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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 2022
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
(Exact name of registrant as specified in its charter)
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South Carolina | | 57-0248420 |
(State or other jurisdiction of incorporation of organization) | | (I.R.S. Employer Identification No.) |
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1 N. Second St., Hartsville, South Carolina | | 29550 |
(address of principal executive offices) | | (Zip Code) |
(843) 383-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
No par value common stock | SON | New York Stock Exchange LLC |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | 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 ☒
The number of shares outstanding of the registrant's no par value common stock as of April 22, 2022 was 97,493,030.
SONOCO PRODUCTS COMPANY
INDEX
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 2. | | |
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Item 6. | | |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars and shares in thousands) | | | | | | | | | | | | | | |
| | April 3, 2022 | | December 31, 2021 |
Assets | | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 151,537 | | | $ | 170,978 | |
Trade accounts receivable, net of allowances | | 1,000,415 | | | 755,609 | |
Other receivables | | 110,731 | | | 95,943 | |
Inventories, net: | | | | |
Finished and in process | | 418,000 | | | 199,823 | |
Materials and supplies | | 450,251 | | | 362,290 | |
Prepaid expenses | | 119,711 | | | 74,034 | |
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| | 2,250,645 | | | 1,658,677 | |
Property, Plant and Equipment, Net | | 1,640,774 | | | 1,297,500 | |
Goodwill | | 1,688,308 | | | 1,324,501 | |
Other Intangible Assets, Net | | 756,967 | | | 278,143 | |
Deferred Income Taxes | | 25,590 | | | 25,818 | |
Right of Use Asset-Operating Leases | | 315,604 | | | 268,390 | |
Other Assets | | 278,100 | | | 220,206 | |
Total Assets | | $ | 6,955,988 | | | $ | 5,073,235 | |
Liabilities and Equity | | | | |
Current Liabilities | | | | |
Payable to suppliers | | $ | 872,340 | | | $ | 721,312 | |
Accrued expenses and other | | 383,597 | | | 381,350 | |
Notes payable and current portion of long-term debt | | 440,698 | | | 411,557 | |
Accrued taxes | | 18,370 | | | 11,544 | |
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| | 1,715,005 | | | 1,525,763 | |
Long-term Debt, Net of Current Portion | | 2,730,146 | | | 1,199,106 | |
Noncurrent Operating Lease Liabilities | | 272,157 | | | 234,167 | |
Pension and Other Postretirement Benefits | | 153,818 | | | 158,265 | |
Deferred Income Taxes | | 124,918 | | | 70,482 | |
Other Liabilities | | 41,013 | | | 35,911 | |
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Sonoco Shareholders’ Equity | | | | |
Common stock, no par value | | | | |
Authorized 300,000 shares 97,492 and 97,370 shares issued and outstanding at April 3, 2022 and December 31, 2021, respectively | | 7,175 | | | 7,175 | |
Capital in excess of stated value | | 120,266 | | | 119,690 | |
Accumulated other comprehensive loss | | (356,869) | | | (359,425) | |
Retained earnings | | 2,141,214 | | | 2,070,005 | |
Total Sonoco Shareholders’ Equity | | 1,911,786 | | | 1,837,445 | |
Noncontrolling Interests | | 7,145 | | | 12,096 | |
Total Equity | | 1,918,931 | | | 1,849,541 | |
Total Liabilities and Equity | | $ | 6,955,988 | | | $ | 5,073,235 | |
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* | 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
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars and shares in thousands except per share data)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Net sales | | $ | 1,770,982 | | | $ | 1,353,304 | | | | | |
Cost of sales | | 1,399,417 | | | 1,075,403 | | | | | |
Gross profit | | 371,565 | | | 277,901 | | | | | |
Selling, general and administrative expenses | | 190,362 | | | 145,230 | | | | | |
Restructuring/Asset impairment charges | | 12,142 | | | 6,846 | | | | | |
Loss on divestiture of business | | — | | | 5,516 | | | | | |
Operating profit | | 169,061 | | | 120,309 | | | | | |
Non-operating pension costs | | 1,324 | | | 7,284 | | | | | |
Interest expense | | 20,581 | | | 18,501 | | | | | |
Interest income | | 1,516 | | | 770 | | | | | |
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Income before income taxes | | 148,672 | | | 95,294 | | | | | |
Provision for income taxes | | 35,289 | | | 24,045 | | | | | |
Income before equity in earnings of affiliates | | 113,383 | | | 71,249 | | | | | |
Equity in earnings of affiliates, net of tax | | 2,224 | | | 1,044 | | | | | |
Net income | | 115,607 | | | 72,293 | | | | | |
Net (income)/loss attributable to noncontrolling interests | | (274) | | | 4 | | | | | |
Net income attributable to Sonoco | | $ | 115,333 | | | $ | 72,297 | | | | | |
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Weighted average common shares outstanding: | | | | | | | | |
Basic | | 97,924 | | | 101,046 | | | | | |
Diluted | | 98,554 | | | 101,492 | | | | | |
Per common share: | | | | | | | | |
Net income attributable to Sonoco: | | | | | | | | |
Basic | | $ | 1.18 | | | $ | 0.72 | | | | | |
Diluted | | $ | 1.17 | | | $ | 0.71 | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (unaudited)
(Dollars in thousands)
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| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Net income | | $ | 115,607 | | | $ | 72,293 | | | | | |
Other comprehensive (loss)/ income: | | | | | | | | |
Foreign currency translation adjustments | | 706 | | | (32,541) | | | | | |
Changes in defined benefit plans, net of tax | | 191 | | | 5,385 | | | | | |
Changes in derivative financial instruments, net of tax | | 2,550 | | | 958 | | | | | |
Other comprehensive income/(loss) | | $ | 3,447 | | | $ | (26,198) | | | | | |
Comprehensive income: | | 119,054 | | | 46,095 | | | | | |
Net (income)/loss attributable to noncontrolling interests | | (274) | | | $ | 4 | | | | | |
Other comprehensive (income)/ loss attributable to noncontrolling interests | | (891) | | | 520 | | | | | |
Comprehensive income attributable to Sonoco | | $ | 117,889 | | | $ | 46,619 | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN TOTAL EQUITY (unaudited)
(Dollars in thousands)
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| Total Equity | | Common Shares | | Capital in Excess of Stated Value | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests |
| Outstanding | Amount | | | | |
December 31, 2020 | $ | 1,910,528 | | | 100,447 | | $ | 7,175 | | | $ | 314,056 | | | $ | (756,842) | | | $ | 2,335,216 | | | $ | 10,923 | |
Net income/(loss) | 72,293 | | | | | | | | | | 72,297 | | | (4) | |
Other comprehensive income/(loss): | | | | | | | | | | | | |
Translation loss | (32,541) | | | | | | | | (32,021) | | | | | (520) | |
Defined benefit plan adjustment, net of tax | 5,385 | | | | | | | | 5,385 | | | | | |
Derivative financial instruments, net of tax | 958 | | | | | | | | 958 | | | | | |
Other comprehensive loss | $ | (26,198) | | | | | | | | $ | (25,678) | | | | | $ | (520) | |
Dividends | (45,510) | | | | | | | | | | (45,510) | | | |
Issuance of stock awards | 364 | | | 245 | | | | 364 | | | | | | | |
Shares repurchased | (5,051) | | | (85) | | | | (5,051) | | | | | | | |
Stock-based compensation | 6,372 | | | | | | 6,372 | | | | | | | |
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April 4, 2021 | $ | 1,912,798 | | | 100,607 | | $ | 7,175 | | | $ | 315,741 | | | $ | (782,520) | | | $ | 2,362,003 | | | $ | 10,399 | |
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| Total Equity | | Common Shares | | Capital in Excess of Stated Value | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Noncontrolling Interests |
| Outstanding | Amount | | | | |
December 31, 2021 | $ | 1,849,541 | | | 97,370 | | $ | 7,175 | | | $ | 119,690 | | | $ | (359,425) | | | $ | 2,070,005 | | | $ | 12,096 | |
Net income | 115,607 | | | | | | | | | | 115,333 | | | 274 | |
Other comprehensive income/(loss): | | | | | | | | | | | | |
Translation income/(loss) | 706 | | | | | | | | (185) | | | | | 891 | |
Defined benefit plan adjustment, net of tax | 191 | | | | | | | | 191 | | | | | |
Derivative financial instruments, net of tax | 2,550 | | | | | | | | 2,550 | | | | | |
Other comprehensive income | $ | 3,447 | | | | | | | | $ | 2,556 | | | | | $ | 891 | |
Dividends | (44,124) | | | | | | | | | | (44,124) | | | |
Purchase of noncontrolling interest | (13,196) | | | | | | (7,080) | | | | | | | (6,116) | |
Issuance of stock awards | 377 | | | 182 | | | | 377 | | | | | | | |
Shares repurchased | (3,410) | | | (60) | | | | (3,410) | | | | | | | |
Stock-based compensation | 10,689 | | | | | | 10,689 | | | | | | | |
April 3, 2022 | $ | 1,918,931 | | | 97,492 | | $ | 7,175 | | | $ | 120,266 | | | $ | (356,869) | | | $ | 2,141,214 | | | $ | 7,145 | |
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See accompanying Notes to Condensed Consolidated Financial Statements
SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands) | | | | | | | | | | | | | | |
| | Three Months Ended |
| | April 3, 2022 | | April 4, 2021 |
Cash Flows from Operating Activities: | | | | |
Net income | | $ | 115,607 | | | $ | 72,293 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Asset impairment | | 5,511 | | | 4,149 | |
Depreciation, depletion and amortization | | 70,602 | | | 61,599 | |
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Share-based compensation expense | | 10,689 | | | 6,372 | |
Equity in earnings of affiliates | | (2,224) | | | (1,044) | |
Cash dividends from affiliated companies | | 350 | | | 350 | |
Net loss/(gain) on disposition of assets | | 190 | | | (1,861) | |
Net loss on divestiture of businesses | | — | | | 5,516 | |
Pension and postretirement plan expense | | 2,232 | | | 14,674 | |
Pension and postretirement plan contributions | | (28,095) | | | (26,338) | |
Net increase/(decrease) in deferred taxes | | 4,613 | | | (6,933) | |
Change in assets and liabilities, net of effects from acquisitions and foreign currency adjustments: | | | | |
Trade accounts receivable | | (129,670) | | | (44,307) | |
Inventories | | (116,169) | | | (36,682) | |
Payable to suppliers | | 60,356 | | | 51,039 | |
Prepaid expenses | | (6,954) | | | (336) | |
Income taxes payable and other income tax items | | 13,786 | | | 20,056 | |
Accrued expenses and other assets and liabilities | | 236 | | | 20,168 | |
Net cash provided by operating activities | | 1,060 | | | 138,715 | |
Cash Flows from Investing Activities: | | | | |
Purchases of property, plant and equipment | | (67,507) | | | (39,549) | |
Cost of acquisitions, net of cash acquired | | (1,348,589) | | | (2,353) | |
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Proceeds from the sale of assets | | 183 | | | 234 | |
Other net investing proceeds | | 145 | | | 2,701 | |
Net cash used in investing activities | | (1,415,768) | | | (38,967) | |
Cash Flows from Financing Activities: | | | | |
Proceeds from issuance of debt | | 1,530,145 | | | 4,934 | |
Principal repayment of debt | | (33,117) | | | (11,350) | |
Net change in commercial paper | | (27,000) | | | — | |
Net decrease in outstanding checks | | (15,759) | | | (13,208) | |
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Cash dividends | | (43,747) | | | (45,142) | |
Purchase of noncontrolling interest | | (14,474) | | | — | |
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Payments for share repurchases | | (3,410) | | | (5,051) | |
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Net cash provided/(used) by financing activities | | 1,392,638 | | | (69,817) | |
Effects of Exchange Rate Changes on Cash | | 2,629 | | | (7,247) | |
Net (Decrease)/Increase in Cash and Cash Equivalents | | (19,441) | | | 22,684 | |
Cash and cash equivalents at beginning of period | | 170,978 | | | 564,848 | |
Cash and cash equivalents at end of period | | $ | 151,537 | | | $ | 587,532 | |
See accompanying Notes to Condensed Consolidated Financial Statements
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 months ended April 3, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021.
With respect to the unaudited condensed consolidated financial information of the Company for the three-month periods ended April 3, 2022 and April 4, 2021 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 May 3, 2022 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 March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments — Credit Losses (Topic 326), Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update also require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases. The Company does not expect this pronouncement to materially affect its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under current accounting standards, contract assets and contract liabilities acquired in a business combination are to be recorded at fair value using the
ASC 805 measurement principle. ASU 2021-08 requires the acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606: Revenue from Contracts with Customers as if the acquirer had originated the contracts rather than at fair value. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt ASU 2021-08 on a prospective basis as of January 1, 2022. The election to use practical expedients allowed under ASU 2021-08 will be applied on an acquisition-by-acquisition basis. There was no impact to the Company’s consolidated financial statements as of the adoption date.
During the three-month period ended April 3, 2022, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at April 3, 2022, there are no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
Note 3: Acquisitions and Divestitures
Acquisitions
On January 26, 2022, the Company completed the acquisition of Ball Metalpack Holding, LLC ("Ball Metalpack"), a leading supplier of sustainable metal packaging for food and household products and the largest aerosol can producer in North America, for $1,348,589, net of cash acquired. Ball Metalpack was a joint venture owned by Platinum Equity (51%) and Ball Corporation (49%). Ball Metalpack was formed in 2018 and consists of eight manufacturing plants in the United States and a headquarters facility in Broomfield, Colorado. This acquisition fits the Company's strategy of investing in its core businesses as it complements the Company's largest Consumer Packaging franchise – global rigid paper containers. In addition, it further expands the Company's sustainable packaging portfolio to include metal packaging. Final consideration is subject to customary post-closing adjustments for working capital, cash and indebtedness. The Company's funding of the acquisition was based on an estimate of cash on hand at closing. The actual cash on hand at January 26, 2022 was $6,924 lower than estimated; accordingly, the Company has recorded a receivable for this amount from the sellers on its Condensed Consolidated Balance Sheet at April 3, 2022. The post-closing adjustments are expected to be finalized during the second quarter of 2022.
The preliminary fair values of the assets acquired and the liabilities assumed in the Ball Metalpack acquisition are as follows:
| | | | | |
Trade accounts receivable | $ | 123,001 | |
Inventories | 190,070 | |
Prepaid expenses | 44,530 | |
Property, plant and equipment | 333,496 | |
Right of use asset - operating leases | 38,000 | |
Other intangible assets | 498,000 | |
Goodwill | 366,098 | |
Payable to suppliers | (105,580) | |
Accrued expenses and other | (25,253) | |
Notes payable and current portion of long-term debt | (46,463) | |
Noncurrent operating lease liabilities | (30,448) | |
Long-term debt | (39,543) | |
Deferred income taxes | (52,312) | |
Other net tangible assets | 48,069 | |
Net assets, excluding cash | $ | 1,341,665 | |
Factors comprising goodwill include increased access to certain markets as well as the value of the assembled workforce. Approximately 78% of goodwill is expected to be deductible for income tax purposes. Ball Metalpack's financial results are included in the Company's Consumer Packaging segment.
The allocation of the purchase price of Ball Metalpack 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 including, but not limited to: inventory; property, plant and equipment; goodwill; other intangible assets; deferred income taxes; and trade accounts receivable, and expects to complete its valuations within one year of the date of acquisition.
The Company has accounted for this acquisition as a business combination under the acquisition method and has included the results of operations of the acquired business in the Company's Condensed Consolidated Statements of Income from the date of acquisition. These results include a $25,000 charge related to the amortization of the fair value step-up of finished goods inventory acquired and sold through to customers from the date of acquisition through April 3, 2022. The following table presents the unaudited financial results for Ball Metalpack from the date of acquisition through the end of the three month period ended April 3, 2022:
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
| | | | | |
| |
Supplemental Information (unaudited) | January 26 to |
Ball Metalpack | April 3, 2022 |
Actual net sales | $ | 171,228 | |
Actual net income | $ | 14,019 | |
The following table presents the Company’s estimated unaudited pro forma consolidated results for the three month periods ended April 3, 2022 and April 4, 2021, assuming the acquisition of Ball Metalpack had occurred on January 1, 2021. This unaudited pro forma information is presented for informational purposes only and does not purport to represent the results of operations that would have been achieved if the acquisition had been completed at the beginning of 2021, nor is it necessarily indicative of future consolidated results.
| | | | | | | | | | | | | |
Pro Forma Supplemental Information (unaudited) | | | Three Months Ended |
Consolidated | | | | April 3, 2022 | April 4, 2021 |
Net sales | | | | $ | 1,820,570 | | $ | 1,549,616 | |
Net income attributable to Sonoco | | | | $ | 164,881 | | $ | 20,813 | |
The unaudited pro forma information above does not project the Company’s expected results for any future period and gives no effect to any future synergistic benefits that may result from the combination or the costs of integrating the acquired operations with those of the Company. Unaudited pro forma information for the three-month periods ended April 3, 2022 and April 4, 2021 includes adjustments to depreciation, amortization, and income taxes based upon the fair value allocation of the purchase price to Ball Metalpack's tangible and intangible assets acquired and liabilities assumed as though the acquisition had occurred on January 1, 2021. Interest expense on the additional debt issued by the Company to fund the acquisition and retention bonuses incurred related to the acquisition are also included in the unaudited pro forma information as if the acquisition had occurred on January 1, 2021. Acquisition-related costs of $22,284 and a charge related to fair value adjustments to acquisition-date inventory of $25,000 were recognized during the three months ended April 3, 2022. These costs are excluded from 2022 unaudited pro forma net income and are instead reflected in 2021 pro forma net income as though they were incurred on January 1, 2021.
Divestitures
As previously disclosed, the Company completed the sale of its U.S. display and packaging business, part of the All Other group of businesses, to Hood Container Corporation on April 4, 2021 for $80,000 in cash. This business provided design, manufacturing and fulfillment of point-of-purchase displays, as well as contract packaging services, for consumer product customers and had approximately 450 employees. Its operations included eight manufacturing and fulfillment facilities and four sales and design centers.
The selling price was adjusted at closing for certain transaction expenses and for anticipated differences between targeted levels of working capital and the projected levels at the time of closing. Net cash proceeds of $79,704 were received on April 5, 2021 and the Company recognized a loss on the divestiture of this business of $5,516, before tax, in the first quarter of 2021. During the quarter ended October 3, 2021, the Company finalized the working capital settlement related to this sale. The settlement resulted in additional cash proceeds of $1,971 and the buyer's assumption of certain liabilities totaling $786. As a result, the Company recognized a reduction in the previously reported loss on the sale of this business of $2,757, before tax, in the third quarter of 2021, bringing the total loss on the sale of business to $2,759, before tax.
The Company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the divestiture of plants and/or business units it considers to be suboptimal or nonstrategic.
Acquisition and Divestiture-Related Costs
Acquisition-related costs totaled $48,352 during the three months ended April 3, 2022 primarily related to the Ball Metalpack acquisition. These charges included the partial amortization of the fair value step-up of finished goods inventory of $25,000, included in "Cost of sales" in the Company's Condensed Consolidated Statements of Income, and other acquisition-related charges of $23,352. These other charges consisted primarily of investment banking fees, representation and warranty insurance premiums, legal and professional fees, and other transaction costs and are included in "Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
Acquisition and divestiture-related costs totaled $10,025 during the three months ended April 4, 2021. These costs, consisting primarily of legal and professional fees, 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: | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Numerator: | | | | | | | | |
Net income attributable to Sonoco | | $ | 115,333 | | | $ | 72,297 | | | | | |
Denominator: | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 97,924 | | | 101,046 | | | | | |
Dilutive effect of stock-based compensation | | 630 | | | 446 | | | | | |
Diluted | | 98,554 | | | 101,492 | | | | | |
Net income attributable to Sonoco per common share: | | | | | | | | |
Basic | | $ | 1.18 | | | $ | 0.72 | | | | | |
Diluted | | $ | 1.17 | | | $ | 0.71 | | | | | |
Cash dividends | | $ | 0.45 | | | $ | 0.45 | | | | | |
No adjustments were made to "Net income attributable to Sonoco" in the computations of net income attributable to Sonoco per common share.
Anti-dilutive Securities
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 SARs may become dilutive in the future if the market price of the Company's common stock appreciates. The average numbers of SARs that were anti-dilutive and, therefore, not included in the computation of diluted earnings per share during the three month periods ended April 3, 2022 and April 4, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Anti-dilutive stock appreciation rights | | 401 | | | 427 | | | | | |
Stock Repurchases
On April 20, 2021, the Company's Board of Directors (the "Board") authorized the repurchase of the Company's common stock in an aggregate amount of up to $350,000. Following several repurchase transactions in 2021, a total of $137,972 remained available for share repurchases under this authorization as of December 31, 2021. No shares were purchased under this authorization during the three months ended April 3, 2022.
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 60 shares during the three months ended April 3, 2022, at a cost of $3,410, and 85 shares during the three months ended April 4, 2021, at a cost of $5,051.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
Dividend Declarations
On February 9, 2022, the Board of Directors declared a regular quarterly dividend of $0.45 per share. This dividend was paid on March 10, 2022 to all shareholders of record as of February 23, 2022.
On April 20, 2022, the Board of Directors declared a regular quarterly dividend of $0.49 per share. This dividend is payable on June 10, 2022 to all shareholders of record as of May 10, 2022.
Noncontrolling interests
In April 2015, the Company acquired a 67% controlling interest in Graffo Paranaense de Embalagens S/A (“Graffo”). Prior to March 31, 2022, the Company consolidated 100% of Graffo, with the partner's 33% share included in “Noncontrolling Interests” within the equity section of the balance sheet. On March 31, 2022, the Company paid $14,474 in cash to acquire the remaining 33% ownership interest from the three noncontrolling partners, which resulted in a $6,116 reduction in noncontrolling interest, a $7,080 charge to capital in excess of stated value, and a $1,278 reduction to accrued expenses and other on the Company's Condensed Consolidated Balance Sheet as of April 3, 2022.
Note 5: Restructuring and Asset Impairment
Due to its geographic footprint and the cost-competitive nature of its businesses, the Company is continually seeking the most cost-effective means and structure to serve its customers and to respond to fundamental changes in its markets. As such, restructuring costs have been, and are expected to be, a recurring component of the Company's operating costs. The amount of these costs can vary significantly from quarter to quarter and from year to year depending upon the scope and location of the restructuring activities.
Following are the total restructuring and asset impairment charges, net of adjustments, recognized during the periods presented: | | | | | | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Restructuring and restructuring-related asset impairment charges | | $ | 5,753 | | | $ | 2,697 | | | | | |
Other asset impairments | | 6,389 | | | 4,149 | | | | | |
Restructuring/Asset Impairment Charges | | $ | 12,142 | | | $ | 6,846 | | | | | |
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
The table below sets forth restructuring and restructuring-related asset impairment charges by type incurred:
| | | | | | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Severance and Termination Benefits | | $ | 2,099 | | | $ | 1,428 | | | | | |
Asset Impairments/(Gains from Disposal of Assets) | | 445 | | | (864) | | | | | |
Other Costs | | 3,209 | | | 2,133 | | | | | |
Restructuring and restructuring-related asset impairment charges | | $ | 5,753 | | | $ | 2,697 | | | | | |
The table below sets forth restructuring and restructuring-related asset impairment charges by reportable segment: | | | | | | | | | | | | | | | | | | |
| | | | |
| | Three Months Ended | | |
| | April 3, 2022 | | April 4, 2021 | | | | |
Consumer Packaging | | $ | 1,635 | | | $ | 1,085 | | | | | |
Industrial Paper Packaging | | 1,348 | | | 1,433 | | | | | |
All Other | | 78 | | | 165 | | | | | |
Corporate | | 2,692 | | | 14 | | | | | |
Restructuring and restructuring-related asset impairment charges | | $ | 5,753 | | | $ | 2,697 | | | | | |
Restructuring and restructuring-related asset impairment charges are included in “Restructuring/Asset impairment charges” in the Company's Condensed Consolidated Statements of Income.
The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Severance and Termination Benefits | | Asset Impairment/ Disposal of Assets | | Other Costs | | Total |
Accrual Activity | | | | |
Liability at December 31, 2021 | | $ | 10,917 | | | $ | — | | | $ | 1,873 | | | $ | 12,790 | |
2022 charges | | 2,099 | | | 445 | | | 3,209 | | | 5,753 | |
| | | | | | | | |
Cash (payments)/receipts | | (4,932) | | | 33 | | | (4,570) | | | (9,469) | |
Asset write downs/disposals | | — | | | (478) | | | — | | | (478) | |
Foreign currency translation | | 5 | | | — | | | (38) | | | (33) | |
Liability at April 3, 2022 | | $ | 8,089 | | | $ | — | | | $ | 474 | | | $ | 8,563 | |
"Severance and Termination Benefits" during the first three months of 2022 includes the cost of severance for approximately 125 employees whose positions were eliminated in conjunction with the Company's ongoing organizational effectiveness efforts.
"Asset Impairment/Disposal of Assets" during the first three months of 2022 consists primarily of asset impairments in the Industrial Paper Packaging segment.
“Other Costs” during the first three months of 2022 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 restructuring reserves by the end of 2022 using cash generated from operations. The Company also expects to recognize future additional charges totaling approximately $2,100 in connection with previously announced restructuring actions and believes that the majority of these charges will be incurred and paid by the end of 2022. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)
Other Asset Impairments
The Company recognized other asset impairment charges totaling $6,389 and $4,149 in the three months ended April 3, 2022 and April 4, 2021, respectively.
The charges in the three months ended April 3, 2022 include $5,713 of impairment charges related to the Company's decision to exit its operations in Russia, part of the Industrial Paper Packaging segment, as a result of the ongoing Russia-Ukraine conflict, and $676 of fixed asset impairments in the Company's plastics foods operations, part of the Consumer Packaging segment.
Other asset impairment charges in the first quarter of 2021 consisted of fixed asset impairments totaling $1,750 in the Company's plastics foods operations, part of the Consumer Packaging segment, and $2,399 in the temperature-assured packaging business, part of the All Other group of businesses.
These assets were determined to be impaired as the value of their projected undiscounted cash flows was no longer sufficient to recover their carrying value. These impairment charges are included in “Restructuring/Asset impairment charges” in the Company’s Condensed Consolidated Statements of Income.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 three months ended April 3, 2022 and April 4, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Items | | Defined Benefit Pension Items | | Cash Flow Hedges | | Accumulated Other Comprehensive Loss |
| | | | | | | | |
Balance at December 31, 2021 | | $ | (269,076) | | | $ | (91,397) | | | $ | 1,048 | | | $ | (359,425) | |
Other comprehensive (loss)/income before reclassifications | | (185) | | | $ | (971) | | | $ | 5,119 | | | $ | 3,963 | |
Amounts reclassified from accumulated other comprehensive loss to net income | | — | | | 1,162 | | | (2,654) | | | (1,492) | |
Amounts reclassified from accumulated other comprehensive loss to fixed assets | | — | | | — | | | 85 | | | 85 | |
Other comprehensive (loss)/income | | (185) | | | 191 | | | 2,550 | | | 2,556 | |
| | | | | | | | |
Balance at April 3, 2022 | | $ | (269,261) | | | $ | (91,206) | | | $ | 3,598 | | | $ | (356,869) | |
| | | | | | | | |
Balance at December 31, 2020 | | $ | (194,024) | | | $ | (562,747) | | | $ | (71) | | | $ | (756,842) | |
Other comprehensive loss before reclassifications | | (32,021) | | | 115 | | | 998 | | | (30,908) | |
Amounts reclassified from accumulated other comprehensive loss to net income | | — | | | 5,270 | | | (30) | | | 5,240 | |
Amounts reclassified from accumulated other comprehensive loss to fixed assets | | — | | | — | | | (10) | | | (10) | |
Other comprehensive (loss)/income | | (32,021) | | | 5,385 | | | 958 | | | (25,678) | |
| | | | | | | | |
Balance at April 4, 2021 | | $ | (226,045) | | | $ | (557,362) | | | $ | 887 | | | $ | (782,520) | |
| | | | | | | | |
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 month periods ended April 3, 2022 and April 4, 2021: | | | | | | | | | | | | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Loss | | |
| | Three Months Ended | | | |
Details about Accumulated Other Comprehensive Loss Components | | April 3, 2022 | April 4, 2021 | | | | Affected Line Item in the Condensed Consolidated Statements of Income |
Gains/(losses) on cash flow hedges | | | | | |
Foreign exchange contracts | | $ | 566 | | $ | 340 | | | | | Net sales |
Foreign exchange contracts | | (695) | | (228) | | | | | Cost of sales |
Commodity contracts | | 3,850 | | (71) | | | | | Cost of sales |
| | $ | 3,721 | | $ | 41 | | | | | Income before income taxes |
| | (1,067) | | (11) | | | | | Provision for income taxes |
| | $ | 2,654 | | $ | 30 | | | | | Net income |
Defined benefit pension items | | | | | | | |
| | | | | | | |
Effect of settlement loss(a) | | (356) | | — | | | | | Non-operating pension costs |
Amortization of defined benefit pension items(a) | | (1,171) | | (6,901) | | | | | Non-operating pension costs |
| | $ | (1,527) | | $ | (6,901) | | | | | Income before income taxes |
| | 365 | | 1,631 | | | | | Provision for income taxes |
| | $ | (1,162) | | $ | (5,270) | | | | | Net income |
Total reclassifications for the period | | $ | 1,492 | | $ | (5,240) | | | | | Net income |
(a) See Note 11 for additional details.
SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 April 3, 2022 and April 4, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended April 3, 2022 | | Three months ended April 4, 2021 |
| | | Before Tax Amount | Tax (Expense) Benefit | After Tax Amount | | Before Tax Amount | Tax (Expense) Benefit | After Tax Amount |
Foreign currency items: | | | | | | | | |
| Net other comprehensive loss from foreign currency items | | $ | (185) | | $ | — | | $ | (185) | | | $ | (32,021) | | $ | — | | $ | (32,021) | |
|