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, 2000
[ ] 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. [ ]
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 4,
2001, was $1,953,434,262. Registrant does not have any non-voting common stock
outstanding.
As of March 4, 2001, there were 95,165,265 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, 2000, 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 18, 2001, are incorporated by reference in Part
III.
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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 2000 Annual Report to
Shareholders (the "2000 Annual Report") are incorporated
herein by reference: Management's Discussion and Analysis
on pages 25 - 33, and Notes 2 and 4 to the Consolidated
Financial Statements on pages 38 - 39.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - Note 19 to
the Consolidated Financial Statements on page 45 of the
2000 Annual Report is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS - The operations reviews
on pages 9 - 17 and Management's Discussion & Analysis on
pages 25 - 33 of the 2000 Annual Report are incorporated
herein by reference.
The principal raw materials used by the Company are
recovered paper, paperboard, metal, and plastic resins.
Recovered paper used in the manufacture of paperboard is
purchased either directly from suppliers near
manufacturing operations or through the Company's
subsidiary, Paper Stock Dealers, Inc. Other raw materials
are purchased from a number of outside sources. The
Company considers the supply and availability of raw
materials to be adequate to meet its needs.
Most customer orders are manufactured with a lead time of
three weeks or less. Therefore, the amount of backlog
orders at December 31, 2000 and 1999 were not material.
The Company expects all backlog orders at December 31,
2000 to be shipped during 2001.
As of December 31, 2000, the Company had approximately
17,450 employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES - Note 19 to the Consolidated
Financial Statements on page 45 of the 2000 Annual Report
and the information about market risk on page 30 of the
2000 Annual Report are 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 2000
Annual Report and is incorporated herein by reference.
ITEM 2 PROPERTIES - The information about properties owned and leased
by the Company on page 31 of Management's Discussion &
Analysis of the 2000 Annual Report is incorporated herein by
reference.
ITEM 3 LEGAL PROCEEDINGS - Note 16 to the Consolidated Financial
Statements on pages 44 - 45 of the 2000 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.
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I (CONTINUED)
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 2000 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 on page 30. The Company's common stock is traded on
the New York Stock Exchange under the stock symbol "SON". At
December 31, 2000, there were approximately 45,200 shareholder
accounts.
ITEM 6 SELECTED FINANCIAL DATA - The Selected Eleven-Year Financial
Data provided on pages 46 - 47 of the 2000 Annual Report are
incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Management's Discussion & Analysis
on pages 25 - 33 of the 2000 Annual Report is incorporated
herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- The information set forth under the caption "Risk
Management" on pages 30 -31 of Management's Discussion &
Analysis of the 2000 Annual Report is incorporated herein by
reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - The following
items provided in the 2000 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 Accountants on page 49.
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 31, 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. Information about executive officers of
the Company is set forth under Item 1(e) of this Report on
Form 10-K.
ITEM 11 EXECUTIVE COMPENSATION - Information with respect to the
compensation of directors and certain executive officers as
shown on pages 22 - 28 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.
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART III (CONTINUED)
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 14 - 16 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 page 28; and "Transactions with Management" on pages 28 -
30.
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,
2000 and 1999; Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998; Consolidated Statements of
Changes in Shareholders' Equity for the years ended December 31, 2000,
1999 and 1998; and Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998.
2. Financial Statement Schedules: All schedules are omitted because
they are not required, are not applicable or the required
information is given in the financial statements or notes thereto.
3. Exhibits
3-1 Articles of Incorporation (incorporated by reference to the
Registrant's 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 Sonoco Products Company Centennial Shares Plan (incorporated
by reference to the Registrant's Form S-8 dated December 30,
1998)
10-6 Agreement and Mutual Release between Registrant and Peter C.
Browning, dated July 21, 2000 (incorporated by reference to
the Registrant's Form 10-Q for the quarter ended October 1,
2000)
13 2000 Annual Report to Shareholders (portions incorporated by
reference)
21 Subsidiaries of the Registrant
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV (CONTINUED)
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
23 Consent of Independent Accountants
99-1 Proxy Statement, filed in conjunction with annual
shareholders' meeting scheduled for April 18, 2001 (previously
filed)
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key
Employee Stock Option Plan
(b) Reports on Form 8-K: The Company filed no reports on Form 8-K during
the fourth quarter of 2000.
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 30th day of
March 2001.
SONOCO PRODUCTS COMPANY
/s/ Harris E. DeLoach, Jr.
-------------------------------------
Harris E. DeLoach, Jr.
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 30th day of March 2001.
/s/ F. T. Hill, Jr.
-------------------------------------
F. T. Hill, Jr.
Vice President and
Chief Financial Officer
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SIGNATURES, CONTINUED
- ----------
/s/ C. W. Coker Director (Chairman)
- --------------------------------
C. W. Coker
/s/ H. E. DeLoach, Jr. President, Chief Executive Officer and
- ------------------------------ Director
H. E. DeLoach, Jr.
/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/ 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/ T. E. Whiddon Director
- -------------------------------
T. E. Whiddon
/s/ D. D. Young Director
- --------------------------------
D. D. Young
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SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
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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 Sonoco Products Company Centennial Shares Plan (incorporated
by reference to the Registrant's Form S-8 dated December 30,
1998)
10-6 Agreement and Mutual Release between Registrant and Peter C.
Browning, dated July 21, 2000 (incorporated by reference to
the Registrant's Form 10-Q for the quarter ended October 1,
2000)
13 2000 Annual Report to Shareholders (portions incorporated by
reference)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
99-1 Proxy Statement, filed in conjunction with annual
shareholders' meeting scheduled for April 18, 2001 (previously
filed)
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key
Employee Stock Option Plan
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OPERATIONS|REVIEW (CONTINUED)
Sonoco is changing to compete more effectively in today's global business
environment where the Company's customer base in both the industrial and
consumer products sectors has consolidated dramatically, leaving fewer players
making more of the purchasing decisions. The pressure for innovation in
packaging has intensified as customers seek new advantages in the marketplace.
Perhaps even more important is the pressure for innovation in how business is
conducted. Customers want more from their suppliers than the traditional
buy-sell relationship. They want value-adding services, joint development
initiatives, technical support, comprehensive supply chain management and
Internet-based access. Understanding and meeting the demands and expectations of
the marketplace are the keys to successful customer relationships. Sonoco is
changing. Changing the way it views its customers. Changing the way it goes to
market. Changing the way the world sees packaging. Changing the way the world
sees Sonoco.
CREATING SYNERGY
While the Company still consists of two main business segments, industrial and
consumer packaging, it is restructuring to create more synergies between
businesses to leverage resources for greater cost effectiveness and customer
service.
INDUSTRIAL PACKAGING
Sonoco's industrial packaging segment produced approximately 54% of the
Company's sales in 2000. Their products and services include: high-performance
paper, plastic and composite engineered carriers; paperboard; wood, metal and
composite reels for wire and cable packaging; fiber-based construction tubes and
forms; custom designed protective packaging; and supply chain management
capabilities.
CONSUMER PACKAGING
Sonoco's consumer packaging segment accounted for approximately 46% of the
Company's 2000 sales. Their products include: round and shaped composite cans,
printed flexible packaging, high density film products and folding cartons. The
consumer products business also includes specialty packaging and packaging
services.
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[PHOTO]
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OPERATIONS|REVIEW (CONTINUED)
INDUSTRIAL PACKAGING
The backbone of Sonoco's industrial products business is engineered carriers
(tubes and cores) made of fiber, plastic and composite materials that are
designed to meet specific customer needs in a wide range of markets, including
paper, textile fabrics and yarns, film, tape and metals. Sonoco is the world's
largest producer of engineered carriers and has 133 manufacturing plants in
North America, South America, Europe, Asia and Australia/New Zealand, with sales
of approximately $1.1 billion in 2000.
[GRAPH]
Net Sales Industrial Segment
($ in millions)
[GRAPH]
Operating Profit Industrial Segment
($ in millions)
ENGINEERED CARRIERS
Performance is critical in this market. Sonoco-made cores ensure that huge,
multiple-ton rolls of newsprint arrive intact at pressrooms and perform with
precision as the paper moves through the presses at speeds approaching 3,000
feet per minute. Sonoco tubes ensure that sensitive man-made fibers like
Lycra(R) and Spandex(R) are wound to tight tolerances and arrive in top
condition at textile mills that transform the fiber into cloth, which is then
transported on Sonoco tubes to mills for converting into garments.
High-performance films are protected from dust, wrinkles and other damage by
equally sophisticated cores designed to exacting tolerances. Cores for wound
metal products are made to withstand the incredible stresses of weight and
accelerated winding speeds without slipping, bending or collapsing.
Sonoco delivers the performance characteristics that customers need and
desire, rather than subjecting them to a "one size fits all" philosophy. Sonoco
is truly changing the way the world sees packaging through synergies derived
from a variety of disciplines and technical expertise in packaging and
information technology. Continuous product development is driven by the
Company's global technology group at five locations on four continents staffed
by experts in materials science, packaging engineering and process improvement.
To ensure that products deliver the highest performance at the lowest cost,
Sonoco utilizes optimal product design programs and is leveraging computer
modeling and simulation technology to confirm product performance and eliminate
the need for lengthy and often costly production trials.
In 2000, Sonoco delivered important technologically advanced,
performance-enhanced products to the market. These include the Complete
Release(TM) tape core, which allows every inch of tape on a roll to be used;
Sonotube Premium(R) fibre forms with Duroglas(TM), a construction tube with a
unique aerospace coating on the interior diameter that eliminates the need for
hand finishing; and textile cores with improved radial crush strength that
improves manufacturing efficiency. These advances were made because of Sonoco's
technology leadership and its invigorated and disciplined dedication to
listening to and meeting its customers' needs.
Customer-enhancing synergies also come from Sonoco's state-of-the-art
order fulfillment center in Hartsville, S.C., that is using the latest in
e-business and information technology
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OPERATIONS|REVIEW (CONTINUED)
[PHOTO]
to redefine and streamline the order fulfillment process. Sonoco is testing its
first European e-commerce trading system with a major film customer. This
process will significantly improve both companies' order processing and
commercial transactions and has the potential for revolutionizing the way Sonoco
does business with other customers around the world.
Sonoco is also actively pursuing external synergies and responding to
customers' demands for total packaging solutions. For example, Sonoco supplies
the paper industry with engineered carriers and end plugs, and through a joint
venture between Cascades, Inc. and Sonoco, called Cascades Sonoco Inc., also
supplies roll wrap, ream wrap, skid wrap, inside and outside headers and heat
platens -- everything necessary to package and protect a roll of paper. In 2000,
Cascades Sonoco expanded into Europe with good response.
Sonoco formed a unique partnership with T.H.E.M. International, Inc. to
supply its European textile customers with a plastic packaging system that meets
unique distribution and environmental considerations of the market. Sonoco also
expanded the distribution of another plastic endwall packaging system, this one
for sophisticated film. The reusable system works with the cores the Company
already supplies to customers. Originally offered in Europe, the endwall
packaging system is now available in North America. Positioning Sonoco as a
single-source supplier satisfies customers' requirements of fewer suppliers,
more efficient purchasing and administration, and lower costs.
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[PHOTO]
PAPER OPERATIONS
Sonoco's paper operations are its historical foundation for providing the
primary raw material for fiber-based packaging, such as engineered carriers and
composite cans. Supporting this strategy of vertical integration is a global
network of 29 paper mills with 39 machines in 13 countries. In 2000,
manufacturing capacity was 1.6 million tons. The Company's philosophy is to be a
slight net buyer of paper, thus maintaining a tight balance between supply and
demand and helping ensure a more disciplined and less cyclical market.
Sonoco continues to advance its paper technology. For example, it has
developed a new product called The ChillWrapper(TM) beverage holder for canned
and bottled chilled beverages. The ChillWrapper beverage holder has been proven
by Sonoco scientists to keep beverages cooler while eliminating the problem of
moisture transfer to hands or other surfaces and creating a
promotional/advertising vehicle for customers. Such innovation allows Sonoco to
leverage its vertical integration strategy while satisfying new market demands.
It is another example of how Sonoco is changing the way the world sees
packaging.
An essential aspect of Sonoco's paper business is the Company's global
network of reclamation centers. In 2000 alone, the Company collected over two
million tons of recovered paper from municipal and private sources. This
material provides a consistent, low-cost source of fiber for the Company's paper
operations.
WIRE AND CABLE REELS
Sonoco is also the leading producer of wood, composite and metal reels for the
United States wire and cable industry. This operation serves customers from
seven United States manufacturing sites and 29 warehouse locations.
CUSTOM DESIGNED PROTECTIVE PACKAGING
Custom designed protective packaging is the final component of Sonoco's
industrial packaging business. Currently, Sonoco principally serves the white
goods industry -- large appliances such as washers, dryers and ranges --
supplying custom designed corner posts and bases. The Company has developed
strong synergies with customers such as Whirlpool and Maytag where Sonoco has
engineers on site at customer locations adding value through services such as
product design and testing and supply chain management. Combining these services
with its strong, lightweight, low-cost protective packaging products will allow
Sonoco to expand into new markets such as electronics and computer peripherals.
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[PHOTO]
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OPERATIONS|REVIEW (CONTINUED)
CONSUMER PACKAGING
Sonoco's other major business segment is consumer packaging, including composite
cans, printed flexible packaging, specialty packaging and packaging services.
Sonoco is the world's largest producer of composite cans, with 44 plants in 12
countries. The Company's printed flexible business consists of nine plants in
North America.
[GRAPH]
Net Sales,
Consumer Segment
($ in millions)
[GRAPH]
Operating Profit,
Consumer Segment
($ in millions)
COMPOSITE CANS AND PRINTED FLEXIBLE PACKAGING
The year 2000 was one of dramatic change in the consumer products industry, with
major consolidation taking place. In quick succession, Kellogg Company announced
its intent to buy Keebler Foods; PepsiCo, Inc. announced its acquisition of The
Quaker Oats Company; General Mills' shareholders approved the acquisition of
Pillsbury; and just recently, Procter & Gamble and The Coca-Cola Company
announced a joint venture in juices and snacks. All of these companies are
customers of Sonoco.
Such consolidation in the consumer packaging industry has compelled
Sonoco to reevaluate its approach. The answer lies in a far stronger positioning
of Sonoco as a consumer packaging supplier, in effect a company that supplies a
packaging solution that may include composite cans, flexible packaging and
packaging services. Leveraging Sonoco's existing packaging technology and
products, customer relationships, markets served, and research and development
capabilities will position the Company as a more valuable supplier and create
additional opportunities for growth.
The packages themselves create a significant starting point. Sonoco's
composite cans typically consist of four layers: two plies of 100% recycled
paperboard, a protective inner liner and a label. The Company's printed flexible
packaging consists of film, paper and foil substrates that are laminated
together, printed and converted for use as roll-fed labels, shrink labels and
sleeves, stand-up pouches, bags and other flexible formats. Sonoco can supply
one package that includes both formats -- a composite can with a flexible label
or multiple packages in a combination of formats. In fact, it is already
happening. Sonoco currently sells composite cans and flexible packaging to many
of the same companies, sometimes within the same product line such as Mead
Johnson Nutritional's Viactiv(TM) family of products where Sonoco supplies both
LinearPak(TM) shaped cans and purse packs for a calcium supplement and shrink
film for nutritional beverages. At Nabisco, Sonoco supplies composite cans and
various flexible packaging for Planters nuts and snacks. Leveraging such
relationships, especially within multinational food companies with a broad range
of products, is a springboard for additional growth as customers seek
relationships with fewer, more qualified suppliers.
Sonoco is also working to create more synergy in markets served. In
addition to nutraceuticals and nuts, the Company supplies composite cans and
flexible packaging to the snack, coffee, confectionery, beverage, pet food, and
home and personal care industries. In 2000, Sonoco stepped up marketing efforts
to position itself as a total packaging solutions
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OPERATIONS|REVIEW (CONTINUED)
[PHOTO]
provider. Tradeshows such as PackExpo 2000, FMI (Food Marketers Institute),
SNAXPO (snacks), and SCAA (Specialty Coffee Association of America); joint
marketing collaterals; and joint sales calls were important steps in introducing
this concept to the industry.
New packaging innovations will fuel growth in consumer packaging.
Sonoco's world-class Packaging Development Center and Pilot Plant in Hartsville,
S.C., house the research and development activities of its composite can and
flexible packaging operations. The facility conducts extensive physical,
mechanical and analytical testing; package testing; and environmental
conditioning. In 2000, the Company greatly expanded its flexible packaging lab,
adding new testing technology. Sonoco's Pilot Plant capabilities allow for short
production runs of both composite cans and flexible packaging, facilitating the
commercialization of new packages. These resources are increasingly being used
on joint projects to improve graphic reproduction, shelf appeal and package
performance.
Among Sonoco's new packaging success stories in 2000 are mini cans for
Keebler cookies; Valve-Pak(TM) cans for Melitta Canada ground roasted coffee,
which was just named a Gold Award winner by The Packaging Association of Canada;
and a LinearPak(TM) shaped can for Austin Quality Foods SeAnimals(R) cookies.
The Company also produced dramatic rotogravure packaging for President's Choice
Toasted Coconut Crunch(TM) and Mother Parker's Higgins & Burke(TM) Coffees,
which both received Gravure Association of America 2000 Golden Cylinder Awards.
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HIGH DENSITY FILM
Sonoco touches the consumer market through its high density film business and is
the leading producer of plastic grocery bags in the United States. Although
Sonoco is the market leader, it became a more difficult arena in which to
compete due to spiraling resin prices and increased cost pressure resulting from
further consolidation of the retail grocery industry. The Company has six plants
in North America, which in addition to grocery bags, also make carry-out bags
for other retail outlets, produce bags and agricultural films.
COASTERS AND GLASS COVERS
Sonoco is the leading supplier of paper coasters and glass covers for the North
American hospitality, restaurant and healthcare industries.
FOLDING CARTONS
Sonoco produces folding cartons at its plant in Charlotte, N.C., primarily
serving health, beauty and personal care customers. This business provides
cartons for customers such as Fuji and Carter Wallace; and, as part of the
Company's supply chain management strategy, Gillette.
PACKAGING SERVICES
While composite cans and flexible packaging are the primary focus, Sonoco also
partners with customers to reduce costs from their packaging supply chain. One
example is Sonoco's relationship with Gillette. For four years, the Company has
managed the packaging supply chain for Gillette's North American razor and blade
business in a unique fee-for-service arrangement. The relationship has proved
attractive for both companies and at the end of 2000, Sonoco and Gillette signed
a five-year contract for the packaging of their North American and the European
razor and blade businesses. Sonoco assumed the responsibility of Gillette's
European pack center in Hemel Hempstead, England, in January 2001. The success
of this relationship serves as the model for pursuing similar relationships with
other consumer products companies and offers another excellent example of how
Sonoco is changing the way its customers see packaging.
The Company is exploring other fee-for-service arrangements. In
November, Sonoco announced a new service-based point-of-purchase program for
managing the production and distribution of in-store displays. Not only will
Sonoco manage the design and production of displays, it will also oversee
packing the displays with product and shipping to various retail venues. This
program also offers Sonoco the opportunity to provide the primary package --
composite can, flexible package or carton.
GRAPHICS MANAGEMENT
The final component in the packaging services business is Sonoco Trident. Based
in the United Kingdom with United States operations headquartered in Charlotte,
N.C., Trident provides a branded artwork and reprographics management service,
supported by Trident Artwork On-Line -- a web-based tracking and asset
management system designed to help companies such as Procter & Gamble, The Body
Shop and Best Foods protect brand integrity in their packaging. Trident also
produces 3D computer modeling for packaging development, marketing support and
short-run digital printing for product trials.
17
10
SELECTED QUARTERLY|FINANCIAL DATA (UNAUDITED)
Sonoco Products Company and Subsidiaries
First Second Third Fourth
(Dollars in thousands except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
2000
Net sales $676,299 $688,686 $677,469 $669,039
Gross profit 151,661 154,882 147,497 150,058
Net income 45,017 46,400 38,532(1) 36,349(2)
Per common share
Net income -basic $ .45 $ .47 $ .39 $ .37
-diluted .45 .47 .39 .37
Cash dividends -common 19 .20 .20 .20
Market price -high 23.00 22.88 21.81 22.69
-low 17.75 19.75 16.88 17.00
- ------------------------------------------------------------------------------------------------------------------------
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(3) 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
- ------------------------------------------------------------------------------------------------------------------------
(1) Includes an executive severance charge of approximately $3.4 million after
tax.
(2) Includes a net gain on the sales of divested businesses of $5.2 million
after tax, restructuring charges of $3.2 million after tax, and an income
tax charge of $12 million relating to corporate-owned life insurance.
(3) Includes a $3.5 million after-tax gain from the sale of the labels and
label machinery operations in the United Kingdom and the label machinery
operation in the United States.
[GRAPH]
Market vs. Book Value
per Common Share
[GRAPH]
Cash Dividends
Declared-Common
($ in millions)
[GRAPH]
Shareholders' Equity
($ in millions)
24
11
MANAGEMENT'S DISCUSSION|AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Although operating results for 2000 were lackluster, we made significant
progress in achieving the financial strategy we outlined last year. The year was
marked by major change as we restructured the Company toward our strategic and
financial goals. We generated our highest level ever of free cash flow, almost
$167 million, which we used to buy back a significant portion of our stock and
pay down debt. Our financial strategy continues to be to generate low
double-digit earnings growth over an economic cycle while maintaining the most
efficient level of capital to do so, thus improving returns on assets and moving
Sonoco to first quartile levels among the S&P 400 industrial companies.
SPECIAL CHARGES AND ONE-TIME ITEMS
2000 TRANSACTIONS
During the third quarter of 2000, the Company's Chief Executive Officer elected
to take early retirement and the Group Vice President for Global Consumer
Products resigned. The Company incurred a one-time charge related to the above
of $5.5 million pretax and $3.4 million after tax.
During the fourth quarter of 2000, the Company divested two operations
in Europe, the largest of which was our container seals operation in the United
Kingdom. These transactions generated cash of $17 million and resulted in a net
gain of $5.2 million on both a pretax and after-tax basis as a result of being
able to utilize capital loss carryforwards on these transactions. Also during
the fourth quarter, the Company closed two engineered carrier plants and
recognized asset impairment charges in contemplation of its restructuring
program announced on January 30, 2001. These actions totaled $5.2 million pretax
or $3.2 million on an after-tax basis. The objective of the restructuring is to
permanently remove at least $25-$30 million of annualized costs from the cost
structure and to realign and centralize a number of staff functions. Further
details of this program are discussed under the operating segment reviews.
Additionally, in the fourth quarter, Sonoco recognized additional tax expense
associated with the Internal Revenue Service's (IRS) position on Corporate-Owned
Life Insurance (COLI). This issue has widespread implications to numerous
companies and pertains to the disallowance of previously deducted COLI loan
interest. Sonoco has been providing for the most likely outcome related to this
issue for some time; however, three recent court rulings in favor of the IRS's
position precipitated the need to accrue additional funds for what the Company
now believes to be the most likely outcome. Accordingly, the Company recorded an
additional $12 million of income tax expense in the fourth quarter of 2000.
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.
ACQUISITIONS
Sonoco completed acquisitions during 2000 and in the third quarter of 1999 that
have an impact on year-over-year comparisons. During 2000, the Company purchased
the Australian composite can business of Amcor Packaging, as well as a small
graphics business in the United Kingdom. During the third quarter of 1999, the
Company completed two acquisitions. In August 1999, Sonoco purchased the
composite can assets of Crown Cork & Seal, Inc. In September 1999, Sonoco
purchased the flexible packaging division of Graphic Packaging Corporation, a
wholly owned subsidiary of ACX Technologies, Inc. All of these acquisitions were
in the Company's Consumer Packaging segment.
RESULTS OF OPERATIONS
2000 VERSUS 1999
OPERATING REVENUE
Consolidated net sales increased $164.8 million, or 6.5%, in 2000 to
$2.71 billion from $2.55 billion in 1999. This sales growth compares with a 7.4%
increase during 1999 on sales from continuing operations. The higher sales in
2000 resulted from higher year-over-year selling prices to offset rising
material costs (principally in the Industrial Packaging segment) and the impact
of acquisitions. Domestic sales were $1.98 billion, up 5.3% over 1999, and
international sales were $730.3 million, up 9.8% over 1999.
[GRAPH]
Assets by Category
($ in millions)
25
12
MANAGEMENT'S DISCUSSION|AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
The components of the sales change were:
($ in millions)
- ---------------------------------------------------------------
Selling price $ 124
Foreign currency translation (41)
Volume/Mix (15)
Acquisitions, net of dispositions 97
- ---------------------------------------------------------------
Total sales increase $ 165
- ---------------------------------------------------------------
As 1999 ended, raw material cost increases had not been fully recovered
through higher selling prices. Selling prices were increased in the fourth
quarter of 1999 in almost all operations and again during the first half of 2000
resulting in favorable year-over-year pricing of $124 million. Exchange rates
lowered sales by $41 million in 2000, driven primarily by the weakening Euro
relative to the U.S. dollar. Acquisitions made in 2000 and in the third quarter
of 1999, net of dispositions, added $97 million of sales during 2000.
OPERATING PROFITS
($ in millions) 2000 1999 % Change
- -----------------------------------------------------------------------------------------------------------------
Industrial Packaging $213.7 $188.7 13.3%
Consumer Packaging 118.2 144.5 (18.2)%
- -----------------------------------------------------------------------------------------------------------------
331.9 333.2 (.4)%
Special charges and one-time items (see above) (5.5) 3.5 (100.0+)%
Interest, net (55.8) (47.1) (18.4)%
- -----------------------------------------------------------------------------------------------------------------
Consolidated $270.6 $289.6 (6.5)%
- -----------------------------------------------------------------------------------------------------------------
The full year realization of higher selling prices in 2000 and falling
material costs in the second half of 2000 increased operating profits by
approximately $33 million. Raw material costs, principally recovered paper and
resin, steadily increased throughout most of the first half of 2000. Selling
prices were increased during the second quarter to recover the higher raw
material costs. Late in the second quarter, as volume began to slow, recovered
paper cost and other commodity materials began to drop. Raw material costs
continued to decline throughout the third quarter and volume continued to
soften. Raw material costs remained at this low level throughout the fourth
quarter, while volume continued to slow in both the industrial and consumer
businesses.
Manufacturing productivity increased profits by almost $30 million
during 2000; however, the improvement was less than expected due to lower
volume. Purchasing and logistics initiatives lowered costs by approximately
$25.2 million, helping to mitigate higher energy costs of $10 million and
inflationary increases experienced during 2000.
Gross profit as a percentage of sales was 22.3% in 2000, compared with
23.3% in 1999. An unfavorable year-over-year mix of products sold of
approximately $24 million negatively impacted gross profit as a percentage of
sales.
Selling, general and administrative expenses as a percentage of sales
were 10% in 2000, compared with 10.2% for 1999. A major focus of the Company has
been to maintain or lower fixed-cost spending levels. This focus was heightened
during 2000 when volumes began to soften, and costs will be further reduced in
2001 as a result of the Company's restructuring efforts.
Investment returns earned on assets held by the Company's benefit plans
are used to lower the Company's cost of providing pension and postretirement
benefits. As a result of higher than expected investment returns on plan assets
in recent years, the Company has benefited from an approximate $9.1 million
decrease in plan expense in 2000, compared with 1999. Additionally, as a result
of the significant increase in the market value of plan assets, Statement of
Financial Accounting Standard No. 87, "Employers' Accounting for Pensions,"
required the additional amortization of a $3.8 million gain in 2000. The
combined impact of approximately $12.9 million was the result of these recent
increased investment returns and will not recur in 2001. As a result, operating
profits will be reduced by approximately $12 million in 2001; however, this has
no impact on retiree benefits. Furthermore, our defined benefit plan continues
to be well funded.
26
13
Research and development costs charged to expense were $14 million in
2000, compared with $12 million in 1999. Significant projects in our Industrial
Packaging segment included efforts designed to enhance performance
characteristics of our engineered carriers in the textile, film and paper
packaging areas as well as projects aimed at productivity enhancements. Our
Consumer Packaging segment continued to invest in new materials technology and
new process technology for a range of packaging options, including composite
cans and other forms of shaped packaging.
The effective tax rate for 2000 was 41.4%, compared with 37.5% in 1999.
Excluding the additional tax provision on COLI and other one-time transactions,
the effective tax rate for 2000 was 37.7%.
Net income in 2000 was $166.3 million, compared with $187.8 million in
1999. Excluding one-time transactions in both years, net income was $179.7
million in 2000, compared with $184.3 million in 1999. Earnings per diluted
share in 2000 were $1.66 per share, compared with $1.83 in 1999. Excluding
one-time transactions in both years, earnings per diluted share were $1.80 in
2000, compared with $1.79 in 1999. The Company repurchased 7.1 million shares of
its common stock during 2000, a significant portion of which (4.7 million
shares) was repurchased late in the fourth quarter of 2000. At its February
2001 meeting, the Company's Board of Directors authorized the repurchase of up
to an additional five million shares of common stock. The Company intends to at
least repurchase shares equal to options granted each year through its stock
option programs.
Capital expenditures in 2000 were $117.1 million, compared with $135.7
million in 1999.
OPERATING SEGMENTS
Sonoco reports results in two segments, Industrial Packaging and Consumer
Packaging. International results are reflected in the appropriate segment based
on the products produced. Operating profit is defined as revenue less operating
costs, with all corporate costs (excluding interest and income taxes) allocated
to the two segments. For purposes of the Management's Discussion and Analysis,
previously described one-time charges and gains are excluded from the segment
tables and the discussions which follow.
INDUSTRIAL PACKAGING SEGMENT - The Industrial Packaging segment
represents approximately 54% of the Company's sales and includes the following
products: high performance paper, plastic and composite engineered carriers;
paperboard; wood, metal and composite reels for wire and cable packaging; fibre
construction tubes and forms; and custom designed protective packaging.
Sonoco's paper operations include the Company's 29 paper mills, 39
paper machines and 44 collection facilities around the world. Annually, the
paper mills have capacity to produce approximately 1.6 million tons of cylinder
board, of which Sonoco uses almost 80% internally. The Company also produces
approximately 175,000 tons of corrugating medium exclusively for Georgia-Pacific
under a cost plus fixed management fee arrangement.
Results from continuing operations for this segment are presented
below:
($ in millions) 2000 1999 % Change
- ---------------------------------------------------------------------------
Trade Sales $1,450.8 $1,371.9 5.7%
Operating Profit 213.7 188.7 13.3%
Capital Spending 67.4 81.1 (16.9)%
- ---------------------------------------------------------------------------
Trade sales in the Industrial Packaging segment increased $78.9
million, or 5.7%, to $1.45 billion in 2000. Domestic sales were up $57 million,
or 6.4%, and international sales were up $22 million, or 4.5%. Selling prices
were increased in almost all operations, beginning in the third quarter of 1999
and throughout the first few months of 2000, to recover rising raw material
costs. Higher year-over-year selling prices, amounting to approximately 7%,
increased sales and operating profits by $96 million.
Operating profits increased 13.3% to $213.7 million in 2000. Raw
material costs, principally recovered paper, steadily increased during the first
five months of 2000. In May, we began to experience a slowdown in the economy.
As the economy slowed, recovered paper costs in the United States weakened in
line with falling volumes. At December 31, 2000, recovered paper costs were down
almost $30/ton, or 30% below December 1999 levels. Europe and Asia experienced a
similar trend with recovered paper although the timing was somewhat behind that
of the United States. In the fourth quarter and into January 2001, recovered
paper costs stabilized around $65/ton domestically but are continuing to drop in
Europe. In spite of all the ups and
[GRAPH]
Identifiable Assets,
Industrial Segment
($ in billions)
27
14
MANAGEMENT'S DISCUSSION|AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
downs in recovered paper, the Industrial Packaging segment's operating profits
benefited approximately $38 million from higher selling prices relative to
material costs for the year.
Unit volumes in the Industrial Packaging segment increased in the first
half of 2000. As the economy slowed in the second half of the year, so did unit
volume. For the year, the segment's unit volume was flat with 1999. The impact
of an unfavorable mix of products sold and higher energy costs was offset by
productivity improvements in this segment of $20 million.
Capital spending was $67.4 million in 2000, compared with $81.1 million
in 1999. Depreciation, depletion and amortization expense was $92.8 million in
2000, compared with $91.2 million in 1999. Capital projects included the
rebuilding of several paper mills in the United States, Canada and France;
expansion of industrial product plants in the United States and Spain; the
completion of the new industrial product plant in Poland; and construction of a
paper mill in Greece with our joint venture partner.
RESTRUCTURING ACTIVITIES - INDUSTRIAL PACKAGING SEGMENT
During 2000, two engineered carrier plants were closed in contemplation of the
Company's larger consolidation and restructuring program announced January 30,
2001. In addition to the reduction in force, further plant closings in this
segment during 2001 will include two engineered carrier operations in the United
States, two in Europe, and one in Asia. Paper operations in Canada and Mexico
will also be affected. Estimated costs from these actions during the first
quarter of 2001 will be approximately $10 to $15 million.
CONSUMER PACKAGING SEGMENT - The Consumer Packaging segment represents
approximately 46% of the Company's sales and includes the following products and
services: round and shaped composite cans, printed flexible packaging,
high-density film products, specialty packaging and packaging services.
Results from continuing operations for this segment are presented
below:
($ in millions) 2000 1999 % Change
- --------------------------------------------------------------------
Trade Sales $1,260.7 $1,166.1 8.1%
Operating Profit 118.2 144.5 (18.2)%
Capital Spending 49.7 54.6 (9.0)%
- --------------------------------------------------------------------
Trade sales in the Consumer Packaging segment increased $94.6 million
to $1.26 billion in 2000 from $1.17 billion in 1999. Domestic sales were $1.02
billion, up 3%, and international sales were $.24 billion, up 35% from 1999.
Operating profit of $118.2 million was 18.2% behind 1999's $144.5 million.
Acquisitions made in 2000 and during the third quarter of 1999, net of
dispositions, increased sales by $97 million. These acquisitions included three
composite can plants and six printed flexible packaging plants. Sales prices
were increased to pass through higher raw material costs, principally paper and
resins, increasing sales and profits by approximately $28 million. Unit volume
in the Consumer Packaging segment was impacted by the slowing economy and
operational issues in certain composite can and flexible packaging operations.
Composite can volume, excluding the impact of acquisitions, was below last
year's level. We continued to see significant progress being made in the supply
chain management of many major manufacturers of consumer products. This lowered
the overall volume of products they required as they continued to lower
inventories throughout the year. In addition, several of the major consumer
products companies have undergone reorganization and management changes in 2000
similar to Sonoco, which resulted in disruption to their business and,
accordingly, Sonoco's.
The flexible packaging operation, coupled with the 1999 acquisition of
Graphic Packaging, experienced good volume growth during 2000. Additional
contracts were awarded the flexible packaging operation during 2000 that will
benefit 2001 and 2002 operations. Operating problems at two of the flexible
packaging plants lowered overall profitability for this business. Additional
restructuring is also planned in 2001 for the flexible packaging operation. The
bag and film products operation's sales and profits were below 1999. Lower unit
volume and an inability to fully recover resin increases were the key drivers.
As a result, we began to purchase some of our resin requirements from suppliers
in Asia, which lowered overall cost. Nonetheless, we continue to actively
examine several viable options for this operation.
[GRAPH]
Identifiable Assets,
Consumer Segment
($ in billions)
28
15
Productivity improvements totaling $10.5 million in this segment helped
to offset inflationary increases and higher energy costs.
Sonoco continued to grow its consumer services business during 2000 by
signing a new five-year contract with Gillette to operate both their United
States and European packaging centers for razors and blades. This contract was
incremental to the already existing contract with Gillette in the United States.
Capital spending in the consumer segment was $49.7 million in 2000,
compared with $54.6 million in 1999. Depreciation, depletion and amortization
expense in this segment was $58.0 million in 2000, compared with $54.6 million
in 1999. Spending included: expansions of composite can facilities in Brazil,
Mexico, the United Kingdom and the United States; printed flexible expansion in
Canada; and numerous productivity enhancement projects.
RESTRUCTURING ACTIVITIES - CONSUMER PACKAGING SEGMENT
During 2000, a composite can line in Europe was eliminated. Restructuring
activities planned for 2001 in this segment include a reduction in force, the
closing of three composite can operations and one flexible packaging operation,
and consolidation activities in all major businesses to improve workflow and
operating efficiency. Estimated cost of these restructuring activities in
2001 will be $20 to $25 million.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain its strong balance sheet, cash flows and
financial position. At December 31, 2000, 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 $362.5 million in 2000, compared to
$238.3 million in 1999. This increase in operating cash flow over 1999 was
achieved through the Company's efforts to reduce working capital and maximize
cash flow. Cash flows from operations after subtracting capital spending were
$245.3 million in 2000. These funds were used to return value to shareholders
through stock repurchases of $138 million and through the payment of $78.7
million of dividends. The Company was able to reduce debt by $46.5 million with
the remaining cash flow and with proceeds from the sale of the Company's
container seal business in the United Kingdom.
Current assets decreased $27.3 million in 2000 to $695.8 million
primarily due to lower working capital. Current assets increased $61.7 million
in 1999 to $723.1 million due to higher working capital levels. The current
ratio was 1.6 at the end of 2000, compared with 1.7 and 1.5 at the end of 1999
and 1998, respectively.
Debt decreased $46.5 million to $857.6 million at December 31, 2000
from, $904.1 million at December 31, 1999. In April 2000, $75 million of 5.49%
bonds matured. The Company issued commercial paper to repay the bonds and
maintain our fixed to floating rate debt in the desired range (around 50%/50%).
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 a five-year 7% bond. 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 repay debt.
Interest expense was $59.6 million in 2000, compared with $52.5 million
in 1999 and $54.8 million in 1998. Almost $3 million of the increase from 1999
was due to an increase in average commercial paper interest rates by 1%. Another
$3 million increase was due to increased average debt levels in 2000 resulting
from acquisitions in late 1999. The remaining increase was due to our policy to
borrow locally in countries with devaluing currencies. The local borrowing
serves as a natural hedge of local monetary assets but may carry high interest
costs. 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 $2.3 million for all of
1999. Excluding one-time transactions, earnings before interest and taxes were
5.6 times interest expense in 2000, compared with 6.4 times and 6.0 times in
1999 and 1998, respectively. Earnings before interest, taxes, depreciation,
depletion and amortization expense were 8.1 times interest in 2000, 9.1 times in
1999 and 8.7 times in 1998. The Company's debt
[GRAPH]
TOTAL DEBT
($ IN MILLIONS)
Total debt decreased $46.5
million in 2000 reflecting the
Company's use of a portion of
its free cash flow
29
16
MANAGEMENT'S DISCUSSION|AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
to total capital ratio was 48.5% at December 31, 2000, compared with 47.5% and
46.7% at the end of 1999 and 1998, respectively. Return on total equity was
19.1% in 2000, compared with 21.9% in 1999 and 22.1% in 1998. Excluding one-time
transactions, the return on total equity was 20.7% in 2000, 21.5% in 1999, and
22% in 1998.
The Company has authorized a $450 million commercial paper program and
has fully committed bank lines of credit supporting the program. These lines
expire in 2001. The credit agreement provides that the Company may extend any
borrowing under the facility into 2002 under a term-out option. As of December
31, 2000, 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 decreased $99.7 million from December 31, 1999, to
$801.5 million at December 31, 2000. The change resulted from net income of
$166.3 million reduced by the repurchase of 7.1 million shares of common stock
for $138 million, dividends of $78.7 million and foreign currency translation of
$49.9 million. Shareholders' equity increased $79.6 million from December 31,
1998, to $901.2 million at December 31, 1999. The increase resulted from net
income of $187.8 million reduced by the payment of $76.4 million for dividends
and the repurchase of approximately 0.6 million shares of common stock totaling
$13 million during 1999.
[GRAPH]
DEBT TO TOTAL CAPITAL RATIO (%)
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 $.79 in
2000, $.75 in 1999 and $.704 in 1998. On June 10, 1998, a 10% stock dividend was
paid to common shareholders.
[GRAPH]
NET WORKING CAPITAL
($ IN MILLIONS)
RISK MANAGEMENT
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 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, foreign currency assets
and liabilities, or forecasted transactions denominated in foreign currencies.
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.
The Company is a purchaser of commodities such as recovered paper,
resins and energy. 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. These commodities are generally
purchased at market or fixed prices that are established with the vendor as part
of the purchase process for quantities expected to be consumed in the ordinary
course of business. On occasion, where the correlation between selling price and
commodity price is less direct, the Company may enter into commodity futures or
swaps to reduce the effect of price fluctuations.
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, 2000, 1999 or 1998.
Except for the impact on raw material prices, inflation did not have a
material effect on the Company's operations in 2000, 1999 or 1998.
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
30
17
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, 2000, 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 122 owned and 106 leased facilities used by
operations in the Industrial Packaging segment and 30 owned and 37 leased
facilities used by operations in the Consumer Packaging segment. Europe, the
largest foreign geographic location, has 41 manufacturing locations. The Company
believes that its properties are suitable and adequate for current needs and
that the total productive capacity is adequately utilized.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133) as amended by FAS 137 and FAS 138. The standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires the recognition of all derivative instruments as
assets or liabilities in the Company's balance sheet and measurement of those
instruments at fair value. The statement requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related results on
the hedged item in the income statement. Management has calculated the effect of
adoption of FAS 133 on the derivatives held at December 31, 2000, and determined
that the effect of adopting this standard is not material.
RESULTS OF OPERATIONS
1999 VERSUS 1998
For purposes of the discussions that follow, comparative figures exclude from
actual results the net gains on the sales of divested businesses and results
from operations that were divested, contributed to joint ventures or are no
longer consolidated. The 1998 comparative figures also exclude the extraordinary
loss from the early extinguishment of debt and one-time charges related to plant
closings and workforce reductions.
On a comparative basis, 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)
- -----------------------------------------
Volume/Mix $139
Acquisitions 72
Price (8)
Exchange rates (29)
- -----------------------------------------
Total sales increase $174
- -----------------------------------------
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.
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.
Gross profit as a percentage of sales was 23.3% in 1999, compared with
23.1% in 1998.
As a percentage of sales, selling, general and administrative 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. 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.
31
18
MANAGEMENT'S DISCUSSION|AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
(CONTINUED)
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 Packaging 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 was the result of reduced state taxes and the ability
to utilize net operating loss carryforwards in certain countries.
Comparative net income in 1999 increased $5.4 million, or 3%, to $184.3
million from $178.9 million in 1998, while 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 was 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.
Capital expenditures in 1999 were $135.7 million, compared with $198.9
million in 1998. Capital spending was increased from 1996 through 1998 as part
of a focus on accelerating internal growth. The decrease in 1999 marked a return
to more typical spending levels.
In 1999, acquisition spending totaled $184.4 million, and investments
in joint venture or affiliated companies totaled $25.6 million in cash and $9
million in contributed assets. Acquisitions in the Industrial Packaging segment
included Wood Composite Technology, a manufacturer of reels, and engineered
carrier operations in Brazil and Taiwan. Acquisitions in the Consumer Packaging
segment included two composite can plants of Crown Cork & Seal, Inc., and the
flexible packaging division of Graphic Packaging Corporation, which includes six
manufacturing plants producing printed flexibles in the United States and
Canada.
INDUSTRIAL PACKAGING SEGMENT - Results from continuing operations for
this segment are presented below:
($ in millions) 1999 1998 % Change
- --------------------------------------------------------------------
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)%
- --------------------------------------------------------------------
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. Custom 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.
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.
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 after, and by the end of
1999, had not fully covered the ongoing recovered paper cost increase.
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 expense was $91.2
million in 1999, compared with $98.3 million in 1998. Capital projects
32
19
included: a new custom designed interior packaging plant in Mexico; rebuild of a
paper mill in Mexico; new plants in Brazil, Poland and Turkey; plant and paper
mill expansions; and completion of the engineered carrier order fulfillment
center.
CONSUMER PACKAGING SEGMENT - Results from continuing operations for
this segment are presented below:
($ in millions) 1999 1998 % Change
- ----------------------------------------------------------------------------
Trade Sales $1,166.1 $1,054.7 10.6%
Operating Profit 144.5 130.9 10.4%
Capital Spending 54.6 55.0 (.7)%
- ----------------------------------------------------------------------------
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 continued 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 enhanced 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.
Selling prices declined less than 1% in this segment due to competitive
factors. The bag and film operations accounted for most of the decline. 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 operations 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. Operating profit increased 10.4% to
$144.5 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 expense in this
segment was $54.6 million in 1999, compared with $47.3 million in 1998.
FORWARD-LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Operations and
Financial Condition, and elsewhere in this report, 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,
but are not limited to, statements regarding offsetting high raw material costs,
adequacy of income tax provision, refinancing of debt, adequacy of cash flows,
and financial strategies and the results that are 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
20
CONSOLIDATED|BALANCE SHEETS (DOLLARS AND SHARES IN THOUSANDS)
Sonoco Products Company and Subsidiaries
Years ended December 31 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 35,219 $ 36,515
Trade accounts receivable, net of allowances of $5,714
in 2000 and $6,969 in 1999 329,467 346,845
Other receivables 26,875 28,847
Inventories
Finished and in process 108,887 94,133
Materials and supplies 158,717 154,231
Prepaid expenses 28,206 57,362
Deferred income taxes 8,422 5,148
- ------------------------------------------------------------------------------------------------------------------------
695,793 723,081
PROPERTY, PLANT AND EQUIPMENT, NET 973,470 1,032,503
Cost in Excess of Fair Value of Assets Purchased, Net 236,733 254,580
Other Assets 306,615 286,856
- ------------------------------------------------------------------------------------------------------------------------
$2,212,611 $2,297,020
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 227,408 $ 192,859
Accrued expenses and other 121,655 116,652
Accrued wages and other compensation 24,196 22,523
Notes payable and current portion of long-term debt 45,556 84,597
Taxes on income 18,265
- ------------------------------------------------------------------------------------------------------------------------
437,080 416,631
LONG-TERM DEBT 812,085 819,540
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 27,611 36,278
DEFERRED INCOME TAXES AND OTHER 134,364 123,351
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized 30,000 shares
0 shares issued and outstanding as of December 31, 2000 and 1999
Common shares, no par value
Authorized 300,000 shares
95,006 and 101,448 shares outstanding of which 94,681 and 101,134
are issued as of December 31, 2000 and 1999, respectively 7,175 7,175
Capital in excess of stated value 289,657 427,591
Accumulated other comprehensive loss (172,403) (123,008)
Retained earnings 677,042 589,462
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 801,471 901,220
- ------------------------------------------------------------------------------------------------------------------------
$2,212,611 $2,297,020
========================================================================================================================
The Notes beginning on page 38 are an integral part of these financial
statements.
34
21
CONSOLIDATED|STATEMENTS OF OPERATIONS (DOLLARS AND SHARES IN THOUSANDS EXCEPT
PER SHARE DATA)
Sonoco Products Company and Subsidiaries
Years ended December 31 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Net sales $ 2,711,493 $ 2,546,734 $ 2,557,917
Cost of sales 2,107,395 1,953,605 1,968,200
Selling, general and administrative expenses 272,150 259,917 301,610
Other (income) expense, net(*) 5,543 (3,500) (100,354)
- -------------------------------------------------------------------------------------------------------------
Income before interest and taxes 326,405 336,712 388,461
Interest expense 59,604 52,466 54,779
Interest income (3,794) (5,314) (5,916)
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 270,595 289,560 339,598
Provision for income taxes 111,999 108,585 153,989
- -------------------------------------------------------------------------------------------------------------
Income before equity in earnings of affiliates/
minority interest in subsidiaries 158,596 180,975 185,609
Equity in earnings of affiliates/minority interest
in subsidiaries 7,702 6,830 6,387
- -------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 166,298 187,805 191,996
Extraordinary loss, net of income tax benefit (11,753)
- -------------------------------------------------------------------------------------------------------------
Net income $ 166,298 $ 187,805 $ 180,243
- -------------------------------------------------------------------------------------------------------------
Average common shares outstanding:
Basic 99,725 101,886 102,632
Assuming exercise of options 175 894 1,643
- -------------------------------------------------------------------------------------------------------------
Diluted 99,900 102,780 104,275
- -------------------------------------------------------------------------------------------------------------
Per common share
Basic
Income before extraordinary loss $ 1.67 $ 1.84 $ 1.87
Extraordinary loss, net of income tax benefit (.11)
- -------------------------------------------------------------------------------------------------------------
Net income $ 1.67 $ 1.84 $ 1.76
- -------------------------------------------------------------------------------------------------------------
Diluted
Income before extraordinary loss $ 1.66 $ 1.83 $ 1.84
Extraordinary loss, net of income tax benefit (.11)
- -------------------------------------------------------------------------------------------------------------
Net income $ 1.66 $ 1.83 $ 1.73
- -------------------------------------------------------------------------------------------------------------
Cash dividends-common $ .79 $ .75 $ .704
=============================================================================================================
(*) Includes restructuring costs and executive severance charges in 2000 and
the net gains on the sales of divested businesses in 2000, 1999 and 1998.
The Notes beginning on page 38 are an integral part of these financial
statements.
35
22
CONSOLIDATED|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS AND SHARES
IN THOUSANDS EXCEPT PER SHARE DATA)
Sonoco Products Company and Subsidiaries
Accumulated
Common Shares Capital in Other
Comprehensive --------------------------- Excess of Comprehensive Retained
Income (Loss) Outstanding Amount Stated Value Loss Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
January 1, 1998 105,417 $ 7,175 $198,271 $(91,420) $734,793
Net income $180,243 180,243
Other comprehensive loss,
net of tax:
Translation loss (1,821)
Minimum pension
liability adjustment (1,898)
--------
Other comprehensive loss (3,719) (3,719)
--------
Comprehensive income $176,524
========
Cash dividends:
Common, $0.704 per share (72,028)
10% common stock dividend 364,917 (364,917)
Issuance of shares under:
Stock option plan 1,378 25,067
Employee stock
ownership plan 68 2,362
Shares repurchased (5,180) (169,080)
Other 9,928
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 101,683 7,175 431,465 (95,139) 478,091
Net income 187,805 187,805
Other comprehensive loss,
net of tax:
Translation loss (30,654)
Minimum pension
liability adjustment 2,785
--------
Other comprehensive loss (27,869) (27,869)
--------
Comprehensive income $159,936
========
Cash dividends:
Common, $0.75 per share (76,434)
Issuance of shares under:
Stock option plan 363 5,387
Shares repurchased (598) (13,045)
Other 3,784
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 101,448 7,175 427,591 (123,008) 589,462
Net income 166,298 166,298
Other comprehensive loss,
net of tax:
Translation loss (49,933)
Minimum pension
liability adjustment 538
--------
Other comprehensive loss (49,395) (49,395)
--------
Comprehensive income $116,903
========
Cash dividends:
Common, $0.79 per share (78,718)
Issuance of shares under:
Stock option plan 366 4,932
Shares repurchased (7,133) (138,012)
Other 325 (4,854)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 95,006 $ 7,175 $289,657 $(172,403) $677,042
===================================================================================================================================
The Notes beginning on page 38 are an integral part of these financial
statements.
36
23
CONSOLIDATED|STATEMENTS OF CASH FLOWS (DOLLARS AND SHARES IN THOUSANDS)
Sonoco Products Company and Subsidiaries
Years ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 166,298 $ 187,805 $ 180,243
Adjustments to reconcile net income to net cash
provided by operating activities
Extraordinary loss on debt retirement 11,753
Depreciation, depletion and amortization 150,816 145,846 145,669
Equity in earnings of affiliates/minority interest
in subsidiaries (7,702) (6,830) (6,387)
Cash dividends from affiliated companies 5,017 7,447 10,284
Loss (gain) on disposition of assets 4,989 (188) 6,168
Gain on assets held for sale (5,277) (3,500) (100,354)
Deferred taxes 20,182 18,060 71,613
Changes in assets and liabilities, net of effects from
acquisitions, dispositions, assets held for sale and
foreign currency adjustments
Receivables 3,960 (46,577) 3,637
Inventories (24,413) (15,283) (2,321)
Prepaid expenses 28,621 (28,177) (3,597)
Payables and taxes 74,025 (10,183) (33,748)
Other assets and liabilities (54,066) (10,162) (66,491)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 362,450 238,258 216,469
Cash Flows from Investing Activities
Purchase of property, plant and equipment (117,151) (135,728) (198,880)
Cost of acquisitions, exclusive of cash (5,670) (184,399) (74,911)
Proceeds from non-operating notes receivable 34,000
Proceeds from the sale of assets 21,466 18,561 296,845
Investments in affiliates (25,640)
Other (693) (6,489)
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (101,355) (293,899) 16,565
Cash Flows from Financing Activities
Proceeds from issuance of debt 17,055 248,302 161,900
Principal repayment of debt (128,182) (192,136) (248,811)
Net increase in commercial paper borrowings 74,700 61,800 54,000
Net (decrease) increase in bank overdrafts (12,692) 1,752 11,374
Cash dividends - common (78,718) (76,434) (72,028)
Common shares acquired (138,012) (13,045) (169,080)
Common shares issued 4,932 5,387 32,882
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (260,917) 35,626 (229,763)
Effects of Exchange Rate Changes on Cash (1,474) (719) 378
- ----------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (1,296) (20,734) 3,649
Cash and cash equivalents at beginning of year 36,515 57,249 53,600
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 35,219 $ 36,515 $ 57,249
- ----------------------------------------------------------------------------------------------------------------------
Supplemental Cash Flow Disclosures
Interest paid $ 59,029 $ 51,145 $ 55,084
Income taxes paid $ 83,464 $ 119,916 $ 95,278
- ----------------------------------------------------------------------------------------------------------------------
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. Debt obligations assumed by the Company in conjunction
with acquisitions were approximately $3,300 in 1999 and $6,400 in 1998.
Prior years' data have been reclassified to conform to the current year
presentation.
The Notes beginning on page 38 are an integral part of these financial
statements.
37
24
NOTES|TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
Sonoco Products Company and Subsidiaries
The following notes are an integral part of the consolidated financial
statements. The accounting principles followed by the Company appear in bold
type.
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sonoco and its
subsidiaries after elimination of intercompany accounts and transactions.
Investments in affiliated companies in which the Company owns 20% to 50% of the
voting stock are included on the equity method of accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company records revenue when title passes to the customer. Shipping
costs are deducted from net sales in the Consolidated Statements of Operations.
Shipping costs amounted to $82,671 in 2000, $79,620 in 1999, and $73,055 in
1998. Handling costs are included in cost of sales.
2. ACQUISITIONS/DISPOSITIONS
Sonoco completed two acquisitions during 2000 with an aggregate cost of
approximately $5,700 in cash. Acquisitions included an Australian composite can
business and a small graphics business in the United Kingdom. Both of these
acquisitions were in the Company's Consumer Packaging segment. In December 2000,
the Company completed the sale of its Capseals unit, makers of container seals,
in the United Kingdom. Sales of divested businesses in 2000 resulted in the
recognition of a net after-tax gain of $5,277.
Sonoco completed several acquisitions during 1999, with an aggregate
cost of approximately $184,400 in cash and the assumption of $3,300 in debt.
Acquisitions in the Company's Industrial Packaging segment included engineered
carrier operations in Brazil and Taiwan and Wood Composite Technology, a
manufacturer of composite (i.e. wood and plastic) reels serving the wire and
cable markets. The Company also completed two acquisitions in the Consumer
Packaging segment during 1999. In August, Sonoco acquired the composite can
assets of Crown Cork & Seal, Inc. In September, Sonoco acquired the flexible
packaging division of Graphic Packaging Corporation. The Company sold its labels
and label machinery operations in the United Kingdom and a label machinery
operation in the United States resulting in the recognition of a $3,500
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, and
the LaRochette group, consisting of four converting operations and a paper mill
in France. The Company also acquired 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 formed a joint venture with Texpack combining the paper
cone operations of both companies to serve the textile industry. The Company
owns 30% of the joint venture named Conitex-Sonoco, LLC. The Company also sold
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 Company owns 51% of the Brazilian joint
venture, Sonoco For-Plas, a major supplier of `peel off' metal ends and plastic
components such as overcaps for cans. The Company also owns 51% of the Chilean
joint venture, a manufacturer of engineered carriers and composite cans. Sonoco
contributed its fibre partitions operation into a joint venture with Rock-Tenn
Company called RTS Packaging, owned 35% by Sonoco. The Company also sold 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 for
Sonoco were the Hongwen joint venture for paperboard production in China, the
Indonesian joint venture for production of engineered carriers, and the purchase
of two German paperboard can manufacturers.
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. RESTRUCTURING
Sonoco's Consolidated Statements of Operations include a pretax charge in 2000
of $5,226 ($3,240 after tax) for restructuring actions taken during the fourth
quarter. The charge, included in "other (income) expense, net," consisted of
termination benefits associated with four plant
38
25
closings of $1,259 ($780 after tax) and asset impairment charges of $3,967
($2,460 after tax). Approximately $1,100 remains accrued on the Consolidated
Balance Sheets at December 31, 2000.
As announced on January 30, 2001, additional restructuring will be
implemented in the first quarter of 2001, with an expected global reduction of
235 salaried positions, including 169 in the United States. An additional 252
hourly positions are expected to be eliminated globally, including 126 in the
United States. In addition to the headcount reductions, the Company will close a
total of 10 plant locations, including five in the United States.
Sonoco estimates that one-time charges related to the restructuring in
the first quarter of 2001 will be approximately $30,000 to $40,000 before tax
($20,000 to $30,000 after tax).
4. 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 completion of the sale of these operations resulted in
the recognition of a $3,500 after-tax gain.
In 1998, the Company sold its industrial containers operations, part of
the Industrial Packaging segment, for cash proceeds of $218,400 resulting in a
pretax gain of $119,552 ($55,252 after tax). Also in 1998, the Company sold its
North American labels operations, part of the Consumer Packaging segment, for
net cash proceeds of $87,700. A pretax charge of $19,198 ($13,698 after tax) was
recognized in 1998 upon the completion of the sale in addition to a pretax
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 and
$140,000 in 1998. Combined operating (losses) profits were ($100) and $3,300 in
1999 and 1998, respectively.
5. 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, 2000 and 1999, outstanding checks of $20,780 and
$32,601, respectively, were included in Payable to suppliers on the Consolidated
Balance Sheets.
At December 31, 2000 and 1999, $739 and $2,792, 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.
6. 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 both 2000 and 1999. 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 $9,447 in 2000 and $9,994 in 1999.
7. PROPERTY, PLANT AND EQUIPMENT
Plant assets represent the original cost of land, buildings and equipment less
depreciation computed under the straight-line method over the estimated useful
life of the asset, and are reviewed for impairment whenever events indicate the
carrying value may not be recoverable. 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 $138,648 in 2000,
$135,146 in 1999, and $136,170 in 1998.
Details at December 31 are as follows:
2000 1999
- --------------------------------------------------------------------------------
Land $ 37,910 $ 36,656
Timber resources 34,780 34,022
Buildings 307,496 296,828
Machinery and equipment 1,633,705 1,614,283
Construction in progress 83,125 104,149
- --------------------------------------------------------------------------------
2,097,016 2,085,938
Accumulated depreciation
and depletion (1,123,546) (1,053,435)
- --------------------------------------------------------------------------------
$ 973,470 $ 1,032,503
===============================================================================
Estimated costs for completion of authorized capital additions under
construction totaled approximately $71,500 at December 31, 2000.
Certain operating properties and equipment are leased under
non-cancelable operating leases. Total rental expense under operating leases was
approximately $37,600 in 2000, $38,500 in 1999, and $36,000 in 1998. Future
minimum rentals under non-cancelable operating leases with terms of more than
one year are as follows: 2001-$18,400, 2002-$13,900, 2003-$10,400, 2004-$9,300,
2005-$8,000, and 2006 and thereafter-$19,400.
8. COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
Goodwill arising from business acquisitions ($3,800 in 2000 and $110,000 in
1999) 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
39
26
NOTES|TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
goodwill for each operation having a goodwill balance. Amortization expense
amounted to $12,168 in 2000, $10,700 in 1999, and $9,499 in 1998. Accumulated
amortization at December 31, 2000 and 1999 was $66,370 and $58,934,
respectively.
9. INVESTMENT IN LIFE INSURANCE
Corporate-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 pretax cost of COLI,
including interest expense, was $1,615 in 2000, $2,392 in 1999, and $4,195 in
1998 and is included in selling, general and administrative expenses. The
related interest expense was $10,058 in 2000, $17,108 in 1999, and $36,392 in
1998. Legislation was enacted in 1996 that began phasing out the tax
deductibility of this interest. Accordingly, no deduction was taken in 2000 or
in 1999 for interest on policy loans. See Note 15 for further details.
10. DEBT
Debt at December 31 was as follows:
2000 1999
- --------------------------------------------------------------------------------
Commercial paper, average rate of
6.3% in 2000 and 5.2% in 1999 $332,000 $257,300
7.0% debentures due November 2004 149,935 149,905
6.75% debentures due November 2010 99,861 99,847
5.875% debentures due November 2003 99,807 99,740
5.49% debentures due April 2000 75,000
9.2% debentures due August 2021 41,305 41,305
6.125% IRBs due June 2025 34,556 34,533
6.0% IRBs due April 2026 34,202 34,171
Foreign denominated debt, average rate
of 10% in 2000 and 7.7% in 1999 45,411 87,643
Other notes 20,564 24,693
- --------------------------------------------------------------------------------
Total debt 857,641 904,137
Less current portion and
short-term notes 45,556 84,597
- --------------------------------------------------------------------------------
Long-term debt $812,085 $819,540
================================================================================
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 but may be extended into 2002
under a term-out option. 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, 2000, were approximately $120,571 with interest at mutually
agreed-upon rates. As of December 31, 2000, the Company has registered debt
securities of $100,000 under shelf registrations with the Securities and
Exchange Commission after a reduction of $150,000 for the November 1999 bond
issue.
The approximate principal requirements of debt maturing in the next
five years are: 2001-$45,556, 2002-$5,204, 2003-$103,426, 2004-$153,629, and
2005-$2,271.
11. 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.
12. FINANCIAL INSTRUMENTS
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.
December 31, 2000 December 31, 1999
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount of Value of Amount of Value of
Liability Liability Liability Liability
- -------------------------------------------------------------------------------
Long-term
debt $(812,085) $(798,949) $(819,540) $(791,041)
===============================================================================
As of January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities' (FAS 133) as amended by FAS 137 and FAS 138. The standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires the recognition of all derivative instruments as
assets or liabilities in the Company's balance sheet and measurement of those
instruments at fair value. The statement requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special
40
27
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement or
to be deferred in accumulated other comprehensive income in equity until the
hedged item is recognized in results of operations. The Company has calculated
the effect of adoption of FAS 133 on the derivatives held at adoption and
determined that the effect is not material.
13. 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 4,800,258 shares reserved for future grants at
December 31, 2000.
On December 31, 2000 and 1999, the Company granted awards in the form
of contingent share units to certain of its executives. The vesting of the
awards, which can range from 171,000 to 684,000 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 objectives are not achieved.
On December 31, 1998, the Company granted special one-time Centennial
stock options of 100 shares to substantially all of its employees. These options
are exercisable at the closing price of the shares on December 31, 1998, and
expire after six years. A total of 1,209,800 options granted under the
Centennial Share Program were outstanding at December 31, 2000.
On September 2, 1997, one-time awards of contingent share units were
granted to twenty-five of the Company's executives from shares allocated in the
1991 Key Employee Stock Plan. These awards, consisting of performance-based
restricted shares of common stock, were granted to provide corporate and
business unit managers with an additional compensation opportunity that 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, 2000, a total of 486,083
contingent shares granted under this plan remain outstanding, 324,942 of which
are vested.
A summary of the status of the Company's stock option plans is
presented below:
Weighted-
Option Average
Shares Price
- -------------------------------------------------------------------------------
1998
Outstanding at beginning of year 7,044,943 $ 19.98
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
- -------------------------------------------------------------------------------
2000
Granted 1,559,324 $ 19.70
Exercised (441,679) $ 19.42
Canceled (577,083) $ 27.16
Outstanding at end of year 9,955,843 $ 24.31
Options exercisable at end of year 8,408,319 $ 25.15
===============================================================================
The weighted-average fair value of options granted was $4.77, $5.75,
and $6.30 in 2000, 1999 and 1998, respectively.
The following tables summarize information about stock options
outstanding and stock options exercisable at December 31, 2000:
Options Outstanding
------------------------------------------------
Weighted-
Number Average Weighted-
Range of Outstanding Remaining Average
Exercise Prices at 12/31/00 Contractual Life Exercise Price
- --------------------------------------------------------------------------
$10.49-$19.75 3,000,114 5.9 years $18.31
$20.75-$26.81 3,226,473 4.6 years $23.21
$28.00-$37.10 3,729,256 6.4 years $30.47
---------
$10.49-$37.10 9,955,843 5.7 years $24.31
==========================================================================
Options Exercisable
------------------------------------------------
Number Weighted-
Range of Outstanding Average
Exercise Prices at 12/31/00 Exercise Price
- --------------------------------------------------------------------------
$10.49-$19.75 1,481,021 $16.90
$20.75-$26.81 3,198,042 $23.23
$28.00-$37.10 3,729,256 $30.47
---------
$10.49-$37.10 8,408,319 $25.15
==========================================================================
As permitted by Statement of Financial Accounting Standards No. 123,
'Accounting for Stock-Based Compensation' (FAS 123), the Company has chosen to
apply APB Opinion No. 25, 'Accounting for Stock Issued to Employees', and
related interpretations in accounting for its plans. Had compensation cost for
the Company's
41
28
NOTES|TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
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:
2000 1999 1998
- ---------------------------------------------------------------------------------------
Net income-as reported $ 166,298 $ 187,805 $ 180,243
Net income-pro forma 159,302 180,323 174,182
Earnings per share-as reported 1.66 1.83 1.73
Earnings per share-pro forma 1.59 1.75 1.67
=======================================================================================
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:
2000 1999 1998
- -------------------------------------------------------------------------------
Expected dividend yield 2.5% 2.4% 2.3%
Expected stock price volatility 21.0% 20.3% 20.0%
Risk-free interest rate 6.6% 4.8% 5.4%
Expected life of options 5 years 5 years 5 years
- -------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS
The Company provides non-contributory defined benefit pension plans for
substantially all its United States employees, as well as postretirement
healthcare 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 includes the following:
2000 1999 1998
- ------------------------------------------------------------------------------
Retirement Plans
Service cost $ 13,713 $ 16,897 $ 15,218
Interest cost 42,315 39,565 39,467
Expected return on
plan assets (69,361) (61,257) (57,715)
Amortization of net
transition asset (384) (444) (458)
Amortization of prior
service cost 1,635 2,044 1,643
Amortization of net
actuarial (gain) loss (3,335) 461 423
Special termination
benefit cost 979
Effect of curtailment 348 (870)
- ------------------------------------------------------------------------------
Net periodic benefit income $(14,090) $(2,734) $(2,292)
==============================================================================
2000 1999 1998
- ---------------------------------------------------------------------------------
Retiree Health and
Life Insurance Plans
Service cost $ 2,928 $ 3,775 $ 2,894
Interest cost 8,155 8,372 7,946
Expected return on plan assets (7,180) (6,181) (3,784)
Amortization of prior service cost (6,130) (5,633) (4,807)
Amortization of net actuarial loss 1,595 1,257 66
Special termination benefit cost 41
Effect of curtailment (2,039)
- ---------------------------------------------------------------------------------
Net periodic benefit
(income) cost $ (591) $1,590 $ 276
=================================================================================
The following tables set forth the plans' obligations and assets at December
31:
Retiree Health and
Retirement Plans Life Insurance Plans
2000 1999 2000 1999
- -------------------------------------------------------------------------------------
Change in Benefit
Obligation
Benefit obligation
at January 1 $ 563,565 $614,715 $102,572 $119,711
Service cost 13,713 16,897 2,928 3,775
Interest cost 42,315 39,565 8,155 8,372
Plan participant
contributions 954 1,284
Plan amendments 753 1,278 (7,057) (25,354)
Actuarial(gain)loss 24,142 (77,497) 37,031 6,783
Benefits paid (36,932) (31,925) (10,743) (10,032)
Other 654 (752) 463 (683)
- -------------------------------------------------------------------------------------
Benefit obligation
at December 31 $ 609,164 $563,565 $133,349 $102,572
=====================================================================================
Change in Plan
Assets
Fair value of plan
assets at January 1 $ 772,036 $666,299 $82,383 $71,650
Actual return on
plan assets (43,883) 133,954 (4,380) 12,567
Company
contributions 4,564 4,324 8,539 8,317
Plan participant
contributions 954 1,284
Benefits paid (36,932) (31,925) (10,743) (10,032)
Other (2,990) (1,900) (203) (119)
- -------------------------------------------------------------------------------------
Fair value of plan
assets at
December 31 $ 693,749 $772,036 $75,596 $82,383
=====================================================================================
42
29
Retiree Health and
Retirement Plans Life Insurance Plans
2000 1999 2000 1999
- ----------------------------------------------------------------------------
RECONCILIATION OF
FUNDED STATUS,
DECEMBER 31
Funded status
of plan $ 84,585 $ 208,471 $(57,753) $(20,189)
Unrecognized net
actuarial loss (gain) 23,248 (115,852) 57,568 10,370
Unrecognized
prior service cost 10,959 13,204 (27,386) (26,459)
Unrecognized
net transition
obligation 3,939 959
- ----------------------------------------------------------------------------
Net amount
recognized $122,731 $ 106,782 $(27,571) $(36,278)
============================================================================
Retirement Plans
2000 1999
- ------------------------------------------------------------
TOTAL RECOGNIZED AMOUNTS IN THE
CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost $ 147,728 $ 124,900
Accrued benefit liability (33,645) (25,822)
Intangible asset 2,889 3,578
Accumulated other
comprehensive loss 5,759 4,126
- ------------------------------------------------------------
Net amount recognized $ 122,731 $ 106,782
============================================================
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 $43,598, $41,014 and $7,369,
respectively, as of December 31, 2000, and $38,562, $35,896 and $10,074,
respectively, as of December 31, 1999.
The weighted-average discount rate used in determining the PBO was 7.5%
in 2000, 7.75% in 1999, and 6.75% in 1998. The assumed compensation increase was
4.1% in both 2000 and 1999, and 4% in 1998. The expected long-term rate of
return on plan assets was 9.5% for all years presented. The assumed healthcare
cost trend rate was 5% in 2000 and continuing into the future. Increasing the
assumed trend rate for healthcare costs by one percentage point would result in
an increase in the accumulated postretirement benefit obligation (APBO) and
total service and interest cost component of approximately $2,625 and $226,
respectively. Decreasing the assumed trend rate for healthcare costs by one
percentage point would result in a decrease in the APBO and total service and
interest cost component of approximately $3,340 and $295, 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 regulations of the Internal Revenue Service. 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 2000, 1999, and
1998, were $7,734, $7,191, and $6,536, respectively.
15. 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 ended
December 31 consists of the following:
2000 1999 1998
- --------------------------------------------------------------
Pretax income
Domestic $206,928 $269,204 $ 324,185
Foreign 63,667 20,356 15,413
- --------------------------------------------------------------
Total pretax income $270,595 $289,560 $ 339,598
==============================================================
Current
Federal $ 64,321 $ 68,927 $ 55,737
State 11,485 5,700 16,765
Foreign 16,011 15,898 9,874
- --------------------------------------------------------------
Total current $ 91,817 $ 90,525 $ 82,376
- --------------------------------------------------------------
Deferred
Federal $ 14,512 $ 12,973 $ 72,340
State 4,079 2,410 889
Foreign 1,591 2,677 (1,616)
- --------------------------------------------------------------
Total deferred $ 20,182 $ 18,060 $ 71,613
- --------------------------------------------------------------
Total taxes $111,999 $108,585 $ 153,989
==============================================================
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
2000 1999
- -------------------------------------------------------------
Depreciation $ 64,141 $ 60,383
Employee benefits 48,998 46,602
Other 35,752 24,150
- -------------------------------------------------------------
Gross deferred tax liabilities 148,891 131,135
- -------------------------------------------------------------
Retiree health benefits (14,100) (15,278)
Foreign loss carryforwards (10,397) (14,211)
Capital loss carryforwards (11,160) (11,160)
Employee benefits (24,599) (20,211)
Accrued liabilities and other (15,201) (17,259)
- -------------------------------------------------------------
Gross deferred tax assets (75,457) (78,119)
- -------------------------------------------------------------
Valuation allowance on deferred
tax assets 25,530 27,937
- -------------------------------------------------------------
Total deferred taxes, net $ 98,964 $ 80,953
=============================================================
The net change in the valuation allowance for deferred tax assets is a
net decrease of $2,407 in 2000, compared with a net decrease of $6,256 in 1999.
The decrease of
43
30
NOTES|TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER
SHARE DATA)
$2,407 is related to net operating loss carryforwards of foreign subsidiaries
realized.
Approximately $34,000 of foreign subsidiary net operating loss
carryforwards remain at December 31, 2000. Their use is limited to future
taxable earnings of the respective foreign subsidiaries. Of these loss
carryforwards, approximately $19,000 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:
2000 1999 1998
- --------------------------------------------------------------------------
Statutory
tax rate $ 94,708 35.0% $ 101,346 35.0% $ 118,859 35.0%
State income
taxes, net
of federal
tax benefit 6,672 2.5 5,272 1.8 12,146 3.6
Goodwill 1,960 .7 1,166 .4 6,280 1.8
Asset
impairment
and
dispositions 500 .2 (1,225) (.4) 15,552 4.6
Corporate-
owned life
insurance 12,565 4.6 837 .3 (3,471) (1.0)
Other, net (4,406) (1.6) 1,189 .4 4,623 1.3
- --------------------------------------------------------------------------
Total taxes $ 111,999 41.4% $ 108,585 37.5% $ 153,989 45.3%
==========================================================================
Undistributed earnings of international subsidiaries totaled $141,145
at December 31, 2000. There have been no United States income taxes provided on
the undistributed earnings since the Company considers these earnings to be
indefinitely reinvested to finance international growth and expansion. If such
amounts were remitted, loaned to the Company or the stock in the foreign
subsidiaries sold, these earnings could become subject to tax.
At December 31, 2000, the Company has a capital loss carryforward of
approximately $32,000 for income tax purposes that expires in the year ending
December 31, 2003. The carryforward results from losses incurred on stock
divestitures in prior years. For financial reporting purposes, a valuation
allowance was provided for the full amount of the deferred tax benefit related
to this carryforward.
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 $141,000
cumulatively as a result of COLI interest deductions from 1993 through 1998. The
Company has 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 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.
In October 2000, the Company learned that in another case, a United
States District Court upheld the IRS's position that interest related to loans
on COLI policies was not deductible for income tax purposes. Given the
unfavorable rulings in the cases that have been litigated and its discussions in
December 2000 with the Appeals Division of the IRS, the Company recorded an
additional $12,000 of income tax expense in the fourth quarter of 2000. This
issue has widespread implications to numerous corporations, including the
Company, and its ultimate resolution is unknown. Based on the Company's
evaluation of the facts in its case, the Company believes that its provision for
income tax is adequate. The Company plans to re-evaluate the adequacy of its
reserves as the situation develops.
16. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control
laws and regulations in all jurisdictions in which it operates. As is the case
with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings.
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, 2000 and
1999. Due to the complexity of determining clean-up costs associated with the
sites, a reliable estimate of the ultimate cost to the Company cannot be
determined. Furthermore, all of the sites are also the responsibility of other
parties. The Company's liability, if any, is shared with such other parties, but
the Company's share has not been finally determined in most cases. In some
cases, the Company has cost-sharing agreements with other potentially
responsible parties with respect to a particular site. Such agreements relate to
the sharing of legal defense costs or clean-up costs, or both. The Company has
assumed, for purposes of estimating amounts to be accrued, that the other
parties to such cost-sharing agreements will perform as agreed. It appears that
final resolution of some of the sites is years away. Accordingly, a reliable
estimate of the ultimate cost to the Company with respect to such sites cannot
be determined. Costs, however, are accrued as necessary once reasonable
estimates are determined.
Although the level of future expenditures for legal and environmental
matters is impossible to determine with any degree of probability, it is
management's opinion that such
44
31
costs, when finally determined, will not have an adverse material effect on the
consolidated financial position of the Company.
17. SHAREHOLDERS' EQUITY
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. Under this authorization, the Company repurchased a total of
2,474,300 shares in the first quarter of 2000. The Board of Directors approved
another stock repurchase program on October 20, 2000, authorizing the repurchase
of up to a total of 5,000,000 shares of the Company's common stock, inclusive of
the shares remaining under the February program. A total of 4,658,900 shares
were purchased under this program in December 2000, bringing the total number of
shares repurchased in 2000 to 7,133,200. The total cost of the shares
repurchased in 2000 was $138,012, for an average price of $19.35 per share. 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.
18. COMPREHENSIVE INCOME
The following table summarizes the components of accumulated other comprehensive
income (loss) and the changes in accumulated comprehensive income (loss) for the
years ended December 31, 2000 and 1999:
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Loss
- -------------------------------------------------------------------
Balance at
January 1, 1999 $ (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)
Change during 2000 (49,933) 538 (49,395)
- ----------------------------------------------------------------
Balance at
December 31, 2000 $(168,815) $(3,588) $(172,403)
================================================================
19. 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: high performance paper, plastic and composite engineered carriers;
paperboard; custom designed protective 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: round and shaped composite cans, printed flexible packaging and
high-density film products. This segment also includes specialty packaging and
packaging services. This segment also included the North American labels
business sold in 1998 and the United Kingdom labels operation sold in 1999.
Years ended Industrial Consumer
December 31 Packaging Packaging Corporate Consolidated
- ----------------------------------------------------------------------
TOTAL REVENUE
2000 $1,492,772 $1,260,692 $2,753,464
1999 1,415,469 1,174,809 2,590,278
1998 1,466,133 1,134,003 2,600,136
INTERSEGMENT SALES(1)
2000 $ 41,971 $ 41,971
1999 43,544 43,544
1998 41,121 1,098 42,219
SALES TO UNAFFILIATED CUSTOMERS
2000 $1,450,801 $1,260,692 $2,711,493
1999 1,371,925 1,174,809 2,546,734
1998 1,425,012 1,132,905 2,557,917
OPERATING PROFIT(2)
2000 $ 212,560 $ 119,344 $(61,309) $ 270,595
1999 188,704 148,008 (47,152) 289,560
1998 282,114 106,347 (48,863) 339,598
IDENTIFIABLE ASSETS(3)
2000 $1,126,079 $ 675,708 $410,824 $2,212,611
1999 1,208,056 706,052 382,912 2,297,020
1998 1,240,915 512,715 329,353 2,082,983
DEPRECIATION, DEPLETION AND AMORTIZATION
2000 $ 92,799 $ 58,017 $ 150,816
1999 91,235 54,611 145,846
1998 98,331 47,338 145,669
CAPITAL EXPENDITURES
2000 $ 67,426 $ 49,725 $ 117,151
1999 81,093 54,635 135,728
1998 143,852 55,028 198,880
=====================================================================
(1) Intersegment sales are recorded at a market-related transfer price.
(2) Industrial Packaging's 2000 operating profit includes a restructuring
charge of $(1,155); 1998 includes a gain on the sale of the industrial
containers business of $119,552 and one-time charges of $(37,480).
Consumer Packaging's 2000 operating profit includes a restructuring
charge of $(4,071); 2000 and 1999 include gains on the sales of
divested businesses of $5,182 and $3,500, respectively; and 1998
includes a charge related to the sale of the North American labels
business of $(19,198) and other one-time charges of $(3,856). Interest
expense and interest income are excluded from operating profit by
segment and are shown under Corporate. 2000 operating profit for
Corporate also includes a $(5,499) executive severance charge.
(3) Identifiable assets are those assets used by each segment in its
operations. Corporate assets consist primarily of cash and cash
equivalents, investments in affiliates, headquarters facilities and
prepaid expenses.
GEOGRAPHIC REGIONS
The sales to unaffiliated customers and long-lived assets by geographic region
are as follows:
2000 1999 1998
- ---------------------------------------------------------------------
Sales to Unaffiliated
Customers
United States $1,981,178 $1,881,472 $1,959,117
Europe 298,419 313,457 304,435
Canada 215,226 162,574 119,930
All other 216,670 189,231 174,435
- ---------------------------------------------------------------------
Total $2,711,493 $2,546,734 $2,557,917
=====================================================================
Long-Lived Assets
United States $ 794,053 $ 821,291 $ 745,937
Europe 159,778 185,336 235,825
Canada 129,373 135,602 62,676
All other 126,999 144,854 139,766
- ---------------------------------------------------------------------
Total $1,210,203 $1,287,083 $1,184,204
=====================================================================
45
32
SELECTED|ELEVEN-YEAR FINANCIAL DATA (UNAUDITED) (DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE DATA)
Years ended December 31 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 2,711,493 $ 2,546,734 $ 2,557,917 $ 2,847,831
Cost of sales and operating expenses 2,379,545 2,213,522 2,269,810 2,505,531
Interest expense 59,604 52,466 54,779 57,194
Interest income (3,794) (5,314) (5,916) (4,971)
Unusual items(1) 5,543 (3,500) (100,354) 226,358
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 270,595 289,560 339,598 63,719
Provision for income taxes(3) 111,999 108,585 153,989 60,111
Equity in earnings of affiliates/Minority interest 7,702 6,830 6,387 (991)
- ----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in
accounting principles and extraordinary loss 166,298 187,805 191,996 2,617
Cumulative effect of changes in accounting
principles (FAS 106 and FAS 109)
Extraordinary loss, net of income tax benefit (11,753)
- ----------------------------------------------------------------------------------------------------------------------------
Net income 166,298 187,805 180,243 2,617
Preferred dividends (3,061)
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 166,298 $ 187,805 $ 180,243 $ (444)
============================================================================================================================
Per common share
Net income available to common shareholders:
Basic 1.67 1.84 1.76 .00
Diluted 1.66 1.83 1.73 .00
Cash dividends-common .79 .75 .704 .641
Average common shares outstanding:
Basic 99,725 101,886 102,632 100,981
Diluted 99,900 102,780 104,275 107,350
Actual common shares outstanding at December 31 95,006 101,448 101,683 105,417
- ----------------------------------------------------------------------------------------------------------------------------
Financial Position
Net working capital 258,713 306,450 225,347 438,896
Property, plant and equipment, net 973,470 1,032,503 1,013,843 939,542
Total assets 2,212,611 2,297,020 2,082,983 2,159,932
Total debt 857,641 904,137 783,632 796,359
Shareholders' equity 801,471 901,220 821,592 848,819
Current ratio 1.6 1.7 1.5 2.0
Total debt to total capital(2) 48.5% 47.5% 46.7% 46.1%
Book value per common share 8.44 8.88 8.08 8.05
- ----------------------------------------------------------------------------------------------------------------------------
Other Data
Depreciation, depletion and amortization expense 150,816 145,846 145,669 153,524
Cash dividends declared-common 78,718 76,434 72,028 64,639
Market price per common share (ending) 21.63 22.75 29.63 31.54
Return on total equity (including preferred stock) 19.1% 21.9% 22.0% .3%
Return on net sales 6.1% 7.4% 7.0% .0%
============================================================================================================================
(1) 2000 data reflects net one-time charges of $5,543 pretax, or $1,372
after tax, for the net gain on the sales of divested businesses,
restructuring costs, and executive severance charges. 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.
46
33
1996 1995 1994 1993 1992 1991 1990
=====================================================================================================
$ 2,788,075 $ 2,706,173 $ 2,300,127 $ 1,947,224 $ 1,838,026 $ 1,697,058 $ 1,669,142
2,458,710 2,396,284 2,055,734 1,734,980 1,641,075 1,528,543 1,481,271
55,481 44,004 35,861 31,154 30,364 28,186 28,073
(6,191) (4,905) (2,398) (6,017) (6,416) (6,870) (2,196)
(5,800) 42,000 (8,525) 75,000
- -----------------------------------------------------------------------------------------------------
280,075 270,790 210,930 192,907 131,003 155,724 86,994
107,433 106,640 82,500 75,200 51,800 63,600 43,934
(1,771) 369 1,419 1,127 2,048 2,681 7,308
- -----------------------------------------------------------------------------------------------------
170,871 164,519 129,849 118,834 81,251 94,805 50,368
(37,892)
- -----------------------------------------------------------------------------------------------------
170,871 164,519 129,849 118,834 43,359 94,805 50,368
(7,196) (7,763) (7,763) (1,264)
- -----------------------------------------------------------------------------------------------------
$ 163,675 $ 156,756 $ 122,086 $ 117,570 $ 43,359 $ 94,805 $ 50,368
=====================================================================================================
1.64 1.56 1.21 1.17 .43 .95 .50
1.58 1.49 1.19 1.08 .43 .95 .50
.586 .524 .481 .459 .425 .398 .390
99,564 100,253 100,590 100,849 100,176 99,682 100,610
108,487 110,111 109,420 109,711 101,112 100,225 101,078
98,850 100,229 100,379 101,001 100,651 99,897 99,446
- -----------------------------------------------------------------------------------------------------
262,533 229,328 222,068 209,932 152,478 163,860 184,066
995,415 865,629 763,109 737,154 614,018 580,787 562,591
2,365,896 2,098,157 1,821,414 1,696,349 1,241,783 1,135,940 1,113,594
893,088 686,792 547,380 515,826 316,010 283,199 312,120
920,613 918,749 832,218 788,364 561,890 562,306 512,828
1.6 1.5 1.6 1.7 1.5 1.6 1.7
47.2% 39.6% 38.1% 38.0% 35.1% 30.6% 34.7%
8.10 7.45 6.57 6.10 5.58 5.63 5.15
- -----------------------------------------------------------------------------------------------------
142,927 125,836 112,797 95,745 83,309 76,561 72,152
58,480 53,145 48,287 46,333 42,443 39,703 39,216
23.53 23.86 18.94 19.05 20.67 14.94 14.07
18.3% 18.7% 16.0% 19.0% 13.7% 17.8% 9.6%
6.1% 6.1% 5.6% 6.1% 4.4% 5.6% 3.0%
=====================================================================================================
(1) Debt levels for 1995 through 2000 have been adjusted for cash related
to the issuance of restricted-purpose bonds.
(2) The provision for income taxes in 2000 includes $12,000 related to
corporate-owned life insurance.
47
34
REPORT OF INDEPENDENT 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, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. 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 of America, 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 our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
January 31, 2001
49
35
OFFICERS|EXECUTIVE
HARRIS E. DELOACH, JR., 56
President & Chief Executive
Officer since July 2000. Previously
Sr. Executive Vice President
& Chief Operating Officer
1999-2000; Sr. Executive Vice
President-Global Industrial
Products/Paper/Molded Plastics,
1999; Executive Vice President-
High Density Film, Industrial
Container, Fibre Partitions,
Protective Packaging, Sonoco
Crellin & Baker Reels 1996-
1999. Joined Sonoco in 1985.
JIM C. BOWEN, 50
Sr. Vice President-Global Paper
Operations. Previously Vice
President & General Manager-
Paper; Vice President-
Manufacturing North America,
Paper since 1994-1997; Director
of Manufacturing 1993-1994.
Joined Sonoco in 1972.
BERNARD W. CAMPBELL, 51
Vice President-Information
Services. Previously Staff Vice
President-Information Services
1991-1996; Director-Corporate
Information Services 1990-1991.
Joined Sonoco in 1988.
ALLAN V. CECIL, 59
Vice President-Investor Relations
& Corporate Affairs. Previously
Vice President-Investor Relations
& Corporate Communications
1996-1998. Prior experience:
Vice President-Corporate
Communications & Investor
Relations, National Gypsum and
Mesa Petroleum Co. Joined
Sonoco in 1996.
LARRY O. GANTT, 63
Vice President-Operating Excellence.
Previously Staff Vice President-
Operating Excellence 1997-2000;
Division Vice President-Global
Operations, Consumer Products
1994-1997; Division Vice President
of Manufacturing for Consumer
Products. Joined Sonoco in 1963.
CYNTHIA A. HARTLEY, 52
Vice President-Human Resources.
Previously Vice President-Human
Resources, National Gypsum
Company and Dames & Moore
and previous experience with
Continental Can Company.
Joined Sonoco in 1995.
F. TRENT HILL, JR., 48
Vice President & Chief Financial
Officer. Previously Vice President-
Finance 1994-1995; Vice President-
Industrial Products, N.A. 1990-
1994; Vice President-Finance
1987-1989. Joined Sonoco in 1979.
RONALD E. HOLLEY, 58
Sr. Vice President-Global
Industrial Products. Previously
Vice President-Industrial
Products, N.A. 1999-2000; Vice
President-High Density Film
Products 1993-1999; Vice
President-Total Quality
Management 1990-1993;
Joined Sonoco in 1964.
Eddie Smith Bernie Campbell Chuck Paterno Jim Bowen Cindy Hartley Harry Moran Charles Sullivan Trent Hill
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
36
CHARLES J. HUPFER, 54
Vice President-Treasurer &
Corporate Secretary. Previously
Treasurer 1988-1995; Director
of Tax & Audit 1985-1988;
Director-International Finance &
Accounting 1980-1985. Joined Sonoco in 1975.
KEVIN P. MAHONEY, 45
Vice President-Corporate Planning.
Previously Staff Vice President-
Corporate Planning 1996-2000.
Joined Sonoco in 1987.
HARRY J. MORAN, 68
Executive Vice President responsible
for Folding Cartons, Protective
Packaging, Bags/Film,
Caps/Coasters, Baker Reels,
Graphic Services, and the Pack
Center. Previously Executive
Vice President responsible for
Consumer Packaging 1996-1998;
Group Vice President-Consumer
Packaging 1993-1996. Joined
Sonoco in 1983.
CHARLES F. PATERNO, 44
Vice President-Industrial
Products/Paper, Europe.
Previously Division Vice
President-Industrial Products/
Paper, Europe 1996-1998;
President-Sonoco Limited 1994-
1995. Joined Sonoco in 1983.
J.C. RHODES, 62
Vice President-International
Operations-Latin America,
Australia & Director of
Operations-Asia. Previously
Division Vice President-
Operations Support 1996-1998.
Joined Sonoco in 1961.
M. JACK SANDERS, 47
Vice President-Industrial Products,
N.A. Previously Division Vice
President/General Manager,
Protective Packaging 1998-2001;
General Manager-Protective
Packaging 1991-1998. Joined
Sonoco in 1987.
EDDIE L. SMITH, 49
Vice President-Flexible Packaging.
Previously Division Vice
President/General Manager-
Flexible Packaging 1996-1998;
Division Vice President-Consumer
Products, Europe 1994-1996.
Joined Sonoco in 1971.
CHARLES L. SULLIVAN, 57
Sr. Vice President-Global
Consumer Products. Previously
Regional Director for Cargill
Asia/Pacific. Joined Sonoco
in 2000.
Allan Cecil Ronnie Holley Kevin Mahoney Harris DeLoach Larry Gantt Charlie Hupfer Jack Sanders J.C. Rhodes
[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
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, 2000 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. Sonoco-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.
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 Luxembourg SARL, 100%-owned Luxembourg subsidiary.
a. Sonoco Netherlands Holding II BV, 100%-owned Dutch subsidiary.
1. Sonoco Limited, 100%-owned Canadian subsidiary.
a. Sonoco Flexible Packaging Holdings, Ltd.,
100%-owned Canadian subsidiary
b. NRO Sonoco, Inc., 100%-owned Canadian 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.
5. Sonoco CPD GmbH, 100%-owned German subsidiary.
3
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
6. Sonoco 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.
f. Sonoco Netherlands Holding III BV, 100%-owned Dutch subsidiary.
1. Grupo Sonoco SA de CV, 100%-owned Mexican subsidiary.
a. Sonoco de Mexico S.A. de C.V., 100%-owned Mexican
subsidiary.
3. Sonoco Luxembourg (No. 2) SARL, 100%-owned Luxembourg subsidiary.
a. Sonoco Products Company U.K. Unlimited, 100%-owned U.K. subsidiary.
1. Sonoco Holdings (UK), Ltd., 100%-owned U.K. subsidiary.
a. Sonoco Milnrow, 100%-owned U.K. subsidiary
1. Sonoco Products Co. UK Unlimited,
100%-owned U.K. subsidiary
4
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
4. FCC Sonoco, 100%-owned French subsidiary.
5. Beteiligungen Sonoco Deutschland GmbH, 100%-owned Germany subsidiary.
6. Sonono Deutschland Vermogensverwaltungs GmbH & Co. KG, 100%-owned Germany
subsidiary.
7. 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.
d. Sonoco Hongwen, L.L.C., 80%-owned limited liability company.
e. Sonoco Products Malaysia, SDN BHD, 100%-owned Malaysian
subsidiary.
8. Sonoco Asia Management Company, L.L.C., 71%-owned limited liability company.
9. Sonoco Australia Pty., Ltd., 100%-owned Australian subsidiary.
10. Sonoco New Zealand, 100%-owned New Zealand subsidiary.
11. Sonoco Participacoes Ltda., 100%-owned Brazilian subsidiary.
a. Sonoco For-Plas do Brazil Ltda., 51%-owned Brazilian subsidiary.
12. Inversiones Sonoco do Chile Ltda, 100%-owned Chilean subsidiary.
a. Sonoco do Chile, 70%-owned Chilean subsidiary.
4. Sonoco do Brazil Ltda., 100%-owned Brazilian subsidiary.
5
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
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.
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.
1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (September 4, 1985, November 27, 1989, 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 Sonoco Products Company of our
report dated January 31, 2001, 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 30, 2001
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, 2000
----------------------------------
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
SONOCO PRODUCTS COMPANY
NORTH SECOND STREET
HARTSVILLE, SOUTH CAROLINA 29550
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.
