ITEM 1. BUSINESS
The Company
The Company, a South Carolina corporation founded in Hartsville, South Carolina, in 1899, is a major multinational 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 plants in the United States and has subsidiaries in Europe, Canada, Mexico, South America, Australia and Asia, and affiliates in the United Kingdom, Canada, Japan and France. The Company's business is organized by global product lines in order to leverage its U.S. customer base, to take advantage of synergies from its worldwide operations and to serve its customers worldwide on a timely basis and with consistent quality.
The Company serves a wide variety of industrial and consumer markets. Industrial markets, which represented approximately 58% of the Company's sales in 1993, include paper manufacturers, chemical and pharmaceutical producers, textile manufacturers, automotive manufacturers, and the building and construction industry. Consumer markets, which represented approximately 42% of the Company's sales in 1993, include food and beverage processors, the personal and health care industries, grocery store chains, household good manufacturers and consumer electronics. The Company believes that it is a leading producer in most markets served. One of the Company's strategic goals is to increase the proportion of consumer markets product sales in order to change the business mix between industrial and consumer markets to 50/50.
The Company's operations are divided into four segments (three domestic and one international) for financial reporting purposes. Domestic segments include Converted Products, Paper and Miscellaneous. The Financial Reporting For Business Segments Table as shown in the Company's 1993 Annual Report to Shareholders, which is included as Exhibit 13, presents selected financial data by major lines of business or segments for each of the past three fiscal years. This table is hereby incorporated by reference and should be read in conjunction with the Management's Discussion and Analysis of the 1993 Annual Report to Shareholders, which is also hereby incorporated by reference.
Acquisitions/Dispositions
Acquisitions and business combinations have been, and are expected to continue to be, an important part of the Company's strategy for growth. Significant acquisitions during the past five years include the 1989 merger of the Company's plastic bottle operations with those of Graham Container Corporation and Graham Engineering Corporation to form a partnership, Sonoco Graham Company. The Company subsequently sold its 40% interest in Sonoco Graham Company to the other partners in 1991. Also in 1989, the Company acquired Hilex Poly Co., Inc. This company operated two plants and manufactured plastic bags for the grocery and retail markets. In 1990, as part of the Company's restructuring program, one of these plants, the Los Angeles operation, was closed. During 1990, the Company acquired Lhomme S.A. in France, which was the leading French manufacturer of paperboard, tubes and cores. In January 1992, the Company purchased the Trent Valley paper mill in Trenton, Ontario, Canada. This purchase provided Sonoco with a modern machine that allows for the production of higher grades of paper. In January 1993, the Company purchased all of the outstanding stock of Crellin Holding, Inc., an international manufacturer, designer and marketer of molded plastic products.
I-1 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
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Acquisitions/Dispositions, Continued
In January 1993, the Company 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. following the successful conclusion of a cash-tender offer and merger transaction. Engraph markets pressure-sensitive labels and package inserts, flexible packaging, screen process printing and paperboard cartons and specialties. Engraph, with approximately 1,600 employees, has 17 plants in the United States, one in Mexico and one in Puerto Rico. The acquisition of Engraph is an important strategic step in the Company's long-range goal to achieve a 50/50 mix in its industrial and consumer market sales. The availability of Engraph's product lines to the Company's existing customers is expected to provide new opportunities for expanding Engraph's consumer markets-based products, both domestically and internationally.
Competition
The Company believes it has several competitive advantages in the industrial and consumer Converted Products markets it serves. First, the Company sells many products within the Converted Products segment globally. As a result, the Company believes it has the capability to respond effectively to customers seeking national or international supply agreements. Secondly, the Company believes its technological leadership, reputation for quality and vertical integration has enabled the Company 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. Thirdly, the Company and its customers have developed international standards to reduce costs and increase quality. Finally, the Company believes that its strategy of vertical integration, via the Paper segment, increases its control over the availability and quality of raw materials used in its products. With the 1993 acquisition of Engraph, the Company entered into a major new business that expands the Company's opportunities for growth in new packaging fields.
Having operated internationally for more than 70 years, the International segment has been important in the Company's ability to serve and retain many of its customers that have international packaging requirements. The Company considers its ability to serve its customers worldwide in a timely, consistent and cost-effective manner a competitive advantage. The Company expects its international activities to provide an increasing portion of its future growth.
The Company is the largest United States producer of high-density, high-molecular weight plastic carry-out grocery bags and maintains approximately a 40% share of the market. The Company sponsors recycling programs for the plastic carrier bag industry and has relationships with what it believes to be approximately one-half of all participating U.S. supermarkets offering a bag recycling program. Other similar products produced by the Company include roll bags for produce and bakery requirements, plastic bags for convenience stores and high-volume retail outlets and agricultural film.
The Company's products are sold in highly competitive market environments. Within each of these markets, supply and demand are the major factors controlling the market environment. Additionally, and to a lesser degree, these markets are influenced by the overall rate of economic activity. Throughout the year, the Company remained highly competitive within each of the markets served. None of the Company's segments are seasonal to any significant degree.
I-2 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
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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. Although the Company considers the supply of raw materials to be adequate to meet its needs, the majority of raw materials are subject to some price volatility.
Backlog
Most customer orders are manufactured with a lead time not to exceed approximately three weeks. Long-term contracts, primarily for composite cans, exist for approximately 16% of trade sales (no one contract exceeds 3%). 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 as 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.
Research and Development
The Company has 132 employees engaged in new product development and technical support for existing product lines. Company sponsored spending in this area was $12.9 million, $11.7 million and $9.9 million in 1993, 1992 and 1991, respectively. Spending focused on projects related to Sonoco's primary businesses and reflects a commitment to ensure that the Company is the technology leader in markets served. Customer-sponsored spending has been immaterial for the past three years.
Environmental Protection
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. The Company has been named as a potentially responsible party at five sites in the Northeast. These sites are believed to represent the Company's largest potential environmental problems. The Company has presently accrued $3.1 million as of December 31, 1993, with respect to these sites. Due to the complexity of determining clean-up costs associated with the sites, an estimate of the ultimate cost to the Company cannot be determined; however, costs will be accrued once reasonable estimates are determined.
Employees
The number of employees at December 31, 1993, was 16,472.
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ITEM 1. BUSINESS, Continued
Financial Information about Foreign and Domestic Operations and Export Sales
The Company has subsidiaries and affiliates operating in 24 countries. The primary operations of the international subsidiaries are similar in products and markets served to our domestic businesses. The Management's Discussion and Analysis, the Financial Reporting for Business Segments, and Note 15 to the Financial Statements of the Annual Report to Shareholders are hereby incorporated by reference. United States export sales are immaterial.
ITEM 2.


ITEM 2. PROPERTIES
The main plant and corporate offices are located in Hartsville, South Carolina. The Company has 170 branch or manufacturing operations in the United States, 26 in Canada and 66 in 22 other international countries. There are 119 manufacturing operations in the converting segment, 33 in the paper segment, 92 in the international segment, and 18 in the miscellaneous segment at December 31, 1993.
One hundred and one (101) domestic plants are owned in fee simple; sixty-five (65) are leased for terms up to ten years with options to renew for additional terms and four (4) have lease purchase agreements.
The Company believes that its properties are suitable and adequate for current needs and that the total productive capacity is adequately utilized.
ITEM 3.
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. 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 a material adverse effect on the consolidated financial position of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
I-4 SONOCO PRODUCTS COMPANY AND CONSOLIDATED SUBSIDIARIES
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PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market and Market Prices of Common Stock
Sonoco Products Company common stock is traded on the NASDAQ National Market System. The Comparative Highlights in the 1993 Annual Report to Shareholders (Exhibit 13 of this report) shows, by quarter, the high and low price on this market for the latest two years, and is hereby incorporated by reference.
Approximate Number of Security Holders
There were approximately 33,000 shareholder accounts as of March 9, 1994.
Dividends
The Comparative Highlights in the 1993 Annual Report to Shareholders is hereby incorporated by reference. There are certain restrictions with respect to the maintenance of financial ratios and the disposition of assets in several of the Company's loan agreements which may limit the Company's ability to pay cash dividends. The most restrictive covenant currently requires that tangible net worth at the end of each fiscal quarter be greater than $200 million through April 3, 1994, and $365 million thereafter. The Company is prohibited from paying cash dividends if these requirements are not met. Additionally, the terms of the Company's Series A Cumulative Convertible Preferred Stock prohibits payment of dividends on any junior class of stock, including the Company's Common Stock, unless full cumulative dividends on the Series A Cumulative Convertible Preferred Stock have been paid or declared and set aside for payment for all past Dividend payment periods.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Eleven-Year Financial Data in the 1993 Annual Report to Shareholders provides the required data, and is hereby incorporated by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information presented under Management's Discussion and Analysis of the 1993 Annual Report to Shareholders is hereby incorporated by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants.
II-1 REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Shareholders and Directors Sonoco Products Company:
We have audited the consolidated financial statements of Sonoco Products Company as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, which financial statements are included on pages 28 through 37 of the 1993 Annual Report to Shareholders of Sonoco Products Company and incorporated by reference herein. We have also audited the financial statement schedules listed in Item 14 of this form 10-K. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Notes 12 and 13 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions and income taxes in 1992. /s/ Coopers & Lybrand ------------------------- COOPERS & LYBRAND
Charlotte, North Carolina January 28, 1994
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Continued
Consolidated Financial Statements
The consolidated financial statements and notes to consolidated financial statements for Sonoco Products Company included in the 1993 Annual Report to Shareholders (Exhibit 13 of this Report) are hereby incorporated by reference.
Supplementary Financial Data
The Comparative Highlights in the 1993 Annual Report to Shareholders is hereby incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 15, 1992, the Company filed an 8-K pertaining to the Company's change in certifying accountant of Sonoco U.K. Ltd. Inc., a significant wholly owned subsidiary of Sonoco Products Company. The Company disengaged Wheawill and Sudworth and retained Coopers & Lybrand as independent accountants for Sonoco U.K. Ltd. Inc.
The Form 8-K is incorporated herein by reference.
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PART III
ITEM 10.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
The Directors of Sonoco Products Company and Compliance with the Securities Exchange Act of 1934 are shown on pages 6 through 12 and page 25, respectively, of the Definitive Proxy Statement (included as Exhibit 99-1 of this report) and are hereby incorporated by reference.
Identification of Executive Officers
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, Continued
Identification of Executive Officers, Continued
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, Continued
Family Relationships
C. W. Coker and F. L. H. Coker are brothers and the first cousins of J. L. Coker and P. C. Coggeshall, Jr.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation - Directors and Officers as shown on pages 14 - 20 and 22 of the Proxy Statement included as Exhibit 99-1 of this report is hereby incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership of management as shown on page 13 of the Proxy Statement, Exhibit 99-1 of this report, is hereby incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with management as shown on page 23 of the Proxy Statement included as Exhibit 99-1 of this report is hereby incorporated by reference.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Data incorporated by reference from the 1993 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
Shareholders' Information (Selected Financial Data)
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Changes Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
In response to Item 9 of this Form 10-K Annual Report, the Company's Current Report on Form 8-K filed on July 20, 1992 and Form 8-K/A filed on July 28, 1992 is incorporated by reference.
Data submitted herewith:
Report of Independent Accountants
Financial Statement Schedules:
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, Continued
*Incorporated by reference to the Registrant's Form S-3 (File No. 33-50501)
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, Continued
Reports on Form 8-K
The Company filed a Current Report on Form 8-K on October 1, 1993, pertaining to the acquisition of Engraph, Inc. The items included in the Form 8-K were Item 5 (Other Events) describing the Agreement and Plan of Merger and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits).
The Company filed a Current Report on Form 8-K on October 29, 1993, and a Form 8-K/A on November 4, 1993, pertaining to the acquisition of Engraph, Inc. The items included in the Form 8-K and Form 8-K/A were Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits).
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SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the years ended December 31, 1993, 1992 and 1991
(DOLLARS IN THOUSANDS)
(A) Includes fixed assets written off as part of the 1992 and 1990 restructuring reserve.
(B) Primarily relates to acquisitions and translation adjustments for foreign subsidiary assets.
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SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
for the years ended December 31, 1993, 1992 and 1991
(DOLLARS IN THOUSANDS)
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(A) Includes accumulated depreciation on fixed assets reserved for write off as part of the 1992 and 1990 restructuring reserve.
(B) Includes translation adjustment of accumulated depreciation for foreign subsidiary companies.
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SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
(1) Includes amounts written off, translation adjustments and payments.
(2) Increase in additions charged to costs and expenses in 1993 is related to acquisitions.
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SCHEDULE IX - SHORT-TERM BORROWINGS
for the years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
(1) Represents borrowings consisting primarily of foreign denominated debt, under revolving lines of credit and term notes, excluding commercial paper borrowings which are classified as long-term.
(2) Based on daily loan balances outstanding during the year.
(3) Based on actual interest rates in effect during the year weighted by the loan balances outstanding.
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SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the years ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
Amounts for depreciation and amortization of intangible assets, pre-operating costs and similar deferrals, taxes other than payroll and income taxes, royalties and advertising costs are not presented as such amounts are less than 1% of total sales.
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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 29th day of March 1994.
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 persons on behalf of the Registrant and in the capacities indicated on this 29th day of March 1994.
/s/ F. T. Hill, Jr. ------------------- F. T. Hill, Jr. Vice President - Finance (Principal Accounting Officer)
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SIGNATURES, Continued
IV-10