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Acquisitions and Divestitures | 9 Months Ended
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Oct. 01, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures Acquisitions On September 8, 2023, the Company completed the acquisition of the remaining 65% interest in RTS Packaging from joint venture partner WestRock and the acquisition of a paper mill in Chattanooga, Tennessee (“Chattanooga Mill”) from WestRock for net cash consideration of $313,362, subject to customary working capital adjustments. Prior to completing the acquisitions, the Company held a 35% ownership interest in the RTS Packaging joint venture which was formed in 1997 and combined the former protective packaging operations of WestRock and Sonoco to market recycled paperboard to glass container manufacturers and producers of wine, liquor, food, and pharmaceuticals. With the acquisitions of RTS Packaging and the Chattanooga Mill, the Company added approximately 1,100 employees and 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. The Company funded the acquisitions with borrowings under a new term loan credit facility (See Note 9 for more information) and cash on hand. The financial results of RTS Packaging and the Chattanooga Mill are included in the Company’s Industrial Paper Packaging segment. On September 8, 2023, the fair value of the Company’s 35% interest in RTS Packaging was determined to be $59,472 based on the cash consideration exchanged for acquiring the remaining 65% equity interest in RTS Packaging adjusted for the deemed payment of a control premium, and the carrying value of the 35% interest was $8,654. The Company recognized a net gain of $44,029 resulting from this remeasurement to fair value and the reclassification of certain amounts related to the Company’s 35% interest out of “Accumulated other comprehensive loss,” including foreign currency translation losses of $2,033 and losses related to defined benefit pension plans of $4,756. The net gain from such remeasurement and reclassification was recorded in “Other income, net” in the Company’s Condensed Consolidated Statements of Income for the period ended October 1, 2023. The Company also recognized a loss of $7,086 on the settlement of a contract associated with the Chattanooga Mill. The contract was determined to have unfavorable terms given market conditions at the time of the acquisition. This loss is reflected in “Other income, net” in the Company’s Condensed Consolidated Statements of Income for the period ended October 1, 2023. This loss, along with the settlement of a note receivable from RTS Packaging held by the Company on the acquisition date, are reflected as components of purchase consideration transferred in connection with these acquisitions. The following table provides a summary of the purchase consideration (as defined under Accounting Standards Codification (“ASC”) 805) transferred for the acquisitions of RTS Packaging and the Chattanooga Mill:
| Purchase Consideration
Cash consideration, net of cash acquired | $ | 313,362 |
Fair value of previously held interest in RTS Packaging | 59,472 |
Settlement of preexisting relationships | (1,479) |
Purchase consideration transferred | $ | 371,355 |
The provisional fair values of the assets acquired and liabilities assumed in connection with the acquisitions of RTS Packaging and the Chattanooga Mill in total are as follows:
|  |  | Initial Allocation
Trade accounts receivable |  |  | $ | 17,488 |
Inventories |  |  | 20,209 |
Prepaid expenses |  |  | 2,720 |
Property, plant and equipment |  |  | 73,483 |
Right of use asset - operating leases |  |  | 34,604 |
Other intangible assets |  |  | 199,560 |
Goodwill |  |  | 92,657 |
Other net tangible assets |  |  | 2,465 |
Payable to suppliers |  |  | (7,320) |
Accrued expenses and other |  |  | (15,167) |
Notes payable and current portion of long-term debt |  |  | (24) |
Noncurrent operating lease liabilities |  |  | (29,905) |
Long-term debt |  |  | (1,942) |
Deferred income taxes |  |  | (3,419) |
Other long-term liabilities |  |  | (14,054) |
Net assets acquired |  |  | $ | 371,355 |
The initial allocation of the purchase price of RTS Packaging and the Chattanooga Mill to the tangible and intangible assets acquired and liabilities assumed, as reflected in the table above, is based on the Company’s preliminary allocations of their fair values, 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. Goodwill for RTS Packaging and the Chattanooga Mill, of which $81,435 is expected to be deductible for income tax purposes, consists of increased manufacturing capacity, access to certain markets, and the capability to support marquee customers in growing markets. The Company has accounted for these acquisitions as a business combination under the acquisition method and has included the results of operations of the acquired businesses in the Company’s Condensed Consolidated Statements of Income from the date of acquisition. The Company does not believe that these acquisitions were material to the periods presented and are therefore not subject to the ASC 805 requirement to provide supplemental pro-forma financial information. Accordingly, this information is not presented herein. 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 |  |  | 2,932 |  |  | 31,991 |
Payable to suppliers | (3,466) |  |  | (963) |  |  | (4,429) |
Accrued expenses and other | (1,173) |  |  | — |  |  | (1,173) |
Taxes payable | (576) |  |  | (3,416) |  |  | (3,992) |
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. Management completed its final valuation of the acquired assets in the third quarter of 2023, and total consideration for the two businesses was $6,419. Tangible assets totaled $1,374, intangible assets totaled $3,031, and Goodwill totaled $2,014. The Company paid $3,933 at closing and recorded a deferred payment obligation totaling $2,486, which is expected to be paid by the end of 2028, in “Other liabilities” on the Company’s Condensed Consolidated Balance Sheets. 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 during the nine-month period ended October 1, 2023:
Measurement Period Adjustments | Nine Months Ended October 1, 2023
Inventories | $ | (73) |
Property, plant and equipment | (247) |
Goodwill | 439 |
Accrued expenses and other | (119) |
Additional cash consideration | $ | — |
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. Metal Packaging’s financial results are included in the Company’s Consumer Packaging segment. 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 ended October 2, 2022:
Supplemental Information (unaudited) | Three Months Ended | January 26 to
Metal Packaging | October 2, 2022 | October 2, 2022
Net sales | $ | 335,468 |  | $ | 798,018 |
Net income | $ | 16,769 |  | $ | 61,216 |
The following table presents the Company’s estimated unaudited pro forma consolidated results for the three- and nine-month periods ended October 2, 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 |  | Nine Months Ended |
Consolidated |  | October 2, 2022 |  | October 2, 2022 |
Net sales |  | $ | 1,890,216 |  |  | $ | 5,624,118 |  |
Net income attributable to Sonoco |  | $ | 123,047 |  |  | $ | 428,287 |  |
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 nine-month periods ended October 2, 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 $310 and $1,463 were recognized during the three- and nine-month periods ended October 1, 2023, respectively. Metal Packaging acquisition-related costs of $793 and $27,195 were recognized during the three- and nine-month periods ended October 2, 2022, respectively, and charges related to fair value adjustments to acquisition-date inventory of $33,155 were recognized during the nine-month period ended October 2, 2022. 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 business, which consisted of the manufacturing and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners and was a part of the Company’s Industrial Paper Packaging segment, to U.S. BulkSak Holdings, LLC. The cash selling price, as adjusted for working capital, was $20,271 with cash proceeds totaling $16,808 received on July 3, 2023 and the remaining $3,463 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. In September 2023, the Company agreed to a working capital adjustment with the buyers that reduced the amount to be released from escrow by $537 with a corresponding reduction in the previously recognized gain. This reduction is reflected in “(Loss)/Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. As a result of the U.S. BulkSak divestiture, the Company wrote off net assets totaling $13,437, including $3,333 of allocated goodwill, and recognized a pretax gain of $6,834 during the nine-month period ended October 1, 2023, which is included in “(Loss)/Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. The escrow balance is reflected as a receivable on the Company’s Condensed Consolidated Balance Sheets as of October 1, 2023 with the current portion of $1,463 in “Other receivables” and the non-current portion of $2,000 in “Other assets.” 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 is expected to close at a later date upon the satisfactory completion of certain buyer and seller commitments. Although the transaction has not yet closed, the Company received cash proceeds of $500 on July 3, 2023 and has deferred recognition of the resulting gain pending the completion of the transaction. 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 October 1, 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 nine-month period ended October 1, 2023, which is included in “(Loss)/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 U.S. 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 sales were used for general corporate purposes. 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 nine-month period ended October 1, 2023, which is included in “(Loss)/Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. Acquisition, Integration, and Divestiture-Related Costs Acquisition, integration, and divestiture-related costs totaled $12,472 and $22,192 during the three- and nine-month periods ended October 1, 2023, respectively. These costs included $7,525 and $17,245 during the three- and nine-month periods ended October 1, 2023, respectively, for legal and professional fees, investment banking fees, and other transaction costs that are included in “Selling, general and administrative expenses,” and $4,947 of amortization of the fair value step-up of inventory, which is included in “Cost of sales” in the Company’s Condensed Consolidated Statements of Income. Acquisition and divestiture-related costs totaled $2,022 and $62,655 during the three- and nine-month periods ended October 2, 2022, respectively, primarily related to the Metal Packaging acquisition. The costs for the nine-month period ended October 2, 2022, included the partial amortization of the fair value step-up of finished goods inventory of $33,155, included in “Cost of sales” in the Company’s Condensed Consolidated Statements of Income, and other acquisition-related charges of $2,022 and $29,500, 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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