1
EXHIBIT 13
COMPARATIVE HIGHLIGHTS (UNAUDITED)
Sonoco Products Company
% CHANGE
FIRST SECOND THIRD FOURTH FROM
(Dollars in thousands except per share) QUARTER QUARTER QUARTER QUARTER YEAR PRIOR YEAR
....................................................................................................................................
1994
Net sales.......................................... $537,372 $564,391 $591,178 $607,186 $2,300,127 18.1%
Gross profit....................................... 113,609 121,994 124,710 136,387 496,700 17.8%
Net income available to common shareholders........ 26,159 30,895 30,568 34,464 122,086 3.8%*
Per common share
Net income available to common
shareholders............................. .30 .36 .35 .39 1.40 3.7%*
Dividends - common......................... .135 .14 .14 .14 .555 4.7%
Book value per common share................ 7.59 7.8%
Market price - high....................... 25-3/4 22-3/4 24 23-3/4 25-3/4
- low........................ 21-1/2 19-3/4 20-1/2 19-3/4 19-3/4
....................................................................................................................................
1993
Net sales.......................................... $466,938 $478,508 $462,324 $539,454 $1,947,224
Gross profit....................................... 101,716 107,435 100,561 111,841 421,553
Net income available to common shareholders........ 26,908 31,808 28,504 30,350 117,570
Per common share
Net income available to common
shareholders............................. .31 .36 .33 .35 1.35
Dividends - common......................... .125 .135 .135 .135 .53
Book value per common share................ 7.04
Market price - high....................... 24-7/8 24-3/4 24 22-1/2 24-7/8
- low........................ 21-7/8 21-3/4 20-1/2 19-3/4 19-3/4
* Excluding the expected dilution for the 1993 Engraph acquisition, the one-time
gain in 1993 and the elimination of the international lag, net income
increased 12% over 1993.
SONOCO LISTS ON THE NEW YORK STOCK EXCHANGE
Sonoco began trading on the New York Stock Exchange (NYSE) March 8,
1995, under the stock symbol "SON."
Sonoco had been studying a move to the New York Stock Exchange for
several years and the timing seemed right to make this strategic move during
1995. Coming off a record year in both sales and profits, with sales exceeding
$2 billion, the Company has strong growth plans in place that call for
continuing international expansion. The move to the world's most widely
recognized stock exchange should significantly add to Sonoco's visibility in
crucial financial markets.
We expect the move to the "big board" to have very positive benefits for
shareholders because of the wider market for shares and because of the lower
transaction costs the Company believes to be associated with the NYSE.
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CONSUMER PACKAGING REVIEW
SONOCO'S CONSUMER PACKAGING OPERATIONS ACCOUNT FOR APPROXIMATELY 42% OF THE
COMPANY'S PRODUCT LINE.
................................................................................
OPERATIONS IN SONOCO'S CONSUMER PACKAGING BUSINESSES INCLUDE: THE CONSUMER
PRODUCTS DIVISION; SONOCO CONSUMER PACKAGING -- EUROPE; SONOCO CAPSEALS;
ENGRAPH AND THE HIGH DENSITY FILM PRODUCTS DIVISION.
[FIGURE 1]
RUTH THOMAS AND HER TWINS, KAYLA AND KYLE, find high value and performance from
Sonoco's composite and flexible packaging.
New products, new markets, good capacity utilization, increased
customer satisfaction, increased demand for products and continued
international expansion all contributed to strong performance for Sonoco's
consumer packaging businesses in 1994. In addition, 1994 was the first full
year that Engraph was part of Sonoco. The Engraph businesses continued to
perform well. Also, during the year they added two acquisitions.
CONSUMER PRODUCTS
Sonoco's Consumer Products Division (CPD) is the world's largest and
leading supplier of high-quality composite packaging. Composite cans, the
division's primary product line, are versatile packages that meet tomorrow's
packaging requirements today. The division's research, development and
marketing personnel work closely with its strong customer base to continually
refine composite can technology to develop cost, quality and environmental
advantages to satisfy the most demanding packaging requirements. Because of
strong customer support, this division is one of Sonoco's fastest growing
global businesses.
The Consumer Products Division is a principal supplier to many of the
world's largest packaging users. Sonoco supplies its customers from a network
of 28 United States plants and 11 international plants. Supporting its
manufacturing operations is an organization totally focused on customer
satisfaction and a world-class research and development center. The fundamental
growth strategy for this division is to expand its businesses through its
understanding of the requirements, expectations and business strategies of its
strong customer base and develop the packages that provide customers with a
marketing advantage.
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3
On the Front Lines of Customer Satisfaction
Solving our customers' packaging problems is one of our most important goals.
[FIGURE 2]
INCREASED CUSTOMER DEMAND FOR PLASTIC GROCERY BAGS saw Sonoco's High Density
Film Products Division operating at maximum capacity during 1994. Maria Estes
prepares a shipment of bags at the Santa Maria, Calif., plant.
Composite cans, called board cans in Europe, are packages with a
paperboard body; paper, metal, membrane or plastic-end closures; and, depending
on product specifications, a variety of liners. Most composite cans produced by
Sonoco contain more than 50% post-consumer recycled materials. The packages are
used throughout the world to contain such products as prepared dough,
pastries, frozen concentrate, snacks, nuts, powdered foods and beverages,
shortening, cereal, institutional foods, adhesives, chemicals, cleansers and a
wide variety of other products. Besides composite cans, the division is also a
major world producer of both fibre and plastic caulk cartridges for products
like adhesives and sealants as well as the manufacturer of plastic tennis ball
containers.
This group also grows by working closely with customers to develop
composite packaging for new products. Prime examples of this type of growth are
the Oreo Crunchies(TM) package, the new snack containers for Planters(R) nutty
crunch caramel corn, a specialty canister for chocolate-covered cashews and
high-tech canisters for new, larger biscuit products. Converting existing
customers from self-manufacture to Sonoco's composite cans is another major
avenue of growth that will continue because of our Company's expertise as the
world's largest composite can manufacturer.
Solving our customers' packaging problems is one of our most important
goals. Our Packaging Development Center helps Sonoco fill the void created by
many companies cutting back on their own research and development activities.
Customers have found that Sonoco's development group can move a packaging idea
from concept to test market very quickly. The Packaging Development Center has
facilities to design and fill the package, test the product and supply
market-test quantities of cans.
These research and development capabilities enabled Sonoco to develop
new coffee creamer packages as well as develop composite can packaging for
coffee that was test marketed in 1994. The Packaging Development Center is at
the forefront of Sonoco's drive to develop composite packaging options for a
wide variety of products.
Sonoco has an expanding global presence in composite canister
packaging. The division also has international plants in Mexico, Puerto Rico,
Columbia, Canada, Australia, Venezuela and New Zealand, and continues to look
at additional opportunities. In 1990, Sonoco joined with CarnaudMetalbox to
form the CMB Sonoco joint venture to produce composite cans in England and
France. In January 1995, Sonoco completed the purchase of CMB's 50% interest in
the joint venture to give us 100% ownership of this European composite can
business. Sonoco expects this sole ownership will help accelerate growth in the
European market. There has been strong support from existing customers for this
global expansion and the Company has plans in place for ongoing international
expansion.
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4
[FIGURE 3]
MAYBELLINE(R) HAS SELECTED SONOCO'S ENGRAPH Paperboard Cartons and Specialties
Group as its exclusive supplier of blister packaging for cosmetics. Checking
out the makeup are Ashley Nichols, Eve Puffer and Shanea Carr.
CUSTOMER SATISFACTION
Continuous improvement remains an important element in this division's
growth strategy. The entire team is focused on improving the value that Sonoco
composite packaging offers customers. We have developed a strong systems
approach to canister supply that not only meets just-in-time delivery
requirements, but also allows the division to react quickly to surges in
demand. Division team members continue to examine products and processes to
find ways of continually adding more value for our customers. This group is
committed to being in the forefront of innovation in products and services.
SONOCO CAPSEALS
Sonoco Capseals is a specialty operation based in the United Kingdom
that produces seals used inside bottle closures. This operation develops
state-of-the-art seals that enhance product protection and product
identification. The operation is expanding globally and serves customers around
the world.
ENGRAPH
Engraph was the largest acquisition in Sonoco's history when we
purchased it in October 1993. Sonoco acquired Engraph for the opportunity to
grow in new packaging fields. The Engraph businesses fit well into Sonoco and
continued to grow during 1994. Engraph is a leader in such packaging and
product identification markets as pressure-sensitive and extended-text labels;
flexible packaging for confectionary and other industries; screen printing for
fleet graphics and beverage vending machines; and paperboard specialties. Like
Sonoco, Engraph has developed a niche-market philosophy and has a leading
position in all areas in which it does business.
LABEL BUSINESS... Sonoco plans an aggressive growth strategy for the
Engraph label businesses. During 1994, Engraph acquired M. Harland & Son of
England. Harland is one of England's leading producers of labels and label
machinery. Engraph became the 100% owner of Engraph Puerto Rico after
purchasing the venture partner's 50% interest. Those two companies join Patton
of Moorestown, N.J. and Engraph Machine Systems of Delran, N.J.; Graphic
Resources, Inc., Cold Spring, Ky. and Phoenix, Ariz.; Screen Graphics, Inc.,
Memphis, Tenn.; Package Products, Charlotte, N.C.; Polaris Packaging,
Robbinsville, N.J.; and Engraph Mexico, Mexico City, Mexico, as the Engraph
Label Group. Engraph's Machine Group designs the packaging line and assembles
complete systems for label application and product handling, providing Engraph
customers with a single source for both packaging products and machinery. These
business units have leading label supplier positions in personal care,
cosmetics, health care, pharmaceutical, chemical and other markets. The label
business will continue to grow globally to serve customers as they expand to
new markets. Engraph's intent is to build a worldwide supply network to serve
customers as they grow.
FLEXIBLE PACKAGING... Through Morrill Press, Engraph is the finest
producer of thin-gauge, high-value-added rotogravure printed films in the
United States. This operation has two printing plants, one in Fulton, N.Y., and
one in Morristown, Tenn. The Morristown plant, which opened in 1993, showed
significant operational improvement through 1994. In early 1995, we signed an
agreement to purchase a flexible packaging plant in Edinburgh, Ind., from
Hargro Flexible Packaging Corp. A new Cerutti rotogravure press is being
installed in this facility, which will add capacity to our flexible
11
5
On the Front Lines of Customer Satisfaction
THROUGH EXCELLENCE
[FIGURE 4]
WELCH'S RECOGNIZES SONOCO as an outstanding composite can supplier and an
integral part of their overall quality system. Margaret Sage, Welch's,
inspects cranberry juice on the production line in Lawton, Mich.
[FIGURE 5]
GINGER BEAUCHAMP FROM DIAL CORPORATION'S Phoenix, Ariz., facility, and
Engraph's Lars HoTseung inspect a flexographic printing plate for Borateem(R)
discount coupons.
packaging operations. These operations primarily serve the confectionary
industry, printing on paper, foil or film that protects products for longer
shelf life. Customers include some of the best-known names in candy, gum,
snack, cookies and other products.
SCREEN GROUP... The Engraph Screen Group consists of two businesses,
Screen Art of Knoxville, Tenn. and Ariston of Hillside, N.J. These operations,
specializing in screen process printing, are the largest and most effective
producers of fleet graphics in the United States. They also supply the
beverage industry as the leading producer of product identification and
promotional graphics for beverage vending machines, fountain dispensers and
delivery trucks.
PAPERBOARD SPECIALTIES... Package Products of Charlotte, N.C.,
produces paperboard cartons, sleeves and blister packs for some of America's
best-known brands. This operation offers customers one-stop shopping for both
cartons and labels. Standard Cap and Seal of Norcross, Ga., and Rixie Paper
Products of Pottstown, Pa., serve the hospitality and health care industries
with paper covers that protect glassware and provide identification for hotels,
hospitals and other health care facilities. Rixie is also the nation's leading
producer of coasters, used for advertising and image enhancement by hotels,
restaurants and other service facilities.
Several of Engraph's markets, particularly pressure-sensitive labels
and certain flexible packaging areas, are among the fastest growing in the
packaging industry. The multi-year plans for Engraph call for strong profit
growth well into the future. This growth will come as the label and flexible
packaging industries continue consolidating, helping Engraph to grow through
acquisitions. In addition, the cross-selling opportunities provided as part of
the Sonoco organization will help increase market share. Sonoco is committed
to supporting this growth by funding internal developments and tactical
acquisitions in both the United States and international markets.
HIGH DENSITY FILM PRODUCTS
Sonoco's High Density Film Products Division is the largest United
States producer of high-density, high-molecular weight plastic carry-out
grocery bags. In addition to plastic grocery bags, the group also produces
plastic bags for convenience stores and high-volume retail operations, as well
as agricultural mulch film.
During 1994, the division operated at near capacity. As a result of a
major competitor leaving the high density market, Sonoco announced it is
investing $20 million to increase capacity by nearly two billion bags,
beginning in 1995.
This division will grow by adding capacity to increase its penetration
in the grocery market and will continue its focus of increasing share in the
high-volume retail chains. Sonoco has a strong, value-added niche in its bag
markets because of its customer-focus and unique systems approach to bag
supply. Sonoco's patented Quik-Mate(R) bagging system and training programs
have helped Sonoco customers achieve higher front-end productivity in their
stores. In addition, the division maintains a nationwide plastic bag
reclamation system in use at thousands of stores.
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6
INDUSTRIAL PACKAGING REVIEW
ACTIONS TAKEN THE PAST FEW YEARS TO MAKE THE COMPANY EVEN MORE COST EFFECTIVE
PAID OFF IN IMPROVED RESULTS DURING 1994.
................................................................................
SONOCO'S INDUSTRIAL PACKAGING SECTOR INCLUDES THE FOLLOWING BUSINESSES:
INDUSTRIAL PRODUCTS AND PAPER; INDUSTRIAL CONTAINER; FIBRE PARTITIONS;
PROTECTIVE PACKAGING; CRELLIN MOLDED PLASTICS; BAKER REELS; ADHESIVES AND
MACHINERY MANUFACTURING.
These businesses have leadership positions in their markets because of their
continuing dedication to achieving customer satisfaction.
[FIGURE 6]
THE PROPRIETARY DESIGN OF SONOCO'S HQ SERIES of paper mill cores exceeds the
performance requirements of the most modern printing machinery. Pat Crowley
operates the Cerutti rotogravure press at Ringier America, a major catalog
printing company in Evans, Ga.
Performance in nearly every business in the industrial packaging
sector met or exceeded expectations for 1994, despite the sharp increases in raw
material costs. Volume was up significantly in nearly every business and price
increases were implemented to recover some of the cost increases. In addition,
actions taken the past few years to make the Company even more cost effective
paid off in improved results during 1994. These improved results should
continue in 1995 and beyond. Sonoco has well-defined niche businesses in the
industrial packaging sector. These businesses have leadership positions in
their markets because of their continuing dedication to achieving customer
satisfaction by being the preferred supplier of high-value products.
INDUSTRIAL PRODUCTS AND PAPER
One of Sonoco's unique strengths is the integrated relationship of the
industrial products and paper operations. During 1994, these two divisions
forged a joint strategy that is helping both businesses become even more
responsive to the changing demands in the market-
13
7
On the Front Lines of Customer Satisfaction
The Industrial Products Division and the Paper Division are Sonoco's oldest
businesses but they continue to have significant growth potential.
[FIGURE 7]
CLAUDE AYMOT AND SYLVAIN BEAUDREAU OF SONOCO'S paper mill in Terrebonne,
Quebec, Canada, survey some recovered paper collected at the mill. Sonoco
collects more than 1.5 million tons of this raw material.
place. A high degree of vertical integration allows Sonoco to have strong
control of its manufacturing process. The combined strategy allows the two
businesses to merge their technical resources into a global technology group.
The divisions combined their human resource groups in the United States and
reorganized other areas, resulting in a reduction of nearly 50 positions during
the year. In the past three years, these groups have reduced their headcount
by nearly 10%. The Industrial Products Division (IPD) and the Paper Division
are Sonoco's oldest businesses but they continue to have significant growth
potential. They remain the "bread and butter" businesses, the foundation on
which Sonoco is building its plans for future growth.
PAPER OPERATIONS
The Company's paper operations operated near capacity throughout 1994.
Worldwide, Sonoco operates 23 paper mills and 34 paper machines. All of those
machines except one produce recycled paperboard, giving Sonoco an annual
capacity of more than one million tons. We sell more than 80% of this capacity
internally to supply Sonoco's paper converting operations.
Sonoco operates a Fourdrinier machine in partnership with
Georgia-Pacific Corporation that has an annual capacity of 176,000 tons of
corrugating medium. The corrugating medium uses a combination of recycled pulp
and wood chips for its furnish. The Company manages approximately 80,000 acres
of timberland to supply wood chips for the Fourdrinier and lumber to produce
furniture squares.
RECOVERED PAPER
Recovered paper is the primary raw material for Sonoco's papermaking
activities. Sonoco collects and processes more than 1.5 million tons of
recovered paper through its paper mills, paper procurement contracts and its
subsidiary, Paper Stock Dealers, Inc. (PSD). Sonoco is one of the world's
leading processors of this raw material. Recovered paper prices were one of
the primary factors affecting 1994 results in Sonoco's paper and paper
converting operations. The price of this material rose from about $40 a ton
early in 1994 to more than $140 a ton later in the year. These unprecedented
cost increases forced the paper operations, and subsequently the converting
operations, to raise their prices in an attempt to recover some of these costs.
The recovered paper market remains volatile and Sonoco expects the
cost pressures on recovered paper to be a continuing factor. However, there is
a better understanding now of the new factors involved in the recovered paper
marketplace. Sonoco met the challenge of this unprecedented price rise during
1994 by moving to strengthen our fibre-supply security. The Company will
continue making acquisition that will enhance this position. For example, at
the end of 1993, the Company established Sonoco Asia Recycling to supply
recovered paper to paper mills in China. Sonoco purchased a materials recovery
facility in Toronto, Ontario, Canada, late in 1993. The Company's PSD
subsidiary acquired a recovered paper collection business in Spartanburg, S.C.
This subsidiary now has 22 paper collection plants.
Due to the changing conditions of the marketplace, PSD invested in a
new multi-material recovery facility in Columbia, S.C. This facility was set
up to serve the recycling requirements of cities, counties and large
industries, who need processors that handle a wide variety of recyclable
materials. PSD will continue to invest in these facilities to maintain its
position as the South's leading recovered-materials processor.
The paper operations are committed to growth to meet the demands of
Sonoco's converting operations. A key success factor in this endeavor is
technological leadership that will continue improving the quality of tube-board
produced to both improve strength and increase productiv-
14
8
CUSTOMER SATISFACTION
[FIGURE 8]
LISA DAVIS EASILY INSERTS SONOPOST(R) CORNER POSTS on a General Electric range,
one of several appliance manufacturers to choose the protective packaging for
its strength, durability and stackability.
[FIGURE 9]
SEAMLESS FILM CORES MEET STRINGENT SPECIFICATIONS and improve quality for
Borden at their North Andover, Mass., plant. L-r, Borden's Carlos Veras
monitors film winding while Mike Hill, Borden purchasing, and Ray LaBonte,
Sonoco sales representative, discuss core applications.
ity. The Company announced a $90-million investment to enhance the
competitiveness of Sonoco's Hartsville paper mill, our largest and oldest
facility. This project will begin in 1995 and should be completed in about
five years.
INDUSTRIAL PRODUCTS
Sonoco's Industrial Products Division is the world's leading
manufacturer of high-value tubes and cores used by a wide variety of the
world's industries in their winding and converting processes. A large
percentage of this division's more than 60,000 products are highly engineered
industrial carriers designed to meet the rapidly changing requirements of the
high-speed machinery being used in most modern manufacturing environments.
These tubes and cores are used in a wide variety of industries including
textiles, film, paper, tape, converting, metal and many others. Specialty uses
include forms for round concrete columns, tubes for shipping and storage and
containers for business machines. The division is also one of the world's
largest suppliers of paper cones to the textile industry.
The division has two major operating units, IPD-North America and
IPD-Europe. Other tube manufacturing businesses in Australia, New Zealand,
Latin America and Asia are also part of this operating group. These operations
supply customers from nearly 100 plants around the world.
Sonoco is the market leader in nearly all industrial product lines in
North America, Europe and Australia. The growth strategy for this division,
which is critical to the continued success of the Company, calls for these
businesses to be world leaders in customer satisfaction, the most
cost-effective, high-value manufacturers in their markets, technology leaders
for all served markets and growing global suppliers.
IPD-North America had very good performance in 1994, experiencing
significant volume growth in most product lines. Consolidations and
restructuring over the past couple of years put this group in a strong position
to take advantage of the rebounding United States economy.
15
9
On the Front Lines of Customer Satisfaction
Sonoco believes its technological expertise in the tube and core business is a
distinct competitive advantage.
THROUGH EXCELLENCE
[FIGURE 10]
NEW MACHINERY IS REVOLUTIONIZING the textile industry and Sonoco cores are
helping to ensure maximum productivity at modern plants like this one owned by
Unifi, Inc.
IPD-Europe did not rebound as quickly as the North American operations
and continued to experience problems during 1994. Several European plants have
been consolidated. Operations began to pick up toward the end of last year and
we expect considerable improvement in the European tube and papermaking
operations during 1995. We sold two small operations, a cone manufacturing
plant in France and a paper mill in England, during 1994.
IPD-North America and Showa Products Company, our Japanese affiliate,
formed a joint venture in 1991 for the manufacture of sophisticated film cores
in the United States. This joint venture, Sonoco Marutsutsu, exceeded its
objectives and was a significant success in developing the most sophisticated
film cores on the market. Both companies planned this as a short-term endeavor
and closed the joint venture in August 1994. Sonoco and Showa shared
significant technology and manufacturing know-how that is being incorporated
into the tube manufacturing operations of both companies. Sonoco is now
supplying sophisticated film cores as part of regular division activities.
Sonoco expressed deep appreciation to Showa and the Showa team members who
helped make this venture such a strong success.
Sonoco believes its technological expertise in the tube and core
business is a distinct competitive advantage. While the details are
proprietary, the Company has implemented a number of programs during the past
two years that have dramatically increased quality and controlled the costs of
its industrial carriers. In addition, the new HQ series of paper mill cores
and high-speed textile tubes have provided customers with carriers that greatly
enhance productivity on their manufacturing lines.
The IPD/Paper technology efforts include research and development
facilities in South Carolina and France, as well as a support unit in
Wisconsin. Customers are demanding increasingly sophisticated carriers to keep
up with the demands of new machinery entering the market. These new machines
continue to wind faster and create heavier packages, putting increased demands
on tubes and cores. Sonoco's technological know-how puts the Company in a
unique position to supply these new generation carriers far ahead of the
competition.
Another example of Sonoco's technology leadership is the development
of a new test for tube strength. Sonoco researchers have determined that some
tubes are affected by radial crush during the winding processes, not the flat
crush that has been the standard measure. After developing several
mathematical models and testing these theories in practice, Sonoco has
developed a radial crush test that we expect will become a new industry
standard.
International expansion continues to be a vibrant growth strategy of
these operations. The Company has a solid market share in North America,
Australia and New Zealand, nearly 20% of Europe's fragmented market, and only a
small fraction of the fast-growing Asian markets. The new structure formed for
the Asian operations, which includes Sonoco, Istethmar, a Hong Kong based
investment organization, and Showa Products, should enable Sonoco to accelerate
growth plans for this region of the world. Acquisitions will continue to be an
important part of the division's growth strategy, especially in international
markets.
All tubes and cores produced by IPD are made from recycled
16
10
[FIGURE 1]
THIS BARMAG TESTING MACHINE AT SONOCO'S AALTEN, NETHERLANDS, plant is an
example of the access Sonoco customers have to world-class technology and
testing methods.
[FIGURE 2]
PRODUCING SONOTUBE(R) FIBRE FORMS, which have become synonymous with
high-quality construction forms for round concrete columns, are Harry Denby,
Todd Pylman and Ken Phipps of Sonoco's Jacksonville, Fla., plant.
paperboard, and nearly all these products can be recycled. Sonoco is working
closely with its customer base to develop product-reclamation programs for its
cores, many of which it can take back and use in the papermaking process.
During 1994, Sonoco's U.S. Industrial Products Division recycled approximately
one third of all the products it manufactured.
The Industrial Products operations are committed to setting the
world-class standard for the industrial carrier industry. The division plans
to stay "a step ahead" of both customers and competition by providing cores to
solve all winding and packaging challenges.
INDUSTRIAL CONTAINER
Sonoco's Industrial Container Division is the largest producer of
fibre drums in the United States and is also a major manufacturer of plastic
drums and intermediate bulk containers (IBC). Sonoco offers customers
solutions for a wide variety of bulk packaging challenges through this
division.
Business was strong in this operation during 1994, as each of the
business units increased its volume. Fibre drums, while growing at a slower
pace than plastic drums and IBCs, continued to gain business as steel drum
users converted to fibre.
This division is the only industrial container supplier with a
research and development facility that studies and tests performance of fibre
and plastic drums, IBCs and a variety of other container types. This facility,
in Lombard, Ill., continually refines existing products, develops new products
and ensures ongoing regulatory compliance of its multiple product line. For
example, this past year the group introduced a new single-piece plastic drum.
The division is also working closely with its strong customer base in product
development. This work has led to several refinements in the intermediate bulk
containers, which are available in both 275- and 330-gallon sizes.
The Industrial Container group is a leader in the development of
effective drum-disposal methods. Working with customers and drum
reconditioners, Sonoco has developed several customer-specific programs for
recycling drums. In addition, the Company's mobile recycling vehicles, MERV,
can go directly to end-user locations to help in the recycling of fibre drums.
MERV drivers can separate the fibre, metal and plastic components of the drum
on location and prepare them for recycling. Five vehicles are currently
assisting customers in recycling their drums.
There has been strong customer approval of the single-source strategy
for industrial containers. Sonoco's ability to provide a wide variety of
packaging options is a major advantage in the marketplace. The division plans
to continue growing by meeting the packaging requirements of our current
customers, developing new products and making tactical acquisitions, especially
in international markets.
CRELLIN MOLDED PLASTICS
Sonoco developed a strong molded plastics business early in 1993 by
combining its small injection molding business with the acquisition of Crellin
Holding, Inc., of Chatham, N.Y. This division, which produces both injection
molded and extrusion plastic products, has 10
17
11
On the Front Lines of Customer Satisfaction
[FIGURE 13]
JOSE TRUJILLO OF SONOCO'S PLASTIC DRUM PLANT IN HOUSTON, TEXAS, inspects lids
of the new and improved 25-gallon liquid DakPak(TM) drum. This plastic drum is
a UN-approved container for hazardous waste that exceeds standards of most
free-market countries. It has become a popular container for many major
chemical companies.
[FIGURE 14]
HELPING CUSTOMERS PROTECT THE ENVIRONMENT by saving timberland, lowering cost
and reducing landfilling by reusing reels, is one of the goals for Sonoco's
Baker reel refurbishing operation in Temple, Ga. W.L. Campbell is the plant
supervisor.
Baker Reels is the nations's largest producer of primary packaging (reels) for
the wire and cable industry.
operations in the United States, one in Germany and one in the Netherlands.
This has become a solid business for Sonoco, serving customers in the
automotive, textiles, fiber optics, medical and diagnostic, wire and cable,
plumbing, filtration and food processing industries. These businesses provide
customers with state-of-the-art injection molding engineering capabilities that
provide prompt response to a wide variety of customer requirements with expert
assistance in part design and polymer selection.
FIBRE PARTITIONS
Sonoco manufactures solid fibre partitions from eight plants, six in
the United States, one in Canada and one in Mexico. Business was strong in
1994 due to operational improvements that should continue to reap benefits into
1995. Conversion of customers from corrugated partitions to fibre partitions
continues to be a priority.
PROTECTIVE PACKAGING
The Company's Protective Packaging Division includes two primary
product lines, Sonopost(R) corner posts and Aegis-ECF(TM), engineered cushion
fibre. These products are custom-designed interior protective packaging made
from recycled paper. This packaging is used by customers in the major
appliance, home comfort and consumer electronics markets.
Sonopost(R) corner posts are designed to provide superior protection,
cushioning and vertical support for major appliances throughout the
distribution and handling process. A new manufacturing facility for this
product was added in Nashville, Tenn., during 1994. We also manufacture corner
posts in Tiffin, Ohio and Marion, Ind.
Aegis-ECF(TM) is in its start-up phase with manufacturing locations in
Hartsville, S.C., and Singapore. This packaging uses advanced design and
manufacturing processes to provide an ideal substitute for expanded polystyrene
(EPS) in protection of home appliances and a wide variety of consumer
electronics and computer products during shipment and storage.
BAKER REELS
Baker Reels is the nation's largest producer of primary packaging
(reels) for the wire and cable industry. The reel business was strong in 1994,
as cable television continued to expand, and is expected to continue growing in
1995. Baker serves customers from six plants and twenty warehouse locations
across the United States.
ADHESIVES AND MACHINERY
The Adhesives Division primarily supplies the adhesive requirements of
the Company's paperboard converting businesses. This operation also markets to
external customers. Sonoco's Machinery Manufacturing Division manufactures
much of our paperboard converting machinery.
RESEARCH AND DEVELOPMENT
Sonoco has industrial packaging and paper research and development
facilities in Hartsville, S.C., Madison, Wis., and Pont-sur-Yonne, France.
Sonoco also operates a comprehensive industrial container research and
development facility in Lombard, Ill. From our Packaging Development Center in
Hartsville, we offer our customers a major consumer packaging research and
development operation.
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12
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS 1994-1993
...............................
[FIGURE 15]
NET SALES BY SEGMENT
THE CONVERTED PRODUCTS SEGMENT continues to be the strength of the Company.
Consolidated net sales for 1994 were $2.30 billion, compared with
$1.95 billion in 1993, an increase of 18.1%. Several factors impact the sales
comparison between 1994 and 1993. Sales in 1994 included a full year of the
Engraph acquisition, completed in October 1993, as well as reductions from
operations closed in 1993. Sales in 1993 also increased because of the
elimination of Sonoco's historical reporting lag of one month for most
international operations, which resulted in 13 months of sales being reported
during 1993. Excluding the above factors, the sales gain in 1994 was 9.5%.
Volume gains were strong in most business units, reflecting the
strength of the economy, particularly in North America and Asia. Selling price
increases also contributed to the sales increase. The selling price increases
were necessary to recover the significant cost increases in many of the
commodity raw materials utilized in our manufacturing operations.
Gross profit margins reflect the combination of selling price and raw
material cost increases. Recovered paper, our largest raw material, nearly
tripled in cost during the year. This unprecedented rate of increase began in
the second quarter and quickly peaked early in the third quarter. Selling
price increases were implemented in the third quarter, resulting in improved
gross margin percentages in the fourth quarter. Sonoco was not able to recover
all of the cost increases in 1994, but ended the year basically in balance.
Thus, the Company expects improved profits in 1995, compared with 1994. The
cost of recovered paper is expected to remain volatile, and we expect to be
able to mitigate any adverse earnings impact over time through selling price
increases.
Other key raw materials include plastic resins, steel, aluminum,
liners and labels. All increased in cost at varying degrees during the year.
While providing for price increases certain contracts preclude the immediate
recovery of these additional costs. However, we do expect to recover cost
increases as these contracts expire early in 1995.
Productivity improvements also helped ease the cost/price squeeze.
Increased volume in our converting operations resulted in lower cost per unit.
We commercialized new technology either through product design or new
equipment, which also produced lower cost per unit of production.
Selling, general and administrative costs include our company-owned
life insurance which is discussed in Note 9 to the Financial Statements.
Excluding these expenses, selling and administrative costs as a percentage of
sales remained constant at 10.7% for 1994 and 1993 due to continued emphasis on
cost and headcount levels.
Net income for 1994 was $122.1 million, or $1.40 per share. This
includes the expected first-year dilution for the Engraph acquisition. Net
income for 1993 of $117.6 million, or $1.35 per share, included a one-time gain
of $.04 per share from the early repayment of the Graham note (See Note 3 to
the Financial Statements). Excluding the dilution, the one-time gain in 1993
and the elimination of the international reporting lag, base operating income
increased by 12%.
Additional information on sales and profits is included in the segment
discussions below.
Capital expenditures increased to $126.7 million in 1994, compared
with $115.6 million in 1993. These expenditures were for projects to expand
capacity and introduce new technology. The Company expects capital
expenditures to rise to $200 million in 1995, as we expand capacity in the
plastic bag business and start on a $90-million investment in the Hartsville
complex, a five-year project. These planned expenditures are expected to have
excellent returns and will further enhance our strong competitive position in
these businesses.
Research and development costs charged to expense were $12.1 million
in 1994, compared with $12.9 million in 1993. Sonoco's research programs in
materials science and applied mechanics have led to significant improvements in
our operations.
Sonoco's effective tax rate in 1994 was 39.1%, compared with 39% in
1993. The impact of the goodwill associated with the Engraph acquisition on
the tax rate was largely offset by the tax benefits from our company-owned life
insurance program.
SEGMENT REPORTING
Sonoco changed the segmental reporting in 1994 by combining the
miscellaneous segment with the converted products segment. The Company
determined the operations in both segments were converting businesses and,
given the small size of the miscellaneous segment, separate reporting was no
longer appropriate. The following segmental data will include the converted
products segment, the paper segment and the international segment.
CONVERTED PRODUCTS SEGMENT
The converted products segment consists of the following domestic
businesses, all of which are described in the Operations Review: the Industrial
Products Division; the Consumer Products Division; Industrial Container
Division; Engraph Division; Fibre Partitions Division; Protective Packaging
Division: Crellin Molded Plastics Division; High Density Film Products Division
and the Baker Reels Division. Converted products is the largest of Sonoco's
business segments, representing approximately 80% of the Company's consolidated
sales and profits. Sales and profits increased significantly in this segment
compared with 1993.
Trade sales in this segment were $1.74 billion compared to $1.44
billion in 1993, an increase of 20.8%. The key factors affecting this sales
increase included additional volume in nearly every business, the full-year
sales impact for Engraph, acquired in October 1993, and higher selling prices.
The overall operating profit for the converted products segment was
$188.5 million, compared with $157.4 million in 1993, an increase of 19.7%.
Sales volume in the Industrial Products Division's tube and core
businesses increased approximately 8% with all the product lines showing
strength through the year. Rising paperboard and other costs necessitated
selling price increases, which took effect in the second half of the year. In
addition to the increased volume, efficiencies achieved through the
introduction of new technologies and cost-control programs added to this unit's
performance. Volatility in paper cost is
21
13
On the Front Lines of Customer Satisfaction
[FIGURE 16]
INDENTIFIABLE ASSETS BY SEGMENT
IDENTIFIABLE ASSETS, EXCLUDING CORPORATE, INCREASED in 1994 primarily due to
base business growth and acquisitions.
expected to continue and selling price increases have been announced in the
first quarter of 1995 in response to higher paper costs.
In the Consumer Products Division, volume gains in the concentrate,
nut, refrigerated dough, snack and caulk markets offset volume declines in
solid shortening, powdered beverages and cleanser markets. Increased material
costs in the second half of the year spurred some selling price increases.
Improved productivity and lower scrap rates helped improve this division's
profitability. Growth continues in this business through new products and
conversion of self-manufacturers. Continued material cost pressure is expected
in 1995, but we expect to recover these increases through selling price
increases.
Volume increased in all units of the Industrial Container Division.
The group had a good year but continuing cost increases for resin, paper and
steel are putting additional pressure on margins. Fibre drums, while growing
at a slower pace than plastic drums and intermediate bulk containers (IBC),
continued to gain business as steel drum users converted to fibre. Unit growth
was up 1%, 19% and 38% in fibre, plastic and IBC, respectively in 1994.
Sonopost(R) packaging forms continued to make significant conversions
among appliance manufacturers during 1994. This growth is expected to
continue. The engineered cushion fibre business continued to experience
start-up losses. Solid fibre partitions had a good year, boosted by some
volume increases and productivity improvements at several plants.
The Baker Division's reel business was strong in 1994 as cable
television continued to expand, and is expected to continue growing in 1995.
The High Density Film Products Division operated near 100% capacity
throughout 1994. During the year a major competitor curtailed production of
plastic grocery bags, creating a decrease in available supply. Sonoco
authorized a $20-million investment to replace some of this capacity and
improve production. This capacity will be on line during 1995. In addition,
resin prices increased dramatically resulting in selling price increases. The
division expects continued volume growth in their markets as conversions from
paper grocery sacks continue and additional penetration of the retail market is
achieved.
Sonoco's other large plastics operation is the Crellin Molded Plastics
Division, a manufacturer of a diverse line of injection molded and extrusion
plastic products. Business increased in the automotive and filtration segments
during 1994 and selling prices increased due to the high cost of resin.
Engraph, whose businesses are described in the Operations Review, had
volume growth in most units but experienced pressure on margins. In Engraph's
first full year as part of Sonoco, sales and earnings grew at double digit
rates, reinforcing the growth potential in these served markets. The
paperboard carton operations made share gains in the cosmetics, personal care
and home furnishing markets. The Morrill Press flexible packaging operation's
volume increased as the new plant in Tennessee continued to show efficiency
improvement. The label and package insert businesses continued to recover from
the loss in 1993 of a significant amount of good-value-added tobacco coupon
business. Sonoco expects that all of the Engraph businesses will continue to
grow and improve margins in 1995.
Capital spending rose to $77.3 million in this segment, up from $47
million in 1993. Much of this spending is to implement new manufacturing
processes in the tube and core business, to cover two start-up plants in the
protective packaging area and to add equipment and facilities in the Engraph
operations.
PAPER SEGMENT
Sonoco's paper operations are designed primarily to supply our
converting operations. As mentioned in the Operations Review, extensive work
was accomplished during 1994 to more fully integrate the operating strategies
of the Paper Division with its largest customer, the Industrial Products
Division. The paper segment consists of 21 U.S. cylinder board machines, one
Fourdrinier paper machine and Paper Stock Dealers, Inc., a recovered paper
collection and processing subsidiary.
The Fourdrinier paper machine, located in Hartsville, S.C., has an
annual capacity of approximately 176,000 tons. This machine produces
corrugating medium sold under contract to Georgia-Pacific Corporation.
Sonoco's U.S. cylinder board capacity is approximately 750,000 tons a
year. Most of the board produced on these machines is sold to Sonoco's paper
converting operations with about 18% of the capacity going to external
customers.
Paper Stock Dealers has 22 collection facilities purchasing and
processing recovered paper for use by Sonoco paper mills and for sale to
external customers. Sonoco annually recycles more than a million tons of
recovered paper and much of this is provided through this subsidiary and
mill-site collections.
Total domestic paper sales, including both internal and external, for
1994 were $331 million, compared to $279 million in 1993, an 18.7% increase.
Operating profits increased 11.5% to $64.5 million in 1994 from $57.9 million
in 1993.
The domestic paper division operated at 97% of capacity through 1994.
The primary factor influencing this segment in 1994 was the radical change in
the recovered paper market. Old corrugated container (OCC), our major furnish
component, more than tripled in price during the year. Other grades used in
our furnish mix also increased significantly. The unprecedented rise in cost
resulted in three paper price increases, internally and externally, during the
year. While the cost of recovered paper dropped temporarily in the fourth
quarter, it has risen again in the first quarter of 1995, resulting in further
selling price increases.
Sonoco expects higher volatility in this cost component than in the
past due to the existing high recovery rate, economic improvement in the United
States and overseas that impacts exports of this key material, and increasing
demand for recovered paper from new linerboard and corrugating medium
installations. Our
22
14
[FIGURE 17]
OPERATING INCOME BY SEGMENT
MOST OF THE INCREASE IN 1994 OCCURRED IN THE CONVERTED PRODUCTS SEGMENT and is
due to volume gains, increased productivity and the acquisition of Engraph in
October 1993.
Operating income by segment has been restated to exclude 1992 and 1990
restructuring charges.
recovered paper collection network, through our paper mills and Paper Stock
Dealers subsidiary, is expanding geographically as we seek to secure the supply
of recovered paper for our paper mills. Our recovery system is a key
competitive advantage in our markets, providing self-sufficiency from a supply
standpoint.
Capital spending in this segment during 1994 was $18.9 million,
compared with $20.5 million in 1993. Plans are to significantly increase
capital spending in 1995 to increase capacity at Sonoco's largest mill in
Hartsville, S.C. Increased capacity is needed to keep up with the growing
demand for cylinder board from Sonoco's converting divisions. The project also
updates our internal power generation capabilities resulting in significant
reductions in power cost.
INTERNATIONAL SEGMENT
The international segment includes all of Sonoco's non-U.S.
operations, the largest of which are in the United Kingdom, Canada, France,
Mexico, Australia and Germany. These operations are similar to the United
States operations in products and markets served.
Sales in 1994 were $431.2 million, compared with $404.1 million in
1993. Due to the elimination of our historical reporting lag, 13 months of
sales were included in 1993 for many of our international operations. We also
sold several businesses in 1993, impacting the year-to-year comparison.
Excluding the above, the sales gain for 1994 was 16.5%. Operating profits
increased 31.9% to $15.7 million in 1994 from $11.9 million in 1993.
Volume was strong in the U.K., Latin America, Australia, Canada and
Asia-Pacific. Germany and Southern Europe continued to deal with a flat
economy. The same cost pressures that are affecting the tube and paper markets
in the United States are affecting Europe, resulting in price increases in the
paper and converting operations. Three paper and two converted products price
increases were implemented in the second half of 1994. Engraph's purchase of
M. Harland & Son Ltd., of the U.K. also contributed to the sales increase.
Business remained steady in Mexico. The severe devaluation of the
Mexican peso at the end of 1994 had only a minimal impact on Sonoco operations.
Since our largest operation in Mexico supplies the Mexican textile industry,
which is a heavy exporter, we do not expect a significant impact from the
devaluation.
Sonoco expects to continue growing in all international operations.
Capital spending in the international segment was $27.7 million,
compared with $41.2 million in 1993. The primary projects involved were aimed
at process improvements at plants in Mexico, Canada, Germany and France.
CORPORATE
Interest income, interest expense and unallocated corporate expenses
are excluded from the operating profits by segment and are shown under
Corporate. Interest expense in 1994 was $35.9 million, compared with $31.2
million in 1993, a result of higher average debt levels, primarily due to
acquisitions, offset partially by the impact of a lower average cost of funds.
Although short-term rates were higher in 1994, the Company benefited from the
favorable impact of the prepayment of the 9.3% privately placed notes in
November 1993 and the maturing of various fixed-rate instruments in 1994.
Interest income was lower in 1994 due to the early repayment of the Graham note
in November 1993. The repayment of this note resulted in a $5.8-million gain
(net of certain corporate charges), which was included in general corporate
expense in 1993. General corporate expense increased in 1994 primarily due to
the pretax cost of a broad-based, company-owned life insurance program. The
tax benefit from this program, which largely offset the costs, is reflected in
our effective tax rate.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
...................................................
Sonoco maintained its strong financial position in 1994 and 1993 and
its ability to meet future financial needs. The debt to total capital ratio
was 38.1%, 38.0%, and 35.1% at December 31, 1994, 1993, and 1992, respectively.
The Company's earnings before interest and taxes were 6.9 times interest
expense in 1994 as compared to 7.2 times in 1993 and 6.8 times in 1992
(excluding cumulative effect of accounting changes and restructuring costs in
1992). The Company's financial strength has been acknowledged by Standard and
Poor's (S&P) and Moody's who have rated the Company's long-term debt A+ and A2
and commercial paper program A1 and P1, respectively.
Operations continued to produce solid cash flows, providing $219.5
million in cash in 1994, compared with $162.8 million and $157.4 million in
1993 and 1992, respectively. Cash provided by operations was significantly
higher in 1994, compared with 1993 due to lower payables in 1993 coupled with
the prepayment of $15 million in taxes which would have otherwise been payable
in 1994.
Debt increased $31.6 million to $547.4 million at December 31, 1994,
primarily due to the purchase of $29.5 million of Company stock and to fund
$30.4 million in acquisitions. Debt increased $200 million in 1993 to $515.8
million. This debt, along with the issue of $172.5 million in preferred stock,
$42.5 million in proceeds from asset dispositions and $33.7 million received
from the early repayment of the 10.9% Graham note, were used to fund $393
million in acquisitions. Capital spending was $126.7 million in 1994, compared
with $115.6 million in 1993 and $109.3 million in 1992.
In October 1993, the Company filed a shelf registration with the
Securities and Exchange Commission increasing the amount of registered debt
securities available for issuance to $325 million (including $100 million
previously filed under the June 1991 registration), referred to collectively as
the "registered debt securities." The Company issued $100 million of 5.875%
notes, due November 2003, of its registered debt securities in October 1993.
The Company issued $75 million of 5.49% notes, due April 2000, of its
registered debt securities directly to an institutional investor in November
1993. The net proceeds of these issues were used to fund a portion of the
Engraph acquisition and
23
15
On the Front Lines of Customer Satisfaction
[FIGURE 18]
CAPITAL SPENDING BY SEGMENT
IN 1994, CAPITAL SPENDING INCREASED SIGNIFICANTLY in the Converted Products
segment due to expansion and technology improvements.
repay other indebtedness including the prepayment of 9.3% privately placed
notes due 1994 through 1998 (including a make-whole premium of $3.2 million).
The Company has $150 million of registered debt securities available for
issuance at December 31, 1994.
The Company also filed a registration statement with the Securities
and Exchange Commission for the issuance of up to 3,450,000 shares of $2.25
Series A Cumulative Convertible Preferred Stock in October 1993. The sale of
these securities at $50.00 per share, convertible to the Company's common stock
at a price of $25.31, was completed in October 1993. The net proceeds from
this issue were used to fund a portion of the Engraph acquisition.
The Company has authorized a commercial paper program totaling $250
million and has fully committed bank lines of credit supporting the program by
a like amount.
The Company expects internally generated cash flow along with
borrowings under its existing credit facilities to be sufficient to meet
operating and normal capital expenditure requirements in the future. Capital
spending for 1995 is estimated to be approximately $200 million.
Acquisitions are expected to continue to be an important part of the
Company's strategy for growth. The Company would expect to acquire additional
companies with market and technology positions that provide meaningful
opportunities when consistent with its overall goals and strategies.
Net working capital was $222.1 million, $209.9 million and $152.5
million at December 31, 1994, 1993 and 1992, respectively. Net working capital
increased $12.2 million in 1994 primarily as a result of base business growth.
In 1993, working capital increased significantly as a result of acquisitions.
The restructuring reserve declined in 1994 to $10.9 million from $27.1 million
at December 31, 1993, as most of the plant closings, consolidations and
relocations identified as part of the 1992 and 1990 restructuring programs were
completed. The balance remaining at December 31, 1994, is principally to cover
pension costs related to terminated employees. The ratio of current assets to
current liabilities was 1.6 at December 31, 1994, compared with 1.7 and 1.5 at
December 31, 1993 and 1992, respectively. Excluding restructuring accruals,
the ratio was approximately 1.7 in 1994, 1.9 in 1993 and 1.7 in 1992.
Shareholders' equity increased $43.8 million to $832.2 million at
December 31, 1994, primarily from $129.8 million in earnings, partially offset
by common and preferred dividend payments of $56.1 million, the repurchase of
$29.5 million of outstanding shares of the Company's stock and translation of
foreign currency of $7.2 million. The translation adjustment in 1994,
resulting from the conversion of investments in foreign countries to the U.S.
dollar for reporting purposes, was attributable to the effect of the dollar
strengthening against the Canadian dollar and Mexican peso, partially offset by
the U.S. dollar weakening against most European currencies. Shareholders'
equity increased $226.5 million to $788.4 million at December 31, 1993, as a
result of $118.8 million in earnings and the issuance of $172.5 million in
preferred stock, partially offset by dividends of $47.6 million and a $19
million translation adjustment due primarily to the U.S. dollar strengthening
against most European currencies.
In April 1994, the Board of Directors increased the dividend payable
to common shareholders to $.14 per share from the $.135 per share that had been
paid since the second quarter of 1993. The Company plans to increase dividends
as earnings justify as it has done in the past. The return on common equity
was 20.4% in 1994, compared with 19.9% in 1993 and 13.7% in 1992 (excluding the
cumulative effect of accounting changes). Excluding the impact of
restructuring costs and accounting changes, return on equity was 18% in 1992.
The book value per common share was $7.59 in 1994, compared to $7.04 in 1993.
The Company is exposed to interest rate fluctuations as a result of
using debt as a major source of financing its operations. When necessary, the
Company will use traditional, unleveraged interest rate swaps to manage its mix
of fixed and variable rate debt to ensure that exposure to interest rate
movements is maintained within established ranges. The Company is also subject
to risk due to foreign exchange rate changes as a result of operating globally.
The Company monitors these exposures and can use traditional currency swaps and
forward foreign exchange contracts to hedge a portion of the net investment in
foreign subsidiaries or to hedge firm commitments denominated in foreign
currencies. The Company does not use any financial instruments for speculative
purposes. The aggregate impact of these financial instruments was not material
to the financial statements as a whole as of December 31, 1994 or 1993.
Except for the impact of raw material prices, as discussed in the
segmental information, inflation did not have a material impact on the
Company's operations in 1994, 1993 or 1992.
The Company is subject to various federal, state and local
environmental laws and regulations, concerning among other matters, wastewater
effluent and air emissions. Compliance costs have not been significant due to
the nature of the materials and processes used in manufacturing operations.
Such laws also make generators of hazardous wastes, and their legal successors,
financially responsible for the clean-up of sites contaminated by those wastes.
The Company has been named a potentially responsible party at several
environmentally contaminated sites primarily located in the Northeast owned by
third parties. These sites are believed to represent the Company's largest
potential environmental liabilities. The Company has accrued $4.4 million as
of December 31, 1994, with respect to these sites. In determining the amounts
to accrue with respect to such sites, the Company has considered: 1) the
aggregate potential clean-up costs in light of the joint and several liability
to which the Company may be subject, 2) the availability of insurance coverage,
3) the likelihood that insurance coverage may be contested, 4) potential
sources of contribution and/or indemnification, 5) the periods in which claims
for recovery may be realized, 6) the financial condition of third parties from
which
24
16
recovery is expected, 7) the identification of specific sites for clean-up, 8)
statutory defenses and 9) the status of federal and state regulatory action.
Due to the complexity of determining clean-up costs associated with the sites,
a reliable estimate of the ultimate cost to the Company cannot be determined;
however, costs will be accrued as necessary once reasonable estimates are
determined. Because it appears unlikely that these matters will be completely
resolved in the near future, and because they involve matters in areas of law
and policy that are constantly changing, any opinion the Company has regarding
such matters must necessarily be qualified to reflect the uncertainty.
Nevertheless, it is management's opinion (based on prior experiences with such
matters; rough estimates of counsel, consultants and others; the apparent
ability and obligation of other parties to share clean-up costs; and the
Company's present and estimated future financial position) that such costs,
when finally determined, will not have a material adverse effect on the
consolidated financial position of the Company.
RESULTS OF OPERATIONS 1993-1992
...............................
Consolidated net sales for 1993 were $1.95 billion compared with $1.84
billion in 1992, an increase of 5.9%. The sales gain included acquisitions and
base business growth offset by operations sold as part of the 1992
restructuring and exchange rate changes in 1993. The acquisitions of Engraph,
Crellin, OPV/Durener and a composite can plant in Mexico added $154 million in
sales in 1993. Edgeboard(R), European plastic bags, liquid packaging,
packaging tapes and U.K. reel operations were sold, reducing sales in 1993 by
$38.6 million compared with 1992. The exchange rate losses associated with the
stronger dollar in 1993 were $35 million, or 1.9% of 1992 sales.
Net income for 1993 was $117.6 million, or $1.35 per share, compared
with a restated 1992 income of $106.3 million, or $1.23 per share. The $1.23
per share in 1992 was restated to exclude the 1992 cumulative effect of FAS 106
and FAS 109, as well as the restructuring reserve (all of which had a total
negative impact of $.73 per share). The 1993 earnings represented a 10.7%
increase over restated 1992 earnings. The 1993 profit included a non-operating
gain of $.04 per share, as described in Note 3 to the Financial Statements.
On a consolidated basis, the gross profit margin in 1993 increased to
21.6% from 21% in 1992. While some of our major industrial packaging
operations felt the impact of poor business conditions, our consumer businesses
performed well. The increase also reflected restructuring actions the Company
had taken and investments made over the past couple of years.
Further information on sales and profits is included in the segment
discussion below.
Acquisitions had a significant impact on 1993 earnings. The aggregate
cost of these acquisitions, net of debt assumed, was $393 million. With the
additional goodwill ($292 million) and preferred stock and debt financing,
dilution of approximately $.04 per share was expected in 1994.
Capital expenditures in 1993 of $115.6 million included projects to
expand capacity and improve productivity and quality. Research and development
costs charged to expense in 1993 were $12.9 million as compared with $11.7
million in 1992.
Sonoco's effective tax rate in 1993 was 39% compared with 39.5% in
1992.
CONVERTED PRODUCTS SEGMENT
Trade sales for this segment in 1993 were $1.44 billion compared with
$1.29 billion in 1992, an increase of 11.6%. This increase was primarily due
to the acquisition of Engraph and Crellin. Demand in our industrial businesses
was down, reflecting the depressed state of many of the major markets served.
Selling price pressures were intense due to competition and customer profit
pressures in these markets. Our consumer businesses also experienced selling
price pressure and low growth in 1993.
The overall operating profit for the converting segment was $157.4
million compared with $117.9 million in 1992. The 1992 results included a
restructuring charge of $10 million. Profits in the converting segment
increased due to acquisitions, lower material costs and the benefits of the
restructuring actions taken in 1992.
Capital spending rose to $47 million in 1993 from $39.3 million in
1992. Major projects included actions to expand capacity and improve
productivity and quality.
PAPER SEGMENT
Total domestic paper sales, including both internal and external, for
1993 were $278.9 million, a decrease of 1.3%, compared with $282.6 million for
1992. Lower prices in corrugating medium coupled with flat industrial products
sales and lower fibre drum sales were the primary factors affecting this
segment.
Operating profits for 1993 were $57.9 million, 11.5% below the $65.4
million in 1992. The decline in profits was due to lower volume and reduced
prices in corrugating medium; lower external cylinder board volume and prices
slightly below 1992 levels; and higher costs in several areas.
Capital spending of $20.5 million in 1993 compared with $15.6 million
in 1992. Projects were primarily focused on process improvements and
productivity enhancements on cylinder board machines.
INTERNATIONAL SEGMENT
Trade sales in the international segment totaled $404.1 million in
1993 compared with $444.7 million in 1992. Unfavorable exchange rates and the
disposition of several business units, which were a part of the 1992
restructuring program, accounted for $35 million and $37 million, respectively,
of the sales decline. Sales were also negatively impacted by depressed paper
markets in Canada, Mexico and Europe. Partially offsetting these were
additional sales from acquisitions completed during 1993 and increased sales in
the Asia-Pacific region.
Operating profits in the international segment totaled $11.9 million
as compared with a loss in 1992 of $12.4 million. Included in the 1992 results
is a $31.8 million restructuring charge. Excluding this charge, profits in
1993 were $7.5 million lower than 1992. Although Canada, Mexico and Australia
had profit improvements in their converting operations, these improvements were
more than offset by inefficiencies in consolidating businesses in Europe,
exchange rate losses and lower paper volume and prices due to several weak
economies.
Capital spending in this segment was $41.2 million compared with $48.3
million in 1992. Major projects included the start-up of a tape core
operation in Italy and a project in Canada to generate power for internal use.
CORPORATE
Interest expense in 1993 was $31.2 million, compared with $30.4
million in 1992. In 1993, the benefit of declining global short-term interest
rates was more than offset by higher average debt levels as a result of
acquisitions. Corporate operating profit in 1993 includes a non-operating gain
of $5.8 million described in Note 3 of the Financial Statements.
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17
CONSOLIDATED BALANCE SHEETS
Sonoco Products Company
DECEMBER 31
.......................
1994 1993
.............................................................................................................
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,444 $ 25,858
Trade accounts receivable, net of allowances . . . . . . . . . . . . . . . . 270,439 232,628
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,211 22,989
Inventories
Finished and in process . . . . . . . . . . . . . . . . . . . . . . . . . 86,238 83,660
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 121,424 102,465
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,943 30,750
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,012 14,760
-----------------------
570,711 513,110
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 763,109 737,154
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED . . . . . . . . . . . . . . . . 358,965 339,653
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,268 117,208
-----------------------
$1,835,053 $1,707,125
=======================
.............................................................................................................
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,098 $ 129,389
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . 72,345 60,407
Accrued wages and other compensation . . . . . . . . . . . . . . . . . . . . 30,855 22,633
Restructuring reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,923 27,114
Notes payable and current portion of long-term debt . . . . . . . . . . . . . 59,421 60,564
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,001 3,071
-----------------------
348,643 303,178
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487,959 455,262
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS . . . . . . . . . . . . . . . . . . . 104,179 99,165
DEFERRED INCOME TAXES AND OTHER . . . . . . . . . . . . . . . . . . . . . . . . . 62,054 61,156
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
Issued 3,450 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,500 172,500
Common shares, no par value
Authorized 150,000 shares
Issued 91,841 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,175 7,175
Capital in excess of stated value . . . . . . . . . . . . . . . . . . . . . . 60,908 62,277
Translation of foreign currencies . . . . . . . . . . . . . . . . . . . . . . (46,252) (39,016)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,299 623,500
Treasury shares at cost (1994 -- 4,933 SHARES; 1993 -- 4,394 shares) . . . . (59,412) (38,072)
-----------------------
832,218 788,364
-----------------------
$1,835,053 $1,707,125
=======================
The Notes beginning on page 32 are an integral part of these financial
statements.
28
18
CONSOLIDATED STATEMENTS OF INCOME
Sonoco Products Company
YEARS ENDED DECEMBER 31
....................................
(Dollars and shares in thousands except per share) 1994 1993 1992
.............................................................................................................
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,300,127 $1,947,224 $1,838,026
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,803,427 1,525,671 1,451,252
Selling, general and
administrative expenses . . . . . . . . . . . . . . . . . . . . . . 252,307 209,309 189,823
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 35,861 31,154 30,364
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,398) (6,017) (6,416)
Unusual items . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,800) 42,000
------------------------------------
Income before income taxes and cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . 210,930 192,907 131,003
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,500 75,200 51,800
------------------------------------
Income before equity in earnings of affiliates and
cumulative effect of changes in accounting principles. . . . . . . 128,430 117,707 79,203
Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . 1,419 1,127 2,048
------------------------------------
Income before cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . 129,849 118,834 81,251
Cumulative effect of changes in accounting for postretirement
benefits (Note 14) and income taxes (Note 15) . . . . . . . . . . . (37,892)
------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,849 118,834 43,359
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . (7,763) (1,264)
------------------------------------
Net income available to common shareholders . . . . . . . . . . . . . $ 122,086 $ 117,570 $ 43,359
====================================
Per common share
Income before cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . $ 1.40 $ 1.35 $ .94
Cumulative effect of changes in accounting for postretirement
benefits and income taxes . . . . . . . . . . . . . . . . . . . . . (.44)
------------------------------------
Net income available to common shareholders . . . . . . . . . . . . . $ 1.40 $ 1.35 $ .50
====================================
Dividends -- common . . . . . . . . . . . . . . . . . . . . . . . . . $ .555 $ .53 $ .49
Average common shares outstanding . . . . . . . . . . . . . . . . . . 87,090 87,316 86,732
The Notes beginning on page 32 are an integral part of these financial
statements.
29
19
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Sonoco Products Company
COMMON SHARES PREFERRED CAPITAL IN TRANSLATION TREASURY
.................... STOCK EXCESS OF OF FOREIGN RETAINED SHARES
Dollars and shares in thousands except per share) OUTSTANDING AMOUNT AMOUNT STATED VALUE CURRENCIES EARNINGS AMOUNT
....................................................................................................................................
JANUARY 1, 1992 . . . . . . . . . . . . . . . . . . 86,490 $7,175 $ $54,821 $ (8,229) $551,347 $(42,808)
Net income . . . . . . . . . . . . . . . . . . . . 43,359
Dividends, $.49 per share . . . . . . . . . . . . (42,443)
Translation loss . . . . . . . . . . . . . . . . . (11,723)
Issuance of treasury shares under
Stock option plan . . . . . . . . . . . . . . 682 3,894 4,864
Employee stock ownership plan . . . . . . . . 224 2,893 1,854
Treasury shares acquired . . . . . . . . . . . . . (252) (3,114)
---------------------------------------------------------------------------
DECEMBER 31, 1992 . . . . . . . . . . . . . . . . . 87,144 7,175 61,608 (19,952) 552,263 (39,204)
Net income . . . . . . . . . . . . . . . . . . . . 118,834
Dividends
Preferred . . . . . . . . . . . . . . . . . . . (1,264)
Common, $.53 per share . . . . . . . . . . . . . (46,333)
Translation loss . . . . . . . . . . . . . . . . . (19,064)
Issuance of 3,450 preferred shares . . . . . . . . 172,500 (3,968)
Issuance of treasury shares under
Stock option plan . . . . . . . . . . . . . . . 208 1,388 1,493
Employee stock ownership plan . . . . . . . . . 235 3,249 2,001
Treasury shares acquired . . . . . . . . . . . . . (140) (2,362)
---------------------------------------------------------------------------
DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . 87,447 7,175 172,500 62,277 (39,016) 623,500 (38,072)
Net income . . . . . . . . . . . . . . . . . . . . 129,849
Dividends
Preferred . . . . . . . . . . . . . . . . . . . (7,763)
Common, $.555 per share . . . . . . . . . . . . (48,287)
Translation loss . . . . . . . . . . . . . . . . . (7,236)
Issuance of treasury shares
Under stock option plan . . . . . . . . . . . . . 327 (442) 3,748
Under employee stock ownership plan . . . . . . . 149 1,779 1,581
Other . . . . . . . . . . . . . . . . . . . . . 256 (2,706) 2,793
Treasury shares acquired . . . . . . . . . . . . . (1,271) (29,462)
---------------------------------------------------------------------------
DECEMBER 31, 1994 . . . . . . . . . . . . . . . . . 86,908 $7,175 $172,500 $60,908 $(46,252) $697,299 $(59,412)
===========================================================================
The Notes beginning on page 32 are an integral part of these financial
statements.
30
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
Sonoco Products Company
YEARS ENDED DECEMBER 31
..................................
Dollars in thousands 1994 1993 1992
...................................................................................................................
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,849 $ 118,834 $ 43,359
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 112,797 95,745 83,309
Cumulative effect of changes in accounting principles . . . . . . . . . . 37,892
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . 39,130
Loss on disposition of assets . . . . . . . . . . . . . . . . . . . . . . 2,901 836 2,941
Equity in earnings of affiliates, net of dividends . . . . . . . . . . . (917) (975) (1,893)
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,668 22,361 (13,619)
Gain on sale of investment in affiliate . . . . . . . . . . . . . . . . . (15,299)
Changes in assets and liabilities, net of effects from acquisitions,
dispositions and foreign currency adjustments
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (33,127) 860 (13,178)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,637) 5,545 (3,719)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563 (1,411) 831
Payables and taxes . . . . . . . . . . . . . . . . . . . . . . . . . 29,536 (45,881) (7,930)
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . (11,118) (17,771) (9,711)
----------------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 219,515 162,844 157,412
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . (126,746) (115,596) (109,305)
Cost of acquisitions, exclusive of cash . . . . . . . . . . . . . . . . . . . (30,370) (392,950) (34,964)
Proceeds from the sale of assets . . . . . . . . . . . . . . . . . . . . . . 5,533 42,467 6,626
Proceeds from collection of a note receivable . . . . . . . . . . . . . . . . 33,672
----------------------------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . (151,583) (432,407) (137,643)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . 96,838 662,800 168,072
Principal repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . (81,053) (523,817) (132,163)
Cash dividends - common and preferred . . . . . . . . . . . . . . . . . . . . (56,004) (46,333) (42,443)
Treasury shares acquired . . . . . . . . . . . . . . . . . . . . . . . . . . (29,462) (2,362) (3,114)
Treasury shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,334 2,428 7,781
Preferred shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,500
----------------------------------
Net cash (used) provided by financing activities . . . . . . . . . . . . . . (66,347) 265,216 (1,867)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . . . . . . . 1,001 (7,863) (8,456)
----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 2,586 (12,210) 9,446
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . 25,858 38,068 28,622
----------------------------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . $ 28,444 $ 25,858 $ 38,068
==================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,123 $ 31,504 $ 29,265
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,254 $ 75,374 $ 65,224
Excluded from the consolidated statements of cash flows is the effect of
certain non-cash activities. The Company assumed approximately $6,000 and
$75,000 of debt obligations in 1994 and 1993, respectively, in conjunction with
acquisitions.
The Notes beginning on page 32 are an integral part of these financial
statements.
31
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
The following notes are an integral part of the consolidated financial
statements. The accounting principles followed by the Company appear in bold
type.
1. PRINCIPLES OF CONSOLIDATION
................................................................................
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF SONOCO
PRODUCTS COMPANY AND ITS UNITED STATES AND INTERNATIONAL SUBSIDIARIES AFTER
ELIMINATION OF INTERCOMPANY ACCOUNTS AND TRANSACTIONS. INVESTMENTS IN
AFFILIATED COMPANIES IN WHICH THE COMPANY OWNS 20% TO 50% OF THE VOTING STOCK
ARE INCLUDED ON THE EQUITY METHOD OF ACCOUNTING.
2. ACQUISITIONS
................................................................................
During 1994, the Company completed several acquisitions with an
aggregate cost of approximately $30,000 and the assumption of $6,000 in debt.
The most notable was the purchase of M. Harland & Son Limited, a leading
producer of pressure-sensitive roll labels and roll label application equipment
headquartered in the United Kingdom. This acquisition was completed in May
1994 and is expected to add $33 million in sales annually. Subsequent to
December 31, 1994, the Company acquired the remaining 50% interest in the CMB
Sonoco joint venture. CMB Sonoco is a producer of composite cans with
manufacturing facilities in Manchester, U.K., and Lieven, France. Also,
subsequent to December 31, 1994, the Company signed an agreement with Hargro
Flexible Packaging Corporation to purchase its Edinburgh, Ind., flexible
packaging plant.
During 1993, the Company completed several acquisitions totaling
approximately $400,000. The Company acquired 100% of the outstanding stock of
Crellin Holding, Inc., and in October 1993, the Company acquired Engraph, Inc.,
for approximately $300,000. Debt assumed in connection with the 1993
acquisitions was approximately $75,000.
The Company has accounted for each of these acquisitions as a purchase
and, accordingly, has included their results of operations in consolidated net
income from the date of acquisition. The aggregate excess purchase price over
the fair value of assets purchased is being amortized over 40 years.
3. UNUSUAL ITEMS
................................................................................
Unusual items in 1993 include a gain from the early repayment of a
note issued in connection with the sale of Sonoco Graham in 1991. This gain
was partially offset by charges for refinancing debt related to the Engraph
acquisition and various other unusual items in 1993. The 1992 unusual items
represent restructuring charges, which are discussed more fully in Note 4.
4. RESTRUCTURING CHARGES
................................................................................
During the fourth quarter of 1992, the Company recorded a charge to
earnings for costs associated with the restructuring, closing, consolidating
and relocation of various plants, principally at foreign locations. The
restructuring reduced income before taxes, net income and earnings per share by
$42,000, $25,000 and $.29, respectively. At December 31, 1994, $10,923 of
restructuring reserve remained primarily to cover pension costs related to
terminated employees.
5. CASH AND CASH EQUIVALENTS
................................................................................
CASH EQUIVALENTS ARE COMPOSED OF HIGHLY LIQUID INVESTMENTS WITH AN
ORIGINAL MATURITY OF THREE MONTHS OR LESS.
At December 31, 1994 and 1993, $28,182 and $18,751, respectively, of
outstanding checks were included in Payables to suppliers.
6. INVENTORIES
................................................................................
INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET. The last-in,
first-out (LIFO) method was used to determine cost of approximately 43% of
total inventories in 1994 and 44% in 1993. The remaining inventories are
determined on the first-in, first-out (FIFO) method.
If the FIFO method of accounting had been used for all inventories,
the totals would have been higher by $9,961 in 1994 and $7,885 in 1993.
7. PROPERTY, PLANT AND EQUIPMENT
................................................................................
PLANT ASSETS REPRESENT THE ORIGINAL COST OF LAND, BUILDINGS AND
EQUIPMENT LESS DEPRECIATION COMPUTED UNDER THE STRAIGHT-LINE METHOD OVER THE
ESTIMATED USEFUL LIFE OF THE ASSET. Equipment lives range from 5 to 11 years,
buildings from 20 to 30 years.
TIMBER RESOURCES ARE STATED AT COST. DEPLETION IS CHARGED TO
OPERATIONS BASED ON THE NUMBER OF UNITS OF TIMBER CUT DURING THE YEAR.
Depreciation and depletion expense amounted to $99,767 in 1994,
$87,721 in 1993 and $79,455 in 1992.
Details of property, plant and equipment at December 31 are as follows:
1994 1993
.........................
Land . . . . . . . . . . . . . . $ 28,179 $ 25,694
Timber resources . . . . . . . . 31,699 25,349
Buildings . . . . . . . . . . . . 279,634 267,933
Machinery & equipment . . . . . . 1,009,024 935,247
Construction in progress . . . . 62,988 61,473
-------------------------
1,411,524 1,315,696
Accumulated depreciation
and depletion . . . . . . . . . (648,415) (578,542)
-------------------------
$ 763,109 $ 737,154
=========================
Estimated costs for completion of authorized capital additions under
construction totaled approximately $101,000 at December 31, 1994.
Certain operating properties and equipment are leased under
non-cancellable operating leases. Total rental expense under operating leases
was $28,000, $26,400, and $23,400 in 1994, 1993 and 1992, respectively. Future
minimum rentals under non-cancellable operating leases with terms of more than
one year are as follows: 1995 - $15,700; 1996 - $12,900; 1997 - $9,500; 1998 -
$8,100; 1999 - $6,700; 2000 and thereafter - $11,800.
32
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
8. COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
................................................................................
Goodwill arising from business acquisitions ($27,000 in 1994 and
$292,000 in 1993) is amortized on the straight-line basis over periods ranging
from 20 to 40 years. The Company evaluates, at each balance sheet date, the
realizability of goodwill for each subsidiary having a goodwill balance.
Amortization expense amounted to $13,030 in 1994; $8,024 in 1993 and $3,854 in
1992. Accumulated amortization at December 31, 1994 and 1993 was $34,336 and
$24,403, respectively.
9. INVESTMENT IN LIFE INSURANCE
................................................................................
Company-owned life insurance policies are recorded net of policy loans
in Other Assets. The net pretax cost of company-owned life insurance,
including interest expense, was $5,532 in 1994 and $1,949 in 1993 and is
included in Selling, General and Administrative expenses. The related interest
expense was $18,630 and $5,976 in 1994 and 1993, respectively. The pretax cost
of these life insurance programs was largely offset by the reduction in the
Company's effective tax rate.
10. DEBT
................................................................................
Debt at December 31 was as follows:
1994 1993
...............................
Commercial paper, average rate
of 4.2% in 1994 and 3.2% in 1993. . . . . . . . . . . $173,700 $146,500
9.2% notes due August 2021 . . . . . . . . . . . . . . 99,917 99,920
5.875% notes due November 2003. . . . . . . . . . . . . 99,405 99,339
5.49% notes due April 2000 . . . . . . . . . . . . . . 75,000 75,000
Foreign denominated debt, average
rate of 6.8% at December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . 70,304 70,618
Other notes . . . . . . . . . . . . . . . . . . . . . . 29,054 24,449
-------------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . 547,380 515,826
Less current portion and
short-term notes . . . . . . . . . . . . . . . . . . . 59,421 60,564
-------------------------------
Long-term debt . . . . . . . . . . . . . . . . . . . . $487,959 $455,262
===============================
The Company has authorized a commercial paper program totaling $250
million and has fully committed bank lines of credit supporting the program by
a like amount. These bank lines expire in 1998. Accordingly, commercial paper
borrowings are classified as long-term debt.
The approximate principal requirements of debt maturing in the next
five years are: 1995 - $59,400; 1996 - $3,400; 1997 - $2,900; 1998 - $2,100;
and 1999 - $2,200. It is management's intent to extend indefinitely the line
of credit agreements supporting the commercial paper program. Accordingly, no
principal repayments are projected through 1998.
Certain of the Company's debt agreements impose restrictions with
respect to the maintenance of financial ratios and the disposition of assets.
The most restrictive covenant currently requires that tangible net worth at the
end of each fiscal quarter be greater than $365,000.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes at
December 31, 1994, were approximately $64,300 with interest at mutually agreed
upon rates.
11. FINANCIAL INSTRUMENTS
................................................................................
The Company enters into currency swaps and foreign exchange forward
contracts to hedge a portion of the net investment in certain foreign
subsidiaries. Gains and losses on such contracts are recognized in the
cumulative translation adjustments account in Shareholders' Equity. As of
December 31, 1994 and 1993, the notional value of such contracts was
approximately $32,000. All financial instruments are executed with credit
worthy financial institutions; therefore, the Company considers the risk of
non-performance on these instruments to be remote.
The following table sets forth the carrying amounts and fair values of
the Company's significant financial instruments where the carrying amount
differs from the fair value. The carrying amount of cash and cash equivalents,
short-term debt and long-term variable rate debt approximates fair value. The
fair value of long-term debt is based on quoted market prices or by discounting
future cash flows using interest rates available to the Company for issues with
similar terms and average maturities. Foreign currency agreements are valued
based on termination values or quoted market prices of comparable instruments.
December 31, 1994 December 31, 1993
..................................................
Carrying Fair Carrying Fair
Amount Value Amount Value
......... ......... ......... .........
Long-term debt . . . . . . . . . . . . . . $(487,959) $(468,126) $(455,262) $(476,262)
Foreign currency
agreements . . . . . . . . . . . . . . . 1,309 1,309 512 512
12. STOCK PLANS
................................................................................
The Company has stock option plans under which common shares are
reserved for sale to certain employees. Options granted under the plans were
at the market value of the shares at the date of grant. Options are generally
exercisable one year after the date of grant, and expire 10 years after the
date of grant. At December 31, 1994, 1,710,440 shares were reserved for future
grants.
On October 20, 1994, the Board recommended, pending shareholder
approval, the granting of one-time awards of contingent shares to 13 of the
Company's executives. Three-hundred twenty thousand shares were granted under
this plan from shares allocated in the 1991 Key Employee Stock Plan.
Information with respect to the Company's stock option plans follows:
33
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
NOTE 12: STOCK PLANS - CONTINUED
OPTION OPTION
SHARES PRICE RANGE
...........................
1992
Outstanding at beginning of year . . . . . . 3,122,868 $5.02-$18.25
Granted . . . . . . . . . . . . . . . . . . 862,350 $18.75
Exercised . . . . . . . . . . . . . . . . . (683,234) $5.02-$17.63
Cancelled . . . . . . . . . . . . . . . . . (48,400) $10.50-$18.75
---------
Outstanding at end of year . . . . . . . . . 3,253,584 $5.02-$18.75
1993
Granted . . . . . . . . . . . . . . . . . . 957,300 $20.75-$24.13
Assumed - Engraph . . . . . . . . . . . . . 623,156 $3.73-$18.40
Exercised . . . . . . . . . . . . . . . . . (208,274) $5.02-$18.75
Cancelled . . . . . . . . . . . . . . . . . (5,900) $24.13
---------
Outstanding at end of year . . . . . . . . . 4,619,866 $3.73-$24.13
1994
Granted . . . . . . . . . . . . . . . . . . 894,210 $25.13
Exercised . . . . . . . . . . . . . . . . . (327,366) $3.73-$18.75
Cancelled . . . . . . . . . . . . . . . . . (34,846) $5.02-$25.13
---------
Outstanding at end of year . . . . . . . . . 5,151,864 $5.12-$25.13
=========
Options exercisable at December 31, 1994 . . 4,257,654
13. RETIREMENT BENEFIT PLANS
................................................................................
Non-contributory defined benefit pension plans cover substantially all
U.S. employees. Under the plans, retirement benefits are based either on both
years of service and compensation or on service only. IT IS THE COMPANY'S
POLICY TO FUND THESE PLANS, AT A MINIMUM, IN AMOUNTS REQUIRED UNDER ERISA.
Plan assets consist primarily of common stocks, bonds and real estate.
The Company also maintains a plan to supplement executive benefits
limited through qualified plans. Benefits are based on years of service and
compensation. The Plan is partially funded through a grantor trust as defined
under Section 671 of the Internal Revenue Service Code of 1986.
The Company's subsidiaries in the United Kingdom have contributory
pension plans covering about 75% of the groups' employees. The acquisition of
M. Harland and Son, Ltd. of the U.K. is included in 1994. Pension benefits are
based either on the employee's salary in the year of retirement or the average
of the final three years. THE FUNDING POLICY IS TO CONTRIBUTE ANNUALLY AT
ACTUARIALLY DETERMINED RATES THAT ARE INTENDED TO REMAIN A LEVEL PERCENTAGE OF
SALARY.
Net pension cost for the domestic and United Kingdom plans included
the following components:
COMBINED PLANS
...................................
1994 1993 1992
...................................
Service cost-benefits earned
during year . . . . . . . . . . . . . $ 13,716 $ 9,555 $ 9,074
Interest cost on projected
benefit obligation . . . . . . . . . . 27,160 23,881 22,196
Actual return on plan
assets . . . . . . . . . . . . . . . (1,205) (32,165) (19,510)
Net amortization and
deferral . . . . . . . . . . . . . . . (33,209) 2,031 (9,581)
-----------------------------------
$ 6,462 $ 3,302 $ 2,179
===================================
The following table sets forth the funded status of the plans at December 31:
OVER-FUNDED PLANS UNDER-FUNDED PLAN
.........................................
1994 1993 1994 1993
.........................................
Projected benefit obligation
Vested benefits . . . . . . . . . . $273,601 $271,733 $ $
Non-vested benefits . . . . . . . . 8,043 9,757 14,521 14,473
-----------------------------------------
Accumulated benefit
obligation . . . . . . . . . . . . 281,644 281,490 14,521 14,473
Effect of assumed increase
in compensation levels . . . . . . 45,523 35,768 2,442 1,369
-----------------------------------------
Projected benefit
obligation . . . . . . . . . . . . 327,167 317,258 16,963 15,842
Plan assets at fair value . . . . . . 365,802 341,669 12,965 12,502
-----------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation . . . . . . . . 38,635 24,411 (3,998) (3,340)
Unrecognized net loss . . . . . . . . 20,376 26,729 1,997 1,142
Unrecognized prior service
cost . . . . . . . . . . . . . . . 2,192 3,333 1,803 2,235
Unrecognized net transition
(asset) obligation . . . . . . . . (2,671) (6,150) 1,370 1,599
Adjustment required to
recognize minimum liability . . . . (2,728) (3,607)
-----------------------------------------
Prepaid (accrued) pension
cost . . . . . . . . . . . . . . . $ 58,532 $ 48,323 $ (1,556) $ (1,971)
=========================================
Prepaid pension costs of $8,188 and $7,011 were included in Prepaid
Expenses in 1994 and 1993, respectively. In addition, $50,344 and $41,312 were
included in Other Assets in 1994 and 1993, respectively.
The weighted-average discount rate used in determining the projected
benefit obligations was 8.5% for 1994, 7% for 1993, and 9% for 1992. The
assumed compensation increase was 5% in 1994, 4% in 1993 and 6% in 1992. The
expected long-term rate of return on assets was 9.5% for all years presented.
The Company's other international subsidiaries have pension plans
covering most of its employees. The cost for these plans is considered
immaterial.
The Company's Employee Savings and Stock Ownership Plan provides that
all eligible employees may contribute 1% to 16% of their gross pay to the Plan
subject to Internal Revenue Service regulations. The Company may make matching
contributions in an amount to be determined annually by the Company's Board of
Directors. The Company's contributions to the plan for 1994, 1993 and 1992,
were $5,600, $5,250 and $4,747, respectively.
14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
................................................................................
The Company provides health care and life benefits to the majority of
its United States retirees and their eligible dependents. The Company's
subsidiaries in Canada also provide postretirement benefits to eligible
retirees. In 1992, the Company adopted Statement of Financial Accounting
Standard 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). This standard requires accrual for postretirement benefits
other than pensions over an employee's career, rather than expensing these
costs when paid. The Company elected to immediately recognize the
34
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
cumulative effect of the change in accounting for postretirement benefits of
$93,500 pretax, or $58,000 after-tax, which represents the accumulated
postretirement benefit obligation (APBO) existing at January 1, 1992. THE
COMPANY FUNDS BENEFIT COSTS PRINCIPALLY ON A PAY-AS-YOU-GO BASIS, WITH THE
RETIREE PAYING A PORTION OF THE COSTS. In situations where full-time employees
retire from the Company between age 55 and age 65, most are eligible to
receive, at a cost to the retiree equal to the cost for an active employee,
certain health-care benefits identical to those available to active employees.
After attaining age 65, an eligible retiree's health-care benefit coverage
becomes coordinated with Medicare. For purposes of projecting future benefit
payments, early retiree contributions were assumed to increase at the
health-care cost trend.
Non-pension retirement benefit expense includes the following:
1994 1993 1992
.............................
Service cost-benefits
earned during year . . . . . . . . . . $ 5,180 $ 2,482 $ 2,283
Interest cost on APBO . . . . . . . . . . 7,110 8,196 8,239
Actual return on plan assets . . . . . . 459 (874) (304)
Net amortization and deferral . . . . . . (5,400) (189)
-----------------------------
Net periodic postretirement
benefit cost . . . . . . . . . . . . . $ 7,349 $ 9,615 $10,218
=============================
The following sets forth the accrued obligation included in the
accompanying December 31 balance sheet applicable to each employee group for
non-pension retirement benefits:
1994 1993
...................
Accumulated postretirement
benefit obligation:
Retired employees . . . . . . . . . . . . . . . . $50,008 $ 57,610
Active employees-fully eligible . . . . . . . . . 17,671 18,514
Active employees-not yet eligible . . . . . . . . 27,329 50,460
-------------------
Accumulated benefit obligation . . . . . . . . . . . 95,008 126,584
Plan assets at fair value . . . . . . . . . . . . . . 17,375 10,776
-------------------
Accumulated benefit obligation
greater than plan assets . . . . . . . . . . . . . 77,633 115,808
Unrecognized net loss from
changes in assumptions . . . . . . . . . . . . . . (9,552) (28,964)
Unrecognized prior service cost . . . . . . . . . . . 22,459 1,545
-------------------
Accrued postretirement
benefit cost . . . . . . . . . . . . . . . . . . . $90,540 $88,389
===================
Prepaid postretirement medical costs of $13,639 and $10,776 were
included in Other Assets in 1994 and 1993, respectively.
The discount rate used in determining the APBO was 8.5% in 1994, 7% in
1993 and 9% in 1992. Plan amendments related to the plan's credited service
period decreased the accumulated benefit obligation and correspondingly
increased prior service cost. The assumed health-care cost-trend rate used in
measuring the APBO was 11% in 1994 declining to 6.5% in the 2010. Increasing
the assumed trend rate for health-care costs by one percentage point would
result in an increase in the APBO of approximately $6,000 at December 31, 1994,
and an increase of $950 in the related 1994 expense. Plan assets are the
result of funding these benefit costs in amounts representing the maximum
allowable under Section 401(H) of the Internal Revenue Code. These assets are
combined with the pension plan assets and consist primarily of common stocks,
bonds and real estate. The expected long-term rate of return on assets was
9.5% for all years presented.
15. INCOME TAXES
................................................................................
The Company adopted Statement of Financial Accounting Standard 109,
"Accounting for Income Taxes" (FAS 109), effective January 1, 1992. The
cumulative effect, which was recorded in 1992, increased earnings by $20,100.
The provision (benefit) for taxes on income for the years ending
December 31 consists of the following:
1994 1993 1992
..............................
Pretax income
Domestic . . . . . . . . . $202,363 $189,122 $160,637
Foreign . . . . . . . . . . 8,567 3,785 (29,634)
------------------------------
Total pretax income . . . $210,930 $192,907 $131,003
==============================
Current
Federal . . . . . . . . . . $ 62,800 $ 43,998 $ 50,642
State . . . . . . . . . . . 10,074 7,320 8,731
Foreign . . . . . . . . . . 3,958 1,521 6,046
------------------------------
Total current . . . . . . 76,832 52,839 65,419
------------------------------
Deferred
Federal . . . . . . . . . . 4,263 14,005 (455)
State . . . . . . . . . . . 949 2,924 (96)
Foreign . . . . . . . . . . 456 5,432 (13,068)
------------------------------
Total deferred . . . . . 5,668 22,361 (13,619)
------------------------------
Total taxes . . . . . . . . . $ 82,500 $ 75,200 $ 51,800
==============================
Current deferred income tax expense (benefit) results from temporary
differences in the recognition of revenue and expense for tax and financial
statement purposes. The source of these differences and the tax effect of each
are as follows:
1994 1993 1992
...........................
Restructuring charge . . . $2,815 $ 8,711 $(15,065)
Sale of an affiliate . . . 6,409
Depreciation expense . . . 45 1,163 700
Benefit plan costs . . . . 3,125 7,379 2,643
Other items, net . . . . . (317) (1,301) (1,897)
---------------------------
Total deferred . . . . . $5,668 $22,361 $(13,619)
===========================
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
1994 1993*
....................
Depreciation . . . . . . . . . . . . . . . . . $ 70,751 $ 62,975
Employee benefits . . . . . . . . . . . . . . . 21,062 15,410
Other . . . . . . . . . . . . . . . . . . . . . 2,179 9,762
--------------------
Gross deferred tax liabilities . . . . . . . 93,992 88,147
--------------------
Restructuring . . . . . . . . . . . . . . . . . (4,193) (5,403)
Retiree health benefits . . . . . . . . . . . . (27,482) (23,910)
Foreign loss carry-forwards . . . . . . . . . . (11,231) (8,011)
Capital loss carry-forwards . . . . . . . . . . (6,830) (6,785)
Employee benefits . . . . . . . . . . . . . . . (13,026) (11,494)
Other . . . . . . . . . . . . . . . . . . . . . (7,199) (7,303)
--------------------
Gross deferred tax assets . . . . . . . . . . (69,961) (62,906)
Valuation allowance on deferred tax assets . . 11,231 8,011
--------------------
Total deferred taxes, net . . . . . . . . . . $ 35,262 $ 33,252
====================
* Certain amounts have been restated to conform to the current year's
presentation.
The net change in the valuation allowance for deferred tax assets in
1994 is a net increase of $3,220. The change relates to current net operating
losses of certain foreign subsidiaries for which their use is limited to future
taxable earnings. A net decrease in the valuation
35
25
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
NOTE 15: INCOME TAXES - CONTINUED
allowance of $980 in 1993 resulted from the disposal of a European entity; this
decrease was partially offset by the inclusion of current net operating losses
from various foreign subsidiaries.
Approximately $30,300 of foreign subsidiary net operating loss
carry-forwards remain at December 31, 1994. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carry-forwards approximately $19,900 have no expiration date. The remaining
loss carry-forwards expire at various dates in the future.
1994 1993 1992
.....................................................
Statutory tax rate . . . . . . . $73,825 35.0% $67,517 35.0% $44,587 34.0%
State income taxes, net of
federal tax benefit . . . . . . 7,087 3.3 7,039 3.6 4,983 3.8
Net effect of foreign income
at lower rates and foreign
losses with no tax benefit . . 2,479 1.2 2,155 1.1 2,360 1.8
Goodwill . . . . . . . . . . . . 3,777 1.8 1,694 .9 524 .4
Company-owned life insurance . . (5,091) (2.4) (1,570) (.8)
Other, net . . . . . . . . . . . 423 .2 (1,635) (.8) (654) (.5)
-----------------------------------------------------
Total taxes . . . . . . . . . . $82,500 39.1% $75,200 39.0% $51,800 39.5%
=====================================================
Undistributed earnings of international subsidiaries totaled $42,973
at December 31, 1994. There have been no United States income taxes provided
on the undistributed earnings since the Company considered these earnings to be
indefinitely reinvested to finance international growth and expansion. If such
amounts were remitted, loaned to the Company or the stock in the foreign
subsidiaries sold, these earnings could become subject to tax; however, the
Company believes United States foreign tax credits would substantially
eliminate any taxes due.
16. COMMITMENTS AND CONTINGENCIES
................................................................................
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. As is the case
with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings. In 1994, a suit was filed
against the Company in the U.S. District Court for the District of
Massachusetts for alleged patent infringement involving grocery bag packs. The
suit also seeks to have a patent involving plastic bag loading systems owned by
the Company declared invalid. The Company believes this lawsuit is without
merit. The Company will vigorously defend its position and expects to prevail.
The Company has been named as a potentially responsible party at
several environmentally contaminated sites primarily located in the Northeast
owned by third parties. These sites represent the Company's largest potential
environmental liabilities. As of December 31, 1994, the Company has $4,400
accrued for these contingencies. This compares with $3,100 accrued as of
December 31, 1993. Due to the complexity of determining clean-up costs
associated with the sites, a reliable estimate of the ultimate cost to the
Company cannot be determined; however, costs will be accrued as necessary once
reasonable estimates are determined.
Although the level of future expenditures for legal and environmental
matters is impossible to determine with any degree of probability, it is
management's opinion that such costs, when finally determined, will not have a
material adverse effect on the consolidated financial position of the Company.
17. INTERNATIONAL OPERATIONS
................................................................................
The operating profit, net assets and dividends received by the Company
from operations outside the United States are as follows:
1994 1993
...................
Operating profit . . . . . $ 15,675 $ 11,923
Net assets . . . . . . . . 245,423 185,723
Dividends . . . . . . . . . 194 2,087
The aggregate foreign currency transaction gain/loss recognized in net income
was immaterial for 1994, 1993 and 1992.
Information regarding the Company's significant foreign geographic
area in Europe is as follows:
1994 1993 1992*
..............................
Sales to unaffiliated customers . . . . $184,247 $180,044 $226,127
Operating loss . . . . . . . . . . . . (2,085) (890) (20,325)
Total assets . . . . . . . . . . . . . 215,981 171,073 222,164
*Restructuring costs of $28,200 are included in 1992 results.
18. SHAREHOLDERS' EQUITY
................................................................................
In 1993, the Company issued 3,450,000 shares of $2.25 Series A
Cumulative Convertible Preferred Stock for $172,500, or $50.00 per share. These
securities are convertible into the Company's common stock at a price of $25.31
per share. This stock is redeemable at the option of the Company, on or after
November 8, 1996, at a redemption price of $51.575 per share and decreasing
ratably annually to $50 per share on or after November 1, 2003. Dividends on
the Convertible Preferred Stock, which are paid quarterly, accrue and are
cumulative from the date of original issuance.
Fully diluted earnings per share is not presented as it approximates
primary earnings per share.
36
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
FINANCIAL REPORTING FOR BUSINESS SEGMENTS
(Years ended December 31)
The Financial Reporting for Business Segments should be read in conjunction
with the Management's Discussion and Analysis (which describes the segments in
detail) appearing on pages 21-25. Sonoco changed the segmental reporting in
1994 by combining the Miscellaneous segment with the Converted Products
segment. Prior years' information has been restated to reflect this change.
CONVERTED
(Dollars in thousands) PRODUCTS PAPER INTERNATIONAL CORPORATE CONSOLIDATED
....................................................................................................................................
TOTAL REVENUE
1994 .............................. $1,771,441 $330,982 $438,383 $2,540,806
1993 .............................. 1,466,486 278,904 406,914 2,152,304
1992 .............................. 1,311,935 282,583 447,029 2,041,547
INTERSEGMENT SALES(1)
1994 .............................. $ 29,970 $203,569 $ 7,140 $ 240,679
1993 .............................. 28,615 173,640 2,825 205,080
1992 .............................. 25,612 175,629 2,280 203,521
SALES TO UNAFFILIATED CUSTOMERS
1994 .............................. $1,741,471 $127,413 $431,243 $2,300,127
1993 .............................. 1,437,871 105,264 404,089 1,947,224
1992 .............................. 1,286,323 106,954 444,749 1,838,026
OPERATING PROFIT(2)
1994 .............................. $ 188,517 $ 64,495 $ 15,675 $(57,757) $ 210,930
1993 .............................. 157,426 57,867 11,923 (34,309) 192,907
1992 .............................. 117,906 65,437 (12,398) (39,942) 131,003
IDENTIFIABLE ASSETS(3)
1994 .............................. $1,056,341 $157,408 $405,604 $215,700 $1,835,053
1993 .............................. 1,018,056 140,406 349,144 199,519 1,707,125
1992 .............................. 529,319 130,486 390,644 196,082 1,246,531
DEPRECIATION, DEPLETION AND AMORTIZATION
1994 .............................. $ 69,076 $ 14,471 $ 23,161 $ 6,089 $ 112,797
1993 .............................. 51,360 12,974 26,135 5,276 95,745
1992 .............................. 42,467 12,746 23,897 4,199 83,309
CAPITAL EXPENDITURES
1994 .............................. $ 77,275 $ 18,874 $ 27,727 $ 2,870 $ 126,746
1993 .............................. 46,969 20,450 41,209 6,968 115,596
1992 .............................. 39,283 15,581 48,317 6,124 109,305
(1)Intersegment sales are recorded at a market-related transfer price.
(2)Interest income, interest expense and unallocated corporate expenses are
excluded from the operating profits by segment and are shown under
Corporate. In addition, 1993 Corporate operating profit includes $5,800 for
unusual items, as described in Note 3 to the Consolidated Financial
Statements.
(3)Identifiable assets are those assets used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, investments
in affiliates, headquarters facility and prepaid expenses. Identifiable
assets in the Converted Products segment more than doubled in 1993 as a
result of the acquisitions.
See Note 4 to the Consolidated Financial Statements regarding restructuring
charges in 1992. These costs have been allocated to the appropriate segments.
37
27
SHAREHOLDERS' INFORMATION
[FIGURE 19]
WHEN IT COMES TO POWDERED BEVERAGE PACKAGING, Sonoco's composite canisters are
durable, resealable, stackable and have great shelf appeal. Tim Grooms, with
Winn Dixie, stocks the powdered beverage section with a variety of composite
cans from Sonoco.
[FIGURE 20]
NEW LASER CODING LABEL TECHNOLOGY WAS JOINTLY DEVELOPED FOR BAUSCH & LOMB(R) by
Sonoco's Engraph Label Group and a face stock supplier.
CORPORATE OFFICES
North Second Street
Hartsville, SC 29550
(803) 383-7000
Fax: (803) 339-6078
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 3400
Charlotte, NC 28202
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
LEGAL COUNSEL
Sinkler & Boyd, P.A.
P.O. Box 11889
Columbia, SC 29211
SHAREHOLDER RELATIONS
Sonoco Products Company
Treasurer - B01
P.O. Box 160
Hartsville, SC 29551
(803) 383-7277
CORPORATE COMMUNICATION
Sonoco Products Company
Corporate Communication - A09
P.O. Box 160
Hartsville, SC 29551
(803) 383-7437
ANNUAL MEETING OF SONOCO SHAREHOLDERS
The annual meeting of shareholders will be held at the Center Theater on Fifth
Street in Hartsville, S.C. at 11 a.m., Wednesday, April 19, 1995.
COMMON STOCK
Sonoco common stock is traded in the New York Stock Exchange, Symbol: SON. The
change from the NASDAQ National Market was made in March 1995.
FORM 10-K AVAILABLE
A copy of the Company's annual report filed with the Securities and Exchange
Commission on Form 10-K may be obtained by shareholders without charge after
April 1, 1995, by writing to:
Sonoco Products Company
Treasurer - B01
P.O. Box 160
Hartsville, SC 29551
DIVIDEND REINVESTMENT
A dividend reinvestment plan is available to registered Sonoco shareholders.
For more information write to:
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
DIRECT DEPOSIT OF DIVIDENDS
Sonoco shareholders may request automatic deposit of cash dividends to
checking, savings or money market accounts that participate in the Automatic
Clearinghouse System. If you would like this service, please contact:
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
SHARE ACCOUNT INFORMATION
Shareholders with inquiries concerning their accounts may call Wachovia Bank of
North Carolina, N.A. on their toll-free line. The number is 1-800-633-4236.
[FIGURE 21]
DIVIDENDS DECLARED - COMMON
THE SONOCO DIVIDEND WAS INCREASED from $.135 to $.14 beginning in the second
quarter of 1994. Dividends are increased as earnings justify.
[FIGURE 22]
MARKET VS. BOOK VALUE PER COMMON SHARE
THE BOOK VALUE PER COMMON SHARE INCREASED TO $7.59 in 1994, compared with $7.04
in 1993.
[FIGURE 23]
MARKET PRICE OF STOCK AT YEAR END
THE MARKET PRICE OF THE COMPANY'S STOCK WAS $21.88 at the end of 1994.