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Acquisitions and Divestitures | 6 Months Ended
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Jul. 02, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures Acquisitions As previously disclosed, on November 9, 2022, the Company entered into a definitive agreement to purchase the remaining equity interest in RTS Packaging, LLC (“RTS”), from joint venture partner WestRock Company (“WestRock”) and one WestRock paper mill in Chattanooga, Tennessee, for $330,000 in cash, subject to customary pricing adjustments. In January 2023, both the Company and WestRock received a request for additional information and documentary material from the Antitrust Division of the U.S. Department of Justice. The Company anticipates completing the transaction in the second half of 2023, subject to the satisfaction or waiver of the closing conditions contained in the purchase agreement, including the expiration or early termination of waiting periods or extensions thereof under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Upon completion of the transaction, the Company will own 100% of RTS, which is currently operated as a joint venture between Sonoco (35% ownership interest) and WestRock (65% ownership interest). The RTS joint venture was formed in 1997 and combined the former protective packaging operations of WestRock and the Company to market solid fiber partitions from recycled paperboard to glass container manufacturers and producers of wine, liquor, food, and pharmaceuticals. The transaction will give the Company full ownership of fourteen converting operations, including ten in the United States, two in Mexico, and two in South America and one paper mill in the United States. Upon completion of the transaction, approximately 1,100 individuals will become employees of the Company. The Company expects to fund the acquisition with new borrowings from lenders and cash on hand. On November 15, 2022, the Company completed the acquisition of S.P. Holding, Skjern A/S (“Skjern”), a privately owned manufacturer of paper based in Skjern, Denmark for $88,647, net of cash acquired. Skjern produces high-grade paperboard from recycled paper for rigid paper containers, tubes and cores, and other applications. Goodwill for Skjern, none of which is expected to be deductible for income tax purposes, consists of increased access to certain markets and existing customer relationships. Skjern’s financial results are included in the Company’s Industrial Paper Packaging segment. The Company’s initial fair value estimates of the assets acquired and the liabilities assumed in the Skjern acquisition, as well as updated preliminary fair value allocations reflecting adjustments made during the measurement period to date, are as follows:
| Initial Estimate |  | Measurement Period Adjustments |  | Preliminary Allocation
Trade accounts receivable | $ | 8,055 |  |  | $ | — |  |  | $ | 8,055 |
Other receivables | 193 |  |  | — |  |  | 193 |
Inventories | 2,595 |  |  | 14 |  |  | 2,609 |
Prepaid expenses | 349 |  |  | — |  |  | 349 |
Property, plant and equipment | 24,334 |  |  | 4,921 |  |  | 29,255 |
Right of use asset - operating leases | 28 |  |  | — |  |  | 28 |
Other intangible assets | 42,818 |  |  | (3,488) |  |  | 39,330 |
Goodwill | 29,059 |  |  | (1,447) |  |  | 27,612 |
Payable to suppliers | (3,466) |  |  | — |  |  | (3,466) |
Accrued expenses and other | (1,173) |  |  | — |  |  | (1,173) |
Taxes payable | (576) |  |  | — |  |  | (576) |
Noncurrent operating lease liabilities | (20) |  |  | — |  |  | (20) |
Deferred income taxes | (13,549) |  |  | — |  |  | (13,549) |
Total purchase price, net of cash acquired | $ | 88,647 |  |  | $ | — |  |  | $ | 88,647 |
The allocation of the purchase price of Skjern to the tangible and intangible assets acquired and liabilities assumed, as reflected under the heading “Preliminary Allocation” in the table above, is based on the Company’s preliminary allocations 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; and deferred income taxes, 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. On August 31, 2022, the Company completed the acquisition of Nordeste Tubetes and NE Tubetes (collectively “Nordeste”), two small tube and core operations in Brazil. Total consideration for the two businesses was $6,518, including cash paid at closing of $3,933, and deferred payments totaling $2,585. As of July 2, 2023, the remaining deferred payment obligation of $1,451 was recognized in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheet and is expected to be paid by the year ended December 31, 2028. Goodwill for Nordeste, all of which is expected to be deductible for income tax purposes, consists of increased access to certain markets and existing customer relationships. 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. On January 26, 2022, the Company completed the acquisition of Ball Metalpack Holding, LLC, renamed Sonoco Metal Packaging (“Metal Packaging”), 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. Prior to the Company’s acquisition of Metal Packaging, Ball Metalpack Holding, LLC was a joint venture formed in 2018 and owned by Platinum Equity (51%) and Ball Corporation (49%). Metal Packaging consists of eight manufacturing plants in the United States and a headquarters facility in Broomfield, Colorado. During the three-month period ended April 2, 2023, the Company finalized its valuations of the assets and liabilities assumed in the acquisition of Metal Packaging. As a result, the following measurement period adjustments were made to the previously disclosed provisional fair values of assets acquired and liabilities assumed:
Measurement Period Adjustments | Six Months Ended July 2, 2023
Inventories | $ | (73) |
Property, plant and equipment | (247) |
Goodwill | 439 |
Accrued expenses and other | (119) |
Additional cash consideration | $ | — |
Factors comprising goodwill include increased access to certain markets as well as the value of the assembled workforce. Approximately 81% of the goodwill is expected to be deductible for income tax purposes. Metal Packaging’s financial results are included in the Company’s Consumer Packaging segment. 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. The following table presents the unaudited financial results for Metal Packaging from the prior year date of acquisition through the end of the reporting period ending July 3, 2022:
Supplemental Information (unaudited) | Three Months Ended | January 26 to
Metal Packaging | July 3, 2022 | July 3, 2022
Net sales | $ | 291,332 |  | $ | 462,550 |
Net income | $ | 30,428 |  | $ | 44,447 |
The following table presents the Company’s estimated unaudited pro forma consolidated results for the three- and six-month periods ended July 3, 2022, assuming the acquisition of Metal Packaging 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 |  | Six Months Ended |
Consolidated |  | July 3, 2022 |  | July 3, 2022 |
Net sales |  | $ | 1,913,322 |  |  | $ | 3,733,902 |  |
Net income attributable to Sonoco |  | $ | 140,360 |  |  | $ | 305,240 |  |
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- and six-month periods ended July 3, 2022 includes adjustments to depreciation, amortization, and income taxes based upon the final fair value allocation of the purchase price to Metal Packaging’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. Metal Packaging acquisition-related costs of $53 and $1,153 were recognized during the three- and six-month periods ended July 2, 2023, respectively. Metal Packaging acquisition-related costs of $4,117 and $26,402 were recognized during the three- and six-month periods ended July 3, 2022, respectively, and charges related to fair value adjustments to acquisition-date inventory of $8,155 and $33,155 were recognized during the three- and six-month periods ended July 3, 2022, respectively. These costs are excluded from 2022 unaudited pro forma net income as though the acquisition had occurred on January 1, 2021. Divestiture of Businesses On July 1, 2023, the Company completed the sale of its U.S. BulkSak businesses, consisting of the manufacturing and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners, to U.S. BulkSak Holdings, LLC for a total cash selling price of $20,808. Cash proceeds totaling $16,808 were received on July 3, 2023, after the end of the reporting period, with the remainder held in escrow. As the proceeds were not received as of the end of the accounting period, they are reflected as receivables on the Company’s Condensed Consolidated Balance Sheet as of July 2, 2023 with the current portion of $18,808 in “Other receivables” and the non-current portion of $2,000 in “Other assets.” Cash proceeds of $4,000 will be held in escrow to be released to the Company within 18 months from the date of the sale, pursuant to working capital adjustments and the settlement of any indemnity claims. As a result of this divestiture, the Company wrote off net assets totaling $13,437, including $3,333 of allocated goodwill, and recognized an initial pretax gain of $7,371 during the six-month period ended July 2, 2023, which is included in “Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. Also on July 1, 2023, the Company agreed to the sale of its Mexico BulkSak business for a total cash selling price of $1,500. The sale of Mexico BulkSak will close at a later date upon the satisfactory completion of certain buyer and seller commitments. On January 26, 2023, the Company completed the sale of its Sonoco Sustainability Solutions (“S3”) business, a provider of customized waste and recycling management programs and part of the Company’s Industrial Paper Packaging segment, to Northstar Recycling Co. (“Northstar”), for total cash proceeds of $13,839. An additional $1,500 of proceeds are being held in escrow and will be released to the Company, pursuant to any indemnification claims, 20 months following the date of the divestiture. These escrow proceeds are included in “Other assets” in the Company’s Condensed Consolidated Balance Sheets as of July 2, 2023. The Company wrote off net assets totaling $4,274 as part of the divestiture of the business, including $3,042 of allocated goodwill, and recognized a pretax gain of $11,065 during the six-month period ended July 2, 2023, which is included in “Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. The Company is also entitled to receive additional proceeds of $3,200 in the second quarter of 2024 if certain conditions are met. This contingent consideration will be recognized as additional gain on the sale at the point the contingencies are resolved. In addition, the Company purchased a 2.7% equity interest in Northstar for $5,000. This investment is being accounted for under the measurement alternative (i.e., cost less impairment, adjusted for any qualifying observable price changes). The sales of the S3 and BulkSak businesses did not represent a strategic shift for the Company or have a major effect on its operations or financial results. Consequently, these sales did not meet the criteria for reporting as discontinued operations. The cash proceeds from the S3 sale were used for general corporate purposes, as will the proceeds from the BulkSak sale. 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. Sale of Assets With the completion of Project Horizon, the Company’s project to convert the corrugated medium machine in Hartsville, South Carolina, to produce uncoated recycled paperboard, the Company now produces paper exclusively from recycled fibers and no longer requires natural tree fiber for production. Accordingly, on March 29, 2023, the Company sold its timberland properties, approximately 55,000 acres, to Manulife Investment Management for net cash proceeds of $70,802. The Company disposed of assets with a net book value of $9,857 as part of the sale, and recognized a pretax gain from the sale of these assets of $60,945 during the three months ended April 2, 2023, which is included in “Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. Acquisition and Divestiture-Related Costs Acquisition- and divestiture-related costs totaled $4,532 and $9,720 during the three- and six-month periods ended July 2, 2023, respectively. These costs include legal and professional fees, investment banking fees, and other transaction costs that are included in “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. Acquisition-related costs totaled $12,281 and $60,633 during the three- and six-month periods ended July 3, 2022, respectively. These charges, which primarily related to the acquisition of Metal Packaging, included the partial amortization of the fair value step-up of finished goods inventory of $8,155 and $33,155, respectively, included in “Cost of sales” in the Company’s Condensed Consolidated Statements of Income, and other acquisition-related charges of $4,126 and $27,478, respectively. 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.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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