<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
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(b) 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.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 common stock held by nonaffiliates of the
registrant (based on the New York Stock Exchange closing price) on March 1,
1998, was $3,500,135,887. Registrant does not have any non-voting common stock
outstanding.
As of March 1, 1998, there were 93,514,415 shares of no par value common stock
outstanding.
Documents Incorporated by Reference
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997, are incorporated by reference in Parts I and II;
portions of the Proxy Statement for the annual meeting of shareholders
to be held on April 15, 1998, are incorporated by reference in Part
III.
<PAGE> 2
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I
ITEM 1 BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS - The Company is a South
Carolina corporation founded in Hartsville, South Carolina in
1899 as the Southern Novelty Company. The name was
subsequently changed to Sonoco Products Company. The following
items from the 1997 Annual Report to Shareholders (the "1997
Annual Report") are incorporated herein by reference:
Management's Discussion and Analysis on pages 24 - 31, and
Notes 2 and 3 to the Consolidated Financial Statements on page
36. Through March 1, 1998, a total of 2,990,826 common shares
have been repurchased at a total cost of $108.2 million under
the $150 million stock repurchase program announced in
December 1997.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - Note 18 to the
Consolidated Financial Statements on page 42 of the 1997
Annual Report is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS - The Operations Review on
pages 10 - 21, Management's Discussion & Analysis on pages 24
- 31, and the number of employees on page 1 of the 1997 Annual
Report are incorporated herein by reference.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES - Note 16 to the Consolidated Financial
Statements on page 41 of the 1997 Annual Report is
incorporated herein by reference.
(e) EXECUTIVE OFFICERS - Certain information with respect to
persons who are, or may be deemed to be, executive officers of
the Company is set forth under the caption "Executive
Officers" on pages 46 - 47 of the 1997 Annual Report and is
incorporated herein by reference.
ITEM 2 PROPERTIES - Page 28 of Management's Discussion & Analysis of the 1997
Annual Report is incorporated herein by reference.
ITEM 3 LEGAL PROCEEDINGS - Note 15 to the Consolidated Financial Statements on
page 41 of the 1997 Annual Report is incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER - None.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS - The following items from the 1997 Annual Report are herein
incorporated by reference: the number of shareholder accounts on page
1; the Selected Quarterly Financial Data on page 1; and Management's
Discussion & Analysis on page 29. The Company's common stock is traded
on the New York Stock Exchange under the stock symbol "SON".
ITEM 6 SELECTED FINANCIAL DATA - The Selected Eleven-Year Financial Data
provided on pages 44 - 45 of the 1997 Annual Report are incorporated
herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Management's Discussion & Analysis on pages 24 - 31 of
the 1997 Annual Report is incorporated herein by reference.
- 2 -
<PAGE> 3
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART II (CONTINUED)
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - This
information is not required for the year ended December 31, 1997,
pursuant to the General Instructions to 17 C.F.R. 229.305.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - The following items
provided in the 1997 Annual Report are incorporated herein by
reference: the Selected Quarterly Financial Data on page 1; the
Consolidated Financial Statements and Notes to the Consolidated
Financial Statements on pages 32 - 42; and the Report of Independent
Certified Public Accountants on page 43.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE - None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - The sections
entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" as shown on pages 4 - 9 and page 24,
respectively, of the Company's definitive Proxy Statement, set forth
information with respect to the directors of the Company and compliance
with Section 16(a) of the Securities Exchange Act of 1934 and are
incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION - Information with respect to the compensation of
directors and certain executive officers as shown on pages 18 - 23 of
the Company's definitive Proxy Statement under the captions "Summary
Compensation Table", "Long-Term Incentive Plans - Awards in Last Fiscal
Year", "Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values", "Option Grants in Last Fiscal Year", "Pension Table",
"Directors' Compensation", and "Compensation Committee Interlocks and
Insider Participation", is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Information with respect to the beneficial ownership of the Company's
Common Stock by management and others as shown on pages 12 - 13 under
the caption "Security Ownership of Management as of December 31, 1997"
of the Company's definitive Proxy Statement is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - The following items
contained in the Company's definitive Proxy Statement are incorporated
herein by reference: the sections titled "Compensation Committee
Interlocks and Insider Participation" on pages 22 - 23; and
"Transactions with Management" on pages 23 - 24.
- 3 -
<PAGE> 4
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. 1. Financial Statements: Consolidated Balance Sheets as of December 31,
1997 and 1996; Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995; Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1997, 1996 and
1995; and Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
2. Financial Statement Schedules: All schedules are omitted because they
are not required, are not applicable or the required information is
given in the financial statements or notes thereto.
3. Exhibits
3-1 Articles of Incorporation (incorporated by reference to the
Registrant's 1994 Annual Report on Form 10-K)
3-2 By-Laws (incorporated by reference to the Registrant's Form
10-Q for the quarter ended March 31, 1997)
4 Instruments Defining the Rights of Securities Holders,
including Indentures (incorporated by reference to the
Registrant's Forms S-3 (File Numbers 33-40538, 33-50501, and
33-50503))
10-1 1983 Sonoco Products Company Key Employee Stock Option Plan
(incorporated by reference to the Registrant's Form S-8 dated
September 4, 1985)
10-2 1991 Sonoco Products Company Key Employee Stock Plan
(incorporated by reference to the Registrant's Form S-8 dated
June 7, 1995)
10-3 Sonoco Products Company 1996 Non-Employee Directors' Stock
Plan (incorporated by reference to the Registrant's Form S-8
dated September 25, 1996)
10-4 Sonoco Products Company Employee Savings and Stock Ownership
Plan (incorporated by reference to the Registrant's Form S-8
dated November 27, 1989)
10-5 Engraph, Inc. Retirement Plus Plan (incorporated by reference
to the Registrant's Form S-8 dated November 22, 1993)
13 1997 Annual Report to Shareholders (portions incorporated by
reference)
21 Subsidiaries 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 15, 1998 (previously
filed)
99-2 Form 11-K Annual Report - 1983 and 1991 Sonoco Products
Company Key Employee Stock Option Plans and Sonoco Products
Company 1996 Non-Employee Directors' Stock Plan
B. Reports on 8-K: No reports on Form 8-K were filed by the Company during
the fourth quarter of 1997.
- 4 -
<PAGE> 5
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 13th day of
March 1998.
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 13th day of March 1998.
/s/ F. T. Hill, Jr.
------------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
- 5 -
<PAGE> 6
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES, CONTINUED
/s/ C. W. Coker Chief Executive Officer and
- ----------------------------- Director (Chairman)
C. W. Coker
/s/ P. C. Browning President, Chief Operating Officer and
- ----------------------------- Director
P. C. Browning
/s/ C. J. Bradshaw Director
- -----------------------------
C. J. Bradshaw
/s/ R. J. Brown Director
- -----------------------------
R. J. Brown
/s/ F. L. H. Coker Director
- -----------------------------
F. L. H. Coker
Director
- -----------------------------
J. L. Coker
/s/ T. C. Coxe, III Director
- -----------------------------
T. C. Coxe, III
/s/ A. T. Dickson Director
- -----------------------------
A. T. Dickson
/s/ R. E. Elberson Director
- -----------------------------
R. E. Elberson
Director
- -----------------------------
J. C. Fort
/s/ P. Fulton Director
- -----------------------------
P. Fulton
Director
- -----------------------------
B. L. M. Kasriel
/s/ E. H. Lawton, Jr. Director
- -----------------------------
E. H. Lawton, Jr.
/s/ H. L. McColl, Jr. Director
- -----------------------------
H. L. McColl, Jr.
/s/ Dona Davis Young Director
- -----------------------------
Dona Davis Young
- 6 -
<PAGE> 7
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3-1 Articles of Incorporation (incorporated by reference to the
Registrant's 1994 Annual Report on Form 10-K)
3-2 By-Laws (incorporated by reference to the Registrant's Form
10-Q for the quarter ended March 31, 1997)
4 Instruments Defining the Rights of Securities Holders,
including Indentures (incorporated by reference to the
Registrant's Forms S-3 (File Numbers 33-40538, 33-50501, and
33-50503))
10-1 1983 Sonoco Products Company Key Employee Stock Option Plan
(incorporated by reference to the Registrant's Form S-8 dated
September 4, 1985)
10-2 1991 Sonoco Products Company Key Employee Stock Plan
(incorporated by reference to the Registrant's Form S-8 dated
June 7, 1995)
10-3 Sonoco Products Company 1996 Non-Employee Directors' Stock
Plan (incorporated by reference to the Registrant's Form S-8
dated September 25, 1996)
10-4 Sonoco Products Company Employee Savings and Stock Ownership
Plan (incorporated by reference to the Registrant's Form S-8
dated November 27, 1989)
10-5 Engraph, Inc. Retirement Plus Plan (incorporated by reference
to the Registrant's Form S-8 dated November 22, 1993)
13 1997 Annual Report to Shareholders (portions incorporated by
reference)
21 Subsidiaries 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 15, 1998 (previously
filed)
99-2 Form 11-K Annual Report - 1983 and 1991 Sonoco Products
Company Key Employee Stock Option Plans and Sonoco Products
Company 1996 Non-Employee Directors' Stock Plan
<PAGE> 1
EXHIBIT 13
SONOCO
COMPARATIVE HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
Years ended December 31
- ----------------------------------------------------------------------------------------------------------
1997 1997 Change excluding
(Dollars in thousands except per share) Actual Comparative* 1996 impairment charge
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ........................... $ 2,847,831 $ -- $ 2,788,075 2.1%
Gross profit ........................ 639,739 -- 639,970 0.0%
Net income (loss) available to
common shareholders ............... (444) 174,056 163,675 6.3%
Return on common equity ............. (0.1)% 20.2% 21.1% (4.2)%
Return on total equity .............. 0.3% 19.0% 18.3% 3.8%
Return on net assets ................ 0.0% 10.8% 9.5% 13.9%
Return on net sales ................. 0.0% 6.1% 6.1% (0.5)%
Number of employees ................. 19,000 -- 19,000 0.0%
Number of locations ................. 300 -- 290 3.4%
Number of shareholder accounts ...... 43,000 -- 42,000 2.4%
Per common share
- ----------------
Net income available to common
shareholders - basic .............. $ .00 $ 1.90 $ 1.81 5.0%
- diluted ............ .00 1.81 1.73 4.6%
Cash dividends - common ............. .705 -- .645 9.3%
Ending common stock market price 34.69 -- 25.88 34.0%
Book value per common share ......... 8.86 -- 8.91 (0.6)%
Price/earnings ratio ................ .00 19.16 14.96 28.1%
==========================================================================================================
</TABLE>
* The 1997 comparative results reflect the Company's performance excluding
the impact of the $174.5 million after-tax, one-time asset impairment
charge. See Note 3 to the Consolidated Financial Statements for further
information.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Selected Quarterly Financial Data First Second Third Fourth
(Dollars in thousands except per share) Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales............................... $687,648 $714,167 $709,588 $736,428
Gross profit............................ 151,971 166,146 153,407 168,215
Net income (loss) available to
common shareholders.................. 40,180 44,684 41,247 (126,555)(1)
Per common share(2)
- ----------------
Net income (loss) available to
common shareholders - basic........... $ .45 $ .50 $ .45 $ (1.32)
- diluted......... .43 .47 .43 (1.32)
Cash dividends - common............... .165 .18 .18 .18
Market price - high................... 27.63 31.13 34.94 35.38
- low.................... 24.88 26.25 30.44 32.13
- ---------------------------------------------------------------------------------------------------
1996
Net sales............................... $669,231 $689,855 $703,422 $725,567
Gross profit............................ 156,357 167,634 157,946 158,033
Net income available to
common shareholders................... 41,307 44,814 38,073 39,481
Per common share(2)
- ----------------
Net income available to common
shareholders - basic.................. $ .45 $ .49 $ .42 $ .44
- diluted................ .43 .47 .40 .42
Cash dividends - common............... .15 .165 .165 .165
Market price - high................... 28.88 29.25 30.88 28.13
- low.................... 25.75 26.00 27.13 24.88
===================================================================================================
</TABLE>
(1) Includes the asset impairment charge of $174.5 million after tax.
(2) Restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." See Note 17 to the Consolidated Financial
Statements.
NET SALES(billions $)
(GRAPH)
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS (millions $)
(GRAPH)
EARNINGS PER SHARE (DILUTED) ($)
(GRAPH)
SHAREHOLDERS' EQUITY (millions $)
(GRAPH)
1
<PAGE> 2
INDUSTRIAL PACKAGING REVIEW
THE BUSINESSES REVIEWED IN SONOCO'S INDUSTRIAL PACKAGING SECTOR INCLUDE: THE
INTEGRATED TUBE, CORE, CONE AND PAPERBOARD OPERATIONS; INJECTION MOLDED AND
EXTRUDED PLASTICS; PROTECTIVE PACKAGING; WIRE AND CABLE PACKAGING; PACKAGING
SERVICES; ADHESIVES AND CONVERTING MACHINERY. THESE BUSINESSES ACCOUNT FOR
APPROXIMATELY 56% OF SALES.
SONOCO IS TRULY A GLOBAL PRESENCE IN INDUSTRIAL PACKAGING.
GLOBAL INDUSTRIAL PRODUCTS Sonoco manufactures high-value tubes, cores
and cones, and provides packaging materials and services used by a variety of
the world's industries in their winding and converting processes. Major markets
for these products include textiles, paper, film, tape, foil, metal and
specialty markets. Most 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 used in modern manufacturing
environments around the world.
The tube, core, cone and paperboard business is the Company's oldest
operation. Sonoco is the only company providing customers with world-class tubes
and cores on a truly global basis. Sonoco's oldest business has significant
growth potential, with a worldwide market for tubes and cores estimated to be in
excess of $4 billion.
Sonoco is the global leader in these markets. We plan to continue
growing through geographical expansion (following our customers around the
world), technological innovations and supply-chain management services that add
value for customers. We will also continue to pursue complementary acquisitions
to existing businesses, both domestically and internationally.
(PICTURE)
GLOBAL REACH During 1997, the Company expanded its global reach in the
tube and core manufacturing area with the acquisition of a tube producer in
England and a new operation in Chile. In addition, the Company set up two
industrial products service
10
<PAGE> 3
operations: one in West Virginia, providing special packaging services to a
major customer, and one in North Carolina to be closer to a large tube customer.
In the first half of 1998, Sonoco will begin operations in Turkey and expects to
start operations later in the year in Poland to serve a major customer who has
been self-manufacturing their tubes and cores.
(PICTURE)
In China, the Company began producing tubes and cores on the site of
its paper mill. These products will serve the growing Chinese textile, film and
paper industries.
Today, major international companies are expanding rapidly from their
traditional markets to such areas as Eastern Europe, South America and Asia.
However, to expand successfully in today's competitive markets, our customers
need state-of-the-art equipment and technology, no matter where they want to
operate in the world. And, they need world-class tubes and cores for their
converting processes in such industries as paper, textiles, tapes, film and
metals.
(PICTURE)
Sonoco is truly a global presence in industrial packaging, uniquely
positioned technologically and geographically to benefit from these worldwide
opportunities.
Sonoco is the market leader in most industrial product lines in North
America, Europe, Australasia (Australia and New Zealand) and South America. Our
growth strategy for these businesses is to maintain and expand our leadership
positions by being the most cost-effective, high-value supplier of the preferred
products and quality in the marketplace.
The North American industrial products operations had a strong year in
1997, with good volume gains in nearly every business segment. Price remained a
factor in 1997 as it has been for the last couple of years. However, these
operations continued to show strong growth, lead by tube and core volume up over
8% for the year.
Sonoco's technology and ability to provide high-quality tubes and cores
around the world are major growth factors
11
<PAGE> 4
INDUSTRIAL PACKAGING REVIEW
in the industrial products segment.
Sonoco's tubes and cores must meet today's increasingly automated
process requirements, including carrying heavier loads and winding at faster
speeds. Sonoco, with its extensive research and development facilities, is
leading this tube-making revolution. Customers require consistent, high quality
everywhere in the world they do business.
(PICTURE)
During 1997, Sonoco continued its strategy of expanding services
provided to packaging customers, particularly in the paper industry through
Sonoco Packaging Services (SPS(TM)). SPS is designed to customize product and
service offerings depending on our customers' needs. For certain customers, SPS
has assumed supply-chain management responsibilities for all packaging
requirements. Sonoco expects packaging services to continue growing as more
customers focus resources on their primary competencies and seek SPS
supply-chain services for support.
Sonoco Europe continued its strong performance in 1997. As in North
America, volume increased in key market segments, including textiles, film and
paper. Sonoco continues to look for opportunities to expand operations
throughout Europe.
(PICTURE)
Sonoco Asia is managing the Company's industrial and consumer packaging
growth in that region of the world. Our operations in Asia are a relatively
small part of the Company, but we view Asia as a major contributor to Sonoco's
future beyond the year 2000.
The Company progressed in building its integrated tube, core and paper
operation in Brazil. Sonoco is the leading tube producer in South America and
will continue growing in this region to meet customer demand.
In addition to new tube technology, Sonoco has been redesigning the way
it manufactures and serves its industrial packaging customer base. The Company
completed a new, state-of-the-art order fulfillment
12
<PAGE> 5
center in Hartsville during 1997. Sonoco is developing systems that will
dramatically increase order entry efficiency and customer service.
The Company began pilot programs for the new systems during 1997, with
full implementation expected in 18 to 24 months.
Overall, the performance of our tube and core operations around the
world has been strong. Sonoco is a global supplier; the only company in the
world positioned to supply high-value tubes and cores to customers wherever they
do business. Our goal in building Sonoco's traditional businesses is to maintain
strong current performance while also positioning for future growth.
(PICTURE)
PAPER OPERATIONS Sonoco's long-term strategy is to build its tube and
core operations as vertically integrated businesses. As a result, Sonoco is not
only a global packaging leader, but also one of the world's leading producers of
recycled paperboard used to make converted products. The Company has the
capacity to manufacture nearly 1.6 million tons of board annually, of which
approximately 85% is captively consumed. The Company is investigating options
that will further increase the percentage of paper used internally.
Sonoco operates 26 paper mills, 37 paper machines and a network of 46
recovered paper collection facilities around the world. All but one of Sonoco's
paper machines produces 100% recycled paperboard. In a joint venture with
Georgia-Pacific Corporation, the Company operates a Fourdrinier machine with the
capacity to produce approximately 186,000 tons of corrugating medium annually.
All of this output is for Georgia-Pacific. This machine uses a combination of
recovered paper and wood chips as raw material. Sonoco owns or manages over
80,000 acres of timberland to supply the wood chips for this operation.
As one of the world's largest collectors and consumers of recovered
paper, the Company processed more than two million tons of this primary raw
material in 1997. A strong collection arm is vital to Sonoco's vertical
integration strategy and our ability to
13
<PAGE> 6
INDUSTRIAL PACKAGING REVIEW
manage the sometimes-volatile swings in the prices of recovered paper,
especially old corrugated containers (OCC). In addition, internal collection and
purchasing contracts give the Company more control over the supply of raw
material and, ultimately, more control over the quality of the paperboard
produced by the mills. Sonoco's collection arm includes a subsidiary (Paper
Stock Dealers, Inc.), collection sites at the Company's mills and paper stock
collection facilities in several other countries, including Canada, Mexico and
China.
(PICTURE)
As previously mentioned, the paper operations were negatively affected
by the extremely low industry pricing for linerboard and corrugating medium, the
two commodity grades of board produced for resale by Sonoco. With the exception
of this pricing issue, our paper operations had a very strong year in 1997. A
wide variety of capital projects initiated the past couple of years, including
the addition of a new boiler and rebuild of several paper machines at the
Company's largest paper mill in Hartsville, and the rebuild of the Marquette
mill in France, improved productivity and quality.
(PICTURE)
ADHESIVES AND MACHINERY Sonoco's vertical integration carries over to
its adhesives and machinery manufacturing operations.
These groups operated at full capacity throughout 1997, supporting the
continuing market leadership of Sonoco's paper converting businesses.
MOLDED AND EXTRUDED PLASTICS Sonoco's injection molded and extruded
plastics operation, Sonoco Crellin, had another strong year in 1997. Sonoco
Crellin serves customers primarily in the textile industry with a full
14
<PAGE> 7
range of plastic tubes, cores and cones. In addition, customers who purchase
wooden and metal reels for wire and cable are also able to purchase their
plastic reel requirements from Sonoco.
This operation has strong design and technical capabilities that
continue to provide innovative support to other Sonoco operations. For example,
a major portion of injection molded parts for the caulking cartridge operation
is supplied by Sonoco Crellin.
We have developed a heat-resistant plastic tray that has been helping
quick service restaurants increase productivity in their kitchen operations.
This product continued to add volume during 1997 and is expected to be a good
performer in 1998 as more quick service restaurants replace metal trays with
plastic.
This business serves customers from 13 plants in the United States, one
in the Netherlands and one in Germany, with potential to grow in its existing
markets, which also include filtration, fiber optics, automotive parts and
plumbing.
In February 1998, the Company announced the purchase of Burk, a
manufacturer of injection and extrusion molded plastics products. Burk, with
three plants in Germany, provides additional support for our tube and core
offerings to the textile industry.
(PICTURE)
PROTECTIVE PACKAGING Sonoco's protective packaging products include
Sonopost(R) corner posts for major appliance packaging and a new product,
Sonobase(TM) supports, an alternative to wood bases currently used in the
appliance industry.
Our protective packaging products use Sonoco paperboard as their raw
material. All of these packaging products can be recycled in most municipal
recycling systems.
Serving customers from four operations in the United States, this
operation grows by working closely with customers to supply specific products,
and by designing and managing their entire protective packaging requirements.
WIRE AND CABLE PACKAGING Sonoco's Baker Reels Division is the leading
producer of nailed-wood, plywood and metal reels for the wire and cable industry
in the United States. This operation serves customers from six manufacturing
sites and 26 warehouse locations across the United States. Sonoco Baker showed
strong growth in 1997 by increasing market share through strategic partnerships
with customers.
PARTITIONS AND INDUSTRIAL CONTAINERS This sector also included for the
first three quarters of 1997 the partitions operations that produced fibre
partitions used to protect a variety of products in their shipping cartons. The
industrial containers operations, which produced plastic drums, fibre drums, and
intermediate bulk containers, were included in this sector for the entire year.
As previously noted, industrial containers operations will no longer be part of
the Company's product portfolio.
15
<PAGE> 8
CONSUMER PACKAGING REVIEW
SONOCO'S COMPOSITE CAN OPERATIONS MAKE UP THE MAJORITY OF SALES AND EARNINGS IN
THE CONSUMER PACKAGING BUSINESS SEGMENT. THIS SEGMENT ALSO INCLUDES: HIGH
DENSITY FILM PRODUCTS; FLEXIBLE PACKAGING; AND SEVERAL PACKAGING SPECIALTIES AND
SERVICE OPERATIONS.
SONOCO IS
REVOLUTIONIZING
THE ROLE OF
COMPOSITE CANS
IN PACKAGING.
CONSUMER PRODUCTS Sonoco is the world leader in the manufacture of
composite cans, revolutionizing their role in packaging with technological
breakthroughs in size, shape, shelf life, product protection, ease of opening
and range of products that can be packaged in them.
Composite cans, also called paperboard cans, are a dynamic package
manufactured with a paperboard body, often metal, film, paper, plastic or foil
membrane end closures and, depending on specifications, protective liners. Most
of the cans manufactured by Sonoco contain more than 50% recycled materials.
Composite cans are popular packages in such markets as snack foods; powdered
beverages, including infant formula; frozen concentrates; refrigerated dough and
pastries; nuts; coffee; cleansers; adhesives and sealants; and other products.
These are all solid markets with significant, worldwide growth potential. Over
the next few years, Sonoco's composite can business should reach over $1 billion
in sales. In addition to composite cans, Sonoco also manufactures plastic and
fibre cartridges for the petroleum, adhesives and sealants industries.
Sonoco's global strategy for composite cans is to continue growing with
customers by developing new technologies that will provide enhanced
marketability and open additional markets not previously available to composite
cans.
Coffee is a good example of a product that was not formerly in this
package. Most pre-ground coffees are in metal cans. In 1996, Sonoco introduced a
new composite can for packaging ground coffee that is winning significant
consumer acceptance. In 1997, the coffee cans earned a package of the year award
from the Institute of Packaging Professionals (IOPP).
(PICTURE)
Also during 1997, two of the Company's composite can innovations, the
ring-pull mirastrip for easier opening of juice concentrate
16
<PAGE> 9
cans in Canada, and a novelty twist can for candy in Germany won Worldstar
awards from IOPP.
(PICTURE)
Sonoco's active development projects in composite can technology are
enhancing product protection and adding to shelf life, improving opening
features, emphasizing the graphic and shelf appearance of the package, and
lowering system and distribution costs. These benefits continue to generate
significant interest from marketers in a variety of product lines from cereals
and cookies to inks and detergents.
(PICTURE)
In 1996, Sonoco developed a rectangular composite can for Lipton's
introduction of a new line of iced tea drinks. In 1998, Sonoco's customers will
introduce several new products in this uniquely shaped canister.
The Company enjoys many long-term relationships with the world's most
sophisticated packaging users and marketers. These relationships allow Sonoco's
packaging development specialists to work on new-generation packages tuned
precisely to customer requirements. In some cases, like Pringles(R) potato
snack, the package plays an important role in identifying the product.
A major factor in the growth of Sonoco's composite can business is its
substantial cost advantage over competitive packaging. Sonoco's position evolves
from its competitive investment costs, efficient operations, successful
purchasing initiatives, development of lower-cost, higher-quality materials and
the Company's vertical integration. Sonoco's flexible packaging operations
supply some liners and labels for the composite can operations, and the
Company's own metal processing facilities supply metal ends. Sonoco's paper
mills produce some of the paperboard used for the can bodies, and the Company
also produces its own adhesives.
Sonoco continued to expand its composite can operations and facilities
during 1997. The Company formed a joint venture in Brazil, Sonoco For-Plas, and
a joint venture in Chile, Sonoco de Chile. The snack food can manufacturing
plant in Jackson, Tenn., has more than doubled its capacity and will complete
construction of its third building early in 1998. Currently, Sonoco has 47 can
manufacturing operations around the world, with plans to continue expanding to
meet growing customer demand. The Company has other Latin American can
manufacturing operations in Mexico, Puerto Rico, Colombia and Venezuela. In
Europe, Sonoco's plants are in England, France, Germany and Belgium. In
Indonesia, Sonoco Asia became sole owner of our composite can operation in that
country.
Headquarters for the Sonoco Asia can operations are in Singapore, an area
of expected future growth for this innovative
17
<PAGE> 10
CONSUMER PACKAGING REVIEW
package. As with Sonoco's industrial packaging, more than 80% of the sales and
earnings of this product line are currently from customers in North America.
(PICTURE)
In the United States, Sonoco's composite can performance benefited from the
full-year results of the August 1996 acquisition of the Specialty Packaging
Group, which added about $35 million in sales. This acquisition is a good
example of the type of tactical acquisition that will continue to be a major
element in Sonoco's growth plans.
The Company will look globally to grow the composite can business by
redefining markets, working closely with customers to become their preferred
packaging supplier and using technology to anticipate the future requirements of
the consumer packaging marketplace. Technical innovations that provide new and
novel uses of the composite can will continue to support the ongoing growth of
this remarkable business.
Sonoco's composite can operations are a major component of the Company's
current and long-term growth potential. This business is a global leader. It is
driven by innovative technology, in which Sonoco is the acknowledged leader, and
presents the Company with a variety of opportunities to add value for customers
worldwide.
(PICTURE)
FLEXIBLE PACKAGING Sonoco entered the flexible packaging business with the 1993
acquisition of Engraph, Inc. Formerly known as Morrill Press, the business was
renamed Sonoco Flexible Packaging in December 1995. The fit of flexible
packaging into Sonoco's consumer packaging mix is excellent. These businesses
share the same customer base, use similar raw materials, have integrated supply
opportunities, draw on similar research, development and technical resources,
and are focused on growth.
The Company has several ongoing projects to develop the vertical
integration possibilities between flexibles and composites in the areas of
lamination, liners, labels and other package components. The flexible packaging
business is growing
18
<PAGE> 11
in its direct support of Sonoco's composite cans. The synergies have proven
beneficial to both businesses.
(PICTURE)
Sonoco Flexible Packaging focuses on serving customers with high-quality
graphics on paper, foil or film packages that protect products for longer shelf
life. Customers include some of the best-known names in candy, gum, snacks,
cookies and other products.
Sonoco produces flexible packaging at three locations in the United States,
operating seven rotogravure presses, including four wide-web Cerruti presses.
This group is also involved with flexographic printing and laminating. During
1996, Sonoco announced a partnership with Keating Gravure Mold of North Wales,
U.K., for the production of high-quality rotogravure cylinders. The new
operation began production in Charlotte, N.C., to manufacture cylinders that
will allow Sonoco's flexible packaging to bring the quality of rotogravure
printing to a broader flexible packaging market.
(PICTURE)
In 1996, this business was experiencing considerable start-up costs with
two new presses. With the installation of these presses completed, the business
improved significantly in 1997. Sonoco has plans to continue growing the
flexible packaging business by serving specific, niche areas of the
multi-billion dollar flexible packaging marketplace. This operation is expected
to be a good contributor to the consumer segment in 1998.
CAPSEALS LINERS Sonoco Capseals produces seals used as closures inside bottles
and jars. Based in England, this business supplies customers in more than 70
countries with state-of-the-art seals that enhance product protection and seal
integrity.
This operation fits well within Sonoco's consumer packaging group with
markets, equipment, technical resources and raw materials that are virtually the
same as the composite can and flexible packaging businesses.
Sonoco Capseals plans to continue expanding its customer base by developing
new products and adding new seal technology like the Integrasafe(R)
19
<PAGE> 12
CONSUMER PACKAGING REVIEW
Hologram Seals that help customers combat product counterfeiters, as well as
reduce tampering and in-store sampling.
(PICTURE)
FOLDING CARTONS, GLASS COVERS AND COASTERS
Sonoco acquired paperboard cartons as one of several businesses in the 1993
Engraph acquisition. Currently, Sonoco produces cartons at two plants. The
Company is looking at several alternative strategies for this business.
Sonoco is the leading producer of coasters and glass covers that play an
important role in image identification for hotels, restaurants, hospitals and
other businesses. This has been a strong business and plans are to continue
operating the coasters and glass cover operations.
(PICTURE)
HIGH DENSITY FILM PRODUCTS Sonoco is the leading producer of high-density,
high-molecular weight, plastic carry-out grocery bags in the United States, with
about 35% of the grocery bag market. Other products manufactured by this
operation include plastic bags for the high-volume retail market, convenience
stores, the developing quick service restaurant market and agricultural mulch
film.
During 1997, the bag operations were negatively affected by high resin
costs and low selling prices. Improved productivity partially offset these
factors.
The Company added several new machines to its plants during the past two
years, upgrading processes and significantly increasing efficiency and
productivity. Sonoco invested more than $50 million over the past three years to
make its high density film plants the most modern in the world. As the leader in
this business, Sonoco is positioned to benefit from the consolidation that is
taking place in this industry. The Company currently has the capacity to produce
more than 18 billion plastic bags annually.
Demand for Sonoco's high density film products has remained strong due to
the quality, service and value-added innovations that keep the Company the
industry leader. This operation is continuing its growth by converting
additional business from paper to plastic bags in the nation's largest
supermarkets. In addition, the Company is working closely with customers to
20
<PAGE> 13
develop products for other areas of the store, including bakeries and
delicatessens.
Sonoco is working closely with distributors to expand business within
smaller chains, independent supermarkets and the retail market. The Company's
strategy is to work with customers to provide an entire bagging system that
allows stores to lower their total "wrap costs." This means quicker bagging,
less double bagging and more items per bag. The system also includes reductions
in inventory and distribution costs. This lowest-total-cost program results in
stores spending less money on their overall bagging costs.
(PICTURE)
Sonoco entered the agricultural film business in the early 1990s. Using
film as mulch began as a development project and has continued to expand by
providing vegetable and melon growers with a more cost-effective method of
growing their crops. A great deal of tomato production is now taking place in
Mexico, and Sonoco is the only non-Mexico based supplier providing mulch film
for this market. Sonoco's agricultural film, benefiting from Sonoco's technology
expertise, is now a leader in this niche market.
Other development projects on which the group continues to work include the
quick service restaurant market and QuikTab(TM) bags, new bags for use within
other areas in the supermarket such as bakeries and produce departments.
PACKAGING SERVICES Sonoco is developing a new packaging services business
that is aimed at helping customers lower total costs and improve their
operational performance by managing their packaging supply chain for them.
Currently, Sonoco is developing this service with Gillette, where it manages the
packaging of their North American line of razors and blades.
The Company believes that as this packaging management system becomes more
refined, more customers will realize the benefit of having a supplier with
packaging and systems expertise guide their packaging requirements.
LABELS In January 1998, the Company signed a letter of intent to sell its
North American labels operations. In addition, Sonoco is exploring the sale of
some other businesses related to Sonoco Engraph.
GROWTH DRIVER Sonoco is manufacturing some of the most exciting product
lines in the consumer packaging industry. The Company is a global leader and is
committed to continued growth in consumer packaging markets around the corner
and around the world.
21
<PAGE> 14
MANAGEMENT'S DISCUSSION & ANALYSIS
STATEMENTS INCLUDED IN MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS THAT ARE NOT HISTORICAL IN NATURE, ARE INTENDED TO BE,
AND ARE HEREBY IDENTIFIED AS, "FORWARD LOOKING STATEMENTS" FOR PURPOSES OF THE
SAFE HARBOR PROVIDED BY SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. THE COMPANY CAUTIONS READERS THAT FORWARD LOOKING STATEMENTS,
INCLUDING, WITHOUT LIMITATION, THOSE RELATING TO THE COMPANY'S FUTURE BUSINESS
PROSPECTS, REVENUES, RAW MATERIAL PRICES, WORKING CAPITAL, LIQUIDITY, CAPITAL
NEEDS, INTEREST COSTS AND INCOME ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE
FORWARD LOOKING STATEMENTS.
For Sonoco, 1997 was an excellent year in terms of increasing shareholder value
and positioning the Company for future growth. We took a series of steps to
implement strategic portfolio decisions as well as to implement several internal
programs to increase customer satisfaction, cost effectiveness and sales growth.
Most recently, we announced decisions to sell certain operations that did
not meet our strategic criteria. These dispositions will allow the Company to
focus attention and resources on its more traditional businesses.
Operationally, our traditional businesses of tubes, cores, paperboard and
composite cans had very strong years, increasing sales volume as a result of
strong economies and market share gains. Most of our specialty businesses also
had good years.
Operating performance during the year was negatively affected by three
issues: the Company's failure to achieve satisfactory performance in the labels
operations; the extremely low pricing and higher materials costs for commodity
grades of paperboard that Sonoco produces; and escalating resin costs and low
prices in the high density film products operations. Those three issues alone
affected 1997 results by approximately $.21 per share on a diluted basis.
Excluding the impact of these three issues and a one-time after-tax asset
impairment charge of $174.5 million, 1997 results would have exceeded the
Company's 10% to 15% earnings growth goals.
In 1997, Sonoco took many actions to enable the Company to achieve its
earnings goals in 1998 and beyond. In mid-December 1997, Sonoco signed a letter
of intent to sell the industrial containers business to Greif Bros. Corporation
for approximately $225 million. This operation had annual sales of approximately
$205 million and was profitable. However, the Company believes this is an
industry that requires consolidation. Sonoco concluded that the Company would
better serve shareholders by concentrating resources on its traditional
businesses. The industrial containers sale is expected to be completed in the
first quarter of 1998, and will result in a one-time, after-tax gain of
approximately $55 million.
In early January 1998, Sonoco signed a letter of intent to sell the
Company's North American labels operations to CCL Industries for approximately
$100 million. The sale of the North American labels operation is expected to be
completed in the first quarter of 1998. The Company is also investigating the
sale of several other businesses related to the Sonoco Engraph operations. These
businesses had combined 1997 sales of approximately $230 million. In
anticipation of the sale of these businesses, Sonoco recorded a non-cash,
one-time asset impairment charge in the fourth quarter of $174.5 million after
tax to reflect the difference between the carrying value and anticipated
proceeds from the sales of these businesses.
The net cash proceeds from the sale of the North American labels and the
industrial containers businesses are expected to be approximately $300 million,
of which $150 million will be used for a stock repurchase program, with the
remainder used for debt reduction and other corporate purposes. The Company
expects the stock buyback, the sales of the labels and containers businesses and
other proposed sales to add about $.05 per share, on a diluted basis, to
Sonoco's earnings beginning in 1998.
In the first quarter of 1997, Sonoco sold its screen print operations,
which had been acquired as part of the October 1993 acquisition of Engraph, Inc.
During the third quarter, the Company contributed its partitions operations in
exchange for a 35% interest in RTS Packaging, a joint venture with Rock-Tenn
Company. The partitions industry was facing consolidation of its
24
<PAGE> 15
customer base and was an industry the Company believed needed consolidating.
Sonoco is a packaging company, not a paper company. However, earnings have
been affected by the price volatility of the commodity paper grades sold.
Although pricing began to improve for these products in the fourth quarter of
1997, prices during the first three quarters reached their lowest levels since
1978, depressing the profit performance of the Company's paper operations. The
Company is investigating ways of reducing the volatility from these businesses,
including implementing a plan that will eventually convert the Canadian
linerboard mill to paperboard for composite cans, which Sonoco will use
internally.
The high density film operations experienced difficult cost/price issues
during 1997. Resin costs have recently begun to decrease and the Company expects
these operations to improve in 1998.
Overall, consolidated net sales for 1997 were $2.85 billion, the highest in
the Company's history, compared with $2.79 billion in 1996. The increase in
sales resulted from volume gains in several businesses, most notably tubes and
cores and composite cans. Acquisitions during 1996 and 1997 added approximately
$70 million to year-over-year sales, while the 1996 and 1997 dispositions and
the formation of the RTS Packaging joint venture reduced year-over-year sales by
$77 million.
[GRAPH]
Gross profit margins decreased slightly to 22.5%, from the 23% reported in
1996. Lower selling prices and higher material and labor costs offset strong
productivity gains. Productivity improvements were notable across the
corporation, including decreased changeover times and reduced scrap.
Cost-control programs throughout the Company reduced selling, general and
administrative costs to 10.4% of sales, compared with 11.1% of sales in 1996.
The Company's effective tax rate in 1997 was 94.3%, as deferred tax
benefits of only $51.9 million on the $226.4 million asset impairment charge
related to assets held for sale were recognized. Excluding the impact of this
transaction, the effective tax rate would have been 38.6% for the year, compared
with 38.4% in 1996.
Net income for 1997 was $2.6 million, including the one-time $174.5 million
after-tax asset impairment charge on assets held for sale. Excluding the effect
of the one-time charge, net income would have been $177.1 million, compared with
$170.9 million in 1996. In 1997, diluted earnings per share were $.00, or $1.81
excluding the one-time charge, compared with $1.73 in 1996.
Capital expenditures in 1997 were $230.7 million, compared with $232
million in 1996. Capital spending continues to support the Company's Vision 2000
strategy to grow largely through internal expansion, which Sonoco expects to
result in higher returns on invested capital. Capital projects were focused on
increasing productivity and introducing new technology to several of the
businesses, such as the new industrial products order fulfillment center
completed in 1997. Work on the rebuild of several paper machines at the
Company's largest paper mill as well as the installation of a new boiler, was
completed in 1997. Work began to rebuild several other paper machines in
Richmond, Va., as well as to upgrade machinery at the North Vernon, Ind., high
density film products operation. The Company expanded its composite can
operations in Jackson, Tenn. and Londerzeel, Belgium.
In 1997, acquisition spending totaled $17.6 million, compared with $94.2
million in 1996. Acquisitions in 1997 included a tube and core manufacturer in
England and a machinery manufacturer in St. Louis, Mo. In addition to the
acquisitions, Sonoco entered into joint ventures in Brazil and Chile. The
Company plans to continue its strategy of making tactical acquisitions that
complement its current businesses. While there are no current plans for a large
acquisition, the Company will evaluate opportunities as they arise.
Research and development costs charged to expense were $17.8 million for
1997, compared with $17.5 million for 1996. Sonoco is committed to maintaining a
competitive advantage in its traditional businesses through technology
leadership and global capability. Early in 1998, the Company's active research
and development projects were transferred almost entirely to the operating
businesses to concentrate the research and development spending on projects that
have a direct impact on new products and new processes to meet customer
requirements.
SEGMENT REPORTING Sonoco reports its results in two primary segments,
Industrial Packaging and Consumer Packaging. International results are reflected
in the appropriate segment based on the products produced or the markets served.
Operating profit is revenue less operating costs, excluding interest and income
taxes.
25
<PAGE> 16
MANAGEMENT'S DISCUSSION & ANALYSIS
INDUSTRIAL PACKAGING The industrial packaging segment represents
approximately 56% of the Company's sales and includes the following businesses:
tubes; cores; cones; paperboard; fibre drums; plastic drums; intermediate bulk
containers; injection molded and extruded plastics; protective packaging; wood,
plywood and metal reels for wire and cable packaging; adhesives; and converting
machinery.
Trade sales in this segment were $1.59 billion, an increase of 2% over the
$1.56 billion recorded in 1996. Sales increased in this segment because of
increased demand and market share gains, especially in the tube, core and
paperboard businesses. Year-over-year sales comparisons were negatively affected
by low selling prices for corrugating medium and linerboard; pricing pressures
in several operations, and only recording nine months partitions sales because
this operation became part of a separate joint venture in 1997.
[GRAPH]
Operating profit for this segment was $217.8 million, or 7.3% higher than
the $202.9 million in 1996. Increased volume in nearly all operations, along
with strong gains in productivity, contributed to increased earnings in this
segment.
In the global tube and core business, volume continued to increase in
nearly all markets served around the world. The volume increases came from
increased demand and from market share gains. The United States business, which
was strong in all major market segments, showed a volume growth gain of more
than 8%.
Sonoco's paper operations include the Company's 26 paper mills, 37 paper
machines and 46 paper collection facilities around the world. Annually, the
paper mills have a capacity of approximately 1.6 million tons of cylinder board,
of which Sonoco uses almost 85% in our converting operations. In addition, the
Company has the capability to produce approximately 186,000 tons of corrugating
medium on one machine that is run in partnership with Georgia-Pacific
Corporation. All of the output from this machine goes to Georgia-Pacific. The
Company also operates one machine in Canada that currently produces
approximately 45,000 annual tons of linerboard, which is sold externally. The
Company is planning to convert this linerboard capacity to produce composite can
board for internal consumption.
[GRAPH]
Sonoco's primary raw material in the papermaking process is recovered
paper, primarily old corrugated containers (OCC). OCC prices began to increase
during 1997, and the Company increased paper selling prices in August to help
offset this increase. Also in the fourth quarter, selling prices began to
increase for corrugating medium from what were close to historical lows during
most of the year. Overall, the lower selling prices on corrugating medium and
linerboard combined with higher material costs negatively affected operating
profit in the industrial segment by $8 million in 1997, compared with 1996.
The Company's industrial container operations saw sales drop as a result of
loss of volume in the fibre drum business and lower selling prices in 1997,
compared with 1996. Volume in the intermediate bulk container business, however,
continued to increase during the year. In December 1997, Sonoco signed a letter
of intent to sell the industrial container businesses for approximately $225
million. The Company expects the sale to be completed during the first quarter
of 1998. If industrial container business results were excluded from the
industrial segment and compared to the same periods last year, 1997 fourth
quarter and full-year operating profits for this segment would have been up
29.4% and 9%, respectively.
New products for the quick service restaurant market helped Sonoco's
injection molded and extruded plastics operations increase both sales and
profits during 1997. Sonoco developed a new heat-resistant tray used in the food
warming process that has been helping restaurants improve productivity in their
kitchens. These operations serve customers with a variety of plastic products,
including tubes, cores and cones; reels for wire packaging; filtration tubes;
automotive parts; plumbing; and other products.
The protective packaging operations continued to grow, increasing volume in
the corner post business. Sonoco's wire and cable packaging operations, Baker
Reels, increased volume by more than 10% in 1997. As previously noted, the
Sonoco parti-
26
<PAGE> 17
tions business was combined with the partitions business from Rock-Tenn Company
to form a new company called RTS Packaging in which Sonoco has a 35% interest.
[GRAPH]
Capital spending in this segment during 1997 was $140.6 million, compared
with $163.5 million in 1996. Spending included the completion of the new order
fulfillment center in Hartsville, S.C.; a new plant near Vancouver, Wash.;
several projects to expand the capacity of paper machines; a new industrial
products plant in North Carolina; and continued upgrades of the Company's
information technology systems.
CONSUMER PACKAGING SEGMENT The consumer packaging segment consists of the
following businesses: composite cans, flexible packaging, caulking cartridges,
capseals, high density film products, packaging services, printed packaging,
coasters, glass covers and labels.
Overall, trade sales in this segment were $1.26 billion, a 2.3% increase
over the $1.23 billion recorded in 1996. Sales were favorably affected by strong
volume growth in the composite can operations. However, lower selling prices in
the labels and the high density film operations reduced sales in this segment by
more than $25 million. Year-over-year sales comparisons were negatively affected
by the sale of the screen print operations early in the year, which accounted
for approximately $60 million in sales during 1996.
The operating loss of $101.8 million in this segment includes the effect of
the $226.4 million pre-tax asset impairment charge taken in the fourth quarter
related to assets held for sale. Excluding this charge, operating profits would
have been $124.5 million, compared with $126.4 million in 1996. In addition to
the one-time charge, operating profit in this segment was affected by the lower
selling prices in the labels operations and the combination of lower selling
prices and higher materials cost in the high density film operations.
[GRAPH]
The composite can operations had another very strong year, as volume
increased in many market segments, particularly snack foods and powdered
beverages. The Company is benefiting from new technology introduced during the
past two years, such as the rectangular composite can. In addition, club
store-size packages for products such as cookies and specialty powdered
beverages helped increase sales. Additional sales in this segment came from the
formation of new joint ventures in Brazil and Chile, during the second quarter
of 1997. Productivity improvements and purchasing initiatives improved
year-over-year profits.
Capseals, a United Kingdom-based operation, incurred costs to install new
equipment that negatively affected earnings for the year.
Flexible packaging was a turnaround story in 1997, as this operation
increased sales and profits for the year. In addition to the slightly increased
sales volume, the operation made significant strides in productivity, reducing
both production scrap and changeover time.
Sales volume increased in high density film products in both the grocery
and retail markets. Although improving in the fourth quarter, the negative
relationship between lower selling prices and higher resin costs resulted in
lower operating profits for these operations, compared with 1996.
Sonoco's labels operations did not improve as the Company had expected.
Although volume increased during 1997, sales and profits were down from the
previous year due to lower selling prices. In January 1998, the Company signed a
letter of intent to sell its North American labels businesses. If operating
results for the labels business were excluded from the consumer segment and
compared to the same periods last year, 1997 fourth quarter and full-year
operating profits for this segment would have been up 5.6% and 4.3%,
respectively, excluding the impact of the asset impairment charge.
Packaging services is one of Sonoco's newest businesses. This operation,
which currently focuses on packaging disposable razors and blades for Gillette,
moved into a new facility during the first quarter of 1998. Packaging services
did not have a material impact on results for 1997.
Capital spending in the consumer segment was $90.1 million in 1997,
compared with $68.5 million in 1996. Among the major pro-
27
<PAGE> 18
MANAGEMENT'S DISCUSSION & ANALYSIS
jects during the year were the continued expansion of the Jackson, Tenn., and
Londerzeel, Belgium snack food composite can operations and continued investment
in the North Vernon, Ind., plastic bag operation.
SONOCO'S FINANCIAL POSITION REMAINED STRONG IN 1997. AT DECEMBER 31, 1997, THE
COMPANY'S LONG-TERM DEBT WAS RATED A BY STANDARD & POOR'S (S&P) AND A2 BY
MOODY'S. COMMERCIAL PAPER WAS RATED A1 AND P1 BY S&P AND MOODY'S, RESPECTIVELY.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $300 million in 1997, compared with $291.8
million in 1996 and $254.6 million in 1995. The asset impairment charge did not
affect cash provided by operations in 1997. Cash provided by operations was
higher in 1996 than in 1995 as a result of higher earnings before depreciation
and amortization expense. Excluding the one-time pre-tax impairment charge of
$226.4 million, earnings before interest and taxes were 6.1 times interest
expense, consistent with 6.0 times recorded in 1996 and 7.2 times in 1995.
Recorded earnings before interest and taxes were 2.1 times interest expense in
1997.
Current assets increased in 1997 primarily as a result of the
classification of $218.6 million in net assets held for sale as described in
Note 3 to the Consolidated Financial Statements. Current assets increased in
1996 as a result of base business growth and acquisitions. Accordingly, net
working capital increased to $438.9 million at December 31, 1997, from $262.5
million in 1996 and $229.3 million in 1995. The current ratio was 2.0 at
December 31, 1997. Excluding the reclassification of net assets of $218.6
million to assets held for sale due to announced dispositions, the current ratio
would have been 1.5 at December 31, 1997, in line with 1.6 and 1.5 at December
31, 1996 and 1995, respectively.
The Company's main plant and corporate offices are located in Hartsville,
S.C. There are 136 owned and 89 leased facilities used by operations in the
Industrial Packaging Segment and 27 owned and 42 leased facilities used by
operations in the Consumer Packaging Segment. Europe, the largest foreign
geographic location, has 38 manufacturing locations. The Company believes that
its properties are suitable and adequate for current needs and that the total
productive capacity is adequately utilized.
[GRAPH]
Debt decreased $96.7 million to $796.4 million at December 31, 1997. Debt
was reduced with proceeds from the sale of the screen printing operations and
normal operating cash flows. Debt increased $206.3 million to $893.1 million at
December 31, 1996, primarily due to the repurchase of $122.6 million in common
and preferred stock, increased capital spending as part of Vision 2000 and
funding acquisitions of $94.2 million. Capital spending was $230.7 million in
1997, compared with $232 million in 1996 and $181.4 million in 1995.
In April 1996, the Company issued $35 million of 6% Industrial Revenue
bonds due April 1, 2026, following an issue in June 1995 of $35.1 million of
6.125% Industrial Revenue bonds due June 1, 2025. As of December 31, 1997, cash
and cash equivalents included $23.8 million of proceeds from these issues held
in trust until qualifying expenditures take place. As of December 31, 1996 and
1995, cash and cash equivalents included $32.6 million and $30.9 million,
respectively, of such proceeds.
During 1996, the Company increased its authorized commercial paper program
from $300 million to $450 million and increased the fully committed bank lines
of credit supporting the program by a like amount. These lines expire in August
2001. The Company expects internally generated cash flow, along with borrowing
capacity under existing credit facilities, to be sufficient to meet operating
and normal capital expenditure requirements. Capital spending is expected to be
approximately $220 million in 1998. Dispositions are expected to generate cash
of at least $300 million, of which $150 million will be used for a stock
repurchase program and the remainder for reducing debt and other corporate
purposes. In order to maintain financial flexibility, the Company has registered
for sale up to $250 million in debt securi-
28
<PAGE> 19
ties under a shelf registration with the Securities and Exchange Commission.
Interest expense in 1997 was $57.2 million, compared with $55.5 million in
1996 and $44 million in 1995. The increase in 1996 was due to higher overall
borrowing levels.
Shareholders' equity, decreased $71.8 million to $848.8 million at December
31, 1997, due to nominal net income resulting from the $174.5 million after-tax
asset impairment charge and the payment of $67.7 million for preferred and
common dividends. Equity was $920.6 million at December 31, 1996, as record
earnings of $170.9 million were offset by the repurchase of $89.2 million of the
Company's common stock and $33.4 million of preferred stock, and the payment of
$65.7 million in common and preferred dividends.
[GRAPH]
On September 28, 1997, the Company converted substantially all of the
outstanding shares of its $2.25 Series A Cumulative Convertible Preferred Stock
at a rate of 2.074 common shares per share of preferred stock.
[GRAPH]
In April 1997, the Board of Directors increased the dividend payable to
common shareholders to $.18 per share following the increase in April 1996 to
$.165 per share. Although the ultimate determination of whether to pay dividends
is within the sole discretion of the Board of Directors, the Company plans to
increase dividends as earnings grow. The return on common equity excluding the
impairment charge was 20.2% (or (0.1)% including the impairment charge) in 1997,
compared with 21.1% in 1996 and 22.2% in 1995. Return on total equity was 19%
excluding the one-time charge (or 0.3% including the impairment charge) in 1997,
compared with 18.3% in 1996 and 18.7% in 1995. The book value per share was
$8.86 in 1997, compared with $8.91 in 1996 and $8.19 in 1995.
[GRAPH]
The Company's debt to total capital ratio was 46.1% at the end of 1997,
compared with 47.2 % and 39.6% at the end of 1996 and 1995, respectively. The
ratios have been adjusted to reduce debt by the amount of cash held related to
the issuance of restricted-purpose bonds. The increase in 1996 is attributable
to the share repurchase previously described.
The Company is exposed to interest rate fluctuations as a result of using
debt as a major source of financing its operations. When necessary, the Company
will use traditional, unleveraged interest rate swaps to manage its mix of fixed
and variable rate debt to ensure exposure to interest rate movements is
maintained within established ranges. The Company is also subject to risk due to
foreign exchange rate changes as a result of operating globally. The Company
monitors these exposures and uses traditional currency swaps and forward foreign
exchange contracts to hedge a portion of the net investment in foreign
subsidiaries or to hedge firm commitments denominated in foreign currencies. Use
of these financial instruments was not material to the financial statements as a
whole as of December 31, 1997, 1996 or 1995.
Except for the impact of raw material prices, as discussed in the segment
information, inflation did not have a material impact on the Company's
operations in 1997, 1996 or 1995.
The Company is subject to various federal, state and local environmental
laws and regulations concerning, among other matters, waste water effluent and
air emissions. Compliance costs have not been significant due to the nature of
the materials and processes used in manufacturing operations. Such laws also
make generators of hazardous wastes, and their legal successors, financially
responsible for the clean-up of sites contaminated by those wastes. The Company
has been named a potentially responsible party at several environmentally
contaminated sites located primarily in the northeastern United States and owned
by third parties. These sites are believed to represent the Company's largest
potential environmental liabilities. With respect to these sites, the Company
has accrued approximately $4 million as of December 31, 1997. Further details
are provided in the Notes to the Consolidated Financial Statements.
29
<PAGE> 20
MANAGEMENT'S DISCUSSION & ANALYSIS
The Company has evaluated and determined that Year 2000 issues should not
have a material impact on business operations or the financial condition of the
Company. Most business and financial systems have been, or are in the process of
being, replaced as part of major process improvement initiatives already
underway and, along with designated contingency plans, should provide for
continuation of operations and information flow. Although most major customers
and suppliers have acknowledged their ability to operate post-1999, external
Year 2000 issues should not have a material impact since the Company is not
dependent upon any single supplier or customer.
CONSOLIDATED NET SALES FOR 1996 WERE $2.79 BILLION, A 3% INCREASE, COMPARED WITH
$2.71 BILLION IN 1995. THE INCREASE IN SALES RESULTED FROM VOLUME INCREASES
ACROSS NEARLY ALL BUSINESSES. IN ADDITION, ACQUISITIONS ADDED APPROXIMATELY $110
MILLION IN SALES.
RESULTS OF OPERATIONS
1996-1995
However, selling price decreases, which resulted from raw materials costs
decreases, reduced 1996 sales by approximately $120 million in comparison with
1995.
Gross profit margins improved to 23% from 22.1% reported in 1995. The
margin improvement reflected the reductions in raw materials costs, improved
productivity from strong volume gains and the benefits from increased capital
expenditures made to support Vision 2000 plans. Selling, general and
administrative costs increased to 11.1% of sales in 1996, compared with 10.7% in
1995. The increase was primarily due to additional costs incurred in connection
with acquisitions, start-up costs and plant consolidations. In addition, the
lower sales dollars resulting from the significant drop in prices during 1996
had an impact on the selling, general and administrative costs as a percentage
of sales.
Net income available to common shareholders for 1996 was $163.7 million, or
$1.73 per share, assuming dilution; a 5.5% increase in earnings per share over
the $156.8 million, or $1.64 per share for 1995.
Capital expenditures in 1996 increased to $232 million, compared with
$181.4 million in 1995. This increased spending included projects to expand
capacity, improve productivity and introduce new technology in many business
units. Acquisition spending totaled $94.2 million in 1996 as described in Note
2 to the Consolidated Financial Statements. Research and development costs
charged to expense were $17.5 million for 1996, compared with $12.7 million in
1995.
The Company's effective tax rate in 1996 was 38.4%, compared with 39.4% in
1995. Tax benefits from company-owned life insurance, additional tax credits
from higher research and development spending, and lower state taxes all
contributed to a reduction in the 1996 effective tax rate.
INDUSTRIAL PACKAGING Trade sales in this segment were $1.56 billion in
1996, a decrease of 1.5% from the $1.58 billion in 1995. Sales declined in the
industrial segment due entirely to lower selling prices in response to the
falling raw materials costs experienced in late 1995. The lower selling prices
reduced sales in this segment by approximately $100 million. Acquisitions, which
added approximately $60 million to sales, and strong volume nearly offset the
selling price decline.
Operating profit for this segment was $202.9 million, or 3.6% ahead of the
$195.9 million in 1995. Strong volume, lower raw materials costs and higher
productivity resulting from capital expenditures more than offset the
significant selling price decreases in 1996. Profits were affected by costs
associated with plant rationalizations in the industrial products operations,
start-up costs for a joint venture in China and consolidation costs in Brazil.
In the global tube and core business, volume increased in 1996 in virtually
all markets served around the world. In addition, the acquisition of Hamilton
Hybar, Inc., which produces roll wrap materials, and Moldwood Products Company,
which produces moldwood core plugs, added to sales in this segment. Lower
pricing resulting from lower raw materials costs partially offset the sales
gains from volume increases and acquisitions. Our European paper and tube
business experienced record performance, while our tube and core business was
also strong in Canada and Mexico. Similar to the United States, selling prices
were down in comparison to 1995; however, lower raw materials costs lessened the
impact of lower prices.
A major area of sales decline in the industrial packaging
30
<PAGE> 21
segment was in the paper operations. In comparison to 1995, recovered paper,
corrugating medium and linerboard prices were all significantly lower in 1996.
Lower selling prices on commodity grades of paperboard such as linerboard and
corrugating medium reduced profits in our paper operations by approximately $20
million in 1996. Volume gains from external sales of paperboard and lower raw
materials costs mitigated the impact of the lower selling prices in the paper
operations. During 1996, Sonoco increased papermaking capacity by adding paper
mills in Brazil and China.
The Company's industrial container business experienced volume increases in
its intermediate bulk containers business but was unable to offset the
continuing market shift in demand from fibre drums to plastic drums and bulk
containers. This operation added a new plant for plastic drums in 1996 that
increased capacity, but start-up costs negatively affected operating profit for
the year.
Sonoco's injection molded and extruded plastics businesses had a strong
year in 1996 due to increased volume in plastic cores, tubes and reels. In
addition, this operation continued to benefit from strong sales to the
automotive industry.
The protective packaging business experienced volume gains in its corner
posts and engineered cushion fibre operations. This operation dramatically
improved its corner posts in 1996 using unique proprietary technology. The wire
and cable business added two small acquisitions at the beginning of the year and
continued their strong operating performance.
Capital spending in this segment during 1996 was $163.5 million, compared
with $108.6 million in 1995. Spending in this segment in 1996 included several
plant expansions in the tube and core operations, expanding capacity of several
paper machines and the installation of a new fluidized-bed, multi-fuel-burning
boiler. In addition, several international paper mills were upgraded during
1996. Spending in this segment also included upgrades to the Company's
information technology systems.
CONSUMER PACKAGING SEGMENT Overall trade sales in the consumer packaging
segment were $1.23 billion in 1996, compared with $1.13 billion in 1995, an
increase of 9.3%. Sales increased due to strong volume in the composite can and
high density film businesses. Lower selling prices reduced sales by
approximately $20 million in 1996. Acquisitions added approximately $50 million
in sales.
Operating profits in this segment increased 10.9% to $126.4 million in
1996, compared with $114 million in 1995. While most of the businesses in this
segment reported strong performances, profits were affected by reorganization
and start-up costs in the label and flexible packaging operations.
Volume continued to be strong in the composite can operations, particularly
in the food and beverage markets. The Company benefited from sales of new
products such as the rectangular composite can for Lipton iced tea mixes and the
single-serve snack can for Pringles(R) potato snacks. In addition, sales in
Europe increased with the acquisition of two composite can manufacturers in
Germany as well as the opening of a new plant in Belgium. The composite can
business was also strong in Mexico, the United Kingdom and Venezuela.
Capseals operations continued its strong export sales to more than 70
countries around the world. This operation ran at full capacity due to expanded
business from new products.
The Company's high density film products operation continued to produce at
full capacity. Sales in this operation were affected by higher resin costs late
in the year, but strong productivity and volume gains led to profit improvement.
The screen print operations obtained in the 1993 acquisition of Engraph,
Inc. showed strong sales and profit performance throughout 1996. This business,
which accounted for approximately $60 million in annual sales, was sold early in
1997, as the product line did not fit with Sonoco's packaging portfolio. Sonoco
experienced higher than expected reorganization and start-up costs with its
labels and paperboard carton operations in 1996. While the October 1995
acquisition of Cricket Converters accounted for the sales increase in the labels
business, earnings lagged behind expectations. A major reorganization of the
labels operations from a series of independent companies into one operating unit
was ongoing throughout 1996.
The flexible packaging operations were slowed by start-up problems with new
presses, as well as a major reorganization, which caused declines in efficiency.
Capital spending in the consumer segment was $68.5 million in 1996,
compared with $72.8 million in 1995. Spending in 1996 included new composite can
manufacturing plants in Londerzeel, Belgium, and Jackson, Tenn., and the
relocation of the plastic caulk cartridge operation to Winchester, Ky. In
addition, the Company added six new presses to the Sonoco Engraph businesses and
expanded capacity at the North Vernon, Ind., plastic bag manufacturing
operation.
31
<PAGE> 22
SONOCO
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents .............................................................. $ 53,600 $ 71,260
Trade accounts receivable, net of allowances of $5,299 in 1997 and $7,630 in 1996 ...... 289,991 329,963
Other receivables ...................................................................... 12,463 38,240
Inventories
Finished and in process ............................................................... 94,785 123,224
Materials and supplies ................................................................ 115,313 137,236
Prepaid expenses ....................................................................... 25,265 26,121
Deferred income taxes .................................................................. 63,041 11,605
Net assets held for sale ............................................................... 218,582
----------- -----------
873,040 737,649
Property, Plant and Equipment, Net ....................................................... 939,542 995,415
Cost in Excess of Fair Value of Assets Purchased, Net .................................... 144,097 455,567
Other Assets ............................................................................. 220,186 198,909
----------- -----------
$ 2,176,865 $ 2,387,540
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Payable to suppliers ................................................................... $ 161,078 $ 205,741
Accrued expenses and other ............................................................. 106,839 111,804
Accrued wages and other compensation ................................................... 22,689 29,428
Notes payable and current portion of long-term debt .................................... 99,690 102,062
Taxes on income ........................................................................ 43,848 26,081
----------- -----------
434,144 475,116
Long-Term Debt ........................................................................... 696,669 791,026
Postretirement Benefits Other Than Pensions .............................................. 100,094 107,265
Deferred Income Taxes and Other .......................................................... 97,139 93,520
Commitments and Contingencies ............................................................
Shareholders' Equity
Serial preferred stock, no par value
Authorized 30,000 shares
0 and 2,395 shares issued and outstanding as of
December 31, 1997 and 1996, respectively ............................................ 0 119,756
Common shares, no par value
Authorized 150,000 shares
95,834 and 89,864 shares issued and outstanding as of
December 31, 1997 and 1996, respectively ............................................ 7,175 7,175
Capital in excess of stated value ...................................................... 193,258 50,378
Translation of foreign currencies ...................................................... (86,407) (56,572)
Retained earnings ...................................................................... 734,793 799,876
----------- -----------
Total shareholders' equity ............................................................. 848,819 920,613
----------- -----------
$ 2,176,865 $ 2,387,540
=========== ===========
==============================================================================================================================
</TABLE>
The Notes beginning on page 36 are an integral part of these financial
statements.
32
<PAGE> 23
SONOCO
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31
- ---------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ........................................................ $ 2,847,831 $ 2,788,075 $ 2,706,173
Cost of sales .................................................... 2,208,092 2,148,105 2,106,987
Selling, general and administrative expenses ..................... 297,439 310,605 289,297
Loss on assets held for sale ..................................... 226,358
------------------------------------------
Income before interest and taxes ................................. 115,942 329,365 309,889
Interest expense ................................................. 57,194 55,481 44,004
Interest income .................................................. (4,971) (6,191) (4,905)
------------------------------------------
Income before income taxes ....................................... 63,719 280,075 270,790
Provision for income taxes ....................................... 60,111 107,433 106,640
------------------------------------------
Income before equity in earnings of affiliates/Minority interest
in subsidiaries ........................................ 3,608 172,642 164,150
Equity in earnings of affiliates/Minority interest in subsidiaries (991) (1,771) 369
------------------------------------------
Net income ....................................................... 2,617 170,871 164,519
Preferred dividends .............................................. (3,061) (7,196) (7,763)
------------------------------------------
Net income (loss) available to common shareholders ............... $ (444) $ 163,675 $ 156,756
==========================================
Average common shares outstanding:*
Basic .......................................................... 91,801 90,513 91,139
Assuming conversion of preferred stock ......................... 3,566 6,002 7,155
Assuming exercise of options ................................... 2,224 2,110 1,807
------------------------------------------
Diluted ........................................................ 97,591 98,625 100,101
Per common share
- ----------------
Net income available to common shareholders:*
Basic .......................................................... $.00 $1.81 $1.72
Diluted ........................................................ $.00 $1.73 $1.64
Cash dividends ................................................... $.705 $.645 $.576
=============================================================================================================
</TABLE>
The Notes beginning on page 36 are an integral part of these financial
statements.
* 1996 and 1995 amounts have been adjusted to reflect adoption of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." See Note 17 to
the Consolidated Financial Statements.
33
<PAGE> 24
SONOCO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Preferred Shares Capital in Translation
--------------------- ------------------- Excess of of Foreign Retained
(Dollars and shares in thousands) Outstanding Amount Outstanding Amount Stated Value Currencies Earnings
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1995..................... 91,254 $7,175 3,450 $172,500 $ 1,496 $(46,252) $697,299
Net income.......................... 164,519
Cash dividends:
Preferred......................... (7,763)
Common, $.576 per share........... (53,145)
5% common stock dividend............ 106,213 (106,229)
Translation loss.................... (9,673)
Issuance of shares under
Stock option plan................. 561 11,870
Shares repurchased.................. (824) (18,657)
Other............................... 126 (604)
---------------------------------------------------------------------------------------
DECEMBER 31, 1995................... 91,117 7,175 3,450 172,500 100,318 (55,925) 694,681
Net income.......................... 170,871
Cash dividends:
Preferred......................... (7,196)
Common, $.645 per share........... (58,480)
Translation loss.................... (647)
Issuance of shares under
Stock option plan................. 913 15,914
Preferred stock conversions......... 1,035 (499) (24,942) 24,942
Shares repurchased:
Preferred......................... (556) (27,802) (5,588)
Common............................ (3,201) (89,205)
Other............................... 3,997
---------------------------------------------------------------------------------------
DECEMBER 31, 1996................... 89,864 7,175 2,395 119,756 50,378 (56,572) 799,876
Net income.......................... 2,617
Cash dividends:
Preferred......................... (3,061)
Common, $.705 per share........... (64,639)
Translation loss.................... (29,835)
Issuance of shares under
Stock option plan................. 830 13,436
Employee stock ownership plan..... 191 5,675
Preferred stock conversions......... 4,967 (2,395) (119,756) 119,756
Shares repurchased.................. (18) (592)
Other............................... 4,605
---------------------------------------------------------------------------------------
December 31, 1997.................. 95,834 $7,175 0 $ 0 $193,258 $(86,407) $734,793
=======================================================================================
</TABLE>
Shares outstanding and per share data have been restated to reflect the 5%
common stock dividend on June 9, 1995. The Notes beginning on page 36 are an
integral part of these financial statements.
34
<PAGE> 25
SONOCO
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------
(Dollars and shares in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 2,617 $ 170,871 $ 164,519
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization .................................... 153,524 142,927 125,836
Equity in earnings of affiliates/Minority interest in subsidiaries .......... 991 1,771 (369)
Loss(gain) on disposition of assets ......................................... 4,642 (1,892) 157
Loss on assets held for sale ................................................ 226,358
Deferred taxes .............................................................. (48,357) 9,972 (5,347)
Changes in assets and liabilities, net of effects from acquisitions,
dispositions, assets held for sale and foreign currency adjustments
Accounts receivable ...................................................... (8,669) (29,789) (31,778)
Inventories .............................................................. (1,463) (20,434) (12,931)
Prepaid expenses ......................................................... (448) (4,748) 8,319
Payables and taxes ....................................................... (7,943) 25,196 27,313
Other assets and liabilities ............................................. (21,290) (2,098) (21,169)
------------------------------------------
Net cash provided by operating activities ...................................... 299,962 291,776 254,550
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment ...................................... (230,651) (231,986) (181,432)
Cost of acquisitions, exclusive of cash ........................................ (17,647) (94,212) (107,156)
Proceeds from the sale of assets ............................................... 74,960 15,216 4,557
Other .......................................................................... (3,200)
------------------------------------------
Net cash used by investing activities .......................................... (176,538) (310,982) (284,031)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt ................................................. 76,211 72,812 221,551
Principal repayment of debt .................................................... (72,095) (46,772) (46,307)
Net (decrease) increase in commercial paper borrowings ......................... (95,391) 173,891 (39,200)
Cash dividends-- common and preferred .......................................... (67,700) (65,676) (60,908)
Common and preferred shares acquired ........................................... (646) (122,595) (18,657)
Common shares issued ........................................................... 19,160 17,177 8,370
------------------------------------------
Net cash (used) provided by financing activities ............................... (140,461) 28,837 64,849
EFFECTS OF EXCHANGE RATE CHANGES ON CASH ....................................... (623) 5 (2,188)
------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................... (17,660) 9,636 33,180
Cash and cash equivalents at beginning of year ................................. 71,260 61,624 28,444
------------------------------------------
Cash and cash equivalents at end of year ....................................... $ 53,600 $ 71,260 $ 61,624
==========================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid ............................................................... $ 54,739 $ 50,671 $ 41,851
Income taxes paid ........................................................... $ 92,240 $ 115,920 $ 75,635
==============================================================================================================================
</TABLE>
Excluded from the Consolidated Statements of Cash Flows is the effect of certain
non-cash activities. During the third quarter of 1997, the Company converted to
common stock substantially all of its outstanding shares of $2.25 Series A
Cumulative Converted Preferred Stock issued in 1993 at a rate of 2.074 common
shares per share of preferred stock. On June 9, 1995, the Company issued a 5%
common stock dividend ($106,213 fair value). Debt obligations assumed by the
Company in conjunction with acquisitions were approximately $9,900 in 1997,
$11,600 in 1996 and $19,000 in 1995.
The Notes beginning on page 36 are an integral part of these financial
statements.
35
<PAGE> 26
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
THE FOLLOWING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS. THE ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY APPEAR IN BOLD
TYPE.
1 BASIS OF PRESENTATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF SONOCO AND
ITS SUBSIDIARIES AFTER ELIMINATION OF INTERCOMPANY ACCOUNTS AND TRANSACTIONS.
INVESTMENTS IN AFFILIATED COMPANIES IN WHICH THE COMPANY OWNS 20% TO 50% OF THE
VOTING STOCK ARE INCLUDED ON THE EQUITY METHOD OF ACCOUNTING.
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNT OF ASSETS AND LIABILITIES AT THE
DATE OF THE FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND
EXPENSES DURING THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE
ESTIMATES.
2. ACQUISITION/DISPOSITION
Sonoco completed several acquisitions during 1997 with an aggregate cost of
approximately $17,600 in cash and the assumption of $9,900 in debt.
During the first quarter of 1997, the Company completed the sale of its
screen print operations acquired in the 1993 acquisition of Engraph, Inc. The
division was sold because it did not fit with the Company's overall focus on the
packaging industry.
The Company formed joint ventures in Brazil and Chile during the second
quarter of 1997. The Brazilian joint venture, Sonoco For-Plas, is owned 51% by
the Company. It is a major supplier in Brazil of "peel off" metal ends and
plastic components such as overcaps for cans. Sonoco also formed a joint
venture, owned 51% by the Company, with Conotex of Santiago, Chile, for the
manufacture of composite cans, tubes, and cores. These joint ventures are
expected to have combined annual sales of approximately $30,000. Corepak LTD, a
tube and core producer in England, was also purchased during the quarter.
During the third quarter of 1997, Sonoco and Rock-Tenn Company completed
the formation of a joint venture that combined both companies' fibre partitions
businesses into a separate company called RTS Packaging, owned 35% by Sonoco.
Industrial Machine Company of St. Louis, Mo., a producer of equipment and
tooling, primarily for the paper converting and food processing industries, was
also purchased during the quarter.
Sonoco completed several acquisitions during 1996 that were strategically
important to both United States and international operations. The aggregate cost
of these acquisitions was approximately $94,200 in cash and the assumption of
$11,600 in debt. Domestic acquisitions included Moldwood Products Company, a
producer of moldwood plugs; Hamilton Hybar, Inc., a supplier of vapor barrier
packaging materials; Stonington Corporation, a manufacturer of tubes and cores;
Specialty Packaging, a niche producer of composite cans; and two operations to
the Company's wire and cable packaging operations. International acquisitions
for Sonoco in 1996 included the Hongwen joint venture for paperboard production
in China, the Indonesian joint venture for production of tubes, cones, and
cores, and the purchase of two of Germany's leading paperboard can
manufacturers.
During 1995, Sonoco acquired the remaining 50% interest in its CMB/Sonoco
joint venture for composite can production in England and France. Sonoco also
acquired a minority interest in Demolli Industria Cartaria SRL and purchased
three converting operations and a paper mill in Brazil, a small tube and paper
manufacturer in France, and three recovered paper collection plants in the
United States. During 1994, the Company acquired M. Harland & Son Limited,
producer of roll labels and roll-label application equipment headquartered in
the United Kingdom. In 1993, Sonoco acquired Crellin Holding, Inc., an
international manufacturer, designer and marketer of molded plastic products,
and Engraph, Inc., a producer of pressure-sensitive labels, packaging inserts,
flexible packaging, screen process printing and paperboard cartons.
The Company has accounted for all of its acquisitions as purchases and,
accordingly, has included their results of operations in consolidated net income
from the date of acquisition.
3. ASSETS HELD FOR SALE
In December 1997, the Company signed a letter of intent to sell its
industrial container operations, part of the Company's Industrial Packaging
segment, for approximately $225,000 in cash. The transaction, which is expected
to be completed in the first quarter of 1998, will result in an after-tax gain
of approximately $55,000. The net assets of these operations, which totaled
approximately $97,800, consist primarily of property, plant and equipment,
accounts receivable, and inventories, net of liabilities, and are included in
net assets held for sale as of December 31, 1997.
In January 1998, the Company signed a letter of intent to sell its North
American labels operations, part of the Company's Consumer Packaging segment,
for approximately $100,000. In addition, it is investigating the possible sale
of several other smaller businesses acquired as part of the 1993 acquisition of
Engraph, Inc. The Company expects to complete the sale of the North American
labels operations in the first quarter of 1998. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
recorded a pre-tax charge of $226,358 (or $174,500 after-tax) in the fourth
quarter of 1997 to reduce cost in excess of fair value to reflect the difference
between carrying value and estimated proceeds from the sales of these
businesses. Accordingly, the realizable value of the net assets of approximately
$120,800, consisting primarily of property, plant and equipment, accounts
receivable, and inventories, net of liabilities, are included in net assets held
for sale as of December 31, 1997.
The combined net sales of the above operations were $437,500 in 1997,
$438,200 in 1996, and $431,100 in 1995. Combined operating profits were $13,600,
$22,700, and $29,600 in 1997, 1996, and 1995, respectively.
The decision to sell Sonoco's industrial containers and labels businesses
was based on management's conclusion that neither of these businesses fit the
Company's long-term strategic objectives.
36
<PAGE> 27
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands)
4 CASH AND CASH EQUIVALENTS
CASH EQUIVALENTS ARE COMPOSED OF HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL
MATURITY OF THREE MONTHS OR LESS AND ARE RECORDED AT MARKET.
At December 31, 1997 and 1996, outstanding checks of $21,853 and $32,867,
respectively, were included in Payable to suppliers.
At December 31, 1997 and 1996, $23,823 and $32,590, respectively, of cash
and cash equivalents represented proceeds from the issuance of the 6% and 6.125%
Industrial Revenue Bonds (IRBs) and were restricted to funding qualified
expenditures as provided for by the IRBs.
5 INVENTORIES
INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET. The last-in,
first-out (LIFO) method was used to determine costs of approximately 34% of
total inventories in 1997 and 38% in 1996. 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 $10,866 in 1997 and $12,043 in 1996.
6 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 3 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 $136,925 in 1997, $125,167
in 1996 and $110,706 in 1995.
Details of property, plant and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Land ...................................................... $ 37,854 $ 33,603
Timber resources .......................................... 33,328 32,822
Buildings ................................................. 261,850 304,406
Machinery and equipment ................................... 1,310,902 1,326,069
Construction in progress .................................. 115,200 155,929
--------------------------
1,759,134 1,852,829
Accumulated depreciation
and depletion ............................................ (819,592) (857,414)
--------------------------
$ 939,542 $ 995,415
==========================
================================================================================================
</TABLE>
Estimated costs for completion of authorized capital additions under
construction totaled approximately $121,753 at December 31, 1997.
Total rental expense under operating leases for property and equipment was
$36,000, $37,000 and $31,000 in 1997, 1996 and 1995, respectively. Future
minimum rentals under non-cancelable operating leases with terms of more than
one year are as follows: 1998 - $18,700, 1999 - $14,000, 2000 - $11,100, 2001 -
$8,800, 2002 - $7,300, and 2003 and thereafter - $22,400.
7 COSTS IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
GOODWILL ARISING FROM BUSINESS ACQUISITIONS ($5,000 in 1997 and $56,000 in
1996) IS AMORTIZED ON THE STRAIGHT-LINE BASIS OVER PERIODS RANGING FROM 15 TO 40
YEARS. THE COMPANY EVALUATES, AT EACH BALANCE SHEET DATE, THE REALIZABILITY OF
GOODWILL FOR EACH SUBSIDIARY HAVING A GOODWILL BALANCE. Amortization expense
amounted to $16,599 in 1997, $17,760 in 1996 and $15,130 in 1995. Accumulated
amortization at December 31, 1997 and 1996 was $44,082 and $57,361,
respectively.
8 INVESTMENT IN LIFE INSURANCE
Company-owned life insurance (COLI) policies are used by the Company to aid
in the financing of employee benefits and are recorded net of policy loans in
Other Assets. The net pretax cost of COLI, including interest expense, was
$4,477 in 1997, $9,303 in 1996 and $9,171 in 1995 and is included in selling,
general and administrative expenses. The related interest expense was $38,754 in
1997, $39,921 in 1996 and $34,634 in 1995. Legislation was enacted in 1996 that
will phase out the tax deductibility of this interest.
9 DEBT
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Commercial paper, average rate
of 5.5% in 1997 and 5.4% in 1996 ............................................ $ 213,000 $ 308,391
9.2% notes due August 2021 ................................................... 99,928 99,928
6.75% debentures due November 2010 ........................................... 99,819 99,804
5.875% notes due November 2003 ............................................... 99,538 99,538
5.49% notes due April 2000 ................................................... 75,000 75,000
6.125% IRBs due June 2025 .................................................... 34,486 34,463
6.0% IRBs due April 2026 ..................................................... 34,107 34,075
Foreign denominated debt, average rate
of 8.4% in 1997 and 7.7% in 1996 ............................................ 106,670 102,954
Other notes .................................................................. 33,811 38,935
--------------------------
Total debt ................................................................... 796,359 893,088
Less current portion and
short-term notes ............................................................ 99,690 102,062
--------------------------
Long-term debt ............................................................... $ 696,669 $ 791,026
==========================
===================================================================================================================
</TABLE>
The Company has authorized a commercial paper program totaling $450,000 and
has fully committed bank lines of credit supporting the program by a like
amount. These bank lines expire in the year 2001. Accordingly, commercial paper
borrowings are classified as long-term debt. As of December 31, 1997, the
Company has registered debt securities of $250,000 under shelf registrations
with the Securities and Exchange Commission.
The approximate principal requirements of debt maturing in the next five
years are: 1998 - $99,700, 1999 - $5,400, 2000 - $80,400, 2001 - $5,000 and 2002
- - $4,300. It is management's intent to extend indefinitely the line of credit
agreements supporting the commercial paper program.
37
<PAGE> 28
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands)
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 the Company maintain a certain
minimum level of net worth at the end of each quarter. As of December 31, 1997,
the minimum level was $815,000 that is increased by 50% of net income and
decreased by stock repurchases after September 1996.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes at
December 31, 1997, were approximately $104,300 with interest at mutually
agreed-upon rates.
10 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, 1997 and 1996, the notional value of such contracts was
approximately $29,000 and $30,000, respectively. All financial instruments are
executed with credit-worthy financial institutions; therefore, the Company
considers the risk of non-performance on these instruments to be remote.
The following table sets forth the carrying amounts and fair values of the
Company's significant financial instruments where the carrying amount differs
from the fair value. The carrying amount of cash and cash equivalents,
short-term debt and long-term variable rate debt approximates fair value. The
fair value of long-term debt is based on quoted market prices or by discounting
future cash flows using interest rates available to the Company for issues with
similar terms and average maturities. Foreign currency agreements are valued
based on termination values or quoted market prices of comparable instruments.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
of Asset of Asset of Asset of Asset
(Liability) (Liability) (Liability) (Liability)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt .......... $(696,669) $(718,624) $(791,026) $(800,195)
Foreign currency
agreements ............. 1,060 1,060 (708) (708)
</TABLE>
11 STOCK OPTIONS
The Company has stock option plans under which common shares are reserved
for sale to certain employees and non-employee directors. Options granted under
the plans were at the market value of the shares at the date of grant. Options
are generally exercisable one year after the date of grant and expire 10 years
after the date of grant. There were 3,061,421 shares reserved for future grants
at December 31, 1997.
On September 2, 1997, one-time awards of contingent share units were
granted to twenty-five of the Company's executives from shares allocated in the
1991 Key Employee Stock Plan. These awards, consisting of performance-based
restricted shares of Common Stock, were granted to provide corporate and
business unit managers with an additional compensation opportunity which is
realized only if targeted creation of shareholder value is achieved. The vesting
of the awards, which can range from 151,250 to 605,000 shares, is tied to growth
in share price over a four-year period. None of the stock units will vest if the
minimum share price growth objective is not achieved. In 1994, the Company
granted one-time awards of contingent shares to certain of the Company's
executives. These shares vest over a five-year period, with one-third vesting on
the third, fourth and fifth anniversaries of the grant. An executive must be
actively employed by the Company on the vesting date in order for shares to be
issued. Three hundred and twenty-eight thousand contingent shares granted under
this plan remain outstanding at December 31, 1997.
A summary of the status of the Company's stock option plans is presented
below:
<TABLE>
<CAPTION>
Weighted-
Option Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1995
Outstanding at beginning of year ............................................... 5,745,457 $17.54
Granted ....................................................................... 1,083,060 $19.65
Exercised ..................................................................... (560,664) $14.86
Canceled ...................................................................... (32,921) $ 9.70
Outstanding at end of year ..................................................... 6,234,932 $17.16
Options exercisable at end of year ............................................. 4,814,822 $22.41
1996
Granted ....................................................................... 1,186,320 $26.08
Exercised ..................................................................... (952,462) $15.68
Canceled ...................................................................... (36,437) $22.77
Outstanding at end of year ..................................................... 6,432,353 $19.23
Options exercisable at end of year ............................................. 4,947,533 $18.76
1997
Granted ....................................................................... 1,232,154 $26.31
Exercised ..................................................................... (859,078) $16.20
Canceled ...................................................................... (72,936) $20.96
Outstanding at end of year ..................................................... 6,732,493 $20.90
Options exercisable at end of year ............................................. 5,274,284 $20.60
======================================================================================================================
</TABLE>
The weighted-average fair value of options granted was $5.32,$4.90 and
$4.69 in 1997, 1996 and 1995, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
- -----------------------------------------------------------------------------------
Number Weighted-Average Weighted-
Range of Outstanding Remaining Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
$.00 328,000 $ .00
$ 7.28-$14.52 441,677 2.4 years $12.26
$16.05-$23.93 3,709,356 5.1 years $20.22
$25.13-$35.06 2,253,460 8.7 years $26.76
---------
$.00-$35.06 6,732,493 6.2 years $20.90
</TABLE>
38
<PAGE> 29
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Options Exercisable
- ------------------------------------------------------------------
Number Weighted-
Range of Exercisable Average
Exercise Prices at 12/31/97 Exercise Price
- ------------------------------------------------------------------
<S> <C> <C>
$ .00 91,000 $ .00
$ 7.28-$14.52 441,677 $12.26
$16.05-$23.93 3,709,356 $20.22
$25.13-$35.06 1,032,251 $27.00
---------
$ .00-$35.06 5,274,284 $20.60
==============================================================
</TABLE>
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"(FAS 123), the Company has chosen to
apply APB Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for options granted under the plans. Had
compensation cost for the Company's plans been determined consistent with the
fair market value provisions of FAS 123, the Company's net income and net income
per common share, on a diluted basis, would have been reduced to the pro forma
amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income -- as reported ............... $ 2,617 $ 170,871 $ 164,519
Net income -- pro forma ................. (1,327) 167,551 161,566
Earnings per share -- as reported ....... .00 1.73 1.64
Earnings per share -- pro forma ......... (.05) 1.70 1.61
=====================================================================================
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield ................ 2.3% 2.3% 2.3%
Expected stock price volatility ........ 15.3% 15.0% 15.0%
Risk-free interest rate ................ 6.2% 5.3% 7.6%
Expected life of options ............... 5 years 5 years 5 years
=====================================================================================
</TABLE>
12 RETIREMENT BENEFIT PLANS
Non-contributory defined benefit pension plans cover substantially all
United States employees. Under the plans, retirement benefits are based either
on both years of service and compensation or on service only. IT IS THE
COMPANY'S POLICY TO FUND THESE PLANS, AT A MINIMUM, IN AMOUNTS REQUIRED UNDER
ERISA. Plan assets consist primarily of common stocks, bonds and real estate.
The Company also maintains a plan to supplement executive benefits limited
through qualified plans. Benefits are based on years of service and
compensation. The plan is partially funded through a grantor trust as defined
under Section 671 of the Internal Revenue Service Code of 1986.
The Company sponsors contributory pension plans covering most employees in
the United Kingdom and Canada. Pension benefits are based either on the
employee's salary in the year of retirement or the average of the final three
years. The funding policy is to contribute annually at actuarially determined
rates. It is the Company's intent to maintain well-funded plans.
Net pension cost for the domestic, United Kingdom and Canadian plans
include the following components:
<TABLE>
<CAPTION>
Combined Plan
--------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost during year ............... $ 15,169 $ 14,266 $ 12,532
Interest cost on projected
benefit obligation .................... 37,690 35,065 32,537
Actual return on plan assets ........... (88,113) (69,085) (81,926)
Net amortization and deferral .......... 40,834 24,733 45,007
--------------------------------
$ 5,580 $ 4,979 $ 8,150
================================
============================================================================
</TABLE>
The following table sets forth the funded status of the plans at December 31:
<TABLE>
<CAPTION>
Over-Funded Under-Funded
Plans Plan
------------------------------------------------------
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
Projected benefit obligation
Vested benefits ................... $ 432,085 $ 382,440 $ $
Non-vested benefits ............... 17,872 11,025 31,396 25,598
------------------------------------------------------
Accumulated benefit obligation ..... 449,957 393,465 31,396 25,598
Effect of assumed increase
in compensation levels ............ 49,162 46,179 2,341 2,847
------------------------------------------------------
Projected benefit obligation ....... 499,119 439,644 33,737 28,445
Plan assets at fair value .......... 596,780 517,777 9,673 8,113
------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation ...... 97,661 78,133 (24,064) (20,332)
Unrecognized net (gain) loss ....... (11,342) 3,451 7,354 6,054
Unrecognized prior service cost .... 7,193 5,312 3,972 4,415
Unrecognized net transition
(asset) obligation ................ (1,893) (8,195) 685 914
Adjustment required to recognize
minimum liability ................. (9,670) (8,537)
------------------------------------------------------
Prepaid (accrued) pension cost ..... $ 91,619 $ 78,701 $ (21,723) $ (17,486)
======================================================
=============================================================================================
</TABLE>
Prepaid pension costs of $4,370 and $4,212 were included in prepaid
expenses in 1997 and 1996, respectively. In addition $87,249 and $74,489 were
included in Other Assets in 1997 and 1996, respectively. Accrued pension costs
for the under-funded plan were included in accrued expenses in 1997 and 1996.
Assets in the under-funded plan were reduced by loans made against the insurance
policies held as plan assets.
The weighted-average discount rate used in determining the projected
benefit obligations was 7.25% in 1997, 7.75% in 1996 and 7.25% in 1995. The
assumed compensation increase was 4% in 1997, 4.25% in 1996 and 4% in 1995. The
expected long-term rate of return on assets was 9.5% for all years presented.
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 1997, 1996 and 1995, were
$6,260, $5,750 and $5,570, respectively.
39
<PAGE> 30
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
13 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides health care and life insurance benefits to the majority
of its United States retirees and their eligible dependents. The Company's
subsidiaries in Canada also provide postretirement benefits to eligible
retirees. THE COMPANY ACCRUES FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
OVER AN EMPLOYEE'S CAREER. Benefit costs are funded principally on a
pay-as-you-go basis, with the retiree paying a portion of the costs. In
situations where full-time employees retire from the Company between age 55 and
age 65, most are eligible to receive, at a cost to the retiree equal to the cost
for an active employee, certain health care benefits identical to those
available to active employees. After attaining age 65, an eligible retiree's
health care benefit coverage becomes coordinated with Medicare. For purposes of
projecting future benefit payments, early retiree contributions were assumed to
increase at the health care cost trend.
Non-pension retirement benefit expense includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost during year ............. $ 3,831 $ 4,548 $ 3,749
Interest cost on APBO ................ 8,663 8,735 8,673
Actual return on plan assets ......... (5,539) (3,954) (5,441)
Net amortization and deferral ........ (2,076) (2,025) (312)
------------------------------
Net periodic postretirement
benefit cost ........................ $ 4,879 $ 7,304 $ 6,669
==============================
==========================================================================
</TABLE>
The following sets forth the accrued obligation included in the
accompanying December 31 Consolidated Balance Sheets applicable to each employee
group for non-pension postretirement benefits:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retired employees....................... $ 84,238 $ 70,187
Active employees -- fully eligible...... 19,718 21,653
Active employees -- not yet eligible.... 20,431 24,477
-------------------------
Accumulated benefit obligation............. 124,387 116,317
Plan assets at fair value.................. 35,309 29,770
-------------------------
Plan assets less than accumulated
benefit obligation........................ (89,078) (86,547)
Unrecognized net loss from
changes in assumptions.................... 19,502 19,963
Unrecognized prior service cost............ (13,585) (19,080)
-------------------------
Accrued postretirement
benefit cost.............................. $(83,161) $(85,664)
=========================
==========================================================================
</TABLE>
Prepaid postretirement medical costs of $16,933 and $21,644 were included
in Other Assets in 1997 and 1996, respectively. The discount rate used in
determining the APBO was 7.25% in 1997, 7.75% in 1996 and 7.25% in 1995. The
assumed health care cost trend rate used in measuring the APBO was 9.25% in 1997
and declining to 4.75% in the year 2006. Increasing the assumed trend rate for
health care costs by one percentage point would result in an increase in the
APBO of approximately $5,187 at December 31, 1997, and an increase of $658 in
the related 1997 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.
14 INCOME TAXES
THE COMPANY PROVIDES FOR INCOME TAXES USING THE LIABILITY METHOD. UNDER
THIS METHOD, DEFERRED TAX ASSETS AND LIABILITIES ARE DETERMINED BASED ON
DIFFERENCES BETWEEN FINANCIAL REPORTING REQUIREMENTS AND TAX LAWS. ASSETS AND
LIABILITIES ARE MEASURED USING THE ENACTED TAX RATES AND LAWS THAT WILL BE IN
EFFECT WHEN THE DIFFERENCES ARE EXPECTED TO REVERSE.
The provision (benefit) for taxes on income for the years ending December
31 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income
Domestic ............................ $ 27,281 $234,029 $233,125
Foreign ............................. 36,438 46,046 37,665
---------------------------------
Total pretax income ............... $ 63,719 $280,075 $270,790
=================================
Current
Federal ............................. $ 79,827 $ 74,166 $ 86,611
State ............................... 13,650 10,238 13,533
Foreign ............................. 14,991 13,057 11,843
---------------------------------
Total current ..................... 108,468 97,461 111,987
---------------------------------
Deferred
Federal ............................. (49,161) 5,466 (6,065)
State ............................... 502 758 (866)
Foreign ............................. 302 3,748 1,584
---------------------------------
Total deferred .................... (48,357) 9,972 (5,347)
---------------------------------
Total taxes .......................... $ 60,111 $107,433 $106,640
=================================
==============================================================================
</TABLE>
Cumulative deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Depreciation.......................... $ 70,442 $ 70,916
Employee benefits..................... 30,399 25,920
Other................................. 694 4,798
--------------------------
Gross deferred tax liabilities....... 101,535 101,634
--------------------------
Restructuring......................... (617) (1,689)
Retiree health benefits............... (31,745) (32,825)
Foreign loss carryforwards............ (11,839) (10,329)
Capital loss carryforwards............ (4,320)
Employee benefits..................... (18,915) (15,829)
Asset impairment...................... (51,858)
Other................................. (7,120) (6,221)
--------------------------
Gross deferred tax assets............ (122,094) (71,213)
Valuation allowance on deferred
tax assets........................... 11,839 10,329
--------------------------
Total deferred taxes, net............ $ (8,720) $ 40,750
==========================
============================================================================
</TABLE>
40
<PAGE> 31
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
The net change in the valuation allowance for deferred tax assets is a net
increase of $1,510 in 1997, compared with a net decrease of $631 in 1996. The
change relates to utilization of current net operating losses of certain foreign
subsidiaries and the addition to the reserve for current net operating losses
for which their use is limited to future taxable earnings.
Approximately $36,100 of foreign subsidiary net operating loss
carryforwards remain at December 31, 1997. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carryforwards, approximately $27,857 have no expiration date. The remaining loss
carryforwards expire at various dates in the future.
A reconciliation of the United States federal statutory tax rate to the
actual consolidated tax expense is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate .... $ 22,301 35.0% $ 98,026 35.0% $ 94,776 35.0%
State income taxes,
net of federal tax
benefit .............. 1,623 2.5 6,879 2.5 8,560 3.2
Goodwill .............. 3,508 5.5 3,624 1.3 3,556 1.3
Asset impairment
and dispositions ..... 38,913 61.1
Company-owned
life insurance ....... (4,908) (7.7) (2,955) (1.1) (3,758) (1.4)
Other, net ............ (1,326) (2.1) 1,859 .7 3,506 1.3
----------------------------------------------------------
Total taxes .......... $ 60,111 94.3% $ 107,433 38.4% $ 106,640 39.4%
==========================================================
=======================================================================================
</TABLE>
The Internal Revenue Service has examined the Company's federal income tax
returns for all years through 1992. Currently, the 1993 through 1995 federal
income tax returns are being examined. The Company believes that it has made
adequate provision for income taxes that may become payable with respect to open
years.
Undistributed earnings of international subsidiaries totaled $87,060 at
December 31, 1997. There have been no United States income taxes provided on the
undistributed earnings since the Company considers these earnings to be
indefinitely reinvested to finance international growth and expansion. If such
amounts were remitted, loaned to the Company or the stock in the foreign
subsidiaries sold, these earnings could become subject to tax.
15 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.
The Company has been named as a potentially responsible party at several
environmentally contaminated sites, located primarily in the northeastern United
States, owned by third parties. These sites represent the Company's largest
potential environmental liabilities. The Company has approximately $4,000
accrued for these contingencies as of December 31, 1997 and 1996. Due to the
complexity of determining clean-up costs associated with the sites, a reliable
estimate of the ultimate cost to the Company cannot be determined. Furthermore,
all of the sites are also the responsibility of other parties. The Company's
liability, if any, is shared with such other parties, but the Company's share
has not been finally determined in most cases. In some cases, the Company has
cost-sharing agreements with other potentially responsible parties with respect
to a particular site. Such agreements relate to the sharing of legal defense
costs or clean-up costs, or both. The Company has assumed, for purposes of
estimating amounts to be accrued, that the other parties to such cost sharing
agreements will perform as agreed. It appears that final resolution of some of
the sites is years away. Accordingly, a reliable estimate of the ultimate cost
to the Company with respect to such sites cannot be determined. Costs, however,
are accrued as necessary once reasonable estimates are determined.
Although the level of future expenditures for legal and environmental
matters is impossible to determine with any degree of probability, it is
management's opinion that such costs, when finally determined, will not have an
adverse material effect on the consolidated financial position of the Company.
16 INTERNATIONAL OPERATIONS
The operating profit, net assets and dividends received by the Company from
operations outside the United States are as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Operating profit .............. $ 42,249 $ 44,988
Net assets..................... 389,921 376,880
Dividends...................... 1,298 738
===============================================================
</TABLE>
The aggregate foreign currency transaction gain/loss recognized in net
income was immaterial for 1997, 1996 and 1995.
Europe, the Company's only significant foreign geographic area, reported
the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated
customers.................. $287,467 $283,453 $276,029
Operating profit............ 16,244 16,533 6,170
Total assets................ 294,983 313,302 296,325
===============================================================
</TABLE>
17 SHAREHOLDERS' EQUITY
On August 29, 1997, the Company called for the redemption or conversion on
September 28, 1997, of all of its outstanding shares of $2.25 Series A
Cumulative Convertible Preferred Stock that was issued in 1993. The Company
converted substantially all of its 2,394,125 outstanding shares at a rate of
2.074 common shares per share of preferred stock.
On December 17, 1997, the Company's Board of Directors authorized a public
stock repurchase program to purchase up to $150,000 of the Company's common
stock at current market prices. The Company will repurchase shares under this
program by means of open market purchases and privately negotiated transactions
at prevailing market prices. The timing of repurchases will depend on market
conditions, the market price of the Company's common stock and management's
assessment of the Company's liquidity and cash flow needs.
On April 19, 1995, the Board of Directors declared a 5% stock dividend
41
<PAGE> 32
SONOCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
issued on June 9, 1995. All references in the accompanying Consolidated
Financial Statement to numbers of common shares and per share data have been
restated to give retroactive effect to the stock dividend.
The presentation of 1997 earnings per share and average shares of common
stock outstanding complies with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128). Prior years' share data have been restated
to conform to the current year presentation. The effect of adopting FAS 128 on
prior years' earnings per share and average shares of common stock outstanding
was immaterial.
18 FINANCIAL REPORTING FOR BUSINESS SEGMENTS
The Financial Reporting for Business Segments should be read in conjunction
with the Management's Discussion and Analysis (which describes the segments in
detail) appearing on pages 24-31. The Company changed its segment reporting in
1996 to reflect two business segments: industrial packaging and consumer
packaging. All prior years' numbers have been restated to reflect this change in
reporting. Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," becomes effective in
1998. It is not expected to have a material effect on the Company's business
segment reporting.
<TABLE>
<CAPTION>
Industrial Consumer
Years ended December 31 Packaging Packaging Corporate Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue
1997...................................... $1,630,969 $1,259,337 $2,890,306
1996...................................... 1,599,129 1,231,770 2,830,899
1995...................................... 1,627,377 1,127,330 2,754,707
Intersegment Sales(1)
1997...................................... $ 42,362 $ 113 $ 42,475
1996...................................... 41,574 1,250 42,824
1995...................................... 46,863 1,671 48,534
Sales to Unaffiliated Customers
1997...................................... $1,588,607 $1,259,224 $2,847,831
1996...................................... 1,557,555 1,230,520 2,788,075
1995...................................... 1,580,514 1,125,659 2,706,173
Operating Profit(2)
1997...................................... $ 217,775 $ (101,833) $(52,223) $ 63,719
1996...................................... 202,928 126,436 (49,289) 280,075
1995...................................... 195,929 113,960 (39,099) 270,790
Identifiable Assets(3)
1997...................................... $1,228,796 $ 717,172 $230,897 $2,176,865
1996...................................... 1,219,248 861,464 306,828 2,387,540
1995...................................... 1,076,035 760,767 278,611 2,115,413
Depreciation, Depletion and Amortization
1997...................................... $ 93,336 $ 60,188 $ 153,524
1996...................................... 90,416 52,511 142,927
1995...................................... 73,983 51,853 125,836
Capital Expenditures
1997...................................... $ 140,581 $ 90,070 $ 230,651
1996...................................... 163,507 68,479 231,986
1995...................................... 108,606 72,826 181,432
==============================================================================================================================
</TABLE>
(1) Intersegment sales are recorded at a market-related transfer price.
(2) Interest income and interest expense are excluded from the operating
profits by segment and are shown under Corporate.
(3) Identifiable assets are those assets used by each segment in its
operations. Corporate assets consist primarily of cash and cash
equivalents, investments in affiliates, headquarters facilities and prepaid
expenses.
42
<PAGE> 33
SONOCO
REPORTS OF CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF MANAGEMENT
The management of Sonoco Products Company is responsible for the integrity
and objectivity of the financial statements and other financial information
included in this annual report. These statements have been prepared in
conformity with generally accepted accounting principles.
Sonoco's accounting systems are supported by internal control systems
augmented by written policies, internal audits and the selection and training of
qualified personnel.
The Board of Directors, through its Audit Committee, consisting of outside
directors, is responsible for reviewing and monitoring the Company's financial
reporting and accounting practices. This committee meets periodically with
management, the internal auditors and the independent accountants to assure each
is carrying out its responsibilities.
Coopers & Lybrand L.L.P., independent certified public accountants, have
audited the financial statements, and their report is herein.
F. Trent Hill, Jr.
Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF SONOCO PRODUCTS COMPANY:
We have audited the accompanying consolidated balance sheets of Sonoco
Products Company as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sonoco Products
Company as of December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Charlotte, North Carolina
January 30, 1998
43
<PAGE> 34
SONOCO
SELECTED ELEVEN-YEAR FINANCIAL DATA
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
1997* 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales ............................................................ $2,847,831 $2,788,075 $2,706,173 $2,300,127
Cost of sales and operating expenses ................................. 2,505,531 2,458,710 2,396,284 2,055,734
Interest expense ..................................................... 57,194 55,481 44,004 35,861
Interest income ...................................................... (4,971) (6,191) (4,905) (2,398)
Unusual items* ....................................................... 226,358
--------------------------------------------------------
Income before income taxes ........................................... 63,719 280,075 270,790 210,930
Provision for income taxes ........................................... 60,111 107,433 106,640 82,500
Equity in earnings of affiliates/Minority interest ................... (991) (1,771) 369 1,419
--------------------------------------------------------
Income before cumulative effect of changes
in accounting principles ........................................... 2,617 170,871 164,519 129,849
Cumulative effect of changes in accounting principles
(FAS 106 and FAS 109)...............................................
--------------------------------------------------------
Net income ........................................................... 2,617 170,871 164,519 129,849
Preferred dividends .................................................. (3,061) (7,196) (7,763) (7,763)
--------------------------------------------------------
Net income (loss)available to common shareholders .................... $ (444) $ 163,675 $ 156,756 $ 122,086
========================================================
Returns before cumulative effect of changes
in accounting principles
Return on common equity ........................................... (0.1)% 21.1% 22.2% 19.1%
Return on total equity (including preferred stock) ................ 0.3% 18.3% 18.7% 16.0%
Return on net sales ............................................... 0.0% 6.1% 6.1% 5.6%
Per common share
Income before cumulative effect of changes in
accounting principles ............................................. .00 1.81 1.72 1.34
Cumulative effect of changes in accounting principles...............
--------------------------------------------------------
Net income available to common shareholders:
Basic ............................................................. .00 1.81 1.72 1.34
Diluted ........................................................... .00 1.73 1.64 1.31
Cash dividends -- common ........................................... .705 .645 .576 .529
Average common shares outstanding:
Basic ............................................................. 91,801 90,513 91,139 91,445
Diluted ........................................................... 97,591 98,625 100,101 99,473
Actual common shares outstanding at December 31 ...................... 95,834 89,864 91,117 91,254
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Net working capital .................................................. 438,896 262,533 229,328 222,068
Property, plant and equipment, net ................................... 939,542 995,415 865,629 763,109
Total assets ......................................................... 2,176,865 2,387,540 2,115,413 1,835,053
Total debt ........................................................... 796,359 893,088 686,792 547,380
Shareholders' equity ................................................. 848,819 920,613 918,749 832,218
Current ratio ........................................................ 2.0 1.6 1.5 1.6
Total debt to total capital .......................................... 46.1%** 47.2%** 39.6%** 38.1%
Book value per common share .......................................... 8.86 8.91 8.19 7.23
- --------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Depreciation, depletion and amortization expense ..................... 153,524 142,927 125,836 112,797
Cash dividends declared-- common ..................................... 64,639 58,480 53,145 48,287
Market price per common share (ending) ............................... 34.69 25.88 26.25 20.83
==================================================================================================================================
</TABLE>
* 1997 data reflects the asset impairment charge of $226,358 pre-tax ,or
$174,500 after-tax. Included in 1993 and 1991 were gains from the early
repayment of a note issued in connection with the sale of Sonoco Graham in
1991. Also includes restructuring charges of $42,000 pre-tax, or $25,000
after-tax, in 1992 and $75,000 pre-tax, or $54,650 after-tax, in 1990. In
1987, includes acquisition consolidation charges of $10 million pre-tax, or
$5,600 after-tax.
** Debt levels adjusted for excess cash at year-end related to the issuance of
restricted-purpose bonds.
44
<PAGE> 35
SELECTED ELEVEN-YEAR FINANCIAL DATA
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
1993* 1992* 1991* 1990* 1989 1988 1987*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,947,224 $1,838,026 $1,697,058 $1,669,142 $1,655,830 $1,599,751 $1,312,052
1,734,980 1,641,075 1,528,543 1,481,271 1,470,877 1,413,912 1,174,777
31,154 30,364 28,186 28,073 29,440 25,175 18,593
(6,017) (6,416) (6,870) (2,196) (2,573) (1,517) (1,045)
(5,800) 42,000 (8,525) 75,000 10,000
- ------------------------------------------------------------------------------------------------------------------
192,907 131,003 155,724 86,994 158,086 162,181 109,727
75,200 51,800 63,600 43,934 60,906 67,029 48,714
1,127 2,048 2,681 7,308 6,381 1,125 469
- ------------------------------------------------------------------------------------------------------------------
118,834 81,251 94,805 50,368 103,561 96,277 61,482
(37,892)
- ------------------------------------------------------------------------------------------------------------------
118,834 43,359 94,805 50,368 103,561 96,277 61,482
(1,264)
- ------------------------------------------------------------------------------------------------------------------
$ 117,570 $ 43,359 $ 94,805 $ 50,368 $ 103,561 $ 96,277 $ 61,482
==================================================================================================================
19.9% 13.7% 17.8% 9.6% 21.3% 23.0% 17.0%
19.0% 13.7% 17.8% 9.6% 21.3% 23.0% 17.0%
6.1% 4.4% 5.6% 3.0% 6.3% 6.0% 4.7%
1.28 .89 1.05 .55 1.12 1.05 .67
(.41)
- ------------------------------------------------------------------------------------------------------------------
1.28 .48 1.05 .55 1.12 1.05 .67
1.26 .47 1.04 .55 1.11 1.04 .66
.505 .467 .438 .429 .386 .305 .240
91,681 91,069 90,620 91,464 92,184 92,014 92,117
99,737 91,920 91,114 91,889 93,001 92,673 92,645
91,819 91,501 90,815 90,405 91,826 92,108 91,908
- -------------------------------------------------------------------------------------------------------------------
209,932 152,478 163,860 184,066 193,035 188,085 143,972
737,154 614,018 580,787 562,591 494,290 533,427 482,357
1,707,125 1,246,531 1,135,940 1,113,594 995,132 977,459 877,625
515,826 316,010 283,199 312,120 255,286 298,000 274,339
788,364 561,890 562,306 512,828 511,574 454,486 379,912
1.7 1.5 1.6 1.7 2.1 2.0 1.8
38.0% 35.1% 30.6% 34.7% 30.4% 36.8% 38.6%
6.71 6.14 6.19 5.67 5.57 4.93 4.13
- ------------------------------------------------------------------------------------------------------------------
95,745 83,309 76,561 72,152 67,263 69,055 57,086
46,333 42,443 39,703 39,216 35,583 28,046 21,942
20.95 22.74 16.43 15.48 17.62 16.31 10.12
==================================================================================================================
</TABLE>
45
<PAGE> 36
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
CHARLES J. BRADSHAW, 61, President and Director, Bradshaw Investments, Inc.
(private investments), Georgetown, S.C., since 1986. Served on Board since 1986.
Member of the Audit Committee and Executive Compensation Committee.
ROBERT J. BROWN, 63, Founder, Chairman and Chief Executive Officer of B&C
Associates (a public relations and marketing research firm), High Point, N.C.,
since 1973. Served on Board since 1993. Member of the Audit Committee,
Employee/Public Responsibility Committee and Finance Committee.
PETER C. BROWNING, 56, President and Chief Operating Officer since February
1996. Served on Board since 1995. Member of the Executive Committee.
CHARLES W. COKER, 64, Chairman and Chief Executive Officer since 1990. Served on
Board since 1962. Member of the Executive Committee.
FITZ L.H. COKER, 62, Retired, formerly Senior Vice President, 1976-1979. Served
on Board since 1964. Member of the Finance Committee and Nominating Committee.
JAMES L. COKER, 57, President, JLC Enterprises (private investments),
Stonington, Conn., since 1979. Served on Board since 1969. Member of the
Nominating Committee, Employee/Public Responsibility Committee and Finance
Committee.
THOMAS C. COXE, III, 67, Retired, formerly Senior Executive Vice President
1993-1996. Served on Board since 1982. Member of the Employee/Public
Responsibility Committee and Finance Committee.
ALAN T. DICKSON, 66, Chairman, Ruddick Corporation (a diversified holding
company), Charlotte, N.C., since 1994. Formerly President and Director, Ruddick
Corporation since 1968. Served on Board since 1981. Member of the Finance
Committee, Executive Compensation Committee and Executive Committee.
ROBERT E. ELBERSON, 69, Retired, formerly Vice Chairman and Director, Sara Lee
Corporation, Chicago, Ill., 1986-1989. Served on Board since 1985. Member of the
Executive Compensation Committee, Employee/Public Responsibility Committee and
Nominating Committee.
JAMES C. FORT, 71, Retired, formerly Senior Vice President, 1979-1987. Served on
Board since 1969. Member of the Audit Committee and Nominating Committee.
PAUL FULTON, 63, Chief Executive Officer of Bassett Furniture Industries,
Winston-Salem, N.C., since 1997. Formerly Dean, Kenan-Flagler Business School,
University of N.C., Chapel Hill, N.C., 1993-1997. Served on Board since 1989.
Member of the Audit Committee and Executive Compensation Committee.
BERNARD L.M. KASRIEL, 51, Vice Chairman and Chief Operating Officer of Lafarge
(a construction materials group), Paris, France. Served on Board since 1995.
Member of the Audit Committee and Executive Compensation Committee.
EDGAR H. LAWTON, JR., 68, President and Director, Hartsville Oil Mill (a
vegetable oil processor), Darlington, S.C., since 1962. Served on Board since
1968. Member of the Nominating Committee, Employee/Public Responsibility
Committee, Executive Committee and Executive Compensation Committee.
HUGH L. MCCOLL, JR., 62, Chief Executive Officer, NationsBank Corporation,
Charlotte, N.C., since 1983. Served on Board since 1972. Member of the Finance
Committee, Executive Committee and Nominating Committee.
DONA DAVIS YOUNG, 44, Executive Vice President, Individual Insurance and General
Counsel of Phoenix Home Life Mutual Insurance Company, Hartford, Conn., since
1995. Served on Board since 1995. Member of the Executive Compensation
Committee, Employee/Public Responsibility Committee and Audit Committee.
EXECUTIVE OFFICERS
CHARLES W. COKER, 64, Chairman of the Board and Chief Executive Officer since
1990. Previously President and Chief Executive Officer 1976-1990; President
1970-1976; Executive Vice President 1966-1970. Began full-time employment with
Sonoco in 1958.
PETER C. BROWNING, 56, President and Chief Operating Officer since February
1996. Previously Executive Vice President-Global Industrial Products/Paper
1993-1996. Prior to Sonoco was Chairman and Chief Executive Officer, National
Gypsum Company 1990-1993; President of Bondware and Whitecap divisions and later
as Corporate Executive Vice President, Continental Can Company 1966-1990. Joined
Sonoco in 1993.
JIM C. BOWEN, 47, Vice President and General Manager-Paper Division since 1997.
Previously, Vice President-Manufacturing North America, Paper since 1994-1997;
Director of Manufacturing 1993-1994; Northeast Regional Manufacturing Manager
1988-1993; Production Manager, Hartsville Cylinder 1983-1988. Joined Sonoco in
1972.
BERNARD W. CAMPBELL, 48, Vice President-Information Services since February
1996. Previously Staff Vice President-Information Services 1991-1996;
Director-Corporate Information Services 1990-1991; Director-Software Support
1988. Joined Sonoco in 1988.
ALLAN V. CECIL, 56, Vice President-Investor Relations and Corporate
Communications since January 1996. Prior to Sonoco was Vice President-Corporate
Communications and Investor Relations, National Gypsum Company and previously
with Mesa Petroleum Company. Joined Sonoco in 1996.
Sonoco's Board members from top left: Robert E. Elberson, Charles J. Bradshaw,
Bernard L.M. Kasriel, Charles W. Coker, Paul Fulton, Robert J. Brown and Fitz
L.H. Coker. Members from bottom left: James L. Coker, James C. Fort, Edgar H.
Lawton, Jr., Hugh L. McColl, Jr., Peter C. Browning, Dona Davis Young, Alan T.
Dickson and Thomas C. Coxe, III.
<PAGE> 37
OFFICERS
PETER C. COGGESHALL, JR., 54, Vice President-Administration since 1991.
Previously Group Vice President-Global Paper 1990-1991; Vice
President-Industrial Products 1986-1990; Vice President-Paper 1978-1986;
Division Vice President/General Manager-Paper 1977-1978; Division Vice President
Operations-General Products 1977. Joined Sonoco in 1969.
HARRIS E. DELOACH, JR., 53, Executive Vice President with responsibility for
Global Industrial Products/Paper and Sonoco Crellin (molded and extruded
plastics) since February 1998. Previously Executive Vice President responsible
for High Density Film Products, Industrial Container, Fibre Partitions,
Protective Packaging, Sonoco Crellin and Baker Reels, 1996-1998. Group Vice
President 1993-1996; Vice President-Film, Plastics and Special Products 1993;
Vice President-High Density Film Products 1989-1993; Vice President
Administration and General Counsel 1985-1989. Joined Sonoco in 1985.
Nominated to Sonoco Board of Directors pending April 15, 1998, shareholder
election.
CYNTHIA A. HARTLEY, 49, Vice President-Human Resources since 1995. Previously
Vice President-Human Resources, National Gypsum Company, Dames & Moore and
previous experience with Continental Can Company. Joined Sonoco in 1995.
F. TRENT HILL, JR., 45, Vice President and Chief Financial Officer since 1995.
Previously Vice President-Finance 1994-1995; Vice President-Industrial Products
North America 1990-1994; Vice President-Finance 1987-1989; Vice
President-Corporate Controller 1982-1987; Staff Vice President-Corporate
Controller 1981-1982; Director of Audit and Taxes 1979-1981; Internal Audit
Manager 1979. Joined Sonoco in 1979.
RONALD E. HOLLEY, 55, Vice President-High Density Film Products since 1993.
Previously Vice President-Total Quality Management 1990-1993; Vice
President-Industrial Products 1987-1990; Division Vice President-Industrial
Products 1985-1987; Division Vice President-Consumer Products 1983. Joined
Sonoco in 1964.
CHARLES J. HUPFER, 51, Vice President, Treasurer and Corporate Secretary since
1995. Previously Treasurer 1988-1995; Director of Tax and Audit 1985-1988;
Director-International Finance and Accounting 1980-1985; Manager of Corporate
Accounting 1978-1980; Manager of Financial Reporting 1975-1978. Joined Sonoco in
1975.
J. RANDY KELLEY, 43, Vice President-Industrial Products, North America since
1994. Previously Division Vice President Industrial Container 1991-1993; Area
Manufacturing Manager-Consumer Products 1988-1990; Manager-Special Projects
1986-1987; Plant Manager-Consumer Products, Naperville, Ill., 1984-1986. Joined
Sonoco in 1978.
RAYMOND L. MCGOWAN, JR., 46, Vice President and General Manager-Global Consumer
Products since February 1998. Previously Vice President-Consumer Products
1997-1998; Vice President and General Manager-Consumer Products, United States
and Canada 1994-1997; Division Vice President-Sales, Marketing and Technology,
Consumer Products 1987-1992; Division Sales Manager-Consumer Products 1987;
Division Marketing Manager 1985. Joined Sonoco in 1983.
HARRY J. MORAN, 65, Executive Vice President with responsibility for Flexible
Packaging, Capseals, Harland Labels and Machinery, Trident, Standard Cap,
Folding Cartons, High Density Film, Baker Reels and Protective Packaging since
February 1998. Previously Executive Vice President responsible for Consumer
Packaging Group, 1996-1998; Group Vice President-Consumer Packaging 1993-1996;
Vice President and General Manager-Consumer Packaging 1990-1993; Division Vice
President and General Manager-Consumer Products 1985-1990; Division Vice
President-Consumer Products 1983-1984. Joined Sonoco in 1983.
EARL P. NORMAN, JR., 61, Vice President-Technology since 1989. Previously Staff
Vice President-Business Development and Technology 1985-1986; Director-Business
Development and Technology 1985. Joined Sonoco in 1969.
CHARLES F. PATERNO, 41, Vice President-Industrial Products/Paper, Europe since
February 1998. Previously Division Vice President-Industrial Products/Paper,
Europe 1996-1998; President-Sonoco Limited 1994-1995; General Manager-Specialty
Business Unit, Industrial Products 1991-1994; General Manager-Western Region,
Industrial Products 1989-1991; Sales Manager-Northwest, Industrial Products
1987-1989; Plant Manager, Vancouver, Wash., Industrial Products 1985-1987; Plant
Manager, Camden, Ark. 1984-1985.
EDDIE L. SMITH, 46, Vice President/General Manager, Flexible Packaging since
February 1998. Previously Division Vice President/General Manager-Flexible
Packaging 1996-1998; Division Vice President-Consumer Products, Europe
1994-1996. Prior to joining Sonoco, he was Managing Director, CMB/Sonoco
1989-1993. He also held the positions of General Manager and Sales and Marketing
Manager with CarnaudMetalbox.
PERRY D. SMITH, 47, Vice President and Managing Director-Sonoco Asia, L.L.C.
since October 1996. Previously Managing Director-Sonoco Asia, L.L.C. 1994-1996;
Director-Business Development, Asia Pacific 1992-1994; Director, Marketing,
International (Asia) 1988-1992. Joined Sonoco in 1988.
DIVISION AND STAFF OFFICERS
JAMES A. ALBRIGHT, 53, Staff Vice President-Technology, Consumer Packaging
Group since January 1997. Joined Sonoco in 1992.
JOSEPH C. BOUKNIGHT, 45, Staff Vice President-Human Resources, Industrial
Products/Paper since June 1997. Joined Sonoco in 1976.
RODGER D. FULLER, 36, Division Vice President-Consumer Products, Europe since
March 1997. Joined Sonoco in 1985.
LARRY O. GANTT, 60, Vice President-Operating Excellence since February 1997.
Joined Sonoco in 1963.
ROBERT J. GIANGIORGI, 55, Staff Vice President-International Business
Development, Consumer Packaging Group since January 1997. Joined Sonoco in 1983.
DONALD M. GORE, 48, Division Vice President-Sales and Marketing, Industrial
Products North America since 1996. Joined Sonoco in 1972.
JOHN M. GRUPS, 47, Division Vice President-Global Operations, Consumer
Packaging Group, since February 1997. Joined Sonoco in 1976.
DANIEL G. HAUSE, 49, Division Vice President-Manufacturing, Industrial Products
since February 1998. Joined Sonoco in 1970.
LINDA O. HILL, 49, Staff Vice President-Global Technology since June 1996.
Joined Sonoco in 1966.
JOHN D. HORTON, 55, Division Vice President-Sales & Marketing, High Density
Film Products since 1988. Joined Sonoco in 1972.
KEVIN P. MAHONEY, 42, Staff Vice President-Corporate Planning since February
1996. Joined Sonoco in 1987.
JOHN J. MIKULA, 56, Division Vice President-Sonoco Packaging Systems since
October 1996. Joined Sonoco in 1986.
FRANK J. POPELARS, 57, Staff Vice President-Corporate Controller since 1993.
Joined Sonoco in 1983.
CHARLES W. REID, 59, Division Vice President and General Manager-Baker Division
since 1988. Joined Sonoco in 1988.
J.C. RHODES, 59, Division Vice President-Operations Support since 1991. Joined
Sonoco in 1961.
JUAN ROMAN, 56, Vice President-Industrial Products/Paper, South America since
1993. Joined Sonoco in 1984.
JAMES H. SHELLEY, 54, Staff Vice President-Employee Relations and Labor Counsel
since 1980. Joined Sonoco in 1965.
DAVID THORNELY, 53, Managing Director-Sonoco Australasia since 1994. Joined
Sonoco in 1991.
47
<PAGE> 1
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of Sonoco Products Company, pursuant to Item 601(21) of Regulation
S-K, as of December 31, 1997 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.
b. Sonoco Packaging Services, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
1. Total Packaging Systems of Georgia, L.L.C.,
80%-owned limited liability company,
organized in the State of Georgia.
2. Sonoco Plastic Drum, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Illinois.
a. Sonoco Plastic Drum Southwest Division, Inc.,
100%-owned domestic subsidiary, incorporated in the
State of Texas.
b. Sonoco Plastic Drum Southeast Division, Inc.,
100%-owned domestic subsidiary, incorporated in the
State of Kentucky.
3. Paper Stock Dealers, Inc., 100%-owned domestic subsidiary,
incorporated in the State of North Carolina.
4. Sonoco-Crellin Holdings, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
a. Sonoco-Crellin International, Inc., 100%-owned
domestic subsidiary, incorporated in the State of
Delaware, holder of securities in:
1. Crellin, Inc., 100%-owned domestic
subsidiary, incorporated in the State of New
York.
a. Crellin Europe B.V., 100%-owned
Dutch subsidiary.
1. Crellin B.V., 100%-owned
Dutch subsidiary.
<PAGE> 2
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
2. Sebro Plastics, Inc., 100%-owned domestic
subsidiary, incorporated in the State of
Michigan.
a. Convex Mold, Inc., 100%-owned
domestic subsidiary, incorporated
in the State of Michigan.
3. Injecto Mold, 100%-owned domestic
subsidiary, incorporated in the State of
Illinois.
5. Sonoco Flexible Packaging, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
a. Engraph Puerto Rico, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
b. Sonoco-Engraph Puerto Rico, Inc., 100%-owned domestic
subsidiary, incorporated in the State of Delaware.
c. E L R, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
1. Sonoco-Engraph Holdings, Inc., 100%-owned
domestic subsidiary, incorporated in the
State of Delaware.
2. Sonoco-Engraph, Inc.,100%-owned domestic
subsidiary, incorporated in the State of
Kentucky.
d. Engraph Mexico S.A. de C.V., 100%-owned Mexican
subsidiary.
6. 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.
7. Timber Properties, Ltd., (B.V.I.), 100%-owned by Sonoco
Products Company.
<PAGE> 3
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
8. Sonoco International, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware, holder of securities
in:
a. Sonoco Limited, 100%-owned Canadian subsidiary.
b. 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 Limited, 100%-owned U.K.
subsidiary.
b. Sonoco Consumer Products Limited,
U.K., 100%-owned U.K. subsidiary.
2. The Harland Group Limited, 100%-owned U.K.
subsidiary.
a. Harland Machine Systems Ltd.,
100%-owned U.K. subsidiary.
b. Harland France SARL, 100%-owned
French subsidiary.
c. Harlands of America, Inc.,
100%-owned subsidiary, incorporated
in the State of Delaware.
c. 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 German
subsidiary.
b. OPV Oberrhein GmbH, 100%-owned
German subsidiary.
<PAGE> 4
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
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.
5. Dosen-Schmitt, GmbH, 100%-owned German
subsidiary.
d. Sonoco SNC, 100%-owned French partnership with the
following subsidiaries and affiliate:
1. Sonoco Holdings, 100%-owned French
subsidiary.
a. Sonoco Lhomme S.A., 100%-owned
French subsidiary.
1. Sonoco Eurocore, Belgium,
100%-owned Belgian
subsidiary.
2. Papeteries Du Rhin,
47%-owned French affiliate.
b. Sonoco Consumer Products S.A.,
100%-owned French subsidiary.
e. Sonoco Asia, L.L.C., 70%-owned limited liability
company.
1. Sonoco Singapore Pte, Ltd., 100%-owned
Singapore subsidiary.
a. Malaysia Holding, SDN BHD,
100%-owned Malaysian subsidiary.
b. Sonoco Malaysia, SDN BHD,
100%-owned Malaysian subsidiary.
2. Sonoco Taiwan Limited, 100%-owned Republic
of China subsidiary.
3. Sonoco Thailand Ltd., 70%-owned Thai
subsidiary.
<PAGE> 5
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
4. Sonoco-Hongwen, L.L.C., 80%-owned limited
liability company.
f. Sonoco Asia Management Company, L.L.C., 70%-owned
limited liability company.
g. Sonoco do Brazil LTDA., 100%-owned Brazilian
subsidiary.
h. Sonoco Participaceos, 99%-owned Brazilian subsidiary.
1. Sonoco For-Plas, 51%-owned Brazilian
subsidiary.
i. Inversiones Sonoco Limitada, 99%-owned Chilean
subsidiary.
1. Sonoco de Chile, 51%-owned Chilean
subsidiary.
9. Southern Plug & Manufacturing Co., Inc., 100%-owned domestic
subsidiary, incorporated in the State of Louisiana.
10. Sonoco "SPG", Inc., 100%-owned domestic subsidiary,
incorporated in the State of Wisconsin.
<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 (September 4, 1985, November 27, 1989,
November 22, 1993, June 7, 1995 and September 25, 1996) and Form S-3 (filed June
6, 1991, File No. 33-40538; filed October 4, 1993, File No. 33-50501 as amended;
filed October 4, 1993, File No. 33-50503 as amended) of our report dated January
30, 1998, on our audits of the consolidated financial statements of Sonoco
Products Company as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, which report is incorporated by
reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Charlotte, North Carolina
March 13, 1998
<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,
1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,909
<SECURITIES> 26,691
<RECEIVABLES> 295,290
<ALLOWANCES> 5,299
<INVENTORY> 210,098
<CURRENT-ASSETS> 873,040
<PP&E> 1,759,134
<DEPRECIATION> 819,592
<TOTAL-ASSETS> 2,176,865
<CURRENT-LIABILITIES> 434,144
<BONDS> 696,669
0
0
<COMMON> 7,175
<OTHER-SE> 841,644
<TOTAL-LIABILITY-AND-EQUITY> 2,176,865
<SALES> 2,847,831
<TOTAL-REVENUES> 2,847,831
<CGS> 2,208,092
<TOTAL-COSTS> 2,208,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,745
<INTEREST-EXPENSE> 57,194
<INCOME-PRETAX> 63,719
<INCOME-TAX> 60,111
<INCOME-CONTINUING> 2,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,617
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<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, 1997
----------
SONOCO PRODUCTS COMPANY
1983 KEY EMPLOYEE STOCK OPTION PLAN,
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
AND
SONOCO PRODUCTS COMPANY
1996 NON-EMPLOYEE DIRECTORS' 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 incorporated herein by reference in this Form 11-K Annual Report.
