Acquisitions and Divestitures

3 Months Ended

Apr. 03, 2022

Business Combination and Asset Acquisition [Abstract]

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:



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.

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.