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SONOCO PRODUCTS CO - Quarter Report: 2019 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
No par value common stockSONNew 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 during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes      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 filerAccelerated 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  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock at July 19, 2019:
Common stock, no par value: 100,076,838




SONOCO PRODUCTS COMPANY
INDEX
 
Item 1.
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) 
June 30,
2019
December 31,
2018*
Assets
Current Assets
Cash and cash equivalents$96,295 $120,389 
Trade accounts receivable, net of allowances784,907 737,420 
Other receivables100,384 111,915 
Inventories, net:
Finished and in process178,795 174,115 
Materials and supplies333,454 319,649 
Prepaid expenses85,185 55,784 
1,579,020 1,519,272 
Property, Plant and Equipment, Net1,233,615 1,233,821 
Goodwill1,310,638 1,309,167 
Other Intangible Assets, Net328,617 352,037 
Deferred Income Taxes48,100 47,297 
Right of Use Asset-Operating Leases304,655 — 
Other Assets140,919 121,871 
Total Assets$4,945,564 $4,583,465 
Liabilities and Equity
Current Liabilities
Payable to suppliers$554,431 $556,011 
Accrued expenses and other348,609 322,958 
Notes payable and current portion of long-term debt357,222 195,445 
Accrued taxes14,626 8,516 
1,274,888 1,082,930 
Long-term Debt, Net of Current Portion1,188,026 1,189,717 
Noncurrent Operating Lease Liabilities258,549 — 
Pension and Other Postretirement Benefits178,075 374,419 
Deferred Income Taxes116,569 64,273 
Other Liabilities75,837 99,848 
Sonoco Shareholders’ Equity
Common stock, no par value
Authorized 300,000 shares
100,075 and 99,829 shares issued and outstanding
at June 30, 2019 and December 31, 2018, respectively
7,175 7,175 
Capital in excess of stated value305,750 304,709 
Accumulated other comprehensive loss(723,846)(740,913)
Retained earnings2,251,279 2,188,115 
Total Sonoco Shareholders’ Equity1,840,358 1,759,086 
Noncontrolling Interests13,262 13,192 
Total Equity1,853,620 1,772,278 
Total Liabilities and Equity$4,945,564 $4,583,465 

*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 EndedSix Months Ended
June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Net sales$1,359,721 $1,366,373 $2,711,426 $2,670,560 
Cost of sales1,084,385 1,089,913 2,165,969 2,143,498 
Gross profit275,336 276,460 545,457 527,062 
Selling, general and administrative expenses132,213 141,031 274,774 278,472 
Restructuring/Asset impairment charges13,355 3,567 24,027 6,630 
Operating profit129,768 131,862 246,656 241,960 
Non-operating pension costs5,550 513 11,591 222 
Interest expense16,798 16,217 32,830 31,012 
Interest income846 1,090 1,493 2,530 
Income before income taxes108,266 116,222 203,728 213,256 
Provision for income taxes28,491 30,293 51,115 53,649 
Income before equity in earnings of affiliates79,775 85,929 152,613 159,607 
Equity in earnings of affiliates, net of tax1,511 3,716 2,441 4,963 
Net income81,286 89,645 155,054 164,570 
Net income attributable to noncontrolling interests(127)(233)(232)(1,103)
Net income attributable to Sonoco$81,159 $89,412 $154,822 $163,467 
Weighted average common shares outstanding:
Basic100,759 100,568 100,700 100,482 
Diluted101,178 101,040 101,129 100,965 
Per common share:
Net income attributable to Sonoco:
Basic$0.81 $0.89 $1.54 $1.63 
Diluted$0.80 $0.88 $1.53 $1.62 
See accompanying Notes to Condensed Consolidated Financial Statements
4



SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (unaudited)
(Dollars in thousands)
 
Three Months EndedSix Months Ended
June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Net income$81,286 $89,645 $155,054 $164,570 
Other comprehensive income/(loss):
Foreign currency translation adjustments9,745 (64,587)6,773 (41,604)
Changes in defined benefit plans, net of tax1,807 9,422 8,963 15,239 
Changes in derivative financial instruments, net of tax(481)(2,312)1,383 (1,265)
Other comprehensive income/(loss)$11,071 $(57,477)$17,119 $(27,630)
Comprehensive income92,357 32,168 $172,173 $136,940 
Net income attributable to noncontrolling interests(127)(233)(232)(1,103)
Other comprehensive (income)/loss attributable to noncontrolling interests(172)2,107 (52)1,677 
Comprehensive income attributable to Sonoco$92,058 $34,042 $171,889 $137,514 
See accompanying Notes to Condensed Consolidated Financial Statements

5


SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN TOTAL EQUITY (unaudited)
(Dollars in thousands)
Total
Equity
Common SharesCapital in
Excess of
Stated Value
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interests
OutstandingAmount
December 31, 2017$1,730,060 99,414 $7,175 $330,157 $(666,272)$2,036,006 $22,994 
Net income74,925 74,055 870 
Other comprehensive income:
Translation gain22,982 22,553 429 
Defined benefit plan adjustment, net of tax5,817 5,817 
Derivative financial instruments, net of tax1,047 1,047 
Other comprehensive income:$29,846 $29,417 $429 
Dividends(39,535)(39,535)
Issuance of stock awards479 227 479 
Shares repurchased(4,088)(78)(4,088)
Stock-based compensation3,048 3,048 
Impact of new accounting pronouncements1,721 (176)1,897 
April 1, 2018$1,796,456 99,563 $7,175 $329,596 $(637,031)$2,072,423 $24,293 
Net income89,645 89,412 $233 
Other comprehensive income/(loss):
Translation loss:(64,587)(62,480)(2,107)
Defined benefit plan adjustment, net of tax9,422 9,422 
Derivative financial instruments, net of tax(2,312)(2,312)
Other comprehensive loss:$(57,477)$(55,370)$(2,107)
Dividends(41,306)(41,306)
Issuance of stock awards329 24 329 
Shares repurchased(471)(9)(471)
Stock-based compensation3,074 3,074 
Noncontrolling interest from acquisition15 15 
July 1, 2018$1,790,265 99,578 $7,175 $332,528 $(692,401)$2,120,529 $22,434 
See accompanying Notes to Condensed Consolidated Financial Statements

6


SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN TOTAL EQUITY (unaudited)
(Dollars in thousands)
Total EquityCommon SharesCapital in
Excess of
Stated Value
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
Interests
OutstandingAmount
December 31, 2018$1,772,278 99,829 $7,175 $304,709 $(740,913)$2,188,115 $13,192 
Net income73,768 73,663 105 
Other comprehensive income/(loss):
Translation loss(2,972)(2,852)(120)
Defined benefit plan adjustment, net of tax7,156 7,156 
Derivative financial instruments, net of tax1,864 1,864 
Other comprehensive income/(loss)$6,048 $6,168 $(120)
Dividends(41,534)(41,534)
Dividends paid to noncontrolling interests(214)(214)
Issuance of stock awards399 340 399 
Shares repurchased(7,395)(133)(7,395)
Stock-based compensation4,560 4,560 
Impact of new accounting pronouncements(6,771)(6,771)
March 31, 2019$1,801,139 100,036 $7,175 $302,273 $(734,745)$2,213,473 $12,963 
Net income81,286 81,159 $127 
Other comprehensive income/(loss):
Translation gain9,745 9,573 172 
Defined benefit plan adjustment, net of tax1,807 1,807 
Derivative financial instruments, net of tax(481)(481)
Other comprehensive income$11,071 $10,899 $172 
Dividends(43,353)(43,353)
Issuance of stock awards326 58 326 
Shares repurchased(1,155)(19)(1,155)
Stock-based compensation4,306 4,306 
June 30, 2019$1,853,620 100,075 $7,175 $305,750 $(723,846)$2,251,279 $13,262 
See accompanying Notes to Condensed Consolidated Financial Statements
7


SONOCO PRODUCTS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in thousands)
Six Months Ended
June 30, 2019July 1, 2018
Cash Flows from Operating Activities:
Net income$155,054 $164,570 
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairment7,284 133 
Depreciation, depletion and amortization116,978 120,402 
Share-based compensation expense8,866 6,122 
Equity in earnings of affiliates(2,441)(4,963)
Cash dividends from affiliated companies3,297 2,750 
Net loss/(gain) on disposition of assets3,943 (833)
Pension and postretirement plan expense13,647 17,408 
Pension and postretirement plan contributions(213,579)(24,146)
Increase in net deferred tax liability37,953 3,926 
Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
Trade accounts receivable(46,191)(45,032)
Inventories(16,825)(16,741)
Payable to suppliers(2,842)16,716 
Prepaid expenses(4,976)(5,602)
Accrued expenses(7,741)1,012 
Income taxes payable and other income tax items(26,990)(1,031)
Other assets and liabilities14,644 16,557 
Net cash provided by operating activities40,081 251,248 
Cash Flows from Investing Activities:
Purchase of property, plant and equipment(102,272)(88,852)
Cost of acquisitions, net of cash acquired(455)(141,305)
Proceeds from the sale of assets1,498 6,164 
Investment in affiliates and other, net1,301 559 
Net cash used in investing activities(99,928)(223,434)
Cash Flows from Financing Activities:
Proceeds from issuance of debt243,394 137,272 
Principal repayment of debt(81,025)(93,564)
Net change in commercial paper(18,000)(33,000)
Net decrease in outstanding checks(11,697)(5,749)
Payment of contingent consideration(5,000)— 
Cash dividends(84,160)(79,801)
Dividends paid to noncontrolling interests(214)— 
Shares acquired(8,550)(4,558)
Net cash provided by/(used in) financing activities34,748 (79,400)
Effects of Exchange Rate Changes on Cash1,005 (5,635)
Net Decrease in Cash and Cash Equivalents(24,094)(57,221)
Cash and cash equivalents at beginning of period120,389 254,912 
Cash and cash equivalents at end of period$96,295 $197,691 
See accompanying Notes to Condensed Consolidated Financial Statements

8

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 six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.
With respect to the unaudited condensed consolidated financial information of the Company for the three- and six-month periods ended June 30, 2019 and July 1, 2018 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 July 31, 2019 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 January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2016-02, "Leases" (“ASU 2016-02”) requiring lessees to recognize on the balance sheet a right-of-use asset and lease liability for all long-term leases and requiring disclosure of key information about leasing arrangements in order 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 and the revenue recognition standard adopted in 2018. The Company established a cross-functional team to implement certain software solutions as part of its newly integrated enterprise-wide lease management system. The implementation plan included developing business processes, accounting systems, and internal controls to ensure the Company's compliance with reporting and disclosure requirements of the new standard. The Company elected the package of practical expedients permitted under the transition guidance and, as also provided for under the standard, has made an accounting policy election to exclude from the balance sheet leases with a term of 12 months or less. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases and has elected to combine lease and non-lease components as a single lease component for all classes of assets. 
The Company adopted ASU 2016-02 as of January 1, 2019, using the modified retrospective transition method and elected to apply the optional transition approach prescribed by ASU 2018-11 which allows entities to initially apply the new leases standard at the adoption date, without adjusting comparative periods. Upon the adoption of ASU 2016-02, the Company recorded on its consolidated balance sheet right of use assets totaling $336,083 and lease liabilities totaling $344,362, as well as a cumulative effect adjustment to retained earnings of $6,771 and a $1,508 reduction to deferred tax liabilities.
During the three- and six-month periods ended June 30, 2019, 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 June 30, 2019, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements.





9

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

Note 3: Acquisitions
On October 1, 2018, the Company completed the acquisition of the remaining 70 percent interest in Conitex Sonoco (BVI), Ltd. ("Conitex Sonoco") from Texpack Investments, Inc. ("Texpack"). Concurrent with this acquisition, the Company also acquired a rigid paper facility in Spain ("Compositub") from Texpack Group Holdings B.V. Final consideration for both acquisitions was subject to a post-closing adjustment for the change in working capital to the date of closing. These adjustments were settled in February 2019 for additional cash payments to the sellers totaling $455.
On April 12, 2018, the Company completed the acquisition of Highland Packaging Solutions ("Highland"). Highland manufactures thermoformed plastic packaging for fresh produce and dairy products from a single production facility in Plant City, Florida. The acquisition of Highland included a contingent purchase liability of $7,500 payable in two installments and based upon a sales metric which the Company anticipated meeting in full at the time of the acquisition. The first year's metric was met and the Company paid the first installment of $5,000 in the second quarter of 2019. The second year's metric is also expected to be met and the final installment of $2,500 is expected to be paid in the second quarter of 2020. The liability for the remaining installment is included in "Accrued expenses and other" on the Company's Condensed Consolidated Balance Sheets at June 30, 2019.
During the six months ended June 30, 2019, the Company continued to finalize its valuations of the assets acquired and liabilities assumed in acquisitions completed in the previous year based on new information obtained about facts and circumstances that existed as of their respective acquisition dates. As a result, the following measurement period adjustments were made to the previously disclosed provisional fair values of assets and liabilities acquired:
Conitex Sonoco Compositub Highland  
Trade accounts receivable$(77)$203 $— 
Inventories— 50 — 
Property, plant and equipment(199)(1,026)1,895 
Goodwill1,971 (566)(1,895)
Other intangible assets300 1,888 — 
Accrued expenses and other(1,782)(138)— 
Other net tangible assets /(liabilities)(129)(40)— 
Additional cash consideration$84 $371 $— 
Management is continuing to finalize its valuations of certain assets and liabilities associated with its 2018 acquisitions of Conitex Sonoco and Compositub, including, but not limited to: inventory; property, plant and equipment; other intangible assets; and trade accounts receivable, and expects to complete its valuations in the third quarter of 2019. The measurement period adjustments for Highland are now completed.
The Company has accounted for its 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 from their respective dates of acquisition.
Acquisition-related costs of $1,224 and $3,091 were incurred during the three months ended June 30, 2019 and July 1, 2018, respectively, and $1,624 and $3,636 during the six months ended June 30, 2019 and July 1, 2018, 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.



10

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

Note 4: Shareholders' Equity
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months EndedSix Months Ended
June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Numerator:
Net income attributable to Sonoco$81,159 $89,412 $154,822 $163,467 
Denominator:
Weighted average common shares outstanding:
Basic100,759 100,568 100,700 100,482 
Dilutive effect of stock-based compensation419 472 429 483 
Diluted101,178 101,040 101,129 100,965 
Net income attributable to Sonoco per common share:
Basic$0.81 $0.89 $1.54 $1.63 
Diluted$0.80 $0.88 $1.53 $1.62 
Cash dividends$0.43 $0.41 $0.84 $0.80 

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 not dilutive and, therefore, not included in the computation of diluted earnings per share during the three- and six- month periods ended June 30, 2019 and July 1, 2018 were as follows:
Three Months EndedSix Months Ended
June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Anti-dilutive stock appreciation rights537 1,043 421 891 
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 were purchased in 2016. No shares were repurchased under this authorization during 2017, 2018, or during the six months ended June 30, 2019. Accordingly, a total of 2,970 shares remain available for repurchase at June 30, 2019.
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 151 shares in the six months ended June 30, 2019 at a cost of $8,550, and 87 shares in the six months ended July 1, 2018 at a cost of $4,558.
Dividend Declarations
On April 17, 2019, the Board of Directors declared a regular quarterly dividend of $0.43 per share. This dividend was paid on June 10, 2019 to all shareholders of record as of May 10, 2019.
On July 17, 2019, the Board of Directors declared a regular quarterly dividend of $0.43 per share. This dividend is payable on September 10, 2019 to all shareholders of record as of August 9, 2019.

11

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

Note 5: Restructuring and Asset Impairment
The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2019 and 2018 are reported as “2019 Actions” and “2018 Actions,” respectively. Actions initiated prior to 2018, all of which were substantially complete at June 30, 2019, are reported as “2017 and Earlier Actions.”
Following are the total restructuring and asset impairment charges, net of adjustments, recognized by the Company during the periods presented: 
20192018
Second QuarterSix MonthsSecond QuarterSix Months
Restructuring/Asset impairment:
2019 Actions$9,961 $16,350 $— $— 
2018 Actions3,202 7,248 2,708 4,915 
2017 and Earlier Actions192 429 859 1,715 
Restructuring/Asset impairment charges13,355 24,027 3,567 6,630 
Income tax benefit(3,307)(5,945)(1,046)(1,731)
Less: Costs attributable to noncontrolling interests, net of tax(69)(138)(15)(20)
Restructuring/asset impairment charges attributable to Sonoco, net of tax$9,979 $17,944 $2,506 $4,879 

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 $6,600 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 2019. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken.
2019 Actions
During 2019, the Company announced the elimination of a forming film production line at a flexible packaging facility in the United States, initiated the closure of a composite can and injection molding facility in Germany, and announced the closure of a composite can plant in Malaysia (all part of the Consumer Packaging segment). The Company also exited an integrated material protective packaging facility in Texas (part of the Protective Solutions segment). In addition, approximately 112 positions were eliminated in the first six months of 2019 in conjunction with the Company's ongoing organizational effectiveness efforts.
12

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

Below is a summary of 2019 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion.
2019 ActionsSecond Quarter 2019Total
Incurred
to Date
Estimated
Total Cost
Severance and Termination Benefits
Consumer Packaging$2,866 $5,855 $10,315 
Display and Packaging57 57 57 
Paper and Industrial Converted Products1,356 $1,778 1,778 
Protective Solutions340 681 681 
Corporate196 1,922 1,922 
Asset Impairment / Disposal of Assets
Consumer Packaging3,884 4,196 4,196 
Protective Solutions130 130 130 
Other Costs
Consumer Packaging880 1,322 2,889 
Display and Packaging236 391 391 
Paper and Industrial Converted Products13 15 15 
Protective Solutions
Total Charges and Adjustments$9,961 $16,350 $22,377 

The following table sets forth the activity in the 2019 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:
2019 ActionsSeverance
and
Termination
Benefits
Asset Impairment/
Disposal
of Assets
Other
Costs
Total
Accrual Activity
2019 Year to Date
Liability at December 31, 2018$— $— $— $— 
2019 charges10,293 4,326 1,731 16,350 
Cash payments(5,676)— (1,731)(7,407)
Asset write downs/disposals— (4,326)— (4,326)
Foreign currency translation12 — — 12 
Liability at June 30, 2019$4,629 $— $— $4,629 

"Asset Impairment/Disposal of Assets" consists primarily of an impairment charge of $3,306 resulting from the elimination of a forming film line at a flexible packaging facility, a $431 loss on the disposal of assets related to the closure of a composite can and injection molding facility in Germany, and a $325 loss on the disposal of assets and inventory relating to the closure of a composite can plant in Malaysia.
“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 2019 Actions restructuring costs by the end of 2019 using cash generated from operations.

2018 Actions
During 2018, the Company announced the closure of a flexible packaging plant in North Carolina, a global brand management facility in Canada, and a thermoformed packaging plant in California (all part of the Consumer Packaging segment), five tube and core plants - one in Alabama, one in Canada, one in Indonesia, one in Russia, and one in Norway (all part of the Paper and Industrial Converted Products segment), and a protective packaging plant in North Carolina (part of the Protective Solutions segment). Restructuring actions in the Display and Packaging segment included charges
13

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

associated with exiting a single-customer contract at a packaging center near Atlanta, Georgia. In addition, approximately 120 positions were eliminated throughout 2018 in conjunction with the Company's ongoing organizational effectiveness efforts.
Below is a summary of 2018 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion.
20192018
2018 ActionsSecond QuarterSix MonthsSecond QuarterSix Months
Severance and Termination Benefits
Consumer Packaging$195 $836 $906 $1,694 $5,535 $5,535 
Display and Packaging150 152 556 731 2,092 2,092 
Paper and Industrial Converted Products28 197 301 1,292 3,308 3,308 
Protective Solutions— (1)517 776 1,074 1,074 
Corporate— — 20 243 243 243 
Asset Impairment / Disposal of Assets
Consumer Packaging1,611 2,618 89 75 5,307 5,307 
Display and Packaging— 87 — — 4,712 4,712 
Paper and Industrial Converted Products27 253 — — 371 371 
Protective Solutions— — 29 (243)(243)(243)
Other Costs
Consumer Packaging959 2,768 (6)5,158 5,518 
Display and Packaging68 116 9,966 10,066 
Paper and Industrial Converted Products162 202 293 293 1,963 1,963 
Protective Solutions20 — 46 66 66 
Corporate— — — — (11)(11)
Total Charges and Adjustments$3,202 $7,248 $2,708 $4,915 $39,541 $40,001 

The following table sets forth the activity in the 2018 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:
2018 ActionsSeverance
and
Termination
Benefits
Asset
Impairment/
Disposal
of Assets
Other
Costs
Total
Accrual Activity
2019 Year to Date
Liability at December 31, 2018$3,194 $— $179 $3,373 
2019 charges1,184 2,958 3,106 7,248 
Cash receipts/(payments)(3,150)494 (3,175)(5,831)
Asset write downs/disposals— (3,452)— (3,452)
Foreign currency translation— 
Liability at June 30, 2019$1,229 $— $115 $1,344 

Included in "Asset Impairment/Disposal of Assets" above are asset impairment charges of $1,725 and $909 related to the closures of a flexible packaging plant in North Carolina and a thermoformed packaging plant in California, respectively. Also included are losses totaling $232 related to the sale of fixed assets and inventory associated with the closure of a tube and core plant in Indonesia. The Company received proceeds of $416 from this sale and wrote off assets with a book value totaling $648.
14

SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares 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 2018 Actions restructuring costs by the end of 2019 using cash generated from operations.

2017 and Earlier Actions
2017 and Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2018. Charges for these actions in both 2019 and 2018 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 2017 and Earlier Actions.
Below is a summary of expenses/(income) incurred by segment for 2017 and Earlier Actions for the three- and six-month periods ended June 30, 2019 and July 1, 2018.
20192018
2017 and Earlier ActionsSecond QuarterSix MonthsSecond QuarterSix Months
Consumer Packaging$92 $147 $997 $1,941 
Display and Packaging— 83 118 (71)
Paper and Industrial Converted Products14 29 (530)(674)
Protective Solutions86 170 274 519 
Corporate— — — — 
Total charges, net of adjustments$192 $429 $859 $1,715 

The accrual for 2017 and Earlier Actions totaled $1,239 and $4,199 at June 30, 2019 and December 31, 2018, respectively, and is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. The majority of the liability associated with 2017 and Earlier Actions relates to unpaid severance costs and is expected to be paid by the end of 2019 using cash generated from operations.


15

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 six months ended June 30, 2019 and July 1, 2018:
Foreign
Currency
Items
Defined
Benefit
Pension Items
Gains and
Losses on Cash
Flow Hedges
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2018$(251,102)$(487,380)$(2,431)$(740,913)
Other comprehensive income/(loss) before reclassifications6,721 (5,939)1,726 2,508 
Amounts reclassified from accumulated other comprehensive loss to net income— 14,902 (242)14,660 
Amounts reclassified from accumulated other comprehensive loss to fixed assets— — (101)(101)
Other comprehensive income6,721 8,963 1,383 17,067 
Balance at June 30, 2019$(244,381)$(478,417)$(1,048)$(723,846)
Balance at December 31, 2017$(198,495)$(467,136)$(641)$(666,272)
Other comprehensive income/(loss) before reclassifications(39,927)1,068 (1,139)(39,998)
Amounts reclassified from accumulated other comprehensive loss to net income— 14,171 (182)13,989 
Amounts reclassified from accumulated other comprehensive loss to fixed assets— — 56 56 
Other comprehensive income/(loss)(39,927)15,239 (1,265)(25,953)
Amounts reclassified from retained earnings to accumulated other comprehensive loss— — (176)(176)
Balance at July 1, 2018$(238,422)$(451,897)$(2,082)$(692,401)


16

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- and six- month periods ended June 30, 2019 and July 1, 2018:

Amount Reclassified from Accumulated
Other Comprehensive Loss
Three Months EndedSix Months Ended
Details about Accumulated Other
Comprehensive
Loss Components
June 30,
2019
July 1, 2018June 30,
2019
July 1,
2018
Affected Line Item in
the Condensed Consolidated
Statements of Income
Gains and losses on cash flow hedges
Foreign exchange contracts$532 $(240)$849 $570 Net sales
Foreign exchange contracts(378)174 (666)(353)Cost of sales
Commodity contracts(319)68 116 10 Cost of sales
$(165)$$299 $227 Income before income taxes
59 (1)(57)(45)Provision for income taxes
$(106)$$242 $182 Net income
Defined benefit pension items
Effect of settlement loss(a)
$(225)$(645)$(1,547)$(645)Non-operating pension costs
Amortization of defined
   benefit pension items(a)
(9,523)(8,983)(18,455)(18,284)Non-operating pension costs
$(9,748)$(9,628)$(20,002)$(18,929)Income before income taxes
2,510 2,419 5,100 4,758 Provision for income taxes
$(7,238)$(7,209)$(14,902)$(14,171)Net income
Total reclassifications for the period$(7,344)$(7,208)$(14,660)$(13,989)Net income
 
(a) See Note 11 for additional details.

17

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 June 30, 2019 and July 1, 2018:


Three months ended June 30, 2019 Three months ended July 1, 2018 
Before Tax
Amount 
Tax
(Expense)
Benefit 
After Tax
Amount 
Before Tax
Amount 
Tax
(Expense)
Benefit 
After Tax
Amount 
Foreign currency items:
Net other comprehensive income/(loss) from foreign currency items $9,573 $— $9,573 $(62,480)$— $(62,480)
Defined benefit pension items:
Other comprehensive income/(loss) before
reclassifications 
(6,957)1,526 (5,431)2,635 (422)2,213 
Amounts reclassified from accumulated other
comprehensive income/(loss) to net income 
9,748 (2,510)7,238 9,628 (2,419)7,209 
Net other comprehensive income/(loss) from
defined benefit pension items 
2,791 (984)1,807 12,263 (2,841)9,422 
Gains and losses on cash flow hedges:
Other comprehensive income/(loss) before
reclassifications 
(828)297 (531)(3,106)784 (2,322)
Amounts reclassified from accumulated other
comprehensive income/(loss) to net income 
165 (59)106 (2)(1)
Amounts reclassified from accumulated other
comprehensive income/(loss) to fixed assets 
(56)— (56)11 — 11 
Net other comprehensive income/(loss) from
cash flow hedges 
(719)238 (481)(3,097)785 (2,312)
Other comprehensive income/(loss):$11,645 $(746)$10,899 $(53,314)$(2,056)$(55,370)


18

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 six-month periods ended June 30, 2019 and July 1, 2018:

Six months ended June 30, 2019 Six months ended July 1, 2018 
Before Tax
Amount 
Tax
(Expense)
Benefit 
After Tax
Amount 
Before Tax
Amount 
Tax
(Expense)
Benefit 
After Tax
Amount 
Foreign currency items:
Net other comprehensive income/(loss) from foreign currency items $6,721 $— $6,721 $(39,927)$— $(39,927)
Defined benefit pension items:
Other comprehensive income/(loss) before
reclassifications 
(7,638)1,699 (5,939)1,490 (422)1,068 
Amounts reclassified from accumulated other
comprehensive income/(loss) to net income 
20,002 (5,100)14,902 18,929 (4,758)14,171 
Net other comprehensive income/(loss) from
defined benefit pension items 
12,364 (3,401)8,963 20,419 (5,180)15,239 
Gains and losses on cash flow hedges:
Other comprehensive income/(loss) before
reclassifications 
2,193 (467)1,726 (1,631)492 (1,139)
Amounts reclassified from accumulated other
comprehensive income/(loss) to net income 
(299)57 (242)(227)45 (182)
Amounts reclassified from accumulated other
comprehensive income/(loss) to fixed assets 
(101)(101)56 — 56 
Net other comprehensive income/(loss) from
cash flow hedges 
1,793 (410)1,383 (1,802)537 (1,265)
Other comprehensive income/(loss):$20,878 $(3,811)$17,067 $(21,310)$(4,643)$(25,953)



Note 7: Goodwill and Other Intangible Assets
Goodwill
A summary of the changes in goodwill by segment for the six months ended June 30, 2019 is as follows: 
Consumer
Packaging
Display
and
Packaging
Paper and
Industrial
Converted
Products
Protective
Solutions
Total
Goodwill at December 31, 2018$617,332 $203,414 $256,947 $231,474 $1,309,167 
Foreign currency translation1,590 — 377 (6)1,961 
Other(2,461)— 1,971 — (490)
Goodwill at June 30, 2019$616,461 $203,414 $259,295 $231,468 $1,310,638 

Measurement period adjustments were made in the first six months of 2019 to the fair values of the assets acquired and the liabilities assumed in the 2018 acquisitions of Compositub, Highland, and Conitex Sonoco resulting in increases/(decreases) in goodwill of $(566), $(1,895) and $1,971, respectively. These adjustments are reflected above in "Other." 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 2018. As part of this testing, the Company analyzed certain qualitative and quantitative factors in determining goodwill impairment. The Company's assessments reflected a
19

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

number of significant management assumptions and estimates including discount rates, and the Company's forecast of sales volumes and prices, new business, profit margins, income taxes, capital expenditures and changes in working capital requirements. Changes in these assumptions 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 goodwill of the Display and Packaging reporting unit is at risk of impairment in the near term if operating performance does not continue to improve in line with management's expectations, or if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. Total goodwill associated with this reporting unit was $203,414 at June 30, 2019. In addition, a large portion of projected sales in the Display and Packaging reporting unit is concentrated in several major customers, the loss of any of which could impact the Company's conclusion regarding the likelihood of goodwill impairment for the unit.

During the time subsequent to the annual evaluation, and at June 30, 2019, the Company considered whether any events and/or changes in circumstances had resulted in the likelihood that the goodwill of any of its reporting units may have been impaired. It is management's opinion that no such events have occurred.

Other Intangible Assets
A summary of other intangible assets as of June 30, 2019 and December 31, 2018 is as follows: 
June 30,
2019
December 31,
2018
Other Intangible Assets, gross:
Patents$22,496 $22,509 
Customer lists550,003 548,038 
Trade names31,166 31,174 
Proprietary technology28,755 28,748 
Land use rights284 282 
Other2,127 2,093 
Other Intangible Assets, gross$634,831 $632,844 
Accumulated Amortization:
Patents(10,604)(9,539)
Customer lists(268,123)(246,946)
Trade names(8,810)(7,413)
Proprietary technology(17,077)(15,400)
Land use rights(50)(48)
Other(1,550)(1,461)
Total Accumulated Amortization$(306,214)$(280,807)
Other Intangible Assets, net$328,617 $352,037 

Measurement period adjustments were made in the first six months of 2019 to the fair values of the assets acquired and the liabilities assumed in the 2018 acquisitions of Compositub and Conitex Sonoco resulting in increases in other intangible assets, primarily customer lists, of $1,888 and $300, respectively.
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 $13,098 and $12,401 for the three months ended June 30, 2019 and July 1, 2018, respectively, and $25,890 and $22,603 for the six months ended June 30, 2019 and July 1, 2018, respectively. Amortization expense on other intangible assets is expected to total approximately $51,400 in 2019, $49,000 in 2020, $47,000 in 2021, $44,500 in 2022 and $36,800 in 2023.

20

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

Note 8: Debt
On May 17, 2019, the Company entered into a 364-day, $200,000 term loan with Wells Fargo Bank, National Association. The full $200,000 was drawn from this facility on May 20, 2019, and $190,000 of the loan proceeds were used to make voluntary contributions to the Company's U.S. defined benefit pension plans. The unsecured loan has a 364-day term and the Company has a one-time option to request an extension of the term for an additional 364 days if it meets certain conditions. Interest is assessed at the London Interbank Offered Rate (LIBOR) plus a margin based on a pricing grid that uses the Company’s credit ratings. The LIBOR margin at June 30, 2019 was 100 basis points. There is no required amortization and repayment can be accelerated at any time at the discretion of the Company.

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. 
June 30, 2019December 31, 2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt, net of current portion$1,188,026 $1,295,115 $1,189,717 $1,270,521 

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 June 30, 2019 and December 31, 2018, 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 2020, qualify as cash flow hedges under U.S. GAAP. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item.

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 June 30, 2019, natural gas swaps covering approximately 6.0 million MMBTUs were outstanding. These contracts represent approximately 74% and 52% of anticipated U.S. and Canadian usage for the remainder of 2019 and 2020, respectively. Additionally, the Company had swap contracts covering 2,041 metric tons of aluminum, representing approximately 51% of anticipated usage for the remainder of 2019. The fair values of the Company’s commodity cash flow hedges netted to a loss position of $(2,351) and $(1,571) at June 30, 2019 and December 31, 2018 respectively. The amount of the loss included in Accumulated Other Comprehensive Loss at June 30, 2019, that is expected to be reclassified to the income statement during the next twelve months is $(2,050).

21

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

Foreign Currency Cash Flow Hedges
The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales, purchases, and capital spending forecast to occur in 2019. The net positions of these contracts at June 30, 2019 were as follows (in thousands):
CurrencyActionQuantity
Colombian pesopurchase8,090,286 
Mexican pesopurchase 355,994 
Canadian dollarpurchase 31,576 
Polish zlotypurchase25,074 
Czech korunapurchase23,587 
Turkish lirapurchase 3,311 
British poundpurchase333 
Swedish kronasell (1,010)
Eurosell(6,995)
Russian rublesell (113,055)

The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to a gain position of $872 at June 30, 2019 and a loss position of $(1,624) at December 31, 2018. Gains of $872 are expected to be reclassified from accumulated other comprehensive income to the income statement during the next twelve months. In addition, the Company has entered into forward contracts to hedge certain foreign currency cash flow transactions related to construction in progress. As of June 30, 2019 and at December 31, 2018, the net position of these contracts were $(7) and $(88), respectively. During the six months ended June 30, 2019, losses from these hedges totaling $(101) were reclassified from accumulated other comprehensive income and included in the carrying value of the related fixed assets acquired. Losses of $(7) are expected to be reclassified from accumulated other comprehensive income and included in the carrying value of the related fixed assets acquired 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 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 June 30, 2019, were as follows (in thousands):
CurrencyActionQuantity
Colombian pesopurchase10,371,390 
Mexican pesopurchase407,604 
Canadian dollarpurchase18,608 
South African randsell(7,000)

The fair value of the Company’s other derivatives was a gain position of $687 and $166 at June 30, 2019 and December 31, 2018, respectively.
22

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

The following table sets forth the location and fair values of the Company’s derivative instruments at June 30, 2019 and December 31, 2018:
DescriptionBalance Sheet LocationJune 30, 2019December 31, 2018
Derivatives designated as hedging instruments:
Commodity ContractsPrepaid expenses$— $282 
Commodity ContractsAccrued expenses and other$(2,131)$(1,843)
Commodity ContractsOther liabilities$(220)$(10)
Foreign Exchange ContractsPrepaid expenses$1,238 $770 
       Foreign Exchange ContractsAccrued expenses and other$(373)$(2,482)
Derivatives not designated as hedging instruments:
Foreign Exchange ContractsPrepaid expenses$— $727 
Foreign Exchange ContractsOther assets$696 $— 
Foreign Exchange ContractsAccrued expenses and other$(9)$(561)

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.
The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three months ended June 30, 2019 and July 1, 2018:
DescriptionAmount of Gain or
(Loss) Recognized
in OCI on
Derivatives
Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI Into Income
Derivatives in Cash Flow Hedging Relationships:
Three months ended June 30, 2019
Foreign Exchange Contracts$928 Net sales$532 
Cost of sales$(378)
Commodity Contracts$(1,756)Cost of sales$(319)
Three months ended July 1, 2018
Foreign Exchange Contracts$(4,407)Net sales$(240)
Cost of sales$174 
Commodity Contracts$1,301 Cost of sales$68 
 
DescriptionGain or (Loss)
Recognized
Location of Gain or (Loss) Recognized in
Income Statement
Derivatives not Designated as Hedging Instruments:
Three months ended June 30, 2019
Foreign Exchange Contracts$— Cost of sales
$893 Selling, general and administrative
Three months ended July 1, 2018
Foreign Exchange Contracts$— Cost of sales
$1,270 Selling, general and administrative


23

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

Three months ended June 30, 2019Three months ended July 1, 2018
DescriptionRevenueCost of
sales
RevenueCost of
sales
Total amount of income and expense line items presented in the Condensed Consolidated Statements of Income$532 $(697)$(240)$242 
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20:
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income$532 $(378)$(240)$174 
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income$— $(319)$— $68 

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the six months ended June 30, 2019 and July 1, 2018:
DescriptionAmount of Gain or
(Loss) Recognized
in OCI on
Derivatives
Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
Amount of Gain or
(Loss) Reclassified
from Accumulated
OCI Into Income
Derivatives in Cash Flow Hedging Relationships:
Six months ended June 30, 2019
Foreign Exchange Contracts$2,858 Net sales$849 
Cost of sales$(666)
Commodity Contracts$(664)Cost of sales$116 
Six months ended July 1, 2018
Foreign Exchange Contracts$(2,761)Net sales$570 
Cost of sales$(353)
Commodity Contracts$1,130 Cost of sales$10 
 
DescriptionGain or (Loss)
Recognized
Location of Gain or (Loss) Recognized in
Income Statement
Derivatives not Designated as Hedging Instruments:
Six months ended June 30, 2019
Foreign Exchange Contracts$— Cost of sales
$(571)Selling, general and administrative
Six months ended July 1, 2018
Foreign Exchange Contracts$— Cost of sales
$2,024 Selling, general and administrative


24

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

Six months ended June 30, 2019Six months ended July 1, 2018
DescriptionRevenueCost of
sales
RevenueCost of
sales
Total amount of income and expense line items presented in the Condensed Consolidated Statements of Income$849 $(550)$570 $(343)
The effects of cash flow hedging:
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20:
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income$849 $(666)$570 $(353)
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income$— $116 $— $10 


Note 10: Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
Level 1 –Observable inputs such as quoted market prices in active markets;
Level 2 –Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 –Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following table sets forth information regarding the Company’s financial assets and financial liabilities, excluding retirement and postretirement plan assets, measured at fair value on a recurring basis:
DescriptionJune 30, 2019Assets measured
at NAV
Level 1Level 2Level 3
Hedge derivatives, net:
Commodity contracts$(2,351)$— $— $(2,351)$— 
Foreign exchange contracts$865 $— $— $865 $— 
Non-hedge derivatives, net:
Foreign exchange contracts$687 $— $— $687 $— 
Deferred compensation plan assets$135 $— $135 $— $— 
DescriptionDecember 31, 2018Assets measured
at NAV
Level 1Level 2Level 3
Hedge derivatives, net:
Commodity contracts$(1,571)$— $— $(1,571)$— 
Foreign exchange contracts$(1,712)$— $— $(1,712)$— 
Non-hedge derivatives, net:
Foreign exchange contracts$166 $— $— $166 $— 
Deferred compensation plan assets$260 $— $260 $— $— 

25

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

As discussed in Note 9, the Company uses derivatives to mitigate the effect of raw material and energy cost fluctuations, foreign currency fluctuations and, from time to time, interest rate movements. Fair value measurements for the Company’s derivatives are classified under Level 2 because such measurements are estimated based on observable inputs such as interest rates, yield curves, spot and future commodity prices and spot and future exchange rates.
Certain deferred compensation plan liabilities are funded by assets invested in various exchange traded mutual funds. These assets are measured using quoted prices in accessible active markets for identical assets.
The Company does not currently have any non-financial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. None of the Company’s financial assets or liabilities are measured at fair value using significant unobservable inputs. There were no transfers in or out of Level 1 or Level 2 fair value measurements during the three- and six-month periods ended June 30, 2019.

Note 11: Employee Benefit Plans
Retirement Plans and Retiree Health and Life Insurance Plans
The Company provides non-contributory defined benefit pension plans to certain of its employees in the United States and certain of its employees in Mexico and Belgium. The Company also sponsors contributory defined benefit pension plans covering the majority of its employees in the United Kingdom, Canada, and the Netherlands. In addition, the Company provides postretirement healthcare and life insurance benefits to a limited number of its retirees and their dependents in the United States and Canada, based on certain age and/or service eligibility requirements.
The Company froze participation in its U.S. qualified defined benefit pension plan for newly hired salaried and non-union hourly employees effective December 31, 2003. To replace this benefit, the Company provides non-union U.S. employees hired on or after January 1, 2004, with an annual contribution, called the Sonoco Retirement Contribution (SRC), to their participant accounts in the Sonoco Retirement and Savings Plan. The SRC is equal to 4% of the participant's eligible pay plus 4% of eligible pay in excess of the social security wage base. Also eligible for the SRC are former participants of the U.S. qualified defined benefit pension plan who elected to transfer out of that plan under a one-time option effective January 1, 2010.
On February 4, 2009, the U.S. qualified defined benefit pension plan was amended to freeze plan benefits for all active, non-union participants effective December 31, 2018. Remaining active participants in the U.S. qualified plan became eligible for SRC contributions effective January 1, 2019.
The components of net periodic benefit cost include the following:
Three Months EndedSix Months Ended
June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Retirement Plans
Service cost$962 $4,478 $1,903 $9,150 
Interest cost15,100 13,573 30,043 27,551 
Expected return on plan assets(19,232)(22,580)(38,329)(45,789)
Amortization of prior service cost216 242 430 491 
Amortization of net actuarial loss9,646 9,162 18,680 18,582 
Effect of settlement loss225 645 1,547 645 
Net periodic benefit cost$6,917 $5,520 $14,274 $10,630 
Retiree Health and Life Insurance Plans
Service cost$78 $70 $152 $149 
Interest cost113 110 231 221 
Expected return on plan assets(179)(218)(356)(690)
Amortization of prior service credit(124)(123)(247)(249)
Amortization of net actuarial gain(215)(298)(408)(540)
Net periodic benefit income$(327)$(459)$(628)$(1,109)

26

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

The Company made aggregate contributions of $199,006 to its defined benefit retirement and retiree health and life insurance plans during the six months ended June 30, 2019, including voluntary contributions to its U.S. defined benefit pension plans (the "Plans") totaling $190,000 in May 2019. This voluntary contribution was followed by actions to further de-risk the Plan's portfolio by increasing the allocation of pension assets to fixed-income investments. The Company expects to make additional aggregate contributions of approximately $17,100 to its defined benefit retirement and retiree health and life insurance plans over the remainder of 2019, including an additional $10,000 voluntary contribution to the Plans. The Company made aggregate contributions of $9,995 to its defined benefit retirement and retiree health and life insurance plans during the six months ended July 1, 2018.
The Company recognized settlement charges totaling $1,547 and $645 during the six months ended June 30, 2019 and July 1, 2018, respectively. These charges resulted from payments made to certain participants of the Company's Canadian pension plan who elected a lump sum option of distribution upon retirement.

Pending Plan Termination
On July 17, 2019, subsequent to the end of the second quarter, the Company's Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants, a tax-qualified defined benefit plan (the "Inactive Plan"), effective September 30, 2019. Once approval is received from the Internal Revenue Service and the Pension Benefit Guaranty Corporation, and following completion of the limited lump-sum offering, the Company is expected to settle all remaining liabilities under the Inactive Plan in 2020 through the purchase of annuity contracts. The Company anticipates making additional contributions to the Inactive Plan beginning in 2020 of between $75,000 and $125,000 in order to be fully funded on a termination basis at the time of the annuity purchase. However, the actual amount of the Company's long-term liability when it is transferred, and the related cash contribution requirement, will depend upon the nature and timing of participant settlements, as well as prevailing market conditions. Non-cash settlement charges resulting from the lump sum payouts and annuity purchases are expected to range between $525,000 and $575,000. The termination of the Inactive Plan will apply to participants who have separated service from Sonoco and to non-union active employees who no longer accrue pension benefits. There is no change in the cumulative benefit previously earned by the approximately 11,000 impacted participants as a result of these actions, and the Company will continue to manage and support the Sonoco Pension Plan, comprised of approximately 600 active participants who continue to accrue benefits in accordance with a flat-dollar multiplier formula.

Sonoco Retirement Contribution (SRC)
SRC contributions, which are funded annually in the first quarter, totaled $14,573 during the six months ended June 30, 2019, and $14,151 during the six months ended July 1, 2018. No additional SRC contributions are expected during the remainder of 2019. The Company recognized expense related to the SRC of $5,830 and $3,855 for the quarters ended June 30, 2019 and July 1, 2018, respectively, and $12,097 and $7,887 for the six-month periods ended June 30, 2019 and July 1, 2018, respectively.

Note 12: Income Taxes
The Company’s effective tax rate for the three- and six-month periods ending June 30, 2019 was 26.3% and 25.1%, respectively, and its effective tax rate for the three- and six-month periods ending July 1, 2018 was 26.1% and 25.2%, respectively. The rates for the three- and six-month periods ending June 30, 2019 and July 1, 2018 varied from the U.S. statutory rate due primarily to the effect of the Global Intangible Low Taxed Income (GILTI) tax as well as the effect of state income taxes.
The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and various foreign jurisdictions. The Company is currently under audit for the 2012 and 2013 tax years and has entered the appeals process with the Internal Revenue Service. Other than the aforementioned audit, with few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2015.
The Company’s reserve for uncertain tax benefits has increased by approximately $600 since December 31, 2018, due primarily to an increase in reserves related to existing uncertain tax positions. The Company believes that it is reasonably possible that the amount reserved for unrecognized tax benefits at June 30, 2019 could decrease by approximately $2,800 over the next twelve months. This change includes the anticipated increase in reserves related to
27

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

existing positions offset by settlements of issues currently under examination and the release of existing reserves due to the expiration of the statute of limitations. Although the Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental, management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations and pays taxes in many countries outside of the U.S. and taxes on those earnings are subject to varying rates. The Company is not dependent upon the favorable benefit of any one jurisdiction to an extent that the loss of such benefit would have a material effect on the Company’s overall effective tax rate. 
As previously disclosed, the Company received a draft Notice of Proposed Adjustment (“NOPA”) from the Internal Revenue Service (IRS) in February 2017 proposing an adjustment to income for the 2013 tax year based on the IRS's recharacterization of a distribution of an intercompany note made in 2012, and the subsequent repayment of the note over the course of 2013, as if it were a cash distribution made in 2013. In March 2017, the Company received a draft NOPA proposing penalties of $18,000 associated with the IRS’s recharacterization, as well as an Information Document Request (“IDR”) requesting the Company’s analysis of why such penalties should not apply. The Company responded to this IDR in April 2017. On October 5, 2017, the Company received two revised draft NOPAs proposing the same adjustments and penalties as in the prior NOPAs. On November 14, 2017, the Company received two final NOPAs proposing the same adjustments and penalties as in the prior draft NOPAs. On November 20, 2017, the Company received a Revenue Agent's Report (“RAR”) that included the same adjustments and penalties as in the prior NOPAs. At the time of the distribution in 2012, it was characterized as a dividend to the extent of earnings and profits, with the remainder as a tax free return of basis and taxable capital gain. As the IRS proposes to recharacterize the distribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the RAR would be approximately $89,000, excluding interest and the previously referenced penalties. On January 22, 2018, the Company filed a protest to the proposed deficiency with the IRS. The Company received a rebuttal of its protest from the IRS on July 10, 2018, and the matter has now been referred to the Appeals Division of the IRS. The Company had a pre-conference hearing with IRS Appeals during the second quarter of 2019. The Company strongly believes the position of the IRS with regard to this matter is inconsistent with applicable tax laws and existing Treasury regulations, and that the Company's previously reported income tax provision for the year in question is appropriate. However, there can be no assurance that this matter will be resolved in the Company's favor. Regardless of whether the matter is resolved in the Company's favor, the final resolution of this matter could be expensive and time consuming to defend and/or settle. While the Company believes that the amount of tax originally paid with respect to this distribution is correct, and accordingly has not provided additional reserve for tax uncertainty, there is still a possibility that an adverse outcome of the matter could have a material effect on its results of operations and financial condition.
28

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

Note 13: Leases
The Company routinely enters into leasing arrangements for real estate (including manufacturing facilities, office space, warehouses, and packaging centers), transportation equipment (automobiles, forklifts, and trailers), and office equipment (copiers and postage machines). The assessment of the certainty associated with the exercise of various lease renewal, termination, and purchase options included in the Company's lease contracts is at the Company's sole discretion. Most real estate leases, in particular, include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. The Company's leases do not have any significant residual value guarantees or restrictive covenants.
As the implicit rate in the Company's leases is not readily determinable, the Company calculates its right of use lease liabilities using discount rates based upon the Company’s incremental secured borrowing rate, which contemplates and reflects a particular geographical region’s interest rate for the leases active within that region of the Company’s global operations. The Company further utilizes a portfolio approach by assigning a “short” rate to contracts with lease terms of 10 years or less and a “long” rate for contracts greater than 10 years. See Note 2 for further information regarding the Company's adoption of ASU 2016-02, "Leases."
The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities at June 30, 2019:

ClassificationBalance Sheet LocationJune 30, 2019
Lease Assets
Operating lease assetsRight of Use Asset - Operating Leases$304,655 
Finance lease assetsOther Assets20,275 
Total lease assets324,930 
Lease Liabilities
Current operating lease liabilitiesAccrued expenses and other55,210 
Current finance lease liabilitiesNotes payable and current portion of debt9,508 
Total current lease liabilities64,718 
Noncurrent operating lease liabilitiesNoncurrent Operating Lease Liabilities258,549 
Noncurrent finance lease liabilitiesLong-term Debt, Net of Current Portion9,563 
Total noncurrent lease liabilities268,112 
Total lease liabilities$332,830 

As of June 30, 2019, the Company has entered into additional leases that have not yet commenced. The associated contracts include payments over the respective lease terms totaling $573, which are not reflected in the Company's liabilities recorded as of June 30, 2019. These leases will commence during fiscal year 2019 with lease terms of approximately 3 years.




29

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

Certain of the Company’s leases include variable costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, and also non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the right of use asset recorded on the balance sheet was determined based upon factors considered at the commencement date, subsequent changes in the rate or index that were not contemplated in the right of use asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term.
The following table sets forth the components of the Company's total lease cost for the three- and six-month periods ended June 30, 2019:
Lease CostThree Months Ended June 30, 2019Six Months Ended June 30, 2019
Operating lease cost(a)$15,771 $31,316 
Finance lease cost:
     Amortization of lease asset(a) (b)2,053 4,122 
     Interest on lease liabilities(c)245 521 
Variable lease cost(a) (d)7,791 16,969 
Total lease cost$25,860 $52,928 

(a) Production-related and administrative amounts are included in cost of sales and selling, general and administrative expenses, respectively.
(b) Included in depreciation and amortization.

(c) Included in interest expense.

(d) Also includes short term lease costs, which are deemed immaterial.

In compliance with ASC 842, the Company must provide the prior year disclosures required under the previous lease guidance (ASC 840) for comparative periods presented herein. Rental expense under operating leases for the three- and six-month periods ended July 1, 2018 was $19,399 and $38,300, respectively.

The following table sets forth the five-year maturity schedule of the Company's lease liabilities as of June 30, 2019:
Maturity of Lease LiabilitiesOperating LeasesFinance LeasesTotal
2019 (excluding six months ended June 30, 2019)$30,472 $5,031 $35,503 
202054,945 8,723 63,668 
202147,075 3,165 50,240 
202241,259 1,644 42,903 
202337,895 994 38,889 
Beyond 2023188,730 843 189,573 
Total lease payments$400,376 $20,400 $420,776 
     Less: Interest86,617 1,329 87,946 
Lease Liabilities$313,759 $19,071 $332,830 



30

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

As presented in our 2018 Form 10-K (under ASC 840), the future minimum rentals under noncancellable operating leases with terms of more than one year, payable over the remaining lives of the leases at December 31, 2018, were as follows:
PeriodMinimum Future Rental Commitments
2019$48,200 
202041,700 
202132,500 
202227,300 
202321,400 
Beyond 202392,300 

The following tables set forth the Company's weighted average remaining lease term and discount rates used in the calculation of its outstanding lease liabilities June 30, 2019, along with other lease-related information for the three months ended June 30, 2019:
Lease Term and Discount RateAs of June 30, 2019
Weighted-average remaining lease term (years):
     Operating leases11.2
     Finance leases2.8
Weighted-average discount rate:
     Operating leases 4.92%  
     Finance leases5.08%  
Other InformationSix Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows used by operating leases $31,482 
     Operating cash flows used by finance leases$521 
     Financing cash flows used by finance leases$4,575 
Leased assets obtained in exchange for new operating lease liabilities$8,820 
Leased assets obtained in exchange for new finance lease liabilities$104 

31

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

Note 14: Revenue Recognition
The Company has rebate agreements with certain customers. These rebates are recorded as reductions of sales and are accrued using sales data and rebate percentages specific to each customer agreement. Accrued customer rebates are included in "Accrued expenses and other" in the Company's Condensed Consolidated Balance Sheets.
Payment terms under the Company's sales arrangements are short term, generally no longer than 120 days. The Company does provide prompt payment discounts to certain customers if invoices are paid within a predetermined period. Prompt payment discounts are treated as a reduction of revenue and are determinable within a short period of the sale.
The following table sets forth information about receivables, contract assets, and liabilities from contracts with customers. Contract assets and liabilities are reported in "Other receivables" and "Accrued expenses and other," respectively, on the Condensed Consolidated Balance Sheets.
June 30, 2019December 31, 2018
Contract Assets$53,085 $48,786 
Contract Liabilities$(18,074)$(18,533)

Significant changes in the contract assets and liabilities balances during the period were as follows:
June 30, 2019December 31, 2018
Contract
Asset
Contract
Liability
Contract
Asset
Contract
Liability
Beginning Balance$48,786 $(18,533)$45,877 $(17,736)
Revenue deferred or rebates accrued— (16,458)— (19,730)
Recognized as revenue3,091 1,652 
Rebates paid to customers— 13,826 — 17,281 
Increases due to rights to consideration for customer specific goods produced, but not billed during the period54,570 — 48,786 — 
Transferred to receivables from contract assets recognized at the beginning of the period(50,271)— (45,877)— 
Ending Balance$53,085 $(18,074)$48,786 $(18,533)

Contract assets and liabilities are generally short in duration given the nature of products produced by the Company. Contract assets represents goods produced without alternative use for which the Company is entitled to payment with margin prior to shipment. Upon shipment, the Company is entitled to bill the customer, and therefore amounts included in contract assets will be reduced with the recording of an account receivable as they represent an unconditional right to payment. Contract liabilities represent revenue deferred due to pricing mechanisms utilized by the Company in certain multi-year arrangements, volume rebates, and payments received in advance. For multi-year arrangements with pricing mechanisms, the Company will generally defer revenue during the first half of the arrangement, and will release the deferral over the back half of the contract term. The Company's reportable segments are aligned by product nature as disclosed in Note 15.

32

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

The following tables set forth information about revenue disaggregated by primary geographic regions, and timing of revenue recognition for the three-month periods ended June 30, 2019 and July 1, 2018. The tables also include a reconciliation of disaggregated revenue with reportable segments.
Three months ended June 30, 2019Consumer
Packaging
Display and
Packaging
Paper and
Industrial
Converted
Products
Protective
Solutions
Total
Primary Geographical Markets:
  United States$436,896 $62,097 $268,890 $104,058 $871,941 
  Europe99,007 71,564 87,958 5,595 264,124 
  Canada28,839 — 29,903 — 58,742 
  Asia Pacific17,445 — 69,588 516 87,549 
  Other20,563 1,172 34,989 20,641 77,365 
Total$602,750 $134,833 $491,328 $130,810 $1,359,721 
Timing of Revenue Recognition:
  Products transferred at a point in time$343,324 $60,450 $472,363 $111,208 $987,345 
  Products transferred over time259,426 74,383 18,965 19,602 372,376 
Total$602,750 $134,833 $491,328 $130,810 $1,359,721 

Three months ended July 1, 2018Consumer PackagingDisplay and PackagingPaper and Industrial Converted ProductsProtective SolutionsTotal
Primary Geographical Markets:
United States$446,573 $69,180 $279,752 $103,777 $899,282 
Europe101,953 72,377 90,398 6,816 271,544 
Canada30,595 — 33,762 — 64,357 
Asia Pacific16,713 — 35,689 903 53,305 
Other20,228 1,703 34,536 21,418 77,885 
Total$616,062 $143,260 $474,137 $132,914 $1,366,373 
Timing of Revenue Recognition1:
Products transferred at a point in time$376,406 $68,324 $452,576 $109,636 $1,006,942 
Products transferred over time239,656 74,936 21,561 23,278 359,431 
Total$616,062 $143,260 $474,137 $132,914 $1,366,373 

33

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

The following tables set forth information about revenue disaggregated by primary geographic regions, and timing of revenue recognition for the six-month periods ended June 30, 2019 and July 1, 2018. The tables also include a reconciliation of disaggregated revenue with reportable segments.
Six months ended June 30, 2019Consumer
Packaging
Display and
Packaging
Paper and
Industrial
Converted
Products
Protective
Solutions
Total
Primary Geographical Markets:
  United States$853,296 $127,659 $537,456 $205,236 $1,723,647 
  Europe207,219 141,807 178,663 11,462 539,151 
  Canada56,139 — 62,736 — 118,875 
  Asia33,358 — 138,648 1,436 173,442 
  Other42,454 2,921 69,862 41,074 156,311 
Total$1,192,466 $272,387 $987,365 $259,208 $2,711,426 
Timing of Revenue Recognition:
  Products transferred at a point in time$671,820 $128,826 $951,843 $219,105 $1,971,594 
  Products transferred over time520,646 143,561 35,522 40,103 739,832 
Total$1,192,466 $272,387 $987,365 $259,208 $2,711,426 


Six months ended July 1, 2018Consumer PackagingDisplay and
Packaging
Paper and
Industrial
Converted
Products
Protective
Solutions
Total
Primary Geographical Markets:
  United States$844,559 $143,064 $545,464 $205,848 $1,738,935 
  Europe209,017 138,322 183,253 13,605 544,197 
  Canada58,301 — 66,635 — 124,936 
  Asia33,203 — 70,998 1,891 106,092 
  Other40,834 4,532 68,440 42,594 156,400 
Total$1,185,914 $285,918 $934,790 $263,938 $2,670,560 
Timing of Revenue Recognition1:
  Products transferred at a point in time$712,113 $142,898 $893,667 $221,435 $1,970,113 
  Products transferred over time473,801 143,020 41,123 42,503 700,447 
Total$1,185,914 $285,918 $934,790 $263,938 $2,670,560 


1 The Company has revised the amounts from those previously reported in 2018 to reflect corrections in the classification of revenue between "Products transferred at a point in time" and "Products transferred over time" for the Consumer Packaging and Display and Packaging reportable segments.







34

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


Revised disclosures for the three- and nine-month periods ended September 30, 2018 and year ended December 31, 2018 are presented below:

Consumer PackagingDisplay and Packaging
As Originally ReportedAdjustmentAs RevisedAs Originally ReportedAdjustmentAs Revised
Products transferred at a point in time
Three months ended September 30, 2018$368,709 $(10,476)$358,233 $124,437 $(45,198)$79,239 
Nine months ended September 30, 20181,101,125 (30,779)1,070,346 325,313 (103,176)222,137 
Year ended December 31, 20181,440,662 (41,837)1,398,825 248,034 41,837 289,871 
Products transferred over time
Three months ended September 30, 2018$231,445 $10,476 $241,921 $40,727 $45,198 $85,925 
Nine months ended September 30, 2018684,943 30,779 715,722 125,769 103,176 228,945 
Year ended December 31, 2018919,337 41,837 961,174 344,275 (41,837)302,438 

35

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

Note 15: Segment Reporting
The Company reports its financial results in four reportable segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions.
The Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.
The Display and Packaging segment includes the following products and services: designing, manufacturing,
assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cones, and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and material recycling services.
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; and temperature-assured packaging.
The following table sets forth net sales, intersegment sales and operating profit for the Company’s reportable segments. “Segment operating profit” is defined as the segment’s portion of “Operating profit” excluding restructuring charges, asset impairment charges, acquisition-related costs, and certain other items, if any, the exclusion of which the Company believes improves comparability and analysis of the financial performance of the business. General corporate expenses have been allocated as operating costs to each of the Company’s reportable segments.
SEGMENT FINANCIAL INFORMATION 
 Three Months EndedSix Months Ended
 June 30, 2019July 1, 2018June 30, 2019July 1, 2018
Net sales:
Consumer Packaging$602,750 $616,062 $1,192,466 $1,185,914 
Display and Packaging134,833 143,260 272,387 285,918 
Paper and Industrial Converted Products491,328 474,137 987,365 934,790 
Protective Solutions130,810 132,914 259,208 263,938 
Consolidated$1,359,721 $1,366,373 $2,711,426 $2,670,560 
Intersegment sales:
Consumer Packaging$1,122 $1,122 $2,043 $1,861 
Display and Packaging1,114 624 2,281 1,162 
Paper and Industrial Converted Products31,535 33,433 65,189 67,976 
Protective Solutions363 282 825 855 
Consolidated$34,134 $35,461 $70,338 $71,854 
Operating profit:
Segment operating profit:
Consumer Packaging$62,942 $63,670 $125,057 $124,758 
Display and Packaging5,889 (570)12,343 1,162 
Paper and Industrial Converted
Products
61,229 61,542 109,616 101,323 
Protective Solutions14,275 13,626 25,279 24,306 
Restructuring/Asset impairment charges(13,355)(3,567)(24,027)(6,630)
Other, net(1,212)(2,839)(1,612)(2,959)
Consolidated$129,768 $131,862 $246,656 $241,960 

36

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

Note 16: Commitments and Contingencies
Pursuant to U.S. GAAP, accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and that the amounts are reasonably estimable. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings from a variety of sources. Some of these exposures, as discussed below, have the potential to be material.

Environmental Matters
The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates.
Spartanburg
In connection with its acquisition of Tegrant in November 2011, the Company identified potential environmental contamination at a site in Spartanburg, South Carolina. The total remediation cost of the Spartanburg site was estimated to be $17,400 at the time of acquisition and an accrual in this amount was recorded on Tegrant’s opening balance sheet. Since the acquisition, the Company has spent a total of $1,510 on remediation of the Spartanburg site. During previous years, the Company has increased its reserves for this site by a total of $17 in order to reflect its best estimate of what it is likely to pay in order to complete the remediation. At June 30, 2019 and December 31, 2018, the Company's accrual for environmental contingencies related to the Spartanburg site totaled $15,907 and $15,964, respectively. The Company cannot currently estimate its potential liability, damages or range of potential loss, if any, beyond the amounts accrued with respect to this exposure. However, the Company does not believe that the resolution of this matter has a reasonable possibility of having a material adverse effect on the Company's financial statements.
Other environmental matters
The Company has been named as a potentially responsible party at several other environmentally contaminated sites. All of the sites are also the responsibility of other parties. The potential remediation liabilities are shared with such other parties, and, in most cases, the Company’s share, if any, cannot be reasonably estimated at the current time. However, the Company does not believe that the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company's financial statements. At June 30, 2019 and December 31, 2018, the Company's accrual for these other sites totaled $3,946 and $4,136, respectively.
Summary
As of June 30, 2019 and December 31, 2018, the Company (and its subsidiaries) had accrued $19,853 and $20,100, respectively, related to environmental contingencies. These accruals are included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets.
Other Legal Matters
In addition to those matters described above, the Company is subject to other various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters could differ from management’s expectations, the Company does not believe the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company’s financial statements.

37




Report of Independent Registered Public Accounting Firm

To the Board of Directors and shareholders of Sonoco Products Company,

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of Sonoco Products Company and its subsidiaries (the “Company”) as of June 30, 2019, and the related condensed consolidated statements of income, comprehensive income, and changes in total equity for the three-month and six month periods ended June 30, 2019 and July 1, 2018, and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2019 and July 1, 2018, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, changes in total equity and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



/s/PricewaterhouseCoopers LLP
Charlotte, North Carolina
July 31, 2019

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SONOCO PRODUCTS COMPANY
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements included in this Quarterly Report on Form 10-Q that are not historical in nature, are intended to be, and are hereby identified as “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended. In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “estimate,” “project,” “intend,” “expect,” “believe,” “consider,” “plan,” “strategy,” “opportunity,” “commitment,” “target,” “anticipate,” “objective,” “goal,” “guidance,” “outlook,” “forecast,” “future,” “re-envision,” “assume,” “will,” “would,” “can," “could,” “may,” “might,” “aspires,” “potential,” or the negative thereof, and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding:
availability and supply of raw materials, and offsetting high raw material costs, including the impact of potential changes in tariffs;
improved productivity and cost containment;
improving margins and leveraging strong cash flow and financial position;
effects of acquisitions and dispositions;
realization of synergies resulting from acquisitions;
costs, timing and effects of restructuring activities;
adequacy and anticipated amounts and uses of cash flows;
expected amounts of capital spending;
refinancing and repayment of debt;
financial strategies and the results expected of them;
financial results for future periods;
producing improvements in earnings;
profitable sales growth and rates of growth;
market leadership;
research and development spending;
expected impact and costs of resolution of legal proceedings;
extent of, and adequacy of provisions for, environmental liabilities;
adequacy of income tax provisions, realization of deferred tax assets, outcomes of uncertain tax issues and tax rates;
goodwill impairment charges and fair values of reporting units;
future asset impairment charges and fair values of assets;
anticipated contributions to pension and postretirement benefit plans, fair values of plan assets, long-term rates of return on plan assets, and projected benefit obligations and payments;
expected impact of implementation of new accounting pronouncements;
creation of long-term value and returns for shareholders;
continued payment of dividends; and
planned stock repurchases.
Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management. Such information includes, without limitation, discussions as to guidance and other estimates, perceived opportunities, expectations, beliefs, plans, strategies, goals and objectives concerning our future financial and operating performance. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. The risks, uncertainties and assumptions include, without limitation:
availability and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs, and the Company's ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;
costs of labor;
work stoppages due to labor disputes;
success of new product development, introduction and sales;
consumer demand for products and changing consumer preferences;
ability to be the low-cost global leader in customer-preferred packaging solutions within targeted segments;
39

SONOCO PRODUCTS COMPANY
competitive pressures, including new product development, industry overcapacity, customer and supplier consolidation, and changes in competitors' pricing for products;
ability to maintain or increase productivity levels, contain or reduce costs, and maintain positive price/cost relationships;
ability to negotiate or retain contracts with customers, including in segments with concentration of sales volume;
ability to improve margins and leverage cash flows and financial position;
continued strength of our paperboard-based tubes and cores and composite can operations;
ability to manage the mix of business to take advantage of growing markets while reducing cyclical effects of some of the Company's existing businesses on operating results;
ability to maintain innovative technological market leadership and a reputation for quality;
ability to attract and retain talented and qualified employees, managers and executives;
ability to profitably maintain and grow existing domestic and international business and market share;
ability to expand geographically and win profitable new business;
ability to identify and successfully close suitable acquisitions at the levels needed to meet growth targets, and successfully integrate newly acquired businesses into the Company's operations;
the costs, timing and results of restructuring activities;
availability of credit to us, our customers and suppliers in needed amounts and on reasonable terms;
effects of our indebtedness on our cash flow and business activities;
fluctuations in interest rates and our borrowing costs;
fluctuations in obligations and earnings of pension and postretirement benefit plans;
accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;
cost of employee and retiree medical, health and life insurance benefits;
resolution of income tax contingencies;
foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;
changes in U.S. and foreign tariffs, tax rates, and tax laws, regulations, interpretations and implementation thereof;
challenges and assessments from tax authorities resulting from differences in interpretation of tax laws, including income, sales and use, property, value added, employment and other taxes;
accuracy in valuation of deferred tax assets;
accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management's assessment of goodwill impairment;
accuracy of assumptions underlying fair value measurements, accuracy of management's assessments of fair value and fluctuations in fair value;
ability to maintain effective internal controls over financial reporting;
liability for and anticipated costs of resolution of legal proceedings;
liability for and anticipated costs of environmental remediation actions;
effects of environmental laws and regulations;
operational disruptions at our major facilities;
failure or disruptions in our information technologies;
failure of third party transportation providers to deliver our products to our customers or to deliver raw materials to us;
substantially lower than normal crop yields;
loss of consumer or investor confidence;
ability to protect our intellectual property rights;
changes in laws and regulations relating to packaging for food products and foods packaged therein, other actions and public concerns about products packaged in our containers, or chemicals or substances used in raw materials or in the manufacturing process;
changing climate, climate change regulations and greenhouse gas effects;
actions of domestic or foreign government agencies and other changes in laws and regulations affecting the Company and increased costs of compliance;
international, national and local economic and market conditions and levels of unemployment;
anticipated impact on our operations of Brexit; and
economic disruptions resulting from terrorist activities and natural disasters.

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SONOCO PRODUCTS COMPANY
More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company's Annual Report on Form 10-K under Item 1A - "Risk Factors" and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission. In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions, in our future filings with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K.

COMPANY OVERVIEW
Sonoco is a leading provider of consumer packaging, industrial products, protective packaging and packaging supply chain services, with approximately 310 locations in 36 countries.
Sonoco competes in multiple product categories, with its operations organized and reported in four segments: Consumer Packaging, Display and Packaging, Paper and Industrial Converted Products, and Protective Solutions. The majority of the Company’s revenues are from products and services sold to consumer and industrial products companies for use in the packaging of their products for sale or shipment. The Company also manufactures paperboard, primarily from recycled materials, for both internal use and open market sale. Each of the Company’s operating units has its own sales staff and maintains direct sales relationships with its customers.
Second Quarter 2019 Compared with Second Quarter 2018
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
Measures calculated and presented in accordance with generally accepted accounting principles are referred to as GAAP financial measures. The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company’s Condensed Consolidated Statements of Income for each of the periods presented. These non-GAAP financial measures (referred to as “Base”) are the GAAP measures adjusted to exclude (dependent upon the applicable period) restructuring charges, asset impairment charges, acquisition/disposition-related costs, specifically identified tax adjustments, non-operating pension costs/income and certain other items, if any, the exclusion of which the Company believes improves comparability and analysis of the underlying financial performance of the business. More information about the Company's use of Non-GAAP financial measures is provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 under Item 7 - "Management's discussion and analysis of financial condition and results of operations," under the heading "Use of non-GAAP financial measures."
For the three months ended June 30, 2019
Dollars in thousands, except per share dataGAAPRestructuring/
Asset
Impairment
Other
Adjustments(1)
Base
Operating profit$129,768 $13,355 $1,212 $144,335 
Non-operating pension costs5,550 — (5,550)— 
Interest expense, net15,952 — — 15,952 
Income before income taxes108,266 13,355 6,762 128,383 
Provision for income taxes28,491 3,307 1,430 33,228 
Income before equity in earnings of affiliates79,775 10,048 5,332 95,155 
Equity in earnings of affiliates, net of tax1,511 — — 1,511 
Net income81,286 10,048 5,332 96,666 
Net (income) attributable to noncontrolling interests(127)(69)— (196)
Net income attributable to Sonoco81,159 9,979 5,332 96,470 
Per diluted common share*$0.80 $0.10 $0.05 $0.95 
*Due to rounding individual items may not sum across
(1)Consists of non-operating pension costs and costs related to acquisitions and potential acquisitions and divestitures.
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SONOCO PRODUCTS COMPANY
For the three months ended July 1, 2018
Dollars in thousands, except per share dataGAAPRestructuring/
Asset
Impairment
Other
Adjustments(1)
Base
Operating profit$131,862 $3,567 $2,839 $138,268 
Non-operating pension costs513 — (513)— 
Interest expense, net15,127 — — 15,127 
Income before income taxes116,222 3,567 3,352 123,141 
Provision for income taxes30,293 1,046 1,626 32,965 
Income before equity in earnings of affiliates85,929 2,521 1,726 90,176 
Equity in earnings of affiliates, net of tax3,716 — — 3,716 
Net income89,645 2,521 1,726 93,892 
Net (income) attributable to noncontrolling interests(233)(15)— (248)
Net income attributable to Sonoco$89,412 $2,506 $1,726 $93,644 
Per diluted common share*$0.88 $0.02 $0.02 $0.93 
*Due to rounding individual items may not sum across
(1) Consists primarily of acquisition-related costs and non-operating pension costs, partially offset by the effect of the change in the U.S. corporate tax rate on deferred tax adjustments and a small insurance settlement gain.

RESULTS OF OPERATIONS
The following discussion provides a review of results for the three months ended June 30, 2019 versus the three months ended July 1, 2018.
OVERVIEW
Net sales for the second quarter of 2019 decreased 0.5% to $1,360 million, compared with $1,366 million in the same period last year. This marginal decrease reflects volume declines throughout most of the Company's businesses, as well as unfavorable changes in foreign currency exchange rates, which were mostly offset by sales added by acquisitions and higher year-over-year selling prices. The selling price increases were a result of both higher material and non-material costs as well as other efforts to more fully realize the value of the products and services we provide to our customers.

Net income attributable to Sonoco for the second quarter of 2019 decreased 9.2% to $81.2 million, $0.80 per diluted share, compared to $89.4 million, $0.88 per diluted share, reported for the same period of 2018. Current quarter net income includes after-tax, non-base charges totaling $15.3 million, while results for the second quarter of 2018 include after-tax, non-base net charges totaling $4.2 million. Earnings declined due to a $7.5 million increase in after-tax restructuring and asset impairment costs in the current quarter associated with previously announced plant closures and organizational restructuring activities within a number of the Company's businesses and corporate support groups. Additionally, after-tax non-operating pension costs increased $3.8 million over the prior year's second quarter.

Adjusted for all non-base items, second-quarter 2019 base net income attributable to Sonoco (base earnings) increased 3.0% to $96.5 million, $0.95 per diluted share, from $93.6 million, $0.93 per diluted share, in 2018. This increase was driven by a 4.4 percent increase in base operating profit. Total productivity improvements and operating profits from acquisitions drove this year-over-year increase, but were partially offset by volume declines. Base earnings also benefited from a favorable effective tax rate compared to 2018. These positive factors were partially offset by an increase in net interest expense.









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SONOCO PRODUCTS COMPANY
OPERATING REVENUE
Net sales for the second quarter of 2019 decreased $7 million, or 0.5 percent, from the prior-year quarter.
The components of the sales change were: 
($ in millions)
Volume/mix$(48)
Selling prices12 
Acquisitions67 
Foreign currency translation and other, net(38)
Total sales decrease$(7)

In September of 2018, the Company exited a single-customer contract at a packaging center near Atlanta. The negative impact on comparable net sales, second quarter to second quarter, was $16.2 million. Due to the relatively low margins in this business, the impact of the lost revenue is included above in "Foreign currency translation and other, net."

COSTS AND EXPENSES
Cost of goods sold decreased 5.5 million, or 0.5%, and gross profit margin percentage was flat at 20.2% for the second quarter of 2019 compared to 20.2% in the prior-year's second quarter. The translation impact of a stronger dollar decreased reported cost of goods sold by approximately $24 million compared to the second quarter of 2018 while acquisitions added $53 million.

Selling, general and administrative ("SG&A") costs for the quarter decreased $8.8 million, or 6.3%, year over year due to a significant focus across the business on lowering controllable costs and lower management incentive expense, which were partially offset by the addition of expenses from acquisitions.

Restructuring costs and asset impairment charges totaled $13.4 million for the second quarter of 2019 compared with $3.6 million in the same period last year. The year-over-year increase was mostly driven by costs associated with previously announced plant closures and organizational restructuring activities within a number of the Company's businesses and corporate support groups. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Non-operating pension costs increased $5.0 million for the quarter, compared to the prior-year's period, due primarily to lower expected returns on plan assets and higher discount rates.
Net interest expense for the second quarter increased to $16.0 million, compared with $15.1 million during the second quarter of 2018. The increase was primarily due to higher non-U.S. debt balances and reduced interest income on lower offshore cash balances.
The 2019 second-quarter effective tax rates on GAAP and base earnings were 26.3% and 25.9%, respectively, compared with 26.1% and 26.8%, respectively, in the prior year’s quarter. The effective tax rate on GAAP earnings for the second quarter of 2019 was slightly higher due primarily to one-time adjustments in the second quarter of 2018 related to the U.S. Tax Cuts and Jobs Act of 2017. The lower base effective tax rate for the second quarter of 2019 was primarily attributable to a decreased impact from the Global Intangible Low Taxed Income (GILTI) tax.
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SONOCO PRODUCTS COMPANY
REPORTABLE SEGMENTS
The following table recaps net sales attributable to each of the Company’s segments for the second quarters of 2019 and 2018 ($ in thousands):
Three Months Ended
June 30, 2019July 1, 2018%
Change
Net sales:
Consumer Packaging$602,750 $616,062 (2.2)%
Display and Packaging134,833 143,260 (5.9)%
Paper and Industrial Converted Products491,328 474,137 3.6 %
Protective Solutions130,810 132,914 (1.6)%
Consolidated$1,359,721 $1,366,373 (0.5)%

The following table recaps operating profit attributable to each of the Company’s segments during the second quarters of 2019 and 2018 ($ in thousands):
Three Months Ended
June 30, 2019July 1, 2018%
Change
Operating profit:
Segment operating profit:
Consumer Packaging$62,942 $63,670 (1.1)%
Display and Packaging5,889 (570)> 100%  
Paper and Industrial Converted Products61,229 61,542 (0.5)%
Protective Solutions14,275 13,626 4.8 %
Restructuring/Asset impairment charges(13,355)(3,567)
Other, net(1,212)(2,839)
Consolidated$129,768 $131,862 (1.6)%
Segment results viewed by Company management to evaluate segment performance do not include restructuring charges, asset impairment charges, acquisition-related charges, non-operating pension costs/income, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments.

The following table recaps restructuring/asset impairment charges attributable to each of the Company’s segments during the second quarters of 2019 and 2018 ($ in thousands):
Three Months Ended
June 30, 2019July 1, 2018
Restructuring/Asset impairment charges:
Consumer Packaging$10,487 $1,986 
Display and Packaging511 677 
Paper and Industrial Converted Products1,600 64 
Protective Solutions561 820 
Corporate196 20 
Consolidated$13,355 $3,567 



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SONOCO PRODUCTS COMPANY
Consumer Packaging
The Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and thermoformed plastic); extruded and injection-molded plastic products; printed flexible packaging; global brand artwork management; and metal and peelable membrane ends and closures.
Segment sales decreased 2.2 percent compared to the prior year's quarter due to lower volume/mix and the negative impact of foreign exchange. Sales volume declined in North America Rigid Paper Containers as well as Flexible Packaging and Rigid Plastics as many served markets experienced slowing customer demand. The Rigid Plastics volume decline was largely due to poor perimeter of the store performance, partially due to the negative impact of weather on strawberry crop yield and partially due to operational issues related to the consolidation of a facility and relocation of four thermoforming lines to other facilities. The plastics business also experienced a slowdown in some industrial-served markets.

Segment operating profit decreased 1.1 percent compared to the prior year's quarter as the benefits of productivity improvements and a positive price/cost relationship were more than offset by weaker volume. Despite the volume declines, the productivity improvements and positive price/cost relationship resulted in segment operating margin improving slightly to 10.4 percent in the quarter from 10.3 percent in 2018.

Display and Packaging
The Display and Packaging segment includes the following products and services: designing, manufacturing,
assembling, packing and distributing temporary, semi-permanent and permanent point-of-purchase displays; supply chain management services, including contract packing, fulfillment and scalable service centers; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; and paper amenities, such as coasters and glass covers.

Sales declined 5.9 percent compared to last year’s quarter as volume growth across the segment was more than offset by the foregone revenue following the Company's September 2018 exit from a single-customer contract to operate a pack center outside Atlanta. Segment operating profit improved $6.5 million due to higher volume/mix, improved productivity and the non-recurrence of operating losses at the exited pack center.
Paper and Industrial Converted Products
The Paper and Industrial Converted Products segment includes the following products: paperboard tubes, cones and cores; fiber-based construction tubes; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, linerboard, corrugating medium, recovered paper and material recycling services.

Segment sales increased 3.6 percent from the prior-year's quarter due primarily to sales added from the Conitex acquisition. This was partially offset by lower volume/mix and the negative impact of changes in foreign exchange rates. Current quarter paperboard, corrugated medium and tube and core volumes were weaker across all geographies largely due to a combination of soft end-use demand and inventory management by our customers in response to tariffs and increased risks of an economic slowdown.

Segment operating profit was essentially flat with the prior year's quarter as earnings from the Conitex acquisition, productivity improvements and a slightly positive price/cost relationship effectively offset negative volume/mix. Segment operating margin declined 52 basis points to 12.5 percent.

In May 2019, the Company signed a definitive agreement to acquire Corenso Holdings America (Corenso) for approximately $110 million. Corenso operates a 108,000-ton per year Uncoated Recycled Board (URB) mill in Wisconsin Rapids, Wisconsin, as well as two core converting facilities, and generates total annual sales of approximately $75 million. All of Corenso's products are made from recycled paper, which further enhances the Company's commitment to increase the amount of material it recycles, or causes to be recycled, relative to the volume of products it puts into the market place. The transaction is expected to close by the end of the third quarter.

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SONOCO PRODUCTS COMPANY
Protective Solutions
The Protective Solutions segment includes the following products: custom-engineered, paperboard-based and expanded foam protective packaging and components; and temperature-assured packaging.

Segment sales for the quarter declined 1.6% year over year due primarily to lower volume/mix as strong sales growth for temperature-assured packaging was more than offset by declines in molded foam and consumer fiber packaging. Segment operating profit improved modestly as strong productivity improvements were only partially offset by a negative price/cost relationship. Compared to the prior-year's quarter, segment operating margin improved 66 basis points to 10.9 percent.

Six Months Ended June 30, 2019 Compared with Six Months Ended July 1, 2018
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company’s Condensed Consolidated Statements of Income for each of the periods presented.
For the six months ended June 30, 2019
Dollars in thousands, except per share dataGAAPRestructuring/
Asset
Impairment
Other
Adjustments(1)
Base
Operating profit$246,656 $24,027 $1,612 $272,295 
Non-operating pension costs11,591 — (11,591)— 
Interest expense, net31,337 — — 31,337 
Income before income taxes203,728 24,027 13,203 240,958 
Provision for income taxes51,115 5,945 3,315 60,375 
Income before equity in earnings of affiliates152,613 18,082 9,888 180,583 
Equity in earnings of affiliates, net of tax2,441 — — 2,441 
Net income155,054 18,082 9,888 183,024 
Net (income) attributable to noncontrolling interests(232)(138)— (370)
Net income attributable to Sonoco$154,822 $17,944 $9,888 $182,654 
Per diluted common share*$1.53 $0.18 $0.10 $1.81 
*Due to rounding individual items may not foot across
(1)Consists primarily of non-operating pension costs and costs related to acquisitions and potential acquisitions.

For the six months ended July 1, 2018
Dollars in thousands, except per share dataGAAPRestructuring/
Asset
Impairment
Other
Adjustments(1)
Base
Operating profit$241,960 $6,630 $2,959 $251,549 
Non-operating pension costs222 — (222)— 
Interest expense, net28,482 — — 28,482 
Income before income taxes213,256 6,630 3,181 223,067 
Provision for income taxes53,649 1,731 3,465 58,845 
Income before equity in earnings of affiliates159,607 4,899 (284)164,222 
Equity in earnings of affiliates, net of tax4,963 — — 4,963 
Net income164,570 4,899 (284)169,185 
Net (income) attributable to noncontrolling interests(1,103)(20)— (1,123)
Net income attributable to Sonoco$163,467 $4,879 $(284)$168,062 
Per diluted common share*$1.62 $0.05 $$1.66 
*Due to rounding individual items may not foot across
(1) Consists primarily of acquisition-related costs and non-operating pension costs, partially offset by a gain from the effect of a change in the U.S. corporate tax rate on deferred tax adjustments, and a small insurance settlement gain.
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SONOCO PRODUCTS COMPANY
RESULTS OF OPERATIONS
The following discussion provides a review of results for the six months ended June 30, 2019 versus the six months ended July 1, 2018.
OVERVIEW
Net sales for the first six months of 2019 increased 1.5% to $2,711 million, compared with $2,671 million in the same period last year. The improvement reflects an increase in sales added by acquisitions and higher selling prices implemented both to cover higher material and non-material costs as well as other efforts to more fully realize the value of the products and services we provide to our customers. These positive factors were somewhat offset by the negative impact of foreign exchange and volume declines across most of our businesses.
Net income attributable to Sonoco for the first six months of 2019 decreased 5.3% to $154.8 million, $1.53 per diluted share, compared to $163.5 million, $1.62 per diluted share, reported for the same period of 2018. Current period net income includes after-tax, non-base charges totaling $27.8 million. These charges consist of $17.9 million in after-tax restructuring charges, $8.7 million in after-tax non-operating pension charges, and $1.2 million in after-tax acquisition-related costs. Results for the first six months of 2018 include after-tax restructuring and asset impairment charges of $4.9 million and non-operating pension charges, acquisition, and non-base tax benefits of $0.3 million. Adjusted for these items, six-month base net income attributable to Sonoco (base earnings) increased 8.7% to $182.7 million, $1.81 per diluted share, from $168.1 million, $1.66 per diluted share, in 2018.
The lower GAAP earnings in the first six months of 2019 were largely the result of a $13.1 million increase in after-tax restructuring expense which was mostly driven by costs associated with previously announced plant closures and organizational restructuring activities within a number of the Company's businesses and corporate support groups. Additionally, after-tax non-operating pension costs increased $8.6 million. Absent these and all other non-base items, base earnings increased $14.6 million from the first six months last year. This increase was driven by earnings from acquired businesses, total productivity improvements and a positive price/cost impact, particularly in the Company's Paper and Industrial Converted Products segment. These positive factors were slightly offset by volume declines across most businesses.
OPERATING REVENUE
Net sales for the first six months of 2019 increased $41 million from the same period in 2018.
The components of the sales change were:
($ in millions)
Volume/mix$(64)
Selling prices38 
Acquisitions and Divestitures150 
Foreign currency translation and other, net(83)
Total sales increase$41 
In September of 2018, the Company exited a single-customer contract at a packaging center near Atlanta. The negative impact on comparable net sales, for the first six months of 2019 compared to the six months of 2018, was $38.5 million. Due to the relatively low margins in this business, the impact of the lost revenue is included above in "Foreign currency translation and other, net."

COSTS AND EXPENSES
The Company's gross profit margin percentage increased to 20.1% for the first six months compared to 19.7% in the prior-year's period. The modest increase in gross profit margin was largely attributable to a favorable price/cost relationship, procurement productivity, and the timing and direction of material cost movements. Margins also benefited from improved manufacturing cost productivity, partially offset by higher wage and operating cost inflation. The translation impact of a stronger dollar decreased reported cost of goods sold by approximately $57 million compared to the first six months of 2018.
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SONOCO PRODUCTS COMPANY
SG&A costs for the first six months decreased $3.7 million, or 1.3%, year over year driven by a significant focus across the business on lowering controllable costs and lower year-over-year management incentive expense, which were partially offset by the addition of expenses from acquisitions.
Year-to-date restructuring costs and asset impairment charges totaled $24.0 million compared with $6.6 million in the same period last year. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Non-operating pension costs increased $11.4 million in the first six months of 2019 compared to the prior-year period due to lower expected returns on plan assets as a result of lower asset values at the end of 2018 and modestly lower assumed long-term rates of return.
Net interest expense for the first six months increased to $31.3 million, compared with $28.5 million during the first six months of 2018. The increase was primarily due to higher non-U.S. debt balances and reduced interest income on lower offshore cash balances.
The effective tax rate on GAAP and base earnings in the first six months of 2019 was 25.1% and 25.1%, respectively, compared with 25.2% and 26.4%, respectively, for last year's periodThe 2019 base rate was lower than the prior year's period due primarily to the decrease in the GILTI tax. The year to date GAAP rate was essentially unchanged, driven by a favorable non-base adjustment in 2018 resulting from the U.S. Tax Cuts and Jobs Act of 2017.
REPORTABLE SEGMENTS
The following table recaps net sales attributable to each of the Company's segments during the first six months of 2019 and 2018 ($ in thousands): 
Six Months Ended
June 30, 2019July 1, 2018% Change
Net sales:
Consumer Packaging$1,192,466 $1,185,914 0.6 %
Display and Packaging272,387 285,918 (4.7)%
Paper and Industrial Converted Products987,365 934,790 5.6 %
Protective Solutions259,208 263,938 (1.8)%
Consolidated$2,711,426 $2,670,560 1.5 %

The following table recaps operating profits attributable to each of the Company's segments during the first six months of 2019 and 2018 ($ in thousands):
Six Months Ended
June 30, 2019July 1, 2018% Change
Operating profit:
Segment operating profit:
Consumer Packaging$125,057 $124,758 0.2 %
Display and Packaging12,343 1,162 >100%  
Paper and Industrial Converted Products109,616 101,323 8.2 %
Protective Solutions25,279 24,306 4.0 %
Restructuring/Asset impairment charges(24,027)(6,630)
Other, net(1,612)(2,959)
Consolidated$246,656 $241,960 1.9 %
 
Segment results viewed by Company management to evaluate segment performance do not include restructuring charges, asset impairment charges, acquisition-related charges, non-operating pension costs/income, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of
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SONOCO PRODUCTS COMPANY
“operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments.

The following table recaps restructuring/asset impairment charges attributable to each of the Company’s segments during the first six months of 2019 and 2018 ($ in thousands):
Six Months Ended
June 30, 2019July 1, 2018
Restructuring/Asset impairment charges:
Consumer Packaging$17,742 $3,715 
Display and Packaging886 663 
Paper and Industrial Converted Products2,474 911 
Protective Solutions1,003 1,098 
Corporate1,922 243 
Consolidated$24,027 $6,630 
Consumer Packaging
Segment sales increased 0.6% year to date compared to the prior-year period due to acquisitions and higher selling prices which were mostly offset by lower volumes in Global Plastics, Flexibles and North American Rigid Paper Containers as many served markets experienced weaker customer demand, most notably in the second quarter. The volume decline in Rigid Plastics was largely due to poor perimeter of the store performance, partially due to the negative impact of weather on strawberry crop yield and partially due to operational issues related to the consolidation of a facility and relocation of four thermoforming lines to other facilities. The plastics business also experienced a slowdown in some industrial-served markets. Additionally, the negative impact of changes in foreign exchange rates lowered sales approximately $22 million.
Year-to-date segment operating profit increased 0.2% due to a positive price/cost relationship, the benefit of acquisitions, and productivity gains particularly in Flexibles. These positive drivers were effectively offset by the previously mentioned volume declines.

Display and Packaging
Sales for the segment were down 4.7% year to date compared to last year’s period as volume growth in domestic displays and international pack centers was more than offset by foregone revenue following the Company's September 2018 exit from a single-customer contract to operate a pack center outside Atlanta.
Segment operating profit increased $11.2 million, largely due to higher volume/mix, improved productivity and the non-recurrence of operating losses at the exited pack center.
Paper and Industrial Converted Products
Segment sales increased 5.6% year to date versus the prior year period due to acquisitions and modest increases from higher selling prices, partially offset by volume declines across most businesses.
Operating profit increased 8.2% over the prior year period driven by the 2018 acquisition of Conitex; otherwise, a positive price/cost relationship across most of the segment and modest productivity gains were offset by volume losses. Prices for old corrugated containers (OCC), a primary raw material, trended downward during the first half of the year, creating margin pressure on the segment's contract business. However, more than offsetting this effect, the Company was able to better maintain selling prices on the portion of the tubes, cores and paper business not contractually tied to OCC. As a result, segment operating margin improved 25 basis points to 11.1%.
Protective Solutions
Segment sales for the period declined 1.8% year over year driven by volume declines in molded foam and consumer fiber packaging, somewhat offset by strong sales growth for temperature-assured packaging.
Year-to-date operating profit increased 4.0% from the prior-year period due to total productivity somewhat offset by a negative price/cost relationship. Segment operating margin was 9.8%, a 53 basis point improvement over the same period last year.
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OTHER ITEMS
Critical Accounting Policies and Estimates
Income taxes
As previously disclosed, the Company received a draft Notice of Proposed Adjustment (“NOPA”) from the Internal Revenue Service (IRS) in February 2017 proposing an adjustment to income for the 2013 tax year based on the IRS's recharacterization of a distribution of an intercompany note made in 2012, and the subsequent repayment of the note over the course of 2013, as if it were a cash distribution made in 2013. In March 2017, the Company received a draft NOPA proposing penalties of $18 million associated with the IRS’s recharacterization, as well as an Information Document Request (“IDR”) requesting the Company’s analysis of why such penalties should not apply. The Company responded to this IDR in April 2017. On October 5, 2017, the Company received two revised draft NOPAs proposing the same adjustments and penalties as in the prior NOPAs. On November 14, 2017, the Company received two final NOPAs proposing the same adjustments and penalties as in the prior draft NOPAs. On November 20, 2017, the Company received a Revenue Agent's Report (“RAR”) that included the same adjustments and penalties as in the prior NOPAs. At the time of the distribution in 2012, it was characterized as a dividend to the extent of earnings and profits, with the remainder as a tax free return of basis and taxable capital gain. As the IRS proposes to recharacterize the distribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the RAR would be approximately $89 million, excluding interest and the previously referenced penalties. On January 22, 2018, the Company filed a protest to the proposed deficiency with the IRS. The Company received a rebuttal of its protest from the IRS on July 10, 2018, and the matter has now been referred to the Appeals Division of the IRS. The Company had a pre-conference hearing with IRS Appeals during the second quarter of 2019. The Company strongly believes the position of the IRS with regard to this matter is inconsistent with applicable tax laws and existing Treasury regulations, and that the Company's previously reported income tax provision for the year in question is appropriate. However, there can be no assurance that this matter will be resolved in the Company's favor. Regardless of whether the matter is resolved in the Company's favor, the final resolution of this matter could be expensive and time consuming to defend and/or settle. While the Company believes that the amount of tax originally paid with respect to this distribution is correct, and accordingly has not provided additional reserve for tax uncertainty, there is still a possibility that an adverse outcome of the matter could have a material effect on its results of operations and financial condition.

Subsequent Event
On July 17, 2019, subsequent to the end of the second quarter, the Company's Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants, a tax-qualified defined benefit plan (the "Inactive Plan"), effective September 30, 2019. Once approval is received from the Internal Revenue Service and the Pension Benefit Guaranty Corporation, and following completion of the limited lump-sum offering, the Company is expected to settle all remaining liabilities under the Inactive Plan in 2020 through the purchase of annuity contracts. The Company anticipates making additional contributions to the Inactive Plan in 2020 of between $75 million and $125 million in order to be fully funded on a termination basis at the time of the annuity purchase. However, the actual amount of the Company's long-term liability when it is transferred, and the related cash contribution requirement, will depend upon the nature and timing of participant settlements, as well as prevailing market conditions. Non-cash settlement charges resulting from the lump sum payouts and annuity purchases are expected to range between $525 million and $575 million. The termination of the Inactive Plan will apply to participants who have separated service from Sonoco and to nonunion active employees who no longer accrue pension benefits. There is no change in the cumulative benefit previously earned by the approximately 11,000 impacted participants as a result of these actions, and the Company will continue to manage and support the Sonoco Pension Plan, comprised of approximately 600 active participants who continue to accrue benefits in accordance with a flat-dollar multiplier formula. 








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SONOCO PRODUCTS COMPANY

Financial Position, Liquidity and Capital Resources
Operating cash flows totaled $40.1 million in the six months ended June 30, 2019 compared with $251.2 million during the same period last year, a decrease of $211.2 million. The year-over-year change in operating cash flows is due largely to a $189.4 million increase in benefit plan contributions resulting from voluntary contributions totaling $190 million made to the Company's U. S. defined benefit pension plans in May 2019. Accounts Receivable consumed $46.2 million of operating cash in the first six months of 2019 compared with $45.0 million in the same period last year as both periods experienced increased business activity following seasonally lower year-end activity. Similarly, inventories consumed $16.8 million of cash in the first six months of 2019 compared with $16.7 million in the same period last year. Trade accounts payable consumed $2.8 million of cash during the six months ended June 30, 2019 compared to providing $16.7 million last year. The year-over-year change was due largely to the timing of payments at the end of the second quarter of 2019.

Changes in accrued expenses consumed $7.7 million of operating cash in the six months ended June 30, 2019 while providing $1.0 million in the same period last year. The greater consumption this year is primarily due to higher management incentives paid in the first six months of 2019 compared to the first six months of 2018. Changes in other assets and liabilities consumed $1.9 million of additional cash in the first six months of 2019 compared to 2018 while the impact of income taxes, net payables and deferred items, provided $8.1 million more. Operating cash flows in the second half of 2019 are anticipated to include cash tax benefits of approximately $22 million associated with the $200 million total expected voluntary pension contributions.

Net cash used in investing activities was $99.9 million in the six months ended June 30, 2019, compared with $223.4 million in the same period last year, a lower year-over-year use of cash totaling $123.5 million. The most significant driver of the decreased net use of cash was a $140.9 million decrease in acquisition spending as the Company acquired Highland Packaging during the first six months of 2018 and had no meaningful acquisition activity in the first six months of 2019. Capital spending during the first six months of 2019 was $102.3 million, approximately $13 million higher year over year. Capital spending for the remainder of 2019 is not expected to exceed $110 million.

Cash provided by financing activities totaled $34.7 million in the six months ended June 30, 2019, compared with a use of cash totaling $79.4 million in the same period last year. The $114.1 million year-over-year increased provision was partially driven by higher debt issuances net of repayments, of $133.7 million. In May 2019, the Company entered into a new $200 million term loan that was used to fund the voluntary contributions to the U.S. defined benefit pension plans. Also, during the second quarter the Company settled a contingent purchase price liability related to the Highland acquisition for $5.0 million and paid cash dividends of $84.2 million during the six months ended June 30, 2019, an increase of $4.4 million over the same period last year. Cash used to repurchase the Company's common stock was higher year over year by $4.0 million.
The Company operates a $350 million commercial paper program, supported by a $500 million revolving credit facility with a syndicate of eight banks. The revolving bank credit facility is committed through July 2022. If circumstances were to prevent the Company from issuing commercial paper, it has the contractual right to draw funds directly on the underlying revolving bank credit facility. Borrowings under the credit facility may be prepaid at any time at the discretion of the Company.
On May 17, 2019, the Company entered into a new 364-day, $200 million term loan. The full $200 million was drawn from this facility on May 20, 2019. Of these proceeds, $190 million was used to fund voluntary contributions to the Sonoco's U.S. defined benefit pension plans. The unsecured loan has a 364-day term and the Company has a one-time option to request an extension of the term for an additional 364 days if it meets certain conditions. Interest is assessed at the London Interbank Offered Rate (LIBOR) plus a margin based on a pricing grid that uses the Company’s credit ratings. The LIBOR margin at June 30, 2019 was 100 basis points. There is no required amortization and repayment can be accelerated at any time at the discretion of the Company.
The Company continually explores strategic acquisition opportunities which may result in the additional use of cash. Given the nature of the acquisition process, the timing and amounts of such expenditures are not predictable. The Company expects that any acquisitions requiring funding in excess of cash on hand would be financed using available borrowing capacity.
Cash and cash equivalents totaled $96.3 million and $120.4 million at June 30, 2019 and December 31, 2018, respectively. Of these totals, approximately $81.6 million and $102.3 million, respectively, were held outside of the
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United States by the Company’s foreign subsidiaries. Cash held outside of the United States is available to meet local liquidity needs, or for capital expenditures, acquisitions, and other offshore growth opportunities. As the Company has ample domestic liquidity through a combination of operating cash flow generation and access to bank and capital markets borrowings, we have generally considered our foreign unremitted earnings to be indefinitely invested outside the United States and currently have no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost. Accordingly, the Company is not providing for taxes on these amounts for financial reporting purposes. Computation of the potential deferred tax liability associated with unremitted earnings considered to be indefinitely reinvested is not practicable.
The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Company and its participating subsidiaries may maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. Because it maintains a security interest in the cash deposits, and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both.
During the six months ended June 30, 2019, the Company reported a net increase in cash and cash equivalents of $1.0 million due to an overall weaker U.S. dollar relative to certain foreign currencies.
Certain of the Company’s debt agreements impose restrictions with respect to the maintenance of financial ratios and the disposition of assets. The most restrictive covenants currently require the Company to maintain a minimum level of interest coverage and a minimum level of net worth, as defined in the agreements. As of June 30, 2019, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.
The Company anticipates making additional contributions to its pension and postretirement plans of approximately $17.1 million during the remainder of 2019, including an additional $10 million voluntary contribution to its U.S. defined benefit pension plans, which would result in total 2019 contributions of approximately $231 million. As discussed in "Other Items," the Company expects to make additional contributions to the Sonoco Pension Plan for Inactive Participants in 2020 of between $75 million and $125 million, ($55 million and $95 million, after tax), as the liabilities of the Inactive Plan are settled pursuant to Board actions to terminate the Inactive Plan effective September 30, 2019. Any such additional contributions in excess of cash on hand are expected to be financed using available borrowing capacity. Future funding requirements beyond the current year will vary depending largely on actual investment returns, future actuarial assumptions, the nature and timing of participant settlements, and legislative actions.

Fair Value Measurements, Foreign Exchange Exposure and Risk Management
Certain assets and liabilities are reported in the Company’s financial statements at fair value, the fluctuation of which can impact the Company’s financial position and results of operations. Items reported by the Company at fair value on a recurring basis include derivative contracts and pension and deferred compensation related assets. The valuation of the vast majority of these items is based either on quoted prices in active and accessible markets or on other observable inputs.
As a result of operating globally, the Company is exposed to changes in foreign exchange rates. The exposure is well diversified, as the Company’s operations are located throughout the world, and the Company generally sells in the same countries where it produces with both revenue and costs transacted in the local currency. The Company monitors these exposures and may use traditional currency swaps and forward exchange contracts to hedge a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities or net investment in foreign subsidiaries. The Company’s foreign operations are exposed to political, geopolitical and cultural risks, but the risks are mitigated by diversification and the relative stability of the countries in which the Company has significant operations.
Due to the highly inflationary economy in Venezuela, the Company considers the U.S. dollar to be the functional currency of its Venezuelan operations and uses the official exchange rate when remeasuring the financial records of those operations. Economic conditions in Venezuela have worsened considerably over the past several years and there is no indication that conditions are due to improve in the foreseeable future. Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the subsidiary. At June 30, 2019, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.0 million. In addition, at June 30, 2019, the Company's Accumulated Other Comprehensive Loss included a translation loss of $3.8 million related to its Venezuelan
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operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of these operations.
The Company has operations in the United Kingdom and elsewhere in Europe that could be impacted by the pending exit of the UK from the European Union (Brexit). Our UK operations have been making contingency plans regarding potential customs clearance issues, tariffs and other uncertainties should no Brexit deal be reached. Although it is difficult to predict all of the possible impacts to our supply chain or in our customers' downstream markets, the Company has evaluated the potential operational impacts and uncertainties of Brexit and at this time believes that the likelihood of a material impact on our future results of operations is low. Although there are some cross-border sales made out of and into the UK, most of what we produce in the UK is also sold in the UK and the same is true for continental Europe. In some cases, companies that have been importing from Europe into the UK are now seeking local sources, which has actually been positive for our UK operations. Annual sales of our UK operations totaled approximately $120 million in 2018.
At June 30, 2019, the Company had commodity contracts outstanding to fix the cost of a portion of anticipated raw materials and natural gas purchases. The total net fair market value of these instruments was an unfavorable position of $(2.4) million and $(1.6) million at June 30, 2019 and December 31, 2018, respectively. Natural gas and aluminum hedge contracts covering an equivalent of 6.0 million MMBTUs and 2,041 metric tons, respectively, were outstanding at June 30, 2019. Additionally, the Company had various currency contracts outstanding to fix the exchange rate on certain anticipated foreign currency cash flows. The total market value of these instruments was a net favorable position of $0.9 million at June 30, 2019 and a net unfavorable position of $(1.7) million at December 31, 2018. These contracts qualify as cash flow hedges and mature within twelve months of their respective reporting dates.
In addition, at June 30, 2019, the Company had various currency contracts outstanding to fix the exchange rate on certain foreign currency assets and liabilities. Although placed as an economic hedge, the Company does not apply hedge accounting to these contracts. The fair value of these currency contracts was a net favorable position of $0.7 million and $0.2 million at June 30, 2019 and December 31, 2018, respectively.
At June 30, 2019, the U.S. dollar had weakened against most of the functional currencies of the Company's foreign operations compared to December 31, 2018, resulting in a net translation gain of $6.7 million being recorded in accumulated other comprehensive loss during the six months ended June 30, 2019.

Restructuring and Impairment
Information regarding restructuring charges and restructuring-related asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.
New Accounting Pronouncements
Information regarding new accounting pronouncements is provided in Note 2 to the Company’s Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.

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SONOCO PRODUCTS COMPANY

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Information about the Company’s exposure to market risk is discussed under Part I, Item 2 in this report and was disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission on February 28, 2019. There have been no other material quantitative or qualitative changes in market risk exposure since the date of that filing. 

Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision, and with the participation, of our management, including our Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, ("the Exchange Act") of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our CEO and CFO concluded that such controls and procedures, as of June 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q, were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information that is required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting occurring during the three months ended June 30, 2019, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION

Item 1.Legal Proceedings.
Information with respect to legal proceedings and other exposures appears in Part I - Item 3 - “Legal Proceedings” and Part II - Item 8 - “Financial Statements and Supplementary Data” (Note 16 - “Commitments and Contingencies”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and in Part I - Item 1 - “Financial Statements” (Note 16 - “Commitments and Contingencies”) of this report.
Environmental Matters
The Company has been named as a potentially responsible party (PRP) at several environmentally contaminated sites not owned by the Company. All of the sites are also the responsibility of other parties. The Company's liability, if any, is shared with such other parties, but the Company's share has not been finally determined in most cases. In some cases, the Company has cost-sharing arrangements with other PRPs with respect to a particular site. Such agreements relate to the sharing of legal defense costs or cleanup costs, or both. The Company has assumed, for purposes of estimating amounts to be accrued, that the other parties to such cost-sharing agreements will perform as agreed. It appears that final resolution of some of the sites is years away, and actual costs to be incurred for these environmental matters in future periods is likely to vary from current estimates because of the inherent uncertainties in evaluating environmental exposures. Accordingly, the ultimate cost to the Company with respect to such sites, beyond what has been accrued at June 30, 2019, cannot be determined. As of June 30, 2019 and December 31, 2018, the Company had accrued $19.9 million and $20.1 million, respectively, related to environmental contingencies. The Company periodically reevaluates the assumptions used in determining the appropriate reserves for environmental matters as additional information becomes available and, when warranted, makes appropriate adjustments.

Other legal matters
Additional information regarding legal proceedings is provided in Note 16 to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 

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SONOCO PRODUCTS COMPANY
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES 
Period
(a) Total Number of
Shares Purchased1
(b) Average Price
Paid per Share
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs2
(d) Maximum
Number of Shares
that May Yet be
Purchased under the
Plans or Programs2
4/01/19 - 5/05/1912,479 $61.85 — 2,969,611 
5/06/19 - 6/02/191,514 $63.51 — 2,969,611 
6/03/19 - 6/30/194,570 $62.92 — 2,969,611 
Total18,563 $62.25 — 2,969,611 
 
A total of 18,563 common shares were repurchased in the second quarter of 2019 related to shares withheld to satisfy employee tax withholding obligations in association with certain share-based compensation awards. These shares were not repurchased as part of a publicly announced plan or program.

On February 10, 2016, the Company's Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company's common stock. A total of 2,030,389 shares were repurchased under this authorization during 2016 at a cost of $100.0 million. No shares were repurchased during 2017, 2018, or during the six months ended June 30, 2019. Accordingly, a total of 2,969,611 shares remain available for repurchase at June 30, 2019.
 

Item 6.Exhibits.

Exhibit Index
2.1*
10
15
31
32
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
*Schedules and exhibits have been omitted pursuant to Item 601 (b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules or exhibits upon request of the Securities and Exchange Commission.

 
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SONOCO PRODUCTS COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SONOCO PRODUCTS COMPANY
(Registrant)
Date:July 31, 2019By:/s/ Julie Albrecht
Julie Albrecht
Vice President and Chief Financial Officer
(principal financial officer)
/s/ James W. Kirkland
James W. Kirkland
Corporate Controller
(principal accounting officer)

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