-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
IzMZXmr/xiPt6KqTwZ+KYvbTteq5R6joIYMqaYw0ZFCJrwSXL8xKFpF2yIqNzK2+
eRiB1vGCJll2OeOrxZCilg==
<SEC-DOCUMENT>0000950144-02-002927.txt : 20020415
<SEC-HEADER>0000950144-02-002927.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950144-02-002927
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020328
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SONOCO PRODUCTS CO
CENTRAL INDEX KEY: 0000091767
STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD CONTAINERS & BOXES [2650]
IRS NUMBER: 570248420
STATE OF INCORPORATION: SC
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-00516
FILM NUMBER: 02590261
BUSINESS ADDRESS:
STREET 1: NORTH SECOND ST
STREET 2: P O BOX 160
CITY: HARTSVILLE
STATE: SC
ZIP: 29551-0160
BUSINESS PHONE: 8033837000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>g74714e10-k.txt
<DESCRIPTION>SONOCO PRODUCTS
<TEXT>
<PAGE>
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, 2001
[ ] 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 0-516
SONOCO PRODUCTS COMPANY
INCORPORATED UNDER THE LAWS I.R.S. EMPLOYER IDENTIFICATION
OF SOUTH CAROLINA NO. 57-0248420
ONE NORTH SECOND STREET
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.
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 3,
2002, was $2,486,491,459. Registrant does not have any non-voting common stock
outstanding.
As of March 3, 2002, there were 95,964,277 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, 2001, 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 17, 2002, are incorporated by reference in Part
III.
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes and incorporates by reference
"forward-looking statements" within the meaning of the securities laws. All
statements that are not historical facts are "forward-looking statements." The
words "estimate," "project," "intend," "expect," "believe," "anticipate" and
similar expressions identify forward-looking statements. Forward-looking
statements include, but are not limited to, statements regarding offsetting high
raw material costs, adequacy of income tax provisions, refinancing of debt,
adequacy of cash flows, effects of acquisitions and dispositions, and financial
strategies and the results expected from them.
These forward-looking statements are based on current expectations, estimates
and projections about our industry, management's beliefs, and 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 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. The 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; anticipated results of restructuring activities; ability to
successfully integrate newly acquired businesses into our operations; currency
stability and the rate of growth in foreign markets; actions of government
agencies; and loss of consumer confidence and economic disruptions resulting
from terrorist activities.
We undertake no obligation to publicly update or revise forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this Annual Report on Form 10-K might not occur.
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 Company
or "Sonoco"). Sonoco is a manufacturer of industrial and
consumer packaging products and provider of packaging
services, with approximately 300 locations in 32 countries,
serving customers in some 85 nations.
Acquisitions/dispositions/joint venture - Notes 2 and 3 to the
Consolidated Financial Statements on pages 40 and 41 of the
2001 Annual Report to Shareholders (the "2001 Annual Report")
is incorporated herein by reference.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - Note 17 to the
Consolidated Financial Statements on page 49 of the 2001
Annual Report is incorporated herein by reference.
(c) NARRATIVE DESCRIPTION OF BUSINESS -
Industrial Packaging Segment
The Industrial Packaging segment, which represented 50% of the
Company's sales in 2001, includes the following products:
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. Sonoco's engineered carriers (tubes
and cores), along with the Company's integrated paper
operations is the largest revenue-producing business in the
Company. Sonoco is a market leader in engineered
- 2 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I (CONTINUED)
carriers, serving such markets as paper, textiles, film, tape
and metals from 115 converting facilities on five continents.
Sonoco's paper operations provide the primary raw material for
the Company's fiber-based packaging, including engineered
carriers, composite cans and protective packaging. This
vertical integration strategy is backed by 31 paper mills with
43 machines in 13 countries. In 2001, Sonoco's paper
manufacturing capacity was 2 million tons.
Sonoco's molded and extruded plastics operations supply
customers in the textile, fiber optics, wire and cable,
automotive, plumbing, filtration, food services, medical and
healthcare markets.
The Company is a leading producer of wood, composite and metal
reels for the United States wire and cable industry.
Historically, Sonoco's protective packaging business has
served the white goods industry (washers, dryers, ranges,
etc.) with custom designed paper-based corner posts and
plastic bases. New developments in this business include
packaging that allows the product inside the packaging to be
seen from the outside, helping in warehouse identification and
observation of any damage before delivery.
Consumer Packaging Segment
The Consumer Packaging segment, which represented 50% of the
Company's sales in 2001, includes the following products and
services: round and shaped composite cans, printed flexible
packaging, metal and plastic ends and closures, high density
film products, specialty packaging and packaging services.
Sonoco's composite can business is the Company's second
largest revenue-producing business, surpassed only by the
engineered carriers/paper operations, with 32 can plants, 8
can/metal end plants, 5 metal end plants, and 3 plastic plants
throughout the world. The composite can operation serves such
markets as snacks, confectionery, frozen concentrate,
adhesives, and automotive.
Flexible packaging is one of Sonoco's newer businesses serving
such markets as beverage, coffee, confectionery, home and
personal care, and snacks. This business continues to grow,
with new contracts in the confectionery market, utilizing
rotogravure and flexographic printing capabilities.
The Company's packaging services business doubled its sales in
2001 over 2000 by expanding existing business and securing new
contracts. In late 2000, Sonoco received a five-year contract
covering its management of The Gillette Company's packaging
supply chain razor and blade packaging center in North America
and Europe. Also, in 2001 the Company began managing the
Hewlett-Packard Company's Americas Product Completion Center
in Chester, VA. This facility packages Hewlett-Packard's
inkjet printer products.
Sonoco's high density film business is a leading producer of
plastic grocery bags in the United States and offers an array
of retail, convenience store, fast food and easy-open produce
bags. The Company also produces agricultural mulch film used
for growth enhancement of high value crops.
Sonoco is a market leader in supplying paper coasters and
glass covers to the North American hospitality, restaurant and
healthcare industries. The Company produces folding cartons
from one plant location, primarily serving health, beauty and
personal care customers as part of the Company's supply chain
management strategy. Sonoco Trident, with operations based in
the United Kingdom and the United States, provides a branded
artwork and reprographics management service to help customers
protect brand integrity in their packaging.
- 3 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I (CONTINUED)
Raw Materials -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.
Patents, Trademarks, and Related Contracts - Most inventions
are made by members of Sonoco's research and engineering staff
and have been, and continue to be, important to the Company's
growth. Patents have been granted on many of these inventions
in the United States and other countries. These patents are
being globally managed by a Sonoco intellectual asset
management team. Some of these patents have been licensed to
other manufacturers including Sonoco's associated companies. A
few patents are also licensed-in from outside companies for
Sonoco's business unit use. U.S. patents expire after 17 or 20
years depending on issue date. New patents replace many of the
abandoned or expired patents. Sonoco also manages the
abandonment of patents that no longer present value to its
business. Most of Sonoco's products are marketed worldwide
under trademarks such as the name SONOCO(R). Subsidiaries and
divisions of Sonoco frequently use their own trademarks such
as SONOTUBE(R), QUIKMATE(R), HELPMATE(R), SAFE-TOP(R), SEALED
SAFE(R), DURO(R) and DUROX(R).
Seasonality - None of the Company's segments are seasonal to
any significant degree.
Dependence on Customers - None of the Company's segments
relied upon one single customer or a few customers, the loss
of any one or more of which would have a material adverse
effect on the segment. In 2001, on an aggregate basis, the
five largest customers in the Industrial Packaging segment
accounted for approximately 9% of segment sales and the five
largest customers in the Consumer Packaging segment accounted
for approximately 25% of segment sales. There are many
different product lines represented by sales to these
customers. In addition, no one customer represents 10% of the
consolidated revenue of the Company and the loss of any
customer would not have a material adverse effect.
Backlog - Most customer orders are manufactured with a lead
time of three weeks or less. Therefore, the amount of backlog
orders at December 31, 2001 and 2000 were not material. The
Company expects all backlog orders at December 31, 2001 to be
shipped during 2002.
Competition - The Company's products are sold in highly
competitive market environments which include paper, textiles,
films, food, motor oil, chemicals, pharmaceuticals, packaging,
oil, construction, and wire and cables. Within each of these
markets, supply and demand are the major factors controlling
the market environment. Additionally, and to a lesser degree,
these markets are influenced by the overall rate of economic
activity. Throughout the year, the Company remained highly
competitive within each of the markets served. The Company
manufactures and sells many of its products globally. Having
operated internationally since 1923, the Company considers its
ability to serve its customers worldwide in a timely,
consistent and cost-effective manner a competitive advantage.
The Company also believes its technological leadership,
reputation for quality, and vertical integration have enabled
it to coordinate its product development and global expansion
with the rapidly changing needs of its major customers, who
demand high-quality, state-of-the-art, environmentally
compatible packaging. In addition, the Company is focusing on
productivity improvements with the objective of being the
low-cost producer in value-added niches of the packaging
market. The Company has several productivity initiatives
underway, aimed at continuing to reduce costs and improve
processes using the latest in information technology.
- 4 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART I (CONTINUED)
Research and Development - Total company-sponsored research
and development costs were $14 million in 2001 and 2000 and
$12 million in 1999. Customer-sponsored research and
development costs were not material for each of these periods.
Significant projects in Sonoco's Industrial Packaging segment
included efforts designed to enhance performance
characteristics of the Company's engineered carriers in the
textile, film, and paper packaging areas, as well as projects
aimed at productivity enhancements. The 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.
Compliance with Environmental Laws - Note 14 to the
Consolidated Financial Statements on pages 47-48 of the 2001
Annual Report is incorporated herein by reference.
Number of Employees - As of December 31, 2001, the Company had
approximately 17,900 employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS -
Note 17 to the Consolidated Financial Statements on page 49 of
the 2001 Annual Report and the information about market risk
under the caption "Risk Management" on pages 30-31 of the 2001
Annual Report are incorporated herein by reference.
(e) EXECUTIVE OFFICERS OF THE REGISTRANT - The executive officers
of the Company are: Harris E. DeLoach, Jr., Jim C. Bowen,
Allan V. Cecil, Cynthia A. Hartley, Ronald E. Holley, Harry J.
Moran, Eddie L. Smith, Charles L. Sullivan, Jr., Bernard W.
Campbell, Larry O. Gantt, Charles J. Hupfer, Kevin P. Mahoney,
Charles F. Paterno, J.C. Rhodes, and M. Jack Sanders.
Information about the ages, positions and offices held with
Sonoco, terms of office, and business experience for the past
five years of each of such executive officers is set forth in
the 2001 Annual Report on pages 54 and 55 under the captions
"Executive Committee - Officers" and "Officers", and is
incorporated herein by reference.
Charles L. Sullivan, Jr., Sr. Vice President-Global Consumer
Products, was previously Regional Director for Cargill
Asia/Pacific in 2000 and President of Cargill's Salt Division
from 1995-2000.
ITEM 2 PROPERTIES - The Company's main plant and corporate offices are owned
and operated in Hartsville, South Carolina. There are 130 owned and 119
leased facilities used by operations in the Industrial Packaging
Segment and 34 owned and 34 leased facilities used by operations in the
Consumer Packaging segment. Europe, the largest foreign geographic
location, has 41 manufacturing locations.
ITEM 3 LEGAL PROCEEDINGS - Note 14 to the Consolidated Financial Statements on
pages 47 - 48 of the 2001 Annual Report is incorporated herein by
reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS - The information relating to market price and cash dividends
under Selected Quarterly Financial Data on page 24 of the 2001 Annual
Report is incorporated herein by reference. The Company's common stock
is traded on the New York Stock Exchange under the stock symbol "SON".
At December 31, 2001, there were approximately 43,000 shareholder
accounts.
- 5 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART II (CONTINUED)
ITEM 6 SELECTED FINANCIAL DATA - The Selected Eleven-Year Financial Data
provided on pages 50 - 51 of the 2001 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 of Operations and
Financial Condition on pages 25 - 35 of the 2001 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 Operations and Financial
Condition of the 2001 Annual Report is incorporated herein by
reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - The following items
provided in the 2001 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 36 - 49; and the Report of Independent
Accountants on page 52.
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 - 10 and page 30,
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.
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 pages 27-28; and "Transactions
with Management" on pages 28 - 29.
- 6 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Consolidated Balance Sheets as of December 31,
2001 and 2000; Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999; Consolidated Statements of Changes
in Shareholders' Equity for the years ended December 31, 2001, 2000
and 1999; and Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
for each of the three years in the period ended December 31, 2001.
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, are
not applicable or the required information is given in the financial
statements or notes thereto.
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)
10-7 Credit Agreement, dated as of July 17, 2001, among Sonoco
Products Company, the several lenders from time to time party
thereto and Bank of America, N.A., as agent (incorporated by
reference to Registrant's Form S-3, commission file no.
333-69388)
10-8 Separation Agreement between Registrant and F. Trent Hill,
Jr., dated March 12, 2002
13 2001 Annual Report to Shareholders (portions incorporated by
reference)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
- 7 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
PART IV (CONTINUED)
99-1 Proxy Statement, filed in conjunction with annual
shareholders' meeting scheduled for April 17, 2002 (previously
filed)
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key
Employee Stock Option Plan
(b) Reports on Form 8-K: Form 8-K filed October 30, 2001, relating to Item
5 of that form with respect to other events.
- 8 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Directors of
Sonoco Products Company
Our audits of the consolidated financial statements referred to in our report
dated January 31, 2002 appearing in the 2001 Annual Report to Shareholders of
Sonoco Products Company (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Charlotte, North Carolina
January 31, 2002
- 9 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED 2001, 2000, AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------- ------------ ---------- ---------- ----------
Balance at Charged to Balance at
Beginning of Costs and end of
Description Year Expenses Deductions Year
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
2001
Allowance for Doubtful
Accounts $ 5,714 $ 7,709 $ 6,129(1) $ 7,294
LIFO Reserve $ 9,447 $ 1,372 $ 467(2) $10,352
Valuation Allowance on
Deferred Tax Assets $25,530 $ 3,803(3) $21,727
2000
Allowance for Doubtful
Accounts $ 6,969 $ 5,604 $ 6,859(1) $ 5,714
LIFO Reserve $ 9,994 $ 547(2) $ 9,447
Valuation Allowance on
Deferred Tax Assets $27,937 $ 2,407(3) $25,530
1999
Allowance for Doubtful
Accounts $ 5,420 $ 5,902 $ 4,353(1) $ 6,969
LIFO Reserve $11,078 $ 3,359 $ 4,443(2) $ 9,994
Valuation Allowance on
Deferred Tax Assets $45,174 $17,237(3) $27,937
</TABLE>
(1) Includes amounts written off and translation adjustments.
(2) Includes adjustments based on pricing and inventory levels.
(3) Includes foreign net operating loss utilization in 2001 and 2000. 1999
includes capital loss reclassifications and foreign net operating loss
utilization.
- 10 -
<PAGE>
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 28th day of
March 2002.
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 28th day of March 2002.
/s/ C. J. Hupfer
--------------------------------------------
C. J. Hupfer
Vice President, Treasurer, Corporate
Secretary and Chief Financial Officer
- 11 -
<PAGE>
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/ C. C. Fort Director
- ------------------------------------
C. C. Fort
/s/ P. Fulton Director
- ------------------------------------
P. Fulton
/s/ B. L. M. Kasriel Director
- ------------------------------------
B. L. M. Kasriel
/s/ E. H. Lawton, III 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
- 12 -
<PAGE>
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
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)
10-7 Credit Agreement, dated as of July 17, 2001, among Sonoco Products
Company, the several lenders from time to time party thereto and
Bank of America, N.A., as agent (incorporated by reference to
Registrant's Form S-3, commission file no. 333-69388)
10-8 Separation Agreement between Registrant and F. Trent Hill, Jr.,
dated March 12, 2002
13 2001 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, 2002 (previously filed)
99-2 Form 11-K Annual Report - 1991 Sonoco Products Company Key Employee
Stock Option Plan
- 13 -
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>3
<FILENAME>g74714ex10-8.txt
<DESCRIPTION>SEPARATION AGREEMENT/F. TRENT HILL
<TEXT>
<PAGE>
SEPARATION AGREEMENT, RELEASE
AND COVENANT NOT TO SUE
THIS Agreement made this _____ day of _________ 2002 by and between
SONOCO PRODUCTS COMPANY, a South Carolina Corporation ("Sonoco"), doing business
in the State of South Carolina and F. Trent Hill, Jr. ("HILL")
WITNESSETH
WHEREAS, HILL was employed by Sonoco on March 1, 1979, most recently
at its location in Hartsville, SC , and
WHEREAS, Sonoco and HILL have agreed to end this employment
relationship effective February 11, 2002, and
WHEREAS, Sonoco and HILL have agreed to certain items as a severance
package as contained herein:
NOW, THEREFORE, in consideration of the mutual covenants stated
herein and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. HILL will receive the equivalent of 18 months salary less all
applicable deductions. This payment includes the 2 weeks standard severance as
provided by company policy. Severance will be paid in two equal installments of
$244,917. The first payment will be made on or about January 31, 2004, and the
second payment will be made on or about January 31, 2005.
2. Pursuant to Sonoco's vacation pay policy, HILL will receive
payment for any unused 2002 vacation.
3. Pursuant to Sonoco's benefit policy, HILL's group insurance
coverage, (medical and dental) will continue on the same fee-sharing basis as
active employees until August 31, 2003, or until he is eligible for insurance
coverage with another employer, whichever occurs first. This coverage is
provided in lieu of COBRA benefits.
<PAGE>
2
4. HILL has earned a fully vested SERP benefit, calculated at
approximately $180,000 as of February 28, 2002. HILL may begin drawing an
unreduced SERP benefit at age 62. Should he wish to begin drawing this SERP
benefit at age 55, it is subject to a 3% per year early commencement reduction.
This SERP benefit will be offset by HILL's Sonoco Pension Plan benefit, and at
age 62 by his Social Security Benefit.
5. HILL has the option of taking over the Officer Split Dollar
Life Insurance Policy(ies) or canceling. If he takes over the policy(ies), he
will be required to reimburse Sonoco for any accumulated premiums paid by the
company. Sonoco will pay the premiums for the current plan year (2002). HILL
will have two years to reimburse Sonoco for all premiums paid by the Company.
The first payment will be due on the first anniversary of his separation, and
will be one-half of the amount owed. The balance is due and payable on the
second anniversary of his separation. If HILL cancels the policy(ies), he will
have no further obligations to Sonoco for this coverage.
6. HILL must exercise all vested stock options within 90 days of
separation.
7. As previously elected, fully vested deferred restricted stock
units (approximately 14,127 shares) will be distributed in January 2003. All
unvested restricted stock units will be cancelled.
8. Sonoco agrees to provide outplacement services through the
Charlotte office of Drake, Beam, Morin.
9. The parties agree that Sonoco has no prior legal obligation to
make the additional payments which are exchanged for the promises herein.
10. The Employee Agreement signed by HILL shall remain in effect.
11. HILL agrees that he will not, at any time in the future, seek
reinstatement or reemployment with Sonoco or any of its subsidiaries or
affiliated companies in any position or capacity whatsoever.
12. HILL shall not, for a period of two years following his last
day of employment with Sonoco enter into any employment relationship wherein his
duties would present a likelihood of disclosure or use of Confidential
Information belonging to Sonoco or
<PAGE>
3
which would otherwise violate Sonoco's obligations of secrecy owed to a third
party. While the period of this covenant against employment under the
circumstances specified in this paragraph shall expire after two years, HILL
acknowledges that his general obligation to refrain from actually using or
disclosing Confidential Information shall continue beyond this term and
specifically until the information shall become public through no fault on his
part. Further, HILL will not during the noncompetition period directly or
indirectly disturb, entice or hire away or in any other manner persuade any
present or future employee, service provider, agent, director, officer or
employee of the Company to terminate, discontinue, withdraw, curtail or cancel
its relationship with the Company.
13. Sonoco and HILL acknowledge that all of the terms and
conditions of this Agreement are confidential and shall not be disclosed to any
persons other than immediate family or his attorney. HILL agrees that if he does
not maintain the confidentiality of this Agreement, he will repay all of the
monetary consideration furnished by Sonoco pursuant to this Agreement.
14. HILL shall not make any public statements, encourage others to
make statements or release information intended to disparage or defame any of
the Sonoco Parties (as defined in Section 16). The Company shall not make public
statements, encourage others to make statements or release information intended
to disparage or defame HILL's reputation. Notwithstanding the foregoing, nothing
in this Section 15 shall prohibit any person from making such statements when
required by order of a court or other body having jurisdiction. Except to the
extent consistent with the press release to be issued by the Company in
connection with HILL's termination of employment or with the prior written
consent of the Company, HILL will not make any direct or indirect written or
oral statements to the press, television, radio or other media concerning any
matters pertaining to the business and affairs of the Company or any Sonoco
Party or pertaining to any matters related to HILL's employment or separation
from employment with the Company.
15. In consideration of Sonoco's agreement to provide HILL with
the payments and benefits listed in this Agreement, HILL waives, releases and
forever discharges Sonoco Parties, including but not limited to Sonoco
predecessors, successors, assigns,
<PAGE>
4
officers, directors, shareholders, parent companies, subsidiaries, affiliates,
agents, employees and representatives from any and all claims, demands, damages,
liabilities, and/or causes of action of any nature whatsoever, known or unknown,
that HILL has or may have against Sonoco, arising out of, relating to or
resulting from his employment with Sonoco, the termination of that employment
and/or any events occurring prior to the signing of this Separation Agreement,
Release and Covenant Not to Sue. HILL further agrees not to bring, continue or
maintain any legal proceedings of any nature whatsoever against Sonoco before
any court, administrative agency, arbitrator or any other tribunal or forum by
reason of any such claims, demands, damages, liabilities and/or causes of
action, including but not limited to Title VII of the Civil Rights Act of 1964
as amended, the Age Discrimination In Employment Act, as amended, the Americans
with Disabilities Act of 1990, and/or other federal or state statutes having to
do with discrimination of any nature. HILL agrees that if he violates this
covenant by suing Sonoco, or those associated with Sonoco, he will pay all costs
and expenses incurred by Sonoco's defense of such a suit, including reasonable
attorney's fees. HILL certifies that he has been informed by Sonoco, through the
terms of this Agreement, that he was advised to review and discuss the terms of
this Agreement with an attorney of his choice prior to signing said Agreement.
Furthermore HILL certifies that Sonoco has notified him that he has 21 days from
his receipt of this Agreement in which to execute said Agreement. In addition,
HILL has been informed that the Agreement may be revoked by him for a period of
seven days after its execution.
16. This instrument contains the entire Agreement between the
parties hereto with respect to the subject matter and no amendment or other
modification of this Agreement shall be valid or binding on any party unless in
writing and signed by the party against whom enforcement is sought.
17. The parties agree that the provisions of this Agreement shall
be deemed severable and that the invalidity of unenforceability of any portion
or any provision shall not affect the validity or enforceability of the other
portions or provisions. Such provisions shall be appropriately limited and given
effect to the extent that they may be enforceable.
<PAGE>
5
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina and rights and
obligations of the parties under this Agreement shall be binding upon and inure
to the benefit of their respective heirs, successors, assigns and legal
representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and the year first written above.
Sonoco Products Company
by:
---------------------------- -----------------------------------
(Witness)
---------------------------- -----------------------------------
F. Trent Hill, Jr. (Witness)
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>g74714ex13.txt
<DESCRIPTION>SONOCO 2001 ANNUAL REPORT TO SHAREHOLDERS
<TEXT>
<PAGE>
Financial Highlights Sonoco Products Company and Subsidiaries
Comparative Highlights (Unaudited)
Years ended December 31
<TABLE>
<CAPTION>
Actual Comparative(*)
-------------------------- -------------------------- Comparative
(Dollars in thousands except per share) 2001 2000 2001 2000 % Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $2,606,276 $2,711,493 $2,606,276 $2,711,493 (3.9)%
Gross profit 544,430 604,098 544,430 604,098 (9.9)%
Net income 91,609 166,298 148,603 179,670 (17.3)%
Return on total equity 11.5% 19.1% 18.6% 20.7% (10.1)%
Return on net assets 6.4% 10.7% 9.7% 11.6% (16.4)%
Return on net sales 3.5% 6.1% 5.7% 6.6% (13.6)%
Number of employees 17,900 17,450
Number of locations 317 295
Number of shareholder accounts 43,000 45,200
- -------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income - basic $ .96 $ 1.67 $ 1.56 $ 1.80 (13.5)%
- diluted .96 1.66 1.55 1.80 (13.8)%
Cash dividends - common .80 .79 1.3%
Ending common stock market price 26.58 21.63 22.9%
Book value per common share 8.40 8.44 (0.5)%
Price/earnings ratio 27.69 13.03 17.15 12.02 42.7%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) The 2000 comparative figures exclude from actual results the net gain on
the sales of divested businesses and executive severance charges. The 2001
comparative figures exclude from actual results proceeds from legal
settlements. The 2001 and 2000 comparative figures also exclude
restructuring charges and additional income taxes and other charges related
to corporate-owned life insurance. See page 25 of Management's Discussion
and Analysis for additional information.
[GRAPH] [GRAPH] [GRAPH]
Net Sales Comparative Net Income Comparative Earnings
(Billions of Dollars) Available to Common Per Diluted Share
Shareholders (Dollars)
(Millions of Dollars)
Reported net sales and earnings, on a comparative basis, in 2001 were 3.9% and
17.3%, respectively, lower than 2000. The lower sales and earnings were
primarily due to lower volume, principally in the engineered carriers business.
Comparative results exclude the impact of one-time transactions.
1
<PAGE>
Letter to Shareholders
DEAR FELLOW SHAREHOLDER:
During 2001, Sonoco created significant current and potential value for
the Company and its shareholders, despite operating in one of the most difficult
general economic environments in its history.
Our strategic objective remains unchanged - to achieve average annual
double-digit total return to shareholders, with returns on capital and equity in
the top quartile of the Standard & Poor's (S&P) 500 Index. We are pleased that
Sonoco's total return to shareholders (stock price plus dividends) increased by
27% between year-ends 2000 and 2001, following three consecutive years of annual
declines. Also, our returns on capital and equity are the highest in the
packaging industry and only a few percentage points below the top quartile of
companies in the S&P 500 Index.
The increase in total shareholder return for 2001 reflects in large
part confidence by investors in Sonoco's future growth. Much of this confidence
undoubtedly is based on the Company's record in 2001 of acting and delivering on
its intentions, made possible primarily because of enhanced execution and
greater personal accountability.
WHAT WE SAID AND WHAT WE DID
What we said: "You cannot have an effective operating performance without a
consistently improving safety record."
What we did: Reduced our reportable injuries per 100 full-time employees in
2001 to 1.49, the lowest level in Sonoco's history. We believe
that people build businesses and that while our safety
performance is truly world class, only a zero injury work
environment is acceptable.
What we said: "Excess costs are not acceptable - we are targeting $25
million to $30 million of annualized reductions."
What we did: Identified $48 million in structural cost reductions. In 2001,
$17 million was realized, and another $31 million in
restructuring savings will be phased in during 2002.
Approximately 830 positions were eliminated in 2001 and, of
the 13 plant closings announced, 11 plants were closed by
year-end. Additional restructuring actions are expected during
2002.
What we said: "We will generate approximately $170 million of free cash flow
after capital expenditures and dividends in 2001."
What we did: Generated $186.3 million in free cash flow in 2001 after
capital expenditures of $102 million and dividends of $76.1
million. We expect to generate $800 million to $900 million in
free cash flow over the next five years.
What we said: "We must find ways to grow the top line, including making
acquisitions in our existing businesses. These acquisitions
cannot be dilutive to earnings."
What we did: Completed seven key acquisitions in 2001 at a cost of
approximately $260 million. They should add about $250 million
in annualized sales. All are accretive and together are
expected to add some $.10 per share in annualized earnings
during 2002.
2
<PAGE>
What we said: "We will meet our quarterly earnings estimates more
consistently."
What we did: Delivered earnings per share within the Company's publicly
announced estimates for the last six consecutive quarters.
What we said: "A primary key to success is putting the right people in the
right jobs."
What we did: Made changes in 14 of the top operating and staff positions in
the Company. Those transitions have gone well, and we are
seeing renewed emphasis within our operations being placed on
personal accountability and execution of strategy.
We have also made significant changes to our incentive
program. Stock options are no longer viewed as entitlements at
Sonoco. The number of stock options awarded, if any, to
eligible employees is now based on performance.
OPERATING ISSUES
In most years, accomplishments such as those just outlined would have
been accompanied by strong operating and financial results. That was not the
case in 2001. Paradoxically, these advancements were achieved despite weak
volumes and accompanying declines in sales and earnings, resulting principally
because of the recessionary economy.
The most adverse impact was on the Company's industrial packaging
segment, which began experiencing the effects of an economic slowdown in the
spring of 2000.
These conditions intensified significantly in late spring of 2001.
However, our volume decline stabilized shortly thereafter and remained fairly
flat until December, when volume weakened further. For example, in December
2001, our paper operations experienced the most severe curtailment of machine
days in at least two decades.
In our consumer segment, however, we enjoyed improved year-over-year
sales and operating profits in each of the last three quarters in 2001, driven
principally by new business initiatives and acquisitions.
SUMMARY OF 2001 RESULTS
Despite stronger performance in our consumer segment during the last
nine months of 2001, the severity of the general economic recession on our
industrial customers drove Company-wide volumes down about 4%, not including
acquisitions, and 2%, including acquisitions made primarily in the third and
fourth quarters of 2001. Excluding one-time transactions in both years, our
earnings per diluted share decreased 13.8% in 2001, compared with 2000.
Including one-time transactions, earnings per diluted share in 2001 were down
42.2% from 2000. Sales for 2001 were off 3.9%, compared with the previous year.
Acquisitions contributed approximately $64 million (2.5%) and $106 million
(3.9%) in sales for 2001 and 2000, respectively. The Company generated free cash
flow of $186.3 million, up 11.8% over $166.6 million in 2000.
[PHOTO]
Harris E. DeLoach, Jr., President
and Chief Executive Officer, and
Charles W. Coker, Chairman
3
<PAGE>
STRATEGY FOR GROWTH
While we are pleased that Sonoco's total return to shareholders
increased significantly in 2001 despite a down year in sales and earnings, we
understand that to sustain average annual double-digit total returns requires
greater consistency of sales and earnings growth than we have produced in recent
years.
Over its almost 103-year history, the Company has periodically
re-examined and then reinvigorated its growth by raising the competitive bar. In
today's global economy, these efforts must be and are a continuous process at
Sonoco.
We certainly do not believe we are smarter than everyone else or that
we have a secret for quick and extraordinary profit generation. We are, however,
committed to providing a fair return to our shareholders by using our
technological expertise to continuously improve existing product and service
offerings as well as to develop new ones - all driven by customer and market
needs. We shall do so organically and through acquisitions.
The state of the Company is sound. Our balance sheet is strong. We have
paid consecutive dividends since 1925 and plan to continue doing so. We believe
our greatest asset is our people, and that people truly do build businesses.
And, yes, we believe in conducting our business with the same integrity that has
been the Company's historical hallmark.
To some, this description of who we are may seem old fashioned. But
make no mistake; Sonoco is not an old fashioned company when it comes to
technology and a commitment to growth. We will not be satisfied with less than
being our customers' preferred supplier, providing shareholders with average
annual double-digit total returns and achieving returns on capital and equity
in the top quartile of the S&P 500 Index.
CASH FLOW DRIVEN
Our growth strategy is cash flow driven, most of which will be produced
by our two global market-leading businesses - engineered carriers and composite
cans, backed by our integrated paper operations. These businesses have healthy
margins resulting from the vertical integration with paper and a strong global
market presence.
[GRAPH]
Cash Dividends
Declared - Common
(Millions of Dollars)
Cash dividends paid to shareholders
on each share of stock increased
from $.79 in 2000 to $.80 in 2001.
The total number of shares on which
dividends were paid decreased
because of share repurchases made
in December 2000.
Profits in these businesses are strengthened by ongoing productivity
improvement led by aggressive Six Sigma and Lean Manufacturing initiatives and
by purchasing and capital effectiveness measures. These efforts are expected to
more than offset inflation factors. Also, Sonoco's historical ability to
maintain a neutral to positive price/cost relationship, bolstered by its
vertical integration, provides added margin stability.
The cash flow from these businesses is then used not only to fund
organic and acquisition growth for engineered carriers, composite cans and paper
but also for our smaller but faster growth rate businesses, such as flexible
packaging, protective packaging and packaging services. In addition, of course,
cash flow is used to continue paying dividends; for reducing debt; and for stock
buybacks, when appropriate.
EXECUTING THE STRATEGY
We believe our basic growth strategy is sound. The key to success,
however, lies in our execution and degree of personal accountability. This
4
<PAGE>
puts action into what otherwise is just words. We cannot control the vagaries of
the general economy; therefore, we must concentrate on those things that we can
influence. We are focusing our efforts in five primary areas of opportunity.
FIRST, WE MUST CONTINUE TO FOCUS ON OUR COST STRUCTURE to ensure that
it is in line with current and foreseeable sales and earnings performance. Our
costs remain too high. Therefore, we will further intensify our attention to
manufacturing productivity, purchasing and logistics, and additional
organizational restructuring designed for today's highly competitive pricing
environment. Most importantly, these structures require the right people in the
right jobs. There is no room for mediocrity. In that regard, a greater emphasis
will be placed on performance-based compensation linked directly to Sonoco's
growth objectives.
SECOND, WE WILL PLACE EVEN GREATER EMPHASIS ON CAPITAL EFFECTIVENESS,
including better control of working capital. Underperforming businesses whose
returns are not consistently meeting or exceeding our cost of capital will
receive greater attention and must develop credible plans to enhance
performance. Each of our business units will be expected to grow its earnings
before interest and taxes at a minimum average annual rate of 10%. Some of our
businesses have the opportunity to grow, and must grow, at an even higher rate
for us to meet our total return objective.
[GRAPH]
The increase in shareholders' equity
in 2001 was due to net income
of $91.6 million and $14 million
exercised stock options, offset
by dividends of $76.1 million, minimum
pension liability adjustments
of $15.9 million and foreign currency
translation of $8.8 million.
THIRD, WE WILL EVEN MORE AGGRESSIVELY ENHANCE OUR POSITION IN THE
MARKETS WE SERVE. As has been our history, we will be a fair and responsible
competitor, but we will not be satisfied with the status quo.
To that end, our vision is to substantively change the way the world
sees packaging. Consumers have opinions about the value of many products, which
may involve packaging characteristics; however, they are unlikely to consciously
think of packaging in terms of the value they perceive. On the other hand,
manufacturers and distributors, though more aware, sometimes view packaging as a
necessity or cost of bringing products to market rather than an opportunity to
increase market demand and improve productivity. We believe Sonoco's sales and
earnings growth and competitive leadership can be significantly enhanced by
successfully changing these views. Sonoco will do that by more aggressively
identifying and creating solutions to consumer packaging issues and working with
customers to raise consumer awareness of the ensuing value. We believe that by
bringing to bear our packaging technology leadership and expertise as a global
supply chain partner, Sonoco can make packaging a greater source of competitive
advantage for customers.
FOURTH, OUR SALES GROWTH IS CRITICAL to sustainable earnings and double-digit
returns to our shareholders. We will pursue top line growth organically and
through acquisitions.
- ACQUISITIONS - Our criteria for acquisitions are threefold: they must
be accretive to earnings in the first year, they must complement our
existing business technologies and expertise, and they must return
our cost of capital within five years. Acquisitions that do not meet
all these criteria are unlikely candidates for consideration.
While the current recessionary economy has negatively affected many
of our markets, it has also created an environment conducive to
acquiring companies at reasonable prices. In 2001,
5
<PAGE>
we made seven key acquisitions. In the industrial segment, we
purchased U.S. Paper Mills Corp. and a paper mill in Hutchinson,
Kansas, both of which primarily produce lightweight paperboard used
in composite cans, tubes and cores, and for producing tissue and
towel core-board. Additionally, in paper-based tubes and cores, we
acquired Hayes Manufacturing Group; a converting plant in Kaiping,
China; and the United Kingdom-based tube and core converting business
of Smurfit UK Limited. Finally, we acquired Cumberland Wood Products,
makers of wooden wire and cable reels.
In the consumer segment, we acquired Phoenix Packaging Corp.,
manufacturers of steel easy-open closures, and the composite can
business of Hayes Manufacturing Group.
- RESEARCH AND DEVELOPMENT - Greater emphasis will be placed on
research and development needed to protect and enhance existing
products and services as well as bringing new ones to market.
Expenditures in this area in 2001 were $14 million, and in 2002 are
expected to increase. Furthermore, we filed applications for 222 new
patents in 2001, which was double the number filed in 2000. We expect
to continue making additions at a similar pace to this significant
part of the Company's asset base.
- MARKET AND CUSTOMER FOCUS - Our organization is becoming even more
market and customer focused. Through improved market research, we are
doing a better job of determining what our current and potential
customers and markets want and need and then delivering the
appropriate products and services. For example, we have determined
that many customers served by more than one of our businesses prefer
to deal with "One Sonoco Face" rather than the traditional multiple
account representatives. Our ultimate goal must and will be customer
satisfaction, regardless of which products and services the customer
desires and needs.
AND FIFTH, WE MUST NEVER LOSE SIGHT OF THE VALUE OUR PEOPLE BRING to
customers, shareholders, the Company and the communities in which we reside. We
believe that people build businesses. We have a great Sonoco family, which is
becoming more diverse as we operate in 32 countries. Our growing diversity is a
strength. Regardless of geographical, ethnic or religious differences, we
continue to maintain our almost 103-year-old culture of emphasizing personal
safety and treating each other with respect and appreciation. Such an
environment creates a more rewarding and fun place to work, and one that will
invariably be more productive.
OUTLOOK AND CONCLUSION
The year 2002 will present many challenges as we face continuing
general economic uncertainties, particularly their impact on our industrial
segment. We will also experience increased expense of approximately $.03 per
share each quarter related to the impact of stock market performance on
investment earnings of assets in our pension and postretirement benefit plans.
In light of continuing weak business conditions, we have estimated first quarter
and full year 2002 earnings per share, excluding one-time transactions, in the
6
<PAGE>
range of $.34 to $.38 and $1.68 to $1.72, respectively. These estimates include
the impact of the required elimination of goodwill amortization and increased
pension and postretirement medical expense.
Despite difficult general economic conditions, we are "bullish" about
Sonoco's ability to benefit significantly when economic recovery occurs.
Meanwhile, we believe the current economic environment will continue to present
additional consolidation opportunities. We will use our substantial free cash
flow, expected to be approximately $140 million in 2002 and $800 million to $900
million over the next five years, plus our strong credit rating, to seek further
opportunities. In that regard, our intent over time is to reverse the weighting
of sales in our business segments, which for some time has been in the range of
55% industrial and 45% consumer based. In 2001, this ratio was temporarily
skewed by the economy's adverse impact on our industrial segment, resulting in a
50/50 relationship. Our objective is to reduce cyclicality in our earnings
stream.
Assuming no significant change in current economic conditions, we
expect the seven key acquisitions made in 2001 to add approximately $250 million
in annual sales and $.10 in additional annualized earnings per share in 2002.
Our confidence is further buoyed by the expected full-year impact in
2002 of the $48 million in annualized restructuring savings and the continuing
efforts to ensure that our overall cost structure is appropriate for our sales
and earnings performance; by the full-year impact of our $60 million in new
flexible packaging contracts; and by our increased focus on determining customer
and market needs and developing appropriate new offerings.
These factors, coupled with historically low inventories in much of our
industrial customer base, bode well for Sonoco when the economy improves.
Meanwhile, we continue to be well positioned as an effective agent in
consolidating the markets we serve.
We believe our operating strategy can and will deliver our objective of
average annual double-digit total returns to shareholders. We have made great
strides at reducing our cost structure and increasing top line growth
capability. These efforts will continue. The key to success, however, is
consistent execution by the right people in the right jobs incented to benefit
on the same basis as shareholders.
We thank our employees for their dedication and perseverance in a
difficult economic environment. And, we thank our shareholders for your trust -
a responsibility we do not take lightly.
Sincerely,
/s/ Charles W. Coker
Charles W. Coker
Chairman
/s/ Harris E. DeLoach, Jr.
Harris E. DeLoach, Jr.
President and Chief Executive Officer
March 11, 2002
7
<PAGE>
Operations Review
The Company's operations consist of two business segments, industrial
and consumer packaging. Within those segments, Sonoco is progressively creating
greater synergies and coordination between businesses to enhance its offerings
to customers and to more fully leverage the Company's resources to help ensure
an appropriate cost structure.
Productivity and quality improvement, coupled with increased capital
effectiveness and appropriate restructuring actions, are keys to an improved
cost structure. Since beginning an intensified focus on productivity in 1997,
Sonoco has realized approximately $269 million in productivity improvements from
manufacturing, purchasing, logistics and administrative functions.
Although productivity improvements in 2001 decreased to $47 million
from $55 million in 2000, due principally to the 4% Company-wide reduction in
volumes (excluding acquisitions), the Company continued to advance its
productivity improvement capability. Fifty-two Six Sigma black belts (certified
productivity experts) completed their first projects, bringing the total
completed projects since 1998 to 122. Twenty-seven additional projects are
underway.
The Company continues to centralize and leverage its procurement and
logistics expenditures. Sonoco sponsored its second supplier conference in
2001, meeting with 88 of its top suppliers to discuss ways of jointly working to
remove supply chain costs. Significant restructuring efforts were also
accomplished in 2001, resulting in some $48 million of cost reductions, with $17
million realized in 2001 and another $31 million to be phased in during 2002.
The savings were accomplished from plant closings, position reductions and
consolidations of business unit and staff functions. For example, this year
Sonoco consolidated its accounting functions and established a financial shared
services organization. The primary focus of this reorganization is to lower
costs and improve efficiency in transaction processing such as invoice payment,
payroll, cash collection and general accounting.
During 2001, Sonoco made significant upgrades to the content, function
and e-commerce features of its Web site, www.sonoco.com, to enhance the ability
of customers, shareholders and others to conduct business and communicate with
the Company. In a complementary effort, the Company upgraded its employee
intranet, the Employee Connection, to facilitate improved communications within
the global Sonoco family.
INDUSTRIAL SEGMENT
Sonoco's industrial packaging segment produced approximately 50% of the
Company's total sales in 2001, compared with 54% in 2000. The reduction is a
result primarily of decreases in volumes and lower recovered paper prices in the
industrial segment in 2001, reflecting the impact of the recessionary economy
and distorting the more traditional 55% weighting of the industrial sector as a
percentage of total Company sales.
The industrial segment includes high-performance paper, plastic and
composite engineered carriers; paper-board; 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.
8
<PAGE>
ENGINEERED CARRIERS
Sonoco's engineered carriers (tubes and cores), along with the
Company's integrated paper operations remains the largest business in the
Company. Sonoco is the global market leader in engineered carriers, serving such
markets as paper, textiles, film, tape and metals from 115 converting facilities
on five continents.
A marketing paradigm shift is underway by Sonoco's engineered carriers
team. Team members are developing a new framework for thinking about the
business - a more entrepreneurial strategy for seeking new markets and
developing new packaging solutions. They are calling this effort "T3,"
representing take-up, transfer and transport, which describes the functions
needed by their markets rather than specific products and services. Following
are examples of this new approach:
- In a dramatic departure from Sonoco's traditional use for paperboard
tubes and molded plastics, the Company launched the Flow-Rite(TM) Ink
Dispensing Cartridge to open a new market in the high-speed printing
industry, helping high volume commercial printing customers reduce
costs and improve productivity.
- The Company formed a joint venture that will produce shipping
containers for medical samples using Sonoco's tube technology along
with absorbent materials expertise from Dyecor Limited, a British
firm.
- In its line of paperboard tubes and cores, Sonoco technicians
developed a new series of performance-enhanced paper mill cores with
world-class features to help customers increase their productivity by
adding more paper to each carrier and to operate at faster speeds.
- To serve its X-ray film customers, the Company introduced a new model
in a series of high-performance fiber, plastic and composite film
cores. The new cores help companies maximize the usable film per
roll, protect sensitive films from initial production to conversion
and realize more yield, less waste and lower costs.
[GRAPH] [GRAPH]
2001 sales were lower due to decreased volume in the engineered carriers and
paper businesses. Operating profit, excluding one-time charges, decreased $53.5
million from 2000 to 2001 primarily due to lower volume. One-time charges that
were incurred in 2001, 2000 and 1998 are excluded above. Reported operating
profits were $143.8 million in 2001, $212.6 million in 2000 and $282.1 million
in 1998.
9
<PAGE>
[PHOTO]
MAKING PRINTING MORE EFFICIENT.
Heidelberg, a name synonymous with printing equipment
excellence, worked with Sonoco's engineered carriers group to
create a more cost-effective ink cartridge for commercial
printing. The Sonoco members of the team brought expertise in
materials science, spiral winding techniques, plastic parts
production and packaging design to meet strict printing
performance requirements. Now, Sonoco's paperboard cartridges
with plastic end-caps transfer ink into Heidelberg's printing
presses easier and with less waste, helping Heidelberg's
customers run a more efficient printing system.
[PHOTO]
OUR PEOPLE TURN
RECOVERED PAPER TO PROFIT.
As one of the world's largest consumers of recovered
paper, Sonoco principally uses old corrugated containers
plus newsprint, and office paper collected from municipalities
and private sources across North America,
Europe, Asia and South America. This recovered paper
fiber serves as raw material for nearly all of the paper-
based products manufactured by Sonoco, including the
latest x-ray film core held by Sonoco's Winfred Fleming
(left). Recovering paper is good business - it conserves
limited natural resources such as trees, water and
energy; decreases our reliance on landfills; and
relieves businesses and municipalities of the rising
cost of waste management.
10
<PAGE>
As the Company serves its global markets, several advances were made
around the world:
- Sonoco technicians in Europe developed a new core for the
construction industry that reduces moisture penetration inside the
core by using a special adhesive and specific paper qualities. The
core is currently in use in The Netherlands.
- As Turkey becomes a major location for the textile industry, the
Company's tube and core plant there has experienced significant
growth in 2001.
- Sonoco acquired a tube plant in Belgium, primarily supporting the
textile market in the Benelux region, located near the Company's
Marquette paper mill in France.
- An example of the Company's response to customer needs is its
creation of a Web-based purchasing catalog for a major European
textile customer, Nylstar. The catalog is part of Nylstar's
e-procurement initiative and is launched from within Nylstar's SAP
system for quicker and easier purchasing online.
- Part of the Company's effort to get closer to customers is through
the development of a sales force automation tool in Europe. Every
sales manager in Europe has been trained on the interactive databases
that are filled with important sales data and vital customer
information to help manage customer relationships and communicate
more effectively.
The following acquisitions made during 2001 add significant cash flow
capacity for the global market-leading engineered carriers business:
- Hayes Manufacturing Group, Neenah, Wis. - As the largest
nonintegrated recycled tube and core converter in the United States,
this acquisition has been successfully completed, and is expected to
be accretive to earnings in 2002. Hayes adds to Sonoco's market
position in the upper Midwest and consumes over 50,000 tons of
paperboard annually, including some 24,000 tons from U.S. Paper Mills
Corp., which Sonoco also acquired in 2001.
- A textile tube converting facility in Kaiping, China - Sonoco will
lease the equipment and building. This acquisition gives the Company
an entry into Southern China that complements Sonoco's existing paper
mill and tube and core converting operations near Shanghai.
- The United Kingdom-based core and tube converting business of Smurfit
UK Limited - This acquisition added three converting facilities to
the Company's four already held tube converting facilities and paper
mill in the United Kingdom.
PAPER OPERATIONS
Sonoco's paper operations provide the primary raw material for the
Company's fiber-based packaging, including engineered carriers, composite cans
and protective packaging. This vertical integration strategy is backed by 31
paper mills with 43 machines in 13 countries. In 2001,Sonoco's recycled paper
manufacturing capacity was 2 million tons.
11
<PAGE>
[PHOTO]
Just what the doctor ordered:
break-through technology.
Thousands of medical samples are transported daily from
doctors' offices to laboratories. To protect samples during
transportation, doctors and patients will now be able to
entrust the Medicor(TM) system with this responsibility. It's
a break-through to prevent break-throughs. The Medicor system
is a new, patent-pending system for diagnostic and infectious
sample transport, meeting government regulations to provide
superior protection in transit, as well as rapid internal
absorbency, containing the sample in the event of an
accidental spill to protect anyone that handles it. This
unique packaging system is based on Sonoco's more than
100-year-old paper tube technology, combined with absorbent
materials expertise from Dyecor Limited, Sonoco's joint
venture partner in the United Kingdom.
We make sure consumers don't get what they don't want.
As a long-term supplier to such customers in the white goods
industry as Whirlpool, Maytag and GE, Sonoco is entrusted with
product protection, testing and packaging supply chain
management, with the Company's own engineers working onsite at
several customers' facilities. From the warehouse to the
consumers' laundry room, Sonoco prevents damage with its
patented paperboard-based protective packaging, known as
Sonopost(TM) corner posts and cross bracing. Sonoco produces
protective packaging in the United States and Mexico.
[PHOTOS]
12
<PAGE>
Like engineered carriers, the Company's paper operations have seen
volumes drop in 2001, reflecting the depressed general economy. The Company's
paper operations were also hurt by continued low prices for trade sales of
recovered paper.
The Company's paper mill in Greece that was opened in 2000 continues to
improve its profitability, serving Sonoco's converting operations in Turkey and
Greece, as well as customers in the Balkan market.
Sonoco's paper operations, a major contributor to the Company's strong
cash flow generating capability, made the following key acquisitions in 2001
that add flexibility to the overall mill system for enhanced productivity and
provide needed lightweight paperboard capacity:
- U.S. Paper Mills Corp., DePere, Wis. - This acquisition makes Sonoco
the North American market leader in the less cyclical,
consumer-driven lightweight tissue and towel coreboard market.
Lightweight paperboard is also used for composite cans and outerplies
of tubes and cores. This acquisition added two Fourdrinier machines
and one cylinder machine plus three tube and core converting
facilities.
- A 90,000-ton capacity paper mill in Hutchinson, Kansas - This mill
provides needed light-weight paperboard capacity for Midwest and West
Coast markets and also further strengthens Sonoco's position in the
lightweight tissue and towel coreboard market.
MOLDED AND EXTRUDED PLASTICS
Sonoco's molded and extruded plastics operations supply customers in
the textile, fiber optics, wire and cable, automotive, plumbing, filtration,
food services, medical and healthcare markets.
WIRE AND CABLE REELS
Sonoco is the leading producer of wood, composite and metal reels for
the United States' wire and cable industry. During 2001, this business suffered
from significantly lower volumes, reflecting the general economy and
over-capacity in the fiber optics industry.
Sonoco also took advantage of current market conditions to further
consolidate this industry by acquiring Cumberland Wood Products, Helenwood,
Tenn., a producer of wood wire and cable reels.
PROTECTIVE PACKAGING
Historically, Sonoco's protective packaging business has served the
white goods industry (washers, dryers, ranges) with custom designed paper-based
corner posts and plastic bases. The Company has strong relation-ships with such
customers as Whirlpool, Maytag and GE. Sonoco maintains engineers at several
customer locations. The year 2001 saw several significant developments in this
business, including:
- The Company was designated a "preferred supplier" by Maytag. Sonoco
currently provides Sonopost(TM) paper-based corner posts for Maytag's
household appliances.
- Sonoco expanded operations into Mexico, principally producing
paper-based protective posts for ranges. Approximately 90% of ranges
sold in the United States are protected by Sonopost corner posts.
13
<PAGE>
[PHOTO]
Giving the customer what they want.
Many customers do not want the inefficiency of dealing with multiple
representatives from the same supplier. What they need is streamlined packaging
design, development and purchasing. It's this market reality that drove Sonoco
to create a single sales interface, or team approach, in the consumer packaging
segment. The "Kraft Sales Team," created in 2001, is an example of how
effective this approach can be. The members of the team are (front, L-R): Lea
Wayne and Joanne Penaluna, (back, L-R) Russell Grissett, Bob Hebert and
Michelle Haggard. Not pictured: Bob Biasi, Diann Bryan, Dick Jaisle, John
Prizzi, Debbie Robbins and Tom Setty. Together they provide printed flexible
packaging, composite cans, closure options and new packaging ideas to Kraft
Foods North America. The relationship between Sonoco and Kraft is due in large
part to the Company's new "One Sonoco Face" approach.
Easy does it.
Health conscious adults looking for nutritional products, such as Ensure(R),
can find them under a convenient ring pull lid. Sonoco Phoenix, a wholly owned
subsidiary, provides these easy-open metal ends as a certified supplier to Ross
Products, a division of Abbott Laboratories and a world leader in adult
nutritionals. Ensure is just one of Ross' products packaged with an easy-open
end. Phoenix Packaging Corp. enjoyed a long-standing relationship with Ross,
and with Sonoco's recent acquisition of Phoenix, the Company looks forward to
working with Ross to meet global market needs.
[PHOTO]
14
<PAGE>
- The Company expects to introduce during 2002 its new Clear-View(TM)
packaging that allows the product inside the packaging to be seen
from the outside, helping in warehouse identification and
observation of any damage before delivery.
- Sonoco is now providing paper-based protective corner posts and
cross bracing for packaging lawn and garden products for customers
such as Sears, Honda and Weber.
CONSUMER SEGMENT
Sonoco's consumer packaging segment produced approximately 50% of the
Company's total sales in 2001, compared with 46% in 2000. The increase
primarily reflects the reduction in industrial segment sales, which were
negatively impacted by the ongoing recessionary economy and does not reflect a
permanent change in the ratio of consumer and industrial sales.
The consumer packaging segment, which has recorded year-over-year
increased sales and operating profits for three consecutive quarters, includes
round and shaped composite cans, printed flexible packaging, metal and plastic
ends and closures, high density film products, specialty packaging and
packaging services.
More than ever, consumer products companies are using packaging to add
value by meeting consumer demand for products that are portable and easy to
open and reclose. Not only must packages help differentiate by appearance but
through performance as well.
A supermarket purchase decision is reported to take just seven
seconds, and 70% of such decisions take place at the point of sale. Consumer
products companies look to Sonoco for packaging that helps make the sale in
addition to providing necessary product protection.
Examples of Sonoco's stable of such products include: a Pringles(R)
can, an Oreo(R) Chocolate Sandwich Cookie bag, Minute Maid(R) Premium Orange
Juice frozen concentrate with Sonoco's patented Ring-Pull
[GRAPH] [GRAPH]
2001 sales were higher due to the impact of acquisitions completed during the
year. Operating profit in 2001, excluding one-time charges, was flat with 2000
due principally to lower overall volume that was offset by higher prices, lower
resin costs and productivity improvements. The figures above exclude the impact
of one-time charges in 2001, 2000, 1999, 1998 and 1997. Reported results in
these years were $91 million, $119.3 million, $148 million, $106.3 million and
$(101.8) million, respectively.
15
<PAGE>
[PHOTO]
Never miss that once-in-a-lifetime photo.
Now you'll never miss a "Kodak moment," even if you find yourself without a
camera. KODAK MAX One-Time-Use Cameras are sold through vending machines. The
creative team of Sonoco and e-Vend.net(*) developed a new vending method
starting with a Sonoco composite can as the basic container, an easy-open
aluminum ring-pull end and, of course, the camera inside. The vending machines
are conveniently located at airports, hospitals, ski resorts and tourist
attractions - even at the 2002 Olympic Winter Games in Salt Lake City, Utah.
Flavor and convenience in a pouch.
It's new. It's different. It's a uniquely shaped, ready-to-serve flexible pouch
for a liquid beverage. That's what The Minute Maid Company took to market with
Sonoco's help. Hand-held food is one of the fastest growing categories,(**) with
stand-up pouches forecast to grow 17% globally per year for the next five
years.(***) Sonoco sees significant growth for the pouch in bringing a variety
of food products to market - such as baked goods, candy, coffee, cereals, dried
fruits, soups and pet food.
[PHOTO]
(*) e-Vend.net is a strategic alliance that includes Eastman Kodak
Company, Maytag Corporation and Maytag's Dixie-Narco vending machine
division
(**) September 2001, Food & Drug Packaging magazine
(***) Packaging Strategies magazine study, "Stand-Up Pouches Continuing
Global Markets, Economics, and Technologies: 2001-2006"
16
<PAGE>
Mirastrip(TM), Pillsbury(R) Grands!(R) Biscuits cans that easily open, the "no
can opener required" ring pull on Campbell's(R) Ready to Serve Classics soup
cans and Target's plastic merchandise bag with handles that make it so easy to
carry.
At Sonoco's pilot plants and Packaging Development Center in
Hartsville, S.C., technicians view packaging from a total systems approach to
meet specific customer and market needs related to closure options, barriers,
shelf life, liners, enhanced graphics and colors, sizes and shapes.
Continuing consolidation in the consumer products industry calls for
new and innovative approaches to customer service. Large multinational consumer
product companies want full service from suppliers, bringing to bear all areas
of packaging expertise. In response, Sonoco has initiated the team concept to
account management for such customers. Also, the Company's composite can and
flexible packaging businesses have combined their service efforts for a number
of customers rather than the historical method of multiple account
representatives by product line, a trend expected to continue. This "One Sonoco
Face" approach is proving successful. For example, it was responsible in large
part for the Company's relationship with Kraft Foods North America, which has
already resulted in some $20 million of new business.
COMPOSITE CANS
Sonoco's composite can business is its second largest generator of
cash flow. During 2001, the Company took important actions to ensure increased
profitable growth in this market-leading business. Significant changes were
made in customer service by focusing on the 34 largest accounts that contribute
72% of sales, as well as restructuring the composite can sales force to utilize
the team approach. Also, a greater customer and market oriented approach to new
product and service development has been initiated, seeking to tap unmet
packaging needs of the Company's global customer base. For example, Sonoco will
introduce the Sono-Wrap(TM) package later in 2002, the first hermetic
single-wrap composite package in North America. The Sono-Wrap package combines
high-performance protection and customer-pleasing features such as ease of
opening, at a competitive price. This new product is expected to develop
additional markets not requiring the same properties of traditional composite
cans.
Another example of exploring new market needs suitable for composite
cans is the vending machine can for KODAK One-Time-Use-Cameras and film. This
non-traditional use of composite cans has met with excellent consumer
acceptance.
Geographical growth continues to be a major opportunity for composite
cans, with an estimated $200 million market in Europe, where Sonoco has about a
50% share; an existing $50 million market in Asia, where Sonoco has a 50%
share; and in Brazil, where Sonoco has begun producing easyopen ends. Other
examples of geographical growth include:
- Composite cans are popular around the world. In Australia, Nestle
Australia is using a Twister-Pak(TM) canister to differentiate its
Nestle Nesquick(R) vanilla powdered milk flavoring from other
products targeted to children. The can's twistable rings add play
value to the package, making it attractive to children. The can is
sized for small hands to grasp and is easy to open and close.
[PHOTO]
Sono-Wrap packages are customizable by size, shape and taper.
17
<PAGE>
[PHOTO]
Packaging great taste that wins smiles.
It's a hard candy in a soft package. Creme Savers(R), the premium hard candy
from LifeSavers Co., can be found on grocery, drugstore and clubstore shelves
in three sizes of flexible packages filled with individual pillow pack candy
wrappers, and in a 10-piece roll. The customer required unique graphics and
high-quality color for the package. Sonoco met these needs through a
combination of superior materials science and printing technology, experienced
prepress and production technicians, and through its joint venture with
cylinder supplier, Keating Gravure. Candy connoisseurs now enjoy the results
every day.
[PHOTO]
Here's a bright idea.
When The Proctor & Gamble Company called Sonoco to work on packaging Crest
Whitestrips(TM) Dental Whitening System, the Company smiled at the chance to
give consumers another at-home dental hygiene option. Sonoco's experience in
developing award-winning rotogravure printed flexible packaging led to an
eye-catching, sevencolor, printed film structure that serves as the individual
product wrapper. In addition, product filling speeds were achieved that were
20% faster than the goal P&G set. It's what a billion dollar brand like
Crest(R) needed. Within eight weeks of identifying the need, P&G placed its
first order with Sonoco to get the product to market around the United States.
Crest Whitestrips' customers have been smiling brighter ever since.
18
<PAGE>
- In Mexico, the country's top baked goods company, Gamesa, introduced
a line of mini cookies in Sonoco's Linearpak(TM) shaped canisters.
In addition, Mexico's Grupo Bimbo's Marinela(R) Mini Cookies are
offered in a composite can topped by a unique plastic dispensing
system featuring the stars of Nickelodeon's hit children's animated
televisions series, Rugrats(TM). Also, food service company Dimat
converted a number of powdered beverage products from metal cans to
Sonoco composite cans.
- For the past several years, European snack producers have turned to
Sonoco cans for differentiation and added convenience. Compaxo Fijne
Vleeswaren BV, a top Dutch meat processing company, tapped Sonoco to
supply a snack can for its Cervo Dry Sausages.
- As the popularity of Sonoco's snack cans has grown in Europe, so has
its presence in the Middle East. In 2001, the Company began shipping
its paperboard cans to Egypt, Oman and Lebanon. Sonoco's cans
provide an excellent export package. Exceptional moisture and oxygen
barriers serve as the perfect foil against fluctuating temperatures
and humidity.
The following important acquisitions were made in composite cans during 2001:
- Hayes Manufacturing Group - Principally a producer of tubes and
cores, this acquisition also included some composite can operations.
- Phoenix Packaging Corp., North Canton, Ohio - Sonoco acquired this
leading manufacturer of steel easy-open closures in North America.
The easy-open closures market has grown at a compound annual rate of
9% since 1999. Only about one-third of the potential easy-open
market has been converted to date. This acquisition, which was
immediately accretive, augments Sonoco's already held aluminum,
plastic and foil closures business. The addition of steel easy-open
closures gives the Company a full range of closure offerings. Also,
the acquisition is expected to add steel buying leverage and enhance
conversion opportunities to composite cans from other packages.
FLEXIBLE PACKAGING
Flexible packaging is Sonoco's newest and fastest growing business.
During 2001, some $60 million in new contracts were acquired, with about
one-third commencing in 2001 and the remainder expected to be phased in during
2002.
Over half of the new contracts reflect Sonoco's growing position in
the confectionery market, utilizing rotogravure and flexographic printing
capabilities. For example, the Company expanded its supply to Cadbury by
providing award-winning packaging for its new Mr. Big Vince Carter collector
series candy bars, marketed in Canada.
The Company's broad converting capabilities allow it to serve all of
the beverage sub-segments such as labels, pouches, shrink sleeve and shrink
multipack overwraps. These capabilities, along with the Company's "One Sonoco
Face" approach, helped secure a contract to supply The Minute Maid Company with
a flexible pouch design for a new ready-to-drink beverage. This new contract
also builds upon Minute Maid's long-time customer relationship with Sonoco for
composite cans and flexible labels for its frozen concentrated beverages.
To support new beverage bottle label contracts, Sonoco purchased the
flexible packaging assets from Pac One. The equipment includes three
flexographic presses and an offline solventless laminator which will be used to
support this market throughout North America.
19
<PAGE>
[PHOTOS]
Sonoco manages Hewlett-Packard's packaging supply chain seamlessly.
To get there 'just in time' may sound like you're rushing, but in fact, it's
just what the Hewlett-Packard Company wants from Sonoco. In Chester, Va., Sonoco
provides supply chain management services to HP for its inkjet printer products,
supplying its North and South American markets. High-value printer products used
in HP's inkjet printers are supplied to stores such as WalMart, Target, Office
Depot and Staples `just in time' to meet carefully forecast consumer demand and
to support precisely managed inventory controls, courtesy of Sonoco.
[PHOTO]
Garden growth.
Produce growers dream of bigger, more aromatic strawberries that taste better
and can be ripened at a more controlled rate. That is precisely what red
plastic mulch can provide. Research has shown that Sonoco's red mulch - an
innovation made from plastic film - enhances strawberry crop yield up to 15%.
It also improves the berries' aroma and flavor, a key to customer satisfaction.
The secret is the photosynthesis: the red color of the mulch enhances nature's
dynamic growth process between the sun and the strawberry plants, so the
berries grow bigger and better. The mulch also comes in black and other colors
designed to maximize quality and production of other crops.
20
<PAGE>
In addition to growth in pouches and beverage bottle labels, Sonoco
worked with its long-time customer, Coca-Cola Enterprises, to develop a reverse
printed flexo shrink film overwrap for Coke's six packs of 500ml bottles and
12-ounce cans of carbonated soft drinks and Dasani(R) water. Supporting this
development effort, the Company's technology team worked closely with Coke to
launch its new bottling facility in Canada.
During 2001, Sonoco filed over 20 records of inventions and patent
applications in its flexible packaging business. The Company has commercialized
such packaging solutions as Tattoo-it and inkjet printing for the confectionery
market, microwaveable packaging for the cookie and cracker market, and stand-up
pouches for hot filled juices.
PACKAGING SERVICES
The Company's packaging services business doubled its sales in 2001
over 2000 by expanding existing business and securing new contracts.
In January 2001, Sonoco extended its management of The Gillette
Company's packaging supply chain to include its razor and blade packaging
center in Europe in addition to Gillette's North American razor and blade
packaging center. In late 2000, Sonoco received a new five-year contract
covering both operations. Sonoco operates this service on a fee basis; plus,
the Company is compensated for productivity increases that Sonoco is able to
effect for Gillette.
In 2001, the Company began managing the Hewlett-Packard Company's
Americas Product Completion Center in Chester, Va. This facility packages HP's
inkjet printer products. This agreement also operates on a fee basis plus
compensation for productivity increases developed by Sonoco.
HIGH DENSITY FILM
Sonoco's high density film business is the leading producer of
plastic grocery bags in the United States and offers an array of retail,
convenience store, fast food and easy-open produce bags. The Company also
produces agricultural mulch film used for growth enhancement of high value
crops. With prices for a major raw material, resin, declining somewhat in 2001
after some 18 months of increases, profitability for this business has improved
significantly and is again providing returns in excess of the Company's cost of
capital, as it has done historically.
Sonoco rolled out the QuikStar(TM) easy-open produce bag, sold not
only in the Company's traditional plastic bag markets in the United States, but
also in Canada.
SPECIALTY BUSINESSES
Sonoco is the North American market leader supplying paper coasters
and glass covers to the hospitality, restaurant and healthcare industries.
Volume in this business was negatively impacted by decreased travel due to the
difficult economic environment and the terrorist acts of September 11, 2001.
Sonoco produces folding cartons from one plant in Charlotte, N.C.,
primarily serving health, beauty and personal care customers as part of the
Company's supply chain management strategy.
Sonoco Trident, with operations based in the United Kingdom and the
United States, provides a branded artwork and reprographics management service
to help customers protect brand integrity in their packaging.
21
<PAGE>
[PHOTO]
We are bringing fresh flavor to some global products.
In today's fast-paced world, Sonoco offers new packaging solutions to preserve
coffee's flavor and aroma while making it easier to get coffee from the can to
the cup. The Company is now providing canisters and closure options for Gala
Coffee & Tea Limited, the largest producer of roasted and ground coffee in the
United Kingdom. Sonoco engineers and scientists, like Faye Marshburn (right),
developed a new patented packaging format: a Valve-Pak(TM) paperboard can with
labels litho-printed in six colors plus lacquer, and an opening system
including a Sealed-Safe(R) peelable foil membrane with a one-way degassing
valve (allowing the coffee to be packed immediately after roasting, preserving
the just-roasted flavor and aroma). It's a combination of Sonoco's composite
cans, easy-opening closures and flexible packaging that meets consumer-friendly
requirements, including great tasting, aromatic coffee.
22
<PAGE>
People, Culture and Values
SAFETY IS A CORE VALUE
The safety of Sonoco's employees is a cultural cornerstone. The
Company has no higher priority, because Sonoco believes that people build
businesses.
During 2001, Sonoco achieved a Total Incident Rate or TIR of 1.49
(annualized number of reportable injuries per 100 full-time employees), a 25%
improvement over 2000 and the best safety record in the Company's history.
Similar reductions were made in disabling injuries, lost workdays and
injury-related costs. In addition, 149 Sonoco operations completed the year
injury-free.
[GRAPH]
The number of injuries continues to be reduced annually through the Company's
historical focus on safety.
SONOCO SUPPORTS ITS COMMUNITIES
Sonoco remains committed to active community support, helping to
ensure a better quality of life for its employees and neighbors. The Company
contributed approximately 1% of its consolidated pretax income in the areas of
education, health and welfare, arts and the environment. The Company also
offers a program of matching employee gifts to colleges and universities.
Sonoco and its employees are active in supporting The United Way in
local communities. The Company encourages its employees to be involved in their
communities by volunteering their time and resources.
While Sonoco historically concentrates its giving locally and
regionally, following the tragedies of September 11, 2001, the Company, on
behalf of all its employees in 32 countries, donated $100,000 to The September
11th Fund. This fund was established to benefit the surviving victims and their
families of the tragic events of that day.
Sonoco was named one of the 100 best corporate citizens by Business
Ethics magazine in 2001. The list recognizes public companies that best serve
various stakeholders, including stockholders, employees, customers, the
community and the environment.
ENVIRONMENTAL CONCERNS ARE INTEGRAL TO BUSINESS
Sonoco has a long history of championing recycling and reclamation.
In 2001, the Company collected more than 2.5 million tons of recovered fiber.
Sonoco uses this recovered fiber as its primary raw material to manufacture
paperboard for many of its industrial and consumer packaging products and sells
the remainder on the open market.
The concept of corporate sustainability is of increasing importance
to investors who have found that companies that integrate economic,
environmental and social growth opportunities into their operating strategy
most often outperform their competitors. Because of its historical record in
these areas, Sonoco was again named to the Dow Jones Sustainability Group
Index.
23
<PAGE>
Selected Quarterly Financial Data (Unaudited)
Sonoco Products Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) First Quarter(1) Second Quarter(2) Third Quarter(3) Fourth Quarter(4)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2001
NET SALES $632,768 $647,659 $649,265 $676,584
GROSS PROFIT 137,287 136,357 135,256 135,530
NET INCOME 4,660 16,944 42,824 27,181
PER COMMON SHARE
NET INCOME - BASIC $ .05 $ .18 $ .45 $ .28
- DILUTED .05 .18 .45 .28
CASH DIVIDENDS - COMMON .20 .20 .20 .20
MARKET PRICE - HIGH 24.64 25.79 26.25 26.58
- LOW 19.69 21.30 20.55 23.19
- -----------------------------------------------------------------------------------------------------------------------------------
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 36,349
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
===================================================================================================================================
</TABLE>
(1) In 2001, includes restructuring charges of approximately $44.3 million
($30.8 million after tax).
(2) In 2001, includes restructuring charges of approximately $2 million ($1.3
million after tax), $6 million expense related to the surrendering of
corporate-owned life insurance (COLI) and $11.3 million of additional tax
expense, and $2 million ($1.3 million after tax) of restructuring charges of
an affiliate accounted for on the equity method of accounting.
(3) In 2001, includes net gains of $6.2 million ($3.4 million after tax) from
legal settlements and COLI, and $.5 million ($.4 million after tax) of
restructuring charges related to an affiliate accounted for on the equity
method of accounting. In 2000, includes an executive severance charge of
approximately $5.5 million ($3.4 million after tax).
(4) In 2001, includes restructuring charges of approximately $7.1 million ($4.5
million after tax) and $7.5 million expense ($4.9 after tax) relating to
restructuring charges related to an affiliate accounted for on the equity
method of accounting. In 2000, includes a net gain on the sales of divested
businesses of $5.2 million (pretax and after tax), restructuring charges of
$5.2 million ($3.2 million after tax), and an income tax charge of $12
million relating to COLI.
[GRAPH]
The market price of the Company's stock increased to
$26.58 per share at the end of 2001 while the book value
per common share remained fairly flat.
24
<PAGE>
Management's Discussion and
Analysis of Operations and Financial Condition
OVERVIEW
Sonoco continued to make progress toward achieving its strategic and financial
goals despite adverse economic conditions in 2001. Free cash flow, after capital
expenditures of $102 million and dividends of $76.1 million was over $186
million, compared with $167 million in 2000, a $19 million improvement
signifying effective management of the Company's cash flow. In line with our
strategic goal to grow the top line, free cash flow was used to help fund
acquisitions, with an aggregate cost of $273 million while maintaining a strong
credit rating. In addition, the Company continues to aggressively manage costs
as evidenced by productivity and restructuring initiatives during the year. Our
financial strategy continues to be to achieve average annual double-digit total
returns to shareholders, with returns on capital and equity in the top quartile
of the Standard & Poor's (S&P) 500 Index.
SPECIAL CHARGES AND ONE-TIME ITEMS
2001 TRANSACTIONS
During 2001, restructuring charges of $53.6 million pretax or $36.6 million
after tax were recorded as a result of two restructuring plans announced during
the year. The restructuring charges associated with these plans consisted of
severance and termination benefits of $27.3 million, asset impairment charges of
$16.9 million and other exit costs of $9.4 million, consisting of building lease
termination expenses of $7.7 million and other miscellaneous charges of $1.7
million. The objective of these restructuring actions is to realign and
centralize a number of staff functions and to permanently remove approximately
$48 million of annualized costs from the Company's cost structure, of which
approximately $17 million was realized in 2001. With the exception of ongoing
pension subsidies and certain building lease termination expenses, costs
associated with the restructuring actions are expected to be paid by the end of
the fourth quarter 2002 using cash generated from operations. The Company
anticipates recording additional restructuring charges during the first quarter
of 2002.
In connection with the Company's restructuring actions, asset
impairment charges of $16.9 million were recognized related to the
write-off/down of assets associated with 13 plant closings and nine plant
locations identified for other restructuring actions. Impaired assets were
written down to the lower of carrying amount or fair value, less costs to sell,
if applicable. The Company recognized write-offs/downs of impaired facilities
and equipment of $15.7 million and write-offs/downs related to facilities and
equipment held for disposal of $1.2 million. As of December 31, 2001, all
remaining assets impacted by restructuring are not held for sale and are
anticipated to be abandoned or scrapped by the end of 2002. The effect of
suspending depreciation on assets held for disposition was not material to the
Consolidated Statements of Income for the year ended December 31, 2001 (see Note
3 to the Consolidated Financial Statements).
During 2001, affiliates accounted for on the equity method of
accounting, recorded restructuring charges of $10 million pretax or $6.6 million
after tax. These costs include the closing of two plants and other miscellaneous
restructuring activities. The affiliate restructuring charges are included in
"Equity in (loss) earnings of affiliates/minority interest in subsidiaries" in
the Company's Consolidated Statements of Income.
In the second quarter of 2001, the Company surrendered its
corporate-owned life insurance (COLI) policies as a result of the settlement
with the Internal Revenue Service (IRS) over deductibility of COLI loan
interest. The surrender of these policies resulted in additional income taxes of
$11.3 million and other costs of $7 million. Other costs are included in "Other
(income) expense, net" in the Company's Consolidated Statements of Income.
Additionally during 2001, the Company recognized a gain on net legal settlements
of $7.3 million.
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 related one-time charge of $5.5
million pretax or $3.4 million on an after-tax basis. During the fourth quarter
of 2000, the Company divested two operations in Europe, the largest of which was
the 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 utilizing capital loss carryforwards
on these transactions. Also during the fourth quarter, the Company closed two
engineered carrier plants and recognized asset impairment charges. These actions
totaled $5.2 million pretax or $3.2 million on an after-tax basis.
Additionally, in the fourth quarter, Sonoco recognized additional tax expense of
$12 million associated with the IRS's position on COLI. This issue had
widespread implications to numerous companies and pertained to the disallowance
of previously deducted COLI loan interest.
25
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
(continued)
ACQUISITIONS
During 2001, the Company made several acquisitions. Acquisitions in the
Company's Industrial Packaging segment included U.S. Paper Mills Corporation, a
lightweight paper-board operation; Cumberland Wood Products, Inc., a plywood
reel operation in Helenwood, Tennessee; a paper-based textile tube converting
facility in Kaiping, China; a unit of Smurfit UK Limited, a paper-based core and
tube facility in the United Kingdom; a paper mill in Hutchinson, Kansas; a
paper-based core and tube facility in Sint-Denijs, Belgium; and an engineered
carrier operation in Cartersville, Georgia. Acquisitions in the Company's
Consumer Packaging segment included assets of a packaging services operation in
Hemel Hempstead, England; and Phoenix Packaging Corporation, a steel easy-open
closure operation in North Canton, Ohio. The Company also acquired Hayes
Manufacturing Group, Inc., a manufacturer of paper-based tubes, cores and
composite cans headquartered in Neenah, Wisconsin. Approximately 80% of this
operation is included in the Industrial Packaging segment and 20% in the
Consumer Packaging segment. During 2000, the Company purchased the Australian
composite can business of Amcor Packaging, as well as a small graphics business
in the United Kingdom (see Note 2 to the Consolidated Financial Statements).
RESULTS OF OPERATIONS 2001 VERSUS 2000
OPERATING REVENUE
Consolidated net sales for 2001 were $2.61 billion, versus $2.71 billion in
2000, a decrease of $105 million.
The components of the sales change were:
<TABLE>
<CAPTION>
($ in millions)
- -------------------------------------------------
<S> <C>
Decrease in volume $(118)
Acquisitions completed in 2001's
third and fourth quarters 64
New contract service revenue 44
Foreign currency translation (41)
Selling price/other (30)
Dispositions (24)
- -------------------------------------------------
Total sales decrease $(105)
=================================================
</TABLE>
Sales for 2001 were adversely affected by lower volume, principally in
many of the industrial businesses and the composite can operations.
Acquisitions, coupled with the new business in our packaging services
operations, offset most of the volume shortfall in the base businesses. Selling
prices were below 2000, primarily due to lower pricing on external sales of
recovered paper. In addition, pricing in some of the industrial businesses was
reduced in the second half of 2001 as the global economy continued to weaken.
Exchange rates resulting from a strong U.S. dollar during 2001 also lowered
sales. The earnings impact from exchange movement was not significant. Domestic
sales were $1.88 billion, down 5% over 2000, and international sales were $728.7
million, flat with 2000.
OPERATING PROFITS
Operating profits for 2001 of $175.8 million were $94.8 million, or 35% below
2000 operating profits of $270.6 million. Excluding special charges and other
one-time items described on page 25 of the Management's Discussion and Analysis,
operating profits would have declined approximately 17% in 2001.
<TABLE>
<CAPTION>
($ in millions) 2001 2000 % Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial packaging $160.2 $213.7 (25.1)%
Consumer packaging 117.3 118.2 (.7)%
- -----------------------------------------------------------------------------
277.5 331.9 (16.4)%
Special charges and
one-time items (53.3) (5.5) (100+)%
Interest expense, net (48.4) (55.8) 13.2%
- -----------------------------------------------------------------------------
Consolidated operating profit $175.8 $270.6 (35.0)%
=============================================================================
</TABLE>
The decline in operating profits is primarily due to lower volume,
principally in the industrial businesses and composite can operations. The
relationship of selling prices to material cost was favorable when compared with
2000, primarily due to lower recovered paper cost used in many of the Company's
products. This favorable benefit was offset by higher year-over-year pension and
energy costs totaling approximately $30 million. Gross profit as a percentage of
net sales was 20.9% in 2001, compared with 22.3% in 2000.
[GRAPH]
The decrease in current assets is pri-
marily due to lower trade accounts
receivable balances. The increase in
net PP&E is primarily due to acquisi-
tions completed in 2001.
26
<PAGE>
Selling, general and administrative expenses of $266.9 million were
down $5.2 million from 2000. Despite lower sales in 2001, selling, general and
administrative expenses as a percentage of sales remained flat with 2000, at
approximately 10% of sales. This was due to a major focus on reducing fixed-cost
spending levels. This focus was heightened with the Company's restructuring
actions in 2000 and during 2001 as sales volumes continued to soften. Costs are
expected to be further reduced in 2002 when a full year's benefit is realized
from these restructuring actions.
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. During 2001, the Company experienced higher expense of approximately
$23 million primarily related to the impact of stock market performance on
investment earnings of assets in pension and postretirement plans. Investment
earnings on benefit plan assets declined approximately 6% in 2000 and another 7%
in 2001. The impact of this decline, coupled with lowering the discount rate on
plan obligations, will increase domestic benefit plan expense in 2002
approximately $21 million pretax or $13 million on an after-tax basis. The
Company recently made contributions totaling $42 million to these plans, which
approximates the benefits expected to be paid from the plan in 2002.
Research and development costs charged to expense were $14 million in
2001 and 2000. Expenditures in this area are expected to increase in 2002.
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.
Interest expense was lower due to a decrease in commercial paper rates
and slightly lower average debt balances.
The effective tax rate for 2001 was 47.2%,compared with 41.4% in 2000.
Excluding the impact of one-time additional COLI charges and certain
non-deductible restructuring charges, the effective tax rate for 2001 would have
been 37.5%. This compares with 37.7% in 2000 excluding the additional tax
provision on COLI and other one-time transactions.
Net income for 2001 was $91.6 million, versus $166.3 million in 2000.
Excluding one-time transactions in both years, net income would have been $148.6
million in 2001, compared with $179.7 million in 2000. Earnings per diluted
share in 2001 were $.96 per share, compared with $1.66 in 2000. Excluding
one-time transactions in both years, earnings per diluted share would have been
$1.55 in 2001, compared with $1.80 in 2000.
The following table is a reconciliation of net income, excluding
one-time items, to net income as reported:
<TABLE>
<CAPTION>
($ in millions) 2001 2000
- ---------------------------------------------------------------------------
<S> <C> <C>
Net income, excluding one-time items $148.6 $179.7
Add (subtract) one-time items:
Restructuring charges (53.6) (5.2)
Gain on sale of divested businesses (2000)
and net legal settlements (2001) 7.3 5.2
Executive severance agreements (5.5)
COLI (7.0)
- ---------------------------------------------------------------------------
Total pretax one-time items (53.3) (5.5)
Tax impact of adjustments above 14.2 4.1
Additional COLI tax expense (11.3) (12.0)
Affiliate restructuring, net of tax (6.6)
- ---------------------------------------------------------------------------
Net income as reported $ 91.6 $166.3
===========================================================================
</TABLE>
Capital expenditures in 2001 were $102 million, compared with $117.2
million in 2000.
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, except as discussed
under the captions "Restructuring Activities," are excluded from the segment
tables and the discussions that follow. For further information about one-time
charges and gains by segment see Note 17 to the Consolidated Financial
Statements.
INDUSTRIAL PACKAGING SEGMENT - The Industrial Packaging segment
represented approximately 50% of the Company's sales in 2001 and includes the
following products: 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.
Sonoco's paper operations include the Company's 31 paper mills, 43
paper machines and 51 collection facilities around the world. Annually, the
paper mills have capacity to produce approximately 2 million tons of recycled
paperboard, of which Sonoco uses almost
[GRAPH]
Identifiable assets increased approx-
imately $65 million due to acquisi-
tions completed during 2001.
27
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
(continued)
70% internally. The Company also produces approximately 170,000 tons of
corrugating medium exclusively for Georgia-Pacific under a cost plus fixed
management fee arrangement.
Results for this segment are presented below:
<TABLE>
<CAPTION>
($ in millions) 2001 2000 % Change
- -------------------------------------------------------------------
<S> <C> <C> <C>
Trade sales $1,310.0 $1,450.8 (9.7)%
Operating profit 160.2 213.7 (25.1)%
Capital spending 57.5 67.4 (14.7)%
===================================================================
</TABLE>
Trade sales in the Industrial Packaging segment decreased $140.8
million, or 9.7%, to $1.31 billion in 2001. Domestic sales were down $110.5
million, or 11.7%,and international sales were down $30.3 million, or 6%.
Operating profits decreased 25% to $160.2 million in 2001. Sales and operating
profits increased $32.8 million and $4.5 million, respectively, as a result of
acquisitions made in 2001.
The lower sales and profits in this segment resulted primarily from
decreased volume in most of the industrial businesses. This volume decrease was
a result of the adverse impact of continuing general weakness in the industrial
sector of the United States economy. These conditions began affecting the
industrial sector of Sonoco in the second quarter of 2000 and intensified
significantly until the spring of 2001. However, these sequential declines in
volume stabilized shortly thereafter and remained fairly flat until December
2001, when volumes across most businesses weakened further as customers took
downtime and sold from inventories. Lower selling prices on external sales of
recovered paper reduced sales by $39 million in 2001, compared with 2000.
However, operating profits benefited from a favorable relationship of selling
prices to material costs for most of 2001. Average recovered paper costs, a
primary raw material, began to drop from a high in the second quarter of 2000,
falling more than 50% by the end of the third quarter of 2000. Recovered paper
costs essentially stabilized in the fourth quarter of 2000, at approximately
$65/ton, and remained at that level throughout 2001. As a result, the Company
experienced lower year-over-year material costs for much of 2001. This favorable
benefit began to lessen in the third quarter of 2001 as the year-over-year costs
equalized and there was virtually no favorable impact during the fourth quarter
of 2001. Softening prices, higher benefit costs and energy costs more than
offset the full-year favorable impact of lower material costs in this segment.
Capital spending was $57.5 million in 2001, compared with $67.4 million
in 2000. Depreciation, depletion and amortization expense was $94 million in
2001, compared with $92.8 million in 2000. Significant capital spending included
the rebuilding of several paper mills, particularly in the United States,
Canada, Brazil, Mexico and Europe. The decline in capital spending is in line
with strategic plans to lower capital spending in the segment.
RESTRUCTURING ACTIVITIES - INDUSTRIAL PACKAGING SEGMENT. During
2001,the segment recorded total restructuring charges of $23.6 million. These
restructuring charges were mainly attributed to a reduction in force and eight
plant closings. Asset impairment charges related to the restructuring included
write-offs/downs of impaired facilities and equipment of $5.5 million and
write-offs/downs related to facilities and equipment held for disposal of $1.2
million. As of December 31, 2001, all remaining assets impacted by restructuring
are not held for sale and are anticipated to be abandoned or scrapped.
CONSUMER PACKAGING SEGMENT - The Consumer Packaging segment represents
approximately 50% of the Company's sales and includes the following products and
services: round and shaped composite cans, printed flexible packaging, metal and
plastic ends and closures, high density film products, specialty packaging and
packaging services.
Results for this segment are presented below:
<TABLE>
<CAPTION>
($ in millions) 2001 2000 % Change
- -------------------------------------------------------------------
<S> <C> <C> <C>
Trade sales $1,296.3 $1,260.7 2.8%
Operating profit 117.3 118.2 (.7)%
Capital spending 44.5 49.7 (10.6)%
===================================================================
</TABLE>
Trade sales in the Consumer Packaging segment increased $35.6 million
to $1.30 billion in 2001 from $1.26 billion in 2000. Domestic sales were $1.05
billion, up 1.8%, and international sales were $250 million, up 7.23% from 2000.
Operating profit of $117.3 million in 2001 was slightly below 2000.
Sales and operating profits increased $31.1 million and $14 million,
respectively, as a result of acquisitions made in 2001. Higher packaging
services revenue, including revenue from new contracts with The Gillette Company
and the Hewlett-Packard Company, coupled with higher selling prices, were
partially offset
[GRAPH]
Identifiable assets increased approx-
imately $87 million due to acquisi-
tions completed during 2001.
28
<PAGE>
by lower volume, principally in composite cans. Operating profit benefited from
the higher selling prices during 2001, primarily in the composite can and the
flexible packaging operations. Material costs were below 2000 as a result of
lower resin cost in the high density film products operation. This segment also
experienced higher benefit costs that were offset by higher productivity and
lower fixed costs from restructuring actions taken during the year.
Capital spending in the consumer segment was $44.5 million in 2001,
compared with $49.7 million in 2000. Depreciation, depletion and amortization
expense in this segment was $64.6 million in 2001, compared with $58 million in
2000. Significant spending included numerous productivity enhancement projects,
particularly in the United States, Mexico and Canada, and consolidation projects
in the United States. Additionally during 2001, the flexible packaging business
invested in a state-of-the-art flexographic press to support continued growth in
the confectionery market. The decline in capital spending is in line with
strategic plans to lower capital spending in the segment.
RESTRUCTURING ACTIVITIES - CONSUMER PACKAGING SEGMENT. During 2001, the
segment recorded total restructuring charges of $26.4 million. These
restructuring charges were mainly attributed to a reduction in force and asset
impairment charges associated with the closing of five facilities. Asset
impairment charges related to the restructuring included write-offs/downs of
impaired facilities and equipment of $10.2 million.
RESTRUCTURING ACTIVITIES - CORPORATE
During 2001, the Company recorded restructuring charges at Corporate of $3.6
million comprised primarily of severance and termination charges.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations totaled $364.3 million in 2001, compared with $362.5
million in 2000. This increase in operating cash flow over 2000 was achieved
through the Company's continued efforts to reduce working capital and maximize
cash flow. Free cash flow, after capital expenditures of $102 million and
dividends of $76.1 million, was $186.3 million. These funds were used to help
finance acquisitions of $273.2 million. The Company expects internally generated
cash flows to be sufficient to meet operating and normal capital expenditure
requirements both on a short-term and long-term basis.
Current assets decreased $30.6 million in 2001 to $665.2 million
primarily due to lower trade accounts receivable balances. Also, in 2000,current
assets decreased $27.3 million to $695.8 million. The current ratio was 1.4 at
the end of 2001, compared with 1.6 and 1.7 at the end of 2000 and
1999,respectively.
The following table summarizes contractual obligations and commercial
commitments at December 31, 2001:
<TABLE>
<CAPTION>
Payments Due by Period
---------------------------------
($ in millions) Less than 1-3 After
CONTRACTUAL OBLIGATIONS Total 1 year years 3 years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $ 922 $ 36 $ 260 $ 626
Operating leases 88 22 42 24
- -------------------------------------------------------------------------------
Total contractual
cash obligations $1,010 $ 58 $ 302 $ 650
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Commitment
($ in millions) Total Expiration
OTHER COMMERCIAL Amounts (Less Than
COMMITMENTS Committed 1 Year)
- -------------------------------------------------------------------------------
<S> <C> <C>
Standby letters of credit $ 52 $ 52
Debt guarantees 1 1
- -------------------------------------------------------------------------------
Total commercial commitments $ 53 $ 53
- -------------------------------------------------------------------------------
</TABLE>
The Company had fully committed bank lines of credit in the amount of
$450 million during 2001 and 2000. The credit is generally undrawn, but provides
back-up credit for commercial paper, short-term borrowing under uncommitted
facilities and future liquidity needs. The credit agreement matures in July 2002
unless the Company exercises a one-year, term-out option on any outstanding
borrowings under the agreement. The Company intends to enter into a similar
agreement when it expires. The agreement provides for an increase in interest
rates if the Company's credit rating falls, but the agreement does not
terminate. None of the Company's material credit arrangements contain
rating-based default provisions, nor does the Company have any material
off-balance sheet arrangements.
Debt increased $64.2 million to $921.8 million at December 31, 2001,
from $857.6 million at December 31, 2000. During the fourth quarter 2001, the
Company issued debt securities ("Notes") of $250 million pursuant to shelf
registrations with the Securities and Exchange Commission. The Notes bear
interest at 6.50% per year, payable semi-annually on May 15 and November 15, and
will mature on November 15, 2013. The Company used the net proceeds from the
sales of the Notes to pay down maturing commercial paper. In April 2000, $75
million of 5.49% bonds matured. The Company issued commercial paper to repay the
bonds and maintain fixed to floating
[GRAPH]
Total debt increased $64.2 million
in 2001 from business acquisitions.
29
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
(continued)
[GRAPH]
The debt to total capital ratio was
49.3% at December 31, 2001, up
slightly from 48.5% at December
31, 2000.
rate debt in the desired range (around 50/50).
On July 12, 2001, Standard & Poor's announced the reduction of the
Company's long-term debt rating from "A" to "A minus" and the commercial paper
rating from "A-1" to "A-2" with a stable outlook. On August 13, 2001, Moody's
changed the ratings outlook for the Company's "A-2" long-term debt ratings and
Prime-1 short-term ratings for commercial paper to negative from stable. Both
agencies cited recent acquisitions that were expected to result in increased
leverage in the near term as a major reason for the rating revisions.
Interest expense was $52.2 million in 2001, compared with $59.6 million
in 2000 and $52.5 million in 1999. The decrease in 2001, compared with 2000
interest expense, was due mainly to lower commercial paper rates. Average rates
fell to 4.1% from 6.3% and resulted in interest savings of approximately $6
million. The remaining decrease was due to slightly lower average debt balances.
Almost $3 million of the increase in 2000 was due to an increase of 1% in
average commercial paper interest rates. 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 higher interest costs. Excluding one-time
transactions, earnings before interest and taxes would have been 5.3 times
interest expense in 2001, compared with 5.6 times and 6.4 times in 2000 and
1999, respectively.
Earnings before interest, taxes, depreciation, depletion and
amortization expense were 8.4 times interest in 2001, 8.1 times in 2000 and 9.1
times in 1999. The Company's debt to total capital ratio was 49.3% at December
31, 2001, compared with 48.5% and 47.5% at the end of 2000 and 1999,
respectively. Return on total equity was 11.5% in 2001, compared with 19.1% in
2000 and 21.9% in 1999. Excluding one-time transactions, the return on total
equity would have been 18.6% in 2001, 20.7% in 2000 and 21.5% in 1999.
Shareholders' equity increased $2.7 million from December 31, 2000, to
$804.1 million at December 31, 2001. The change resulted mainly from net income
of $91.6 million and approximately $14 million of exercised stock options,
reduced by dividends of $76.1 million, minimum pension liability adjustments of
$15.9 million, and foreign currency translation of $8.8 million. Shareholders'
equity decreased $99.7 million from December 31, 1999, to $801.5 million at
December 31, 2000. The change resulted primarily 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. In 2001, the Company repurchased 92,960 shares of common stock pursuant
to authorizations by the Company's Board of Directors. At December 31, 2001, the
Company had remaining authorizations to repurchase approximately 5,300,000
shares of common stock. The Company does not intend to repurchase significant
shares in 2002.
Dividends per common share were $.80 in 2001, $.79 in 2000 and $.75 in
1999. In April 2001, the Company's Board of Directors voted to maintain, rather
than increase, the current quarterly dividend of $.20 per share with the stated
intent to consider an increase later in 2001 should general economic conditions
improve. Dividends declared through the first quarter 2002 have remained at $.20
per share. Although the ultimate determination of whether to pay dividends is
within the sole discretion of the Board of Directors, the Company plans to
increase dividends as earnings justify.
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
[GRAPH]
Net working capital decreased
$53.8 million in 2001 primarily
due to increased accrued expenses
and lower accounts receivable bal-
ances. (1997 net working capital
excludes net assets held for sale.)
30
<PAGE>
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. During 2001, the Company did
not have any interest swaps outstanding. In February 2002, the Company entered
into a swap to match the terms of our $150 million bond maturing in 2004. The
swap qualifies as a fair value hedge under Financial Accounting Standard No.
133, `Accounting for Derivative Instruments and Hedging Activities' (FAS 133),
and swaps fixed interest for floating.
The Company is a purchaser of commodities such as recovered paper,
resin 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.
At the end of 2001, the Company had commodity swaps outstanding to lock
in the costs of a portion of raw materials for 2002 and 2003. The swaps qualify
as cash flow hedges under FAS 133. The fair market value of these swaps at
year-end was a liability of $1.3 million.
FAS 133 requires that derivatives be marked to fair value quarterly and
recorded on the balance sheet. The Company uses published market prices or
estimated values based on current price quotes and a discounted cash flow model
to estimate the fair market value of the swaps.
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, 2001, 2000 or 1999.
Except for the impact on energy and raw material prices, inflation did
not have a material effect on the Company's operations in 2001, 2000 or 1999.
The Company is subject to various federal, state and local
environmental laws and regulations concerning, among other matters, wastewater
effluent and air emissions. Compliance costs have not been significant due to
the nature of the materials and processes used in manufacturing operations. Such
laws also make generators of hazardous wastes and their legal successors
financially responsible for the cleanup of sites contaminated by those wastes.
The Company has been named a potentially responsible party at several
environmentally contaminated sites located primarily in the northeastern United
States and owned by third parties. These sites are believed to represent the
Company's largest potential environmental liabilities. The Company has accrued
approximately $7.2 million at December 31, 2001, with respect to these sites
(see Note 14 to the Consolidated Financial Statements).
The Company's main plant and corporate offices are located in
Hartsville, South Carolina. There are 130 owned and 119 leased facilities used
by operations in the Industrial Packaging segment and 34 owned and 34 leased
facilities used by operations in the Consumer Packaging segment. Europe, the
largest foreign geographic location, has 41 manufacturing locations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's analysis and discussion of its financial condition and results of
operations are based upon its consolidated financial statements that have been
prepared in accordance with generally accepted accounting principles in the
United States (US GAAP). The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities. The Company evaluates these
estimates and assumptions on an ongoing basis, including but not limited to
those related to inventories, bad debts, derivatives, income taxes, intangible
assets, restructuring, pension and other postretirement benefits, environmental
liabilities, and contingencies and litigation. Estimates and assumptions are
based on historical and other factors believed to be reasonable under the
circumstances. The results of these estimates may form the basis of the carrying
value of certain assets and liabilities and may not be readily apparent from
other sources. Actual results, under conditions and circumstances different from
those assumed, may differ from estimates. The impact and any associated risks
related to estimates, assumptions, and accounting policies are discussed within
Management's Discussion and Analysis of Operations and Financial Condition, as
well as in the Notes to the Consolidated Financial Statements, if applicable,
where such estimates, assumptions, and accounting policies affect the Company's
reported and expected financial results.
The Company believes the following accounting policies are critical to
its business operations and the understanding of results of operations and
affect the more significant judgments and estimates used in the preparation of
its consolidated financial statements:
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company maintains accounts
receivable allowances for estimated losses resulting from the inability of its
customers to make required payments. Additional allowances may be required if
the financial condition of the Company's customers deteriorates.
REVENUE RECOGNITION - In accordance with US GAAP, the Company records
revenue when title and risk of ownership pass to the customer. Certain
judgments, such as provisions for estimates of sales returns and allowances, may
affect the application of the Company's revenue policy and, therefore, the
results of operations in its consolidated financial statements.
31
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
(continued)
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically reviews
long-lived assets used in operations for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Assumptions and estimates used in the determination of impairment
losses, such as future cash flows and disposition costs, may affect the carrying
value of long-lived assets and possible impairment expense in the Company's
consolidated financial statements.
ACQUIRED GOODWILL AND OTHER INTANGIBLE ASSETS - The determination of
the value of goodwill and other intangible assets in connection with business
acquisitions requires the use of estimates and assumptions that affect the
carrying value and the amount of future period amortization expense and possible
impairment expense in the Company's consolidated financial statements.
INCOME TAXES - The Company records an income tax valuation allowance
when the realization of certain deferred tax assets, net operating losses and
capital loss carryforwards is not likely. These deferred tax items represent
expenses recognized for financial reporting purposes, which will result in tax
deductions over varying future periods. Certain judgments, assumptions and
estimates may affect the carrying value of the valuation allowance and deferred
income tax expense in the Company's consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, `Business Combinations' (FAS 141),
and Statement of Financial Accounting Standards No. 142, `Goodwill and Other
Intangible Assets' (FAS 142). FAS 141 supercedes Accounting Principles Board
Opinion (APB) No. 16, `Business Combinations.' The provisions of FAS 141 (1)
require that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provide specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) require that unamortized negative goodwill be written off immediately as
an extraordinary gain instead of being deferred and amortized. FAS 141 also
requires that, upon adoption of FAS 142, the Company reclassify the carrying
amounts of certain intangible assets into or out of goodwill, based on certain
criteria. FAS 142 supercedes APB 17,`Intangible Assets,' and is effective for
fiscal years beginning after December 15, 2001. FAS 142 primarily addresses the
accounting for goodwill and intangible assets subsequent to their initial
recognition. The provisions of FAS 142 (1) prohibit the amortization of goodwill
and indefinite-lived intangible assets, (2) require that goodwill and
indefinite-lived intangible assets be tested annually for impairment (and in
interim periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived intangible assets may be impaired), (3) require
that reporting units be identified for the purpose of assessing potential future
impairments of goodwill and (4) remove the 40-year limitation on the
amortization period of intangible assets that have finite lives.
The provisions of FAS 141 and FAS 142 also apply to equity-method
investments made both before and after June 30, 2001. FAS 141 requires that the
unamortized deferred credit related to an excess over cost arising from an
investment that was accounted for using the equity method (equity-method
negative goodwill), and that was acquired prior to July 1, 2001, must be
written-off immediately and recognized as the cumulative effect of a change in
accounting principle. Equity-method negative goodwill arising from equity
investments made after June 30, 2001, must be written-off immediately and
recorded as an extraordinary gain, instead of being deferred and amortized. FAS
142 prohibits amortization of the excess of cost over the underlying equity in
the net assets of an equity-method investee that is recognized as goodwill.
The provisions of FAS 142 will be adopted by the Company on January 1,
2002. The Company is in the process of preparing for its adoption of FAS 142 and
is making the determinations as to what its reporting units are and what amounts
of goodwill, intangible assets, other assets, and liabilities should be
allocated to these reporting units. In connection with the adoption of FAS 142,
the Company expects to reclassify goodwill of approximately $10 million to
intangible assets. The Company does not expect to reclassify any intangible
assets to goodwill. In addition, the Company expects that it will no longer
record approximately $11 million annually of amortization relating to its
existing goodwill and indefinite-lived intangibles, as adjusted for the
reclassifications referred to above. The Company is also in the process of
evaluating the useful lives of its existing intangible assets and anticipates
that changes in the useful lives will not have a material impact on the results
of its operations.
FAS 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The second step of the goodwill impairment test measures the amount
of the impairment loss (also measured as of the beginning of the fiscal year in
year of
32
<PAGE>
transition), if any, and must be completed by the end of the company's fiscal
year. Intangible assets deemed to have an indefinite life will be tested for
impairment using a one-step process that compares the fair value to the carrying
amount of the asset as of the beginning of the fiscal year, and pursuant to the
requirements of FAS 142 will be completed during the first quarter of 2002. Any
impairment loss resulting from the transitional impairment tests in 2002 will be
reflected as the cumulative effect of a change in accounting principle. The
Company has not yet determined what effect these impairment tests, or what
additional effects the adoption of FAS 141 and FAS 142, will have on its
financial statements.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, `Accounting for Asset Retirement Obligations' (FAS 143),
which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. FAS 143 is required to be adopted for fiscal years beginning
after June 15, 2002. The Company has not yet determined the effect, if any, this
statement will have on its financial statements.
Also in August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, `Accounting for the Impairment or Disposal of Long-Lived
Assets' (FAS 144), which supersedes FASB Statement No. 121, `Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'
This new statement also supersedes certain aspects of APB 30 `Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,' with regard to reporting the effects of a disposal of a segment
of a business. FAS 144 will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred (rather than as of the measurement date as presently required by APB
30). In addition, more dispositions may qualify for discontinued operations
treatment. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. The Company does not expect the adoption of FAS 144 to have a
material effect on its financial statements.
RESULTS OF OPERATIONS 2000 VERSUS 1999
Consolidated net sales increased $164.8 million, or 6.5%, in 2000 to $2.71
billion from $2.55 billion in 1999. This increase in sales compared 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 $730.3 million, up 9.8% over 1999. The components of
the sales change were:
<TABLE>
<CAPTION>
($ in millions)
- --------------------------------------------------
<S> <C>
Selling price $ 124
Foreign currency translation (41)
Volume/mix (15)
Acquisitions, net of dispositions 97
- --------------------------------------------------
Total sales increase $ 165
==================================================
</TABLE>
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 $97 million of sales during 2000.
Operating profits were as follows:
<TABLE>
<CAPTION>
($ in millions) 2000 1999 % Change
- --------------------------------------------------------------------
<S> <C> <C> <C>
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 (5.5) 3.5 (100.0+)%
Interest, net (55.8) (47.1) (18.4)%
- --------------------------------------------------------------------
Consolidated $270.6 $289.6 (6.5)%
====================================================================
</TABLE>
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 of 2000 to recover the higher
raw material costs. Late in the second quarter, as volume began to slow,
recovered paper cost and other commodity material costs dropped. Raw material
costs declined throughout the third quarter and volume softened. Raw material
costs remained at this low level throughout the fourth quarter, while volume
slowed 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
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.
33
<PAGE>
Management's Discussion and Analysis of Operations and Financial Condition
(continued)
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 was
to maintain or lower fixed-cost spending levels.
Investment returns earned on assets held by the Company's benefit plans
were 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,
the Company benefited from a decrease of approximately $9.1 million 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.
Research and development costs charged to expense were $14 million in
2000, compared with $12 million in 1999. Significant projects in the 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. The
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 would have been 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 would have been
$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 would
have been $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.
Capital expenditures in 2000 were $117.1 million, compared with $135.7
million in 1999.
INDUSTRIAL PACKAGING SEGMENT - Results from continuing operations for
this segment are presented below:
<TABLE>
<CAPTION>
($ in millions) 2000 1999 % Change
- --------------------------------------------------------------------
<S> <C> <C> <C>
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)%
====================================================================
</TABLE>
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 continued to drop in
Europe. In spite of all the ups and 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 $91.2 million in 1999. Capital projects included the
rebuilding of several paper mills in the United States, Canada and France;
expansion of industrial product plants in the United States and Spain; the
completion of the new industrial product plant in Poland; and construction of a
paper mill in Greece with our joint venture partner.
RESTRUCTURING ACTIVITIES - INDUSTRIAL PACKAGING SEGMENT During 2000, two
engineered carrier plants were closed in contemplation of the Company's larger
consolidation and restructuring program announced January 30, 2001. Costs
recorded were mainly attributed to a reduction in force.
34
<PAGE>
CONSUMER PACKAGING SEGMENT - Results from continuing operations for
this segment are presented below:
<TABLE>
<CAPTION>
($ in millions) 2000 1999 % Change
- -------------------------------------------------------------------
<S> <C> <C> <C>
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)%
===================================================================
</TABLE>
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 resin, increasing sales and profits by approximately $28
million. The slowing economy and operational issues in certain composite can and
flexible packaging operations impacted unit volume in the Consumer Packaging
segment. Composite can volume, excluding the impact of acquisitions, was below
1999 levels. 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 underwent 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 to the flexible packaging operation during 2000 that
benefited 2001 and will benefit 2002 operations. Operating problems at two of
the flexible packaging plants lowered overall profitability for this business.
The high density 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, the Company purchased some of its resin requirements from
suppliers in Asia, which lowered overall cost.
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 The Gillette Company to operate both their
United States and European packaging centers for razors and blades. This
contract was incremental to the 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 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, the
consumer segment recorded asset impairment charges associated with the
elimination of a can line in Europe.
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. The words "estimate," "project,"
"intend," "expect," "believe," "anticipate," and similar expressions identify
forward-looking statements. 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, effects of
acquisitions and dispositions, 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; anticipated results of restructuring activities;
ability to successfully integrate newly acquired businesses into the Company's
operations; currency stability and the rate of growth in foreign markets;
actions of government agencies; loss of consumer confidence; and economic
disruptions resulting from terrorist activities.
35
<PAGE>
Consolidated Balance Sheets
Sonoco Products Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars and shares in thousands)
At December 31 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,130 $ 35,219
Trade accounts receivable,net of allowances of $7,294 in 2001 and $5,714 in 2000 289,323 329,467
Other receivables 30,828 26,875
Inventories
Finished and in process 116,879 108,887
Materials and supplies 144,842 158,717
Prepaid expenses 32,088 28,206
Deferred income taxes 15,079 8,422
- ----------------------------------------------------------------------------------------------------------------------------------
665,169 695,793
PROPERTY,PLANT AND EQUIPMENT,NET 1,008,944 973,470
COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 359,713 236,733
OTHER ASSETS 318,371 306,615
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,352,197 $ 2,212,611
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payable to suppliers $ 211,452 $ 227,408
Accrued expenses and other 170,053 121,655
Accrued wages and other compensation 20,717 24,196
Notes payable and current portion of long-term debt 35,849 45,556
Taxes on income 22,199 18,265
- ----------------------------------------------------------------------------------------------------------------------------------
460,270 437,080
LONG-TERM DEBT 885,961 812,085
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 32,231 27,571
DEFERRED INCOME TAXES AND OTHER 169,613 134,404
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Serial preferred stock,no par value
Authorized 30,000 shares
0 shares issued and outstanding as of December 31,2001 and 2000
Common shares,no par value
Authorized 300,000 shares
95,713 and 95,006 shares outstanding of which 95,453 and 94,681
are issued as of December 31,2001 and 2000,respectively 7,175 7,175
Capital in excess of stated value 302,345 289,657
Accumulated other comprehensive loss (197,969) (172,403)
Retained earnings 692,571 677,042
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 804,122 801,471
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,352,197 $ 2,212,611
==================================================================================================================================
</TABLE>
The Notes beginning on page 40 are an integral part of these financial
statements.
36
<PAGE>
Consolidated Statements of Income
Sonoco Products Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars and shares in thousands except per share data)
Years ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,606,276 $ 2,711,493 $ 2,546,734
Cost of sales 2,061,846 2,107,395 1,953,605
Selling,general and administrative expenses 266,908 272,150 259,917
Other (income) expense,net* 53,324 5,543 (3,500)
- ------------------------------------------------------------------------------------------------------------------------------
Income before interest and taxes 224,198 326,405 336,712
Interest expense 52,217 59,604 52,466
Interest income (3,800) (3,794) (5,314)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 175,781 270,595 289,560
Provision for income taxes 82,958 111,999 108,585
- ------------------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of affiliates/minority
interest in subsidiaries 92,823 158,596 180,975
Equity in (loss) earnings of affiliates/minority
interest in subsidiaries (1,214) 7,702 6,830
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 91,609 $ 166,298 $ 187,805
==============================================================================================================================
Average common shares outstanding:
Basic 95,370 99,725 101,886
Assuming exercise of options 437 175 894
- ------------------------------------------------------------------------------------------------------------------------------
Diluted 95,807 99,900 102,780
- ------------------------------------------------------------------------------------------------------------------------------
Per common share
Net income
Basic $ .96 $ 1.67 $ 1.84
Diluted $ .96 $ 1.66 $ 1.83
Cash dividends - common $ .80 $ .79 $ .75
==============================================================================================================================
</TABLE>
* 2001 results include restructuring charges,net gains from legal settlements
and corporate-owned life insurance adjustments. 2000 results include
restructuring charges and executive severance charges and 1999 results
include the net gain on the sale of divested businesses.
The Notes beginning on page 40 are an integral part of these financial
statements.
37
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
Sonoco Products Company and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
(Dollars and shares COMMON SHARES Capital in Other
in thousands except COMPREHENSIVE ---------------------- Excess of Comprehensive Retained
per share data) INCOME (LOSS) Outstanding Amount Stated Value Loss Earnings
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1,1999 101,683 $7,175 $431,465 $ (95,139) $478,091
Net income $ 187,805 187,805
Other comprehensive loss:
Translation loss (30,654)
Minimum pension
liability adjustment,
net of tax 2,785
---------
Other comprehensive loss (27,869) (27,869)
---------
Comprehensive income $ 159,936
=========
Cash dividends (76,434)
Exercise of stock options 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:
Translation loss (49,933)
Minimum pension
liability adjustment,
net of tax 538
---------
Other comprehensive loss (49,395) (49,395)
---------
Comprehensive income $ 116,903
=========
Cash dividends (78,718)
Exercise of stock options 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
Net income $ 91,609 91,609
Other comprehensive loss:
Translation loss (8,827)
Minimum pension
liability adjustment,
net of tax (15,914)
Other (825)
---------
Other comprehensive loss (25,566) (25,566)
---------
Comprehensive income $ 66,043
=========
Cash dividend (76,080)
Exercise of stock options 800 14,043
Shares repurchased (93) (2,055)
Other 700
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,2001 95,713 $7,175 $302,345 $(197,969) $692,571
==============================================================================================================================
</TABLE>
The Notes beginning on page 40 are an integral part of these financial
statements.
38
<PAGE>
Consolidated Statements of Cash Flows
Sonoco Products Company and Subsidiaries
<TABLE>
<CAPTION>
(Dollars and shares in thousands)
Years ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 91,609 $ 166,298 $ 187,805
Adjustments to reconcile net income to net cash provided
by operating activities
Restructuring reserve (noncash) 16,919 3,967
Depreciation,depletion and amortization 158,574 150,816 145,846
Equity in loss (earnings) of affiliates/minority
interest in subsidiaries 1,214 (7,702) (6,830)
Cash dividends from affiliated companies 7,925 5,017 7,447
Loss (gain) on disposition of assets 7,116 4,989 (188)
Gain on assets held for sale (5,277) (3,500)
Deferred taxes 22,005 20,182 18,060
Changes in assets and liabilities,net of effects
from acquisitions, dispositions,assets held for sale
and foreign currency adjustments
Receivables 57,255 3,960 (46,577)
Inventories 23,438 (24,413) (15,283)
Prepaid expenses (2,870) 28,621 (28,177)
Payables and taxes (20,301) 70,058 (10,183)
Other assets and liabilities 1,457 (54,066) (10,162)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 364,341 362,450 238,258
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property,plant and equipment (101,983) (117,151) (135,728)
Cost of acquisitions,exclusive of cash (273,187) (5,670) (184,399)
Proceeds from non-operating notes receivable 34,000
Proceeds from the sale of assets 6,902 21,466 18,561
Investments in affiliates (3,600) (25,640)
Other (693)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (371,868) (101,355) (293,899)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 259,224 17,055 248,302
Principal repayment of debt (24,476) (128,182) (192,136)
Net (decrease) increase in commercial paper borrowings (174,000) 74,700 61,800
Net increase (decrease) in bank overdrafts 11,560 (12,692) 1,752
Cash dividends - common (76,080) (78,718) (76,434)
Common shares acquired (2,055) (138,012) (13,045)
Common shares issued 14,043 4,932 5,387
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 8,216 (260,917) 35,626
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 222 (1,474) (719)
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 911 (1,296) (20,734)
Cash and cash equivalents at beginning of year 35,219 36,515 57,249
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 36,130 $ 35,219 $ 36,515
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 50,551 $ 59,029 $ 51,145
Income taxes paid,net of refunds $ 49,035 $ 83,464 $ 119,916
=======================================================================================================================
</TABLE>
Excluded from the Consolidated Statements of Cash Flows are the effects of
certain noncash activities. Debt obligations assumed by the Company in
conjunction with acquisitions were approximately $3,300 in 1999.
The Notes beginning on page 40 are an integral part of these financial
statements.
39
<PAGE>
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 (THE COMPANY OR SONOCO) 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 AND RISK OF OWNERSHIP PASS TO
THE CUSTOMER. SHIPPING COSTS ARE DEDUCTED FROM NET SALES IN THE CONSOLIDATED
STATEMENTS OF INCOME. Shipping costs amounted to $87,024 in 2001, $82,671 in
2000, and $79,620 in 1999. HANDLING COSTS ARE INCLUDED IN COST OF SALES.
PRIOR YEARS' DATA HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT
YEAR PRESENTATION.
2. ACQUISITIONS/DISPOSITIONS/JOINT VENTURE
Sonoco completed 10 acquisitions during 2001 with an aggregate cost of
approximately $273,000 in cash. In connection with these acquisitions, the
Company recorded approximate fair value of identified intangibles of $27,000,
goodwill of $138,000 and other net tangible assets of $108,000. Acquisitions in
the Company's Industrial Packaging segment included a lightweight paperboard
operation; a plywood reel operation in Helenwood, Tennessee; a paper-based
textile tube converting facility in Kaiping, China; a paper-based core and tube
facility in the United Kingdom; a paper-based core and tube facility in
Sint-Denijs, Belgium; an engineered carrier operation in Cartersville, Georgia;
and a paper mill in Hutchinson, Kansas. Acquisitions in the Company's Consumer
Packaging segment included assets of a packaging services operation in Hemel
Hempstead, England; and a steel easy-open closure operation in North Canton,
Ohio. The Company also acquired a manufacturer of paper-based tubes, cores and
composite cans headquartered in Neenah, Wisconsin. Approximately 80% of this
operation is included in the Industrial Packaging segment and 20% in the
Consumer Packaging segment.
The following unaudited pro-forma information provides consolidated
results as if the acquisitions during the second, third and fourth quarters of
2001 occurred on January 1, 2000. This unaudited pro-forma information does not
include the effect of synergies that the Company expects to realize upon
integration of these acquisitions.
<TABLE>
<CAPTION>
PRO FORMA (unaudited) 2001 2000
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,776,000 $2,944,000
Net income 96,000 169,000
Earnings per share - basic 1.01 1.70
Earnings per share - diluted 1.01 1.69
- ------------------------------------------------------------------------------
</TABLE>
During 2001, the Company also signed an agreement to form a joint
venture with Dyecor Limited, a privately held company in the United Kingdom.
The Company's contribution to the joint venture was not material.
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. Net sales and combined operating losses of these
operations were $8,700 and $100 in 1999, respectively.
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 the 2000 and 1999
acquisitions was immaterial.
3. RESTRUCTURING PROGRAMS
Restructuring charges of $53,551 ($36,616 after tax) were recorded as
a result of restructuring actions announced during 2001. Restructuring charges
were determined in accordance with the provisions of SEC Staff Accounting
Bulletin
40
<PAGE>
No. 100 "Restructuring and Impairment Charges" and Emerging Issues Task Force
No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity." The restructuring charges, net of
adjustments, consisted of severance and termination benefits of $27,265, asset
impairment charges of $16,919, and other exit costs of $9,367 (consisting of
building lease termination charges of $7,715 and other miscellaneous charges of
$1,652). The restructuring plan, as revised during the year, included a global
reduction of 364 salaried positions (230 in the United States) and 626 hourly
positions (437 in the United States), including the closure of 13 plant
locations (nine in the United States). As of December 31, 2001, 11 plant
locations have been closed, and 828 employees have been terminated (306
salaried and 522 hourly).
During the fourth quarter of 2000, restructuring charges of $5,226
($3,240 after tax) were recorded associated with termination benefits of $1,259
and asset impairment charges of $3,967 related to the closure of four plant
locations.
The following table sets forth the activity in the restructuring
accrual included in "Accrued expenses and other" on the Consolidated Balance
Sheet. Restructuring charges are included in "Other (income) expense, net" in
the Consolidated Statements of Income.
<TABLE>
<CAPTION>
Severance and Other
Termination Asset Exit
Benefits Impairment Costs Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 Charges $ 1,259 $ 3,967 $ 5,226
Cash payments (159) (159)
Asset impairment
(noncash) (3,967) (3,967)
- --------------------------------------------------------------------------------------------------------------
Liability, December 31, 2000 1,100 1,100
==============================================================================================================
2001 Charges 30,614 17,889 $13,682 62,185
Cash payments (14,431) (3,143) (17,574)
Asset impairment
(noncash) (16,919) (16,919)
Reclassifications to
pension liability (5,180) (5,180)
Adjustments (3,349) (970) (4,315) (8,634)
- --------------------------------------------------------------------------------------------------------------
Liability December 31, 2001 $ 8,754 $ $ 6,224 $ 14,978
==============================================================================================================
</TABLE>
The Company expects to pay the remaining restructuring costs, with the
exception of on-going pension subsidies and certain building lease termination
expenses, by the end of 2002 using cash generated from operations. Additional
restructuring charges are anticipated during the first quarter of 2002.
Affiliates of the Company accounted for under the equity method of
accounting recorded restructuring charges of $9,986 ($6,591 after tax) during
2001. These charges include the closing of two plant locations and other
miscellaneous restructuring activities and are included in "Equity in (loss)
earnings of affiliates/minority interest in subsidiaries" in the Consolidated
Statements of Income.
Asset impairment charges included in the above noted 2001
restructuring charges resulted from the write-off/down of assets associated
with 13 plant location closings, and nine other plant locations impacted by the
restructuring. Impaired assets were written down to the lower of carrying
amount or fair value, less estimated costs to sell, if applicable, and are
summarized by segment as follows:
<TABLE>
<CAPTION>
Consumer Industrial
Segment Segment Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Write-off/down:
Impaired facilities $ 2,588 $ 429 $ 3,017
Impaired equipment 7,639 5,049 12,688
Facilities held for disposal 285 285
Equipment held for disposal 929 929
- ------------------------------------------------------------------------------------
Total $10,227 $6,692 $16,919
====================================================================================
</TABLE>
As of December 31, 2001, all impaired assets are not held for sale and
are anticipated to be abandoned or scrapped by the end of 2002. The effect of
suspending depreciation on assets held for disposition was not material to the
Consolidated Statement of Income for the year ended December 31, 2001.
4. CASH AND CASH EQUIVALENTS
CASH EQUIVALENTS ARE COMPOSED OF HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL
MATURITY OF THREE MONTHS OR LESS AND ARE RECORDED AT MARKET. At December 31,
2001 and 2000, outstanding checks of $32,897 and $20,780, respectively, were
included in "Payable to suppliers" on the Consolidated Balance Sheets.
5. INVENTORIES
INVENTORIES ARE STATED AT THE LOWER OF COST OR MARKET.
The last-in, first-out (LIFO) method was used to determine costs of
approximately 20% and 21% of total inventories at December 31, 2001 and 2000,
respectively. The remaining inventories are determined on the first-in,
first-out (FIFO) method.
If the FIFO method of accounting had been used for all inventories,
the totals would have been higher by $10,352 in 2001 and $9,447 in 2000.
6. PROPERTY, PLANT AND EQUIPMENT
PLANT ASSETS REPRESENT THE ORIGINAL COST OF LAND, BUILDINGS AND EQUIPMENT LESS
DEPRECIATION COMPUTED UNDER THE STRAIGHT-LINE METHOD OVER THE ESTIMATED USEFUL
LIFE OF THE ASSET, 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 15 to 40
years.
TIMBER RESOURCES ARE STATED AT COST. DEPLETION IS CHARGED TO
OPERATIONS BASED ON THE NUMBER OF UNITS OF TIMBER CUT DURING THE YEAR.
41
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
Depreciation and depletion expense amounted to $146,020 in 2001,
$138,648 in 2000, and $135,146 in 1999. Details at December 31 are as follows:
<TABLE>
<CAPTION>
2001 2000
- -----------------------------------------------------------------------
<S> <C> <C>
Land $ 44,190 $ 37,910
Timber resources 35,183 34,780
Buildings 324,996 307,496
Machinery and equipment 1,753,916 1,633,705
Construction in progress 72,460 83,125
- -----------------------------------------------------------------------
2,230,745 2,097,016
- -----------------------------------------------------------------------
Accumulated depreciation
and depletion (1,221,801) (1,123,546)
- -----------------------------------------------------------------------
Property, plant and
equipment, net $ 1,008,944 $ 973,470
=======================================================================
</TABLE>
Estimated costs for completion of authorized capital additions under
construction totaled approximately $52,738 at December 31, 2001.
Certain properties and equipment are leased under non-cancelable
operating leases. Total rental expense under operating leases was approximately
$38,990 in 2001, $37,600 in 2000, and $38,500 in 1999. Future minimum rentals
under non-cancelable operating leases with terms of more than one year are as
follows: 2002-$22,000, 2003-$17,400, 2004-$14,100, 2005-$10,600, 2006-$8,200,
and 2007 and thereafter-$15,400.
Research and development costs charged to expense were $14 million in
both 2001 and 2000, and $12 million in 1999.
7. COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
Goodwill arising from business acquisitions was $138,000 in 2001, $3,800 in
2000 and $110,000 in 1999. Goodwill arising from business acquisitions through
June 30, 2001, was amortized on a straight-line basis over periods ranging from
15 to 40 years. Goodwill arising from business acquisitions after June 30,
2001, ($129,068) was not amortized, in accordance with Statement of Financial
Accounting Standards No. 142, `Goodwill and Other Intangible Assets' (FAS 142).
THE COMPANY EVALUATES, AT EACH BALANCE SHEET DATE, THE RECOVERABILITY OF
GOODWILL FOR EACH OPERATION HAVING A GOODWILL BALANCE. Amortization expense
amounted to $12,554 in 2001, $12,168 in 2000, and $10,700 in 1999. Accumulated
amortization at December 31, 2001, 2000 and 1999 was $75,894, $66,370 and
$58,934, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, `Business Combinations'
(FAS 141), and FAS 142. FAS 141 supercedes Accounting Principles Board Opinion
(APB) No. 16, `Business Combinations.' The provisions of FAS 141 (1) require
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, (2) provide specific criteria for the initial
recognition and measurement of intangible assets apart from goodwill and (3)
require that unamortized negative goodwill be written off immediately as an
extraordinary gain instead of being deferred and amortized. FAS 141 also
requires that, upon adoption of FAS 142, the Company reclassify the carrying
amounts of certain intangible assets into or out of goodwill, based on certain
criteria. FAS 142 supercedes APB 17, `Intangible Assets,' and is effective for
fiscal years beginning after December 15, 2001. FAS 142 primarily addresses the
accounting for goodwill and intangible assets subsequent to their initial
recognition. The provisions of FAS 142 (1) prohibit the amortization of
goodwill and indefinite-lived intangible assets, (2) require that goodwill and
indefinite lived intangible assets be tested annually for impairment (and in
interim periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived intangible assets may be impaired), (3)
require that reporting units be identified for the purpose of assessing
potential future impairments of goodwill and (4) remove the 40-year limitation
on the amortization period of intangible assets that have finite lives.
The provisions of FAS 141 and FAS 142 also apply to equity-method
investments made both before and after June 30, 2001. FAS 141 requires that the
unamortized deferred credit related to an excess over cost arising from an
investment that was accounted for using the equity method (equity-method
negative goodwill), and that was acquired prior to July 1, 2001, must be
written-off immediately and recognized as the cumulative effect of a change in
accounting principle. Equity-method negative goodwill arising from equity
investments made after June 30, 2001, must be written-off immediately and
recorded as an extraordinary gain, instead of being deferred and amortized. FAS
142 prohibits amortization of the excess of cost over the underlying equity in
the net assets of an equity-method investee that is recognized as goodwill.
The provisions of FAS 142 will be adopted by the Company on January 1,
2002. The Company is in the process of preparing for its adoption of FAS 142
and is making the determinations as to what its reporting units are and what
amounts of goodwill, intangible assets, other assets, and liabilities should be
allocated to these reporting units. In connection with the adoption of FAS 142,
the Company expects to reclassify goodwill of approximately $10,000 to
intangible assets. The Company does not expect to reclassify any intangible
assets to goodwill. In addition, the Company expects that it will no longer
record approximately $11,000 annually of amortization relating to its existing
goodwill and
42
<PAGE>
indefinite-lived intangibles, as adjusted for the reclassifications referred
to above. The Company is also in the process of evaluating the useful lives of
its existing intangible assets and anticipates that changes in the useful lives
will not have a material impact on the results of its operations.
FAS 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step is to identify a potential impairment
and, in transition, this step must be measured as of the beginning of the fiscal
year. However, a company has six months from the date of adoption to complete
the first step. The second step of the goodwill impairment test measures the
amount of the impairment loss (also measured as of the beginning of the fiscal
year in year of transition), if any, and must be completed by the end of the
Company's fiscal year. Intangible assets deemed to have an indefinite life will
be tested for impairment using a one-step process that compares the fair value
to the carrying amount of the asset as of the beginning of the fiscal year, and
pursuant to the requirements of FAS 142 will be completed during the first
quarter of 2002. Any impairment loss resulting from the transitional impairment
tests in 2002 will be reflected as the cumulative effect of a change in
accounting principle. The Company has not yet determined what effect these
impairment tests, or what additional effects the adoption of FAS 141 and FAS
142, will have on its financial statements.
8. INVESTMENT IN LIFE INSURANCE
Corporate-owned life insurance (COLI) policies were used by the Company to aid
in the financing of employee benefits and were recorded net of policy loans in
"Other Assets" on the Consolidated Balance Sheets. The net pretax cost of COLI,
including interest expense and excluding 2001 policy surrender charges of
$7,026, was $1,397 in 2001, $1,615 in 2000, and $2,392 in 1999 and is included
in "Selling, general and administrative expenses" in the Company's Consolidated
Statements of Income.
The related COLI interest expense was $3,043 in 2001, $10,058 in
2000, and $17,108 in 1999. Legislation was enacted in 1996 that began phasing
out the tax deductibility of this interest. Accordingly, no deduction was taken
in 2001, 2000 or 1999 for interest on policy loans. In April 2001, the Company
surrendered its COLI policies as a result of a settlement with the Internal
Revenue Service over deductibility of COLI loan interest. The surrender of
these policies resulted in additional income taxes of $11,295 and other costs
of $7,026. Other costs are included in "Other (income) expense, net" in the
Company's Consolidated Statements of Income. See Note 13 for further details.
9. DEBT
Debt at December 31 was as follows:
<TABLE>
<CAPTION>
2001 2000
- -----------------------------------------------------------------
<S> <C> <C>
Commercial paper, average
rate of 4.07% in 2001
and 6.3% in 2000 $158,000 $332,000
6.5% debentures due
November 2013 248,570
7.0% debentures due
November 2004 149,965 149,935
6.75% debentures due
November 2010 99,847 99,861
5.875% debentures due
November 2003 99,874 99,807
9.2% debentures due
August 2021 41,305 41,305
6.125% IRBs due June 2025 34,580 34,556
6.0% IRBs due April 2026 34,233 34,202
Foreign denominated debt,
average rate of 11.5% in
2001 and 10% in 2000 34,599 45,411
Other notes 20,837 20,564
- -----------------------------------------------------------------
Total debt 921,810 857,641
Less current portion and
short-term notes 35,849 45,556
- -----------------------------------------------------------------
Long-term debt $885,961 $812,085
=================================================================
</TABLE>
The Company has authorized a commercial paper program totaling
$450,000 and has fully committed bank lines of credit supporting the program by
a like amount. These bank lines expire in the year 2002 but may be extended
into 2003 under a term-out option. It is management's intent to maintain
indefinitely 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 $695,000 increased by 25% of net income
after June 30, 2001, and decreased by stock purchases after July 18, 2001.
In addition to the committed availability under the commercial paper
program, unused short-term lines of credit for general Company purposes at
December 31, 2001, were approximately $192,811 with interest at mutually
agreed-upon rates.
The approximate principal requirements of debt maturing in the next
five years are: 2002-$35,849, 2003-$103,358, 2004-$153,659, 2005-$2,666, and
2006-$2,196.
43
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
10. 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 discounted
future cash flows using interest rates available to the Company for issues with
similar terms and average maturities.
<TABLE>
<CAPTION>
DECEMBER 31, 2001 December 31, 2000
- ---------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT OF VALUE OF Amount of Value of
LIABILITY LIABILITY Liability Liability
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term
debt $885,961 $882,554 $812,085 $798,949
=========================================================================================================
</TABLE>
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 a
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 or to be deferred in
accumulated other comprehensive income (loss), a component of shareholders'
equity, until the hedged item is recognized in results of operations. The
Company uses published market prices or estimated values based on current price
quotes and a discounted cash flow model to estimate the fair market value of
the swaps.
The Company uses derivatives from time to time to manage the cost of
certain raw materials, to mitigate exposure to foreign currency fluctuation,
and to manage its exposure to fixed and variable interest rates within
acceptable limits. The Company purchases commodities such as recovered paper,
resins, metal, and energy generally 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. The Company may
enter into commodity futures or swaps to reduce the effect of price
fluctuations. In addition, the Company uses foreign currency forward contracts
and other risk management instruments, including contractual provisions, to
manage exposure to changes in foreign currency cash flows and the translation
of monetary assets and liabilities on the Company's financial statements.
In 2001, the Company entered into cash flow hedges to mitigate
exposure to commodity and foreign exchange risks in 2001 through mid 2003. The
fair market value of these derivatives as of December 31, 2001 was $825 after
tax and will be reclassified to expense in the same periods the forecasted
purchases or payments affect earnings. Based on the current amount of the
derivative loss in other comprehensive loss, $667 after tax will be
reclassified to expense in 2002. As a result of the high correlation between
the hedged instruments and the underlying transactions, ineffectiveness did not
have a material impact on the Company or on its Consolidated Statement of
Income for the year ended December 31, 2001.
11. STOCK PLANS
The Company has stock option plans under which common shares are reserved for
sale to certain employees and nonemployee 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 4,522,436 shares reserved for future grants
at December 31, 2001.
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 1,035,800 options granted under
the Centennial Share Program were outstanding at December 31, 2001.
A summary of the status of the Company's stock option plans is
presented below:
<TABLE>
<CAPTION>
Option Weighted-
Shares Average Price
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1999
Outstanding at beginning of year 8,549,277 $24.17
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
- ----------------------------------------------------------------------------------------
2001
Granted 1,748,603 $23.83
Exercised (832,498) $17.16
Canceled (381,976) $28.81
Outstanding at end of year 10,489,972 $24.63
Options exercisable at end of year 8,712,119 $24.87
========================================================================================
</TABLE>
The weighted-average fair value of options granted was $4.79, $4.77 and $5.75
in 2001, 2000 and 1999, respectively.
44
<PAGE>
The following tables summarize information about stock options
outstanding and stock options exercisable at December 31,2001:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------
Weighted- Weighted-
Average Average
Range of Number Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
$14.59-$21.88 3,388,174 4.5 years $19.75
$22.01-$24.95 3,625,725 6.7 years $24.07
$25.00-$37.10 3,476,073 7.1 years $31.85
----------
$14.59-$37.10 10,489,972 6.1 years $24.63
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------------------
Weighted-
Average
Range of Number Exercise
Exercise Prices Outstanding Price
- -------------------------------------------------------------------
<S> <C> <C>
$14.59-$21.88 3,378,924 $19.74
$22.01-$24.95 1,930,880 $24.29
$25.00-$37.10 3,402,315 $30.50
---------
$14.59-$37.10 8,712,119 $24.87
===================================================================
</TABLE>
On December 31,2001, 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 247,000 to 989,000 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.
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, 2001, a total of 418,307
contingent shares granted under this plan remain outstanding, 260,451 of which
are vested. For the years ended December 31, 2001, 2000 and 1999, the Company
recognized compensation expense of $1,137, $558 and $644, respectively, related
to grants of these awards.
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 plans been determined consistent with the fair market value
provisions of FAS 123, the Company's net income and net income per common
share, on a diluted basis, would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
2001 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $91,609 $166,298 $187,805
Net income - pro forma 86,349 159,302 180,323
Earnings per share -
as reported .96 1.66 1.83
Earnings per share -
pro forma .90 1.59 1.75
============================================================================================
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
2001 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 2.6% 2.5% 2.4%
Expected stock price volatility 20.3% 21.0% 20.3%
Risk-free interest rate 4.9% 6.6% 4.8%
Expected life of options 5 YEARS 5 years 5 years
=============================================================================================
</TABLE>
12. 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 include the
following:
<TABLE>
<CAPTION>
2001 2000 1999
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETIREMENT PLANS
Service cost $ 14,965 $ 13,713 $ 16,897
Interest cost 44,429 42,315 39,565
Expected return on plan assets (62,748) (69,361) (61,257)
Amortization of net
transition asset (435) (384) (444)
Amortization of prior
service cost 1,576 1,635 2,044
Amortization of net
actuarial (gain) loss 504 (3,335) 461
Special termination
benefit cost 5,180 979
Acquisitions 48
Effect of curtailment 348
- --------------------------------------------------------------------------------------------
Net periodic benefit
cost (income) $ 3,519 $(14,090) $ (2,734)
============================================================================================
RETIREE HEALTH AND LIFE
INSURANCE PLANS
Service cost $ 3,746 $ 2,928 $ 3,775
Interest cost 9,438 8,155 8,372
Expected return on plan assets (6,248) (7,180) (6,181)
Amortization of prior
service cost (5,949) (6,130) (5,633)
Amortization of net
actuarial loss 4,139 1,595 1,257
Special termination
benefit cost 41
- --------------------------------------------------------------------------------------------
Net periodic benefit
cost (income) $ 5,126 $ (591) $ 1,590
============================================================================================
</TABLE>
45
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
The following tables set forth the plans' obligations and assets at
December 31:
<TABLE>
<CAPTION>
Retiree Health and
Retirement Plans Life Insurance Plans
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation
at January 1 $ 609,164 $ 563,565 $ 133,349 $ 102,572
Service cost 14,965 13,713 3,746 2,928
Interest cost 44,429 42,315 9,438 8,155
Plan participant
contributions 1,066 954
Plan amendments 359 753 742 (7,057)
Actuarial loss 29,433 24,142 23,012 37,031
Benefits paid (36,185) (36,932) (9,799) (10,743)
Special termination
benefit cost 5,180
Acquisitions 5,316 3,569
Other 3,290 654 (2,806) 463
- ---------------------------------------------------------------------------------------------------
Benefit obligation
at December 31 $ 677,017 $ 609,164 $ 161,251 $ 133,349
===================================================================================================
CHANGE IN
PLAN ASSETS
Fair value of plan
assets at January 1 $ 693,749 $ 772,036 $ 75,596 $ 82,383
Actual return on
plan assets (52,011) (43,883) (4,604) (4,380)
Company
contributions 18,912 4,564 1,228 8,539
Plan participant
contributions 1,066 954
Benefits paid (36,185) (36,932) (9,799) (10,743)
Acquisitions 6,467
Other (3,049) (2,990) (207) (203)
- ---------------------------------------------------------------------------------------------------
Fair value of
plan assets at
December 31 $ 628,949 $ 693,749 $ 62,214 $ 75,596
===================================================================================================
RECONCILIATION OF
FUNDED STATUS,
DECEMBER 31
Funded status
of plan $ (48,068) $ 84,585 $ (99,037) $ (57,753)
Unrecognized net
actuarial loss 163,787 23,248 87,501 57,568
Unrecognized prior
service cost 9,663 10,959 (20,695) (27,386)
Unrecognized
net transition
obligation 4,971 3,939
- ---------------------------------------------------------------------------------------------------
Net amount
recognized $ 130,353 $ 122,731 $ (32,231) $ (27,571)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Retirement Plans
2001 2000
- --------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL RECOGNIZED AMOUNTS IN THE
CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost included
in other assets $ 153,461 $ 147,728
Accrued benefit liability (54,505) (33,645)
Intangible asset 2,727 2,889
Accumulated other comprehensive loss 28,670 5,759
- --------------------------------------------------------------------------------------
Net amount recognized $ 130,353 $ 122,731
======================================================================================
</TABLE>
The projected benefit obligation (PBO), accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $53,897, $51,067 and
$7,366, respectively, as of December 31, 2001, and $43,598, $41,014 and
$7,369, respectively, as of December 31, 2000.
The weighted-average discount rate used in determining the PBO was
7.25% in 2001, 7.5% in 2000 and 7.75% in 1999. The assumed compensation increase
was 4.1% for all years presented. The expected long-term rate of return on plan
assets was 9.5% for all years presented. For purposes of the Retiree Health and
Life Insurance Plans, the assumed healthcare cost trend rates were 12% beginning
in 2001 and declining to 6% in 2008 and continuing into the future. Effective
in 2003, the Company has amended its plans such that cost increases borne by
the Company are limited to the Urban CPI. 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 $1,700 and $143, 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 $2,551 and $208, respectively.
The Company also sponsors the Sonoco Savings Plan, a defined
contribution retirement plan (formerly the Sonoco Employee Savings and Stock
Ownership Plan). The plan provides that all eligible employees may contribute 1%
to 16% of their gross pay, subject to regulations of the Internal Revenue
Service, with 50% vesting after one year and 100% vesting after two years. In
2001, the Company made matching contributions of 50% on the first 6% of pretax
and/or after-tax contributions as approved by the Company's Board of Directors.
Beginning in 2002, the Company adopted the Internal Revenue Service "Safe
Harbor" matching contributions and vesting provisions which provide 100% Company
matching on the first 3% of pretax contributions, 50% Company matching on the
next 2% of pretax contributions, and 100% immediate vesting. The plan also
provides for contributions of 1% to 20% of gross pay beginning in 2002. The
Company's contributions to the plan for 2001, 2000 and 1999 were $8,688, $7,734
and $7,191, respectively.
46
<PAGE>
13. 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 for taxes on income for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
2001 2000 1999
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Pretax income
Domestic $ 127,544 $ 206,928 $ 269,204
Foreign 48,237 63,667 20,356
- ---------------------------------------------------------------------------------
Total pretax income $ 175,781 $ 270,595 $ 289,560
=================================================================================
Current
Federal $ 40,664 $ 64,321 $ 68,927
State 4,177 11,485 5,700
Foreign 16,112 16,011 15,898
- ---------------------------------------------------------------------------------
Total current $ 60,953 $ 91,817 $ 90,525
=================================================================================
Deferred
Federal $ 19,064 $ 14,512 $ 12,973
State 2,056 4,079 2,410
Foreign 885 1,591 2,677
- ---------------------------------------------------------------------------------
Total deferred $ 22,005 $ 20,182 $ 18,060
- ---------------------------------------------------------------------------------
Total taxes $ 82,958 $ 111,999 $ 108,585
=================================================================================
</TABLE>
Cumulative deferred tax liabilities (assets) are comprised of the
following at December 31:
<TABLE>
<CAPTION>
2001 2000
- ---------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 82,593 $ 64,141
Employee benefits 66,637 48,998
Other 25,699 35,752
- ---------------------------------------------------------------------------
Gross deferred tax liabilities 174,929 148,891
- ---------------------------------------------------------------------------
Retiree health benefits (11,466) (14,100)
Foreign loss carryforwards (7,293) (10,397)
Capital loss carryforwards (11,160) (11,160)
Employee benefits (26,899) (24,599)
Accrued liabilities and other (30,670) (15,201)
- ---------------------------------------------------------------------------
Gross deferred tax assets (87,488) (75,457)
- ---------------------------------------------------------------------------
Valuation allowance on
deferred tax assets 21,727 25,530
- ---------------------------------------------------------------------------
Total deferred taxes, net $ 109,168 $ 98,964
===========================================================================
</TABLE>
The net change in the valuation allowance for deferred tax assets is a
net decrease of $3,803 in 2001, compared with a net decrease of $2,407 in 2000.
The decrease of $3,803 is related primarily to realization of net operating loss
carryforwards of foreign subsidiaries.
Approximately $25,000 of foreign subsidiary net operating loss
carryforwards remain at December 31,2001. Their use is limited to future taxable
earnings of the respective foreign subsidiaries. Of these loss carryforwards,
approximately $13,000 have no expiration date. The remaining loss carryforwards
expire at various dates in the future.
A reconciliation of the United States federal statutory tax rate to the
actual consolidated tax expense is as follows:
<TABLE>
<CAPTION>
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $61,523 35.0% $ 94,708 35.0% $101,346 35.0%
State income taxes, net
of federal tax benefit 4,096 2.3 6,672 2.5 5,272 1.8
Goodwill 1,508 .9 1,960 .7 1,166 .4
Asset impairment and
dispositions 500 .2 (1,225) (.4)
COLI 14,613 8.3 12,565 4.6 837 .3
Other, net 1,218 .7 (4,406) (1.6) 1,189 .4
- ------------------------------------------------------------------------------------------------------------------------------
Total taxes $ 82,958 47.2% $ 111,999 41.4% $ 108,585 37.5%
==============================================================================================================================
</TABLE>
Undistributed earnings of international subsidiaries totaled $121,779
at December 31, 2001. Deferred taxes have been provided on the undistributed
earnings, except for amounts that the Company considers 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, 2001, the Company had 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.
During 2001, the Company reached a settlement with the Internal Revenue
Service (IRS) regarding its examination for the years 1993 through 1995 and, the
deductibility of interest arising from Corporate-Owned Life Insurance (COLI) for
the years 1993 through 1998. Furthermore, the Company reached agreement with the
IRS regarding the taxation arising from the surrender in 2001 of the COLI
policies. The Company recorded $14,613 of additional income tax in 2001 related
to COLI, $11,295 of which was related to the surrender of these policies.
Currently, the Company's federal tax returns for the years 1996 through 1998 are
under examination. The Company believes it has made adequate provisions for
income taxes that may become payable with respect to these years.
14. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business
and is subject to a variety of environmental and pollution control laws and
regulations in all jurisdictions in which it operates. As is the case with other
companies in similar industries, the Company faces exposure from actual or
potential claims and legal proceedings.
47
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands except per share data)
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 accrued
approximately $7,220 and $4,000 as of December 31, 2001 and 2000, respectively,
related to these contingencies. 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. ACCRUED AMOUNTS ARE NOT
DISCOUNTED. Although the level of future expenditures for legal and
environmental matters is impossible to determine with any degree of probability,
it is management's opinion that such costs, when finally determined, will not
have an adverse material effect on the consolidated financial position of the
Company.
15. SHAREHOLDERS' EQUITY
STOCK REPURCHASES
On February 7, 2001, 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. No shares were repurchased under this program in 2001. Under
previous authorizations, the Company repurchased 92,400 shares in the second
quarter of 2001 and 560 shares in the fourth quarter of 2001, for a total of
92,960 shares repurchased in 2001. The total cost of the shares repurchased in
2001 was $2,055 for an average price of $22.11 per share. In 2000, the Company
repurchased 7,133,200 shares of its common stock at a total cost of $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. At December 31, 2001, the Company had authorizations
to repurchase approximately 5,300,000 shares of common stock.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
2001 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $ 91,609 $ 166,298 $ 187,805
- --------------------------------------------------------------------------------------------------
Denominator:
Average common
shares outstanding 95,370 99,725 101,886
Dilutive effect of
employee stock options 437 175 894
- --------------------------------------------------------------------------------------------------
Diluted outstanding shares 95,807 99,900 102,780
Net income per common share
Basic $ .96 $ 1.67 $ 1.84
Diluted $ .96 $ 1.66 $ 1.83
==================================================================================================
</TABLE>
Stock options to purchase approximately 3,605, 7,287 and 3,426 shares
for 2001, 2000 and 1999, respectively, were not dilutive and therefore were not
included in the computations of diluted income per common share amounts. No
adjustments were made to reported net income in the computation of earnings per
share.
16. COMPREHENSIVE INCOME
The following table summarizes the components of accumulated other comprehensive
income (loss) and the changes in accumulated comprehensive income (loss), net of
tax, for the years ended December 31, 2001 and 2000:
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustments Other Loss
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 2000 $ (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)
Change during 2001 (8,827) (15,914) $ (825) (25,566)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ (177,642) $ (19,502) $ (825) $ (197,969)
======================================================================================================================
</TABLE>
The cumulative tax benefit of the Minimum Pension Liability Adjustments
was $9,168 and $2,171 in 2001 and 2000, respectively. Additionally, the tax
benefit of Other items was $496 in 2001.
48
<PAGE>
17. 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; 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. 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; and the United Kingdom labels
operation sold in 1999.
<TABLE>
<CAPTION>
Years ended Industrial Consumer
December 31 Packaging Packaging Corporate Consolidated
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL REVENUE
2001 $1,733,203 $1,329,950 $3,063,153
2000 1,492,772 1,260,692 2,753,464
1999 1,415,469 1,174,809 2,590,278
INTERSEGMENT SALES(1)
2001 $ 38,053 $ 38,053
2000 41,971 41,971
1999 43,544 43,544
SALES TO UNAFFILIATED CUSTOMERS
2001 $1,309,957 $1,296,319 $2,606,276
2000 1,450,801 1,260,692 2,711,493
1999 1,371,925 1,174,809 2,546,734
OPERATING PROFIT(2)
2001 $ 143,805 $ 90,967 $(58,991) $ 175,781
2000 212,560 119,344 (61,309) 270,595
1999 188,704 148,008 (47,152) 289,560
IDENTIFIABLE ASSETS(3)
2001 $1,191,569 $ 762,728 $397,900 $2,352,197
2000 1,126,079 675,708 410,824 2,212,611
1999 1,208,056 706,052 382,912 2,297,020
DEPRECIATION, DEPLETION AND AMORTIZATION
2001 $ 93,998 $ 64,576 $ 158,574
2000 92,799 58,017 150,816
1999 91,235 54,611 145,846
CAPITAL EXPENDITURES
2001 $ 57,527 $ 44,456 $ 101,983
2000 67,426 49,725 117,151
1999 81,093 54,635 135,728
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Intersegment sales are recorded at a market-related transfer price.
(2) Industrial Packaging's 2001 and 2000 operating profit include restructuring
charges of $(23,603) and $(1,155), respectively; 2001 includes a gain on
net legal settlements of $7,252. Consumer Packaging's 2001 and 2000
operating profit include restructuring charges of $(26,399) and $(4,071),
respectively; 2000 and 1999 include gains on the sales of divested
businesses of $5,182 and $3,500, respectively. Interest expense and
interest income are excluded from operating profit by segment and are shown
under Corporate. Corporate's 2001 operating profit include a $(7,026)
corporate-owned life insurance adjustment and a $(3,549) restructuring
charge; 2000 operating profit 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
Sales to unaffiliated customers and long-lived assets by geographic region are
as follows:
<TABLE>
<CAPTION>
2001 2000 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES TO UNAFFILIATED
CUSTOMERS
United States $ 1,877,589 $ 1,981,178 $ 1,881,472
Europe 300,541 298,419 313,457
Canada 207,802 215,226 162,574
All other 220,344 216,670 189,231
- ------------------------------------------------------------------------------------
Total $ 2,606,276 $ 2,711,493 $ 2,546,734
- ------------------------------------------------------------------------------------
LONG-LIVED ASSETS
United States $ 957,868 $ 794,053 $ 821,291
Europe 170,764 159,778 185,336
Canada 128,846 129,373 135,602
All other 111,179 126,999 144,854
- ------------------------------------------------------------------------------------
Total $ 1,368,657 $ 1,210,203 $ 1,287,083
====================================================================================
</TABLE>
18. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" (FAS 143), which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. FAS 143 is required to be adopted for fiscal years beginning after
June 15, 2002. The Company has not yet determined what effect, if any, this
statement will have on its financial statements.
Also in August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (FAS 144), which supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This new statement also supersedes certain aspects of APB 30 "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," with regard to reporting the effects of a disposal of a segment
of a business. FAS 144 will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred (rather than as of the measurement date as presently required by
APB 30). In addition, more dispositions may qualify for discontinued operations
treatment. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. The Company does not expect the adoption of FAS 144 to have a
material effect on its financial statements.
See Note 7 for disclosures regarding the adoptions of FAS 141 and
FAS 142.
49
<PAGE>
Selected Eleven-Year Financial Data (Unaudited)
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
Years ended December 31 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $2,606,276 $2,711,493 $2,546,734 $2,557,917 $2,847,831
Cost of sales and operating expenses 2,328,754 2,379,545 2,213,522 2,269,810 2,505,531
Interest expense 52,217 59,604 52,466 54,779 57,194
Interest income (3,800) (3,794) (5,314) (5,916) (4,971)
Unusual items(1) 53,324 5,543 (3,500) (100,354) 226,358
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 175,781 270,595 289,560 339,598 63,719
Provision for income taxes(3) 82,958 111,999 108,585 153,989 60,111
Equity in earnings of affiliates/
Minority interest(4) (1,214) 7,702 6,830 6,387 (991)
- --------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles
and extraordinary loss 91,609 166,298 187,805 191,996 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 91,609 166,298 187,805 180,243 2,617
Preferred dividends (3,061)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to
common shareholders $ 91,609 $ 166,298 $ 187,805 $ 180,243 $ (444)
================================================================================================================================
Per common share
Net income available to
common shareholders:
Basic .96 1.67 1.84 1.76 .00
Diluted .96 1.66 1.83 1.73 .00
Cash dividends - common .80 .79 .75 .704 .641
Average common shares outstanding:
Basic 95,370 99,725 101,886 102,632 100,981
Diluted 95,807 99,900 102,780 104,275 107,350
Actual common shares outstanding at
December 31 95,713 95,006 101,448 101,683 105,417
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Net working capital 204,899 258,713 306,450 225,347 438,896
Property, plant and equipment, net 1,008,944 973,470 1,032,503 1,013,843 939,542
Total assets 2,352,197 2,212,611 2,297,020 2,082,983 2,159,932
Total debt 921,810 857,641 904,137 783,632 796,359
Shareholders' equity 804,122 801,471 901,220 821,592 848,819
Current ratio 1.4 1.6 1.7 1.5 2.0
Total debt to total capital(2) 49.3% 48.5% 47.5% 46.7% 46.1%
Book value per common share 8.40 8.44 8.88 8.08 8.05
- --------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Depreciation, depletion and
amortization expense 158,574 150,816 145,846 145,669 153,524
Cash dividends declared-common 76,080 78,718 76,434 72,028 64,639
Market price per common share (ending) 26.58 21.63 22.75 29.63 31.54
Return on total equity (including
preferred stock)(1) 11.5% 19.1% 21.9% 22.0% .3%
Return on net sales(1) 3.5% 6.1% 7.4% 7.0% .0%
================================================================================================================================
<CAPTION>
Years ended December 31 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Net sales $2,788,075 $2,706,173 $2,300,127 $1,947,224 $1,838,026 $1,697,058
Cost of sales and operating expenses 2,458,710 2,396,284 2,055,734 1,734,980 1,641,075 1,528,543
Interest expense 55,481 44,004 35,861 31,154 30,364 28,186
Interest income (6,191) (4,905) (2,398) (6,017) (6,416) (6,870)
Unusual items(1) (5,800) 42,000 (8,525)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 280,075 270,790 210,930 192,907 131,003 155,724
Provision for income taxes(3) 107,433 106,640 82,500 75,200 51,800 63,600
Equity in earnings of affiliates/
Minority interest(4) (1,771) 369 1,419 1,127 2,048 2,681
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles
and extraordinary loss 170,871 164,519 129,849 118,834 81,251 94,805
Cumulative effect of changes in
accounting principles (FAS 106
and FAS 109) (37,892)
Extraordinary loss, net of income
tax benefit
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 170,871 164,519 129,849 118,834 43,359 94,805
Preferred dividends (7,196) (7,763) (7,763) (1,264)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to
common shareholders $ 163,675 $ 156,756 $ 122,086 $ 117,570 $ 43,359 $ 94,805
===================================================================================================================================
Per common share
Net income available to
common shareholders:
Basic 1.64 1.56 1.21 1.17 .43 .95
Diluted 1.58 1.49 1.19 1.08 .43 .95
Cash dividends - common .586 .524 .481 .459 .425 .398
Average common shares outstanding:
Basic 99,564 100,253 100,590 100,849 100,176 99,682
Diluted 108,487 110,111 109,420 109,711 101,112 100,225
Actual common shares outstanding at
December 31 98,850 100,229 100,379 101,001 100,651 99,897
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Net working capital 262,533 229,328 222,068 209,932 152,478 163,860
Property, plant and equipment, net 995,415 865,629 763,109 737,154 614,018 580,787
Total assets 2,365,896 2,098,157 1,821,414 1,696,349 1,241,783 1,135,940
Total debt 893,088 686,792 547,380 515,826 316,010 283,199
Shareholders' equity 920,613 918,749 832,218 788,364 561,890 562,306
Current ratio 1.6 1.5 1.6 1.7 1.5 1.6
Total debt to total capital(2) 47.2% 39.6% 38.1% 38.0% 35.1% 30.6%
Book value per common share 8.10 7.45 6.57 6.10 5.58 5.63
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Depreciation, depletion and
amortization expense 142,927 125,836 112,797 95,745 83,309 76,561
Cash dividends declared-common 58,480 53,145 48,287 46,333 42,443 39,703
Market price per common share (ending) 23.53 23.86 18.94 19.05 20.67 14.94
Return on total equity (including
preferred stock)(1) 18.3% 18.7% 16.0% 19.0% 13.7% 17.8%
Return on net sales(1) 6.1% 6.1% 5.6% 6.1% 4.4% 5.6%
===================================================================================================================================
</TABLE>
(1) 2001 data reflects net one-time charges of $53,324 pretax, or $50,403 after
tax, for the net gain from legal settlements, corporate-owned-life
insurance (COLI) and restructuring costs. 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.
(2) Debt levels for 1995 through 2000 have been adjusted for cash related to
the issuance of restricted-purpose bonds.
(3) The provision for income taxes in 2001 and 2000 include $14,613 and
$12,000, respectively, related to COLI.
(4) 2001 includes restructuring charges of $9,986, pretax, and $6,591 after
tax.
50
<PAGE>
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 income, changes in shareholders' equity and cash
flows (appearing on pages 36 through 49 of this report) present fairly, in all
material respects, the consolidated financial position of Sonoco Products
Company at December 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2001, 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, 2002
[PHOTO]
Seated (L-R): Charlie Coker,
Caleb Fort, Ed Lawton,
Thomas Whiddon,
Bob Brown, Dona Young
and Fitz Coker.
Standing (L-R): Alan
Dickson, Charlie Bradshaw,
Harris DeLoach, Paul
Fulton, Hugh McColl,
Tom Coxe, Bernard Kasriel
and James Coker.
REPORT OF MANAGEMENT
The management of Sonoco Products Company is responsible for the integrity and
objectivity of the financial statements and other financial information included
in this annual report. These statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
Sonoco's accounting systems are supported by internal control systems
augmented by written policies, internal audits and the selection and training of
qualified personnel.
The Board of Directors, through its Audit Committee consisting of
outside directors, is responsible for reviewing and monitoring the Company's
financial reporting and accounting practices. This committee meets periodically
with management, the internal auditors and the independent accountants to assure
each is carrying out its responsibilities.
PricewaterhouseCoopers LLP, independent accountants, have audited the
financial statements, and their report is herein.
/s/ Charles J. Hupfer
- ------------------------------------
Charles J. Hupfer
Vice President, Treasurer, Corporate Secretary
and Chief Financial Officer
51
<PAGE>
BOARD OF DIRECTORS
CHARLES W. COKER, 68
Chairman of the Board since 1990. Formerly Chairman & Chief Executive Officer
1990-1998. Served on Board since 1962.
CHARLES J. BRADSHAW, 65
President & Director, Bradshaw Investments, Inc. (private investments),
Georgetown, S.C., since 1986. Served on Board since 1986. Member of the Audit &
Compensation Committees.
ROBERT J. BROWN, 67
Founder, Chairman & Chief Executive Officer of B&C Associates (a public
relations and marketing research firm), High Point, N.C., since 1973. Served on
Board since 1993. Member of the Audit & Employee/Public Responsibility
Committees.
FITZ L.H. COKER, 66
Retired, formerly Sr. Vice President 1976-1979. Served on Board since 1964.
Member of the Employee/Public Responsibility Committee.
JAMES L. COKER, 61
President, JLC Enterprises (private investments), Stonington, Conn., since 1979.
Served on Board since 1969. Member of the Employee/Public Responsibility & Audit
Committees.
THOMAS C. COXE, III, 71
Retired, formerly Sr. Executive Vice President 1993-1996. Served on Board since
1982. Member of the Employee/Public Responsibility & Corporate Governance
Committees.
HARRIS E. DELOACH, JR., 57
President & Chief Executive Officer since 2000. Served on Board since 1998.
ALAN T. DICKSON, 70
Chairman, Ruddick Corporation (a diversified holding company), Charlotte, N.C.,
since 1994. Served on Board since 1981. Member of the Compensation, Corporate
Governance & Executive Committees.
CALEB C. FORT, 40
Principal & Co-Chairman, The Merit Group, Inc. (supplier to the paint and
wallcovering industries), Spartanburg, S.C., since 1990. Served on the Board
since July 2001. Member of Employee/Public Responsibility Committee.
PAUL FULTON, 67
Chairman, Bassett Furniture Industries, Bassett, Va., since 2000. Formerly Dean,
Kenan-Flagler Business School, University of N.C., Chapel Hill, N.C., 1993-1997.
Served on Board since 1989. Member of the Compensation, Audit & Corporate
Governance Committees.
BERNARD L.M. KASRIEL, 55
Vice Chairman & Chief Operating Officer, Lafarge (a construction materials
group), Paris, France, since 1995. Served on Board since 1995. Member of the
Audit, Corporate Governance & Compensation Committees.
EDGAR H. LAWTON, III, 41
President & Treasurer, Hartsville Oil Mill (a vegetable oil processor),
Darlington, S.C., since 2000. Served on Board since July 2001. Member of the
Audit Committee.
HUGH L. MCCOLL, JR., 66
Chairman, McColl Brothers Lockwood (private bankers), Charlotte, N.C., since
2001. Formerly Chairman & Chief Executive Officer, Bank of America Corporation,
Charlotte, N.C., 1983-2001. Served on Board since 1972. Member of the
Compensation & Executive Committees.
THOMAS E. WHIDDON, 49
Executive Vice President-Logistics and Technology, Lowe's Companies, Inc., North
Wilkesboro, N.C., since 2000. Served on Board since February 2001. Member of
Audit & Employee/Public Responsibility Committees.
DONA DAVIS YOUNG, 48
President & Chief Operating Officer, The Phoenix Companies, Inc., Hartford,
Conn., since 2001. Served on Board since 1995. Member of the Employee/Public
Responsibility, Compensation & Corporate Governance Committees.
[PHOTO[
52
<PAGE>
EXECUTIVE COMMITTEE
Officers
HARRIS E. DELOACH, JR., 57
President & Chief Executive Officer since 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, 51
Sr. Vice President-Global Paper Operations. Previously Vice President & General
Manager, Paper; Vice President-Manufacturing North America, Paper 1994-1997;
Director of Manufacturing 1993-1994. Joined Sonoco in 1972.
ALLAN V. CECIL, 60
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.
CYNTHIA A. HARTLEY, 53
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.
RONALD E. HOLLEY, 59
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.
HARRY J. MORAN, 69
Executive Vice President responsible for Folding Cartons, Protective Packaging,
High Density/Film, Coasters and Glass Covers, Wire and Cable Reels, Graphics
Management, and Packaging Services. Previously Executive Vice President-Consumer
Packaging 1996-1998; Group Vice President-Consumer Packaging 1993-1996. Joined
Sonoco in 1983.
EDDIE L. SMITH, 50
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, JR., 58
Sr. Vice President-Global Consumer Products. Previously Regional Director for
Cargill Asia/Pacific. Joined Sonoco in 2000.
[PHOTO]
Seated (L-R): Charles Sullivan,
Harris DeLoach, Allan Cecil
and Eddie Smith.
Standing (L-R):
Harry Moran,
Cindy Hartley,
Jim Bowen and
Ronnie Holley.
53
<PAGE>
OFFICERS
Corporate
BERNARD W. CAMPBELL, 52
Vice President-Information Services. Previously Staff Vice President-
Information Services 1991-1996; Director-Corporate Information Services
1990-1991. Joined Sonoco in 1988.
LARRY O. GANTT, 64
Vice President-Operating Excellence. Previously Staff Vice President-Operating
Excellence 1997-2000; Division Vice President-Global Operations, Consumer
Products 1994-1997; Division Vice President-Manufacturing, Consumer Products.
Joined Sonoco in 1963.
CHARLES J. HUPFER, 55
Vice President-Treasurer, Corporate Secretary &Chief Financial Officer.
Previously Treasurer 1988-1995; Director of Tax & Audit 1985-1988;
Director-International Finance & Accounting 1980-1985. Joined Sonoco in 1975.
KEVIN P. MAHONEY, 46
Vice President-Corporate Planning. Previously Staff Vice President-Corporate
Planning 1996-2000. Joined Sonoco in 1987.
CHARLES F. PATERNO, 45
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, 63
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, 48
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.
Division & Staff
JAMES A. ALBRIGHT, PHD, 57
Staff Vice President-Technology, Global Consumer Products. Joined Sonoco in
1992.
VICKI B. ARTHUR, 44
Staff Vice President-Corporate Controller. Joined Sonoco in 1984.
KEVIN E. BRYANS, 44
Division Vice President/Managing Director-Industrial Products/Paper, Sonoco
Asia. Joined Sonoco in 1981.
MICHAEL W. BULLINGTON, 54
Staff Vice President-Global Controller, Consumer Products. Joined Sonoco in
1983.
CHARLES W. COKER, JR., 42
Division Vice President/General Manager-Protective Packaging. Joined Sonoco in
1981.
THOMAS L. COKER, 37
Division Vice President-Consumer Products, Europe. Joined Sonoco in 1987.
H. WILLIAM FROEBER, 51
Division Vice President-Flexible Packaging. Joined Sonoco in 1995.
RODGER D. FULLER, 40
Division Vice President-Consumer Products, N.A. Joined Sonoco in 1985.
TERRY GERHARDT, PHD, 51
Staff Vice President-Corporate Technology. Joined Sonoco in 1985.
DONALD M. GORE, 52
Division Vice President-Sales, Industrial Products, N.A. Joined Sonoco in 1972.
JOHN M. GRUPS, 51
Division Vice President-Global Operations, Consumer Products. Joined Sonoco in
1976.
E.A. HARRIS, 55
Division Vice President-Industrial Products/Paper, S.A./General Manager-
Consumer Products, S.A. Joined Sonoco in 1969.
DANIEL G. HAUSE, 53
Division Vice President-Manufacturing, Industrial Products. Joined Sonoco in
1970.
LINDA O. HILL, 53
Staff Vice President-Global Technology. Joined Sonoco in 1966.
R. JIM HINES, 51
Division Vice President-Recovered Paper. Joined Sonoco in 1980.
JOHN D. HORTON, 59
Division Vice President-Sales & Marketing, High Density Film. Joined Sonoco in
1972.
LESLIE H. LAK, 53
Division Vice President-Molded Plastics. Joined Sonoco in 1973.
JOSEPH A. LUCAS, 62
Division Vice President-Sales, Consumer Products. Joined Sonoco in 1998.
KENNETH B. MASON, 50
Staff Vice President-Human Resources, Industrial Products. Joined Sonoco in
1980.
JAMES C. MILLER, 49
Staff Vice President-Engineering & Technology, High Density Film. Joined Sonoco
in 1983.
MARTY F. PIGNONE, 45
Division Vice President-Paper, N.A. Joined Sonoco in 1997.
ROBERT L. PUECHL, 46
Division Vice President-Manufacturing, High Density Film. Joined Sonoco in
1986.
CHARLES W. REID, 63
Division Vice President/General Manager, Sonoco Baker Reels. Rejoined Sonoco in
1988.
BRAD D. ROSS, 42
Division Vice President/General Manager, Packaging Services. Joined Sonoco in
1986.
BARRY L. SAUNDERS, 42
Staff Vice President-Global Controller, Industrial Products. Joined Sonoco in
1989.
JAMES H. SHELLEY, 58
Staff Vice President-Employee Relations & Labor Counsel. Joined Sonoco in 1969.
TERRY E. SUELTMAN, 55
Staff Vice President-Corporate Purchasing & Logistics. Joined Sonoco in 2001.
DAVID THORNELY, 57
Managing Director-Sonoco Australasia. Joined Sonoco in 1991.
REX E. VARN, 43
Division Vice President/General Manager-High Density Film. Joined Sonoco in
1980.
54
<PAGE>
SHAREHOLDER INFORMATION
SONOCO STOCK
Sonoco stock is traded on the New York Stock Exchange - Symbol:SON
CORPORATE OFFICES
North Second Street
Hartsville, SC 29550-3305
+843-383-7000
Fax: +843-383-7008
Web site:www.sonoco.com
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Bank of America Corporate Center
1000 North Tryon Street
Suite 5400
Charlotte, NC 28202-4015
LEGAL COUNSEL
Haynsworth Sinkler Boyd, P.A.
P.O. Box 11889
Columbia, SC 29211-1889
SHAREHOLDER SERVICES
Sonoco - B01
North Second Street
Hartsville, SC 29550-3305
+843-383-7864
INVESTOR RELATIONS
& CORPORATE AFFAIRS
Sonoco - A46
North Second Street
Hartsville, SC 29550-3305
+843-383-7635
Fax: +843-383-7478
ANNUAL MEETING
OF SONOCO SHAREHOLDERS
The annual meeting of shareholders will be held at 11:00 a.m.,
Wednesday, April 17, 2002, at:
Center Theater
212 North Fifth Street
Hartsville, SC 29550
SONOCO NEWS RELEASES
Recent news releases are available on our Web site at www.sonoco.com.
FORM 10-K AVAILABLE
A copy of the Company's annual report on Form 10-K filed with the Securities
& Exchange Commission may be obtained by shareholders without charge after
April 1, 2002, by writing to:
Sonoco - A09
Corporate Communications
North Second Street
Hartsville, SC 29550-3305
SHARE ACCOUNT SERVICES
Direct Investment
Dividend Reinvestment
Direct Deposit of Dividends
Transfer Agent
Internet Account Access
Electronic Delivery of Financial
Information to Shareholders
For more information on any
of these services contact:
EquiServe-WSS
P.O. Box 43012
Providence, RI 02940-3012
1-800-633-4236
Web site:www.equiserve.com
STOCK TRANSFERS
Requests should be sent to:
EquiServe-WSS
P.O. Box 43012
Providence, RI 02940-3012
LOGOS/TRADEMARKS
The owner of Sonoco's registered logo and other Company trademarks is:
SPC Resources, Inc.
1403 Foulk Road, Suite 102
Foulkstone Place
Wilmington, DE 19803-2788
55
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>g74714ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
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, 2001 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.
<PAGE>
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.
b. Sonoco International Holdings GmbH, 100%-owned
Swiss subsidiary.
1. NRO Sonoco, Inc., 100%-owned Canadian
subsidiary.
2. Sonoco Europe S.A., 100%-owned Belgium
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.
<PAGE>
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
6. ING. Klaus 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.
3. Sonoco IPD France SA., 100%
owned French subsidiary.
b. Sonoco Consumer Products S.A.,
99%-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.
b. Manufacuras Sonoco S.A. de C.V.,
100%-owned Mexican subsidiary
3. Sonoco Luxembourg (No. 2) SARL, 100%-owned Luxembourg
subsidiary.
a. Sonoco Holdings (UK), Ltd., 100%-owned U.K.
subsidiary.
1. Sonoco Milnrow, 100%-owned U.K. subsidiary.
a. Sonoco Products Co. UK Unlimited,
100%-owned U.K. subsidiary.
1. Sonoco Ltd. (UK), 100%-owned
U.K. subsidiary.
<PAGE>
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
a. Friarsgate Studio Limited,
100%-owned U.K.
subsidiary.
4. Beteiligungen Sonoco Deutschland GmbH,
100%-owned Germany subsidiary.
5. Sonoco Deutschland Vermogensverwaltungs
GmbH & Co. KG, 100%-owned Germany
subsidiary.
6. 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.
7. Sonoco Asia Management Company, L.L.C.,
71%-owned limited liability company.
8. Sonoco Australia Pty., Ltd., 100%-owned
Australian subsidiary.
9. Sonoco New Zealand, 100%-owned New Zealand
subsidiary.
10. Sonoco Participacoes Ltda., 100%-owned
Brazilian subsidiary.
a. Sonoco For-Plas do Brazil Ltda.,
51%-owned Brazilian subsidiary.
11. Inversiones Sonoco do Chile Ltda, 100%-owned
Chilean subsidiary.
a. Sonoco do Chile, 70%-owned Chilean
subsidiary.
4. Sonoco do Brazil Ltda., 100%-owned Brazilian subsidiary.
<PAGE>
EXHIBIT 21
SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT, CONTINUED
5. Southern Plug & Manufacturing Co., Inc., 100%-owned domestic
subsidiary, incorporated in the state of Louisiana.
6. Sonoco "SPG", Inc., 100%-owned domestic subsidiary,
incorporated in the state of Wisconsin.
7. Sonoco Flexible Packaging Company, Inc., 100%-owned domestic
subsidiary incorporated in the state of South Carolina.
8. Sonoco Paperboard Group, L.L.C., 100%-owned limited liability
company.
9. Sonoco Development, Inc., 100%-owned domestic subsidiary
incorporated in the state of South Carolina.
10. Georgia Paper Tube, Inc., 100%-owned domestic subsidiary
incorporated in the state of Georgia.
11. Sonoco Hutchinson LLC, 100%-owned domestic subsidiary
incorporated in the state of South Carolina.
12. Hayes Manufacturing Group, Inc., 100%-owned domestic
subsidiary incorporated in the state of Wisconsin.
13. Phoenix Packaging Corporation, 100%-owned domestic subsidiary
incorporated in the state of Ohio.
14. Sonoco U.S. Mills, Inc., 100%-owned domestic subsidiary
incorporated in the state of Wisconsin.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>g74714ex23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (filed 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; filed October 25, 2001,
File No. 333-69388 as amended) of Sonoco Products Company of our report dated
January 31, 2002, relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
January 31, 2002 relating to the financial statement schedule, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 28, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>7
<FILENAME>g74714ex99-2.txt
<DESCRIPTION>FORM 11-K ANNUAL REPORT
<TEXT>
<PAGE>
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, 2001
---------------
SONOCO PRODUCTS COMPANY
1991 KEY EMPLOYEE STOCK PLAN
SONOCO PRODUCTS COMPANY
ONE NORTH SECOND STREET
POST OFFICE BOX 160
HARTSVILLE, SOUTH CAROLINA 29551-0160
<PAGE>
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.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----