SEC Filing | Sonoco

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

2 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

3 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

4 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Dollars and shares in thousands except per share data) Three Months Ended Six Months Ended ------------------------- ----------------------------- July 2, June 27, July 2, June 27, 2000 1999 2000 1999 --------- --------- ----------- ----------- 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 ==== ==== ==== ==== See accompanying Notes to Condensed Consolidated Financial Statements

5 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

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.

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) ========== ======== ==========

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) Three Months Ended Six Months Ended ----------------------------- ------------------------------- July 2, 2000 June 27, 1999 July 2, 2000 June 27, 1999 ------------ ------------- ------------ -------------- 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 ======== ======== ========== ========== * Includes net sales and operating profits of divested businesses.

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

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.

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.

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.

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

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.

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.

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.

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

18 SONOCO PRODUCTS COMPANY EXHIBIT INDEX Exhibit Number Description ------- ----------- 27 Financial Data Schedule for the second quarter of 2000 (for SEC use only)

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SONOCO PRODUCTS COMPANY FOR THE SIX MONTHS ENDED JULY 2, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUL-02-2000 21,670 21,133 367,102 4,631 275,518 743,076 2,094,458 1,094,844 2,284,737 421,157 813,544 0 0 7,175 875,847 2,284,737 1,364,985 1,364,985 1,058,442 1,058,442 0 1,356 30,683 140,563 53,414 91,417 0 0 0 91,417 0.91 0.91