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 June 28, 1998 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 2, 1998:
Common stock, no par value: 102,240,743
2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - June 28, 1998
and December 31, 1997
Condensed Consolidated Statements of Income - Three
Months and Six Months Ended June 28, 1998 and June 29,
1997
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 28, 1998 and June 29, 1997
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
3
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
(unaudited)
June 28, December 31,
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 62,984 $ 53,600
Trade accounts receivable, net of allowances 316,972 289,991
Other receivables 33,618 12,463
Inventories:
Finished and in process 101,235 94,785
Materials and supplies 122,868 115,313
Prepaid expenses 24,298 25,265
Deferred income taxes 9,227 63,041
Net assets held for sale 13,486 218,582
----------- -----------
684,688 873,040
PROPERTY, PLANT AND EQUIPMENT, NET 996,228 939,542
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 153,290 144,097
OTHER ASSETS 242,455 220,186
----------- -----------
Total Assets $ 2,076,661 $ 2,176,865
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 179,514 $ 161,078
Accrued expenses and other 107,104 106,839
Accrued wages and other compensation 17,195 22,689
Notes payable and current portion of long-term debt 111,103 99,690
Taxes on income 46,920 43,848
----------- -----------
461,836 434,144
LONG-TERM DEBT 606,689 696,669
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 95,941 100,094
DEFERRED INCOME TAXES AND OTHER 98,442 97,139
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
0 shares issued and outstanding at June 28, 1998
and December 31, 1997 0 0
Common stock, no par value
Authorized 150,000 shares
102,607 and 105,417(1) shares issued and outstanding
at June 28, 1998 and December 31, 1997, respectively 7,175 7,175
Capital in excess of stated value 86,145 198,271
Accumulated other comprehensive income (87,629) (91,420)
Retained earnings 808,062 734,793
----------- -----------
Total shareholders' equity 813,753 848,819
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,076,661 $ 2,176,865
=========== ===========
1 Restated to reflect the 10% common stock dividend on June 10, 1998.
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)
Three Months Ended Six Months Ended
------------------------- -----------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
--------- --------- ----------- -----------
Net sales $ 637,609 $ 714,167 $ 1,310,924 $ 1,401,815
Cost of sales 489,708 548,021 1,007,766 1,083,698
Selling, general and administrative expenses 61,854 75,729 129,191 147,535
Net gain on sale of divested assets 85,360 -- 85,360 --
--------- --------- ----------- -----------
Income before interest and taxes 171,407 90,417 259,327 170,582
Interest expense 12,878 14,889 27,234 28,438
Interest income (1,963) (931) (2,771) (2,029)
--------- --------- ----------- -----------
Income from operations before income taxes 160,492 76,459 234,864 144,173
Taxes on income 88,095 29,590 117,100 55,795
--------- --------- ----------- -----------
Income from operations before equity in earnings
of affiliates/Minority interest in subsidiaries 72,397 46,869 117,764 88,378
Equity in earnings of affiliates/Minority
interest in subsidiaries 1,544 (838) 2,672 (1,101)
--------- --------- ----------- -----------
Net income before extraordinary loss 73,941 46,031 120,436 87,277
Extraordinary loss from early extinguishment
of debt, net of income tax benefit 11,753 -- 11,753 --
--------- --------- ----------- -----------
Net income 62,188 46,031 108,683 87,277
Preferred dividends -- (1,347) -- (2,413)
--------- --------- ----------- -----------
Net income available to common shareholders $ 62,188 $ 44,684 $ 108,683 $ 84,864
========= ========= =========== ===========
Average common shares outstanding*:
Basic 103,104 99,256 103,503 99,116
Assuming conversion of preferred stock -- 5,462 -- 5,462
Assuming exercise of options 3,183 2,185 3,111 2,304
--------- --------- ----------- -----------
Diluted 106,287 106,903 106,614 106,882
========= ========= =========== ===========
* Restated to reflect the 10% common stock dividend on June 10, 1998.
See accompanying Notes to Condensed Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited), continued
(Dollars and shares in thousands except per share)
Three Months Ended Six Months Ended
------------------- ----------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- --------- --------
Per common share
Net income available to common shareholders*:
Basic, before extraordinary loss $ .71 $ .45 $ 1.16 $ .86
Extraordinary loss (.11) -- (.11) --
------- -------- --------- --------
Basic $ .60 $ .45 $ 1.05 $ .86
======= ======== ========= ========
Diluted, before extraordinary loss $ .70 $ .43 $ 1.13 $ .82
Extraordinary loss (.11) -- (.11) --
------- -------- --------- --------
Diluted $ .59 $ .43 $ 1.02 $ .82
======= ======== ========= ========
Dividends per common share* $ .18 $ .164 $ .344 $ .314
======= ======== ========= ========
* Restated to reflect the 10% common stock dividend on June 10, 1998.
See accompanying Notes to Condensed Consolidated Financial Statements
6
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Six Months Ended
-------------------------
June 28, June 29,
1998 1997
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 108,683 $ 87,277
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 65,463 74,064
Equity in earnings of affiliates/Minority interest in subsidiaries (2,672) 1,101
Deferred taxes 53,814 5,796
Net (gain) loss on disposition of assets (87,035) 636
Changes in assets and liabilities, net of effects from
acquisitions, dispositions and foreign currency adjustments:
Accounts receivable (34,020) (24,870)
Inventories (12,876) 4,839
Prepaid expenses 2,303 1,942
Payables and taxes 5,862 (9,037)
Other assets and liabilities (11,877) (14,025)
--------- ---------
Net cash provided by operating activities 87,645 127,723
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (101,153) (110,519)
Cost of acquisitions, exclusive of cash (46,524) (13,211)
Proceeds from the sale of assets 295,861 64,219
Other, net (1,614) (1,651)
--------- ---------
Net cash provided (used) by investing activities 146,570 (61,162)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 97,069 38,823
Principal repayment of debt (111,614) (32,157)
Net decrease in commercial paper borrowings (62,500) (56,791)
Cash dividends (35,414) (33,506)
Common shares acquired (138,524) (133)
Common shares issued 26,398 9,436
--------- ---------
Net cash used by financing activities (224,585) (74,328)
--------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (246) (1,102)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,384 (8,869)
Cash and cash equivalents at beginning of period 53,600 71,260
--------- ---------
Cash and cash equivalents at end of period $ 62,984 $ 62,391
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements
7
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited), continued
(Dollars in thousands)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Six Months Ended
---------------------
June 28, June 29,
1998 1997
-------- --------
Interest paid $27,753 $26,724
Income taxes paid $51,882 $50,871
See accompanying Notes to Condensed Consolidated Financial Statements
8
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: BASIS OF INTERIM PRESENTATION
In the opinion of the Company, the accompanying unaudited
condensed consolidated 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
June 28, 1998, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
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, 1997.
The December 31, 1997 condensed consolidated balance sheet
data was derived from audited financial statements, but does
not include all disclosures required by generally accepted
accounting principles.
NOTE 2: DIVIDEND DECLARATIONS
On April 15, 1998, the Board of Directors declared a 10% stock
dividend payable June 10, 1998, to all shareholders of record
May 15, 1998. The Board also declared a regular quarterly
dividend of $.18 per share. This dividend was paid June 10,
1998, to all shareholders of record May 15, 1998. This
dividend was also paid on those shares received through the
stock dividend, representing a 10% cash dividend increase.
On July 15, 1998, the Board of Directors declared a regular
quarterly dividend of $.18 per share. This 293rd consecutive
quarterly dividend will be payable September 10, 1998, to all
shareholders of record August 21, 1998.
NOTE 3: ACQUISITIONS/DISPOSITIONS
During the first quarter of 1998, Sonoco completed two
acquisitions in the Company's Industrial Packaging segment. In
February, the Burk family of companies was acquired. Burk,
consisting of three manufacturing facilities in Germany,
produces injection and extruded plastic products. In March
1998, Sonoco completed the acquisition of the La Rochette
group. This acquisition includes four converting operations
and a paper mill in France with annual sales of approximately
$50 million.
Early in the second quarter of 1998, Sonoco completed the
previously announced sale of the Consumer Packaging segment's
North American pressure-sensitive labels operations. The sale
included seven label facilities in the United States and one
in Mexico. The sale of the labels operations resulted in a
one-time, after-tax charge in the fourth quarter of 1997 of
$174.5 million, and an additional one-time, after-tax charge
of $13.5 million (approximately $19.2 million before tax) upon
completion of the sale. Also early in the second quarter,
Sonoco completed the previously announced sale of the fibre
and plastic drums portion of the Industrial Packaging
segment's industrial containers operations resulting in a
one-time, after-tax gain of approximately $40 million
(approximately $104.6 million before tax). The sale of the
remaining portion of Sonoco's industrial containers business,
intermediate bulk containers, consisting of a plant in
9
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 3: ACQUISITIONS/DISPOSITIONS, CONTINUED
Lavonia, Georgia, has not closed but is expected to close
during the third quarter of 1998. When completed, this sale is
expected to provide an additional after-tax gain of
approximately $15 million.
Also during the second quarter of 1998, Sonoco sold its
Hamilton Hybar subsidiary, a manufacturer of protective roll
wrap for the paper industry, for $22 million in cash. The
operation was sold to Cascades Sonoco, Inc., a joint venture
in which Sonoco is a 50% owner.
NOTE 4: COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". Accordingly, the shareholders' equity
section of the Condensed Consolidated Balance Sheets has been
modified to comply with the new requirements and the 1997
year-end data has been restated.
The following table provides a reconciliation from net income
available to common shareholders to comprehensive income
(dollars in thousands):
Three Months Ended Six Months Ended
--------------------- ----------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------- -------- -------- --------
Net income available to
common shareholders $62,188 $ 44,684 $108,683 $ 84,864
Other comprehensive income:
Foreign currency translation
adjustments 9,413 (2,464) 3,791 (17,029)
------- -------- -------- --------
Comprehensive Income $71,601 $ 42,220 $112,474 $ 67,835
======= ======== ======== ========
The following table summarizes the components of the current
period change in the accumulated other comprehensive income
balances (dollars in thousands):
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income
----------- ---------- -------------
Balance at January 1, 1998 $ (86,407) $ (5,013) $ (91,420)
Current period change 3,791 -- 3,791
---------- -------- ---------
Balance at June 28, 1998 $ (82,616) $ (5,013) $ (87,629)
========== ======== =========
10
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 5: EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
At the beginning of the second quarter, the company commenced
a fixed spread tender offer for any and all of its 9.20%
Debentures due August 1, 2021. The offer to purchase the
debentures, which expired on April 14, 1998, resulted in an
extraordinary charge against earnings in the second quarter of
$11.8 million (after a $7.5 million income tax benefit),
reflecting the tender of $58.7 million principal amount of the
$100 million issue.
NOTE 6: FINANCIAL SEGMENT INFORMATION
The Financial Segment Information provided below should be
read in conjunction with the Management's Discussion and
Analysis immediately following the Notes to Condensed
Consolidated Financial Statements.
FINANCIAL SEGMENT INFORMATION (UNAUDITED)
(Dollars in thousands)
Three Months Ended Six Months Ended
----------------------------- ------------------------------
June 28, 1998 June 29, 1997 June 28, 1998 June 29, 1997
------------- ------------- ------------- -------------
Net Sales
Industrial Packaging $ 366,127 $ 401,511 $ 743,517 $ 782,811
Consumer Packaging 271,482 312,656 567,407 619,004
--------- --------- ----------- -----------
Consolidated $ 637,609 $ 714,167 $ 1,310,924 $ 1,401,815
========= ========= =========== ===========
Operating Profit
Industrial Packaging $ 55,311 $ 60,009 $ 109,860 $ 110,203
Consumer Packaging 30,736 30,408 64,107 60,379
Net gain on sales of divested assets 85,360 -- 85,360 --
Interest, net (10,915) (13,958) (24,463) (26,409)
--------- --------- ----------- -----------
Consolidated $ 160,492 $ 76,459 $ 234,864 $ 144,173
========= ========= =========== ===========
11
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
NOTE 7: NEW ACCOUNTING PRONOUNCEMENT
On June 15, 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133 is effective for all fiscal
years beginning after June 15, 1999 (January 1, 2000 for the
Company). FAS 133 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.
Management of the Company anticipates that, due to its limited
use of derivative instruments, the adoption of FAS 133 will
not have a significant effect on the Company's results of
operations or its financial position.
12
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. The Company cautions readers that forward looking
statements, including without limitation those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
RESULTS OF OPERATIONS
Consolidated net sales for the second quarter of 1998 were $637.6 million,
compared with $714.2 million in the second quarter of 1997. Last year's second
quarter included sales of approximately $83 million from the company's North
American labels operation and the fibre and plastic drum portions of its
industrial containers business. These operations were divested at the beginning
of the second quarter of this year. Last year's second quarter sales also
included $10.4 million from fibre partition operations which became part of a
joint venture with Rock-Tenn Company near the end of the third quarter of 1997.
Reported net income for the quarter, including certain one-time transactions,
was $62.2 million. Excluding the one-time transactions, net income for the
second quarter of 1998 was $47.4 million, a 3% increase over the $46 million
recorded for the same quarter in 1997. These one-time transactions included an
after-tax gain of $40 million resulting from the sale of Sonoco's fibre drum and
plastic drum operations and a $13.5 million after-tax charge in the second
quarter relating to the disposition of former Engraph operations. Net income
also included the effect of an extraordinary, after-tax loss of $11.8 million
resulting from the repurchase of $58.7 million of 9.2% notes. The company had
expected to record a $55 million gain from the sale of its industrial containers
businesses in this year's second quarter versus the $40 million actually
recognized. However, the sale of the intermediate bulk container operations has
not been finalized. When this sale is completed, the company expects to realize
an additional $15 million after-tax gain. Sonoco reported second quarter
earnings of $.59 per diluted share, including the impact of these one-time
transactions. Excluding these one-time transactions, earnings per diluted share
were $.45 for the second quarter of 1998, a 4.7% increase over the $.43 recorded
in the second quarter of 1997.
The company's global tube, core, and cone operations continued to lead the
company's performance with volume gains over the second quarter of last year,
while productivity gains in nearly all operations and lower interest expense
contributed to enhanced profitability for the quarter.
INDUSTRIAL PACKAGING SEGMENT
The industrial packaging segment for the second quarter of 1998 included tubes,
cores and cones; molded plugs and related products and services; injection
molded and extrusion molded plastics; paper manufacturing; recovered paper
operations; corner posts; reels for wire and cable packaging; adhesives;
converting machinery; and forest products.
Second quarter sales for the industrial packaging segment were $366.1 million,
compared with $401.5 million in the last year's second quarter. Second quarter
1997 sales included $56.6 million for the fibre and plastic drums portion of the
industrial containers business and the fibre partitions operations which are not
included in second quarter 1998 sales. Operating profit for this segment,
excluding the gain on the sale of the fibre and plastic drum operations, was
$55.3 million, compared with $60.0 million in the second quarter of 1997.
Operating profits from non-divested businesses were slightly higher in 1998
compared to the same quarter in 1997.
13
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
During the second quarter of 1998, volume increased over last year's all-time
high levels in the global tube and core operations led by increased sales to the
paper and textile industries. However, volume in the tube and core business
declined from this year's first quarter, reflecting in part direct and indirect
effects of the economic crisis in Asia. Sonoco's global capability continues to
enable us to add value for customers in a variety of markets. The ability to not
only provide the specific cores and tubes but to also supply a variety of
ancillary products and services is helping Sonoco serve customers who are
looking to consolidate their supplier bases.
Selling prices of corrugating medium, which is sold under contract to
Georgia-Pacific, increased in the second quarter of 1998 over the same period
last year. Effective in the third quarter, Sonoco and Georgia-Pacific entered
into a new contract whereby the tonnage provided by Sonoco will be on
cost-plus-fixed management fee basis. This replaces the previous equity
agreement in which Sonoco and Georgia-Pacific each shared equally in the
profits.
Sonoco's molded and extruded plastics operations had strong volume in the
filtration and automotive markets, but overall volume was down modestly because
of declines in sales to the quick-service restaurant, textile, and wire markets.
Volume in the nailed wood, plywood and metal reels operations remained at
healthy levels, slightly higher than the second quarter of 1997. Volume also
increased in the protective packaging operations, which primarily supply major
appliance manufacturers.
As previously indicated, the company's plastic and fibre drum operations were
sold at the beginning of the second quarter.
CONSUMER PACKAGING SEGMENT
The consumer packaging segment in the second quarter of 1998 included composite
cans; plastic and fibre cartridges; capseals; flexible packaging; high density
film products; paperboard cartons; coasters and glass covers; and packaging
services.
Second quarter sales were $271.5 million, compared with $312.7 million in the
same quarter of 1997. Last year's results included approximately $36.8 million
in sales from the North American labels business, which was sold at the
beginning of the second quarter of 1998. Operating profits for this segment
during the second quarter, excluding the loss on the disposition of the label
operations, were $30.7 million, compared with $30.4 million in the same period a
year ago.
In the company's global composite can operations, volume in the snack food
sector remained strong during the second quarter and is expected to improve
further during the second half of the year. As noted in the first quarter of
1998, the Company has experienced decreased export of metal ends to Asia and a
continuing decline in the frozen juice concentrate market, where ready-to-serve
juices and non-refrigerated juice concentrates are taking market share from
frozen concentrates.
14
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Operating profits in the high density film products operations were in line with
the same period in 1997 as increases in volume and decreases in resin prices
were offset by lower selling prices.
Operating profit at Sonoco's flexible packaging operations continued to improve
in the second quarter of 1998, led by productivity improvements from reduced
scrap, improved run speeds, and faster changeovers.
As mentioned, the sale of the North American labels operations was completed at
the beginning of the second quarter.
JUNE 1998 YEAR-TO-DATE COMPARED WITH JUNE 1997 YEAR-TO-DATE
Consolidated net sales for the first six months of 1998 were $1.31 billion,
compared with $1.40 billion in the first six months of 1997. Last year's sales
included approximately $114.4 million from the following divested operations:
the former screen print operations, sold in late March 1997; the fibre
partitions business, combined with Rock-Tenn Company's fibre partitions in a
joint venture near the end of the third quarter of 1997; the North American
labels operation, divested at the beginning of the second quarter of this year;
and the fibre and plastic drum portions of the industrial containers business,
also divested at the beginning of the second quarter of 1998. Net income for the
first half of 1998, including the effect of the one-time transactions previously
described, was $108.7 million. Excluding these transactions, net income was
$93.9 million, a 7.6% increase over the $87.3 reported during the first half of
1997.
The company's global tube, core, and cone operations continued to lead the
company's performance with volume gains over the first six months of last year,
while productivity gains in nearly all operations contributed to enhanced
profitability for the first half of the year.
INDUSTRIAL PACKAGING SEGMENT
Trade sales for the industrial packaging segment for the first six months of
1998 were $743.5 million, compared with $782.8 million in the first half of
1997. Prior year's sales include $67.6 million relating to the following
divested operations: the fibre partitions business, combined in a joint venture
during the third quarter of 1997; and the fibre and plastic drum operations,
divested at the beginning of the second quarter of this year. Operating profits
for this segment in the first half of 1998, excluding one-time charges, were
$109.9 million, compared with the $110.2 million reported in the same period of
1997.
Volume in the global tube and core operations remained strong compared with a
year ago. Material price changes have been offset by changes in selling prices.
Selling price increases for linerboard and corrugating medium increased
operating profits for the first half of the year compared to the first half of
1997.
15
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 1998 YEAR-TO-DATE COMPARED WITH JUNE 1997 YEAR-TO-DATE
RESULTS OF OPERATIONS, CONTINUED
CONSUMER PACKAGING SEGMENT
Trade sales for the consumer packaging segment in the first six months of 1998
were $567.4 million, compared with $619.0 million in the first half of 1997.
Last year's sales included approximately $46.8 million from the following
divested operations: the screen print operations, sold at the end of last year's
first quarter; and the North American labels operations, divested at the
beginning of the second quarter of 1998. Operating profits in this segment,
excluding one-time charges, increased 6.2% to $64.1 million for the first half
of 1998, compared with $60.4 million during the same period last year.
The company's global composite can operations remain strong. Volume increases in
the snack food and adhesives and sealants markets were offset by weakness in the
frozen concentrate market.
Volume increased in Sonoco's high density film products operations led by
increases in both the grocery and retail markets. Sales prices, however,
declined over last year and more than offset the benefit of lower resin costs.
Volume increased in the company's flexible packaging operations in both the
confectionery and liners markets. Productivity improvements from reduced scrap,
improved run speeds, and faster changeovers also contributed to this group's
improved performance over the first half of 1997.
CORPORATE
General corporate expenses have been allocated as operating costs to each of the
segments. Year to date interest expense was lower in the first six months of
1998 compared with the same period in 1997 due to the lower average borrowings
resulting from the proceeds of the sale of the North American labels and fibre
and plastic drum operations and as a result of the purchase of $58.7 million of
9.2% notes.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first half of 1998.
The debt-to-capital percentage, after adjusting debt levels for excess cash
related to the issuance of restricted purpose bonds, decreased to 45.0% at June
28, 1998, from 46.1% at December 31, 1997. The decrease is attributable
primarily to the reduction of total debt made possible by proceeds from the
sales of the North American labels and fibre and plastic drum operations.
Shareholder's equity has also decreased as a result of shares being repurchased
under a $150 million stock repurchase program implemented in January 1998.
Through the end of the second quarter, a total of 4,132,240 shares had been
repurchased at a total of $138.5 million for an average price of $33.52 per
share.
16
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED), CONTINUED
JUNE 1998 YEAR-TO-DATE COMPARED WITH JUNE 1997 YEAR-TO-DATE
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Working capital decreased $216.0 million to $222.9 million during the first six
months of 1998, driven by the $205.1 million reduction in net assets held for
sale attributable to the sales of the North American labels and fibre and
plastic drum operations in the second quarter of 1998. The proceeds from these
sales were used primarily to repurchase the Company's common stock and to reduce
debt. Also driving the overall decrease in working capital was a $53.8 million
reduction in the deferred tax asset relating to the completion of the sale of
North American labels. These reductions were partially offset by increases in
accounts receivable and inventory due to acquisitions and increased business
activity in ongoing operations.
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.
17
SONOCO PRODUCTS COMPANY
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 March 29, 1998.
Item 5. Other Information
A shareholder proposal to be presented at the next Annual
Meeting of shareholders of the Company must be received by the
Company not later than November 13, 1998, in order to be
included in the Company's Proxy Statement and Proxy pursuant to
Rule 14a-8 of the rules of the Securities and Exchange
Commission. To be voted on at the Annual Meeting, all
shareholder proposals other than proposals made by the Board of
Directors must be submitted to the Company in writing not later
than January 30, 1999 in order to be voted on at the meeting.
With respect to any shareholder proposal not received by the
Company prior to January 27, 1999, proxies solicited by
management of the Company will be voted on the proposal in the
discretion of the designated proxy agents.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (27) - Financial Data Schedule (for SEC use only)
(b) On April 14, 1998, the Company filed a Current Report on
Form 8-K disclosing the completion of the sales of its
North American labels and industrial containers
operations (except for the labels operation in Puerto
Rico and the intermediate bulk containers operation in
Lavonia, Georgia) and the tender offer to purchase its
9.20% Debentures due August 1, 2021.
18
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 11, 1998 By: /s/ F. Trent Hill, Jr.
-------------------------- -----------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
19
SONOCO PRODUCTS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27.298 Financial Data Schedule for the second
quarter of 1998 (for SEC use only)
27.297 Financial Data Schedule for the second
quarter of 1997 (for SEC use only)
5
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-28-1998
44,312
18,672
322,753
5,781
224,103
684,688
1,897,381
901,153
2,076,661
461,836
606,689
0
0
7,175
806,578
2,076,661
1,310,924
1,310,924
1,007,766
1,007,766
0
1,835
27,234
234,864
117,100
120,436
0
11,753
0
108,683
1.05
1.02
5
1,000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-29-1997
34,258
28,133
356,770
7,410
244,605
723,732
1,942,940
901,892
2,419,319
492,694
742,764
0
119,706
7,175
840,595
2,419,319
1,401,815
1,401,815
1,083,698
1,083,698
0
2,650
28,438
144,173
55,795
87,277
0
0
0
87,277
.86
.82
