<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-11261
SONOCO PRODUCTS COMPANY
INCORPORATED UNDER THE LAWS I.R.S. EMPLOYER IDENTIFICATION
OF SOUTH CAROLINA NO. 57-0248420
POST OFFICE BOX 160
HARTSVILLE, SOUTH CAROLINA 29551-0160
TELEPHONE: 803-383-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class Name of exchange on which registered *
------------------- ------------------------------------
No par value common stock New York Stock Exchange, Inc.
Series A Cumulative Preferred Stock New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant (based on the New York Stock Exchange closing price) on March 8,
1995, was $1,940,884,018.
As of March 8, 1995, there were 86,767,859 shares of no par value common stock
outstanding.
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the fiscal year
December 31, 1994, are incorporated by reference in Parts I, II and IV;
portions of the Proxy Statement for the annual meeting of shareholders to
be held on April 19, 1995, are incorporated by reference in Part III.
*The Company's stock began trading on the New York Stock Exchange, Inc. on
March 8, 1995.
<PAGE> 2
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I
ITEM I. BUSINESS
The Company
The Company, a South Carolina corporation founded in Hartsville, South
Carolina, in 1899, is a major multinational manufacturer of
paperboard-based and plastic-based packaging products. The Company is
also vertically integrated into paperboard production and
recovered-paper collection. The paperboard utilized in the Company's
packaging products is produced substantially from recovered paper.
The Company operates an extensive network of plants in the United
States and has subsidiaries in Europe, Canada, Mexico, South America,
Australia and Asia, and affiliates in Canada, Japan and France. The
Company's business is organized by global product lines in order to
leverage its U.S. customer base, to take advantage of synergies from
its worldwide operations and to serve its customers worldwide on a
timely basis and with consistent quality.
The Company serves a wide variety of industrial and consumer markets.
Industrial markets, which represented approximately 58% of the
Company's sales in 1994, include paper manufacturers, chemical and
pharmaceutical producers, textile manufacturers, automotive
manufacturers, the wire and cable industry, and the building and
construction industry. Consumer markets, which represented
approximately 42% of the Company's sales in 1994, include food and
beverage processors, the personal and health care industries,
supermarkets, retail outlets, household good manufacturers and
consumer electronics. The Company believes that it is a leading
producer in most markets served. One of the Company's strategic goals
is to increase the proportion of consumer markets product sales in
order to change the business mix between industrial and consumer
markets to 50/50.
In 1994 the Company changed its segmental reporting by combining the
Miscellaneous segment with the Converted Products segment. The
Company determined the operations in both segments were converting
businesses and, given the small size of the Miscellaneous segment,
separate reporting was no longer appropriate. The Company's operations
are now divided into three segments (two domestic and one
international) for financial reporting purposes. Domestic segments
include Converted Products and Paper. The Financial Reporting For
Business Segments Table as shown in the Company's 1994 Annual Report
to Shareholders, which is included as Exhibit 13, presents selected
financial data by major lines of business or segments for each of the
past three fiscal years. This table is hereby incorporated by
reference herein and should be read in conjunction with the
Management's Discussion and Analysis of the 1994 Annual Report to
Shareholders, which is also hereby incorporated by reference herein.
I-1
<PAGE> 3
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM I. BUSINESS, CONTINUED
Acquisitions/Dispositions
Acquisitions and business combinations have been, and are expected to
continue to be, an important part of the Company's strategy for
growth. Significant acquisitions during the past five years include
the 1990 acquisition of Lhomme S.A. in France, which was the leading
French manufacturer of paperboard, tubes and cores. In January 1992,
the Company purchased the Trent Valley paper mill in Trenton, Ontario,
Canada. This purchase provided the Company with a modern machine that
allows for the production of higher grades of paper. In January 1993,
the Company purchased all of the outstanding stock of Crellin Holding,
Inc., an international manufacturer, designer and marketer of molded
plastic products. In January 1993, the Company also completed the
acquisition of the OPV/Durener Group, Germany's second largest
manufacturer of tubes and cores. In October 1993, the Company
acquired Engraph, Inc. following the successful conclusion of a cash
tender-offer and merger transaction. Engraph markets
pressure-sensitive labels and package inserts, flexible packaging,
screen process printing and paperboard cartons and specialities. In
May 1994, the Company acquired M. Harland & Son Limited, a leading
producer of pressure-sensitive roll labels and roll-label application
equipment headquartered in the United Kingdom.
Subsequent to December 31, 1994, the Company acquired the remaining
50% interest in the CMB Sonoco joint venture. CMB Sonoco is a
producer of composite cans with manufacturing facilities in the U.K.
and France. Also subsequent to December 31, 1994, the Company
purchased a flexible packaging plant in Edinburgh, Indiana.
Competition
The Company believes it has several competitive advantages in the
industrial and consumer Converted Products markets it serves. First,
the Company sells many products within the Converted Products segment
globally. As a result, the Company believes it has the capability to
respond effectively to customers seeking national or international
supply agreements. Secondly, the Company believes its technological
leadership, reputation for quality, and vertical integration has
enabled the Company to coordinate its product development and global
expansion with the rapidly changing needs of its major customers, who
demand high-quality, state-of-the-art, environmentally compatible
packaging. Thirdly, the Company and its customers have developed
international standards to reduce costs and increase quality.
Finally, the Company believes that its strategy of vertical
integration, via the Paper segment, increases its control over the
availability and quality of raw materials used in its products. With
the acquisition of Engraph, the Company entered into a major new
business that expands the Company's opportunities for growth in new
packaging fields.
I-2
<PAGE> 4
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM I. BUSINESS, CONTINUED
Competition, Continued
The Company is the U.S. market leader in nearly all of its traditional
businesses, including the manufacture of tubes, cores and cones; fibre
and plastic drums; and nailed wood and metal reels. The Company is
the second leading producer of fibre partitions. The Paper Division is
also one of the world's leading producers of recycled paperboard, most
of which is consumed internally. Sonoco has a strong degree of
vertical integration with the paper-converting business. This tactic,
combined with advancing technology, helps to keep the Company a
competitive producer.
Having operated internationally for more than 70 years, the
International segment has been important in the Company's ability to
serve and retain many of its customers that have international
packaging requirements. The Company considers its ability to serve
its customers worldwide in a timely, consistent and cost-effective
manner a competitive advantage. The Company expects its international
activities to provide an increasing portion of its future growth.
The Company is the largest United States producer of high-density,
high-molecular weight plastic carry-out grocery bags. The Company
sponsors recycling programs for the plastic carrier bag industry and
has relationships with what it believes to be approximately one-half
of all participating U.S. supermarkets offering a bag recycling
program. Other similar products produced by the Company include roll
bags for produce and bakery requirements, plastic bags for convenience
stores and high-volume retail outlets, and agricultural film. During
1994 a major competitor curtailed production of plastic grocery bags,
creating a decrease in available supply. The Company authorized a
$20-million investment to replace some of this capacity and improve
production.
The Company's products are sold in highly competitive market
environments. Within each of these markets, supply and demand are the
major factors controlling the market environment. Additionally, and to
a lesser degree, these markets are influenced by the overall rate of
economic activity. Throughout the year, the Company remained highly
competitive within each of the markets served. None of the Company's
segments is seasonal to any significant degree. The Management's
Discussion and Analysis of the 1994 Annual Report to Shareholders
discusses competition with respect to the various segments of the
Company and is hereby incorporated by reference herein.
I-3
<PAGE> 5
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM I. BUSINESS, CONTINUED
Raw Materials
The principal raw materials used by the Company are plastic resins,
metal, pulpwood, recovered paper and paper. With the exception of
pulpwood, recovered paper and paper, the Company's raw materials and
supplies are purchased from a number of outside sources; however, the
supply is considered adequate to meet the Company's requirements.
Company-owned timberlands, timber-cutting rights and suppliers are
believed to be sufficient to assure the future availability of
pulpwood. Recovered paper used in the manufacture of paperboard is
purchased either directly from suppliers near manufacturing operations
or through the Company's subsidiary, Paper Stock Dealers, Inc.
Although the Company considers the supply of raw materials to be
adequate to meet its needs, the majority of raw materials are subject
to price volatility as experienced in 1994. Recovered paper, the
Company's largest raw material, nearly tripled in cost during 1994.
This unprecedented rate of increase began in the second quarter and
quickly peaked early in the third quarter. Selling price increases
were implemented in the third quarter, resulting in improved gross
margin percentages in the fourth quarter. The Company was not able to
recover all of the cost increases in 1994, but ended the year
basically in balance. The recovered paper market remains volatile;
the demand for recovered paper continues to grow due to increased
demand for recycled content in most paper grades and an increased
demand in export markets. Although cost pressures on recovered paper
are expected to be a continuing factor, the Company expects to be able
to mitigate any adverse earnings impact over time through selling
price increases. The Company also took actions in 1994 to strengthen
its fibre recovery system. These actions are described in the
Recovered Paper section of the Industrial Packaging Review of the
Annual Report and is hereby incorporated by reference herein.
Other key raw materials include plastic resins, steel, aluminum,
liners and labels. All increased in cost at varying degrees during
the year. Resin prices increased dramatically in 1994, resulting in
several selling price increases. The Company does have certain
contracts that, while providing for price increases, preclude the
immediate recovery of these additional costs. However, the Company
does expect to recover cost increases as these contracts expire early
in 1995.
Backlog
Most customer orders are manufactured with a lead time not to exceed
three weeks. Long-term contracts, primarily for composite cans, exist
for approximately 14% of trade sales (no one contract exceeds 3%).
These contracts, which are for a specific duration, generally include
price escalation provisions for raw materials, labor and overhead
costs. There are no significant long-term purchase contracts as the
Company considers the supply of raw materials adequate to meet its
needs.
Patents, Trademarks and Related Contracts
No segment of the business is materially dependent upon the existence
of patents, trademarks or related contracts.
I-4
<PAGE> 6
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM I. BUSINESS, CONTINUED
Research and Development
The Company has 124 employees engaged in new product development and
technical support for existing product lines. Company-sponsored
spending in this area was $12.1 million, $12.9 million and $11.7
million in 1994, 1993, and 1992, respectively. Spending focused on
projects related to Sonoco's primary businesses and reflects a
commitment to ensure that the Company is the technology leader in
markets served. Customer-sponsored spending has been immaterial for
the past three years.
Environmental Protection
The Financial Position, Liquidity and Capital Resources section of the
Management's Discussion and Analysis in the 1994 Annual Report to
Shareholders provides the required information and is hereby
incorporated by reference.
Employees
The number of employees at December 31, 1994, was approximately 17,200.
Financial Information about Foreign and Domestic Operations and Export
Sales
The Company has subsidiaries and affiliates operating in twenty-three
countries. The primary operations of the international subsidiaries
are similar to the Company's domestic business in products and markets
served. The Management's Discussion and Analysis, the Financial
Reporting for Business Segments and Note 17 to the Financial
Statements of the Annual Report to Shareholders are hereby
incorporated by reference herein. United States export sales are
immaterial.
I-5
<PAGE> 7
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 2. PROPERTIES
The main plant and corporate offices are located in Hartsville, South
Carolina. The Company has 172 branch or manufacturing operations in
the United States, 26 in Canada and 68 in 21 international countries.
Information about the Company's manufacturing operations by segment
follows:
<TABLE>
<CAPTION>
Segment
-------------------------------------------
Converted
Products Paper International
----------- ----- -------------
<S> <C> <C> <C>
Number of Plants:
Owned fee simple 71 27 46
Leased for terms up to ten years
with options to renew for
additional terms 65 5 48
Leased with lease purchase agreements 3 1
--- -- --
Total manufacturing operations 139 33 94
=== == ==
</TABLE>
The Company believes that its properties are suitable and adequate for
current needs and that the total productive capacity is adequately
utilized.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, 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. On May 3, 1994, a civil
action was filed against the Company in the United States District
Court for the District of Massachusetts by Integrated Bagging Systems
Corporation and BPI Packaging Technologies, Inc. for alleged patent
infringement. The suit also seeks to have a patent owned by the
Company declared invalid. There are no new developments in this
matter, and the Company believes this lawsuit is without merit. The
Company will vigorously defend its position and expects to prevail.
Although the level of future expenditures for legal and environmental
matters is impossible to determine with any degree of probability, it
is management's opinion that such costs, when finally determined, will
not have a material adverse effect on the consolidated financial
position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-6
<PAGE> 8
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market and Market Prices of Common Stock
The Company's common stock began trading on the New York Stock
Exchange (NYSE) March 8, 1995, under the stock symbol "SON." Prior to
that date, the common stock was traded on the NASDAQ National Market
System. The Comparative Highlights in the 1994 Annual Report to
Shareholders (Exhibit 13 of this report) shows, by quarter, the high
and low price on the NASDAQ market for the latest two years, and is
hereby incorporated by reference herein.
Approximate Number of Security Holders
There were approximately 34,000 shareholder accounts as of March 5,
1995.
Dividends
The Comparative Highlights in the 1994 Annual Report to Shareholders
is hereby incorporated by reference herein. There are certain
restrictions with respect to the maintenance of financial ratios and
the disposition of assets in several of the Company's loan agreements
that may affect the Company's ability to pay dividends. The most
restrictive covenant requires that tangible net worth at the end of
each fiscal quarter be greater than $365 million. The Company is
prohibited from paying cash dividends if these requirements are not
met. Additionally, the terms of the Company's $2.25 Series A
Cumulative Convertible Preferred Stock prohibits payment of dividends
on any junior class of stock, including the Company's Common Stock,
unless full cumulative dividends on the $2.25 Series A Cumulative
Convertible Preferred Stock have been paid or declared and set aside
for payment for all past dividend payment periods.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Eleven-Year Financial Data in the 1994 Annual Report to
Shareholders provides the required data, and is hereby incorporated by
reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information presented under Management's Discussion and Analysis
of the 1994 Annual Report to Shareholders is hereby incorporated by
reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants.
II-1
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Sonoco Products Company:
We have audited the consolidated financial statements of Sonoco Products
Company as of December 31, 1994 and 1993, and for each of the three years in
the period ended December 31, 1994, which financial statements are included on
pages 28 through 37 of the 1994 Annual Report to Shareholders of Sonoco
Products Company and incorporated by reference herein. We have also audited the
financial statement schedule listed in Item 14 of this form 10-K. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
As discussed in Notes 14 and 15 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and income taxes in 1992.
/s/ Coopers & Lybrand, L.L.P.
-----------------------------
COOPERS & LYBRAND, L.L.P.
Charlotte, North Carolina
February 1, 1995
II-2
<PAGE> 10
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, CONTINUED
Consolidated Financial Statements
The consolidated financial statements and notes to consolidated
financial statements for the Company included in the 1994 Annual
Report to Shareholders are hereby incorporated by reference herein.
Supplementary Financial Data
The Comparative Highlights in the 1994 Annual Report to Shareholders
is hereby incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-3
<PAGE> 11
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
Information about the Directors of the Company and Compliance with the
Securities Exchange Act of 1934 is shown on pages 5 through 10 and
page 30, respectively, of the Definitive Proxy Statement (included as
Exhibit 99-1 of this report) and is hereby incorporated by reference
herein.
Identification of Executive Officers
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED BUSINESS EXPERIENCE
NAME AGE POSITION OFFICER DURING LAST FIVE YEARS
---- --- -------- ----------- ----------------------
<S> <C> <C> <C>
C. W. Coker 61 Chairman of the 1961 Present position since 1990, previously
Board, President and having served as President since 1970.
Chief Executive Officer
T. C. Coxe, III 64 Senior Executive 1977 Present position since 1993, previously
Vice President having served as Executive Vice
President since 1985.
L. Benatar 65 Senior Vice President 1993 Present position since 1993. Chairman and Chief
Executive Officer of Engraph, Inc. (printer and
fabricator of roll labels, decals, specialty
paperboard items and flexible packaging) since
1981.
P. C. Browning 53 Executive Vice 1993 Present position since 1993, previously
President - Global having served as President, Chairman and
Industrial Products Chief Executive Officer - National
and Paper Divisions Gypsum Company (manufacturer and supplier of
products and services used in building and
construction) since 1990.
C. W. Claypool 59 Vice President - 1987 Present position since 1987.
Paper Division
P. C. Coggeshall, Jr. 51 Vice President - 1979 Present position since 1991, previously
Administration having served as Group Vice President -
Industrial Products Division since 1986.
</TABLE>
III-1
<PAGE> 12
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, CONTINUED
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED BUSINESS EXPERIENCE
NAME AGE POSITION OFFICER DURING LAST FIVE YEARS
---- --- -------- ------------ ----------------------
<S> <C> <C> <C> <C>
H. E. DeLoach, Jr. 50 Group Vice President 1986 Present position since 1993, previously having
served as Vice President - Film, Plastics and
Special Products since 1993, and Vice
President - High Density Film Products
Division since 1989.
R. C. Eimers, Ph.D. 47 Vice President - 1988 Present position since 1988. Resigned
Human Resources February 1, 1995.
F. T. Hill, Jr. 42 Vice President - 1987 Present position since January 1994,
Finance previously having served as Vice
President - Industrial Products North
America since 1990.
R. E. Holley 52 Vice President - 1987 Present position since 1993, previously
High Density having served as Vice President - Total
Film Products Quality Management since 1990.
J. R. Kelley 40 Vice President - 1994 Present position since January 1994,
Industrial Products previously having served as Division
Division - North Vice President - Industrial Container
America since 1990.
H. J. Moran 62 Group Vice President - 1987 Present position since 1993, previously
Consumer having served as Vice President and
Packaging Group General Manager - Consumer Packaging
since 1990.
</TABLE>
III-2
<PAGE> 13
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, CONTINUED
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED BUSINESS EXPERIENCE
NAME AGE POSITION OFFICER DURING LAST FIVE YEARS
---- --- -------- ------------ ----------------------
<S> <C> <C> <C> <C>
E. P. Norman, Jr. 58 Vice President - 1989 Present position since 1989.
Technology
J. L. Coker 54 Corporate 1969 Present position since 1969.
Secretary
C. J. Hupfer 48 Treasurer 1988 Present position since 1988.
</TABLE>
Family Relationships
C. W. Coker and F. L. H. Coker are brothers and the first cousins of
J. L. Coker and P. C. Coggeshall, Jr.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation - Directors and Officers as shown on pages 13 -
21 of the Proxy Statement, included as Exhibit 99-1 of this report, is
hereby incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership of management as shown on page 12 of the Proxy
Statement, Exhibit 99-1 of this report, is hereby incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with management as shown on pages 22 - 23 of the Proxy
Statement, included as Exhibit 99-1 of this report, is hereby
incorporated by reference herein.
III-3
<PAGE> 14
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Data incorporated by reference from the
attached 1994 Annual Report to Shareholders
(included as Exhibit 13 of this report):
Comparative Highlights (Selected Quarterly
Financial Data)
Consumer Packaging Review
Industrial Packaging Review
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Consolidated Balance Sheets as of
December 31, 1994 and 1993
Consolidated Statements of Income for
the years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
for the years ended December 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements
Shareholders' Information (Selected Financial Data)
Data submitted herewith:
Report of Independent Accountants (included under Item 8)
IV-1
<PAGE> 15
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K, CONTINUED
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they
are not required, are not applicable or the
required information is given in the
financial statements or notes thereto.
<TABLE>
<CAPTION>
Exhibits:
---------
<S> <C>
3 Articles of Incorporation and By-laws
4 Instruments Defining the Rights of
Securities Holders, including Indentures *
11 Computation of Earnings Per Share
13 1994 Annual Report to Shareholders
21 Subsidiaries and Affiliates of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
99-1 Proxy Statement, filed in conjunction
with annual shareholders' meeting
scheduled for April 19, 1995
99-2 Form 11-K Annual Report - 1983 and
1991 Sonoco Products Company Key
Employee Stock Option Plans
* Incorporated by reference to the Registrant's Form S-3 (File No. 33-50501).
</TABLE>
IV-2
<PAGE> 16
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K, CONTINUED
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter of
1994.
IV-3
<PAGE> 17
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE ADDITIONS
AT CHARGED BALANCE
BEGINNING TO AT
OF COSTS AND DEDUC- END OF
DESCRIPTION PERIOD EXPENSES TIONS(1) PERIOD
----------- --------- -------- ------- ------
<S> <C> <C> <C> <C>
1994
----
Restructuring Reserve $27,114 $ $16,191 $10,923
======= ======= ======= =======
Goodwill Amortization $24,403 $13,030 $ 3,097 $34,336
======= ======= ======= =======
Allowance for Doubtful
Accounts $ 6,514 $ 2,546 $ 3,002 $ 6,058
======= ======= ======= =======
1993
----
Restructuring Reserve $39,130 $ $12,016 $27,114
======= ======= ======= =======
Goodwill Amortization $22,040 $ 8,024 $ 5,661 $24,403
======= ======= ======= =======
Allowance for Doubtful
Accounts $ 3,511 $ 5,537 $ 2,534 $ 6,514
======= ======= ======= =======
1992
----
Restructuring Reserve $ 9,871 $42,000 $12,741 $39,130
======= ======= ======= =======
Goodwill Amortization $19,333 $ 3,854 $ 1,147 $22,040
======= ======= ======= =======
Allowance for Doubtful
Accounts $ 3,671 $ 1,737 $ 1,897 $ 3,511
======= ======= ======= =======
</TABLE>
(1) Includes amounts written off, translation adjustments and payments.
IV-4
<PAGE> 18
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 30th day of March
1995.
SONOCO PRODUCTS COMPANY
/s/ C. W. Coker
---------------------------------
C. W. Coker
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following person on behalf of the Registrant and
in the capacities indicated on this 30th day of March 1995.
/s/ F. T. Hill, Jr.
--------------------------------
F. T. Hill, Jr.
Vice President - Finance
(Principal Accounting Officer)
IV-5
<PAGE> 19
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES, CONTINUED
/s/ C. W. Coker Chief Executive Officer and
------------------------ Director (Principal Executive Officer)
C. W. Coker
/s/ T. C. Coxe, III Senior Executive Vice President and
------------------------ Director (Principal Financial Officer)
T. C. Coxe, III
/s/ L. Benatar Director
------------------------
L. Benatar
/s/ C. J. Bradshaw Director
------------------------
C. J. Bradshaw
/s/ R. J. Brown Director
------------------------
R. J. Brown
Director
------------------------
F. L. H. Coker
/s/ J. L. Coker Director
------------------------
J. L. Coker
/s/ A. T. Dickson Director
------------------------
A. T. Dickson
/s/ R. E. Elberson Director
------------------------
R. E. Elberson
/s/ J. C. Fort Director
------------------------
J. C. Fort
/s/ P. Fulton Director
------------------------
P. Fulton
/s/ R. C. King, Jr. Director
------------------------
R. C. King, Jr.
Director
------------------------
E. H. Lawton, Jr.
/s/ H. L. McColl, Jr. Director
------------------------
H. L. McColl, Jr.
/s/ E. C. Wall, Jr. Director
------------------------
E. C. Wall, Jr.
IV-6
<PAGE> 1
EXHIBIT 3
[The following is an unofficial
Restatement of the Restated Articles of
Incorporation, filed on October 7, 1988,
with the Secretary of State of South
Carolina, as subsequently amended on
April 28, 1989, November 2, 1993 and
May 4, 1994.]
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
(RESTATED) ARTICLES OF INCORPORATION
OF
SONOCO PRODUCTS COMPANY
-----------------------------------------
(File this Form in
Duplicate Originals) This Space for Use
by
(Section 33-7-30 of 1976 Code) Secretary of State
1. The name of the corporation is SONOCO PRODUCTS COMPANY, originally known as
SOUTHERN NOVELTY COMPANY as filed on May 10, 1899.
2. The initial registered office of the corporation is North Second Street
-------------------
Street & Number
Hartsville Darlington S.C. 29550
-----------------------------------------------------------------------
City County Zip Code
and the initial registered agent at such address is Harris E. DeLoach, Jr.
3. The period of duration of the corporation shall be perpetual ( years).
4. The corporation is authorized to issue shares of stock as follows:
<TABLE>
<CAPTION>
Class of Shares Authorized No. of Each Class Par Value
----- -- ------ ---------- --- -- ---- ----- --- -----
<S> <C> <C>
Common 150,000,000 None
Preferred 30,000,000 None
</TABLE>
If shares are divided into two or more classes or if any class of shares is
divided into series within a class, the relative rights, preferences, and
limitations of the shares of each class, and of each series within a class, are
as follows:
(a) Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of this Article 4,
to provide for the issuance of the shares of Preferred Stock (including any
shares of Preferred Stock restored to the status of authorized but unissued
Preferred Stock, undesignated as to series pursuant to this Article 4(a) in one
or more series, and to establish, from time to time, the number of shares to
be included in each such series and to fix the designations, voting powers, if
any, preferences, limitations, and relative, participating, optional or other
special rights, as shall be stated and expressed in the articles of amendment
providing for the issue of such series adopted by the Board of Directors and
filed with the Secretary of State. The authority of the Board of Directors
with respect to each series of Preferred Stock shall include, but not be
limited to, determination of the following:
(i) the distinctive serial designations and the division
of shares of Preferred Stock into one or more series and the
number of shares of a particular series, which may be increased
or decreased (but not below the number of shares thereof then
outstanding) by articles of amendment authorized, executed and
filed as required by law;
(ii) the rate or amount (or the method of determining the
rate or amount) and times at which, and the preferences and
conditions under which, dividends shall be payable on shares of a
particular series, the status of such dividends as cumulative,
partially cumulative, or noncumulative, the date or dates from
which dividends, if cumulative, shall accumulate, and the status
of such series as participating or nonparticipating with shares
of other classes or series of stock;
(iii) the price or prices at which, the nature of the
consideration for which, the period or periods within which and
the terms and conditions, if any, upon which the shares of a
particular series may be redeemed, in whole or in part,
-1-
<PAGE> 2
at the option of the corporation;
(iv) the amount or amounts and rights and preferences, if
any, to which the holders of shares of a particular series are
entitled or shall have in the event of any involuntary or
voluntary liquidation, dissolution or winding up of the
corporation;
(v) the right, if any, of the holders of a particular
series or the corporation to convert or cause conversion of
shares of such series into shares of other classes or series of
stock or other securities or other property or to exchange or
cause exchange of such shares for shares of other classes or
series of stock or other securities for other property, and the
terms and conditions, if any, including the price or prices or
the rate or rates of conversion and exchange, and the terms and
conditions of adjustments, if any, at which such conversion or
exchange may be made or caused;
(vi) the obligation, if any, of the corporation to redeem,
purchase or otherwise acquire, in whole or in part, shares of a
particular series for a sinking fund or otherwise, and the terms
and conditions thereof, if any, including the price or prices
and the nature of the consideration payable for such shares so
redeemed, purchased or otherwise acquired;
(vii) the voting rights, if any, of the shares of a
particular series (in addition to those that may be required by
law), whether special, conditional, limited or unlimited,
including the number of votes per share and any requirement for
the approval by the holders of shares of all series of Preferred
Stock, or of the shares of one or more series thereof, or of
both, in an amount greater than a majority up to such amount as
is in accordance with applicable law, as a condition to
specified corporation action or amendments to the Articles of
Incorporation; and,
(viii) any other relative rights, limitations and preferences
which may be so determined by the Board of Directors to the
fullest extent permitted by the laws of the State of South
Carolina.
All shares of any particular series of Preferred Stock shall rank equally
and shall be identical as to preferences, limitations and relative rights,
except as to the date or dates from and after which dividends, if cumulative or
partially cumulative, shall accumulate. All series of Preferred Stock shall rank
equally and shall be identical as to preferences, limitations and relative
rights, except insofar as, to the extent permitted by law, they may vary with
respect to the matters which the Board of Directors is hereby expressly
authorized to determine in the articles of amendment providing for any
-2-
<PAGE> 3
particular series of Preferred Stock.
All shares of Preferred Stock shall rank senior and prior to the Common
Stock in respect of the right to receive dividends and the right to receive
payments out of the net assets of the corporation upon any involuntary or
voluntary liquidation, dissolution or winding up of the corporation. All shares
of Preferred Stock redeemed, purchased or otherwise acquired by the
corporation (including shares surrendered for conversion or exchange) shall be
cancelled and thereupon restored to the status of authorized but unissued shares
of Preferred Stock undesignated as to series.
1. DESIGNATION OF THE SERIES; RANK. The shares of such series shall be
designated as "$2.25 Series A Cumulative Convertible Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting such series
shall be 3,450,000. The Series A Preferred Stock shall be without par value.
Such number of shares may be decreased, at any time and from time to time, by
resolution of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than that of the
shares then outstanding. The Series A Preferred Stock shall rank senior to the
common stock of the Company (the "Common Stock") and any other capital stock of
the Company ranking junior to the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up.
2. DIVIDENDS. (a) The holders of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, cumulative annual cash dividends of $2.25 per
share, payable in arrears on the first day of February, May, August and
November, commencing February 1, 1994 (the "Dividend Payment Date"), with
respect to the quarterly period ending on the day immediately preceding such
dividend payment date. The amount of dividends payable per share for each full
dividend period shall be computed by dividing by four the $2.25 annual rate.
Dividends payable for any period other than a full dividend period shall be
calculated on the basis of a year of 360 days consisting of twelve 30-day
months. The dividends will be payable to holders of record as they appear on
the stock register of the Company on a record date fixed by the Board of
Directors, which shall in no event be more than fifty (50) days nor less than
ten (10) days prior to the Dividend Payment Date. Dividends on the Series A
Preferred Stock shall be cumulative from the date of original issuance of the
Series A Preferred Stock. Holders of the Series A Preferred Stock shall not be
entitled to any dividends,
-3-
<PAGE> 4
whether payable in cash, property or securities, in excess of the full
cumulative dividends.
Any dividend which shall not be paid on the Dividend Payment Date on
which it shall become due shall be deemed to be "past due" until such dividend
shall be paid or until the share of Series A Preferred Stock with respect to
which such dividend became due shall no longer be outstanding, whichever is the
earlier to occur. No interest or sum of money in lieu of interest shall be
payable in respect of any dividend payment or payments which are past due.
Dividends paid on shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accumulated and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares of Series A Preferred Stock at the time outstanding.
Unless full cumulative dividends on all outstanding shares of the Series
A Preferred Stock have been paid or declared and set aside for payment for all
past dividend periods: (i) no dividends -- in cash, stock or other property --
may be declared or any other distribution made upon the Common Stock or on any
other stock of the Company ranking junior to the Series A Preferred Stock as to
dividends (other than dividends or distributions in Common Stock or any other
stock of the Company ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation, dissolution of winding up, dividends or
distributions of Rights (as defined in Section 7 hereof), or the issuance of
such Rights in connection with any other stock of the Company ranking
junior to or on a parity with the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up); (ii) no Common Stock, or any other
stock of the Company ranking junior to the Series A Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, may be redeemed
pursuant to a sinking fund or otherwise or purchased or otherwise acquired for
any consideration by the Company (except by conversion of such junior stock
into, or exchange of such stock for, stock of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up, or by redemption of the Rights for cash), provided that unless
-------- ----
prohibited by the terms of any other outstanding series of preferred stock, any
monies theretofore deposited in any sinking fund with respect to any preferred
stock of the Company in compliance with paragraph (a) of this Section 2 and the
provisions of such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of such sinking
fund, regardless of whether at the time of such application full cumulative
dividends on all
-4-
<PAGE> 5
outstanding shares of Series A Preferred Stock through the most recent Dividend
Payment Date shall have been paid in full or declared and a sufficient sum set
apart for payment thereof.
If a dividend upon any shares of Series A Preferred Stock or any other
outstanding preferred stock of the Company ranking on a parity with the Series A
Preferred Stock as to dividends is in arrears, all dividends or other
distributions on account of such arrearage (other than dividends paid in Common
Stock or any other stock of the Company ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation, dissolution or winding up) will be
declared pro rata so that the amounts of dividends per share declared on the
Series A Preferred Stock and such other series shall in all cases bear to each
other the same ratio that full cumulative dividends per share at the time on the
shares of Series A Preferred Stock and on such other series bear to each other.
(b) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company if the Company could not, under paragraph (a) of this Section 2,
purchase or otherwise acquire such shares at such time and in such manner.
3. GENERAL, CLASS AND SERIES VOTING RIGHTS. Except as provided in this
Section 3 and in Section 4 hereof, or as otherwise from time to time required by
law, the Series A Preferred Stock shall have no voting rights.
So long as any shares of Series A Preferred Stock remain outstanding,
the consent of the holders of at least two-thirds of the shares of Series A
Preferred Stock outstanding at the time (voting separately as a class together,
as to clause (i) below, with all other series of preferred stock ranking on a
parity with the Series A Preferred Stock either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up and upon
which like voting rights have been conferred and are exercisable) given in
person or by proxy, either in writing or at any special or annual meeting called
for the purpose, shall be necessary to permit, effect or validate any one or
more of the following:
(i) The authorization, creation, issuance or reclassification of
authorized stock of the Company into, or authorization, creation or
issuance of any obligation or security convertible into or evidencing a
right to purchase, any shares of any class of stock of the Company
(including any class or series of preferred
-5-
<PAGE> 6
stock) ranking prior to the Series A Preferred Stock or to any other series
of preferred stock which ranks on a parity with the Series A Preferred
Stock as to dividends or upon liquidation, dissolution or winding up; or
(ii) The amendment, alteration or repeal of any of the provisions of
this Amendment or of these resolutions, whether by merger,
consolidation or otherwise, which would materially and adversely affect the
preferences, rights, powers or privileges, qualification, limitations and
restrictions of the Series A Preferred Stock; provided, however, that the
-------- -------
authorization, creation, issuance or increase in the amount of shares of
any other class or series of capital stock ranking on a parity with or
junior to the Series A Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such
preferences, rights, powers or privileges, qualifications, limitations and
restrictions.
The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Series A Preferred Stock shall have
been redeemed or sufficient funds shall have been deposited in trust to effect
such redemption.
4. DEFAULT VOTING RIGHTS. Whenever at any time dividends payable on
the shares of Series A Preferred Stock shall be in arrears in an amount equal to
at least six full quarterly dividends payable on shares of the Series A
Preferred Stock at the time outstanding, whether or not consecutive quarterly
dividend payment periods, the holders of the outstanding shares of Series A
Preferred Stock shall have the exclusive right (voting separately as a class
together with holders of shares of any one or more other series of preferred
stock ranking on a parity with the Series A Preferred Stock either as to
dividends or the distribution of assets upon liquidation, dissolution or winding
up and upon which like voting rights have been conferred and are exercisable) to
elect two directors of the Company for terms at the Company's next annual
meeting of shareholders (the "Preferred Stock Directors"). If the right to
elect Preferred Stock Directors shall have accrued to the holders of the Series
A Preferred Stock more than 90 days prior to the date established for the next
annual meeting of shareholders and if immediately prior to the accrual of that
right there are at least two vacancies on the full Board of Directors of the
Company, the Chairman of the Board or the President of the Company shall, within
20 days after
-6-
<PAGE> 7
delivery to the Company at its principal office of a written request for a
special meeting signed by the holders of at least 15 percent of all outstanding
shares of the Series A Preferred Stock, call a special meeting of the holders of
Series A Preferred Stock to be held within 60 days after the delivery of such
request for the purpose of electing such additional directors. At elections for
such Preferred Stock Directors, each holder of Series A Preferred Stock shall be
entitled to one vote for each share held (the holders of shares of any other
series of preferred stock ranking on a parity as aforesaid with the Series A
Preferred Stock and upon which like voting rights have been conferred and are
exercisable being entitled to such number of votes, if any, for each share of
stock held as may be granted to them).
The Preferred Stock Directors to be elected by the holders of Series A
Preferred Stock (together with any series of preferred stock ranking on a
parity as aforesaid with the Series A Preferred Stock and upon which like
Voting rights have been conferred and are exercisable) shall be in addition to
the number of directors constituting the Board of Directors of the Company
immediately prior to the accrual of that right, unless the Board of Directors is
then at its maximum size, in which case such holders shall be entitled to elect
two of such Directors at the Company's next annual meeting of shareholders.
Unless the voting rights of the holders of such stock have terminated as
provided below, such Preferred Stock Directors shall serve until their
successors are elected and qualified by the holders of Series A Preferred Stock
and any other holders of shares of preferred stock ranking as aforesaid on a
parity with the Series A Preferred Stock and upon which like voting rights have
been conferred and are exercisable.
Each Preferred Stock Director elected by the holders of shares of Series
A Preferred Stock (together with any other series of preferred stock ranking as
aforesaid on a parity with the Series A Preferred Stock and upon which like
voting rights have been conferred and are exercisable) shall continue to serve
as such director until such time as all dividends accumulated on the Series A
Preferred Stock have been paid in full, at which time, subject to the
requirements of the South Carolina Business Corporation Act of 1988, as amended,
the term of office of all persons elected
-7-
<PAGE> 8
as Preferred Stock Directors by the holders of Series A Preferred Stock
(together with any other series of preferred stock ranking on a parity with the
Series A Preferred Stock and upon which like voting rights have been conferred
and are exercisable) shall forthwith terminate and the number of members of the
Board of Directors shall be reduced accordingly. If the office of any
Preferred Stock Director elected by the holders of Series A Preferred Stock
voting as a class becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office, or otherwise (other than termination
upon the payment in full of all accumulated dividends as aforesaid), the
remaining Preferred Stock Director elected by the holders of Series A Preferred
Stock (together with any other series of preferred stock ranking on a parity
with the Series A Preferred Stock and upon which like voting rights have been
conferred and are exercisable) voting as a class may choose a successor who
shall hold office for the unexpired term in respect of which such vacancy
occurred. Any Preferred Stock Director may be removed by, and shall not be
removed otherwise than by, a majority of the votes to which the holders of the
outstanding shares of Series A Preferred Stock and all other such series of
preferred stock ranking on a parity with the Series A Preferred Stock and upon
which like voting rights have been conferred and are exercisable are entitled.
Whenever the term of office of the Preferred Stock Directors elected by the
holders of Series A Preferred Stock voting as a class shall end and the special
voting powers vested in the holders of Series A Preferred Stock as provided in
this Section 4 shall have expired, the number of directors shall be such number
as may be provided for in the By-Laws or in a resolution of the Board of
Directors adopted in accordance with the By-laws.
5. REDEMPTION. The outstanding shares of Series A Preferred Stock
shall not be redeemable prior to November 8, 1996. On or after November 8,
1996, the Series A Preferred Stock may be redeemed at the option of the Company
----------------------------
at any time, in whole or in part, at a price of $51.575 per share, plus accrued
and unpaid dividends, if any, if redeemed prior to November 1, 1997 and at the
prices indicated below, plus in each case accrued and unpaid dividends, if any,
if redeemed during the 12-month period beginning November 1 of the years
indicated below:
-8-
<PAGE> 9
<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
------------- ------------- ------------ ------------
<S> <C> <C> <C>
1997......... $51.350 2001........ $50.450
1998......... $51.125 2002........ $50.225
1999......... $50.900 2003 and
2000......... $50.675 thereafter.. $ 50.00
</TABLE>
in each case plus accrued and unpaid dividends, if any, up to but excluding the
date fixed for redemption (subject to the right of the holder of record of
shares of Series A Preferred Stock on a record date for the payment of a
dividend on the Series A Preferred Stock to receive the dividend due on such
shares of Series A Preferred Stock on the corresponding Dividend Payment Date).
No sinking fund, mandatory redemption or other similar provision shall
apply to the Series A Preferred Stock.
If fewer than all the outstanding shares of Series A Preferred Stock are
to be redeemed, the Company will determine those to be redeemed pro rata as
nearly as practicable, by lot, or by such other method as the Board of Directors
may determine to be fair and appropriate.
Notice of any proposed redemption of shares of Series A Preferred Stock
shall be mailed by means of first class mail, postage paid, addressed to the
holders of record of the shares of Series A Preferred Stock to be redeemed, at
their respective addresses then appearing in the stock register of the Company,
not less than thirty (30) nor more than sixty (60) days prior to the date fixed
for such redemption (herein referred to as the "Redemption Date"). Each such
notice shall specify (i) the Redemption Date, (ii) the Redemption Price, (iii)
the place for payment and for delivering the stock certificate(s) and transfer
instrument(s) in order to collect the Redemption price; (iv) the shares of
Series A Preferred Stock to be redeemed and (v) the then effective Conversion
Price (as defined below) and that the right of holders of shares of Series A
Preferred Stock being redeemed to exercise their conversion right shall
terminate as to such shares at the close of business on the business day next
preceding the Redemption Date (provided that no default by the Company in the
payment of the applicable Redemption Price (including any accrued and unpaid
dividends) shall have occurred and be continuing). Any notice mailed in such
manner shall be conclu-
-9-
<PAGE> 10
sively deemed to have been duly given whether or not such notice is in fact
received.
The holder of any shares of Series A Preferred Stock redeemed upon any
exercise of the Company's redemption right shall not be entitled to receive
payment of the Redemption Price for such shares until such holder shall cause to
be delivered to the place specified in the notice given with respect to such
redemption (i) the certificate(s) representing such shares of Series A Preferred
Stock and (ii) transfer instrument(s) satisfactory to the Company and sufficient
to transfer such shares of Series A Preferred Stock to the Company free of any
adverse interest. No interest shall accrue or be paid on the Redemption Price
of any share of Series A Preferred Stock.
On and after the Redemption Date for any share of Series A Preferred
Stock, such share shall (provided the Redemption (including any accrued and
unpaid dividends up to but excluding the Redemption Date) of such share has been
paid or properly provided for) be deemed to cease to be outstanding and all
rights of any person other than the Company in such share shall be extinguished
on the Redemption Date for such share (including all rights to receive future
dividends with respect to such share) except for the right to receive the
Redemption Price (including any accrued and unpaid dividends up to but excluding
the Redemption Date), without interest, for such share in accordance with the
provisions of this Section 5, subject to applicable escheat laws. Any interest
accrued on such funds shall be paid to the Company from time to time.
If any such notice of redemption shall have been duly given or has been
given to a bank or trust company hereinafter referred to in Section 8 with
irrevocable written instruction to promptly give or complete such notice, and if
on or before the Redemption Date all funds necessary for such redemption shall
have been deposited with such a bank or trust company, in trust for the benefit
of the holders of the shares so called for redemption, then, notwithstanding the
certificate or certificates for shares so called for redemption shall not have
been surrendered for redemption, from and after the time of such deposit all
shares so called for redemption shall be deemed to be no longer outstanding, and
all rights with respect to such shares shall forthwith terminate, except only
the right of the holders thereof to receive from such bank or trust company at
any time after the time of such deposit the funds so deposited, without
interest, on or before the date fixed for redemption, and to exercise all
privileges of conversion, if any, not theretofore expired, subject to applicable
escheat laws. Any interest accrued on such funds so held by such bank or trust
company shall be paid to the Company from time to time.
-10-
<PAGE> 11
In the event that any shares of Series A Preferred Stock shall be
converted into Common Stock pursuant to Section 7 hereof, then (i) the Company
shall not have the right to redeem such shares and (ii) any funds which shall
have been deposited for the payment of the Redemption Price for such shares
shall be returned to the Company immediately after such conversion (subject to
declared dividends payable to holders of shares of Series A Preferred Stock on
the record date for such dividends being so payable, to the extent set forth in
Section 7 hereof).
Subject to Section 2 hereof and to the following paragraph, the Company
shall have the right to purchase shares of Series A Preferred Stock in the
public market at such prices as may from time to time be available in the public
market for such shares and shall have the right at any time to acquire any
shares of Series A Preferred Stock from the owner of such shares on such terms
as may be agreeable to such owner. Shares of Series A Preferred Stock may be
acquired by the Company from any shareholder pursuant to this paragraph without
offering any other shareholder an equal opportunity to sell his stock to the
Company, and no purchase by the Company from any shareholder pursuant to this
paragraph shall be deemed to create any right on the part of any shareholder to
sell any shares of Series A Preferred Stock (or any other stock) to the Company.
Notwithstanding the foregoing provisions of this Section 5, and subject
to the provisions of Section 2 hereof, if a dividend upon any shares of Series A
Preferred Stock is past due, (i) no shares of the Series A Preferred Stock may
be redeemed, except (A) by means of a redemption pursuant to which all
outstanding shares of the Series A Preferred Stock are simultaneously redeemed,
or pursuant to which the outstanding shares of the Series A Preferred Stock are
redeemed on a pro rata basis or (B) by conversion of shares of Series A
Preferred Stock into, or exchange of such shares for, Common Stock or any other
stock of the Company ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation, dissolution or winding up, and (ii) neither the
Company nor any subsidiary of the Company shall purchase or otherwise acquire
any shares of the Series A Preferred Stock, except (A) pursuant to a purchase or
exchange offer made on the same terms to all holders of the Series A Preferred
Stock or (B) by conversion of shares of Series A Preferred Stock into, or
exchange of such shares for, Common Stock or any other stock of the Company
ranking junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up.
-11-
<PAGE> 12
6. LIQUIDATION. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company (for the purposes of this
Section 6, a "Liquidation"), before any distribution of assets shall be made to
the holders of Common Stock or the holders of any other stock of the Company
that ranks junior to the Series A Preferred Stock upon liquidation, dissolution
or winding up, the holder of each share of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its shareholders, an amount equal to $50 per share
plus all dividends accrued and unpaid on such share up to the date of
distribution of the assets of the Company to the holders of Series A Preferred
Stock, and the holders of any class or series of stock ranking on a
parity with the Series A Preferred Stock as to liquidation, dissolution or
winding up shall be entitled to receive the full respective liquidation
preferences (including any premium), to which they are entitled and shall
receive all accrued and unpaid dividends with respect to their respective shares
through and including the date of distribution.
If upon any Liquidation of the Company, the assets available for
distribution to the holders of Series A Preferred Stock and any other stock of
the Company ranking on a parity with the Series A Preferred Stock upon
Liquidation which shall then be outstanding shall be insufficient to pay the
holders of all outstanding shares of Series A Preferred Stock and all other such
parity stock the full amounts (including all dividends accrued and unpaid) of
the liquidating distribution to which they shall be entitled, then the holders
of each series of such stock will share ratably in any such distribution of
assets first in proportion to their respective liquidation preferences until
such preferences are paid in full, and then in proportion to their respective
amounts of accrued but unpaid dividends. After payment of any such liquidating
preference and accrued dividends, the holders of shares of the Series A
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
For purposes of this Section 6, a Liquidation shall not include (i) any
consolidation or merger of the Company with or into any other corporation, (ii)
any liquidation, dissolution, winding up or reorganization of the Company
immediately followed by reincorporation of another corporation or (iii) a sale
or other disposition of all or substantially all of the Company's assets to
another corporation unless in connection therewith the Liquidation of the
Company is specifically approved.
-12-
<PAGE> 13
The holder of any shares of Series A Preferred Stock shall not be
entitled to receive any payment owed for such shares under this Section 6 until
such holder shall cause to be delivered to the Company (i) the certificate(s)
representing such shares of Series A Preferred Stock and (ii) transfer
instrument(s) satisfactory to the Company and sufficient to transfer such shares
of Series A Preferred Stock to the Company free of any adverse interest. As in
the case of the Redemption Price, no interest shall accrue on any payment upon
Liquidation after the due date thereof.
7. CONVERSION PRIVILEGE. The holder of any share of Series A Preferred
Stock shall have the right, at such holder's option (but if such share is called
for redemption, then in respect of such share only to and including but not
after the close of business on the second business day preceding the date fixed
for such redemption, provided that no default by the Company in the payment of
the applicable Redemption Price (including any accrued and unpaid dividends)
shall have occurred and be continuing on the date fixed for such redemption), to
convert such share into that whole number of fully paid and nonassessable shares
of Common Stock equal to a fraction, the numerator of which is the liquidation
preference specified in Section 6 above (excluding accrued but unpaid dividends,
if any) of such share of Series A Preferred Stock surrendered for conversion,
and the denominator of which is the current Conversion Price per share of Common
Stock. The Conversion Price shall initially be $25.3125 per share of Common
Stock and shall be subject to adjustment as set forth below.
In order to exercise the conversion privilege, the holder of shares of
Series A Preferred Stock shall surrender the certificate(s) representing such
shares, accompanied by transfer instrument(s) satisfactory to the Company and
sufficient to transfer the Series A Preferred Stock being converted to the
Company free of any adverse interest, at any of the offices or agencies
maintained for such purpose by the Company ("Conversion Agent") and shall give
written notice to the Company at such Conversion Agent that the holder elects to
convert such shares. Such notice shall also state the name(s), together with
address(es), in which the certificate(s) for shares of Common Stock which shall
be issuable on such conversion shall be issued. As promptly as practicable
after the surrender of such shares of Series A Preferred Stock as aforesaid, the
Company shall issue and shall deliver at such Conversion Agent to such holder,
or upon such holder's written order, a certificate(s) for the number of full
shares of Common Stock issuable upon the conversion of such shares in accordance
with the provisions hereof, and any fractional interest in respect of a share of
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<PAGE> 14
Common Stock arising upon such conversion shall be settled as provided below.
Balance certificates will be issued for the remaining shares of Series A
Preferred Stock in any case in which fewer than all of the shares of Series A
Preferred Stock represented by a certificate are converted. Each conversion
shall be deemed to have been effected immediately prior to the close of business
on the date on which shares of Series A Preferred Stock shall have been so
surrendered and such notice received by the Company as aforesaid, and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the Common Stock represented thereby at such time, unless the stock
transfer books of the Company shall be closed on the date on which shares of
Series A Preferred Stock are so surrendered for conversion, in which event such
conversion shall be deemed to have been effected immediately prior to the close
of business on the next succeeding day on which such stock transfer books are
open, and such person(s) shall be deemed to have become such holder(s) of record
of the Common Stock at the close of business on such later day. In either
circumstance, such conversion shall be at the Conversion Price in effect on the
date upon which such share shall have been surrendered and such notice received
by the Company.
In the case of any share of Series A Preferred Stock which is converted
after any record date with respect to the payment of a dividend on the Series A
Preferred Stock and on or prior to the next succeeding Dividend Payment Date,
the dividend due on such next succeeding Dividend Payment Date shall be payable
on such Dividend Payment Date to the holder of record of such share as of such
preceding record date notwithstanding such conversion, except that holders of
shares called for redemption on a Redemption Date between the record date and
the Dividend Payment Date will not be entitled to receive such dividend.
However, shares of Series A Preferred Stock surrendered for conversion during
the period between the close of business on any record date with respect to the
payment of a dividend on the Series A Preferred Stock next preceding any
Dividend Payment Date and the opening of business on such Dividend Payment Date
must (except in the case of shares of Series A Preferred Stock which have been
called for redemption on a Redemption Date within such period) be accompanied by
payment in funds acceptable to the Company of an amount equal to the dividend
payable on such next succeeding Dividend Payment Date on the shares of Series A
Preferred Stock being surrendered for conversion. A holder of shares of Series
A Preferred Stock on a dividend record date who (or whose transferee) tenders
any such shares for conversion
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<PAGE> 15
into shares of Common Stock on the corresponding Dividend Payment Date will
receive the dividend payable by the Company on such shares of Series A Preferred
Stock on such Dividend Payment Date, and the converting holder need not include
payment of the amount of such dividend upon surrender of shares of Series A
Preferred Stock for conversion. Except as provided in this paragraph, no
payment or adjustment shall be made upon any conversion on account of any
dividends accrued on shares of Series A Preferred Stock surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
No fractional shares of Common Stock will be issued, but in lieu
thereof, in the sole discretion of the Board of Directors, either (i) such
fractional interest shall be rounded up to the next whole share, or (ii) an
appropriate amount will be paid in cash by the Company, as described in Section
10 hereof. If more than one certificate representing shares of Series A
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series A Preferred Stock represented by, such certificates, or the specified
portions thereof to be converted, so surrendered.
The Conversion Price shall be adjusted from time to time as follows:
(a) In case the Company shall pay or make a dividend or other
distribution on Common Stock of the Company in Common Stock, the Conversion
Price in effect at the opening of business on the day following the date
fixed for the determination of shareholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend
or other distribution, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this subsection (a), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any
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<PAGE> 16
distribution on shares of Common Stock held in the treasury of the Company.
(b) In case the Company shall issue rights or warrants to all holders
of its Common Stock entitling them (for a period expiring within 45 days
after the record date fixed for a distribution of such rights or warrants)
to subscribe for or purchase shares of Common Stock at a price per share
less than the current market price per share (determined as provided in
subsection (g) below) of Common Stock on the date fixed for the
determination of shareholders entitled to receive such rights or warrants
(other than pursuant to a dividend reinvestment plan), the Conversion Price
in effect at the opening of business on the day following the date fixed
for such determination shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such
current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately
after the opening of business on the day following the date fixed for such
determination. For the purposes of this subsection (b), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not issue any rights or warrants in respect
of shares of Common Stock held in the treasury of the Company. To the
extent that shares of Common Stock are not delivered after the expiration
of such rights or warrants, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect had the adjustments made in
respect of the issuance of such rights or warrants been made on the basis
of delivery of only the number of shares of Common Stock actually
delivered.
(c) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
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<PAGE> 17
upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case the outstanding shares of Common Stock
shall each be combined into a smaller amount of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be,
to become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(d) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock (i) evidences of its indebtedness and/or
(ii) cash or other assets (including securities, but excluding Common Stock
and any rights or warrants referred to in subsection (b) above, dividends
or distributions in connection with the liquidation, dissolution or winding
up of the Company, dividends payable solely in cash that may from time to
time be fixed by the Board of Directors of the Company and dividends or
distributions referred to in subsection (a) above), then in each case
(unless the Company elects to reserve such evidences of indebtedness,
securities or other assets for distribution to the holders of Series A
Preferred Stock upon the conversion thereof so that any such holder
converting such shares will receive upon such conversion, in addition to
the shares of the Common Stock to which such holder is entitled, the amount
and kind of such evidences of indebtedness, securities or other assets
which such holder would have received if such holder had, immediately prior
to the record date for the distribution of the evidences of indebtedness,
securities or other assets, converted such shares of Series A Preferred
Stock into Common Stock) the Conversion Price shall be adjusted so that the
sum shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on such record date by a
fraction of which the numerator shall be the current market price per share
(determined as provided in subsection (g) below) of the Common Stock on
such record date less the then fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and shall be
described in a statement filed with any Conversion Agent) of the portion of
the cash or other assets, evidences of indebtedness or securities so
distributed (and for which an adjustment to the Conversion Price has not
previously been made pursuant to the terms of this
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<PAGE> 18
Section 7) applicable to one share of Common Stock and the denominator
shall be such current market price per share of the Common Stock, such
adjustment to become effective immediately prior to the opening of business
on the day following such record date. However, in the event the then fair
market value (as so determined) of the portion of the evidences of
indebtedness, securities or other assets so distributed applicable to one
share of Common Stock is equal to or greater than the current market price
of the Common Stock on such record date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of shares
of Series A Preferred Stock shall have the right to receive upon conversion
thereof the amount and kind of evidences of indebtedness, securities or
other assets such holder would have received had he converted such shares
on such record date. If the Board of Directors determines the fair market
value of any distribution for purposes of this subparagraph by reference to
the actual or when issued trading market for any securities comprising a
distribution of securities, it shall in doing so consider the price in such
market over the period used in computing the current market price of the
Common Stock.
The occurrence of a distribution or the occurrence of any other event
as a result of which holders of shares of Series A Preferred Stock
converting such shares into Common Stock hereunder will not be entitled to
receive rights issued pursuant to any shareholders protective rights
agreement that may be adopted by the Company (the "Rights") in the same
amount and manner as if such holders had converted such shares immediately
prior to the occurrence of such event shall be deemed a distribution of
Rights for the purposes of conversion adjustments pursuant to this
subparagraph. In lieu of making any adjustment to the Conversion Price
under this subparagraph as a result of such a distribution of Rights, the
Company may, at its option, provide that Rights shall be issuable in the
same amount and manner upon conversion of the Series A Preferred Stock
without regard to whether the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock were issued before or after such
distribution or other event.
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of its Common Stock cash (excluding (i) any cash
dividends on the Common Stock to the extent that the aggregate cash
dividends per share of Common Stock in any consecutive 12-month period do
not exceed the greater of (a)
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<PAGE> 19
the amount per share of Common Stock of the cash dividends paid on the
Common Stock in the next preceding 12-month period, to the extent that such
dividends for the preceding 12-month period did not require an adjustment
to the Conversion Price pursuant to this subparagraph (as adjusted to
reflect subdivisions or combinations of the Common Stock) and (b) 15% of
the average daily Closing Prices (as hereinafter defined) of the Common
Stock for the ten consecutive Trading Days (as hereinafter defined)
immediately prior to the date of declaration of such dividend, (ii) any
dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, and (iii) any
redemption of Rights issued under a rights agreement) then, in each such
case, unless the Company elects to reserve such an amount of cash for
distribution to the holders of the Series A Preferred Stock so that any
such holder converting such shares will receive upon such conversion, in
addition to the shares of the Common Stock to which such holder is
entitled, the amount of cash which such holder would have received if such
holder had, immediately prior to the record date for such distribution of
cash, converted its shares of Series A Preferred Stock into Common Stock,
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect at the close
of business on such record date by a fraction of which the numerator shall
be the last reported sales price of the Common Stock on such record date
less the amount of cash so distributed (to the extent not excluded as
provided above) applicable to one share of Common Stock, and the
denominator shall be such last reported sales price of the Common Stock,
such reduction to become effective immediately prior to the opening of
business on the day following such record date; provided, however, that in
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the event the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the last reported sales price of
the Common Stock on such record date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of shares of Series A
Preferred Stock shall thereafter have the right to receive upon conversion
the amount of cash such holder would have received had such holder
converted each share of Series A Preferred Stock on such record date. If
any adjustment is required to be made as set forth in this subparagraph as
a result of a distribution which is a dividend described in subclause (i)
of this subparagraph, such adjustment would be based upon the
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<PAGE> 20
amount by which such distribution exceeds the amount of the dividend
permitted to be excluded pursuant to such subclause (i) of this
subparagraph. If an adjustment is required to be made pursuant to this
subparagraph as a result of a distribution which is not such a dividend,
such adjustment would be based upon the full amount of such distribution.
(f) In case of the consummation of a tender or exchange offer (other
than an odd-lot tender offer) made by the Company or any subsidiary of the
Company for all or any portion of the Common Stock to the extent that the
cash and value of any other consideration included in such payment per
share of Common Stock exceeds the first reported sales price per share of
Common Stock on the Trading Day next succeeding the Expiration Time (as
defined below), the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the last time tenders or exchanges may be made
pursuant to such tender or exchange offer (the "Expiration Time") by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) on the
Expiration Time multiplied by the first reported sales price of the Common
Stock on the Trading Day next succeeding the Expiration Time, and the
denominator shall be the sum of (A) the fair market value (determined by
the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Board of Directors) of the aggregate
consideration payable to shareholders based on the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred
to as the "Purchased Shares") and (B) the product of the number of shares
of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the first reported sales price of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
(g) For the purpose of any computation under this Section 7, the
current market price per share of Common Stock on any day shall be deemed
to be the average of the daily Closing Prices (as hereinafter defined) per
share of Common Stock for the ten consecutive Trading Days prior to and
including the date in question;
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<PAGE> 21
provided, however, that (1) if the "ex" date (as hereinafter defined) for
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any event (other than the issuance, distribution or Fundamental Change
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to this Section 7 occurs during such ten consecutive Trading
Days and prior to the "ex" date for the issuance, distribution or
Fundamental Change requiring such computation, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall be adjusted
by multiplying such Closing Price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such other
event, (2) if the "ex" date for any event (other than the issuance,
distribution or Fundamental Change requiring such computation) that
requires an adjustment to the Conversion Price pursuant to such
subparagraphs hereof occurs on or after the "ex" date for the issuance,
distribution or Fundamental Change requiring such computation and on or
prior to the date in question, the Closing Price for each Trading Day on
and after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result of such
other event (provided that in the event that such fraction is required to
be determined at a date subsequent to the date in question and with
reference to events taking place subsequent to the date in question, the
Board of Directors of the Company or, to the extent permitted by applicable
law, a duly authorized committee thereof, whose determination shall be
conclusive and described in a resolution of the Board of Directors or such
duly authorized committee thereof, as the case may be, shall estimate such
fraction based on assumptions it deems reasonable regarding such events
taking place subsequent to the date in question, and such estimated
fraction shall be used for purposes of such adjustment until such time as
the actual fraction by which the Conversion Price is so required to be
adjusted as a result of such other event is determined), and (3) if the
"ex" date for the issuance, distribution or Fundamental Change requiring
such computation is on or prior to the date in question, after taking into
account any adjustment required pursuant to clause (1) or (2) of this
proviso, the Closing Price for each Trading Day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair
market value (as determined by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof in a
manner consistent with any
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<PAGE> 22
determination of such value for purposes of the subparagraphs of this
Section 7, whose determination shall be conclusive and described in a
resolution of the Board of Directors or such duly authorized committee
thereof, as the case may be) of the evidences of indebtedness, shares of
capital stock or assets being distributed applicable to one share of Common
Stock as of the close of business an the day before such "ex" date. For
purposes of this paragraph, the term "ex" date, (1) when used with respect
to any issuance, distribution or Fundamental Change, means the first date
on which the Common Stock trades regular way on the relevant exchange or in
the relevant market from which the Closing Price was obtained without the
right to receive such issuance, such distribution or the cash, securities,
property or other assets distributable in such Fundamental Change to
holders of the Common Stock, (2) when used with respect to any subdivision
or combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the time at which such subdivision or combination becomes effective, and
(3) when used with respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the Expiration Time of such offer.
(h) No adjustment in the Conversion Price shall be required pursuant
to this Section 7 unless the adjustment would require a change of at least
1% of such price; provided, however, that any adjustments which by reason
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of this subsection are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case
may be. The Board of Directors of the Company from time to time may, to
the extent permitted by law, reduce the Conversion Price by any amount for
any period of at least 20 days, in which case the Company shall give at
least 15 days' notice of such reduction. In addition, the Company may, at
its option, make such reductions in the Conversion Price in addition to
those set forth in this Section 7, as it considers to be advisable in order
to avoid or diminish any income tax to any holders of shares of Common
Stock resulting from any dividend or distribution of stock or issuance of
rights or warrants to purchase or subscribe for stock or from any event
treated as such for income tax purposes or for any other reasons. The
Company shall have the power to resolve any ambiguity or
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<PAGE> 23
correct any error with regard to the preceding sentence and its actions in
so doing shall be final and conclusive. Notwithstanding anything to the
contrary within this Section 7, the Conversion Price shall not be less than
the greater of $1.00 or the par value, if any, per share of the Common
Stock. In the event an adjustment provided for herein would result in a
Conversion Price of less than $1.00 or the par value, if any, such adjusted
Conversion Price shall be such greater amount per share.
Whenever the Conversion Price is adjusted as herein provided, (i) the
Company shall promptly file with any Conversion Agent a Certificate of a
duly authorized officer of the Company or of a firm of independent public
accountants setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment, and
the manner of computing the same, which certificate, if of a firm of
independent public accountants, shall be conclusive evidence of the
correctness of such adjustment, and (ii) a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be given by the Company to any Conversion
Agent and mailed by the Company to each holder of shares of Series A
Preferred Stock at such holder's last address as the same appears on the
books of the Company.
In any case in which this Section 7 provides that an adjustment shall
become effective immediately after a record date for an event, the Company
may defer until the occurrence of such event (A) issuing to the holder of
any share of Series A Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount
in cash in lieu of any fractional shares pursuant to this Section 7.
For purposes of this Section 7, "Common Stock" includes any stock of
any class of the Company which has no preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which is not
subject to redemption by the Company. However, subject to the provisions of
this Section 7,
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<PAGE> 24
shares issuable on conversion of shares of Series A Preferred Stock shall
include only shares of the class designated as Common Stock of the Company
on the date of the initial issuance of Series A Preferred Stock by the
Company, or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference
in respect of dividends or of amounts payable in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company and
which are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each
such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would cause an adjustment to
the Conversion Price of the Series A Preferred Stock pursuant to the
terms of any of the subsections above (including such an adjustment
that would occur but for the terms of the first sentence of subsection
(h) above); or
(ii) the Company shall authorize the granting to the holders of
its Common Stock generally of rights or warrants (for a period
expiring within 45 days after the record date fixed for a distribution
of such rights and warrants) to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(iii) the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock or combined into a
smaller number of shares of Common Stock; or
(iv) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation, merger or share exchange to
which the Company is a party and for which approval of any
shareholders of the Company is required, or of the sale or transfers
of all or
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<PAGE> 25
substantially all of the assets of the Company or a compulsory share
exchange; or
(v) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed with any Conversion Agent, and
shall cause to be mailed to all holders of shares of Series A Preferred
Stock at each such holder's last address as the same appears on the books
of the Company, at least 20 days prior to the applicable record or
effective date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, rights or warrants are to be determined, or
(B) the date on which such reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up. Neither the failure to
give such notice nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (i) through (v) above.
The Company will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Common
Stock on conversions of shares of Series A Preferred Stock pursuant hereto;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the shares of
Series A Preferred Stock to be converted and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Company the amount of any such tax or has established, to the satisfaction
of the Company, that such tax has been paid.
The Company covenants that all shares of Common Stock which may be
delivered upon conversions of shares of Series A Preferred Stock will upon
delivery be duly and
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<PAGE> 26
validly issued and fully paid and nonassessable, free of all liens and charges
and not subject to any preemptive rights.
The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock, a sufficient number of shares of Common
Stock for the purpose of effecting conversions of shares of Series A Preferred
Stock not theretofore converted. For purposes of this reservation of Common
Stock, the number of shares of Common Stock which shall be deliverable upon the
conversion of all outstanding shares of Series A Preferred Stock shall be
computed as if at the time of computation all outstanding shares of Series A
Preferred Stock were held by a single holder. The issuance of shares of Common
Stock upon conversion of shares of Series A Preferred Stock is hereby authorized
in all respects.
If any shares of Common Stock required to be reserved for purposes of
conversion of the Series A Preferred Stock hereunder require registration with
or approval of any governmental authority under any Federal or State law before
such shares may be issued upon conversion, the Company will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered or
approved, as the case may be. If the Common Stock is listed on the New York
Stock Exchange, the NASDAQ Stock Market ("Nasdaq") or any other national
securities exchange, the Company will, in good faith and as expeditiously as
possible, endeavor, if permitted by the rules of such exchange or system, to
list and keep listed on such exchange or system, upon official notice of
issuance, all shares of Common Stock issuable upon conversion of the Series A
Preferred Stock.
Notwithstanding the provisions in this Section 7, the issuance of any
shares of Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under any such plan
(whether any such plan is now or hereafter authorized), or the issuance of any
shares of Common Stock or options or rights to purchase such shares pursuant to
any employee benefit plan or program of the Company or any subsidiary (whether
any such plan or program is now or hereafter authorized), or pursuant to any
option, warrant, right or exercisable, exchangeable or convertible security
outstanding as of the date the Series A Preferred Stock was first designated,
shall not be deemed to constitute an issuance of Common
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<PAGE> 27
Stock or exercisable, exchangeable or convertible securities by the Company to
which any of the adjustment provisions described above applies. There shall be
no adjustment of the Conversion Price in case of the issuance of any stock (or
securities convertible into or exchangeable for stock) of the Company except as
described in this Section 7. Except as expressly set forth in this Section 7, if
any action would require adjustment of the Conversion Price pursuant to more
than one of the provisions described above, only one adjustment shall be made
and such adjustment shall be the amount of adjustment which has the highest
absolute value.
In the event that the Company shall be a party to any transaction
constituting a recapitalization, reclassification, consolidation, merger, sale,
transfer of all or substantially all of its assets or share exchange (including
without limitation any (i) recapitalization or reclassification of shares of the
Common Stock (other than a change from no par value to par value, or from par
value to no par value, or as a result of a subdivision or combination of the
Common Stock)), (ii) any consolidation of the Company with, or merger of the
Company into, any other corporation, any merger of another corporation into the
Company as a result of which holders of Common Stock shall be entitled to
receive securities or other property or assets (including cash) with respect to
or in exchange for the Common Stock (other than a merger which does not result
in a reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Company), (iii) any sale or transfer of all or
substantially all of the assets of the Company, or (iv) any compulsory share
exchange, pursuant to any of which the holders of Common Stock shall be entitled
to receive other securities, cash or other property), then appropriate provision
shall be made as part of the terms of such transaction so that the holder of
each share of Series A Preferred Stock then outstanding shall have the right
thereafter to convert such share only into (1) in the case of a Non-Stock
Fundamental Change (as hereinafter defined) and subject to funds being legally
available for such purpose under applicable law at the time of such conversion,
the kind and amount of securities, cash and other property that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of Common
Stock into which such share of Series A Preferred Stock might have been
converted immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange, after giving effect to
any adjustment in the Conversion Price required by the provisions which follow,
and (2) in the case of a Common
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<PAGE> 28
Stock Fundamental Change (as hereinafter defined), common stock of the kind
received by holders of Common Stock as a result of such Common Stock Fundamental
Change in an amount determined pursuant to the provisions of this Section 7. The
company formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires the Company's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments which,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The above
provisions shall similarly apply to successive recapitalizations,
reclassifications, consolidations, mergers, sales, transfer or share exchanges.
Notwithstanding any other provisions in this Section 7 to the contrary,
if any Fundamental Change (as hereinafter defined) occurs, then the Conversion
Price in effect will be adjusted immediately following such Fundamental Change
as described below. In addition, in the event of a Common Stock Fundamental
Change, each share of Series A Preferred Stock shall be convertible solely into
Common Stock of the kind received by holders of Common Stock as the result of
such Common Stock Fundamental Change.
For purposes of calculating any adjustment to be made pursuant to this
Section 7 in the event of a Fundamental Change, immediately following such
Fundamental Change (and for such purposes a Fundamental Change shall be deemed
to occur on the earlier of (a) the occurrence of such Fundamental Change and (b)
the date, if any, fixed for determination of shareholders entitled to receive
the cash, securities, property or other assets distributable in such Fundamental
Change to holders of the Common Stock):
(i) in the case of a Non-Stock Fundamental Change, the Conversion
Price per share of Common Stock shall be the lower of (A) the Conversion
Price in effect immediately prior to such Non-Stock Fundamental Change, but
after giving effect to any other adjustments effected pursuant to this
Section 7, and (B) the product of (1) the greater of the Applicable Price
(as hereinafter defined) and the applicable Reference Market Price (as
hereinafter defined) and (2) a fraction, the numerator of which shall be
$50 and the denominator of which shall be the amount at which one share of
Series A Preferred Stock would be redeemed by
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<PAGE> 29
the Company if the redemption date were the date of such Non-Stock
Fundamental Change (such denominator being the sum of (1) the redemption
price set forth in the table contained in Section 5(a) above, or if the
Non-Stock Fundamental Change occurs during the period commencing on the
date of original issue of the Series A Preferred Stock and ending October
31, 1994, and for the 12-month periods commencing November 1, 1994 and
November 1, 1995, and for the period commencing November 1, 1996 and ending
November 7, 1996, $52.250, $52.025, $51.800 and $51.575, respectively,
and (2) any accrued and unpaid dividends on the Series A Preferred Stock,
whether or not declared, to but excluding the date of such Non-Stock
Fundamental Change); and
(ii) in the case of a Common Stock Fundamental Change, the Conversion
Price per share of Common Stock shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other adjustments effected pursuant to this Section 7,
multiplied by a fraction, the numerator of which is the Purchaser Stock
Price (as hereinafter defined) and the denominator of which is the
Applicable Price; provided, however, that in the event of a Common Stock
-------- -------
Fundamental Change in which (A) 100% of the value of the consideration
received by a holder of Common Stock is common stock of the successor,
acquiror or other third party (and cash, if any, paid with respect to any
fractional interests in such common stock resulting from such Common Stock
Fundamental Change and (B) all of the Common Stock shall have been
exchanged for, converted into or acquired for common stock (and cash, if
any, with respect to fractional interests) of the successor, acquiror or
other third party, the Conversion Price per share of Common Stock
immediately following such Common Stock Fundamental Change shall be the
Conversion Price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator of which is one
(1) and the denominator of which is the number of shares of common stock of
the successor, acquiror, or other third party received by a holder of one
share of Common Stock as a result of such Common Stock Fundamental Change.
The following definitions shall apply to terms used in this Section 7:
(a) "Applicable Price" shall mean (i) in the event of a Non-Stock
Fundamental Change in which the
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<PAGE> 30
holders of the Common Stock receive only cash, the amount of cash received
by the holder of one share of Common Stock and (ii) in the event of any
other Non-Stock Fundamental Change or any Common Stock Fundamental Change,
the average of the Closing Prices for one share of the Common Stock during
the ten Trading Days immediately prior to the record date for the
determination of the holders of Common Stock entitled to receive cash,
securities, property or other assets in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no
such record date, prior to the date upon which the holders of the Common
Stock shall have the right to receive such cash, securities, property or
other assets. The Closing Price on any Trading Day may be subject to
adjustment as provided in this Section 7.
(b) "Closing Price" with respect to any securities on any day shall
mean the closing sale price, regular way, on such day or, in case no such
sale takes place on such day, the average of the reported closing bid and
asked prices, regular way, in each case on Nasdaq or, if such security is
not listed or admitted to trading on such Exchange, on the principal
national securities exchange or quotation system on which such security is
quoted or listed or admitted to trading or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of such security
on the over-the-counter market on the date in question as reported by the
National Quotation Bureau Incorporated, or a similarly generally accepted
reporting service, or if not so available, in such manner as furnished by
any New York Stock Exchange member firm selected from time to time by the
Board of Directors of the Company for that purpose or a price determined
in good faith by the Board of Directors of the Company. The Closing Price
on any Trading Day may be subject to adjustment as provided in this
Section 7.
(c) "Common Stock Fundamental Change" shall mean any Fundamental
Change in which more than 50% of the value (as determined in good faith by
the Board of Directors of the Company or, to the extent permitted by
applicable law, a duly authorized committee thereof) of the consideration
received by the holders of Common Stock pursuant to such transaction
consists of common stock that, for the ten consecutive Trading Days
immediately prior to such Fundamental Change, has been admitted for listing
or admitted for listing subject to
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<PAGE> 31
notice of issuance on a national securities exchange or quoted on
Nasdaq; provided, however, that a Fundamental Change shall not be a
-------- -------
Common Stock Fundamental Change unless either (i) the Company continues to
exist after the occurrence of such Fundamental Change and the outstanding
shares of Series A Preferred Stock continue to exist as outstanding shares
of Series A Preferred Stock, or (ii) not later than the occurrence of such
Fundamental Change, the outstanding shares of Series A Preferred Stock are
converted into or exchanged for shares of convertible preferred stock of a
corporation succeeding to the business of the Company, which convertible
preferred stock has powers, preferences and relative, participating,
optional or other rights, and qualifications, limitations and restrictions
substantially similar to those of the Series A Preferred Stock.
(d) "Fundamental Change" shall mean the occurrence of any transaction
or event or series of transactions or events pursuant to which all or
substantially all of the Common Stock shall be exchanged for, converted
into, acquired for or constitutes solely the right to receive cash,
securities, property or other assets (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided, however, in the
-------- -------
case of a plan involving more than one such transaction or event, for
purposes of adjustment of the Conversion Price, such Fundamental Change
shall be deemed to have occurred when substantially all of the Common Stock
of the Company has been exchanged for, converted into, or acquired for or
constitutes solely the right to receive cash, securities, property or other
assets, but the adjustment shall be based upon the consideration which the
holders of Common Stock received in such transaction or event as a result
of which more than 50% of the Common Stock of the Company shall have been
exchanged for, converted into, or acquired for or shall constitute solely
the right to receive cash, securities, property or other assets; provided,
--------
further, that such term does not include (i) any transaction or event in
-------
which the Company and/or any of its subsidiaries are the issuers of all the
cash, securities, property or other assets exchanged, acquired or otherwise
issued in such transaction or event, or (ii) any transaction or event in
which the holders of Common Stock receive securities of an issuer other
than the Company if, immediately following such transaction or event, those
holders hold a majority of the securities having the power to vote
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<PAGE> 32
normally in the election of directors of such other issuer outstanding
immediately following such transaction or other event.
(e) "Non-Stock Fundamental Change" shall mean any Fundamental Change
other than a Common Stock Fundamental Change.
(f) "Purchaser Stock Price" shall mean, with respect to any Common
Stock Fundamental Change, the average of the Closing Prices for one share
of the common stock received by holders of Common Stock in such Common
Stock Fundamental Change during the ten Trading Days immediately prior to
the record date for the determination of the holders of Common Stock
entitled to receive such common stock or, if there is no such record date,
prior to the date upon which the holders of the Common Stock shall have the
right to receive such common stock. The Closing Price on any Trading Day
may be subject to adjustment as provided in this Section 7.
(g) "Reference Market Price" shall initially mean $13.50 (which is an
amount equal to 66 2/3% of the last reported sales price for the Common
Stock on Nasdaq on October 26, 1993) and, in the event of any
adjustment to the Conversion Price other than as a result of a Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio
of the Reference Market Price to the Conversion Price after giving effect
to any such adjustment shall always be the same as the ratio of $13.50 to
the initial Conversion Price set forth in this Section 7.
(h) "Trading Day" shall mean (A) if the applicable security is listed
or admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock Exchange or such
other national securities exchange is open for business or (B) if the
applicable security is quoted on Nasdaq, a day on which trades may be made
on such National Market System or (C) if the applicable security is not
otherwise listed, admitted for trading or quoted, any day other than a
Saturday or Sunday or on a day on which banking institutions in the State
of New York are authorized or obligated by law or executive order to close.
8. PAYMENTS. The Company may provide funds for any payment of the
--------
Redemption Price prior to the Redemption Date for any shares of Series A
Preferred Stock or any
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<PAGE> 33
amount distributable with respect to any Series A Preferred Stock under Section
6 hereof by depositing such funds with a bank or trust company selected by the
Company having a net worth of at least $100,000,000 and having its principal
place of business in New York, New York, Charlotte or Winston-Salem, North
Carolina, or Atlanta, Georgia, in trust for the benefit of the holders of such
shares of Series A Preferred Stock under arrangements providing irrevocably for
payment upon satisfaction of any conditions to such payment by the holders of
such shares of Series A Preferred Stock which shall reasonably be required by
the Company. Except as otherwise provided in Section 5 (seventh paragraph), the
Company shall be entitled to make any deposit of funds contemplated by this
Section 8 under arrangements designed to permit such funds to generate interest
or other income for the Company, and the Company shall be entitled to receive
all interest and other income earned by any funds while they shall be deposited
as contemplated by this Section 8, provided that the Company shall maintain on
deposit funds sufficient to satisfy all payments which the deposit arrangement
shall have been established to satisfy. If the conditions precedent to the
disbursement of any funds deposited by the Company pursuant to Section 5 or this
Section 8 shall not have been satisfied within two years after the
establishment of such funds, then (i) such funds shall be returned to the
Company upon its request; (ii) after such return, such funds shall be free of
any trust which shall have been impressed upon them; (iii) the person entitled
to the payment for which such funds shall have been originally intended shall
have the right to look only to the Company for such payment, subject to
applicable escheat laws; and (iv) the trustee which shall have held such funds
shall be relieved of any responsibility for such funds upon the return of such
funds to the Company.
Any payment which may be owed for the payment of the Redemption Price
for any shares of Series A Preferred Stock pursuant to Section 5 hereof or the
payment of any amount distributable with respect to any shares of Series A
Preferred Stock under Section 6 hereof shall be deemed to have been "paid or
properly provided for" upon the earlier to occur of: (i) the date upon which
funds sufficient to make such payment shall be deposited in a manner
contemplated by the preceding paragraph or (ii) the date upon which a check
payable to the person entitled to receive such payment shall be delivered to
such person or mailed to such person at either the address of such person then
appearing on the books of the Company or such other address as the Company shall
deem reasonable.
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<PAGE> 34
9. STATUS OF REACQUIRED SHARES OF SERIES A PREFERRED STOCK. Shares of
-------------------------------------------------------
Series A Preferred Stock issued and reacquired by the Company (including,
without limitation, shares of Series A Preferred Stock which have been redeemed
pursuant to the terms of Section 5 hereof and shares of Series A Preferred Stock
which have been converted into shares of Common Stock) shall have the status of
authorized and unissued shares of preferred stock, undesignated as to series,
subject to later issuance.
10. FRACTIONAL SHARES. In the event the holder of Series A Preferred
-----------------
Stock shall be entitled to receive a fractional interest in a share of Series A
Preferred Stock or a fractional interest in a share of Common Stock, except as
otherwise provided herein, the Company shall either, in the sole discretion of
the Board of Directors, (i) round such fractional interest up to the next whole
share of Series A Preferred Stock or Common Stock, as the case may be, or (ii)
deliver cash in the amount of the fair market value (as determined by the Board
of Directors or in any manner prescribed by the Board of Directors) of such
fractional interest.
11. PREEMPTIVE RIGHTS. The Series A Preferred Stock is not entitled to
-----------------
preemptive or subscription rights in respect of any securities of the Company.
12. LEGAL HOLIDAYS. In any case where any Dividend Payment Date, any
--------------
Redemption Date or the last date on which a holder of Series A Preferred Stock
has the right to convert such holder's shares of Series A Preferred Stock shall
not be a Business Day (as defined below), then (notwithstanding any other
provision of these resolutions or of the Series A Preferred Stock) payment of a
dividend due or a Redemption Price or conversion of the shares of Series A
Preferred Stock need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Dividend Payment Date or Redemption Date or last day for conversion, provided
--------
that, for purposes of computing such payment, no interest shall accrue for the
period from and after such Dividend Payment Date or Redemption Date, as the case
may be. As used in this Section 12, "Business Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in New York, New York, Charlotte or Winston-Salem, North Carolina, or Atlanta,
Georgia, are authorized or obligated by law or executive order to close.
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<PAGE> 35
(b) Common Stock. The Common Stock shall be entitled to unlimited
voting rights as provided by law, and together with the Preferred Stock, but
subject to the prior rights of the Preferred Stock, shall be entitled to
receive the net assets of the corporation upon any involuntary or voluntary
liquidation, dissolution or winding up of the corporation.
(c) Certain Dividends. Shares of one class or series (including,
without limitation, rights, options or warrants for the purchase or other
acquisition of shares) may be issued by the Board of Directors as a dividend
in respect of shares of any class or series.
5. Total authorized capital stock is 75,000,000 shares common stock.
6. The existence of the corporation began as of the filing date with the
Secretary of State or to be effective May 10, 1899.
7. The number of directors constituting the board of directors of the
corporation is 15 and the names and addresses of the persons who are to serve
as directors until the first annual meeting of shareholders or until their
successors be elected and qualify are as follows:
Name Address
(a) SEE ATTACHMENT
----------------------- -------------------------
(b)
----------------------- -------------------------
(c)
----------------------- -------------------------
(d)
----------------------- -------------------------
8. The general nature of the business for which the corporation is organized
is as follows: (It is not necessary to set forth the powers enumerated in
Section 33-3-10 of 1976 Code) Manufacturing and selling articles made of
wood, paper, iron, cloth, or other materials, buying and selling
merchandise of all kinds, and such other business as is properly connected
with the conduct of these undertakings, including the buying, selling and
holding of real estate, erection of power plant stations.
9. Additional provisions included in the articles of incorporation are as
follows:
(a) Board of Directors. Notwithstanding anything in Item 7 of the
Restated Articles of Incorporation, the number of directors of the corporation
shall be (i) the number fixed from time to time by the Board of Directors,
which shall not be less than nine, plus (ii) any directors elected exclusively
by the holders of Preferred Stock as provided in these articles. Except for any
director elected exclusively by the holders of Preferred Stock, the directors
shall continue to be divided into three classes of as nearly equal size as
possible. Each class shall be elected to serve a term of three years. At each
Annual Meeting of Shareholders, directors shall be elected to fill any
vacancies in any class of the Board of Directors. Directors so elected shall
serve until the Annual Meeting of Shareholders in the year in which their terms
expire. No person who is not then already a director of the corporation shall
be eligible to be elected as a director at the Annual Meeting of Shareholders
unless such person shall have been nominated in writing, with such notice
delivered to the Secretary of the corporation, not less than sixty days prior
to such Annual Meeting.
(b) Noncumulative Voting. Shareholders shall not have the right to
cumulate their votes in the election of Directors.
(c) No Preemptive Rights. The corporation elects not to have preemptive
rights with respect to its shares, whether now or hereafter authorized.
(d) Removal of Directors. Directors may be removed only for cause.
Removal of a Director or the entire Board of Directors for cause shall only be
accomplished by a vote of the
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<PAGE> 36
holders of at least a majority of the outstanding shares then entitled to
vote at an election for such Directors, subject to the provisions of the
laws of the State of South Carolina.
(e) Liability of Directors. No Director of the corporation shall be
personally liable to the corporation or to its shareholders for monetary
damages for breach of fiduciary duty as a Director, except to the extent
such exemption from liability or limitation thereof is not permitted
under the laws of South Carolina, as presently in effect or as the same
may hereafter be amended. No amendment, modification or repeal of this
Article 9(e) shall adversely affect any right or protection that exists at
the time of such amendment, modification, or repeal.
(f) Quorum or Voting Requirement for Shareholders. The shareholders
are authorized to adopt or amend a by-law that fixes a greater quorum or
voting requirement for shareholders (or voting groups of shareholders)
than is required by the laws of the State of South Carolina.
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<PAGE> 37
10. The name and address of each incorporator is as follows: Not necessary
for Restated Articles.
Name Street & Res. No. City County State
These Restated Articles of Incorporation are executed and filed pursuant to
Resolution of the Board of Directors of Sonoco Products Company duly adopted on
July 20, 1988, and in accordance with Section 33-15-80, Code of Laws of South
Carolina (1976); it is hereby expressly recited that they purport merely to
restate, but not to change the provisions of the original Articles (that is the
Charter of the Corporation, originally named Southern Novelty Company, dated
May 10, 1899) as heretofore amended and supplemented, and that there is no
discrepancy between such provisions and the provisions of these Restated
Articles.
/s/ Charles W. Coker
------------------------- -------------------------
Signature of Incorporator Type or Print Name
/s/ Harris E. DeLoach
------------------------- -------------------------
Signature of Incorporator Type or Print Name
Date: September 1, 1988*
-----------------
STATE OF SOUTH CAROLINA
COUNTY OF DARLINGTON
The undersigned Charles W. Coker and Harris E. DeLoach, Jr.
---------------- ----------------------
do hereby certify that they are the President and Assistant Secretary of
Sonoco Products Company and are authorized to execute this verification;
that each of the undersigned does hereby certify that he or she has read
the foregoing document, understands the meaning and purport of the
statements therein contained and the same are true to the best of his or
her information and belief.
/s/ Charles W. Coker
------------------------- ------------------------
Signature of Incorporator President
/s/ Harris E. DeLoach
------------------------- ------------------------
Signature of Incorporator Asst. Secretary
CERTIFICATE OF ATTORNEY
I, Harriet E. Wilmeth, an attorney licensed to practice in the State of South
Carolina, certify that the corporation, to whose articles of incorporation
this certificate is attached, has complied with the requirements of Chapter
7 of Title 33 of the Code of Laws of South Carolina (1976) relating to the
organization of corporations, and that in my opinion, the corporation is
organized for a lawful purpose.
Date: September 1, 1988* /s/ Harriet E. Wilmeth
------------------------
Signature
Harriet E. Wilmeth
------------------------
Type or Print Name
Wilmeth & Jones
------------------------
Post Office Box 1139
-------------------------
Address
Hartsville, SC 29550
----------------------------
City State Zip Code
* As amended on April 28, 1989, November 2, 1993, and May 4, 1994.
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<PAGE> 38
SCHEDULE OF FEES
(Payable at time of filing Articles with Secretary of State)
Fee for filing Articles $5.00
In addition to the above, $.40
for each $1,000.00 of the
aggregate value of shares
which the corporation is
authorized to issue, but in
no case
less than 40.00
nor more than 1,000.00
NOTE: THIS FORM MUST BE COMPLETED IN ITS ENTIRETY BEFORE IT WILL BE ACCEPTED FOR
FILING.
THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS AND A
CHECK IN THE AMOUNT OF $10.00 PAYABLE TO THE SOUTH CAROLINA TAX
COMMISSION.
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<PAGE> 39
ATTACHMENT
----------
BOARD OF DIRECTORS OF SONOCO PRODUCTS COMPANY*
Charles J. Bradshaw, Spartanburg, South Carolina
Charles W. Coker, Hartsville, South Carolina
Fitz L. H. Coker, Myrtle Beach, South Carolina
James L. Coker, Charleston, South Carolina
Thomas C. Coxe, III, Darlington, South Carolina
Alan T. Dickson, Charlotte, North Carolina
C. Kirkland Dunlap, Jr., Hartsville, South Carolina
Robert E. Elberson, Chicago, Illinois
James C. Fort, Hartsville, South Carolina
Edgar H. Lawton, Jr., Hartsville, South Carolina
Hugh L. McColl, Jr., Charlotte, North Carolina
R. Roy Pearce, Columbia, South Carolina
Paul J. Rizzo, Chapel Hill, North Carolina
Donald R. Russell, Hartsville, South Carolina
E. Craig Wall, Jr., Conway, South Carolina
* As of October 7, 1988. For a current listing of the Board of Directors, refer
to Item 10 of the Company's Form 10-K Annual Report.
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<PAGE> 40
BY-LAWS
SONOCO PRODUCTS COMPANY
HARTSVILLE, S. C.
(Incorporated under the laws of the
State of South Carolina)
Revised through April 20, 1994
ARTICLE I - OFFICE
1. The principal office of the corporation shall be at Hartsville,
Darlington County, South Carolina.
2. The corporation may also have offices at such other places as the Board
of Directors may from time to time determine or as the business of the
corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
1. THE PLACE OF ALL MEETINGS of the shareholders shall be the principal
office of the corporation at Hartsville, Darlington County, State of South
Carolina.
2. THE ANNUAL MEETING of the shareholders of the corporation for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the third Wednesday
of April at 11:00 A.M., if not a legal holiday; but if a legal holiday, then on
the following day.
3. THE ORDER OF BUSINESS at the annual meeting and all other meetings of
the shareholders, where practicable, shall be as follows:
(a) Calling meeting to order;
(b) Proof of notice of meeting;
(c) Reading of minutes of last previous annual meeting and disposing of
any unapproved minutes;
(d) Annual reports;
(e) Election of directors;
(f) Unfinished business;
(g) New business;
(h) Adjournment.
4. SPECIAL MEETINGS OF THE SHAREHOLDERS for any purpose or purposes may be
called by the Chairman of the Board of Directors, or by the President, or by
any Vice President, or the Secretary, or the Treasurer, or by the shareholders
owning not less than ten percent (10%) of the outstanding shares of the
corporation entitled to vote at such meeting. Special meetings shall be called
at the request of holders of Preferred stock as
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<PAGE> 41
may be provided in Resolution or Resolutions of shareholders at the time in
effect with respect to the rights, preferences, privileges, limitations and
conditions affecting the capital stock of the corporation. Business to be
transacted at all special meetings shall be confined to the purpose or purposes
stated in the call.
5. NOTICE of the time and place of the annual meeting and any special
meeting of the shareholders shall be given by mailing written or printed notice
of the same not less than twenty (20) days nor more than fifty (50) days prior
to the meeting to each shareholder of record of the corporation entitled to
vote at such meeting, addressed to shareholder's last known address appearing
on the corporate books of the corporation.
NOTICE SHALL BE DEEMED TO HAVE BEEN GIVEN when deposited with postage prepaid
in the United States mail, addressed to the shareholder at the address
appearing on the stock transfer books of the corporation.
A RECORD DATE may be set by the Board of Directors in advance, not less
than ten (10) nor more than fifty (50) days preceding the date of any meeting
of the shareholders, as a record date for the determination of the shareholders
entitled to notice of and to vote at any such meeting or adjournment thereof.
6. A COMPLETE LIST OF SHAREHOLDERS ENTITLED TO VOTE at the annual
shareholders' meeting or any adjournment thereof, or any special meeting of the
shareholders or adjournment thereof, shall be prepared by the Treasurer of the
corporation or his agent, such list to be arranged in alphabetical order with
the complete address of each shareholder, showing the number of voting shares
held by each shareholder, subject to the provisions of the laws of the State of
South Carolina.
7. THE VOTING AT ALL MEETINGS of the shareholders may be by voice vote, but
any ten (10) qualified voters may demand a stock vote whereupon such stock vote
shall be taken by ballot, each of which shall state the name of the shareholder
voting and the number of shares voted by him; and if such ballots be cast by
proxy, it shall also state the name of such proxy.
8. EVERY SHAREHOLDER HAVING THE RIGHT TO VOTE at any meeting of the
shareholders shall be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such shareholders. Each shareholder shall
have one vote for each share of stock having voting power registered in his
name on the books of the corporation as of the record date set by the Board of
Directors.
NO PROXY SHALL BE VALID after the expiration of eleven (11) months from its
execution.
9. A QUORUM at any annual or special meeting of the shareholders shall
consist of shareholders representing, either in person or by proxy, a majority
of the shares of the corporation entitled to vote at such meeting. A majority
of the votes cast at such meeting shall decide any question that may come
before such meeting except as otherwise provided by law and except as otherwise
may be provided by Resolution or Resolutions of shareholders at the time in
effect with respect to the rights, preferences, privileges, limitations and
conditions affecting the shares of the corporation.
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<PAGE> 42
10. IN THE ABSENCE OF A QUORUM at a properly called shareholders' meeting,
such meeting may be adjourned from time to time by a vote of a majority of the
shares represented. If the meeting is adjourned for thirty (30) days or more, a
notice of such adjourned meeting shall be sent to all shareholders entitled to
vote thereat stating the time and place of holding such adjourned meeting.
11. NO NOTICE OF AN ADJOURNED MEETING for less than thirty (30) days need be
given if the time and place of the adjourned meeting are announced at the
meeting at which the adjournment is taken.
ARTICLE III - DIRECTORS
1. THE MANAGEMENT of all the affairs, property and the business of the
corporation shall be vested in a Board of Directors. The number of directors of
the corporation shall be (i) the number fixed from time to time by the Board of
Directors, which number shall not be less than nine, plus (ii) any directors
elected exclusively by the holders of Preferred Stock as provided in the
corporation's Restated Articles of Incorporation. Directors shall be
shareholders, each owning not less than one hundred (100) shares of the voting
stock of the corporation. The directors need not be residents of the State of
South Carolina.
2. THE BOARD OF DIRECTORS shall be divided into three classes of as nearly
equal size as possible in accordance with the provisions of the Restated
Articles of Incorporation, as amended.
3. ALL DIRECTORS SHALL SERVE until their successors shall have been duly
elected and qualify or until their earlier resignation, retirement, removal
from office, death or incapacity except as otherwise provided by Resolution or
Resolutions of the shareholders at the time in effect with respect to the
rights, references, privileges, limitations and conditions affecting the shares
of the corporation.
4. ALL DIRECTORS OF AN EXPIRING CLASS shall be eligible for re-election to
the Board of Directors.
5. ALL VACANCIES OCCURRING IN THE BOARD OF DIRECTORS whether caused by
resignation, death, increase in number of directors, or otherwise can be filled
by a majority vote of the remaining directors attending a regular or special
meeting.
6. RETIREMENT OF DIRECTORS shall be automatic upon reaching the age of
seventy (70), and a special meeting of the Board of Directors may be called to
fill the vacancy thus created by the retirement, provided that this paragraph
shall not apply to any person serving on the Board of Directors at the time of
the adoption of these By-Laws who has reached retirement age.
7. REMOVAL OF A DIRECTOR OR THE ENTIRE BOARD OF DIRECTORS for cause shall
only be accomplished by a vote of the holders of at least a majority of the
outstanding shares then entitled to vote at an election of Directors, subject
to the provisions of the laws
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<PAGE> 43
of the State of South Carolina and the Restated Articles of Incorporation of
the Company. Directors may be removed only for cause.
8. REGULAR MEETINGS OF THE BOARD OF DIRECTORS shall be held quarterly at
the principal office of the corporation at Hartsville, South Carolina and ten
(10) days written notice shall be given prior to the meeting date. Date of each
quarterly meeting shall be decided upon by the Chairman of the Board of
Directors or by the President or, in their absence, by any two Vice Presidents
or by any two directors.
9. SPECIAL MEETINGS of the Board of Directors may be called at any time to
be held at the principal office of the corporation at Hartsville, South
Carolina or elsewhere by:
(a) The Chairman of the Board of Directors;
(b) The President;
(c) Any two (2) members of the Board;
(d) Unanimous written consent of all the members at any time and place
without notice;
(e) The presence of all members at such meeting.
Notice of all special meetings of the Board of Directors shall be given
to each director by telegram or by letter two (2) days prior to the meeting
date. Notice of a meeting of directors need not be given to any director who
signs a waiver of notice either before or after the meeting.
10. NOTICE OF ADJOURNMENT OF A MEETING OF THE BOARD OF DIRECTORS need not be
given if the time and place to which it is adjourned are fixed and announced at
such meeting.
11. NEITHER THE BUSINESS TO BE TRANSACTED at nor the purpose of any regular
or special meeting of the Board of Directors need be specified in the notice or
waiver of notice.
12. A QUORUM at all meetings of the Board of Directors shall consist of a
majority of the total number of directors then in office, but less than a
quorum may adjourn the meeting which may be held on a subsequent date without
further notice if the time and place to which it is adjourned are fixed and
announced at such meeting.
13. COMPENSATION shall be paid directors not otherwise currently employed by
the Company for their services in such form and in such amount as may be
determined by Resolution of the Board of Directors.
ARTICLE IV - OFFICERS
1. THE OFFICERS OF THE CORPORATION shall consist of a President, one or
more Vice Presidents, a Secretary and Treasurer who shall be elected for one
year by the directors at their first meeting after the annual meeting of
shareholders and who shall hold
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<PAGE> 44
office until their successors are elected and qualify. The Board of Directors
may also in their discretion elect a Chairman of the Board of Directors for a
term of one year. The position of Vice President and Treasurer and/or Secretary
and Treasurer and/or Vice President and Secretary may be united in one person.
The Board of Directors may also elect one or more Assistant Secretaries and
Assistant Treasurers.
2. THE CHAIRMAN OF THE BOARD OF DIRECTORS, if elected, shall preside at all
meetings of the shareholders and directors. The Chairman shall possess the same
power as the President to sign all certificates, contracts and other
instruments of the corporation which may be authorized by the Board of
Directors. He shall perform all such other duties as are incident to his office
or are properly required of him by the Board of Directors.
3. THE PRESIDENT, in the absence of the Chairman of the Board of Directors,
shall preside at all meetings of the shareholders and directors, shall have
general supervision of the affairs of the corporation, shall sign or
countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors, shall make reports to the
Board of Directors and shareholders and shall perform all such other duties as
are incident to his office or are properly required of him by the Board of
Directors.
4. THE VICE PRESIDENTS, in the order designated by the Board of Directors,
shall exercise the functions of the President during the absence or disability
of the President and the Chairman of the Board of Directors. Each Vice
President shall have such powers and discharge such duties as may be assigned
to him from time to time by the Board of Directors.
5. THE SECRETARY shall issue notices for all meetings, shall keep minutes
of all meetings, shall have charge of the seal and corporate books, shall sign
with the President such instruments that require his signature, shall make such
reports and shall perform such other duties as are incident to his office or
are properly required of him by the Board of Directors.
6. THE ASSISTANT SECRETARIES, in order designated by the Board of
Directors, shall in the absence or disability of the Secretary perform the
duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors may prescribe.
7. THE TREASURER shall have custody of all funds and securities of the
corporation and shall keep regular books of account. He shall disburse the
funds of the corporation in payment of just demands against the corporation or
as may be ordered by the Board of Directors, taking proper vouchers for
disbursements, and shall render to the Board of Directors from time to time as
may be required of him an account of all his transactions as Treasurer and of
the financial condition of the corporation. He shall perform all duties
incident to his office or which are properly required of him by the Board of
Directors.
8. THE ASSISTANT TREASURERS, in order designated by the Board of Directors,
shall in the absence or disability of the Treasurer perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as the
Board of Directors may prescribe.
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<PAGE> 45
9. IN THE CASE OF ABSENCE OR INABILITY TO ACT of any officer of the
corporation or of any person herein authorized to act in his place, the Board
of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may
select.
10. VACANCIES in any office arising from any cause may be filled by the
directors at any regular or special meeting.
11. THE SALARIES of all officers receiving both officer compensation and
officer benefits shall be fixed by the Board of Directors.
ARTICLE V - SHARES
1. CERTIFICATES FOR SHARES, Common and Preferred, respectively, shall be
issued in numerical order, and each shareholder shall be entitled to a
certificate signed by the Chairman of the Board of Directors or by the
President or any Vice President and by the Secretary or the Treasurer of the
corporation or bearing the facsimile signatures of such officers and bearing
the corporate seal or a facsimile thereof. A record of such certificates issued
shall be kept by the corporation or a designated transfer agent and/or
registrar. No certificate shall be issued covering or evidencing a fractional
part of a share of either Common or Preferred shares but in lieu thereof the
corporation may issue script in registered or bearer form over the manual or
facsimile signature of an officer of the corporation or of its agents,
exchangeable as therein provided for full shares, but such script shall not
entitle the holder to any right of a shareholder except as therein provided.
Such script may be issued subject to the condition that it shall become void if
not exchanged for certificates representing full shares before a specified date
or, subject to the condition that the shares for which such script is
exchangeable, may be sold by the corporation and the proceeds thereof
distributed to the holders of such script or subject to any other conditions
which the Board of Directors may determine.
2. TRANSFERS OF SHARES shall be made only upon the transfer books of the
corporation kept at the principal office of the corporation or by a transfer
agent designated to transfer the Common or Preferred shares; and before a new
certificate is issued, the old certificate must be surrendered for
cancellation.
3. REGISTERED HOLDERS only shall be entitled to be treated by the
corporation as holders in fact of the shares standing in their respective
names, and the corporation shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any person, whether or
not it shall have express or other notice thereof.
4. IN CASE OF LOSS OR DESTRUCTION BY A SHAREHOLDER of the original
certificate, another may be issued in its place upon proof of such loss or
destruction and upon the giving of a satisfactory bond of indemnity to the
corporation and/or to the transfer agent of such shares, subject to the
provisions of the laws of the State of South Carolina.
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<PAGE> 46
5. TRANSFER AGENTS OR REGISTRARS of the Common or Preferred shares of the
corporation may from time to time be designated by the Board of Directors which
may provide for their countersigning of share certificates.
ARTICLE VI - DIVIDENDS AND FINANCE
1. THE BOARD OF DIRECTORS MAY DECLARE and the corporation may pay dividends
at such time as the Board of Directors may designate on its outstanding shares,
in cash or property or from authorized but unissued shares of its own and may
declare stock splits, but no dividends or splits shall be declared that shall
impair the capital stock of the corporation or violate any right, preference,
privilege, limitation or condition affecting any class of shares of the
corporation as fixed and determined by the shareholders or that shall violate
any agreement or undertaking made by the corporation or that shall not conform
to the laws of the State of South Carolina.
2. THE FUNDS of the corporation shall be deposited in the name of the
corporation in such bank or banks or trust company or trust companies as the
Board of Directors may designate and shall be drawn out by checks signed by any
two officers or any two designated employees or by an officer together with a
designated employee or by the use of facsimile signatures in lieu thereof.
3. THE FISCAL year of the corporation shall begin on the first day of
January in each year unless otherwise provided by the Board of Directors.
ARTICLE VII - SEAL
1. THE CORPORATE SEAL shall consist of two concentric circles between which
are written the words, "SONOCO PRODUCTS COMPANY, S. C.," and in the center of
which is written "INCORPORATED 1899," and such seal is impressed on the margin
hereof, has been and is hereby adopted as the corporate seal of the
corporation.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
1. Any present or former director, officer or employee of the corporation
or any person who, at the request of the corporation, may have served as
director or officer of another corporation in which it owns shares or of which
it is a creditor shall be entitled to reimbursement of expenses and other
liabilities to the maximum extent permitted by the laws of the State of South
Carolina or by order of any Court having jurisdiction in any action or
preceding to which he is a party by reason of being or having been a director,
officer or employee.
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<PAGE> 47
ARTICLE IX - AMENDMENTS
1. The By-Laws may be amended, repealed or altered, in whole or in part, or
new By-Laws adopted, by a majority of the outstanding shares of the corporation
entitled to vote at any annual meeting of the shareholders of the corporation
or at any special meeting called for such purpose or, to the extent permitted
by law, by a majority of the Board of Directors at any regular meeting or
special meeting called for that purpose; provided, however, that no such
amendment, repeal, alteration or adoption shall violate any right, preference,
privilege, limitation or condition affecting any class of stock of the
corporation as fixed and determined by shareholders or, acting under or
pursuant to authority in the Articles of Incorporation, by the Board of
Directors, or violate any agreement or understanding made by the corporation;
and provided further that Article III, Sections 1, 2, 7, and Article IX,
Section 1, of the By-Laws may not be amended, repealed or altered, in whole or
in part, and no By-Law may be amended, repealed, altered or adopted which is
inconsistent with any of such Sections or either Article 4 or Article 9 of the
Articles of Incorporation, other than by an affirmative vote of shareholders
sufficient to amend Articles 4 and 9 of the Articles of Incorporation of the
corporation.
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<PAGE> 1
EXHIBIT (11)
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
1994(A) 1993(A) 1992
------- ------- --------
Primary earnings
----------------
<S> <C> <C> <C>
Net income available to common shareholders $ 122,086 $ 117,570 $ 43,359
=========== =========== ===========
Common shares
Weighted average number of shares outstanding 87,090,108 87,315,677 86,732,210
Assuming exercise of options reduced by
the number of shares that could have been
purchased (at average price) with proceeds
from exercise of such options 831,480 857,331 810,786
----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 87,921,588 88,173,008 87,542,996
=========== =========== ===========
Primary earnings per common share
Net income available to common shareholders $ 1.39 $ 1.33 $ .50
=========== =========== ===========
Assuming full dilution
----------------------
Net income available to common shareholders $ 122,086 $ 117,570 $ 43,359
=========== =========== ===========
Common shares
Weighted average number of shares outstanding 87,090,108 87,315,677 86,732,210
Assuming exercise of options reduced by the
number of shares that could have been
purchased (at the higher of the end-of-year
price or the yearly average) with proceeds
from exercise of such options 831,480 857,331 1,090,620
----------- ----------- -----------
Weighted average number of shares
outstanding as adjusted 87,921,588 88,173,008 87,822,830
=========== =========== ===========
Earnings per common share assuming
full dilution
Net income available to common shareholders $ 1.39 $ 1.33 $ .49
=========== =========== ===========
</TABLE>
(A) The Company issued 3,450,000 shares of $2.25 Series A Cumulative
Convertible Preferred Stock in October 1993. The convertible preferred
stock and the related dividend had an anti-dilutive effect on earnings per
share in 1994 and 1993 and are therefore excluded from the above
computation.
<PAGE> 1
EXHIBIT 13
COMPARATIVE HIGHLIGHTS (UNAUDITED)
Sonoco Products Company
<TABLE>
<CAPTION> % CHANGE
FIRST SECOND THIRD FOURTH FROM
(Dollars in thousands except per share) QUARTER QUARTER QUARTER QUARTER YEAR PRIOR YEAR
....................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
1994
Net sales.......................................... $537,372 $564,391 $591,178 $607,186 $2,300,127 18.1%
Gross profit....................................... 113,609 121,994 124,710 136,387 496,700 17.8%
Net income available to common shareholders........ 26,159 30,895 30,568 34,464 122,086 3.8%*
Per common share
Net income available to common
shareholders............................. .30 .36 .35 .39 1.40 3.7%*
Dividends - common......................... .135 .14 .14 .14 .555 4.7%
Book value per common share................ 7.59 7.8%
Market price - high....................... 25-3/4 22-3/4 24 23-3/4 25-3/4
- low........................ 21-1/2 19-3/4 20-1/2 19-3/4 19-3/4
....................................................................................................................................
1993
Net sales.......................................... $466,938 $478,508 $462,324 $539,454 $1,947,224
Gross profit....................................... 101,716 107,435 100,561 111,841 421,553
Net income available to common shareholders........ 26,908 31,808 28,504 30,350 117,570
Per common share
Net income available to common
shareholders............................. .31 .36 .33 .35 1.35
Dividends - common......................... .125 .135 .135 .135 .53
Book value per common share................ 7.04
Market price - high....................... 24-7/8 24-3/4 24 22-1/2 24-7/8
- low........................ 21-7/8 21-3/4 20-1/2 19-3/4 19-3/4
</TABLE>
* Excluding the expected dilution for the 1993 Engraph acquisition, the one-time
gain in 1993 and the elimination of the international lag, net income
increased 12% over 1993.
SONOCO LISTS ON THE NEW YORK STOCK EXCHANGE
Sonoco began trading on the New York Stock Exchange (NYSE) March 8,
1995, under the stock symbol "SON."
Sonoco had been studying a move to the New York Stock Exchange for
several years and the timing seemed right to make this strategic move during
1995. Coming off a record year in both sales and profits, with sales exceeding
$2 billion, the Company has strong growth plans in place that call for
continuing international expansion. The move to the world's most widely
recognized stock exchange should significantly add to Sonoco's visibility in
crucial financial markets.
We expect the move to the "big board" to have very positive benefits for
shareholders because of the wider market for shares and because of the lower
transaction costs the Company believes to be associated with the NYSE.
1
<PAGE> 2
CONSUMER PACKAGING REVIEW
SONOCO'S CONSUMER PACKAGING OPERATIONS ACCOUNT FOR APPROXIMATELY 42% OF THE
COMPANY'S PRODUCT LINE.
................................................................................
OPERATIONS IN SONOCO'S CONSUMER PACKAGING BUSINESSES INCLUDE: THE CONSUMER
PRODUCTS DIVISION; SONOCO CONSUMER PACKAGING -- EUROPE; SONOCO CAPSEALS;
ENGRAPH AND THE HIGH DENSITY FILM PRODUCTS DIVISION.
[FIGURE 1]
RUTH THOMAS AND HER TWINS, KAYLA AND KYLE, find high value and performance from
Sonoco's composite and flexible packaging.
New products, new markets, good capacity utilization, increased
customer satisfaction, increased demand for products and continued
international expansion all contributed to strong performance for Sonoco's
consumer packaging businesses in 1994. In addition, 1994 was the first full
year that Engraph was part of Sonoco. The Engraph businesses continued to
perform well. Also, during the year they added two acquisitions.
CONSUMER PRODUCTS
Sonoco's Consumer Products Division (CPD) is the world's largest and
leading supplier of high-quality composite packaging. Composite cans, the
division's primary product line, are versatile packages that meet tomorrow's
packaging requirements today. The division's research, development and
marketing personnel work closely with its strong customer base to continually
refine composite can technology to develop cost, quality and environmental
advantages to satisfy the most demanding packaging requirements. Because of
strong customer support, this division is one of Sonoco's fastest growing
global businesses.
The Consumer Products Division is a principal supplier to many of the
world's largest packaging users. Sonoco supplies its customers from a network
of 28 United States plants and 11 international plants. Supporting its
manufacturing operations is an organization totally focused on customer
satisfaction and a world-class research and development center. The fundamental
growth strategy for this division is to expand its businesses through its
understanding of the requirements, expectations and business strategies of its
strong customer base and develop the packages that provide customers with a
marketing advantage.
9
<PAGE> 3
On the Front Lines of Customer Satisfaction
Solving our customers' packaging problems is one of our most important goals.
[FIGURE 2]
INCREASED CUSTOMER DEMAND FOR PLASTIC GROCERY BAGS saw Sonoco's High Density
Film Products Division operating at maximum capacity during 1994. Maria Estes
prepares a shipment of bags at the Santa Maria, Calif., plant.
Composite cans, called board cans in Europe, are packages with a
paperboard body; paper, metal, membrane or plastic-end closures; and, depending
on product specifications, a variety of liners. Most composite cans produced by
Sonoco contain more than 50% post-consumer recycled materials. The packages are
used throughout the world to contain such products as prepared dough,
pastries, frozen concentrate, snacks, nuts, powdered foods and beverages,
shortening, cereal, institutional foods, adhesives, chemicals, cleansers and a
wide variety of other products. Besides composite cans, the division is also a
major world producer of both fibre and plastic caulk cartridges for products
like adhesives and sealants as well as the manufacturer of plastic tennis ball
containers.
This group also grows by working closely with customers to develop
composite packaging for new products. Prime examples of this type of growth are
the Oreo Crunchies(TM) package, the new snack containers for Planters(R) nutty
crunch caramel corn, a specialty canister for chocolate-covered cashews and
high-tech canisters for new, larger biscuit products. Converting existing
customers from self-manufacture to Sonoco's composite cans is another major
avenue of growth that will continue because of our Company's expertise as the
world's largest composite can manufacturer.
Solving our customers' packaging problems is one of our most important
goals. Our Packaging Development Center helps Sonoco fill the void created by
many companies cutting back on their own research and development activities.
Customers have found that Sonoco's development group can move a packaging idea
from concept to test market very quickly. The Packaging Development Center has
facilities to design and fill the package, test the product and supply
market-test quantities of cans.
These research and development capabilities enabled Sonoco to develop
new coffee creamer packages as well as develop composite can packaging for
coffee that was test marketed in 1994. The Packaging Development Center is at
the forefront of Sonoco's drive to develop composite packaging options for a
wide variety of products.
Sonoco has an expanding global presence in composite canister
packaging. The division also has international plants in Mexico, Puerto Rico,
Columbia, Canada, Australia, Venezuela and New Zealand, and continues to look
at additional opportunities. In 1990, Sonoco joined with CarnaudMetalbox to
form the CMB Sonoco joint venture to produce composite cans in England and
France. In January 1995, Sonoco completed the purchase of CMB's 50% interest in
the joint venture to give us 100% ownership of this European composite can
business. Sonoco expects this sole ownership will help accelerate growth in the
European market. There has been strong support from existing customers for this
global expansion and the Company has plans in place for ongoing international
expansion.
10
<PAGE> 4
[FIGURE 3]
MAYBELLINE(R) HAS SELECTED SONOCO'S ENGRAPH Paperboard Cartons and Specialties
Group as its exclusive supplier of blister packaging for cosmetics. Checking
out the makeup are Ashley Nichols, Eve Puffer and Shanea Carr.
CUSTOMER SATISFACTION
Continuous improvement remains an important element in this division's
growth strategy. The entire team is focused on improving the value that Sonoco
composite packaging offers customers. We have developed a strong systems
approach to canister supply that not only meets just-in-time delivery
requirements, but also allows the division to react quickly to surges in
demand. Division team members continue to examine products and processes to
find ways of continually adding more value for our customers. This group is
committed to being in the forefront of innovation in products and services.
SONOCO CAPSEALS
Sonoco Capseals is a specialty operation based in the United Kingdom
that produces seals used inside bottle closures. This operation develops
state-of-the-art seals that enhance product protection and product
identification. The operation is expanding globally and serves customers around
the world.
ENGRAPH
Engraph was the largest acquisition in Sonoco's history when we
purchased it in October 1993. Sonoco acquired Engraph for the opportunity to
grow in new packaging fields. The Engraph businesses fit well into Sonoco and
continued to grow during 1994. Engraph is a leader in such packaging and
product identification markets as pressure-sensitive and extended-text labels;
flexible packaging for confectionary and other industries; screen printing for
fleet graphics and beverage vending machines; and paperboard specialties. Like
Sonoco, Engraph has developed a niche-market philosophy and has a leading
position in all areas in which it does business.
LABEL BUSINESS... Sonoco plans an aggressive growth strategy for the
Engraph label businesses. During 1994, Engraph acquired M. Harland & Son of
England. Harland is one of England's leading producers of labels and label
machinery. Engraph became the 100% owner of Engraph Puerto Rico after
purchasing the venture partner's 50% interest. Those two companies join Patton
of Moorestown, N.J. and Engraph Machine Systems of Delran, N.J.; Graphic
Resources, Inc., Cold Spring, Ky. and Phoenix, Ariz.; Screen Graphics, Inc.,
Memphis, Tenn.; Package Products, Charlotte, N.C.; Polaris Packaging,
Robbinsville, N.J.; and Engraph Mexico, Mexico City, Mexico, as the Engraph
Label Group. Engraph's Machine Group designs the packaging line and assembles
complete systems for label application and product handling, providing Engraph
customers with a single source for both packaging products and machinery. These
business units have leading label supplier positions in personal care,
cosmetics, health care, pharmaceutical, chemical and other markets. The label
business will continue to grow globally to serve customers as they expand to
new markets. Engraph's intent is to build a worldwide supply network to serve
customers as they grow.
FLEXIBLE PACKAGING... Through Morrill Press, Engraph is the finest
producer of thin-gauge, high-value-added rotogravure printed films in the
United States. This operation has two printing plants, one in Fulton, N.Y., and
one in Morristown, Tenn. The Morristown plant, which opened in 1993, showed
significant operational improvement through 1994. In early 1995, we signed an
agreement to purchase a flexible packaging plant in Edinburgh, Ind., from
Hargro Flexible Packaging Corp. A new Cerutti rotogravure press is being
installed in this facility, which will add capacity to our flexible
11
<PAGE> 5
On the Front Lines of Customer Satisfaction
THROUGH EXCELLENCE
[FIGURE 4]
WELCH'S RECOGNIZES SONOCO as an outstanding composite can supplier and an
integral part of their overall quality system. Margaret Sage, Welch's,
inspects cranberry juice on the production line in Lawton, Mich.
[FIGURE 5]
GINGER BEAUCHAMP FROM DIAL CORPORATION'S Phoenix, Ariz., facility, and
Engraph's Lars HoTseung inspect a flexographic printing plate for Borateem(R)
discount coupons.
packaging operations. These operations primarily serve the confectionary
industry, printing on paper, foil or film that protects products for longer
shelf life. Customers include some of the best-known names in candy, gum,
snack, cookies and other products.
SCREEN GROUP... The Engraph Screen Group consists of two businesses,
Screen Art of Knoxville, Tenn. and Ariston of Hillside, N.J. These operations,
specializing in screen process printing, are the largest and most effective
producers of fleet graphics in the United States. They also supply the
beverage industry as the leading producer of product identification and
promotional graphics for beverage vending machines, fountain dispensers and
delivery trucks.
PAPERBOARD SPECIALTIES... Package Products of Charlotte, N.C.,
produces paperboard cartons, sleeves and blister packs for some of America's
best-known brands. This operation offers customers one-stop shopping for both
cartons and labels. Standard Cap and Seal of Norcross, Ga., and Rixie Paper
Products of Pottstown, Pa., serve the hospitality and health care industries
with paper covers that protect glassware and provide identification for hotels,
hospitals and other health care facilities. Rixie is also the nation's leading
producer of coasters, used for advertising and image enhancement by hotels,
restaurants and other service facilities.
Several of Engraph's markets, particularly pressure-sensitive labels
and certain flexible packaging areas, are among the fastest growing in the
packaging industry. The multi-year plans for Engraph call for strong profit
growth well into the future. This growth will come as the label and flexible
packaging industries continue consolidating, helping Engraph to grow through
acquisitions. In addition, the cross-selling opportunities provided as part of
the Sonoco organization will help increase market share. Sonoco is committed
to supporting this growth by funding internal developments and tactical
acquisitions in both the United States and international markets.
HIGH DENSITY FILM PRODUCTS
Sonoco's High Density Film Products Division is the largest United
States producer of high-density, high-molecular weight plastic carry-out
grocery bags. In addition to plastic grocery bags, the group also produces
plastic bags for convenience stores and high-volume retail operations, as well
as agricultural mulch film.
During 1994, the division operated at near capacity. As a result of a
major competitor leaving the high density market, Sonoco announced it is
investing $20 million to increase capacity by nearly two billion bags,
beginning in 1995.
This division will grow by adding capacity to increase its penetration
in the grocery market and will continue its focus of increasing share in the
high-volume retail chains. Sonoco has a strong, value-added niche in its bag
markets because of its customer-focus and unique systems approach to bag
supply. Sonoco's patented Quik-Mate(R) bagging system and training programs
have helped Sonoco customers achieve higher front-end productivity in their
stores. In addition, the division maintains a nationwide plastic bag
reclamation system in use at thousands of stores.
12
<PAGE> 6
INDUSTRIAL PACKAGING REVIEW
ACTIONS TAKEN THE PAST FEW YEARS TO MAKE THE COMPANY EVEN MORE COST EFFECTIVE
PAID OFF IN IMPROVED RESULTS DURING 1994.
................................................................................
SONOCO'S INDUSTRIAL PACKAGING SECTOR INCLUDES THE FOLLOWING BUSINESSES:
INDUSTRIAL PRODUCTS AND PAPER; INDUSTRIAL CONTAINER; FIBRE PARTITIONS;
PROTECTIVE PACKAGING; CRELLIN MOLDED PLASTICS; BAKER REELS; ADHESIVES AND
MACHINERY MANUFACTURING.
These businesses have leadership positions in their markets because of their
continuing dedication to achieving customer satisfaction.
[FIGURE 6]
THE PROPRIETARY DESIGN OF SONOCO'S HQ SERIES of paper mill cores exceeds the
performance requirements of the most modern printing machinery. Pat Crowley
operates the Cerutti rotogravure press at Ringier America, a major catalog
printing company in Evans, Ga.
Performance in nearly every business in the industrial packaging
sector met or exceeded expectations for 1994, despite the sharp increases in raw
material costs. Volume was up significantly in nearly every business and price
increases were implemented to recover some of the cost increases. In addition,
actions taken the past few years to make the Company even more cost effective
paid off in improved results during 1994. These improved results should
continue in 1995 and beyond. Sonoco has well-defined niche businesses in the
industrial packaging sector. These businesses have leadership positions in
their markets because of their continuing dedication to achieving customer
satisfaction by being the preferred supplier of high-value products.
INDUSTRIAL PRODUCTS AND PAPER
One of Sonoco's unique strengths is the integrated relationship of the
industrial products and paper operations. During 1994, these two divisions
forged a joint strategy that is helping both businesses become even more
responsive to the changing demands in the market-
13
<PAGE> 7
On the Front Lines of Customer Satisfaction
The Industrial Products Division and the Paper Division are Sonoco's oldest
businesses but they continue to have significant growth potential.
[FIGURE 7]
CLAUDE AYMOT AND SYLVAIN BEAUDREAU OF SONOCO'S paper mill in Terrebonne,
Quebec, Canada, survey some recovered paper collected at the mill. Sonoco
collects more than 1.5 million tons of this raw material.
place. A high degree of vertical integration allows Sonoco to have strong
control of its manufacturing process. The combined strategy allows the two
businesses to merge their technical resources into a global technology group.
The divisions combined their human resource groups in the United States and
reorganized other areas, resulting in a reduction of nearly 50 positions during
the year. In the past three years, these groups have reduced their headcount
by nearly 10%. The Industrial Products Division (IPD) and the Paper Division
are Sonoco's oldest businesses but they continue to have significant growth
potential. They remain the "bread and butter" businesses, the foundation on
which Sonoco is building its plans for future growth.
PAPER OPERATIONS
The Company's paper operations operated near capacity throughout 1994.
Worldwide, Sonoco operates 23 paper mills and 34 paper machines. All of those
machines except one produce recycled paperboard, giving Sonoco an annual
capacity of more than one million tons. We sell more than 80% of this capacity
internally to supply Sonoco's paper converting operations.
Sonoco operates a Fourdrinier machine in partnership with
Georgia-Pacific Corporation that has an annual capacity of 176,000 tons of
corrugating medium. The corrugating medium uses a combination of recycled pulp
and wood chips for its furnish. The Company manages approximately 80,000 acres
of timberland to supply wood chips for the Fourdrinier and lumber to produce
furniture squares.
RECOVERED PAPER
Recovered paper is the primary raw material for Sonoco's papermaking
activities. Sonoco collects and processes more than 1.5 million tons of
recovered paper through its paper mills, paper procurement contracts and its
subsidiary, Paper Stock Dealers, Inc. (PSD). Sonoco is one of the world's
leading processors of this raw material. Recovered paper prices were one of
the primary factors affecting 1994 results in Sonoco's paper and paper
converting operations. The price of this material rose from about $40 a ton
early in 1994 to more than $140 a ton later in the year. These unprecedented
cost increases forced the paper operations, and subsequently the converting
operations, to raise their prices in an attempt to recover some of these costs.
The recovered paper market remains volatile and Sonoco expects the
cost pressures on recovered paper to be a continuing factor. However, there is
a better understanding now of the new factors involved in the recovered paper
marketplace. Sonoco met the challenge of this unprecedented price rise during
1994 by moving to strengthen our fibre-supply security. The Company will
continue making acquisition that will enhance this position. For example, at
the end of 1993, the Company established Sonoco Asia Recycling to supply
recovered paper to paper mills in China. Sonoco purchased a materials recovery
facility in Toronto, Ontario, Canada, late in 1993. The Company's PSD
subsidiary acquired a recovered paper collection business in Spartanburg, S.C.
This subsidiary now has 22 paper collection plants.
Due to the changing conditions of the marketplace, PSD invested in a
new multi-material recovery facility in Columbia, S.C. This facility was set
up to serve the recycling requirements of cities, counties and large
industries, who need processors that handle a wide variety of recyclable
materials. PSD will continue to invest in these facilities to maintain its
position as the South's leading recovered-materials processor.
The paper operations are committed to growth to meet the demands of
Sonoco's converting operations. A key success factor in this endeavor is
technological leadership that will continue improving the quality of tube-board
produced to both improve strength and increase productiv-
14
<PAGE> 8
CUSTOMER SATISFACTION
[FIGURE 8]
LISA DAVIS EASILY INSERTS SONOPOST(R) CORNER POSTS on a General Electric range,
one of several appliance manufacturers to choose the protective packaging for
its strength, durability and stackability.
[FIGURE 9]
SEAMLESS FILM CORES MEET STRINGENT SPECIFICATIONS and improve quality for
Borden at their North Andover, Mass., plant. L-r, Borden's Carlos Veras
monitors film winding while Mike Hill, Borden purchasing, and Ray LaBonte,
Sonoco sales representative, discuss core applications.
ity. The Company announced a $90-million investment to enhance the
competitiveness of Sonoco's Hartsville paper mill, our largest and oldest
facility. This project will begin in 1995 and should be completed in about
five years.
INDUSTRIAL PRODUCTS
Sonoco's Industrial Products Division is the world's leading
manufacturer of high-value tubes and cores used by a wide variety of the
world's industries in their winding and converting processes. A large
percentage of this division's more than 60,000 products are highly engineered
industrial carriers designed to meet the rapidly changing requirements of the
high-speed machinery being used in most modern manufacturing environments.
These tubes and cores are used in a wide variety of industries including
textiles, film, paper, tape, converting, metal and many others. Specialty uses
include forms for round concrete columns, tubes for shipping and storage and
containers for business machines. The division is also one of the world's
largest suppliers of paper cones to the textile industry.
The division has two major operating units, IPD-North America and
IPD-Europe. Other tube manufacturing businesses in Australia, New Zealand,
Latin America and Asia are also part of this operating group. These operations
supply customers from nearly 100 plants around the world.
Sonoco is the market leader in nearly all industrial product lines in
North America, Europe and Australia. The growth strategy for this division,
which is critical to the continued success of the Company, calls for these
businesses to be world leaders in customer satisfaction, the most
cost-effective, high-value manufacturers in their markets, technology leaders
for all served markets and growing global suppliers.
IPD-North America had very good performance in 1994, experiencing
significant volume growth in most product lines. Consolidations and
restructuring over the past couple of years put this group in a strong position
to take advantage of the rebounding United States economy.
15
<PAGE> 9
On the Front Lines of Customer Satisfaction
Sonoco believes its technological expertise in the tube and core business is a
distinct competitive advantage.
THROUGH EXCELLENCE
[FIGURE 10]
NEW MACHINERY IS REVOLUTIONIZING the textile industry and Sonoco cores are
helping to ensure maximum productivity at modern plants like this one owned by
Unifi, Inc.
IPD-Europe did not rebound as quickly as the North American operations
and continued to experience problems during 1994. Several European plants have
been consolidated. Operations began to pick up toward the end of last year and
we expect considerable improvement in the European tube and papermaking
operations during 1995. We sold two small operations, a cone manufacturing
plant in France and a paper mill in England, during 1994.
IPD-North America and Showa Products Company, our Japanese affiliate,
formed a joint venture in 1991 for the manufacture of sophisticated film cores
in the United States. This joint venture, Sonoco Marutsutsu, exceeded its
objectives and was a significant success in developing the most sophisticated
film cores on the market. Both companies planned this as a short-term endeavor
and closed the joint venture in August 1994. Sonoco and Showa shared
significant technology and manufacturing know-how that is being incorporated
into the tube manufacturing operations of both companies. Sonoco is now
supplying sophisticated film cores as part of regular division activities.
Sonoco expressed deep appreciation to Showa and the Showa team members who
helped make this venture such a strong success.
Sonoco believes its technological expertise in the tube and core
business is a distinct competitive advantage. While the details are
proprietary, the Company has implemented a number of programs during the past
two years that have dramatically increased quality and controlled the costs of
its industrial carriers. In addition, the new HQ series of paper mill cores
and high-speed textile tubes have provided customers with carriers that greatly
enhance productivity on their manufacturing lines.
The IPD/Paper technology efforts include research and development
facilities in South Carolina and France, as well as a support unit in
Wisconsin. Customers are demanding increasingly sophisticated carriers to keep
up with the demands of new machinery entering the market. These new machines
continue to wind faster and create heavier packages, putting increased demands
on tubes and cores. Sonoco's technological know-how puts the Company in a
unique position to supply these new generation carriers far ahead of the
competition.
Another example of Sonoco's technology leadership is the development
of a new test for tube strength. Sonoco researchers have determined that some
tubes are affected by radial crush during the winding processes, not the flat
crush that has been the standard measure. After developing several
mathematical models and testing these theories in practice, Sonoco has
developed a radial crush test that we expect will become a new industry
standard.
International expansion continues to be a vibrant growth strategy of
these operations. The Company has a solid market share in North America,
Australia and New Zealand, nearly 20% of Europe's fragmented market, and only a
small fraction of the fast-growing Asian markets. The new structure formed for
the Asian operations, which includes Sonoco, Istethmar, a Hong Kong based
investment organization, and Showa Products, should enable Sonoco to accelerate
growth plans for this region of the world. Acquisitions will continue to be an
important part of the division's growth strategy, especially in international
markets.
All tubes and cores produced by IPD are made from recycled
16
<PAGE> 10
[FIGURE 1]
THIS BARMAG TESTING MACHINE AT SONOCO'S AALTEN, NETHERLANDS, plant is an
example of the access Sonoco customers have to world-class technology and
testing methods.
[FIGURE 2]
PRODUCING SONOTUBE(R) FIBRE FORMS, which have become synonymous with
high-quality construction forms for round concrete columns, are Harry Denby,
Todd Pylman and Ken Phipps of Sonoco's Jacksonville, Fla., plant.
paperboard, and nearly all these products can be recycled. Sonoco is working
closely with its customer base to develop product-reclamation programs for its
cores, many of which it can take back and use in the papermaking process.
During 1994, Sonoco's U.S. Industrial Products Division recycled approximately
one third of all the products it manufactured.
The Industrial Products operations are committed to setting the
world-class standard for the industrial carrier industry. The division plans
to stay "a step ahead" of both customers and competition by providing cores to
solve all winding and packaging challenges.
INDUSTRIAL CONTAINER
Sonoco's Industrial Container Division is the largest producer of
fibre drums in the United States and is also a major manufacturer of plastic
drums and intermediate bulk containers (IBC). Sonoco offers customers
solutions for a wide variety of bulk packaging challenges through this
division.
Business was strong in this operation during 1994, as each of the
business units increased its volume. Fibre drums, while growing at a slower
pace than plastic drums and IBCs, continued to gain business as steel drum
users converted to fibre.
This division is the only industrial container supplier with a
research and development facility that studies and tests performance of fibre
and plastic drums, IBCs and a variety of other container types. This facility,
in Lombard, Ill., continually refines existing products, develops new products
and ensures ongoing regulatory compliance of its multiple product line. For
example, this past year the group introduced a new single-piece plastic drum.
The division is also working closely with its strong customer base in product
development. This work has led to several refinements in the intermediate bulk
containers, which are available in both 275- and 330-gallon sizes.
The Industrial Container group is a leader in the development of
effective drum-disposal methods. Working with customers and drum
reconditioners, Sonoco has developed several customer-specific programs for
recycling drums. In addition, the Company's mobile recycling vehicles, MERV,
can go directly to end-user locations to help in the recycling of fibre drums.
MERV drivers can separate the fibre, metal and plastic components of the drum
on location and prepare them for recycling. Five vehicles are currently
assisting customers in recycling their drums.
There has been strong customer approval of the single-source strategy
for industrial containers. Sonoco's ability to provide a wide variety of
packaging options is a major advantage in the marketplace. The division plans
to continue growing by meeting the packaging requirements of our current
customers, developing new products and making tactical acquisitions, especially
in international markets.
CRELLIN MOLDED PLASTICS
Sonoco developed a strong molded plastics business early in 1993 by
combining its small injection molding business with the acquisition of Crellin
Holding, Inc., of Chatham, N.Y. This division, which produces both injection
molded and extrusion plastic products, has 10
17
<PAGE> 11
On the Front Lines of Customer Satisfaction
[FIGURE 13]
JOSE TRUJILLO OF SONOCO'S PLASTIC DRUM PLANT IN HOUSTON, TEXAS, inspects lids
of the new and improved 25-gallon liquid DakPak(TM) drum. This plastic drum is
a UN-approved container for hazardous waste that exceeds standards of most
free-market countries. It has become a popular container for many major
chemical companies.
[FIGURE 14]
HELPING CUSTOMERS PROTECT THE ENVIRONMENT by saving timberland, lowering cost
and reducing landfilling by reusing reels, is one of the goals for Sonoco's
Baker reel refurbishing operation in Temple, Ga. W.L. Campbell is the plant
supervisor.
Baker Reels is the nations's largest producer of primary packaging (reels) for
the wire and cable industry.
operations in the United States, one in Germany and one in the Netherlands.
This has become a solid business for Sonoco, serving customers in the
automotive, textiles, fiber optics, medical and diagnostic, wire and cable,
plumbing, filtration and food processing industries. These businesses provide
customers with state-of-the-art injection molding engineering capabilities that
provide prompt response to a wide variety of customer requirements with expert
assistance in part design and polymer selection.
FIBRE PARTITIONS
Sonoco manufactures solid fibre partitions from eight plants, six in
the United States, one in Canada and one in Mexico. Business was strong in
1994 due to operational improvements that should continue to reap benefits into
1995. Conversion of customers from corrugated partitions to fibre partitions
continues to be a priority.
PROTECTIVE PACKAGING
The Company's Protective Packaging Division includes two primary
product lines, Sonopost(R) corner posts and Aegis-ECF(TM), engineered cushion
fibre. These products are custom-designed interior protective packaging made
from recycled paper. This packaging is used by customers in the major
appliance, home comfort and consumer electronics markets.
Sonopost(R) corner posts are designed to provide superior protection,
cushioning and vertical support for major appliances throughout the
distribution and handling process. A new manufacturing facility for this
product was added in Nashville, Tenn., during 1994. We also manufacture corner
posts in Tiffin, Ohio and Marion, Ind.
Aegis-ECF(TM) is in its start-up phase with manufacturing locations in
Hartsville, S.C., and Singapore. This packaging uses advanced design and
manufacturing processes to provide an ideal substitute for expanded polystyrene
(EPS) in protection of home appliances and a wide variety of consumer
electronics and computer products during shipment and storage.
BAKER REELS
Baker Reels is the nation's largest producer of primary packaging
(reels) for the wire and cable industry. The reel business was strong in 1994,
as cable television continued to expand, and is expected to continue growing in
1995. Baker serves customers from six plants and twenty warehouse locations
across the United States.
ADHESIVES AND MACHINERY
The Adhesives Division primarily supplies the adhesive requirements of
the Company's paperboard converting businesses. This operation also markets to
external customers. Sonoco's Machinery Manufacturing Division manufactures
much of our paperboard converting machinery.
RESEARCH AND DEVELOPMENT
Sonoco has industrial packaging and paper research and development
facilities in Hartsville, S.C., Madison, Wis., and Pont-sur-Yonne, France.
Sonoco also operates a comprehensive industrial container research and
development facility in Lombard, Ill. From our Packaging Development Center in
Hartsville, we offer our customers a major consumer packaging research and
development operation.
18
<PAGE> 12
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS 1994-1993
...............................
[FIGURE 15]
NET SALES BY SEGMENT
THE CONVERTED PRODUCTS SEGMENT continues to be the strength of the Company.
Consolidated net sales for 1994 were $2.30 billion, compared with
$1.95 billion in 1993, an increase of 18.1%. Several factors impact the sales
comparison between 1994 and 1993. Sales in 1994 included a full year of the
Engraph acquisition, completed in October 1993, as well as reductions from
operations closed in 1993. Sales in 1993 also increased because of the
elimination of Sonoco's historical reporting lag of one month for most
international operations, which resulted in 13 months of sales being reported
during 1993. Excluding the above factors, the sales gain in 1994 was 9.5%.
Volume gains were strong in most business units, reflecting the
strength of the economy, particularly in North America and Asia. Selling price
increases also contributed to the sales increase. The selling price increases
were necessary to recover the significant cost increases in many of the
commodity raw materials utilized in our manufacturing operations.
Gross profit margins reflect the combination of selling price and raw
material cost increases. Recovered paper, our largest raw material, nearly
tripled in cost during the year. This unprecedented rate of increase began in
the second quarter and quickly peaked early in the third quarter. Selling
price increases were implemented in the third quarter, resulting in improved
gross margin percentages in the fourth quarter. Sonoco was not able to recover
all of the cost increases in 1994, but ended the year basically in balance.
Thus, the Company expects improved profits in 1995, compared with 1994. The
cost of recovered paper is expected to remain volatile, and we expect to be
able to mitigate any adverse earnings impact over time through selling price
increases.
Other key raw materials include plastic resins, steel, aluminum,
liners and labels. All increased in cost at varying degrees during the year.
While providing for price increases certain contracts preclude the immediate
recovery of these additional costs. However, we do expect to recover cost
increases as these contracts expire early in 1995.
Productivity improvements also helped ease the cost/price squeeze.
Increased volume in our converting operations resulted in lower cost per unit.
We commercialized new technology either through product design or new
equipment, which also produced lower cost per unit of production.
Selling, general and administrative costs include our company-owned
life insurance which is discussed in Note 9 to the Financial Statements.
Excluding these expenses, selling and administrative costs as a percentage of
sales remained constant at 10.7% for 1994 and 1993 due to continued emphasis on
cost and headcount levels.
Net income for 1994 was $122.1 million, or $1.40 per share. This
includes the expected first-year dilution for the Engraph acquisition. Net
income for 1993 of $117.6 million, or $1.35 per share, included a one-time gain
of $.04 per share from the early repayment of the Graham note (See Note 3 to
the Financial Statements). Excluding the dilution, the one-time gain in 1993
and the elimination of the international reporting lag, base operating income
increased by 12%.
Additional information on sales and profits is included in the segment
discussions below.
Capital expenditures increased to $126.7 million in 1994, compared
with $115.6 million in 1993. These expenditures were for projects to expand
capacity and introduce new technology. The Company expects capital
expenditures to rise to $200 million in 1995, as we expand capacity in the
plastic bag business and start on a $90-million investment in the Hartsville
complex, a five-year project. These planned expenditures are expected to have
excellent returns and will further enhance our strong competitive position in
these businesses.
Research and development costs charged to expense were $12.1 million
in 1994, compared with $12.9 million in 1993. Sonoco's research programs in
materials science and applied mechanics have led to significant improvements in
our operations.
Sonoco's effective tax rate in 1994 was 39.1%, compared with 39% in
1993. The impact of the goodwill associated with the Engraph acquisition on
the tax rate was largely offset by the tax benefits from our company-owned life
insurance program.
SEGMENT REPORTING
Sonoco changed the segmental reporting in 1994 by combining the
miscellaneous segment with the converted products segment. The Company
determined the operations in both segments were converting businesses and,
given the small size of the miscellaneous segment, separate reporting was no
longer appropriate. The following segmental data will include the converted
products segment, the paper segment and the international segment.
CONVERTED PRODUCTS SEGMENT
The converted products segment consists of the following domestic
businesses, all of which are described in the Operations Review: the Industrial
Products Division; the Consumer Products Division; Industrial Container
Division; Engraph Division; Fibre Partitions Division; Protective Packaging
Division: Crellin Molded Plastics Division; High Density Film Products Division
and the Baker Reels Division. Converted products is the largest of Sonoco's
business segments, representing approximately 80% of the Company's consolidated
sales and profits. Sales and profits increased significantly in this segment
compared with 1993.
Trade sales in this segment were $1.74 billion compared to $1.44
billion in 1993, an increase of 20.8%. The key factors affecting this sales
increase included additional volume in nearly every business, the full-year
sales impact for Engraph, acquired in October 1993, and higher selling prices.
The overall operating profit for the converted products segment was
$188.5 million, compared with $157.4 million in 1993, an increase of 19.7%.
Sales volume in the Industrial Products Division's tube and core
businesses increased approximately 8% with all the product lines showing
strength through the year. Rising paperboard and other costs necessitated
selling price increases, which took effect in the second half of the year. In
addition to the increased volume, efficiencies achieved through the
introduction of new technologies and cost-control programs added to this unit's
performance. Volatility in paper cost is
21
<PAGE> 13
On the Front Lines of Customer Satisfaction
[FIGURE 16]
INDENTIFIABLE ASSETS BY SEGMENT
IDENTIFIABLE ASSETS, EXCLUDING CORPORATE, INCREASED in 1994 primarily due to
base business growth and acquisitions.
expected to continue and selling price increases have been announced in the
first quarter of 1995 in response to higher paper costs.
In the Consumer Products Division, volume gains in the concentrate,
nut, refrigerated dough, snack and caulk markets offset volume declines in
solid shortening, powdered beverages and cleanser markets. Increased material
costs in the second half of the year spurred some selling price increases.
Improved productivity and lower scrap rates helped improve this division's
profitability. Growth continues in this business through new products and
conversion of self-manufacturers. Continued material cost pressure is expected
in 1995, but we expect to recover these increases through selling price
increases.
Volume increased in all units of the Industrial Container Division.
The group had a good year but continuing cost increases for resin, paper and
steel are putting additional pressure on margins. Fibre drums, while growing
at a slower pace than plastic drums and intermediate bulk containers (IBC),
continued to gain business as steel drum users converted to fibre. Unit growth
was up 1%, 19% and 38% in fibre, plastic and IBC, respectively in 1994.
Sonopost(R) packaging forms continued to make significant conversions
among appliance manufacturers during 1994. This growth is expected to
continue. The engineered cushion fibre business continued to experience
start-up losses. Solid fibre partitions had a good year, boosted by some
volume increases and productivity improvements at several plants.
The Baker Division's reel business was strong in 1994 as cable
television continued to expand, and is expected to continue growing in 1995.
The High Density Film Products Division operated near 100% capacity
throughout 1994. During the year a major competitor curtailed production of
plastic grocery bags, creating a decrease in available supply. Sonoco
authorized a $20-million investment to replace some of this capacity and
improve production. This capacity will be on line during 1995. In addition,
resin prices increased dramatically resulting in selling price increases. The
division expects continued volume growth in their markets as conversions from
paper grocery sacks continue and additional penetration of the retail market is
achieved.
Sonoco's other large plastics operation is the Crellin Molded Plastics
Division, a manufacturer of a diverse line of injection molded and extrusion
plastic products. Business increased in the automotive and filtration segments
during 1994 and selling prices increased due to the high cost of resin.
Engraph, whose businesses are described in the Operations Review, had
volume growth in most units but experienced pressure on margins. In Engraph's
first full year as part of Sonoco, sales and earnings grew at double digit
rates, reinforcing the growth potential in these served markets. The
paperboard carton operations made share gains in the cosmetics, personal care
and home furnishing markets. The Morrill Press flexible packaging operation's
volume increased as the new plant in Tennessee continued to show efficiency
improvement. The label and package insert businesses continued to recover from
the loss in 1993 of a significant amount of good-value-added tobacco coupon
business. Sonoco expects that all of the Engraph businesses will continue to
grow and improve margins in 1995.
Capital spending rose to $77.3 million in this segment, up from $47
million in 1993. Much of this spending is to implement new manufacturing
processes in the tube and core business, to cover two start-up plants in the
protective packaging area and to add equipment and facilities in the Engraph
operations.
PAPER SEGMENT
Sonoco's paper operations are designed primarily to supply our
converting operations. As mentioned in the Operations Review, extensive work
was accomplished during 1994 to more fully integrate the operating strategies
of the Paper Division with its largest customer, the Industrial Products
Division. The paper segment consists of 21 U.S. cylinder board machines, one
Fourdrinier paper machine and Paper Stock Dealers, Inc., a recovered paper
collection and processing subsidiary.
The Fourdrinier paper machine, located in Hartsville, S.C., has an
annual capacity of approximately 176,000 tons. This machine produces
corrugating medium sold under contract to Georgia-Pacific Corporation.
Sonoco's U.S. cylinder board capacity is approximately 750,000 tons a
year. Most of the board produced on these machines is sold to Sonoco's paper
converting operations with about 18% of the capacity going to external
customers.
Paper Stock Dealers has 22 collection facilities purchasing and
processing recovered paper for use by Sonoco paper mills and for sale to
external customers. Sonoco annually recycles more than a million tons of
recovered paper and much of this is provided through this subsidiary and
mill-site collections.
Total domestic paper sales, including both internal and external, for
1994 were $331 million, compared to $279 million in 1993, an 18.7% increase.
Operating profits increased 11.5% to $64.5 million in 1994 from $57.9 million
in 1993.
The domestic paper division operated at 97% of capacity through 1994.
The primary factor influencing this segment in 1994 was the radical change in
the recovered paper market. Old corrugated container (OCC), our major furnish
component, more than tripled in price during the year. Other grades used in
our furnish mix also increased significantly. The unprecedented rise in cost
resulted in three paper price increases, internally and externally, during the
year. While the cost of recovered paper dropped temporarily in the fourth
quarter, it has risen again in the first quarter of 1995, resulting in further
selling price increases.
Sonoco expects higher volatility in this cost component than in the
past due to the existing high recovery rate, economic improvement in the United
States and overseas that impacts exports of this key material, and increasing
demand for recovered paper from new linerboard and corrugating medium
installations. Our
22
<PAGE> 14
[FIGURE 17]
OPERATING INCOME BY SEGMENT
MOST OF THE INCREASE IN 1994 OCCURRED IN THE CONVERTED PRODUCTS SEGMENT and is
due to volume gains, increased productivity and the acquisition of Engraph in
October 1993.
Operating income by segment has been restated to exclude 1992 and 1990
restructuring charges.
recovered paper collection network, through our paper mills and Paper Stock
Dealers subsidiary, is expanding geographically as we seek to secure the supply
of recovered paper for our paper mills. Our recovery system is a key
competitive advantage in our markets, providing self-sufficiency from a supply
standpoint.
Capital spending in this segment during 1994 was $18.9 million,
compared with $20.5 million in 1993. Plans are to significantly increase
capital spending in 1995 to increase capacity at Sonoco's largest mill in
Hartsville, S.C. Increased capacity is needed to keep up with the growing
demand for cylinder board from Sonoco's converting divisions. The project also
updates our internal power generation capabilities resulting in significant
reductions in power cost.
INTERNATIONAL SEGMENT
The international segment includes all of Sonoco's non-U.S.
operations, the largest of which are in the United Kingdom, Canada, France,
Mexico, Australia and Germany. These operations are similar to the United
States operations in products and markets served.
Sales in 1994 were $431.2 million, compared with $404.1 million in
1993. Due to the elimination of our historical reporting lag, 13 months of
sales were included in 1993 for many of our international operations. We also
sold several businesses in 1993, impacting the year-to-year comparison.
Excluding the above, the sales gain for 1994 was 16.5%. Operating profits
increased 31.9% to $15.7 million in 1994 from $11.9 million in 1993.
Volume was strong in the U.K., Latin America, Australia, Canada and
Asia-Pacific. Germany and Southern Europe continued to deal with a flat
economy. The same cost pressures that are affecting the tube and paper markets
in the United States are affecting Europe, resulting in price increases in the
paper and converting operations. Three paper and two converted products price
increases were implemented in the second half of 1994. Engraph's purchase of
M. Harland & Son Ltd., of the U.K. also contributed to the sales increase.
Business remained steady in Mexico. The severe devaluation of the
Mexican peso at the end of 1994 had only a minimal impact on Sonoco operations.
Since our largest operation in Mexico supplies the Mexican textile industry,
which is a heavy exporter, we do not expect a significant impact from the
devaluation.
Sonoco expects to continue growing in all international operations.
Capital spending in the international segment was $27.7 million,
compared with $41.2 million in 1993. The primary projects involved were aimed
at process improvements at plants in Mexico, Canada, Germany and France.
CORPORATE
Interest income, interest expense and unallocated corporate expenses
are excluded from the operating profits by segment and are shown under
Corporate. Interest expense in 1994 was $35.9 million, compared with $31.2
million in 1993, a result of higher average debt levels, primarily due to
acquisitions, offset partially by the impact of a lower average cost of funds.
Although short-term rates were higher in 1994, the Company benefited from the
favorable impact of the prepayment of the 9.3% privately placed notes in
November 1993 and the maturing of various fixed-rate instruments in 1994.
Interest income was lower in 1994 due to the early repayment of the Graham note
in November 1993. The repayment of this note resulted in a $5.8-million gain
(net of certain corporate charges), which was included in general corporate
expense in 1993. General corporate expense increased in 1994 primarily due to
the pretax cost of a broad-based, company-owned life insurance program. The
tax benefit from this program, which largely offset the costs, is reflected in
our effective tax rate.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
...................................................
Sonoco maintained its strong financial position in 1994 and 1993 and
its ability to meet future financial needs. The debt to total capital ratio
was 38.1%, 38.0%, and 35.1% at December 31, 1994, 1993, and 1992, respectively.
The Company's earnings before interest and taxes were 6.9 times interest
expense in 1994 as compared to 7.2 times in 1993 and 6.8 times in 1992
(excluding cumulative effect of accounting changes and restructuring costs in
1992). The Company's financial strength has been acknowledged by Standard and
Poor's (S&P) and Moody's who have rated the Company's long-term debt A+ and A2
and commercial paper program A1 and P1, respectively.
Operations continued to produce solid cash flows, providing $219.5
million in cash in 1994, compared with $162.8 million and $157.4 million in
1993 and 1992, respectively. Cash provided by operations was significantly
higher in 1994, compared with 1993 due to lower payables in 1993 coupled with
the prepayment of $15 million in taxes which would have otherwise been payable
in 1994.
Debt increased $31.6 million to $547.4 million at December 31, 1994,
primarily due to the purchase of $29.5 million of Company stock and to fund
$30.4 million in acquisitions. Debt increased $200 million in 1993 to $515.8
million. This debt, along with the issue of $172.5 million in preferred stock,
$42.5 million in proceeds from asset dispositions and $33.7 million received
from the early repayment of the 10.9% Graham note, were used to fund $393
million in acquisitions. Capital spending was $126.7 million in 1994, compared
with $115.6 million in 1993 and $109.3 million in 1992.
In October 1993, the Company filed a shelf registration with the
Securities and Exchange Commission increasing the amount of registered debt
securities available for issuance to $325 million (including $100 million
previously filed under the June 1991 registration), referred to collectively as
the "registered debt securities." The Company issued $100 million of 5.875%
notes, due November 2003, of its registered debt securities in October 1993.
The Company issued $75 million of 5.49% notes, due April 2000, of its
registered debt securities directly to an institutional investor in November
1993. The net proceeds of these issues were used to fund a portion of the
Engraph acquisition and
23
<PAGE> 15
On the Front Lines of Customer Satisfaction
[FIGURE 18]
CAPITAL SPENDING BY SEGMENT
IN 1994, CAPITAL SPENDING INCREASED SIGNIFICANTLY in the Converted Products
segment due to expansion and technology improvements.
repay other indebtedness including the prepayment of 9.3% privately placed
notes due 1994 through 1998 (including a make-whole premium of $3.2 million).
The Company has $150 million of registered debt securities available for
issuance at December 31, 1994.
The Company also filed a registration statement with the Securities
and Exchange Commission for the issuance of up to 3,450,000 shares of $2.25
Series A Cumulative Convertible Preferred Stock in October 1993. The sale of
these securities at $50.00 per share, convertible to the Company's common stock
at a price of $25.31, was completed in October 1993. The net proceeds from
this issue were used to fund a portion of the Engraph acquisition.
The Company has authorized a commercial paper program totaling $250
million and has fully committed bank lines of credit supporting the program by
a like amount.
The Company expects internally generated cash flow along with
borrowings under its existing credit facilities to be sufficient to meet
operating and normal capital expenditure requirements in the future. Capital
spending for 1995 is estimated to be approximately $200 million.
Acquisitions are expected to continue to be an important part of the
Company's strategy for growth. The Company would expect to acquire additional
companies with market and technology positions that provide meaningful
opportunities when consistent with its overall goals and strategies.
Net working capital was $222.1 million, $209.9 million and $152.5
million at December 31, 1994, 1993 and 1992, respectively. Net working capital
increased $12.2 million in 1994 primarily as a result of base business growth.
In 1993, working capital increased significantly as a result of acquisitions.
The restructuring reserve declined in 1994 to $10.9 million from $27.1 million
at December 31, 1993, as most of the plant closings, consolidations and
relocations identified as part of the 1992 and 1990 restructuring programs were
completed. The balance remaining at December 31, 1994, is principally to cover
pension costs related to terminated employees. The ratio of current assets to
current liabilities was 1.6 at December 31, 1994, compared with 1.7 and 1.5 at
December 31, 1993 and 1992, respectively. Excluding restructuring accruals,
the ratio was approximately 1.7 in 1994, 1.9 in 1993 and 1.7 in 1992.
Shareholders' equity increased $43.8 million to $832.2 million at
December 31, 1994, primarily from $129.8 million in earnings, partially offset
by common and preferred dividend payments of $56.1 million, the repurchase of
$29.5 million of outstanding shares of the Company's stock and translation of
foreign currency of $7.2 million. The translation adjustment in 1994,
resulting from the conversion of investments in foreign countries to the U.S.
dollar for reporting purposes, was attributable to the effect of the dollar
strengthening against the Canadian dollar and Mexican peso, partially offset by
the U.S. dollar weakening against most European currencies. Shareholders'
equity increased $226.5 million to $788.4 million at December 31, 1993, as a
result of $118.8 million in earnings and the issuance of $172.5 million in
preferred stock, partially offset by dividends of $47.6 million and a $19
million translation adjustment due primarily to the U.S. dollar strengthening
against most European currencies.
In April 1994, the Board of Directors increased the dividend payable
to common shareholders to $.14 per share from the $.135 per share that had been
paid since the second quarter of 1993. The Company plans to increase dividends
as earnings justify as it has done in the past. The return on common equity
was 20.4% in 1994, compared with 19.9% in 1993 and 13.7% in 1992 (excluding the
cumulative effect of accounting changes). Excluding the impact of
restructuring costs and accounting changes, return on equity was 18% in 1992.
The book value per common share was $7.59 in 1994, compared to $7.04 in 1993.
The Company is exposed to interest rate fluctuations as a result of
using debt as a major source of financing its operations. When necessary, the
Company will use traditional, unleveraged interest rate swaps to manage its mix
of fixed and variable rate debt to ensure that exposure to interest rate
movements is maintained within established ranges. The Company is also subject
to risk due to foreign exchange rate changes as a result of operating globally.
The Company monitors these exposures and can use traditional currency swaps and
forward foreign exchange contracts to hedge a portion of the net investment in
foreign subsidiaries or to hedge firm commitments denominated in foreign
currencies. The Company does not use any financial instruments for speculative
purposes. The aggregate impact of these financial instruments was not material
to the financial statements as a whole as of December 31, 1994 or 1993.
Except for the impact of raw material prices, as discussed in the
segmental information, inflation did not have a material impact on the
Company's operations in 1994, 1993 or 1992.
The Company is subject to various federal, state and local
environmental laws and regulations, concerning among other matters, wastewater
effluent and air emissions. Compliance costs have not been significant due to
the nature of the materials and processes used in manufacturing operations.
Such laws also make generators of hazardous wastes, and their legal successors,
financially responsible for the clean-up of sites contaminated by those wastes.
The Company has been named a potentially responsible party at several
environmentally contaminated sites primarily located in the Northeast owned by
third parties. These sites are believed to represent the Company's largest
potential environmental liabilities. The Company has accrued $4.4 million as
of December 31, 1994, with respect to these sites. In determining the amounts
to accrue with respect to such sites, the Company has considered: 1) the
aggregate potential clean-up costs in light of the joint and several liability
to which the Company may be subject, 2) the availability of insurance coverage,
3) the likelihood that insurance coverage may be contested, 4) potential
sources of contribution and/or indemnification, 5) the periods in which claims
for recovery may be realized, 6) the financial condition of third parties from
which
24
<PAGE> 16
recovery is expected, 7) the identification of specific sites for clean-up, 8)
statutory defenses and 9) the status of federal and state regulatory action.
Due to the complexity of determining clean-up costs associated with the sites,
a reliable estimate of the ultimate cost to the Company cannot be determined;
however, costs will be accrued as necessary once reasonable estimates are
determined. Because it appears unlikely that these matters will be completely
resolved in the near future, and because they involve matters in areas of law
and policy that are constantly changing, any opinion the Company has regarding
such matters must necessarily be qualified to reflect the uncertainty.
Nevertheless, it is management's opinion (based on prior experiences with such
matters; rough estimates of counsel, consultants and others; the apparent
ability and obligation of other parties to share clean-up costs; and the
Company's present and estimated future financial position) that such costs,
when finally determined, will not have a material adverse effect on the
consolidated financial position of the Company.
RESULTS OF OPERATIONS 1993-1992
...............................
Consolidated net sales for 1993 were $1.95 billion compared with $1.84
billion in 1992, an increase of 5.9%. The sales gain included acquisitions and
base business growth offset by operations sold as part of the 1992
restructuring and exchange rate changes in 1993. The acquisitions of Engraph,
Crellin, OPV/Durener and a composite can plant in Mexico added $154 million in
sales in 1993. Edgeboard(R), European plastic bags, liquid packaging,
packaging tapes and U.K. reel operations were sold, reducing sales in 1993 by
$38.6 million compared with 1992. The exchange rate losses associated with the
stronger dollar in 1993 were $35 million, or 1.9% of 1992 sales.
Net income for 1993 was $117.6 million, or $1.35 per share, compared
with a restated 1992 income of $106.3 million, or $1.23 per share. The $1.23
per share in 1992 was restated to exclude the 1992 cumulative effect of FAS 106
and FAS 109, as well as the restructuring reserve (all of which had a total
negative impact of $.73 per share). The 1993 earnings represented a 10.7%
increase over restated 1992 earnings. The 1993 profit included a non-operating
gain of $.04 per share, as described in Note 3 to the Financial Statements.
On a consolidated basis, the gross profit margin in 1993 increased to
21.6% from 21% in 1992. While some of our major industrial packaging
operations felt the impact of poor business conditions, our consumer businesses
performed well. The increase also reflected restructuring actions the Company
had taken and investments made over the past couple of years.
Further information on sales and profits is included in the segment
discussion below.
Acquisitions had a significant impact on 1993 earnings. The aggregate
cost of these acquisitions, net of debt assumed, was $393 million. With the
additional goodwill ($292 million) and preferred stock and debt financing,
dilution of approximately $.04 per share was expected in 1994.
Capital expenditures in 1993 of $115.6 million included projects to
expand capacity and improve productivity and quality. Research and development
costs charged to expense in 1993 were $12.9 million as compared with $11.7
million in 1992.
Sonoco's effective tax rate in 1993 was 39% compared with 39.5% in
1992.
CONVERTED PRODUCTS SEGMENT
Trade sales for this segment in 1993 were $1.44 billion compared with
$1.29 billion in 1992, an increase of 11.6%. This increase was primarily due
to the acquisition of Engraph and Crellin. Demand in our industrial businesses
was down, reflecting the depressed state of many of the major markets served.
Selling price pressures were intense due to competition and customer profit
pressures in these markets. Our consumer businesses also experienced selling
price pressure and low growth in 1993.
The overall operating profit for the converting segment was $157.4
million compared with $117.9 million in 1992. The 1992 results included a
restructuring charge of $10 million. Profits in the converting segment
increased due to acquisitions, lower material costs and the benefits of the
restructuring actions taken in 1992.
Capital spending rose to $47 million in 1993 from $39.3 million in
1992. Major projects included actions to expand capacity and improve
productivity and quality.
PAPER SEGMENT
Total domestic paper sales, including both internal and external, for
1993 were $278.9 million, a decrease of 1.3%, compared with $282.6 million for
1992. Lower prices in corrugating medium coupled with flat industrial products
sales and lower fibre drum sales were the primary factors affecting this
segment.
Operating profits for 1993 were $57.9 million, 11.5% below the $65.4
million in 1992. The decline in profits was due to lower volume and reduced
prices in corrugating medium; lower external cylinder board volume and prices
slightly below 1992 levels; and higher costs in several areas.
Capital spending of $20.5 million in 1993 compared with $15.6 million
in 1992. Projects were primarily focused on process improvements and
productivity enhancements on cylinder board machines.
INTERNATIONAL SEGMENT
Trade sales in the international segment totaled $404.1 million in
1993 compared with $444.7 million in 1992. Unfavorable exchange rates and the
disposition of several business units, which were a part of the 1992
restructuring program, accounted for $35 million and $37 million, respectively,
of the sales decline. Sales were also negatively impacted by depressed paper
markets in Canada, Mexico and Europe. Partially offsetting these were
additional sales from acquisitions completed during 1993 and increased sales in
the Asia-Pacific region.
Operating profits in the international segment totaled $11.9 million
as compared with a loss in 1992 of $12.4 million. Included in the 1992 results
is a $31.8 million restructuring charge. Excluding this charge, profits in
1993 were $7.5 million lower than 1992. Although Canada, Mexico and Australia
had profit improvements in their converting operations, these improvements were
more than offset by inefficiencies in consolidating businesses in Europe,
exchange rate losses and lower paper volume and prices due to several weak
economies.
Capital spending in this segment was $41.2 million compared with $48.3
million in 1992. Major projects included the start-up of a tape core
operation in Italy and a project in Canada to generate power for internal use.
CORPORATE
Interest expense in 1993 was $31.2 million, compared with $30.4
million in 1992. In 1993, the benefit of declining global short-term interest
rates was more than offset by higher average debt levels as a result of
acquisitions. Corporate operating profit in 1993 includes a non-operating gain
of $5.8 million described in Note 3 of the Financial Statements.
25
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
Sonoco Products Company
<TABLE>
<CAPTION>
DECEMBER 31
.......................
1994 1993
.............................................................................................................
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,444 $ 25,858
Trade accounts receivable, net of allowances . . . . . . . . . . . . . . . . 270,439 232,628
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,211 22,989
Inventories
Finished and in process . . . . . . . . . . . . . . . . . . . . . . . . . 86,238 83,660
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 121,424 102,465
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,943 30,750
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,012 14,760
-----------------------
570,711 513,110
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 763,109 737,154
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED . . . . . . . . . . . . . . . . 358,965 339,653
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,268 117,208
-----------------------
$1,835,053 $1,707,125
=======================
.............................................................................................................
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,098 $ 129,389
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . 72,345 60,407
Accrued wages and other compensation . . . . . . . . . . . . . . . . . . . . 30,855 22,633
Restructuring reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,923 27,114
Notes payable and current portion of long-term debt . . . . . . . . . . . . . 59,421 60,564
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,001 3,071
-----------------------
348,643 303,178
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487,959 455,262
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS . . . . . . . . . . . . . . . . . . . 104,179 99,165
DEFERRED INCOME TAXES AND OTHER . . . . . . . . . . . . . . . . . . . . . . . . . 62,054 61,156
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
Issued 3,450 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,500 172,500
Common shares, no par value
Authorized 150,000 shares
Issued 91,841 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,175 7,175
Capital in excess of stated value . . . . . . . . . . . . . . . . . . . . . . 60,908 62,277
Translation of foreign currencies . . . . . . . . . . . . . . . . . . . . . . (46,252) (39,016)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,299 623,500
Treasury shares at cost (1994 -- 4,933 SHARES; 1993 -- 4,394 shares) . . . . (59,412) (38,072)
-----------------------
832,218 788,364
-----------------------
$1,835,053 $1,707,125
=======================
</TABLE>
The Notes beginning on page 32 are an integral part of these financial
statements.
28
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
Sonoco Products Company
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
....................................
(Dollars and shares in thousands except per share) 1994 1993 1992
.............................................................................................................
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,300,127 $1,947,224 $1,838,026
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,803,427 1,525,671 1,451,252
Selling, general and
administrative expenses . . . . . . . . . . . . . . . . . . . . . . 252,307 209,309 189,823
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 35,861 31,154 30,364
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,398) (6,017) (6,416)
Unusual items . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,800) 42,000
------------------------------------
Income before income taxes and cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . 210,930 192,907 131,003
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,500 75,200 51,800
------------------------------------
Income before equity in earnings of affiliates and
cumulative effect of changes in accounting principles. . . . . . . 128,430 117,707 79,203
Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . 1,419 1,127 2,048
------------------------------------
Income before cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . 129,849 118,834 81,251
Cumulative effect of changes in accounting for postretirement
benefits (Note 14) and income taxes (Note 15) . . . . . . . . . . . (37,892)
------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,849 118,834 43,359
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . (7,763) (1,264)
------------------------------------
Net income available to common shareholders . . . . . . . . . . . . . $ 122,086 $ 117,570 $ 43,359
====================================
Per common share
Income before cumulative effect of
changes in accounting principles . . . . . . . . . . . . . . . . . $ 1.40 $ 1.35 $ .94
Cumulative effect of changes in accounting for postretirement
benefits and income taxes . . . . . . . . . . . . . . . . . . . . . (.44)
------------------------------------
Net income available to common shareholders . . . . . . . . . . . . . $ 1.40 $ 1.35 $ .50
====================================
Dividends -- common . . . . . . . . . . . . . . . . . . . . . . . . . $ .555 $ .53 $ .49
Average common shares outstanding . . . . . . . . . . . . . . . . . . 87,090 87,316 86,732
</TABLE>
The Notes beginning on page 32 are an integral part of these financial
statements.
29
<PAGE> 19
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Sonoco Products Company
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED CAPITAL IN TRANSLATION TREASURY
.................... STOCK EXCESS OF OF FOREIGN RETAINED SHARES
Dollars and shares in thousands except per share) OUTSTANDING AMOUNT AMOUNT STATED VALUE CURRENCIES EARNINGS AMOUNT
....................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1992 . . . . . . . . . . . . . . . . . . 86,490 $7,175 $ $54,821 $ (8,229) $551,347 $(42,808)
Net income . . . . . . . . . . . . . . . . . . . . 43,359
Dividends, $.49 per share . . . . . . . . . . . . (42,443)
Translation loss . . . . . . . . . . . . . . . . . (11,723)
Issuance of treasury shares under
Stock option plan . . . . . . . . . . . . . . 682 3,894 4,864
Employee stock ownership plan . . . . . . . . 224 2,893 1,854
Treasury shares acquired . . . . . . . . . . . . . (252) (3,114)
---------------------------------------------------------------------------
DECEMBER 31, 1992 . . . . . . . . . . . . . . . . . 87,144 7,175 61,608 (19,952) 552,263 (39,204)
Net income . . . . . . . . . . . . . . . . . . . . 118,834
Dividends
Preferred . . . . . . . . . . . . . . . . . . . (1,264)
Common, $.53 per share . . . . . . . . . . . . . (46,333)
Translation loss . . . . . . . . . . . . . . . . . (19,064)
Issuance of 3,450 preferred shares . . . . . . . . 172,500 (3,968)
Issuance of treasury shares under
Stock option plan . . . . . . . . . . . . . . . 208 1,388 1,493
Employee stock ownership plan . . . . . . . . . 235 3,249 2,001
Treasury shares acquired . . . . . . . . . . . . . (140) (2,362)
---------------------------------------------------------------------------
DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . 87,447 7,175 172,500 62,277 (39,016) 623,500 (38,072)
Net income . . . . . . . . . . . . . . . . . . . . 129,849
Dividends
Preferred . . . . . . . . . . . . . . . . . . . (7,763)
Common, $.555 per share . . . . . . . . . . . . (48,287)
Translation loss . . . . . . . . . . . . . . . . . (7,236)
Issuance of treasury shares
Under stock option plan . . . . . . . . . . . . . 327 (442) 3,748
Under employee stock ownership plan . . . . . . . 149 1,779 1,581
Other . . . . . . . . . . . . . . . . . . . . . 256 (2,706) 2,793
Treasury shares acquired . . . . . . . . . . . . . (1,271) (29,462)
---------------------------------------------------------------------------
DECEMBER 31, 1994 . . . . . . . . . . . . . . . . . 86,908 $7,175 $172,500 $60,908 $(46,252) $697,299 $(59,412)
===========================================================================
</TABLE>
The Notes beginning on page 32 are an integral part of these financial
statements.
30
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
Sonoco Products Company
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
..................................
Dollars in thousands 1994 1993 1992
...................................................................................................................
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,849 $ 118,834 $ 43,359
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 112,797 95,745 83,309
Cumulative effect of changes in accounting principles . . . . . . . . . . 37,892
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . 39,130
Loss on disposition of assets . . . . . . . . . . . . . . . . . . . . . . 2,901 836 2,941
Equity in earnings of affiliates, net of dividends . . . . . . . . . . . (917) (975) (1,893)
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,668 22,361 (13,619)
Gain on sale of investment in affiliate . . . . . . . . . . . . . . . . . (15,299)
Changes in assets and liabilities, net of effects from acquisitions,
dispositions and foreign currency adjustments
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (33,127) 860 (13,178)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,637) 5,545 (3,719)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563 (1,411) 831
Payables and taxes . . . . . . . . . . . . . . . . . . . . . . . . . 29,536 (45,881) (7,930)
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . (11,118) (17,771) (9,711)
----------------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 219,515 162,844 157,412
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . (126,746) (115,596) (109,305)
Cost of acquisitions, exclusive of cash . . . . . . . . . . . . . . . . . . . (30,370) (392,950) (34,964)
Proceeds from the sale of assets . . . . . . . . . . . . . . . . . . . . . . 5,533 42,467 6,626
Proceeds from collection of a note receivable . . . . . . . . . . . . . . . . 33,672
----------------------------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . . . (151,583) (432,407) (137,643)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . 96,838 662,800 168,072
Principal repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . (81,053) (523,817) (132,163)
Cash dividends - common and preferred . . . . . . . . . . . . . . . . . . . . (56,004) (46,333) (42,443)
Treasury shares acquired . . . . . . . . . . . . . . . . . . . . . . . . . . (29,462) (2,362) (3,114)
Treasury shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,334 2,428 7,781
Preferred shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,500
----------------------------------
Net cash (used) provided by financing activities . . . . . . . . . . . . . . (66,347) 265,216 (1,867)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . . . . . . . 1,001 (7,863) (8,456)
----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 2,586 (12,210) 9,446
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . 25,858 38,068 28,622
----------------------------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . $ 28,444 $ 25,858 $ 38,068
==================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,123 $ 31,504 $ 29,265
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,254 $ 75,374 $ 65,224
</TABLE>
Excluded from the consolidated statements of cash flows is the effect of
certain non-cash activities. The Company assumed approximately $6,000 and
$75,000 of debt obligations in 1994 and 1993, respectively, in conjunction with
acquisitions.
The Notes beginning on page 32 are an integral part of these financial
statements.
31
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
The following notes are an integral part of the consolidated financial
statements. The accounting principles followed by the Company appear in bold
type.
1. PRINCIPLES OF CONSOLIDATION
................................................................................
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF SONOCO
PRODUCTS COMPANY AND ITS UNITED STATES AND INTERNATIONAL SUBSIDIARIES AFTER
ELIMINATION OF INTERCOMPANY ACCOUNTS AND TRANSACTIONS. INVESTMENTS IN
AFFILIATED COMPANIES IN WHICH THE COMPANY OWNS 20% TO 50% OF THE VOTING STOCK
ARE INCLUDED ON THE EQUITY METHOD OF ACCOUNTING.
2. ACQUISITIONS
................................................................................
During 1994, the Company completed several acquisitions with an
aggregate cost of approximately $30,000 and the assumption of $6,000 in debt.
The most notable was the purchase of M. Harland & Son Limited, a leading
producer of pressure-sensitive roll labels and roll label application equipment
headquartered in the United Kingdom. This acquisition was completed in May
1994 and is expected to add $33 million in sales annually. Subsequent to
December 31, 1994, the Company acquired the remaining 50% interest in the CMB
Sonoco joint venture. CMB Sonoco is a producer of composite cans with
manufacturing facilities in Manchester, U.K., and Lieven, France. Also,
subsequent to December 31, 1994, the Company signed an agreement with Hargro
Flexible Packaging Corporation to purchase its Edinburgh, Ind., flexible
packaging plant.
During 1993, the Company completed several acquisitions totaling
approximately $400,000. The Company acquired 100% of the outstanding stock of
Crellin Holding, Inc., and in October 1993, the Company acquired Engraph, Inc.,
for approximately $300,000. Debt assumed in connection with the 1993
acquisitions was approximately $75,000.
The Company has accounted for each of these acquisitions as a purchase
and, accordingly, has included their results of operations in consolidated net
income from the date of acquisition. The aggregate excess purchase price over
the fair value of assets purchased is being amortized over 40 years.
3. UNUSUAL ITEMS
................................................................................
Unusual items in 1993 include a gain from the early repayment of a
note issued in connection with the sale of Sonoco Graham in 1991. This gain
was partially offset by charges for refinancing debt related to the Engraph
acquisition and various other unusual items in 1993. The 1992 unusual items
represent restructuring charges, which are discussed more fully in Note 4.
4. RESTRUCTURING CHARGES
................................................................................
During the fourth quarter of 1992, the Company recorded a charge to
earnings for costs associated with the restructuring, closing, consolidating
and relocation of various plants, principally at foreign locations. The
restructuring reduced income before taxes, net income and earnings per share by
$42,000, $25,000 and $.29, respectively. At December 31, 1994, $10,923 of
restructuring reserve remained primarily to cover pension costs related to
terminated employees.
5. CASH AND CASH EQUIVALENTS
................................................................................
CASH EQUIVALENTS ARE COMPOSED OF HIGHLY LIQUID INVESTMENTS WITH AN
ORIGINAL MATURITY OF THREE MONTHS OR LESS.
At December 31, 1994 and 1993, $28,182 and $18,751, respectively, of
outstanding checks were included in Payables to suppliers.
6. INVENTORIES
................................................................................
INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET. The last-in,
first-out (LIFO) method was used to determine cost of approximately 43% of
total inventories in 1994 and 44% in 1993. The remaining inventories are
determined on the first-in, first-out (FIFO) method.
If the FIFO method of accounting had been used for all inventories,
the totals would have been higher by $9,961 in 1994 and $7,885 in 1993.
7. PROPERTY, PLANT AND EQUIPMENT
................................................................................
PLANT ASSETS REPRESENT THE ORIGINAL COST OF LAND, BUILDINGS AND
EQUIPMENT LESS DEPRECIATION COMPUTED UNDER THE STRAIGHT-LINE METHOD OVER THE
ESTIMATED USEFUL LIFE OF THE ASSET. Equipment lives range from 5 to 11 years,
buildings from 20 to 30 years.
TIMBER RESOURCES ARE STATED AT COST. DEPLETION IS CHARGED TO
OPERATIONS BASED ON THE NUMBER OF UNITS OF TIMBER CUT DURING THE YEAR.
Depreciation and depletion expense amounted to $99,767 in 1994,
$87,721 in 1993 and $79,455 in 1992.
Details of property, plant and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
.........................
<S> <C> <C>
Land . . . . . . . . . . . . . . $ 28,179 $ 25,694
Timber resources . . . . . . . . 31,699 25,349
Buildings . . . . . . . . . . . . 279,634 267,933
Machinery & equipment . . . . . . 1,009,024 935,247
Construction in progress . . . . 62,988 61,473
-------------------------
1,411,524 1,315,696
Accumulated depreciation
and depletion . . . . . . . . . (648,415) (578,542)
-------------------------
$ 763,109 $ 737,154
=========================
</TABLE>
Estimated costs for completion of authorized capital additions under
construction totaled approximately $101,000 at December 31, 1994.
Certain operating properties and equipment are leased under
non-cancellable operating leases. Total rental expense under operating leases
was $28,000, $26,400, and $23,400 in 1994, 1993 and 1992, respectively. Future
minimum rentals under non-cancellable operating leases with terms of more than
one year are as follows: 1995 - $15,700; 1996 - $12,900; 1997 - $9,500; 1998 -
$8,100; 1999 - $6,700; 2000 and thereafter - $11,800.
32
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
8. COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
................................................................................
Goodwill arising from business acquisitions ($27,000 in 1994 and
$292,000 in 1993) is amortized on the straight-line basis over periods ranging
from 20 to 40 years. The Company evaluates, at each balance sheet date, the
realizability of goodwill for each subsidiary having a goodwill balance.
Amortization expense amounted to $13,030 in 1994; $8,024 in 1993 and $3,854 in
1992. Accumulated amortization at December 31, 1994 and 1993 was $34,336 and
$24,403, respectively.
9. INVESTMENT IN LIFE INSURANCE
................................................................................
Company-owned life insurance policies are recorded net of policy loans
in Other Assets. The net pretax cost of company-owned life insurance,
including interest expense, was $5,532 in 1994 and $1,949 in 1993 and is
included in Selling, General and Administrative expenses. The related interest
expense was $18,630 and $5,976 in 1994 and 1993, respectively. The pretax cost
of these life insurance programs was largely offset by the reduction in the
Company's effective tax rate.
10. DEBT
................................................................................
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993
...............................
<S> <C> <C>
Commercial paper, average rate
of 4.2% in 1994 and 3.2% in 1993. . . . . . . . . . . $173,700 $146,500
9.2% notes due August 2021 . . . . . . . . . . . . . . 99,917 99,920
5.875% notes due November 2003. . . . . . . . . . . . . 99,405 99,339
5.49% notes due April 2000 . . . . . . . . . . . . . . 75,000 75,000
Foreign denominated debt, average
rate of 6.8% at December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . 70,304 70,618
Other notes . . . . . . . . . . . . . . . . . . . . . . 29,054 24,449
-------------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . 547,380 515,826
Less current portion and
short-term notes . . . . . . . . . . . . . . . . . . . 59,421 60,564
-------------------------------
Long-term debt . . . . . . . . . . . . . . . . . . . . $487,959 $455,262
===============================
</TABLE>
The Company has authorized a commercial paper program totaling $250
million and has fully committed bank lines of credit supporting the program by
a like amount. These bank lines expire in 1998. Accordingly, commercial paper
borrowings are classified as long-term debt.
The approximate principal requirements of debt maturing in the next
five years are: 1995 - $59,400; 1996 - $3,400; 1997 - $2,900; 1998 - $2,100;
and 1999 - $2,200. It is management's intent to extend indefinitely the line
of credit agreements supporting the commercial paper program. Accordingly, no
principal repayments are projected through 1998.
Certain of the Company's debt agreements impose restrictions with
respect to the maintenance of financial ratios and the disposition of assets.
The most restrictive covenant currently requires that tangible net worth at the
end of each fiscal quarter be greater than $365,000.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes at
December 31, 1994, were approximately $64,300 with interest at mutually agreed
upon rates.
11. FINANCIAL INSTRUMENTS
................................................................................
The Company enters into currency swaps and foreign exchange forward
contracts to hedge a portion of the net investment in certain foreign
subsidiaries. Gains and losses on such contracts are recognized in the
cumulative translation adjustments account in Shareholders' Equity. As of
December 31, 1994 and 1993, the notional value of such contracts was
approximately $32,000. All financial instruments are executed with credit
worthy financial institutions; therefore, the Company considers the risk of
non-performance on these instruments to be remote.
The following table sets forth the carrying amounts and fair values of
the Company's significant financial instruments where the carrying amount
differs from the fair value. The carrying amount of cash and cash equivalents,
short-term debt and long-term variable rate debt approximates fair value. The
fair value of long-term debt is based on quoted market prices or by discounting
future cash flows using interest rates available to the Company for issues with
similar terms and average maturities. Foreign currency agreements are valued
based on termination values or quoted market prices of comparable instruments.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
..................................................
Carrying Fair Carrying Fair
Amount Value Amount Value
......... ......... ......... .........
<S> <C> <C> <C> <C>
Long-term debt . . . . . . . . . . . . . . $(487,959) $(468,126) $(455,262) $(476,262)
Foreign currency
agreements . . . . . . . . . . . . . . . 1,309 1,309 512 512
</TABLE>
12. STOCK PLANS
................................................................................
The Company has stock option plans under which common shares are
reserved for sale to certain employees. Options granted under the plans were
at the market value of the shares at the date of grant. Options are generally
exercisable one year after the date of grant, and expire 10 years after the
date of grant. At December 31, 1994, 1,710,440 shares were reserved for future
grants.
On October 20, 1994, the Board recommended, pending shareholder
approval, the granting of one-time awards of contingent shares to 13 of the
Company's executives. Three-hundred twenty thousand shares were granted under
this plan from shares allocated in the 1991 Key Employee Stock Plan.
Information with respect to the Company's stock option plans follows:
33
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
NOTE 12: STOCK PLANS - CONTINUED
<TABLE>
<CAPTION>
OPTION OPTION
SHARES PRICE RANGE
...........................
<S> <C> <C>
1992
Outstanding at beginning of year . . . . . . 3,122,868 $5.02-$18.25
Granted . . . . . . . . . . . . . . . . . . 862,350 $18.75
Exercised . . . . . . . . . . . . . . . . . (683,234) $5.02-$17.63
Cancelled . . . . . . . . . . . . . . . . . (48,400) $10.50-$18.75
---------
Outstanding at end of year . . . . . . . . . 3,253,584 $5.02-$18.75
1993
Granted . . . . . . . . . . . . . . . . . . 957,300 $20.75-$24.13
Assumed - Engraph . . . . . . . . . . . . . 623,156 $3.73-$18.40
Exercised . . . . . . . . . . . . . . . . . (208,274) $5.02-$18.75
Cancelled . . . . . . . . . . . . . . . . . (5,900) $24.13
---------
Outstanding at end of year . . . . . . . . . 4,619,866 $3.73-$24.13
1994
Granted . . . . . . . . . . . . . . . . . . 894,210 $25.13
Exercised . . . . . . . . . . . . . . . . . (327,366) $3.73-$18.75
Cancelled . . . . . . . . . . . . . . . . . (34,846) $5.02-$25.13
---------
Outstanding at end of year . . . . . . . . . 5,151,864 $5.12-$25.13
=========
Options exercisable at December 31, 1994 . . 4,257,654
</TABLE>
13. RETIREMENT BENEFIT PLANS
................................................................................
Non-contributory defined benefit pension plans cover substantially all
U.S. employees. Under the plans, retirement benefits are based either on both
years of service and compensation or on service only. IT IS THE COMPANY'S
POLICY TO FUND THESE PLANS, AT A MINIMUM, IN AMOUNTS REQUIRED UNDER ERISA.
Plan assets consist primarily of common stocks, bonds and real estate.
The Company also maintains a plan to supplement executive benefits
limited through qualified plans. Benefits are based on years of service and
compensation. The Plan is partially funded through a grantor trust as defined
under Section 671 of the Internal Revenue Service Code of 1986.
The Company's subsidiaries in the United Kingdom have contributory
pension plans covering about 75% of the groups' employees. The acquisition of
M. Harland and Son, Ltd. of the U.K. is included in 1994. Pension benefits are
based either on the employee's salary in the year of retirement or the average
of the final three years. THE FUNDING POLICY IS TO CONTRIBUTE ANNUALLY AT
ACTUARIALLY DETERMINED RATES THAT ARE INTENDED TO REMAIN A LEVEL PERCENTAGE OF
SALARY.
Net pension cost for the domestic and United Kingdom plans included
the following components:
<TABLE>
<CAPTION>
COMBINED PLANS
...................................
1994 1993 1992
...................................
<S> <C> <C> <C>
Service cost-benefits earned
during year . . . . . . . . . . . . . $ 13,716 $ 9,555 $ 9,074
Interest cost on projected
benefit obligation . . . . . . . . . . 27,160 23,881 22,196
Actual return on plan
assets . . . . . . . . . . . . . . . (1,205) (32,165) (19,510)
Net amortization and
deferral . . . . . . . . . . . . . . . (33,209) 2,031 (9,581)
-----------------------------------
$ 6,462 $ 3,302 $ 2,179
===================================
</TABLE>
The following table sets forth the funded status of the plans at December 31:
<TABLE>
<CAPTION>
OVER-FUNDED PLANS UNDER-FUNDED PLAN
.........................................
1994 1993 1994 1993
.........................................
<S> <C> <C> <C> <C>
Projected benefit obligation
Vested benefits . . . . . . . . . . $273,601 $271,733 $ $
Non-vested benefits . . . . . . . . 8,043 9,757 14,521 14,473
-----------------------------------------
Accumulated benefit
obligation . . . . . . . . . . . . 281,644 281,490 14,521 14,473
Effect of assumed increase
in compensation levels . . . . . . 45,523 35,768 2,442 1,369
-----------------------------------------
Projected benefit
obligation . . . . . . . . . . . . 327,167 317,258 16,963 15,842
Plan assets at fair value . . . . . . 365,802 341,669 12,965 12,502
-----------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation . . . . . . . . 38,635 24,411 (3,998) (3,340)
Unrecognized net loss . . . . . . . . 20,376 26,729 1,997 1,142
Unrecognized prior service
cost . . . . . . . . . . . . . . . 2,192 3,333 1,803 2,235
Unrecognized net transition
(asset) obligation . . . . . . . . (2,671) (6,150) 1,370 1,599
Adjustment required to
recognize minimum liability . . . . (2,728) (3,607)
-----------------------------------------
Prepaid (accrued) pension
cost . . . . . . . . . . . . . . . $ 58,532 $ 48,323 $ (1,556) $ (1,971)
=========================================
</TABLE>
Prepaid pension costs of $8,188 and $7,011 were included in Prepaid
Expenses in 1994 and 1993, respectively. In addition, $50,344 and $41,312 were
included in Other Assets in 1994 and 1993, respectively.
The weighted-average discount rate used in determining the projected
benefit obligations was 8.5% for 1994, 7% for 1993, and 9% for 1992. The
assumed compensation increase was 5% in 1994, 4% in 1993 and 6% in 1992. The
expected long-term rate of return on assets was 9.5% for all years presented.
The Company's other international subsidiaries have pension plans
covering most of its employees. The cost for these plans is considered
immaterial.
The Company's Employee Savings and Stock Ownership Plan provides that
all eligible employees may contribute 1% to 16% of their gross pay to the Plan
subject to Internal Revenue Service regulations. The Company may make matching
contributions in an amount to be determined annually by the Company's Board of
Directors. The Company's contributions to the plan for 1994, 1993 and 1992,
were $5,600, $5,250 and $4,747, respectively.
14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
................................................................................
The Company provides health care and life benefits to the majority of
its United States retirees and their eligible dependents. The Company's
subsidiaries in Canada also provide postretirement benefits to eligible
retirees. In 1992, the Company adopted Statement of Financial Accounting
Standard 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). This standard requires accrual for postretirement benefits
other than pensions over an employee's career, rather than expensing these
costs when paid. The Company elected to immediately recognize the
34
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
cumulative effect of the change in accounting for postretirement benefits of
$93,500 pretax, or $58,000 after-tax, which represents the accumulated
postretirement benefit obligation (APBO) existing at January 1, 1992. THE
COMPANY FUNDS BENEFIT COSTS PRINCIPALLY ON A PAY-AS-YOU-GO BASIS, WITH THE
RETIREE PAYING A PORTION OF THE COSTS. In situations where full-time employees
retire from the Company between age 55 and age 65, most are eligible to
receive, at a cost to the retiree equal to the cost for an active employee,
certain health-care benefits identical to those available to active employees.
After attaining age 65, an eligible retiree's health-care benefit coverage
becomes coordinated with Medicare. For purposes of projecting future benefit
payments, early retiree contributions were assumed to increase at the
health-care cost trend.
Non-pension retirement benefit expense includes the following:
<TABLE>
<CAPTION>
1994 1993 1992
.............................
<S> <C> <C> <C>
Service cost-benefits
earned during year . . . . . . . . . . $ 5,180 $ 2,482 $ 2,283
Interest cost on APBO . . . . . . . . . . 7,110 8,196 8,239
Actual return on plan assets . . . . . . 459 (874) (304)
Net amortization and deferral . . . . . . (5,400) (189)
-----------------------------
Net periodic postretirement
benefit cost . . . . . . . . . . . . . $ 7,349 $ 9,615 $10,218
=============================
</TABLE>
The following sets forth the accrued obligation included in the
accompanying December 31 balance sheet applicable to each employee group for
non-pension retirement benefits:
<TABLE>
<CAPTION>
1994 1993
...................
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retired employees . . . . . . . . . . . . . . . . $50,008 $ 57,610
Active employees-fully eligible . . . . . . . . . 17,671 18,514
Active employees-not yet eligible . . . . . . . . 27,329 50,460
-------------------
Accumulated benefit obligation . . . . . . . . . . . 95,008 126,584
Plan assets at fair value . . . . . . . . . . . . . . 17,375 10,776
-------------------
Accumulated benefit obligation
greater than plan assets . . . . . . . . . . . . . 77,633 115,808
Unrecognized net loss from
changes in assumptions . . . . . . . . . . . . . . (9,552) (28,964)
Unrecognized prior service cost . . . . . . . . . . . 22,459 1,545
-------------------
Accrued postretirement
benefit cost . . . . . . . . . . . . . . . . . . . $90,540 $88,389
===================
</TABLE>
Prepaid postretirement medical costs of $13,639 and $10,776 were
included in Other Assets in 1994 and 1993, respectively.
The discount rate used in determining the APBO was 8.5% in 1994, 7% in
1993 and 9% in 1992. Plan amendments related to the plan's credited service
period decreased the accumulated benefit obligation and correspondingly
increased prior service cost. The assumed health-care cost-trend rate used in
measuring the APBO was 11% in 1994 declining to 6.5% in the 2010. Increasing
the assumed trend rate for health-care costs by one percentage point would
result in an increase in the APBO of approximately $6,000 at December 31, 1994,
and an increase of $950 in the related 1994 expense. Plan assets are the
result of funding these benefit costs in amounts representing the maximum
allowable under Section 401(H) of the Internal Revenue Code. These assets are
combined with the pension plan assets and consist primarily of common stocks,
bonds and real estate. The expected long-term rate of return on assets was
9.5% for all years presented.
15. INCOME TAXES
................................................................................
The Company adopted Statement of Financial Accounting Standard 109,
"Accounting for Income Taxes" (FAS 109), effective January 1, 1992. The
cumulative effect, which was recorded in 1992, increased earnings by $20,100.
The provision (benefit) for taxes on income for the years ending
December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
..............................
<S> <C> <C> <C>
Pretax income
Domestic . . . . . . . . . $202,363 $189,122 $160,637
Foreign . . . . . . . . . . 8,567 3,785 (29,634)
------------------------------
Total pretax income . . . $210,930 $192,907 $131,003
==============================
Current
Federal . . . . . . . . . . $ 62,800 $ 43,998 $ 50,642
State . . . . . . . . . . . 10,074 7,320 8,731
Foreign . . . . . . . . . . 3,958 1,521 6,046
------------------------------
Total current . . . . . . 76,832 52,839 65,419
------------------------------
Deferred
Federal . . . . . . . . . . 4,263 14,005 (455)
State . . . . . . . . . . . 949 2,924 (96)
Foreign . . . . . . . . . . 456 5,432 (13,068)
------------------------------
Total deferred . . . . . 5,668 22,361 (13,619)
------------------------------
Total taxes . . . . . . . . . $ 82,500 $ 75,200 $ 51,800
==============================
</TABLE>
Current deferred income tax expense (benefit) results from temporary
differences in the recognition of revenue and expense for tax and financial
statement purposes. The source of these differences and the tax effect of each
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
...........................
<S> <C> <C> <C>
Restructuring charge . . . $2,815 $ 8,711 $(15,065)
Sale of an affiliate . . . 6,409
Depreciation expense . . . 45 1,163 700
Benefit plan costs . . . . 3,125 7,379 2,643
Other items, net . . . . . (317) (1,301) (1,897)
---------------------------
Total deferred . . . . . $5,668 $22,361 $(13,619)
===========================
</TABLE>
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1994 1993*
....................
<S> <C> <C>
Depreciation . . . . . . . . . . . . . . . . . $ 70,751 $ 62,975
Employee benefits . . . . . . . . . . . . . . . 21,062 15,410
Other . . . . . . . . . . . . . . . . . . . . . 2,179 9,762
--------------------
Gross deferred tax liabilities . . . . . . . 93,992 88,147
--------------------
Restructuring . . . . . . . . . . . . . . . . . (4,193) (5,403)
Retiree health benefits . . . . . . . . . . . . (27,482) (23,910)
Foreign loss carry-forwards . . . . . . . . . . (11,231) (8,011)
Capital loss carry-forwards . . . . . . . . . . (6,830) (6,785)
Employee benefits . . . . . . . . . . . . . . . (13,026) (11,494)
Other . . . . . . . . . . . . . . . . . . . . . (7,199) (7,303)
--------------------
Gross deferred tax assets . . . . . . . . . . (69,961) (62,906)
Valuation allowance on deferred tax assets . . 11,231 8,011
--------------------
Total deferred taxes, net . . . . . . . . . . $ 35,262 $ 33,252
====================
</TABLE>
* Certain amounts have been restated to conform to the current year's
presentation.
The net change in the valuation allowance for deferred tax assets in
1994 is a net increase of $3,220. The change relates to current net operating
losses of certain foreign subsidiaries for which their use is limited to future
taxable earnings. A net decrease in the valuation
35
<PAGE> 25
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
(Dollars in thousands except per share)
NOTE 15: INCOME TAXES - CONTINUED
allowance of $980 in 1993 resulted from the disposal of a European entity; this
decrease was partially offset by the inclusion of current net operating losses
from various foreign subsidiaries.
Approximately $30,300 of foreign subsidiary net operating loss
carry-forwards remain at December 31, 1994. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carry-forwards approximately $19,900 have no expiration date. The remaining
loss carry-forwards expire at various dates in the future.
<TABLE>
<CAPTION>
1994 1993 1992
.....................................................
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate . . . . . . . $73,825 35.0% $67,517 35.0% $44,587 34.0%
State income taxes, net of
federal tax benefit . . . . . . 7,087 3.3 7,039 3.6 4,983 3.8
Net effect of foreign income
at lower rates and foreign
losses with no tax benefit . . 2,479 1.2 2,155 1.1 2,360 1.8
Goodwill . . . . . . . . . . . . 3,777 1.8 1,694 .9 524 .4
Company-owned life insurance . . (5,091) (2.4) (1,570) (.8)
Other, net . . . . . . . . . . . 423 .2 (1,635) (.8) (654) (.5)
-----------------------------------------------------
Total taxes . . . . . . . . . . $82,500 39.1% $75,200 39.0% $51,800 39.5%
=====================================================
</TABLE>
Undistributed earnings of international subsidiaries totaled $42,973
at December 31, 1994. There have been no United States income taxes provided
on the undistributed earnings since the Company considered these earnings to be
indefinitely reinvested to finance international growth and expansion. If such
amounts were remitted, loaned to the Company or the stock in the foreign
subsidiaries sold, these earnings could become subject to tax; however, the
Company believes United States foreign tax credits would substantially
eliminate any taxes due.
16. COMMITMENTS AND CONTINGENCIES
................................................................................
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. As is the case
with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings. In 1994, a suit was filed
against the Company in the U.S. District Court for the District of
Massachusetts for alleged patent infringement involving grocery bag packs. The
suit also seeks to have a patent involving plastic bag loading systems owned by
the Company declared invalid. The Company believes this lawsuit is without
merit. The Company will vigorously defend its position and expects to prevail.
The Company has been named as a potentially responsible party at
several environmentally contaminated sites primarily located in the Northeast
owned by third parties. These sites represent the Company's largest potential
environmental liabilities. As of December 31, 1994, the Company has $4,400
accrued for these contingencies. This compares with $3,100 accrued as of
December 31, 1993. Due to the complexity of determining clean-up costs
associated with the sites, a reliable estimate of the ultimate cost to the
Company cannot be determined; however, costs will be accrued as necessary once
reasonable estimates are determined.
Although the level of future expenditures for legal and environmental
matters is impossible to determine with any degree of probability, it is
management's opinion that such costs, when finally determined, will not have a
material adverse effect on the consolidated financial position of the Company.
17. INTERNATIONAL OPERATIONS
................................................................................
The operating profit, net assets and dividends received by the Company
from operations outside the United States are as follows:
<TABLE>
<CAPTION>
1994 1993
...................
<S> <C> <C>
Operating profit . . . . . $ 15,675 $ 11,923
Net assets . . . . . . . . 245,423 185,723
Dividends . . . . . . . . . 194 2,087
</TABLE>
The aggregate foreign currency transaction gain/loss recognized in net income
was immaterial for 1994, 1993 and 1992.
Information regarding the Company's significant foreign geographic
area in Europe is as follows:
<TABLE>
<CAPTION>
1994 1993 1992*
..............................
<S> <C> <C> <C>
Sales to unaffiliated customers . . . . $184,247 $180,044 $226,127
Operating loss . . . . . . . . . . . . (2,085) (890) (20,325)
Total assets . . . . . . . . . . . . . 215,981 171,073 222,164
</TABLE>
*Restructuring costs of $28,200 are included in 1992 results.
18. SHAREHOLDERS' EQUITY
................................................................................
In 1993, the Company issued 3,450,000 shares of $2.25 Series A
Cumulative Convertible Preferred Stock for $172,500, or $50.00 per share. These
securities are convertible into the Company's common stock at a price of $25.31
per share. This stock is redeemable at the option of the Company, on or after
November 8, 1996, at a redemption price of $51.575 per share and decreasing
ratably annually to $50 per share on or after November 1, 2003. Dividends on
the Convertible Preferred Stock, which are paid quarterly, accrue and are
cumulative from the date of original issuance.
Fully diluted earnings per share is not presented as it approximates
primary earnings per share.
36
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sonoco Products Company
FINANCIAL REPORTING FOR BUSINESS SEGMENTS
(Years ended December 31)
The Financial Reporting for Business Segments should be read in conjunction
with the Management's Discussion and Analysis (which describes the segments in
detail) appearing on pages 21-25. Sonoco changed the segmental reporting in
1994 by combining the Miscellaneous segment with the Converted Products
segment. Prior years' information has been restated to reflect this change.
<TABLE>
<CAPTION>
CONVERTED
(Dollars in thousands) PRODUCTS PAPER INTERNATIONAL CORPORATE CONSOLIDATED
....................................................................................................................................
<S> <C> <C> <C> <C> <C>
TOTAL REVENUE
1994 .............................. $1,771,441 $330,982 $438,383 $2,540,806
1993 .............................. 1,466,486 278,904 406,914 2,152,304
1992 .............................. 1,311,935 282,583 447,029 2,041,547
INTERSEGMENT SALES(1)
1994 .............................. $ 29,970 $203,569 $ 7,140 $ 240,679
1993 .............................. 28,615 173,640 2,825 205,080
1992 .............................. 25,612 175,629 2,280 203,521
SALES TO UNAFFILIATED CUSTOMERS
1994 .............................. $1,741,471 $127,413 $431,243 $2,300,127
1993 .............................. 1,437,871 105,264 404,089 1,947,224
1992 .............................. 1,286,323 106,954 444,749 1,838,026
OPERATING PROFIT(2)
1994 .............................. $ 188,517 $ 64,495 $ 15,675 $(57,757) $ 210,930
1993 .............................. 157,426 57,867 11,923 (34,309) 192,907
1992 .............................. 117,906 65,437 (12,398) (39,942) 131,003
IDENTIFIABLE ASSETS(3)
1994 .............................. $1,056,341 $157,408 $405,604 $215,700 $1,835,053
1993 .............................. 1,018,056 140,406 349,144 199,519 1,707,125
1992 .............................. 529,319 130,486 390,644 196,082 1,246,531
DEPRECIATION, DEPLETION AND AMORTIZATION
1994 .............................. $ 69,076 $ 14,471 $ 23,161 $ 6,089 $ 112,797
1993 .............................. 51,360 12,974 26,135 5,276 95,745
1992 .............................. 42,467 12,746 23,897 4,199 83,309
CAPITAL EXPENDITURES
1994 .............................. $ 77,275 $ 18,874 $ 27,727 $ 2,870 $ 126,746
1993 .............................. 46,969 20,450 41,209 6,968 115,596
1992 .............................. 39,283 15,581 48,317 6,124 109,305
</TABLE>
(1)Intersegment sales are recorded at a market-related transfer price.
(2)Interest income, interest expense and unallocated corporate expenses are
excluded from the operating profits by segment and are shown under
Corporate. In addition, 1993 Corporate operating profit includes $5,800 for
unusual items, as described in Note 3 to the Consolidated Financial
Statements.
(3)Identifiable assets are those assets used by each segment in its operations.
Corporate assets consist primarily of cash and cash equivalents, investments
in affiliates, headquarters facility and prepaid expenses. Identifiable
assets in the Converted Products segment more than doubled in 1993 as a
result of the acquisitions.
See Note 4 to the Consolidated Financial Statements regarding restructuring
charges in 1992. These costs have been allocated to the appropriate segments.
37
<PAGE> 27
SHAREHOLDERS' INFORMATION
[FIGURE 19]
WHEN IT COMES TO POWDERED BEVERAGE PACKAGING, Sonoco's composite canisters are
durable, resealable, stackable and have great shelf appeal. Tim Grooms, with
Winn Dixie, stocks the powdered beverage section with a variety of composite
cans from Sonoco.
[FIGURE 20]
NEW LASER CODING LABEL TECHNOLOGY WAS JOINTLY DEVELOPED FOR BAUSCH & LOMB(R) by
Sonoco's Engraph Label Group and a face stock supplier.
CORPORATE OFFICES
North Second Street
Hartsville, SC 29550
(803) 383-7000
Fax: (803) 339-6078
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P.
NationsBank Corporate Center
100 North Tryon Street, Suite 3400
Charlotte, NC 28202
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
LEGAL COUNSEL
Sinkler & Boyd, P.A.
P.O. Box 11889
Columbia, SC 29211
SHAREHOLDER RELATIONS
Sonoco Products Company
Treasurer - B01
P.O. Box 160
Hartsville, SC 29551
(803) 383-7277
CORPORATE COMMUNICATION
Sonoco Products Company
Corporate Communication - A09
P.O. Box 160
Hartsville, SC 29551
(803) 383-7437
ANNUAL MEETING OF SONOCO SHAREHOLDERS
The annual meeting of shareholders will be held at the Center Theater on Fifth
Street in Hartsville, S.C. at 11 a.m., Wednesday, April 19, 1995.
COMMON STOCK
Sonoco common stock is traded in the New York Stock Exchange, Symbol: SON. The
change from the NASDAQ National Market was made in March 1995.
FORM 10-K AVAILABLE
A copy of the Company's annual report filed with the Securities and Exchange
Commission on Form 10-K may be obtained by shareholders without charge after
April 1, 1995, by writing to:
Sonoco Products Company
Treasurer - B01
P.O. Box 160
Hartsville, SC 29551
DIVIDEND REINVESTMENT
A dividend reinvestment plan is available to registered Sonoco shareholders.
For more information write to:
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
DIRECT DEPOSIT OF DIVIDENDS
Sonoco shareholders may request automatic deposit of cash dividends to
checking, savings or money market accounts that participate in the Automatic
Clearinghouse System. If you would like this service, please contact:
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, NC 27102
SHARE ACCOUNT INFORMATION
Shareholders with inquiries concerning their accounts may call Wachovia Bank of
North Carolina, N.A. on their toll-free line. The number is 1-800-633-4236.
[FIGURE 21]
DIVIDENDS DECLARED - COMMON
THE SONOCO DIVIDEND WAS INCREASED from $.135 to $.14 beginning in the second
quarter of 1994. Dividends are increased as earnings justify.
[FIGURE 22]
MARKET VS. BOOK VALUE PER COMMON SHARE
THE BOOK VALUE PER COMMON SHARE INCREASED TO $7.59 in 1994, compared with $7.04
in 1993.
[FIGURE 23]
MARKET PRICE OF STOCK AT YEAR END
THE MARKET PRICE OF THE COMPANY'S STOCK WAS $21.88 at the end of 1994.
<PAGE> 1
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT
A. Subsidiaries of Sonoco Products Company, pursuant to Regulation S-K
601, as of December 31, 1994 are:
1. KMI Continental Fibre Drum, Inc., 100%-owned domestic
subsidiary incorporated in the State of Delaware.
a. Sonoco Fibre Drum, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
2. Paper Stock Dealers, Inc., 100%-owned domestic subsidiary,
incorporated in the State of North Carolina.
3. Sonoco Plastic Drum, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Illinois.
a. Sonoco Plastic Drum Southwest Division, Inc., a
100%-owned domestic subsidiary, incorporated in the
State of Texas.
b. Sonoco Plastic Drum Southeast Division, Inc., a
100%-owned domestic subsidiary, incorporated in the
State of Kentucky.
4. Southern Plug & Manufacturing Co. Inc., 100%-owned domestic
subsidiary, incorporated in the State of Louisiana.
a. Pelican Plug, 100%-owned domestic subsidiary,
incorporated in the State of Louisiana.
b. Boltz Manufacturing, 100%-owned domestic subsidiary,
incorporated in the State of Louisiana.
c. Memphis Wood Products, 100%-owned domestic
subsidiary, incorporated in the State of Tennessee.
<PAGE> 2
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
5. Grupo Sonoco, S.A. de C.V., 100%-owned Mexican subsidiary.
a. Sonoco de Mexico, S.A. de C.V., 100%-owned Mexican
subsidiary.
b. Manufacturas Gargo, S.A. de C.V., 100%-owned Mexican
subsidiary.
c. Fibro Tambor, S.A. de C.V., 100%-owned Mexican
subsidiary.
1. Direccion Ejecutiva, S.A. de C.V., 100%-owned
Mexican subsidiary.
d. Inmobiliaria Sonomex Direccion, S.A. de C.V.,
100%-owned Mexican subsidiary.
e. Direccion Integral Industries, S.A., 100%-owned
Mexican subsidiary.
f. Sonoco Envases, S.A. de C.V. (Smurfit), a 100%-owned
Mexican subsidiary.
6. Inversiones Sm C.A., 45%-owned Venezuelan subsidiary, (45%
owned by Sonoco International).
a. Sonoco de Venezuela, C.A., 45%-owned Venezuelan
subsidiary (45% owned by Sonoco International).
b. A Manufacturas de Envases de Fibra, C.A., 45%-owned
Venezuelan subsidiary (45% owned by Sonoco
International).
7. SPC Management, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
a. SPC Capital Management, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
b. SPC Resources, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
<PAGE> 3
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
8. Sonoco-Crellin, Inc., a 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
a. Crellin International, Inc., a 100%-owned domestic
subsidiary, incorporated in the State of Delaware,
holder of securities in:
1. Crellin, Inc., a 100%-owned domestic
subsidiary, incorporated in the State of New
York.
a. Crellin Europe B.V., a 100%-owned
Dutch subsidiary.
1. Crellin B.V., 100%-owned Dutch
subsidiary.
2. Sebro Plastics, Inc., a 100%-owned domestic
subsidiary, incorporated in the State of
Michigan.
3. Injecto Mold, a 100%-owned domestic
subsidiary, incorporated in the State of
Illinois.
9. Engraph, Inc., a 100%-owned domestic subsidiary, incorporated
in the State of Delaware.
a. Engraph Puerto Rico, Inc., a 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
b. E L R, Inc., a 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
1. Screen Graphics, Inc., a 100%-owned domestic
subsidiary, incorporated in the State of
Tennessee.
2. Graphic Resources, Inc., a 100%-owned
domestic subsidiary, incorporated in the
State of Kentucky.
c. Polaris, Inc., a 100%-owned domestic subsidiary,
incorporated in the State of New Jersey.
d. Engraph Mexico S.A. de C.V., a 100%-owned Mexican
subsidiary.
<PAGE> 4
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
10. Polysack A/S, Inc., a 100%-owned domestic subsidiary,
incorporated in the State of South Carolina.
11. Sonoco International, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware, holder of securities
in:
a. Sonoco Limited, 100%-owned Canadian subsidiary.
1. Coretech Sonoco Holdings Limited, 50%-owned
Canadian subsidiary.
a. Coretech Sonoco Limited, a 50%-owned
Canadian subsidiary.
b. Roll Packaging Technology, Inc.,
50%-owned Canadian subsidiary.
2. Montreal Recycled Paperboard, 50%-owned
Canadian subsidiary.
3. Ontario Inc., a 50%-owned Canadian subsidiary.
a. Fibre Resource Recovery Corp.,
50%-owned Canadian subsidiary.
4. SW, Inc., a 60%-owned Canadian subsidiary.
a. Cascades Conversion Inc., a
30%-owned Canadian subsidiary.
b. Sonoco Colombiana, S.A., 100%-owned Colombian
subsidiary.
c. Sonoco of Puerto Rico, Inc., 100%-owned domestic
subsidiary, incorporated in the State of South
Carolina.
<PAGE> 5
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
d. Sonoco U.K. Limited Inc., 100%-owned subsidiary
incorporated in the State of Delaware, holder of
securities in:
1. Sonoco Products Company U.K. Limited,
100%-owned U.K. subsidiary.
a. Sonoco Holdings Limited, 100%-owned
English subsidiary. The
subsidiaries and affiliate of Sonoco
Holdings Limited include:
1. Sonoco Board Mills Limited.
2. Sonoco Limited.
3. Sonoco U.K. Leasing Limited.
4. Sonoco Europe Limited.
5. Sonoco Polysack Limited.
6. CMB Sonoco Composites,
51%-owned English
subsidiary.*
a. CMB Sonoco Composites
S.A., 51%-owned
French subsidiary. *
7. T.P.T. Board Mills Limited.
8. T.P.T. Limited.
9. Capseals Limited.
*In January 1995, the Company
acquired the remaining 49%
interests in CMB Sonoco Composites
and CMB Sonoco Composites S.A.
<PAGE> 6
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
2. Sonoco Packaging Limited, 100%-owned U.K.
subsidiary. Subsidiaries of Sonoco
Packaging Limited, all of which are
100%-owned U.K. companies, include:
a. Sonoco Capseals Liners Limited.
b. Sonoco Packaging Tapes Limited.
c. Sonoco Reels Limited.
1. Unit Reels and Drums Limited.
d. The Grove Mill Paper Company Limited.
e. Capseals Liners Limited.
f. Healthfield Reels Limited.
g. Nathaniel Lloyd & Co. Limited.
h. Cap Liners Limited.
3. The Harland Group Limited, 100%-owned U.K.
subsidiary.
a. Harlands Ltd., 100%-owned U.K.
subsidiary.
b. Harland France SARL, 100%-owned
French subsidiary.
c. Harland Machine Systems Limited,
100%-owned U.K. subsidiary.
d. Trident Graphics Limited, 100%-owned
U.K. subsidiary.
e. Harlands of America, Inc.,
100%-owned subsidiary, incorporated
in the State of Delaware.
e. Sonoco Espana, S.A., 100%-owned Spanish subsidiary.
f. Sonoco Nederland B.V., 99.8%-owned Dutch subsidiary.
<PAGE> 7
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
g. Sonoco Deutschland Holdings GmbH, 100%-owned German
subsidiary.
1. Sonoco Deutschland GmbH, 100%-owned German
subsidiary.
2. Sonoco Plastics GmbH, 100%-owned German
subsidiary.
3. Sonoco IPD GmbH, 100%-owned German subsidiary.
a. Sonoco MBS GmbH, 100%-owned
subsidiary.
b. OPV Oberrhein GmbH, 100%-owned
German subsidiary.
c. Sonoco MBS GmbH and Company,
100%-owned German partnership.
d. OPV Textihulsen GmbH, 100%-owned
German partnership.
4. Caprex AG, 72%-owned Swiss subsidiary.
h. Sonoco Norge A/S, 100%-owned Norwegian subsidiary.
i. Sonoco Europe, S.A., 100%-owned Belgian subsidiary.
j. Sonoco Australia, Pty., Ltd., 100%-owned Australian
subsidiary.
k. Sonoco New Zealand Pty., Ltd., 100%-owned New Zealand
subsidiary.
l. Sonoco Asia, 100%-owned British Virgin Islands
subsidiary.
m. Colombiana P.M., Inc., 100%-owned Delaware
Corporation.
1. Andina de Cartones Especiales, S.A.,
100%-owned Colombian subsidiary.
n. Sonoco SNC, 100%-owned French partnership with the
following subsidiaries and affiliate:
1. Sonoco Holdings, 100%-owned French subsidiary.
<PAGE> 8
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT (21)
SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT, CONTINUED
a. Lhomme S.A., 100%-owned French subsidiary.
1. Eurocore, 100%-owned Belgian
subsidiary.
2. Papeteries Du Rhin, 47%-owned French
affiliate.
b. Sonoco Alsace, S.A., 100%-owned French
subsidiary.
o. Cascades-Sonoco, Inc., 30%-owned Canadian subsidiary.
p. Sonoco Italia, 100%-owned Italian subsidiary.
q. Sonoco Asia, L.L.C., 90.9%-owned limited liability
company.
1. Sonoco Singapore, Ltd., 100%-owned Singapore
subsidiary.
a. Sonoco Malaysia, SDN BHD, 100%-owned
Malaysian subsidiary.
2. Sonoco Taiwan, 100%-owned Republic of China
subsidiary.
3. Sonoco Thailand, 70%-owned Thai subsidiary,
r. Sonoco Asia Management Company, L.L.C., 70%-owned
limited liability company.
B. Affiliate companies are:
1. Showa Products Company, Ltd., Japanese company 20%-owned by
Sonoco Products Company. Showa's subsidiary and affiliate are:
a. Hiyoshimaru Shiko Company, Ltd., 55.6%-owned Japanese
subsidiary.
b. Cosmos-Showa Products Company, Ltd., 33.2%-owned
Republic of China affiliate.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the registration statements
of Sonoco Products Company on Form S-8 (filed September 1, 1981, September 5,
1985, June 3, 1988, November 27, 1989, February 5, 1992 and November 22, 1993)
and Form S-3 (filed June 6, 1991, File No. 33-40538; filed October 4, 1993,
File No. 33-50501; filed October 4, 1993, File No. 33-50503) of our report,
which includes an explanatory paragraph indicating that the Company changed its
method of accounting for postretirement benefits other than pensions and income
taxes in 1992, dated February 1, 1995, on our audits of the consolidated
financial statements and financial statement schedules of Sonoco Products
Company as of December 31, 1994 and 1993, and for each of the three years in
the period ended December 31, 1994, which report is included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
------------------------------
COOPERS & LYBRAND, L.L.P.
Charlotte, North Carolina
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SONOCO PRODUCTS COMPANY FOR THE YEAR ENDED DECEMBER 31,
1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,674
<SECURITIES> 1,770
<RECEIVABLES> 276,044
<ALLOWANCES> (6,058)
<INVENTORY> 207,662
<CURRENT-ASSETS> 570,711
<PP&E> 1,411,524
<DEPRECIATION> (648,415)
<TOTAL-ASSETS> 1,835,053
<CURRENT-LIABILITIES> 348,643
<BONDS> 487,959
<COMMON> 7,175
0
72,500
<OTHER-SE> 652,543
<TOTAL-LIABILITY-AND-EQUITY> 1,835,053
<SALES> 2,300,127
<TOTAL-REVENUES> 2,300,127
<CGS> 1,803,427
<TOTAL-COSTS> 1,803,427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,546
<INTEREST-EXPENSE> 35,861
<INCOME-PRETAX> 210,930
<INCOME-TAX> 82,500
<INCOME-CONTINUING> 129,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,849
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[logo]
SONOCO PRODUCTS COMPANY
POST OFFICE BOX 160
ONE NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29551-0160 U.S.A.
March 17, 1995
TO OUR SHAREHOLDERS:
As a shareholder of Sonoco Products Company, you are cordially invited to
attend the Annual Shareholders' Meeting to be held at the Center Theater, 212
North Fifth Street, Hartsville, South Carolina, 29550, on Wednesday, April 19,
1995, at 11:00 A.M.
The accompanying Notice of Meeting and Proxy Statement cover the details of
matters to be presented at the meeting which consists of the election of
directors, a proposal to approve amendments to the 1991 Key Employee Stock Plan,
a proposal to approve the Annual Incentive Compensation Terms for Executive
Officers, and the election of independent auditors.
In addition to action to be taken on the matters listed in the Notice of
Annual Meeting of Shareholders, the Company's progress will be discussed, and
attendees will be given an opportunity to ask questions of general interest to
all shareholders.
A copy of the 1994 Annual Report, which reviews the Company's past year's
events, is enclosed unless you have signed a statement indicating that you have
access to another copy at your address.
Whether or not you plan to attend the meeting, you are urged to participate
by completing and returning your proxy in the enclosed business reply envelope.
If you later find you can be present or for any reason desire to revoke your
proxy, you can do so at any time before the voting. Your vote is important and
will be greatly appreciated.
Charles W. Coker
Chairman, President and
Chief Executive Officer
<PAGE> 2
SONOCO PRODUCTS COMPANY
POST OFFICE BOX 160
ONE NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29551-0160
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
TIME.......................... 11:00 A.M. on Wednesday, April 19, 1995.
PLACE......................... The Center Theater, 212 North Fifth Street, Hartsville, South
Carolina, 29550.
PURPOSES...................... (1) To elect seven members of the Board of Directors to serve
for the next three years.
(2) To act upon a proposal to amend the 1991 Key Employee
Stock Plan.
(3) To act upon a proposal to approve the Annual Incentive
Compensation Terms for Executive Officers.
(4) To elect independent auditors.
(5) To transact such other business as may properly come
before the meeting or any adjournment thereof.
RECORD DATE................... Holders of Common Stock of record at the close of business
March 3, 1995, are entitled to notice of and to vote at the
meeting.
ANNUAL REPORT................. The Annual Report of the Company for the year 1994 is
enclosed unless you have signed a statement indicating that
you have access to another copy at your address.
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
PROXY VOTING.................. It is important that your shares be represented and voted at
the meeting. Please MARK, SIGN, DATE, and RETURN PROMPTLY the
enclosed proxy card in the envelope furnished. Any proxy so
given can be revoked in the manner described in the
accompanying Proxy Statement at any time prior to its
exercise at the meeting.
</TABLE>
By order of the Board of Directors,
James L. Coker, Secretary
March 17, 1995
2
<PAGE> 4
SONOCO PRODUCTS COMPANY
POST OFFICE BOX 160
ONE NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29551-0160
PROXY STATEMENT
GENERAL INFORMATION
INFORMATION CONCERNING THE SOLICITATION
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Meeting of Shareholders (Annual Meeting) of Sonoco
Products Company (the "Company"), a South Carolina corporation, to be held on
April 19, 1995.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expense of transmitting copies of the proxy material to the beneficial owners of
shares held of record by such persons will be borne by the Company. The Company
does not intend to solicit proxies otherwise than by use of the mail; however,
certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts by telephone,
telefacsimile or by personal calls to obtain proxies.
The proxy materials are being mailed on March 17, 1995, to shareholders of
record at the close of business on March 3, 1995.
Any shareholder who executes and delivers a proxy has the right to revoke
it at any time before it is voted. The proxy can be revoked by giving notice of
revocation at the Annual Meeting, or by delivery to the Secretary of the
Company, Post Office Box 160, Hartsville, South Carolina, 29551-0160, of an
instrument which by its terms revokes the proxy, or by delivery to the Secretary
of a duly executed proxy bearing a later date. Any shareholder who desires to do
so can attend the meeting and vote in person in which case the proxy will not be
used.
Shares represented by all properly executed proxies delivered pursuant to
this solicitation will be voted at the Annual Meeting or any adjournment
thereof. With respect to the election of directors and to any of the proposals
for which a choice is provided, the proxy will be voted in the manner directed
by the shareholder. If no direction is made, the proxy will be voted FOR the
election of directors and FOR the proposals.
OUTSTANDING SECURITIES
The Company has authorized two classes of stock consisting of 150,000,000
authorized shares of no par value Common Stock, of which 86,766,503 shares are
outstanding and 30,000,000 authorized shares of no par
3
<PAGE> 5
value Preferred Stock of which 3,450,000 shares of $2.25 Series A Cumulative
Convertible Preferred Stock are outstanding. Each share of the Company's Common
Stock is entitled to one vote. The shareholders of the Company's $2.25 Series A
Cumulative Convertible Preferred Stock will not be entitled to vote at the
Annual Meeting.
VOTING SECURITIES
Only shareholders of record of the Company's Common Stock at the close of
business on March 3, 1995, will be entitled to vote at the Annual Meeting. As of
that date there were issued and outstanding 86,766,503 shares. Each share will
be entitled to one vote on each matter submitted at the Annual Meeting.
A majority of the shares entitled to be voted at the Annual Meeting
constitutes a quorum. If a share is represented for any purpose at the Annual
Meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of
establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the Annual
Meeting.
If a quorum is present at the Annual Meeting, directors will be elected by
a plurality of the votes cast by shares present and entitled to vote at the
Annual Meeting. Votes that are withheld or that are not voted in the election of
directors will have no effect on the outcome of election of directors.
Cumulative voting is not permitted.
Approval of the proposals to amend the 1991 Key Employee Stock Plan and to
adopt the Annual Incentive Compensation Terms for Executive Officers requires
the affirmative vote of a simple majority of the total shares present and
entitled to vote at the Annual Meeting.
There is no person known by the management of the Company to own of record
or beneficially more than 5% of the outstanding voting shares of the Company.
4
<PAGE> 6
ELECTION OF DIRECTORS
At this Annual Meeting seven directors are to be elected and shall hold
office for the next three years, their terms expiring at the Annual
Shareholders' Meeting in 1998, or until their successors are duly elected and
qualified. It is the intention that the persons named on the enclosed form of
proxy will vote such proxy FOR the election of the seven persons named herein
(or if any of the persons nominated is unexpectedly unavailable, for such
substitutions as the Board of Directors may designate) unless authority is
withheld for all or any of the nominees. Proxies will not be voted for a greater
number of persons than the number of nominees named. Each nominee has been
recommended for election by the Board of Directors.
INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- LEO BENATAR (65). Mr. Benatar is Senior Vice President of 1993
----------------- the Company, a position held since 1993, and Chairman and
----------------- Chief Executive Officer of Engraph, Inc. (printer and
[PHOTO] fabricator of roll labels, decals, specialty paperboard
----------------- items and flexible packaging), Atlanta, Georgia, a
----------------- position held since 1981. Engraph, Inc. became a
----------------- wholly-owned subsidiary of the Company on October 21,
----------------- 1993. He was President of Mead Packaging, a division of
the Mead Corporation, from 1972 to 1981. Mr. Benatar is a
director of Interstate Bakeries Corporation, Aaron Rents,
Inc., Mohawk Industries, Inc. and Riverwood International
Corporation, and is Chairman of the Federal Reserve Bank
of Atlanta.
----------------- PETER C. BROWNING (53). Mr. Browning is Executive Vice
----------------- President of the Company, a position held since 1993. He
----------------- served as President, Chairman and Chief Executive Officer
[PHOTO] of National Gypsum Company (manufacturer and supplier of
----------------- products and services used in building and construction),
----------------- Charlotte, North Carolina, from 1990 to 1993 and as
----------------- President-Gold Bond Division, National Gypsum Company,
----------------- from 1989 to 1990. Prior to 1989 he spent twenty-four
years with Continental Can Company, serving as President
of Continental's Bondware and White Cap Divisions and
later as the company's Executive Vice President. Mr.
Browning is a director of Phoenix Home Life Mutual
Insurance Company, Loctite Corporation and First Union
National Bank of South Carolina.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- *F. L. H. COKER (59). Mr. Coker is retired. He was 1964
----------------- President and Director of Sea Corporation of Myrtle Beach,
----------------- Inc. (private investments), Myrtle Beach, South Carolina,
[PHOTO] from 1983 to 1989. Until his retirement from the Company
----------------- in 1979, Mr. Coker was Senior Vice President, a position
----------------- held since 1976.
-----------------
-----------------
----------------- T. C. COXE, III (64). Mr. Coxe is Senior Executive Vice 1982
----------------- President of the Company, a position held since 1993. He
----------------- was Executive Vice President from 1985 to 1993. He is a
[PHOTO] director of Wachovia Bank of South Carolina, N.A.
-----------------
-----------------
-----------------
-----------------
----------------- BERNARD L. M. KASRIEL (48). Mr. Kasriel is Vice Chairman
----------------- and Chief Operating Officer of Lafarge Coppee (a
----------------- construction materials group), Paris, France, a position
[PHOTO] held since January 1995. He served as Managing Director of
----------------- Lafarge Coppee from 1989 to 1994 and as Senior Executive
----------------- Vice President from 1987 to 1989. Mr. Kasriel temporarily
----------------- was detached to National Gypsum Company, Charlotte, North
----------------- Carolina, as President and Chief Operating Officer from
1987 to 1989. He served as Executive Vice President of
Lafarge Coppee from 1984 to 1987. Mr. Kasriel is a
director of Lafarge Coppee, Lafarge Corporation and
National Gypsum Company.
</TABLE>
---------------
<TABLE>
<C> <S> <C>
* C. W. Coker and F. L. H. Coker are brothers and are first cousins of J. L. Coker and of P.C.
Coggeshall, Jr., an executive officer of the Company.
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- E. H. LAWTON, JR. (65). Mr. Lawton is President and 1968
----------------- Director of Hartsville Oil Mill (vegetable oils
----------------- processor), Darlington, South Carolina, a position held
----------------- since 1962. He is a director of NationsBank, N.A.
[PHOTO] (Carolinas).
-----------------
-----------------
-----------------
----------------- E. C. WALL, JR. (57). Mr. Wall is President and Director 1976
----------------- of Canal Industries (forest products), Conway, South
----------------- Carolina, a position held since 1969. He is a director of
[PHOTO] Ruddick Corporation, SCANA Corporation and Blue Cross-Blue
----------------- Shield of South Carolina.
-----------------
-----------------
-----------------
</TABLE>
All nominees previously have been elected to the Board of Directors by the
Common Shareholders except Mr. Browning and Mr. Kasriel.
At its meeting on February 1, 1995, the Board of Directors decided it was
in the best interest of the Company to increase the size of the Board of
Directors from fifteen to seventeen, and pursuant to Article III, Section 1, of
the By-Laws of the Company, amendment of which was approved by the shareholders
at their Annual Meeting in 1994, the Board fixed the number of directors of the
corporation at seventeen.
Mr. Browning and Mr. Kasriel were nominated by the Board of Directors at
their February 1, 1995, meeting, for election by the shareholders at this Annual
Meeting, to serve three-year terms which will expire at the Annual Shareholders'
Meeting in 1998. The Nominating Committee of the Board of Directors recommends
Mr. Browning and Mr. Kasriel for election by the Common Shareholders.
The Nominating Committee recommends to the Board of Directors nominees to
fill vacancies on the Board as they occur and recommends candidates for election
as directors at Annual Meetings of Shareholders. The committee will consider
persons recommended to be nominees by shareholders upon submission in writing to
the Nominating Committee of the Company of the names of such persons, together
with their qualifications for service and evidence of their willingness to
serve. The Company's Restated Articles of Incorporation require that nominations
for any person who is not then a director of the Company, whether made by the
Nominating Committee or any shareholder, be submitted to the Secretary not less
than sixty days prior to the Annual Meeting for which such nominations are made.
7
<PAGE> 9
Members of the Board of Directors whose terms of office will continue until
the Annual Shareholders' Meeting in 1996 are:
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- C. J. BRADSHAW (58). Mr. Bradshaw is President and 1986
----------------- Director of Bradshaw Investments, Inc. (private
----------------- investments), Georgetown, South Carolina, a position held
[PHOTO] since 1986. He served as President and Chief Operating
----------------- Officer of Transworld Corporation, New York, New York,
----------------- from 1984 to 1986 and Chairman of the Board and Chief
----------------- Executive Officer of Spartan Food Systems, Inc.,
----------------- Spartanburg, South Carolina, from 1961 to 1986. Mr.
Bradshaw is a director of Wachovia Bank of South Carolina,
N.A.
----------------- R. J. BROWN (60). Mr. Brown is Founder, Chairman and Chief 1993
----------------- Executive Officer of B&C Associates, Inc. (a management
----------------- consulting, marketing research and public relations firm),
----------------- High Point, North Carolina, a position held since 1973. He
----------------- is a director of First Union Corporation, Duke Power
[PHOTO] Company and Pacific National Financial Group.
-----------------
-----------------
----------------- *J. L. COKER (54). Mr. Coker is Secretary of the Company, 1969
----------------- a position held since 1969. He is President of JLC
----------------- Enterprises (private investments), Stonington,
[PHOTO] Connecticut, a position held since 1979. He was President
----------------- of Sonoco Limited, Canada, from 1972 to 1979.
-----------------
-----------------
-----------------
</TABLE>
---------------
<TABLE>
<C> <S> <C>
* C. W. Coker and F. L. H. Coker are brothers and are first cousins of J. L. Coker and of P.C.
Coggeshall, Jr., an executive officer of the Company.
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- PAUL FULTON (60). Mr. Fulton is Dean of The Kenan-Flagler 1989
----------------- Business School, The University of North Carolina, Chapel
----------------- Hill, North Carolina, a position held since 1994. He was
[PHOTO] President of Sara Lee Corporation (manufacturer and
----------------- marketer of consumer products), Chicago, Illinois, from
----------------- 1988 through 1993. He served as Executive Vice President
----------------- from 1987 to 1988 and as Senior Vice President of Sara Lee
----------------- Corporation and President of the Hanes Group of Sara Lee
Corporation from 1981 to 1986. Mr. Fulton is a director of
NationsBank Corporation, Bassett Furniture Industries,
Inc., Cato Corporation and Winston Hotels, Inc.
----------------- H. L. MCCOLL, JR. (59). Mr. McColl is Chairman of the 1972
----------------- Board and Chief Executive Officer and Director of
----------------- NationsBank Corporation, Charlotte, North Carolina, and
----------------- Chief Executive Officer of each of its subsidiary banks.
[PHOTO] He served as Chairman of the Board of NationsBank
----------------- Corporation (formerly NCNB Corporation) from 1983 until
----------------- December 31, 1991, and was reappointed Chairman on
----------------- December 31, 1992. He is a director of CSX Corporation,
Ruddick Corporation and Jefferson-Pilot Corporation.
</TABLE>
Members of the Board of Directors whose terms of office will continue until
the Annual Shareholders' Meeting in 1997 are:
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- *C. W. COKER (61). Mr. Coker is Chairman, President and 1962
----------------- Chief Executive Officer of the Company. He was President
----------------- of the Company from 1970 to 1990 and was reappointed
[PHOTO] President upon the early retirement of R. C. King, Jr. on
----------------- May 31, 1994. He is a director of NationsBank Corporation,
----------------- Springs Industries, Inc., Sara Lee Corporation and
----------------- Carolina Power and Light Company.
-----------------
</TABLE>
---------------
* C. W. Coker and F. L. H. Coker are brothers and are first cousins of J. L.
Coker and of P.C. Coggeshall, Jr., an executive officer of the Company.
9
<PAGE> 11
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FOR LAST FIVE SERVED AS A
YEARS AND DIRECTORSHIPS IN PUBLIC CORPORATIONS DIRECTOR SINCE
---------------------------------------------------------- --------------
<C> <S> <C>
----------------- A. T. DICKSON (63). Mr. Dickson is President and Director 1981
----------------- of Ruddick Corporation (a diversified holding company),
----------------- Charlotte, North Carolina, a position held since 1968. He
[PHOTO] is a director of Lance, Inc., NationsBank Corporation,
----------------- Royal Group, Inc. and Bassett Furniture Industries, Inc.
-----------------
-----------------
-----------------
----------------- R. E. ELBERSON (66). Mr. Elberson is a retired executive 1985
----------------- and director of Sara Lee Corporation (manufacturer and
----------------- marketer of consumer products), Chicago, Illinois. He
----------------- served as Vice Chairman of Sara Lee Corporation from 1986
[PHOTO] to 1989 and as President and Chief Operating Officer from
----------------- 1983 to 1986. Mr. Elberson is a director of W. W.
----------------- Grainger, Inc.
-----------------
----------------- J. C. FORT (68). Mr. Fort is President and Director of 1969
----------------- Trust Company of South Carolina, Inc. (insurance brokers),
----------------- Hartsville, South Carolina. Until his retirement from the
----------------- Company in 1987, Mr. Fort served as Senior Vice President,
[PHOTO] a position held since 1986. He served as Senior Vice
----------------- President -- International Group from 1983 to 1986.
-----------------
-----------------
----------------- R. C. KING, JR. (60). Mr. King is retired. He was 1991
----------------- President and Chief Operating Officer of the Company from
----------------- 1990 to 1994 and Senior Vice President from 1987 to 1990.
[PHOTO] He is a director of United Dominion Industries.
-----------------
-----------------
-----------------
-----------------
</TABLE>
10
<PAGE> 12
BOARD COMMITTEES
During 1994 the Board of Directors held four regularly scheduled meetings
and one special meeting to review significant developments affecting the Company
and to act on matters requiring Board approval. To assist it in the discharge of
its responsibilities, the Board has established four committees:
<TABLE>
<CAPTION>
NUMBER OF
COMMITTEE CURRENT 1994
NAME PURPOSE MEMBERS MEETINGS
----------------- --------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Audit Committee Responsible for the scope of both E. C. Wall, Jr. -- 3
internal and external audit programs in Chairman
order to fully protect assets of the R. J. Brown
Company. F. L. H. Coker
J. L. Coker
A. T. Dickson
J. C. Fort
R. C. King, Jr.
Executive Responsible for establishing and A. T. Dickson -- 5
Compensation maintaining officer-level salaries and Chairman
Committee administering executive compensation C. J. Bradshaw
plans. R. E. Elberson
Paul Fulton
E. H. Lawton, Jr.
Nominating Responsible for recommending to the F. L. H. Coker -- 3
Committee directors qualified candidates to fill Chairman
vacancies on the Board. R. E. Elberson
J. C. Fort
E. H. Lawton, Jr.
H. L. McColl, Jr.
Finance Responsible for evaluating the H. L. McColl, Jr. -- 3
Committee Company's financial status, advising Chairman
corporate management and the full Board C. J. Bradshaw
on financial matters, and reviewing the R. J. Brown
Company's long-term financial J. L. Coker
requirements and plans. Paul Fulton
R. C. King, Jr.
E. H. Lawton, Jr.
</TABLE>
During 1994 all directors attended 75% or more of the aggregate number of
meetings of the Board and committees.
11
<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
--------------------------
NAME POSITION NUMBER(1) PERCENTAGE(2)
----------------------- ---------------------------------------------- --------- -------------
<S> <C> <C> <C>
C. J. Bradshaw Director 21,262
R. J. Brown Director 832
F. L. H. Coker Director 1,148,633 1.3
J. L. Coker Secretary and Director 144,087
A. T. Dickson Director 59,616
R. E. Elberson Director 21,000
J. C. Fort Director 1,136,666 1.3
Paul Fulton Director 5,700
R. C. King, Jr. Director 280,802
E. H. Lawton, Jr. Director 710,962
H. L. McColl, Jr. Director 17,257
E. C. Wall, Jr. Director 80,651
C. W. Coker Chairman, President, Chief Executive Officer 1,483,158 1.7
and Director
P. C. Browning Executive Vice President 235,300
T. C. Coxe, III Senior Executive Vice President and Director 343,471
Leo Benatar Senior Vice President and Director 176,684
H. E. DeLoach, Jr. Group Vice President 1,023,520(3) 1.2
All Executive Officers and Directors (26 persons) 7,940,410(4) 9.1
</TABLE>
---------------
(1) Shareholdings represent the number of shares beneficially owned directly or
indirectly by each named director and executive officer as of December 31,
1994. The number includes shares subject to currently exercisable options,
granted by the Company under the 1983 Key Employee Stock Option Plan and
the 1991 Key Employee Stock Plan, and Restricted Stock Awards, granted
under the 1991 Key Employee Stock Plan, respectively, for the following
directors and named executive officers: C. W. Coker -- 391,200 and 80,000;
P. C. Browning -- 175,000 and 60,000; T. C. Coxe, III -- 98,500 and 20,000;
Leo Benatar -- 126,752 and 20,000; H. E. DeLoach, Jr. -- 91,600 and 40,000;
and R. C. King, Jr. -- 206,200 and -0-.
Also included are shares held in the Company's Dividend Reinvestment Plan
(8,949), the Employee Savings and Stock Ownership Plan (46,509), and share
equivalents in deferred compensation plans (24,565).
(2) Percentages not shown are less than 1%.
(3) Includes 773,670 shares of Common Stock owned by an estate of which Mr.
DeLoach is executor. Mr. DeLoach disclaims beneficial ownership of such
shares.
(4) Includes 1,623,702 shares of Common Stock which the executive officers have
a right to acquire pursuant to options granted by the Company under the
1983 and the 1991 Plans and 320,000 shares which they have a right to
acquire pursuant to Restricted Stock Awards granted under the 1991 Plan.
12
<PAGE> 14
EXECUTIVE COMPENSATION COMMITTEE'S REPORT TO SHAREHOLDERS
The Executive Compensation Committee of the Board of Directors (the
"Committee") is responsible for setting the remuneration levels for executives
of the Company. It also oversees the Company's various executive compensation
plans, as well as the overall management compensation program. Additionally, the
Committee reviews and plans for top management succession and reviews executive
job performance. The Committee periodically evaluates the Company's executive
compensation program in terms of appropriateness, including competitive
positioning relative to other companies' practices. The Committee obtains
independent and impartial advice from external compensation consulting firms in
order to maintain objectivity in executing its responsibilities. The Committee
met five times during 1994, and had met twice in 1995 as of the printing of this
report.
PHILOSOPHY
The executive compensation program has been designed to attract, motivate,
reward, and retain senior management by providing competitive total compensation
opportunities based on performance, teamwork, and the creation of shareholder
value. It is a basic program consisting of salary, annual cash bonus awards,
annual stock option awards, perquisites, and employee benefits.
In order to determine competitive compensation levels, the Company
participates in a number of surveys conducted by independent consulting firms,
and from time to time contracts with these firms to perform customized studies
of companies in its industry groups and/or with companies showing similar
long-term financial performance results. In these surveys executive compensation
levels are developed by looking at large numbers of similar positions across
American industry and reflect adjustments based upon company revenues. The Dow
Jones Containers and Packaging Group Index, which includes the Company, was used
in the five year shareholder return performance graph that appears on Page 16.
The companies in this Index also are included, as available, among the companies
whose survey data is used in the Company's compensation studies.
The total compensation package for executives is generally structured to be
competitive with the median total pay practices for executives of other large
corporations. The base salary midpoints are targeted to be at the median of
surveyed market rates. Incentive compensation, consisting of the annual cash
bonus plan and the annual stock option awards, is targeted at the median of
surveyed market compensation for expected Company performance, and provides
opportunities to motivate and reward executives for exceptional performance.
Executive perquisites are limited and provide a lower benefit than the market
median. The benefits program for executives provides a benefit that is somewhat
higher than the market median. This benefits program, in particular the
retirement and life insurance plans, is designed to enhance retention of
executives until normal retirement age.
Following is a discussion of the elements of the executive compensation
program, along with a description of the decisions and actions taken by the
Committee with regard to 1994 compensation. Also included is a specific
discussion of the decisions regarding Mr. Coker's compensation for performing
the duties of Chairman, President and Chief Executive Officer ("CEO"). The
tables and accompanying narrative and footnotes which follow this report reflect
the decisions covered by the discussions below.
13
<PAGE> 15
SALARY
The Company's salary ranges and resulting salaries are based on a relative
valuing of the duties and responsibilities of each position. The Company reviews
the base salaries of all salaried employees on an annual basis.
Merit salary increases are based on a table which considers each
individual's performance rating and position in his or her salary range.
Promotional salary increases are awarded to recognize increased responsibilities
and accountabilities. The Committee used this table to determine salary
adjustments for each of the executive officers, including Mr. Coker, whose most
recent increase was effective June 1, 1994.
ANNUAL BONUS AWARDS
The Company has a bonus plan which for 1994 provided for cash incentive
opportunities based upon achievement of pre-determined annual financial
performance goals as well as attainment of key individual strategic and
operational objectives. The purpose of this plan is to link a significant
portion of executive pay to both the Company's operating performance for the
year and to critical issues affecting the long-term health of the Company.
Financial performance goals were weighted from 80% to 86% of total bonus
opportunity. For executives with only corporate responsibility, the plan's
financial goals were based on corporate earnings per share from ongoing
operations. For executives with business unit responsibility, one half of the
bonus opportunity available for financial performance was based on corporate
earnings per share and the remainder was based on business unit profit before
interest and taxes.
The key strategic and operational objectives for 1994, which were weighted
from 14% to 20% of total bonus opportunity, varied by individual and were in
areas such as employee safety, customer satisfaction, business development,
strategic acquisitions, technology innovation, management succession and
employee development, process improvement, total quality management, and
environmental protection.
On February 1, 1995, the Committee reviewed and approved the 1994 annual
bonus awards for executive officers. Initial bonus amounts were assigned to each
executive officer based on the scoring of financial goal attainment and
subjective evaluations of how well the personalized objectives were met. In some
cases the Committee used additional discretion based on its assessment of
individual performance and internal equity in the determination of final bonus
amounts. Mr. Coker's earned award under the plan reflected the Company's record
performance, based on earnings per share from ongoing operations, the
Committee's assessment of how well he met his key strategic and operational
objectives for the year, and the Committee's assessment of Mr. Coker's
individual performance and contributions during the year, and is included among
the values listed under the "Bonus" caption in the Summary Compensation Table on
Page 17.
STOCK OPTIONS
In 1994 Mr. Coker, the executive officers, and other key management
employees were granted options to purchase shares of Common Stock by the
Committee under a plan which previously had been approved by the Company's
shareholders. The price of these options was set at the prevailing market price
on the date the
14
<PAGE> 16
options were awarded. Accordingly, these options will be valuable to the
recipients only if the market price of Company stock increases. Stock option
awards and annual cash bonus opportunities are the Company's performance-based
compensation elements. The level of the combined award opportunities, including
Mr. Coker's, reflects median competitive total annual incentive compensation
opportunities as reported by the independent consulting firms. Stock option
awards for Mr. Coker and the other four named officers are included in the
Summary Compensation Table on Page 17 under the caption "Number of Securities
Underlying Options" and on the Option Grants Table on Page 19.
OTHER
On October 20, 1994, the Committee granted one-time awards of contingent
shares to thirteen executives, including Mr. Coker and the four other executive
officers named in the Summary Compensation Table. These awards, consisting of
share units equal in value to an equivalent number of shares of Common Stock,
were granted to reward the members of the current management team for the
contribution each has made in strategically positioning the Company as the
recognized leader and top financially performing company in the majority of the
industries in which it competes. The number of share units granted was based on
the Committee's judgment as to the appropriate size of an award, given its
intent, and the individual's current salary level. The shares disbursed as a
part of this program will be funded from shares allocated in the 1991 Key
Employee Stock Plan and, in order to minimize dilution, will consist entirely of
previously-issued shares that are reacquired by the Company.
The award to Mr. Coker reflects the Committee's recognition of his
excellent contributions and outstanding leadership in the development of
strategic direction and succession plans for the Company. The awards to other
officers also are intended to enhance management succession and ongoing
management stability by helping to ensure that each recipient remains with the
Company over the respective vesting period. Awards will generally vest in
one-third annual installments commencing on October 20, 1997. A termination of
employment by a recipient may not result in forfeiture of an award if the
Committee determines that such early termination is in the interest of the
Company and the recipient does not provide services to a competitor during the
remaining vesting period. Unless otherwise determined by the Committee, the
future payment of awards or portions of awards will be deferred until such time
that the payment is tax deductible to the Company.
As a result of recent changes to tax law, companies cannot deduct certain
types of compensation paid to the CEO or to the other executive officers named
in the Summary Compensation Table for individual amounts in excess of one
million dollars unless such compensation is approved by the shareholders and
meets certain other requirements. The Committee deferred payment of the
applicable portion of the 1994 bonus award to Mr. Coker until tax year 1995.
Under current regulations this amount will be a tax deductible expense. The
Committee and the Board of Directors present and recommend shareholder approval
of the annual incentive compensation terms for executive officers and
ratification of amendments to the Company's 1991 Key Employee Stock Plan that,
under current regulations, are intended to ensure tax deductibility in the
future.
A. T. Dickson (Chairman) C. J. Bradshaw R. E. Elberson
P. Fulton E. H. Lawton, Jr. E. C. Wall, Jr.
15
<PAGE> 17
COMPARATIVE COMPANY PERFORMANCE
The following line graph compares cumulative total shareholder return for
the Company with the cumulative total return of the S&P 500 Stock Index and a
nationally recognized industry index, the Dow Jones Containers and Packaging
Group (which includes the Company), from December 31, 1989, through December 31,
1994.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SONOCO PRODUCTS COMPANY, THE S&P 500 STOCK INDEX,
AND THE DOW JONES CONTAINERS & PACKAGING GROUP**
<TABLE>
<CAPTION>
DOW JONES
CONTAINERS &
MEASUREMENT PERIOD S&P 500 STOCK PACKAGING SONOCO PRODUCTS
(FISCAL YEAR COVERED) INDEX GROUP COMPANY
<S> <C> <C> <C>
1989 $100 $100 $100
1990 $ 97 $ 86 $ 90
1991 $126 $135 $ 98
1992 $136 $147 $139
1993 $150 $141 $132
1994 $152 $140 $134
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1989, IN EACH OF SONOCO PRODUCTS COMPANY
COMMON STOCK, THE S&P 500 STOCK INDEX, AND THE DOW JONES CONTAINERS & PACKAGING
GROUP.
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
** FISCAL YEAR ENDING DECEMBER 31
16
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS
-----------------------
ANNUAL NUMBER OF PAYOUTS
COMPENSATION(2) RESTRICTED SECURITIES ----------
NAME AND PRINCIPAL ------------------- STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY BONUS AWARDS(3) OPTIONS PAYOUTS(4) COMPENSATION(5)
---------------------- ---- -------- -------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. W. Coker 1994 $602,835 $691,416 $1,820,000 63,200 $ -0- $ 205,936
Chairman, President 1993 575,834 451,567 -0- 62,000 -0- 184,233
and Chief Executive 1992 541,831 460,556 -0- 80,000 -0- 178,813
Officer
P. C. Browning 1994 449,759 360,241 1,365,000 25,000 -0- 56,228
Executive 1993 73,666 221,000 -0- 150,000 -0- 55,366
Vice President
T. C. Coxe, III 1994 340,891 324,109 455,000 29,000 -0- 62,813
Senior Executive 1993 316,668 200,999 -0- 26,600 -0- 48,975
Vice President 1992 297,759 211,409 -0- 36,000 -0- 47,059
L. Benatar(1) 1994 368,579 230,000 455,000 20,000 -0- 87,078
Senior Vice 1993 360,813 169,106 -0- -0- 55,427 13,832
President 1992 344,166 435,875 -0- 21,809 -0- 13,148
H. E. DeLoach, Jr. 1994 259,586 230,512 910,000 20,000 -0- 41,422
Group Vice President 1993 220,351 172,690 -0- 12,600 -0- 25,398
1992 206,460 110,487 -0- 16,000 -0- 22,010
</TABLE>
---------------
(1) Includes amounts paid by Engraph, Inc. for services as Chairman and CEO for
the period from January 1, 1992, through October 21, 1993, the date that
Engraph, Inc. merged with the Company.
(2) None of the executive officers received perquisites or personal benefits
which totaled the lesser of $50,000 or 10% of their respective salary plus
bonus payments.
(3) Dollar amounts shown equal the number of units of restricted stock rights
granted multiplied by the $22.75 per share stock price on October 20, 1994,
the date of grant. The number and dollar value of restricted stock rights,
including dividend equivalents, held, based on the closing stock price on
December 31, 1994, of $21.875 per share, were: C. W. Coker -- 80,546 shares
($1,761,951); P. C. Browning -- 60,410 shares ($1,321,463); T. C. Coxe,
III -- 20,137 shares ($440,488); L. Benatar -- 20,137 shares ($440,488); and
H. E. DeLoach, Jr. -- 40,273 shares ($880,976). Restrictions lapse over a
five year vesting period for Messrs. Coker, Browning, and DeLoach with
one-third of the shares vesting on each of the third, fourth, and fifth
anniversary dates of the grant. The restrictions lapse and all shares vest
for Messrs. Coxe and Benatar on October 20, 1996.
(4) This award was pursuant to the Engraph Long Range Incentive Plan for the
1991-1993 performance period. There are no other potential payment
obligations under this plan.
17
<PAGE> 19
(5) All other compensation for 1994 consisted of the following components:
<TABLE>
<CAPTION>
COMPANY CONTRIBUTIONS AND
SPLIT-DOLLAR ABOVE-MARKET DEFERRED ACCRUALS TO DEFINED CONTRIBUTION
NAME LIFE INSURANCE COMPENSATION ACCRUALS(2) RETIREMENT PLANS
------------------- -------------- ------------------------ --------------------------------
<S> <C> <C> <C>
C. W. Coker $135,779(1) $ 38,525 $ 31,632(3)
P. C. Browning 56,228 -0- -0-
T. C. Coxe, III 18,168 28,388 16,257(3)
L. Benatar 77,208 -0- 9,870(4)
H. E. DeLoach, Jr. 18,139 10,315 12,968(3)
</TABLE>
--------------------
(1) Includes additional insurance which was purchased for Mr. Coker during
December 1992 in exchange for cancellation of stock options that, at
the time of the transaction, had a market price gain of $497,875.
(2) Represents the above-market portion of interest credits on
previously-earned compensation for which payment has been deferred.
(3) Comprised of contributions to the Company's Employee Savings and Stock
Ownership Plan (ESSOP) and accruals to individual accounts in the
Company's non-qualified benefits restoration plan, in order to keep
employees whole with respect to Company contribution amounts that were
limited by tax law.
(4) Comprised of contributions to the Engraph, Inc. Retirement Plus Plan.
OPTION EXERCISES AND YEAR-END VALUES TABLE
AGGREGATED OPTION EXERCISES IN 1994 AND 1994 YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED
SHARES AS OF IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1994 AS OF DECEMBER 31, 1994(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ---------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. W. Coker 17,500 $ 193,625 328,000 63,200 $ 1,187,688 $ -0-
P. C. Browning -0- -0- 150,000 25,000 168,750 -0-
T. C. Coxe, III 4,440 85,401 69,500 29,000 571,331 -0-
L. Benatar 4,480 89,690 106,752 20,000 1,143,172 -0-
H. E. DeLoach, Jr. -0- -0- 71,600 20,000 251,500 -0-
</TABLE>
---------------
(1) The difference between the exercise price paid and the value of the acquired
shares based on the closing price of the Company's stock on the exercise
date.
(2) Based on $21.875 per share, the December 31, 1994, closing price.
18
<PAGE> 20
OPTION GRANTS TABLE
1994 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AND
INDIVIDUAL GRANTS RESULTING COMPANY STOCK PRICE AT
--------------------------------------------------------------------------------- ASSUMED ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR 10 YEAR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE (PER EXPIRATION ---------------------------------
NAME GRANTED(1) IN 1994 SHARE) DATE 5% ($40.926) 10% ($66.168)
-------------------- ---------- ----------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
C. W. Coker 63,200 7.1 $25.125 2/2/2004 $ 998,623 $ 2,530,718
P. C. Browning 25,000 2.8 25.125 2/2/2004 395,025 1,001,075
T. C. Coxe, III 29,000 3.3 25.125 2/2/2004 458,229 1,161,247
L. Benatar 20,000 2.2 25.125 2/2/2004 316,020 800,860
H. E. DeLoach, Jr. 20,000 2.2 25.125 2/2/2004 316,020 800,860
Comparable gain in shareholder value for the 87,547,334 shares outstanding as of
February 2, 1994, the grant date. 1,383,335,425 3,505,657,895
</TABLE>
---------------
(1) These options were granted on February 2, 1994, at the closing market price,
became exercisable on February 2, 1995, and were granted for a period of
ten years, subject to earlier expiration in certain events related to
termination of employment. The exercise price can be paid by cash or the
delivery of previously-owned shares. Tax obligations also can be paid by an
offset of the underlying shares.
(2) The amounts in these columns are the result of calculations set by the
Securities and Exchange Commission and are based on hypothetical 5% and 10%
stock price appreciation over ten years. They are not intended to forecast
possible future appreciation, if any, of the Company's stock price.
19
<PAGE> 21
PENSION TABLE
Executive officers participate in a non-contributory defined benefit
program which provides for a maximum annual lifetime retirement benefit equal to
60% of final average compensation, computed as a straight life annuity and based
on the highest three of the last seven calendar years. In order to receive the
full benefit, the executive must have at least 15 years of service and retire no
earlier than age 65. Eligible spouses (married one year or longer at the
executive's retirement date) receive survivor benefits at a rate of 75% of the
benefit paid to the executives. The total benefit provided by the Company is
offset by 100% of primary U.S. Social Security.
<TABLE>
<CAPTION>
AGE 65 RETIREMENT
FINAL YEARS OF SERVICE
AVERAGE --------------------------------------------------------------------------------------
COMPENSATION(1) 5 10 15 20 25 30 35
--------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 60,000 $120,000 $180,000 $180,000 $180,000 $180,000 $180,000
400,000 80,000 160,000 240,000 240,000 240,000 240,000 240,000
500,000 100,000 200,000 300,000 300,000 300,000 300,000 300,000
600,000 120,000 240,000 360,000 360,000 360,000 360,000 360,000
700,000 140,000 280,000 420,000 420,000 420,000 420,000 420,000
800,000 160,000 320,000 480,000 480,000 480,000 480,000 480,000
900,000 180,000 360,000 540,000 540,000 540,000 540,000 540,000
1,000,000 200,000 400,000 600,000 600,000 600,000 600,000 600,000
1,100,000 220,000 440,000 660,000 660,000 660,000 660,000 660,000
1,200,000 240,000 480,000 720,000 720,000 720,000 720,000 720,000
1,300,000 260,000 520,000 780,000 780,000 780,000 780,000 780,000
1,400,000 280,000 560,000 840,000 840,000 840,000 840,000 840,000
1,500,000 300,000 600,000 900,000 900,000 900,000 900,000 900,000
1,600,000 320,000 620,000 960,000 960,000 960,000 960,000 960,000
</TABLE>
---------------
(1) Final average compensation includes salary, bonus, and cash awards from the
Company's former long-term incentive plan. Age, years of service, and final
average compensation as of December 31, 1994, for the named officers are as
follows:
<TABLE>
<CAPTION>
FINAL
YEARS OF AVERAGE
NAME AGE SERVICE COMPENSATION
------------------- --- -------- ------------
<S> <C> <C> <C>
C. W. Coker 61 37 $987,105
P. C. Browning 53 1 372,213
T. C. Coxe, III 64 42 520,395
L. Benatar 64 14 700,956
H. E. DeLoach, Jr. 50 9 325,531
</TABLE>
20
<PAGE> 22
EMPLOYMENT AGREEMENT
On September 12, 1993, in conjunction with the Company's tender offer for
Engraph, Inc. Common Stock, the Company entered into an employment agreement
with Mr. Leo Benatar, an executive officer and director of the Company. This
agreement, which superseded the employment agreement of May 7, 1992, between
Engraph, Inc. and Mr. Benatar, secured the continued service of Mr. Benatar
until March 31, 1995. The Company has extended the term of this agreement until
March 31, 1996. This agreement can be further extended by the Company, with the
consent of Mr. Benatar, until March 31, 1997. This agreement provides for a
minimum annual base salary of $362,500 (Mr. Benatar's then present salary as
Chairman and CEO of Engraph, Inc.), subject to annual review by the Board's
Executive Compensation Committee, and participation in the Company's executive
officer bonus plan, Engraph benefit plans, and the Company's executive benefit
and perquisite programs. Consistent with a provision in the prior agreement, on
March 31, 1995, Mr. Benatar will be credited with one additional year of service
for the purposes of credited service calculations in the Company's Supplemental
Executive Retirement Plan. The agreement stipulates that during the term of his
employment and for two years thereafter, Mr. Benatar will not compete with the
Company, will not solicit its customers or employees, and will not use or
disclose its trade secrets and proprietary information.
DIRECTORS' COMPENSATION
Employee directors receive no additional compensation for their services as
members of the Board of Directors. Effective July 1, 1993, non-employee
directors were paid a $9,000 quarterly retainer fee and a $1,000 attendance fee
for special meetings. On July 1, 1994, the quarterly retainer fee was increased
to $9,250.
Directors are able to defer part or all of their fees. Directors can choose
to earn market rate interest credits on their deferrals or have their deferrals
treated as if invested in equivalent units of Sonoco Products Company Common
Stock. In the latter account they earn dividend equivalent credits which are
reinvested in stock equivalent units. The directors can choose a fixed period,
commencing the January following termination from the Board of Directors, over
which the account balances will be paid in annual installments.
Mr. R. C. King, Jr. elected to take early retirement from the Company
effective May 31, 1994, following over 37 years of distinguished service. To
secure his advice and counsel, the Company entered into an agreement with Mr.
King under which he will provide consulting services to the Company on an
as-needed basis through December 31, 1996. As a part of this arrangement, Mr.
King agreed that he would not compete against the Company for the remainder of
the century and would not disclose any confidential Company information. Mr.
King received consulting fees of $193,263 during 1994 under this agreement. In
recognition of Mr. King's innumerable and invaluable contributions to the
Company in the past, the Company provided to him certain benefits under the
terms of a retirement agreement. Mr. King's annual retirement benefit, including
payments from Primary Social Security or equivalents, Sonoco's Retirement Plan,
and Sonoco's Supplemental Executive Retirement Plan, totals $390,434 or 49.5% of
his salary and bonus paid in 1993. Mr. King also received a payment of $184,839
in February 1995, representing a pro-rata annual bonus for his five months of
service in 1994, and payments totaling $9,266 for reimbursement of financial and
early retirement planning fees and expenses during 1994.
21
<PAGE> 23
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. A. T. Dickson, C. J. Bradshaw, R. E. Elberson, Paul Fulton, E. H.
Lawton, Jr. and E. C. Wall, Jr. served on the Company's Executive Compensation
Committee during the year ended December 31, 1994. Mr. E. C. Wall, Jr. resigned
from the Executive Compensation Committee on October 19, 1994, prior to the
meeting of the committee on that date due to other commitments. Mr. E. H.
Lawton, Jr. was appointed to the committee on September 9, 1994.
Mr. A. T. Dickson and Mr. Paul Fulton, directors of NationsBank
Corporation, Mr. E. H. Lawton, Jr., a director of NationsBank, N.A. (Carolinas),
and Mr. C. J. Bradshaw, a director of Wachovia Bank of South Carolina, N.A., are
members of the Executive Compensation Committee. On October 8, 1987, the Company
entered into a seven-year $50,000,000 interest rate swap agreement with NCNB
National Bank, subsequently NationsBank of North Carolina, N.A., and now
NationsBank, N.A. (Carolinas), to exchange a floating interest rate payment for
a fixed rate payment. This agreement expired October 8, 1994. On October 1,
1993, NationsBank of North Carolina, N.A., now NationsBank, N.A. (Carolinas),
also extended to the Company, as a backstop facility for its commercial paper
program and general corporate purposes, a five-year committed line of credit for
$75,000,000. Wachovia Bank of South Carolina, N.A. has extended a similar line
for $65,000,000. These committed lines of credit from NationsBank, N.A.
(Carolinas) and Wachovia Bank of South Carolina, N.A. have been in place since
1987 and have been renewed and increased or decreased according to the Company's
needs. Additionally, NationsBank, N.A. (Carolinas) has extended other lines of
credit to the Company as support for letters of credit, overdrafts and other
corporate needs. NationsBank, N.A. (Carolinas) also provides treasury management
services to the Company and investment management services through its trust
department. The Company pays fees to NationsBank, N.A. (Carolinas) for these
services and for the availability of the lines of credit, as well as interest on
borrowed funds. All transactions were handled on a competitive basis. Management
is convinced that the rates and provisions were as favorable to the Company as
otherwise could have been obtained.
Mr. E. C. Wall, Jr., a director of the Company and a member of the
Executive Compensation Committee during the year, is Chairman of the Board and
more than a 10% beneficial owner of a company from which the Company purchased
lumber for an aggregate purchase price of $846,521 during 1994.
Mr. H. L. McColl, Jr., an executive officer of NationsBank Corporation, is
a member of the Company's Board but is not a member of the Company's Executive
Compensation Committee. Mr. C. W. Coker, Chairman, President and Chief Executive
Officer of the Company, is a member of NationsBank Corporation's Compensation
Committee.
TRANSACTIONS WITH MANAGEMENT
Mr. H. L. McColl, Jr. is Chairman, Chief Executive Officer and Director of
NationsBank Corporation. Mr. C. W. Coker, Mr. A. T. Dickson and Mr. Paul Fulton
are directors of NationsBank Corporation and Mr. E. H. Lawton, Jr. is a director
of NationsBank, N.A. (Carolinas). Mr. C. J. Bradshaw and Mr. T. C. Coxe, III are
directors of Wachovia Bank of South Carolina, N.A. See the "Compensation
Committee Interlocks and Insider Participation" section above.
22
<PAGE> 24
During 1994 the Company purchased lumber from a company of which Mr. E. C.
Wall, Jr., a director of the Company, is Chairman of the Board and more than a
10% beneficial owner. Mr. T. C. Coxe, III, a director and executive officer of
the Company, also is a director of this company. The aggregate purchase price of
the lumber was $846,521.
The Company also purchased timber during the year from a trust of which Mr.
T. C. Coxe, III, a director and executive officer of the Company, is trustee and
more than a 10% beneficial owner. The aggregate purchase price of the timber was
$218,473.
The Company purchased wooden pallets from a company of which Mr. J. C.
Fort, a director of the Company, is more than a 10% beneficial owner. The
aggregate purchase price of the pallets was approximately $677,880. The Company,
in turn, sold to the same company approximately $1,066,000 in hardwood timbers.
Management of the Company believes the prices and terms were comparable to
those the Company could have obtained from unaffiliated third parties.
In accordance with the Company's relocation policy and practices, the
Company made secured relocation loans to Mr. Peter C. Browning, Executive Vice
President, under identical terms and conditions as loans made to other salaried
employees. These loans were settled in full on February 24, 1995.
AMENDMENTS TO THE 1991 KEY EMPLOYEE STOCK PLAN
On March 17, 1995, the Executive Compensation Committee of the Board of
Directors (the "Committee") amended the 1991 Key Employee Stock Plan (the
"Plan"), subject to the approval of shareholders at this Annual Meeting. The
full text of this Plan is appended to this Proxy Statement as Exhibit I. The
following information is qualified in its entirety by the Plan, as amended.
It is the opinion of the Committee and the Board of Directors that the 1991
Key Employee Stock Plan advances the interests of the shareholders of the
Company by encouraging employees to acquire greater proprietary interests in the
Company. The Plan permits the Committee to grant long-term incentive
compensation opportunities that will provide meaningful incentive for recipients
to make significant contributions toward the Company's future success, while
enhancing the Company's competitive compensation position and the Company's
ability to attract and retain individuals of outstanding ability.
The Board of Directors recommends that you vote FOR ratification of the
amendments to the 1991 Key Employee Stock Plan.
The major amendments to the Plan are as follows:
Term. Under its present provisions, the Plan will terminate in 2001. Under
the proposed amendments, the Plan will remain in effect until terminated by the
Board of Directors. These amendments are intended to cause the Plan to have an
indefinite term.
The Common Shares Available for Issuance. In 1991 the Plan made available
for issuance 5,000,000 shares of Common Stock plus any shares of Common Stock
exchanged by optionees as full or partial payment to the Company upon exercise
of stock options granted under the 1983 Key Employee Stock Option Plan (the
23
<PAGE> 25
"Prior Plan"). The proposed amendments to the Plan increase the number of shares
available for issuance. In addition to the shares presently available for
issuance, the amendments to the Plan make available for issuance, beginning
January 1, 1995, and on each January 1 thereafter, a number of shares equal to
1.2% of the number of shares of Common Stock issued on such first day of
January. After April 19, 1995, the proposed amendments may increase the number
of shares available for issuance by the number of shares acquired by the Company
from open market purchases at market price or private transactions at fair
market value to the extent that the price paid for such shares does not exceed
the cumulative amount of money received by the Company from the exercise of
options granted under the Plan, as amended, or the Prior Plan. These amendments
will cause the number of shares available for issuance under the Plan to
increase annually without further shareholder approval.
Grant Limits. The proposed amendments to the Plan include a new section
(Section 9) that imposes certain limits on the number of shares that can be
granted after April 19, 1995, as stock options, stock appreciation rights or
stock grants. These amendments are intended to cause the Plan to comply with
changes to the Internal Revenue Code of 1986, as amended, (the "Code"), in order
to keep the Company from losing deductibility for federal income tax purposes of
certain benefits paid to Plan participants.
Transferability and Exercisability. The proposed amendments to the Plan
expand the circumstances under which a grant under the Plan may be transferable
to permit transfers pursuant to certain qualified domestic relations orders and
certain types of gifts. These amendments may allow Plan participants to take
advantage of certain estate planning mechanisms.
Other Changes. A number of other amendments to the Plan also are included
for the purpose of clarifying various aspects of the Plan and removing certain
restrictions.
The following is a summary description of the Plan as amended. The full
text of the Plan, as amended, is Exhibit 1 to this Proxy Statement.
While any employee of the Company is eligible to receive a grant under the
Plan, it is intended that participation be limited to officers, other executives
and employees as selected by the Committee administering the Plan. Currently,
the number of such employees is approximately 325.
The Plan is administered by the Committee which is presently made up of
five members of the Board of Directors, each of whom qualifies for plan
administration under Rule 16b-3 of the Securities Exchange Act of 1934 (the
"1934 Act"). In addition to selecting participants, the Committee has the power,
within certain limitations set forth in the Plan, to determine the number of
shares to be covered by grants, the terms (including form of settlement) for all
grants, and to interpret, make rules, regulations and determinations and,
otherwise, administer the Plan to carry out its intent. Within the Committee's
authority is the ability to delegate its responsibilities with regard to
participation by employees who are not persons subject to Section 16 of the 1934
Act. Also within the Committee's authority is the ability to provide, at its
discretion, for grants under the Plan to carry dividend or dividend equivalent
rights and to permit or require the deferral of settlement of grants under the
Plan on such terms and conditions as the Committee may determine.
Stock Options: The Committee may grant three types of stock options:
non-qualified stock options, incentive stock options (which qualify for
specified tax status under Section 422 of the Code), and non-
24
<PAGE> 26
qualified deferred compensation stock options. A stock option entitles the
recipient to purchase a specified number of shares of Common Stock at a fixed
price, subject to terms and conditions set by the Committee. The purchase price
of shares covered by a non-qualified or incentive stock option cannot be less
than 100% of the fair market value on the date the option is granted, except
that in a situation where a non-qualified option is granted in tandem with or as
substitution for another grant, the exercise price can be the same as the
exercise or designated price of the other grant. The maximum number of shares
that may be covered by stock options and stock appreciation rights that may be
granted to any individual in a calendar year is 200,000 plus the carry-forward
of available but unused shares for up to five years, commencing in 1995. The
aggregate fair market value of incentive stock option shares (determined at the
time the options are granted) for an individual cannot exceed $100,000 for all
shares covered by options which become exercisable for the first time in any
calendar year.
The Committee also may grant deferred compensation options under the Plan.
Such options are intended to serve as a deferred payment vehicle for
compensation earned by selected employees. The total purchase price of these
shares is 100% of the fair market value on the date the option is granted. This
total purchase price per share is equal to the compensation deferred, on a per
share basis, and the exercise price. The Committee determines the exercise
price, which shall be no lower than that permitted by Rule 16b-3 of the 1934
Act, and the Committee determines whether each such option shall carry dividend
equivalents rights. The number of shares covered by each deferred compensation
option is determined by the formula in the Plan.
Stock Appreciation Rights (SAR): A SAR permits its recipient, subject to
such terms and conditions as the Committee shall set for each grant, to receive
in shares, cash or a combination of both, an amount up to the positive aggregate
difference, if any, between the fair market value of the covered shares, based
on the closing bid price as of the exercise date and the designated price of a
specified number of shares. The designated price of the SARs may be no less than
the closing price of the Common Stock on the date of grant; except that if a SAR
is granted in tandem with or in substitution for another grant, the designated
price may be the same as the exercise or designated price of the other grant.
For all SARs granted under the Plan, the Committee determines whether each such
SAR shall carry dividend equivalent rights. The maximum number of shares that
may be covered by stock options and SARs that may be granted to any individual
in a calendar year is 200,000 plus the carry-forward of available but unused
shares for up to five years commencing in 1995.
Stock Grants: The Committee may award to selected participants shares of
Common Stock or share equivalents under such terms and conditions as it may
determine. These grants may require that the recipients remain in the Company's
employ for specified future periods of time for the shares or share equivalents
to vest. Additionally, the Committee may require that the grants vest only if
certain levels of financial or other measurable performance are met. The
performance criteria that may be used by the Committee in awarding contingent
stock grants may consist of total shareholders return, earnings and revenue
growth, and profitability as measured by return ratios. The Committee may select
one criterion or multiple criteria for measuring performance, and the
measurement may be based on absolute Company or business unit performance or
based on comparative performance with other companies. Stock grants also may be
used by the Committee as a form of payment to selected employees for salary
earned or for incentive compensation awarded under other Company plans. The
maximum number of shares that may be covered by stock grants that may be granted
to any individual in a calendar year is 100,000 plus the carry-forward of
available but unused shares for up to five
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<PAGE> 27
years commencing in 1995. Beginning in 1995 the maximum aggregate number of
shares that may be covered by stock grants shall be 0.4% of shares outstanding
on the first day of each calendar year, plus any unused shares which were
available to be covered by stock grants in any prior year commencing in 1995.
General: Under limited circumstances the Committee may permit awards or
grants to be assigned under a qualified domestic relations order, or transferred
to the participant's spouse or other relative, or transferred to a trust or
estate in which the optionee or an optionee's spouse or other relative has a
substantial interest.
The Board of Directors may make appropriate adjustments and settlements to
outstanding grants and the share and cash authorizations under the Plan in the
event of changes in capitalization or other events that affect the number and/or
market value of shares of Common Stock or in the event of a reorganization,
merger or other transaction in which the Company is not the surviving
corporation.
Under the Code, the granting of a stock option does not produce income to
the optionee or a tax deduction for the Company unless the option itself has a
determinable market value and is not an incentive stock option. Upon exercise of
a non-qualified stock option, the excess of the fair market value of the shares
over the option exercise price is taxable to the optionee as ordinary income and
deductible as an expense by the Company. The cost basis of the shares acquired
is the fair market value at the time of exercise. Upon exercise of an incentive
stock option, the excess of the fair market value of the stock acquired over the
option price will be an item of tax preference to the optionee, which may be
subject to an alternative minimum tax for the year of exercise. If no
disposition of the stock is made within two years from the date of grant of the
incentive stock option nor within one year after the transfer of the stock to
the optionee, the optionee does not realize income as a result of exercising the
incentive stock option; the tax basis of the stock received is the option price;
any gain or loss realized on the ultimate sale of the stock is long-term capital
gain or loss, and the Company is not entitled to any tax deduction by reason of
the exercise. If the optionee disposes of the stock within the two-year or
one-year periods referred to above, the excess of the fair market value of the
stock at the time of exercise (or the proceeds of disposition, if less) over the
option price will at that time be taxable to the optionee as ordinary income and
deductible by the Company. For determining capital gain or loss on such a
disposition, the tax basis of the stock will be the fair market value at the
time of exercise.
The plan may be amended or terminated by the Committee except that any
amendment to the Plan, which (a) materially increases the number of securities
which may be granted under the Plan or to any individual participant, or (b)
reduces the minimum exercise or designated price for any stock options or SARs
granted under the Plan, will require shareholder approval.
On February 1, 1995, the Committee made available for grants 1,055,200
shares to selected officers, other executives and employees, of which 50,000
shares have not been allocated as of March 1, 1995. Those grants are not
contingent on the approval of the proposed amendments to the Plan.
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<PAGE> 28
Set forth below are the numbers of shares underlying the options which were
actually granted under the 1991 Key Employee Stock Plan on February 1, 1995, for
the 1995 plan year to the persons and groups identified. Any future options,
grants, or benefits under the Plan are not determinable, as they are at the
discretion of the Committee.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
NAME AND POSITION OPTIONS GRANTED
------------------------------------------------------------- ---------------------------
<S> <C>
C. W. Coker 75,500
Chairman, President & CEO
P. C. Browning 38,300
Executive Vice President
T. C. Coxe, III 34,800
Senior Executive Vice President
L. Benatar 22,700
Senior Vice President
H. E. DeLoach, Jr. 22,700
Group Vice President
All Current Executive Officers As A Group 343,800
(including the persons named above)
All Current Directors, Not Executive Officers, --0--
As A Group (not eligible)
All Employees, Not Executive Officers, As A Group 661,400
Shares Not Allocated 50,000
</TABLE>
All of the above options, excluding the 50,000 shares not allocated, are
non-qualified stock options, have an exercise price of $20.875 per share (the
fair market value of the Common Stock on February 1, 1995, the date of the
grant), become exercisable on February 1, 1996, and were granted for a period of
ten years, expiring February 1, 2005, subject to earlier expiration in certain
events related to termination of employment. The exercise price and tax
obligations can be paid by cash or the delivery of previously-owned shares. Tax
obligations also can be paid by an offset of the underlying shares. No person
other than the persons named in the above table received more than five percent
of the options granted under the Plan.
In order to be approved, the amendments to the Plan must receive the
affirmative vote of a majority of the outstanding shares of Common Stock
present, or represented, and eligible to vote at the Annual Meeting.
If the amendments to the Plan are not ratified by the shareholders, the
Plan will remain in effect without the amendments.
The Board of Directors recommends that you vote FOR ratification of the
amendments to the 1991 Key Employee Stock Plan.
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<PAGE> 29
ANNUAL INCENTIVE COMPENSATION TERMS FOR EXECUTIVE OFFICERS
As noted in the Executive Compensation Committee's Report To Shareholders,
beginning on Page 13, on February 1, 1995, and on March 1, 1995, the Executive
Compensation Committee (the "Committee") of the Board of Directors took actions,
including adopting resolutions, that are intended to ensure that future annual
incentive compensation payments will be tax deductible by the Company.
The Board of Directors recommends that you vote FOR approval of the
Committee's actions.
Such approval is required under Section 162(m) of the Internal Revenue Code
of 1986 (the "Code"), so that certain compensation in excess of $1 million is
considered "performance-based" and, therefore, tax deductible by a company. This
Section of the Code applies to compensation paid to or received by a person
named in a company's Summary Compensation Table who is employed by that company
on the last day of the year.
The Committee has approved the following Annual Incentive Compensation
Terms (the "Terms") for fiscal year 1995 and all future years, contingent upon
this approval by the shareholders:
1. ELIGIBLE EMPLOYEES: All executive officers (17), as defined by Rule
16a-1(f) of the Securities Exchange Act of 1934 are eligible to be named by the
Committee as participants for any fiscal year.
2. PERFORMANCE CRITERION: Performance goals shall be based on the
Company's "Earnings Per Share from Ongoing Operations" (EPS).
EPS shall be calculated in accordance with generally accepted accounting
principles applied on a consistent basis and shall be audited by independent
certified public accountants. EPS shall be exclusive of the after-tax effects of
(a) unusual items, and (b) cumulative effects of changes in accounting
principles stated in the Consolidated Statement of Income and Notes to
Consolidated Financial Statements as published in the Company's Annual Report.
Shares used in the calculation shall be the "Average Common Shares Outstanding"
(calculated on a daily basis) as stated in the Consolidated Statement of Income.
3. MAXIMUM PAYMENT AMOUNT: The maximum payment amount to any one
individual shall be limited to 0.75% of income from operations before income
taxes and cumulative effect of changes in accounting principles, exclusive of
unusual items, for the applicable fiscal year, as stated in the Consolidated
Statement of Income published in the Company's Annual Report. If this provision
had been in effect for fiscal year 1994, the Maximum Payment Amount allowable
would have been $1,581,975.
These Terms will not be altered or replaced by any other criterion without
ratification by shareholders if failure to obtain such approval would otherwise
result in jeopardizing the tax deductibility of future annual incentive payments
to the eligible employees.
In order to comply with the remaining provisions of Section 162(m), the
Committee members who administer this plan will meet the qualifications for
being disinterested "outside directors" as defined in the Code. The Committee
will select participants each fiscal year from among the list of eligible
employees, establish performance payment schedules at a time when the outcomes
are substantially uncertain that set in place maximum individual incentive
payment limits for each level of performance, certify, in writing, the extent to
which the performance goals have been met, and set the final payment amounts.
Any individual who
28
<PAGE> 30
participates under these Terms will be ineligible to participate in any other
annual incentive plan for which the individual would have been otherwise
eligible.
In setting final payment amounts, the Committee has retained full authority
to award final payments that are less than the amount earned by an executive
pursuant to the performance payment schedule. In determining whether to use this
downward discretion and the extent to which it will be used, the Committee may
consider any or all of the following: the extent to which each participant
completed his personal performance goals for the year, the size of the bonus
awards earned by other executive officers, the general business conditions for
the Company and the world economy, and other factors that are deemed to be
significant at the time of the decision.
The Committee also has retained the full authority to suspend or amend
these Terms at any time, provided that such action does not require shareholder
approval in order to retain tax deductibility.
For 1995 the Committee has selected two individuals, Mr. Charles W. Coker
and Mr. Peter C. Browning, to be participants. The Committee has established a
performance payment schedule for each individual that provides for incremental
incentive award payments based on the degree of achievement of the Company's
budgeted consolidated EPS. The Committee believes that it would adversely affect
the Company to disclose the exact performance payment schedules that it has set
for the participants because confidential business information would be
compromised as a result. Accordingly, such information is not provided.
It should be noted that while the Committee's action and intent are to
ensure deductibility of annual incentive compensation payments, final
regulations and guidance for Section 162(m) have not been adopted by the
Internal Revenue Service. For this reason, and because of possible unforeseen
future events, it is impossible to be certain that all future annual incentive
compensation payments by the Company will be deductible. It is, however, the
Committee's intent to pursue actions that it deems to be reasonable in the
future to maintain the tax deductibility of incentive compensation payments.
In order to be approved, the Terms must receive the affirmative vote of a
majority of the outstanding shares of Common Stock present, or represented, and
eligible to vote at the Annual Shareholders' Meeting.
If the Terms are not approved, the Company will not make performance
payments for 1995 to participants in amounts that would not be deductible
expenses pursuant to Section 162(m) of the Code.
POTENTIAL PAYMENTS
The amount of annual incentive compensation to be paid in the future to any
of the Company's current or future executive officers subject to Section 162(m)
cannot be determined since such amounts will be totally dependent on actual
performance measured against the attainment of performance goals. Such amounts
will not, however, exceed the Maximum Payment Amount. If these Terms had been in
place for fiscal year 1994, the amounts paid to Mr. Coker and Mr. Browning would
be substantially identical to the amounts shown under the "Bonus" column in the
Summary Compensation Table on Page 17.
The Board of Directors urges you to vote FOR approval of the Executive
Compensation Committee's actions regarding the Annual Incentive Compensation
Terms for Executive Officers.
29
<PAGE> 31
ELECTION OF INDEPENDENT AUDITORS
Independent auditors are to be elected by the shareholders for the calendar
year 1995. The firm of Coopers & Lybrand, LLP, Certified Public Accountants, has
audited the books and records of the Company for many years, and the Audit
Committee of the Board of Directors recommends continuing the services of this
firm. Representatives of Coopers & Lybrand, LLP will be present and available to
answer any questions that may arise at the Annual Meeting and may make a
statement if they so desire.
The Board of Directors recommends that you vote FOR the election of Coopers
& Lybrand, LLP as independent auditors for the Company for the current year.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934
As required by Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors, its executive officers and certain individuals are required
to report periodically their ownership of the Company's Common Stock and any
changes in ownership to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
The Company failed to file on a timely basis one report for Mr. R. C. King,
Jr. Mr. King's wife sold a small number of Company shares in an IRA. Mr. King is
a director of the Company. This information should have been filed on September
1994's Form 4, due October 10, 1994, but was reported on March 10, 1995, on Form
4, amended.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
A shareholder proposal to be presented at the next Annual Meeting must be
received by the Company not later than November 3, 1995, in order to be included
in the Proxy Statement and Proxy.
OTHER MATTERS
As of the date of this statement management knows of no business which will
be presented for consideration at the meeting other than that stated in the
notice of the meeting. As to other business, if any, that may properly come
before the meeting, it is intended that proxies in the accompanying form will be
voted in respect thereof in accordance with the best judgment of the person or
persons voting the proxies.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE, AND
RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THE ACCOMPANYING PROXY.
James L. Coker, Secretary
March 17, 1995
30
<PAGE> 32
EXHIBIT I
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
(AS AMENDED)
1. Purpose. The Sonoco Products Company 1991 Key Employee Stock Plan (the
"Plan") has been adopted by the Board of Directors (the "Board") to encourage
and create significant ownership of the Common Stock ("Common Stock" or
"Shares") of Sonoco Products Company (the "Company") by employees. Additional
purposes of the Plan include generating a meaningful incentive to participants
to make substantial contributions to the Company's future success, enhancing the
Company's ability to attract and retain persons who will make such
contributions, and ensuring that the Company can provide competitive
compensation opportunities for its key personnel. By meeting these objectives,
the Plan is intended to benefit the shareholders of the Company.
2. Term. The Plan shall be effective February 6, 1991. The amendments to
the Plan shall be effective when approved by shareholders and until terminated
pursuant to Section 14.7.
3. Common Shares Available for Issuance. Subject to adjustments
contemplated by Section 5, 5,000,000 shares of Common Stock of the Company
became available for issuance under the Plan on February 6, 1991. Beginning on
January 1, 1995, the number of shares available for issuance under the Plan
shall be increased on each January 1 by an amount equal to 1.2% of the number of
shares of Common Stock issued on such day. Furthermore, the Committee may
designate for issuance under the Plan any shares of Common Stock that are
repurchased by the Company after April 19, 1995, (the "Repurchased Shares") on
the open market or in private transactions in which the Company paid fair market
value, so long as the aggregate price paid for the Repurchased Shares does not
exceed the cumulative amount received in cash by the Company after April 19,
1995, for the exercise of options granted under the Plan or the 1983 Key
Employee Stock Option Plan (the "Prior Plan"). Shares available for issuance
under the Plan, which are not issued in a given year, will be carried forward
and continue to be available in the succeeding year. Any shares issued under the
Plan may be either authorized but unissued shares, or previously-issued shares
reacquired by the Company.
4. Share Usage. If grants made under the Plan expire or are canceled
without the issuance of shares, the shares of stock covered by such grants shall
remain available for issuance under the Plan. Further, any shares which are
exchanged by a participant as full or partial payment to the Company of the
purchase price of shares being acquired through the exercise of a stock option
granted under the Plan or the Prior Plan shall be added to the aggregate number
of shares available for issuance for grants other than incentive stock option
grants. In instances where a stock appreciation right (SAR) or a stock grant is
settled in cash or any form other than shares, then the shares covered by these
settlements shall not be deemed issued and shall remain available for issuance
under the Plan. The payment in shares of dividends in conjunction with
outstanding grants shall not be counted against the shares available for
issuance.
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<PAGE> 33
5. Adjustments and Reorganizations. The Board may make such adjustments
as it deems appropriate to meet the intent of the Plan in the event of changes
that impact the Company's share price or share status, provided that any such
actions are consistently and equitably applicable to all affected participants.
a. In the event of any stock dividend, stock split, combination or
exchange of shares, merger, consolidation, spin-off or other distribution
(other than normal cash dividends) of Company assets to shareholders, or
any other change affecting shares, such proportionate adjustments, if any,
as the Board in its discretion may deem appropriate to reflect such change
shall be made with respect to (i) aggregate number of shares that may be
issued under the Plan; (ii) each outstanding grant made under the Plan;
(iii) the price per share for any outstanding stock options, SARs and other
rights granted under the Plan; and the limitations on share usage and
allocation set forth in Section 9. In addition, any shares issued or
settlement of grants by the Company through the assumption or substitution
of outstanding grants or grant commitments from an acquired company or
other entity shall not be counted against the limitations set forth in
Section 3 and Section 9.
b. In the event that the Company is not the surviving company of a
merger, consolidation or amalgamation with another company or in the event
of a liquidation or reorganization of the Company, and in the absence of
the surviving corporation's assumption of outstanding grants made under the
Plan, the Board may provide for appropriate adjustments and settlements of
such grants either at the time of grant or at a subsequent date.
6. Plan Administration.
6.1 The Committee. A Committee (the "Committee") appointed by the
Board shall be responsible for administering the Plan. The Committee shall
be comprised of three or more members of the Board who qualify to
administer the Plan as contemplated by Rule 16b-3 under the Securities
Exchange Act of 1934 (the "1934 Act"), or any successor rule.
6.2 Powers of the Committee. Subject only to the express
restrictions and limitations otherwise set forth in the Plan, the Committee
shall have sole, absolute and full authority and power to:
(a) Interpret the Plan and undertake such actions and make such
determinations and decisions as it deems necessary and appropriate to
carry out the Plan intent;
(b) Select individuals to receive grants;
(c) Determine the amount of shares to be covered by each grant;
(d) Decide the type grant or grants to be made to each participant
and the terms and conditions applicable to each such grant;
(e) Award grants to individuals who are foreign nationals or who
are employed outside the United States or both, on such terms and
conditions (which may be different than specified by the Plan) which it
deems are necessary to assure the viability of such grants in meeting
the purposes of the Plan;
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<PAGE> 34
(f) Enter into grant agreements evidencing grants made under the
Plan and their respective terms and conditions;
(g) Establish, amend and repeal rules and regulations relating to
the Plan; and
(h) Amend the Plan to the extent permitted by Section 14.6.
6.3 Delegation of Authority. The Committee may designate persons
other than members of the Committee or the Board to carry out its
responsibilities subject to such limitations, restrictions and conditions
as it may prescribe, except that the Committee may not delegate its
authority with regard to the awarding of grants to persons subject to
Section 16 of the 1934 Act. Further, the Committee may not delegate its
authority if such delegation would cause the Plan not to comply with the
requirements of Rule 16b-3 or any successor rule under the 1934 Act.
6.4 Dividends and Dividend Equivalents. The Committee may provide
that grants awarded under the Plan earn dividends or dividend equivalents.
Such dividend equivalents may be paid currently or may be credited to a
participant's account. In addition, dividends paid on outstanding grants or
issued shares may be credited to a participant's account, including
additional shares or share equivalents, rather than paid currently. Any
crediting of dividends or dividend equivalents may be subject to such
restrictions and conditions as the Committee may establish, including
reinvestment in additional shares or share equivalents.
6.5 Deferrals and Settlements. The Committee may require or permit
participants to elect to defer the issuance of shares or the settlement of
grants in cash under such rules and procedures as it may establish under
the Plan. It also may provide that deferred settlements include the payment
or crediting of interest on the deferral amounts or the payment or
crediting of dividend equivalents on deferred settlements denominated in
shares. The Committee also may require or permit grants to be settled in
the form of other grant types.
6.6 Documentation of Grants. Grants under the Plan shall be
evidenced by written agreements or such other appropriate documentation as
the Committee shall prescribe. The Committee need not require the execution
of any instrument or acknowledgment of notice of a grant under the Plan, in
which case acceptance of such a grant by the respective participant will
constitute agreement to the terms of the grant.
7. Plan Eligibility. Any employee of the Company (including any entity
that is directly or indirectly controlled by the Company or any entity in which
the Company has a significant equity interest, as determined by the Committee)
shall be eligible to be designated a participant under the Plan.
8. Grant Types. Awards under the Plan may consist of single, combination,
tandem or replacement grants of the following types.
8.1 Stock Options. A stock option shall confer on a participant the
right to purchase a specified number of shares from the Company subject to
the terms and conditions of the stock option grant. A stock option may be
in the form of an incentive stock option or any other option type. Any
incentive stock option grant shall comply with the requirements of Section
422 of the Internal Revenue Code of 1986, as
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<PAGE> 35
amended, (the "Code"), and, accordingly, the aggregate fair market value at
the time of grant of the shares covered by incentive stock option grants
exercisable by any one optionee in any calendar year shall not exceed
$100,000 (or such other limit as may be required by the Code). The
recipient of a stock option grant shall pay for the shares at the time of
exercise in cash or such other form as the Committee may approve, including
the transfer of shares (whether actual or constructive), valued at their
fair market value on the date of exercise, or in a combination of payment
forms.
8.2 Stock Appreciation Rights (SAR). A SAR grant shall confer on a
participant the right to receive in shares, cash or a combination of both,
up to the positive difference, if any, between the fair market value of a
designated number of shares on the date the SARs are exercised and the
designated price of the SARs contained in the terms and conditions of the
grant. Shares issued in settlement of the exercise of SARs shall be valued
at their fair market value on the date of the exercise of the SARs.
8.3 Stock Grants. A stock grant shall confer on a participant the
right to receive a specified number of shares, cash equal in value to a
designated number of shares or a combination of both, subject to the terms
and conditions of the grant, which may include forfeitability contingencies
based on continued employment with the Company or the meeting of
performance criteria or both. The performance criteria that may be used by
the Committee in awarding contingent stock grants will consist of total
shareholders' return, earnings growth, revenue growth, and/or profitability
measured by return ratios. The Committee may select one criterion or
multiple criteria for measuring performance, and the measurement may be
based on absolute Company or business unit performance or based on
comparative performance with other companies. A stock grant may be received
by a participant as part of or in lieu of the participant's normal
compensation or as part of or in lieu of a payment under another incentive
compensation or employee benefit plan of the Company, subject to such rules
and conditions as the Committee may establish for such grants.
8.4 Deferred Compensation Stock Options. The Committee may, at its
sole discretion, require or permit that designated grants under the Plan be
settled in the form of deferred compensation stock options. The Committee
also, at its sole discretion, may require or permit eligible employees to
receive deferred compensation stock options in lieu of a payment of normal
compensation or a payment under another incentive compensation or employee
benefit plan of the Company. The number of shares to be subject to such a
grant shall be the quotient (rounded down to the nearest whole number)
resulting from the following formula:
<TABLE>
<C> <S> <C>
Amount of Compensation to be Deferred
------------------------------------------------------------ = Number of Shares
Fair Market Value at Time of Grant -- Option Price
</TABLE>
9. Grant Limits. Subject to adjustments contemplated by Section 5, the
following limitations on the usage of shares of Common Stock shall be effective
for grants made after April 19, 1995:
9.1 Stock Options and SARs. Commencing with 1995, no individual may
receive a stock option or SAR, or combination of both, in any one calendar
year that covers more than 200,000 shares plus unused shares carried
forward for up to five years commencing in 1995. The aggregate number of
shares that may be covered by incentive stock options granted under the
Plan cannot exceed 5,000,000 shares.
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<PAGE> 36
9.2 Stock Grants. Commencing with 1995, no individual may receive a
stock grant in any one calendar year that covers more than 100,000 shares
plus unused shares carried forward for up to five years commencing in 1995.
The aggregate number of shares that may be covered by stock grants made in
any one calendar year shall not exceed 0.4% of the number of issued shares
of Common Stock as of the first day of such calendar year commencing in
1995, plus any unused shares which were available for stock grants in any
prior years commencing in 1995.
10. Transferability and Exercisability
10.1 Transferability. Any grant under the Plan will be
non-transferable and, accordingly, shall not be assignable, alienable,
salable or otherwise transferable by the participant other than as provided
in Section 10.2 or:
(a) By will or the laws of descent and distribution;
(b) Pursuant to a qualified domestic relations order, to the extent
permitted by the Committee, either at the time of grant or subsequently;
and
(c) By gift or other transfer to, either (i) a trust or estate in
which the participant or such person's spouse, or other relative has a
substantial interest, or (ii) the participant's spouse or other
relative, to the extent permitted by the Committee, either at time of
grant or subsequently, provided further that for any such transfer by a
person subject to Section 16 of the 1934 Act, the Committee may require
the shares covered by such grant to continue to be deemed beneficially
owned.
10.2 Third Party Exercises. In the event that a participant
terminates employment with the Company to assume a position with a
governmental, charitable, educational or similar non-profit institution,
the Committee may subsequently authorize a third party, including but not
limited to a "blind" trust, to act on behalf of and for the benefit of the
respective participant with respect to any outstanding grants held by the
participant subsequent to such termination of employment. If permitted by
the Committee, a participant may designate a beneficiary or beneficiaries
to exercise the rights of the participant and receive any distributions
under the Plan upon the death of the participant.
11. Grant Terms and Conditions. The Committee shall determine the
provisions and duration of grants made under the Plan, including the purchase
prices for all stock options, the established prices for all SARs, the
consideration, if any, to be required from participants for all other grants and
the conditions under which a participant will retain rights in the event of the
participant's termination of employment while holding outstanding grants made
under the Plan. However, any stock option (other than a deferred compensation
grant made pursuant to Section 8.4) or SAR may not have an exercise or
designated price of less than 100% of the fair market value of the covered
shares on the date of grant, except that, in the case of a stock option or SAR
granted retroactively in tandem with or as a substitution for another grant, the
exercise or designated price may be the same as the exercise or designated price
of such other grant.
12. Tax Withholding. The Company shall have the right to deduct from any
settlement of a grant made under the Plan, including the delivery or vesting of
shares, a sufficient amount to cover withholding of any federal, state or local
taxes required by law or to take such other action as may be necessary to
satisfy any
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<PAGE> 37
such withholding obligations. The Committee may permit shares to be used to
satisfy required tax withholding and such shares shall be valued at their fair
market value as of the settlement date of the applicable grant.
13. Other Company Benefit and Compensation Programs. Unless otherwise
determined by the Committee, settlements of grants received by participants
under the Plan shall not be deemed a part of a participant's regular, recurring
compensation for purposes of calculating payments or benefits from any Company
benefit or severance program (or severance pay law of any country). The above
notwithstanding, the Company may adopt other compensation programs, plans or
arrangements as it deems appropriate or necessary.
14. General. The following provisions are applicable to the Plan
generally:
14.1 Future Rights. No person shall have any claim or rights to be
awarded a grant under the Plan, and no participant shall have any rights
under the Plan to be retained in the employ of the Company.
14.2 Fair Market Value. The term "fair market value" as used in the
Plan means the closing price of a share of Common Stock on the date of the
applicable transaction or such other appropriate valuation method as the
Committee may determine.
14.3 No Fractional Shares. No fractional shares shall be issued
under the Plan and cash shall be paid in lieu of any fractional shares in
settlement of grants awarded under the Plan.
14.4 Unfunded Plan. Unless otherwise determined by the Committee,
the Plan shall be unfunded and shall not create (or be construed to create)
a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any participant or other
person. To the extent any person holds any rights by virtue of a grant
awarded under the Plan, such right (unless otherwise determined by the
Committee) shall be no greater than the right of an unsecured general
creditor of the Company.
14.5 Successors and Assigns. The Plan shall be binding on all
successors and assigns of a participant, including, without limitation, the
estate of such participant and the executor, administrator or trustee of
such estate, or any receiver or trustee in bankruptcy or representative of
the participant's creditors.
14.6 Plan Amendment. The Committee may amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan, except
that no amendment without the approval of the Company's shareholders shall
be made which would:
(a) Subject to adjustments contemplated by Section 5, increase the
total number of shares available for issuance under Section 3 or the
share limits set forth in Section 9; and
(b) Reduce the minimum exercise or designated price for any stock
options or SARs granted under the Plan.
36
<PAGE> 38
14.7 Plan Termination. The Board may terminate the Plan at any time.
However, if so terminated, then-existing previously-awarded grants shall
remain outstanding and in effect in accordance with their applicable terms
and conditions.
14.8 Governing Law. The validity, construction and effect of the
Plan and any actions taken or relating to the Plan shall be determined in
accordance with the laws of the State of South Carolina and applicable
federal law.
37
<PAGE> 1
EXHIBIT (99-2)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
_________________
FORM 11-K
_________________
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
_________________
SONOCO PRODUCTS COMPANY
1983 KEY EMPLOYEE STOCK OPTION PLAN
AND
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
SONOCO PRODUCTS COMPANY
NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550
<PAGE> 2
EXHIBIT (99-2)
SONOCO PRODUCTS COMPANY
KEY EMPLOYEE STOCK OPTION PLAN
_________________
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements of Sonoco Products Company represent the financial statements of the
Plans and are hereby incorporated by reference in this Form 11-K Annual Report.
