SEC Filing | Sonoco

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------ ------ COMMISSION FILE NUMBER 1-11261 SONOCO PRODUCTS COMPANY INCORPORATED UNDER THE LAWS I.R.S. EMPLOYER IDENTIFICATION OF SOUTH CAROLINA NO. 57-0248420 POST OFFICE BOX 160 HARTSVILLE, SOUTH CAROLINA 29551-0160 TELEPHONE: 803-383-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class Name of exchange on which registered - - ----------------------------------- ------------------------------------ No par value common stock New York Stock Exchange, Inc. Series A Cumulative Preferred Stock New York Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant (based on the New York Stock Exchange closing price) on March 2, 1997, was $2,277,589,388. As of March 2, 1997, there were 90,021,489 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, 1996, are incorporated by reference in Parts I, II and IV; portions of the Proxy Statement for the annual meeting of shareholders to be held on April 16, 1997, are incorporated by reference in Part III. 2 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES PART I STATEMENTS INCLUDED IN PART I OF THE FORM 10-K THAT ARE NOT HISTORICAL IN NATURE, ARE INTENDED TO BE, AND ARE HEREBY IDENTIFIED AS "FORWARD LOOKING STATEMENTS" FOR PURPOSES OF THE SAFE HARBOR PROVIDED BY SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY CAUTIONS READERS THAT FORWARD LOOKING STATEMENTS, INCLUDING WITHOUT LIMITATION THOSE RELATING TO THE COMPANY'S FUTURE BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL, LIQUIDITY, CAPITAL NEEDS, INTEREST COSTS, AND INCOME, ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD LOOKING STATEMENTS. ITEM 1. BUSINESS The Company The Company, a South Carolina corporation founded in Hartsville, South Carolina in 1899 as the Southern Novelty Company, is a major global manufacturer of paperboard-based and plastic-based packaging products. The Company is also vertically integrated into paperboard production and recovered paper collection. The paperboard utilized in the Company's packaging products is produced substantially from recovered paper. The Company operates an extensive network of facilities from nearly 300 locations on five continents, serving customers in more than 85 countries. This global reach is a critical component of the Company's long-term growth plans, and puts the Company in a position to supply customers who are expanding their operations internationally and want supply partners who can provide consistent high-value products and services wherever they choose to do business. Sonoco changed its segment reporting in the second quarter of 1996. Results are now reported in two segments, industrial packaging and consumer packaging. The Industrial Packaging segment includes global industrial converted products and paper, industrial containers, injection molded and extruded plastics, protective packaging, partitions, wire and cable packaging, adhesives and converting machinery operations. The Consumer Packaging segment includes the global composite can operations, capseals liners, flexible packaging, labels, label applicating equipment, paperboard packaging and high density film products. The new reporting is intended to be more in line with the way the Company reports its internal results and to more appropriately reflect the integration of its paper and converting operations. International operations are reflected in the appropriate segment based on the products produced or markets served. The Company serves a wide variety of industrial and consumer markets. Industrial markets, which represented approximately 56% of the Company's sales in 1996, include paper manufacturers, chemical and pharmaceutical producers, textile manufacturers, automotive suppliers, consumer electronics, the wire and cable industry and the building and construction industry. Consumer markets, which represented approximately 44% of the Company's sales in 1996, include food and beverage processors, the personal and health care industries, supermarkets, retail outlets, convenience stores, quick service restaurants, and household goods manufacturers. The Company believes that it is the number one supplier in all its major markets. The Financial Reporting For Business Segments table as shown in Note 17 to the Company's Financial Statements, which are set forth in the Company's 1996 Annual Report to Shareholders, included herewith as Exhibit 13, presents selected financial data by major lines of business or segments for each of the past three years. This table should be read in conjunction with the Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 1996 Annual Report to Shareholders, all of which are incorporated herein by reference. I-1 3 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 1. BUSINESS, CONTINUED Acquisitions/Dispositions Acquisitions over the past five years have been an important part of the Company's strategy for growth. The 1992 acquisition of the Trent Valley paper mill in Trenton, Ontario, Canada, provided the Company with a new forming technology that improves the dimensional stability of paperboard, a critical property in certain market segments. During 1993, the Company purchased Crellin Holding, Inc., an international manufacturer, designer and marketer of molded plastic products and also completed the acquisition of the OPV/Durener Group, Germany's second largest manufacturer of tubes and cores. In October 1993, the Company acquired Engraph, Inc., creating the opportunity to grow into new packaging markets. These markets included pressure-sensitive labels and package inserts, flexible packaging, screen process printing and paperboard cartons and specialities. During 1994, the Company acquired M. Harland & Son Limited, a leading producer of pressure-sensitive roll labels and roll-label application equipment headquartered in the United Kingdom. During 1995, the Company acquired the remaining 50% interest in the CMB/Sonoco joint venture. CMB/Sonoco is a producer of composite cans with manufacturing facilities in England and France. The Company also purchased the Edinburgh, Ind., flexible packaging plant from Hargro Flexible Packaging Corporation which manufactures packaging for the confectionery, snack food and pharmaceutical markets. In October 1995, the Company acquired the assets of Cricket Converters, Inc., of Hightstown, N.J., a major manufacturer of high-quality, pressure-sensitive labels for the pharmaceutical and health care markets. Also during 1995, the Company acquired a minority interest in Demolli Industria Cartaria SRL and purchased three converting operations and a paper mill in Brazil, a small tube and paper manufacturer in France and three recovered paper collection plants in the United States. During 1996, the Company completed several acquisitions which were strategically important both in the U.S. and internationally. In the first quarter, the Company finalized the Sonoco Hongwen joint venture to produce paperboard in Shanghai, China, and initiated a joint venture in Indonesia that will manufacture composite cans, tubes and cores. In February 1996, the Company acquired Moldwood Products Company of York, Ala., from Gulf States Paper Corporation. Moldwood Products is a producer of moldwood plugs for the paper industry. The Company also added two operations to its wire and cable packaging operations, the Baker Reels Division. During the second quarter, the Company acquired Hamilton Hybar, Inc., of Richmond, Va., a leading supplier of vapor barrier packaging materials to the paper industry. The Hamilton Hybar acquisition, along with the Moldwood Products acquisition, positioned the Company as a full-line, one-stop supplier for the roll packaging needs of paper mills. During the third quarter, the Company finalized the acquisition of Specialty Packaging, Inc., of Wausau, Wis., a niche producer of composite cans, specialty lines of metal closures, and tubes and cores. The Company also acquired two of Germany's leading paperboard can manufacturers, Dosen Schmitt of Mayen and Buck Verpackungen GmbH. During the fourth quarter of 1996, the Company acquired Stonington Corporation of Westfield, Mass., a manufacturer of tubes and cores, specializing in short-run, high-value tubes. In December 1996, the Company completed the sale of its tennis ball container manufacturing operation, located in Greenville, S.C. Although profitable, this operation did not offer growth potential for the Company. I-2 4 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 1. BUSINESS, CONTINUED Acquisitions/Dispositions Early in 1997, the Company signed a letter of intent to form a joint venture with Rock-Tenn Corporation, to combine the fibre partitions operations of the two companies into a joint venture company called RTS Packaging, to be owned 35% by the Company and 65% by Rock-Tenn. In March 1997, the Company sold its screen printing operations, acquired in the 1993 acquisition of Engraph, Inc. Competition The Company's products are sold in highly competitive environments. Supply and demand are the major factors controlling each of these market environments. These markets are also influenced by the overall rate of economic activity, but to a lesser degree. Throughout the year, the Company remained highly competitive and believes it has several competitive advantages within the markets it serves. First, 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. Second, the Company 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. Third, 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 significantly reducing costs and improving processes using the latest in information technology. The Company believes that these initiatives will further enhance its competitive position. A discussion of the Company's competitive position within the Industrial Packaging and Consumer Packaging segments follows: Industrial Packaging Segment. The Company is the only company serving the world's core, tube and cone markets that is fully vertically integrated from papermaking to industrial products. It is the global leader in these products and plans to continue defending this leadership through technological innovations and supply-chain management services that add value for customers worldwide. One of the Company's major growth strategies in this segment is to implement an integrated paper production and converted paper products business in worldwide markets. The Company is already a market leader in most of its industrial product lines in North America, Europe, Australasia and South America, and has enhanced this position in 1996 through tactical acquisitions and joint ventures in Greece, Indonesia, Italy, China and other parts of the world where the Company has not previously operated. As the leading producer of fibre drums in the U.S. and a major manufacturer of plastic drums and intermediate bulk containers, the Company offers customers a variety of solutions for their bulk packaging needs. The Company operates an industrial container research and development facility that supports its customers and the marketplace with refinements and new products. I-3 5 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 1. BUSINESS, CONTINUED Competition, Continued The Company's injection molded and extruded plastics operations serve customers in the textile, wire and cable, filtration, automotive, food processing, quick service restaurants, fiber optics and plumbing industries. Though the marketplace for these types of products is very competitive, the Company believes that its strong design and technical capabilities position it to grow in its existing markets as it continues to develop new products. The Company is also the leading U.S. producer of nailed-wood, plywood and metal reels for the wire and cable industry and the market leader in the manufacture of corner posts for major appliance packaging. Consumer Packaging Segment. The Company is the world leader in the manufacture of composite cans and has been revolutionizing the role of composite cans in packaging with technological breakthroughs that continue to set new benchmarks for this product. The Company's relationships with the world's most sophisticated packaging users and marketers allow the Company's packaging development specialists the opportunity to work on new-generation packages precisely designed to specific customer requirements. In addition to innovation, the Company's substantial cost advantage over competitors' packaging and its relationship with suppliers are major factors in the growth and high value of the Company's composite can business. The Company's flexible packaging business focuses on serving customers in the confectionery industry with high-quality graphics on paper, foil or film packages. The Company believes that ongoing projects to develop the vertical integration possibilities between flexible packaging and composite cans will further enhance its competitive position. The Company is the leading producer of high-density, high-molecular weight, plastic carry-out grocery sacks. The Company also manufactures sacks for the high-volume retail market, convenience store market, the developing quick service restaurant market, and is a producer of agricultural mulch film. This business continued to grow in 1996, and as a result of the strong demand for this group's products, a nearly $30 million expansion was started in 1996 which will add the capacity for an additional two billion sacks. The Company believes that the capacity expansion will solidify its leadership position in the market. The Company remains one of the leading producers of high-quality, pressure-sensitive labels in the United States. Pressure-sensitive labels are one of the fastest growing segments of the packaging industry. The Company believes its ability to provide both labels and a wide variety of paperboard packaging options is a competitive edge as customers try to narrow their field of suppliers for packaging. The Company can offer customers a one-stop shop for their printed packaging requirements from labels to cartons. None of the Company's segments are seasonal to any significant degree. The Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 1996 Annual Report to Shareholders discusses the various segments of the Company and is incorporated herein by reference. I-4 6 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 1. BUSINESS, CONTINUED Raw Materials The principal raw materials used by the Company are plastic resins, metal, pulpwood, recovered paper and paper. With the exception of pulpwood, recovered paper and paper, the Company's raw materials and supplies are purchased from a number of outside sources; however, the supply is considered adequate to meet the Company's requirements. Company-owned timberlands, timber-cutting rights and suppliers are believed to be sufficient to assure the future availability of pulpwood. Recovered paper used in the manufacture of paperboard is purchased either directly from suppliers near manufacturing operations or through the Company's subsidiary, Paper Stock Dealers, Inc. The majority of raw materials are subject to price volatility as experienced in the economic cycle that began in 1994. Raw material cost increases began in 1994 and continued into the third quarter of 1995. They quickly fell in the second half of 1995 and continued to decline in 1996. The Company was able to mitigate an adverse earnings impact through selling price increases or decreases. In spite of cost volatility, the Company considers the supply of raw materials to be adequate to meet its needs. The Company has strengthened its fibre recovery system by acquiring three paper collection operations in 1995 to expand its collection base. In addition, the Company continues to work on such arrangements as joint ventures and partnership agreements to further strengthen its supply stability. Backlog The amount of the Company's backlog orders at the end of 1996 and 1995 was approximately $42.6 million and $42.1 million, respectively. The Company expects that all the orders in backlog at the end of 1996 will be shipped during 1997. Most customer orders are manufactured with a lead time not to exceed three weeks. Domestic long-term contracts, primarily for composite cans, exist for approximately 14% of trade sales (no one contract exceeds 4%). These contracts, which are for a specific duration, generally include price escalation provisions for raw materials, labor and overhead costs. There are no significant long-term purchase contracts because the Company considers the supply of raw materials adequate to meet its needs. Patents, Trademarks and Related Contracts No segment of the business is materially dependent upon the existence of patents, trademarks or related contracts. I-5 7 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 1. BUSINESS, CONTINUED Research and Development The Company has 129 employees engaged in new product development and technical support for existing product lines. Company-sponsored research spending in this area was $17.5 million, $12.7 million and $12.1 million in 1996, 1995, and 1994, respectively. Spending focused on projects related to Sonoco's primary businesses and reflects a commitment to ensure that the Company maintains a competitive advantage through technology leadership in its businesses and markets served. Customer-sponsored research spending has been immaterial for the past three years. Employees At December 31, 1996, the Company employed approximately 19,000 people. Environmental Protection The Financial Position, Liquidity and Capital Resources section of the Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 1996 Annual Report to Shareholders provides the required information and is incorporated herein by reference. Financial Information about Foreign and Domestic Operations and Export Sales The Company has subsidiaries and affiliates operating in 30 countries. The primary operations of the international subsidiaries are similar to the Company's domestic businesses in products and markets served. The Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to the Financial Statements set forth in the 1996 Annual Report to Shareholders are incorporated herein by reference. United States export sales are immaterial. I-6 8 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 2. PROPERTIES The Company's main plant and corporate offices are located in Hartsville, South Carolina. The Company has 180 branch or manufacturing operations in the United States, 25 in Canada and 78 in 28 other countries. Information about the Company's manufacturing operations by segment follows:

The Company believes that its properties are suitable and adequate for current needs and that the total productive capacity is adequately utilized. ITEM 3. LEGAL PROCEEDINGS In the normal course of business, the Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company has been named as a potentially responsible party at several environmentally contaminated sites located primarily in the northeastern United States and owned by third parties. These sites are believed to represent the Company's largest potential environmental liabilities. The Company has accrued approximately $4 million for these contingencies as of December 31, 1996. Although the level of future expenditures for legal and environmental matters is impossible to determine with any degree of certainty, it is management's opinion that such costs, when finally determined, will not have a material adverse effect on the consolidated financial position of the Company. The Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 14 to the Financial Statements set forth in the 1996 Annual Report to Shareholders provides additional information and is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I-7 9 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES EXECUTIVE OFFICERS OF THE REGISTRANT In reliance on General Instruction G of Form 10-K, the following set forth information with respect to each person who is an executive officer of the Company:

I-8 10 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES EXECUTIVE OFFICERS OF THE REGISTRANT, CONTINUED

I-9 11 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES EXECUTIVE OFFICERS OF THE REGISTRANT, CONTINUED

Officers of the Company are elected annually by the Board of Directors at the first Board meeting immediately following the Annual Meeting of Shareholders. Family Relationships C. W. Coker and F. L. H. Coker, a director of the Company, are brothers and the first cousins of J. L. Coker, a director of the Company, and P. C. Coggeshall, Jr. I-10 12 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market and Market Prices of Common Stock The Company's common stock began trading on the New York Stock Exchange (NYSE) March 8, 1995, under the stock symbol "SON". Prior to that date, the common stock was traded on the NASDAQ National Market System. The Comparative Highlights set forth in the 1996 Annual Report to Shareholders (Exhibit 13 of this report) shows, by quarter, the high and low price on the NASDAQ market for the period January 1, 1995 through March 7, 1995, and the NYSE for the period March 8, 1995 through December 31, 1996, and is incorporated herein by reference. Approximate Number of Security Holders There were approximately 42,000 shareholder accounts as of March 2, 1997. Dividends Information required is included in the Comparative Highlights set forth in the 1996 Annual Report to Shareholders, and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Selected Eleven-Year Financial Data set forth in the 1996 Annual Report to Shareholders provides the required data, and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information presented under Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements The Consolidated Financial Statements, Notes to Consolidated Financial Statements and the Report of Independent Certified Public Accountants for the Company included in the 1996 Annual Report to Shareholders are incorporated herein by reference. Supplementary Financial Data The information set forth under Comparative Highlights in the 1996 Annual Report to Shareholders is incorporated herein by reference. II-1 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of Sonoco Products Company: Our report on the consolidated financial statements of Sonoco Products Company has been incorporated by reference in this Form 10-K from page 46 of the 1996 Annual Report to Shareholders of Sonoco Products Company. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the exhibit index on page IV-2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. ------------------------------- COOPERS & LYBRAND L.L.P. Charlotte, North Carolina January 29, 1997 II-2 14 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-3 15 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" as shown on pages 4 - 9 and page 23, 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. Certain information with respect to persons who are or may be deemed to be executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information with respect to the compensation of directors and officers of the Company as shown on pages 13 - 21 of the Company's definitive Proxy Statement 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 page 3 and pages 11 - 12 under captions "Voting Securities" and "Security Ownership of Management as of December 31, 1996," respectively, of the Company's definitive Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sections entitled "Compensation Committee Interlocks and Insider Participation" and "Transactions With Management" as shown on pages 21 - 23 of the Company's definitive Proxy Statement set forth certain information with respect to certain business relationships and transactions between the Company and its directors and officers and is incorporated herein by reference. III-I 16 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Data incorporated by reference from the attached 1996 Annual Report to Shareholders (included as Exhibit 13 of this report): Comparative Highlights (Selected Quarterly Financial Data) Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Accountants Selected Eleven-Year Financial Data Data submitted herewith: Report of Independent Accountants (included under Item 8) IV-1 17 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, CONTINUED Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not required, are not applicable or the required information is given in the financial statements or notes thereto. Exhibits: 3 Articles of Incorporation and By-Laws (incorporated by reference to the Registrant's 1994 Form 10-K Annual Report) 4 Instruments Defining the Rights of Securities Holders, including Indentures (incorporated by reference to the Registrant's Forms S-3 (File No. 33-50503 and File No. 33-40538)) 10 Material Contracts: 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 11-K Annual Report set forth in the Registrant's Form 10-K/A filed on June 28, 1996) 11 Computation of Earnings Per Share 13 1996 Annual Report to Shareholders (portions incorporated by reference) 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule 99-1 Proxy Statement, filed in conjunction with annual shareholders' meeting scheduled for April 16, 1997 (previously filed) 99-2 Form 11-K Annual Report - 1983 and 1991 Sonoco Products Company Key Employee Stock Option Plans and Sonoco Products Company 1996 Non-Employee Directors' Stock Plan IV-2 18 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, CONTINUED Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of 1996. IV-3 19 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)

(1) Includes amounts written off, translation adjustments and payments. IV-4 20 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 27th day of March 1997. SONOCO PRODUCTS COMPANY /s/ C. W. Coker ----------------------------- C. W. Coker Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following person on behalf of the Registrant and in the capacities indicated on this 27th day of March 1997. /s/ F. T. Hill, Jr. ----------------------------- F. T. Hill, Jr. Vice President and Chief Financial Officer IV-5 21 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SIGNATURES, CONTINUED /s/ C. W. Coker Chief Executive Officer and - - --------------------------- Director (Chairman) C. W. Coker /s/ P. C. Browning President, Chief Operating Officer and - - --------------------------- Director P. C. Browning /s/ C. J. Bradshaw Director - - --------------------------- C. J. Bradshaw /s/ R. J. Brown Director - - --------------------------- R. J. Brown /s/ F. L. H. Coker Director - - --------------------------- F. L. H. Coker Director - - --------------------------- J. L. Coker /s/ T. C. Coxe, III Director - - --------------------------- T. C. Coxe, III /s/ A. T. Dickson Director - - --------------------------- A. T. Dickson /s/ R. E. Elberson Director - - --------------------------- R. E. Elberson /s/ J. C. Fort Director - - --------------------------- J. C. Fort /s/ P. Fulton Director - - --------------------------- P. Fulton /s/ B. L. M. Kasriel Director - - --------------------------- B. L. M. Kasriel /s/ R. C. King, Jr. Director - - --------------------------- R. C. King, Jr. /s/ E. H. Lawton, Jr. Director - - --------------------------- E. H. Lawton, Jr. /s/ H. L. McColl, Jr. Director - - --------------------------- H. L. McColl, Jr. /s/ Dona Davis Young Director - - --------------------------- Dona Davis Young IV-6 22 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES EXHIBIT INDEX

1 EXHIBIT 11 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)

1 EXHIBIT 13 COMPARATIVE HIGHLIGHTS (UNAUDITED) SONOCO

1 2 CHART CAPTIONS: Net Sales (billions $) Net sales increased 3% in 1996 to $2.79 billion. Net Income Available to Common Shareholders (million $) Net Income increased 4.4% in 1996. Adjusted to exclude restructuring charges and cumulative effect of accounting changes in 1992. Earnings Per Share (Fully Diluted) ($) Earnings per share improved 5.5% over 1995. Adjusted to exclude restructuring charges and cumulative effect of accounting changes in 1992. 3 MANAGEMENT'S DISCUSSION & ANALYSIS STATEMENTS INCLUDED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THAT ARE NOT HISTORICAL IN NATURE, ARE INTENDED TO BE, AND ARE HEREBY IDENTIFIED AS "FORWARD LOOKING STATEMENTS" FOR PURPOSES OF THE SAFE HARBOR PROVIDED BY SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY CAUTIONS READERS THAT FORWARD LOOKING STATEMENTS, INCLUDING WITHOUT LIMITATION THOSE RELATING TO THE COMPANY'S FUTURE BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL, LIQUIDITY, CAPITAL NEEDS, INTEREST COSTS, AND INCOME, ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD LOOKING STATEMENTS. RESULTS OF OPERATIONS 1996 - 1995 To better understand the results of operations for 1996 and the outlook for 1997, it is necessary to review the economic cycle that began in 1994. Raw material cost increases, the magnitude of which was unprecedented in the Company's history, began in 1994 and continued into the third quarter of 1995. Industrial production posted large gains during the same period, and selling prices of commodity paperboard grades roughly doubled. While production of commodity paperboard grades is a relatively small part of the Company's paperboard production (less than 20%), the magnitude of the price increases did have a noticeable effect on profits in 1995. As quickly as raw material costs and commodity paperboard prices rose, they fell in the second half of 1995 and continued to decline in 1996. Selling prices for the Company's converted industrial packaging products were increased to pass through the higher raw material costs. Likewise, when these costs declined, the selling prices were lowered to reflect the decreases. Although the market has increasingly stabilized over this period, there have been modest further reductions in converted product prices. The third and fourth quarters of 1995 benefited from higher selling prices as the raw material costs decline preceded selling price reductions. This resulted in difficult earnings comparisons in the third and fourth quarters of 1996 where earnings were flat compared with the prior year. The first two quarters of 1997 are also expected to be impacted by this price/cost comparison that may result in flat-to-slightly-down earnings comparisons for those quarters. Once this aberrant price/cost comparison abates, the Company expects improved earnings trends in the second half of 1997, more in line with targeted growth objectives. Over the entire two-year cycle, earnings have increased at the upper end of growth objectives. Another major factor resulting in the flat second half performance in 1996, which will also impact the first half of 1997, relates to shortfalls in several newer businesses and international start-ups. These businesses include labels, flexibles, and start-ups in China and Brazil. Labels and flexibles were restructured during the second half of 1996, resulting in substantial costs to refocus the businesses. The start-ups likewise incurred costs to consolidate operations and reduce headcount. While the Company expects improvements in these operations in 1997, the most significant impact will likely occur in the second half of 1997. Consolidated net sales for 1996 were $2.79 billion, a 3% increase, compared with $2.71 billion in 1995. The increase in sales resulted from volume increases across nearly all businesses. In addition, acquisitions added approximately $110 million in sales. However, selling price decreases, which resulted from raw material cost decreases, reduced 1996 sales by approximately $120 million in comparison with 1995. Gross profit margins improved to 23% from 22.1% reported in 1995. The margin improvement reflects the reductions in raw material costs, improved productivity from strong volume gains and the benefits from increased capital expenditures made to support Vision 2000 plans. As we enter 1997 with prices stabilizing, margins as a percentage of sales should return to slightly lower, more traditional levels. Selling, general and administrative costs increased to 11.1% of sales in 1996, compared with 10.7% in 1995. The increase was primarily due to additional costs incurred in connection with acquisitions, start-up costs and plant consolidations. In addition, the lower sales dollars resulting from the significant drop in prices during 1996 impacted the selling, general and administrative costs as a percentage of sales. CHART CAPTION: Net Sales by Segment (millions $) 1996 sales were reduced by lower selling prices, primarily in the industrial packaging segment. Both segments experienced strong volume and increased sales from acquisitions in 1996. 27 4 Net income for 1996 was $163.7 million, or $1.73 per share, assuming full dilution, a 5.5% increase in earnings per share over the $156.8 million, or $1.64 per share for 1995. The per share numbers reflect full dilution assuming the conversion of all outstanding preferred shares issued to finance the 1993 acquisition of Engraph and the assumed exercise of all outstanding stock options. In the second half of 1996, the Company announced a stock repurchase program and bought 3.44 million common share equivalents at an average cost of $28 per share. Included in the repurchase were approximately 556,000 shares of preferred stock. At year end, 2.4 million preferred shares remained outstanding. Due to the average shares outstanding calculation, only one-half of the repurchased shares were reflected in 1996. Interest expense on borrowings to fund the repurchase offset the reduction in shares outstanding, thus there was no impact on reported earnings per share. In 1997, the shares repurchased will lower outstanding shares for the entire year, generating a positive earnings per share impact of approximately $.03 per share. Capital expenditures in 1996 increased to $232 million, compared with $181.4 million in 1995. This increased spending included projects to expand capacity, improve productivity and introduce new technology in many business units. This increased capital investment is part of the Vision 2000 strategy to grow largely through internal expansion rather than through acquisitions. The result of this strategy is expected to be higher returns on invested capital, quicker realization of those returns and lower risk when compared with larger, strategic acquisition alternatives. The Company still expects to continue to make smaller tactical acquisitions that complement existing businesses. Acquisition spending totaled $94.2 million in 1996. In the United States, acquisitions included a manufacturer of roll-wrap materials, a core plug producer, a tube and core manufacturer, a composite can and tube manufacturer and two small reel operations. In Germany, the Company acquired two composite can operations. In Brazil, the Company purchased a converting operation. The Company also entered into joint venture agreements in China, Canada and Greece to manufacture tubes and cores; in Puerto Rico to produce labels and inserts; and in Indonesia to produce tubes, cores and composite cans. Research and development costs charged to expense were $17.5 million for 1996, compared with $12.7 million in 1995. This increase represents Sonoco's commitment to maintain a competitive advantage through technology leadership in its businesses. Aggressive research and development spending in 1996 is reflected in the successful commercialization of numerous new tube products in the industrial segment as well as new consumer packaging such as the composite coffee can and a rectangular-shaped can for dry beverage mix. The Company's effective tax rate in 1996 was 38.4%, compared with 39.4% in 1995. Tax benefits from company-owned life insurance, additional tax credits from higher research and development spending, and lower state taxes all contributed to a reduction in the 1996 effective tax rate. SEGMENT REPORTING. Sonoco changed its segment reporting in the second quarter of 1996. Results are now reported in two segments, industrial packaging and consumer packaging. The new reporting is intended to be more in line with the way the Company reports its internal results and to more appropriately reflect the integration of its paper and converting operations. International operations are reflected in the appropriate segment based on the products produced or markets served. Operating profits for international operations increased approximately 20% in 1996. Operating profit is revenue less operating costs, excluding interest and income taxes. INDUSTRIAL PACKAGING. The industrial packaging segment consists of the following businesses: the global industrial converted products and paper operations, industrial containers, injection molded and extruded plastics, protective packaging, partitions, wire and cable packaging, adhesives and converting machinery operations. The industrial packaging segment represents approximately 56% of the Company's sales. Trade sales in this segment were $1.56 billion in 1996, a decrease of 1.5% from the $1.58 billion in 1995. Sales declined in the industrial segment due entirely to lower selling prices in response to the falling raw material costs experienced in late 1995. The lower selling prices reduced sales in this segment by approximately $100 million. Acquisitions, which added approximately $60 million to sales, and strong volume nearly offset the selling price decline. Operating profit for this segment was $202.9 million, or 3.6% ahead of the $195.9 million in 1995. Strong volume, lower raw material costs and higher productivity from capital expenditures more than offset the significant selling price decreases in 1996. Profits were impacted by continued investment in Process Excellence, a top-to-bottom look at the North American tube, core, cone and paper operations. Significant progress was made on the various initiatives in this program. When Process Excellence is fully implemented by the end of the year 2000, we expect to have annualized benefits of at least $50 million. CHART CAPTION: Identifiable Assets by Segment (millions $) Identifiable assets increased in 1996 in both segments due to base business growth and acquisitions. 28 5 The Process Excellence internal supply chain initiative resulted in the closing of nine tube and core operations, and the transferring of that business to 20 other locations. The plant closings were on schedule, but the integration of production at the expanded plants took longer and cost more than expected. In addition, start-up costs for a joint venture in China and consolidation costs in Brazil impacted operating profits in this segment in 1996. In our global tube and core business, volume increased in 1996 in virtually all markets served around the world. In addition, the acquisition of Hamilton Hybar, Inc., which produces roll wrap materials, and Moldwood Products Company, which produces moldwood core plugs, added to sales in this segment. Lower pricing resulting from lower raw material costs partially offset the sales gains from volume increases and acquisitions. Our European paper and tube business experienced record performance, while our tube and core business was also strong in Canada and Mexico. Similar to the United States, selling prices were down in comparison to 1995; however, lower raw material costs lessened the impact of lower prices. Our paper operations include the Company's 26 paper mills, 39 paper machines and a network of 46 paper collection facilities around the world. Sonoco also operates one corrugating medium paper machine, located in Hartsville, S.C., in partnership with Georgia-Pacific Corporation. The annual capacity of this machine is 186,000 tons, which is sold by contract to Georgia-Pacific. Sonoco's global paper operation has a capacity of approximately 1.5 million tons per year of cylinder board production. Approximately 85% of the board produced by Sonoco is sold to other Sonoco operations to be converted into paperboard packaging. A major area of sales decline in the industrial packaging segment was in the paper operations. In comparison to 1995, recovered paper, corrugating medium and linerboard prices were all significantly lower in 1996. Lower selling prices on commodity grades of paperboard such as linerboard and corrugating medium reduced profits in our paper operations by approximately $20 million in 1996. Volume gains from external sales of paperboard and lower raw material costs mitigated the impact of the lower selling prices in the paper operations. During the past year, Sonoco has increased papermaking capacity by adding paper mills in Brazil and China. The Company's industrial container business experienced volume increases in its intermediate bulk containers business but was unable to offset the continuing market shift in demand from fibre drums to plastic drums and bulk containers. This operation added a new plant for plastic drums in 1996 that increased capacity, but start-up costs negatively impacted operating profit for the year. Sonoco's injection molded and extruded plastics businesses had a strong year in 1996 due to increased volume in plastic cores, tubes and reels. In addition, this operation continued to benefit from strong sales to the automotive industry. The protective packaging business experienced volume gains in its corner posts and engineered cushion fibre operations. This operation dramatically improved its corner posts in 1996 using unique proprietary technology. The wire and cable business added two small acquisitions at the beginning of the year and continued their strong operating performance. Sonoco's partitions business experienced lower volume in 1996 due to a major customer filing bankruptcy and the closing of a plant in Canada. In 1997, Sonoco signed a letter of intent with Rock-Tenn Corporation to combine the partitions operations of both companies into a joint venture. Sonoco will own 35% of this joint venture pending regulatory approval. Capital spending in this segment during 1996 was $163.5 million, compared with $108.6 million in 1995. Spending in this segment in 1996 included several plant expansions in the tube and core operations. These expansions were part of the Process Excellence supply chain initiative. The Hartsville Master Plan, which will be completed in 1997, included projects to expand capacity of several paper machines and the installation of a new fluidized-bed, multi-fuel burning boiler. In addition, several international paper mills were upgraded during 1996. Spending in this segment also included upgrades to the Company's information technology systems. CONSUMER PACKAGING SEGMENT. The consumer packaging segment consists of the following businesses: composite can operations, flexible packaging, capseals liners, high density film products, labels, and printed packaging. Overall trade sales in the consumer packaging segment were $1.23 billion in 1996, compared with $1.13 billion in 1995, an increase of 9.3%. Lower selling prices reduced sales by approximately $20 million in 1996. Strong volume in the composite can and high density film businesses, and acquisitions adding approximately $50 million in sales, more than offset the lower prices. CHART CAPTION: Operating Income by Segment (millions $) Operating profit increased in both segments in 1996. 29 6 Operating profits in this segment increased 10.9% to $126.4 million in 1996, compared with $114 million in 1995. While most of the businesses in this segment reported strong performances, profits were impacted by reorganization and start-up costs in the label and flexible packaging operations. Volume continued to be strong in the composite can operations, particularly in the food and beverage markets. The Company benefited from sales of new products such as the rectangular composite can for Lipton iced tea mixes and the single-serve snack can for Pringles(r) potato snacks. In addition, sales in Europe increased with the acquisition of two composite can manufacturers in Germany as well as the opening of a new plant in Belgium. The composite can business was also strong in Mexico, the United Kingdom and Venezuela. Capseals, which is located in England, continued its strong export sales to more than 70 countries around the world. This operation is running at full capacity due to expanded business from new products. The Company's high density film products operation continued to produce at full capacity. Sales in this operation were impacted by higher resin costs late in the year, but strong productivity and volume gains led to profit improvement. The screen print operations obtained in the 1993 acquisition of Engraph, Inc. showed strong sales and profit performance throughout 1996. Subsequent to year-end, this business, which accounted for approximately $60 million in annual sales, was sold because this product line did not fit with Sonoco's packaging portfolio. At the end of 1996, Sonoco sold its plastic tennis ball container facility in Greenville, S.C. Although profitable, this operation did not offer growth potential for the Company. Sonoco experienced higher than expected reorganization and start-up costs with its label, paperboard carton and flexible packaging businesses in 1996. While the October 1995 acquisition of Cricket Converters accounted for the sales increase in the label business, earnings lagged behind expectations. A major reorganization of the label operations from a series of independent companies into one operating unit was ongoing throughout 1996. The flexible packaging operations were slowed by start-up problems with new presses, as well as a major reorganization, which caused declines in efficiency. The Company expects to overcome these challenges during 1997 with significant improvement in these operations, particularly in the second half of the year. Capital spending in the consumer segment was $68.5 million in 1996, compared with $72.8 million in 1995. Spending in 1996 included new composite can manufacturing plants in Londerzeel, Belgium, and Jackson, Tenn., and the relocation of the plastic caulk cartridge operation to Winchester, Ky. In addition, the Company added six new presses to the Sonoco Engraph businesses and expanded capacity at the North Vernon, Ind., plastic sack manufacturing operation. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Sonoco's financial position remained strong in 1996. At December 31, 1996, the Company's long-term debt was rated A by Standard & Poor's (S&P) and A2 by Moody's. Commercial paper was rated A1 and P1 by S&P and Moody's, respectively. Cash provided by operations was $291.8 million in 1996, compared with $254.6 million in 1995 and $219.5 million in 1994. The 1996 increase was primarily due to higher earnings before depreciation and amortization expense. Cash provided by operations was higher in 1995 than in 1994 as a result of higher net income. Earnings before interest and taxes were 6.0 times interest expense in 1996, compared with 7.2 times in 1995 and 6.9 times in 1994. Net working capital increased to $262.5 million at December 31, 1996, from $229.3 million in 1995 and $222.1 million in 1994. The current ratio was 1.6 at December 31, 1996 and 1994, and 1.5 at December 31, 1995. Current assets and current liabilities increased in 1996 as a result of base business growth and acquisitions. Current assets increased in 1995 largely as a result of business growth, selling price increases implemented during 1995 and an increase in cash from industrial revenue bonds. Current liabilities increased in 1995 primarily as a result of higher notes payable due to increased use of short-term bank lines to finance international operations. Taxes payable increased in 1995 as a result of higher profitability levels. Debt increased $206.3 million to $893.1 million at December 31, 1996, primarily due to the repurchase of $123 million in common and preferred stock, increased capital spending as part of Vision 2000 and funding acquisitions of $94.2 million. Debt increased $139.4 million to $686.8 million at December 31, 1995, primarily due to funding acquisitions of $107.2 million, as well as increased capital spending and an increase in cash and cash equivalents. Capital spending was $232 million in 1996, compared with $181.4 million in 1995 and $126.7 million in 1994. 30 7 In April 1996, the Company issued $35 million of 6% Industrial Revenue Bonds due April 1, 2026, following an issue in June 1995 of $35.1 million of 6.125% Industrial Revenue Bonds due June 1, 2025. As of December 31, 1996 and 1995, cash and cash equivalents included $32.6 million and $30.9 million, respectively, of proceeds from these issues held in trust until qualifying expenditures take place. In November 1995, the Company issued $100 million of 6.75% Debentures due November 1, 2010, in order to lengthen the maturities of the Company's indebtedness. The net proceeds from this issue were used to reduce outstanding commercial paper obligations. During 1996, the Company increased its authorized commercial paper program from $300 million to $450 million and increased the fully committed bank lines of credit supporting the program by a like amount. These lines expire in August 2001. The Company expects internally generated cash flow along with borrowing capacity under existing credit facilities to be sufficient to meet operating and normal capital expenditure requirements. Capital spending and tactical acquisitions are expected to be approximately $250 million in 1997. In order to maintain financial flexibility, the Company has registered for sale up to $250 million of debt securities under a shelf registration with the Securities and Exchange Commission. Interest expense in 1996 was $55 million, compared with $44 million in 1995, the result of the higher borrowing levels. Shareholders' equity was $920.6 million at December 31, 1996, as record earnings of $170.9 million were offset by the repurchase of $89.2 million of the Company's common stock and $33.4 million of preferred stock and the payment of $65.7 million in common and preferred dividends. In 1995, shareholders' equity increased $86.5 million to $918.7 million at December 31, 1995, as $164.5 million in earnings were reduced by $60.9 million in common and preferred cash dividends and the repurchase of $18.7 million of the Company's stock. In April 1996, the Board of Directors increased the dividend payable to common shareholders to $.165 per share. In April 1995, the Board of Directors declared a 5% common stock dividend and increased the dividend to $.15 from the $.13 paid since the second quarter of 1994. Although the ultimate determination whether to pay dividends is within the sole discretion of the Board of Directors, the Company plans to increase dividends as earnings grow. The return on common equity was 21.1% in 1996, compared with 22.2% in 1995 and 19.1% in 1994. Return on total equity was 18.3% in 1996, compared with 18.7% in 1995 and 16% in 1994. The book value per common share was $8.91 in 1996, compared with $8.19 in 1995 and $7.23 in 1994. The Company's debt to total capital ratio increased to 47.2% at December 31, 1996, compared with 39.6% and 38.1% at December 31, 1995 and 1994, respectively. The 1996 and 1995 ratios have been adjusted to reduce debt by the amount of cash held related to the issuance of restricted-purpose bonds. The increase in 1996 is attributable to the share repurchases previously described. The Company expects to reduce the debt to total capital ratio to 40% by the end of 1998 without jeopardizing Vision 2000 growth plans by spreading capital expenditures more evenly over the period. The Company has sold its screen printing operations and will use the proceeds from this transaction to reduce debt. The Company is exposed to interest rate fluctuations as a result of using debt as a major source of financing its operations. When necessary, the Company will use traditional, unleveraged interest rate swaps to manage its mix of fixed and variable rate debt to ensure exposure to interest rate movements is maintained within established ranges. The Company is also subject to risk due to foreign exchange rate changes as a result of operating globally. The Company monitors these exposures and can use traditional currency swaps and forward foreign exchange contracts to hedge a portion of the net investment in foreign subsidiaries or to hedge firm commitments denominated in foreign currencies. Use of these financial instruments was not material to the financial statements as a whole as of December 31, 1996, 1995 or 1994. Except for the impact of raw material prices, as discussed in the segment information, inflation did not have a material impact on the Company's operations in 1996, 1995 or 1994. The Company is subject to various federal, state and local environmental laws and regulations concerning, among other matters, wastewater effluent and air emissions. Compliance costs have not been significant due to the nature of the materials and processes used in manufacturing operations. Such laws also make generators of hazardous wastes, and their legal successors, financially responsible for the clean-up of sites contaminated by those wastes. The Company has been named a potentially responsible party at several environmentally contaminated sites located primarily in the northeastern United States and owned by third parties. These sites are believed to represent the Company's largest potential environmental liabilities. The Company has accrued approximately $4 million as of December 31, 1996, with respect to these sites. Further details are provided in the Notes to the Consolidated Financial Statements. CHART CAPTION: Capital Spending by Segment (millions $) The increase in capital spending during 1996 is part of the Company's Vision 2000 strategy to grow largely through internal growth. 31 8 RESULTS OF OPERATIONS 1995 - 1994 Consolidated net sales for 1995 were $2.71 billion, a 17.7 % increase, compared with $2.3 billion in 1994. A major portion of the sales increase in 1995 resulted from selling price increases to recover unprecedented volatility in raw material costs. Gross profit margins improved to 22.1 % from the 21.6 % reported in 1994. The margin increase reflected a combination of selling price and raw material cost volatility during 1995. In the early part of the year, costs for primary raw materials, such as recovered paper, plastic resins, aluminum and steel were extremely high, resulting in price increases where possible. Later in the year, there were selected price decreases to reflect the falling costs of some raw materials. On balance, Sonoco was able to improve overall gross margin percentages slightly. In addition, productivity improvements resulting from capital expenditures in many operations and technology enhancements were factors in the gross margin improvement. Selling, general and administrative costs included consulting and other costs associated with Process Excellence, the major business redesign effort in the global industrial products and paper operations. These costs totalled $10 million in 1995, or approximately $.06 per share, assuming full dilution. Net income for 1995 was $156.8 million, or $1.64 per share, assuming full dilution, a 25.2% increase in earnings per share over the $122.1 million, or $1.31 per share for 1994. Capital expenditures in 1995 increased to $181.4 million, compared with $126.7 million in 1994. This increased spending included projects to expand capacity and introduce new technology in many business units. Acquisition spending totaled $107 million in 1995. Acquisitions included a label producer in New Jersey, a paper mill and three converting operations in Brazil, a flexible packaging operation, geographic expansion of paper recovery operations and additional operations in Europe. Research and development costs charged to expense were $12.7 million for 1995, compared with $12.1 million in 1994. The pressure-sensitive label and flexible packaging businesses were two areas with additional research and development spending in 1995. The Company's effective tax rate in 1995 was 39.4%, compared with 39.1% in 1994. Tax benefits from the company-owned life insurance program are included in the tax rates for both years. SEGMENT REPORTING. Sonoco changed its segment reporting in 1996 to reflect two segments: industrial packaging and consumer packaging. All amounts have been restated to reflect this change in reporting. INDUSTRIAL PACKAGING SEGMENT. Trade sales in this segment were $1.58 billion in 1995, compared with $1.34 billion in 1994, an increase of 17.6%. The increase in sales was due to selling price increases that resulted from increased material costs. The overall operating profit for the industrial packaging segment was $195.9 million in 1995, compared with $142.9 million in 1994, an increase of 37.1%. Although consulting fees from the Company's Process Excellence initiative reduced 1995 profits, selling price increases early in 1995 and the falling material prices late in the year improved overall performance in this segment. Business was also strong in the Company's international industrial packaging business in 1995. Sales were up in the industrial container operation in 1995 primarily due to increased selling prices resulting from higher material costs. The molded and extruded plastics operation increased sales slightly in 1995 while profits declined due to an inability to recover cost increases for plastic resins. Capital spending in this segment rose to $108.6 million in 1995, compared with $84.8 million in 1994. This increase included spending on the major project to upgrade capacity, quality and energy generation in certain Hartsville, S.C., facilities and productivity improvement projects at four paper mills elsewhere in the United States. CONSUMER PACKAGING SEGMENT. Trade sales in this segment were $1.13 billion in 1995, compared with $1 billion in 1994, an increase of 17.7%. This increase results from volume gains in all businesses, selling price increases and several acquisitions. Overall operating profit for the consumer segment was $114 million in 1995, compared with $101.5 million in 1994, an increase of 12.3%. Sales and profits increased in the composite can operation during 1995 as a result of volume gains and selling price increases implemented due to rising materials costs. This operation also implemented several projects in 1995 that resulted in significant productivity gains. The acquisition of the remaining 50% interest of the CMB/Sonoco joint venture for producing composite cans in Europe also added to sales and profits in this segment. High density film products had sales gains in all markets during 1995. Price increases were implemented to recover increases in the cost of plastic resins and ink, and this business improved productivity in 1995 by installing new machinery. Sales and earnings continued to grow in the label and insert business. During the fourth quarter of 1995, Sonoco acquired Cricket Converters, a label producer in New Jersey, and began consolidation of its label businesses. Sales in the flexible packaging business continued to grow in 1995 due to volume increases and the acquisition of the Edinburgh, Ind., plant from Hargo, Inc., early in 1995. Capital spending rose to $72.8 million in 1995 from $41.9 million in 1994. Much of this spending was to add equipment and additional facilities. 32 9 CONSOLIDATED BALANCE SHEETS SONOCO December 31 (Dollars and shares in thousands) 1996 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 71,260 $ 61,624 Trade accounts receivable, net of allowances of $7,630 in 1996 and $6,330 in 1995 329,963 314,207 Other receivables 38,240 17,074 Inventories Finished and in process 123,224 103,073 Materials and supplies 137,236 128,403 Prepaid expenses 26,121 21,277 Deferred income taxes 11,605 16,125 ---------- ---------- 737,649 661,783 PROPERTY, PLANT AND EQUIPMENT, NET 995,415 865,629 COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED, NET 455,567 411,343 OTHER ASSETS 198,909 176,658 ---------- ---------- $2,387,540 $2,115,413 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payable to suppliers $ 205,741 $ 149,512 Accrued expenses and other 111,804 105,750 Accrued wages and other compensation 29,428 30,885 Notes payable and current portion of long-term debt 102,062 94,898 Taxes on income 26,081 51,410 ---------- ---------- 475,116 432,455 LONG-TERM DEBT 791,026 591,894 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 107,265 103,898 DEFERRED INCOME TAXES AND OTHER 93,520 68,417 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Serial preferred stock, no par value Authorized 30,000 shares 2,395 shares issued and outstanding as of December 31, 1996 119,756 172,500 Common shares, no par value Authorized 150,000 shares 89,864 shares issued and outstanding as of December 31, 1996 7,175 7,175 Capital in excess of stated value 50,378 100,318* Translation of foreign currencies (56,572) (55,925) Retained earnings 799,876 694,681 ---------- ---------- Total shareholders' equity 920,613 918,749 ---------- ---------- $2,387,540 $2,115,413 ========== ==========

Capital in excess of stated value restated to include treasury stock, which was eliminated in 1996 to conform with South Carolina state law. The Notes beginning on page 37 are an integral part of these financial statements. 33 10 CONSOLIDATED STATEMENTS OF INCOME SONOCO
YEARS ENDED DECEMBER 31 ---------------------------------- 1996 1995 1994 (Dollars and shares in thousands except per share data) Net sales $2,788,075 $2,706,173 $2,300,127 Cost of sales 2,148,105 2,106,987 1,803,427 Selling, general and administrative expenses 310,605 289,297 252,307 ---------------------------------- Income before interest and taxes 329,365 309,889 244,393 Interest expense 55,481 44,004 35,861 Interest income (6,191) (4,905) (2,398) ---------------------------------- Income before income taxes 280,075 270,790 210,930 Provision for income taxes 107,433 106,640 82,500 ---------------------------------- Income before equity in earnings of affiliates 172,642 164,150 128,430 Equity in earnings of affiliates (1,771) 369 1,419 ---------------------------------- Net income 170,871 164,519 129,849 Preferred dividends (7,196) (7,763) (7,763) ---------------------------------- Net income available to common shareholders $ 163,675 $ 156,756 $ 122,086 ================================== Per common share - - ---------------- Net income available to common shareholders: Assuming no dilution $ 1.81 $ 1.72 $ 1.34 Assuming full dilution $ 1.73 $ 1.64 $ 1.31 Cash dividends $ .65 $ .58 $ .53 Average common shares outstanding: Assuming no dilution 90,513 91,139 91,445 Assuming full dilution 98,652 100,386 99,473
The Notes beginning on page 37 are an integral part of these financial statements. CHART CAPTION: Cash Dividends Declared - Common (millions $) The Sonoco quarterly dividend was increased from $.15 to $.165 per share beginning in the second quarter of 1996. Dividends are increased as earnings justify. CHART CAPTION: Long-Term Debt (millions $) Long-term debt increased $199.1 million to $791 million in 1996, primarily to fund acquisitions, internal expansion and stock repurchases. CHART CAPTION: Market vs Book Value Per Common Share ($) The market price of the Company's stock was $25.88 per share at the end of 1996. The book value per common share increased to $8.91 in 1996, compared with $8.19 in 1995. 34 11 SONOCO CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars and shares in thousands except per share data)
CAPITAL IN TRANSLATION COMMON SHARES PREFERRED SHARES EXCESS OF OF FOREIGN RETAINED OUTSTANDING AMOUNT OUTSTANDING AMOUNT STATED VALUE CURRENCIES EARNINGS ----------- ------ ----------- ------ ------------ ---------- -------- JANUARY 1, 1994 91,819 $7,175 3,450 $172,500 $24,205 $(39,016) $623,500 Net income 129,849 Cash dividends: Preferred (7,763) Common, $.53 per share (48,287) Translation loss (7,236) Issuance of shares under Stock option plan 344 3,306 Employee stock ownership plan 156 3,360 Shares repurchased (1,335) (29,462) Other 270 87 -------------------------------------------------------------------------- DECEMBER 31, 1994 91,254 7,175 3,450 172,500 1,496 (46,252) 697,299 Net income 164,519 Cash dividends: Preferred (7,763) Common, $.58 per share (53,145) 5% common stock dividend 106,213 (106,229) Translation loss (9,673) Issuance of shares under Stock option plan 561 11,870 Shares repurchased (824) (18,657) Other 126 (604) -------------------------------------------------------------------------- December 31, 1995 91,117 7,175 3,450 172,500 100,318 (55,925) 694,681 Net income 170,871 Cash dividends: Preferred (7,196) Common, $.65 per share (58,480) Translation loss (647) Issuance of shares under Stock option plan 913 15,914 Preferred stock conversions 1,035 (499) (24,942) 24,942 Shares repurchased Preferred (556) (27,802) (5,588) Common (3,201) (89,205) Other 3,997 -------------------------------------------------------------------------- DECEMBER 31, 1996 89,864 $7,175 2,395 $119,756 $50,378 $ (56,572) $799,876 ==========================================================================
Capital in excess of stated value restated to include treasury stock, which was eliminated in 1996 to conform with South Carolina state law. The Notes beginning on page 37 are an integral part of these financial statements. 35 12 CONSOLIDATED STATEMENTS OF CASH FLOWS SONOCO YEARS ENDED DECEMBER 31 ------------------------------- (Dollars and shares in thousands) 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $170,871 $164,519 $129,849 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 142,927 125,836 112,797 Equity in earnings of affiliates 1,771 (369) (1,419) (Gain)loss on disposition of assets (1,892) 157 2,901 Deferred taxes 9,972 (5,347) 5,668 Changes in assets and liabilities, net of effects from acquisitions, dispositions and foreign currency adjustments Accounts receivable (29,789) (31,778) (33,127) Inventories (20,434) (12,931) (17,637) Prepaid expenses (4,748) 8,319 1,563 Payables and taxes 25,196 27,313 29,536 Other assets and liabilities (2,098) (21,169) (10,616) --------- --------- --------- Net cash provided by operating activities 291,776 254,550 219,515 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (231,986) (181,432) (126,746) Cost of acquisitions, exclusive of cash (94,212) (107,156) (30,370) Proceeds from the sale of assets 15,216 4,557 5,533 --------- --------- --------- Net cash used by investing activities (310,982) (284,031) (151,583) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of debt 72,812 221,551 27,865 Principal repayment of debt (46,772) (46,307) (39,280) Net increase(decrease) in commercial paper borrowings 173,891 (39,200) 27,200 Cash dividends - common and preferred (65,676) (60,908) (56,004) Common and preferred shares acquired (122,595) (18,657) (29,462) Common shares issued 17,177 8,370 3,334 --------- --------- --------- Net cash provided (used) by financing activities 28,837 64,849 (66,347) EFFECTS OF EXCHANGE RATE CHANGES ON CASH 5 (2,188) 1,001 --------- --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 9,636 33,180 2,586 Cash and cash equivalents at beginning of year 61,624 28,444 25,858 --------- --------- --------- Cash and cash equivalents at end of year $ 71,260 $ 61,624 $ 28,444 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 50,671 $ 41,851 $ 37,123 Income taxes paid $ 115,920 $ 75,635 $ 61,254
Excluded from the Consolidated Statements of Cash Flows is the effect of certain non-cash activities. On June 9, 1995, the Company issued a 5% common stock dividend ($106,213 fair value). Debt obligations assumed by the Company in conjunction with acquisitions were approximately $11,600 in 1996, $19,000 in 1995 and $6,000 in 1994. Prior years' data have been reclassified to conform to the current year presentation. The Notes beginning on page 37 are an integral part of these financial statements. 36 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO (Dollars in thousands except per share data) The following notes are an integral part of the consolidated financial statements. The accounting principles followed by the Company appear in bold type. 1 - BASIS OF PRESENTATION THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF SONOCO AND ITS SUBSIDIARIES AFTER ELIMINATION OF INTERCOMPANY ACCOUNTS AND TRANSACTIONS. INVESTMENTS IN AFFILIATED COMPANIES IN WHICH THE COMPANY OWNS 20% TO 50% OF THE VOTING STOCK ARE INCLUDED ON THE EQUITY METHOD OF ACCOUNTING. THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNT OF ASSETS AND LIABILITIES AT THE DATE OF THE FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES. 2 - ACQUISITIONS/DISPOSITIONS Sonoco completed several acquisitions during 1996 with an aggregate cost of approximately $94,200 and the assumption of $11,600 in debt. During the first quarter, the Company finalized the Sonoco Hongwen joint venture to produce paperboard in Shanghai, China, and initiated a joint venture in Indonesia that will manufacture composite cans, tubes and cores. In February 1996, the Company acquired Moldwood Products Company of York, Ala., formerly owned by Gulf States Paper Corporation. Moldwood Products is a producer of moldwood plugs for the paper industry with annual sales of approximately $12 million. The Company also added two operations to its wire and cable packaging operations, the Baker Reels Division. During the second quarter of 1996, the Company acquired Hamilton Hybar, Inc., of Richmond, Va., a leading supplier of vapor barrier packaging materials to the paper industry, with annual sales of approximately $32 million. During the third quarter of 1996, the Company finalized the acquisition of Specialty Packaging Group, Inc., a niche producer of composite cans, specialty lines of metal closures, and tubes and cores with annual sales of approximately $38 million. The Company also acquired two of Germany's leading paperboard can manufacturers, Dosen Schmitt of Mayen and Buck Verpackungen GmbH of Freilassing, with combined annual sales of approximately $15 million. During the fourth quarter of 1996, the Company acquired Stonington Corporation of Westfield, Mass. Stonington is a manufacturer of tubes and cores, specializing in short-run, high-value tubes with annual sales of approximately $9 million. Sonoco completed several acquisitions during 1995 which were strategically important to both United States and international operations. The aggregate cost of these acquisitions was approximately $107,000 in cash and the assumption of $19,000 in debt. The Company has accounted for all of its acquisitions as purchases and, accordingly, has included their results of operations in consolidated net income from the date of acquisition. The pro forma impact of these acquisitions in each year was not material. In December 1996, Sonoco completed the sale of its tennis ball container manufacturing operation, located in Greenville, S.C. Subsequent to year end, the Company signed a letter of intent to form a joint venture with the Rock-Tenn Company, combining their fibre partitions businesses into a joint venture company called RTS Packaging, owned 35% by Sonoco and 65% by Rock-Tenn, with combined annual sales of approximately $150 million. This transaction is awaiting regulatory approval. In addition, the Company sold its screen printing operations, acquired in the 1993 acquisition of Engraph, Inc., because this product line did not fit with the Company's packaging portfolio. 3 - 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, 1996 and 1995, outstanding checks of $32,867 and $19,808, respectively, were included in Payable to suppliers. At December 31, 1996 and 1995, $32,590 and $30,892, respectively, of cash and cash equivalents represented proceeds from the issuance of the 6% and 6.125% Industrial Revenue Bonds (IRBs) and were restricted to funding qualified expenditures as provided for by the IRBs. 4 - 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 38% of total inventories in both 1996 and 1995. 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 $12,043 in 1996 and $12,084 in 1995. 37 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO (Dollars in thousands except per share data) 5 - PROPERTY, PLANT AND EQUIPMENT PLANT ASSETS REPRESENT THE ORIGINAL COST OF LAND, BUILDINGS AND EQUIPMENT LESS DEPRECIATION COMPUTED UNDER THE STRAIGHT-LINE METHOD OVER THE ESTIMATED USEFUL LIFE OF THE ASSET. Equipment lives range from five to 11 years, buildings from 20 to 30 years. TIMBER RESOURCES ARE STATED AT COST. DEPLETION IS CHARGED TO OPERATIONS BASED ON THE NUMBER OF UNITS OF TIMBER CUT DURING THE YEAR. Depreciation and depletion expense amounted to $125,167 in 1996, $110,706 in 1995 and $99,767 in 1994. Details of property, plant and equipment at December 31 are as follows:
1996 1995 ---- ---- Land $ 33,603 $ 35,733 Timber resources 32,822 32,529 Buildings 304,406 302,383 Machinery & equipment 1,326,069 1,131,503 Construction in progress 155,929 107,099 --------- --------- 1,852,829 1,609,247 Accumulated depreciation and depletion (857,414) (743,618) --------- --------- $ 995,415 $ 865,629 ========= =========
Estimated costs for completion of authorized capital additions under construction totaled approximately $124,500 at December 31, 1996. Certain operating properties and equipment are leased under non-cancelable operating leases. Total rental expense under operating leases was $37,000, $31,000 and $28,000 in 1996, 1995 and 1994, respectively. Future minimum rentals under non-cancelable operating leases with terms of more than one year are as follows: 1997 - $13,800, 1998 - $11,200, 1999 - $7,600, 2000 - $6,000, 2001 - $5,000, and 2002 and thereafter - $21,500. 6 - COST IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED GOODWILL ARISING FROM BUSINESS ACQUISITIONS ($56,000 in 1996 and $64,000 in 1995) IS AMORTIZED ON THE STRAIGHT-LINE BASIS OVER PERIODS RANGING FROM 15 TO 40 YEARS. THE COMPANY EVALUATES, AT EACH BALANCE SHEET DATE, THE REALIZABILITY OF GOODWILL FOR EACH SUBSIDIARY HAVING A GOODWILL BALANCE. Amortization expense amounted to $17,760 in 1996, $15,130 in 1995 and $13,030 in 1994. Accumulated amortization at December 31, 1996 and 1995 was $57,361 and $45,346, respectively. 7 - INVESTMENT IN LIFE INSURANCE Company-owned life insurance (COLI) policies are used by the Company to aid in the financing of employee benefits and are recorded net of policy loans in Other Assets. The net pretax cost of COLI, including interest expense, was $9,303 in 1996, $9,171 in 1995 and $5,532 in 1994 and is included in selling, general and administrative expenses. The related interest expense was $39,921 in 1996, $34,634 in 1995 and $18,630 in 1994. Legislation was enacted in 1996 that will phase out the tax deductibility of this interest. 38 15 8 - DEBT Debt at December 31 was as follows:
1996 1995 ---- ---- Commercial paper, average rate of 5.4% in 1996 and 5.9% in 1995 $308,391 $134,500 9.2% notes due August 2021 99,928 99,926 6.75% debentures due November 2010 99,804 99,790 5.875% notes due November 2003 99,538 99,471 5.49% notes due April 2000 75,000 75,000 6.125% IRBs due June 2025 34,463 34,439 6.0% IRBs due April 2026 34,075 Foreign denominated debt, average rate of 7.7% at December 31, 1996 and 6.6% at December 31, 1995 102,954 108,970 Other notes 38,935 34,696 -------- -------- Total debt 893,088 686,792 Less current portion and short-term notes 102,062 94,898 -------- -------- Long-term debt $791,026 $591,894 ======== ========
The Company has authorized a commercial paper program totaling $450 million and has fully committed bank lines of credit supporting the program by a like amount. These bank lines expire in the year 2001. Accordingly, commercial paper borrowings are classified as long-term debt. As of December 31, 1996, the Company has registered debt securities of $250 million under shelf registrations with the Securities Exchange Commission. The approximate principal requirements of debt maturing in the next five years are: 1997 - $102,100, 1998 - $3,100, 1999 - $3,300, 2000 - $78,600 and 2001 - $3,800. It is management's intent to extend indefinitely the line of credit agreements supporting the commercial paper program. 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 $815 million increased by 50% of net income and decreased by stock purchases after September 1996. In addition to the committed availability under the commercial paper program, unused short-term lines of credit for general Company purposes at December 31, 1996, were approximately $94,700 with interest at mutually agreed-upon rates. 9 - FINANCIAL INSTRUMENTS The Company enters into currency swaps and foreign exchange forward contracts to hedge a portion of the net investment in certain foreign subsidiaries. Gains and losses on such contracts are recognized in the cumulative translation adjustments account in Shareholders' Equity. As of December 31, 1996 and 1995, the notional value of such contracts was approximately $30,000 and $38,000, respectively. All financial instruments are executed with credit-worthy financial institutions; therefore, the Company considers the risk of non-performance on these instruments to be remote. The following table sets forth the carrying amounts and fair values of the Company's significant financial instruments where the carrying amount differs from the fair value. The carrying amount of cash and cash equivalents, short-term debt and long-term variable rate debt approximates fair value. The fair value of long-term debt is based on quoted market prices or by discounting future cash flows using interest rates available to the Company for issues with similar terms and average maturities. Foreign currency agreements are valued based on termination values or quoted market prices of comparable instruments.
DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE OF ASSET OF ASSET OF ASSET OF ASSET (LIABILITY) (LIABILITY) (LIABILITY) (LIABILITY) ~~Long-term debt $(791,026) $(800,195) $(591,894) $(622,695) Foreign currency agreements (708) (708) (2,690) (2,690)~~
16 10 - STOCK PLANS The Company has stock option plans under which common shares are reserved for sale to certain employees. Options granted under the plans were at the market value of the shares at the date of grant. Options are generally exercisable one year after the date of grant and expire 10 years after the date of grant. There were 3,131,840 shares reserved for future grants at December 31, 1996. In 1996, shareholders approved the adoption of the 1996 Non-Employee Director's Stock Plan. This plan provides for the granting of options to non-employee directors beginning with 2,000 options per participant granted in 1996. In 1994, the Company granted one-time awards of contingent shares to 13 of the Company's executives. Three hundred and thirty-six thousand shares were granted under this plan from shares allocated in the 1991 Key Employee Stock Plan. Information with respect to the Company's stock option plans follows:
OPTION OPTION SHARES PRICE RANGE 1994 ---- Outstanding at beginning of year 4,850,859 $ 3.55-$22.98 Granted 1,274,920 $ 0.00-$23.93 Exercised (343,734) $ 3.55-$17.86 Canceled (36,588) $ 4.78-$23.93 --------- Outstanding at end of year 5,745,457 $ 0.00-$23.93 1995 ---- Granted 1,083,060 $19.88-$23.57 Exercised (560,664) $ 5.09-$23.93 Canceled (32,921) $ 5.09-$23.93 --------- Outstanding at end of year 6,234,932 $ 0.00-$23.93 1996 Granted 1,186,320 $27.00-$28.50 Exercised (952,462) $ 5.18-$27.00 Canceled (36,437) $10.00-$27.00 --------- Outstanding at end of year 6,432,353 $ 0.00-$28.50 Options exercisable at ========= December 31, 1996 4,947,533
On January 1, 1996, the Company adopted Statement of Financial Accounting Standards 123, "Accounting for Stock-Based Compensation" (FAS 123). As permitted by FAS 123, the Company has chosen to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for options granted under the plans. Had compensation cost for the Company's plans been determined consistent with the fair market value provisions of FAS 123, the Company's net income and net income per common share for 1996 and 1995 would have been reduced as indicated below:
1996 1995 ---- ---- Net income - as reported $170,871 $164,519 Net income - pro forma 167,551 161,566 Earnings per share - as reported 1.73 1.64 Earnings per share - pro forma 1.70 1.61
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:
1996 1995 ---- ---- Expected dividend yield 2.3% 2.3% Expected stock price volatility 15.0% 15.0% Risk-free interest rate 5.3% 7.6% Expected life of options 5 years 5 years
39 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO 11 - RETIREMENT BENEFIT PLANS Non-contributory defined benefit pension plans cover substantially all United States employees. Under the plans, retirement benefits are based either on both years of service and compensation or on service only. IT IS THE COMPANY'S POLICY TO FUND THESE PLANS, AT A MINIMUM, IN AMOUNTS REQUIRED UNDER ERISA. Plan assets consist primarily of common stocks, bonds and real estate. The Company also maintains a plan to supplement executive benefits limited through qualified plans. Benefits are based on years of service and compensation. The plan is partially funded through a grantor trust as defined under Section 671 of the Internal Revenue Service Code of 1986. The Company sponsors contributory pension plans covering substantially all of the employees in the United Kingdom and Canada. Pension benefits are based either on the employee's salary in the year of retirement or the average of the final three years. The funding policy is to contribute annually at actuarially determined rates. It is the Company's intent to maintain well-funded plans. Net pension cost for the domestic, United Kingdom and Canadian plans include the following components:
Combined Plans ----------------------------------- 1996 1995 1994 ---- ---- ---- Service cost during year $ 14,266 $ 12,532 $ 13,716 Interest cost on projected benefit obligation 35,065 32,537 27,160 Actual return on plan assets (69,085) (81,926) (1,205) Net amortization and deferral 24,733 45,007 (33,209) -------- -------- -------- $ 4,979 $ 8,150 $ 6,462 ======== ======== ========
The following table sets forth the funded status of the plans at December 31:
Over-Funded Under-Funded Plan Plan --------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Projected benefit obligation Vested benefits $382,440 $366,805 $ $ Non-vested benefits 11,025 10,241 25,598 19,332 Accumulated benefit obligation 393,465 377,046 25,598 19,332 Effect of assumed increase in compensation levels 46,179 47,203 2,847 1,345 ------------------------------------------------ Projected benefit obligation 439,644 424,249 28,445 20,677 Plan assets at fair value 517,777 461,270 8,113 14,234 ------------------------------------------------ Plan assets in excess of (less than) projected benefit obligation 78,133 37,021 (20,332) (6,443) Unrecognized net loss 3,451 43,583 6,054 5,094 Unrecognized prior service cost 5,312 3,039 4,415 1,735 Unrecognized net transition (asset) obligation (8,195) (9,207) 914 1,142 Adjustment required to recognize minimum liability (8,537) (6,625) ------------------------------------------------ Prepaid (accrued) pension cost $ 78,701 $ 74,436 $(17,486) $ (5,097) ================================================
Prepaid pension costs of $4,212 and $5,737 were included in prepaid expenses in 1996 and 1995, respectively. In addition $74,489 and $68,699 were included in Other Assets in 1996 and 1995, respectively. Assets in the under-funded plan were reduced by loans made against the insurance policies held as plan assets. The weighted-average discount rate used in determining the projected benefit obligations was 7.75% in 1996, 7.25% in 1995 and 8.5% in 1994. The assumed compensation increase was 4.25% in 1996, 4% in 1995 and 5% in 1994. The expected long-term rate of return on assets was 9.5% for all years presented. 18 The Company's Employee Savings and Stock Ownership Plan provides that all eligible employees may contribute 1% to 16% of their gross pay to the plan, subject to Internal Revenue Service regulations. The Company may make matching contributions in an amount to be determined annually by the Company's Board of Directors. The Company's contributions to the plan for 1996, 1995 and 1994, were $5,750, $5,570 and $5,380, respectively. 12 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides health care and life insurance benefits to the majority of its United States retirees and their eligible dependents. The Company's subsidiaries in Canada also provide postretirement benefits to eligible retirees. THE COMPANY ACCRUES FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS OVER AN EMPLOYEE'S CAREER. Benefit costs are funded principally on a pay-as-you-go basis, with the retiree paying a portion of the costs. In situations where full-time employees retire from the Company between age 55 and age 65, most are eligible to receive, at a cost to the retiree equal to the cost for an active employee, certain health care benefits identical to those available to active employees. After attaining age 65, an eligible retiree's health care benefit coverage becomes coordinated with Medicare. For purposes of projecting future benefit payments, early retiree contributions were assumed to increase at the health care cost trend. Non-pension retirement benefit expense includes the following:
1996 1995 1994 ------ ------ ------ Service cost during year $4,548 $3,749 $5,180 Interest cost on APBO 8,735 8,673 7,110 Actual return on plan assets (3,954) (5,441) 459 Net amortization and deferral (2,025) (312) (5,400) ------ ------ ------ Net periodic postretirement benefit cost $7,304 $6,669 $7,349 ====== ====== ======
40 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO (Dollars in thousands except per share data) The following sets forth the accrued obligation included in the accompanying December 31 Consolidated Balance Sheets applicable to each employee group for non-pension postretirement benefits:
1996 1995 --------- --------- Accumulated postretirement benefit obligation (APBO): Retired employees $ 70,187 $ 69,627 Active employees-fully eligible 21,653 21,489 Active employees-not yet eligible 24,477 26,128 --------- --------- Accumulated benefit obligation 116,317 117,244 Plan assets at fair value 29,770 25,816 --------- --------- Plan assets less than accumulated benefit obligation (86,547) (91,428) Unrecognized net loss from changes in assumptions 19,963 22,766 Unrecognized prior service cost (19,080) (17,980) --------- --------- Accrued postretirement benefit cost $ (85,664) $ (86,642) ========= =========
Prepaid postretirement medical costs of $21,644 and $17,256 were included in Other Assets in 1996 and 1995, respectively. The discount rate used in determining the APBO was 7.75% in 1996, 7.25% in 1995 and 8.5% in 1994. The assumed health care cost trend rate used in measuring the APBO was 9.75% in 1996 and declining to 5.25% in the year 2005. Increasing the assumed trend rate for health care costs by one percentage point would result in an increase in the APBO of approximately $5,400 at December 31, 1996, and an increase of $770 in the related 1996 expense. Plan assets are the result of funding these benefit costs in amounts representing the maximum allowable under Section 401(h) of the Internal Revenue Code. These assets are combined with the pension plan assets and consist primarily of common stocks, bonds and real estate. The expected long-term rate of return on assets was 9.5% for all years presented. 13 - INCOME TAXES The provision (benefit) for taxes on income for the years ending December 31 consists of the following:
1996 1995 1994 ---- ---- ---- Pretax income Domestic $ 234,029 $ 233,125 $ 202,363 Foreign 46,046 37,665 8,567 --------- --------- ---------- Total pretax income $ 280,075 $ 270,790 $ 210,930 ========= ========= ========== Current Federal $ 74,166 $ 86,611 $ 62,800 State 10,238 13,533 10,074 Foreign 13,057 11,843 3,958 --------- --------- ---------- Total current $ 97,461 $ 111,987 $ 76,832 ========= ========= ========== Deferred Federal $ 5,466 $ (6,065) $ 4,263 State 758 (866) 949 Foreign 3,748 1,584 456 --------- --------- ---------- Total deferred 9,972 (5,347) 5,668 --------- --------- ---------- Total taxes $ 107,433 $ 106,640 $ 82,500 ========= ========= ==========
Deferred income tax (benefit) expense results from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effect of each are as follows:
1996 1995 1994 ---- ---- ---- Restructuring charge $ 1,665 $ 1,034 $ 2,815 Depreciation expense 2,777 (2,884) 45 Benefit plan costs (2,158) (1,282) 3,125 Other items, net 7,688 (2,215) (317) -------- ------- ------- Total deferred $ 9,972 $(5,347) $ 5,668 ======== ======= =======
20 Cumulative deferred tax liabilities (assets) are comprised of the following at December 31:
1996 1995 ---- ---- Depreciation $ 70,916 $ 67,872 Employee benefits 25,920 26,182 Other 4,798 970 --------- --------- Gross deferred tax liabilities 101,634 95,024 --------- --------- Restructuring (1,689) (3,354) Retiree health benefits (32,825) (31,550) Foreign loss carryforwards (10,329) (10,960) Capital loss carryforwards (4,320) (6,047) Employee benefits (15,829) (15,382) Other (6,221) (8,024) --------- --------- Gross deferred tax assets (71,213) (75,317) Valuation allowance on deferred tax assets 10,329 10,960 --------- --------- Total deferred taxes, net $ 40,750 $ 30,667 ========= =========
The net change in the valuation allowance for deferred tax assets is a net decrease of $631 in 1996, compared with a net decrease of $271 in 1995. The change relates to utilization of current net operating losses of certain foreign subsidiaries and the addition to the reserve for current net operating losses for which their use is limited to future taxable earnings. Approximately $28,500 of foreign subsidiary net operating loss carryforwards remain at December 31, 1996. Their use is limited to future taxable earnings of the respective foreign subsidiaries. Of these loss carryforwards, approximately $22,200 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: 41 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO (Dollars in thousands except per share data)
1996 1995 1994 ---- ---- ---- Statutory tax rate $ 98,026 35.0% $ 94,776 35.0% $73,825 35.0% State income taxes, net of federal tax benefit 6,879 2.5 8,560 3.2 7,087 3.3 Goodwill 3,624 1.3 3,556 1.3 3,777 1.8 Other, net (1,096) (.4) (252) (.1) (2,189) (1.0) -------------------------------------------------- Total taxes $107,433 38.4% $106,640 39.4% $82,500 39.1% ==================================================
The Internal Revenue Service has examined the Company's federal income tax returns for all years through 1992. The Company believes that it has made adequate provision for income taxes that may become payable with respect to open years. Undistributed earnings of international subsidiaries totaled $74,670 at December 31, 1996. There have been no United States income taxes provided on the undistributed earnings since the Company considers these earnings to be indefinitely reinvested to finance international growth and expansion. If such amounts were remitted, loaned to the Company or the stock in the foreign subsidiaries sold, these earnings could become subject to tax; however, the Company believes United States foreign tax credits would substantially eliminate any taxes due. 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. In 1994, a suit was filed against the Company in the United States District Court for the District of Massachusetts for alleged patent infringement involving grocery bag packs. The suit also sought to have a patent involving plastic bag loading systems owned by the Company declared invalid. This suit was dismissed in May 1996. The Company has been named as a potentially responsible party at several environmentally contaminated sites, located primarily in the northeastern United States, owned by third parties. These sites represent the Company's largest potential environmental liabilities. The Company has approximately $4,000 accrued for these contingencies as of December 31, 1996 and 1995. Due to the complexity of determining clean-up costs associated with the sites, a reliable estimate of the ultimate cost to the Company cannot be determined. Furthermore, all of the sites are also the responsibility of other parties. The Company's liability, if any, is shared with such other parties, but the Company's share has not been finally determined in most cases. In some cases, the Company has cost-sharing agreements with other potentially responsible parties with respect to a particular site. Such agreements relate to the sharing of legal defense costs or clean-up costs, or both. The Company has assumed, for purposes of estimating amounts to be accrued, that the other parties to such cost sharing agreements will perform as agreed. It appears that final resolution of some of the sites is years away. Accordingly, a reliable estimate of the ultimate cost to the Company with respect to such sites cannot be determined. Costs, however, are accrued as necessary once reasonable estimates are determined. Although the level of future expenditures for legal and environmental matters is impossible to determine with any degree of probability, it is management's opinion that such costs, when finally determined, will not have an adverse material effect on the consolidated financial position of the Company. 15 - INTERNATIONAL OPERATIONS The operating profit, net assets and dividends received by the Company from operations outside the United States are as follows:
1996 1995 ---- ---- ~~Operating profit $ 44,988 $ 36,806 Net assets 376,880 309,334 Dividends 738 581~~
The aggregate foreign currency transaction gain/loss recognized in net income was immaterial for 1996, 1995 and 1994. Information regarding the Company's operations in Europe, which is the Company's only significant foreign geographic area, is as follows:
1996 1995 1994 ---- ---- ---- ~~Sales to unaffiliated customers $283,453 $276,029 $184,247 Operating profit (loss) 16,533 6,170 (2,085) Total assets 313,302 296,325 258,463~~
22 16 - SHAREHOLDERS' EQUITY A change in South Carolina law eliminated the legal distinction between treasury shares and authorized but unissued shares. In 1996, the Company changed the presentation of reacquired shares to better reflect the legal status of such shares. As a result, shares acquired by the Company are treated as retirements, with the cost being charged to capital in excess of stated value. The prior year Consolidated Financial Statements have been reclassified to conform with the current year presentation. On July 17, 1996, the Company's Board of Directors authorized an additional public stock repurchase program to purchase up to $100 million of the Company's common stock and convertible preferred stock at current market prices. The Company has repurchased shares under this program by means of open market 42 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SONOCO (Dollars in thousands except per share data) purchases and privately negotiated transactions at prevailing market prices. Through December 31, 1996, total preferred stock repurchases under this program amounted to $33.4 million. Common stock repurchases under this and other stock repurchase programs totalled $89.2 million. On April 19, 1995, the Board of Directors declared a 5% stock dividend issued on June 9, 1995. All references in the accompanying Consolidated Financial Statements to numbers of common shares and per share data have been restated to give retroactive effect to the stock dividend. In 1993, the Company issued 3,450,000 shares of $2.25 Series A Cumulative Convertible Preferred Stock for $172,500, or $50 per share. These securities are convertible into the Company's common stock at a price of $24.11 per share. The Company has the option to redeem this stock at a price of $51.575 per share, decreasing ratably annually to $50 per share on or after November 1, 2003. Dividends on the Convertible Preferred Stock, which are paid quarterly, accrue and are cumulative from the date of original issuance. As of December 31, 1996, 2,395,000 preferred shares remain outstanding. 17 - FINANCIAL REPORTING FOR BUSINESS SEGMENTS The Financial Reporting for Business Segments should be read in conjunction with the Management's Discussion and Analysis (which describes the segments in detail) appearing on pages 27-32. The Company changed its segment reporting in 1996 to reflect two business segments: industrial packaging and consumer packaging. All prior year numbers have been restated to reflect this change in reporting.
INDUSTRIAL CONSUMER YEARS ENDED DECEMBER 31 PACKAGING PACKAGING CORPORATE CONSOLIDATED TOTAL REVENUE 1996 $1,599,129 $1,231,770 $2,830,899 1995 1,627,377 1,127,330 2,754,707 1994 1,379,210 959,066 2,338,276 INTERSEGMENT SALES(1) 1996 $ 41,574 $ 1,250 $ 42,824 1995 46,863 1,671 48,534 1994 35,335 2,814 38,149 SALES TO UNAFFILIATED CUSTOMERS 1996 $1,557,555 $1,230,520 $2,788,075 1995 1,580,514 1,125,659 2,706,173 1994 1,343,875 956,252 2,300,127 OPERATING PROFIT(2) 1996 $ 202,928 $ 126,436 $ (49,289) $ 280,075 1995 195,929 113,960 (39,099) 270,790 1994 142,911 101,482 (33,463) 210,930 IDENTIFIABLE ASSETS(3) 1996 $1,219,248 $ 861,464 $ 306,828 $2,387,540 1995 1,076,035 760,767 278,611 2,115,413 1994 948,957 670,396 215,700 1,835,053 DEPRECIATION, DEPLETION AND AMORTIZATION 1996 $ 90,416 $ 52,511 $ 142,927 1995 73,983 51,853 125,836 1994 65,860 46,937 112,797 CAPITAL EXPENDITURES 1996 $ 163,507 $ 68,479 $ 231,986 1995 108,606 72,826 181,432 1994 84,834 41,912 126,746
(1) Intersegment sales are recorded at a market-related transfer price. (2) Interest income and interest expense are excluded from the operating profits by segment and are shown under Corporate. (3) Identifiable assets are those assets used by each segment in its operations. Corporate assets consist primarily of cash and cash equivalents, investments in affiliates, headquarters facilities and prepaid expenses. 43 24 SELECTED ELEVEN-YEAR FINANCIAL DATA
(Dollars and shares in thousands except per share data) 1996 1995 1994 1993* ---- ---- ---- ----- Operating Results Net sales $2,788,075 $2,706,173 $2,300,127 $1,947,224 Cost of sales and operating expenses 2,458,710 2,396,284 2,055,734 1,734,980 Interest expense 55,481 44,004 35,861 31,154 Interest income (6,191) (4,905) (2,398) (6,017) Unusual items* (5,800) ---------------------------------------------- Income from operations before income taxes 280,075 270,790 210,930 192,907 Taxes on income 107,433 106,640 82,500 75,200 Equity in earnings of affiliates (1,771) 369 1,419 1,127 ---------------------------------------------- Income before cumulative effect of changes in accounting principles 170,871 164,519 129,849 118,834 ---------------------------------------------- Cumulative effect of changes in accounting principles (FAS 106 and FAS 109) Net income 170,871 164,519 129,849 118,834 Preferred dividends (7,196) (7,763) (7,763) (1,264) ---------------------------------------------- Net income available to common shareholders $ 163,675 $ 156,756 $ 122,086 $ 117,570 ============================================== Returns before cumulative effect of changes in accounting principles Return on common equity 21.1% 22.2% 19.1% 19.9% Return on total equity (including preferred stock) 18.3% 18.7% 16.0% 19.0% Return on net sales 6.1% 6.1% 5.6% 6.1% Per common share - - ---------------- Income before cumulative effect of changes in accounting principles 1.81 1.72 1.34 1.28 ---------------------------------------------- Cumulative effect of changes in accounting principles Net income available to common shareholders: Assuming no dilution 1.81 1.72 1.34 1.28 Assuming full dilution 1.73 1.64 1.31 1.26 Cash dividends declared .65 .58 .53 .51 Average common shares outstanding: Assuming no dilution 90,513 91,139 91,445 91,681 Assuming full dilution 98,652 100,386 99,473 99,737 Actual common shares outstanding at December 31 89,864 91,117 91,254 91,819 FINANCIAL POSITION Net working capital 262,533 229,328 222,068 209,932 Property, plant and equipment, net 995,415 865,629 763,109 737,154 Total assets 2,387,540 2,115,413 1,835,053 1,707,125 Long-term debt 791,026 591,894 487,959 455,262 Shareholders' equity 920,613 918,749 832,218 788,364 Current ratio 1.6 1.5 1.6 1.7 Total debt to total capital 47.2%** 39.6%** 38.1% 38.0% Book value per common share 8.91 8.19 7.23 6.71 OTHER DATA Depreciation, depletion and amortization expense 142,927 125,836 112,797 95,745 Cash dividends declared - common 58,480 53,145 48,287 46,333 Market price per common share (ending) 25.88 26.25 20.83 20.95
*Included in 1993 and 1991 were gains from the early repayment of a note issued in connection with the sale of Sonoco Graham in 1991. Also includes restructuring charges of $42,000 pretax, or $25,000 after-tax, in 1992 and $75,000 pretax, or $54,650 after-tax, in 1990. In 1987, includes acquisition consolidation charges of $10 million pretax, or $5,600 after-tax. **Debt levels adjusted for excess cash at year-end related to the issuance of restricted-purpose bonds. 44 25 SONOCO (Dollars in thousands except per share data)
1992* 1991* 1990* 1989 1988 1987* 1986 ----- ----- ----- ---- ---- ----- ---- $1,838,026 $1,697,058 $1,669,142 $1,655,830 $1,599,751 $1,312,052 $963,796 1,641,075 1,528,543 1,481,271 1,470,877 1,413,912 1,174,777 858,680 30,364 28,186 28,073 29,440 25,175 18,593 8,552 (6,416) (6,870) (2,196) (2,573) (1,517) (1,045) (602) 42,000 (8,525) 75,000 10,000 - - -------------------------------------------------------------------------------- 131,003 155,724 86,994 158,086 162,181 109,727 97,166 51,800 63,600 43,934 60,906 67,029 48,714 44,435 2,048 2,681 7,308 6,381 1,125 469 1,945 - - -------------------------------------------------------------------------------- 81,251 94,805 50,368 103,561 96,277 61,482 54,676 (37,892) - - -------------------------------------------------------------------------------- 43,359 94,805 50,368 103,561 96,277 61,482 54,676 - - -------------------------------------------------------------------------------- $43,359 $94,805 $50,368 $103,561 $96,277 $61,482 $54,676 ================================================================================ 13.7% 17.8% 9.6% 21.3% 23.0% 17.0% 17.4% 13.7% 17.8% 9.6% 21.3% 23.0% 17.0% 17.4% 4.4% 5.6% 3.0% 6.3% 6.0% 4.7% 5.7% .89 1.05 .55 1.12 1.05 .67 .59 (.41) - - -------------------------------------------------------------------------------- .48 1.05 .55 1.12 1.05 .67 .59 .47 1.04 .55 1.11 1.04 .66 .59 .47 .44 .43 .39 .30 .24 .20 91,069 90,620 91,464 92,184 92,014 92,117 91,993 92,214 91,114 91,963 93,060 92,884 92,645 92,479 91,501 90,815 90,405 91,826 92,108 91,908 92,017 152,478 163,860 184,066 193,035 188,085 143,972 104,614 614,018 580,787 562,591 494,290 533,427 482,357 267,353 1,246,531 1,135,940 1,113,594 995,132 977,459 877,625 559,459 240,982 227,528 279,135 226,240 275,535 263,489 58,440 561,890 562,306 512,828 511,574 454,486 379,912 332,890 1.5 1.6 1.7 2.1 2.0 1.8 1.9 35.1% 30.6% 34.7% 30.4% 36.8% 38.6% 17.7% 6.14 6.19 5.67 5.57 4.93 4.13 3.62 83,309 76,561 72,152 67,263 69,055 57,086 35,654 42,443 39,703 39,216 35,583 28,046 21,942 17,963 22.74 16.43 15.48 17.62 16.31 10.12 9.05
45 26 REPORTS OF CONSOLIDATED FINANCIAL STATEMENTS SONOCO REPORT OF MANAGEMENT The management of Sonoco Products Company is responsible for the integrity and objectivity of the financial statements and other financial information included in this annual report. These statements have been prepared in conformity with generally accepted accounting principles. Sonoco's accounting systems are supported by internal control systems augmented by written policies, internal audits and the selection and training of qualified personnel. The Board of Directors, through its Audit Committee, consisting of outside directors, is responsible for reviewing and monitoring the Company's financial reporting and accounting practices. This committee meets periodically with management, the internal auditors and the independent accountants to assure each is carrying out its responsibilities. Coopers & Lybrand L.L.P., independent certified public accountants, have audited the financial statements, and their report is herein. F. Trent Hill, Jr. Vice President and Chief Financial Officer REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Directors of Sonoco Products Company: We have audited the accompanying consolidated balance sheets of Sonoco Products Company as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sonoco Products Company as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Charlotte, North Carolina January 29, 1997 46 27 DIRECTORS AND OFFICERS ORGANIZATIONAL CHANGES The following changes in the Board of Directors and senior management of the Company were announced during the past year: Leo Benatar retired from the Company and resigned from the Board. Peter C. Browning elected President and Chief Operating Officer. Allan V. Cecil joined the Company and elected Vice President - Investor Relations and Corporate Communication. Thomas C. Coxe, III retired from the Company. Harris E. DeLoach, Jr. elected Executive Vice President. Harry J. Moran elected Executive Vice President. Raymond L. McGowan, Jr., elected Vice President. Maurice M. Richardson elected Vice President. Perry D. Smith elected Vice President. BOARD OF DIRECTORS Charles J. Bradshaw, 60, President and Director, Bradshaw Investments, Inc. (private investments), Georgetown, S.C., since 1986. Served on Board since 1986. Member of the Executive Compensation Committee. Robert J. Brown, 62, Founder, Chairman and President of B&C Associates (a public relations and marketing research firm), High Point, N.C., since 1973. Served on Board since 1993. Member of the Audit Committee and Finance Committee. Peter C. Browning, 55, President and Chief Operating Officer since February 1996. Served on Board since 1995. Charles W. Coker, 63, Chairman and Chief Executive Officer since 1990. Served on Board since 1962. Fitz L.H. Coker, 61, Retired, formerly Senior Vice President, 1976 -1979. Served on Board since 1964. Member of the Finance Committee and Nominating Committee. James L. Coker, 56, President, JLC Enterprises (private investments), Stonington, Conn., since 1979. Served on Board since 1969. Member of the Nominating Committee and Finance Committee. Thomas C. Coxe, III, 66, Retired, formerly Senior Executive Vice President 1993 - - - 1996. Served on Board since 1982. Member of the Finance Committee. Alan T. Dickson, 65, Chairman, Ruddick Corporation (a diversified holding company), Charlotte, N.C., since 1994. Formerly President and Director, Ruddick Corporation since 1968. Served on Board since 1981. Member of the Executive Compensation Committee, Finance Committee and Audit Committee. Robert E. Elberson, 68, Retired, formerly Vice Chairman and Director, Sara Lee Corporation, Chicago, Ill., 1986 - 1989. Served on Board since 1985. Member of the Executive Compensation Committee and Nominating Committee. James C. Fort, 70, Retired, formerly Senior Vice President, 1979 - 1987. Served on Board since 1969. Member of the Audit Committee and Nominating Committee. Paul Fulton, 62, Dean, The Kenan-Flagler Business School, University of N.C., Chapel Hill, N.C., since 1993. Formerly President and Director of Sara Lee Corporation. Served on Board since 1989. Member of the Finance Committee and Executive Compensation Committee. Bernard L.M. Kasriel, 50, Vice Chairman and COO of Lafarge (a construction materials group), Paris, France. Served on Board since 1995. Member of the Audit Committee and Executive Compensation Committee. Russell C. King, Jr., 62, Retired, formerly President and Chief Operating Officer 1990 - 1994. Served on Board since 1991. Member of the Audit Committee and Finance Committee. Edgar H. Lawton, Jr., 67, President and Director, Hartsville Oil Mill (a vegetable oil processor), Darlington, S.C., since 1962. Served on Board since 1968. Member of the Nominating Committee and Executive Compensation Committee. 28 Hugh L. McColl, Jr., 61, Chief Executive Officer, NationsBank Corporation, Charlotte, N.C., since 1983. Served on Board since 1972. Member of the Finance Committee and Nominating Committee. E. Craig Wall, Jr., 59, President and Director, Canal Industries (a forest products firm), Conway, S.C., since 1969. Served on Board since 1976. Member of the Audit Committee and Finance Committee. Dona Davis Young, 43, Executive Vice President, Individual Insurance and General Counsel of Phoenix Home Life Mutual Insurance Company since 1995. Served on Board since 1995. Member of the Executive Compensation Committee and Audit Committee. EXECUTIVE OFFICERS Charles W. Coker, 63, Chairman of the Board and Chief Executive Officer since 1990. Previously President and Chief Executive Officer 1976 - 1990; President 1970 - 1976; Executive Vice President 1966 - 1970. Began full-time employment with Sonoco in 1958. Peter C. Browning, 55, President and Chief Operating Officer since February 1996. Previously Executive Vice President - Global Industrial Product/Paper 1993-1996; Chairman and Chief Executive Officer - National Gypsum Company 1990 - - -1993. Prior to Sonoco was with Continental Can Company 1966-1990 serving as President of Continental's Bondware and Whitecap divisions and later as Corporate Executive Vice President. Joined Sonoco in 1993. Bernard W. Campbell, 47, Vice President - Information Services since February 1996. Previously Staff Vice President - Information Services 1991-1996; Director - Corporate Information Services 1990 - 1991; Director - Software Support 1988. Joined Sonoco in 1988. Allan V. Cecil, 55, Vice President - Investor Relations and Corporate Communication since January 1996. Prior to Sonoco was Vice President - Corporate Communication and Investor Relations, National Gypsum Company and previously with Mesa Petroleum Company. Joined Sonoco in 1996. C. William Claypool, 61, Vice President - Paper since 1987. Previously Division Vice President - General Manager, Paper 1986 - 1987; Division Vice President 1980 - 1986; Regional General Manager 1977 - 1980. Joined Sonoco in 1977. Peter C. Coggeshall, Jr., 53, Vice President - Administration since 1991. Previously Group Vice President - Global Paper 1990 - 1991; Vice President - Industrial Products 1986 - 1990; Vice President - Paper 1978 - 1986; Division Vice President/General Manager - Paper 1977 - 1978; Division Vice President Operations - General Products 1977. Joined Sonoco in 1969. Harris E. DeLoach, Jr., 52, Executive Vice President with responsibility for the High Density Film Products, Industrial Container, Fibre Partitions, Protective Packaging, molded and extruded plastics, and Baker Reels since February 1996. Previously Group Vice President 1993 - 1996; Vice President - Film, Plastics & Special Products 1993; Vice President - High Density Film Products 1989 - 1993; Vice President Administration & General Counsel 1985 - 1989. Joined Sonoco in 1985. Cynthia A. Hartley, 48, Vice President - Human Resources since 1995. Previously Vice President - Human Resources with National Gypsum Company, Dames & Moore and previous experience with Continental Can Company. Joined Sonoco in 1995. 47 29 OFFICERS F. Trent Hill, Jr., 44, Vice President and Chief Financial Officer since 1995. Previously Vice President - Finance 1994 - 1995; Vice President - Industrial Products North America 1990 - 1994; Vice President - Finance 1987 - 1989; Vice President - Corporate Controller 1982 - 1987; Staff Vice President - Corporate Controller 1981 - 1982; Director of Audit & Taxes 1979 - 1981; Internal Audit Manager 1979. Joined Sonoco in 1979. Ronald E. Holley, 54, Vice President - High Density Film Products since 1993. Previously Vice President - Total Quality Management 1990 - 1993; Vice President - Industrial Products 1987 - 1990; Division Vice President - Industrial Products 1985 - 1987; Division Vice President - Consumer Products 1983. Joined Sonoco in 1964. Charles J. Hupfer, 50, Vice President, Treasurer and Corporate Secretary since 1995. Previously Treasurer 1988 - 1995; Director of Tax and Audit 1985 - 1988; Director - International Finance & Accounting 1980 - 1985; Manager of Corporate Accounting 1978 - 1980; Manager of Financial Reporting 1975 - 1978. Joined Sonoco in 1975. J. Randy Kelley, 42, Vice President - Industrial Products, North America since 1994. Previously Division Vice President Industrial Container 1991 - 1993; Area Manufacturing Manager - Consumer Products 1988 - 1990; Manager - Special Projects 1986 - 1987; Plant Manager - Consumer Products, Naperville, Ill., 1984 - - - 1986. Joined Sonoco in 1978. Raymond L. McGowan, Jr., 45, Vice President - Consumer Products since February 1997. Previously Vice President and General Manager - Consumer Products, U.S. and Canada 1994 - 1997; Division Vice President - Sales, Marketing & Technology, Consumer Products 1987 - 1992; Division Sales Manager - Consumer Products 1987; Division Marketing Manager 1985. Joined Sonoco in 1983. Harry J. Moran, 64, Executive Vice President with responsibility for the Consumer Packaging Group since February 1996. Previously Group Vice President - Consumer Packaging 1993 - 1996; Vice President and General Manager - Consumer Packaging 1990 - 1993; Division Vice President & General Manager - Consumer Products 1985 - 1990; Division Vice President - Consumer Products 1983 - 1984. Joined Sonoco in 1983. Earl P. Norman, Jr., 60, Vice President - Technology since 1989. Previously Staff Vice President - Business Development & Technology 1985 - 1986; Director - - - Business Development & Technology 1985. Joined Sonoco in 1969. Maurice M. Richardson, 62, Vice President of Sonoco and President of Sonoco Engraph since February 1996. Previously Chief Executive Officer - Sonoco Engraph's label, screen printing and paperboard carton businesses 1995 - 1996; President and Chief Operating Officer of Engraph 1994 - 1995; Executive Vice President and Chief Operating Officer 1992 - 1994; Group Vice President 1983 - 1992. Joined Sonoco in 1993. Perry D. Smith, 46, Vice President & Managing Director - Sonoco Asia, L.L.C. since October 1996. Previously Managing Director - Sonoco Asia, L.L.C. 1994 - 1996; Director - Business Development, Asia Pacific 1992 - 1994; Director, Marketing, International (Asia) 1988 - 1992. Joined Sonoco in 1988. DIVISION AND STAFF OFFICERS James A. Albright, 52, Staff Vice President - Technology, Consumer Packaging Group since January 1997. Joined Sonoco in 1992. Jim C. Bowen, 46, Vice President - Manufacturing North America, Paper since 1994. Joined Sonoco in 1972. Gary A. Crutchfield, 47, Division Vice President - Industrial Container since 1994. Joined Sonoco in 1974. Rodger D. Fuller, 35, Division President - Consumer Products, Europe since March 1997. Joined Sonoco in 1985. Larry O. Gantt, 59, Vice President - Operating Value since February 1997. Joined Sonoco in 1963. Robert J. Giangiorgi, 54, Staff Vice President - International Business Development, Consumer Packaging Group since January 1997. Joined Sonoco in 1983. Donald M. Gore, 47, Division Vice President - Sales and Marketing, Industrial Products North America since 1996. Joined Sonoco in 1972. John M. Grups, 46, Division Vice President - Global Operations, Consumer Packaging, since February 1997. Joined Sonoco in 1976. 30 Linda O. Hill, 48, Staff Vice President - Global Technology since June 1996. Joined Sonoco in 1966. John D. Horton, 54, Division Vice President - Sales & Marketing, High Density Film Products since 1988. Joined Sonoco in 1972. Kevin P. Mahoney, 41, Staff Vice President - Corporate Planning since February 1996. Joined Sonoco in 1987. John J. Mikula, 55, Division Vice President - Sonoco Packaging Systems since October 1996. Joined Sonoco in 1986. John L. Newsome, Jr., 50, Division Vice President - Integrated Supply Chain since September 1996. Joined Sonoco in 1969. Charles F. Paterno, 40, Division Vice President - Industrial Products/Paper, Europe since January 1996. Joined Sonoco in 1983. Frank J. Popelars, 55, Staff Vice President - Corporate Controller since 1993. Joined Sonoco in 1983. Charles W. Reid, 58, Division Vice President and General Manager - Baker Division since 1988. Joined Sonoco in 1988. J.C. Rhodes, 58, Division Vice President - Operations Support since 1991. Joined Sonoco in 1961. Juan Roman, 55, Vice President - Industrial Products/Paper, South America since 1993. Joined Sonoco in 1984. James H. Shelley, 53, Staff Vice President - Employee Relations & Labor Counsel since 1980. Joined Sonoco in 1965. Eddie L. Smith, 45, Division Vice President/General Manager - Flexible Packaging since December 1996. Joined Sonoco in 1989. Karl Svendsen, 55, Division Vice President - Operating Resources, Industrial Container since 1994. Joined Sonoco in 1970. David Thornely, 52, Managing Director - Sonoco Australasia since 1994. Joined Sonoco in 1991. Rex E. Varn, 38, Division Vice President - Manufacturing, High Density Film since October 1996. Joined Sonoco in 1980. SUBSIDIARY/AFFILIATE OFFICERS PAPER STOCK DEALERS, INC. J. Blake Boyd, 44, President - Paper Stock Dealers, Inc. since 1989. Joined Sonoco in 1976. PAPETERIES DU RHIN Pierre Lhomme, 74, President - Papeteries Du Rhin since 1986. Joined Sonoco in 1990. SHOWA MARUTSUTSU Isao Sato, 65, Chairman of Showa Marutsutsu Company, Ltd. and Showa Products Company Ltd. since 1995. Joined Showa Marutsutsu in 1954. Jun Sato, 36, President - Showa Marutsutsu and Showa Products since 1995. Joined Showa Marutsutsu in 1986. SONOCO ASIA Perry D. Smith, 46, Corporate Vice President & Managing Director - Sonoco Asia, L.L.C. since October 1996. SONOCO ENGRAPH Maurice M. Richardson, 62, President of Sonoco Engraph since 1994. William J. Biedenharn, 44, President - General Manager, Labels, Sonoco Engraph since January 1996. Joined Sonoco in 1985. 48 31 SONOCO CONTACT INFORMATION Information on whom to contact for answers about questions related to Sonoco is listed for your convenience. SONOCO STOCK Common - Ticker symbol: SON Preferred - Ticker symbol: SONprA Sonoco stock is traded on the New York Stock Exchange. CORPORATE OFFICES North Second Street Hartsville, SC 29550-3305 (803) 383-7000 Fax: (803) 383-7008 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L. P. NationsBank Corporate Center 100 North Tryon Street, #3400 Charlotte, NC 28202-4015 LEGAL COUNSEL Sinkler & Boyd, P.A. P.O. Box 11889 Columbia, SC 29211-1889 SHAREHOLDER SERVICES Sonoco Treasurer - BO1 P.O. Box 160 Hartsville, SC 29551-0160 (803) 383-7277 INVESTOR RELATIONS AND CORPORATE COMMUNICATION Sonoco Corporate Communication - A46 P.0. Box 160 Hartsville, SC 29551-0160 (803) 383-7635 Fax: (803) 383-7478 SONOCO INTERNET SITE http://www.sonoco.com EQUAL OPPORTUNITY Sonoco believes that a diverse work force is required to compete successfully in today's global markets. The Company provides equal employment opportunities its global operations without regard to race, color, age, sex, religion, national origin or physical disability. ANNUAL MEETING OF SONOCO SHAREHOLDERS The annual meeting of shareholders will be held at the Center Theater on Fifth Street in Hartsville, S.C., at 11:00 a.m., Wednesday, April 16, 1997. SONOCO NEWS RELEASES Copies of the Company's recent news releases are available on Sonoco's web site and, at no charge, via fax by calling PR NewsWire's "Company News On-Call" at 1-800-758-5804, Sonoco code #805487. FORM 10-K AVAILABLE A copy of the Company's annual report on Form 10-K filed with the Securities and Exchange Commission may be obtained by shareholders without charge after April 1, 1997, by writing to: Sonoco Corporate Communication - A09 P.O. Box 160 Hartsville, SC 29551-0160 DIVIDEND REINVESTMENT A dividend reinvestment plan is available to record Sonoco shareholders. For more information write to: Wachovia Bank of North Carolina, N.A. P.O. Box 8218 Boston, MA 02266-8218 DIRECT DEPOSIT OF DIVIDENDS To request automatic deposit of cash dividends to checking, savings or money market accounts that participate in the Automatic Clearinghouse System contact: Wachovia Bank of North Carolina, N.A. P.O. Box 8218 Boston, MA 02266-8218 SHARE ACCOUNT INFORMATION Transfer Agent Shareholders with inquiries concerning their accounts should contact: Wachovia Bank of North Carolina, N.A. P.O. Box 8218 Boston, MA 02266-8218 1-800-633-4236 Requests for stock transfer should be sent to: Wachovia Bank of North Carolina, N,A. P.O. Box 8217 Boston, MA 02266-8217

1 EXHIBIT 21 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Subsidiaries of Sonoco Products Company, pursuant to Item 601 of Regulation S-K, as of December 31, 1996 are: 1. KMI Continental Fibre Drum, Inc., 100%-owned domestic subsidiary incorporated in the State of Delaware. a. Sonoco Fibre Drum, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. 2. Sonoco Plastic Drum, Inc., 100%-owned domestic subsidiary, incorporated in the State of Illinois. a. Sonoco Plastic Drum Southwest Division, Inc., 100%-owned domestic subsidiary, incorporated in the State of Texas. b. Sonoco Plastic Drum Southeast Division, Inc., 100%-owned domestic subsidiary, incorporated in the State of Kentucky. 3. Paper Stock Dealers, Inc., 100%-owned domestic subsidiary, incorporated in the State of North Carolina. 4. Sonoco-Crellin Holdings, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. a. Sonoco-Crellin International, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware, holder of securities in: 1. Crellin, Inc., 100%-owned domestic subsidiary, incorporated in the State of New York. a. Crellin Europe B.V., 100%-owned Dutch subsidiary. 1. Crellin B.V., 100%-owned Dutch subsidiary. 2. Sebro Plastics, Inc., 100%-owned domestic subsidiary, incorporated in the State of Michigan. 3. Injecto Mold, 100%-owned domestic subsidiary, incorporated in the State of Illinois. 2 EXHIBIT 21 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT, CONTINUED 5. Sonoco Flexible Packaging, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. a. Engraph Puerto Rico, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. b. Sonoco-Engraph Puerto Rico, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. c. E L R, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. 1. Sonoco-Engraph Holdings, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. 2. Sonoco-Engraph, Inc.,100%-owned domestic subsidiary, incorporated in the State of Kentucky. d. Engraph Mexico S.A. de C.V., 100%-owned Mexican subsidiary. 6. SPC Management, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. a. SPC Capital Management, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. b. SPC Resources, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware. 7. Timber Properties, Ltd., (B.V.I.), 100%-owned by Sonoco Products Company. 8. Sonoco International, Inc., 100%-owned domestic subsidiary, incorporated in the State of Delaware, holder of securities in: a. Sonoco Limited, 100%-owned Canadian subsidiary. b. Sonoco U.K. Limited Inc., 100%-owned subsidiary incorporated in the State of Delaware, holder of securities in: 1. Sonoco Products Company U.K. Limited, 100%-owned U.K. subsidiary. a. Sonoco Limited, 100%-owned English subsidiary. b. Sonoco Consumer Products Limited, U.K., 100%-owned English subsidiary. 3 EXHIBIT 21 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT, CONTINUED 2. The Harland Group Limited, 100%-owned U.K. subsidiary. a. Harland Machine Systems Ltd., 100%-owned U.K. subsidiary. b. Harland France SARL, 100%-owned French subsidiary. c. Harlands of America, Inc., 100%-owned subsidiary, incorporated in the State of Delaware. c. Sonoco Deutschland Holdings GmbH, 100%-owned German subsidiary. 1. Sonoco Deutschland GmbH, 100%-owned German subsidiary. 2. Sonoco Plastics GmbH, 100%-owned German subsidiary. 3. Sonoco IPD GmbH, 100%-owned German subsidiary. a. Sonoco MBS GmbH, 100%-owned German subsidiary. b. OPV Oberrhein GmbH, 100%-owned German subsidiary. c. Sonoco MBS GmbH and Company, 100%-owned German partnership. d. OPV Textihulsen GmbH, 100%-owned German partnership. 4. Caprex AG, 72%-owned Swiss subsidiary. 5. Dosen-Schmitt, GmbH, 100%-owned German subsidiary. d. Sonoco SNC, 100%-owned French partnership with the following subsidiaries and affiliate: 1. Sonoco Holdings, 100%-owned French subsidiary. a. Sonoco Lhomme S.A., 100%-owned French subsidiary. 1. Sonoco Eurocore, Belgium, 100%-owned Belgian subsidiary. 2. Papeteries Du Rhin, 47%-owned French affiliate. b. Sonoco Consumer Products S.A., 100%-owned French subsidiary. 4 EXHIBIT 21 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT, CONTINUED e. Sonoco Italia S.R.L., 100%-owned Italian subsidiary. f. Sonoco Asia, L.L.C., 70%-owned limited liability company. 1. Sonoco Singapore Pte, Ltd., 100%-owned Singapore subsidiary. a. Malaysia Holding, SDN BHD, 100%-owned Malaysian subsidiary. b. Sonoco Malaysia, SDN BHD, 100%-owned Malaysian subsidiary. 2. Sonoco Taiwan Limited, 100%-owned Republic of China subsidiary. 3. Sonoco Thailand Ltd., 70%-owned Thai subsidiary. 4. Sonoco-Hongwen, L.L.C., 80%-owned limited liability company. g. Sonoco Asia Management Company, L.L.C., 70%-owned limited liability company. h. Sonoco do Brazil LTDA., 100%-owned Brazilian subsidiary. 9. Southern Plug & Manufacturing Co., Inc., 100%-owned domestic subsidiary, incorporated in the State of Louisiana.

1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference into the registration statements of Sonoco Products Company on Form S-8 (September 9, 1985, June 3, 1988, November 28, 1989, February 6, 1992, November 22, 1993, June 7, 1995, and September 25, 1996) and Form S-3 (filed June 6, 1991, File No. 33-40538; filed October 4, 1993, File No. 33-50501 as amended; filed October 4, 1993, File No. 33-50503 as amended) of our reports dated January 29, 1997, on our audits of the consolidated financial statements and financial statement schedule of Sonoco Products Company as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which reports are included (or incorporated by reference) in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. ----------------------------- Coopers & Lybrand L.L.P. Charlotte, North Carolina March 27, 1997

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SONOCO PRODUCTS COMPANY FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 37,682 33,578 337,754 7,630 260,460 737,649 1,852,829 857,414 2,387,540 457,116 791,026 0 119,756 7,175 793,682 2,387,540 2,788,075 2,788,075 2,148,105 2,148,105 0 3,920 55,481 280,075 107,433 170,871 0 0 0 170,871 1.77 1.73

1 EXHIBIT 99-2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. ----------------- FORM 11-K ----------------- ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 ----------------- SONOCO PRODUCTS COMPANY 1983 KEY EMPLOYEE STOCK OPTION PLAN, SONOCO PRODUCTS COMPANY 1991 KEY EMPLOYEE STOCK PLAN AND SONOCO PRODUCTS COMPANY 1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN SONOCO PRODUCTS COMPANY NORTH SECOND STREET HARTSVILLE, SOUTH CAROLINA 29550 2 EXHIBIT 99-2 SONOCO PRODUCTS COMPANY KEY EMPLOYEE STOCK OPTION PLAN ----------------- The Consolidated Financial Statements and Notes to Consolidated Financial Statements of Sonoco Products Company represent the financial statements of the Plans and are incorporated herein by reference in this Form 11-K Annual Report.