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EXHIBIT 13
COMPARATIVE HIGHLIGHTS (UNAUDITED) SONOCO
Years ended December 31
--------------------------
%
1996 1995 Inc.(Dec.)
---- ---- ----------
(Dollars in thousands except per share)
Net sales $2,788,075 $2,706,173 3.0%
Gross profit 639,970 599,186 6.8%
Net income available to common shareholders 163,675 156,756 4.4%
Return on common equity 21.1% 22.2% (5.0%)
Return on total equity (including
preferred stock) 18.3% 18.7% (2.1%)
Return on net sales 6.1% 6.1% -
Approximate number of employees 19,000 19,000 -
Approximate number of locations 290 270 7.4%
Per common share
- - ----------------
Net income available to common shareholders:
- Assuming no dilution $ 1.81 $ 1.72 5.2%
- Assuming full dilution 1.73 1.64 5.5%
Cash dividends .65 .58 12.1%
Ending common stock market price 25.88 26.25 (1.4%)
Book value per common share 8.91 8.19 8.8%
Price/earnings ratio 14.96 16.01 (6.6%)
SELECTED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(Dollars in thousands except per share)
1996
Net sales $669,231 $ 689,855 $ 703,422 $725,567
Gross profit 156,357 167,634 157,946 158,033
Net income available to
common shareholders 41,307 44,814 38,073 39,481
Per common share
- - ----------------
Net income available to
common shareholders:
- Assuming no dilution $ .45 $ .50 $ .42 $ .44
- Assuming full dilution .43 .47 .41 .42
Cash dividends .15 .165 .165 .165
Market price - high 28.88 29.25 30.88 28.13
- low 25.75 26.00 27.13 24.88
1995
Net sales $645,142 $ 691,726 $ 686,998 $682,307
Gross profit 140,339 151,007 149,948 157,892
Net income available to
common shareholders 35,596 42,172 38,699 40,289
Per common share
Net income available to
common shareholders:
- Assuming no dilution $ .39 $ .46 $ .43 $ .44
- Assuming full dilution .37 .44 .41 .42
Cash dividends .133 .15 .15 .15
Market price - high 23.21 25.25 28.50 28.75
- low 19.11 22.74 24.50 23.75
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CHART CAPTIONS:
Net Sales (billions $) Net sales increased 3% in 1996 to $2.79 billion.
Net Income Available to Common Shareholders (million $) Net Income increased
4.4% in 1996. Adjusted to exclude restructuring charges and cumulative effect
of accounting changes in 1992.
Earnings Per Share (Fully Diluted) ($) Earnings per share improved 5.5% over
1995. Adjusted to exclude restructuring charges and cumulative effect of
accounting changes in 1992.
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MANAGEMENT'S DISCUSSION & ANALYSIS
STATEMENTS INCLUDED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS THAT ARE NOT HISTORICAL IN NATURE, ARE
INTENDED TO BE, AND ARE HEREBY IDENTIFIED AS "FORWARD LOOKING STATEMENTS" FOR
PURPOSES OF THE SAFE HARBOR PROVIDED BY SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. THE COMPANY CAUTIONS READERS THAT FORWARD LOOKING
STATEMENTS, INCLUDING WITHOUT LIMITATION THOSE RELATING TO THE COMPANY'S FUTURE
BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL, LIQUIDITY, CAPITAL NEEDS,
INTEREST COSTS, AND INCOME, ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE
FORWARD LOOKING STATEMENTS.
RESULTS OF OPERATIONS 1996 - 1995
To better understand the results of operations for 1996 and the outlook for
1997, it is necessary to review the economic cycle that began in 1994.
Raw material cost increases, the magnitude of which was unprecedented in
the Company's history, began in 1994 and continued into the third quarter of
1995. Industrial production posted large gains during the same period, and
selling prices of commodity paperboard grades roughly doubled. While production
of commodity paperboard grades is a relatively small part of the Company's
paperboard production (less than 20%), the magnitude of the price increases did
have a noticeable effect on profits in 1995. As quickly as raw material costs
and commodity paperboard prices rose, they fell in the second half of 1995 and
continued to decline in 1996.
Selling prices for the Company's converted industrial packaging products
were increased to pass through the higher raw material costs. Likewise, when
these costs declined, the selling prices were lowered to reflect the decreases.
Although the market has increasingly stabilized over this period, there have
been modest further reductions in converted product prices.
The third and fourth quarters of 1995 benefited from higher selling prices
as the raw material costs decline preceded selling price reductions. This
resulted in difficult earnings comparisons in the third and fourth quarters of
1996 where earnings were flat compared with the prior year.
The first two quarters of 1997 are also expected to be impacted by this
price/cost comparison that may result in flat-to-slightly-down earnings
comparisons for those quarters. Once this aberrant price/cost comparison
abates, the Company expects improved earnings trends in the second half of
1997, more in line with targeted growth objectives. Over the entire two-year
cycle, earnings have increased at the upper end of growth objectives.
Another major factor resulting in the flat second half performance in
1996, which will also impact the first half of 1997, relates to shortfalls in
several newer businesses and international start-ups. These businesses include
labels, flexibles, and start-ups in China and Brazil. Labels and flexibles were
restructured during the second half of 1996, resulting in substantial costs to
refocus the businesses. The start-ups likewise incurred costs to consolidate
operations and reduce headcount. While the Company expects improvements in
these operations in 1997, the most significant impact will likely occur in the
second half of 1997.
Consolidated net sales for 1996 were $2.79 billion, a 3% increase,
compared with $2.71 billion in 1995. The increase in sales resulted from volume
increases across nearly all businesses. In addition, acquisitions added
approximately $110 million in sales. However, selling price decreases, which
resulted from raw material cost decreases, reduced 1996 sales by approximately
$120 million in comparison with 1995.
Gross profit margins improved to 23% from 22.1% reported in 1995. The
margin improvement reflects the reductions in raw material costs, improved
productivity from strong volume gains and the benefits from increased capital
expenditures made to support Vision 2000 plans. As we enter 1997 with prices
stabilizing, margins as a percentage of sales should return to slightly lower,
more traditional levels.
Selling, general and administrative costs increased to 11.1% of sales in
1996, compared with 10.7% in 1995. The increase was primarily due to additional
costs incurred in connection with acquisitions, start-up costs and plant
consolidations. In addition, the lower sales dollars resulting from the
significant drop in prices during 1996 impacted the selling, general and
administrative costs as a percentage of sales.
CHART CAPTION: Net Sales by Segment (millions $) 1996 sales were reduced by
lower selling prices, primarily in the industrial packaging segment. Both
segments experienced strong volume and increased sales from acquisitions in
1996.
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Net income for 1996 was $163.7 million, or $1.73 per share, assuming full
dilution, a 5.5% increase in earnings per share over the $156.8 million, or
$1.64 per share for 1995. The per share numbers reflect full dilution assuming
the conversion of all outstanding preferred shares issued to finance the 1993
acquisition of Engraph and the assumed exercise of all outstanding stock
options. In the second half of 1996, the Company announced a stock repurchase
program and bought 3.44 million common share equivalents at an average cost of
$28 per share. Included in the repurchase were approximately 556,000 shares of
preferred stock. At year end, 2.4 million preferred shares remained
outstanding.
Due to the average shares outstanding calculation, only one-half of the
repurchased shares were reflected in 1996. Interest expense on borrowings to
fund the repurchase offset the reduction in shares outstanding, thus there was
no impact on reported earnings per share. In 1997, the shares repurchased will
lower outstanding shares for the entire year, generating a positive earnings
per share impact of approximately $.03 per share.
Capital expenditures in 1996 increased to $232 million, compared with
$181.4 million in 1995. This increased spending included projects to expand
capacity, improve productivity and introduce new technology in many business
units. This increased capital investment is part of the Vision 2000 strategy to
grow largely through internal expansion rather than through acquisitions. The
result of this strategy is expected to be higher returns on invested capital,
quicker realization of those returns and lower risk when compared with larger,
strategic acquisition alternatives. The Company still expects to continue to
make smaller tactical acquisitions that complement existing businesses.
Acquisition spending totaled $94.2 million in 1996. In the United States,
acquisitions included a manufacturer of roll-wrap materials, a core plug
producer, a tube and core manufacturer, a composite can and tube manufacturer
and two small reel operations. In Germany, the Company acquired two composite
can operations. In Brazil, the Company purchased a converting operation. The
Company also entered into joint venture agreements in China, Canada and Greece
to manufacture tubes and cores; in Puerto Rico to produce labels and inserts;
and in Indonesia to produce tubes, cores and composite cans.
Research and development costs charged to expense were $17.5 million for
1996, compared with $12.7 million in 1995. This increase represents Sonoco's
commitment to maintain a competitive advantage through technology leadership in
its businesses. Aggressive research and development spending in 1996 is
reflected in the successful commercialization of numerous new tube products in
the industrial segment as well as new consumer packaging such as the composite
coffee can and a rectangular-shaped can for dry beverage mix.
The Company's effective tax rate in 1996 was 38.4%, compared with 39.4% in
1995. Tax benefits from company-owned life insurance, additional tax credits
from higher research and development spending, and lower state taxes all
contributed to a reduction in the 1996 effective tax rate.
SEGMENT REPORTING. Sonoco changed its segment reporting in the second
quarter of 1996. Results are now reported in two segments, industrial packaging
and consumer packaging. The new reporting is intended to be more in line with
the way the Company reports its internal results and to more appropriately
reflect the integration of its paper and converting operations. International
operations are reflected in the appropriate segment based on the products
produced or markets served. Operating profits for international operations
increased approximately 20% in 1996. Operating profit is revenue less operating
costs, excluding interest and income taxes.
INDUSTRIAL PACKAGING. The industrial packaging segment consists of the
following businesses: the global industrial converted products and paper
operations, industrial containers, injection molded and extruded plastics,
protective packaging, partitions, wire and cable packaging, adhesives and
converting machinery operations.
The industrial packaging segment represents approximately 56% of the
Company's sales. Trade sales in this segment were $1.56 billion in 1996, a
decrease of 1.5% from the $1.58 billion in 1995. Sales declined in the
industrial segment due entirely to lower selling prices in response to the
falling raw material costs experienced in late 1995. The lower selling prices
reduced sales in this segment by approximately $100 million. Acquisitions,
which added approximately $60 million to sales, and strong volume nearly offset
the selling price decline.
Operating profit for this segment was $202.9 million, or 3.6% ahead of the
$195.9 million in 1995. Strong volume, lower raw material costs and higher
productivity from capital expenditures more than offset the significant selling
price decreases in 1996. Profits were impacted by continued investment in
Process Excellence, a top-to-bottom look at the North American tube, core, cone
and paper operations. Significant progress was made on the various initiatives
in this program. When Process Excellence is fully implemented by the end of the
year 2000, we expect to have annualized benefits of at least $50 million.
CHART CAPTION: Identifiable Assets by Segment (millions $) Identifiable assets
increased in 1996 in both segments due to base business growth and
acquisitions.
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The Process Excellence internal supply chain initiative resulted in the
closing of nine tube and core operations, and the transferring of that business
to 20 other locations. The plant closings were on schedule, but the integration
of production at the expanded plants took longer and cost more than expected.
In addition, start-up costs for a joint venture in China and consolidation
costs in Brazil impacted operating profits in this segment in 1996.
In our global tube and core business, volume increased in 1996 in
virtually all markets served around the world. In addition, the acquisition of
Hamilton Hybar, Inc., which produces roll wrap materials, and Moldwood Products
Company, which produces moldwood core plugs, added to sales in this segment.
Lower pricing resulting from lower raw material costs partially offset the
sales gains from volume increases and acquisitions. Our European paper and tube
business experienced record performance, while our tube and core business was
also strong in Canada and Mexico. Similar to the United States, selling prices
were down in comparison to 1995; however, lower raw material costs lessened the
impact of lower prices.
Our paper operations include the Company's 26 paper mills, 39 paper
machines and a network of 46 paper collection facilities around the world.
Sonoco also operates one corrugating medium paper machine, located in
Hartsville, S.C., in partnership with Georgia-Pacific Corporation. The annual
capacity of this machine is 186,000 tons, which is sold by contract to
Georgia-Pacific.
Sonoco's global paper operation has a capacity of approximately 1.5
million tons per year of cylinder board production. Approximately 85% of the
board produced by Sonoco is sold to other Sonoco operations to be converted
into paperboard packaging.
A major area of sales decline in the industrial packaging segment was in
the paper operations. In comparison to 1995, recovered paper, corrugating
medium and linerboard prices were all significantly lower in 1996. Lower
selling prices on commodity grades of paperboard such as linerboard and
corrugating medium reduced profits in our paper operations by approximately $20
million in 1996. Volume gains from external sales of paperboard and lower raw
material costs mitigated the impact of the lower selling prices in the paper
operations. During the past year, Sonoco has increased papermaking capacity by
adding paper mills in Brazil and China.
The Company's industrial container business experienced volume increases
in its intermediate bulk containers business but was unable to offset the
continuing market shift in demand from fibre drums to plastic drums and bulk
containers. This operation added a new plant for plastic drums in 1996 that
increased capacity, but start-up costs negatively impacted operating profit for
the year.
Sonoco's injection molded and extruded plastics businesses had a strong
year in 1996 due to increased volume in plastic cores, tubes and reels. In
addition, this operation continued to benefit from strong sales to the
automotive industry.
The protective packaging business experienced volume gains in its corner
posts and engineered cushion fibre operations. This operation dramatically
improved its corner posts in 1996 using unique proprietary technology. The wire
and cable business added two small acquisitions at the beginning of the year
and continued their strong operating performance. Sonoco's partitions business
experienced lower volume in 1996 due to a major customer filing bankruptcy and
the closing of a plant in Canada. In 1997, Sonoco signed a letter of intent
with Rock-Tenn Corporation to combine the partitions operations of both
companies into a joint venture. Sonoco will own 35% of this joint venture
pending regulatory approval.
Capital spending in this segment during 1996 was $163.5 million, compared
with $108.6 million in 1995. Spending in this segment in 1996 included several
plant expansions in the tube and core operations. These expansions were part of
the Process Excellence supply chain initiative. The Hartsville Master Plan,
which will be completed in 1997, included projects to expand capacity of
several paper machines and the installation of a new fluidized-bed, multi-fuel
burning boiler. In addition, several international paper mills were upgraded
during 1996. Spending in this segment also included upgrades to the Company's
information technology systems.
CONSUMER PACKAGING SEGMENT. The consumer packaging segment consists of the
following businesses: composite can operations, flexible packaging, capseals
liners, high density film products, labels, and printed packaging.
Overall trade sales in the consumer packaging segment were $1.23 billion in
1996, compared with $1.13 billion in 1995, an increase of 9.3%. Lower selling
prices reduced sales by approximately $20 million in 1996. Strong volume in the
composite can and high density film businesses, and acquisitions adding
approximately $50 million in sales, more than offset the lower prices.
CHART CAPTION: Operating Income by Segment (millions $) Operating profit
increased in both segments in 1996.
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Operating profits in this segment increased 10.9% to $126.4 million in
1996, compared with $114 million in 1995. While most of the businesses in this
segment reported strong performances, profits were impacted by reorganization
and start-up costs in the label and flexible packaging operations.
Volume continued to be strong in the composite can operations,
particularly in the food and beverage markets. The Company benefited from sales
of new products such as the rectangular composite can for Lipton iced tea mixes
and the single-serve snack can for Pringles(r) potato snacks. In addition,
sales in Europe increased with the acquisition of two composite can
manufacturers in Germany as well as the opening of a new plant in Belgium. The
composite can business was also strong in Mexico, the United Kingdom and
Venezuela.
Capseals, which is located in England, continued its strong export sales
to more than 70 countries around the world. This operation is running at full
capacity due to expanded business from new products.
The Company's high density film products operation continued to produce at
full capacity. Sales in this operation were impacted by higher resin costs late
in the year, but strong productivity and volume gains led to profit
improvement.
The screen print operations obtained in the 1993 acquisition of Engraph,
Inc. showed strong sales and profit performance throughout 1996. Subsequent to
year-end, this business, which accounted for approximately $60 million in
annual sales, was sold because this product line did not fit with Sonoco's
packaging portfolio.
At the end of 1996, Sonoco sold its plastic tennis ball container facility
in Greenville, S.C. Although profitable, this operation did not offer growth
potential for the Company.
Sonoco experienced higher than expected reorganization and start-up costs
with its label, paperboard carton and flexible packaging businesses in 1996.
While the October 1995 acquisition of Cricket Converters accounted for the
sales increase in the label business, earnings lagged behind expectations. A
major reorganization of the label operations from a series of independent
companies into one operating unit was ongoing throughout 1996. The flexible
packaging operations were slowed by start-up problems with new presses, as well
as a major reorganization, which caused declines in efficiency. The Company
expects to overcome these challenges during 1997 with significant improvement
in these operations, particularly in the second half of the year.
Capital spending in the consumer segment was $68.5 million in 1996,
compared with $72.8 million in 1995. Spending in 1996 included new composite
can manufacturing plants in Londerzeel, Belgium, and Jackson, Tenn., and the
relocation of the plastic caulk cartridge operation to Winchester, Ky. In
addition, the Company added six new presses to the Sonoco Engraph businesses
and expanded capacity at the North Vernon, Ind., plastic sack manufacturing
operation.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Sonoco's financial position remained strong in 1996. At December 31, 1996, the
Company's long-term debt was rated A by Standard & Poor's (S&P) and A2 by
Moody's. Commercial paper was rated A1 and P1 by S&P and Moody's, respectively.
Cash provided by operations was $291.8 million in 1996, compared with
$254.6 million in 1995 and $219.5 million in 1994. The 1996 increase was
primarily due to higher earnings before depreciation and amortization expense.
Cash provided by operations was higher in 1995 than in 1994 as a result of
higher net income. Earnings before interest and taxes were 6.0 times interest
expense in 1996, compared with 7.2 times in 1995 and 6.9 times in 1994.
Net working capital increased to $262.5 million at December 31, 1996, from
$229.3 million in 1995 and $222.1 million in 1994. The current ratio was 1.6 at
December 31, 1996 and 1994, and 1.5 at December 31, 1995. Current assets and
current liabilities increased in 1996 as a result of base business growth and
acquisitions. Current assets increased in 1995 largely as a result of business
growth, selling price increases implemented during 1995 and an increase in cash
from industrial revenue bonds. Current liabilities increased in 1995 primarily
as a result of higher notes payable due to increased use of short-term bank
lines to finance international operations. Taxes payable increased in 1995 as a
result of higher profitability levels.
Debt increased $206.3 million to $893.1 million at December 31, 1996,
primarily due to the repurchase of $123 million in common and preferred stock,
increased capital spending as part of Vision 2000 and funding acquisitions of
$94.2 million. Debt increased $139.4 million to $686.8 million at December 31,
1995, primarily due to funding acquisitions of $107.2 million, as well as
increased capital spending and an increase in cash and cash equivalents.
Capital spending was $232 million in 1996, compared with $181.4 million in 1995
and $126.7 million in 1994.
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In April 1996, the Company issued $35 million of 6% Industrial Revenue
Bonds due April 1, 2026, following an issue in June 1995 of $35.1 million of
6.125% Industrial Revenue Bonds due June 1, 2025. As of December 31, 1996 and
1995, cash and cash equivalents included $32.6 million and $30.9 million,
respectively, of proceeds from these issues held in trust until qualifying
expenditures take place. In November 1995, the Company issued $100 million of
6.75% Debentures due November 1, 2010, in order to lengthen the maturities of
the Company's indebtedness. The net proceeds from this issue were used to
reduce outstanding commercial paper obligations.
During 1996, the Company increased its authorized commercial paper program
from $300 million to $450 million and increased the fully committed bank lines
of credit supporting the program by a like amount. These lines expire in August
2001. The Company expects internally generated cash flow along with borrowing
capacity under existing credit facilities to be sufficient to meet operating
and normal capital expenditure requirements. Capital spending and tactical
acquisitions are expected to be approximately $250 million in 1997. In order to
maintain financial flexibility, the Company has registered for sale up to $250
million of debt securities under a shelf registration with the Securities and
Exchange Commission.
Interest expense in 1996 was $55 million, compared with $44 million in
1995, the result of the higher borrowing levels. Shareholders' equity was
$920.6 million at December 31, 1996, as record earnings of $170.9 million were
offset by the repurchase of $89.2 million of the Company's common stock and
$33.4 million of preferred stock and the payment of $65.7 million in common and
preferred dividends. In 1995, shareholders' equity increased $86.5 million to
$918.7 million at December 31, 1995, as $164.5 million in earnings were reduced
by $60.9 million in common and preferred cash dividends and the repurchase of
$18.7 million of the Company's stock.
In April 1996, the Board of Directors increased the dividend payable to
common shareholders to $.165 per share. In April 1995, the Board of Directors
declared a 5% common stock dividend and increased the dividend to $.15 from the
$.13 paid since the second quarter of 1994. Although the ultimate determination
whether to pay dividends is within the sole discretion of the Board of
Directors, the Company plans to increase dividends as earnings grow. The return
on common equity was 21.1% in 1996, compared with 22.2% in 1995 and 19.1% in
1994. Return on total equity was 18.3% in 1996, compared with 18.7% in 1995 and
16% in 1994. The book value per common share was $8.91 in 1996, compared with
$8.19 in 1995 and $7.23 in 1994.
The Company's debt to total capital ratio increased to 47.2% at December
31, 1996, compared with 39.6% and 38.1% at December 31, 1995 and 1994,
respectively. The 1996 and 1995 ratios have been adjusted to reduce debt by the
amount of cash held related to the issuance of restricted-purpose bonds. The
increase in 1996 is attributable to the share repurchases previously described.
The Company expects to reduce the debt to total capital ratio to 40% by the end
of 1998 without jeopardizing Vision 2000 growth plans by spreading capital
expenditures more evenly over the period. The Company has sold its screen
printing operations and will use the proceeds from this transaction to reduce
debt.
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 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.
Use of these financial instruments was not material to the financial statements
as a whole as of December 31, 1996, 1995 or 1994.
Except for the impact of raw material prices, as discussed in the segment
information, inflation did not have a material impact on the Company's
operations in 1996, 1995 or 1994.
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 located primarily in the northeastern United States and
owned by third parties. These sites are believed to represent the Company's
largest potential environmental liabilities. The Company has accrued
approximately $4 million as of December 31, 1996, with respect to these sites.
Further details are provided in the Notes to the Consolidated Financial
Statements.
CHART CAPTION: Capital Spending by Segment (millions $) The increase in
capital spending during 1996 is part of the Company's Vision 2000 strategy to
grow largely through internal growth.
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RESULTS OF OPERATIONS 1995 - 1994
Consolidated net sales for 1995 were $2.71 billion, a 17.7 % increase, compared
with $2.3 billion in 1994. A major portion of the sales increase in 1995
resulted from selling price increases to recover unprecedented volatility in
raw material costs.
Gross profit margins improved to 22.1 % from the 21.6 % reported in 1994.
The margin increase reflected a combination of selling price and raw material
cost volatility during 1995. In the early part of the year, costs for primary
raw materials, such as recovered paper, plastic resins, aluminum and steel were
extremely high, resulting in price increases where possible. Later in the year,
there were selected price decreases to reflect the falling costs of some raw
materials. On balance, Sonoco was able to improve overall gross margin
percentages slightly. In addition, productivity improvements resulting from
capital expenditures in many operations and technology enhancements were
factors in the gross margin improvement.
Selling, general and administrative costs included consulting and other
costs associated with Process Excellence, the major business redesign effort in
the global industrial products and paper operations. These costs totalled $10
million in 1995, or approximately $.06 per share, assuming full dilution.
Net income for 1995 was $156.8 million, or $1.64 per share, assuming full
dilution, a 25.2% increase in earnings per share over the $122.1 million, or
$1.31 per share for 1994.
Capital expenditures in 1995 increased to $181.4 million, compared with
$126.7 million in 1994. This increased spending included projects to expand
capacity and introduce new technology in many business units.
Acquisition spending totaled $107 million in 1995. Acquisitions included a
label producer in New Jersey, a paper mill and three converting operations in
Brazil, a flexible packaging operation, geographic expansion of paper recovery
operations and additional operations in Europe.
Research and development costs charged to expense were $12.7 million for
1995, compared with $12.1 million in 1994. The pressure-sensitive label and
flexible packaging businesses were two areas with additional research and
development spending in 1995. The Company's effective tax rate in 1995 was
39.4%, compared with 39.1% in 1994. Tax benefits from the company-owned life
insurance program are included in the tax rates for both years.
SEGMENT REPORTING. Sonoco changed its segment reporting in 1996 to reflect
two segments: industrial packaging and consumer packaging. All amounts have
been restated to reflect this change in reporting.
INDUSTRIAL PACKAGING SEGMENT. Trade sales in this segment were $1.58
billion in 1995, compared with $1.34 billion in 1994, an increase of 17.6%. The
increase in sales was due to selling price increases that resulted from
increased material costs.
The overall operating profit for the industrial packaging segment was
$195.9 million in 1995, compared with $142.9 million in 1994, an increase of
37.1%. Although consulting fees from the Company's Process Excellence
initiative reduced 1995 profits, selling price increases early in 1995 and the
falling material prices late in the year improved overall performance in this
segment. Business was also strong in the Company's international industrial
packaging business in 1995.
Sales were up in the industrial container operation in 1995 primarily due
to increased selling prices resulting from higher material costs. The molded
and extruded plastics operation increased sales slightly in 1995 while profits
declined due to an inability to recover cost increases for plastic resins.
Capital spending in this segment rose to $108.6 million in 1995, compared
with $84.8 million in 1994. This increase included spending on the major
project to upgrade capacity, quality and energy generation in certain
Hartsville, S.C., facilities and productivity improvement projects at four
paper mills elsewhere in the United States.
CONSUMER PACKAGING SEGMENT. Trade sales in this segment were $1.13 billion
in 1995, compared with $1 billion in 1994, an increase of 17.7%. This increase
results from volume gains in all businesses, selling price increases and
several acquisitions.
Overall operating profit for the consumer segment was $114 million in
1995, compared with $101.5 million in 1994, an increase of 12.3%.
Sales and profits increased in the composite can operation during 1995 as
a result of volume gains and selling price increases implemented due to rising
materials costs. This operation also implemented several projects in 1995 that
resulted in significant productivity gains. The acquisition of the remaining
50% interest of the CMB/Sonoco joint venture for producing composite cans in
Europe also added to sales and profits in this segment.
High density film products had sales gains in all markets during 1995.
Price increases were implemented to recover increases in the cost of plastic
resins and ink, and this business improved productivity in 1995 by installing
new machinery.
Sales and earnings continued to grow in the label and insert business.
During the fourth quarter of 1995, Sonoco acquired Cricket Converters, a label
producer in New Jersey, and began consolidation of its label businesses.
Sales in the flexible packaging business continued to grow in 1995 due to
volume increases and the acquisition of the Edinburgh, Ind., plant from Hargo,
Inc., early in 1995.
Capital spending rose to $72.8 million in 1995 from $41.9 million in 1994.
Much of this spending was to add equipment and additional facilities.
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CONSOLIDATED BALANCE SHEETS SONOCO
December 31
(Dollars and shares in thousands) 1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 71,260 $ 61,624
Trade accounts receivable, net of allowances of $7,630 in 1996 and $6,330 in 1995 329,963 314,207
Other receivables 38,240 17,074
Inventories
Finished and in process 123,224 103,073
Materials and supplies 137,236 128,403
Prepaid expenses 26,121 21,277
Deferred income taxes 11,605 16,125
---------- ----------
737,649 661,783
PROPERTY, PLANT AND EQUIPMENT, NET 995,415 865,629
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 455,567 411,343
OTHER ASSETS 198,909 176,658
---------- ----------
$2,387,540 $2,115,413
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 205,741 $ 149,512
Accrued expenses and other 111,804 105,750
Accrued wages and other compensation 29,428 30,885
Notes payable and current portion of long-term debt 102,062 94,898
Taxes on income 26,081 51,410
---------- ----------
475,116 432,455
LONG-TERM DEBT 791,026 591,894
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 107,265 103,898
DEFERRED INCOME TAXES AND OTHER 93,520 68,417
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
2,395 shares issued and outstanding as of December 31, 1996 119,756 172,500
Common shares, no par value
Authorized 150,000 shares
89,864 shares issued and outstanding as of December 31, 1996 7,175 7,175
Capital in excess of stated value 50,378 100,318*
Translation of foreign currencies (56,572) (55,925)
Retained earnings 799,876 694,681
---------- ----------
Total shareholders' equity 920,613 918,749
---------- ----------
$2,387,540 $2,115,413
========== ==========
Capital in excess of stated value restated to include treasury stock, which was
eliminated in 1996 to conform with South Carolina state law.
The Notes beginning on page 37 are an integral part of these financial
statements.
33
10
CONSOLIDATED STATEMENTS OF INCOME SONOCO
YEARS ENDED DECEMBER 31
----------------------------------
1996 1995 1994
(Dollars and shares in thousands except per share data)
Net sales $2,788,075 $2,706,173 $2,300,127
Cost of sales 2,148,105 2,106,987 1,803,427
Selling, general and administrative expenses 310,605 289,297 252,307
----------------------------------
Income before interest and taxes 329,365 309,889 244,393
Interest expense 55,481 44,004 35,861
Interest income (6,191) (4,905) (2,398)
----------------------------------
Income before income taxes 280,075 270,790 210,930
Provision for income taxes 107,433 106,640 82,500
----------------------------------
Income before equity in earnings of affiliates 172,642 164,150 128,430
Equity in earnings of affiliates (1,771) 369 1,419
----------------------------------
Net income 170,871 164,519 129,849
Preferred dividends (7,196) (7,763) (7,763)
----------------------------------
Net income available to common shareholders $ 163,675 $ 156,756 $ 122,086
==================================
Per common share
- - ----------------
Net income available to common shareholders:
Assuming no dilution $ 1.81 $ 1.72 $ 1.34
Assuming full dilution $ 1.73 $ 1.64 $ 1.31
Cash dividends $ .65 $ .58 $ .53
Average common shares outstanding:
Assuming no dilution 90,513 91,139 91,445
Assuming full dilution 98,652 100,386 99,473
The Notes beginning on page 37 are an integral part of these financial
statements.
CHART CAPTION: Cash Dividends Declared - Common (millions $) The Sonoco
quarterly dividend was increased from $.15 to $.165 per share beginning in the
second quarter of 1996. Dividends are increased as earnings justify.
CHART CAPTION: Long-Term Debt (millions $) Long-term debt increased $199.1
million to $791 million in 1996, primarily to fund acquisitions, internal
expansion and stock repurchases.
CHART CAPTION: Market vs Book Value Per Common Share ($) The market price of
the Company's stock was $25.88 per share at the end of 1996. The book value per
common share increased to $8.91 in 1996, compared with $8.19 in 1995.
34
11
SONOCO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars and shares in thousands except per share data)
CAPITAL IN TRANSLATION
COMMON SHARES PREFERRED SHARES EXCESS OF OF FOREIGN RETAINED
OUTSTANDING AMOUNT OUTSTANDING AMOUNT STATED VALUE CURRENCIES EARNINGS
----------- ------ ----------- ------ ------------ ---------- --------
JANUARY 1, 1994 91,819 $7,175 3,450 $172,500 $24,205 $(39,016) $623,500
Net income 129,849
Cash dividends:
Preferred (7,763)
Common, $.53 per share (48,287)
Translation loss (7,236)
Issuance of shares under
Stock option plan 344 3,306
Employee stock
ownership plan 156 3,360
Shares repurchased (1,335) (29,462)
Other 270 87
--------------------------------------------------------------------------
DECEMBER 31, 1994 91,254 7,175 3,450 172,500 1,496 (46,252) 697,299
Net income 164,519
Cash dividends:
Preferred (7,763)
Common, $.58 per share (53,145)
5% common stock dividend 106,213 (106,229)
Translation loss (9,673)
Issuance of shares under
Stock option plan 561 11,870
Shares repurchased (824) (18,657)
Other 126 (604)
--------------------------------------------------------------------------
December 31, 1995 91,117 7,175 3,450 172,500 100,318 (55,925) 694,681
Net income 170,871
Cash dividends:
Preferred (7,196)
Common, $.65 per share (58,480)
Translation loss (647)
Issuance of shares under
Stock option plan 913 15,914
Preferred stock conversions 1,035 (499) (24,942) 24,942
Shares repurchased
Preferred (556) (27,802) (5,588)
Common (3,201) (89,205)
Other 3,997
--------------------------------------------------------------------------
DECEMBER 31, 1996 89,864 $7,175 2,395 $119,756 $50,378 $ (56,572) $799,876
==========================================================================
Capital in excess of stated value restated to include treasury stock, which was
eliminated in 1996 to conform with South Carolina state law.
The Notes beginning on page 37 are an integral part of these financial
statements.
35
12
CONSOLIDATED STATEMENTS OF CASH FLOWS SONOCO
YEARS ENDED DECEMBER 31
-------------------------------
(Dollars and shares in thousands) 1996 1995 1994
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $170,871 $164,519 $129,849
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 142,927 125,836 112,797
Equity in earnings of affiliates 1,771 (369) (1,419)
(Gain)loss on disposition of assets (1,892) 157 2,901
Deferred taxes 9,972 (5,347) 5,668
Changes in assets and liabilities, net of
effects from acquisitions, dispositions
and foreign currency adjustments
Accounts receivable (29,789) (31,778) (33,127)
Inventories (20,434) (12,931) (17,637)
Prepaid expenses (4,748) 8,319 1,563
Payables and taxes 25,196 27,313 29,536
Other assets and liabilities (2,098) (21,169) (10,616)
--------- --------- ---------
Net cash provided by operating activities 291,776 254,550 219,515
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (231,986) (181,432) (126,746)
Cost of acquisitions, exclusive of cash (94,212) (107,156) (30,370)
Proceeds from the sale of assets 15,216 4,557 5,533
--------- --------- ---------
Net cash used by investing activities (310,982) (284,031) (151,583)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 72,812 221,551 27,865
Principal repayment of debt (46,772) (46,307) (39,280)
Net increase(decrease) in commercial paper borrowings 173,891 (39,200) 27,200
Cash dividends - common and preferred (65,676) (60,908) (56,004)
Common and preferred shares acquired (122,595) (18,657) (29,462)
Common shares issued 17,177 8,370 3,334
--------- --------- ---------
Net cash provided (used) by financing activities 28,837 64,849 (66,347)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 5 (2,188) 1,001
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 9,636 33,180 2,586
Cash and cash equivalents at beginning of year 61,624 28,444 25,858
--------- --------- ---------
Cash and cash equivalents at end of year $ 71,260 $ 61,624 $ 28,444
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 50,671 $ 41,851 $ 37,123
Income taxes paid $ 115,920 $ 75,635 $ 61,254
Excluded from the Consolidated Statements of Cash Flows is the effect of
certain non-cash activities. On June 9, 1995, the Company issued a 5% common
stock dividend ($106,213 fair value). Debt obligations assumed by the Company
in conjunction with acquisitions were approximately $11,600 in 1996, $19,000 in
1995 and $6,000 in 1994.
Prior years' data have been reclassified to conform to the current year
presentation.
The Notes beginning on page 37 are an integral part of these financial
statements.
36
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
(Dollars in thousands except per share data)
The following notes are an integral part of the consolidated financial
statements. The accounting principles followed by the Company appear in bold
type.
1 - BASIS OF PRESENTATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF SONOCO AND ITS
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.
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNT OF ASSETS AND LIABILITIES AT THE
DATE OF THE FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND
EXPENSES DURING THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE
ESTIMATES.
2 - ACQUISITIONS/DISPOSITIONS
Sonoco completed several acquisitions during 1996 with an aggregate cost of
approximately $94,200 and the assumption of $11,600 in debt. During the first
quarter, the Company finalized the Sonoco Hongwen joint venture to produce
paperboard in Shanghai, China, and initiated a joint venture in Indonesia that
will manufacture composite cans, tubes and cores. In February 1996, the Company
acquired Moldwood Products Company of York, Ala., formerly owned by Gulf States
Paper Corporation. Moldwood Products is a producer of moldwood plugs for the
paper industry with annual sales of approximately $12 million. The Company also
added two operations to its wire and cable packaging operations, the Baker
Reels Division.
During the second quarter of 1996, the Company acquired Hamilton Hybar,
Inc., of Richmond, Va., a leading supplier of vapor barrier packaging materials
to the paper industry, with annual sales of approximately $32 million.
During the third quarter of 1996, the Company finalized the acquisition of
Specialty Packaging Group, Inc., a niche producer of composite cans, specialty
lines of metal closures, and tubes and cores with annual sales of approximately
$38 million. The Company also acquired two of Germany's leading paperboard can
manufacturers, Dosen Schmitt of Mayen and Buck Verpackungen GmbH of
Freilassing, with combined annual sales of approximately $15 million.
During the fourth quarter of 1996, the Company acquired Stonington
Corporation of Westfield, Mass. Stonington is a manufacturer of tubes and
cores, specializing in short-run, high-value tubes with annual sales of
approximately $9 million.
Sonoco completed several acquisitions during 1995 which were strategically
important to both United States and international operations. The aggregate
cost of these acquisitions was approximately $107,000 in cash and the
assumption of $19,000 in debt.
The Company has accounted for all of its acquisitions as purchases and,
accordingly, has included their results of operations in consolidated net
income from the date of acquisition. The pro forma impact of these acquisitions
in each year was not material.
In December 1996, Sonoco completed the sale of its tennis ball container
manufacturing operation, located in Greenville, S.C.
Subsequent to year end, the Company signed a letter of intent to form a
joint venture with the Rock-Tenn Company, combining their fibre partitions
businesses into a joint venture company called RTS Packaging, owned 35% by
Sonoco and 65% by Rock-Tenn, with combined annual sales of approximately $150
million. This transaction is awaiting regulatory approval. In addition, the
Company sold its screen printing operations, acquired in the 1993 acquisition
of Engraph, Inc., because this product line did not fit with the Company's
packaging portfolio.
3 - CASH AND CASH EQUIVALENTS
CASH EQUIVALENTS ARE COMPOSED OF HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL
MATURITY OF THREE MONTHS OR LESS AND ARE RECORDED AT MARKET.
At December 31, 1996 and 1995, outstanding checks of $32,867 and $19,808,
respectively, were included in Payable to suppliers.
At December 31, 1996 and 1995, $32,590 and $30,892, respectively, of cash
and cash equivalents represented proceeds from the issuance of the 6% and
6.125% Industrial Revenue Bonds (IRBs) and were restricted to funding qualified
expenditures as provided for by the IRBs.
4 - INVENTORIES
INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET. The last-in, first-out
(LIFO) method was used to determine costs of approximately 38% of total
inventories in both 1996 and 1995. 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 $12,043 in 1996 and $12,084 in 1995.
37
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
(Dollars in thousands except per share data)
5 - 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 five 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 $125,167 in 1996, $110,706
in 1995 and $99,767 in 1994.
Details of property, plant and equipment at December 31 are as follows:
1996 1995
---- ----
Land $ 33,603 $ 35,733
Timber resources 32,822 32,529
Buildings 304,406 302,383
Machinery & equipment 1,326,069 1,131,503
Construction in progress 155,929 107,099
--------- ---------
1,852,829 1,609,247
Accumulated depreciation
and depletion (857,414) (743,618)
--------- ---------
$ 995,415 $ 865,629
========= =========
Estimated costs for completion of authorized capital additions under
construction totaled approximately $124,500 at December 31, 1996.
Certain operating properties and equipment are leased under non-cancelable
operating leases. Total rental expense under operating leases was $37,000,
$31,000 and $28,000 in 1996, 1995 and 1994, respectively. Future minimum
rentals under non-cancelable operating leases with terms of more than one year
are as follows: 1997 - $13,800, 1998 - $11,200, 1999 - $7,600, 2000 - $6,000,
2001 - $5,000, and 2002 and thereafter - $21,500.
6 - COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
GOODWILL ARISING FROM BUSINESS ACQUISITIONS ($56,000 in 1996 and $64,000 in
1995) IS AMORTIZED ON THE STRAIGHT-LINE BASIS OVER PERIODS RANGING FROM 15 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 $17,760 in 1996, $15,130 in 1995 and $13,030 in 1994.
Accumulated amortization at December 31, 1996 and 1995 was $57,361 and $45,346,
respectively.
7 - INVESTMENT IN LIFE INSURANCE
Company-owned life insurance (COLI) policies are used by the Company to aid in
the financing of employee benefits and are recorded net of policy loans in
Other Assets. The net pretax cost of COLI, including interest expense, was
$9,303 in 1996, $9,171 in 1995 and $5,532 in 1994 and is included in selling,
general and administrative expenses. The related interest expense was $39,921
in 1996, $34,634 in 1995 and $18,630 in 1994. Legislation was enacted in 1996
that will phase out the tax deductibility of this interest.
38
15
8 - DEBT
Debt at December 31 was as follows:
1996 1995
---- ----
Commercial paper, average rate
of 5.4% in 1996 and 5.9% in 1995 $308,391 $134,500
9.2% notes due August 2021 99,928 99,926
6.75% debentures due November 2010 99,804 99,790
5.875% notes due November 2003 99,538 99,471
5.49% notes due April 2000 75,000 75,000
6.125% IRBs due June 2025 34,463 34,439
6.0% IRBs due April 2026 34,075
Foreign denominated debt, average
rate of 7.7% at December 31, 1996
and 6.6% at December 31, 1995 102,954 108,970
Other notes 38,935 34,696
-------- --------
Total debt 893,088 686,792
Less current portion and
short-term notes 102,062 94,898
-------- --------
Long-term debt $791,026 $591,894
======== ========
The Company has authorized a commercial paper program totaling $450 million and
has fully committed bank lines of credit supporting the program by a like
amount. These bank lines expire in the year 2001. Accordingly, commercial paper
borrowings are classified as long-term debt. As of December 31, 1996, the
Company has registered debt securities of $250 million under shelf
registrations with the Securities Exchange Commission.
The approximate principal requirements of debt maturing in the next five
years are: 1997 - $102,100, 1998 - $3,100, 1999 - $3,300, 2000 - $78,600 and
2001 - $3,800. It is management's intent to extend indefinitely the line of
credit agreements supporting the commercial paper program.
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 net worth at the
end of each fiscal quarter be greater than $815 million increased by 50% of net
income and decreased by stock purchases after September 1996.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes
at December 31, 1996, were approximately $94,700 with interest at mutually
agreed-upon rates.
9 - 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, 1996 and 1995,
the notional value of such contracts was approximately $30,000 and
$38,000, respectively. 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, 1996 DECEMBER 31, 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
OF ASSET OF ASSET OF ASSET OF ASSET
(LIABILITY) (LIABILITY) (LIABILITY) (LIABILITY)
Long-term debt $(791,026) $(800,195) $(591,894) $(622,695)
Foreign currency
agreements (708) (708) (2,690) (2,690)
16
10 - 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. There
were 3,131,840 shares reserved for future grants at December 31, 1996.
In 1996, shareholders approved the adoption of the 1996 Non-Employee
Director's Stock Plan. This plan provides for the granting of options to
non-employee directors beginning with 2,000 options per participant granted in
1996. In 1994, the Company granted one-time awards of contingent shares to 13
of the Company's executives. Three hundred and thirty-six 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:
OPTION OPTION
SHARES PRICE RANGE
1994
----
Outstanding at beginning
of year 4,850,859 $ 3.55-$22.98
Granted 1,274,920 $ 0.00-$23.93
Exercised (343,734) $ 3.55-$17.86
Canceled (36,588) $ 4.78-$23.93
---------
Outstanding at end of year 5,745,457 $ 0.00-$23.93
1995
----
Granted 1,083,060 $19.88-$23.57
Exercised (560,664) $ 5.09-$23.93
Canceled (32,921) $ 5.09-$23.93
---------
Outstanding at end of year 6,234,932 $ 0.00-$23.93
1996
Granted 1,186,320 $27.00-$28.50
Exercised (952,462) $ 5.18-$27.00
Canceled (36,437) $10.00-$27.00
---------
Outstanding at end of year 6,432,353 $ 0.00-$28.50
Options exercisable at =========
December 31, 1996 4,947,533
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards 123, "Accounting for Stock-Based Compensation" (FAS 123). As
permitted by FAS 123, the Company has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for options granted under the plans. Had compensation cost
for the Company's plans been determined consistent with the fair market value
provisions of FAS 123, the Company's net income and net income per common share
for 1996 and 1995 would have been reduced as indicated below:
1996 1995
---- ----
Net income - as reported $170,871 $164,519
Net income - pro forma 167,551 161,566
Earnings per share - as reported 1.73 1.64
Earnings per share - pro forma 1.70 1.61
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
1996 1995
---- ----
Expected dividend yield 2.3% 2.3%
Expected stock price volatility 15.0% 15.0%
Risk-free interest rate 5.3% 7.6%
Expected life of options 5 years 5 years
39
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
11 - RETIREMENT BENEFIT PLANS
Non-contributory defined benefit pension plans cover substantially all United
States 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 sponsors contributory pension plans covering substantially all
of the employees in the United Kingdom and Canada. 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. It is the Company's intent to maintain well-funded plans.
Net pension cost for the domestic, United Kingdom and Canadian plans include
the following components:
Combined Plans
-----------------------------------
1996 1995 1994
---- ---- ----
Service cost during year $ 14,266 $ 12,532 $ 13,716
Interest cost on projected
benefit obligation 35,065 32,537 27,160
Actual return on plan
assets (69,085) (81,926) (1,205)
Net amortization and
deferral 24,733 45,007 (33,209)
-------- -------- --------
$ 4,979 $ 8,150 $ 6,462
======== ======== ========
The following table sets forth the funded status of the plans at December 31:
Over-Funded Under-Funded
Plan Plan
---------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Projected benefit obligation
Vested benefits $382,440 $366,805 $ $
Non-vested benefits 11,025 10,241 25,598 19,332
Accumulated benefit
obligation 393,465 377,046 25,598 19,332
Effect of assumed increase
in compensation levels 46,179 47,203 2,847 1,345
------------------------------------------------
Projected benefit
obligation 439,644 424,249 28,445 20,677
Plan assets at fair value 517,777 461,270 8,113 14,234
------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 78,133 37,021 (20,332) (6,443)
Unrecognized
net loss 3,451 43,583 6,054 5,094
Unrecognized prior
service cost 5,312 3,039 4,415 1,735
Unrecognized net transition
(asset) obligation (8,195) (9,207) 914 1,142
Adjustment required to
recognize minimum liability (8,537) (6,625)
------------------------------------------------
Prepaid (accrued) pension
cost $ 78,701 $ 74,436 $(17,486) $ (5,097)
================================================
Prepaid pension costs of $4,212 and $5,737 were included in prepaid
expenses in 1996 and 1995, respectively. In addition $74,489 and $68,699 were
included in Other Assets in 1996 and 1995, respectively. Assets in the
under-funded plan were reduced by loans made against the insurance policies
held as plan assets.
The weighted-average discount rate used in determining the projected
benefit obligations was 7.75% in 1996, 7.25% in 1995 and 8.5% in 1994. The
assumed compensation increase was 4.25% in 1996, 4% in 1995 and 5% in 1994. The
expected long-term rate of return on assets was 9.5% for all years presented.
18
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 1996, 1995 and 1994,
were $5,750, $5,570 and $5,380, respectively.
12 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance 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. THE COMPANY ACCRUES FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
OVER AN EMPLOYEE'S CAREER. Benefit costs are funded 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:
1996 1995 1994
------ ------ ------
Service cost during year $4,548 $3,749 $5,180
Interest cost on APBO 8,735 8,673 7,110
Actual return on plan assets (3,954) (5,441) 459
Net amortization and deferral (2,025) (312) (5,400)
------ ------ ------
Net periodic postretirement benefit cost $7,304 $6,669 $7,349
====== ====== ======
40
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
(Dollars in thousands except per share data)
The following sets forth the accrued obligation included in the
accompanying December 31 Consolidated Balance Sheets applicable to each
employee group for non-pension postretirement benefits:
1996 1995
--------- ---------
Accumulated postretirement
benefit obligation (APBO):
Retired employees $ 70,187 $ 69,627
Active employees-fully eligible 21,653 21,489
Active employees-not yet eligible 24,477 26,128
--------- ---------
Accumulated benefit obligation 116,317 117,244
Plan assets at fair value 29,770 25,816
--------- ---------
Plan assets less than accumulated
benefit obligation (86,547) (91,428)
Unrecognized net loss from
changes in assumptions 19,963 22,766
Unrecognized prior service cost (19,080) (17,980)
--------- ---------
Accrued postretirement benefit cost $ (85,664) $ (86,642)
========= =========
Prepaid postretirement medical costs of $21,644 and $17,256 were included
in Other Assets in 1996 and 1995, respectively. The discount rate used in
determining the APBO was 7.75% in 1996, 7.25% in 1995 and 8.5% in 1994. The
assumed health care cost trend rate used in measuring the APBO was 9.75% in
1996 and declining to 5.25% in the year 2005. Increasing the assumed trend rate
for health care costs by one percentage point would result in an increase in
the APBO of approximately $5,400 at December 31, 1996, and an increase of $770
in the related 1996 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.
13 - INCOME TAXES
The provision (benefit) for taxes on income for the years ending December 31
consists of the following:
1996 1995 1994
---- ---- ----
Pretax income
Domestic $ 234,029 $ 233,125 $ 202,363
Foreign 46,046 37,665 8,567
--------- --------- ----------
Total pretax income $ 280,075 $ 270,790 $ 210,930
========= ========= ==========
Current
Federal $ 74,166 $ 86,611 $ 62,800
State 10,238 13,533 10,074
Foreign 13,057 11,843 3,958
--------- --------- ----------
Total current $ 97,461 $ 111,987 $ 76,832
========= ========= ==========
Deferred
Federal $ 5,466 $ (6,065) $ 4,263
State 758 (866) 949
Foreign 3,748 1,584 456
--------- --------- ----------
Total deferred 9,972 (5,347) 5,668
--------- --------- ----------
Total taxes $ 107,433 $ 106,640 $ 82,500
========= ========= ==========
Deferred income tax (benefit) expense results from temporary differences in the
recognition of revenue and expense for tax and financial statement purposes.
The sources of these differences and the tax effect of each are as follows:
1996 1995 1994
---- ---- ----
Restructuring charge $ 1,665 $ 1,034 $ 2,815
Depreciation expense 2,777 (2,884) 45
Benefit plan costs (2,158) (1,282) 3,125
Other items, net 7,688 (2,215) (317)
-------- ------- -------
Total deferred $ 9,972 $(5,347) $ 5,668
======== ======= =======
20
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
1996 1995
---- ----
Depreciation $ 70,916 $ 67,872
Employee benefits 25,920 26,182
Other 4,798 970
--------- ---------
Gross deferred tax liabilities 101,634 95,024
--------- ---------
Restructuring (1,689) (3,354)
Retiree health benefits (32,825) (31,550)
Foreign loss carryforwards (10,329) (10,960)
Capital loss carryforwards (4,320) (6,047)
Employee benefits (15,829) (15,382)
Other (6,221) (8,024)
--------- ---------
Gross deferred tax assets (71,213) (75,317)
Valuation allowance on deferred
tax assets 10,329 10,960
--------- ---------
Total deferred taxes, net $ 40,750 $ 30,667
========= =========
The net change in the valuation allowance for deferred tax assets is a net
decrease of $631 in 1996, compared with a net decrease of $271 in 1995. The
change relates to utilization of current net operating losses of certain
foreign subsidiaries and the addition to the reserve for current net operating
losses for which their use is limited to future taxable earnings.
Approximately $28,500 of foreign subsidiary net operating loss
carryforwards remain at December 31, 1996. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carryforwards, approximately $22,200 have no expiration date. The remaining
loss carryforwards expire at various dates in the future.
A reconciliation of the United States federal statutory tax rate to the
actual consolidated tax expense is as follows:
41
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
(Dollars in thousands except per share data)
1996 1995 1994
---- ---- ----
Statutory tax rate $ 98,026 35.0% $ 94,776 35.0% $73,825 35.0%
State income taxes, net of federal tax benefit 6,879 2.5 8,560 3.2 7,087 3.3
Goodwill 3,624 1.3 3,556 1.3 3,777 1.8
Other, net (1,096) (.4) (252) (.1) (2,189) (1.0)
--------------------------------------------------
Total taxes $107,433 38.4% $106,640 39.4% $82,500 39.1%
==================================================
The Internal Revenue Service has examined the Company's federal income tax
returns for all years through 1992. The Company believes that it has made
adequate provision for income taxes that may become payable with respect to
open years.
Undistributed earnings of international subsidiaries totaled $74,670 at
December 31, 1996. There have been no United States income taxes provided on
the undistributed earnings since the Company considers 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.
14 - 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 United States District Court for the District of
Massachusetts for alleged patent infringement involving grocery bag packs. The
suit also sought to have a patent involving plastic bag loading systems owned
by the Company declared invalid. This suit was dismissed in May 1996.
The Company has been named as a potentially responsible party at several
environmentally contaminated sites, located primarily in the northeastern
United States, owned by third parties. These sites represent the Company's
largest potential environmental liabilities. The Company has approximately
$4,000 accrued for these contingencies as of December 31, 1996 and 1995. 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.
Furthermore, all of the sites are also the responsibility of other parties. The
Company's liability, if any, is shared with such other parties, but the
Company's share has not been finally determined in most cases. In some cases,
the Company has cost-sharing agreements with other potentially responsible
parties with respect to a particular site. Such agreements relate to the
sharing of legal defense costs or clean-up costs, or both. The Company has
assumed, for purposes of estimating amounts to be accrued, that the other
parties to such cost sharing agreements will perform as agreed. It appears that
final resolution of some of the sites is years away. Accordingly, a reliable
estimate of the ultimate cost to the Company with respect to such sites cannot
be determined. Costs, however, are 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 an
adverse material effect on the consolidated financial position of the Company.
15 - INTERNATIONAL OPERATIONS
The operating profit, net assets and dividends received by the Company from
operations outside the United States are as follows:
1996 1995
---- ----
Operating profit $ 44,988 $ 36,806
Net assets 376,880 309,334
Dividends 738 581
The aggregate foreign currency transaction gain/loss recognized in net
income was immaterial for 1996, 1995 and 1994.
Information regarding the Company's operations in Europe, which is the
Company's only significant foreign geographic area, is as follows:
1996 1995 1994
---- ---- ----
Sales to unaffiliated customers $283,453 $276,029 $184,247
Operating profit (loss) 16,533 6,170 (2,085)
Total assets 313,302 296,325 258,463
22
16 - SHAREHOLDERS' EQUITY
A change in South Carolina law eliminated the legal distinction between
treasury shares and authorized but unissued shares. In 1996, the Company
changed the presentation of reacquired shares to better reflect the legal
status of such shares. As a result, shares acquired by the Company are treated
as retirements, with the cost being charged to capital in excess of stated
value. The prior year Consolidated Financial Statements have been reclassified
to conform with the current year presentation.
On July 17, 1996, the Company's Board of Directors authorized an
additional public stock repurchase program to purchase up to $100 million of
the Company's common stock and convertible preferred stock at current market
prices. The Company has repurchased shares under this program by means of open
market
42
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO
(Dollars in thousands except per share data)
purchases and privately negotiated transactions at prevailing market prices.
Through December 31, 1996, total preferred stock repurchases under this program
amounted to $33.4 million. Common stock repurchases under this and other stock
repurchase programs totalled $89.2 million.
On April 19, 1995, the Board of Directors declared a 5% stock dividend
issued on June 9, 1995. All references in the accompanying Consolidated
Financial Statements to numbers of common shares and per share data have been
restated to give retroactive effect to the stock dividend.
In 1993, the Company issued 3,450,000 shares of $2.25 Series A Cumulative
Convertible Preferred Stock for $172,500, or $50 per share. These securities
are convertible into the Company's common stock at a price of $24.11 per share.
The Company has the option to redeem this stock at a price of $51.575 per
share, 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. As of December
31, 1996, 2,395,000 preferred shares remain outstanding.
17 - FINANCIAL REPORTING FOR BUSINESS SEGMENTS
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 27-32. The Company changed its segment reporting in
1996 to reflect two business segments: industrial packaging and consumer
packaging. All prior year numbers have been restated to reflect this change in
reporting.
INDUSTRIAL CONSUMER
YEARS ENDED DECEMBER 31 PACKAGING PACKAGING CORPORATE CONSOLIDATED
TOTAL REVENUE
1996 $1,599,129 $1,231,770 $2,830,899
1995 1,627,377 1,127,330 2,754,707
1994 1,379,210 959,066 2,338,276
INTERSEGMENT SALES(1)
1996 $ 41,574 $ 1,250 $ 42,824
1995 46,863 1,671 48,534
1994 35,335 2,814 38,149
SALES TO UNAFFILIATED CUSTOMERS
1996 $1,557,555 $1,230,520 $2,788,075
1995 1,580,514 1,125,659 2,706,173
1994 1,343,875 956,252 2,300,127
OPERATING PROFIT(2)
1996 $ 202,928 $ 126,436 $ (49,289) $ 280,075
1995 195,929 113,960 (39,099) 270,790
1994 142,911 101,482 (33,463) 210,930
IDENTIFIABLE ASSETS(3)
1996 $1,219,248 $ 861,464 $ 306,828 $2,387,540
1995 1,076,035 760,767 278,611 2,115,413
1994 948,957 670,396 215,700 1,835,053
DEPRECIATION, DEPLETION AND AMORTIZATION
1996 $ 90,416 $ 52,511 $ 142,927
1995 73,983 51,853 125,836
1994 65,860 46,937 112,797
CAPITAL EXPENDITURES
1996 $ 163,507 $ 68,479 $ 231,986
1995 108,606 72,826 181,432
1994 84,834 41,912 126,746
(1) Intersegment sales are recorded at a market-related transfer price.
(2) Interest income and interest expense are excluded from the operating
profits by segment and are shown under Corporate.
(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 facilities and prepaid expenses.
43
24
SELECTED ELEVEN-YEAR FINANCIAL DATA
(Dollars and shares in thousands except per share data) 1996 1995 1994 1993*
---- ---- ---- -----
Operating Results
Net sales $2,788,075 $2,706,173 $2,300,127 $1,947,224
Cost of sales and operating expenses 2,458,710 2,396,284 2,055,734 1,734,980
Interest expense 55,481 44,004 35,861 31,154
Interest income (6,191) (4,905) (2,398) (6,017)
Unusual items* (5,800)
----------------------------------------------
Income from operations before income taxes 280,075 270,790 210,930 192,907
Taxes on income 107,433 106,640 82,500 75,200
Equity in earnings of affiliates (1,771) 369 1,419 1,127
----------------------------------------------
Income before cumulative effect of changes
in accounting principles 170,871 164,519 129,849 118,834
----------------------------------------------
Cumulative effect of changes in accounting principles
(FAS 106 and FAS 109)
Net income 170,871 164,519 129,849 118,834
Preferred dividends (7,196) (7,763) (7,763) (1,264)
----------------------------------------------
Net income available to common shareholders $ 163,675 $ 156,756 $ 122,086 $ 117,570
==============================================
Returns before cumulative effect of changes
in accounting principles
Return on common equity 21.1% 22.2% 19.1% 19.9%
Return on total equity (including preferred stock) 18.3% 18.7% 16.0% 19.0%
Return on net sales 6.1% 6.1% 5.6% 6.1%
Per common share
- - ----------------
Income before cumulative effect of changes in
accounting principles 1.81 1.72 1.34 1.28
----------------------------------------------
Cumulative effect of changes in accounting principles
Net income available to common shareholders:
Assuming no dilution 1.81 1.72 1.34 1.28
Assuming full dilution 1.73 1.64 1.31 1.26
Cash dividends declared .65 .58 .53 .51
Average common shares outstanding:
Assuming no dilution 90,513 91,139 91,445 91,681
Assuming full dilution 98,652 100,386 99,473 99,737
Actual common shares outstanding at December 31 89,864 91,117 91,254 91,819
FINANCIAL POSITION
Net working capital 262,533 229,328 222,068 209,932
Property, plant and equipment, net 995,415 865,629 763,109 737,154
Total assets 2,387,540 2,115,413 1,835,053 1,707,125
Long-term debt 791,026 591,894 487,959 455,262
Shareholders' equity 920,613 918,749 832,218 788,364
Current ratio 1.6 1.5 1.6 1.7
Total debt to total capital 47.2%** 39.6%** 38.1% 38.0%
Book value per common share 8.91 8.19 7.23 6.71
OTHER DATA
Depreciation, depletion and amortization expense 142,927 125,836 112,797 95,745
Cash dividends declared - common 58,480 53,145 48,287 46,333
Market price per common share (ending) 25.88 26.25 20.83 20.95
*Included in 1993 and 1991 were gains from the early repayment of a note issued
in connection with the sale of Sonoco Graham in 1991. Also includes
restructuring charges of $42,000 pretax, or $25,000 after-tax, in 1992 and
$75,000 pretax, or $54,650 after-tax, in 1990. In 1987, includes acquisition
consolidation charges of $10 million pretax, or $5,600 after-tax.
**Debt levels adjusted for excess cash at year-end related to the issuance of
restricted-purpose bonds.
44
25
SONOCO
(Dollars in thousands except per share data)
1992* 1991* 1990* 1989 1988 1987* 1986
----- ----- ----- ---- ---- ----- ----
$1,838,026 $1,697,058 $1,669,142 $1,655,830 $1,599,751 $1,312,052 $963,796
1,641,075 1,528,543 1,481,271 1,470,877 1,413,912 1,174,777 858,680
30,364 28,186 28,073 29,440 25,175 18,593 8,552
(6,416) (6,870) (2,196) (2,573) (1,517) (1,045) (602)
42,000 (8,525) 75,000 10,000
- - --------------------------------------------------------------------------------
131,003 155,724 86,994 158,086 162,181 109,727 97,166
51,800 63,600 43,934 60,906 67,029 48,714 44,435
2,048 2,681 7,308 6,381 1,125 469 1,945
- - --------------------------------------------------------------------------------
81,251 94,805 50,368 103,561 96,277 61,482 54,676
(37,892)
- - --------------------------------------------------------------------------------
43,359 94,805 50,368 103,561 96,277 61,482 54,676
- - --------------------------------------------------------------------------------
$43,359 $94,805 $50,368 $103,561 $96,277 $61,482 $54,676
================================================================================
13.7% 17.8% 9.6% 21.3% 23.0% 17.0% 17.4%
13.7% 17.8% 9.6% 21.3% 23.0% 17.0% 17.4%
4.4% 5.6% 3.0% 6.3% 6.0% 4.7% 5.7%
.89 1.05 .55 1.12 1.05 .67 .59
(.41)
- - --------------------------------------------------------------------------------
.48 1.05 .55 1.12 1.05 .67 .59
.47 1.04 .55 1.11 1.04 .66 .59
.47 .44 .43 .39 .30 .24 .20
91,069 90,620 91,464 92,184 92,014 92,117 91,993
92,214 91,114 91,963 93,060 92,884 92,645 92,479
91,501 90,815 90,405 91,826 92,108 91,908 92,017
152,478 163,860 184,066 193,035 188,085 143,972 104,614
614,018 580,787 562,591 494,290 533,427 482,357 267,353
1,246,531 1,135,940 1,113,594 995,132 977,459 877,625 559,459
240,982 227,528 279,135 226,240 275,535 263,489 58,440
561,890 562,306 512,828 511,574 454,486 379,912 332,890
1.5 1.6 1.7 2.1 2.0 1.8 1.9
35.1% 30.6% 34.7% 30.4% 36.8% 38.6% 17.7%
6.14 6.19 5.67 5.57 4.93 4.13 3.62
83,309 76,561 72,152 67,263 69,055 57,086 35,654
42,443 39,703 39,216 35,583 28,046 21,942 17,963
22.74 16.43 15.48 17.62 16.31 10.12 9.05
45
26
REPORTS OF CONSOLIDATED FINANCIAL STATEMENTS SONOCO
REPORT OF MANAGEMENT
The management of Sonoco Products Company is responsible for the integrity
and objectivity of the financial statements and other financial information
included in this annual report. These statements have been prepared in
conformity with generally accepted accounting principles.
Sonoco's accounting systems are supported by internal control systems
augmented by written policies, internal audits and the selection and training
of qualified personnel.
The Board of Directors, through its Audit Committee, consisting of outside
directors, is responsible for reviewing and monitoring the Company's financial
reporting and accounting practices. This committee meets periodically with
management, the internal auditors and the independent accountants to assure
each is carrying out its responsibilities.
Coopers & Lybrand L.L.P., independent certified public accountants, have
audited the financial statements, and their report is herein.
F. Trent Hill, Jr.
Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors of
Sonoco Products Company:
We have audited the accompanying consolidated balance sheets of Sonoco
Products Company as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sonoco
Products Company as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
January 29, 1997
46
27
DIRECTORS AND OFFICERS
ORGANIZATIONAL CHANGES
The following changes in the Board of Directors and senior management of the
Company were announced during the past year:
Leo Benatar retired from the Company and resigned from the Board.
Peter C. Browning elected President and Chief Operating Officer.
Allan V. Cecil joined the Company and elected Vice President - Investor
Relations and Corporate Communication.
Thomas C. Coxe, III retired from the Company.
Harris E. DeLoach, Jr. elected Executive Vice President.
Harry J. Moran elected Executive Vice President.
Raymond L. McGowan, Jr., elected Vice President.
Maurice M. Richardson elected Vice President.
Perry D. Smith elected Vice President.
BOARD OF DIRECTORS
Charles J. Bradshaw, 60, President and Director, Bradshaw Investments, Inc.
(private investments), Georgetown, S.C., since 1986. Served on Board since
1986. Member of the Executive Compensation Committee.
Robert J. Brown, 62, Founder, Chairman and President of B&C Associates (a
public relations and marketing research firm), High Point, N.C., since 1973.
Served on Board since 1993. Member of the Audit Committee and Finance
Committee.
Peter C. Browning, 55, President and Chief Operating Officer since February
1996. Served on Board since 1995.
Charles W. Coker, 63, Chairman and Chief Executive Officer since 1990. Served
on Board since 1962.
Fitz L.H. Coker, 61, Retired, formerly Senior Vice President, 1976 -1979.
Served on Board since 1964. Member of the Finance Committee and Nominating
Committee.
James L. Coker, 56, President, JLC Enterprises (private investments),
Stonington, Conn., since 1979. Served on Board since 1969. Member of the
Nominating Committee and Finance Committee.
Thomas C. Coxe, III, 66, Retired, formerly Senior Executive Vice President 1993
- - - 1996. Served on Board since 1982. Member of the Finance Committee.
Alan T. Dickson, 65, Chairman, Ruddick Corporation
(a diversified holding company), Charlotte, N.C., since 1994. Formerly
President and Director, Ruddick Corporation since 1968. Served on Board since
1981. Member of the Executive Compensation Committee, Finance Committee and
Audit Committee.
Robert E. Elberson, 68, Retired, formerly Vice Chairman and Director, Sara Lee
Corporation, Chicago, Ill., 1986 - 1989. Served on Board since 1985. Member of
the Executive Compensation Committee and Nominating Committee.
James C. Fort, 70, Retired, formerly Senior Vice President, 1979 - 1987. Served
on Board since 1969. Member of the Audit Committee and Nominating Committee.
Paul Fulton, 62, Dean, The Kenan-Flagler Business School, University of N.C.,
Chapel Hill, N.C., since 1993. Formerly President and Director of Sara Lee
Corporation. Served on Board since 1989. Member of the Finance Committee and
Executive Compensation Committee.
Bernard L.M. Kasriel, 50, Vice Chairman and COO of Lafarge (a construction
materials group), Paris, France. Served on Board since 1995. Member of the
Audit Committee and Executive Compensation Committee.
Russell C. King, Jr., 62, Retired, formerly President and Chief Operating
Officer 1990 - 1994. Served on Board since 1991. Member of the Audit Committee
and Finance Committee.
Edgar H. Lawton, Jr., 67, President and Director, Hartsville Oil Mill (a
vegetable oil processor), Darlington, S.C., since 1962. Served on Board since
1968. Member of the Nominating Committee and Executive Compensation Committee.
28
Hugh L. McColl, Jr., 61, Chief Executive Officer, NationsBank Corporation,
Charlotte, N.C., since 1983. Served on Board since 1972. Member of the Finance
Committee and Nominating Committee.
E. Craig Wall, Jr., 59, President and Director, Canal Industries (a forest
products firm), Conway, S.C., since 1969. Served on Board since 1976. Member of
the Audit Committee and Finance Committee.
Dona Davis Young, 43, Executive Vice President, Individual Insurance and
General Counsel of Phoenix Home Life Mutual Insurance Company since 1995.
Served on Board since 1995. Member of the Executive Compensation Committee and
Audit Committee.
EXECUTIVE OFFICERS
Charles W. Coker, 63, Chairman of the Board and Chief Executive Officer since
1990. Previously President and Chief Executive Officer 1976 - 1990; President
1970 - 1976; Executive Vice President 1966 - 1970. Began full-time employment
with Sonoco in 1958.
Peter C. Browning, 55, President and Chief Operating Officer since February
1996. Previously Executive Vice President - Global Industrial Product/Paper
1993-1996; Chairman and Chief Executive Officer - National Gypsum Company 1990
- - -1993. Prior to Sonoco was with Continental Can Company 1966-1990 serving as
President of Continental's Bondware and Whitecap divisions and later as
Corporate Executive Vice President. Joined Sonoco in 1993.
Bernard W. Campbell, 47, Vice President - Information Services since February
1996. Previously Staff Vice President - Information Services 1991-1996;
Director - Corporate Information Services 1990 - 1991; Director - Software
Support 1988. Joined Sonoco in 1988.
Allan V. Cecil, 55, Vice President - Investor Relations and Corporate
Communication since January 1996. Prior to Sonoco was Vice President -
Corporate Communication and Investor Relations, National Gypsum Company and
previously with Mesa Petroleum Company. Joined Sonoco in 1996.
C. William Claypool, 61, Vice President - Paper since 1987. Previously Division
Vice President - General Manager, Paper 1986 - 1987; Division Vice President
1980 - 1986; Regional General Manager 1977 - 1980. Joined Sonoco in 1977.
Peter C. Coggeshall, Jr., 53, Vice President - Administration since 1991.
Previously Group Vice President - Global Paper 1990 - 1991; Vice President -
Industrial Products 1986 - 1990; Vice President - Paper 1978 - 1986; Division
Vice President/General Manager - Paper 1977 - 1978; Division Vice President
Operations - General Products 1977. Joined Sonoco in 1969.
Harris E. DeLoach, Jr., 52, Executive Vice President with responsibility for
the High Density Film Products, Industrial Container, Fibre Partitions,
Protective Packaging, molded and extruded plastics, and Baker Reels since
February 1996. Previously Group Vice President 1993 - 1996; Vice President -
Film, Plastics & Special Products 1993; Vice President - High Density Film
Products 1989 - 1993; Vice President Administration & General Counsel 1985 -
1989. Joined Sonoco in 1985.
Cynthia A. Hartley, 48, Vice President - Human Resources since 1995. Previously
Vice President - Human Resources with National Gypsum Company, Dames & Moore
and previous experience with Continental Can Company. Joined Sonoco in 1995.
47
29
OFFICERS
F. Trent Hill, Jr., 44, Vice President and Chief Financial Officer since 1995.
Previously Vice President - Finance 1994 - 1995; Vice President - Industrial
Products North America 1990 - 1994; Vice President - Finance 1987 - 1989; Vice
President - Corporate Controller 1982 - 1987; Staff Vice President - Corporate
Controller 1981 - 1982; Director of Audit & Taxes 1979 - 1981; Internal Audit
Manager 1979. Joined Sonoco in 1979.
Ronald E. Holley, 54, Vice President - High Density Film Products since 1993.
Previously Vice President - Total Quality Management 1990 - 1993; Vice
President - Industrial Products 1987 - 1990; Division Vice President -
Industrial Products 1985 - 1987; Division Vice President - Consumer Products
1983. Joined Sonoco in 1964.
Charles J. Hupfer, 50, Vice President, Treasurer and Corporate Secretary since
1995. Previously Treasurer 1988 - 1995; Director of Tax and Audit 1985 - 1988;
Director - International Finance & Accounting 1980 - 1985; Manager of Corporate
Accounting 1978 - 1980; Manager of Financial Reporting 1975 - 1978. Joined
Sonoco in 1975.
J. Randy Kelley, 42, Vice President - Industrial Products, North America since
1994. Previously Division Vice President Industrial Container 1991 - 1993; Area
Manufacturing Manager - Consumer Products 1988 - 1990; Manager - Special
Projects 1986 - 1987; Plant Manager - Consumer Products, Naperville, Ill., 1984
- - - 1986. Joined Sonoco in 1978.
Raymond L. McGowan, Jr., 45, Vice President - Consumer Products since February
1997. Previously Vice President and General Manager - Consumer Products, U.S.
and Canada 1994 - 1997; Division Vice President - Sales, Marketing &
Technology, Consumer Products 1987 - 1992; Division Sales Manager - Consumer
Products 1987; Division Marketing Manager 1985. Joined Sonoco in 1983.
Harry J. Moran, 64, Executive Vice President with responsibility for the
Consumer Packaging Group since February 1996. Previously Group Vice President -
Consumer Packaging 1993 - 1996; Vice President and General Manager - Consumer
Packaging 1990 - 1993; Division Vice President & General Manager - Consumer
Products 1985 - 1990; Division Vice President - Consumer Products 1983 - 1984.
Joined Sonoco in 1983.
Earl P. Norman, Jr., 60, Vice President - Technology since 1989. Previously
Staff Vice President - Business Development & Technology 1985 - 1986; Director
- - - Business Development & Technology 1985. Joined Sonoco in 1969.
Maurice M. Richardson, 62, Vice President of Sonoco and President of Sonoco
Engraph since February 1996. Previously Chief Executive Officer - Sonoco
Engraph's label, screen printing and paperboard carton businesses 1995 - 1996;
President and Chief Operating Officer of Engraph 1994 - 1995; Executive Vice
President and Chief Operating Officer 1992 - 1994; Group Vice President 1983 -
1992. Joined Sonoco in 1993.
Perry D. Smith, 46, Vice President & Managing Director - Sonoco Asia, L.L.C.
since October 1996. Previously Managing Director - Sonoco Asia, L.L.C. 1994 -
1996; Director - Business Development, Asia Pacific 1992 - 1994; Director,
Marketing, International (Asia) 1988 - 1992. Joined Sonoco in 1988.
DIVISION AND STAFF OFFICERS
James A. Albright, 52, Staff Vice President - Technology, Consumer Packaging
Group since January 1997. Joined Sonoco in 1992.
Jim C. Bowen, 46, Vice President - Manufacturing North America, Paper since
1994. Joined Sonoco in 1972.
Gary A. Crutchfield, 47, Division Vice President - Industrial Container since
1994. Joined Sonoco in 1974.
Rodger D. Fuller, 35, Division President - Consumer Products, Europe since
March 1997. Joined Sonoco in 1985.
Larry O. Gantt, 59, Vice President - Operating Value since February 1997.
Joined Sonoco in 1963.
Robert J. Giangiorgi, 54, Staff Vice President - International Business
Development, Consumer Packaging Group since January 1997. Joined Sonoco in
1983.
Donald M. Gore, 47, Division Vice President - Sales and Marketing, Industrial
Products North America since 1996. Joined Sonoco in 1972.
John M. Grups, 46, Division Vice President - Global Operations, Consumer
Packaging, since February 1997. Joined Sonoco in 1976.
30
Linda O. Hill, 48, Staff Vice President - Global Technology since June 1996.
Joined Sonoco in 1966.
John D. Horton, 54, Division Vice President - Sales & Marketing, High Density
Film Products since 1988. Joined Sonoco in 1972.
Kevin P. Mahoney, 41, Staff Vice President - Corporate Planning since February
1996. Joined Sonoco in 1987.
John J. Mikula, 55, Division Vice President - Sonoco Packaging Systems since
October 1996. Joined Sonoco in 1986.
John L. Newsome, Jr., 50, Division Vice President - Integrated Supply Chain
since September 1996. Joined Sonoco in 1969.
Charles F. Paterno, 40, Division Vice President - Industrial Products/Paper,
Europe since January 1996. Joined Sonoco in 1983.
Frank J. Popelars, 55, Staff Vice President - Corporate Controller since 1993.
Joined Sonoco in 1983.
Charles W. Reid, 58, Division Vice President and General Manager - Baker
Division since 1988. Joined Sonoco in 1988.
J.C. Rhodes, 58, Division Vice President - Operations Support since 1991.
Joined Sonoco in 1961.
Juan Roman, 55, Vice President - Industrial Products/Paper, South America since
1993. Joined Sonoco in 1984.
James H. Shelley, 53, Staff Vice President - Employee Relations & Labor Counsel
since 1980. Joined Sonoco in 1965.
Eddie L. Smith, 45, Division Vice President/General Manager - Flexible
Packaging since December 1996. Joined Sonoco in 1989.
Karl Svendsen, 55, Division Vice President - Operating Resources, Industrial
Container since 1994. Joined Sonoco in 1970.
David Thornely, 52, Managing Director - Sonoco Australasia since 1994. Joined
Sonoco in 1991.
Rex E. Varn, 38, Division Vice President - Manufacturing, High Density Film
since October 1996. Joined Sonoco in 1980.
SUBSIDIARY/AFFILIATE OFFICERS
PAPER STOCK DEALERS, INC.
J. Blake Boyd, 44, President - Paper Stock Dealers, Inc. since 1989. Joined
Sonoco in 1976.
PAPETERIES DU RHIN
Pierre Lhomme, 74, President - Papeteries Du Rhin since 1986. Joined Sonoco in
1990.
SHOWA MARUTSUTSU
Isao Sato, 65, Chairman of Showa Marutsutsu Company, Ltd. and Showa Products
Company Ltd. since 1995. Joined Showa Marutsutsu in 1954.
Jun Sato, 36, President - Showa Marutsutsu and Showa Products since 1995.
Joined Showa Marutsutsu in 1986.
SONOCO ASIA
Perry D. Smith, 46, Corporate Vice President & Managing Director - Sonoco Asia,
L.L.C. since October 1996.
SONOCO ENGRAPH
Maurice M. Richardson, 62, President of Sonoco Engraph since 1994.
William J. Biedenharn, 44, President - General Manager, Labels, Sonoco Engraph
since January 1996. Joined Sonoco in 1985.
48
31
SONOCO CONTACT INFORMATION
Information on whom to contact for answers about questions related to Sonoco is
listed for your convenience.
SONOCO STOCK
Common - Ticker symbol: SON
Preferred - Ticker symbol: SONprA
Sonoco stock is traded on the New York Stock
Exchange.
CORPORATE OFFICES
North Second Street
Hartsville, SC 29550-3305
(803) 383-7000
Fax: (803) 383-7008
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L. P.
NationsBank Corporate Center
100 North Tryon Street, #3400
Charlotte, NC 28202-4015
LEGAL COUNSEL
Sinkler & Boyd, P.A.
P.O. Box 11889
Columbia, SC 29211-1889
SHAREHOLDER SERVICES
Sonoco
Treasurer - BO1
P.O. Box 160
Hartsville, SC 29551-0160 (803) 383-7277
INVESTOR RELATIONS AND CORPORATE
COMMUNICATION
Sonoco
Corporate Communication - A46
P.0. Box 160
Hartsville, SC 29551-0160
(803) 383-7635
Fax: (803) 383-7478
SONOCO INTERNET SITE
http://www.sonoco.com
EQUAL OPPORTUNITY
Sonoco believes that a diverse work force is required to compete successfully in
today's global markets. The Company provides equal employment opportunities its
global operations without regard to race, color, age, sex, religion, national
origin or physical disability.
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 11:00 a.m., Wednesday, April 16, 1997.
SONOCO NEWS RELEASES
Copies of the Company's recent news releases are available on Sonoco's web site
and, at no charge, via fax by calling PR NewsWire's "Company News On-Call" at
1-800-758-5804, Sonoco code #805487.
FORM 10-K AVAILABLE
A copy of the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission may be obtained by shareholders without charge after
April 1, 1997, by writing to:
Sonoco
Corporate Communication - A09
P.O. Box 160
Hartsville, SC 29551-0160
DIVIDEND REINVESTMENT
A dividend reinvestment plan is available to record Sonoco shareholders. For
more information write to:
Wachovia Bank of North Carolina, N.A.
P.O. Box 8218
Boston, MA 02266-8218
DIRECT DEPOSIT OF DIVIDENDS
To request automatic deposit of cash dividends to checking, savings or money
market accounts that participate in the Automatic Clearinghouse System contact:
Wachovia Bank of North Carolina, N.A.
P.O. Box 8218
Boston, MA 02266-8218
SHARE ACCOUNT INFORMATION
Transfer Agent
Shareholders with inquiries concerning their accounts should contact:
Wachovia Bank of North Carolina, N.A.
P.O. Box 8218
Boston, MA 02266-8218
1-800-633-4236
Requests for stock transfer should be sent to:
Wachovia Bank of North Carolina, N,A.
P.O. Box 8217
Boston, MA 02266-8217