expects to
announce in the fourth quarter and throughout 2004, the closing of an additional
10 to 15 plants targeted to achieve savings of approximately $11 million
(pretax) in annualized fixed cost reductions. The costs associated with the
future plant closings have not yet been determined.
-more-
North Second Street
Hartsville, S.C. 29550 USA
843/383-7794
www.sonoco.com
Sonoco Reports 3rd Qtr and Nine Months Results - page 2
Also, as anticipated and previously disclosed, higher pension and postretirement
costs negatively impacted the third quarter by approximately $.04 per share,
compared with the same period in 2002.
"Sales for the third quarter were basically flat, compared with the same period
last year, primarily reflecting lower volumes in most of the Company's
businesses, offset partially by the favorable impact of foreign exchange rates,"
said DeLoach.
"Third quarter volumes were down company wide by approximately two percent,
versus the same period last year. Volume declines in the Company's industrial
segment resulted principally from decreased demand in Sonoco's cable and wire
reels business, molded plastics operations and engineered carriers and paper
operations. In the consumer segment, volumes declined in the rigid paper and
plastic packaging, flexible packaging and packaging services businesses," stated
DeLoach.
Cash generated from operations for the third quarter was $121.1 million,
compared with $99 million for the same period in 2002. Third quarter 2003 cash
generated from operations, which included the impact of funding benefit plans of
$1.3 million, was used to reduce debt by approximately $59.9 million, to fund
capital expenditures of $28.8 million and to pay dividends of $20.3 million.
As a part of the routine review for asset impairment, the Company has identified
a possible impairment on approximately $20 million of operational assets in Asia
and is in the process of performing an analysis to determine whether the assets
are impaired and, if so, to what extent. If the Company concludes that assets
are impaired, it will record an impairment provision for the excess of book
value over estimated fair value of the assets. The provision, if any, would be
recorded in the third quarter 2003, if known before the financial statements are
filed with the SEC; otherwise, it would be recorded in the fourth quarter 2003.
If fully impaired, the after-tax and after minority interest charge would be
approximately $.08 per diluted share.
For the first nine months of 2003, sales from continuing operations were $2.03
billion, versus $2 billion in the same period last year. Net income from
continuing operations for the first nine months of 2003 was $59.1 million,
versus $95 million in the same period of last year. Net income from continuing
operations for the first nine months of 2003 included charges related to
restructuring actions of $33.1 million ($24.1 million after tax), compared with
restructuring charges of $7.5 million ($4.7 million after tax) during the same
period in 2002.
Also for the first nine months of 2003, cash generated from operations was
$205.6 million, compared with $214.3 million for the same period in 2002. Cash
generated from operations in the first nine months of 2003, which included the
impact of funding benefit plans of $4.3 million, was used to reduce debt by
approximately $71.6 million, to fund capital expenditures of $81.6 million and
to pay dividends of $60.8 million.
DeLoach said that in the industrial segment, Sonoco does not yet see evidence of
any significant change in demand for its engineered carriers and paper markets.
He noted, however, that in Sonoco's consumer segment, the Company is increasing
the number of new products in its pipeline to meet customer demand, including
several expected to be introduced into the market prior to year end. For
example, the Company anticipates introducing the first hermetic single-wrap
composite package in North America in the snack food, powdered beverage and pet
food markets. Sonoco also expects to introduce its new flexible retortable,
standup pouch for pet food, and to expand the number of applications for its new
multilayer, high-barrier and aseptic plastic bottle, which was recently
introduced regionally with a soy-based nutraceutical drink.
-more-
Sonoco Reports 3rd Qtr and Nine Months Results - page 3
"In addition to further reductions in our overall cost structure, continued
productivity improvements and new product development, we have reached an
agreement to sell our High Density Film business which we believe will reduce
our exposure to the more cyclical high density resin markets and permit us to
redeploy the value of those assets into our higher growth rate core businesses.
Overall, we believe we have significantly improved our already strong position
to benefit from any upturn in general economic conditions that impacts the
markets we serve. Based on our expectation of completing the sale of the High
Density Film business in the fourth quarter, we expect our fourth quarter
earnings per diluted share to be in the range of $.80 to $.84, including an
estimated gain on disposition of the High Density Film business of $.52 per
diluted share, but not including the impact of future restructuring charges
which cannot be estimated for the quarter at this time and the impact of asset
impairment charges, if any, as previously discussed," DeLoach concluded.
Segment Review
Consumer Packaging
The consumer packaging segment includes the following products and services:
round and shaped rigid packaging, both composite and plastic; printed flexible
packaging; metal and plastic ends and closures; specialty packaging; and
packaging services.
Third quarter 2003 sales for the consumer segment were $308.6 million, versus
$313.4 million in the same period for 2002. Operating profit for this segment
was $19.8 million, versus $23.2 million in the third quarter of 2002.
Sales in the consumer segment were down year-over-year in the third quarter,
primarily due to lower volumes in rigid paper and plastic packaging and flexible
packaging, partially offset by higher average prices and favorable foreign
exchange.
Volumes in the consumer sector were down approximately four percent, compared
with last year's third quarter. Operating profit for the third quarter in the
consumer segment declined from the same period last year primarily because of
lower volume and increased materials costs and pension and postretirement
expense, partially offset by higher average selling prices and lower costs
resulting from productivity initiatives.
Industrial Packaging
The industrial packaging segment includes the following products and services:
high-performance paper, plastic and composite engineered carriers; paperboard;
wooden, metal and composite reels for wire and cable packaging; fiber-based
construction tubes and forms; custom designed protective packaging; and supply
chain management capabilities.
Third quarter 2003 sales for the industrial segment were $379.5 million, versus
$373.4 million in the same period in 2002. Operating profit for the industrial
segment for the third quarter 2003 was $29 million, versus $36.6 million in the
third quarter of 2002.
"Third quarter sales in the industrial segment increased slightly, compared with
the same period last year, as the favorable impact of foreign exchange more than
offset the impact of lower volume in most of the businesses in the segment and
the impact of lower selling prices in recovered paper operations, driven
primarily by lower old corrugated containers prices.
"Volumes in the industrial segment were down approximately one percent over last
year's third quarter. Operating profit for the segment declined, driven
principally by decreased volume and higher energy and pension and
postretirement costs," said DeLoach.
-more-
Sonoco Reports 3rd Qtr and Nine Months Results - page 4
Corporate
Depreciation and amortization expense for the third quarter of 2003 was $40.8
million, compared with $39.1 million in 2002. Net interest expense for the third
quarter decreased $1.1 million, compared with the same period in 2002 primarily
due to lower average debt levels and interest rates.
The effective tax rate for the nine months ending September 28, 2003, was 38.5
percent, compared with 36 percent for the same period last year. Excluding the
impact of certain non-deductible foreign restructuring charges in 2003, the
effective tax rate would have been 35.2 percent.
Conference Call
Sonoco will host its regular quarterly conference call concerning current
earnings results on Friday, October 17 at 10:00 a.m. EDT. Please note this is a
change from our historical reporting date and teleconference time. The
conference call can be accessed in a "listen only" mode via the Internet at
www.firstcallevents.com/service/ajwz389264574gf12.html. A replay will be
available through the Investor Information section of the Sonoco Web site at
www.sonoco.com for six months after the conference.
Sonoco, founded in 1899, is a global manufacturer of industrial and consumer
products and provider of packaging services, with more than 300 operations in 32
countries serving customers in some 85 nations. For more information on the
Company, visit our Web site at www.sonoco.com.
Forward-looking Statements and Other Information
Statements included herein 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 words "estimate," "project," "intend," "expect," "believe,"
"anticipate," "objective," "goal," and similar expressions identify
forward-looking statements. Forward-looking statements include, but are not
limited to, statements regarding offsetting high raw material costs, adequacy of
income tax provisions, refinancing of debt, adequacy of cash flows, effects of
acquisitions and dispositions, adequacy of provisions for environmental
liabilities and financial strategies and the results expected from them, and
producing improvements in earnings. 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; ability to maintain or increase
productivity levels; international, national and local economic and market
conditions; fluctuations in obligations and earnings of pension and
postretirement benefit plans; ability to maintain market share; pricing
pressures and demand for products; continued strength of our paperboard-based
engineered carrier and composite can operations; anticipated results of
restructuring activities; resolution of income tax contingencies; ability to
successfully integrate newly acquired businesses into the Company's operations;
currency stability and the rate of growth in foreign markets; use of financial
instruments to hedge foreign exchange, interest rate and commodity price risk;
actions of government agencies; and loss of consumer confidence and economic
disruptions resulting from terrorist activities.
-more-
Sonoco Reports 3rd Qtr and Nine Months Results - page 5
Information about the Company's use of non-GAAP financial measures, why
management believes presentation of non-GAAP financial measures provides useful
information to investors about the Company's financial condition and results of
operations, and the purposes for which management uses non-GAAP financial
measures is included in the Company's 2002 Annual Report on Form 10-K filed with
the Securities and Exchange Commission. Additional information concerning some
of the factors that could cause materially different results is included in the
Company's reports on forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission. Such reports are available from the Securities and Exchange
Commission's public reference facilities and its Web site, the Company's
investor relations department and the Company's Web site, www.sonoco.com.
-more-
Sonoco Reports 3rd Qtr and Nine Months Results - page 6
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars and shares in thousands except per share)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
---- ---- ---- ----
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 ................... 71,610 68,496 210,294 206,666
Restructuring .................................................. 24,171 6,327 33,136 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 ............................... 2,487 1,521 5,811 4,913
Affiliate/Minority interest restructuring ...................... 72 - 72 65
----------- ----------- ----------- -----------
Net 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 shares outstanding - diluted ........................... 97,226 97,205 97,047 97,267
Diluted earnings per share ..................................... $ .14 $ .30 $ .68 $ 1.03
=========== =========== =========== ===========
Dividends per common share ..................................... $ .21 $ .21 $ .63 $ .62
=========== =========== =========== ===========
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
September 28, December 31,
2003 2002
---- ----
Assets
Current Assets:
Cash and cash equivalents ................................................................... $ 37,629 $ 31,405
Trade accounts receivables .................................................................. 338,148 314,429
Other receivables ........................................................................... 40,103 32,724
Inventories ................................................................................. 246,988 244,554
Assets held for sale ........................................................................ 75,630 -
Prepaid expenses and deferred taxes ......................................................... 56,962 40,155
---------- ----------
795,460 663,267
Property, plant and equipment, net ............................................................. 905,754 975,368
Goodwill ....................................................................................... 373,515 359,418
Other assets ................................................................................... 418,572 438,386
---------- ----------
$2,493,301 $2,436,439
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Payable to suppliers and others ............................................................. $ 422,665 $ 418,457
Notes payable and current portion of long-term debt ......................................... 136,433 134,500
Liabilities associated with assets held for sale ............................................ 20,176 -
Taxes on income ............................................................................. 25,061 5,639
---------- ----------
604,335 558,596
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 ........................................................................... 913,156 867,425
---------- ----------
$2,493,301 $2,436,439
========== ==========
Prior years' data has been reclassified to conform to the current year
presentation.
-more-
Sonoco Reports 3rd Qtr and Nine Months Results - page 7
FINANCIAL SEGMENT INFORMATION (Unaudited)
(Dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
---- ---- ---- ----
Net Sales
Industrial Packaging ................................ $ 379,482 $ 373,439 $ 1,118,051 $ 1,090,049
Consumer Packaging .................................. 308,595 313,359 910,070 911,457
----------- ----------- ----------- -----------
Net Sales ........................................... $ 688,077 $ 686,798 $ 2,028,121 $ 2,001,506
=========== =========== =========== ===========
Income before Income Taxes
Operating Profit - Industrial Packaging ............. $ 28,972 $ 36,563 $ 92,350 $ 115,344
Operating Profit - Consumer Packaging ............... 19,833 23,181 65,447 72,286
Restructuring ....................................... (24,171) (6,327) (33,136) (7,465)
Interest, net ....................................... (12,511) (13,653) (38,264) (39,629)
----------- ----------- ----------- -----------
Income before Income Taxes .......................... $ 12,123 $ 39,764 $ 86,397 $ 140,536
=========== =========== =========== ===========
Prior years' net sales data has been reclassified to conform to the current year
presentation.
Does not include the operating results of the High Density Film business, which
are shown on the Condensed Consolidated Statements of Income as "Income from
discontinued operations (net of income taxes)."
-30-