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EX-32 - EXHIBIT 32 - SONOCO PRODUCTS COq32016ex32.htm
EX-31 - EXHIBIT 31 - SONOCO PRODUCTS COq32016ex31.htm
EX-15 - EXHIBIT 15 - SONOCO PRODUCTS COq32016ex15.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 October 2, 2016
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 October 21, 2016:
Common stock, no par value: 99,848,875




SONOCO PRODUCTS COMPANY
INDEX
 
 
 
 
Item 1.
 
 
 
 
Condensed Consolidated Balance Sheets - October 2, 2016 (unaudited) and December 31, 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Income – Three and Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (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) 
 
 
October 2,
2016
 
December 31,
2015*
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
159,321

 
$
182,434

Trade accounts receivable, net of allowances
 
669,200

 
627,962

Other receivables
 
48,995

 
46,801

Inventories:
 
 
 
 
Finished and in process
 
129,128

 
139,589

Materials and supplies
 
247,189

 
245,894

Prepaid expenses
 
43,090

 
64,698

Assets held for sale
 
183,284

 

 
 
1,480,207

 
1,307,378

Property, Plant and Equipment, Net
 
1,068,432

 
1,112,036

Goodwill
 
1,076,493

 
1,140,461

Other Intangible Assets, Net
 
217,771

 
245,095

Deferred Income Taxes
 
48,451

 
52,626

Other Assets
 
153,195

 
156,089

Total Assets
 
$
4,044,549

 
$
4,013,685

Liabilities and Equity
 
 
 
 
Current Liabilities
 
 
 
 
Payable to suppliers
 
$
488,730

 
$
508,057

Accrued expenses and other
 
304,004

 
294,227

Notes payable and current portion of long-term debt
 
60,787

 
113,097

Accrued taxes
 
12,050

 
7,135

Liabilities held for sale
 
20,126

 

 
 
885,697

 
922,516

Long-term Debt, Net of Current Portion
 
1,030,338

 
1,015,270

Pension and Other Postretirement Benefits
 
409,464

 
432,964

Deferred Income Taxes
 
81,319

 
72,933

Other Liabilities
 
48,094

 
37,129

Commitments and Contingencies
 

 

Sonoco Shareholders’ Equity
 
 
 
 
Common stock, no par value
 
 
 
 
Authorized 300,000 shares
99,941 and 100,944 shares issued and outstanding at
October 2, 2016 and December 31, 2015, respectively
 
7,175

 
7,175

Capital in excess of stated value
 
356,824

 
404,460

Accumulated other comprehensive loss
 
(672,235
)
 
(702,533
)
Retained earnings
 
1,874,829

 
1,803,827

Total Sonoco Shareholders’ Equity
 
1,566,593

 
1,512,929

Noncontrolling Interests
 
23,044

 
19,944

Total Equity
 
1,589,637

 
1,532,873

Total Liabilities and Equity
 
$
4,044,549

 
$
4,013,685

 
*
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
 
Nine Months Ended
 
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Net sales
 
$
1,208,724

 
$
1,242,592

 
$
3,640,680

 
$
3,697,234

Cost of sales
 
973,351

 
1,013,219

 
2,918,041

 
3,007,155

Gross profit
 
235,373

 
229,373

 
722,639

 
690,079

Selling, general and administrative expenses
 
121,583

 
130,341

 
382,387

 
357,893

Restructuring/Asset impairment charges
 
8,947

 
19,551

 
41,453

 
29,637

Income before interest and income taxes
 
104,843

 
79,481

 
298,799

 
302,549

Interest expense
 
13,133

 
14,340

 
41,414

 
42,352

Interest income
 
696

 
653

 
1,646

 
1,843

Income before income taxes
 
92,406

 
65,794

 
259,031

 
262,040

Provision for income taxes
 
29,618

 
24,775

 
83,602

 
75,019

Income before equity in earnings of affiliates
 
62,788

 
41,019

 
175,429

 
187,021

Equity in earnings of affiliates, net of tax
 
3,190

 
2,976

 
7,457

 
7,291

Net income
 
$
65,978

 
$
43,995

 
$
182,886

 
$
194,312

Net (income) attributable to noncontrolling interests
 
(583
)
 
(81
)
 
(1,325
)
 
(239
)
Net income attributable to Sonoco
 
$
65,395

 
$
43,914

 
$
181,561

 
$
194,073

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
100,925

 
101,548

 
101,320

 
101,454

Diluted
 
101,579

 
102,405

 
101,960

 
102,387

Per common share:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco:
 
 
 
 
 
 
 
 
Basic
 
$
0.65

 
$
0.43

 
$
1.79

 
$
1.91

Diluted
 
$
0.64

 
$
0.43

 
$
1.78

 
$
1.90

Cash dividends
 
$
0.37

 
$
0.35

 
$
1.09

 
$
1.02

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
 
Nine Months Ended
 
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Net income
 
$
65,978

 
$
43,995

 
$
182,886

 
$
194,312

Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(3,157
)
 
(55,520
)
 
10,282

 
(114,766
)
Changes in defined benefit plans, net of tax
 
5,799

 
6,767

 
14,753

 
11,915

Changes in derivative financial instruments, net of tax
 
641

 
210

 
5,263

 
1,454

Other comprehensive income/(loss)
 
3,283

 
(48,543
)
 
30,298

 
(101,397
)
Comprehensive income/(loss)
 
69,261

 
(4,548
)
 
213,184

 
92,915

Net (income) attributable to noncontrolling interests
 
(583
)
 
(81
)
 
(1,325
)
 
(239
)
Other comprehensive (income)/loss attributable to noncontrolling interests
 
363

 
4,413

 
(1,775
)
 
4,574

Comprehensive income/(loss) attributable to Sonoco
 
$
69,041

 
$
(216
)
 
$
210,084

 
$
97,250

See accompanying Notes to Condensed Consolidated Financial Statements

5



SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
 
 
Nine Months Ended
 
 
October 2,
2016
 
September 27,
2015
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
182,886

 
$
194,312

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Asset impairment
 
7,157

 
14,773

Depreciation, depletion and amortization
 
156,542

 
157,216

Gain on reversal of Fox River environmental reserves
 

 
(32,543
)
Share-based compensation expense
 
14,277

 
4,783

Equity in earnings of affiliates
 
(7,457
)
 
(7,291
)
Cash dividends from affiliated companies
 
7,090

 
5,480

Net (gain)/loss on disposition of assets
 
14,809

 
(6,473
)
Pension and postretirement plan expense
 
34,165

 
42,844

Pension and postretirement plan contributions
 
(39,946
)
 
(29,416
)
Tax effect of share-based compensation exercises
 
2,365

 
3,515

Excess tax benefit of share-based compensation
 
(2,406
)
 
(3,525
)
Net increase/(decrease) in deferred taxes
 
2,998

 
(7,709
)
Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
 
 
 
 
Trade accounts receivable
 
(69,189
)
 
(70,794
)
Inventories
 
(11,289
)
 
(11,982
)
Payable to suppliers
 
7,678

 
26,581

Prepaid expenses
 
3,996

 
(9,053
)
Accrued expenses
 
17,037

 
45,346

Income taxes payable and other income tax items
 
22,951

 
3,717

Fox River environmental reserve spending
 
(687
)
 
(796
)
Other assets and liabilities
 
5,700

 
(845
)
Net cash provided by operating activities
 
348,677

 
318,140

Cash Flows from Investing Activities:
 
 
 
 
Purchase of property, plant and equipment
 
(142,073
)
 
(140,869
)
Cost of acquisitions, net of cash acquired
 
(21,338
)
 
(17,447
)
Cash paid for disposition of assets
 
(8,436
)
 

Proceeds from the sale of assets
 
6,565

 
31,310

Investment in affiliates and other, net
 
63

 
(2,773
)
Net cash used in investing activities
 
(165,219
)
 
(129,779
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from issuance of debt
 
230,393

 
57,311

Principal repayment of debt
 
(269,017
)
 
(105,388
)
Net change in commercial paper
 

 

Net increase/(decrease) in outstanding checks
 
6,796

 
(2,609
)
Excess tax benefit of share-based compensation
 
2,406

 
3,525

Cash dividends
 
(109,821
)
 
(102,702
)
Shares acquired
 
(65,015
)
 
(7,729
)
Shares issued
 

 
1,307

Net cash used in financing activities
 
(204,258
)
 
(156,285
)
Effects of Exchange Rate Changes on Cash
 
(2,313
)
 
179

Net (Decrease)/Increase in Cash and Cash Equivalents
 
(23,113
)
 
32,255

Cash and cash equivalents at beginning of period
 
182,434

 
161,168

Cash and cash equivalents at end of period
 
$
159,321

 
$
193,423

See accompanying Notes to Condensed Consolidated Financial Statements

6

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



Note 1: 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 nine months ended October 2, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
With respect to the unaudited condensed consolidated financial information of the Company for the three- and nine-month periods ended October 2, 2016 and September 27, 2015 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 November 2, 2016 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.
During the third quarter of 2016, the Company reached a definitive agreement to sell its rigid plastics blow molding operations for $280,000. The transaction has received regulatory approval and is expected to be completed in early November 2016. The decision to sell the blow molding operations was made to focus on, and provide resources to further enhance, the Company's targeted growth businesses, including flexible packaging, thermoformed rigid plastics, and temperature-assurance packaging.  The Company’s rigid plastics blow molding operations include six manufacturing facilities in the U.S. and one in Canada and are reported within the Company's Consumer Packaging segment.  The sale does not represent a strategic shift for the Company that will have a major effect on the entity’s operations and financial results. Consequently, the sale does not meet the criteria for reporting as a discontinued operation.
In conjunction with the pending sale of its blow molding operations, the following major classes of assets and liabilities were classified as held for sale on the Company’s Condensed Consolidated Balance Sheet as of October 2, 2016:
 
October 2, 2016
Assets:
 
     Trade accounts receivable, net of allowances
$
32,115

     Inventories
16,937

     Prepaid expenses
525

     Property, plant and equipment, net
41,539

     Other intangible assets, net
15,028

     Goodwill
77,140

Assets held for sale
$
183,284

 
 
Liabilities:
 
     Payable to suppliers
$
18,674

     Accrued expenses and other
1,452

Liabilities held for sale
$
20,126





7

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

Note 2: New Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15, "Statement of Cash Flows (Topic 230)," which provides clarification on eight cash flow classification issues, including 1) debt prepayment or debt extinguishment costs, 2) settlement of relatively insignificant debt instruments, 3) contingent consideration payments, 4) insurance claim settlements, 5) life insurance settlements, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the implementation of ASU 2016-15 to have a material effect on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses," which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. The Company does not expect the implementation of ASU 2016-13 to have a material effect on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment transactions, including 1) accounting for income taxes, 2) classification of excess tax benefits in the statement of cash flows, 3) forfeitures, 4) minimum statutory tax withholding requirements, 5) cash flow classification of employee taxes withheld in the form of shares, 6) the practical expedient for estimating the expected term, and 7) intrinsic value. The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the implementation of ASU 2016-09 to have a material effect on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which provides guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. The amendments in this Update affect the guidance in ASU No. 2014-09 and are effective in the same time frame as ASU 2014-09 as discussed below.
In February 2016, the FASB issued ASU 2016-02, which changes accounting for leases and requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance on the balance sheet and requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations. The accounting for lessors does not fundamentally change except for changes to conform and align guidance to the lessee guidance. The guidance is effective for reporting periods beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application. The Company is still assessing the impact of ASU 2016-02 on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which 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 was effective for reporting periods beginning after December 15, 2015, and was required to be applied on a retrospective basis. Accordingly, the Company adopted ASU 2015-03 on January 1, 2016. Debt issuance costs totaling $6,584 previously included in "Other Assets" have been reclassified to "Long-Term Debt, Net of Current Portion" on the Company's Condensed Consolidated Balance Sheets as of December 31, 2015.
In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers," which 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, but expects the adoption to have the effect of accelerating the timing of revenue recognition compared to current standards for those arrangements under which the Company is producing customer-specific products without alternative use and would be entitled to payment for work completed, including a reasonable margin. The Company has not yet selected a transition method and is currently expecting to adopt this standard in the first quarter of fiscal 2018.

8

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

During the three- and nine-month periods ended October 2, 2016, 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 October 2, 2016, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 

Note 3: Acquisitions
The Company completed the acquisition of a small tube and core business in Australia on June 24, 2016. The all-cash purchase price of the business was $863. In conjunction with this acquisition, the Company recorded net tangible assets of $149, identifiable intangibles of $297, and goodwill of $417, none of which is expected to be tax deductible. This acquisition is expected to generate approximately $800 of annual sales in the Paper and Industrial Converted Products segment.
The Company completed the acquisition of Laminar Medica in the United Kingdom and Czech Republic, from Clinimed (Holdings) Limited, a privately held specialty medical products company based in the U.K. on September 19, 2016. The all-cash purchase price of the business was $17,475. In conjunction with this acquisition, the Company recorded net tangible assets of $6,215, identifiable intangibles of $4,918, and goodwill of $6,342, none of which is expected to be tax deductible. The allocation of the purchase price of Laminar to the tangible and intangible assets acquired and liabilities assumed was based on the Company's preliminary estimates of their fair value, based on information currently available. Management is continuing to finalize its valuation of certain assets and liabilities and expects to complete the allocation by the end of 2016. The acquisition is expected to generate approximately $16,000 of annual sales in the Protective Solutions segment.
The Company completed the acquisition of the temperature-controlled cargo container assets, licenses, trademarks, and manufacturing rights from AAR Corporation on August 30, 2016. Total consideration for this business was $6,000, including cash paid of $3,000, non-contingent deferred payments of $2,000, and a contingent purchase liability totaling $1,000. The non-contingent deferred payments are due in two installments, $1,000 payable 12 months from the closing date, and $1,000 payable 24 months from the closing date. The contingent purchase liability is based upon a highly attainable metric which the Company expects to be met. The contingent liability is payable in two installments, $500 due 36 months from the closing date and $500 due 48 months from the closing date. In relation to this acquisition, the Company recorded net tangible assets of $200 and identifiable intangibles of $5,800. The acquisition is expected to generate approximately $2,500 of annual sales in the Protective Solutions segment.
Subsequent to period end, on November 1, 2016 with an effective date of October 28, 2016, the Company completed the acquisition of Plastic Packaging Inc. (PPI), a privately held Hickory, N.C.-based flexible packaging company for $64,500 cash. Founded in 1957, PPI specializes in short-run, customized flexible packaging for consumer brands in markets including food products (i.e. frozen foods, baked goods, seafood), pet products (i.e. dry food, bird seed, litter), confection (i.e. seasonal promotions, heat-sealed chocolate packaging, hard and soft candy) and health and personal care (i.e. nutraceuticals, diapers, tissues/wipes). PPI operates two manufacturing facilities in Hickory, N.C., and Forest City, N.C., with approximately 170 employees. The acquisition is expected to generate approximately $42,000 of annual sales in the Consumer Packaging segment.
Acquisition-related costs of $943 and $288 were incurred in the three months ended October 2, 2016 and September 27, 2015, respectively. These costs totaled $2,092 and $3,536 for the nine months ended October 2, 2016 and September 27, 2015, 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.







9

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

Note 4: Shareholders' Equity
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share: 
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco
 
$
65,395

 
$
43,914

 
$
181,561

 
$
194,073

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
100,925,000

 
101,548,000

 
101,320,000

 
101,454,000

Dilutive effect of stock-based compensation
 
654,000

 
857,000

 
640,000

 
933,000

Diluted
 
101,579,000

 
102,405,000

 
101,960,000

 
102,387,000

Reported net income attributable to Sonoco per common share:
 
 
 
 
 
 
Basic
 
$
0.65

 
$
0.43

 
$
1.79

 
$
1.91

Diluted
 
$
0.64

 
$
0.43

 
$
1.78

 
$
1.90

Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock appreciation rights (SARs) are used to repurchase the Company’s common stock. Certain SARs are not dilutive because either the exercise price is greater than the average market price of the stock during the reporting period or assumed repurchases from proceeds from the exercise of the SARs were antidilutive. These stock appreciation rights may become dilutive in the future if the market price of the Company's common stock appreciates.
The average number of stock appreciation rights that were not dilutive and therefore not included in the computation of diluted earnings per share during the three- and nine-month periods ended October 2, 2016 and September 27, 2015 was as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
 
 
 
 
 
 
 
 
 
Anti-dilutive stock appreciation rights
 

 
1,165,126

 
476,581

 
718,845

No adjustments were made to reported net income attributable to Sonoco in the computations of earnings per share.
Stock Repurchases
On February 10, 2016, the Company’s Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company's common stock. During the nine months ended October 2, 2016, a total of 1,244,143 shares were repurchased under this authorization at a cost of $58,943; accordingly, at October 2, 2016, a total of 3,755,857 shares remain available for repurchase. These repurchases were made under the Company’s previously announced plan to utilize up to $100,000 to repurchase shares during 2016.
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 135,578 shares in the nine months ended October 2, 2016 at a cost of $6,072, and 169,590 shares in the nine months ended September 27, 2015 at a cost of $7,729.
Dividend Declarations
On July 20, 2016, the Board of Directors declared a regular quarterly dividend of $0.37 per share. This dividend was paid on September 9, 2016 to all shareholders of record as of August 12, 2016.
On October 18, 2016, the Board of Directors declared a regular quarterly dividend of $0.37 per share. This dividend is payable December 9, 2016 to all shareholders of record as of November 11, 2016. 

10

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

Note 5: Restructuring and Asset Impairment
The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2016 and 2015 are reported as “2016 Actions” and “2015 Actions,” respectively. Actions initiated prior to 2015, all of which were substantially complete at October 2, 2016, are reported as “2014 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: 
 
 
2016
 
2015
 
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
Restructuring/Asset impairment:
 
 
 
 
 
 
 
 
2016 Actions
 
$
3,389

 
$
29,434

 
$

 
$

2015 Actions
 
2,852

 
9,127

 
7,125

 
15,033

2014 and Earlier Actions
 
89

 
275

 
361

 
2,539

Other asset impairments
 
2,617

 
2,617

 
12,065

 
12,065

Restructuring/Asset impairment charges
 
$
8,947

 
$
41,453

 
$
19,551

 
$
29,637

Income tax benefit
 
$
(2,097
)
 
(10,442
)
 
$
(1,574
)
 
(16,850
)
Costs attributable to noncontrolling interests, net of tax
 
(34
)
 
(78
)
 
(5
)
 
(75
)
Total impact of restructuring/asset impairment charges, net of tax
 
$
6,816

 
$
30,933

 
$
17,972

 
$
12,712

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 $2,650 in connection with previously announced restructuring actions. The Company believes that the majority of these charges will be incurred and paid by the end of 2016. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken.
2016 Actions
During 2016, the Company announced the closure of four tubes and cores plants - one in the United States, one in Canada, one in Ecuador, and one in Switzerland (part of the Paper and Industrial Converted Products segment). The Company closed a packaging services center in Mexico (part of the Display and Packaging segment) and a fulfillment service center in Brazil (part of the Display and Packaging segment). The Company also began manufacturing rationalization efforts in its Reels division (part of the Paper and Industrial Converted Products segment), completed the sales of a paper mill in France (part of the Paper and Industrial Converted Products segment), and a retail security packaging plant in Puerto Rico (part of the Display and Packaging segment). In addition, approximately 120 positions were eliminated in the first nine months of 2016 in conjunction with the Company's ongoing organizational effectiveness efforts.









11

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

Below is a summary of 2016 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
2016 Actions
 
Third Quarter 2016
 
Total
Incurred
to Date
 
Estimated
Total Cost
Severance and Termination Benefits
 
 
 
 
 
 
Consumer Packaging
 
$
766

 
$
2,218

 
$
2,468

Display and Packaging
 
372

 
3,025

 
3,525

Paper and Industrial Converted Products
 
1,187

 
$
5,328

 
5,528

Protective Solutions
 
109

 
469

 
469

Corporate
 
3

 
1,442

 
1,442

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
Consumer Packaging
 

 
(306
)
 
(306
)
Display and Packaging
 
475

 
2,712

 
2,712

Paper and Industrial Converted Products
 

 
13,279

 
13,279

Other Costs
 
 
 
 
 
 
Consumer Packaging
 
12

 
314

 
664

Display and Packaging
 
37

 
48

 
98

Paper and Industrial Converted Products
 
428

 
905

 
1,155

Total Charges and Adjustments
 
$
3,389

 
$
29,434

 
$
31,034

The following table sets forth the activity in the 2016 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: 
2016 Actions
 
Severance
and
Termination
Benefits
 
Asset
Impairment/
Disposal
of Assets
 
Other
Costs
 
Total
Accrual Activity
2016 Year to Date
 
 
 
Liability at December 31, 2015
 
$

 
$

 
$

 
$

2016 charges
 
12,482

 
15,685

 
1,267

 
29,434

Cash payments
 
(8,733
)
 
(7,322
)
 
(1,179
)
 
(17,234
)
Asset write downs/disposals
 

 
(8,363
)
 

 
(8,363
)
Foreign currency translation
 
(2
)
 

 
(2
)
 
(4
)
Liability at October 2, 2016
 
$
3,747

 
$

 
$
86

 
$
3,833

Included in "Asset Impairment/Disposal of Assets" above is a loss of $12,694 from the sale of a paperboard mill in France in May 2016. Included in this loss was the divestiture of $8,436 of cash required in order to consummate the disposition with the acquiror. Other assets divested in connection with the sale included net fixed assets of $3,201, and other tangible assets, net of liabilities disposed, of $1,057. Also included in "Asset Impairment/Disposal of Assets" is a loss of $2,421 from the sale of a retail security packaging business in Puerto Rico in July 2016. The Company received proceeds of $1,816 from the sale of this business. Assets written off in connection with the sale included net fixed assets of $217, other tangible assets, net of liabilities disposed, of $858, goodwill of $1,215, and other intangible assets (customer lists) of $1,947.
"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 2016 Actions restructuring costs by the end of 2016 using cash generated from operations.




12

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

2015 Actions
During 2015, the Company initiated the following restructuring actions in its Consumer Packaging segment: the closure of six rigid paper facilities (two in the United States, one in Canada, one in Russia, one in Germany, and one in the United Kingdom); the closure of a production line at a thermoforming plant in the United States; and the sale of a portion of its metal ends and closures business in the United States. Restructuring actions initiated in the Paper and Industrial Converted Products segment include the closures of a tubes and cores plant and a recycling business in the United States. The Company also recognized an asset impairment charge related to the potential disposition of a paperboard mill in France. Restructuring actions initiated in the Display and Packaging segment consisted of the closure of a printed backer card facility in the United States. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately 235 positions.
Below is a summary of 2015 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
 
 
2016
 
2015
 
Total
Incurred
to Date
 
 Estimated
Total Cost
2015 Actions
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
 
 
Severance and Termination Benefits
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
642

 
$
3,476

 
$
2,997

 
$
7,465

 
$
18,523

 
$
18,673

Display and Packaging
 
34

 
126

 
576

 
780

 
1,241

 
1,241

Paper and Industrial Converted Products
 
49

 
209

 
2,300

 
7,362

 
8,688

 
8,688

Protective Solutions
 

 

 
39

 
39

 
39

 
39

Corporate
 
(13
)
 
(13
)
 
210

 
2,409

 
2,762

 
2,762

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
(268
)
 
1,506

 
(53
)
 
(4,883
)
 
(2,797
)
 
(2,797
)
Display and Packaging
 

 
335

 
194

 
211

 
809

 
809

Paper and Industrial Converted Products
 
587

 
587

 
230

 
451

 
10,785

 
10,785

Other Costs
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
1,705

 
2,234

 
441

 
936

 
3,634

 
4,384

Display and Packaging
 
79

 
219

 
89

 
89

 
569

 
619

Paper and Industrial Converted Products
 
37

 
448

 
102

 
163

 
699

 
749

Corporate
 

 

 

 
11

 
11

 
11

Total Charges and Adjustments
 
$
2,852

 
$
9,127

 
$
7,125

 
$
15,033

 
$
44,963

 
$
45,963

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
2016 Year to Date
 
 
 
 
Liability at December 31, 2015
 
$
15,376

 
$

 
$

 
$
15,376

2016 charges
 
3,890

 
3,031

 
3,064

 
9,985

Adjustments
 
(92
)
 
(603
)
 
(163
)
 
(858
)
Cash receipts/(payments)
 
(13,848
)
 
603

 
(2,750
)
 
(15,995
)
Asset write downs/disposals
 

 
(3,031
)
 

 
(3,031
)
Foreign currency translation
 
(32
)
 

 
5

 
(27
)
Liability at October 2, 2016
 
$
5,294

 
$

 
$
156

 
$
5,450


13

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except shares and 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 2016 using cash generated from operations. 
2014 and Earlier Actions
2014 and Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2015. Charges for these actions in both 2016 and 2015 relate primarily to the cost of plant closures including severance, equipment removal, plant security, property taxes and insurance.
The Company expects to recognize future pretax charges of approximately $100 associated with 2014 and Earlier Actions.
Below is a summary of expenses/(income) incurred by segment for 2014 and Earlier Actions for the three- and nine- month periods ended October 2, 2016 and September 27, 2015
 
 
2016
 
2015
2014 & Earlier Actions
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
Consumer Packaging
 
$

 
$

 
$
47

 
$
926

Display and Packaging
 

 

 
(9
)
 
(27
)
Paper and Industrial Converted Products
 
71

 
123

 
25

 
1,059

Protective Solutions
 
18

 
152

 
298

 
581

Total Charges and Adjustments
 
$
89

 
$
275

 
$
361

 
$
2,539

The accrual for 2014 and Earlier Actions totaled $344 and $824 at October 2, 2016 and December 31, 2015, respectively, and is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. The accrual relates primarily to unpaid severance. The Company expects the majority of the liability associated with 2014 and Earlier Actions to be paid by the end of 2016 using cash generated from operations.
Other Asset Impairments
In addition to the restructuring charges discussed above, during the Company's annual goodwill impairment testing conducted during the third quarter of 2016, management concluded that goodwill associated with the Company's Paper and Industrial Converted Products - Brazil reporting unit had become impaired as a result of the continued deterioration of economic conditions in Brazil. Accordingly, an impairment charge totaling $2,617, the entire amount of goodwill associated with this reporting unit, was recognized during the third quarter of 2016. No other impairments were identified during this most recently completed annual goodwill impairment testing.
Prior to July 1, 2015, the Company used Venezuela's official exchange rate to report the results of its operations in Venezuela. As a result of significant inflationary increases, and to avoid distortion of its consolidated results from translation of its Venezuelan operations, the Company concluded that it was an appropriate time to begin translating its Venezuelan operations using an alternative exchange rate. Accordingly, effective July 1, 2015, the Company began translating its Venezuelan operations using the most current published Venezuelan exchange rate (which at that time was known as the SIMADI rate). This resulted in a foreign exchange remeasurement loss on net monetary assets. In addition, the use of the significantly higher SIMADI rate resulted in the need to recognize impairment charges against inventories and certain long-term nonmonetary assets as the U.S. dollar value of projected future cash flows from these assets was no longer sufficient to recover their U.S. dollar carrying values. The combined impact of the impairment charges and remeasurement loss was $12,065 on both a before and after-tax basis, recognized in the third quarter of 2015.
These asset impairment charges and remeasurement loss are included in “Restructuring/Asset impairment charges” in the Company’s Condensed Consolidated Statements of Income.





14

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

Note 6: 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 nine months ended October 2, 2016 and September 27, 2015:
 
 
Gains and
Losses on Cash
Flow Hedges
 
Defined
Benefit
Pension Items
 
Foreign
Currency
Items
 
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2015

$
(5,152
)

$
(444,244
)

$
(253,137
)

$
(702,533
)
Other comprehensive income/(loss) before reclassifications

1,318


(5,020
)

10,282


6,580

Amounts reclassified from accumulated other comprehensive loss to net income

3,897


19,773




23,670

Amounts reclassified from accumulated other comprehensive loss to fixed assets

48






48

Net current-period other comprehensive
income

5,263


14,753


10,282


30,298

Balance at October 2, 2016

$
111


$
(429,491
)

$
(242,855
)

$
(672,235
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
 
$
(5,962
)
 
$
(475,286
)
 
$
(127,603
)
 
$
(608,851
)
Other comprehensive (loss) before reclassifications
 
(7,181
)
 
(8,239
)
 
(114,766
)
 
(130,186
)
Amounts reclassified from accumulated other comprehensive loss to net income
 
8,872

 
20,154

 

 
29,026

Amounts reclassified from accumulated other comprehensive loss to fixed assets
 
(237
)
 

 

 
(237
)
Net current-period other comprehensive
income/(loss)
 
1,454

 
11,915

 
(114,766
)
 
(101,397
)
Balance at September 27, 2015
 
$
(4,508
)
 
$
(463,371
)
 
$
(242,369
)
 
$
(710,248
)


15

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

The following table summarizes the effects on net income of significant amounts reclassified from each component of accumulated other comprehensive loss for the three- and nine-month periods ended October 2, 2016 and September 27, 2015
 
 
Amount Reclassified from Accumulated
Other Comprehensive Loss
 
 
 
 
Three Months Ended
Nine Months Ended
 
 
Details about Accumulated Other Comprehensive
Loss Components
 
October 2,
2016
September 27,
2015
October 2,
2016
 
September 27,
2015
 
Affected Line Item in 
the Condensed Consolidated 
Statements of Net Income
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
(2,370
)
$
(7,034
)
$
(5,217
)
 
$
(15,323
)
 
Net sales
Foreign exchange contracts
 
907

3,811

2,339

 
8,318

 
Cost of sales
Commodity contracts
 
(541
)
(2,244
)
(3,346
)
 
(7,201
)
 
Cost of sales
 
 
(2,004
)
(5,467
)
(6,224
)
 
(14,206
)
 
Total before tax
 
 
630

1,934

2,327

 
5,334

 
Tax benefit
 
 
$
(1,374
)
$
(3,533
)
$
(3,897
)
 
$
(8,872
)
 
Net of tax
Defined benefit pension items
 

 
 
 
 
 
 
Amortization of defined benefit pension items(a)
 
$
(7,392
)
$
(8,059
)
$
(21,903
)
 
$
(23,931
)
 
Cost of sales
Amortization of defined benefit pension items(a)
 
(2,464
)
(2,686
)
(7,301
)
 
(7,976
)
 
Selling, general and 
administrative
 
 
(9,856
)
(10,745
)
(29,204
)
 
(31,907
)
 
Total before tax
 
 
2,227

3,973

9,431

 
11,753

 
Tax benefit
 
 
$
(7,629
)
$
(6,772
)
$
(19,773
)
 
$
(20,154
)
 
Net of tax
Total reclassifications for the period
 
$
(9,003
)
$
(10,305
)
$
(23,670
)
 
$
(29,026
)
 
Net of tax
 
(a)
See Note 10 for additional details.
At October 2, 2016, 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 gains of $(342) ($(111) after tax) at October 2, 2016, and net losses of $8,036 ($5,152 after tax) at December 31, 2015.
The cumulative tax impact on Cash Flow Hedges included in Accumulated Other Comprehensive Loss was a provision of $(231) at October 2, 2016, and a benefit of $2,884 at December 31, 2015. During the three- and nine-month periods ended October 2, 2016, the tax benefit on Cash Flow Hedges changed by $(409) and $(3,115), respectively.
The cumulative tax benefit on Defined Benefit Pension Items was $241,263 at October 2, 2016, and $247,788 at December 31, 2015. During the three- and nine-month periods ended October 2, 2016, the tax benefit on Defined Benefit Pension Items changed by $(1,539) and $(6,525), respectively.
During the three- and nine-month periods ended October 2, 2016, changes in noncontrolling interests included foreign currency translation adjustments of $(363) and $1,775, respectively.






16

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

Note 7: Goodwill and Other Intangible Assets
Goodwill
A summary of the changes in goodwill by segment for the nine months ended October 2, 2016 is as follows: 
 
 
Consumer
Packaging
 
Display
and
Packaging
 
Paper and
Industrial
Converted
Products
Protective
Solutions
 
Total
Goodwill at December 31, 2015
 
$
487,342

 
$
204,629

 
$
227,325

$
221,165

 
$
1,140,461

Acquisitions
 

 

 
417

6,342

 
6,759

Dispositions
 

 
(1,215
)
 


 
(1,215
)
Reclassified to assets held for sale
 
(77,140
)
 

 


 
(77,140
)
Impairment loss
 

 

 
(2,617
)

 
(2,617
)
Foreign currency translation
 
7,563

 

 
2,746

7

 
10,316

Other
 
(71
)
 

 


 
(71
)
Goodwill at October 2, 2016
 
$
417,694

 
$
203,414

 
$
227,871

$
227,514

 
$
1,076,493


Acquisitions in 2016 resulted in the addition of $6,759 of goodwill. Of this total, $417 was recorded in connection with the June 2016 acquisition of a small tubes and cores business in Australia and $6,342 was recorded in connection with the September 2016 acquisition of Laminar Medica.
In July 2016, the Company disposed of a retail security packaging plant in Juncos, Puerto Rico. In connection with this disposal, the Company wrote off $1,215 of goodwill. See Note 5 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. The Company completed its most recent annual goodwill impairment testing during the third quarter of 2016. As part of this testing, the Company analyzes certain qualitative and quantitative factors in determining goodwill impairment. During this most recent testing, management concluded that goodwill associated with the Company's Paper and Industrial Converted Products - Brazil reporting unit had become impaired as a result of the continued deterioration of economic conditions in Brazil. Accordingly, an impairment charge totaling $2,617, the entire amount of goodwill associated with this reporting unit, was recognized during the three months ended October 2, 2016. The charge is included in “Restructuring/Asset impairment charges” in the Condensed Consolidated Statements of Income. See Note 5 for additional information.
Based on its assessments, the Company concluded that there was no impairment of goodwill for any of its other reporting units. The assessments 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 a significant future impairment if actual results fall short of expectations are Display and Packaging, and Paper and Industrial Converted Products - Europe. Total goodwill associated with these reporting units was approximately $203,414 and $91,700, respectively, at October 2, 2016. A large portion of sales in the Display and Packaging reporting unit is concentrated in one customer. The business with this customer is currently under negotiation for contract renewal. If a significant amount of business were lost and not replaced under similar terms, a goodwill impairment charge could be incurred.










17

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

Other Intangible Assets
A summary of other intangible assets as of October 2, 2016 and December 31, 2015 is as follows:         
 
 
October 2,
2016
 
December 31,
2015
Other Intangible Assets, gross:
 
 
 
 
Patents
 
$
15,865

 
$
12,716

Customer lists
 
347,503

 
381,938

Trade names
 
19,271

 
19,246

Proprietary technology
 
20,748

 
17,738

Land use rights
 
299

 
297

Other
 
1,418

 
1,223

Other Intangible Assets, gross
 
$
405,104

 
$
433,158

 
 
 
 
 
Accumulated Amortization:
 
 
 
 
Patents
 
(5,360
)
 
(3,784
)
Customer lists
 
(167,627
)
 
(171,590
)
Trade names
 
(2,588
)
 
(2,171
)
Proprietary technology
 
(10,769
)
 
(9,518
)
Land use rights
 
(42
)
 
(40
)
Other
 
(947
)
 
(960
)
Total Accumulated Amortization
 
$
(187,333
)
 
$
(188,063
)
Other Intangible Assets, net
 
$
217,771

 
$
245,095

Other intangible assets are amortized on a straight-line basis over their respective useful lives, which generally range from three to forty years. The Company has no intangible assets with indefinite lives.
The Company recorded $11,015 of identifiable intangibles in connection with 2016 acquisitions. Of this total, approximately $4,943 related to customer lists, $3,000 to proprietary technology, $2,898 to patents, and $174 to non-compete agreements. These intangibles will be amortized over their weighted average useful life of 10.6 years. See Note 3 for additional information.
Also during 2016, the Company wrote off customer lists totaling $1,947 in connection with the sale of a retail security packaging business in Puerto Rico. See Note 5 for additional information.
During the third quarter of 2016 the Company reclassified $15,028 of intangible assets to "Assets held for sale" in conjunction with the pending sale of its rigid plastics blow molding business. See Note 1 for additional information.
Aggregate amortization expense was $7,767 and $8,533 for the three months ended October 2, 2016 and September 27, 2015, respectively, and $24,334 and $24,857, for the nine months ended October 2, 2016 and September 27, 2015, respectively. Amortization expense on other intangible assets is expected to total approximately $31,400 in 2016, $29,200 in 2017, $28,800 in 2018, $27,400 in 2019 and $25,100 in 2020.










18

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

Note 8: Financial Instruments and Derivatives
The following table sets forth the carrying amounts and fair values of the Company’s significant financial instruments for which the carrying amount differs from the fair value. 
 
 
October 2, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term debt, net of current portion
 
$
1,030,338

 
$
1,156,185

 
$
1,015,270

 
$
1,081,732

The carrying value 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 determined based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available to the Company for issues with similar terms and maturities. It is considered a Level 2 fair value measurement.
Cash Flow Hedges
At October 2, 2016 and December 31, 2015, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. These contracts, which have maturities ranging to December 2017, qualify as cash flow hedges under U.S. GAAP. To the extent considered effective, the changes in fair value of these contracts are recorded in other comprehensive income and reclassified to income or expense in the period in which the hedged item impacts earnings. The Company has determined all hedges to be highly effective and as a result no material ineffectiveness has been recorded.
Commodity Cash Flow Hedges
The Company has entered into certain derivative contracts to manage the cost of anticipated purchases of natural gas and aluminum. At October 2, 2016, natural gas swaps covering approximately 8.3 MMBTUs were outstanding. These contracts represent approximately 74% and 76% of anticipated U.S. and Canadian usage for the remainder of 2016 and 2017, respectively. Additionally, the Company had swap contracts covering 2,464 metric tons of aluminum and 660 short tons of old corrugated containers (OCC), representing approximately 55% and less than 1% of anticipated usage for the remainder of 2016, respectively. The fair values of the Company’s commodity cash flow hedges netted to a gain position of $439 at October 2, 2016 and a loss position of $(3,611) at December 31, 2015. The amount of the gain included in Accumulated Other Comprehensive Loss at October 2, 2016, that is expected to be reclassified to the income statement during the next twelve months is $249.
Foreign Currency Cash Flow Hedges
The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales and purchases forecast to occur in 2016. The net positions of these contracts at October 2, 2016 were as follows (in thousands): 
Currency
Action
Quantity
Colombian peso
purchase
1,917,279

Mexican peso
purchase
129,002

Canadian dollar
purchase
19,917

British pound
purchase
8,427

Russian ruble
purchase
4,918

Turkish lira
purchase
374

New Zealand dollar
sell
(157
)
Polish zloty
sell
(668
)
Australian dollar
sell
(1,522
)
Euro
sell
(10,267
)
The fair value of these foreign currency cash flow hedges netted to a gain position of $202 at October 2, 2016 and a loss position of $(4,612) at December 31, 2015. During the nine months ended October 2, 2016, certain foreign currency cash flow hedges related to construction in progress were settled as the related capital expenditures were made. Losses from these hedges totaling $48 were reclassified from accumulated other comprehensive loss and included in the

19

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

carrying value of the assets acquired. During the next twelve months, a gain of $165 is expected to be reclassified from Accumulated Other Comprehensive Loss to the income statement.
Other Derivatives
The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and existing foreign currency denominated receivables and payables. The Company does not apply hedge accounting treatment under ASC 815 for these instruments. As such, changes in fair value are recorded directly to income and expense in the periods that they occur.
The net positions of these contracts at October 2, 2016, were as follows (in thousands): 
Currency
Action
Quantity
Colombian peso
purchase
2,355,160

Mexican peso
purchase
241,133

Canadian dollar
purchase
13,768

The fair value of the Company’s other derivatives was $(57) and $(2,180) at October 2, 2016 and December 31, 2015, respectively.
The following table sets forth the location and fair values of the Company’s derivative instruments at October 2, 2016 and December 31, 2015
Description
 
Balance Sheet Location
 
October 2,
2016
 
December 31,
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Commodity Contracts
 
Prepaid expenses
 
$
634

 
$
8

Commodity Contracts
 
Other assets
 
$
252

 
$

Commodity Contracts
 
Accrued expenses and other
 
$
(314
)
 
$
(3,425
)
Commodity Contracts
 
Other liabilities
 
$
(133
)
 
$
(194
)
Foreign Exchange Contracts
 
Prepaid expenses
 
$
1,147

 
$
156

       Foreign Exchange Contracts
 
Accrued expenses and other
 
$
(945
)
 
$
(4,768
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign Exchange Contracts
 
Prepaid expenses
 
$
119

 
$
50

Foreign Exchange Contracts
 
Accrued expenses and other
 
$
(176
)
 
$
(2,230
)
While certain of the Company’s derivative contract arrangements with its counterparties provide for the ability to settle contracts on a net basis, the Company reports its derivative positions on a gross basis. There are no collateral arrangements or requirements in these agreements.












20

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

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three months ended October 2, 2016 and September 27, 2015
Description
 
Amount of Gain or
(Loss) Recognized
in OCI on
Derivatives
(Effective Portion)
 
Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion)
 
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI Into Income
(Effective Portion)
 
Location of Gain 
or (Loss)  Recognized in
Income on
Derivatives
(Ineffective Portion)
 
Amount of Gain 
or (Loss)
Recognized
in Income on
Derivatives (Ineffective 
Portion)
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
Three months ended October 2, 2016
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
130

 
Net sales
 
$
(2,370
)
 
Net sales
 
$

 
 
 
 
Cost of sales
 
$
907

 
 
 
 
Commodity Contracts
$
(1,110
)
 
Cost of sales
 
$
(541
)
 
Cost of sales
 
$
(54
)
Three months ended September 27, 2015
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
(3,161
)
 
Net sales
 
$
(7,034
)
 
Net sales
 
$

 
 
 
 
Cost of sales
 
$
3,811

 
 
 
 
Commodity Contracts
$
(1,728
)
 
Cost of sales
 
$
(2,244
)
 
Cost of sales
 
$
(30
)
 
Description
Location of Gain or (Loss) Recognized in
Income Statement
Gain or (Loss)
Recognized
Derivatives not Designated as Hedging Instruments:
 
Three months ended October 2, 2016
 
 
Foreign Exchange Contracts
Cost of sales
$

 
Selling, general and administrative
$
(743
)
Three months ended September 27, 2015
 
 
Foreign Exchange Contracts
Cost of sales


 
Selling, general and administrative
$
(3,949
)
















21

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

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the nine months ended October 2, 2016 and September 27, 2015
Description
 
Amount of Gain or
(Loss) Recognized
in OCI on
Derivatives
(Effective Portion)
 
Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion)
 
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI Into Income
(Effective Portion)
 
Location of Gain 
or (Loss) 
Recognized in
Income on
Derivatives
(Ineffective Portion)
 
Amount of Gain
or (Loss) Recognized
in Income on
Derivatives
(Ineffective 
Portion)
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
Nine months ended October 2, 2016
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$
1,700

 
Net sales
 
$
(5,217
)
 
Net sales
 
$

 
 
 
 
Cost of sales
 
$
2,339

 
 
 
 
Commodity Contracts
 
$
406

 
Cost of sales
 
$
(3,346
)
 
Cost of sales
 
$
(52
)
Nine months ended September 27, 2015
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
 
$
(6,952
)
 
Net sales
 
$
(15,323
)
 
Net sales
 
$

 
 
 
 
Cost of sales
 
$
8,318

 
 
 
 
Commodity Contracts
 
$
(5,080
)
 
Cost of sales
 
$
(7,201
)
 
Cost of sales
 
$
80

 
Description
Location of Gain or (Loss) Recognized in
Income Statement
Gain or (Loss)
Recognized
Derivatives not Designated as Hedging Instruments:
 
Nine months ended October 2, 2016
 
 
Foreign Exchange Contracts
Cost of sales
$

 
Selling, general and administrative
$
373

Nine months ended September 27, 2015
 
 
Foreign Exchange Contracts
Cost of sales


 
Selling, general and administrative
$
(3,102
)





























22

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

Note 9: Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 –
Observable inputs such as quoted market prices in active markets;
Level 2 –
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 –
Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following table sets forth information regarding the Company’s financial assets and financial liabilities, excluding retirement and postretirement plan assets, measured at fair value on a recurring basis: 
Description
 
October 2,
2016
 
Level 1
 
Level 2
 
Level 3
Hedge derivatives, net:
 
 
 
 
 
 
 
 
Commodity contracts
 
$
439

 
$

 
$
439

 
$

Foreign exchange contracts
 
202

 

 
202

 

Non-hedge derivatives, net:
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
(57
)
 

 
(57
)
 

Deferred compensation plan assets
 
341

 
341

 

 

 
 
 
 
 
 
 
 
 
Description
 
December 31,
2015
 
Level 1
 
Level 2
 
Level 3
Hedge derivatives, net:
 
 
 
 
 
 
 
 
Commodity contracts
 
$
(3,611
)
 
$

 
$
(3,611
)
 
$

Foreign exchange contracts
 
(4,612
)
 

 
(4,612
)
 

Non-hedge derivatives, net:
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
(2,180
)
 

 
(2,180
)
 

Deferred compensation plan assets
 
460

 
460