1
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 April 1, 2001 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 May 6, 2001:
Common stock, no par value: 95,179,608
--------------------------------------
2
SONOCO PRODUCTS COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets - April 1, 2001
(unaudited) and December 31, 2000
Condensed Consolidated Statements of Operations -
Three Months Ended April 1, 2001 (unaudited) and
April 2, 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows -
Three Months Ended April 1, 2001 (unaudited) and
April 2, 2000 (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)
April 1,
2001 December 31,
(unaudited) 2000 *
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 32,888 $ 35,219
Trade accounts receivable, net of allowances 334,374 329,467
Other receivables 26,203 26,875
Inventories:
Finished and in process 109,226 108,887
Materials and supplies 158,253 158,717
Prepaid expenses and other 34,371 36,628
---------- ----------
695,315 695,793
PROPERTY, PLANT AND EQUIPMENT, NET 962,238 973,470
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 236,539 236,733
OTHER ASSETS 310,151 306,615
---------- ----------
Total Assets $2,204,243 $2,212,611
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 214,863 $ 227,408
Accrued expenses and other 183,896 145,851
Notes payable and current portion of long-term debt 38,167 45,556
Taxes on income 20,826 18,265
---------- ----------
457,752 437,080
LONG-TERM DEBT 787,650 812,085
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 28,862 27,611
DEFERRED INCOME TAXES AND OTHER 132,926 134,364
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 300,000 shares
95,168 and 95,006 shares outstanding, of which
94,912 and 94,681 are issued April 1, 2001 and
December 31, 2000, respectively 7,175 7,175
Capital in excess of stated value 291,420 289,657
Accumulated other comprehensive loss (164,262) (172,403)
Retained earnings 662,720 677,042
---------- ----------
Total Shareholders' Equity 797,053 801,471
---------- ----------
Total Liabilities and Shareholders' Equity $2,204,243 $2,212,611
========== ==========
* The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
See accompanying Notes to Condensed Consolidated Financial Statements
4
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars and shares in thousands except per share)
Three Months Ended
--------------------------
April 1, April 2,
2001 2000
-------- --------
Net sales $632,768 $676,299
Cost of sales 495,481 524,638
Selling, general and administrative expenses 68,721 67,426
Other expense 44,283 --
-------- --------
Income before interest and taxes 24,283 84,235
Interest expense 14,226 15,519
Interest income (475) (763)
-------- --------
Income before income taxes 10,532 69,479
Provision for income taxes 7,107 26,422
-------- --------
Income before equity in earnings of affiliates/
minority interest in subsidiaries 3,425 43,057
Equity in earnings of affiliates/minority
interest in subsidiaries 1,235 1,960
-------- --------
Net income $ 4,660 $ 45,017
======== ========
Average common shares outstanding:
Basic 95,123 100,908
Assuming exercise of options 282 176
-------- --------
Diluted 95,405 101,084
======== ========
Per common share
Net income:
Basic $ 0.05 $ 0.45
======== ========
Diluted $ 0.05 $ 0.45
======== ========
Cash dividends $ .20 $ .19
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
5
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Three Months Ended
-------------------------
April 1, April 2,
2001 2000
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 77,324 $ 94,439
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (30,346) (22,618)
Cost of acquisitions, exclusive of cash (5,355) --
Proceeds from the sale of assets 4,674 528
Other, net -- (1,153)
-------- --------
Net cash used by investing activities (31,027) (23,243)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 2,654 3,519
Principal repayment of debt (11,566) (21,699)
Net (decrease) increase in commercial paper borrowings (23,000) 20,200
Net increase (decrease) in bank overdrafts 430 (5,596)
Cash dividends (18,982) (19,295)
Common shares acquired -- (46,364)
Common shares issued 1,715 2,089
-------- --------
Net cash used by financing activities (48,749) (67,146)
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 121 (299)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,331) 3,751
Cash and cash equivalents at beginning of period 35,219 36,515
-------- --------
Cash and cash equivalents at end of period $ 32,888 $ 40,266
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)
NOTE 1: BASIS OF INTERIM PRESENTATION
In the opinion of the management of Sonoco Products Company (the
"Company"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial
position, results of operations, and cash flows for the interim periods
reported hereon. Operating results for the three months ended April 1,
2001, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. 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,
2000.
Certain prior year amounts in the Consolidated Statements of Cash Flows
have been reclassified to conform with the current year presentation.
NOTE 2: DIVIDEND DECLARATIONS
On February 7, 2001, the Board of Directors declared a regular
quarterly dividend of $.20 per share. This dividend was paid March 9,
2001 to shareholders of record as of February 23, 2001.
On April 18, 2001, the Board of Directors declared a regular quarterly
dividend of $.20 per share payable June 8, 2001, to all shareholders of
record May 18, 2001.
NOTE 3: ACQUISITIONS/DISPOSITIONS
During the first quarter of 2001, Sonoco completed two small
acquisitions. An engineered carrier operation in Georgia was acquired
at a cash cost of $3,622, and the assets of a packaging services
operation in the United Kingdom were acquired for $1,733 in cash. These
acquisitions are part of the Industrial Packaging segment and Consumer
Packaging segment, respectively.
7
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands except per share data)
(unaudited)
NOTE 4: FINANCIAL INSTRUMENTS
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, `Accounting for Derivative Instruments
and Hedging Activities' (FAS 133) as amended by FAS No. 137 and FAS No.
138. The Standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires the
recognition of all derivative instruments as assets or liabilities in
the Company's balance sheet and measurement of those instruments at
fair value. The Statement requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative instrument's gains and losses to
offset related results on the hedged item in the income statement or to
be deferred in accumulated other comprehensive income in equity until
the hedged item is recognized in results of operations. The adoption of
FAS 133 did not have a material impact to the Company or on its
consolidated results of operations for the quarter ended April 1, 2001
or its consolidated balance sheet at April 1, 2001.
NOTE 5: COMPREHENSIVE INCOME
The following table reconciles net income to comprehensive income:
Three Months Ended
------------------
April 1, April 2,
2001 2000
------- --------
Net income $ 4,660 $ 45,017
Other comprehensive income (loss):
Foreign currency translation adjustments 8,141 (16,761)
------- --------
Comprehensive income $12,801 $ 28,256
======= ========
The following table summarizes the components of the current period
change in the accumulated other comprehensive loss balance:
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment (Loss) Income
--------- ------- ---------
Balance at January 1, 2001 $(168,815) $(3,588) $(172,403)
Year to date change 8,141 -- 8,141
--------- ------- ---------
Balance at April 1, 2001 $(160,674) $(3,588) $(164,262)
========= ======= =========
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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands except per share data)
(unaudited)
NOTE 6: FINANCIAL SEGMENT INFORMATION
Sonoco reports its results in two primary segments, Industrial
Packaging and Consumer Packaging. The Industrial Packaging segment
includes engineered carriers (high performance 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 and high density bags) and film
products; and packaging services and specialty products (supply chain
management/ e-marketplace, graphics management, folding cartons, and
paper glass covers and coasters). The Consumer Packaging segment also
included the Capseals unit, maker of container seals, which was sold in
December 2000.
FINANCIAL SEGMENT INFORMATION (UNAUDITED)
Three Months Ended
------------------------------
April 1, 2001 April 2, 2000
------------- -------------
Net Sales
Industrial Packaging $331,848 $363,362
Consumer Packaging 300,920 306,662
Other* -- 6,275
-------- --------
Consolidated $632,768 $676,299
======== ========
Operating Profit
Industrial Packaging $ 43,011 $ 52,999
Consumer Packaging 25,555 31,033
Restructuring charges (44,283) --
Other* -- 203
Interest, net (13,751) (14,756)
-------- --------
Consolidated $ 10,532 $ 69,479
======== ========
* Includes net sales and operating profits of divested businesses.
9
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands except per share data)
(unaudited)
NOTE 7: RESTRUCTURING
During the fourth quarter of 2000, the Company recognized a
non-recurring pretax charge of $5,226 ($3,240 after tax) for
restructuring actions taken during the quarter. The charge consisted of
termination benefits associated with four plant closings of $1,259 and
asset impairment charges of $3,967. Approximately $1,100 remained
accrued on the Consolidated Balance Sheet at December 31, 2000.
Additional restructuring charges of $44,283 ($30,843 after tax) were
recorded as a result of further restructuring actions announced during
the first quarter of 2001. The first quarter 2001 restructuring charge
consisted of severance and termination benefits of $21,449, asset
impairment charges of $10,532 and other exit costs of $12,302,
consisting of building lease termination expenses of $9,636 and other
miscellaneous charges of $2,666. Restructuring charges were determined
in accordance with the provisions of SEC Staff Accounting Bulletin No.
100 "Restructuring and Impairment Charges" and Emerging Issues Task
Force No. 94-3 "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity". The restructuring plan
includes a global reduction of 241 salaried positions (175 in the
United States), as well as an additional 387 hourly positions (261 in
the United States). In addition to headcount reductions, the
restructuring plan includes the closure of 13 plant locations,
including 8 in the United States. As of April 1, 2001, 2 plants have
been closed, and approximately 245 employees have been terminated (117
salaried and 128 hourly). The restructuring costs in the first quarter
of 2001 are included in "other expense" in the Company's Consolidated
Statements of Operations.
The following table sets forth the activity related to the liability
accrued in conjunction with the restructuring charges as of April 1,
2001:
Severance and
Termination Asset Other
Benefits Impairment Exit Costs Total
------- -------- ------- --------
Beginning Liability 12/31/2000 $ 1,100 -- -- $ 1,100
New Charges 21,449 10,532 12,302 44,283
Cash Payments (2,445) -- (382) (2,827)
Asset Impairment -- (10,532) -- (10,532)
------- -------- ------- --------
Ending Liability 4/01/2001 $20,104 $ -- $11,920 $ 32,024
======= ======== ======= ========
The Company expects to pay the remaining restructuring costs by the end
of the first quarter 2002.
10
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands except per share data)
(unaudited)
NOTE 8: SUBSEQUENT EVENT / CORPORATE OWNED LIFE INSURANCE
Early in the second quarter of 2001, the Company surrendered its
Corporate-Owned Life Insurance (COLI) policies as a result of the
ultimate settlement with the Internal Revenue Service over
deductibility of COLI loan interest in the second quarter of 2001. The
Company will receive the net cash surrender value of policies less
outstanding policy loans, as well as pending death claims, at time of
surrender. The surrender of these policies will result in additional
income taxes and other costs, to be recorded in the second quarter of
2001, totaling approximately $17,000.
11
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 April 1, 2001, and the related condensed consolidated
statements of operations and cash flows for the three-month periods ended April
1, 2001 and April 2, 2000. 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 accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2000, 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 31, 2001, 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, 2000 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
May 16, 2001
12
SONOCO PRODUCTS COMPANY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements included in Management's Discussion and Analysis of Operations and
Financial Condition, and elsewhere in this report, 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,
but are not limited to, 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; 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.
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000
RESULTS OF OPERATIONS
Consolidated net sales for the first quarter of 2001 were $632.8 million, versus
$676.3 million in the first quarter of 2000. Although the Company's market share
position appears stable, sales in the first quarter of 2001 were adversely
affected by unit volume decreases, principally in the North American engineered
carriers/ paper and composite can businesses. The lower sales compared with the
same period in 2000 were due primarily to reduced volume of $31.0 million,
exchange rate variances of $12.0 million and divested operations of $6.0
million, offset partially by higher selling prices.
Net income for the first quarter of 2001 was $4.7 million, versus $45.0 million
in the first quarter of 2000. Excluding one-time restructuring charges of $44.3
million ($30.8 million after tax), net income for the first quarter 2001 was
$35.5 million. Compared with the same period in 2000, first quarter 2001
results, excluding restructuring charges, declined primarily due to lower volume
and a less favorable mix of products sold. In addition, higher energy costs of
$5.0 million, increased pension expense of $2.0 million as a result of lower
pension investment earnings and divested operations contributed to the lower
profit compared to last year. Lower material costs and higher selling prices in
some operations partially offset these items.
13
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000, CONTINUED
The Company reported earnings per diluted share of $.05 and $.45 in the first
quarter of 2001 and 2000, respectively. Excluding restructuring charges,
earnings per diluted share in the first quarter of 2001 were $.37. As previously
disclosed, 2001 quarterly results will include the negative impact of
approximately $.02 per diluted share each quarter due to increased expense as a
result of lower year-over-year investment earnings in the Company's pension
plan.
CONSUMER PACKAGING SEGMENT
The Consumer Packaging segment includes composite cans; flexible packaging
(printed flexibles and high density bags) and film products; and packaging
services and specialty products (supply chain management/ e-marketplace,
graphics management, folding cartons, and paper glass covers and coasters).
First quarter 2001 sales were $300.9 million, compared with $312.9 million in
the same quarter of 2000. On a comparable basis, excluding sales from divested
operations, first quarter 2000 sales were $306.7 million. Operating profit for
this segment, excluding one-time restructuring charges, was $25.6 million,
versus $31.0 million in the first quarter of 2000.
The decrease in first quarter sales was due primarily to lower composite can
volume partially offset by favorable product mix. Selling price increases in
composite can and flexible packaging coupled with higher volume in high density
film products partially offset the lower aggregate volume in this segment.
The decline in first quarter 2001 operating profit was due primarily to lower
composite can volume, principally in snacks and concentrate, compared with a
strong first quarter 2000 which included over 30% of the full year's snack
production shipped in the first quarter. More favorable comparisons should occur
throughout the remainder of this year.
Restructuring charges of $23.7 million in the first quarter of 2001 include a
reduction in force, the closing of five facilities, and consolidation activities
in all major businesses to improve workflow and operating efficiency.
14
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000, CONTINUED
INDUSTRIAL PACKAGING SEGMENT
The Industrial Packaging segment includes engineered carriers (high performance
paper and plastic tubes and cores, paper manufacturing and recovered paper
operations) and protective packaging (designed interior packaging and protective
reels).
First quarter 2001 sales for the industrial segment were $331.8 million, versus
$363.4 million in the same period last year. Operating profit for the segment,
excluding one-time restructuring charges, was $43.0 million versus $53.0 million
in the first quarter of 2000.
The decrease in first quarter sales and operating profits in the industrial
segment was due primarily to lower volume in the Company's engineered carriers
and paper operations resulting from the slowing in the general economy and does
not reflect any significant loss of market share. Sales volumes declined $19.0
million coupled with unfavorable exchange rate variances of $11.0 million,
compared with the same period in 2000. Operating profit was negatively impacted
by decreased prices for outside sales of recovered paper, lower sales volume and
higher energy costs.
Restructuring charges of $17.5 million in the first quarter of 2001 include a
reduction in force; eight plant closings (two engineered carrier operations in
the United States, two in Europe and one in Asia; and paper operation closings
in Canada, Mexico and the United States); and consolidation activities in all
major businesses to improve workflow and operating efficiency.
CORPORATE
General corporate expenses have been allocated as operating costs to each of the
segments. Net interest expense declined $1.0 million quarter-over-quarter due to
lower average debt levels.
As previously disclosed, early in the second quarter of 2001, the Company
surrendered its Corporate-Owned Life Insurance (COLI) policies as a result of
the ultimate settlement with the Internal Revenue Service over deductibility of
COLI loan interest in the second quarter of 2001. The Company will receive the
net cash surrender value of policies less outstanding policy loans, as well as
pending death claims, at time of surrender. The surrender of these policies will
result in additional income taxes and other costs, to be recorded in the second
quarter of 2001, totaling approximately $17,000. By not carrying the policies to
their full term of another 43 years, the Company will avoid approximately $27.8
million of future costs.
15
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000, CONTINUED
In February 2001, Sonoco's board of directors authorized the repurchase of up to
5.0 million shares of the Company's common stock. Although no shares were
repurchased in the first quarter 2001, in April 2001, 92 thousand shares were
repurchased under previous authorizations.
Restructuring charges of $3.1 million in the first quarter of 2001 are primarily
comprised of severance and termination charges.
RESTRUCTURING
During the fourth quarter of 2000, the Company recognized a non-recurring pretax
charge of $5.2 million ($3.2 million after tax) for restructuring actions taken
during the quarter. The charge consisted of termination benefits associated with
four plant closings of $1.2 million and asset impairment charges of $4.0
million. Additional restructuring charges of $44.3 million ($30.8 million after
tax) were recorded as a result of further restructuring actions announced during
the first quarter of 2001. The first quarter 2001 restructuring charge consisted
of severance and termination benefits of $21.5 million, asset impairment charges
of $10.5 million and other exit costs of $12.3 million. Other exit costs
recorded during the first quarter of 2001 are comprised of building lease
termination expenses of $9.6 million and other miscellaneous charges of $2.7
million. The objective of the restructuring is to realign and centralize a
number of staff functions and to permanently remove approximately $30.0 million
of annualized costs from the Company's cost structure of which approximately one
half is estimated to be realized in 2001. The savings are expected to reduce
fixed and variable costs of sales and reduce selling and administrative costs.
The Company may record additional restructuring-related charges in the second
quarter associated with additional plant closings under consideration.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong through the first quarter of
2001. The debt-to-capital ratio decreased to 47.7% at April 1, 2001, from 48.5%
at December 31, 2000. The decrease is due to a net reduction in the Company's
overall debt of $31.8 million since the end of 2000.
16
SONOCO PRODUCTS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
FIRST QUARTER 2001 COMPARED WITH FIRST QUARTER 2000, CONTINUED
Net working capital decreased $21.2 million to $237.6 million during the first
quarter of 2001 driven primarily by a net increase in current liabilities.
Accrued expenses increased $38.0 million primarily due to the restructuring
reserve recorded in the first quarter of 2001. This was partially offset by a
decrease in trade accounts payable of $12.5 million.
Depreciation and amortization expense for the first quarter of 2001 was $39.1
million.
The effective tax rate for the first quarter of 2001 of 67.5% differs from the
expected rate of 37.5% due primarily to the nondeductibility of certain foreign
restructuring charges.
Cash generated from operations of $77.3 million was used to partially fund
capital expenditures of $30.3 million, repay debt of $31.8 million, and to pay
dividends of $19.0 million. 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 normal operating and capital
expenditure requirements.
17
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 2000 Annual Report on Form 10-K which was filed with the
Securities and Exchange Commission on March 30, 2001. 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
The Company's annual meeting of shareholders was held on April 18,
2001. The following matters, as described more fully in the Company's
Proxy Statement, were approved by the shareholders at this meeting:
(1) The following directors were elected:
VOTES
---------------------------------------------
Term For Withheld
------ ---------- ---------
F. L. H. Coker 3-year 77,950,059 1,788,944
T. C. Coxe, III 3-year 78,770,024 968,979
B. L. M. Kasriel 3-year 75,442,604 4,296,399
E. H. Lawton, Jr. 3-year 78,914,520 824,483
T. E. Whiddon 3-year 79,002,635 736,368
(2) PricewaterhouseCoopers LLP was approved as the independent
auditors of the corporation for the fiscal year ending
December 31, 2001. The shareholders voted 79,196,902 for and
387,280 against this appointment, with 154,064 votes
abstaining.
There were 15,169,486 and 15,170,243 non-votes for each matter voted
upon, respectively.
18
SONOCO PRODUCTS COMPANY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits required.
(b) No Current Reports on Form 8-K were filed by the Company during the
first quarter of 2001.
19
SONOCO PRODUCTS COMPANY
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: May 16, 2001 By: /s/ F.T. Hill, Jr.
------------------------ -------------------------
F.T. Hill, Jr.
Vice President and
Chief Financial Officer