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EX-32 - EXHIBIT 32 - SONOCO PRODUCTS COq22015ex32.htm
EX-31 - EXHIBIT 31 - SONOCO PRODUCTS COq22015ex31.htm
EX-3.2 - EXHIBIT 3.2 - SONOCO PRODUCTS COq22015ex3-2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2015
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-11261
SONOCO PRODUCTS COMPANY
 
Incorporated under the laws
of South Carolina
 
I.R.S. Employer Identification
No. 57-0248420
1 N. Second St.
Hartsville, South Carolina 29550
Telephone: 843/383-7000
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨(do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July 31, 2015:
Common stock, no par value: 100,929,470




SONOCO PRODUCTS COMPANY
INDEX
 
 
 
 
Item 1.
 
 
 
 
Condensed Consolidated Balance Sheets - June 28, 2015 (unaudited) and December 31, 2014 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Income – Three and Six Months Ended June 28, 2015 (unaudited) and June 29, 2014 (Restated)(unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 28, 2015 (unaudited) and June 29, 2014 (Restated)(unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows – Six Months Ended June 28, 2015 (unaudited) and June 29, 2014 (Restated)(unaudited)
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 6.

2



Part I. FINANCIAL INFORMATION
 
Item 1. Financial Statements.
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars and shares in thousands) 
 
 
June 28,
2015
 
December 31, 2014*
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
217,775

 
$
161,168

Trade accounts receivable, net of allowances
 
676,578

 
653,737

Other receivables
 
41,003

 
38,580

Inventories:
 
 
 
 
Finished and in process
 
148,126

 
151,150

Materials and supplies
 
269,843

 
269,126

Prepaid expenses
 
66,687

 
61,071

Deferred income taxes
 
28,820

 
38,957

 
 
1,448,832

 
1,373,789

Property, Plant and Equipment, Net
 
1,114,375

 
1,148,607

Goodwill
 
1,160,932

 
1,177,962

Other Intangible Assets, Net
 
265,696

 
280,935

Long-term Deferred Income Taxes
 
43,239

 
45,442

Other Assets
 
172,415

 
167,176

Total Assets
 
$
4,205,489

 
$
4,193,911

Liabilities and Equity
 
 
 
 
Current Liabilities
 
 
 
 
Payable to suppliers
 
$
521,898

 
$
517,228

Accrued expenses and other
 
294,106

 
334,086

Notes payable and current portion of long-term debt
 
146,780

 
52,280

Accrued taxes
 
7,541

 
8,599

 
 
970,325

 
912,193

Long-term Debt, Net of Current Portion
 
1,124,580

 
1,200,885

Pension and Other Postretirement Benefits
 
444,293

 
444,231

Deferred Income Taxes
 
77,277

 
91,157

Other Liabilities
 
45,879

 
41,598

Commitments and Contingencies
 

 

Sonoco Shareholders’ Equity
 
 
 
 
Common stock, no par value
 
 
 
 
Authorized 300,000 shares
100,916 and 100,603 shares issued and outstanding at
June 28, 2015 and  December 31, 2014, respectively
 
7,175

 
7,175

Capital in excess of stated value
 
399,052

 
396,980

Accumulated other comprehensive loss
 
(661,705
)
 
(608,851
)
Retained earnings
 
1,775,042

 
1,692,891

Total Sonoco Shareholders’ Equity
 
1,519,564

 
1,488,195

Noncontrolling Interests
 
23,571

 
15,652

Total Equity
 
1,543,135

 
1,503,847

Total Liabilities and Equity
 
$
4,205,489

 
$
4,193,911

 
*
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
See accompanying Notes to Condensed Consolidated Financial Statements

3



SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share data)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
 
 
 
 
(as Restated)
 
 
 
(as Restated)
Net sales
 
$
1,248,590

 
$
1,247,616

 
$
2,454,642

 
$
2,437,648

Cost of sales
 
1,008,274

 
1,018,666

 
1,993,936

 
1,998,937

Gross profit
 
240,316

 
228,950

 
460,706

 
438,711

Selling, general and administrative expenses
 
130,887

 
126,455

 
227,552

 
250,205

Restructuring/Asset impairment charges
 
10,445

 
3,671

 
10,086

 
5,663

Income before interest and income taxes
 
98,984

 
98,824

 
223,068

 
182,843

Interest expense
 
14,237

 
13,670

 
28,012

 
26,954

Interest income
 
636

 
535

 
1,190

 
1,176

Income before income taxes
 
85,383

 
85,689

 
196,246

 
157,065

Provision for income taxes
 
24,023

 
29,271

 
50,244

 
51,782

Income before equity in earnings of affiliates
 
61,360

 
56,418

 
146,002

 
105,283

Equity in earnings of affiliates, net of tax
 
3,269

 
3,126

 
4,315

 
4,602

Net income
 
$
64,629

 
$
59,544

 
$
150,317

 
$
109,885

Net (income) attributable to noncontrolling interests
 
(250
)
 
(125
)
 
(158
)
 
(48
)
Net income attributable to Sonoco
 
$
64,379

 
$
59,419

 
$
150,159

 
$
109,837

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
101,428

 
102,461

 
101,406

 
102,614

Diluted
 
102,424

 
103,446

 
102,362

 
103,590

Per common share:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco:
 
 
 
 
 
 
 
 
Basic
 
$
0.63

 
$
0.58

 
$
1.48

 
$
1.07

Diluted
 
$
0.63

 
$
0.57

 
$
1.47

 
$
1.06

Cash dividends
 
$
0.35

 
$
0.32

 
$
0.67

 
$
0.63

See accompanying Notes to Condensed Consolidated Financial Statements

4



SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (unaudited)
(Dollars in thousands)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
 
 
 
 
(as Restated)
 
 
 
(as Restated)
Net income
 
$
64,629

 
$
59,544

 
$
150,317

 
$
109,885

Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
3,740

 
8,437

 
(59,246
)
 
1,102

Changes in defined benefit plans, net of tax
 
(1,125
)
 
3,343

 
5,148

 
7,517

Changes in derivative financial instruments, net of tax
 
2,449

 
1,073

 
1,244

 
1,309

Other comprehensive income/(loss)
 
5,064

 
12,853

 
(52,854
)
 
9,928

Comprehensive income
 
69,693

 
72,397

 
97,463

 
119,813

Net (income) attributable to noncontrolling interests
 
(250
)
 
(125
)
 
(158
)
 
(48
)
Other comprehensive (income)/loss attributable to noncontrolling interests
 
(470
)
 
(254
)
 
161

 
(135
)
Comprehensive income attributable to Sonoco
 
$
68,973

 
$
72,018

 
$
97,466

 
$
119,630

See accompanying Notes to Condensed Consolidated Financial Statements

5



SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
 
 
Six Months Ended
 
 
June 28,
2015
 
June 29,
2014
 
 
 
 
(as Restated)
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
150,317

 
$
109,885

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Asset impairment
 
2,462

 
791

Depreciation, depletion and amortization
 
104,024

 
95,516

Gain on reversal of Fox River environmental reserves
 
(32,543
)
 

Share-based compensation expense
 
4,353

 
9,245

Equity in earnings of affiliates
 
(4,315
)
 
(4,602
)
Cash dividends from affiliated companies
 
1,150

 
3,527

Gain on disposition of assets
 
(7,210
)
 
(940
)
Pension and postretirement plan expense
 
27,965

 
19,431

Pension and postretirement plan contributions
 
(25,118
)
 
(53,592
)
Tax effect of share-based compensation exercises
 
3,513

 
2,030

Excess tax benefit of share-based compensation
 
(3,521
)
 
(2,130
)
Net (decrease)/increase in deferred taxes
 
(9,487
)
 
4,908

Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
 
 
 
 
Trade accounts receivable
 
(33,084
)
 
(84,127
)
Inventories
 
(18,020
)
 
(10,666
)
Payable to suppliers
 
14,913

 
18,815

Prepaid expenses
 
(7,014
)
 
(10,624
)
Accrued expenses
 
5,941

 
17,619

Income taxes payable and other income tax items
 
417

 
9,880

Fox River environmental reserve spending
 
(720
)
 
(14,934
)
Other assets and liabilities
 
(941
)
 
(4,498
)
Net cash provided by operating activities
 
173,082

 
105,534

Cash Flows from Investing Activities:
 
 
 
 
Purchase of property, plant and equipment
 
(86,713
)
 
(85,886
)
Cost of acquisitions, net of cash acquired
 
(15,697
)
 
(10,964
)
Proceeds from the sale of assets
 
31,006

 
3,588

Investment in affiliates and other, net
 
(2,775
)
 
138

Net cash used in investing activities
 
(74,179
)
 
(93,124
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from issuance of debt
 
40,240

 
26,946

Principal repayment of debt
 
(23,575
)
 
(23,411
)
Net increase in commercial paper
 

 
51,000

Net (decrease)/increase in outstanding checks
 
(1,204
)
 
3,915

Excess tax benefit of share-based compensation
 
3,521

 
2,130

Cash dividends
 
(67,379
)
 
(64,353
)
Shares acquired
 
(7,728
)
 
(29,739
)
Shares issued
 
1,310

 
2,508

Net cash used in financing activities
 
(54,815
)
 
(31,004
)
Effects of Exchange Rate Changes on Cash
 
12,519

 
807

Net Increase/(Decrease) in Cash and Cash Equivalents
 
56,607

 
(17,787
)
Cash and cash equivalents at beginning of period
 
161,168

 
217,567

Cash and cash equivalents at end of period
 
$
217,775

 
$
199,780

See accompanying Notes to Condensed Consolidated Financial Statements

6

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)


Note 1: Restatement of Previously Issued Financial Statements
Misstatements at the Irapuato Packaging Center
In July 2015, in the course of closing its books for the second quarter of 2015, the Company discovered certain accounting irregularities at a contract packaging center in Irapuato, Mexico, part of the Display and Packaging segment.
Promptly upon discovery, the Company reported these accounting irregularities to the Audit Committee of the Board of Directors, and a formal investigation into the matter was initiated to determine whether any adjustments would be required with respect to the Company's previously issued financial statements. The Audit Committee retained independent outside legal and accounting advisers to assist with this investigation.
Through this investigation, which concluded in August 2015, the irregularities were found to have consisted of a pattern of unsupported journal entries and other actions involving the Irapuato finance, plant, and pack center managers that misstated revenue, cost of sales, trade accounts receivable, other receivables, prepaid expenses, accrued expenses and other, and trade accounts payable for reporting periods dating back to 2011. The misstatements were made to conceal shortfalls in operating profits at the Irapuato packaging center. Neither cash nor previously reported cash flows from operations were affected. The Irapuato finance manager did not fully disclose the extent of his conduct to his managers, and concealed these irregularities from senior management, corporate finance, and our independent registered public accounting firm.
The Company determined that revenue and cost of sales had been misstated from 2012 through the first quarter of 2015, resulting in a cumulative overstatement of net income of approximately $23,315, or $0.23 per diluted common share. Of this overstatement, approximately $2,139 related to the first quarter of 2015, while $10,817, $9,758, and $601 related to the years ending December 31, 2014, 2013, and 2012, respectively. The reported balance sheets were also misstated for the annual and interim periods from 2012 through the first quarter of 2015.
Other Items
In addition to the misstatements related to the Irapuato, Mexico, packaging center, certain out-of-period adjustments were made in 2014 that the Company concluded at the time, based on its evaluation of both quantitative and qualitative factors, were not material to any of its previously issued financial statements. These adjustments included the following:
As disclosed in the Company's Form 10-Q for the three and six-month periods ending June 29, 2014, during the second quarter of 2014 the Company recorded a valuation allowance of $11,516 on deferred tax assets related to the pension plan of a foreign subsidiary. This valuation allowance should have been established in years prior to 2014 when the deferred tax assets were recognized. The error affected comprehensive income, but not net income, from 2010 through the first quarter of 2014.
In December 2014, the valuation of finished goods and work in process inventory in our Flexible Packaging business (part of the Consumer Packaging segment) was found to have been based on incorrect costing standards resulting in the overstatement of finished goods and work in process inventory and a corresponding understatement of cost of sales totaling $1,184. Pretax operating profits for the segment had been overstated by approximately $924 in 2012 and $260 in 2013. The adjustment resulted in a $770 reduction in the Company's reported net income in 2014.
In December 2014, an out-of-period adjustment was made that reduced both deferred tax expense and deferred tax liabilities in various jurisdictions by a total of $3,202. Of this adjustment, approximately $639 related to 2013, $491 to 2012, $789 to 2011, $910 to 2010, and $373 to 2009.
Analysis
In its assessment of materiality, the Company considered, both individually and in the aggregate, the misstatements at the contract packaging center in Irapuato, Mexico, and the impact of the other items discussed above. Its assessment included an evaluation of the qualitative and quantitative factors relevant to that assessment.





7

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

Conclusion
The Company concluded that the misstatements associated with the Irapuato packaging center warranted restatement of the previously reported financial statements for the years ended December 31, 2014, 2013, and 2012, the interim periods within the year ended December 31, 2014, and for the three-month period ended March 29, 2015. The impact of the accounting irregularities prior to 2012 was not material. The Irapuato packaging center commenced operations in 2010 and those operations were not fully to scale until 2012.
The Audit Committee of the Board of Directors analyzed these misstatements, and, after consulting with management, concluded on August 9, 2015, that the financial statements for the years ended December 31, 2012, 2013, and 2014, the interim periods within the year ended December 31, 2014, and for the three-month period ended March 29, 2015, should be restated and should no longer be relied upon.
Restatement Details
On August 26, 2015, the Company filed an amended Annual Report on Form 10-K/A for the year ended December 31, 2014 in which it restated the previously issued consolidated financial statements for the years ended December 31, 2014, 2013, and 2012, and for the three- and nine-month periods ended September 28, 2014, for the misstatements related to Irapuato. In addition, the previously issued consolidated financial statements were revised to reflect in the proper periods the previously recorded out-of-period adjustments discussed above.
The Company expects to file by the end of August 2015 an amended Quarterly Report on Form 10-Q/A for the period ended March 29, 2015, in which it will provide restated condensed consolidated financial statements for the three-month periods ended March 29, 2015 and March 30, 2014.
Restated condensed consolidated financial statements for the three- and six-month periods ended June 29, 2014, along with a reconciliation of the amounts previously reported to the restated amounts, are provided below.



8

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF INCOME
 
Three Months Ended
 
June 29, 2014
as Previously Reported
 
Effect of Restatement
 
June 29, 2014
as Restated
Net sales
$
1,247,380

 
$
236

 
$
1,247,616

Cost of sales
1,015,643

 
3,023

 
1,018,666

Gross profit
231,737

 
(2,787
)
 
228,950

Selling, general and administrative expenses
126,455

 

 
126,455

Restructuring/Asset impairment charges
3,671

 

 
3,671

Income before interest and income taxes
101,611

 
(2,787
)
 
98,824

Interest expense
13,670

 

 
13,670

Interest income
535

 

 
535

Income before income taxes
88,476

 
(2,787
)
 
85,689

Provision for income taxes
29,993

 
(722
)
 
29,271

Income before equity in earnings of affiliates
58,483

 
(2,065
)
 
56,418

Equity in earnings of affiliates, net of tax
3,126

 

 
3,126

Net income
$
61,609

 
$
(2,065
)
 
$
59,544

Net (income) attributable to noncontrolling interests
(125
)
 

 
(125
)
Net income attributable to Sonoco
$
61,484

 
$
(2,065
)
 
$
59,419

Weighted average common shares outstanding:
 
 
 
 
 
Basic
102,461

 

 
102,461

Diluted
103,446

 

 
103,446

Per common share:
 
 
 
 
 
Net income attributable to Sonoco:
 
 
 
 
 
Basic
$
0.60

 
$
(0.02
)
 
$
0.58

Diluted
$
0.59

 
$
(0.02
)
 
$
0.57

Cash dividends
$
0.32

 
$

 
$
0.32

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
June 29, 2014
as Previously Reported
 
Effect of
Restatement
 
June 29, 2014
as Restated
Net income
$
61,609

 
$
(2,065
)
 
$
59,544

Other comprehensive income/(loss):
 
 
 
 
 
Foreign currency translation adjustments
8,523

 
(86
)
 
8,437

Changes in defined benefit plans, net of tax
(8,173
)
 
11,516

 
3,343

Changes in derivative financial instruments, net of tax
1,073

 

 
1,073

Other comprehensive income/(loss)
1,423

 
11,430

 
12,853

Comprehensive income
63,032

 
9,365

 
72,397

Net (income) attributable to noncontrolling interests
(125
)
 

 
(125
)
Other comprehensive (income) attributable to noncontrolling interests
(254
)
 

 
(254
)
Comprehensive income attributable to Sonoco
$
62,653

 
$
9,365

 
$
72,018



9

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF INCOME
 
Six Months Ended
 
June 29, 2014
as Previously Reported
 
Effect of
Restatement
 
June 29, 2014
as Restated
Net sales
$
2,433,006

 
$
4,642

 
$
2,437,648

Cost of sales
1,988,966

 
9,971

 
1,998,937

Gross profit
444,040

 
(5,329
)
 
438,711

Selling, general and administrative expenses
250,205

 

 
250,205

Restructuring/Asset impairment charges
5,663

 

 
5,663

Income before interest and income taxes
188,172

 
(5,329
)
 
182,843

Interest expense
26,954

 

 
26,954

Interest income
1,176

 

 
1,176

Income before income taxes
162,394

 
(5,329
)
 
157,065

Provision for income taxes
53,162

 
(1,380
)
 
51,782

Income before equity in earnings of affiliates
109,232

 
(3,949
)
 
105,283

Equity in earnings of affiliates, net of tax
4,602

 

 
4,602

Net income
$
113,834

 
$
(3,949
)
 
$
109,885

Net (income) attributable to noncontrolling interests
(48
)
 

 
(48
)
Net income attributable to Sonoco
$
113,786

 
$
(3,949
)
 
$
109,837

Weighted average common shares outstanding:
 
 
 
 
 
Basic
102,614

 

 
102,614

Diluted
103,590

 

 
103,590

Per common share:
 
 
 
 
 
Net income attributable to Sonoco:
 
 
 
 
 
Basic
$
1.11

 
$
(0.04
)
 
$
1.07

Diluted
$
1.10

 
$
(0.04
)
 
$
1.06

Cash dividends
$
0.63

 
$

 
$
0.63


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Six Months Ended
 
June 29, 2014
as Previously
Reported
 
Effect of
Restatement
 
June 29, 2014
as Restated
Net income
$
113,834

 
$
(3,949
)
 
$
109,885

Other comprehensive income/(loss):
 
 
 
 
 
Foreign currency translation adjustments
1,164

 
(62
)
 
1,102

Changes in defined benefit plans, net of tax
(3,999
)
 
11,516

 
7,517

Changes in derivative financial instruments, net of tax
1,309

 

 
1,309

Other comprehensive income/(loss)
(1,526
)
 
11,454

 
9,928

Comprehensive income
112,308

 
7,505

 
119,813

Net (income) attributable to noncontrolling interests
(48
)
 

 
(48
)
Other comprehensive (income) attributable to noncontrolling interests
(135
)
 

 
(135
)
Comprehensive income attributable to Sonoco
$
112,125

 
$
7,505

 
$
119,630



10

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
Six Months Ended
 
June 29, 2014
as Previously Reported
 
Effect of Restatement
 
June 29, 2014
as Restated
Cash Flows from Operating Activities:
 
 
 
 
 
Net income
$
113,834

 
$
(3,949
)
 
$
109,885

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Asset impairment
791

 

 
791

Depreciation, depletion and amortization
95,516

 

 
95,516

Gain on reversal of Fox River environmental reserves

 

 

Share-based compensation expense
9,245

 

 
9,245

Equity in earnings of affiliates
(4,602
)
 

 
(4,602
)
Cash dividends from affiliated companies
3,527

 

 
3,527

Gain on disposition of assets
(940
)
 

 
(940
)
Pension and postretirement plan expense
19,431

 

 
19,431

Pension and postretirement plan contributions
(53,592
)
 

 
(53,592
)
Tax effect of share-based compensation exercises
2,030

 

 
2,030

Excess tax benefit of share-based compensation
(2,130
)
 

 
(2,130
)
Net change in deferred taxes
5,584

 
(676
)
 
4,908

Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:


 
 
 
 
Trade accounts receivable
(84,127
)
 

 
(84,127
)
Inventories
(10,666
)
 

 
(10,666
)
Payable to suppliers
21,039

 
(2,224
)
 
18,815

Prepaid expenses
(10,624
)
 

 
(10,624
)
Accrued expenses
10,066

 
7,553

 
17,619

Income taxes payable and other income tax items
10,584

 
(704
)
 
9,880

Fox River environmental reserve spending
(14,934
)
 

 
(14,934
)
Other assets and liabilities
(4,498
)
 

 
(4,498
)
Net cash provided by operating activities
105,534

 

 
105,534

Cash Flows from Investing Activities:
 
 
 
 
 
Purchase of property, plant and equipment
(85,886
)
 

 
(85,886
)
Cost of acquisitions, net of cash acquired
(10,964
)
 

 
(10,964
)
Proceeds from the sale of assets
3,588

 

 
3,588

Investment in affiliates and other, net
138

 

 
138

Net cash used in investing activities
(93,124
)
 

 
(93,124
)
Cash Flows from Financing Activities:
 
 
 
 
 
Proceeds from issuance of debt
26,946

 

 
26,946

Principal repayment of debt
(23,411
)
 

 
(23,411
)
Net increase in commercial paper
51,000

 

 
51,000

Net decrease in outstanding checks
3,915

 

 
3,915

Excess tax benefit of share-based compensation
2,130

 

 
2,130

Cash dividends
(64,353
)
 

 
(64,353
)
Shares acquired
(29,739
)
 

 
(29,739
)
Shares issued
2,508

 

 
2,508

Net cash used in financing activities
(31,004
)
 

 
(31,004
)
Effects of Exchange Rate Changes on Cash
807

 

 
807

Net Decrease in Cash and Cash Equivalents
(17,787
)
 

 
(17,787
)
Cash and cash equivalents at beginning of period
217,567

 

 
217,567

Cash and cash equivalents at end of period
$
199,780

 
$

 
$
199,780


11

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)


Note 2: Basis of Interim Presentation
In the opinion of the management of Sonoco Products Company (the “Company” or “Sonoco”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, unless otherwise stated) necessary to state fairly the consolidated financial position, results of operations and cash flows for the interim periods reported herein. Operating results for the three and six months ended June 28, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014.
With respect to the unaudited condensed consolidated financial information of the Company for the three- and six-month periods ended June 28, 2015 and June 29, 2014 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 25, 2015 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
Note 3: New Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-11, "Simplifying the Measurement of Inventory." ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory measured using last-in, first-out or the retail inventory method are excluded from the scope of this update which is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 31, 2017. The Company's inventory valuation adjustments have historically been immaterial; accordingly, implementation of ASU 2015-11 is not expected to have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update is effective for reporting periods beginning after December 15, 2015, and is to be applied on a retrospective basis. The Company plans to adopt ASU 2015-03 in the first quarter of 2016. As the Company's debt issuance costs are not material, implementation of this update will not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers." ASU 2014-09 changes the definitions/criteria used to determine when revenue should be recognized from being based on risks and rewards to being based on control. Among other changes, ASU 2014-09 changes the manner in which variable consideration is recognized, requires recognition of the time value of money when payment terms exceed one year, provides clarification on accounting for contract costs, and expands disclosure requirements. The effective date for implementation of ASU 2014-09 has been deferred and is now effective for reporting periods beginning after December 15, 2017. The Company is still assessing the impact of ASU 2014-09 on its consolidated financial statements.
During the three- and six-month periods ended June 28, 2015, there have been no other newly issued nor newly applicable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at June 28, 2015, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 




12

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)


Note 4: Acquisitions
On April 1, 2015, the Company completed the acquisition of a 67% controlling interest in Graffo Paranaense de Embalagens S/A ("Graffo"), a flexible packaging business located in Brazil. Graffo serves the confectionery, dairy, pharmaceutical and tobacco markets in Brazil with approximately 230 employees. It is expected to generate annual sales of approximately $28,000. Total consideration paid for Graffo was approximately $18,334, including cash of $15,697, and debt assumed totaling $2,637. The allocation of the purchase price of Graffo to the tangible and intangible assets acquired and liabilities assumed was based on the Company's preliminary estimates of their fair value, based on the information currently available. In conjunction with this acquisition, the Company has preliminarily recorded net tangible assets of $5,438, goodwill of $10,147 (all of which is expected to be tax deductible), identifiable intangibles of $10,671, and a noncontrolling interest of $7,922. The Company is continuing to finalize its valuation of certain assets and liabilities, including, but not limited to, identifiable intangibles and deferred taxes. The Company expects to complete the valuation of all assets and liabilities during the third quarter of 2015.
On October 31, 2014, the Company completed the acquisition of Weidenhammer Packaging Group (“Weidenhammer”), a manufacturer of composite cans, drums, and luxury tubes, as well as rigid plastic containers using thin-walled injection molding technology with in-mold labeling. Total consideration paid for Weidenhammer was $355,316, subject to adjustment for the change in working capital to the date of close. The amount of the adjustment is expected to be finalized in the third quarter of 2015. As the acquisition was completed near the end of the year, the allocation of the purchase price reported in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, was based on provisional estimates of the fair value of the tangible and intangible assets acquired and liabilities assumed. During the first half of 2015, the Company finalized its valuations of most of the acquired assets and liabilities based on information obtained about facts and circumstances that existed as of the acquisition date. As a result, adjustments were made to the provisional fair values that reduced long-term deferred income tax liabilities and goodwill by $4,974 at December 31, 2014. The amounts shown in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2014, have been adjusted to reflect these changes. The Company is finalizing the assessment of the valuation of certain assets and liabilities, including, but not limited to, income taxes and environmental reserves, and expects the valuation to be completed by the end of the third quarter of 2015.
Acquisition-related costs of $2,082 and $1,246 were incurred in the three months ended June 28, 2015 and June 29, 2014, respectively. These costs totaled $3,247 and $1,270 for the six months ended June 28, 2015 and June 29, 2014, respectively. Acquisition-related costs consist primarily of legal and professional fees and are included in "Selling, general and administrative expenses" in the Company's Condensed Consolidated Statements of Income.
Note 5: Shareholders' Equity
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share: 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 28,
2015
 
June 29,
2014
 
June 28,
2015
 
June 29,
2014
 
 
 
 
(as Restated)
 
 
 
(as Restated)
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco
 
$
64,379

 
$
59,419

 
$
150,159

 
$
109,837

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
101,428,000

 
102,461,000

 
101,406,000

 
102,614,000

Dilutive effect of stock-based compensation
 
996,000

 
985,000

 
956,000

 
976,000

Diluted
 
102,424,000

 
103,446,000

 
102,362,000

 
103,590,000

Reported net income attributable to Sonoco per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.63

 
$
0.58

 
$
1.48

 
$
1.07

Diluted
 
$
0.63

 
$
0.57

 
$
1.47

 
$
1.06


13

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

Certain stock appreciation rights to purchase shares of the Company's common stock are not dilutive because the exercise price is greater than the market price of the stock at the end of the reporting period. The average number of stock appreciation rights that were not dilutive and therefore not included in the computation of diluted earnings per share was 595,527 and 495,705 during the three- and six-month periods ended June 28, 2015, respectively, and 640,717 and 642,272 during the three- and six-month periods ended June 29, 2014, respectively. No adjustments were made to reported net income attributable to Sonoco in the computations of earnings per share.
Stock Repurchases
The Company’s Board of Directors has authorized the repurchase of up to 5,000,000 shares of the Company’s common stock. A total of 2,000,000 and 132,500 shares were repurchased under this authorization in 2014 and 2013, respectively. During the six months ended June 28, 2015, no additional shares were purchased; accordingly, at June 28, 2015, a total of 2,867,500 shares remain available for repurchase.
The Company frequently repurchases shares of its common stock to satisfy employee tax withholding obligations in association with certain share-based compensation awards. These repurchases, which are not part of a publicly announced plan or program, totaled 169,487 shares in the six months ended June 28, 2015 at a cost of $7,728, and 62,883 shares in the six months ended June 29, 2014 at a cost of $2,636.
Dividend Declarations
On April 15, 2015 , the Board of Directors declared a regular quarterly dividend of $0.35 per share. This dividend was paid on June 10, 2015 to all shareholders of record as of May 15, 2015.
On July 14, 2015, the Board of Directors declared a regular quarterly dividend of $0.35 per share. This dividend is payable September 10, 2015 to all shareholders of record as of August 14, 2015. 

Note 6: Restructuring and Asset Impairment
The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2015 and 2014 are reported as “2015 Actions” and “2014 Actions,” respectively. Actions initiated prior to 2014, all of which were substantially complete at June 28, 2015, are reported as “2013 and Earlier Actions.”
Following are the total restructuring and asset impairment charges/(credits), net of adjustments, and gains on dispositions recognized by the Company during the periods presented: 
 
 
2015
 
2014
 
 
Second Quarter
 
Six Months
 
Second Quarter
 
Six Months
Restructuring/Asset impairment:
 
 
 
 
 
 
 
 
2015 Actions
 
$
8,760

 
$
7,909

 
$

 
$

2014 Actions
 
1,268

 
1,610

 
2,929

 
4,328

2013 and Earlier Actions
 
417

 
567

 
742

 
1,335

Other asset impairments
 

 

 

 

Restructuring/Asset impairment charges
 
$
10,445

 
$
10,086

 
$
3,671

 
$
5,663

Income tax benefit
 
$
(3,683
)
 
$
(15,276
)
 
$
(977
)
 
$
(1,388
)
Costs attributable to noncontrolling interests, net of tax
 
(55
)
 
(70
)
 
(13
)
 
(15
)
Total impact of restructuring/asset impairment (income)/charges, net of tax
 
$
6,707

 
$
(5,260
)
 
$
2,681

 
$
4,260

Pre-tax restructuring and asset impairment charges are included in “Restructuring/Asset impairment charges” in the Condensed Consolidated Statements of Income.
When recognizable in accordance with GAAP, the Company expects to recognize future additional charges totaling approximately $3,050 in connection with announced restructuring actions, and believes that the majority of these charges

14

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

will be incurred and paid by the end of 2015. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions may be undertaken.
2015 Actions
During 2015, the Company announced the closure of two rigid paper facilities - one in the United States and one in Canada (part of the Consumer Packaging segment). The Company also closed a production line at one of its thermoforming plants in the United States (part of the Consumer Packaging segment) and sold a portion of its metal ends and closures business in the United States (part of the Consumer Packaging segment). In addition, approximately 160 positions were eliminated in the first two quarters of 2015 in conjunction with the Company's announced ongoing organizational effectiveness efforts.
Below is a summary of 2015 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
2015 Actions
 
Second Quarter 2015
 
Total
Incurred
to Date
 
Estimated
Total Cost
Severance and Termination Benefits
 
 
 
 
 
 
Consumer Packaging
 
$
2,266

 
$
4,468

 
$
5,068

Display and Packaging
 
204

 
204

 
204

Paper and Industrial Converted Products
 
$
2,035

 
$
5,062

 
$
5,962

Corporate
 
1,033

 
2,200

 
2,650

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
Consumer Packaging
 
2,502

 
(4,830
)
 
(4,830
)
Display and Packaging
 
17

 
17

 
17

Paper and Industrial Converted Products
 
219

 
221

 
221

Other Costs
 
 
 
 
 
 
Consumer Packaging
 
420

 
495

 
895

Paper and Industrial Converted Products
 
53

 
61

 
161

Corporate
 
11

 
11

 
11

Total Charges and Adjustments
 
$
8,760

 
$
7,909

 
$
10,359

The following table sets forth the activity in the 2015 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: 
2015 Actions
 
Severance
and
Termination
Benefits
 
Asset
Impairment/
Disposal
of Assets
 
Other
Costs
 
Total
Accrual Activity
2015 Year to Date
 
 
 
Liability at December 31, 2014
 
$

 
$

 
$

 
$

2015 charges
 
11,934

 
(4,592
)
 
567

 
7,909

Cash receipts/(payments)
 
(4,131
)
 
29,128

 
(567
)
 
24,430

Asset write downs/disposals
 

 
(24,536
)
 

 
(24,536
)
Foreign currency translation
 
(45
)
 

 

 
(45
)
Liability at March 29, 2015
 
$
7,758

 
$

 
$

 
$
7,758

Included in "Asset Impairment/Disposal of Assets" above is a gain of $7,224 from the sale of a portion of the Company's metal ends and closures business, including two production facilities in Canton, Ohio. The Company received proceeds of $29,128 from the sale of this business. Assets disposed of in connection with the sale included: net fixed assets of $9,806, inventory of $7,158, goodwill of $1,727, and other intangible assets of $3,516. Liabilities of $303 were assumed by the buyer and disposed of under the terms of the sale. Beneficial tax attributes associated with this disposition provided an income tax benefit of approximately $9,200. Also included are asset impairment charges totaling $2,385 relating to the closure of a thermoforming line in Waynesville, North Carolina.

15

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

"Other costs" consist primarily of costs related to plant closures including equipment removal, utilities, plant security, property taxes and insurance. The Company expects to pay the majority of the remaining 2015 Actions restructuring costs by the end of 2015 using cash generated from operations.
2014 Actions
During 2014, the Company announced the closures of a tube and core plant in Canada (part of the Paper and Industrial Converted Products segment); a molded foam plant in the United States and a temperature-assured packaging plant in the United States (both part of the Protective Solutions segment); and two recycling facilities - one in the United States and one in Brazil (both part of the Paper and Industrial Converted Products segment). The Consumer Packaging segment also realized significant cash and non-cash restructuring charges as the result of halting the planned start up of a rigid paper facility in Europe following the acquisition of Weidenhammer. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately 125 positions.
Below is a summary of 2014 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
 
 
2015
 
2014
 
Total
Incurred
to Date
 
 Estimated
Total Cost
2014 Actions
 
Second Quarter
 
Six Months
 
Second Quarter
 
Six Months
 
 
Severance and Termination Benefits
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
803

 
$
803

 
$
38

 
$
688

 
$
1,653

 
$
1,653

Display and Packaging
 

 

 

 

 
594

 
594

Paper and Industrial Converted Products
 
28

 
127

 
2,317

 
2,582

 
3,404

 
3,404

Protective Solutions
 
44

 
12

 
188

 
188

 
773

 
773

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$

 

 

 

 
2,446

 
2,446

Paper and Industrial Converted Products
 

 

 
220

 
693

 
781

 
781

Protective Solutions
 

 
33

 

 

 
368

 
368

Other Costs
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
44

 
76

 
9

 
20

 
5,322

 
5,422

Display and Packaging
 
22

 
22

 

 

 
26

 
26

Paper and Industrial Converted Products
 
183

 
299

 
(28
)
 
(28
)
 
946

 
996

Protective Solutions
 
144

 
238

 
185

 
185

 
575

 
625

Total Charges and Adjustments
 
$
1,268

 
$
1,610

 
$
2,929

 
$
4,328

 
$
16,888

 
$
17,088

The following table sets forth the activity in the 2014 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:
2014 Actions
 
Severance
and
Termination
Benefits
 
Asset
Impairment/
Disposal
of Assets
 
Other
Costs
 
Total
Accrual Activity
2015 Year to Date
 
 
 
 
Liability at December 31, 2014
 
$
859

 
$

 
$
463

 
$
1,322

2015 charges
 
996

 
33

 
686

 
1,715

Adjustments
 
(54
)
 

 
(51
)
 
(105
)
Cash payments
 
(1,146
)
 

 
(1,082
)
 
(2,228
)
Asset write downs/disposals
 

 
(33
)
 

 
(33
)
Foreign currency translation
 
16

 

 
(16
)
 

Liability at March 29, 2015
 
$
671

 
$

 
$

 
$
671


16

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

“Other costs” consist primarily of costs related to plant closures including equipment removal, utilities, plant security, property taxes and insurance. The Company expects to pay the majority of the remaining 2014 Actions restructuring costs by the end of 2015 using cash generated from operations. 
2013 and Earlier Actions
2013 and Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2014. Charges for these actions in both 2015 and 2014 relate primarily to the cost of plant closures including severance, equipment removal, plant security, property taxes and insurance. Partially offsetting these charges were gains from the sale of a former service center in Finland, closed in 2011.
The Company expects to recognize future pretax charges of approximately $400 associated with 2013 and Earlier Actions.
Below is a summary of expenses/(income) incurred by segment for 2013 and Earlier Actions for the three- and six-month periods ended June 28, 2015 and June 29, 2014
 
 
2015
 
2014
2013 & Earlier Actions
 
Second Quarter
 
Six Months
 
Second Quarter
 
Six Months
Consumer Packaging
 
$

 
$

 
$
(221
)
 
$
(222
)
Display and Packaging
 
(39
)
 
(39
)
 
171

 
418

Paper and Industrial Converted Products
 
456

 
606

 
782

 
1,078

Protective Solutions
 

 

 
10

 
61

Total Charges and Adjustments
 
$
417

 
$
567

 
$
742

 
$
1,335

The accrual for 2013 and Earlier Actions totaled $1,472 and $1,990 at June 28, 2015 and December 31, 2014, respectively, and is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. The accrual relates primarily to environmental remediation costs at a former paper mill in the United States and unpaid severance. The Company expects the majority of both the liability and the future costs associated with 2013 and Earlier Actions to be paid by the end of 2015 using cash generated from operations.



















17

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

Note 7: Accumulated Other Comprehensive Loss
The following table summarizes the components of accumulated other comprehensive loss and the changes in the balances of each component of accumulated other comprehensive loss, net of tax as applicable, for the six months ended June 28, 2015 and June 29, 2014:
 
 
Gains and
Losses on Cash
Flow Hedges
 
Defined
Benefit
Pension Items
(as Restated)
 
Foreign
Currency
Items
(as Restated)
 
Accumulated
Other
Comprehensive
Loss
(as Restated)
Balance at December 31, 2014

$
(5,962
)

$
(475,286
)

$
(127,603
)

$
(608,851
)
Other comprehensive income/(loss) before reclassifications

(76
)

(8,234
)

(59,246
)

(67,556
)
Amounts reclassified from accumulated other comprehensive loss to net income

1,557


13,382




14,939

Amounts reclassified from accumulated other comprehensive loss to fixed assets

(237
)





(237
)
Net current-period other comprehensive
income/(loss)

1,244


5,148


(59,246
)

(52,854
)
Balance at June 28, 2015

$
(4,718
)

$
(470,138
)

$
(186,849
)

$
(661,705
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
$
(262
)
 
$
(344,622
)
 
$
(24,985
)
 
$
(369,869
)
Other comprehensive income/(loss) before reclassifications
 
2,194

 
(622
)
 
1,102

 
2,674

Amounts reclassified from accumulated other comprehensive loss to net income
 
(899
)
 
8,139

 

 
7,240

Amounts reclassified from accumulated other comprehensive loss to fixed assets
 
14

 

 

 
14

Net current-period other comprehensive
income/(loss)
 
1,309

 
7,517

 
1,102

 
9,928

Balance at June 29, 2014
 
$
1,047

 
$
(337,105
)
 
$
(23,883
)
 
$
(359,941
)


18

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)

The following table summarizes the effects on net income of significant amounts classified out of each component of accumulated other comprehensive loss for the three- and six-month periods ended June 28, 2015 and June 29, 2014
 
 
Amount Reclassified from Accumulated
Other Comprehensive Loss
 
 
 
 
Three Months Ended
Six Months Ended
 
 
Details about Accumulated Other Comprehensive
Loss Components
 
June 28,
2015
June 29,
2014
June 28,
2015
 
June 29,
2014
 
Affected Line Item in 
the Condensed Consolidated 
Statements of Net Income
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
(49
)
$
(911
)
$
1,253

 
$
(1,910
)
 
Net sales
Foreign exchange contracts
 
448

249

1,472

 
2,111

 
Cost of sales
Commodity contracts
 
(2,534
)
408

(4,957
)
 
1,125

 
Cost of sales
 
 
(2,135
)
(254
)
(2,232
)
 
1,326

 
Total before tax
 
 
649

28

675

 
(427
)
 
Tax (provision)/benefit
 
 
$
(1,486
)
$
(226
)
$
(1,557
)
 
$
899

 
Net of tax
Defined benefit pension items
 

 
 
 
 
 
 
Amortization of defined benefit pension items(a)
 
$
(8,427
)
$
(4,961
)
$
(15,872
)
 
$
(9,614
)
 
Cost of sales
Amortization of defined benefit pension items(a)
 
(2,809
)
(1,654
)
(5,290
)
 
(3,204
)
 
Selling, general and 
administrative
 
 
(11,236
)
(6,615
)
(21,162
)
 
(12,818
)
 
Total before tax
 
 
4,127

2,630

7,780

 
4,679

 
Tax benefit
 
 
$
(7,109
)
$
(3,985
)
$
(13,382
)
 
$
(8,139
)
 
Net of tax
Total reclassifications for the period
 
$
(8,595
)
$
(4,211
)
$
(14,939
)
 
$
(7,240
)
 
Net of tax
 
(a)
See Note 11 for additional details.
At June 28, 2015, the Company had commodity contracts outstanding to fix the costs of certain anticipated purchases of natural gas and aluminum, and foreign currency contracts to hedge certain anticipated foreign currency denominated sales and purchases. The amounts included in accumulated other comprehensive loss related to these cash flow hedges were net losses of $7,784 ($4,718 after tax) at June 28, 2015, and losses of $9,617 ($5,962 after tax) at December 31, 2014.
The cumulative tax benefit on Cash Flow Hedges included in Accumulated Other Comprehensive Loss was $3,066 at June 28, 2015, and $3,655 at December 31, 2014. During the three- and six- month periods ended June 28, 2015, the tax benefit on Cash Flow Hedges changed by $(1,488) and $(589), respectively.
The cumulative tax benefit on Defined Benefit Pension Items was $254,271 at June 28, 2015, and $256,840 at December 31, 2014. During the three- and six-month periods ended June 28, 2015, the tax benefit on Defined Benefit Pension Items changed by $1,084 and $(2,569), respectively.
During the three- and six- month periods ended June 28, 2015, changes in noncontrolling interests included foreign currency translation adjustments of $470 and $(161), respectively.






19

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)


Note 8: Goodwill and Other Intangible Assets
Goodwill
A summary of the changes in goodwill by segment for the six months ended June 28, 2015 is as follows: 
 
 
Consumer
Packaging
 
Display
and
Packaging
 
Paper and
Industrial
Converted
Products
Protective
Solutions
 
Total
Goodwill at December 31, 2014
 
$
508,582

 
$
204,629

 
$
243,586

$
221,165

 
$
1,177,962

Acquisitions
 
10,147

 

 


 
10,147

Dispositions
 
(1,727
)
 

 


 
(1,727
)
Foreign currency translation
 
(16,421
)
 

 
(9,029
)

 
(25,450
)
Goodwill at June 28, 2015
 
$
500,581

 
$
204,629

 
$
234,557

$
221,165

 
$
1,160,932

In May 2015, the Company acquired a majority ownership in a flexible packaging business in Brazil. In connection with this acquisition, the Company recognized $10,147 of Goodwill. See Note 4 for additional information. The Company disposed of goodwill totaling $(1,727) in connection with the sale of a portion of the Company's metal ends and closures business, including two production facilities in Canton, Ohio. See Note 6 for additional information.
The Company assesses goodwill for impairment annually and from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole. As part of this testing, the Company analyzes certain qualitative and quantitative factors in determining goodwill impairment. In its most recent assessment, completed in the third quarter of 2014, the Company concluded that there was no impairment of goodwill for any of its reporting units. The assessment reflected a number of significant management assumptions and estimates including the Company's forecast of sales volumes and prices, profit margins, income taxes, capital expenditures and changes in working capital requirements. Changes in these assumptions and/or discount rates could materially impact the Company's conclusions.
Although no reporting units failed the assessments noted above, in management’s opinion, the reporting units having the greatest risk of future impairment if actual results fall significantly short of expectations are Plastics – Blowmolding, Display and Packaging, and Tubes and Cores/Paper - Brazil. Total goodwill associated with these reporting units was approximately $119,600, $204,600, and $2,800, respectively, at June 28, 2015. A large portion of sales in the Display and Packaging reporting unit is concentrated in one customer. Management expects to retain this business; however, if a significant amount were lost and not replaced, it is possible that a goodwill impairment charge would be incurred.
The restatement of historical financial results for the Company's Display and Packaging business discussed in Note 1 was considered a triggering event resulting in a reassessment of the most recent annual impairment test for the Display and Packaging reporting unit completed in the third quarter of 2014. Accordingly, the Company reperformed the impairment analysis taking into consideration the restated financial data and concluded that goodwill in the Display and Packaging reporting unit was not impaired. There have been no other triggering events identified between the most recent annual impairment test and June 28, 2015.














20

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(unaudited)



Other Intangible Assets
A summary of other intangible assets as of June 28, 2015 and December 31, 2014 is as follows:         
 
 
June 28,
2015
 
December 31,
2014
Other Intangible Assets, gross
 
 
 
 
Patents
 
$
12,954

 
$
13,883

Customer lists
 
385,962

 
385,466

Trade names
 
19,270

 
19,366

Proprietary technology
 
17,748

 
17,786

Land use rights
 
312

 
320

Other
 
1,286

 
1,309

Other Intangible Assets, gross
 
$
437,532

 
$
438,130

Accumulated Amortization