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EX-32 - EXHIBIT 32 - SONOCO PRODUCTS COq32017ex32.htm
EX-31 - EXHIBIT 31 - SONOCO PRODUCTS COq32017ex31.htm
EX-15 - EXHIBIT 15 - SONOCO PRODUCTS COq32017ex15.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 1, 2017
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 20, 2017:
Common stock, no par value: 99,400,898




SONOCO PRODUCTS COMPANY
INDEX
 
 
 
 
Item 1.
 
 
 
 
Condensed Consolidated Balance Sheets - October 1, 2017 (unaudited) and December 31, 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Income – Three and Nine Months Ended October 1, 2017 (unaudited) and October 2, 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended October 1, 2017 (unaudited) and October 2, 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 1, 2017 (unaudited) and October 2, 2016 (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 1,
2017
 
December 31,
2016*
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
247,908

 
$
257,226

Trade accounts receivable, net of allowances
 
751,445

 
625,411

Other receivables
 
51,229

 
43,553

Inventories:
 
 
 
 
Finished and in process
 
187,133

 
127,446

Materials and supplies
 
285,823

 
245,368

Prepaid expenses
 
51,787

 
49,764

 
 
1,575,325

 
1,348,768

Property, Plant and Equipment, Net
 
1,182,384

 
1,060,017

Goodwill
 
1,240,439

 
1,092,215

Other Intangible Assets, Net
 
342,316

 
224,958

Deferred Income Taxes
 
52,549

 
42,130

Other Assets
 
176,615

 
155,115

Total Assets
 
$
4,569,628

 
$
3,923,203

Liabilities and Equity
 
 
 
 
Current Liabilities
 
 
 
 
Payable to suppliers
 
$
559,432

 
$
477,831

Accrued expenses and other
 
294,889

 
273,996

Notes payable and current portion of long-term debt
 
125,916

 
32,045

Accrued taxes
 
10,931

 
18,744

 
 
991,168

 
802,616

Long-term Debt, Net of Current Portion
 
1,300,191

 
1,020,698

Pension and Other Postretirement Benefits
 
388,492

 
447,339

Deferred Income Taxes
 
91,009

 
59,753

Other Liabilities
 
40,142

 
38,092

Commitments and Contingencies
 

 

Sonoco Shareholders’ Equity
 
 
 
 
Common stock, no par value
 
 
 
 
Authorized 300,000 shares
99,398 and 99,193 shares issued and outstanding at
October 1, 2017 and December 31, 2016, respectively
 
7,175

 
7,175

Capital in excess of stated value
 
325,707

 
321,050

Accumulated other comprehensive loss
 
(596,953
)
 
(738,380
)
Retained earnings
 
1,996,244

 
1,942,513

Total Sonoco Shareholders’ Equity
 
1,732,173

 
1,532,358

Noncontrolling Interests
 
26,453

 
22,347

Total Equity
 
1,758,626

 
1,554,705

Total Liabilities and Equity
 
$
4,569,628

 
$
3,923,203

 
*
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 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
Net sales
 
$
1,324,634

 
$
1,208,724

 
$
3,737,632

 
$
3,640,680

Cost of sales
 
1,073,761

 
973,351

 
3,030,662

 
2,918,041

Gross profit
 
250,873

 
235,373

 
706,970

 
722,639

Selling, general and administrative expenses
 
130,280

 
121,583

 
413,626

 
382,387

Restructuring/Asset impairment charges
 
511

 
8,947

 
12,519

 
41,453

Income before interest and income taxes
 
120,082

 
104,843

 
280,825

 
298,799

Interest expense
 
14,741

 
13,133

 
41,649

 
41,414

Interest income
 
1,094

 
696

 
3,152

 
1,646

Income before income taxes
 
106,435

 
92,406

 
242,328

 
259,031

Provision for income taxes
 
35,545

 
29,618

 
78,251

 
83,602

Income before equity in earnings of affiliates
 
70,890

 
62,788

 
164,077

 
175,429

Equity in earnings of affiliates, net of tax
 
2,521

 
3,190

 
7,320

 
7,457

Net income
 
$
73,411

 
$
65,978

 
$
171,397

 
$
182,886

Net income attributable to noncontrolling interests
 
(599
)
 
(583
)
 
(1,727
)
 
(1,325
)
Net income attributable to Sonoco
 
$
72,812

 
$
65,395

 
$
169,670

 
$
181,561

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
100,275

 
100,925

 
100,214

 
101,320

Diluted
 
100,684

 
101,579

 
100,793

 
101,960

Per common share:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco:
 
 
 
 
 
 
 
 
Basic
 
$
0.73

 
$
0.65

 
$
1.69

 
$
1.79

Diluted
 
$
0.72

 
$
0.64

 
$
1.68

 
$
1.78

Cash dividends
 
$
0.39

 
$
0.37

 
$
1.15

 
$
1.09

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 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
Net income
 
$
73,411

 
$
65,978

 
$
171,397

 
$
182,886

Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
27,445

 
(3,157
)
 
87,807

 
10,282

Changes in defined benefit plans, net of tax
 
10,301

 
5,799

 
58,311

 
14,753

Changes in derivative financial instruments, net of tax
 
(186
)
 
641

 
(3,653
)
 
5,263

Other comprehensive income
 
37,560

 
3,283

 
142,465

 
30,298

Comprehensive income
 
110,971

 
69,261

 
313,862

 
213,184

Net income attributable to noncontrolling interests
 
(599
)
 
(583
)
 
(1,727
)
 
(1,325
)
Other comprehensive loss (income) attributable to noncontrolling interests
 
(517
)
 
363

 
(1,038
)
 
(1,775
)
Comprehensive income attributable to Sonoco
 
$
109,855

 
$
69,041

 
$
311,097

 
$
210,084

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 1,
2017
 
October 2,
2016
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
171,397

 
$
182,886

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Asset impairment
 
1,486

 
7,157

Depreciation, depletion and amortization
 
159,130

 
156,542

Share-based compensation expense
 
9,028

 
14,277

Equity in earnings of affiliates
 
(7,320
)
 
(7,457
)
Cash dividends from affiliated companies
 
5,467

 
7,090

Net gain on disposition of assets
 
833

 
14,809

Pension and postretirement plan expense
 
66,245

 
34,165

Pension and postretirement plan contributions
 
(52,549
)
 
(39,946
)
Tax effect of share-based compensation exercises
 

 
2,365

Excess tax benefit of share-based compensation
 

 
(2,406
)
Net increase/(decrease) in deferred taxes
 
(2,126
)
 
2,998

Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
 
 
 
 
Trade accounts receivable
 
(70,908
)
 
(69,189
)
Inventories
 
(14,965
)
 
(11,289
)
Payable to suppliers
 
29,321

 
7,678

Prepaid expenses
 
(2,504
)
 
3,996

Accrued expenses
 
1,229

 
16,350

Income taxes payable and other income tax items
 
(1,886
)
 
22,951

Other assets and liabilities
 
(9,769
)
 
5,700

Net cash provided by operating activities
 
282,109

 
348,677

Cash Flows from Investing Activities:
 
 
 
 
Purchase of property, plant and equipment
 
(144,738
)
 
(142,073
)
Cost of acquisitions, net of cash acquired
 
(383,358
)
 
(21,338
)
Cash paid for disposition of assets
 

 
(8,436
)
Proceeds from the sale of assets
 
3,743

 
6,565

Investment in affiliates and other, net
 
1,739

 
63

Net cash used in investing activities
 
(522,614
)
 
(165,219
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from issuance of debt
 
436,335

 
230,393

Principal repayment of debt
 
(196,198
)
 
(269,017
)
Net change in commercial paper
 
98,000

 

Net increase in outstanding checks
 
500

 
6,796

Excess tax benefit of share-based compensation
 

 
2,406

Cash dividends
 
(114,368
)
 
(109,821
)
Shares acquired
 
(5,942
)
 
(65,015
)
Net cash provided by/(used in) financing activities
 
218,327

 
(204,258
)
Effects of Exchange Rate Changes on Cash
 
12,860

 
(2,313
)
Net Decrease in Cash and Cash Equivalents
 
(9,318
)
 
(23,113
)
Cash and cash equivalents at beginning of period
 
257,226

 
182,434

Cash and cash equivalents at end of period
 
$
247,908

 
$
159,321

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: 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 1, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016.
With respect to the unaudited condensed consolidated financial information of the Company for the three- and nine-month periods ended October 1, 2017 and October 2, 2016 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 October 31, 2017 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 2: New Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The update to the standard is effective for periods beginning after December 15, 2018, with early adoption permitted in any interim period after issuance of this update. The Company does not expect the implementation of ASU 2017-12 to have a material effect on its consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires an employer to report service cost in the same line item as other compensation costs arising from employees during the period. The other components of net benefit cost as defined are required to be presented separately from the service cost component and outside a subtotal of income from operations, if one is presented, or disclosed. This update also allows only the service cost component to be eligible for capitalization when applicable and is effective for periods beginning after December 15, 2017. The amendments should be applied retrospectively for the presentation of the components of net benefit cost in the income statement and prospectively for the capitalization of the service cost component. The Company does not expect the implementation of ASU 2017-07 to have a material effect on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash," requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in ASU 2016-18 do not provide a definition of restricted cash or restricted cash equivalents. The guidance is effective for periods beginning after December 15, 2017, on a retrospective basis. The Company does not expect the implementation of ASU 2016-18 to have a material impact on its consolidated financial statements.




7

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

In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments," providing 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 March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which impacts several aspects of the accounting for share-based payment transactions, including among others, the classification of excess tax benefits in the statements of income and cash flows and accounting for forfeitures. The Company's adoption of this update effective January 1, 2017 resulted in the recognition of $2,273 of excess tax benefits in the income statement during the nine-month period ended October 1, 2017. In accordance with the provisions of this ASU, excess tax benefits have also been recognized on a prospective basis within the operating section of the consolidated statement of cash flows for the nine-month period ended October 1, 2017, rather than the financing section. Pursuant to adoption of the new ASU, the Company recorded a cumulative charge to retained earnings of $318 for the elimination of estimated forfeitures associated with the Company's share-based compensation. The Company has elected to recognize forfeitures prospectively as they occur beginning January 1, 2017.
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, "Leases" 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 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. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017.  Although the Company will not complete its final assessment and quantification of the impact of ASU 2014-09 on its consolidated financial statements until adoption, it 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 is still in the process of developing an estimate of the impact of the transition adjustment on its consolidated financial statements. The Company plans to adopt ASU 2014-09 in the first quarter of fiscal 2018 following the modified retrospective transition method.
During the three- and nine-month periods ended October 1, 2017, 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 1, 2017, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 





8

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

Note 3: Acquisitions
On July 24, 2017, the Company completed the acquisition of Clear Lam Packaging, Inc. ("Clear Lam") for $164,585, net of cash acquired. Final consideration will be subject to an adjustment for working capital, which is expected to be completed by the end of the first quarter of 2018. Clear Lam manufactures high barrier flexible and forming films used to package a variety of products for consumer packaged goods companies, retailers and other industrial manufacturers, with a focus on structures used for perishable foods. It has production facilities in Elk Grove Village, Illinois, and Nanjing, China. The Company financed a portion of the transaction with $100,000 in borrowings from a $250,000 five-year term loan with the remaining purchase price funded from available short-term credit facilities.
The provisional fair values of the assets acquired and liabilities assumed in connection with the acquisition of Clear Lam are as follows:
Trade accounts receivable
$
10,578

Inventories
27,299

Property, plant and equipment
25,673

Goodwill
48,818

Other intangible assets
77,600

Trade accounts payable
(14,455
)
Other net tangible assets /(liabilities)
(10,928
)
Net assets
$
164,585

 
 
Management is continuing to finalize its valuation of certain assets and liabilities of Clear Lam including, but not limited to: inventory; property, plant and equipment; other intangible assets; deferred income taxes; and capital leases. Factors comprising goodwill, all of which is expected to be deductible for income tax purposes, include increased access to certain markets as well as the value of the assembled workforce. Clear Lam's financial results are included in the Company's Consumer Packaging segment. 
On March 14, 2017, the Company completed the acquisition of Packaging Holdings, Inc. and subsidiaries, including Peninsula Packaging LLC ("Packaging Holdings"), for $218,774, net of cash acquired. Packaging Holdings manufactures thermoformed packaging for a wide range of whole fresh fruits, pre-cut fruits and produce, prepared salad mixes, as well as baked goods in retail supermarkets from five manufacturing facilities, including four in the United States and one in Mexico. The Company financed the transaction with a combination of cash and borrowings including a $150,000 three-year term loan.
The fair values of the assets acquired and liabilities assumed in connection with the acquisition of Packaging Holdings are as follows:
Trade accounts receivable
$
14,143

Inventories
43,276

Property, plant and equipment
53,787

Goodwill
72,316

Other intangible assets
60,190

Trade accounts payable
(22,286
)
Other net tangible assets /(liabilities)
(2,652
)
Net assets
$
218,774

 
 
During the third quarter of 2017, the Company continued to finalize its valuations of certain assets and liabilities of Packaging Holdings based on new information obtained about facts and circumstances that existed as of the acquisition date. The continuing valuation includes, but is not limited to: inventory; property, plant and equipment; other intangible assets; deferred income taxes; and capital leases. The valuations are expected to be completed in the fourth quarter of 2017. Factors comprising goodwill, of which approximately $30,500 is expected to be deductible for income tax purposes, include increased access to certain markets as well as the value of the assembled workforce. Packaging

9

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

Holding's financial results are included in the Company's Consumer Packaging segment and the business will operate as the Peninsula brand of thermoformed packaging products within the Company's global plastics division. 
The Company has accounted for the Packaging Holdings and Clear Lam acquisitions as business combinations under the acquisition method of accounting in accordance with the business combinations subtopic of the Accounting Standards Codification and has included their results of operations in the Company’s Condensed Consolidated Statements of Income.
The following table presents the aggregate, unaudited financial results for Packaging Holdings and Clear Lam from their respective dates of acquisition:
 
(unaudited)
Aggregate Supplemental Information
Three Months Ended
 
Nine Months Ended
Packaging Holdings and Clear Lam
October 1, 2017
 
October 1, 2017
Actual net sales
$
77,764

 
$
145,983

Actual net income
$
1,976

 
$
2,160

 
 
 
 
Although neither of the acquisitions completed during the nine months ended October 1, 2017, is considered individually material, they are considered material on a combined basis. The following table presents the Company's estimated unaudited pro forma consolidated results for the three and nine-month periods ended October 1, 2017 and October 2, 2016, assuming both acquisitions had occurred on January 1, 2016. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been completed as of the beginning of 2016, nor are they necessarily indicative of future consolidated results.
 
(unaudited)
 
(unaudited)
Pro Forma Supplemental Information
Three Months Ended
 
Nine Months Ended
Consolidated
October 1, 2017
October 2, 2016
 
October 1, 2017
October 2, 2016
Net sales
$
1,332,532

$
1,293,139

 
$
3,844,048

$
3,873,977

Net income attributable to Sonoco
$
73,284

$
66,334

 
$
172,470

$
173,219

Earnings per share:
 
 
 
 
 
  Pro forma basic
$0.73
$0.66
 
$1.72
$1.71
  Pro forma diluted
$0.73
$0.65
 
$1.71
$1.70
 
 
 
 
The pro forma information above does not project the Company’s expected results of any future period and gives no effect for any future synergistic benefits that may result from consolidating these subsidiaries or costs from integrating their operations with those of the Company. Pro forma information for both 2017 and 2016 includes adjustments to depreciation, amortization, interest expense, and income taxes. Acquisition-related costs of $4,285 and non-recurring expenses related to fair value adjustments to acquisition-date inventory of $5,750 were recognized in 2017 in connection with the acquisitions of Packaging Holdings and Clear Lam. These costs are excluded from 2017 pro forma net income and reflected as though having been incurred on January 1, 2016.
During the nine-month period ended October 1, 2017, the Company updated its valuations of the assets and liabilities acquired in conjunction with the 2016 acquisitions of Plastic Packaging Inc. (“PPI”) and Laminar Medica (“Laminar”) based on information obtained about facts and circumstances that existed as of their respective acquisition dates. As a result, measurement period adjustments were made to the previously disclosed provisional fair values of PPI's net assets that increased identifiable intangibles by $1,400, increased property, plant and equipment by $400, increased the deferred tax liability by $1,085, and decreased goodwill by $715.  The measurement period adjustments to the previously disclosed provisional fair values of Laminar's net assets decreased goodwill by $326, decreased deferred tax liabilities by $487 and decreased property, plant and equipment by $161.


10

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

Acquisition-related costs of $963 and $943 were incurred during the three months ended October 1, 2017 and October 2, 2016, respectively, and $6,233 and $2,092 during the nine months ended October 1, 2017 and October 2, 2016, 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 4: Shareholders' Equity
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share (dollars and shares in thousands, except per share data): 
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Sonoco
 
$
72,812

 
$
65,395

 
$
169,670

 
$
181,561

Denominator:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
100,275

 
100,925

 
100,214

 
101,320

Dilutive effect of stock-based compensation
 
409

 
654

 
579

 
640

Diluted
 
100,684

 
101,579

 
100,793

 
101,960

Net income attributable to Sonoco per common share:
 
 
 
 
 
 
Basic
 
$
0.73

 
$
0.65

 
$
1.69

 
$
1.79

Diluted
 
$
0.72

 
$
0.64

 
$
1.68

 
$
1.78

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 1, 2017 and October 2, 2016 was as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
 
 
 
 
 
 
 
 
 
Anti-dilutive stock appreciation rights
 
531

 

 
473

 
477

No adjustments were made to 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 shares of the Company's common stock. A total of 2,030 shares were purchased during 2016 at a cost of $100,000, leaving a total of 2,970 shares remaining available for repurchase at December 31, 2016. No shares were repurchased under this authorization during the nine months ended October 1, 2017. At October 1, 2017, a total of 2,970 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 113 shares in the nine months ended October 1, 2017 at a cost of $5,942, and 136 shares in the nine months ended October 2, 2016 at a cost of $6,072.

11

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

Dividend Declarations
On July 19, 2017, the Board of Directors declared a regular quarterly dividend of $0.39 per share. This dividend was paid on September 8, 2017 to all shareholders of record as of August 11, 2017.
On October 16, 2017, the Board of Directors declared a regular quarterly dividend of $0.39 per share. This dividend is payable on December 8, 2017 to all shareholders of record as of November 10, 2017. 
Noncontrolling Interests
During the third quarter of 2017, the Company recorded a noncontrolling interest related to the creation of a joint venture for the manufacture of tubes and cores from a facility in Saudi Arabia. The Company owns a 51% share in the joint venture, which is not yet operational. The assets of the joint venture have been consolidated, and a noncontrolling interest in the amount of $1,341 recorded in the Company’s Condensed Consolidated Balance Sheet at October 1, 2017.

Note 5: Restructuring and Asset Impairment
The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2017 and 2016 are reported as “2017 Actions” and “2016 Actions,” respectively. Actions initiated prior to 2016, all of which were substantially complete at October 1, 2017, are reported as “2015 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: 
 
 
2017
 
2016
 
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
Restructuring/Asset impairment:
 
 
 
 
 
 
 
 
2017 Actions
 
$
1,610

 
$
7,798

 
$

 
$

2016 Actions
 
(68
)
 
1,816

 
3,389

 
29,434

2015 and Earlier Actions
 
(1,233
)
 
2,365

 
2,941

 
9,402

Other asset impairments
 
202

 
540

 
2,617

 
2,617

Restructuring/Asset impairment charges
 
$
511

 
$
12,519

 
$
8,947

 
$
41,453

Income tax benefit
 
$
(445
)
 
(4,081
)
 
$
(2,097
)
 
(10,442
)
Less: Costs attributable to noncontrolling interests, net of tax
 
(21
)
 
(35
)
 
(34
)
 
(78
)
Restructuring/asset impairment charges attributable to Sonoco, net of tax
 
$
45

 
$
8,403

 
$
6,816

 
$
30,933

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 $1,500 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 2017. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken.






12

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

2017 Actions
During 2017, the Company announced the closure of an expanded foam protective packaging plant in North Carolina (part of the Protective Solutions segment) and a tubes and cores plant in Iowa (part of the Paper and Industrial Converted Products segment). In addition, approximately 120 positions were eliminated in the first nine months of 2017 in conjunction with the Company's ongoing organizational effectiveness efforts.
Below is a summary of 2017 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
2017 Actions
 
Third Quarter 2017
 
Total
Incurred
to Date
 
Estimated
Total Cost
Severance and Termination Benefits
 
 
 
 
 
 
Consumer Packaging
 
$
60

 
$
1,376

 
$
1,576

Display and Packaging
 

 
172

 
172

Paper and Industrial Converted Products
 
748

 
$
2,952

 
3,452

Protective Solutions
 
83

 
1,057

 
1,157

Corporate
 
(4
)
 
452

 
452

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
Consumer Packaging
 
126

 
126

 
126

Paper and Industrial Converted Products
 
13

 
13

 
13

Protective Solutions
 
55

 
832

 
832

Other Costs
 
 
 
 
 
 
Consumer Packaging
 
37

 
288

 
288

Paper and Industrial Converted Products
 
62

 
100

 
650

Protective Solutions
 
430

 
430

 
430

Total Charges and Adjustments
 
$
1,610

 
$
7,798

 
$
9,148

The following table sets forth the activity in the 2017 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: 
2017 Actions
 
Severance
and
Termination
Benefits
 
Asset
Impairment/
Disposal
of Assets
 
Other
Costs
 
Total
Accrual Activity
2017 Year to Date
 
 
 
Liability at December 31, 2016
 
$

 
$

 
$

 
$

2017 charges
 
6,009

 
971

 
818

 
7,798

Cash receipts/(payments)
 
(3,674
)
 
457

 
(818
)
 
(4,035
)
Asset write downs/disposals
 

 
(1,428
)
 

 
(1,428
)
Foreign currency translation
 
29

 

 

 
29

Liability at October 1, 2017
 
$
2,364

 
$

 
$

 
$
2,364

Included in "Asset Impairment/Disposal of Assets" above is a loss of $903 primarily relating to the impairment of fixed assets resulting from the closure of an expanded foam protective packaging plant in North Carolina, and losses of $68 relating primarily to the sale of a vacated building. The Company received proceeds of $457 from the sale of this building and wrote off assets of $525.
"Other costs" consists 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 2017 Actions restructuring costs by the end of 2017 using cash generated from operations.



13

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

2016 Actions
During 2016, the Company closed four tubes and cores plants - one in the United States, one in Canada, one in Ecuador, and one in Switzerland (all part of the Paper and Industrial Converted Products segment), 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) and 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, the Company continued to realign its cost structure, resulting in the elimination of approximately 180 positions.
Below is a summary of 2016 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 
 
 
2017
 
2016
 
Total
Incurred
to Date
 
 Estimated
Total Cost
2016 Actions
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
 
 
Severance and Termination Benefits
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$

 
$
1

 
$
766

 
$
2,218

 
$
2,408

 
$
2,408

Display and Packaging
 
(22
)
 
(18
)
 
372

 
3,025

 
4,286

 
4,286

Paper and Industrial Converted Products
 
5

 
419

 
1,187

 
5,328

 
6,306

 
6,306

Protective Solutions
 

 

 
109

 
469

 
678

 
678

Corporate
 
14

 
14

 
3

 
1,442

 
1,564

 
1,564

Asset Impairment / Disposal of Assets
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$

 

 

 
(306
)
 
(306
)
 
(306
)
Display and Packaging
 

 
96

 
475

 
2,712

 
2,808

 
2,808

Paper and Industrial Converted Products
 

 
45

 

 
13,279

 
13,345

 
13,345

Other Costs
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Packaging
 
$
14

 
42

 
12

 
314

 
773

 
773

Display and Packaging
 
20

 
388

 
37

 
48

 
674

 
674

Paper and Industrial Converted Products
 
(99
)
 
779

 
428

 
905

 
2,077

 
2,077

Protective Solutions
 

 
50

 

 

 
200

 
200

Total Charges and Adjustments
 
$
(68
)
 
$
1,816

 
$
3,389

 
$
29,434

 
$
34,813

 
$
34,813

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
2017 Year to Date
 
 
 
 
Liability at December 31, 2016
 
$
3,558

 
$

 
$
640

 
$
4,198

2017 charges
 
416

 
141

 
1,259

 
1,816

Adjustments
 

 

 

 

Cash payments
 
(3,098
)
 

 
(1,354
)
 
(4,452
)
Asset write downs/disposals
 

 
(141
)
 
(252
)
 
(393
)
Foreign currency translation
 
12

 

 
34

 
46

Liability at October 1, 2017
 
$
888

 
$

 
$
327

 
$
1,215


14

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 2016 Actions restructuring costs by the end of 2017 using cash generated from operations. 
2015 and Earlier Actions
2015 and Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2016. Included in "Total Charges and Adjustments" below is a gain of $2,022 related to the sale of land and building of a rigid paper plant in Manchester, England (part of the Consumer Packaging Segment). The Company received proceeds from the sale of $2,741 and wrote off assets of $719. Additional charges for these actions in both 2017 and 2016 primarily relate 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 2015 and Earlier Actions.
Below is a summary of expenses incurred by segment for 2015 and Earlier Actions for the three- and nine- month periods ended October 1, 2017 and October 2, 2016
 
 
2017
 
2016
2015 and Earlier Actions
 
Third Quarter
 
Nine Months
 
Third Quarter
 
Nine Months
Consumer Packaging
 
$
(1,348
)
 
$
1,216

 
$
2,079

 
$
7,216

Display and Packaging
 

 
83

 
113

 
679

Paper and Industrial Converted Products
 
62

 
953

 
744

 
1,368

Protective Solutions
 
53

 
106

 
18

 
152

Corporate
 

 
7

 
(13
)
 
(13
)
Total Charges and Adjustments
 
$
(1,233
)
 
$
2,365

 
$
2,941

 
$
9,402

The accrual for 2015 and Earlier Actions totaled $3,211 and $3,608 at October 1, 2017 and December 31, 2016, respectively, and is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. The accrual relates primarily to unpaid severance and building lease terminations. The Company expects the majority of the liability associated with 2015 and Earlier Actions to be paid by the end of 2017 using cash generated from operations.
Other asset impairments
In addition to the restructuring charges discussed above, as a result of the continued devaluation of the Venezuelan Bolivar in 2017, the Company recognized impairment charges against inventories and certain long-term nonmonetary assets totaling $338. The assets were deemed to be impaired as the U.S. dollar value of the projected cash flows from these assets was no longer sufficient to recover their U.S. dollar carrying values. In addition, the Company has recognized foreign exchange remeasurement losses on net monetary assets of $202.
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.
The asset impairment charges and remeasurement loss are included in "Restructuring/Asset impairment charges" in the Company's Condensed Consolidated Statements of Income.

    

15

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except 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 1, 2017 and October 2, 2016:
 
 
Gains and
Losses on Cash
Flow Hedges
 
Defined
Benefit
Pension Items
 
Foreign
Currency
Items
 
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2016

$
1,939


$
(453,821
)

$
(286,498
)

$
(738,380
)
Other comprehensive income/(loss) before reclassifications

(654
)

22,337


86,769


108,452

Amounts reclassified from accumulated other comprehensive loss to net income

(2,984
)

35,974




32,990

Amounts reclassified from accumulated other comprehensive loss to fixed assets

(15
)





(15
)
Other comprehensive income/(loss)

(3,653
)

58,311


86,769


141,427

Balance at October 1, 2017

$
(1,714
)

$
(395,510
)

$
(199,729
)

$
(596,953
)
 
 
 
 
 
 
 
 
 
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

Other comprehensive income
 
5,263

 
14,753

 
10,282

 
30,298

Balance at October 2, 2016
 
$
111

 
$
(429,491
)
 
$
(242,855
)
 
$
(672,235
)
 
 
 
 
 
 
 
 
 

"Other comprehensive income/(loss) before reclassifications" during the nine months ended October 1, 2017, includes $5,071 of "Defined Benefit Pension Items" related to the release of a portion of the valuation allowance on deferred tax assets related to the pension plan of a foreign subsidiary.

16

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 reclassified from each component of accumulated other comprehensive loss for the three- and nine-month periods ended October 1, 2017 and October 2, 2016
 
 
Amount Reclassified from Accumulated
Other Comprehensive Loss
 
 
 
 
Three Months Ended
Nine Months Ended
 
 
Details about Accumulated Other Comprehensive
Loss Components
 
October 1,
2017
October 2,
2016
October 1,
2017
 
October 2,
2016
 
Affected Line Item in 
the Condensed Consolidated 
Statements of Income
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
4,814

$
(2,370
)
$
8,097

 
$
(5,217
)
 
Net sales
Foreign exchange contracts
 
(2,766
)
907

(4,808
)
 
2,339

 
Cost of sales
Commodity contracts
 
656

(541
)
1,367

 
(3,346
)
 
Cost of sales
 
 
2,704

(2,004
)
4,656

 
(6,224
)
 
Income before income taxes
 
 
(977
)
630

(1,672
)
 
2,327

 
Provision for income taxes
 
 
$
1,727

$
(1,374
)
$
2,984

 
$
(3,897
)
 
Net income
Defined benefit pension items
 

 
 
 
 
 
 
Effect of settlement loss(a)
 
$
(476
)
$

$
(31,550
)
 
$

 
Selling, general and 
administrative expenses
Amortization of defined benefit pension items(a)
 
(7,155
)
(7,392
)
(21,994
)
 
(21,903
)
 
Cost of sales
Amortization of defined benefit pension items(a)
 
(2,385
)
(2,464
)
(7,331
)
 
(7,301
)
 
Selling, general and 
administrative expenses
 
 
(10,016
)
(9,856
)
(60,875
)
 
(29,204
)
 
Income before income taxes
 
 
3,935

2,227

24,901

 
9,431

 
Provision for income taxes
 
 
$
(6,081
)
$
(7,629
)
$
(35,974
)
 
$
(19,773
)
 
Net income
Total reclassifications for the period
 
$
(4,354
)
$
(9,003
)
$
(32,990
)
 
$
(23,670
)
 
Net income
 
(a)
See Note 10 for additional details.


















17

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

The following table summarizes the before and after tax amounts for the various components of other comprehensive income/(loss) for the three-month periods ended October 1, 2017 and October 2, 2016
 
 
 
Three months ended October 1, 2017
 
Three months ended October 2, 2016
 
 
 
Before Tax Amount
Tax (Expense) Benefit
After Tax Amount
 
Before Tax Amount
Tax (Expense) Benefit
After Tax Amount
Foreign currency items
 
$
26,928

$

$
26,928

 
$
(3,157
)
$

$
(3,157
)
Defined benefit pension items:
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss) before
   reclassifications
 
6,634

(2,414
)
4,220

 
(2,531
)
701

(1,830
)
 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to net income
 
10,016

(3,935
)
6,081

 
9,856

(2,227
)
7,629

 
Net other comprehensive income/(loss) from
   defined benefit pension items
 
16,650

(6,349
)
10,301

 
7,325

(1,526
)
5,799

Gains and losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss) before
   reclassifications
 
2,425

(859
)
1,566

 
(1,024
)
221

(803
)
 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to net income
 
(2,704
)
977

(1,727
)
 
2,004

(630
)
1,374

 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to fixed assets
 
(25
)

(25
)
 
70


70

 
Net other comprehensive income/(loss) from
   cash flow hedges
 
(304
)
118

(186
)
 
1,050

(409
)
641

Other comprehensive income/(loss)
 
$
43,274

$
(6,231
)
$
37,043

 
$
5,218

$
(1,935
)
$
3,283


The following table summarizes the before and after tax amounts for the various components of other comprehensive income/(loss) for the nine-month periods ended October 1, 2017 and October 2, 2016:
 
 
 
Nine months ended October 1, 2017
 
Nine months ended October 2, 2016
 
 
 
Before Tax Amount
Tax (Expense) Benefit
After Tax Amount
 
Before Tax Amount
Tax (Expense) Benefit
After Tax Amount
Foreign currency items
 
$
86,769

$

$
86,769

 
$
10,282

$

$
10,282

Defined benefit pension items:
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss) before
   reclassifications
 
25,655

(3,318
)
22,337

 
(7,926
)
2,906

(5,020
)
 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to net income
 
60,875

(24,901
)
35,974

 
29,204

(9,431
)
19,773

 
Net other comprehensive income/(loss) from
   defined benefit pension items
 
86,530

(28,219
)
58,311

 
21,278

(6,525
)
14,753

Gains and losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
Other comprehensive income/(loss) before
   reclassifications
 
(1,021
)
367

(654
)
 
2,106

(788
)
1,318

 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to net income
 
(4,656
)
1,672

(2,984
)
 
6,224

(2,327
)
3,897

 
Amounts reclassified from accumulated other
   comprehensive income/(loss) to fixed assets
 
(15
)

(15
)
 
48


48

 
Net other comprehensive income/(loss) from
   cash flow hedges
 
(5,692
)
2,039

(3,653
)
 
8,378

(3,115
)
5,263

Other comprehensive income/(loss)
 
$
167,607

$
(26,180
)
$
141,427

 
$
39,938

$
(9,640
)
$
30,298






18

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except 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 1, 2017 is as follows: 
 
 
Consumer
Packaging
 
Display
and
Packaging
 
Paper and
Industrial
Converted
Products
Protective
Solutions
 
Total
Goodwill at December 31, 2016
 
$
435,590

 
$
203,414

 
$
221,983

$
231,228

 
$
1,092,215

Acquisitions
 
121,134

 

 


 
121,134

Foreign currency translation
 
16,533

 

 
10,681

917

 
28,131

Other
 
(715
)
 

 

(326
)
 
(1,041
)
Goodwill at October 1, 2017
 
$
572,542

 
$
203,414

 
$
232,664

$
231,819

 
$
1,240,439


The acquisitions of Packaging Holdings in March 2017 and Clear Lam in July 2017 resulted in the recognition of $72,316 and $48,818 of goodwill, respectively. In addition, measurement period adjustments were made in the first nine months of 2017 to the provisional fair values of the assets acquired and the liabilities assumed in the November 2016 acquisition of PPI and the September 2016 acquisition of Laminar, resulting in reductions in goodwill of $715 for PPI and $326 for Laminar. See Note 3 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 2017. As part of this testing, the Company analyzed certain qualitative and quantitative factors in determining goodwill impairment. The Company's 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. Based on its assessments, the Company concluded that there was no impairment of goodwill for any of its reporting units.
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 $203,414 and $93,277, respectively, at October 1, 2017. A large portion of projected sales in the Display and Packaging reporting unit is concentrated in two customers, the loss of either of which could impact the Company's conclusion regarding the likelihood of goodwill impairment for the unit.















19

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 October 1, 2017 and December 31, 2016 is as follows:         
 
 
October 1,
2017
 
December 31,
2016
Other Intangible Assets, gross:
 
 
 
 
Patents
 
$
21,957

 
$
13,164

Customer lists
 
496,623

 
362,162

Trade names
 
25,127

 
19,902

Proprietary technology
 
20,771

 
20,721

Land use rights
 
294

 
288

Other
 
1,737

 
1,701

Other Intangible Assets, gross
 
$
566,509

 
$
417,938

 
 
 
 
 
Accumulated Amortization:
 
 
 
 
Patents
 
(6,469
)
 
(5,647
)
Customer lists
 
(199,924
)
 
(172,292
)
Trade names
 
(3,881
)
 
(2,733
)
Proprietary technology
 
(12,709
)
 
(11,236
)
Land use rights
 
(46
)
 
(41
)
Other
 
(1,164
)
 
(1,031
)
Total Accumulated Amortization
 
$
(224,193
)
 
$
(192,980
)
Other Intangible Assets, net
 
$
342,316

 
$
224,958

The Packaging Holdings acquisition in March 2017 resulted in the addition of $60,190 of intangible assets, of which $48,400 related to customer lists, $8,790 related to patents, and $3,000 related to trade names. The Clear Lam acquisition in July 2017 resulted in the addition of $77,600 of intangible assets, of which $75,500 related to customer lists and $2,100 related to trade names. In addition, measurement period adjustments were made in the first quarter of 2017 to the provisional fair values of the assets acquired and the liabilities assumed in the November 2016 acquisition of PPI which resulted in the recognition of an additional $1,400 of intangible assets, all of which related to customer lists. These intangible assets will be amortized over an expected average useful life of 13.4 years.
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.
Aggregate amortization expense was $10,117 and $7,767 for the three months ended October 1, 2017 and October 2, 2016, respectively, and $26,706 and $24,334 for the nine months ended October 1, 2017 and October 2, 2016, respectively. Amortization expense on other intangible assets is expected to total approximately $37,500 in 2017, $42,700 in 2018, $41,500 in 2019, $38,900 in 2020 and $37,100 in 2021.

Note 8: Debt
On July 20, 2017, the Company entered into a Credit Agreement in connection with a new $750,000 bank credit facility which replaced an existing credit facility entered into on October 2, 2014, and reflects substantially the same terms and conditions. Included in the new facility are a $500,000 five-year revolving credit facility and a $250,000 five-year term loan. Based on the pricing grid in the Credit Agreement and the Company's current credit ratings, the borrowing has an all-in drawn margin above the London Interbank Offered Rate (LIBOR) of 112.5 basis points. Borrowings under the Credit Agreement are pre-payable at any time at the discretion of the Company and the term loan has annual amortization payments totaling $12,500.
Consistent with prior facilities, the $500,000 revolving credit facility will continue to support the Company's $350,000 commercial paper program. Proceeds from the $250,000 term loan were used to repay the $150,000 term loan entered into on March 13, 2017, and the remaining $100,000 was used to partially fund the Clear Lam acquisition.



20

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

Note 9: 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 1, 2017
 
December 31, 2016
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term debt, net of current portion
 
$
1,300,191

 
$
1,428,716

 
$
1,020,698

 
$
1,116,336

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 1, 2017 and December 31, 2016, 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 2019, 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 1, 2017, natural gas swaps covering approximately 5.8 MMBTUs were outstanding. These contracts represent approximately 89%, 54%, and 35% of anticipated U.S. and Canadian usage for the remainder of 2017, 2018 and 2019, respectively. Additionally, the Company had swap contracts covering 1,210 metric tons of aluminum, representing approximately 63% of anticipated usage for the remainder of 2017. The fair values of the Company’s commodity cash flow hedges netted to a loss position of $(33) at October 1, 2017, and a gain position of $3,636 at December 31, 2016. The amount of the loss included in Accumulated Other Comprehensive Loss at October 1, 2017, that is expected to be reclassified to the income statement during the next twelve months is $(24).
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 2017. The net positions of these contracts at October 1, 2017 were as follows (in thousands): 
Currency
Action
Quantity
Colombian peso
purchase
890,854

Mexican peso
purchase
147,650

Canadian dollar
purchase
13,568

British pound
purchase
7,240

Turkish lira
purchase
3,600

Russian ruble
purchase
1,880

New Zealand dollar
sell
(170
)
Australian dollar
sell
(195
)
Polish zloty
sell
(907
)
Euro
sell
(4,101
)
The fair value of these foreign currency cash flow hedges netted to loss positions of $(2,158) at October 1, 2017 and $(184) at December 31, 2016. In addition, the Company has entered into forward contracts to hedge certain foreign currency cash flow transactions related to construction in progress. As of October 1, 2017, the net position of these contracts was $313 and during the nine months ended October 1, 2017, gains from these hedges totaling $15 were reclassified from accumulated other comprehensive loss and included in the carrying value of the assets acquired. For all

21

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

cash flow hedges, losses of $(2,471) are expected to be reclassified from Accumulated Other Comprehensive Loss to the income statement during the next twelve months.
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 1, 2017, were as follows (in thousands): 
Currency
Action
Quantity
Colombian peso
purchase
3,309,227

Mexican peso
purchase
304,162

Canadian dollar
purchase
18,882

The fair value of the Company’s other derivatives was in a gain position of $124 and a loss position of $(696) at October 1, 2017 and December 31, 2016, respectively.
The following table sets forth the location and fair values of the Company’s derivative instruments at October 1, 2017 and December 31, 2016
Description
 
Balance Sheet Location
 
October 1,
2017
 
December 31,
2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Commodity Contracts
 
Prepaid expenses
 
$
630

 
$
3,240

Commodity Contracts
 
Other assets
 
$
80

 
$
527

Commodity Contracts
 
Accrued expenses and other
 
$
(540
)
 
$
(89
)
Commodity Contracts
 
Other liabilities
 
$
(203
)
 
$
(42
)
Foreign Exchange Contracts
 
Prepaid expenses
 
$
81

 
$
761

       Foreign Exchange Contracts
 
Accrued expenses and other
 
$
(2,552
)
 
$
(946
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign Exchange Contracts
 
Prepaid expenses
 
$
397

 
$
194

Foreign Exchange Contracts
 
Accrued expenses and other
 
$
(273
)
 
$
(890
)
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.

22

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except 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 1, 2017 and October 2, 2016:
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 1, 2017
 
 
 
 
 
 
 
 
Foreign Exchange Contracts
$
3,119

 
Net sales
 
$
4,814

 
Net sales
 
$

 
 
 
 
Cost of sales
 
$
(2,766
)
 
 
 
 
Commodity Contracts
$
(694
)
 
Cost of sales
 
$