<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, 1999
[ ] 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: 843-383-7000
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. [X]
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 5,
2000, was $1,691,879,054. Registrant does not have any non-voting common stock
outstanding.
As of March 5, 2000, there were 100,131,482 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, 1999, 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 19, 2000, 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 1999
Annual Report to Shareholders (the "1999 Annual
Report") are incorporated herein by reference:
Management's Discussion and Analysis on pages 25 -
33, and Notes 2 and 3 to the Consolidated Financial
Statements on pages 38 - 39.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - Note
18 to the Consolidated Financial Statements on page
45 of the 1999 Annual Report is incorporated herein
by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS - The operations
reviews on pages 6 - 9 and Management's Discussion &
Analysis on pages 25 - 33 of the 1999 Annual Report
are incorporated herein by reference. As of December
31, 1999, the Company had approximately 17,500
employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES - Note 18 to the
Consolidated Financial Statements on page 45 of the
1999 Annual Report is incorporated herein by
reference.
(e) EXECUTIVE OFFICERS OF THE REGISTRANT - 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 50 - 51 of the 1999 Annual Report and is
incorporated herein by reference.
ITEM 2 PROPERTIES - The information about properties owned and leased
by the Company on page 30 of Management's Discussion &
Analysis of the 1999 Annual Report is incorporated herein by
reference.
ITEM 3 LEGAL PROCEEDINGS - Note 15 to the Consolidated Financial
Statements on page 44 of the 1999 Annual Report is
incorporated herein by reference.
In February 2000, Sonoco received a favorable ruling from the
Denver District Court in a trade secrets case against a
competitor and a former employee. The ruling awarded Sonoco
approximately $4.7 million in actual damages and $2.3 million
in punitive damages. The ruling has been appealed;
accordingly, the award has not yet been reflected in Sonoco's
financial statements.
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 1999 Annual
Report are herein incorporated by reference: the information
relating to market price and cash dividends under Selected
Quarterly Financial Data on page 24, and the information
relating to cash dividends in the Management's Discussion &
Analysis at the bottom right of page 29. The Company's common
stock is traded on the New York Stock Exchange under the stock
symbol "SON". At December 31, 1999, there were approximately
39,000 shareholder accounts.
ITEM 6 SELECTED FINANCIAL DATA - The Selected Eleven-Year Financial
Data provided on pages 46 - 47 of the 1999 Annual Report are
incorporated herein by reference.
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<PAGE> 3
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART II (CONTINUED)
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Management's Discussion & Analysis
on pages 25 - 33 of the 1999 Annual Report is incorporated
herein by reference.
Subsequent to December 31, 1999, through March 23, 2000, the
Company has repurchased 2,474,300 shares of the Company's
common stock at a total cost of $46,364,038.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
Pages 29 - 30 of Management's Discussion & Analysis of the
1999 Annual Report is incorporated herein by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - The following
items provided in the 1999 Annual Report are incorporated
herein by reference: the Selected Quarterly Financial Data on
page 24; the Consolidated Financial Statements and Notes to
the Consolidated Financial Statements on pages 34 - 45; and
the Report of Independent Certified Public Accountants on page
48.
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 5
- 9 and page 29, 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 21 - 27 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 13 - 15 of the Company's definitive Proxy Statement
under the captions "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" 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 26 - 27; and "Transactions with Management" on page
27.
-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,
1999 and 1998; Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997; Consolidated Statements of
Changes in Shareholders' Equity for the years ended December 31, 1999,
1998 and 1997; and Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997.
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
1 Underwriting Agreement (incorporated by reference to Form 8-K
filed on November 17, 1999)
3-1 Articles of Incorporation (incorporated by reference to the
Registrant's Form 10-Q for the quarter ended June 27, 1999)
3-2 By-Laws (incorporated by reference to the Registrant's Form
10-Q for the quarter ended June 27, 1999)
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)
10-6 Sonoco Products Company Centennial Shares Plan (incorporated
by reference to the Registrant's Form S-8 dated December 30,
1998)
12 Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to Form 8-K filed on November 12,
1999)
13 1999 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 19, 2000 (previously
filed)
-4-
<PAGE> 5
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV (CONTINUED)
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key
Employee Stock Option Plan
(b) Reports on Form 8-K: Sonoco filed the following Reports on Form 8-K
during the fourth quarter of 1999: Form 8-K relating to Item 7 of that
form with respect to the Computation of Ratio of Earnings to Fixed
Charges, filed on November 12, 1999; and Form 8-K relating to Item 7 of
that form with respect to the Underwriting Agreement, filed on November
17, 1999.
-5-
<PAGE> 6
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 24th day of
March 2000.
SONOCO PRODUCTS COMPANY
/s/ Peter C. Browning
-------------------------------------
Peter C. Browning
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities indicated on this 24th day of March 2000.
/s/ F. T. Hill, Jr.
-------------------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
-6-
<PAGE> 7
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES, CONTINUED
/s/ C. W. Coker Director (Chairman)
- ------------------------
C. W. Coker
/s/ P. C. Browning President, Chief Executive 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
/s/ J. L. Coker Director
- ------------------------
J. L. Coker
/s/ T. C. Coxe, III Director
- ------------------------
T. C. Coxe, III
/s/ H. E. DeLoach, Jr. Director
- ------------------------
H. E. DeLoach, Jr.
/s/ A. T. Dickson Director
- ------------------------
A. T. Dickson
/s/ P. Fulton Director
- ------------------------
P. Fulton
/s/ B. L. M. Kasriel 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
/s/ C. D. Spangler, Jr. Director
- ------------------------
C. D. Spangler, Jr.
-7-
<PAGE> 8
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
1 Underwriting Agreement (incorporated by reference to Form 8-K
file on November 17, 1999)
3-1 Articles of Incorporation (incorporated by reference to the
Registrant's Form 10-Q for the quarter ended June 27, 1999)
3-2 By-Laws (incorporated by reference to the Registrant's Form
10-Q for the quarter ended June 27, 1999)
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)
10-6 Sonoco Products Company Centennial Shares Plan (incorporated
by reference to the Registrant's Form S-8 dated December 30,
1998)
12 Computation of Ratios of Earnings to Fixed Charges
(incorporated by reference to Form 8-K file on November 12,
1999)
13 1999 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 19, 2000 (previously
filed)
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key
Employee Stock Option Plan
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<PAGE> 1
INDUSTRIAL
PACKAGING
[PHOTO]
SONOCO'S INDUSTRIAL PACKAGING SEGMENT ACCOUNTS FOR APPROXIMATELY 55% OF THE
COMPANY'S SALES. THESE PRODUCTS INCLUDE HIGH PERFORMANCE PAPER AND
PLASTIC-BASED ENGINEERED CARRIERS AND PAPERBOARD; WOOD, METAL AND COMPOSITE
REELS FOR WIRE AND CABLE PACKAGING; AND DESIGNED INTERIOR PACKAGING.
ENGINEERED CARRIERS
Engineered carriers are tubes and cores made of fibre, injection molded and
extruded plastic, or composite materials that are used by a wide range of
industries to wind and transport their products. The major markets served by
Sonoco are textiles, paper, film, foil, tape and coiled metals. These products
are also used for non-winding applications such as construction molds and
storage and shipping containers.
Sonoco is the world's largest producer of paperboard engineered carriers,
operating some 112 manufacturing sites in North America, South America, Europe,
Asia and Australia, with sales of approximately $1.1 billion for tubes, cores
and paperboard. While there is strong competition from regional and local
manufacturers, the trend of global consolidation, where fewer customers demand
fewer suppliers with uniform quality and capabilities around the world, leaves
Sonoco well positioned to maintain and build upon its leadership position.
The Company's engineered carriers business also includes injection molded
and extruded plastics operations generating some $130 million in annual sales.
In addition to engineered carriers and protective end walls, the 17 dedicated
plastics plants produce products used in the wire and cable, automotive,
plumbing, filtration, food and quick service restaurant markets.
TECHNOLOGY LEADER
Sonoco is recognized not only as a leading manufacturer of industrial
packaging, but also as the technology leader, a necessity in a world pursuing
ever-greater performance at the most competitive cost. Sonoco has an integrated
network of global technology centers on four continents staffed by experts in
materials science, packaging engineering and process improvement. Global
collaboration among Sonoco's scientists, our customers and equipment
manufacturers leverages these resources so that the best solutions are
delivered to customers, whether it's a new yarn tube capable of winding at
speeds of 8,000 meters per minute, a paper mill core that can accommodate rolls
of paper weighing in excess of six tons, or a radial crush tester that allows
film producers to match their carriers to the application with pinpoint
accuracy. No other packaging company in the world adds as much value through
technology as Sonoco does in the businesses in which it operates.
SUPPLY CHAIN MANAGEMENT
The Company is also adding value through its state-of-the-art order
fulfillment center in Hartsville, S.C. The Company has implemented the latest
e-Business technology needed to provide customers with cost savings and
service-enhancing supply chain management capabilities.
6
<PAGE> 2
[CHART]
NET SALES, INDUSTRIAL SEGMENT
($ in billions)
1999 sales were lower due to the disposition of the industrial container
business in 1998 and the contribution of previously consolidated entities to
joint ventures.
GEOGRAPHIC EXPANSION
To strengthen our ability to supply engineered carriers to global markets, the
Company opened a number of new production facilities in 1999. These include a
high-performance engineered carrier plant in Bursa, Turkey, for textile
carriers and another in Poland at the request of a global paper customer.
Sonoco has also committed to a new joint venture paper mill with an annual
capacity of 12,000 tons in northern Greece to supply Turkish and French
operations.
Customers respond positively to Sonoco's commitment to being the low-cost,
high-value global supplier of engineered carriers. Unit volume growth was up
approximately 6% over 1998, with demand increasing in all geographical areas.
Operating profit in our integrated engineered carriers and paperboard
operations in 1999 was down slightly when compared with 1998. The year was
adversely impacted by lingering effects of the Asian Flu in January and an
increase in old corrugated container (OCC) prices. For the last six months of
1999, operating profit was up more than 15% over the same period in 1998,
reflecting strengthening volumes and strong productivity improvement. The
Company instituted price increases in North America, Europe, and Latin America
to offset these higher raw materials costs. Due to the lag between the cost
increases and selling price realization, the Company had a negative price/cost
position for 1999. In 2000, we expect that selling price increases already
implemented will recover most, if not all, of the cost increases.
PAPER OPERATIONS
Sonoco's paper operations are a key component of the Company's strategy of
vertical integration in its paper packaging operations. One of the world's
leading producers of recycled paperboard with 26 paper mills running 37
papermaking machines in 10 countries, the Company's annual global capacity has
grown to nearly 1.6 million tons of paperboard. Of this, approximately 85% is
used in Sonoco's own products. The remaining 15% is sold to converters for
applications that include book covers, backing for tablets and pads, household
filters, folding cartons and partitions, and specialty items such as game
tickets, tags and candy board. The Company also produces approximately 185,000
tons of corrugating medium for Georgia-Pacific under a management fee
arrangement.
Recovered paper is one of Sonoco's primary raw materials. Each year the
Company collects some two million tons via its network of 44 recovered paper
collection facilities around the world. Sonoco offers customized reclamation
programs to customers, municipalities and private businesses generating large
amounts of used paper. This valuable service stops millions of pounds of
recoverable materials from being sent to landfills.
During 1999,the Company completed a major renovation of its Richmond, Va.,
paper mill which, after a difficult start-up, is now operating at capacity and
principally supporting Sonoco's composite can operations. This has enabled the
Company to supply significantly more of its composite can paperboard
requirements internally.
The final component of Sonoco's vertical integration is adhesives
manufacturing and machinery manufacturing. Both support the Company's paper
converting businesses.
PROTECTIVE PACKAGING
DESIGNED INTERIOR PACKAGING
Sonoco's designed interior packaging products are used to secure and package
major appliances such as dishwashers, washing machines and ranges for
distribution. The primary product is Sonopost(R) corner posts, which uses
Sonoco-made recycled paperboard as the principal raw material, making it a
lightweight, strong and cost-effective solution. The appeal of this packaging
has earned Sonoco a major market share with Maytag and Whirlpool. Additionally,
Sonoco has packaging engineers in both customers' facilities who assist in
product design and inventory management. This business, which represents a
significant growth opportunity, has three plants in the United States. A fourth
plant opened in San Luis Potosi, Mexico, this year to supply a major customer's
new operation.
OPERATING INCOME, INDUSTRIAL SEGMENT
($ in millions)
1998 operating income excludes the gain on the sale of the industrial
containers business and one-time charges. Reported operating income in 1998 was
$282.1 million.
WIRE AND CABLE REELS
Sonoco Baker Reels is the leading producer of nailed-wood, plywood and metal
reels for the wire and cable industry in the United States. In 1999, the
Company acquired Wood Composite Technology of Greensboro, Ga., a manufacturer
of composite (wood and plastic) reels. Composite reels are lightweight, durable
and reusable and provide a natural extension of our product line. The wire and
cable reel operation serves customers from seven United States manufacturing
sites and 28 warehouse locations.
7
<PAGE> 3
CONSUMER PACKAGING
Sonoco's consumer packaging businesses comprise approximately 45% of the
Company's sales. These businesses include composite cans, flexible packaging,
and speciality packaging and services.
COMPOSITE CANS
Sonoco is the world's leading producer and technological innovator of composite
cans, delivering such consumer-preferred features as ease of opening and
resealability, portability, durability, ease of handling and storage, extended
shelf and pantry life, and an endless choice of sizes and shapes. Sonoco is
also the market leader in fibre and plastic caulk cartridge packaging for the
adhesive and sealant industry.
NUMEROUS OPTIONS FOR CUSTOMERS
Sonoco composite cans are spiral wound for strength and typically consist of
four layers: two plies of 100% recycled paperboard, a protective liner with
barrier qualities specific to the product, and a label.
Composite cans offer exceptional flexibility to meet customer needs,
including a variety of opening systems, ranging from shaker tops for cleansers
and grated cheeses, peelable membranes for snacks and shortenings to a peelable
membrane with a one-way "freshness" valve for roasted coffee. The bottom of the
package can be either metal or paper. Labels can be applied during or after
winding as a convolute label. Customers can even self-apply their labels. The
resealable overcaps can be pigmented and embossed for further
differentiation.
Sonoco has 43 composite can plants in 13 countries on four continents, with
additional locations currently planned.
Composite cans, referred to as paperboard canisters in Europe, generally
contain more than 50% recycled content. They are used to package a wide range
of products: snacks, refrigerated dough and pastries, powdered beverages,
roasted coffee, nuts, candy, cookies and crackers, cereal, frozen concentrates,
salt, cleansers, adhesives, and many others. In addition, this business makes
fibre and plastic cartridges for the adhesives, ink, petroleum and sealants
markets.
Sonoco's global composite can and cartridge unit volume in 1999 increased
over 10% from 1998 from gains in the snack, nut, cartridge and powdered
beverage sectors, and the acquisition in August of Crown Cork & Seal's
composite can assets. Also, new operations began in Delicias, Mexico, and in
Kuala Lumpur, Malaysia. International unit volume increased sharply, although
from a much smaller base than in North America, principally in Europe where
leading snack manufacturers launched more than 10 new products in 1999. Demand
for cans also increased in Latin America.
NEW PRODUCT INTRODUCTIONS
Sonoco enjoyed a number of successful, high profile launches in 1999: Mead
Johnson Nutritional's Viactiv(R), Procter & Gamble's Pringles(TM) Twin
Stack, and Minute Maid's new frozen concentrate package featuring the
consumer-friendly Ring-Pull Mirastrip(R) opening system. Kellogg Company
launched a new wholesome snack product, Snack `Ums(TM), for which Sonoco is
providing three package sizes. Kellogg's selection of Sonoco's composite cans
for this new product demonstrates the composite can's appeal to consumers.
Operating profits improved over a difficult 1998,reflecting increased
volume, productivity improvement and fixed costs controls.
Growth Strategy
Sonoco's strategy for growth in the global composite can market includes the
continuing introduction of new packaging innovations; responding
8
<PAGE> 4
to consumer needs for convenience; focusing on opportunities in snacks, powdered
beverages and coffee; converting customers from other forms of packaging; and
converting self-manufacturers. Special emphasis will also be placed on
geographical expansion in Europe, Asia and Latin America, where market
penetration is relatively low.
[BAR GRAPH]
NET SALES, CONSUMER SEGMENT
($ in billions)
1999 sales were higher due to the impact of acquisitions and volume increases,
particularly in the European and Latin American composite can operations.
FLEXIBLE PACKAGING
Sonoco's flexible packaging operations include printed flexible packaging, high
density film products and container seals.
PRINTED FLEXIBLE PACKAGING
With the acquisition of the flexible packaging division of Graphic Packaging
Corporation, Sonoco should double the sales of printed flexibles from
approximately $125 million to $250 million per year. Prior to the acquisition,
the Company had three locations in the United States and was known primarily
for rotogravure printing on paper, film and foil structures. Today, Sonoco
operates nine plants in the United States and Canada, has more than doubled its
capacity, and added flexo-graphic printing, multi-layer bag making and film
blowing capabilities, while expanding its adhesion and extrusion lamination
technology. Even though Sonoco already occupies a strong position in the
cookie, cracker and confectionery markets and provides packaging to some of the
best known names in these businesses, the acquisition will significantly
enhance its market presence and customer service. The acquisition also allows
Sonoco to supply new markets such as beverage labels, coffee and personal care.
This operation continues to provide liner and label materials to the Company's
composite can business.
Previously, Sonoco had no flexible packaging manufacturing locations in
Canada. There are now four: Terrebonne, Quebec; Toronto, Ontario; Vancouver,
British Columbia; and Winnipeg, Manitoba. Sonoco's expanded North American
presence should facilitate relationships with major customers on both sides of
the border as these customers seek to consolidate their supplier base.
Sonoco has chosen printed flexible packaging as a major growth vehicle
because its historical growth rate is well above the Gross Domestic Product
(GDP) and is the fastest growing segment of the packaging industry. Printed
flexible packaging complements the Company's composite can customer base; lends
itself to globalization, a competency of Sonoco; and utilizes much of the same
materials science expertise developed by Sonoco for its composite can and bag
and film businesses.
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 approximately 35% of the
grocery bag market. This operation, with sales of over $200 million and six
plants in North America, also produces bags for high-volume retail stores,
diversified retail businesses and convenience stores, along with agricultural
films, a fast-growing market that is benefiting from Sonoco's materials science
and product development capabilities. The Company introduced QuikStar(TM)
produce bags in October, and a growing number of supermarkets throughout North
America are converting to the pre-opened bags that are easier to use than
traditional produce bags. The Company's high density film operation experienced
an uneven year in 1999,with stronger performance in the first six months and
greater pressures on margins in the second half.
CAPSEALS
Sonoco produces container seals used for food and non-food products as
supplemental closures on bottles and jars. Based in the United Kingdom, this
one-plant operation supplies customers around the world with sophisticated seals
that provide product protection and preserve seal integrity, thus preventing
illicit tampering and sampling. The Company also produces innovative holographic
liners used to discourage counterfeiting, a growing problem around the world.
SPECIALTY PACKAGING AND SERVICES
PACKAGING SERVICES AND FOLDING CARTONS
For the past three years, Sonoco has managed Gillette's North American packaging
operations for razors and blades. In 1998, Sonoco opened a dedicated
250,000-square-foot facility in Devens, Mass., to support this initiative. In
addition to packaging services, Sonoco also supplies Gillette with folding
cartons. Based on the continued success of the Gillette partnership, Sonoco is
investigating similar relationships that would allow customers to leverage
Sonoco's packaging supply chain expertise while permitting the customer to focus
on their core strengths.
[BAR GRAPH]
OPERATING INCOME,
CONSUMER SEGMENT
($ in millions)
1999 excludes a gain on the sale of the labels operations in the United
Kingdom. 1998 excludes a loss on the sale of the North American labels
operation and one-time charges. 1997 excludes a pre-tax asset impairment charge
of $226.4 million. Reported results were $148 million in 1999, $106.3 million
in 1998 and $(101.8) million in 1997.
COASTERS AND GLASS COVER
Sonoco is the leading supplier of coasters and glass covers to the North
American hospitality industry, restaurants, hospitals and other businesses
using these specialized products. The business experienced increased sales and
profits in 1999.
GRAPHICS MANAGEMENT
Based in the United Kingdom, Sonoco Trident opened a new operation, Sonoco
Trident USA, in Charlotte, N.C. Trident helps major companies manage brands on
a worldwide basis, specifically in the area of graphic reproduction, and
provides similar assistance to other Sonoco divisions.
9
<PAGE> 5
SELECTED QUARTERLY
FINANCIAL DATA (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $ 560,479 $ 611,754 $ 620,027 $ 754,474
Gross profit 134,577 145,122 143,958 169,472
Net income 43,947(1) 47,364 45,267 51,227
Per common share
- ----------------
Net income - basic $ .43 $ .46 $ .44 $ .50
- diluted .43 .46 .44 .50
Cash dividends - common .18 .19 .19 .19
Market price - high 28.75 28.06 29.94 25.25
- low 22.69 22.88 22.31 21.06
- ------------------------------------------------------------------------------------------------------
1998
Net sales(2) $ 673,315 $ 637,609 $ 606,981 $ 640,012
Gross profit(2) 155,257 148,043 139,278 147,139
Net income 46,495 62,188(3) 39,739 31,821(4)
Per common share
- ----------------
Net income - basic $ .45 $ .60 $ .39 $ .31
- diluted .43 .59 .39 .31
Cash dividends - common .164 .18 .18 .18
Market price - high 37.67 38.92 31.00 30.38
- low 29.89 30.75 24.19 22.44
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a $3.5 million after-tax gain from the sale of the labels and
label machinery operations in the United Kingdom and the label machinery
operation in the United States.
(2) Net sales and gross profit in the second, third and fourth quarters of 1998
include operations subsequently divested.
(3) Includes the gain on the sale of the fibre and plastic drum components of
the industrial containers operation of $40.3 million after tax, the
additional loss on the sale of the North American labels operation of
$(13.7) million after tax, and the extraordinary loss from early
extinguishment of debt of $(11.8) million after tax.
(4) Includes the gain on the sale of the intermediate bulk containers component
of the industrial containers operation of $15 million after tax, one-time
charges related to workforce reductions and plant closings of $(18.7)
million after tax, and an asset impairment charge of $(9.8) million after
tax.
<TABLE>
<S> <C> <C>
[GRAPH] [BAR GRAPH] [BAR GRAPH]
Market vs. Book Value Cash Dividends Shareholders' Equity
Per Common Share Declared-Common ($ in millions)
The market price of the Company's ($ in millions) Shareholders' equity
stock was $22.75 per share at The quarterly dividend increased in 1999 due
the end of 1999 and the book value per increased from $.18 to to Sonoco's strong
common share increased to $8.88. $.19 per share in the earnings performance.
second quarter of 1999.
</TABLE>
24
<PAGE> 6
MANAGEMENT'S DISCUSSION
AND ANALYSIS
HIGHLIGHTS
The first and second half of 1999 were markedly different in terms of earnings
performance. On a comparable basis (excluding one-time gains and charges), the
first six months saw a year-over-year earnings decrease of 6.5%,compared with a
13.4% increase in the second half of the year.
Consolidated net sales for 1999 were $2.55 billion, compared with
$2.56 billion in 1998. Sales in 1998 included $194.2 million from operations
that were divested, contributed to joint ventures or are no longer consolidated
by Sonoco. These transactions are described more fully below. Sales from
continuing operations increased 7.4% to $2.54 billion during 1999 from $2.36
billion in 1998.
Net income in 1999 was $187.8 million, compared with $180.2 million in
1998. Earnings per diluted share were $1.83 in 1999, compared with $1.73 in
1998. Net income for 1999 included an after-tax gain of $3.5 million from the
sale of the label and label machinery operations in the United Kingdom and the
United States. Net income for 1998 included net gains on the divestiture of
operations totaling $41.6 million after tax an extraordinary loss of $11.8
million from the early extinguishment of debt, one-time after-tax charges of
$18.7 million for plant closings and workforce reductions and an after-tax
asset impairment charge of $9.8 million. These transactions are described more
fully below. Net income for 1999 on a comparable basis increased 3% to $184.3
million from 1998's comparable income of $178.9 million. Earnings per diluted
share for 1999 increased 4.5% to $1.79 from $1.72 in 1998 on a comparable
basis.
TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS
1999 TRANSACTIONS
During the first quarter of 1999, the Company completed the sale of its labels
and label machinery operations in the United Kingdom and the United States.
This sale resulted in the recognition of a $3.5 million after-tax gain.
1998 TRANSACTIONS
In the second quarter of 1998, the Company completed the sales of its North
American labels operations and the fibre and plastic drums portions of its
industrial containers operation. The sale of the labels operation resulted in a
non-cash pre-tax asset impairment charge of $226.4 million in 1997 and an
additional pre-tax charge of $19.2 million upon the consummation of the sale in
1998. The sale of the fibre and plastic drums operations in the second quarter
of 1998 resulted in a pre-tax gain of $104.6 million. Also during the second
quarter, the Company recorded an extraordinary loss of $11.8 million (net of a
$7.5 million income tax benefit) from the early extinguishment of $58.7 million
of the Company's 9.2% debentures.
In July 1998,the Company renegotiated the terms of its corrugating medium supply
agreement with Georgia-Pacific. Under the prior agreement, an equal profit
sharing arrangement, results were consolidated. The new agreement provides for a
fixed fee arrangement, thus all sales and cost components are no longer
consolidated in the Company's results. The new arrangement reduces the Company's
earnings volatility due to this commodity grade of paper.
During the fourth quarter of 1998, Sonoco contributed its paper cone
and open-end spinning paper tube operations to a global joint venture,
Conitex-Sonoco, LLC, to serve the textile industry. An asset impairment charge
of $9.8 million after tax was recognized as a result of this transaction.
Also during the fourth quarter of 1998, the Company recorded one-time after-tax
charges of $18.7 million resulting from five plant closings and workforce
reductions in administrative areas. Additionally the Company sold the remaining
portion of the industrial containers operations, intermediate bulk containers,
resulting in a $15 million pre-tax gain.
[CHART]
ASSETS BY CATEGORY
($ in millions)
The increase in each of the asset categories is primarily due to acquisitions
completed in 1999.
OPERATING RESULTS FROM CONTINUING OPERATIONS
1999 VERSUS 1998
Consolidated net sales increased $174.3 million, or 7.4%, to $2.54 billion from
$2.36 billion in 1998. Domestic sales in 1999 were $1.87 billion, up 4%,and
international sales were $.67 billion, up 18.1%. The components of the sales
change were:
($ in millions)
- ------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Volume/Mix $139
Acquisitions 72
Price (8)
Exchange rates (29)
- ------------------------------------------------------
Total sales increase $174
======================================================
</TABLE>
Selling prices did not recover the increased cost of raw materials
resulting in a negative price/cost position of $25 million in 1999. Largely in
the fourth quarter, selling prices were increased to recover the higher
material costs. Selling prices implemented in 1999 should offset most of the
negative price/cost position in 2000,though there can be no assurance of such
an offset.
Productivity improvements totaled $45 million in 1999, more than fully
offsetting the negative price/cost position and inflation in wages and
benefits. Purchasing and logistics savings initiatives lowered the negative
price/cost position by $25.4 million.
25
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS
As a percentage of sales, selling, general and administrative (SG&A)
expenses were 10.2% in 1999 and 10.5% in 1998. The reduction was due in part to
the Company's having completed the implementation of financial and human
resource systems and the centralization of the order fulfillment center and
purchasing and logistics operations.
Investment returns achieved over the last few years have resulted in
net pension income of $2.7 million and $2.3 million in 1999 and 1998,
respectively. Favorable returns of this magnitude cannot be forecast into
the future, thus pension costs may be higher in future periods. Total fixed
costs were also lowered approximately $2 million from plan design changes
implemented in the fourth quarter of 1999 in the Company's retiree health plan.
Research and development costs charged to expense were $12 million in
1999, compared with $13.5 million in 1998. Significant projects in our
industrial segment included the global production of engineered carriers for
elastometric yarns, enhanced engineered carriers for winding printing grade
paper, and reusable engineered carriers for sophisticated films. Significant
projects in our consumer segment included new snack product composite cans in
Europe, North America and Asia, as well as a powdered milk product composite
can.
The effective tax rate for 1999 was 37.5%,compared with 38.5% in
1998. The lower tax rate in 1999 is the result of reduced state taxes and the
ability to utilize net operating loss carryforwards in certain countries.
Net income in 1999 increased $5.4 million, or 3%,to $184.3 million
from $178.9 million in 1998. Earnings per diluted share for 1999 increased 4.5%
to $1.79 from $1.72 in 1998. Earnings per share in 1999 benefited from lower
average shares outstanding during the year. This is primarily the result of the
repurchase of five million shares of common stock throughout 1998. During the
fourth quarter of 1999,the Company also repurchased approximately 590,000
shares of common stock. In early 2000,the Board of Directors approved a new
share repurchase program, allowing for the repurchase of up to five million
shares. The Company plans to repurchase shares equal to options granted each
year through stock option programs.
Capital expenditures in 1999 were $135.7 million, compared with $198.9
million in 1998. Capital spending levels in the Company's base businesses have
historically been approximately $100-$125 million. Vision 2000,initiated in 1985
and focused on accelerating internal growth, increased that spending level to
$200 million for the periods 1996 to 1998. The increased spending during this
period allowed the Company to rebuild and expand many plants, lines and
operations throughout the world, resulting in higher productivity and
output. 1999 spending is more reflective of historical spending levels. We
expect capital spending to stay within the $130-$150 million range over a
five-year planning horizon.
1999 ACQUISITIONS
In 1999, acquisition spending totaled $184.4 million and investments in joint
venture or affiliated companies totaled $25.6 million in cash and $9 million in
contributed assets. Acquisitions in the industrial packaging segment included
Wood Composite Technology, a manufacturer of reels, and engineered carrier
operations in Brazil and Taiwan. Acquisitions in the consumer packaging segment
included two composite can plants of Crown Cork & Seal, Inc., and the flexible
packaging division of Graphic Packaging Corporation, which includes six
manufacturing plants producing printed flexibles in the United States and
Canada.
OPERATING SEGMENTS
Sonoco reports results in two segments, Industrial Packaging and Consumer
Packaging. International results are reflected in the appropriate segment based
on the products produced. Operating profit is defined as revenue less operating
costs, with all corporate costs (excluding interest and income taxes) allocated
to the two segments.
INDUSTRIAL PACKAGING SEGMENT - The industrial packaging segment represents
approximately 55% of the Company's sales and includes the following products:
paper and plastic engineered carriers, paper, recovered paper, designed
interior packaging and protective reels. This segment also included fibre and
plastic drums and intermediate bulk containers, which were sold in 1998.
Sonoco's paper operations include the Company's 26 paper mills,37
paper machines and 44 collection facilities around the world. Annually, the
paper mills have capacity to produce approximately 1.6 million tons of cylinder
board, of which Sonoco uses almost 85% internally. The Company also produces
approximately 185,000 tons of corrugating medium exclusively for
Georgia-Pacific under a cost plus fixed management fee arrangement.
Results from continuing operations for this segment are presented
below:
<TABLE>
<CAPTION>
($ in millions) 1999 1998 % Change
- -----------------------------------------------------------
<S> <C> <C> <C>
Trade Sales $1,371.9 $1,309.1 4.8%
Operating Profit 188.7 193.2 (2.3)%
Capital Spending 81.1 143.9 (43.6)%
</TABLE>
26
<PAGE> 8
[CHART]
IDENTIFIABLE ASSETS,
INDUSTRIAL SEGMENT
($ in billions)
Identifiable assets decreased approximately $33 million in 1999 due to foreign
currency translation and reduced capital spending.
Trade sales in the industrial packaging segment increased $62.8
million, or 4.8%,to $1.37 billion in 1999. Domestic sales in 1999 were $.88
billion, up 2.1%, and international sales were $.49 billion, up
10%. Acquisitions increased sales in this segment by $21 million in 1999.
Direct and indirect effects of depressed Asian economies impacted
volume in engineered carriers in the first quarter of 1999. Each succeeding
quarter's volume improved, culminating with record growth in the fourth
quarter. New plants were opened in Turkey and Poland. Designed interior
packaging volume grew 16% in 1999 as penetration of this product to appliance
manufacturers continued to increase. A new plant was opened to supply the
appliance industry in Mexico. Protective reels added a composite reel to its
product offering and benefited from growth in the cable industry. Also during
1999,the Company completed a major renovation of its Richmond, Va., paper mill
which, after a difficult start up, is now operating at capacity.
Selling prices were lower year-over-year for most products, but price
increases implemented in the second half of 1999 resulted in higher selling
prices in the fourth quarter.
Gross profit margins in this segment declined to 26.3% from 26.7% in
1998. The cost of recovered paper, a primary raw material in our paperboard
operations, increased during the year. Selling price increases were announced
in the third quarter to recover this cost. The lag between the cost increase
and recovery through selling price increases resulted in a negative price/cost
position of approximately $21 million for the year. The North American
engineered carrier and paperboard selling price realization was, by the end of
the fourth quarter, sufficient to cover the ongoing cost increase. In other
countries, selling price increases were implemented later, and by the end of
1999, had not fully covered the ongoing recovered paper cost increase. Continued
selling price realization is expected in these other countries, which the
Company expects to eliminate the negative price/cost position in 2000.
Productivity improvements of $31 million offset the negative
price/cost position for the year.
Operating profit declined 2.3% to $189 million from $193 million in
1998. Continued price realization and strong volume resulted in a 15% gain in
operating profit in the fourth quarter, compared with the same prior year
quarter. Operating profit as a percent of sales declined for the year to 13.8%
from 14.8% in 1998. Again, margins improved in the fourth quarter to 13.3%,
compared with 13.1% in the prior year quarter.
Capital spending was $81.1 million in 1999, compared with $143.9
million in 1998. Depreciation, depletion and amortization was $91.2 million in
1999, compared with $98.3 million in 1998. Capital projects included a new
designed interior packaging plant in Mexico, rebuild of a paper mill in Mexico,
new plants in Brazil, Poland and Turkey, plant and paper mill expansions, and
completion of the engineered carrier order fulfillment center. The decline in
capital spending is in line with strategic plans to lower capital spending in
this segment to more normal levels.
CONSUMER PACKAGING SEGMENT - The consumer packaging segment represents
approximately 45% of the Company's sales and includes the following products
and services: composite cans, printed flexibles, bag and film products,
container seals, folding cartons, covers and coasters, graphics management and
packaging services. This segment also included the North American labels
operations sold in 1998 and the United Kingdom labels operations sold in 1999.
Results from continuing operations for this segment are presented
below:
<TABLE>
<CAPTION>
($ in millions) 1999 1998 % Change
- --------------- ------------------------------
<S> <C> <C> <C>
Trade Sales $1,166.1 $1,054.7 10.6%
Operating Profit 144.6 130.9 10.5%
Capital Spending 54.6 55.0 (.7)%
</TABLE>
Trade sales in the consumer packaging segment increased $111.5 million
to $1.17 billion in 1999 from $1.05 billion in 1998. Domestic sales were $.99
billion, up 5.7%,and international sales were $.18 billion, up 49.4%.
Acquisitions, including two composite can plants and six printed flexibles
plants, increased sales by $51 million for the year (primarily in the fourth
quarter). Composite can unit volume increased in all geographies. North
American unit volume was up 2.2% while Europe grew 35%. Cans for snacks, nuts,
powdered infant formula and caulk continued to grow, while frozen concentrate
declined. Global expansion continues with composite can start ups in Malaysia
and Mexico in 1999 and a start up in Brazil in 2000. Volume in printed flexibles
grew approximately 5% organically and by acquisition. The acquisition enhances
the Company's capabilities in flexographic printing. Bag and film products
increased unit volume by 3.5%.A new self-opening produce bag, continued growth
of agricultural film and increased volume in convenience store bags
complemented the mainstay grocery and retail bag operations.
27
<PAGE> 9
MANAGEMENT'S DISCUSSION
AND ANALYSIS
[CHART]
IDENTIFIABLE ASSETS,
CONSUMER SEGMENT
($ in billions)
Identifiable assets increased in 1999 due to the completion of acquisitions in
the Company's composite can and flexible packaging operations.
Selling prices declined less than 1% in this segment due to
competitive factors. The bag and film operations accounted for most of the
decline.
Gross profit margins declined to 19.1% from 19.3% in 1998. Bag and film
operations experienced resin cost increases of 57% during the year creating a
negative price/cost position of $4 million for the year. In this segment,
contribution from increased volume and productivity improvements lessened the
profit shortfall for the year.
Higher volumes in composite cans, productivity gains and reduced fixed
costs from plant consolidations in 1998 led to strong operating earnings
growth. European composite can operation grew sales by 23% in 1999 and achieved
significant improvement in profitability from that volume.
Higher volumes and $35 million of sales from acquisitions resulted in
record sales in printed flexibles in 1999. The acquisition delivered profits
and synergies in line with expectations.
Operating profit increased 10.5% to $144.6 million from the $130.9
million in 1998. Operating profit as a percent of sales was 12.4% in both 1999
and 1998.
Capital spending was $54.6 million in 1999,compared with $55 million
in 1998. Spending included composite can expansion in Mexico and the United
Kingdom, the United States rollout of the ring pull Mirastrip(R) for
concentrate cans, expansion of agricultural film lines and numerous
productivity improvement projects. Depreciation, depletion and amortization in
this segment was $54.6 million in 1999,compared with $47.3 million in 1998.
FINANCIAL STRATEGY AND POSITION, LIQUIDITY
AND CAPITAL RESOURCES
FINANCIAL STRATEGY
In 1999, our strategy for improving capital effectiveness is clearly beginning
to pay off. Simply put, our strategy is to maximize cash and optimize use.
While we have among the best returns on net assets and equity compared with our
peer group, we are clearly aiming for higher performance. Capital spending for
our operations has been lowered to more historical levels. In 1996 through
1998,we averaged capital spending of around $200 million per year. In
1999, we spent $136 million and expect over our five-year planning horizon to
stay within the $130-$150 million range. Working capital management is
improving, requiring less capital. The combination of lower capital required
by our base businesses and reasonable earnings growth should improve returns on
net assets in those businesses over the five-year horizon to first quartile
levels among the S&P 400 industrials.
These changes will also result in free cash flow that can be
redeployed to reduce debt, buy back stock, or make acquisitions. Acquisitions
will be in targeted selected markets where we feel we can add value for our
customers and build on core competencies we now have or are building. If we are
able to make acquisitions in these targeted areas, our sales growth should rise
to 10%-12% from a trend line rate (1990-1999) of approximately 7%. While most
acquisitions are not large profit contributors initially, they do build a
profit base to supplement our existing businesses. Thus, our goal for earnings
growth over an economic cycle is to average 10+% per year. If acquisitions
cannot be found that fit strategically and financially, we have the option of
share buybacks or debt reduction to increase shareholder value.
Capital effectiveness is embraced at all levels of our organization
and momentum is building. In 2000, we expect to generate free cash flow (before
acquisitions, stock buybacks or debt reductions) of about $130 million. With
additional debt capacity, still maintaining an "A" credit rating, the Company
will have over $250 million a year to continue to grow Sonoco.
Our financial strategy, maximize cash/optimize use, is and will remain
focused on long-term shareholder value.
/s/ F. TRENT HILL, JR.
- ------------------------------------------
F. Trent Hill, Jr.
Vice President and Chief Financial Officer
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Strong cash flow from operations, a conservative balance sheet and solid
interest coverage demonstrate the Company's continued financial strength. At
December 31, 1999, the Company's long-term debt was rated "A" by Standard &
Poor's (S&P) and "A2" by Moody's. Commercial paper was rated "A1" and "P1" by
S&P and Moody's, respectively.
Cash flows from operations provided $240 million in 1999, compared with
$227.8 million in 1998. Working capital increases in 1999 were more than offset
by lower funding for several of the Company's benefit plans, principally due to
investment returns over the past few years. Cash flows from operations after
subtracting capital spending were $104.3 million in 1999. These funds were used
to pay dividends of $76.4 million and to repurchase stock of $13 million. The
remaining cash flow from operations of $14.9 million, coupled with proceeds
from the sale of assets of $52.6 million and net debt proceeds of $118 million,
were used to fund acquisitions
28
<PAGE> 10
[CHART]
NET WORKING CAPITAL
($ in millions)
Net working capital increased $81.1 million in 1999 due primarily to
acquisitions and base business growth. 1997 net working capital excludes net
assets held for sale.
and additional contributions to joint ventures totaling $210 million. Non-cash
assets contributed to joint ventures during 1999 totaled $9 million.
Current assets increased $61.7 million in 1999 to $723.1 million due
primarily to higher working capital levels resulting from acquisitions and base
business growth. Current assets decreased in 1998 primarily as a result of the
sales of the North American labels and industrial containers operations, the net
assets of which were classified as assets held for sale at December 31, 1997. As
a result of the disposition in 1998, net working capital decreased to $225.3
million at December 31, 1998, from $438.9 million in 1997. The current ratio was
1.7 at December 31, 1999, and 1.5 for both December 31, 1998 and 1997 (excluding
assets held for sale).
[CHART]
DEBT TO TOTAL
CAPITAL RATIO
(%)
Debt to total capital ratio was 47.5% at December 31, 1999, up slightly from
46.7% at December 31, 1998. (The ratio adjusts debt levels for excess cash
related to restricted-purpose bonds.)
Debt increased $120.5 million to $904.1 million at December 31, 1999,
from $783.6 million at December 31, 1998. Debt proceeds in 1999, combined with
free cash flow, were used to fund acquisitions and additional contributions to
joint ventures totaling $210 million. During the fourth quarter of 1999, the
Company replaced $150 million of its variable-rate debt with five-year 7% bonds
to maintain the Company's desired mix (50%/50%) of fixed to floating rate debt.
Proceeds from the sale of assets during 1998 of $296.8 million were used to
repurchase stock amounting to $169.1 million, to fund acquisitions totaling
$74.9 million and to pay down debt. In 1997, debt decreased $96.7 million to
$796.4 million. Debt was reduced with proceeds from the sale of the screen print
operations and free cash flow in 1997.
Interest expense in 1999 was $52.5 million, compared with $54.8 million
and $57.2 million in 1998 and 1997, respectively. At the beginning of the second
quarter of 1998, Sonoco repurchased $58.7 million of 9.2% bonds, which were due
August 1, 2021. The repurchase lowered interest expense for a portion of 1998
and approximately $2.3 million for all of 1999. Excluding one-time transactions,
earnings before interest and taxes were 6.4 times interest expense in 1999,
compared with 6.0 times and 6.1 times interest expense in 1998 and 1997,
respectively. Earnings before interest, taxes, depreciation, depletion and
amortization expense were 9.1 times interest in 1999, and 8.7 times interest in
both 1998 and 1997. The Company's debt to total capital ratio was 47.5% at
December 31, 1999, compared with 46.7% and 46.1% at the end of 1998 and 1997,
respectively. The debt to total capital ratios have been adjusted to reduce debt
by the amount of cash held related to the issuance of restricted purpose bonds.
[CHART]
TOTAL DEBT
($ in millions)
Total debt increased $120.5 million in 1999 due primarily to business
acquisitions.
Return on total equity was 21.9% in 1999, compared with 22.1% in 1998
and .3% in 1997. Excluding one-time transactions the return on total equity was
21.5% in 1999, 22% in 1998 and 19% in 1997.
As of December 31, 1999, cash and cash equivalents included $2.8
million of proceeds from the issuance of two Industrial Revenue Bonds, held in
trust until qualifying expenditures take place. As of December 31, 1998 and
1997, cash and cash equivalents included $7.4 million and $23.8 million of bond
proceeds, respectively.
The Company has authorized a $450 million commercial paper program and
has fully committed banklines of credit supporting the program. These lines
expire in 2001. As of December 31, 1999, the Company had registered for sale
$100 million of debt securities under a shelf registration with the Securities
and Exchange Commission. This shelf registration was reduced from $250 million
during 1999 when the Company issued its five-year 7% bonds.
Shareholders' equity increased $79.6 million from December 31, 1998, to
$901.2 million at December 31, 1999. The increase resulting from net income of
$187.8 million was reduced by the payment of $76.4 million for common dividends
and the repurchase of 598,463 shares of common stock totaling $13 million during
1999. Shareholders' equity decreased $27.2 million to $821.6 million at December
31, 1998, from December 31, 1997. During 1998, the Company repurchased 5,179,541
shares of common stock at a total cost of $169.1 million.
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. Dividends per common share were $.75 in
1999, $.704 in 1998 and $.641 in 1997. In April 1998, the Board of Directors
declared a 10% stock dividend payable to common shareholders and a quarterly
dividend of $.18 per share, representing a 10% increase over the same quarter
in 1997.
As a result of operating globally, the Company is exposed to market
risk from changes in foreign exchange rate fluctuations. The exposure is well
diversified as our facilities are spread throughout the world, and we generally
29
<PAGE> 11
MANAGEMENT'S DISCUSSION
AND ANALYSIS
sell in the same country where we produce. The Company monitors these exposures
and may use traditional currency swaps and forward foreign exchange contracts
to hedge a portion of the net investment in foreign subsidiaries or to hedge
firm commitments denominated in foreign currencies. As of December 31, 1999, the
Company had no currency swap contracts outstanding. The notional value of such
contracts was approximately $19 million at December 31, 1998. The Company is
exposed to interest rate fluctuations as a result of using debt as a source of
financing its operations. When necessary, the Company will use traditional,
unleveraged interest rate swaps to manage its mix of fixed and variable rate
debt to ensure that exposure to interest rate movements is maintained within
established ranges.
[CHART]
CASH PROVIDED BY
OPERATIONS
($ in millions)
Cash provided from operations increased $12.2 million in 1999.
The Company is a purchaser of commodities such as recovered paper and
resins. These commodities are generally purchased at market prices that are
established with the vendor as part of the purchase process. In general, the
Company does not engage in material hedging of commodity prices due to a high
correlation between the commodity cost and the ultimate selling price of its
products. On occasion, the Company enters into commodity future or option
contracts to reduce the effect of price fluctuations and to hedge currency
fluctuations on pending equipment purchases.
Currencies of certain countries in which the Company operates devalued
during 1999, including the Brazilian Real. The devaluation did not have a
material adverse impact on the financial position, results of operations or
cash flows as of December 31, 1999, 1998 or 1997.
The use of financial instruments to hedge foreign exchange, interest
rate and commodity price risk was not material to the financial statements as a
whole as of December 31, 1999, 1998 or 1997.
Except for the impact on raw material prices, inflation did not have a
material effect on the Company's operations in 1999, 1998 or 1997.
The Company is subject to various federal, state and local
environmental laws and regulations concerning, among other matters, wastewater
effluent and air emissions. Compliance costs have not been significant due to
the nature of the materials and processes used in manufacturing operations.
Such laws also make generators of hazardous wastes, and their legal successors,
financially responsible for the cleanup of sites contaminated by those wastes.
The Company has been named a potentially responsible party at several
environmentally contaminated sites located primarily in the northeastern United
States and owned by third parties. These sites are believed to represent the
Company's largest potential environmental liabilities.
The Company has accrued approximately $4 million at December
31, 1999, with respect to these sites. Further details are provided in the Notes
to the Consolidated Financial Statements.
The Company's main plant and corporate offices are located in
Hartsville, S.C. There are 121 owned and 98 leased facilities used by
operations in the industrial packaging segment and 29 owned and 37 leased
facilities used by operations in the consumer packaging segment. Europe, the
largest foreign geographic location, has 42 manufacturing locations. The
Company believes that its properties are suitable and adequate for current
needs and that the total productive capacity is adequately utilized.
The Company has resolved all issues with the Internal Revenue Service
(IRS) for all years through 1992. In October 1999, the Company received a
Revenue Agent Report from the IRS related to the years 1993 through 1995. The
most significant issue pertains to the deductibility of Corporate Owned Life
Insurance (COLI) loan interest. See Note 14 to the Consolidated Financial
Statements for further details.
YEAR 2000 READINESS DISCLOSURE
AND EURO COMPLIANCE
The Company adopted a Year 2000 Plan ("Plan") in May 1997 to identify and
address the Company's various Year 2000 issues throughout its domestic and
international operations, including financial and administrative systems,
process control and operating systems and information systems infrastructure.
The Plan was implemented on a company-wide basis under the direction of the
Information Services Department in cooperation with senior management and with
the review of the Board of Directors through its Audit Committee.
The Plan provides for six phases: (1) an inventory of all systems that
might be affected by the Year 2000; (2) assessment of Year 2000 readiness of
each application identified in the inventory; (3) planning for corrective
action, which included reviewing and prioritizing the various corrective
actions based on their relative impact on the Company's operations and
profitability; (4) initiation of corrective actions to replace or repair systems
that were not Year 2000 compliant; (5) testing the new, upgraded or repaired
systems; and (6) implementation of tested systems and post-implementation
support, including contingency plans for those systems most critical to the
Company's ongoing operations and/or most at risk to fail.
30
<PAGE> 12
The Company developed contingency plans for its administrative and
business functions, production facilities, and equipment. The contingency plans
assume a worst-case scenario that included short-term power outages, short-term
transportation and supply shortages, and short-term voice and data
communication failures. Mitigation plans vary somewhat between business units,
but share a common focus on safety, asset and revenue protection, and supply
chain management.
As of December 31, 1999, the Company had completed all phases of the
Plan and its information technology and production systems were ready for the
Year 2000. As of the date of this report, the Company has not experienced any
material Year 2000 issues with respect to its systems or its external
relationships.
The Company estimates that the total cost of achieving Year 2000
compliance in substantially all of its information technology and production
systems was approximately $30 million, a portion of which was capitalized (new
systems implemented) and will be amortized to earnings in future periods. The
funds were spent primarily during the Plan's correction and implementation
phases.
The Company's Year 2000 testing program included leap year scenarios.
The Company does not foresee any significant compliance issues with its
internal systems or external relationships with respect to the upcoming leap
year date.
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies and the
Euro and adopted the Euro as their common legal currency (the "Euro
Conversion"). The impact of the Euro Conversion was not material to the Company
in 1999. The Company is currently unsure of the future impact that the Euro
Conversion will have, particularly as it relates to its European operations.
However, the Company does not anticipate that the Euro Conversion will have a
material adverse effect on its future business, financial condition, results of
operations, or cash flows.
The estimates and conclusions herein contain forward-looking
statements and are based on management's best estimates of future events. All
statements made herein regarding our Year 2000 efforts are "Year 2000 Readiness
Disclosures "made pursuant to the Year 2000 Information and Readiness
Disclosure Act, and to the extent applicable, are entitled to the protections
of such act.
RESULTS OF OPERATIONS
1998 VERSUS 1997
Consolidated net sales for 1998 decreased $289.9 million, or 10.2%, to $2.56
billion from $2.85 billion in 1997. The sales decline is due entirely to the
divestitures noted earlier. On a comparative basis, net sales increased $18.7
million, or .7%, over 1997's comparative sales of $2.54 billion. The increase in
sales in 1998 is the result of volume gains in many of our consumer operations
and sales totaling $41 million from acquisitions completed in 1998. Lower
average selling prices, primarily the result of declining commodity raw
material costs, impacted sales in our recovered paper and plastic grocery bag
operations by approximately $20 million, partially offsetting the increased
volume. In addition, foreign currencies declined against the United States
dollar in 1998, decreasing sales by approximately $17 million.
Gross profit margins increased in 1998 to 23.1% from 22.5% in 1997. On
a comparative basis, gross profit margins declined slightly to 23.3% in
1998, compared with 23.5% in 1997. In the second half of 1997, recovered paper
costs increased and, while selling prices were increased to reflect the higher
cost, margin percentages declined.
Margins in 1998 were also negatively affected by several plant start
ups and plant expansion costs. During 1998, we began a $20 million rebuild and
upgrade project at our Richmond, Va., paper mill. Problems in starting up the
mill after the expansion resulted in a margin loss of approximately $6 million
in the second half of 1998.
Margins in 1998 were also affected by high depreciation and overhead
costs as we expanded capacity at our Jackson, Tenn., composite can plant. This
plant was expanded in 1998 to accommodate customer growth projections. While
volume levels were greater than in 1997, they fell short of expectations,
resulting in crewing levels and overhead being reduced.
Other start-up costs in 1998 included a new engineered carriers plant
in Turkey and new composite can and protective packaging operations in Mexico.
We were able to offset many of these costs and maintain margins
through productivity improvement efforts at all our locations.
31
<PAGE> 13
MANAGEMENT'S DISCUSSION
AND ANALYSIS
Selling, General and Administrative (SG&A) expenses increased $4.2
million to $301.6 million in 1998. SG&A as a percentage of sales was 11.8% in
1998,compared with 10.4% in 1997. On a comparative basis, SG&A expenses were
$266.8 million, or relatively flat with 1997. As a percentage of sales, SG&A
expenses were 10.4% in 1998, compared with 10.7% in 1997. Comparative SG&A
expenses in 1998 included some excess administrative costs from the
centralization of the industrial products order fulfillment center and
purchasing and logistics operations.
The effective tax rate for 1998 was 45.3%,compared with 94.3% in
1997. The effective tax rate in 1997 was impacted by a deferred tax benefit of
only $51.9 million on the $226.4 million asset impairment charge recorded in
1997. The 1998 effective tax rate includes additional taxes from the sale of the
Company's industrial containers operation, offset partially by the ability to
utilize more of the capital loss generated by the sale of the North American
labels operation. On a comparative basis, the effective tax rate was 38.5% in
1998 and 38.6% in 1997.
Net income available to common shareholders in 1998 was $180.2
million, compared with a loss of $.4 million in 1997. On a comparative basis,
net income available to common shareholders for 1998 was $178.9 million,
compared with $174.1 million in 1997,an increase of 2.8%. Reported earnings in
1998 were $1.73 per diluted share, compared with $0.00 in the prior year. On a
comparative basis, earnings per diluted share were $1.72 and $1.65 in 1998 and
1997,respectively.
Capital expenditures in 1998 were $198.9 million, compared with $230.7
million in 1997. Spending in 1998 included a paper machine rebuild and press
upgrade projects, a new engineered carriers plant in Turkey, new designed
interior packaging and composite can operations in Mexico, capacity expansion
projects at several plant locations, and continued spending on new information
systems, including a new purchasing system. Acquisition spending in 1998
totaled $74.9 million, compared with $17.6 million in 1997, as described in Note
2 to the Consolidated Financial Statements. Research and development costs
charged to expense were $13.5 million in 1998, compared with $17.8 million in
1997.
INDUSTRIAL PACKAGING SEGMENT - Trade sales in this segment were $1.43
billion in 1998, compared with $1.59 billion in 1997. Year-over-year sales
comparisons are affected by the operations sold in 1998 and the contract fee
arrangement with Georgia-Pacific. On a comparative basis, sales increased $44.3
million, or 3.2%, in 1998 to $1.43 billion from $1.38 billion in 1997. The
acquisitions of Burk and LaRochette during 1998 increased sales by
approximately $36 million.
The cost of recovered paper declined in 1998 after a sharp run-up in
the second half of 1997. Lower selling prices, resulting from the lower
recovered paper costs, unfavorably impacted sales in this segment by
approximately $12 million. Excluding acquisitions, unit volume in our global
engineered carriers operation was up approximately 3% over 1997. Paperboard
volume was down slightly, primarily in Europe, due to competitive pressures and
lower exports to Asia. Strong volume gains were experienced in the newer
international businesses, such as those in Asia and Brazil. Some of the volume
gains were offset by unfavorable exchange rates.
Operating profit for this segment was $282.1 million in 1998, compared
with $217.8 million in 1997. Included in the 1998 results was a $119.6 million
gain on the sale of the industrial containers operation. One-time adjustments
associated with plant closings, work force reductions and an asset impairment
charge, totaling $37.5 million, were also included in this segment in 1998. On a
comparative basis, operating profits were $200 million in 1998, compared with
$203.3 million in 1997.
Operating profit in the integrated engineered carrier/paper
operations did benefit from higher volume, primarily the result of acquisitions
and newer start-up operations, and from lower year-over-year recovered paper
costs. Problems in starting up the Richmond, Va., paper mill, after the
expansion of that mill, resulted in higher costs of approximately $6 million in
the second half of 1998. In addition, higher administrative costs from systems
implementations were largely offset by productivity initiatives totaling
approximately $20 million in 1998.
Sonoco's injection and extruded plastics product lines expanded during
1998 with the acquisition of the Burk plants in Germany. At the same time, the
Company continued its consolidation of the molded plastics operations by
closing its Greensboro, N.C., plant.
Designed interior packaging continued to grow, showing strong volume
gains in 1998. This operation continued to build market share in appliance
packaging.
Volume also increased in the wire and cable packaging operation as new
housing starts continued to increase throughout most of the year. This
operation also experienced lower lumber costs during 1998 that were largely
offset by lower selling prices.
Capital spending in this segment during 1998 was $143.9 million,
compared with $140.6 million in 1997. Spending included new start-up operations,
projects to expand the capacity of paper machines and the production of
engineered carriers. Spending continued in 1998 to upgrade the Company's
information technology systems including start up of the implementation phase
of a new purchasing system.
32
<PAGE> 14
CONSUMER PACKAGING SEGMENT - Trade sales in this segment were $1.13 billion in
1998, compared with 1997 sales of $1.26 billion. The divestiture of the North
American labels operations reduced sales by $102.6 million in 1998. On a
comparative basis, trade sales of $1.13 billion were 2.1% below 1997's sales
(excluding divestitures) of $1.16 billion. Unit volume gains in most of the
Company's consumer packaging operations were offset by lower selling prices,
primarily in the plastic grocery bag operations, reflecting the significant
decline in resin costs in 1998. Volume in the domestic composite can operations
was essentially unchanged from 1997, as volume gains in the snack segments were
largely offset by lower volume in the frozen concentrate and refrigerated dough
segments. Volume in international composite cans continued to expand,
particularly in Europe, with significantly increased snack can sales. In
addition, volume improved in the powdered drink markets in both Venezuela and
Mexico. Late in 1998, installation of new composite can lines began in Malaysia
and Mexico.
Unit volume was strong in our bag and film operations, increasing
approximately 7.8% over 1997 average levels. Resin prices declined steadily
throughout 1998, resulting in lower selling prices.
Sonoco's printed flexibles had record sales in 1998, as volume
increased approximately 14% over 1997 levels. Part of the increase in volume
reflects the internal production of liners for composite cans.
Operating profits in the consumer segment were $106.3 million in
1998, compared with a loss of $101.8 million in 1997. The 1998 and 1997 results
include charges of $19.2 million and $226.4 million, respectively, related to
the sale of the North American labels operations. 1998 profits include a $3.9
million one-time charge related to plant closings and workforce reductions. On
a comparative basis, profits in 1998 were $129.4 million, an increase of 6.9%
over 1997 profits of $121.1 million. Lower raw material costs, particularly
resin and paper, were largely offset by lower selling prices.
Volume gains in most of the consumer businesses, coupled with
productivity improvement projects of approximately $10 million, accounted for
most of the year-over-year increase in profitability.
Operating profits in composite cans were adversely impacted by the
expansion of the Jackson, Tenn., facility. This plant doubled in size in 1998
to support customer projected demand. Volume, while up, did not meet the
projections, resulting in crewing levels and overhead being reduced in the
second half of 1998. We continued to consolidate the composite can operations
during 1998, resulting in the closing of the Kansas City, Mo., and Plymouth,
Wis., plants. In addition, we began the consolidation of the two locations in
Orlando, Fla.
The Company's bag and film product lines improved in 1998. Sales prices
declined reflecting lower resin costs, while unit volume increased in both the
grocery and retail bag operations as well as the agricultural film business. In
addition, the Hartsville, S.C., plant was expanded to produce the new
QuikStar (R) produce bag.
Profits increased in printed flexibles in 1998 aided by volume growth
of approximately 14% over the prior year. Manufacturing and purchasing
initiatives contributed to the strong performance in this operation.
Capital spending in the consumer segment was $55 million in
1998, compared with $90.1 million in 1997. Spending for 1998 included capacity
expansion projects at the Jackson, Tenn., composite can operation and at
plastic bag operations in North Vernon, Ind., and Victoria, Texas. In addition,
spending included the expansion of the Hartsville, S.C., bag and film operation
to include the production of a new QuikStar produce bag and the start up of new
composite can operations in Mexico and Malaysia.
FORWARD-LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of financial
condition and results of operations that are not historical in nature are
intended to be, and are hereby identified as "forward-looking statements" for
purposes of the safe harbor provided by section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements
regarding offsetting high raw material costs, adequacy of income tax provision,
refinancing of debt, adequacy of cash flows, cost and effectiveness of Year
2000 measures, and financial strategies and the results expected from them.
Such forward-looking statements are based on current expectations, estimates
and projections about our industry, management's beliefs and certain
assumptions made by management. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies, and
objectives concerning our future financial and operating performance. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. Therefore,
actual results may differ materially from those expressed or forecasted in such
forward-looking statements. Such risks and uncertainties include, without
limitation; availability and pricing of raw materials; success of new product
development and introduction; ability to maintain or increase productivity
levels; international, national and local economic and market conditions;
ability to maintain market share; pricing pressures and demand for products;
continued strength of our paperboard-based engineered carrier and composite can
operations; currency stability and the rate of growth in foreign markets; and
actions of government agencies.
33
<PAGE> 15
CONSOLIDATED
BALANCE SHEETS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Years ended December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 36,515 $ 57,249
Trade accounts receivable, net of allowances of $6,969 in 1999 and $5,420 in 1998 346,845 297,672
Other receivables 28,847 54,475
Inventories
Finished and in process 94,133 93,829
Materials and supplies 154,231 123,432
Prepaid expenses 57,362 28,599
Deferred income taxes 5,148 866
Net assets held for sale 5,294
- ------------------------------------------------------------------------------------------------------------------------
723,081 661,416
PROPERTY, PLANT AND EQUIPMENT, NET 1,032,503 1,013,843
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 254,580 170,361
OTHER ASSETS 286,856 237,363
- ------------------------------------------------------------------------------------------------------------------------
$ 2,297,020 $ 2,082,983
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 192,859 $ 174,218
Accrued expenses and other 116,652 131,570
Accrued wages and other compensation 22,523 17,897
Notes payable and current portion of long-term debt 84,597 96,806
Taxes on income 15,578
- ------------------------------------------------------------------------------------------------------------------------
416,631 436,069
LONG-TERM DEBT 819,540 686,826
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 36,278 43,689
DEFERRED INCOME TAXES AND OTHER 123,351 94,807
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
0 shares issued and outstanding as of December 31, 1999 and 1998, respectively
Common shares, no par value
Authorized 300,000 shares
101,448 and 101,683 shares issued and outstanding as of
December 31, 1999 and 1998, respectively 7,175 7,175
Capital in excess of stated value 427,591 431,465
Accumulated other comprehensive loss (123,008) (95,139)
Retained earnings 589,462 478,091
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 901,220 821,592
- ------------------------------------------------------------------------------------------------------------------------
$ 2,297,020 $ 2,082,983
========================================================================================================================
</TABLE>
The Notes beginning on page 38 are an integral part of these financial
statements.
34
<PAGE> 16
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,546,734 $ 2,557,917 $ 2,847,831
Cost of sales 1,953,605 1,968,200 2,208,092
Selling, general and administrative expenses 259,917 301,610 297,439
(Gain) loss on assets held for sale (3,500) (100,354) 226,358
- -------------------------------------------------------------------------------------------------------------------------------
Income before interest and taxes 336,712 388,461 115,942
Interest expense 52,466 54,779 57,194
Interest income (5,314) (5,916) (4,971)
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 289,560 339,598 63,719
Provision for income taxes 108,585 153,989 60,111
- -------------------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of affiliates/Minority interest in subsidiaries 180,975 185,609 3,608
Equity in earnings of affiliates/Minority interest in subsidiaries 6,830 6,387 (991)
- -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 187,805 191,996 2,617
Extraordinary loss, net of income tax benefit (11,753)
- -------------------------------------------------------------------------------------------------------------------------------
Net income 187,805 180,243 2,617
Preferred dividends (3,061)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 187,805 $ 180,243 $ (444)
===============================================================================================================================
Average common shares outstanding:
Basic 101,886 102,632 100,981
Assuming conversion of preferred stock 3,923
Assuming exercise of options 894 1,643 2,446
- -------------------------------------------------------------------------------------------------------------------------------
Diluted 102,780 104,275 107,350
- -------------------------------------------------------------------------------------------------------------------------------
Per common share
Basic
Income before extraordinary loss $ 1.84 $ 1.87 $ .00
Extraordinary loss, net of income tax benefit (.11)
- -------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 1.84 $ 1.76 $ .00
===============================================================================================================================
Diluted
Income before extraordinary loss $ 1.83 $ 1.84 $ .00
Extraordinary loss, net of income tax benefit (.11)
- -------------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 1.83 $ 1.73 $ .00
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends-common $ .75 $ .704 $ .641
===============================================================================================================================
</TABLE>
The Notes beginning on page 38 are an integral part of these financial
statements.
35
<PAGE> 17
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
Common Shares Preferred Shares
Comprehensive ----------------------- -------------------
Income (Loss) Outstanding Amount Outstanding Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 1, 1997 98,850 $ 7,175 2,395 $ 119,756
Net income $ 2,617
Other comprehensive loss, net of tax:
Translation loss (29,835)
Minimum pension liability adjustment (1,805)
Other comprehensive loss (31,640)
Comprehensive loss $ (29,023)
Cash dividends:
Preferred
Common, $0.641 per share
Issuance of shares under
Stock option plan 913
Employee stock ownership plan 210
Preferred stock conversions 5,464 (2,395) (119,756)
Shares repurchased (20)
Other
- ---------------------------------------------------------------------------------------------------------
December 31, 1997 105,417 7,175 0 0
Net income 180,243
Other comprehensive loss, net of tax:
Translation loss (1,821)
Minimum pension liability adjustment (1,898)
Other comprehensive loss (3,719)
Comprehensive income $ 176,524
Cash dividends:
Common, $0.704 per share
10% common stock dividend
Issuance of shares under
Stock option plan 1,378
Employee stock ownership plan 68
Shares repurchased (5,180)
Other
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 101,683 7,175 0 0
Net income 187,805
Other comprehensive loss, net of tax:
Translation loss (30,654)
Minimum pension liability adjustment 2,785
Other comprehensive loss (27,869)
Comprehensive income $ 159,936
Cash dividends:
Common, $0.75 per share
Issuance of shares under
Stock option plan 363
Shares repurchased (598)
Other
- ---------------------------------------------------------------------------------------------------------
December 31, 1999 101,448 $ 7,175 0 $ 0
=========================================================================================================
<CAPTION>
Accumulated
Capital in Other
Excess of Comprehensive Retained
Stated Value Loss Earnings
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
JANUARY 1, 1997 $ 53,586 $ (59,780) $ 799,876
Net income 2,671
Other comprehensive loss, net of tax:
Translation loss
Minimum pension liability adjustment
Other comprehensive loss (31,640)
Comprehensive loss
Cash dividends:
Preferred (3,061)
Common, $0.641 per share (64,639)
Issuance of shares under
Stock option plan 13,436
Employee stock ownership plan 5,675
Preferred stock conversions 119,756
Shares repurchased (592)
Other 6,410
- -----------------------------------------------------------------------------
December 31, 1997 198,271 (91,420) 734,793
Net income 180,243
Other comprehensive loss, net of tax:
Translation loss
Minimum pension liability adjustment
Other comprehensive loss (3,719)
Comprehensive income
Cash dividends:
Common, $0.704 per share (72,028)
10% common stock dividend 364,917 (364,917)
Issuance of shares under
Stock option plan 25,067
Employee stock ownership plan 2,362
Shares repurchased (169,080)
Other 9,928
- -----------------------------------------------------------------------------
DECEMBER 31, 1998 431,465 (95,139) 478,091
Net income 187,805
Other comprehensive loss, net of tax:
Translation loss
Minimum pension liability adjustment
Other comprehensive loss (27,869)
Comprehensive income
Cash dividends:
Common, $0.75 per share (76,434)
Issuance of shares under
Stock option plan 5,387
Shares repurchased (13,045)
Other 3,784
- -----------------------------------------------------------------------------
December 31, 1999 $ 427,591 $(123,008) $ 589,462
=============================================================================
</TABLE>
The Notes beginning on page 38 are an integral part of these financial
statements.
36
<PAGE> 18
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 187,805 $ 180,243 $ 2,617
Adjustments to reconcile net income to net cash provided by
operating activities
Extraordinary loss on debt retirement 11,753
Depreciation, depletion and amortization 145,846 145,669 153,524
Equity in earnings of affiliates/Minority interest in subsidiaries (6,830) (6,387) 991
Cash dividends from affiliated companies 7,447 10,284 991
(Gain) loss on disposition of assets (188) 6,168 4,642
(Gain) loss on assets held for sale (3,500) (100,354) 226,358
Deferred taxes 18,060 71,613 (48,357)
Changes in assets and liabilities, net of effects from acquisitions,
dispositions, assets held for sale and foreign currency adjustments
Receivables (46,577) 3,637 (8,669)
Inventories (15,283) (2,321) (1,463)
Prepaid expenses (28,177) (3,597) (448)
Payables and taxes (8,431) (22,374) (7,943)
Other assets and liabilities (10,162) (66,491) (22,281)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 240,010 227,843 299,962
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (135,728) (198,880) (230,651)
Cost of acquisitions, exclusive of cash (184,399) (74,911) (17,647)
Proceeds from non-operating notes receivable 34,000
Proceeds from the sale of assets 18,561 296,845 74,960
Investments in affiliates (25,640)
Other (693) (6,489) (3,200)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (293,899) 16,565 (176,538)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 248,302 161,900 76,211
Principal repayment of debt (192,136) (248,811) (72,095)
Net increase (decrease) in commercial paper borrowings 61,800 54,000 (95,391)
Cash dividends-common and preferred (76,434) (72,028) (67,700)
Common and preferred shares acquired (13,045) (169,080) (646)
Common shares issued 5,387 32,882 19,160
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 33,874 (241,137) (140,461)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (719) 378 (623)
- -----------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,734) 3,649 (17,660)
Cash and cash equivalents at beginning of year 57,249 53,600 71,260
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 36,515 $ 57,249 $ 53,600
=================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 51,145 $ 55,084 $ 54,739
Income taxes paid $ 119,916 $ 95,278 $ 92,240
=================================================================================================================
</TABLE>
Excluded from the Consolidated Statements of Cash Flows are the effects of
certain non-cash activities. On June 10, 1998, the Company issued a 10% common
stock dividend ($364,917 fair value). In December 1998, the Company received an
obligation for $34,000 in conjunction with the sale of the intermediate bulk
containers operation. During the third quarter of 1997, the Company converted to
common stock substantially all of its outstanding shares of $2.25 Series A
Cumulative Convertible Preferred Stock issued in 1993 at a rate of 2.074 common
shares per share of preferred stock. Debt obligations assumed by the Company in
conjunction with acquisitions were approximately $3,300 in 1999, $6,400 in 1998
and $9,900 in 1997.
The Notes beginning on page 38 are an integral part of these financial
statements.
37
<PAGE> 19
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%-50% OF THE VOTING STOCK ARE INCLUDED ON THE EQUITY METHOD OF ACCOUNTING.
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS THAT
AFFECT THE REPORTED AMOUNT OF ASSETS AND LIABILITIES AT THE DATE OF THE
FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING
THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES.
2. ACQUISITIONS/DISPOSITIONS
Sonoco completed several acquisitions during 1999 with an aggregate cost of
approximately $184,400 in cash and the assumption of $3,300 in debt. During the
first quarter of 1999, Sonoco completed the acquisition of Wood Composite
Technology, a manufacturer of composite (i.e. wood and plastic) reels serving
the wire and cable markets. The acquisition is expected to add approximately $10
million of sales annually to the Industrial Packaging segment. Sonoco also
acquired engineered carrier operations in Brazil and Taiwan.
During the third quarter of 1999, Sonoco completed two acquisitions in the
Consumer Packaging segment. In August, Sonoco completed the purchase of the
composite can assets of Crown Cork & Seal, Inc. This acquisition consisted of
two manufacturing facilities in the United States with annual sales of
approximately $32 million. In September, Sonoco completed the acquisition of the
flexible packaging division of Graphic Packaging Corporation, a wholly owned
subsidiary of ACX Technologies, Inc. Graphic's flexible packaging operations had
1998 sales of approximately $120 million.
Also, in the first quarter of 1999, Sonoco completed the sale of its labels
and label machinery operations in the United Kingdom and a label machinery
operation in the United States. The completion of the sale of these operations
resulted in the recognition of a $3.5 million after-tax gain.
Sonoco completed several acquisitions during 1998 with an aggregate cost of
approximately $74,900 in cash and the assumption of $6,400 in debt.
Acquisitions included the Burk family of companies, producers of injection and
extruded plastics products with three manufacturing facilities in Germany; the
LaRochette group, consisting of four converting operations and a paper mill in
France; and the remaining 50% share of its joint venture partner in
Coretech-Sonoco, a manufacturer of engineered carriers, and Montreal Recycled
Paperboard, a recycled paperboard manufacturer in Canada. In addition, the
Company completed an agreement with Texpack to combine the paper cone operations
of both companies into a global joint venture to serve the world's textile
industry. The Company owns 30% of the joint venture named Conitex-Sonoco, LLC.
The Company also completed the sale of its North American labels operations and
its industrial containers operations.
In 1997, Sonoco completed acquisitions with an aggregate cost of
approximately $17,600 in cash and the assumption of $9,900 in debt. Acquisitions
included the Industrial Machine Company, a domestic producer of equipment and
tooling primarily for the paper-converting and food processing industries, and
Corepak LTD, an engineered carriers producer in England. Joint ventures were
also formed in Brazil and Chile. The Brazilian joint venture, Sonoco For-Plas,
is owned 51% by the Company. It is a major supplier of `peel off' metal ends and
plastic components such as overcaps for cans. The Chilean joint venture, a
manufacturer of engineered carriers and composite cans, is also owned 51% by the
Company. Sonoco contributed its fibre partitions operation into a joint venture
with Rock-Tenn Company called RTS Packaging, owned 35% by Sonoco. The Company
also completed the sale of its screen print operations acquired in the 1993
acquisition of Engraph, Inc.
In 1996, the Company completed acquisitions with an aggregate cost of
approximately $94,200 in cash and the assumption of $11,600 in debt. Domestic
acquisitions included a producer of moldwood plugs, Moldwood Products Company; a
supplier of vapor barrier packaging materials, Hamilton Hybar, Inc.; a
manufacturer of engineered carriers, Stonington Corporation; a niche producer of
composite cans, Specialty Packaging; and two operations in the Company's wire
and cable packaging operations. Significant international acquisitions included
the Hongwen joint venture for paperboard production in China, an Indonesian
joint venture for production of engineered carriers, and the purchase of two
German 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. The Edinburgh
plant was added to the flexible packaging operations, and Cricket Converters was
added to the labels operations which were subsequently sold in the first quarter
of 1998. Also during 1995, Sonoco 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.
38
<PAGE> 20
The Company has accounted for all of its acquisitions as purchases
and, accordingly, has included their results of operations in consolidated net
income from the date of acquisition. The pro forma impact of these acquisitions
in each year was immaterial.
3. ASSETS HELD FOR SALE
In the first quarter of 1999, Sonoco completed the sale of its labels and
label machinery operations in the United Kingdom and a label machinery operation
in the United States. The net assets of these operations, consisting primarily
of property, plant and equipment, accounts receivable and inventories, net of
liabilities, totaled approximately $5,294 and were shown as net assets held for
sale on the Consolidated Balance Sheet at December 31,1998. The completion of
the sale of these operations resulted in the recognition of a $3,500 after-tax
gain.
In 1998, the Company completed the sale of its industrial containers
operations, part of the Company's Industrial Packaging segment, for cash
proceeds of approximately $218,400 resulting in a pre-tax gain of $119,552
($55,252 after tax). Early in the second quarter of 1998,the Company completed
the sale of its North American labels operations, part of the Company's Consumer
Packaging segment, for net cash proceeds of approximately $87,700. A pre-tax
charge of $19,198 ($13,698 after tax) was recognized in 1998 upon the completion
of the sale in addition to a pre-tax charge of $226,358 ($174,500 after tax)
recorded in the fourth quarter of 1997.
The combined net sales of the above operations were $8,700 in 1999,
$140,000 in 1998, and $437,500 in 1997. Combined operating profits (losses) were
$(100), $3,300, and $13,600 in 1999, 1998 and 1997, respectively.
The decision to sell Sonoco's industrial containers and labels operations
was based on management's conclusion that neither of these businesses fit the
Company's long-term strategic objectives.
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, 1999 and 1998, outstanding checks of $32,601 and
$33,227, respectively, were included in Payable to suppliers on the Consolidated
Balance Sheets.
At December 31, 1999 and 1998, $2,792 and $7,409, respectively, of cash and
cash equivalents represented proceeds from the issuance of Industrial Revenue
Bonds (IRBs) and were restricted to funding qualified expenditures as provided
for by the bonds.
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 21% of total
inventories in 1999 and 31% in 1998. The remaining inventories are determined on
the first-in, first-out (FIFO) method.
If the FIFO method of accounting had been used for all inventories, the
totals would have been higher by $9,994 in 1999 and $11,078 in 1998.
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 $135,146 in 1999, $136,170 in
1998, and $136,925 in 1997.
Details of property, plant and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
Land $ 36,656 $ 35,372
Timber resources 34,022 33,714
Buildings 296,828 298,283
Machinery and equipment 1,614,283 1,433,531
Construction in progress 104,149 155,773
- ---------------------------------------------------------------
2,085,938 1,956,673
Accumulated depreciation and depletion (1,053,435) (942,830)
- ---------------------------------------------------------------
$ 1,032,503 $1,013,843
===============================================================
</TABLE>
Estimated costs for completion of authorized capital additions under
construction totaled approximately $103,000 at December 31, 1999.
Certain operating properties and equipment are leased under non-cancelable
operating leases. Total rental expense under operating leases was approximately
$38,500 in 1999 and $36,000 in both 1998 and 1997. Future minimum rentals under
non-cancelable operating leases with terms of more than one year are as follows:
2000-$21,300, 2001-$16,900, 2002-$13,300, 2003-$10,300, 2004-$9,600, and 2005
and thereafter-$19,200.
39
<PAGE> 21
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
7. COST IN EXCESS OF FAIR VALUE OF
ASSETS PURCHASED
GOODWILL ARISING FROM BUSINESS ACQUISITIONS ($110,000 IN 1999 AND $35,000 IN
1998) IS AMORTIZED ON A 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 OPERATION HAVING A GOODWILL BALANCE. Amortization expense
amounted to $10,700 in 1999, $9,499 in 1998, and $16,599 in 1997. Accumulated
amortization at December 31, 1999 and 1998 was $58,934 and $48,705,
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 on the Consolidated Balance Sheets. The net pre-tax cost of COLI,
including interest expense,was $2,392 in 1999, $4,195 in 1998, and $4,477 in
1997 and is included in selling, general and administrative expenses. The
related interest expense was $17,108 in 1999, $36,392 in 1998, and $38,754 in
1997. Legislation was enacted in 1996 that began phasing out the tax
deductibility of this interest loans. Accordingly, no deduction was taken in
1999 for interest on policy loans. See Note 14 for further details.
9. DEBT
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
Commercial paper, average rate of 5.2%
in 1999 and 5.4% in 1998 $257,300 $267,000
7.0% debentures due November 2004 149,905
6.75% debentures due November 2010 99,847 99,819
5.875% debentures due November 2003 99,740 99,605
5.49% debentures due April 2000 75,000 75,000
9.2% debentures due August 2021 41,305 41,305
6.125% IRBs due June 2025 34,533 34,509
6.0% IRBs due April 2026 34,171 34,139
Foreign denominated debt, average rate
of 7.7% in 1999 and 7.5% in 1998 87,643 106,626
Other notes 24,693 25,629
- -----------------------------------------------------------------
Total debt 904,137 783,632
Less current portion and short-term notes 84,597 96,806
- -----------------------------------------------------------------
Long-term debt $819,540 $686,826
=================================================================
</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. It is management's intent to
extend indefinitely the line of credit agreements supporting the commercial
paper program. Accordingly, commercial paper borrowings are classified as
long-term debt.
Certain of the Company's debt agreements impose restrictions with respect
to the maintenance of financial ratios and the disposition of assets. The most
restrictive covenant currently requires that net worth at the end of each fiscal
quarter be greater than $750,000 increased by 50% of net income after March 31,
1998, and decreased by stock purchases after January 1, 1998.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes at
December 31, 1999, were approximately $98,300 with interest at mutually
agreed-upon rates. As of December 31, 1999, the Company had registered debt
securities of $100,000 remaining under shelf registrations with the Securities
and Exchange Commission. In November 1999, the Company issued $150,000 of 7%
debentures due November 2004.
The approximate principal requirements of debt maturing in the next five
years are: 2000-$84,600, 2001-$7,500, 2002-$5,000, 2003-$103,400, and
2004-$153,600.
10. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
In 1998, the Company tendered for any and all of its 9.20% debentures due August
1, 2021. The fixed spread offer to purchase the debentures resulted in an
extraordinary charge against earnings in the second quarter of $11,753 (after a
$7,514 income tax benefit), reflecting the tender of approximately $58,700
principal amount of the $100,000 issue.
11. FINANCIAL INSTRUMENTS
The Company enters into currency swaps and foreign exchange forward contracts to
hedge a portion of the net investment in certain foreign subsidiaries. Gains and
losses on such contracts are recognized as a component of accumulated other
comprehensive income. As of December 31, 1999, the Company had no currency swap
contracts outstanding. At December 31, 1998, the notional value of such
contracts was approximately $19,000. All financial instruments are executed
with credit-worthy financial institutions: therefore, the Company considers the
risk on 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, 1999 December 31, 1998
- ----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
of Liability of Liability of Liability of Liability
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $(819,540) $(791,041) $(686,826) $(710,427)
Foreign currency
agreements (583) (583)
============================================================================
</TABLE>
40
<PAGE> 22
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities' (FAS 133). The effective date of FAS 133 has
been deferred by FAS 137. FAS 133 is now effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000, and requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to its limited use of derivative instruments,
the adoption of FAS 133 will not have a significant effect on the Company's
results of operations or its financial position.
12. STOCK PLANS
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 4,506,029 shares reserved for future grants
at December 31, 1999.
On January 1, 2000, awards in the form of contingent share units were
granted to key executives under a new long-term incentive plan. The vesting of
the awards, which can range from 246,250 to 985,000 shares, is tied to growth in
earnings and improved capital effectiveness over a three-year period. None of
the stock units will vest if the minimum growth objectives are not met.
On December 31, 1998, the Company granted special one-time Centennial
stock options of 100 shares to substantially all of its employees. These options
may be exercised after two years at the closing price of the shares on December
31, 1998, and expire after six years. A total of 1,543,200 options were granted
under the Centennial Share Program.
Since September 2, 1997, one-time awards of contingent share units have
been granted to certain 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, have been 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 175,300 to 701,200 shares, is tied to growth
in share price over the four-year period ending September 1, 2001. None of the
stock units will vest if the minimum share price growth objective is not
achieved. Since 1994, the Company has granted one-time awards of contingent
shares to certain of the Company's executives. These awards 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. Once vested, these
awards do not expire. As of December 31, 1999, a total of 377,541 contingent
shares granted under this plan remain outstanding, 314,072 of which are vested.
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>
1997
Outstanding at beginning of year 6,703,239 $18.46
Granted 1,343,330 $24.13
Exercised (929,845) $14.97
Canceled (71,781) $22.83
Outstanding at end of year 7,044,943 $19.98
Options exercisable at end of year 5,701,612 $19.00
- -------------------------------------------------------------------------------
1998
Granted 2,925,366 $31.52
Exercised (1,397,427) $20.91
Canceled (23,605) $28.25
Outstanding at end of year 8,549,277 $24.17
Options exercisable at end of year 5,623,911 $20.38
- -------------------------------------------------------------------------------
1999
Granted 1,341,031 $28.00
Exercised (395,298) $15.98
Canceled (79,729) $29.45
Outstanding at end of year 9,415,281 $25.01
Options exercisable at end of year 6,568,490 $23.33
===============================================================================
</TABLE>
The weighted-average fair value of options granted was $5.75, $6.30,
and $4.84 in 1999, 1998 and 1997, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------
Number Weighted-Average Weighted-
Range of Outstanding Remaining Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 6.61-$15.26 648,279 1.1 years $14.01
$16.23-$24.77 4,590,223 4.9 years $21.63
$25.00-$37.10 4,176,779 7.2 years $30.43
---------
$ 6.61-$37.10 9,415,281 5.7 years $25.01
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
---------------------------------------------------------
Number Weighted-
Range of Exercisable Average
Exercise Prices at 12/31/99 Exercise Price
- -------------------------------------------------------------------------------
<S> <C> <C>
$ 6.61-$15.26 648,279 $14.01
$16.23-$24.77 4,576,409 $21.63
$25.00-$37.10 1,343,802 $33.63
---------
$ 6.61-$37.10 6,568,490 $23.33
===============================================================================
</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
41
<PAGE> 23
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
related interpretations in accounting for its 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
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $187,805 $180,243 $ 2,617
Net income (loss) - pro forma 180,323 174,182 (1,327)
Earnings per share - as reported 1.83 1.73
Earnings (loss) per share - pro forma 1.75 1.67 (0.04)
===============================================================================
</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>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 2.4% 2.3% 2.3%
Expected stock price volatility 20.3% 20.0% 15.3%
Risk-free interest rate 4.8% 5.4% 6.2%
Expected life of options 5 years 5 years 5 years
===============================================================================
</TABLE>
13. EMPLOYEE BENEFIT PLANS
The Company provides non-contributory defined benefit pension plans for
substantially all its United States employees, as well as postretirement health
care and life insurance benefits to the majority of its retirees, and their
eligible dependents, in the United States and Canada. The Company also sponsors
contributory pension plans covering the majority of the employees in the United
Kingdom and Canada.
The components of net periodic benefit cost (income) include the
following:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
RETIREMENT PLANS
Service cost $ 16,897 $ 15,218 $ 15,169
Interest cost 39,565 39,467 37,690
Expected return on plan assets (61,257) (57,715) (48,465)
Amortization of net transition asset (444) (458) (534)
Amortization of prior service cost 2,044 1,643 1,235
Amortization of net actuarial loss 461 423 485
Effect of curtailment (870)
- -------------------------------------------------------------------------------
Net periodic benefit
(income) cost $ (2,734) $ (2,292) $ 5,580
===============================================================================
<CAPTION>
RETIREE HEALTH AND
LIFE INSURANCE PLANS
<S> <C> <C> <C>
Service cost $ 3,775 $ 2,894 $ 3,831
Interest cost 8,372 7,946 8,663
Expected return on plan assets (6,181) (3,784) (2,828)
Amortization of prior service cost (5,633) (4,807) (5,495)
Amortization of net actuarial loss 1,257 66 708
Effect of curtailment (2,039)
- -------------------------------------------------------------------------------
Net periodic benefit cost $ 1,590 $ 276 $ 4,879
===============================================================================
Other comprehensive
(income) expense $(2,785) $ 1,898 $ 1,805
===============================================================================
</TABLE>
The following tables set forth the plans' obligations and assets at
December 31:
<TABLE>
<CAPTION>
Retiree Health and
Retirement Plans Life Insurance Plans
1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation
at January 1 $ 614,715 $ 532,856 $ 119,711 $ 124,387
Service cost 16,897 15,218 3,775 2,894
Interest cost 39,565 39,467 8,372 7,946
Plan participant
contributions 1,284 1,451
Plan amendments 1,278 6,050 (25,354)
Actuarial (gain) loss (77,497) 52,975 6,783 (1,369)
Benefits paid (31,925) (28,369) (10,032) (9,246)
Other (752) (4,933) (683) (4,901)
- --------------------------------------------------------------------------------
Benefit obligation
at December 31 $ 563,565 $ 614,715 $ 102,572 $ 119,711
================================================================================
<CAPTION>
CHANGE IN PLAN ASSETS
<S> <C> <C> <C> <C>
Fair value of plan
assets at January 1 $ 666,299 $ 606,453 $ 71,650 $ 35,309
Actual return on
plan assets 133,954 74,492 12,567 5,915
Company contributions 4,324 16,359 8,317 39,749
Plan participant
contributions 1,284 1,451
Benefits paid (31,925) (28,369) (10,032) (9,246)
Other (1,900) (4,087) (119) (77)
- --------------------------------------------------------------------------------
Fair value of plan assets
at December 31 $ 772,036 $ 666,299 $ 82,383 $ 71,650
================================================================================
<CAPTION>
RECONCILIATION OF FUNDED
STATUS, DECEMBER 31
<S> <C> <C> <C> <C>
Funded status of plan $ 208,471 $ 51,584 $ (20,189) $ (48,061)
Unrecognized net
actuarial (gain) loss (115,852) 33,017 10,370 11,110
Unrecognized prior
service cost 13,204 14,313 (26,459) (6,738)
Unrecognized net transition
obligation 959 3
- --------------------------------------------------------------------------------
Net amount recognized $ 106,782 $ 98,917 $ (36,278) $ (43,689)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Retirement Plans
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL RECOGNIZED AMOUNTS
IN THE CONSOLIDATED
BALANCE SHEETS
Prepaid benefit cost $ 124,900 $ 113,842
Accrued benefit liability (25,822) (26,193)
Intangible asset 3,578 4,357
Accumulated other
comprehensive loss 4,126 6,911
- --------------------------------------------------------------------------------
Net amount recognized $ 106,782 $ 98,917
================================================================================
</TABLE>
The projected benefit obligation (PBO), accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $38,562, $35,896 and
$10,074, respectively, as of December 31, 1999, and $38,599, $36,058 and $9,865,
respectively, as of December 31, 1998.
42
<PAGE> 24
The weighted-average discount rate used in determining the PBO was
7.75% in 1999, 6.75% in 1998 and 7.25% in 1997. The assumed compensation
increase was 4.1% in 1999, and 4% in both 1998 and 1997. The expected long-term
rate of return on plan assets was 9.5% for all years presented. The assumed
health care cost trend rate was 5% in 1999 and continuing into the future.
Increasing the assumed trend rate for health care costs by one percentage point
would result in an increase in the accumulated post retirement benefit
obligation (APBO) and total service and interest cost component of approximately
$2,484 and $242, respectively. Decreasing the assumed trend rate for health care
costs by one percentage point would result in a decrease in the APBO and total
service and interest cost component of approximately $3,035 and $302,
respectively.
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 1999, 1998 and
1997, were $7,405, $6,536 and $6,260, respectively.
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>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income
Domestic $ 269,204 $ 324,185 $ 27,281
Foreign 20,356 15,413 36,438
- --------------------------------------------------------------------------------
Total pre-tax income $ 289,560 $ 339,598 $ 63,719
================================================================================
Current
Federal $ 68,927 $ 55,737 $ 79,827
State 5,700 16,765 13,650
Foreign 15,898 9,874 14,991
- --------------------------------------------------------------------------------
Total current $ 90,525 $ 82,376 $ 108,468
- --------------------------------------------------------------------------------
Deferred
Federal $ 12,973 $ 72,340 $ (49,161)
State 2,410 889 502
Foreign 2,677 (1,616) 302
- --------------------------------------------------------------------------------
Total deferred $ 18,060 $ 71,613 (48,357)
- --------------------------------------------------------------------------------
Total taxes $ 108,585 $ 153,989 $ 60,111
================================================================================
</TABLE>
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 60,382 $ 61,947
Employee benefits 46,602 38,504
Other 163
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 107,147 100,451
- --------------------------------------------------------------------------------
Retiree health benefits (15,278) (14,425)
Foreign loss carryforwards (14,211) (14,913)
Capital loss carryforwards (14,416) (17,730)
Employee benefits (20,211) (16,001)
Accrued liabilities and other (996) (19,663)
- --------------------------------------------------------------------------------
Gross deferred tax assets (65,112) (82,732)
- --------------------------------------------------------------------------------
Valuation allowance on deferred tax assets 38,918 45,174
- --------------------------------------------------------------------------------
Total deferred taxes, net $ 80,953 $ 62,893
================================================================================
</TABLE>
The net change in the valuation allowance for deferred tax assets is a
net decrease of $6,256 in 1999, compared with a net increase of $23,265 in
1998. The decrease of $6,256 is related to net operating loss carryforwards of
foreign subsidiaries and capital loss carryforwards considered realizable.
Approximately $39,000 of foreign subsidiary net operating loss
carryforwards remain at December 31, 1999. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carryforwards, approximately $22,000 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>
1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $ 101,346 35.0% $ 118,859 35.0% $ 22,301 35.0%
State income taxes,
net of federal
tax benefit 5,272 1.8 12,146 3.6 1,623 2.5
Goodwill 1,166 .4 6,280 1.8 3,508 5.5
Asset impairment
and dispositions (1,225) (.4) 15,552 4.6 38,913 61.1
Company-owned
life insurance 837 .3 (3,471) (1.0) (4,908) (7.7)
Other, net 1,189 .4 4,623 1.3 (1,326) (2.1)
- --------------------------------------------------------------------------------------------
Total taxes $ 108,585 37.5% $ 153,989 45.3% $ 60,111 94.3%
============================================================================================
</TABLE>
Undistributed earnings of international subsidiaries totaled $81,703
at December 31, 1999. 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 was sold, these earnings could become subject to tax.
43
<PAGE> 25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
The Company has resolved all issues with the Internal Revenue Service
(IRS) for all years through 1992. In October 1999, the Company received a
Revenue Agent Report from the IRS related to the years 1993 through 1995. The
most significant issue pertains to the deductibility of Corporate Owned Life
Insurance (COLI) loan interest.
The Company has recorded deductions of approximately $141 million
cumulatively as a result of COLI interest deductions from 1993 through 1998. In
December 1999, the Company made payments for potential additional tax and
interest attributable to COLI interest deductions for taxable years ended 1993
through 1995 to avoid the potential assessment by the IRS of any additional
above market rate interest on the contested amount of COLI interest deductions
taken. Additionally, payments were made for taxable years ended 1996 through
1998 to stop the accrual of interest on potential contested amounts. Management
believes that it has a meritorious position and will vigorously seek refunds,
either administratively or through litigation, of all amounts paid plus
interest. Management believes that its provision for income tax is adequate
under the circumstances based on the specific facts of the Company's
operations.
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, 1999 and
1998. Due to the complexity of determining cleanup 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 cleanup 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. SHAREHOLDERS' EQUITY
In 1999, the Company repurchased 598,463 shares of its common stock at a total
cost of $13,045, for an average price of $21.80 per share. This completed stock
repurchase programs previously authorized by the Company's Board of
Directors. On February 2, 2000, the Board of Directors approved a new stock
repurchase program authorizing the repurchase of up to 5,000,000 shares of the
Company's common stock.
In 1997, the Company converted all of its outstanding shares of $2.25
Series A Cumulative Convertible Preferred Stock into shares of common stock.
17. COMPREHENSIVE INCOME
The following table summarizes the components of accumulated other
comprehensive income and the changes in accumulated comprehensive income for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ (86,407) $(5,013) $ (91,420)
Change during 1998 (1,821) (1,898) (3,719)
- ------------------------------------------------------------------------------------------
Balance at December 31, 1998 (88,228) (6,911) (95,139)
Change during 1999 (30,654) 2,785 (27,869)
- ------------------------------------------------------------------------------------------
Balance at December 31, 1999 $(118,882) $(4,126) $(123,008)
==========================================================================================
</TABLE>
44
<PAGE> 26
18. FINANCIAL REPORTING FOR BUSINESS SEGMENTS
Sonoco reports its results in two primary segments, Industrial Packaging and
Consumer Packaging. The Industrial Packaging segment includes the following
products: paper and plastic engineered carriers, paper, recovered paper,
designed interior packaging and protective reels. This segment also included
fibre and plastic drums and intermediate bulk containers, which were sold in
1998. The Consumer Packaging segment includes the following products and
services: composite cans, printed flexibles, bag and film products, container
seals, folding cartons, covers and coasters, graphics management and packaging
services. This segment also included the North American labels operations sold
in 1998 and the United Kingdom labels operations sold in 1999.
<TABLE>
<CAPTION>
Years ended Industrial Consumer
December 31 Packaging Packaging Corporate Consolidated
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL REVENUE
1999 $1,415,469 $1,174,809 $2,590,278
1998 1,466,133 1,134,003 2,600,136
1997 1,630,969 1,259,337 2,890,306
INTERSEGMENT SALES(1)
1999 $ 43,544 $ 43,544
1998 41,121 1,098 42,219
1997 42,362 113 42,475
SALES TO UNAFFILIATED CUSTOMERS
1999 $1,371,925 $1,174,809 $2,546,734
1998 1,425,012 1,132,905 2,557,917
1997 1,588,607 1,259,224 2,847,831
OPERATING PROFIT(2)
1999 $ 188,704 $ 148,008 $ (47,152) $ 289,560
1998 282,114 106,347 (48,863) 339,598
1997 217,775 (101,833) (52,223) 63,719
IDENTIFIABLE ASSETS(3)
1999 $1,208,056 $ 706,052 $ 382,912 $2,297,020
1998 1,240,915 512,715 329,353 2,082,983
1997 1,228,796 717,172 213,964 2,159,932
DEPRECIATION, DEPLETION AND AMORTIZATION
1999 $ 91,235 $ 54,611 $ 145,846
1998 98,331 47,338 145,669
1997 93,336 60,188 153,524
CAPITAL EXPENDITURES
1999 $ 81,093 $ 54,635 $ 135,728
1998 143,852 55,028 198,880
1997 140,581 90,070 230,651
- --------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC REGIONS
The sales to unaffiliated customers and long-lived assets by geographic region
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
United States $1,881,472 $1,959,117 $2,245,772
Europe 313,457 304,435 287,467
Canada 162,574 119,930 121,227
All other 189,231 174,435 193,365
- -------------------------------------------------------------------
Total $2,546,734 $2,557,917 $2,847,831
===================================================================
<CAPTION>
<S> <C> <C> <C>
LONG-LIVED ASSETS
United States $ 821,291 $ 745,937 $ 712,111
Europe 185,336 235,825 183,950
Canada 135,602 62,676 54,400
All other 144,854 139,766 133,178
- -------------------------------------------------------------------
Total $1,287,083 $1,184,204 $1,083,639
===================================================================
</TABLE>
(1) Intersegment sales are recorded at a market-related transfer price.
(2) Industrial Packaging's 1998 results include a pre-tax gain of $119,552 on
the sale of the industrial containers operation and one-time, pre-tax
charges of $(37,480). Consumer Packaging's results include a pre-tax gain
of $3,500 in 1999 related to the sale of the label operation in the United
Kingdom, and pre-tax charges of $(19,198) in 1998 and $(226,358) in 1997
related to the disposition of the North American labels operation and
one-time, pre-tax charges of $(3,856) in 1998. 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, head-quarters facilities and
prepaid expenses.
45
<PAGE> 27
SELECTED ELEVEN-YEAR
FINANCIAL DATA (UNAUDITED)
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 2,546,734 $ 2,557,917 $ 2,847,831 $ 2,788,075
Cost of sales and operating expenses 2,213,522 2,269,810 2,505,531 2,458,710
Interest expense 52,466 54,779 57,194 55,481
Interest income (5,314) (5,916) (4,971) (6,191)
Unusual items(1) (3,500) (100,354) 226,358
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 289,560 339,598 63,719 280,075
Provision for income taxes 108,585 153,989 60,111 107,433
Equity in earnings of affiliates/Minority interest 6,830 6,387 (991) (1,771)
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in
accounting principles and extraordinary loss 187,805 191,996 2,617 170,871
Cumulative effect of changes in accounting principles
(FAS 106 and FAS 109)
Extraordinary loss, net of income tax benefit (11,753)
- -------------------------------------------------------------------------------------------------------------------------------
Net income 187,805 180,243 2,617 170,871
Preferred dividends (3,061) (7,196)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 187,805 $ 180,243 $ (444) $ 163,675
===============================================================================================================================
Per common share
Net income available to common shareholders:
Basic 1.84 1.76 .00 1.64
Diluted 1.83 1.73 .00 1.58
Cash dividends-common .75 .704 .641 .586
Average common shares outstanding:
Basic 101,886 102,632 100,981 99,564
Diluted 102,780 104,275 107,350 108,487
Actual common shares outstanding at December 31 101,448 101,683 105,417 98,850
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Net working capital 306,450 225,347 438,896 262,533
Property, plant and equipment, net 1,032,503 1,013,843 939,542 995,415
Total assets 2,297,020 2,082,983 2,159,932 2,365,896
Total debt 904,137 783,632 796,359 893,088
Shareholders' equity 901,220 821,592 848,819 920,613
Current ratio 1.7 1.5 2.0 1.6
Total debt to total capital(2) 47.5% 46.7% 46.1% 47.2%
Book value per common share 8.88 8.08 8.05 8.10
- -------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Depreciation, depletion and amortization expense 145,846 145,669 153,524 142,927
Cash dividends declared-common 76,434 72,028 64,639 58,480
Market price per common share (ending) 22.75 29.63 31.54 23.53
Return on total equity (including preferred stock) 21.9% 22.0% .3% 18.3%
Return on net sales 7.4% 7.0% .0% 6.1%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1999 data reflects the gain on the sale of divested businesses of $(3,500).
1998 data reflects the net gain on the sale of divested businesses of
$(100,354) pretax, or $(41,554) after tax. 1997 data reflects the asset
impairment charge of $226,358 pretax, or $174,500 after tax. Included in
1993 and 1991 were gains from the early repayment of a note in 1991. Also
includes restructuring charges of $42,000 pretax, or $25,000 after tax, in
1992 and $75,000 pretax, or $54,650 after tax, in 1990.
(2) Debt levels for 1995 through 1999 have been adjusted for cash related to
the issuance of restricted-purpose bonds.
46
<PAGE> 28
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2,706,173 $2,300,127 $1,947,224 $1,838,026 $1,697,058 $1,669,142 $1,655,830
2,396,284 2,055,734 1,734,980 1,641,075 1,528,543 1,481,271 1,470,877
44,004 35,861 31,154 30,364 28,186 28,073 29,440
(4,905) (2,398) (6,017) (6,416) (6,870) (2,196) (2,573)
(5,800) 42,000 (8,525) 75,000
- -------------------------------------------------------------------------------------------------------------------------
270,790 210,930 192,907 131,003 155,724 86,994 158,086
106,640 82,500 75,200 51,800 63,600 43,934 60,906
369 1,419 1,127 2,048 2,681 7,308 6,381
- -------------------------------------------------------------------------------------------------------------------------
164,519 129,849 118,834 81,251 94,805 50,368 103,561
(37,892)
- -------------------------------------------------------------------------------------------------------------------------
164,519 129,849 118,834 43,359 94,805 50,368 103,561
(7,763) (7,763) (1,264)
- -------------------------------------------------------------------------------------------------------------------------
$ 156,756 $ 122,086 $ 117,570 $ 43,359 $ 94,805 $ 50,368 $ 103,561
- -------------------------------------------------------------------------------------------------------------------------
1.56 1.21 1.17 .43 .95 .50 1.02
1.49 1.19 1.08 .43 .95 .50 1.01
.524 .481 .459 .425 .398 .390 .351
100,253 100,590 100,849 100,176 99,682 100,610 101,402
110,111 109,420 109,711 101,112 100,225 101,078 102,301
100,229 100,379 101,001 100,651 99,897 99,446 101,009
- -------------------------------------------------------------------------------------------------------------------------
229,328 222,068 209,932 152,478 163,860 184,066 193,035
865,629 763,109 737,154 614,018 580,787 562,591 494,290
2,098,157 1,821,414 1,696,349 1,241,783 1,135,940 1,113,594 995,132
686,792 547,380 515,826 316,010 283,199 312,120 255,286
918,749 832,218 788,364 561,890 562,306 512,828 511,574
1.5 1.6 1.7 1.5 1.6 1.7 2.1
39.6% 38.1% 38.0% 35.1% 30.6% 34.7% 30.4%
7.45 6.57 6.10 5.58 5.63 5.15 5.06
- -------------------------------------------------------------------------------------------------------------------------
125,836 112,797 95,745 83,309 76,561 72,152 67,263
53,145 48,287 46,333 42,443 39,703 39,216 35,583
23.86 18.94 19.05 20.67 14.94 14.07 16.02
18.7% 16.0% 19.0% 13.7% 17.8% 9.6% 21.3%
6.1% 5.6% 6.1% 4.4% 5.6% 3.0% 6.3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 29
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 in the United States.
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.
PricewaterhouseCoopers LLP, independent certified public accountants, have
audited the financial statements, and their report is herein.
/s/ F. Trent Hill, Jr.
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:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows (appearing on pages 34 through 45 of this report) present fairly, in all
material respects, the consolidated financial position of Sonoco Products
Company at December 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles in the United
States. 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 of these statements in
accordance with generally accepted auditing standards in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte,North Carolina
January 26,2000
48
<PAGE> 30
OFFICERS
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
<S> <C> <C> <C>
PETER C. BROWNING, 58 JIM C. BOWEN, 49 BERNARD W. CAMPBELL, 50 ALLAN V. CECIL, 58
President & Chief Executive Vice President & General Vice President-Information Vice President-Investor
Officer. Previously President Manager-Paper Division. Services. Previously Staff Relations & Corporate
& Chief Operating Officer Previously Vice President- Vice President-Information Affairs. Previously Vice
1996-1998; Executive Vice Manufacturing North Services 1991-1996; President-Investor
President-Global Industrial America, Paper since Director-Corporate Relations & Corporate
Products/Paper 1993-1996. 1994-1997; Director of Information Services Communications 1996-
Prior experience: President, Manufacturing 1993-1994. 1990-1991. Joined 1998. Prior experience:
Chairman & CEO, National Joined Sonoco in 1972. Sonoco in 1988. Vice President-Corporate
Gypsum 1990-1993; Communications &
Continental Can 1966-1990 Investor Relations,
where he last served as National Gypsum and
Executive Vice President. Mesa Petroleum Co.
Joined Sonoco in 1993. Joined Sonoco in 1996.
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
HARRIS E. DELOACH, JR., 55 CYNTHIA A. HARTLEY, 51 F. TRENT HILL, JR., 47 RONALD E. HOLLEY, 57
Sr. Executive Vice President Vice President-Human Vice President & Chief Vice President-Industrial
responsible for Global Resources. Previously Financial Officer. Products, N.A. Previously
Industrial Products/Paper/ Vice President-Human Previously Vice President- Vice President-High Density
Sonoco Crellin & Asia. Resources, National Finance 1994-1995; Vice Film Products 1993-1999;
Previously Executive Vice Gypsum Company and President-Industrial Vice President-Total Quality
President responsible for Dames & Moore and Products, N.A. 1990- Management 1990-1993;
Industrial Products/Paper/ previous experience with 1994; Vice President- Vice President-Industrial
molded and extruded plas- Continental Can Company. Finance 1987-1989. Products 1987-1990.
tics, 1998-1999; Executive Joined Sonoco in 1995. Joined Sonoco in 1979. Joined Sonoco in 1964.
Vice President responsible
for High Density Film,
Industrial Container, Fibre
Partitions, Protective
Packaging, Sonoco Crellin
& Baker Reels 1996-1998;
Group Vice President
1993-1996. Joined
Sonoco in 1985.
[PHOTO] [PHOTO] [PHOTO]
CHARLES J. HUPFER, 53 KEVIN P. MAHONEY, 44 RAYMOND L. MCGOWAN, JR., 48
Vice President, Treasurer Vice President-Corporate Group Vice President-Global
& Corporate Secretary. Planning since February Consumer Products. Previously
Previously Treasurer 1988- 2000. Previously Staff Vice President & General
1995; Director of Tax & Vice President-Corporate Manager-Global Consumer
Audit 1985-1988; Planning 1998-2000. Products 1998-1999; Vice
Director-International Joined Sonoco in 1987. President-Consumer Products
Finance & Accounting 1997-1998; Vice President &
1980-1985. Joined General Manager-Consumer
Sonoco in 1975. Products, United States &
Canada 1994-1997. Joined
Sonoco in 1983.
</TABLE>
50
<PAGE> 31
OFFICERS
EXECUTIVE OFFICERS (CONTINUED)
<TABLE>
<CAPTION>
[PHOTO] [PHOTO] [PHOTO]
<S> <C> <C>
HARRY J. MORAN, 67 CHARLES F. PATERNO, 43 J.C. RHODES, 61
Executive Vice President Vice President-Industrial Vice President-International
responsible for Flexible Products/Paper, Europe. Operations-Latin America,
Packaging, Folding Cartons, Previously Division Vice Australia & Director of
Protective Packaging, Bags/ President-Industrial Operations-Asia. Previously
Film, Caps/Coasters, Container Products/Paper, Europe Division Vice President-
Seals, Baker Reels,Graphic 1996-1998; President- Operations Support
Services, and the Pack Center. Sonoco Limited 1994-1995. 1996-1998. Joined
Previously Executive Vice Joined Sonoco in 1983. Sonoco in 1961.
President responsible for
Consumer Packaging 1996-
1998; Group Vice President-
Consumer Packaging 1993-
1996. Joined Sonoco in 1983.
[PHOTO] [PHOTO]
EDDIE L. SMITH, 48 PERRY D. SMITH, 49
Vice President/General Vice President & Managing
Manager, Flexible Packaging. Director-Sonoco Asia, L.L.C.
Previously Division Vice Previously Managing
President/General Manager- Director-Sonoco Asia, L.L.C.
Flexible Packaging 1996- 1994-1996; Director-
1998; Division Vice Business Development,
President-Consumer Asia Pacific 1992-1994.
Products, Europe 1994-1996. Joined Sonoco in 1988.
Joined Sonoco in 1971.
</TABLE>
OFFICERS
DIVISION & STAFF OFFICERS
<TABLE>
<S> <C> <C>
MICHAEL W. BULLINGTON, 52 ROBERT J. GIANGIORGI, 57 DANIEL G. HAUSE, 51
Staff Vice President, Finance & Staff Vice President-International Division Vice President-
Administration-Consumer Products. Business Development,Consumer Manufacturing, Industrial Products.
Joined Sonoco in 1983. Products. Joined Sonoco in 1983. Joined Sonoco in 1970.
CHARLES W. COKER, JR., 40 DONALD M. GORE, 50 LINDA O. HILL, 51
Staff Vice President-Corporate Division Vice President-Sales, Staff Vice President-Global
Purchasing & Logistics. Joined Industrial Products, N.A. Technology. Joined Sonoco
Sonoco in 1981. Joined Sonoco in 1972. in 1966.
H. WILLIAM FROEBER, 49 JOHN M. GRUPS, 49 R. JIM HINES, 49
Division Vice President-Flexible Division Vice President-Global Division Vice President-Recovered
Packaging. Joined Sonoco in 1995. Operations, Consumer Products. Paper. Joined Sonoco in 1980.
Joined Sonoco in 1976.
RODGER D. FULLER, 38 BEN L. HARRIS, JR., 49 JOHN D. HORTON, 57
Division Vice President- Staff Vice President-Finance & Division Vice President-Sales &
Consumer Products, Europe. Administration, Global Industrial Marketing, High Density Film.
Joined Sonoco in 1985. Products/Paper. Joined Sonoco Joined Sonoco in 1972.
in 1983.
LARRY O. GANTT, 62
Vice President-Operating E.A. HARRIS, 54 LESLIE H. LAK, 51
Excellence. Joined Sonoco Division Vice President-Industrial Division Vice President, Molded
in 1963. Products/Paper, S.A. Joined Plastics. Joined Sonoco in 1973.
Sonoco in 1969.
JOSEPH A. LUCAS, 60 CHARLES W. REID, 61 JAMES H. SHELLEY, 56
Division Vice President-Sales, Division Vice President & General Staff Vice President-Employee
Consumer Products. Joined Manager-Sonoco Baker Reels. Relations & Labor Counsel.
Sonoco in 1998. Rejoined Sonoco in 1988. Joined Sonoco in 1969.
JAMES C. MILLER, 46 BRAD D. ROSS, 40 DAVID THORNELY, 55
Staff Vice President-Engineering Division Vice President, Sales & Managing Director-Sonoco
& Technology, High Density Film. Marketing-Flexible Packaging. Australasia. Joined Sonoco
Joined Sonoco in 1983. Joined Sonoco in 1986. in 1991.
FRANK J. POPELARS, 59 M. JACK SANDERS, 46 Rex E. Varn, 41
Staff Vice President-Corporate Division Vice President & General Division Vice President & General
Controller. Joined Sonoco in 1983. Manager, Protective Packaging. Manager-High Density Film.
Joined Sonoco in 1987. Joined Sonoco in 1980.
James C. Yeager, 53
Division Vice President, Europe-
Molded Plastics & Industrial
Products. Joined Sonoco in 1973.
</TABLE>
51
<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, 1999 are:
1. Paper Stock Dealers, Inc., 100%-owned domestic subsidiary,
incorporated in the State of North Carolina.
2. Sonoco-Crellin Holdings, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
a. Crellin International, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware, holder of securities in:
1. Sonoco-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.
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.
3. 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.
1. Sonoco Machinery Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware.
a. Harlands France SARL, 100%-owned French subsidiary.
b. SPC Resources, Inc., 100%-owned domestic subsidiary, incorporated
in the State of Delaware.
<PAGE> 2
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
c. Sonoco International, Inc., 100%-owned domestic subsidiary,
incorporated in the State of Delaware, holder of securities in:
1. Kemkin Holdings, Ltd., 100%-owned Gibraltar subsidiary.
2. Sonoco Netherlands Holding II BV, 100%-owned Dutch
subsidiary.
3. Sonoco Limited, 100%-owned Canadian subsidiary.
4. Sonoco Luxembourg SARL, 100%-owned Luxembourg subsidiary.
a. NRO Sonoco, Inc., 100%-owned Canadian subsidiary.
b. Sonoco Products Company U.K. Unlimited, 100%-owned U.K.
subsidiary.
1. Sonoco UK Limited, 100%-owned U.K. subsidiary.
2. Sonoco Consumer Products Limited, U.K., 100%-owned
U.K. subsidiary.
c. Sonoco Netherlands Holdings I BV, 100%-owned Dutch
subsidiary.
1. Sonoco Norge AS, 100%-owned Norwegian subsidiary.
2. Sonoco Ambalaj San ve Tic AS, 100%-owned Turkish
subsidiary.
d. 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 OPV Hulsen GmbH, 100%-owned German
partnership.
4. Sonoco Caprex AG, 72%-owned Swiss subsidiary.
<PAGE> 3
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
5. Sonoco CPD GmbH, 100%-owned German subsidiary.
6. Burk GmbH, 100% owned German subsidiary.
e. Sonoco SARL, 100%-owned French subsidiary.
1. Sonoco Holding France, 100%-owned French
subsidiary.
a. Sonoco L'homme S.A., 100%-owned French
subsidiary.
1. Sonoco Eurocore, S.A., 100%-owned
Belgian subsidiary.
2. Sonoco Paper France S.A., 100% owned
French subsidiary.
a. Sonoco IPD France SA., 100% owned
French subsidiary.
b. Sonoco Consumer Products S.A., 100%-owned
French subsidiary.
5. FCC Sonoco, 100%-owned French subsidiary.
6. Neunundzwanzigste Lydia Vermogensverwaltungs GmbH,
100%-owned Germany subsidiary.
7. Sonono Deustschland Vermogensverwaltungs GmbH & Co. KG,
100%-owned Germany subsidiary.
8. Sonoco Asia, L.L.C., 76%-owned limited liability company.
a. Sonoco Singapore Pte, Ltd., 100%-owned Singapore
subsidiary.
1. Sonoco Holdings SDN BHD, 100%-owned Malaysian
subsidiary.
2. Sonoco Malaysia, 51%-owned Malaysian subsidiary.
b. Sonoco Taiwan Limited, 100%-owned Republic of China
subsidiary.
c. Sonoco Thailand Ltd., 70%-owned Thai subsidiary.
<PAGE> 4
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
d. Sonoco Hongwen, L.L.C., 80%-owned limited liability
company.
e. Sonoco Products Malaysia, SDN BHD, 100%-owned Malaysian
subsidiary.
9. Sonoco Asia Management Company, L.L.C., 71%-owned limited
liability company.
10. Sonoco Participacoes Ltda., 100%-owned Brazilian subsidiary.
a. Sonoco For-Plas do Brazil Ltda., 51%-owned Brazilian
subsidiary.
11. Inversiones Sonoco do Chile Ltda, 100%-owned Chilean
subsidiary.
a. Sonoco de Chile, 70%-owned Chilean subsidiary.
12. Grupo Sonoco SA de CV, 100%-owned Mexican subsidiary.
4. Sonoco do Brazil Ltda., 100%-owned Brazilian subsidiary.
5. Timber Properties, Ltd., (B.V.I.), 100%-owned by Sonoco Products
Company.
6. Southern Plug & Manufacturing Co., Inc., 100%-owned domestic
subsidiary, incorporated in the state of Louisiana.
7. Sonoco "SPG", Inc., 100%-owned domestic subsidiary, incorporated in
the state of Wisconsin.
8. Sonoco Flexible Packaging Company, Inc., 100%-owned domestic
subsidiary incorporated in the state of South Carolina.
a. Sonoco Flexible Packaging NC Corporation Inc., 100%-owned
domestic subsidiary.
9. Sonoco Paperboard Group, L.L.C., 100%-owned limited liability company.
10. Sonoco Development, Inc., 100%-owned domestic subsidiary, incorporated
in the state of South Carolina.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Sonoco Products Company on Forms S-8 (September 4, 1985, November 27, 1989,
November 22, 1993, June 7, 1995, September 25, 1996 and December 30, 1998) and
Forms 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 26, 2000 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated by reference
in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
-----------------------------------
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 24, 2000
<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,
1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,181
<SECURITIES> 4,334
<RECEIVABLES> 353,814
<ALLOWANCES> 6,969
<INVENTORY> 248,364
<CURRENT-ASSETS> 723,081
<PP&E> 2,085,938
<DEPRECIATION> 1,053,435
<TOTAL-ASSETS> 2,297,020
<CURRENT-LIABILITIES> 416,631
<BONDS> 819,540
0
0
<COMMON> 7,175
<OTHER-SE> 894,045
<TOTAL-LIABILITY-AND-EQUITY> 2,297,020
<SALES> 2,546,734
<TOTAL-REVENUES> 2,546,734
<CGS> 1,953,605
<TOTAL-COSTS> 1,953,605
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,152
<INTEREST-EXPENSE> 52,466
<INCOME-PRETAX> 289,560
<INCOME-TAX> 108,585
<INCOME-CONTINUING> 187,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,805
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.83
</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, 1999
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
SONOCO PRODUCTS COMPANY
NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550
<PAGE> 2
EXHIBIT 99-2
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements of Sonoco Products Company represent the financial statements of the
1991 Key Employee Stock Option Plan and are incorporated herein by reference in
this Form 11-K Annual Report.
