Sonoco Products Company
Annual Report 2019

Plain-text annual report

SONOCO 2019 Annual Report FOUNDED in 1899, Sonoco is a global provider of a variety of consumer packaging, industrial products, protective packaging and displays and packaging supply chain services. With annualized net sales of approximately $5.4 billion, Sonoco has 23,000 employees working in more than 300 operations in 36 countries, serving many of the world’s best-known brands. Paper and Industrial Converted Products Letter to Shareholders Consumer Packaging Contents 1 6 7 8 9 10 12 13 14 Form 10-K Display and Packaging Protective Solutions Board of Directors Executive Management Investor Information General Information About the cover Discovering opportunities for future growth doesn’t happen by accident. It occurs at the dynamic intersection of curiosity, insight, research and preparation. As we work to define our next decade, Sonoco recognizes three macroeconomic factors that will impact societal norms, the global economy, consumerism and our planet. Changing global demographics, advances in technology and an increasing focus on the environment will drive the evolution and role of packaging, and therefore, will drive our focus as a company. A growing middle class in emerging markets, longer lifespans, advances in medicine, an increased focus on health and wellness and universal initiatives around sustainability, all create opportunities for innovative packaging solutions that help companies serving global markets and industries. These same trends open doors to new growth markets for Sonoco and together will help us define our next decade. DEAR FELLOW Shareholders Howard Coker, President and Chief Executive Officer THERE ARE TIMES IN BUSINESS, AND IN LIFE, WHERE WE FACE ADVERSITY, EITHER AS INDIVIDUALS, OR AS TEAMS. Adversity can cause some people to break, or reevaluated and restructured some of our businesses; others to break records. Overcoming challenging implemented new programs; activated new tech- times requires what I like to refer to as grit. In many nologies; and expanded into new markets. We believe ways, 2019 was a test of the grit of Sonoco. I am all these things combined are putting us on a solid proud to say we demonstrated real grit, as we foundation for continued growth into our next decade. encountered bumps and detours on the road to a year of solid performance. And while we responded to some unforeseen obstacles during the year, our ultimate performance 2019 proved to be an unpredictable year as a slow- in 2019 did not happen by accident. We have been down in global manufacturing activity impacted our evolving our vision, strategy and planning over the industrial businesses, and our consumer businesses last several years with a focus on markets, faced some unevenness as our customers’ ordering not just materials, which we believe patterns and volumes reacted to market uncertainties. place us in a winning position Even in the face of these challenges, our team for the decade ahead. produced solid improvements in gross margin, operating margin and base earnings by focusing The Strength of Our on being excellent at those things we can control. Diversified Portfolio This is a tribute to a team that rolled up its sleeves, Working across our diversified came together and epitomized our Guiding Principle portfolio, we have focused on established over 120 years ago, People Build pioneering innovations tied to SALES BY SEGMENT percent of sales Protective Solutions 9.5 Display and Packaging 10.3 Paper and Industrial Converted Products 36.7 Consumer Packaging 43.5 Businesses. Sonoco has proven over the years consumer demands for convenience, that we know how to win. But even winning teams portability and portion control. We found experience rebuilding years. In many respects, this opportunities to follow shoppers from the center of past year could be viewed as a rebuilding year for the store to the fresh perimeter. While always looking Sonoco as we brought in new leadership; realigned, for smart growth, we sharpened our focus in 2019. 1 SONOCO 2019 ANNUAL REPORTDEAR FELLOW Shareholders We purposefully moved into the growing societal issues; the entire retail landscape; healthcare space as evidenced by our new product development; and the use of year-end acquisition of Thermoformed Engineered Quality, LLC, and Plastique Holdings, LTD, (together TEQ), a global producer of thermo- data and information by consumers to make more informed decisions. Each of these influence innovations in packaging. On the demographics front, we have been formed packaging for a wide range of sterile medical expanding into fast-growing emerging markets products and devices, a fast-growing market with in Latin America, Asia and now Africa. An aging significant barriers to entry and requiring unique population with greater life expectancy, and a growing technical capabilities. When combined with our emerging middle class, combine to create oppor- existing businesses that already serve the medical and tunities in medical and healthcare, as we expect to pharmaceutical industries, we are well-positioned in see a continuation of the increasing demand for this space of higher growth, higher margin business. customized drug therapies and medical devices. On the Industrial side of our business, we expanded Over the coming decade, technology will increasingly into emerging markets, while further leveraging our be aimed at enhancing customer value by changing integrated mill system and consolidating our footprint the way consumers interact with packaging and in more mature markets around the world. We creating a powerful platform for information and completed an asset optimization program of our brand building. North America Integrated Paper and Industrial Converted Products operations that is allowing us to increase margins and expand cash generation. We further enhanced our market position through the strategic acquisition of Corenso Holdings North And no discussion of the future would be com- America, a leader in highly efficient and cost-effective plete without tackling the issue of sustainability. production of uncoated recycled paper-board and We recognize the critical importance of developing high-performance cores used in the paper, packaging new sustainable packaging solutions that will protect films, tape and specialty industries. and preserve our planet for future generations. In As we look toward 2020 and the decade ahead, packaging, purposefully focused on delivering the 2019, we introduced our EnviroSense™ line of we see change being driven by three overarching factors: demographics, technology and sustainability. They are all interconnected and ultimately impact consumer behavior and preference; global macroeconomics; 2 attributes that consumers and our customers are looking for today, including recyclability, recycled content, reusability, compostability, package optimization, bio-based content and responsible fiber sourcing. We truly SONOCO 2019 ANNUAL REPORTDEAR FELLOW Shareholders NET SALES billions of dollars 2015 2016 2017 2018 2019 4.96 4.78 5.04 5.39 5.37 non-operating pension costs, all of which were partially offset by a gain related to the release of an environmental reserve. GAAP earnings in 2018 included $0.27 per diluted share primarily from the positive believe that despite the increased focus around impact of the Tax Act, which sustainability, the attractive attributes of rigid plastics was more than offset by and flexible packaging, in terms of cost, automation, restructuring expenses, functionality and quality, will support the continued acquisition costs and other use of these materials. This is especially true if we can one-time items. increase recyclability and recycled content, both of which we are doing. We also believe that paperboard Base earnings in 2019 were products will experience growth in this environment, $357.2 million, or $3.53 per BASE EARNINGS PER DILUTED SHARE dollars 2015 2016 2017 2018 2019 2.51 2.72 2.92 3.37 3.53 as will ag-fiber products like our new Natrellis™ diluted share, compared with $340.6 million, or package, a sugarcane-based bowl for refrigerated $3.37 per diluted share in 2018, a 4.9% and 4.7% and prepared foods. So, we feel very good about increase, respectively. 2019 gross profit was a record the diversity and versatility of our portfolio to answer $1,057.8 million, while gross profit as a percentage of the needs of the next decade. sales was 19.7%, compared with 19.3% in 2018. 2019 2019 Results base operating profit increased 6.8% to $525.4 million, and Base Operating Profit Before Depreciation and 2019 net sales were $5.37 billion, a decline of Amortization (OPBDA), as a percent of sales, improved $16.7 million, compared with $5.39 billion in 2018. to 14.2%, up 70 basis points from 2018. Selling, gen- Sales declined slightly as the positive impact from acquisitions and higher selling prices were offset by negative GAAP EARNINGS PER DILUTED SHARE dollars volume/mix, the negative impact of foreign exchange and the absence of sales related to a contract packaging operation that Sonoco exited in September 2018. GAAP net income attributable to Sonoco for 2019 was $291.8 million or $2.88 per diluted 2015 2016 2017 2018 2019 2.44 2.81 1.74 3.10 2.88 eral and administrative expenses declined $32.4 million, driven by a gain related to the adjustment of an environmental reserve and signifi- cant focus across the Company on lowering controllable costs, which were partially offset by the addition of expenses from acquisitions. For 2019, cash generated from share, compared with $313.6 million or $3.10 per operations was $425.9 million, compared with diluted share in 2018. GAAP earnings in 2019 included $589.9 million in 2018, a decrease of $164.0 million. after-tax charges totaling $65.4 million, or $0.65 per The primary driver of the lower operating cash flow diluted share, largely related to restructuring and was an approximately $165 million after-tax voluntary asset impairment charges, acquisition costs and contribution to the Company’s U.S. defined benefit 3 SONOCO 2019 ANNUAL REPORTDEAR FELLOW Shareholders DIVIDENDS AND STOCK REPURCHASES millions of dollars 2015 2016 2017 2018 2019 253.1 145.9 159.5 176.0 180.0 acquisitions and higher selling prices driven largely by raw material price increases. pension plan. Net capital expenditures and cash dividends were $181.3 million and $170.3 million, respectively, during 2019, compared with $168.3 million and $161.4 million, respectively, in 2018. dividends stock repurchases Consumer Packaging operating Free cash flow for 2019 was $74.3 mil- profit increased 1.7% to $228.4 mil- lion, compared with $260.2 million in the prior year, lion, and operating margin increased to 9.8%, up 28 reflecting the decrease in cash flow from operations, basis points from 2018. The increases in operating as well as the higher amount of net capital expendi- profit and margins were largely driven by productivity tures and cash dividends in the current year. improvements, a positive price/cost relationship, along with the full-year impact of businesses acquired in Sonoco returned approximately $180 million to 2018. These positive factors were partially offset by shareholders in 2019, primarily through cash volume declines and isolated manufacturing inefficien- dividends, as we continued a tradition of paying cies in certain Global Plastics operations. In response, dividends that dates back to 1925. We raised our we are investing in new machinery and tooling to common stock dividend in 2019 by 5% to $1.70 per improve quality and performance from operations share, on an annualized basis, the 36th consecutive serving perimeter of the store markets and are opti- annual increase. Over the past decade, Sonoco has mistic this will improve returned approximately $1.7 billion to shareholders in manufacturing perfor- the form of dividends and share repurchases. Sonoco mance in 2020. COMPARATIVE TOTAL SHAREHOLDER RETURN* percent provided shareholders with a 19.5% total return in 2019, and our five-year total return of 64.2% compares Our Paper and favorably to a 42.2% return by the Dow Jones U.S. Industrial Converted Container and Packaging Index. Business Segment Performance Products segment accounted for approx- imately 37% of the Performance in our Consumer Packaging segment Company’s consoli- improved slightly in 2019 despite unpredictable order dated net sales in 2019, patterns and fluctuating inventory management by with sales growing our consumer packaged goods customers. 3.3% to $1.97 billion. R A E Y - E N O R A E Y - E E R H T R A E Y - E V I F SONOCO 19.5 INDUSTRY PEERS 24.6 SONOCO 28.0 INDUSTRY PEERS 24.8 SONOCO 64.2 INDUSTRY PEERS 42.2 SONOCO Dow Jones U.S. Container and Packaging Index * Performance of common stock price with the reinvestment of all dividends We were very pleased with how the segment adjusted Our Consumer Packaging segment overall accounted to slowing global manufacturing activity and was still for approximately 44% of the Company’s consolidated able to produce a 3.8% increase in operating profit, net sales in 2019. Sales declined 1.1% to $2.33 billion reaching $219.1 million while generating 11.1% in 2019, due primarily to volume declines in North operating margin, up slightly from last year. America Rigid Paper Containers, Global Plastics and Flexibles, as well as the negative impact of the strong The main driver of the increase in sales was the dollar. Most of the declines were offset by 2018 full-year impact of the 2018 acquisition of the 4 SONOCO 2019 ANNUAL REPORTDEAR FELLOW Shareholders TOTAL ASSETS billions of dollars 2015 2016 2017 2018 2019 4.01 3.92 4.56 4.58 5.13 remaining 70% interest in the Conitex Sonoco joint venture and the August 2019 acquisition of Corenso. These increases were offset by volume declines in many of our tube and core businesses, as well as an overall decline in sales prices as the market price for recycled fiber fell to historic lows. The stronger dollar and we are working together to build a lasting also negatively impacted segment sales. foundation for Sonoco that continues to deliver long- term value for our shareholders, our customers, our We were very pleased with the strong turnaround teammates and the communities we serve around the delivered by our Display and Packaging segment, globe. Our commitment to that goal was evidenced as operating profit more than doubled in 2019, while in our 2019 performance, and I want to recognize operating margin expanded to 5.0% from 2.2% in our leadership team and our more than 23,000 2018. Sales declined by 6.4% to $554.1 million, due teammates around the world who demonstrated primarily to last year’s exit of our Atlanta packaging resourcefulness, flexibility and collaboration to help center and the negative impact of the strong dollar, guide us through a year that saw a great deal of which were partially offset by strong domestic retail unpredictability and macroeconomic challenges. security and international contract packaging volume. The increase in segment operating profit was largely Entering 2020, we are focused on four things: due to increased domestic and international volumes, profitable growth, both organically and through and the absence of losses from the packaging center targeted acquisitions; margin improvement; in 2018. increasing free cash flow; and sustainability. While not a financial metric, we believe sustainability Our Protective Solutions segment also reported a is so important we have made it an integral part strong performance in 2019, with operating profit of our business strategy going forward. increasing 17.0% and operating margin expanding to 9.8% from 8.1% in 2018. Segment sales declined As we look to the future, I could not be more slightly as strong volume growth in our ThermoSafe optimistic. We have great people, a great diversified temperature-assured packaging business was product portfolio, and most importantly, a great mostly offset by declining volumes in automotive culture. Together, these core values will take us components, consumer electronics and appliances. far. We thank you for entrusting us with your Segment operating profit was $50.2 million, investment and ask you to join us on our journey. compared to $42.9 million in 2018, driven primarily by productivity improvements. Defining Our Next Decade Howard Coker Someone once said, ”If you want to go fast, go alone; President and Chief Executive Officer if you want to go far, go together.“ We want to go far, March 3, 2020 5 SONOCO 2019 ANNUAL REPORTCONSUMER Packaging Products and Services Round and shaped rigid paperboard containers, fiber and plastic caulk/ adhesive tubes; aluminum, steel and peelable mem- brane easy-open closures for composite and metal cans; thermoformed plas- tic cups, trays and bowls; ag-fiber bowls; injection- molded containers; high- barrier films, lidding films, modified atmosphere packaging; printed flexible packaging, rotogravure cylinder engraving; global CONSUMER PACKAGING NET SALES billions of dollars 2015 2016 2017 2018 2019 2.12 2.04 2.12 2.36 2.33 The Consumer Packaging segment overall accounted for approximately of the Company’s consolidated brand management; labels net sales in 2019 Markets Fresh, natural and prepared food, stacked chips, snacks and nuts, coffee, hard-baked goods, processed foods, confec- tion, powdered beverages, pet treats, frozen and refrigerated food, dairy, adhesives and sealants 6 In 2019, we introduced our EnviroSense™ line of more eco-conscious packaging, purposefully focused on delivering the attributes that consumers and our customers are looking for today. GLOBAL CONSUMER PACKAGING 2019 SALES $2,333 million Global Flexibles 23.7% Global Plastics 26.8% Global Rigid Paper Containers 49.5% Consumer Packaging operating profit increased 1.7% to $228.4 million, and operating margin increased to 9.8%, up 28 basis points from 2018 CONSUMER PACKAGING OPERATING PROFIT millions of dollars 2015 2016 2017 2018 2019 239 246 256 225 228 SONOCO 2019 ANNUAL REPORTPAPER AND Industrial Converted Products Products and Services Markets Uncoated recycled paperboard, chipboard, tubeboard, lightweight Converted paperboard, corestock, boxboard, linerboard, edgeboard, corrugating medium, construction, home goods, specialty paper grades; paperboard tubes, cores and cones; recycling, plastic, films, paper mills, adhesives, molded plugs, reels; flexible intermediate bulk containers shipping and storage, tape and and bulk bags; collection, processing and recycling of old corrugated label, textiles, wire and cable, containers, paper, plastics, metal, glass and other recyclable materials adhesives The Paper and Industrial Converted Products segment accounted for approximately PAPER AND INDUSTRIAL CONVERTED PRODUCTS NET SALES billions of dollars 2015 2016 2017 2018 2019 1.73 1.69 1.87 1.91 1.97 of the Company’s consolidated net sales in 2019 Sales grew 3.3% in 2019 to $1.97 billion GLOBAL PAPER AND INDUSTRIAL CONVERTED PRODUCTS 2019 SALES $1,975 million Europe 17.5% Asia Pacific 14.1% LATAM 7.0% Primary Materials NA 26.2% Tubes and Cores U.S. and Canada 35.2% The segment adjusted to slowing global manufacturing activity and still produced a 3.8% increase in operating profit PAPER AND INDUSTRIAL CONVERTED PRODUCTS OPERATING PROFIT millions of dollars 135 136 162 2015 2016 2017 2018 2019 211 219 7 SONOCO 2019 ANNUAL REPORTDISPLAY AND Packaging Products and Services Point-of-purchase displays, retail packaging, including blister packaging; custom packaging; fulfillment, primary package filling, supply chain management; paperboard specialties and thermoforming equipment and machinery Markets Electronics, snacks and nuts, home and garden, pet treats, medical/pharmaceutical, confection, personal care, food, cosmetics and fragrances, office supplies, toys DISPLAY AND PACKAGING NET SALES millions of dollars 2015 2016 2017 2018 2019 606 520 508 592 554 The Display and Packaging segment overall accounted for approximately 10% of the Company’s consolidated net sales in 2019 The PaperBlister™ package is the latest addition to Sonoco’s expanding assortment of EnviroSense™ packaging solutions, representing the guiding philosophy behind our new portfolio of packaging solutions designed with tomorrow in mind. 8 In a strong turnaround, operating profit in our Display and Packaging segment more than doubled in 2019 DISPLAY AND PACKAGING OPERATING PROFIT millions of dollars 11.1 14.9 13.3 2015 2016 2017 2.6 2018 2019 27.7 SONOCO 2019 ANNUAL REPORTPROTECTIVE Solutions The Protective Solutions segment overall accounted for approximately 9.5% of the Company’s consolidated net sales in 2019 PROTECTIVE SOLUTIONS NET SALES millions of dollars 2015 2016 2017 2018 2019 506 526 539 528 512 Operating profit margin in our Protective Solutions business was 9.8% Products and Services Custom-engineered, paperboard-based, thermoformed plastic and expanded foam protective packaging and components; temperature-assured packaging solutions Markets Appliances and electronics, automotive, frozen and refrigerated foods, medical/ pharmaceutical, home goods, office furnishings, promotional and palletized distribution, fitness equipment, HVAC Sonoco ThermoSafe announced two new products in 2019: the Orion r® high performance temperature controlled box rental service and the Pegasus ULD® line of passive temperature controlled unit load devices. PROTECTIVE SOLUTIONS OPERATING PROFIT millions of dollars 2015 2016 2017 2018 2019 46 52 42 43 50 Segment operating profit was $50.2 million, compared to $42.9 million in 2018, increasing 17.0% and driven primarily by productivity improvements. 9 SONOCO 2019 ANNUAL REPORTBOARD of Directors John R. Haley, 58 Chairman since April 2019. Chief Philippe Guillemot, 60 Chief Executive Officer of Elior Group Sundaram Nagarajan, 57 President and Chief Executive Officer Executive Officer, Gosiger, Inc. (pri- (catering and support services indus- of Nordson Corporation (designer and vately owned distributor of computer- try), Paris, France, since 2017. Board manufacturer of dispensing equipment controlled machine tools and factory member since 2017. Member of the for consumer and industrial adhesives, automation systems), Dayton, Ohio, Audit, and Employee and Public sealants and coatings), Westlake, Ohio, since 2010. Board member since 2011. Responsibility committees. since 2019. Board member since 2015. Member of the Executive committee. Member of the Audit, Executive Harry A. Cockrell, 70 Managing Director of Pacific Tiger Robert R. Hill Jr., 53 Chief Executive Officer of South State Compensation, and Employee and Public Responsibility committees. Corporation (financial services com- Group Limited (a Hong Kong-based pany), Columbia, SC. Board member privately held investment enterprise since 2019. Member of the Audit and Marc D. Oken, 73 Chairman and founder of Falfurrias with a wide range of businesses and Financial Policy committees. Capital Partners (private equity firm), assets across the Asia/Pacific region) since 2005. Board member since 2013. Member of the Employee and Richard G. Kyle, 54 President and Chief Executive Officer Charlotte, N.C., since 2018. Board member since 2006. Chair of the Executive Compensation committee Public Responsibility, and Financial of The Timken Company (a manufac- and member of the Audit, Corporate Policy committees. turer of bearings, transmissions, gear- Governance and Nominating, and boxes, motors, lubrication systems and Executive committees. R. Howard Coker, 57 President and Chief Executive Officer chain), North Canton, Ohio, since 2014. Board member since 2015. Member since February 2020. Board member of the Audit, Executive Compensation, Thomas E. Whiddon, 67 Retired. Former Advisory Director since February 2020. Member of the and Financial Policy committees. of Berkshire Partners, LLC (private Executive committee. Dr. Pamela L. Davies, 63 President Emerita and professor of Blythe J. McGarvie, 63 Taught accounting at Harvard Busi- equity firm), Boston, Mass., 2005-13. Board member since 2001. Chair of the Audit committee and member ness School in the full-time MBA of the Corporate Governance and strategy at Queens University of program 2012-14. Board member Nominating, Executive Compensation, Charlotte, Charlotte, N.C., since 2019. since 2014. Chair of the Financial and Financial Policy committees. Board member since 2004. Chair of Policy committee and member of the the Employee and Public Respon- Audit and Executive Compensation sibility committee and member of committees. the Executive Compensation, and Corporate Governance and Nominating committees. Theresa J. Drew, 62 Retired. Former Managing Partner Lloyd M. Yates, 59 Retired. Executive Vice President and President Carolinas of Duke Energy, Charlotte, N.C., 2014-19. Board member since 2019. Member James M. Micali, 72 Member and limited partner of Azalea Fund III since 2008, and Azalea Fund IV of the Audit, and Employee and Public since 2014, of Azalea Capital, LLC Responsibility committees. (private equity firm) in Greenville, S.C. of the Carolinas practice of Deloitte, Board member since 2003. Chair of the Charlotte, N.C., 2011-19. Board member Corporate Governance and Nominating since 2018. Member of the Employee committee and member of the Exec- and Public Responsibility, and utive, Executive Compensation, and Financial Policy committees. Financial Policy committees. 10 SONOCO 2019 ANNUAL REPORTBOARD of Directors Haley Cockrell Coker Davies Drew Guillemot Hill Kyle McGarvie Micali Nagarajan Oken Whiddon Yates 11 SONOCO 2019 ANNUAL REPORTEXECUTIVE Management Coker Albrecht Dillard Florence Fuller Johnson Schrum Thompson EXECUTIVE COMMITTEE R. Howard Coker, 57 President and CEO since February 2020. Joined Sonoco in 1985. Julie C. Albrecht, 52 Vice President and Chief Financial Officer since 2019. Joined Sonoco in 2017. Robert R. Dillard, 46 Corporate Vice President, Corporate Development since 2019. Joined Sonoco in 2018. John M. Florence, 41 General Counsel, Secretary and Vice President, Human Resources Rodger D. Fuller, 58 Executive Vice President, Global Industrial and Consumer since February 2020. Joined Sonoco in 1985. Richard K. Johnson, 52 Corporate Vice President and Chief Information Officer since 2019. Joined Sonoco in 2019. Roger P. Schrum, 64 Vice President, Investor Relations and Corporate Affairs since 2009. Joined Sonoco in 2005. Marcy J. Thompson, 58 Vice President, Marketing and since 2019. Joined Sonoco in 2015. Innovation since 2013. Joined Sonoco in 2006. OTHER CORPORATE OFFICERS James A. Harrell III, 58 Vice President, Americas Industrial since February 2020. Joined Sonoco in 1985. Jeffrey S. Tomaszewski, 51 Vice President, North America Consumer and Global Rigid Paper and Closures since February 2020. Joined Sonoco in 2002. Adam G. Wood, 51 Vice President, Paper and Industrial Converted Products, Europe, Middle East, Australia and New Zealand since 2019. Joined Sonoco in 2003. 12 SONOCO 2019 ANNUAL REPORT      INVESTOR Information The graph at right matches Sonoco Products Company’s cumulative 5-year total shareholder return on common stock with the cumulative total returns of the S&P 500 index and COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN among Sonoco Products Company, the S&P 500 Index and the Dow Jones U.S. Containers and Packaging Index the Dow Jones U.S. Containers 2014 2015 2016 2017 2018 2019 Sonoco Products Company S&P 500 Dow Jones U.S. Containers & Packaging and Packaging index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2014 to 12/31/2019. *$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. ©2020 Standard & Poor’s, a division of S&P Global. All rights reserved. ©2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. The stock price performance included in this graph is not necessarily indicative of future stock price performance. Sonoco Products Company S&P 500 Dow Jones U.S. Containers & Packaging 12/14 100.00 100.00 100.00 12/15 96.49 101.38 95.69 12/16 128.28 113.51 113.93 12/17 133.30 138.29 135.60 12/18 137.39 132.23 110.58 12/19 164.22 173.86 142.19 Shareholder Services Sonoco–A09 1 North Second Street Hartsville, SC 29550-3305 +843 383 7924 Transfer Agent and Registrar Shareholder inquiries, certificates for transfer, address changes and dividend-related issues should be sent to: Continental Stock Transfer & Trust Company 1 State Street Plaza–30th floor New York, NY 10004-1561 Domestic: 866 509 5584 International: +212 981 1705 Dividend Reinvestment Plan To enroll in the Plan or to receive more information, please con- tact the Plan administrator, Continental Stock Transfer & Trust Company, by visiting continentalstock.com or by calling toll free 866 509 5584. International callers should dial +212 981 1705. You can also reach the Plan administrator by writing to: Continental Stock Transfer & Trust Company Email: sonoco@continentalstock.com Dividend Reinvestment Department Website: continentalstock.com 1 State Street Plaza–30th Floor New York, NY 10004-1561 13 SONOCO 2019 ANNUAL REPORT GENERAL Information Address Sonoco on the Internet Corporate Headquarters and Investor Relations Sonoco’s website, sonoco.com, provides a variety of 1 North Second Street Hartsville, SC 29550-3305 Main: +843 383 7000 information about the Company. The site features a newsroom for press releases, photos, financial reports and presentations, proxy statements, various SEC Investor Relations: +843 383 7862 filings, events, sustainability activity and more. Toll-free: 800 377 2692 Fax: +843 383 7008 Information about Sonoco’s products, technologies, Email: corporate.communications@sonoco.com awards and activities is also available on: Annual Meeting Facebook (facebook.com/sonoco.products), LinkedIn (linkedin.com/companies/sonoco), The annual meeting of shareholders will be held at Twitter (twitter.com/sonoco_products) and 11 a.m. Eastern Time on Wednesday, April 15, 2020 at: YouTube (youtube.com/sonocoproducts). The Center Theater 212 North Fifth Street Hartsville, SC 29550-4136 A live audiocast will be available, with a replay archived for six months. Instructions for listening to this audiocast will be available at sonoco.com, approximately one week prior to the event. Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Hearst Tower 214 North Tryon Street, Suite 3600 Charlotte, NC 28202-2137 Paper in Sonoco’s Annual Report was manufactured with electricity in the form of renewable energy and came from well-managed forests or other controlled sources certified in accordance with the international standards of the Forest Stewardship Council® (FSC®). All paper used in the annual report contains 10% recycled fiber. 14 SONOCO 2019 ANNUAL REPORTUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 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 class Trading symbol Name of exchange on which registered No par value common stock SON New York Stock Exchange, LLC Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Securities registered pursuant to Section 12(g) of the Act: None Act. Yes È No ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Secu- rities 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 È No ‘ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes È 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 filer ÈAccelerated 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 È The aggregate market value of voting common stock held by nonaffiliates of the registrant (based on the New York Stock Exchange closing price) on June 28, 2019, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $6,455,701,379. Registrant does not (and did not at June 30, 2019) have any non-voting common stock out- standing. As of February 14, 2020, there were 100,255,008 shares of no par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the annual meeting of shareholders to be held on April 15, 2020, which statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates, are incorporated by reference in Part III. TABLE of Contents Part I Item 1. Business ................................................................................................................................................................. Item 1A. Risk factors ............................................................................................................................................................. Item 1B. Unresolved staff comments ................................................................................................................................... Properties ................................................................................................................................................................ Item 2. Legal proceedings .................................................................................................................................................. Item 3. Mine safety disclosures .......................................................................................................................................... Item 4. Part II Item 5. Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities ................................................................................................................................................................. Selected financial data ........................................................................................................................................... Item 6. Item 7. Management’s discussion and analysis of financial condition and results of operations ................................... Item 7A. Quantitative and qualitative disclosures about market risk ................................................................................... Item 8. Financial statements and supplementary data ..................................................................................................... Changes in and disagreements with accountants on accounting and financial disclosure................................ Item 9. Item 9A. Controls and procedures ....................................................................................................................................... Item 9B. Other information .................................................................................................................................................... Part III Item 10. Directors, executive officers and corporate governance ...................................................................................... Item 11. Executive compensation ........................................................................................................................................ Item 12. Security ownership of certain beneficial owners and management and related stockholder matters ............... Item 13. Certain relationships and related transactions, and director independence ........................................................ Item 14. Principal accountant fees and services ................................................................................................................. Part IV Item 15. Exhibits and financial statement schedules ........................................................................................................... Form 10-K summary .............................................................................................................................................. Item 16. Page 5 9 19 19 19 19 20 21 22 37 37 38 38 38 39 39 39 40 40 41 42 2 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Forward-looking statements Statements included in this Annual Report on Form 10-K 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, state- ments 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 and business 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 proceed- ings; ‰ extent of, and adequacy of provisions for, environmental liabilities; ‰ sustainability commitments; ‰ 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 SONOCO PRODUCTS COMPANY 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 escalating trade wars, and the Company’s abil- ity to pass raw material, energy and transportation price increases and surcharges through to customers or other- wise manage these commodity pricing risks; ‰ costs of labor; ‰ work stoppages due to labor disputes; ‰ success of new product development, introduction and sales; ‰ success of implementation of new manufacturing tech- nologies and installation of manufacturing equipment, including the startup of new facilities and lines; ‰ consumer demand for products and changing consumer preferences; ‰ ability to be the low-cost global leader in customer- preferred packaging solutions within targeted segments; ‰ competitive pressures, including new product develop- ment, industry overcapacity, customer and supplier con- solidation, and changes in competitors’ pricing for products; ‰ financial conditions of customers and suppliers; ‰ ability to maintain or increase productivity levels, contain or reduce costs, and maintain positive price/cost relation- ships; ‰ ability to negotiate or retain contracts with customers, including in segments with concentration of sales volume; ‰ inventory management strategies of customers; ‰ timing of introduction of new products or product innovations by customers; ‰ collection of receivables from customers; ‰ ability to improve margins and leverage cash flows and financial position; ‰ 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 leader- ship and a reputation for quality; ‰ ability to attract and retain talented and qualified employ- ees, 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 acquis- itions 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; S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 3 ‰ 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 busi- ness 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 bene- fit 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; ‰ the adoption of new, or changes in, accounting stan- dards or interpretations; ‰ challenges and assessments from tax authorities result- ing from differences in interpretation of tax laws, including income, sales and use, property, value added, employ- ment, and other taxes; ‰ accuracy in valuation of deferred tax assets; ‰ accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of manage- ment’s assessment of goodwill impairment; ‰ accuracy of assumptions underlying fair value measure- ments, 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; ‰ failures 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 consumer attitudes toward plastic packaging; ‰ ability to meet sustainability targets and challenges in implementation; ‰ changing climate, climate change regulations and green- house 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; ‰ economic disruptions resulting from terrorist activities and natural disasters; and ‰ accelerating inflation. 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 this Annual Report on Form 10-K under Item 1A—“Risk Factors” and throughout other sections of this 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 Annual Report on Form 10-K 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. References to our website address References to our website address and domain names throughout this Annual Report on Form 10-K are for informational purposes only, or to fulfill specific disclosure requirements of the Securities and Exchange Commis- sion’s rules or the New York Stock Exchange Listing Standards. These references are not intended to, and do not, incorporate the contents of our websites by reference into this Annual Report on Form 10-K. 4 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Item 1. Business (a) General development of business – Sonoco Products Company (“Sonoco,” “the Company,” “we,” “us,” or “our”) is a South Carolina corpo- ration originally founded in Hartsville, South Carolina, in 1899 as the Southern Novelty Company. Sonoco is a manufacturer of industrial and consumer packaging prod- ucts and a provider of packaging services, with approx- imately 320 locations in 36 countries. (c) Narrative description of business – The Company reports its financial results in four report- able segments – Consumer Packaging, Paper and Industrial Converted Products, Display and Packaging, and Protective Solutions. Information about the Compa- ny’s reportable segments is provided in Note 18 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Consumer Packaging The Consumer Packaging segment accounted for approximately 44%, 44% and 42% of the Company’s consolidated net sales in the years ended December 31, 2019, 2018 and 2017, respectively. The operations in this segment consist of 86 plants throughout the world. The products, services and markets of the Consumer Pack- aging segment are as follows: Products and Services Round composite cans, shaped rigid paperboard containers; fiber and plastic caulk/adhesive tubes; alumi- num, steel and peelable membrane easy-open clo- sures for composite and metal cans; thermoformed rigid plastic trays, cups and bowls; injection molded containers, spools and parts; high-barrier flexible and form- ing plastic packaging films, modified atmosphere pack- aging, lidding films, printed flexible packaging; roto- gravure cylinder engraving, global brand management Markets Stacked chips, snacks, nuts, cookies, crackers, other hard-baked goods, candy, gum, frozen con- centrate, powdered and liquid beverages, pow- dered infant formula, cof- fee, refrigerated dough, frozen foods and entrees, processed foods, fresh fruits, vegetables, fresh-cut produce, salads, fresh-baked goods, eggs, seafood, poultry, soup, pasta, dairy, sauces, dips, condiments, pet food, meats, cheeses, labels Within the Consumer Packaging segment, Sonoco’s rigid packaging – paper-based products – is the Compa- ny’s largest revenue-producing group of products and services, representing approximately 22% of consolidated net sales in the year ended December 31, 2019. This group comprised 21% and 22% of consolidated net sales in 2018 and 2017, respectively. Display and Packaging The Display and Packaging segment accounted for approximately 10%, 11% and 10% of the Company’s consolidated net sales in the years ended December 31, 2019, 2018 and 2017, respectively. The operations in this segment consist of 22 plants around the world including PART I the United States, Poland, Mexico and Brazil. The prod- ucts, services and markets of the Display and Packaging segment are as follows: Products and Services Point-of-purchase displays; custom packaging; retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment; fulfillment; pri- mary package filling; supply chain management; paper- board specialties Markets Miscellaneous foods and beverages, candy, elec- tronics, personal care, baby care, cosmetics, fragrances, hosiery, office supplies, toys, home and garden, medical, over-the-counter drugs, sporting goods, hospitality industry, advertising Paper and Industrial Converted Products The Paper and Industrial Converted Products segment accounted for approximately 37%, 35% and 37% of the Company’s consolidated net sales in the years ended December 31, 2019, 2018 and 2017, respectively. This segment serves its markets through 183 plants on five continents. Sonoco’s paper operations provide the pri- mary raw material for the Company’s fiber-based pack- aging. Sonoco uses approximately 52% of the paper it manufactures, and the remainder is sold to third parties. This vertical integration strategy is supported by 25 paper mills with 34 paper machines and 24 recycling facilities throughout the world. In 2019, Sonoco had the capacity to manufacture approximately 2.4 million tons of recycled paperboard. The products, services and markets of the Paper and Industrial Converted Products segment are as follows: Markets Converted paperboard products, spiral winders, construction, plastic films, flowable products, metal, paper mills, shipping and storage, tape and labels, textiles, wire and cable, adhesives, municipal, residential, customers’ manufacturing and dis- tribution facilities Products and Services Recycled paperboard, chip- board, tubeboard, light- weight corestock, boxboard, linerboard, corrugating medium, edgeboard, spe- cialty paper grades, adhe- sives; paperboard tubes and cores, molded plugs, reels; collection, processing and recycling of old corrugated containers, paper, plastics, metal, glass and other recyclable materials; flexible intermediate bulk containers and bulk bags In 2019, Sonoco’s tubes and cores products were the Company’s second largest revenue-producing group of products, representing approximately 20% of consolidated net sales in the year ended December 31, 2019. This group comprised 20% and 22% of consolidated net sales in 2018 and 2017, respectively. Protective Solutions The Protective Solutions segment accounted for approximately 10%, 10%, and 11% of the Company’s S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 5 consolidated net sales in the years ended December 31, 2019, 2018 and 2017, respectively. The operations in this segment consist of 29 plants throughout the world. The products, services and markets of the Protective Solutions segment are as follows: Products and Services Custom-engineered, paperboard-based and expanded foam protective packaging and components; temperature-assured pack- aging Markets Consumer electronics, automotive, appliances, medical devices, temperature-sensitive pharmaceuticals and food, heating and air condition- ing, office furnishings, fit- ness equipment, promotional and palletized distribution Product Distribution – Each of the Company’s operating units has its own sales staff, and maintains direct sales relationships with its customers. Some of the units have service staff at the manufacturing facility that interact directly with customers. The Paper and Industrial Con- verted Products segment and certain operations within the Consumer Packaging segment have customer service centers located in Hartsville, South Carolina, which are the main contact points between their North American busi- ness units and their customers. Divisional sales personnel also provide sales management, marketing and product development assistance as needed. Typically, product distribution is directly from the manufacturing plant to the customer, but in some cases, product is warehoused in a mutually advantageous location to be shipped to the cus- tomer as needed. Raw Materials – The principal raw materials used by the Company are recovered paper, paperboard, steel, alumi- num and plastic resins. Raw materials are purchased from a number of outside sources. The Company considers the supply and availability of raw materials to be adequate to meet its needs. Patents, Trademarks and Related Contracts – Most inventions and product and process innovations are generated by Sonoco’s development, marketing and engineering staffs, and are important to the Company’s internal growth. Patents have been granted on many inventions created by Sonoco staff in the United States and in many other coun- tries. Patents and trade secrets were acquired as part of several acquisitions over the past two years, including the acquisitions of Thermoform Engineered Quality, LLC, and Plastique Holdings, LTD, (together “TEQ”), Corenso Hold- ings America, Inc. (“Corenso”), the remaining 70 percent interest in Conitex Sonoco (BVI), Ltd., and Highland Pack- aging Solutions. These patents are managed globally by a Sonoco intellectual capital management team through the Company’s subsidiary, Sonoco Development, Inc. (SDI). SDI globally manages patents, trade secrets, con- fidentiality agreements and license agreements. Some patents have been licensed to other manufacturers. Sonoco also licenses a few patents from outside compa- nies and universities. U.S. patents expire after about 20 years, and patents on new innovations replace many of the abandoned or expired patents. A second intellectual capital subsidiary of Sonoco, SPC Resources, Inc., glob- ally manages Sonoco’s trademarks, service marks, copy- rights and Internet domain names. Most of Sonoco’s products are marketed worldwide under trademarks such as Sonoco®, SmartSeal®, Sonotube®, Sealclick®, Sonopost® and UltraSeal®. Sonoco’s registered web domain names such as www.sonoco.com and www.sonotube.com pro- vide information about Sonoco, its people and its prod- ucts. Trademarks and domain names are licensed to outside companies where appropriate. Seasonality – The Company’s operations are not seasonal to any significant degree, although the Display and Packaging segment normally reports slightly higher sales and operating profits in the second half of the year, when compared with the first half. Working Capital Practices – The Company is not required to carry any significant amounts of inventory to meet cus- tomer requirements or to assure itself continuous allot- ment of goods. Dependence on Customers – On an aggregate basis dur- ing 2019, the five largest customers in the Paper and Industrial Converted Products segment, the Consumer Packaging segment and the Protective Solutions segment accounted for approximately 6%, 27% and 16%, respectively, of each segment’s net sales. The depend- ence on a few customers in the Display and Packaging segment is more significant, as the five largest customers in this segment accounted for approximately 58% of that segment’s sales. Sales to the Company’s largest customer represented 4.6% of consolidated revenues in 2019. This concen- tration of sales volume resulted in a corresponding concentration of credit, representing approximately 8% of the Company’s consolidated trade accounts receivable at December 31, 2019. The Company’s next largest customer comprised 3.7% of consolidated revenues in 2019. Backlog – Most customer orders are manufactured with a lead time of three weeks or less. Therefore, the amount of backlog orders at December 31, 2019, was not material. The Company expects all backlog orders at December 31, 2019, to be shipped during 2020. Competition – The Company sells its products in highly competitive markets, which include paper, textile, film, food, chemical, packaging, construction, and wire and cable. All of these markets are influenced by the overall rate of economic activity and their behavior is principally driven by supply and demand. Because we operate in highly competitive markets, we regularly bid for new and continuing business. Losses and/or awards of business from our largest customers, customer changes to alter- native forms of packaging, and the repricing of business, can have a significant effect on our operating results. The Company manufactures and sells many of its products globally. The Company, having operated internationally since 1923, considers its ability to serve its customers worldwide in a timely and consistent manner a competitive advantage. The Company also believes that its techno- logical leadership, reputation for quality, and vertical integration are competitive advantages. Expansion of the Company’s product lines and global presence is driven by the rapidly changing needs of its major customers, who demand high-quality, state-of-the-art, environmentally compatible packaging, wherever they choose to do busi- ness. It is important to be a low-cost producer in order to compete effectively. The Company is constantly focused on productivity improvements and other cost-reduction initiatives utilizing the latest in technology. 6 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Compliance with Environmental Laws – Information regard- ing compliance with environmental laws is provided in Item 7 – Management’s Discussion and Analysis of Finan- cial Condition and Results of Operations under the caption “Risk Management,” and in Note 16 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Number of Employees – Sonoco had approximately 23,000 employees worldwide as of December 31, 2019. (e) Available information – The Company electronically files with the Securities and Exchange Commission (SEC) its annual reports on Form Information about our Executive Officers – 10-K, its quarterly reports on Form 10-Q, its periodic reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Secu- rities Exchange Act of 1934 (the “1934 Act”), and proxy materials pursuant to Section 14 of the 1934 Act. The SEC maintains a site on the Internet, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Sonoco also makes its filings available, free of charge, through its website, www.sonoco.com, as soon as reasonably practical after the electronic filing of such material with the SEC. Name Executive Committee R. Howard Coker Robert C. Tiede Julie C. Albrecht Robert Dillard John M. Florence Rodger D. Fuller Age Position and business experience for the past five years 57 61 52 45 41 58 President and Chief Executive Officer since February 2020. Pre- viously Senior Vice President, Global Paper and Industrial Con- verted Products 2019-2020; Senior Vice President, Rigid Paper Containers and Paper/Engineered Carriers International 2017- 2018; Group Vice President, Global Rigid Paper & Closures and Paper & Industrial Converted Products, EMEA, Asia, Australia and New Zealand 2015-2017; Vice President, Global Rigid Paper & Closures 2015; Group Vice President, Global Rigid Paper & Plastics 2013-2015; Vice President, Global Rigid Paper & Closures 2011- 2013. Joined Sonoco in 1985. Mr. Coker is the brother-in-law of John R. Haley, Chairman of Sonoco’s Board of Directors. (Resigned as President and Chief Executive Officer effective Febru- ary 1, 2020.) President and Chief Executive Officer April 2018- February 2020; Previously Vice President and Chief Operating Officer 2017-2018; Senior Vice President, Global Consumer Pack- aging & Services, Protective Solutions & Reels 2015-2017; Senior Vice President, Global Consumer Packaging and Services 2013- 2015; Vice President, Global Flexible & Packaging Services 2009- 2013. Joined Sonoco in 2004. Vice President and Chief Financial Officer since April 2019. Pre- viously Corporate Vice President, Treasurer/Assistant Chief Finan- cial Officer 2017-2018; Vice President, Finance and Investor Relations & Treasurer for Esterline Technologies Corporation, 2015-2017; Finance Director, Customer Service Aircraft Systems for United Technologies, 2012-2015. Joined Sonoco in 2017. Corporate Vice President, Corporate Development since November 2019. Previously Staff Vice President, Corporate Development 2018-2019; President of Personal Care Europe, 2018, Vice Presi- dent of Strategy and Innovation at Domtar Personal Care, a division of Domtar Corporation 2016-2018; President, Stanley Hydraulics at Stanley Black & Decker, Inc. 2013-2016. Joined Sonoco in 2018. Vice President, Human Resources, General Counsel, and Secretary since February 2019. Previously Corporate Vice President, General Counsel and Secretary 2016-2019; Corporate Attorney 2015- 2016. Previously an attorney at Haynsworth Sinkler Boyd, P.A. 2005-2015. Joined Sonoco in 2015. Executive Vice President, Global Industrial and Consumer since February 2020. Previously Senior Vice President, Global Consumer Packaging, Display and Packaging and Protective Solutions 2019- 2020; Senior Vice President, Paper/Engineered Carriers U.S./ Canada and Display & Packaging 2017-2018; Group Vice Presi- dent, Paper & Industrial Converted Products, Americas 2015-2017; Vice President, Global Primary Materials Group 2015; Group Vice President, Paper & Industrial Converting N.A. 2013-2015; Vice President, Global Rigid Plastics & Corporate Customers 2011- 2013. Joined Sonoco in 1985. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 7 Name Richard K. Johnson Roger P. Schrum Marcy J. Thompson Other Corporate Officers James A. Harrell III Jeffrey S. Tomaszewski Adam Wood Age 51 64 58 58 51 51 Position and business experience for the past five years Corporate Vice President and Chief Information Officer since joining Sonoco in March 2019. Previously Vice President and Chief Information Officer of HNI Corporation 2011-2019. Vice President, Investor Relations & Corporate Affairs since Febru- ary 2009. Previously Staff Vice President, Investor Relations & Corporate Affairs 2005-2009. Joined Sonoco in 2005. Vice President, Marketing and Innovation since July 2013. Pre- viously Vice President, Rigid Paper N.A. 2011-2013; Division Vice President & General Manager, Sonoco Recycling 2009-2011. Joined Sonoco in 2006. Vice President, Americas Industrial effective March 1, 2020. Pre- viously Vice President, Tubes & Cores, U.S. and Canada 2015- 2020; Vice President, Global Tubes & Cores Operations February 2015-December 2015; Vice President, Tubes & Cores N.A. 2012- 2015; and Vice President, Industrial Converting Division N.A. 2010- 2012. Joined Sonoco in 1985. Vice President, North America Consumer and Global RPC effective March 1, 2020. Previously Vice President, Global Rigid Paper and Closures and Display and Packaging 2019-2020; Division Vice President and General Manager, Rigid Paper Containers, NA and Display and Packaging 2018-2019; Division Vice President Rigid Paper Containers, NA 2015-2018; and General Manager of Global Display and Packaging and Packaging Services 2013-2015. Joined Sonoco in 2002. Vice President, Paper & Industrial Converted Products, Europe, Middle East, Australia and New Zealand since 2019. Previously Vice President, Paper & Industrial Converted Products, EMEA, Asia, Australia and New Zealand 2015-2019; Vice President, Global Tubes & Cores February 2015-December 2015; Vice President, Industrial Europe 2014-2015; Division Vice President and General Manager, Industrial Europe 2011-2014. Joined Sonoco in 2003. 8 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Item 1A. Risk factors We are subject to risks and uncertainties that could adversely affect our business, consolidated financial con- dition, results of operations and cash flows, and the trad- ing price of our securities. These factors could also cause our actual results to materially differ from the results con- templated by forward-looking statements we make in this report, in our other filings with the Securities and Exchange Commission, and in our public announcements. You should consider the risk factors described below, as well as other factors described elsewhere in this report and in our other filings with the Securities and Exchange Commission, in evaluating us, our business, and any investment in our securities. Although these are the most significant risk factors of which we are currently aware, they are not the only risk factors to which we are subject. Additional risk factors not currently known to us, or that we currently deem immaterial, could also adversely affect our business operations and financial results. Changes in domestic and global economic conditions may have a negative impact on our business operations and financial results. Although our business is diversified across various markets and customers, because of the nature of our products and services, general economic downturns in the United States and globally can adversely affect our busi- ness operations and financial results. Current global eco- nomic challenges, including the difficulties of the United States and other countries in dealing with their rising debt levels, and currency fluctuations are likely to continue to put pressure on the economy, and on us. In response to the last global economic recession, extraordinary mone- tary policy actions of the U.S. Federal Reserve and other central banking institutions, including the utilization of quantitative easing, were taken to create and maintain a low interest rate environment. The Federal Reserve began slowly raising its benchmark interest rates over the past few years in response to an improving economy and reduced unemployment, and indications in 2018 were that further increases might be expected in 2019. However, in 2019, the Federal Reserve lowered the rate three times, as concerns grew about a potential global slowdown in the face of unresolved trade negotiations between the United States and China, which dampened business investment and slowed the manufacturing sector. If the U.S. economy remains strong and international trade negotiations are successfully resolved, the Federal Reserve may begin to raise its benchmark rate again. Such an increase may, among other things, reduce the availability and/or increase the costs of obtaining new variable rate debt and refinanc- ing existing indebtedness, and negatively impact our financial condition and results of operations. Additionally, such an increase in rates would put additional pressure on consumers and the economy in general. As evidenced in recent years, tightening of credit availability and/or finan- cial difficulties, leading to declines in consumer and busi- ness confidence and spending, affect us, our customers, suppliers and distributors. When such conditions exist, customers may delay, decrease or cancel purchases from us, and may also delay payment or fail to pay us alto- gether. Suppliers may have difficulty filling our orders and distributors may have difficulty getting our products to market, which may affect our ability to meet customer demands, and result in loss of business. Weakened global economic conditions may also result in unfavorable changes in our product price/mix and lower profit margins. All of these factors may have a material adverse effect on us. Our international operations subject us to various risks that could adversely affect our business operations and financial results. We have operations throughout North and South Amer- ica, Europe, Australia and Asia, with approximately 320 facilities in 36 countries. In 2019, approximately 37% of consolidated sales came from operations and sales out- side of the United States, and we expect to continue to expand our international operations in the future. Management of global operations is extremely complex, and operations in foreign countries are subject to local statutory and regulatory requirements, differing legal envi- ronments and other additional risks that may not exist, or be as significant, in the United States. These additional risks may adversely affect our business operations and financial results, and include, without limitation: ‰ foreign currency exchange rate fluctuations and foreign currency exchange controls; ‰ hyperinflation and currency devaluation; ‰ possible limitations on conversion of foreign currencies into dollars or payment of dividends and other payments by non-U.S. subsidiaries; ‰ tariffs, non-tariff barriers, duties, taxes or government royalties, including the imposition or increase of with- holding and other taxes on remittances and other pay- ments by non-U.S. subsidiaries; ‰ our interpretation of our rights and responsibilities under local statutory and regulatory rules for sales taxes, VAT and similar taxes, statutory accounting requirements, licenses and permits, etc. may prove to be incorrect or unsupportable resulting in fines, penalties, and/or other liabilities related to non-compliance, damage to our reputation, unanticipated operational restrictions and/or other consequences as a result of the Company’s actions, or inaction, taken to perform our responsibilities or protect our rights; ‰ changes in tax laws, or the interpretation of such laws, affecting taxable income, tax deductions, or other attrib- utes relating to our non-U.S. earnings or operations; ‰ inconsistent product regulation or policy changes by foreign agencies or governments; ‰ difficulties in enforcement of contractual obligations and intellectual property rights; ‰ high social benefit costs for labor, including more expansive rights of foreign unions and work councils, and costs associated with restructuring activities; ‰ national and regional labor strikes; ‰ difficulties in staffing and managing international oper- ations; ‰ geographic, language and cultural differences between personnel in different areas of the world; ‰ differences in local business practices; ‰ foreign governments’ restrictive trade policies, and cus- toms, import/export and other trade compliance regu- lations; ‰ compliance with and changes in applicable foreign laws; ‰ compliance with U.S. laws, including those affecting trade and foreign investment and the Foreign Corrupt Practices Act; S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 9 ‰ loss or non-renewal of treaties between foreign govern- ments and the U.S.; ‰ product boycotts, including with respect to products of our multi-national customers; ‰ increased costs of maintaining international manufactur- ing facilities and undertaking international marketing pro- grams; ‰ difficulty in collecting international accounts receivable and potentially longer payment cycles; ‰ the potential for nationalization or expropriation of our enterprises or facilities without appropriate compensation; and ‰ political, social, legal and economic instability, civil unrest, war, catastrophic events, acts of terrorism, and widespread outbreaks of infectious diseases. Global economic conditions and/or disruptions in the credit markets could adversely affect our business, financial condition or results of operations. The Company has extensive international operations, and is dependent on customers and suppliers that operate in local economies around the world. In addition, the Company accesses global credit markets as part of its capital allocation strategy. Adverse global macroeconomic conditions could negatively impact our ability to access credit, or the price at which funding could be obtained. Likewise, uncertainty about, or a decline in global or regional economic conditions, could have a significant impact on the financial stability of our suppliers and cus- tomers, and could negatively impact demand for our products. Potential effects include financial instability, inability to obtain credit to finance operations, and insolvency. The United Kingdom’s exit from the European Union could adversely affect us. In 2016, the U.K. voted to leave the European Union (E.U.) (referred to as Brexit), and formally exited the E.U. at the end of January 2020. Brexit could cause disruptions to and create uncertainty surrounding our U.K. businesses, including affecting relationships with existing and future customers, suppliers and employees. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. The measures could potentially dis- rupt the markets we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in these or other jurisdictions. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Our annual rev- enue in 2019 for our U.K. businesses alone totaled $120 million. Although Brexit could have broad-reaching effects beyond just in the U.K. itself, we believe our exposure to this uncertainty is limited. We are subject to governmental export and import control laws and regulations in certain jurisdictions where we do business that could subject us to liability or impair our ability to compete in these markets. Certain of our products are subject to export control laws and regulations and may be exported only with an export license or through an applicable export license exception. If we fail to comply with export licensing, cus- toms regulations, economic sanctions or other laws, we could be subject to substantial civil or criminal penalties, including economic sanctions against us, incarceration for responsible employees and managers, and the possible loss of export or import privileges. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or permits, we may also be materially adversely affected through reputational harm and penal- ties. Obtaining the necessary export license for a particular sale may be time consuming and expensive and could result in the delay or loss of sales opportunities. Furthermore, export control laws and economic sanc- tions prohibit the shipment of certain products to embar- goed or sanctioned countries, governments and persons. We cannot guarantee that a violation of export control laws or economic sanctions will not occur. A prohibited shipment could have negative consequences, including government investigations, penalties, fines, civil and crimi- nal sanctions and reputational harm. Any change in export or import regulations, economic sanctions or related legis- lation, shift in the enforcement or scope of existing regu- lations, or change in the countries, governments, persons or technologies targeted by such regulations, could decrease our ability to export or sell our products interna- tionally. Any limitation on our ability to export or sell our products could materially adversely affect our business. Changes in U.S. trade policies and regulations, as well as the overall uncertainty surrounding international trade relations, could materially adversely affect our consolidated financial condition and results of operations. We continue to face uncertainty with respect to trade relations between the U.S. and many of its trading part- ners. In March 2018, the U.S. announced new tariffs on imported steel and aluminum products. Other international trade actions and initiatives also were announced in 2018 and 2019, notably the imposition by the U.S. of additional tariffs on products of Chinese origin, and China’s imposition of additional tariffs on products of U.S. origin. These tariffs have had, and we expect that they will con- tinue to have, an adverse effect on our costs of products sold and margins in our North America segment. In December 2019, the United States-Mexico-Canada Agreement (USMCA), which is intended to replace the North American Free Trade Agreement (NAFTA), was signed but has only been ratified by the legislative bodies of the United States and Mexico. There remains uncertainty regarding when the USMCA would be adopted as well as the specific impacts of the final agreement. Further changes in U.S. trade policies may be put into place, including additional import tariffs and tariffs on raw materials imported from Canada and Mexico, if the replacement trade agreement reached by the three coun- tries is not ratified by Canada. Additional tariffs and changes to the U.S. trade policies would likely adversely impact our business. In response to these changes, other countries may change their own trade policies, including the imposition of additional tariffs and quotas, which could also adversely affect our business outside the U.S. In order to mitigate the impact of these trade-related increases on our costs of products sold, we may increase prices in certain markets and, over the longer term, make changes in our supply chain and, potentially, our U.S. manufacturing strategy. Implementing price increases may cause our customers to find alternative sources for their products. We may be unable successfully to pass on 10 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K these costs through price increases; adjust our supply chain without incurring significant costs; or locate alter- native suppliers for raw materials or finished goods at acceptable costs or in a timely manner. Further, the uncertainty surrounding U.S. trade policy makes it difficult to make long-term strategic decisions regarding the best way to respond to these pressures and could also increase the volatility of currency exchange rates. Our inability to effectively manage the negative impacts of changing U.S. and foreign trade policies could materially adversely impact our consolidated financial condition and results of operations. Raw materials, energy and other price increases or shortages may impact our results of operations. As a manufacturer, our sales and profitability are dependent on the availability and cost of raw materials, labor and other inputs. Most of the raw materials we use are purchased from third parties. Principal examples are recovered paper, steel, aluminum and resin. Prices and availability of these raw materials are subject to substantial fluctuations that are beyond our control due to factors such as changing economic conditions, currency and commodity price fluctuations, tariffs, resource availability, transportation costs, weather conditions and natural dis- asters, political unrest and instability, and other factors impacting supply and demand pressures. Increases in costs can have an adverse effect on our business and financial results. Our performance depends, in part, on our ability to pass on cost increases to our customers by rais- ing selling prices and/or offset the impact by improving productivity. Although many of our long-term contracts and non-contractual pricing arrangements with customers permit limited price adjustments to reflect increased raw material costs, such adjustments may not occur quickly enough, or be sufficient to prevent a materially adverse effect on net income and cash flow. Furthermore, we may not be able to improve productivity or realize sufficient savings from our cost reduction initiatives to offset the impact of increased costs. Some of our manufacturing operations require the use of substantial amounts of electricity and natural gas, which may be subject to significant price increases as the result of changes in overall supply and demand and the impacts of legislation and regulatory action. We forecast and mon- itor energy usage, and, from time to time, use commodity futures or swaps in an attempt to reduce the impact of energy price increases. However, we cannot guarantee success in these efforts, and we could suffer adverse effects to net income and cash flow should we be unable to either offset or pass higher energy costs through to our customers in a timely manner or at all. Supply shortages or disruptions in our supply chains could affect our ability to obtain timely delivery of materi- als, equipment and supplies from our suppliers, and, in turn, adversely affect our ability to supply products to our customers. Such disruptions could have a material adverse effect on our business and financial results. We depend on third parties for transportation services. We rely primarily on third parties for transportation of the products we manufacture and/or distribute, as well as for delivery of our raw materials. In particular, a significant portion of the goods we manufacture and raw materials we use are transported by railroad or trucks, which are highly regulated. If any of our third-party transportation providers were to fail to deliver the goods that we manu- facture or distribute in a timely manner, we might be unable to sell those products at full value, or at all. Sim- ilarly, if any of these providers were to fail to deliver raw materials to us in a timely manner, we might be unable to manufacture our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we might be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. We may be unable to achieve, or may be delayed in achieving, adequate returns from our efforts to optimize our operations, which could have an adverse impact on our financial condition and operating results. We continually strive to serve our customers and increase returns to our shareholders through innovation and improved operating performance by investing in pro- ductivity improvements, manufacturing efficiencies, manu- facturing cost reductions and the rationalization of our manufacturing facilities footprints. However, our oper- ations include complex manufacturing systems as well as intricate scheduling and numerous geographic and logisti- cal complexities, and our business initiatives are subject to significant business, economic and competitive uncertainties and contingencies. We may not meet antici- pated implementation timetables or stay within budgeted costs, and we may not fully achieve expected results. These initiatives could also adversely impact customer retention or our operations. Additionally, our business strategies may change from time to time in light of our abil- ity to implement new business initiatives, competitive pressures, economic uncertainties or developments, or other factors. A variety of risks could cause us not to real- ize some or all of the expected benefits of these initiatives. These risks include, among others, delays in the antici- pated timing of activities related to such initiatives, strat- egies and operating plans; increased difficulty and costs in implementing these efforts; and the incurrence of other unexpected costs associated with operating the business. As a result, there can be no assurance that we will realize these benefits. If, for any reason, the benefits we realize are less than our estimates, or the implementation of these growth initiatives and business strategies adversely affects our operations or costs more or takes longer to effectuate than we expect, or if our assumptions prove inaccurate, our results of operations may be materially adversely affected. We may not be able to identify suitable acquisition candidates, which could limit our potential for growth. We have made numerous acquisitions in recent years, and expect to actively seek new acquisitions that management believes will provide meaningful oppor- tunities for growth. However, we may not be able to identify suitable acquisition candidates or complete acquis- itions on acceptable terms and conditions. Other compa- nies in our industries have similar investment and S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 11 acquisition strategies to ours, and competition for acquis- itions may intensify. If we are unable to identify acquisition candidates that meet our criteria, our potential for growth may be restricted. We may encounter difficulties in integrating acquisitions, which could have an adverse impact on our financial condition and operating results. As noted in the risk factors above, we have invested a substantial amount of capital in acquisitions, joint ventures and strategic investments and we expect that we will con- tinue to do so in the foreseeable future. We are continually evaluating acquisitions and strategic investments that are significant to our business both in the United States and internationally. Acquisitions, joint ventures and strategic investments involve numerous risks. Acquired businesses may not achieve the expected levels of revenue, profit- ability or productivity, or otherwise perform as expected, and acquisitions may involve significant cash expenditures, debt incurrence, operating losses, and expenses that could have a material adverse effect on our financial condition and operating results. Acquisitions also involve special risks, including, without limitation, the potential assumption of unanticipated liabilities and con- tingencies, and the challenges of effectively integrating acquired businesses. Other risks and challenges associated with acquisitions include, without limitation: ‰ demands on management related to increase in size of our businesses and additional responsibilities of manage- ment; ‰ diversion of management’s attention; ‰ disruptions to our ongoing businesses; ‰ inaccurate estimates of fair value in accounting for acquisitions and amortization of acquired intangible assets, which could reduce future reported earnings; ‰ difficulties in assimilation and retention of employees; ‰ difficulties in integration of departments, systems, tech- nologies, books and records, controls (including internal financial and disclosure controls), procedures, and poli- cies; ‰ potential loss of major customers and suppliers; ‰ challenges associated with operating in new geographic regions; ‰ difficulties in maintaining uniform standards, controls, procedures and policies; ‰ potential failure to identify material problems and liabilities during due diligence review of acquisition targets; and ‰ potential failure to obtain sufficient indemnification rights to fully offset possible liabilities associated with acquired businesses. While management believes that acquisitions will improve our competitiveness and profitability, no assur- ance can be given that acquisitions will be successful or accretive to earnings. If actual performance in an acquis- ition falls significantly short of the projected results, or the assessment of the relevant facts and circumstances was inaccurate or changes, it is possible that a noncash impairment charge of any related goodwill would be required, and our results of operations and financial con- dition could be adversely affected. In connection with acquisitions or divestitures, we may become subject to liabilities and legal claims. In connection with any acquisitions or divestitures, we have in the past, and may in the future, become subject to liabilities or legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental, health and safety liabilities, conditions or damage; permit- ting, regulatory or other legal compliance issues; or tax liabilities. If we become subject to any of these liabilities or claims, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for sig- nificant out-of-pocket expenditures. Such underinsured liabilities, if they materialize, could have a material adverse effect on our business, financial condition and results of operations. We may encounter difficulties restructuring operations or closing or disposing of facilities. We are continuously seeking the most cost-effective means and structure to serve our customers and to respond to changes in our markets. Accordingly, from time to time, we have, and are likely to again, close higher- cost facilities, sell non-core assets and otherwise restructure operations in an effort to improve cost com- petitiveness and profitability. As a result, restructuring and divestiture costs have been, and are expected to be, a recurring component of our operating costs, the magni- tude of which could vary significantly from year to year depending on the scope of such activities. Divestitures and restructuring may also result in significant financial charges for the write-off or impairment of assets, including goodwill and other intangible assets. Furthermore, such activities may divert the attention of management, disrupt our ordinary operations, or result in a reduction in the volume of products produced and sold. There is no guar- antee that any such activities will achieve our goals, and if we cannot successfully manage the associated risks, our financial position and results of operations could be adversely affected. We face intense competition, and failure to compete effectively may have an adverse effect on our operating results. We sell our products in highly competitive markets. We regularly bid for new and continuing business, and being a responsive, high-quality, low-cost producer is a key component of effective competition. The loss of business from our larger customers, customer changes to alter- native forms of packaging, or renewal of business with less favorable terms may have a significant adverse effect on our operating results. Continuing consolidation of our customer base and suppliers may intensify pricing pressure. Like us, many of our larger customers have acquired companies with similar or complementary product lines, and many of our customers have been acquired. Addition- ally, many of our suppliers of raw materials are consolidat- ing. This consolidation of customers and suppliers has increased the concentration of our business with our larg- est customers, and in some cases, increased pricing pressures. Similarly, consolidation of our larger suppliers has resulted in increased pricing pressures from our 12 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K suppliers. Further consolidation of customers and suppli- ers could intensify pricing pressure and reduce our net sales and operating results. The loss of a key customer, or a reduction in its production requirements, could have a significant adverse impact on our sales and profitability. Each of our segments has large customers, and the loss of any of these could have a significant adverse effect on the segment’s sales and, depending on the magnitude of the loss, our results of operations and financial con- dition. Although a majority of our master customer con- tracts are long-term, they are terminable under certain circumstances, such as our failure to meet quality, pricing, or volume requirements, and the contracts themselves often do not require a specific level of purchasing. There is no assurance that existing customer relationships will be renewed at the same level of production, or at all, at the end of the contract term. Furthermore, although no single customer accounted for more than 10% of our net sales in 2019 or 2018, the loss of any of our major customers, a reduction in their purchasing levels or an adverse change in the terms of supply agreements with these customers could reduce our net sales and net income. Continued consolidation of our customers could exacerbate any such loss. For more information on concentration of sales vol- ume in our reportable segments, see Item 1(c), “Dependence on Customers.” We may not be able to develop new products acceptable to the market. For many of our businesses, organic growth depends on product innovation, new product development and timely response to constantly changing consumer demands and preferences. Sales of our products and serv- ices depend heavily on the volume of sales made by our customers to consumers. Consumer preferences for products and packaging formats are constantly changing based on, among other factors, cost, convenience, and health, environmental and social concerns and percep- tions. Our failure, or the failure of our customers, to develop new or better products in response to changing consumer preferences in a timely manner may hinder our growth potential and affect our competitive position, and adversely affect our business and results of operations. We are subject to costs and liabilities related to environmental, health and safety, and corporate social responsibility laws and regulations that could adversely affect our operating results. We must comply with extensive laws, rules and regu- lations in the United States and in each of the countries in which we do business regarding the environment, health and safety, and corporate social responsibility. Com- pliance with these laws and regulations can require sig- nificant expenditures of financial and employee resources. Federal, state, provincial, foreign and local environ- mental requirements, including the Comprehensive Envi- ronmental Response, Compensation and Liability Act (CERCLA), and particularly those relating to air, soil and water quality, handling, discharge, storage and disposal of a variety of substances, and climate change are significant factors in our business and generally increase our costs of operations. We may be found to have environmental liability for the costs of remediating soil or water that is, or was, contaminated by us or a third party at various sites that we now own, use or operate, or previously, owned, used or operated. Legal proceedings may result in the imposition of fines or penalties, as well as mandated remediation programs, that require substantial, and in some instances, unplanned capital expenditures. We have incurred in the past, and may incur in the future, fines, penalties and legal costs relating to environ- mental matters, and costs relating to the damage of natu- ral resources, lost property values and toxic tort claims. We have made expenditures to comply with environmental regulations and expect to make additional expenditures in the future. As of December 31, 2019, approximately $8.7 million was reserved for environmental liabilities. Such reserves are established when it is considered probable that we have some liability. However, because the extent of potential environmental damage, and the extent of our liability for the damage, is usually difficult to assess and may only be ascertained over a long period of time, our actual liability in such cases may end up being sub- stantially higher than the currently reserved amount. Accordingly, additional charges could be incurred that would have a material adverse effect on our operating results and financial position. Many of our products come into contact with the food and beverages packaged within, and therefore we are subject to risks and liabilities related to health and safety matters in connection with those products. Accordingly, our products must comply with various laws and regu- lations for food and beverages applicable to our custom- ers. Changes in such laws and regulations could negatively impact customers’ demand for our products as they comply with such changes and/or require us to make changes to our products. Such changes to our products could include modifications to the coatings and com- pounds we use, possibly resulting in the incurrence of additional costs. Additionally, because many of our prod- ucts are used to package consumer goods, we are sub- ject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by vari- ous health-related concerns and perceptions. Disclosure regulations relating to the use of “conflict minerals” sourced from the Democratic Republic of the Congo and adjoining countries could affect the sourcing, availability and cost of materials used in the manufacture of some of our products. We also incur costs associated with supply chain due diligence, and, if applicable, poten- tial changes to products, processes or sources of supply as a result of such due diligence. Because our supply chain is complex, we may also face reputation risk with our customers and other stakeholders if we are unable sufficiently to verify the origins of all such minerals used in our products. Changes to laws and regulations dealing with environ- mental, health and safety, and corporate social responsi- bility issues are made or proposed with some frequency, and some of the proposals, if adopted, might, directly or indirectly, result in a material reduction in the operating results of one or more of our operating units. However, any such changes are uncertain, and we cannot predict the amount of additional capital expenditures or operating expenses that could be necessary for compliance. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 13 Product liability claims and other legal proceedings could adversely affect our operations and financial performance. We produce products and provide services related to other parties’ products. While we have built extensive operational processes intended to ensure that the design and manufacture of our products meet rigorous quality standards, there can be no assurance that we or our customers will not experience operational process failures that could result in potential product, safety, regulatory or environmental claims and associated litigation. We are also subject to a variety of legal proceedings and legal compliance risks in our areas of operation around the globe. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. In accordance with customary practice, we maintain insurance against some, but not all, of these potential claims; however, in the future, we may not be able to maintain such insurance at acceptable premium cost lev- els. In addition, the levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. If any significant judgment or claim is not fully insured or indemnified against, it could have a material adverse impact on our business, financial condition and results of operations. We and the industries in which we operate are at times being reviewed or investigated by regulators and other governmental authorities, which could lead to enforcement actions, fines and penalties or the assertion of private liti- gation claims and damages. Simply responding to actual or threatened litigation or government investigations of our compliance with regulatory standards may require sig- nificant expenditures of time and other resources. While we believe that we have adopted appropriate risk management and compliance programs, the global and diverse nature of our operations means that legal and compliance risks will continue to exist and legal proceed- ings and other contingencies, the outcome of which can- not be predicted with certainty, will arise from time to time that could adversely affect our business, results of oper- ations and financial condition. Changes in pension plan assets or liabilities may reduce our operating results and shareholders’ equity. We sponsor various defined benefit plans worldwide, and have an aggregate projected benefit obligation for these plans of approximately $2.0 billion as of December 31, 2019. The difference between defined benefit plan obligations and assets (the funded status of the plans) significantly affects the net periodic benefit costs and the ongoing funding requirements of the plans. Among other factors, changes in discount rates and lower-than-expected investment returns could sub- stantially increase our future plan funding requirements and have a negative impact on our results of operations and cash flows. As of December 31, 2019, these plans hold a total of approximately $1.7 billion in assets consist- ing primarily of common collective trusts, mutual funds, fixed income securities and alternative investments such as interests in hedge funds, funding a portion of the pro- jected benefit obligations of the plans. If the performance of these assets does not meet our assumptions, or dis- count rates decline, the underfunding of the plans may increase and we may be required to contribute additional funds to these plans, and our pension expense may increase, which could adversely affect operating results and shareholders’ equity. Beginning in 2019, the Com- pany initiated de-risking measures in its U.S. defined bene- fit pension plans which at December 31, 2019 comprised approximately 74% and 78% of the aggregate projected benefit obligation and plan asset value, respectively, of the Company’s worldwide defined benefit plans, These meas- ures included a voluntary $200 million plan contribution, reallocation of plan assets to primarily fixed income investments, and initiating the process of terminating and annuitizing the Sonoco Pension Plan for Inactive Partic- ipants, the larger of the Company’s U.S. defined benefit pension plans. We, or our customers, may not be able to obtain necessary credit or, if so, on reasonable terms. We have $1.0 billion of fixed-rate debt outstanding. We also operate a $500 million commercial paper program, supported by a $500 million credit facility committed by a syndicate of eight banks until July 2022. If we were pre- vented from issuing commercial paper, we have the con- tractual right to draw funds directly on the underlying bank credit facility. We believe that the lenders have the ability to meet their obligations under the facility. However, if these obligations were not met, we may be forced to seek more costly or cumbersome forms of credit. Should such credit be unavailable for an extended time, it would sig- nificantly affect our ability to operate our business and execute our plans. In addition, our customers may experi- ence liquidity problems as a result of a negative change in the economic environment, including the ability to obtain credit, that could limit their ability to purchase our prod- ucts and services or satisfy their existing obligations. Our credit ratings are important to our ability to issue commercial paper at favorable rates of interest. A down- grade in our credit rating could increase our cost of bor- rowing. Our indebtedness could adversely affect our cash flow, increase our vulnerability to economic conditions, and limit or restrict our business activities. In addition to interest payments, from time to time a significant portion of our cash flow may need to be used to service our indebtedness, and, therefore, may not be available for use in our business. Our ability to generate cash flow is subject to general economic, financial, com- petitive, legislative, regulatory, and other factors that may be beyond our control. Our indebtedness could have a significant impact on us, including, but not limited to: ‰ increasing our vulnerability to general adverse economic and industry conditions; ‰ requiring us to dedicate a significant portion of our cash flow from operations to payments on our indebtedness, thereby reducing the amount of our cash flow available to fund working capital, acquisitions and capital expenditures, and for other general corporate purposes; ‰ limiting our flexibility in planning for, or reacting to, changes in our business and our industry; ‰ restricting us from making strategic acquisitions or exploiting business opportunities; and ‰ limiting our ability to borrow additional funds. Certain of our debt agreements impose restrictions with respect to the maintenance of financial ratios and the disposition of assets. The most restrictive covenants cur- rently require us to maintain a minimum level of interest 14 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K coverage, and a minimum level of net worth. Although we were substantially above these minimum levels at December 31, 2019, these restrictive covenants could adversely affect our ability to engage in certain business activities that would otherwise be in our best long-term interests. Some of our indebtedness is subject to floating interest rates, which would result in our interest expense increasing if interest rates rise. In 2019, our average variable-rate borrowings were approximately $0.7 billion. Increases in short-term interest rates would directly impact the amount of interest we pay. Fluctuations in interest rates can increase borrowing costs and have a material adverse effect on our business. We may incur additional debt in the future, which could increase the risks associated with our leverage. We are continually evaluating and pursuing acquisition opportunities and may incur additional indebtedness to finance any such acquisitions and to fund any resulting increased operating needs. As new debt is added to our current debt levels, the related risks we face could increase. While we will have to effect any new financing in compliance with the agreements governing our then exist- ing indebtedness, changes in our debt levels and or debt structure may impact our credit rating and costs to bor- row, as well as constrain our future financial flexibility in the event of a deterioration in our financial operating perform- ance or financial condition. Currency exchange rate fluctuations may reduce operating results and shareholders’ equity. Fluctuations in currency exchange rates can cause translation, transaction and other losses that can unpredictably and adversely affect our consolidated operating results. Our reporting currency is the U.S. dollar. However, as a result of operating globally, a portion of our consolidated net sales, costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. In our consolidated financial statements, we translate the local currency financial results of our foreign operations into U.S. dollars based on their respective exchange rates. Depending on the direction, changes in those rates will either increase or decrease operating results and balances as reported in U.S. dollars. Although we monitor our exposures and, from time to time, may use forward cur- rency contracts to hedge certain forecasted currency transactions or foreign currency denominated assets and liabilities, this does not insulate us completely from foreign currency fluctuations and exposes us to counterparty risk of nonperformance. Adverse weather and climate changes may result in lower sales. We manufacture packaging products for foods as well as products used in construction and industrial manu- facturing. Varying weather conditions can impact crop growing seasons and related farming conditions that can then impact the timing or amount of demand for food packaged in our containers. In addition, poor or extreme weather conditions can temporarily impact the level of construction and industrial activity and also impact the efficiency of our manufacturing operations. Such dis- ruptions could have a material adverse effect on our results of operations. We rely on our information technology, and its failure or disruption could disrupt our operations and adversely affect our business, financial condition and results of operations. We rely on the successful and uninterrupted functioning of our information technologies to securely manage oper- ations and various business functions, and we rely on diverse technologies to process, store and report information about our business, and to interact with cus- tomers, vendors and employees around the world. As with all large environments, our information technology systems may be susceptible to damage, disruption or shutdown due to natural disaster, hardware of software failure, obso- lescence, cyberattack, support infrastructure failure, user errors or malfeasance resulting in malicious or accidental destruction of information or functionality, or other cata- strophic event.. From time to time, we have been, and we will likely continue to be, subject to cybersecurity-related incidents. However, to date we have not experienced any material impact on our business or operations from these attacks or events. Information system damages, disruptions, shutdowns or compromises could result in production downtimes and operational disruptions, transaction errors, loss of customers and business opportunities, legal liability, regu- latory fines, penalties or intervention, reputational damage, reimbursement or compensatory payments, and other costs, any of which could have a material adverse effect on our business, financial position and results of oper- ations. Although we attempt to mitigate these risks by employing a number of technical and process-based measures, including employee training, comprehensive monitoring of our networks and systems, and main- tenance of backup and protective systems, our systems, networks, products, and services remain potentially vulnerable to cyber threats. Furthermore, the tactics, techniques, and procedures used by malicious actors to obtain unauthorized access to information technology systems and networks change frequently and often are not recognizable until launched against a target. Accord- ingly, we may be unable to anticipate these techniques or implement adequate preventative measures. It is possible that we may in the future suffer a criminal attack whereby unauthorized parties gain access to our information tech- nology networks and systems, including sensitive, con- fidential or proprietary data, and we may not be able to identify and respond to such an incident in a timely man- ner. A security breach of customer, employee, supplier or company information may have a material adverse effect on our business, financial condition and results of operations. We maintain and have access to sensitive, confidential, proprietary and personal data and information that is sub- ject to privacy and security laws, regulations and customer controls. This data and information is subject to the risk of intrusion, tampering and theft. Although we develop and maintain systems to prevent such events from occurring, the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts to protect such sensitive, confidential or personal data or information, our facilities and systems S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 15 and those of our customers, suppliers and third-party serv- ice providers may be vulnerable to security breaches, misplaced or lost data, and programming and/or user errors that could lead to the compromising of sensitive, confidential, proprietary or personal data and information. Similar security threats exist with respect to the IT systems of our lenders, suppliers, consultants, advisors and other third parties with whom we conduct business. Additionally, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, assess the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. We continue to see increased regulation of data privacy and security and the adoption of more stringent subject matter specific state laws and national laws regulating the collection and use of data, as well as security and data breach obligations – including, for example, the General Data Protection Regulation in the EU, the Cyber Security Law in China, the General Data Protection Law in Brazil and the state of California’s Consumer Privacy Act of 2018. It is likely that new laws and regulations will continue to be adopted in the United States and internationally, and existing laws and regulations may be interpreted in new ways that would affect our business. Although we take reasonable efforts to comply with all applicable laws and regulations, the uncertainty and changes in the require- ments of multiple jurisdictions may increase the cost of compliance, reduce demand for our services, restrict our ability to offer services in certain locations, and jeopardize business transactions across borders. As a result of potential cyber threats and existing and new data protection requirements, we have incurred and expect to continue to incur ongoing operating costs as part of our efforts to protect and safeguard our sensitive, confidential, proprietary and personal data and information, and the sensitive, confidential, proprietary and personal data and information of our customers, suppliers and third-party service providers. These efforts also may divert management and employee attention from other business and growth initiatives. Failure to provide adequate privacy protections and maintain compliance with the new data privacy laws could result in interruptions or damage to our operations, legal or reputational risks, create liabilities for us, subject us to sanctions by national data protection regulators and result in significant penal- ties, and increase our cost of doing business, all of which could have a materially adverse impact on our business, financial condition and results of operations. Our ability to attract, develop and retain talented executives, managers and employees is critical to our success. Our ability to attract, develop and retain talented employees, including executives and other key managers, is important to our business. The experience and industry contacts of our management team and other key person- nel significantly benefit us, and we need expertise like theirs to carry out our business strategies and plans. We also rely on the specialized knowledge and experience of certain key technical employees. The loss of these key officers and employees, or the failure to attract and develop talented new executives, managers and employ- ees, could have a materially adverse effect on our business. Effective succession planning is also important to our long-term success, and failure to ensure effective transfer of knowledge and smooth transitions involving key officers and employees could hinder our strategic planning and execution. Changes in U.S. generally accepted accounting principles (U.S. GAAP) and SEC rules and regulations could materially impact our reported results. U.S. GAAP and SEC accounting and reporting changes are common and have become more frequent and sig- nificant in the past several years. These changes could have significant effects on our reported results when compared to prior periods and to other companies, and may even require us to retrospectively revise prior periods from time to time. Additionally, material changes to the presentation of transactions in the consolidated financial statements could impact key ratios that analysts and credit rating agencies use to rate our company, increase our cost of borrowing, and ultimately our ability to access the credit markets in an efficient manner. Our financial results are based upon estimates and assumptions that may differ from actual results. In preparing our consolidated financial statements in accordance with U.S. GAAP, we make estimates and assumptions that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These esti- mates and assumptions must be made due to certain information used in the preparation of our financial state- ments that is dependent on future events, cannot be calculated with a high degree of precision from data avail- able, or is not capable of being readily calculated based on generally accepted methodologies. We believe that accounting for long-lived assets, pension benefit plans, contingencies and litigation, and income taxes involves the more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results for all estimates could differ materially from the estimates and assumptions that we use, which could have a material adverse effect on our financial condition and results of operations. We have a significant amount of goodwill and other intangible assets and a write down would negatively impact our operating results and shareholders’ equity. At December 31, 2019, the carrying value of our goodwill and intangible assets was approximately $1.8 billion. We are required to evaluate our goodwill amounts annually, or more frequently when evidence of potential impairment exists. The impairment test requires us to analyze a number of factors and make estimates that require judgment. As a result of this testing, we have in the past recognized goodwill impairment charges, and we have identified one reporting unit that currently is at risk of a significant future impairment charge if actual results fall short of expectations. Future changes in the cost of capi- tal, expected cash flows, changes in our business strat- egy, and external market conditions, among other factors, could require us to record an impairment charge for goodwill, which could lead to decreased assets and reduced net income. If a significant write down were required, the charge could have a material adverse effect on our operating results and shareholders’ equity. 16 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Full realization of our deferred tax assets may be affected by a number of factors. We have deferred tax assets, including U.S. and foreign operating loss carryforwards, capital loss carryforwards, employee and retiree benefit items, foreign tax credits, and other accruals not yet deductible for tax purposes. We have established valuation allowances to reduce those deferred tax assets to an amount that we believe is more likely than not to be realized prior to expiration of such deferred tax assets. Our ability to use these deferred tax assets depends in part upon our having future taxable income during the periods in which these temporary differ- ences reverse or our ability to carry back any losses cre- ated by the deduction of these temporary differences. We expect to realize these assets over an extended period. However, if we were unable to generate sufficient future taxable income in the U.S. and certain foreign jurisdictions, or if there were a significant change in the time period within which the underlying temporary differences became taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets, which would increase our effective tax rate which could have a material adverse effect on our reported results of operations. Our annual effective tax rate and the amount of taxes we pay can change materially as a result of changes in U.S. and foreign tax laws, changes in the mix of our U.S. and foreign earnings, adjustments to our estimates for the potential outcome of any uncertain tax issues, and audits by federal, state and foreign tax authorities. indirect taxes could affect the affordability of our products and our customers’ products, and, therefore, reduce demand. Recently, international tax norms governing each coun- try’s jurisdiction to tax cross-border international trade have evolved, and are expected to continue to evolve, due in part to the Base Erosion and Profit Shifting project led by the Organization for Economic Cooperation and Devel- opment (“OECD”), an international association of 36 coun- tries including the United States, and supported by the G20. Changes in these laws and regulations, or any change in the position of tax authorities regarding their application, administration or interpretation could adversely affect our financial results. In addition, a number of countries are actively pursuing changes to their tax laws applicable to multinational corporations. Due to widely varying tax rates in the taxing juris- dictions applicable to our business, a change in income generation to higher taxing jurisdictions or away from lower taxing jurisdictions may also have an adverse effect on our financial condition and results of operations. We make estimates of the potential outcome of uncertain tax issues based on our assessment of relevant risks and facts and circumstances existing at the time, and we use these assessments to determine the adequacy of our provision for income taxes and other tax-related accounts. These estimates are highly judgmental. Although we believe we adequately provide for any reasonably foreseeable outcome related to these matters, future results may include favorable or unfavorable adjustments to estimated tax liabilities, which may cause our effective tax rate to fluctuate significantly. As a large multinational corporation, we are subject to In addition, our income tax returns are subject to regu- U.S. federal, state and local, and many foreign tax laws and regulations, all of which are complex and subject to significant change and varying interpretations. Changes in these laws or regulations, or any change in the position of taxing authorities regarding their application, admin- istration or interpretation, could have a material adverse effect on our business, consolidated financial condition or results of our operations. For example, the U.S. Tax Cuts and Jobs Act (“Jobs Act”), enacted in 2017, significantly changes how the U.S. taxes corporations. The Jobs Act requires complex computations to be performed that were not previously required under U.S. tax law, significant judgments to be made in interpretation of the provisions of the Jobs Act, and significant estimates in calculations, and the prepara- tion and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on application or administration of provi- sions of the Jobs Act and regulations under the act that is different from our interpretations. It is also reasonable to expect that global taxing authorities will be reviewing cur- rent legislation for potential modifications in reaction to the implementation of the Jobs Act. Any such additional guid- ance, along with the potential for additional global tax legislation changes, could have a material adverse impact on our net income and cash flow by impacting significant deductions or income inclusions. In addition, our prod- ucts, and our customers’ products, are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions in which we operate. Increases in these lar examination by domestic and foreign tax authorities. These taxing authorities may disagree with the positions we have taken or intend to take regarding the tax treat- ment or characterization of any of our transactions. If any tax authorities were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition or results of our oper- ations. Furthermore, regardless of whether any such chal- lenge is resolved in our favor, the final resolution of such matter could be expensive and time consuming to defend and/or settle. Future changes in tax law could significantly impact our provision for income taxes, the amount of taxes payable, and our deferred tax asset and liability balances. As further discussed in Note 14 to our December 31, 2019 financial statements included in Item 8 of this Form 10-K, the IRS has previously notified us that it disagrees with our characterization of a distribution, and subsequent repayment, of an intercompany note in 2012 and 2013. If the IRS were to prevail, we could be required to make an adjustment to income for the affected years and pay a significant amount of additional taxes, which could have a material adverse effect on our results of operations and financial condition. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 17 If we fail to continue to maintain effective internal control over financial reporting at a reasonable assurance level, we may not be able to accurately report our financial results, and may be required to restate previously published financial information, which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities. Effective internal controls are necessary to provide reli- able financial reports and to assist in the effective pre- vention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. We are required to assess the effectiveness of our internal control over financial reporting annually, as required by Sec- tion 404 of the Sarbanes-Oxley Act. We need to maintain our processes and systems and adapt them as our busi- ness grows and changes. This continuous process of maintaining and adapting our internal controls and comply- ing with Section 404 is expensive, time-consuming and requires significant management attention. As we grow our businesses and acquire other businesses, our internal controls will become increasingly complex and we may require significantly more resources. The integration of acquired businesses into our internal control over financial reporting has required, and will continue to require, sig- nificant time and resources from our management and other personnel and will increase our compliance costs. Additionally, maintaining effectiveness of our internal control over financial reporting is made more chal- lenging by the fact that we have over 190 subsidiaries and joint ventures in 36 countries around the world. As described in Item 9A of this Form 10-K, management has concluded that our internal controls over financial report- ing were effective as of December 31, 2019. There is no assurance that, in the future, material weaknesses will not be identified that would cause management to change its current conclusion as to the effectiveness of our internal controls. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our financial condition, and we may be required to restate previously published financial information, which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities. Challenges to, or the loss of, our intellectual property rights could have an adverse impact on our ability to compete effectively. Our ability to compete effectively depends, in part, on our ability to protect and maintain the proprietary nature of our owned and licensed intellectual property. We own a large number of patents on our products, aspects of our products, methods of use and/or methods of manufactur- ing, and we own, or have licenses to use, all of the material trademark and trade name rights used in con- nection with the packaging, marketing and distribution of our major products. We also rely on trade secrets, know-how and other unpatented proprietary technology. We attempt to protect and restrict access to our intellectual property and proprietary information by relying on the patent, trademark, copyright and trade secret laws of the U.S. and other countries, as well as non-disclosure agreements. However, it may be possible for a third party to obtain our information without our authorization, independently develop similar technologies, or breach a non-disclosure agreement entered into with us. Fur- thermore, many of the countries in which we operate do not have intellectual property laws that protect proprietary rights as fully as do laws in the U.S. The use of our intellectual property by someone else without our author- ization could reduce or eliminate certain of our competitive advantages, cause us to lose sales or otherwise harm our business. The costs associated with protecting our intellectual property rights could also adversely impact our business. In addition, we are from time to time subject to claims from third parties suggesting that we may be infringing on their intellectual property rights. If we were held liable for infringement, we could be required to pay damages, obtain licenses or cease making or selling certain prod- ucts. Intellectual property litigation, which could result in substantial cost to us and divert the attention of manage- ment, may be necessary to protect our trade secrets or proprietary technology or for us to defend against claimed infringement of the rights of others and to determine the scope and validity of others’ proprietary rights. We may not prevail in any such litigation, and if we are unsuccessful, we may not be able to obtain any necessary licenses on reasonable terms or at all. Failure to protect our patents, trademarks and other intellectual property rights may have a material adverse effect on our business, consolidated financial condition or results of operations. Several of our operations are conducted by joint ventures that we cannot operate solely for our benefit. Several of our operations are conducted through joint ventures. In joint ventures, we share ownership and, in some instances, management of a company with one or more parties who may or may not have the same goals, strategies, priorities or resources as we do. In general, joint ventures are intended to be operated for the benefit of all co-owners, rather than for our exclusive benefit. Operating a business as a joint venture often requires additional organizational formalities as well as time- consuming procedures for sharing information, accounting and making decisions. In certain cases, our joint venture partners must agree in order for the applicable joint ven- ture to take certain actions, including acquisitions, the sale of assets, budget approvals, borrowing money and grant- ing liens on joint venture property. Our inability to take unilateral action that we believe is in our best interests may have an adverse effect on the financial performance of the joint venture and the return on our investment. In joint ventures, we believe our relationship with our co-owners is an important factor to the success of the joint venture, and if a co-owner changes, our relationship may be adversely affected. In addition, the benefits from a successful joint venture are shared among the co-owners, so that we do not receive all the benefits from our successful joint ven- tures. Finally, we may be required on a legal or practical basis or both, to accept liability for obligations of a joint venture beyond our economic interest, including in cases where our co-owner becomes bankrupt or is otherwise unable to meet its commitments. 18 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Material disruptions in our business operations could negatively affect our financial results. Although we take measures to minimize the risks of disruption at our facilities, we from time to time encounter an unforeseen material operational disruption in one of our major facilities, which could negatively impact production and our financial results. Such a disruption could occur as a result of any number of events including but not limited to a major equipment failure, labor stoppages, trans- portation failures affecting the supply and shipment of materials, disruptions at our suppliers, fire, severe weather conditions, natural disasters and disruptions in utility serv- ices. These types of disruptions could materially adversely affect our earnings to varying degrees depending upon the facility, the duration of the disruption, our ability to shift business to another facility or find alternative sources of materials or energy. Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles. We have two institutional shareholders who own a significant amount of our outstanding common stock whose decisions with respect to our stock could affect our stock price. Currently, we have two institutional shareholders who own 10.8% and 11.4% of our outstanding common stock, respectively. Neither of these shareholders has direct representation on our Board of Directors. If one of these shareholders decided to sell significant volumes of our stock, it could put downward pressure on the price of our stock. Item 1B. Unresolved staff comments There are no unresolved written comments from the SEC staff regarding the Company’s periodic or current 1934 Act reports. Item 2. Properties The Company’s corporate offices are owned and oper- ated in Hartsville, South Carolina. There are approximately 320 owned and leased facilities used by the Company in 36 countries around the world. The majority of these facili- ties are located in North America. The most significant foreign geographic region in which the Company operates is Europe, followed by Asia. The Company believes that its facilities have been well maintained, are generally in good condition and suitable for the conduct of its business. The Company does not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. Item 3. Legal proceedings The Company has been named as a potentially respon- sible 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 Compa- ny’s share has not been finally determined in most cases. In some cases, the Company has cost-sharing agree- ments with other PRPs relating to the sharing of legal defense costs and cleanup costs for a particular site. The Company has assumed, for accrual purposes, that the other parties to these cost-sharing agreements will per- form as agreed. Final resolution of some of the sites is years away, and actual costs to be incurred for these matters in future periods is likely to vary from current esti- mates 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 as of December 31, 2019, cannot be determined. As of December 31, 2019 and 2018, the Company had accrued $8.7 million and $20.1 million, respectively, related to environmental contingencies. The Company periodically reevaluates the assumptions used in determin- ing the appropriate reserves for environmental matters as additional information becomes available and makes appropriate adjustments when warranted. For further information about legal proceedings, see Note 16 to the Company’s Consolidated Financial State- ments under Item 8 of this Annual Report on Form 10-K. Other legal matters Additional information regarding legal proceedings is provided in Note 16 to the Consolidated Financial State- ments of this Annual Report on Form 10-K. Item 4. Mine safety disclosures Not applicable. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 19 PART II Item 5. Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities The Company’s common stock is traded on the New York Stock Exchange under the stock symbol “SON.” As of December 31, 2019, there were approximately 95,000 shareholder accounts. Information required by Item 201(d) of Regulation S-K can be found in Part III, Item 12 of this Annual Report on Form 10-K. The Company made the following purchases of its securities during the fourth quarter of 2019: Issuer purchases of equity securities Period 09/30/19 – 11/03/19 11/04/19 – 12/01/19 12/02/19 – 12/31/19 Total (a) Total number of shares purchased1 12,589 887 2,067 15,543 (b) Average price paid per share $58.12 $59.27 $61.40 $58.62 (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 2,969,611 2,969,611 2,969,611 2,969,611 1 A total of 15,543 common shares were repurchased in the fourth quarter of 2019 related to shares withheld to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards. These shares were not repurchased as part of a publicly announced plan or program. 2 On February 10, 2016, the Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company’s common stock. No shares were repurchased under this authorization during 2019, 2018 or 2017. During 2016, a total of 2,030,389 shares were repurchased at a cost of $100 million. Accordingly, at December 31, 2019, a total of 2,969,611 shares remain available for repurchase under this authorization. The Company did not make any unregistered sales of its securities during 2019. 20 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Item 6. Selected financial data The following table sets forth the Company’s selected consolidated financial information for the past five years. The information presented below should be read together with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Annual Report on Form 10-K and the Company’s historical Con- solidated Financial Statements and the Notes thereto included in Item 8 of this Annual Report on Form 10-K. The selected statement of income data and balance sheet data are derived from the Company’s Consolidated Financial Statements. (Dollars and shares in thousands except per share data) Operating results Net sales Cost of sales and operating expenses Restructuring/Asset impairment charges Gain on disposition of business Non-operating pension costs Interest expense Interest income Income before income taxes Provision for income taxes Equity in earnings of affiliates, net of tax Net income Net (income) attributable to noncontrolling interests Years ended December 31 2019 2018 2017 2016 2015 $5,374,207 4,847,245 59,880 — 24,713 66,845 (5,242) $5,390,938 4,913,238 40,071 — 941 63,147 (4,990) $5,036,650 4,585,822 38,419 — 45,110 57,220 (4,475) $4,782,877 4,339,643 42,883 (104,292) 11,809 54,170 (2,613) $4,964,369 4,512,927 50,637 — 18,261 56,973 (2,375) 380,766 93,269 (5,171) 378,531 75,008 (11,216) 314,554 146,589 (9,482) 441,277 164,631 (11,235) 327,946 87,738 (10,416) 292,668 314,739 177,447 287,881 250,624 (883) (1,179) (2,102) (1,447) (488) Net income attributable to Sonoco $ 291,785 $ 313,560 $ 175,345 $ 286,434 $ 250,136 Per common share Net income attributable to Sonoco: Basic Diluted Cash dividends Weighted average common shares outstanding: Basic Diluted Actual common shares outstanding at December 31 Financial position Net working capital1 Property, plant and equipment, net Total assets Long-term debt Total debt Total equity Current ratio Total debt to total capital2 $ $ 2.90 2.88 1.70 $ 3.12 3.10 1.62 $ 1.75 1.74 1.54 $ 2.83 2.81 1.46 2.46 2.44 1.37 100,742 101,176 100,539 101,016 100,237 100,852 101,093 101,782 101,482 102,392 100,198 99,829 99,414 99,193 100,944 $ 116,704 1,286,842 5,126,289 1,193,135 1,681,369 1,815,705 1.1 48.1% $ 436,342 1,233,821 4,583,465 1,189,717 1,385,162 1,772,278 1.4 43.9% $ 563,666 1,169,377 4,557,721 1,288,002 1,447,329 1,730,060 1.6 45.6% $ 546,152 1,060,017 3,923,203 1,020,698 1,052,743 1,554,705 1.7 40.4% $ 384,862 1,112,036 4,013,685 1,015,270 1,128,367 1,532,873 1.4 42.4% 1 Calculated as total current assets minus total current liabilities. 2` Calculated as total debt divided by the sum of total debt and total equity. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 21 Item 7. Management’s discussion and analysis of financial condition and results of operations The following discussion and analysis contains forward- looking statements, including, without limitation, state- ments relating to the Company’s plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under “Forward-Looking Statements” and under “Item 1A. Risk Factors” of this Form 10-K. This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. General overview Sonoco is a leading manufacturer of consumer, industrial and protective packaging products and provider of packaging services with approximately 320 locations in 36 countries. The Company’s operations are reported in four segments, Consumer Packaging, Display and Pack- aging, Paper and Industrial Converted Products, and Pro- tective Solutions. Generally, the Company serves two broad end-use markets, consumer and industrial, which, period to period, can exhibit different economic characteristics from each other. Geographically, in 2019 approximately 63% of sales were generated in the United States, 20% in Europe, 7% in Asia, 4% in Canada and 6% in other regions. The Company is a market-share leader in many of its product lines, particularly in tubes, cores and composite containers. Competition in most of the Company’s busi- nesses is intense. Demand for the Company’s products and services is primarily driven by the overall level of con- sumer consumption of non-durable goods; however, cer- tain product and service groups are tied more directly to durable goods, such as appliances, automobiles and construction. The businesses that supply and/or service consumer product companies have tended to be, on a relative basis, more recession resistant than those that service industrial markets. Financially, the Company’s objective is to deliver aver- age annual double-digit total returns to shareholders over time. To meet that target, the Company focuses on three major areas: driving profitable sales growth, improving margins and leveraging the Company’s strong cash flow and financial position. Operationally, the Company’s goal is to be the acknowledged leader in high-quality, innovative, value-creating packaging solutions within tar- geted customer market segments. Use of non-GAAP financial measures To assess and communicate the financial performance of the Company, Sonoco management uses, both internally and externally, certain financial performance measures that are not in conformity with generally accepted accounting principles (“non-GAAP” financial measures). These non-GAAP financial measures reflect the Company’s GAAP operating results adjusted to remove amounts, including the associated tax effects, relating to restructuring initiatives, asset impairment charges, environmental charges, acquisition-related costs, gains or losses from the disposition of businesses, excess property insurance recoveries, non-operating pension costs, certain income tax events and other items, if any, including other income tax-related adjustments and/or events, the exclusion of which management believes improves the period-to-period comparability and analysis of the underlying financial performance of the business. The adjusted non-GAAP results are identified using the term “base,” for example, “base earnings.” The Company’s base financial performance measures are not in accordance with, nor an alternative for, meas- ures conforming to generally accepted accounting princi- ples and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP meas- ures are not based on any comprehensive set of account- ing rules or principles. Sonoco continues to provide all information required by GAAP, but it believes that evaluat- ing its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only GAAP financial measures. The Company uses the non-GAAP “base” performance measures presented herein for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate perform- ance of management and each business unit against plan/ forecast all the way up through the evaluation of the Chief Executive Officer’s performance by the Board of Directors. In addition, these same non-GAAP measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community. Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Sonoco presents these non-GAAP financial measures to provide users information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance. Material limitations associated with the use of such measures are that they do not reflect all period costs included in operating expenses and may not reflect financial results that are comparable to financial results of other companies that present similar costs differently. Furthermore, the calculations of these non-GAAP meas- ures are based on subjective determinations of manage- ment regarding the nature and classification of events and circumstances that the investor may find material and view differently. To compensate for these limitations, manage- ment believes that it is useful in understanding and analyz- ing the results of the business to review both GAAP information which includes all of the items impacting finan- cial results and the non-GAAP measures that exclude certain elements, as described above. Restructuring and restructuring-related asset impair- ment charges are a recurring item as Sonoco’s restructur- ing programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency. Although recur- ring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with sev- erance and termination benefits in the countries in which the restructuring actions occur. Similarly, non-operating 22 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K pension expense is a recurring item. However, this expense is subject to significant fluctuations from period to period due to changes in actuarial assumptions, global financial markets (including stock market returns and interest rate changes), plan changes, settlements, curtail- ments, and other changes in facts and circumstances. Reconciliations of GAAP to base results are presented on pages 21 and 22 in conjunction with management’s discussion and analysis of the Company’s results of oper- ations. Whenever reviewing a non-GAAP financial meas- ure, readers are encouraged to review the related reconciliation to fully understand how it differs from the related GAAP measure. Reconciliations are not provided for non-GAAP measures related to future years due to the likely occurrence of one or more of the following, the tim- ing and magnitude of which management is unable to reli- ably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs and restructuring-related asset impairment charges, acquisition-related costs, and the tax effect of these items and/or other income tax-related events. These items could have a significant impact on the Company’s future GAAP financial results. 2019 overview and 2020 outlook Management’s focus in 2019 was on generating profit- able growth, improving margins, driving free cash flow, and portfolio optimization, including both potential acquis- itions and divestitures. Management targeted an overall 2019 organic volume increase of approximately 1.0% and a positive price/cost relationship, albeit lower than what was achieved in 2018. As a result, management was expecting a notable increase in net sales, including the full-year impact of 2018 acquisitions, and modest improvements in overall margins for gross profit, base operating profit and base operating profit before deprecia- tion and amortization. However, as the year unfolded, price/cost was flat and global weakness in manufacturing, exacerbated by tariffs and overall trade uncertainty, drove volume down in our Paper and Industrial Converted Prod- ucts segment, while continued secular declines in certain end markets of our rigid paper container business and a combination of operational performance issues, com- petitive pressure and spotty demand in our plastics busi- ness resulted in lower overall volume in Consumer Packaging. Despite company-wide volume being down 2.5% and flat price/cost, consolidated operating profit and operating margin improved considerably, due to acquis- itions, net productivity gains and the effective control of other fixed costs. Consolidated operating profit increased in 2019 by $29.4 million, or 6.7% despite a small 0.3% decline in total revenue year over year. The benefit to sales from acquis- itions and higher selling prices implemented to recover rising costs were offset by negative volume/mix in most of the Company’s businesses, the negative impact of foreign exchange on sales and lost sales from the 2018 exit of a single-customer contract for retail packaging fulfillment. Each of the Company’s segments contributed to the year- over-year growth in consolidated operating profit with the greatest gain reported by Display and Packaging, followed by Paper and Industrial Converted Products and Pro- tective Solutions. On a company-wide basis, productivity improvements and the added operating profit from acquis- itions were partially offset by negative volume / mix. Vol- ume declines, together with production inefficiencies in certain businesses, were the primary drivers of a sig- nificant decline in manufacturing productivity, which was more than offset by purchasing and fixed cost pro- ductivity. Despite the increased consolidated operating profit, Net Income Attributable to Sonoco (GAAP earnings) for 2019 decreased $21.8 million, or 6.9%, year over year. This decrease was primarily due to higher current-year non-operating pension and restructuring costs and a prior-year income tax valuation allowance release trig- gered by certain provisions of the Tax Cuts and Jobs Act (“Tax Act”). Base earnings, which exclude the previously mentioned non-operating pension costs, restructuring costs and income tax valuation allowance release, as well as certain other items of income and expense, improved $16.6 million, or 4.9%, year over year. Base earnings are more fully described within this Item under “Use of Non-GAAP financial measures” and are reconciled within this Item under “Reconciliations of GAAP to Non-GAAP financial measures.” Base operating profit as a percent of sales increased to 9.8% from 9.1% in 2018, and base operating profit before depreciation and amortization as a percent of sales improved to 14.2% from 13.5% in 2018. 2019 gross profit was $1,057.8 million, compared with $1,041.0 million in 2018. Gross profit as a percentage of sales improved to 19.7% compared to 19.3% in 2018. GAAP selling, general and administrative expenses declined $32.4 million driven by a gain related to the reversal of an environmental reserve and significant focus across the Company on lowering controllable costs, the benefits of which were partially offset by the addition of expenses from acquisitions. On December 31, 2019, the Company completed the acquisition of Thermoform Engineered Quality, LLC, and Plastique Holdings, LTD, (together “TEQ”) with operations in the United States, the United Kingdom and Poland. The acquisition of TEQ provides a strong platform to further expand Sonoco’s growing healthcare packaging business. On August 9, 2019, the Company completed the acquis- ition of Corenso Holdings America, Inc. (“Corenso”), a leading manufacturer of uncoated recycled paperboard (URB) and high-performance cores used in the paper, packaging films, tape, and specialty industries. Corenso’s operations expand the Company’s ability to produce a wide variety of sustainable coreboard grades. These transactions are described in greater detail below. On July 17, 2019, the Company’s Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”) effective September 30, 2019. Upon approval from the Pension Benefit Guaranty Corporation, and following completion of a limited lump-sum offering, the Company is expected to settle all remaining liabilities under the Inactive Plan through the purchases of annuities in late 2020 or early 2021. In anticipation of settling these liabilities, the Com- pany also took measures to de-risk the Inactive Plan’s assets moving them to a more conservative mix of primar- ily fixed income investments. During 2019, the Company recorded total pension and postretirement benefit expenses of approximately $52.7 million, compared with $34.9 million during 2018. The increased expense was primarily due to lower expected returns on plan assets as a result of the de-risking of the Inactive Plan portfolio. The aggregate net unfunded position of the Company’s vari- ous defined benefit plans decreased from $369 million at the end of 2018, to $294 million at the end of 2019. This S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 23 decrease was driven primarily by contributions to its vari- ous pension and postretirement plans, including voluntary contributions to the U.S. plans totaling $200 million, parti- ally offset by the effect of lower discount rates. The effective tax rate on GAAP earnings was 24.5%, compared with 19.8% in 2018, and the effective tax rate on base earnings was 23.9%, compared with 23.7% in 2018. The year-over-year increase in the GAAP tax rate was driven primarily by the 2018 benefit from the release of a valuation allowance on foreign tax credits of $16.1 million. The modest increase in the base effective tax rate was due to a discrete foreign benefit in the 2018 base effective rate, partially offset by additional US tax credits available in 2019. The Company generated $425.9 million in cash from operations during 2019, compared with $589.9 million in 2018. The primary driver of the lower operating cash flow was the previously mentioned voluntary U.S. pension con- tribution which had an after-tax cash flow impact of approximately $165 million. Free cash flow for 2019 was $74.3 million, compared with $260.2 million in the prior year, reflecting the decrease in cash flow from operations discussed above as well as an increase in net capital expenditures and cash dividends in the current year. Free cash flow is a non-GAAP financial measure which may not represent the amount of cash flow available for general discretionary use because it excludes non-discretionary expenditures, such as mandatory debt repayments and required settlements of recorded and/or contingent liabilities not reflected in cash flow from operations. (Free cash flow is defined as cash flow from operations minus net capital expenditures and cash dividends. Net capital expenditures are defined as capital expenditures minus proceeds from, and/or plus costs incurred in, the dis- position of capital assets.) Cash flow from operations is expected to be approximately $635 million in 2020 and free cash flow is expected to be approximately $260 million. Outlook Profitable growth, margin expansion, improving free cash flow and sustainability will continue to be primary focus areas for the Company in 2020. Key to achieving management’s objectives for the year will be further development of the Company’s previously implemented commercial and opera- tional excellence initiatives aimed at improving margins by more fully realizing the value of our products and services, reducing our unit costs and better leveraging our fixed sup- port costs. Management is targeting an overall organic volume increase in 2020 of approximately 1.0% driven by new chilled and prepared food volume, improved perimeter of the store performance, new sustainable products, and stabilization of demand in our industrial products markets. In addition, the Company will continue to look for strategic and opportunistic acquisition candidates as well as opportunities to optimize our overall business portfolio. The Company has projected that company-wide price/ cost will be negative in 2020 as continued weakness in key raw material prices are likely to make full recovery of any overall cost increases more challenging. Manufactur- ing and other productivity gains are expected to offset a significant portion of projected increases in labor and other costs; however, not realizing the targeted organic volume gains would make fully achieving management’s pro- ductivity objectives more difficult. Operating results in 2020 will include a full year of revenue and operating profit from the Corenso and TEQ acquisitions. The Company projects the operating component of pension and post-retirement benefits expense will be approximately $1 million higher year over year, while the non-operating component, excluding settlement charges, is projected to be $3 million lower. The net anticipated decrease of $2 million is primarily due to lower interest expense due to a decline in discount rates, partially offset by lower expected returns on plan assets due to de-risking actions taken to move the Inactive Plan’s assets to a more conservative mix of primarily fixed income investments. Non-cash settlement charges totaling approximately $600 million are expected to be recognized beginning in 2020 as the liabilities of the Inactive Plan, terminated in 2019, are settled through lump-sum payouts and annuity purchases. The Company anticipates making additional contributions to the Inactive Plan of approximately $150 million in late 2020 or early 2021 in order to be fully funded on a termination basis at the time of the annuity purchase. Contributions to all other defined benefit plans in 2020 are expected to total approximately $25 million. Absent additional borrowings for acquisitions or sig- nificant changes in interest rates, net interest expense is expected to be relatively flat year over year. The con- solidated effective tax rate on base earnings is expected to be between 25.0% and 26.0% in 2020 compared with 23.9% in 2019. The anticipated year-over-year increase is due to discrete items that benefited the 2019 rate that are not expected to reoccur in 2020. In consideration of the above factors, management is projecting that reported 2020 net sales will increase approximately 3% and overall margins for gross profit and base operating profit will improve approximately 0.3% and 0.1%, respectively, over 2019 levels. The Company does not provide projected GAAP earn- ings results due to the likely occurrence of one or more of the following, the timing and magnitude of which we are unable to reliably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs and restructuring-related impairment charges, acquisition- related costs, and the income tax effects of these items and/or other income tax-related events. These items could have a significant impact on the Company’s future GAAP financial results. Acquisitions The Company completed two acquisitions during 2019 at a cost of $297.9 million, net of cash acquired. On December 31, 2019, the Company completed the acquis- ition of Thermoform Engineered Quality, LLC, and Plas- tique Holdings, LTD, (together “TEQ”) for $187.3 million, net of cash acquired. Final consideration is subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment is expected to be made by the end of the first quarter of 2020. The oper- ations acquired consist of three thermoforming and extrusion facilities in the United States along with a thermoforming operation in the United Kingdom and ther- moforming and molded-fiber manufacturing in Poland, which together employ approximately 500 associates. The acquisition of TEQ provides a strong platform to further expand Sonoco’s growing healthcare packaging business. The operations of TEQ will be reported in the Company’s Consumer Packaging segment. On August 9, 2019, the Company completed the acquisition of Corenso Holdings America, Inc. (“Corenso”) for $110.6 million, net of cash 24 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K acquired. Final consideration was subject to a post- closing adjustment for the change in working capital to the date of closing. This adjustment was settled in November 2019 and required an additional cash payment of approx- imately $0.1 million. Corenso is a leading manufacturer of uncoated recycled paperboard (URB) and high- performance cores used in the paper, packaging films, tape, and specialty industries. Corenso operates a 108,000-ton per year URB mill and core converting facility in Wisconsin Rapids, Wisconsin, as well as a core convert- ing facility in Richmond, Virginia, expanding the Compa- ny’s ability to produce a wide variety of sustainable coreboard grades. To finance the acquisitions, the Com- pany used short-term credit facilities, and available cash. The operations of Corenso are reported in the Company’s Paper and Industrial Converted Products segment. The Company completed three acquisitions during 2018 at a cost of $278.8 million, net of cash acquired. 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”) for total consideration of $134.8 million, including net cash payments of $127.8 million and debt assumed of $7.1 million. Final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 and required an additional cash payment of approximately $0.1 million. The operations of Conitex Sonoco are reported in the Company’s Paper and Industrial Converted Products segment. The Conitex Sonoco joint venture was formed in 1998 with Texpack, a Spanish-based global provider of paperboard and paper- based packaging products. Conitex Sonoco produces uncoated recycled paperboard and tubes and cones for the global spun yarn industry, as well as adhesives, flexible intermediate bulk containers and corrugated pallets. Con- itex Sonoco has approximately 1,250 employees across 13 manufacturing locations in 10 countries, including four paper mills and seven cone and tube converting oper- ations and two other production facilities. Also on October 1, 2018, the Company acquired from Texpack Group Holdings B.V. a rigid paper facility in Spain (“Compositub”) for $10.0 million in cash. Final consid- eration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 for an additional cash payment to the seller of $0.4 million. The operations of Compositub are reported in the Company’s Consumer Packaging segment. Both the Conitex Sonoco and Compositub acquisitions were funded with existing cash on hand. On April 12, 2018, the Company completed the acquisition of Highland Packaging Solutions (“Highland”). Total consideration for this acquisition was $148.5 million, including net cash paid at closing of $141.0, along with a contingent purchase liability of $7.5 million. The contingent purchase liability is based upon a sales metric which the Company expected to meet in full at the time of the acquisition. The first year’s metric was met and $5.0 million was paid in the second quarter of 2019. The second installment of $2.5 million is expected to be paid during the second quarter of 2020. The liability for the remaining installment is included in “Accrued expenses and other” on the Company’s Consolidated Balance Sheets at December 31, 2019. Highland manufactures thermoformed plastic packaging for fresh produce and dairy products from a single production facility in Plant City, Florida, providing total packaging solutions for cus- tomers that include sophisticated engineered containers, flexographic printed labels, and inventory management through distribution warehouses in the Southeast and West Coast of the United States. The Company financed the acquisition with proceeds from a $100.0 million term loan, along with proceeds from existing credit facilities, which was repaid in full before the end of 2018. The oper- ations of Highland are reported in the Company’s Consumer Packaging segment. See Note 3 to the Consolidated Financial Statements for further information about acquisition activities. Restructuring and asset impairment charges Due to its geographic footprint (approximately 320 locations in 36 countries) and the cost-competitive nature of its businesses, the Company is constantly seeking the most cost-effective means and structure to serve its cus- tomers and to respond to fundamental changes in its markets. As such, restructuring costs have been and are expected to be a recurring component of the Company’s operating costs. The amount of these costs can vary sig- nificantly from year to year depending upon the scope and location of the restructuring activities. The following table recaps the impact of restructuring and asset impairment charges on the Company’s net income for the periods presented (dollars in thousands): Year ended December 31, 2019 2018 2017 Restructuring and restructuring-related asset impairment charges $44,819 $40,071 $19,834 — 18,585 15,061 Other asset impairments Restructuring/Asset impairment charges $59,880 $40,071 $38,419 During 2019, the Company announced the elimination of a forming film production line at a flexible packaging facility in Illinois and initiated the closure of a composite can and injection molding facility in Germany, a composite can plant in Malaysia, a molded plastics plant in the United States (all part of the Consumer Packaging segment), and three tube and core plants—one in the United Kingdom, one in Norway, and one in Estonia (all part of the Paper and Industrial Converted Products segment). Restructur- ing actions in the Protective Solutions segment included charges associated with the exit of a protective packaging facility in Texas. In addition the Company continued to realign its cost structure, resulting in the elimination of approximately 223 positions. During 2018, the Company initiated the closures of a flexible packaging plant in North Carolina, a global brand management facility in Canada, a thermoformed pack- aging plant in California (all part of the Consumer Pack- aging 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 Pack- aging segment included charges associated with exiting a single-customer contract at a packaging center in Atlanta, S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 25 Georgia. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately 120 positions. The Company expects to recognize future additional costs totaling approximately $2.8 million 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 2020. The Company regularly evaluates its cost structure, including its manu- facturing capacity, and additional restructuring actions are likely to be undertaken. Restructuring and asset impairment charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with sev- erance and termination benefits in the countries in which the Company operates. See Note 4 to the Consolidated Financial Statements for further information about restructuring activities and asset impairment charges. 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 for each of the years presented: Dollars and shares in thousands, except per share data Operating profit Non-operating pension costs Interest expense, net Income before income taxes Provision for income taxes Income before equity in earnings of affiliates Equity in earnings of affiliates, net of tax Net income Less: net (income) attributable to noncontrolling interests, net of tax GAAP $467,082 24,713 61,603 $380,766 93,269 $287,497 5,171 $292,668 $59,880 15,520 $44,360 — $44,360 (883) 51 Net income attributable to Sonoco $291,785 $44,411 Per diluted common share $ 2.88 $ 0.44 For the year ended December 31, 2019 Restructuring/ Asset impairment $59,880 — — Acquisition related costs $8,429 — — Other adjustments(1) $ (9,999) (24,713) — Base $525,392 — 61,603 $463,789 110,930 $352,859 5,171 $ 14,714 994 $ 13,720 — $ 13,720 $358,030 — (832) $ 13,720 $357,198 $ 0.14 $ 3.53 $8,429 1,147 $7,282 — $7,282 — $7,282 $ 0.07 (1) Consists of a favorable change in estimate of an environmental reserve totaling $10,000, non-operating pension costs, and other non-base tax adjustments totaling a net benefit of approximately $3,059. For the year ended December 31, 2018 Dollars and shares in thousands, except per share data Operating profit Non-operating pension costs Interest expense, net Income before income taxes Provision for income taxes Income before equity in earnings of affiliates Equity in earnings of affiliates, net of tax Net income Less: net (income) attributable to GAAP $437,629 941 58,157 $378,531 75,008 $303,523 11,216 $314,739 noncontrolling interests, net of tax (1,179) (191) Net income attributable to Sonoco $313,560 $29,842 Per diluted common share $ 3.10 $ 0.30 Restructuring/ Asset impairment $40,071 — — Acquisition related costs $14,446 — — $40,071 10,038 $30,033 — $30,033 $14,446 115 $14,331 — $14,331 — $14,331 $ 0.14 Other adjustments(2) $ (326) (941) — $ 615 17,723 $(17,108) — Base $491,820 — 58,157 $433,663 102,884 $330,779 11,216 $(17,108) $341,995 — (1,370) $(17,108) $340,625 $ (0.17) $ 3.37 (2) Primarily the release of a valuation allowance and other non-base tax adjustments totaling a net benefit of approx- imately $17,434. 26 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K For the year ended December 31, 2017 Restructuring/ Asset impairment $38,419 — — Acquisition related costs $13,790 — — Dollars and shares in thousands, except per share data Operating profit Non-operating pension costs Interest expense, net Income before income taxes Provision for income taxes Income before equity in earnings of affiliates Equity in earnings of affiliates, net of tax Net income Less: net (income)/loss attributable to noncontrolling interests, net of tax GAAP $412,409 45,110 52,745 $314,554 146,589 $167,965 9,482 $177,447 Net income attributable to Sonoco $175,345 $25,284 Per diluted common share $ 1.74 $ 0.25 (2,102) (71) $38,419 13,064 $25,355 — $25,355 $13,790 3,841 $ 9,949 — $ 9,949 — $ 9,949 $ 0.10 Other adjustments(3) $ (2,279) (45,110) — $ 42,831 (40,123) $ 82,954 581 Base $462,339 — 52,745 $409,594 123,371 $286,223 10,063 $ 83,535 $296,286 — (2,173) $ 83,535 $294,113 $ 0.83 $ 2.92 (3) Consists of the following: pension settlement charges of $32,761 ($20,241 after tax), partially offset by insurance set- tlement gains; tax charges of approximately $76,933 related to a one-time transition tax on certain accumulated for- eign earnings offset by approximately $25,668 related to an increase in net deferred tax assets, both of which are related to implementation of the U.S. Tax Cuts and Jobs Act; and other net tax charges totaling $492. Results of operations – 2019 versus 2018 Net income attributable to Sonoco (GAAP earnings) was $291.8 million ($2.88 per diluted share) in 2019, compared with $313.6 million ($3.10 per diluted share) in 2018. Net income in 2019 reflects net after-tax charges total- ing $65.4 million, related to restructuring and asset impairment charges, acquisition costs and non-operating pension costs, partially offset by the favorable change in estimate of an environmental reserve. Net income in 2018 was negatively impacted by net after-tax charges totaling $27.1 million, consisting of restructuring/asset impairment charges and acquisition-related expenses, partially offset by beneficial tax adjustments related to the Tax Act. Base earnings in 2019 were $357.2 million ($3.53 per diluted share), compared with $340.6 million ($3.37 per diluted share) in 2018. Both GAAP and base earnings in 2019 benefited from operating profit from current and prior-year acquired busi- nesses, as well as total productivity gains and lower management incentives. These year-over-year favorable factors were partially offset by volume/mix declines as well as a higher current-year effective tax rate. The effective tax rate change had more impact on GAAP earnings. Additionally, GAAP earnings were unfavorably impacted by a $19.8 million increase in restructuring activity in 2019 as well as a $23.8 million increase in non-operating pension costs. Changes in foreign currency translation had little effect on earnings year over year. The effective tax rate on GAAP earnings was 24.5% in 2019, compared with 19.8% in 2018, and the effective tax rate on base earnings was 23.9%, compared with 23.7% in 2018. The year-over-year increase in the GAAP tax rate was driven primarily by the 2018 benefit from the release of a valuation allowance on foreign tax credits of $16.1 million. The modest increase in the base effective tax rate was due to a discrete foreign benefit in the 2018 base effective rate, partially offset by additional US tax credits available in 2019. Consolidated net sales for 2019 were $5.4 billion, a $17 million, or 0.3%, decrease from 2018. The compo- nents of the sales change were: ($ in millions) Volume/mix Selling price Acquisitions and divestitures, net Foreign currency translation and other, net Total sales decrease $(133) 15 251 (149) $ (17) In September 2018, the Company exited a single- customer contract for retail packaging fulfillment (“Atlanta Packaging Contract”) at a packaging center in Atlanta, Georgia (“Atlanta Packaging Center”). The negative impact on comparable year-over-year net sales was approx- imately $67 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.” Sales volume/mix was down approximately 2.5% driven by decreases in each segment except for Display and Packaging. Higher selling prices year-over-year were implemented to recover rising material prices, mostly res- ins. This led to year-over-year increases in all of the Company’s segments, except for the Paper and Industrial Converted Products segment where market prices for the segment’s primary raw material, old corrugated containers (“OCC”), continued to decline in 2019 from 2018. The Company’s 2019 acquisitions added $251 million to comparable year-over-year sales. Finally, foreign exchange rate changes decreased year-over-year sales approximately $90 million as almost all of the foreign cur- rencies in which the Company conducts business weak- ened slightly in relation to the U.S. Dollar. Total domestic sales were $3.4 billion, down 2.3% from 2018 levels. The main driver of the domestic decrease was the exit from the Atlanta Packaging Contract. International sales were $2.0 billion, up 3.4% from 2018 with the increase driven by growth in the Company’s international rigid paper containers and industrial businesses. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 27 Costs and expenses/margins Despite the impact of acquisitions, cost of sales decreased $33.6 million in 2019, or 0.8%, from the prior year. This decrease was driven by lower volumes as well as foreign exchange rate changes and procurement pro- ductivity. Gross profit margins increased to 19.7% in 2019 from 19.3% in the prior year driven by the previously men- tioned procurement productivity and the timing and direc- tion of material cost movements. Selling, general and administrative expenses decreased $32.4 million, or 5.8%, and were 9.9% of sales compared to 10.4% of sales in 2018. The current year decrease in selling, general and administrative expenses is largely attributable to management’s concerted efforts to control costs throughout the year as well as lower management incentives. Additionally, acquisition-related costs decreased $6.0 million from last year to $8.4 million. These decreases in selling, general, and administrative expenses were partially offset by the added expenses of acquired businesses. GAAP operating profit was 8.7% of sales in 2019 compared to 8.1% in 2018. Base operating profit increased to 9.8% of sales in 2019 compared to 9.1% in 2018. GAAP and base operating profit increased $29.5 million and $33.6 million, respectively. The increased GAAP and base operating margins were driven by the previously mentioned factors positively affecting gross profit as well as the reduction of selling general and administrative costs. Restructuring and restructuring-related asset impair- ment charges totaled $59.9 million and $40.1 million in 2019 and 2018, respectively. Additional information regarding restructuring actions and impairments is pro- vided in Note 4 to the Company’s Consolidated Financial Statements. Non-operating pension costs increased $23.8 million in 2019 to a total of $24.7 million, compared with $0.9 million in 2018. The higher year-over-year expense is primarily due to lower expected returns on plan assets as a result of de-risking actions taken in 2019 on the U.S. pension plans in which assets were reallocated to a more conservative mix of primarily fixed income investments. Service cost, a component of net periodic benefit plan expense, is reflected in the Company’s Consolidated Statements of Income with approximately 75% in cost of sales and 25% in selling, general and administrative expenses. See Note 13 to the Consolidated Financial Statements for further information on employee benefit plans. Net interest expense totaled $61.6 million for the year ended December 31, 2019, compared with $58.2 million in 2018. The increase was primarily due to the impact of higher borrowings, partially offset by lower interest rates. Reportable segments The Company reports its financial results in four report- able segments – Consumer Packaging, Display and Pack- aging, Paper and Industrial Converted Products, and Protective Solutions. Consolidated operating profits, reported as “Operating Profit” on the Consolidated Statements of Income, are comprised of the following: ($ in millions) 2019 2018 % Change Segment operating profit Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions $228.4 $224.5 1.7% 27.7 13.3 108.3% 219.1 211.1 3.8% 50.2 42.9 17.0% Restructuring/Asset impairment charges (59.9) (40.1) 49.4% Acquisition-related costs Other non-operational (charges)/income, net Consolidated operating (8.4) (14.5) (42.1)% 10.0 0.4 2,400.0% profit* $467.1 $437.6 6.7% * Due to rounding, amounts above may not sum to the totals presented Segment results viewed by Company management to evaluate segment performance do not include restructur- ing charges, asset impairment charges, acquisition-related charges, gains or losses from the sale of businesses, pension settlement charges, specifically identified tax adjustments, and certain other items, if any, the exclusion of which the Company believes improves comparability and analysis. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “Operating profit” excluding those items. General corporate expenses, with the exception of restructuring charges, asset impair- ment charges, acquisition-related charges, net interest expense and income taxes, have been allocated as operat- ing costs to each of the Company’s reportable segments. See Note 18 to the Company’s Consolidated Financial Statements for more information on reportable segments. Consumer Packaging ($ in millions) 2019 2018 % Change Trade sales Segment operating profits Depreciation, depletion and amortization Capital spending $2,333.4 $2,360.0 (1.1)% 228.4 224.5 1.7% 111.9 64.6 116.8 66.7 (4.2)% (3.1)% Sales decreased year over year due to volume declines in Rigid Paper Containers North America, Global Plastics, and Flexibles. These declines were mostly offset by sales from the full-year impact of the April 12, 2018 acquisition of Highland Packaging and the October 1, 2018 acquis- ition of Compositub. Higher selling prices in most of the 28 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K segment’s businesses, driven largely by raw material price increases, also served to offset the volume declines. For- eign currency translation decreased sales by approx- imately $32 million year over year due to a stronger U.S. dollar. Domestic sales were approximately $1,659 million, down 1.0%, or $17 million, from 2018, while international sales were approximately $674 million, down 1.4%, or $10 million, from 2018. Segment operating profits increased by $3.9 million year over year and operating profit margins of 9.8% were up 28 basis points from 2018. The increases in segment operating profits and operating profit margins were largely driven by total productivity and a positive price cost rela- tionship. Additionally, operating profits from the full-year impact of businesses acquired in 2018 also increased operating profit from last year. These positive factors were partially offset by volume declines and isolated manufactur- ing inefficiencies in Global Plastics. In response, the Company is investing in new machinery and tooling to improve performance from operations serving the perime- ter of the store and is optimistic that it will improve manu- facturing performance and better leverage the fixed cost profile of these operations in 2020. Capital spending in the segment included numerous productivity projects and expansion of manufacturing capabilities in North America (primarily flexible packaging and plastics) and in Europe (primarily rigid paper containers). Display and Packaging ($ in millions) 2019 2018 % Change Trade sales Segment operating profits Depreciation, depletion and amortization Capital spending $554.1 $592.3 (6.4)% 27.7 13.3 108.3% 14.9 5.1 18.0 19.8 (17.2)% (74.2)% Paper and Industrial Converted Products ($ in millions) 2019 2018 % Change Trade sales Segment operating profits Depreciation, depletion and amortization Capital spending $1,974.7 $1,911.0 219.1 211.1 3.3% 3.8% 85.6 112.3 74.4 91.4 15.1% 22.9% The main driver of the year-over-year increase in sales was the full-year impact of the October 1, 2018 acquisition of the remaining 70 percent interest in the Conitex Sonoco joint venture. Conitex Sonoco’s sales for the first nine months of 2019 were approximately $180 million. Additionally, the acquisition of Corenso in August 2019 added approximately $30 million to trade sales. These increases were offset by volume declines in many of our tubes and cores businesses as well as an overall decline in sales prices as market prices for OCC on the whole were down from the previous year. Total domestic sales in the segment decreased $13 million, or 1.2%, to $1,095 million while international sales increased $77 million, or 9.6%, to $880 million. Segment operating profit increased year over year, driven by the previously mentioned acquisitions and total productivity gains, which were offset by volume declines and a negative price/cost relationship. Conditions deteriorated for the corrugating medium operation in 2019. While the business remained profitable, a negative price/cost relationship and volume declines eroded the business’s profits year over year. The Com- pany continues to evaluate strategic alternatives for this operation. Significant capital spending in the segment included the modification of several paper machines in North Amer- ica, numerous productivity projects, and IT investments. Domestic trade sales in the segment decreased Protective Solutions $44 million, or 15.0%, to $247 million, while international trade sales increased $5 million, or 1.8%, to $307 million. The decrease in domestic trade sales resulted from last year’s exit of the Atlanta Packaging Contract, offset by higher volume in retail security packaging. The increase in international sales reflects increases in activity at the Company’s packaging center in Poland, partially offset by a negative impact of approximately $19 million from for- eign currency translation as a result of a weaker Polish zloty relative to the U.S. dollar year over year. The increase in segment operating profit was largely due to increased volumes both domestically and internationally. Additionally, 2018 operating profits were depressed due to losses related to exiting the Atlanta Packaging Contract in the third quarter of 2019 as a result of the Company’s determination that it could not achieve acceptable margins under the contract. Capital spending in the segment declined year over year as last year’s spending related to the Atlanta Pack- aging Center and Contract did not repeat in 2019. Capital spending in 2019 was mostly related to customer development and productivity related projects. ($ in millions) 2019 2018 % Change Trade sales Segment operating profits Depreciation, depletion and amortization Capital spending $512.0 $527.7 (3.0)% 50.2 42.9 17.0% 26.7 6.9 27.0 5.9 (1.1)% 16.9% Sales declined slightly year over year, impacted mostly by volume declines in automotive components, consumer electronics and appliances, partially offset by volume gains in temperature-assured packaging. Segment operating profit increased year over year due to total productivity slightly offset by a negative price/cost relationship. Domestic sales were $407 million in 2019 down $8 million, or 1.9%, from 2018, while international sales were approximately $105 million, down $8 million, or 6.9% from 2018. Capital spending in the segment included numerous productivity initiatives as well as customer-related projects in our expanded foam protective packaging and temperature-assured packaging businesses. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 29 Financial position, liquidity and capital resources Cash flow Operating activities Cash flow from operations totaled $425.9 million in 2019 and $589.9 million in 2018. This $164.0 million decrease was mostly driven by the $165 million after-tax cash impact of the voluntary U.S. pension contributions made in 2019. These voluntary pension contributions totaled $200 million. The cash flow impact from lower GAAP net income was essentially offset by higher non-cash operating expenses and improved working capi- tal management. Working capital provided $36.9 million in 2019 compared to providing $27.7 million in 2018; this $9.2 million additional cash provision was largely driven by changes in accounts receivable. Accounts receivable, net of acquisitions, declined in 2019 due to a concerted effort by management regarding collection efficiencies as well as other process improvements. While accounts receivable and inventory both provided more cash in 2019 than in 2018, this was partially offset by accounts payable’s increased consumption of cash which was partially the result of lower raw material prices at the end of 2019 which amplified the decline in the year-end balance of accounts payable outstanding. Non-cash asset impairment charges were $19.2 million higher year over year, due largely to the fourth quarter 2019 impairment of assets related to certain plastics, flexibles, and temperature-assured packaging operations. The net benefit from changes in deferred income tax and income tax payable balances was $39.2 million higher in 2019 compared with the previous year. The year-over- year increase is largely attributable to the $35 million cash tax benefit that resulted from the $200 million pre-tax pension contribution mentioned above. Non-cash share- based compensation expenses were $3.6 million higher year over year as expenses recognized in association with our performance-based awards increased, reflecting assumptions about actual performance against targeted performance metrics over the vesting period of the awards. Net losses on disposition of assets totaled $0.7 million in 2019 compared with $8.6 million in 2018, a year-over-year change of $7.9 million, driven by the loss on exiting and disposing of the Atlanta Packaging Center. The Company’s 2018 acquisition of Conitex resulted in the recognition of a loss of $4.8 million as the implied fair value of the previously held minority interest was less than its book value. Changes in accrued expenses reflect a $7.5 million provision of cash in 2019 compared with a $19.2 million provision of cash in 2018. The lower provi- sion in 2019 is primarily due to lower year-over-year management incentives and other accrued expenses. Changes in other assets and liabilities used $7.3 million more cash in 2019 compared to 2018. This year-over-year increased consumption is largely attributable to the collec- tion of various other receivables in 2018 that were out- standing at the end of 2017. Similar levels of miscellaneous receivable items were not outstanding at the end of 2018. Cash paid for income taxes was $20.9 million lower year over year, which was due primarily to the tax benefit of the $138 million pension plan con- tribution recognized in 2019. Investing activities Cash used by investing activities was $479.1 million in 2019, compared with $444.1 million in 2018. The higher use of cash in 2019 is due in part to increased year-over- year acquisition spending. The Company’s acquisitions consumed $298.4 million of cash in 2019 compared with $277.2 million in 2018. In addition, proceeds from the sale of assets were lower year over year. The Company received proceeds from the sale of assets totaling $14.6 million in 2019 compared with $24.3 million in the prior year. The 2018 proceeds included $17.2 million from the September 2018 sale of equipment relating to the Atlanta Packaging Center, less a contract termination fee on the Atlanta Packaging Contract. Capital spending was slightly higher year over year, totaling $195.9 million in 2019, compared with $192.6 million in 2018, an increase of $3.4 million. Capital spending is expected to total approximately $195.0 million in 2020. Financing activities Net cash provided by financing activities increased $350.9 million year over year as financing activities pro- vided $77.2 million of cash in 2019, compared with a use of cash totaling $273.7 million in 2018. The year-over-year change was driven primarily by higher net borrowings in 2019 compared to 2018, including proceeds from a new $200 million term loan used to fund voluntary contributions to the U.S. defined benefit pension plans and borrowings to fund acquisitions. Although the cost of acquisitions was up only slightly year over year, a greater portion of 2019 activity was funded by debt. Outstanding debt was $1,681.4 million at December 31, 2019, compared with $1,385.2 million at December 31, 2018. Cash dividends increased 5.5% to $170.3 million in 2019 compared to $161.4 million in 2018, reflecting a $0.02 per share increase in the quarterly dividend payment approved by the Board of Directors in April 2019. Contractual obligations The following table summarizes contractual obligations at December 31, 2019: Payments due in ($ in millions) Debt obligations Interest payments1 Operating leases Transition tax under Tax Act2 Income tax contingencies3 Purchase obligations4 Total $1,681.4 775.4 389.3 46.3 13.0 99.4 2020 $488.2 46.4 55.7 — — 39.7 2021-2022 $575.5 79.2 92.9 — — 44.1 2023-2024 Beyond 2024 Uncertain $ 607.3 580.8 167.5 20.1 — 3.0 $ 10.3 69.0 73.3 26.2 — 12.6 $ — — — — 13.0 — Total contractual obligations5 $3,004.8 $630.0 $791.7 $191.4 $1,378.7 $13.0 1 Includes interest payments on outstanding fixed-rate, long-term debt obligations, as well as financing fees on the backstop line of credit. 30 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 2 The Company recognized a transition tax of $80.6 million on certain accumulated foreign earnings in order to comply with the Tax Act. The liability for this tax is payable in installments through 2025. 3 Due to the nature of this obligation, the Company is unable to estimate the timing of the cash outflows. Includes gross unrecognized tax benefits of $12.2 million, plus accrued interest associated with the unrecognized tax benefit of $2.0 million, adjusted for the deferred tax benefit associated with the future deduction of unrecognized tax benefits and the accrued interest of $0.8 million and $0.4 million, respectively. Includes only long-term contractual commitments. Does not include short-term obligations for the purchase of goods and services used in the ordinary course of business. 4 5 Excludes potential cash funding requirements of the Company’s retirement plans and retiree health and life insurance plans. Capital resources Current assets increased year over year by $1.9 million to $1,521.2 million at December 31, 2019, and current liabilities increased by $321.6 million to $1,404.5 million, resulting in a decrease in the Company’s current ratio to 1.1 at December 31, 2019 from 1.4 at December 31, 2018. Current liabilities were higher year over year due to an increase in outstanding commercial paper and the new term loan referred to above. The Company’s cash balances are held in numerous locations throughout the world. At December 31, 2019 and 2018, approximately $115.0 million and $107.7 million, respectively, of the Company’s reported cash and cash equivalents balances of $145.3 million and $120.4 million, respectively, were held outside of the United States by its foreign subsidiaries. Cash held outside of the United States is available to meet local liquidity needs, or to fund capital expenditures, acquisitions, and other offshore growth opportunities. As the Company enjoys 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, as of December 31, 2019, the Company is not providing for taxes on these amounts for financial reporting pur- poses. Computation of the deferred tax liability associated with unremitted earnings deemed to be indefinitely reinvested is not practicable at this time. The Company’s total debt at December 31, 2019, was $1,681 million, a year-over-year increase of $296 million. This year-over-year increase includes a $200 million term loan, the proceeds from which were used to fund volun- tary contributions to the U.S. defined benefit pension plans, and includes additional short-term borrowings to fund the acquisitions of Corenso and TEQ, partially offset by repayments of short-term debt using free cash flow generated during the year. The Company had $250 million of commercial paper outstanding at December 31, 2019 and $120 million at December 31, 2018. The Company operates a $500 million commercial paper program, supported by a $500 million five-year revolving credit facility. In July 2017, the Company entered into a new credit agreement with a syndicate of eight banks for that revolving facility, together with a $250 million five-year term loan. 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 agreement may be prepaid at any time at the discretion of the Company. The outstanding balance of the five-year term loan was $147 million at December 31, 2019, reflecting a $75 million prepayment made by the Company during 2018 and required amortization pay- ments totaling $12.5 million per year. At December 31, 2019, the Company’s short-term debt and current portion of long-term debt totaled $488 million, primarily consisting of $250 million of com- mercial paper and the $200 million 2019 term loan which matures in May 2020. The Company expects to exercise its one-time right to extend the term loan for an additional 364-day period. The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Com- pany and its participating subsidiaries may maintain either a cash deposit or borrowing position through local cur- rency 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 inter- est terms on both. Acquisitions and internal investments are key elements of the Company’s growth strategy. The Company believes that its cash on hand, cash generated from operations and borrowing capacity will enable it to support this strategy. Although the Company believes that it has excess borrow- ing capacity beyond its current lines, there can be no assurance that such financing would be available or, if so, at terms that are acceptable to the Company. The net underfunded position of the Company’s various U.S. and international defined benefit pension and post- retirement plans was $294 million at the end of 2019. The Company contributed approximately $231 million to its benefit plans in 2019, including $200 million to its U.S. pension plans. On July 17, 2019, the Company’s Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”), a tax-qualified defined benefit plan, effective Sep- tember 30, 2019. Upon approval from the Pension Benefit Guaranty Corporation, and following completion of a lim- ited lump-sum offering, the Company is expected to settle all remaining liabilities under the Inactive Plan through the purchase of annuities. The Company anticipates making additional contributions to the Inactive Plan of approx- imately $150 million in late 2020 or early 2021 in order to be fully funded on a termination basis at the time of the annuity purchase. Contributions to all other defined benefit plans in 2020 are expected to total approximately $25 million. Future funding requirements will depend largely on the nature and timing of participant settlements, actual investment returns, future actuarial assumptions, and legislative actions. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 31 Total equity increased $43 million during 2019 as net income of $293 million and stock-based compensation of $14 million were partially offset by an other comprehensive loss of $77 million, dividends of $172 million, share repurchases of $10 million, and the impact to retained earnings of adopting the new leasing standard of $7 million. The primary components of other compre- hensive loss were an $8 million translation gain from the impact of a weaker U.S. dollar on the Company’s foreign investments and additional actuarial losses totaling $87 million, net of tax, in the Company’s various defined benefit plans resulting primarily from lower interest rates. On February 10, 2016, the Company’s Board of Direc- tors authorized the repurchase of up to 5 million shares of the Company’s common stock. During 2016, a total of 2.03 million shares were repurchased under this author- ization at a cost of $100 million. No shares were repurchased under this authorization during 2017, 2018, or 2019. Accordingly, at December 31, 2019 a total of 2.97 million shares remain available for repurchase under this authorization. Although the ultimate determination of whether to pay dividends is within the sole discretion of the Board of Directors, the Company plans to increase dividends as earnings grow. Dividends per common share were $1.70 in 2019, $1.62 in 2018 and $1.54 in 2017. On Febru- ary 12, 2020, the Company declared a regular quarterly dividend of $0.43 per common share payable on March 10, 2020, to shareholders of record on Febru- ary 26, 2020. Off-balance sheet arrangements The Company had no material off-balance sheet arrangements at December 31, 2019. Risk management 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 facilities are spread throughout the world, and the Company generally sells in the same countries where it produces. The Com- pany 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 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 results 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 deconsolida- tion of the subsidiary. At December 31, 2019, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.0 million. In addition, at December 31, 2019, the Company’s Accumulated Other Comprehensive Loss included a cumulative translation loss of $3.8 million related to its Venezuela operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolida- tion of these operations. The Company has operations in the United Kingdom and elsewhere in Europe that could be impacted by the exit of the U.K. from the European Union (Brexit) at the end of January 2020. Our U.K. operations have been making contingency plans regarding potential customs clearance issues, tariffs and other uncertainties resulting from Brexit. 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 U.K., most of what we produce in the U.K. is also sold in the U.K. and the same is true for continental Europe. In some cases, companies that have been importing from Europe into the U.K. are now seeking local sources, which has actually been positive for our U.K. operations. Annual sales of the Company’s U.K. operations totaled approx- imately $120 million in 2019. The ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain busi- nesses in the region. Operations are continuing at most of the Company’s eight manufacturing locations in China; however, demands are being negatively affected by some customers being shut down. If the situation should wor- sen, availability of raw materials could become an issue as well. The Company has evaluated the potential operational impacts and uncertainties of the coronavirus outbreak and at this time believes that the likelihood of a material impact on our future results of operations is low. Annual sales of the Company’s China operations totaled approximately $130 million in 2019. The Company is a purchaser of various raw material inputs such as recovered paper, energy, steel, aluminum and plastic resin. The Company generally does not engage in significant hedging activities for these purchases, other than for energy and, from time to time, aluminum, because there is usually a high correlation between the primary input costs and the ultimate selling price of its products. Inputs are generally purchased at market or at fixed prices that are established with individual suppliers as part of the purchase process for quantities expected to be consumed in the ordinary course of business. On occasion, where the correlation between selling price and input price is less direct, the Company may enter into derivative contracts such as futures or swaps to manage the effect of price fluctuations. In addition, the Company may, from time to time, use traditional, unleveraged interest-rate swaps to manage its mix of fixed and variable rate debt and to con- trol its exposure to interest rate movements within select ranges. At December 31, 2019, the Company had derivative contracts outstanding to hedge the price on a portion of anticipated commodity and energy purchases as well as to hedge certain foreign exchange risks for various periods through December 2019. These contracts included swaps to hedge the purchase price of approximately 4.4 mil- lion MMBTUs of natural gas in the U.S. and Canada repre- senting approximately 61% of anticipated natural gas usage for 2020. Additionally, the Company had swap contracts covering 1,225 metric tons of aluminum repre- senting approximately 23% of anticipated usage for 2020. 32 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K The aluminum hedges relate to fixed-price customer con- tracts. At December 31, 2018, the Company had a num- ber of foreign currency contracts in place for both designated and undesignated hedges of either anticipated foreign currency denominated transactions or existing financial assets and liabilities. At December 31, 2019, the total notional amount of these contracts, in U.S. dollar terms, was $109 million, of which $24 million related to the Canadian dollar, $34 million to the Mexican peso, $24 million to the Polish Zloty and $27 million to all other currencies. The total fair market value of the Company’s derivatives was a net unfavorable position of $0.5 million and $3.3 million at December 31, 2019, and December 31, 2018, respectively. Derivatives are marked to fair value using published market prices, if available, or using esti- mated values based on current price quotes and a dis- counted cash flow model. See Note 10 to the Consolidated Financial Statements for more information on financial instruments. Beginning in January 2020, the Company is party to a cross-currency swap agreement with a notional amount of $250 million to effectively convert a portion of the Compa- ny’s fixed-rate U.S. dollar denominated debt, including the semi-annual interest payments, to fixed-rate euro- denominated debt. The swap agreement matures November 1, 2024. Under the terms of the swap agree- ment, the Company will receive semi-annual interest payments in U.S. dollars at a rate of 5.75% and pay inter- est in euros at a rate of 3.856%. The risk management objective is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies. The Company is subject to various federal, state and local environmental laws and regulations concerning, among other matters, solid waste disposal, wastewater effluent and air emissions. Although the costs of com- pliance have not been significant due to the nature of the materials and processes used in manufacturing oper- ations, such laws also make generators of hazardous wastes and their legal successors financially responsible for the cleanup of sites contaminated by those wastes. The Company has been named a potentially responsible party at several environmentally contaminated sites. These regulatory actions and a small number of private party lawsuits are believed to represent the Company’s largest potential environmental liabilities. The Company has accrued $8.7 million at December 31, 2019, compared with $20.1 million at December 31, 2018, with respect to these sites. See “Environmental Charges,” Item 3 – Legal Proceedings and Note 16 to the Consolidated Financial Statements for more information on environmental mat- ters. Critical accounting policies and estimates Management’s discussion and analysis of the Compa- ny’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of financial statements in con- formity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to inventories, bad debts, derivatives, income taxes, share- based compensation, goodwill, intangible assets, restructuring, pension and other postretirement benefits, environmental liabilities, and contingencies and litigation. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circum- stances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results could differ from those estimates. The impact of and any associated risks related to estimates, assump- tions and accounting policies are discussed in Manage- ment’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to the Consolidated Financial Statements, if applicable, where such estimates, assumptions and accounting policies affect the Company’s reported and expected financial results. The Company believes the accounting policies dis- cussed in the Notes to the Consolidated Financial State- ments included in Item 8 of this Annual Report on Form 10-K are critical to understanding the results of its oper- ations. The following discussion represents those policies that involve the more significant judgments and estimates used in the preparation of the Company’s Consolidated Financial Statements. Business combinations The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The Company recognizes the identifiable assets acquired, the liabilities assumed, and any non- controlling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of the consideration transferred, also meas- ured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regard- ing the fair values of the elements of a business combina- tion as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valu- ation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circum- stances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. Significant estimates and assumptions in estimating the fair value of acquired customer relationships, technology, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated pro- jections of the underlying business activity change com- pared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 33 lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired. Impairment of long-lived, intangible and other assets Assumptions and estimates used in the evaluation of potential impairment can result in adjustments affecting the carrying values of long-lived, intangible and other assets and the recognition of impairment expense in the Company’s Consolidated Financial Statements. The Company evaluates its long-lived assets (property, plant and equipment), definite-lived intangible assets and other assets (including notes receivable and equity investments) for impairment whenever indicators of impairment exist, or when it commits to sell the asset. If the sum of the undis- counted expected future cash flows from a long-lived asset or definite-lived intangible asset group is less than the carrying value of that asset group, an asset impairment charge is recognized. Key assumptions and estimates used in the cash flow model generally include price levels, sales growth, profit margins and asset life. The amount of an impairment charge, if any, is calculated as the excess of the asset’s carrying value over its fair value, generally represented by the discounted future cash flows from that asset or, in the case of assets the Company evaluates for sale, as estimated proceeds less costs to sell. The Com- pany takes into consideration historical data and experi- ence together with all other relevant information available when estimating the fair values of its assets. However, fair values that could be realized in actual transactions may differ from the estimates used to evaluate impairment. In addition, changes in the assumptions and estimates may result in a different conclusion regarding impairment. Impairment of goodwill The Company assesses its 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. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment. If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess. The Company’s reporting units are the same as, or one level below, its operating seg- ments, as determined in accordance with ASC 350. The Company completed its most recent annual good- will impairment testing during the third quarter of 2019. For testing purposes, the Company performed an assessment of each reporting unit using either a qualitative evaluation or a quantitative test. The qualitative evalua- tions considered factors such as the macroeconomic envi- ronment, Company stock price and market capitalization movement, business strategy changes, and significant customer wins and losses. The quantitative tests, described further below, considered factors such as cur- rent year operating performance as compared to prior projections and implied fair values from comparable trad- ing and transaction multiples. When performing a quantitative analysis, the Company estimates the fair value of its reporting units using a dis- counted cash flow model based on projections of future years’ operating results and associated cash flows. The Company’s assessments reflected a number of significant management assumptions and estimates including the Company’s forecast of sales, profit margins, and discount rates, which are validated by observed comparable trading and transaction multiples. The Company’s model dis- counts projected future cash flows, forecasted over a ten-year period, with an estimated residual growth rate. The Company’s projections incorporate management’s estimates of the most-likely expected future results. Pro- jected future cash flows are discounted to present value using an assumed discount rate that management believes is appropriate for the reporting unit. The Company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or mar- gin improvements. Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusion regarding goodwill impairment may change as well. Management’s projections related to revenue growth and/or margin improvements are based on a combination of factors, including expectations for volume growth with existing customers and customer retention, product expansion, changes in price/cost rela- tionships, productivity gains, fixed cost leverage, and sta- bility or improvement in general economic conditions. In considering the level of uncertainty regarding the potential for goodwill impairment, management has con- cluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption. Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment. Other than in Display and Packaging, which is discussed below, there is no specific singular event or single change in circumstances management has identi- fied that it believes could reasonably result in a change to expected future results in any of its reporting units suffi- cient to result in goodwill impairment. In management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, introduction of a superior technology, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in “Item 1A. Risk Fac- tors” on pages 7-15 of the Company’s 2019 Annual Report on Form 10-K. Although no reporting units failed the annual impair- ment test 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 the reporting unit’s operating performance does not continue to improve in line with management’s expectations, or if there is a neg- ative change in the long-term outlook for the business or in other factors such as the discount rate. The Display and Packaging reporting unit designs, manufactures, assem- bles, packs and distributes temporary, semi-permanent and permanent point-of-purchase displays; provides sup- ply chain management services, including contract pack- ing, fulfillment and scalable service centers; and manufactures retail packaging, including printed backer cards, thermoformed blisters and heat sealing equipment. The current goodwill impairment analysis incorporates management’s expectations for slight sales growth and mild improvements to profit margin percentages which reflects the estimated benefits of future productivity ini- tiatives. A large portion of projected sales in this reporting 34 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 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. Total goodwill associated with this reporting unit was approximately $203 million at December 31, 2019. Based on the latest annual impairment test, the estimated fair value of the Display and Packaging reporting unit exceeded its carrying value by approximately 35%. In its 2019 annual goodwill impairment analysis, pro- jected future cash flows for Display and Packaging were discounted at 8.9%. Based on the discounted cash flow model and holding other valuation assumptions constant, Display and Packaging projected operating profits across all future periods would have to be reduced approximately 27%, or the discount rate increased to 12.5%, in order for the estimated fair value to fall below the reporting unit’s carrying value. As discussed in the “Report of Independent Registered Public Accounting Firm” with respect to our 2019 Con- solidated Financial Statements, PricewaterhouseCoopers LLP has identified this as a “critical audit matter.” During the time subsequent to the annual evaluation, and at December 31, 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 manage- ment’s opinion that no such events have occurred. Income taxes The Company follows ASC 740, Accounting for Income Taxes, which requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not such assets will not be realized. Deferred tax assets generally represent expenses that have been recognized for financial reporting purposes, but for which the corre- sponding tax deductions will occur in future periods. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those positions not meeting the more-likely-than-not standard, no tax benefit has been recognized in the financial statements. Associated interest has also been recognized, where applicable. 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 inter- company note made in 2012, and the subsequent repay- ment 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 dis- tribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the RAR would be approx- imately $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 sec- ond quarter of 2019, and has had continued discussions with IRS Appeals throughout the year. If the matter is not resolved in IRS Appeals, the next step would be to file a petition in Tax Court. The Company strongly believes the position of the IRS with regard to this matter is incon- sistent with the applicable tax laws and existing Treasury regulations, and that the Company’s previously reported income tax provision for the year in question is appro- priate. 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 Com- pany 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 future results of oper- ations and financial condition. The estimate for the potential outcome of any uncertain tax issue is highly judgmental. The Company believes it has adequately provided for any reasonably foreseeable outcome related to these matters. However, future results may include favorable or unfavorable adjustments to esti- mated tax liabilities in the period the assessments are made or resolved or when statutes of limitations on poten- tial assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the eventual resolution of these matters could have a different impact on the effec- tive rate than currently reflected or expected. Stock-based compensation plans The Company utilizes share-based compensation in the form of stock appreciation rights, restricted stock units and other share-based awards. Certain awards are in the form of contingent stock units where the ultimate number of units are performance based. The amount of share- based compensation expense associated with these performance-based awards is based on estimates regard- ing future performance using measures defined in the plans. In 2019, the performance measures consisted of Base Earnings per Share and Return on Net Assets S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 35 Employed. Changes in estimates regarding the future achievement of these performance measures may result in significant fluctuations from period to period in the amount of share-based compensation expense reflected in the Company’s Consolidated Financial Statements. The Company uses an option-pricing model to determine the grant date fair value of its stock apprecia- tion rights. Inputs to the model include a number of sub- jective assumptions. Management routinely assesses the assumptions and methodologies used to calculate the estimated fair value of share-based compensation per share. Circumstances may change and additional data may become available over time that results in changes to these assumptions and methodologies, which could mate- rially impact fair value determinations. Pension and postretirement benefit plans The Company has significant pension and postretire- ment benefit liabilities and costs that are measured using actuarial valuations. The largest of the Company’s pension plans are the U.S. based Sonoco Pension Plan (the “Active Plan”) and the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”). Benefits under these plans were frozen effective December 31, 2018 for all active, non-union participants. As of January 1, 2019, these participants became eligible for annual contributions under a noncontributory defined contribution plan. On July 17, 2019, the Company’s Board of Directors approved a resolution to terminate the Inactive Plan effec- tive September 30, 2019. Upon approval from the Pension Benefit Guaranty Corporation, and following completion of a limited lump-sum offering, the Company is expected to settle all remaining liabilities under the Inactive Plan through the purchase of annuities in late 2020 or early 2021. The actuarial valuations used to evaluate the plans employ key assumptions that can have a significant effect on the calculated amounts. The key assumptions used at December 31, 2019 in determining the projected benefit obligation and the accumulated benefit obligation for U.S. retirement and retiree health and life insurance plans include: discount rates of 3.37% and 2.84% for the Active Plan and Inactive Plan, respectively, 3.05% for the non-qualified retirement plans, and 2.89% for the retiree health and life insurance plan. The discount rate for the Inactive Plan was determined on a plan termination basis. The rate of compensation increase for the retiree health and life insurance plan was 3.04%. The key assumptions used to determine the 2019 net periodic benefit cost for U.S. retirement and retiree health and life insurance plans include: discount rates of 4.34% and 4.14% for the Active Plan and Inactive Plan, respectively, 4.16% for the non-qualified retirement plans, and 4.02% for the retiree health and life insurance plan; an expected long-term rate of return on plan assets of 6.75% and 6.50% for the Active Plan and Inactive Plan, respectively; and a rate of compensation increase for the retiree health and life insurance plan of 3.06%. During 2019, the Company recorded total pension and postretirement benefit expenses of approximately $52.7 million, compared with $34.9 million during 2018. The 2019 amount reflects $65.9 million of expected returns on plan assets at an average assumed rate of 6.13% and interest cost of $57.8 million at a weighted- average discount rate of 3.96%. The 2018 amount reflects $92.2 million of expected returns on plan assets at an average assumed rate of 6.38% and interest cost of $55.4 million at a weighted-average discount rate of 3.43%. During 2019, the Company made contributions to its pension and postretirement plans of $231.2 million, including voluntary contributions to the Active Plan and Inactive Plan totaling $200 million. In the prior year, the Company made contributions to its pension and postretirement plans totaling $25.4 million. Contributions vary from year to year depending on various factors, the most significant being the market value of assets and interest rates. Cumulative net actuarial losses were approximately $753 million at December 31, 2019, and are primarily the result of low discount rates. Actuarial losses/gains outside of the 10% corridor defined by U.S. GAAP are amortized over the average remaining service life of the plan’s active participants or the average remain- ing life expectancy of the plan’s inactive participants if all, or almost all, of the plan’s participants are inactive. The majority of these actuarial losses are related to the Inactive Plan and will result in non-cash settlement charges of approximately $600 million beginning in 2020 as lump-sum payouts and annuity purchases are made. Excluding the $600 million of expected settlement charges related to the Inactive Plan, the Company projects total benefit plan expense to be approximately $4 million lower in 2020 than in 2019. This decrease is primarily due to lower interest expense due to a decline in discount rates, partially offset by lower expected returns on plan assets due to de-risking actions taken with the Inactive Plan’s assets moving them to a more conservative mix of primarily fixed income investments. The Company adjusts its discount rates at the end of each fiscal year based on yield curves of high-quality debt instruments over durations that match the expected bene- fit payouts of each plan. The expected rate of return assumption is derived by taking into consideration the targeted plan asset allocation, projected future returns by asset class and active investment management. A third- party asset return model was used to develop an expected range of returns on plan investments over a 12- to 15-year period, with the expected rate of return selected from a best estimate range within the total range of projected results. The Company periodically re-balances its plan asset portfolio in order to maintain the targeted allocation levels. The rate of compensation increase assumption is generally based on salary and incentive compensation increases. A key assumption for the U.S. retiree health and life insurance plan is a medical cost trend rate beginning at 6.25% for post-age 65 partic- ipants and trending down to an ultimate rate of 4.5% in 2026. The ultimate trend rate of 4.5% represents the Company’s best estimate of the long-term average annual medical cost increase over the duration of the plan’s liabilities. It provides for real growth in medical costs in excess of the overall inflation level. Other assumptions and estimates impacting the pro- jected liabilities of these plans include inflation, participant withdrawal and mortality rates and retirement ages. The Company annually reevaluates assumptions used in projecting the pension and postretirement liabilities and associated expense. These judgments, assumptions and estimates may affect the carrying value of pension and postretirement plan net assets and liabilities and pension and postretirement plan expenses in the Company’s Consolidated Financial Statements. 36 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K The sensitivity to changes in the critical assumptions for the Company’s U.S. plans as of December 31, 2019, is as follows: Statements included in Item 8 of this Annual Report on Form 10-K. Percentage point change Projected benefit obligation higher/(lower) -.25 pts $53.4 Annual expense higher/ (lower) $2.4 -.25 pts N/A $2.4 Assumption ($ in millions) Discount rate Expected return on assets See Note 13 to the Consolidated Financial Statements for additional information on the Company’s pension and postretirement plans. Recent accounting pronouncements Information regarding recent accounting pronounce- ments is provided in Note 2 to the Consolidated Financial Item 7A. Quantitative and qualitative disclosures about market risk Information regarding market risk is provided in this Annual Report on Form 10-K under the following items and captions: “Our international operations subject us to various risks that could adversely affect our business operations and financial results” and “Currency exchange rate fluctuations may reduce operating results and share- holders’ equity” in Item 1A-Risk Factors; “Risk Manage- ment” in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and in Note 10 to the Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data. Item 8. Financial statements and supplementary data The Consolidated Financial Statements and Notes to the Consolidated Financial Statements are provided on pages F-1 through F-40 of this report. Selected quarterly financial data is provided in Note 20 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Sonoco Products Company To the Board of Directors and Shareholders of Sonoco Products Company Opinions on the financial statements and internal control over financial reporting Opinions on the financial statements and internal control over financial reporting We have audited the accompanying consolidated balance sheets of Sonoco Products Company and its subsidiaries We have audited the accompanying consolidated balance sheets of Sonoco Products Company and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, compre- hensive income, changes in total equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the finan- cial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in InternalControl— IntegratedFramework (2013) issued by the COSO. (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, compre- hensive income, changes in total equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in InternalControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the finan- cial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in InternalControl— IntegratedFramework (2013) issued by the COSO. Basis for opinions Basis for opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of mate- rial misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was main- tained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and dis- closures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Corenso Holdings America, Inc. (“Corenso”) and Thermoform Engineered Quality, LLC and Plastique Holdings, LTD, (together “TEQ”), from its assessment of internal control over financial reporting as of December 31, 2019 because they were acquired by the Company in purchase business combinations during 2019. We have also excluded Corenso and TEQ from our audit of internal control over financial reporting. Corenso and TEQ are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent 2.9% and 0.7% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019. internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of mate- rial misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was main- tained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and dis- closures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Corenso Holdings America, Inc. (“Corenso”) and Thermoform Engineered Quality, LLC and Plastique Holdings, LTD, (together “TEQ”), from its assessment of internal control over financial reporting as of December 31, 2019 because they were acquired by the Company in purchase business combinations during 2019. We have also excluded Corenso and TEQ from our audit of internal control over financial reporting. Corenso and TEQ are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent 2.9% and 0.7% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019. Definition and limitations of internal control over financial reporting Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regard- A company’s internal control over financial reporting is a process designed to provide reasonable assurance regard- ing the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those poli- cies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on ing the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those poli- cies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. the financial statements. deteriorate. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-1 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-1 Critical audit matters Critical audit matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially chal- lenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially chal- lenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill impairment assessment—Display and Packaging reporting unit Goodwill impairment assessment—Display and Packaging reporting unit As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill bal- ance was $1.4 billion as of December 31, 2019, and the goodwill associated with the Display and Packaging reporting unit was $203 million. Management assesses goodwill for impairment annually during the third quarter, or from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment. If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge is recognized for the excess. Fair value is estimated using a discounted cash flow model based on projections of future years’ operating results and associated cash flows corroborated by comparable trading and transaction multiples. The calculated reporting unit estimated fair value reflects a number of significant management assumptions and estimates including the forecast of sales, profit margins, and discount rate. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Display and Packaging reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the Display and Packaging reporting unit, which in turn led to significant auditor judgment, subjectivity, and effort, in performing procedures and evaluating audit evidence obtained related to management’s discounted cash flow model and the significant assumptions, including the forecast of sales, profit margins, and discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the determination of the fair value of the Display and Packaging reporting unit. These procedures also included, among others, testing management’s proc- ess for developing the fair value estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the significant assumptions used by management, including the forecast of sales, profit margins, and discount rate. Evaluating management’s assumptions related to the forecast of sales and profit margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s dis- counted cash flow model and the discount rate. As described in Notes 1 and 8 to the consolidated financial statements, the Company’s consolidated goodwill bal- ance was $1.4 billion as of December 31, 2019, and the goodwill associated with the Display and Packaging reporting unit was $203 million. Management assesses goodwill for impairment annually during the third quarter, or from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment. If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge is recognized for the excess. Fair value is estimated using a discounted cash flow model based on projections of future years’ operating results and associated cash flows corroborated by comparable trading and transaction multiples. The calculated reporting unit estimated fair value reflects a number of significant management assumptions and estimates including the forecast of sales, profit margins, and discount rate. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Display and Packaging reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the Display and Packaging reporting unit, which in turn led to significant auditor judgment, subjectivity, and effort, in performing procedures and evaluating audit evidence obtained related to management’s discounted cash flow model and the significant assumptions, including the forecast of sales, profit margins, and discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the determination of the fair value of the Display and Packaging reporting unit. These procedures also included, among others, testing management’s proc- ess for developing the fair value estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the significant assumptions used by management, including the forecast of sales, profit margins, and discount rate. Evaluating management’s assumptions related to the forecast of sales and profit margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s dis- counted cash flow model and the discount rate. [PricewaterhouseCoopers LLP (signed)] Charlotte, North Carolina February 28, 2020 [PricewaterhouseCoopers LLP (signed)] Charlotte, North Carolina February 28, 2020 We have served as the Company’s auditor since 1967. We have served as the Company’s auditor since 1967. F-2 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-2 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K CONSOLIDATED BALANCE SHEETS Sonoco Products Company CONSOLIDATED BALANCE SHEETS Sonoco Products Company Trade accounts receivable, net of allowances of $14,382 in 2019 and $11,692 in 2018 (Dollars and shares in thousands) At December 31 Assets Current assets Cash and cash equivalents Other receivables Inventories Finished and in process Materials and supplies Prepaid expenses Property, plant and equipment, net Goodwill Other intangible assets, net Long-term deferred income taxes Right of use asset-operating leases Other assets Total assets Liabilities and equity Current liabilities Payable to suppliers Accrued expenses and other Accrued wages and other compensation Notes payable and current portion of long-term debt Accrued taxes Long-term debt Noncurrent operating lease liabilities Pension and other postretirement benefits Deferred income taxes Other liabilities Commitments and contingencies Sonoco shareholders’ equity Serial preferred stock, no par value Authorized 30,000 shares Common shares, no par value Authorized 300,000 shares 2018, respectively Capital in excess of stated value Accumulated other comprehensive loss Retained earnings Total Sonoco shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity 2019 2018 (Dollars and shares in thousands) At December 31 Assets Current assets $ 145,283 698,149 113,754 $ 120,389 737,420 111,915 172,223 331,585 60,202 1,521,196 1,286,842 1,429,346 388,292 46,502 298,393 155,718 174,115 319,649 55,784 1,519,272 1,233,821 1,309,167 352,037 47,297 — 121,871 Cash and cash equivalents Trade accounts receivable, net of allowances of $14,382 in 2019 and $11,692 in 2018 Other receivables Inventories Finished and in process Materials and supplies Prepaid expenses Property, plant and equipment, net Goodwill Other intangible assets, net Long-term deferred income taxes Right of use asset-operating leases Other assets $5,126,289 $4,583,465 Total assets $ 537,764 289,067 78,047 488,234 11,380 1,404,492 1,193,135 253,992 304,798 76,206 77,961 $ 556,011 237,197 85,761 195,445 8,516 1,082,930 1,189,717 — 374,419 64,273 99,848 Liabilities and equity Current liabilities Payable to suppliers Accrued expenses and other Accrued wages and other compensation Notes payable and current portion of long-term debt Accrued taxes Long-term debt Noncurrent operating lease liabilities Pension and other postretirement benefits Deferred income taxes Other liabilities Commitments and contingencies Sonoco shareholders’ equity 0 shares issued and outstanding as of December 31, 2019 and 2018 Serial preferred stock, no par value Authorized 30,000 shares 0 shares issued and outstanding as of December 31, 2019 and 2018 Common shares, no par value Authorized 300,000 shares 100,198 and 99,829 shares issued and outstanding as of December 31, 2019 and 100,198 and 99,829 shares issued and outstanding as of December 31, 2019 and 7,175 310,778 (816,803) 2,301,532 1,802,682 13,023 7,175 304,709 (740,913) 2,188,115 1,759,086 13,192 2018, respectively Capital in excess of stated value Accumulated other comprehensive loss Retained earnings Total Sonoco shareholders’ equity Noncontrolling interests 1,815,705 1,772,278 Total equity $5,126,289 $4,583,465 Total liabilities and equity 2019 2018 $ 145,283 698,149 113,754 $ 120,389 737,420 111,915 172,223 331,585 60,202 1,521,196 1,286,842 1,429,346 388,292 46,502 298,393 155,718 174,115 319,649 55,784 1,519,272 1,233,821 1,309,167 352,037 47,297 — 121,871 $5,126,289 $4,583,465 $ 537,764 289,067 78,047 488,234 11,380 $ 556,011 237,197 85,761 195,445 8,516 1,404,492 1,193,135 253,992 304,798 76,206 77,961 1,082,930 1,189,717 — 374,419 64,273 99,848 7,175 310,778 (816,803) 2,301,532 1,802,682 13,023 7,175 304,709 (740,913) 2,188,115 1,759,086 13,192 1,815,705 1,772,278 $5,126,289 $4,583,465 The Notes beginning on page F-7 are an integral part of these consolidated financial statements. The Notes beginning on page F-7 are an integral part of these consolidated financial statements. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-3 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-3 CONSOLIDATED STATEMENTS OF INCOME Sonoco Products Company CONSOLIDATED STATEMENTS OF INCOME Sonoco Products Company (Dollars and shares in thousands except per share data) Years ended December 31 2019 2018 2017 (Dollars and shares in thousands except per share data) Years ended December 31 Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring/Asset impairment charges Operating profit Non-operating pension costs Interest expense Interest income Income before income taxes Provision for income taxes Income before equity in earnings of affiliates Equity in earnings of affiliates, net of tax Net income Net (income) attributable to noncontrolling interests $5,374,207 4,316,378 $5,390,938 4,349,932 $5,036,650 4,077,998 Net sales Cost of sales 1,057,829 530,867 59,880 1,041,006 563,306 40,071 467,082 24,713 66,845 5,242 380,766 93,269 287,497 5,171 292,668 (883) 437,629 941 63,147 4,990 378,531 75,008 303,523 11,216 314,739 (1,179) 958,652 507,824 38,419 412,409 45,110 57,220 4,475 314,554 146,589 167,965 9,482 177,447 (2,102) Gross profit Selling, general and administrative expenses Restructuring/Asset impairment charges Operating profit Non-operating pension costs Interest expense Interest income Income before income taxes Provision for income taxes Income before equity in earnings of affiliates Equity in earnings of affiliates, net of tax Net income Net (income) attributable to noncontrolling interests Net income attributable to Sonoco $ 291,785 $ 313,560 $ 175,345 Net income attributable to Sonoco $ 291,785 $ 313,560 $ 175,345 Weighted average common shares outstanding: Basic Assuming exercise of awards Diluted Per common share Net income attributable to Sonoco: Basic Diluted 100,742 434 101,176 100,539 477 101,016 100,237 615 100,852 Weighted average common shares outstanding: Basic Assuming exercise of awards Diluted Per common share Net income attributable to Sonoco: $ $ 2.90 2.88 $ $ 3.12 3.10 $ $ 1.75 1.74 Basic Diluted CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Sonoco Products Company CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Sonoco Products Company (Dollars in thousands) Years ended December 31 Net income Other comprehensive income/(loss): 2019 2018 2017 $292,668 $314,739 $177,447 (Dollars in thousands) Years ended December 31 Net income Other comprehensive income/(loss): Foreign currency translation adjustments Changes in defined benefit plans, net of tax Change in derivative financial instruments, net of tax 8,270 (87,033) 2,035 (54,763) (20,244) (1,614) 89,108 59,924 (2,580) Foreign currency translation adjustments Changes in defined benefit plans, net of tax Change in derivative financial instruments, net of tax Other comprehensive income/(loss) (76,728) (76,621) 146,452 Other comprehensive income/(loss) Comprehensive income/(loss) Net (income) attributable to noncontrolling interests Other comprehensive loss/(income) attributable to noncontrolling interests 215,940 (883) 838 238,118 (1,179) 2,156 323,899 (2,102) (1,105) Comprehensive income/(loss) Net (income) attributable to noncontrolling interests Other comprehensive loss/(income) attributable to noncontrolling interests Comprehensive income attributable to Sonoco $215,895 $239,095 $320,692 Comprehensive income attributable to Sonoco 2019 2018 2017 $292,668 $314,739 $177,447 8,270 (87,033) 2,035 (54,763) (20,244) (1,614) 89,108 59,924 (2,580) (76,728) (76,621) 146,452 215,940 238,118 323,899 (883) 838 (1,179) 2,156 (2,102) (1,105) $215,895 $239,095 $320,692 The Notes beginning on page F-7 are an integral part of these consolidated financial statements. The Notes beginning on page F-7 are an integral part of these consolidated financial statements. 2019 2018 2017 $5,374,207 $5,390,938 $5,036,650 4,316,378 4,349,932 4,077,998 1,057,829 1,041,006 530,867 59,880 467,082 24,713 66,845 5,242 380,766 93,269 287,497 5,171 292,668 (883) 563,306 40,071 437,629 941 63,147 4,990 378,531 75,008 303,523 11,216 958,652 507,824 38,419 412,409 45,110 57,220 4,475 314,554 146,589 167,965 9,482 314,739 (1,179) 177,447 (2,102) 100,742 434 101,176 100,539 100,237 477 615 101,016 100,852 $ $ 2.90 2.88 $ $ 3.12 3.10 $ $ 1.75 1.74 F-4 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-4 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY Sonoco Products Company CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY Sonoco Products Company (Dollars and shares in thousands) January 1, 2017 Net income Other comprehensive income/ $1,554,705 177,447 (loss): Translation gain Defined benefit plan adjustment1 Derivative financial instruments1 Capital in of excess Accumulated Total equity Common shares Outstanding Amount stated value comprehensive other loss Retained earnings 99,193 $7,175 $321,050 $(738,380) $1,942,513 175,345 88,003 59,924 (2,580) 145,347 (154,773) 341 (120) 1,636 (6,335) 13,488 318 (73,239) 72,921 December 31, 2017 Net income Other comprehensive income/ $1,730,060 314,739 99,414 $7,175 $330,157 $(666,272) $2,036,006 313,560 (52,607) (20,244) (1,614) (74,465) (163,348) 682 (267) 1,688 (14,561) 10,730 (23,305) — (176) 1,897 89,108 59,924 (2,580) 146,452 (154,773) 1,636 (6,335) 13,488 — (2,560) (54,763) (20,244) (1,614) (76,621) (163,348) 1,688 (14,561) 10,730 1,721 (35,000) 2,870 8,270 (87,033) 2,035 (76,728) (214) (171,597) 1,343 (9,608) 14,334 (6,771) Other comprehensive loss Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements Noncontrolling interest from acquisition (loss): Translation loss Defined benefit plan adjustment1 Derivative financial instruments1 Other comprehensive income Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements Purchase of Sonoco Asia noncontrolling interest Noncontrolling interest from acquisition (loss): Translation gain Defined benefit plan adjustment1 Derivative financial instruments1 Other comprehensive loss Dividends paid to noncontrolling interests Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements 1 net of tax December 31, 2018 Net income Other comprehensive income/ $1,772,278 292,668 99,829 $7,175 $304,709 $(740,913) $2,188,115 291,785 (11,695) 2,870 $13,192 883 (838) (838) (214) 9,108 (87,033) 2,035 (75,890) 538 (169) 1,343 (9,608) 14,334 (171,597) — (6,771) (2,560) $22,994 1,179 (2,156) Capital in excess of stated value Common shares Outstanding Amount 99,193 $7,175 $321,050 Accumulated other comprehensive loss $(738,380) Retained earnings $1,942,513 175,345 Non- controlling interests $22,347 2,102 88,003 59,924 (2,580) 145,347 1,105 1,105 (154,773) 341 (120) 1,636 (6,335) 13,488 318 (73,239) 72,921 Non- controlling interests $22,347 2,102 1,105 (Dollars and shares in thousands) January 1, 2017 Net income Other comprehensive income/ (loss): Translation gain Defined benefit plan adjustment1 Derivative financial instruments1 1,105 Other comprehensive loss Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements Noncontrolling interest from acquisition (loss): Translation loss Defined benefit plan adjustment1 Derivative financial instruments1 (2,156) Other comprehensive income Total equity $1,554,705 177,447 89,108 59,924 (2,580) 146,452 (154,773) 1,636 (6,335) 13,488 — (2,560) (54,763) (20,244) (1,614) (76,621) (163,348) 1,688 (14,561) 10,730 1,721 (35,000) 2,870 December 31, 2017 Net income Other comprehensive income/ $1,730,060 314,739 99,414 $7,175 $330,157 $(666,272) (2,560) $2,036,006 313,560 $22,994 1,179 Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements Purchase of Sonoco Asia noncontrolling interest Noncontrolling interest from acquisition December 31, 2018 Net income Other comprehensive income/ $1,772,278 292,668 (loss): Translation gain Defined benefit plan adjustment1 Derivative financial instruments1 Other comprehensive loss Dividends paid to noncontrolling interests Dividends Issuance of stock awards Shares repurchased Stock-based compensation Impact of new accounting pronouncements 8,270 (87,033) 2,035 (76,728) (214) (171,597) 1,343 (9,608) 14,334 (6,771) (52,607) (20,244) (1,614) (74,465) (163,348) 682 (267) 1,688 (14,561) 10,730 — (176) 1,897 (23,305) (2,156) (2,156) (11,695) 2,870 99,829 $7,175 $304,709 $(740,913) $2,188,115 291,785 $13,192 883 9,108 (87,033) 2,035 (75,890) (838) (838) (214) 538 (169) 1,343 (9,608) 14,334 (171,597) — (6,771) December 31, 2019 $1,815,705 100,198 $7,175 $310,778 $(816,803) $2,301,532 $13,023 December 31, 2019 $1,815,705 100,198 $7,175 $310,778 $(816,803) $2,301,532 $13,023 The Notes beginning on page F-7 are an integral part of these consolidated financial statements. The Notes beginning on page F-7 are an integral part of these consolidated financial statements. 1 net of tax S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-5 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS Sonoco Products Company CONSOLIDATED STATEMENTS OF CASH FLOWS Sonoco Products Company (Dollars in thousands) Years ended December 31 2019 2018 2017 (Dollars in thousands) Years ended December 31 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment Depreciation, depletion and amortization Gain on adjustment of environmental reserves Share-based compensation expense Equity in earnings of affiliates Cash dividends from affiliated companies Loss on remeasurement of previously held interest in Conitex Sonoco Net loss on disposition of assets Pension and postretirement plan expense Pension and postretirement plan contributions Net (decrease)/increase in deferred taxes Change in assets and liabilities, net of effects from acquisitions, dispositions and foreign currency adjustments Trade accounts receivable Inventories Payable to suppliers Prepaid expenses Accrued expenses Income taxes payable and other income tax items Other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Purchase of property, plant and equipment Cost of acquisitions, net of cash acquired Proceeds from the sale of assets Other Net cash used by investing activities Cash flows from financing activities Proceeds from issuance of debt Principal repayment of debt Net increase/(decrease) in commercial paper borrowings Net increase/(decrease) in outstanding checks Payment of contingent consideration Cash dividends – common Dividends paid to noncontrolling interests Purchase of Sonoco Asia noncontrolling interest Shares acquired Net cash provided/(used) by financing activities Effects of exchange rate changes on cash Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental cash flow disclosures Interest paid, net of amounts capitalized Income taxes paid, net of refunds $ 292,668 $ 314,739 $ 177,447 25,026 239,140 (10,675) 14,334 (5,171) 6,620 — 746 52,741 (231,234) 16,958 59,615 2,631 (25,383) 4,030 7,471 (6,201) (17,466) 5,794 236,245 — 10,730 (11,216) 7,570 4,784 8,635 34,885 (25,373) (9,420) 38,193 (6,150) (4,380) (5,093) 19,153 (19,014) (10,184) 20,017 217,625 — 13,488 (9,482) 6,967 — 2,039 78,506 (108,579) (20,553) (43,773) (16,067) 4,226 (110) (14,606) 70,180 (29,071) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment Depreciation, depletion and amortization Gain on adjustment of environmental reserves Share-based compensation expense Equity in earnings of affiliates Cash dividends from affiliated companies Loss on remeasurement of previously held interest in Conitex Sonoco Net loss on disposition of assets Pension and postretirement plan expense Pension and postretirement plan contributions Net (decrease)/increase in deferred taxes Change in assets and liabilities, net of effects from acquisitions, dispositions and foreign currency adjustments Trade accounts receivable Inventories Payable to suppliers Prepaid expenses Accrued expenses Income taxes payable and other income tax items Other assets and liabilities 425,850 589,898 348,254 Net cash provided by operating activities 425,850 589,898 348,254 (195,934) (298,380) 14,614 603 (192,574) (277,177) 24,288 1,335 (188,913) (383,725) 5,271 2,791 Cash flows from investing activities Purchase of property, plant and equipment Cost of acquisitions, net of cash acquired Proceeds from the sale of assets Other (479,097) (444,128) (564,576) Net cash used by investing activities 276,843 (139,582) 130,000 (4,486) (5,500) (170,253) (214) — (9,608) 226,885 (281,262) (4,000) (4,282) — (161,434) — (35,000) (14,561) 448,511 (217,320) 124,000 7,518 — (153,137) — — (6,335) Cash flows from financing activities Proceeds from issuance of debt Principal repayment of debt Net increase/(decrease) in commercial paper borrowings Net increase/(decrease) in outstanding checks Payment of contingent consideration Cash dividends – common Dividends paid to noncontrolling interests Purchase of Sonoco Asia noncontrolling interest Shares acquired 77,200 (273,654) 203,237 Net cash provided/(used) by financing activities 941 (6,639) 10,771 Effects of exchange rate changes on cash 24,894 120,389 (134,523) 254,912 (2,314) 257,226 Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year $ 145,283 $ 120,389 $ 254,912 Cash and cash equivalents at end of year $ 66,768 $ 82,512 $ 63,147 $ 103,442 $ 57,170 $ 96,962 Supplemental cash flow disclosures Interest paid, net of amounts capitalized Income taxes paid, net of refunds The Notes beginning on page F-7 are an integral part of these consolidated financial statements. The Notes beginning on page F-7 are an integral part of these consolidated financial statements. 2019 2018 2017 $ 292,668 $ 314,739 $ 177,447 25,026 239,140 (10,675) 14,334 (5,171) 6,620 — 746 52,741 (231,234) 16,958 59,615 2,631 (25,383) 4,030 7,471 (6,201) (17,466) 5,794 236,245 — 10,730 (11,216) 7,570 4,784 8,635 34,885 (25,373) (9,420) 38,193 (6,150) (4,380) (5,093) 19,153 (19,014) (10,184) 20,017 217,625 — 13,488 (9,482) 6,967 — 2,039 78,506 (108,579) (20,553) (43,773) (16,067) 4,226 (110) (14,606) 70,180 (29,071) (195,934) (298,380) 14,614 603 (192,574) (277,177) 24,288 1,335 (188,913) (383,725) 5,271 2,791 (479,097) (444,128) (564,576) 276,843 (139,582) 130,000 (4,486) (5,500) (214) — (9,608) 226,885 (281,262) (4,000) (4,282) 448,511 (217,320) 124,000 7,518 — — — — — (35,000) (14,561) (6,335) (170,253) (161,434) (153,137) 77,200 (273,654) 203,237 941 (6,639) 10,771 24,894 120,389 (134,523) 254,912 (2,314) 257,226 $ 145,283 $ 120,389 $ 254,912 $ 66,768 $ 82,512 $ 63,147 $ 103,442 $ 57,170 $ 96,962 F-6 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-6 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Sonoco Products Company (dollars in thousands except per share data) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Sonoco Products Company (dollars in thousands except per share data) 1. Summary of significant accounting policies Basis of presentation The Consolidated Financial Statements include the accounts of Sonoco Products Company and its majority- owned subsidiaries (the “Company” or “Sonoco”) after elimination of intercompany accounts and transactions. Investments in affiliated companies in which the Com- pany shares control over the financial and operating deci- sions, but in which the Company is not the primary beneficiary, are accounted for by the equity method of accounting. Income applicable to these equity investments is reflected in “Equity in earnings of affiliates, net of tax” in the Consolidated Statements of Income. The aggregate carrying value of equity investments is reported in “Other Assets” in the Company’s Consolidated Balance Sheets and totaled $54,339 and $55,516 at December 31, 2019 and 2018, respectively. Affiliated companies over which the Company exercised a significant influence at December 31, 2019, included: Entity Ownership interest percentage at December 31, 2019 RTS Packaging JVCO Cascades Conversion, Inc. Cascades Sonoco, Inc. Showa Products Company Ltd. Crown Fibre Tube. Inc. Papertech Energía, S.L. Weidenhammer New Packaging, LLC 35.0% 50.0% 50.0% 22.2% 20.0% 25.0% 40.0% Also included in the investment totals above is the Company’s 19.5% ownership in a small tubes and cores business in Chile and its 12.19% ownership in a small paper recycling business in Finland. These investments are accounted for under the cost method as the Company does not have the ability to exercise significant influence over them. Estimates and assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires manage- ment to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of rev- enues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition Beginning in 2018, the Company records revenue when control is transferred to the customer, which is either upon shipment or over time in cases where the Company is entitled to payment with margin for products produced that are customer specific without alternative use. The Company recognizes over time revenue under the input method as goods are produced. Revenue that is recog- nized at a point in time is recognized when the customer obtains control of the goods. Customers obtain control either when goods are delivered to the customer facility, if the Company is responsible for arranging transportation, or when picked up by the customer’s designated carrier. The Company commonly enters into Master Supply Arrangements (MSA) with customers to provide goods and/or services over specific time periods. Customers submit purchase orders with quantities and prices to cre- ate a contract for accounting purposes. Shipping and handling expenses are considered a fulfillment cost, and included in “Cost of Sales,” and freight charged to customers is included in “Net Sales” in the Company’s Consolidated Statements of Income. Prior to 2018, the Company recorded revenue when title and risk of ownership passed to the customer, and when persuasive evidence of an arrangement existed, delivery had occurred or services had been rendered, the sales price to the customer was fixed or determinable and when collectibility was reasonably assured. Certain judg- ments, such as provisions for estimates of sales returns and allowances, were required in the application of the Company’s revenue policy and, therefore, were included in the results of operations in its Consolidated Financial Statements. Shipping and handling expenses were included in “Cost of sales,” and freight charged to customers was included in “Net sales” in the Company’s Consolidated Statements of Income for the year ended December 31, 2017. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of sales and are accrued using sales data and rebate percen- tages specific to each customer agreement. Accrued customer rebates are included in “Accrued expenses and other” in the Company’s Consolidated Balance Sheets. Payment terms under the Company’s arrangements are short term in nature, generally no longer than 120 days. The Company does provide prompt payment dis- counts 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 after the originating sale. Accounts receivable and allowance for doubtful accounts The Company’s trade accounts receivable are non-interest bearing and are recorded at the invoiced amounts. The allowance for doubtful accounts represents the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. Provisions are made to the allowance for doubtful accounts at such time that collection of all or part of a trade account receiv- able is in question. The allowance for doubtful accounts is monitored on a regular basis and adjustments are made as needed to ensure that the account properly reflects the Company’s best estimate of uncollectible trade accounts receivable. Account balances are charged off against the allowance for doubtful accounts when the Company determines that the receivable will not be recovered. Sales to the Company’s largest customer accounted for approximately 5% of the Company’s net sales in 2019, 4% in 2018 and 4% in 2017, primarily in the Display and Packaging and Consumer Packaging segments. Receiv- ables from this customer accounted for approximately 8% 1. Summary of significant accounting policies Basis of presentation The Consolidated Financial Statements include the accounts of Sonoco Products Company and its majority- owned subsidiaries (the “Company” or “Sonoco”) after elimination of intercompany accounts and transactions. Investments in affiliated companies in which the Com- pany shares control over the financial and operating deci- sions, but in which the Company is not the primary beneficiary, are accounted for by the equity method of accounting. Income applicable to these equity investments is reflected in “Equity in earnings of affiliates, net of tax” in the Consolidated Statements of Income. The aggregate carrying value of equity investments is reported in “Other Assets” in the Company’s Consolidated Balance Sheets and totaled $54,339 and $55,516 at December 31, 2019 and 2018, respectively. Affiliated companies over which the Company exercised a significant influence at December 31, 2019, included: Entity RTS Packaging JVCO Cascades Conversion, Inc. Cascades Sonoco, Inc. Showa Products Company Ltd. Crown Fibre Tube. Inc. Papertech Energía, S.L. Weidenhammer New Packaging, LLC Ownership interest percentage at December 31, 2019 35.0% 50.0% 50.0% 22.2% 20.0% 25.0% 40.0% Also included in the investment totals above is the Company’s 19.5% ownership in a small tubes and cores business in Chile and its 12.19% ownership in a small paper recycling business in Finland. These investments are accounted for under the cost method as the Company does not have the ability to exercise significant influence over them. Estimates and assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires manage- ment to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of rev- enues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition Beginning in 2018, the Company records revenue when control is transferred to the customer, which is either upon shipment or over time in cases where the Company is entitled to payment with margin for products produced that are customer specific without alternative use. The Company recognizes over time revenue under the input method as goods are produced. Revenue that is recog- nized at a point in time is recognized when the customer obtains control of the goods. Customers obtain control either when goods are delivered to the customer facility, if the Company is responsible for arranging transportation, or when picked up by the customer’s designated carrier. The Company commonly enters into Master Supply Arrangements (MSA) with customers to provide goods and/or services over specific time periods. Customers submit purchase orders with quantities and prices to cre- ate a contract for accounting purposes. Shipping and handling expenses are considered a fulfillment cost, and included in “Cost of Sales,” and freight charged to customers is included in “Net Sales” in the Company’s Consolidated Statements of Income. Prior to 2018, the Company recorded revenue when title and risk of ownership passed to the customer, and when persuasive evidence of an arrangement existed, delivery had occurred or services had been rendered, the sales price to the customer was fixed or determinable and when collectibility was reasonably assured. Certain judg- ments, such as provisions for estimates of sales returns and allowances, were required in the application of the Company’s revenue policy and, therefore, were included in the results of operations in its Consolidated Financial Statements. Shipping and handling expenses were included in “Cost of sales,” and freight charged to customers was included in “Net sales” in the Company’s Consolidated Statements of Income for the year ended December 31, 2017. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of sales and are accrued using sales data and rebate percen- tages specific to each customer agreement. Accrued customer rebates are included in “Accrued expenses and other” in the Company’s Consolidated Balance Sheets. Payment terms under the Company’s arrangements are short term in nature, generally no longer than 120 days. The Company does provide prompt payment dis- counts 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 after the originating sale. Accounts receivable and allowance for doubtful accounts The Company’s trade accounts receivable are non-interest bearing and are recorded at the invoiced amounts. The allowance for doubtful accounts represents the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. Provisions are made to the allowance for doubtful accounts at such time that collection of all or part of a trade account receiv- able is in question. The allowance for doubtful accounts is monitored on a regular basis and adjustments are made as needed to ensure that the account properly reflects the Company’s best estimate of uncollectible trade accounts receivable. Account balances are charged off against the allowance for doubtful accounts when the Company determines that the receivable will not be recovered. Sales to the Company’s largest customer accounted for approximately 5% of the Company’s net sales in 2019, 4% in 2018 and 4% in 2017, primarily in the Display and Packaging and Consumer Packaging segments. Receiv- ables from this customer accounted for approximately 8% S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-7 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-7 of the Company’s total trade accounts receivable at December 31, 2019 and 4% at December 31, 2018. The Company’s next largest customer comprised approx- imately 4% of the Company’s net sales in 2019, 4% in 2018 and 3% in 2017. Certain of the Company’s customers sponsor and actively promote multi-vendor supply chain finance arrangements and, in a limited number of cases, the Company has agreed to participate. Accordingly, approx- imately 9% of consolidated annual sales were settled under these arrangements in both 2019 and 2018. Research and development Research and development costs are charged to expense as incurred and include salaries and other directly related expenses. Research and development costs total- ing approximately $23,300 in 2019, $23,200 in 2018 and $21,000 in 2017 are included in “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. Restructuring and asset impairment Costs associated with exit or disposal activities are recognized when the liability is incurred. If assets become impaired as a result of a restructuring action, the assets are written down to fair value, less estimated costs to sell, if applicable. A number of significant estimates and assumptions are involved in the determination of fair value. The Company considers historical experience and all available information at the time the estimates are made; however, the amounts that are ultimately realized upon the sale of divested assets may differ from the estimated fair values reflected in the Company’s Consolidated Financial Statements. Cash and cash equivalents Cash equivalents are composed of highly liquid invest- ments with an original maturity to the Company of gen- erally three months or less when purchased. Cash equivalents are recorded at cost, which approximates market. Inventories Inventories are stated at the lower of cost or net realiz- able value. The last-in, first-out (LIFO) method is used for the valuation of certain of the Company’s domestic inventories, primarily metal, internally manufactured paper and paper purchased from third parties. The LIFO method of accounting was used to determine the carrying costs of approximately 13% and 14% of total inventories at December 31, 2019 and 2018, respectively. The remaining inventories are determined on the first-in, first-out (FIFO) method. If the FIFO method of accounting had been used for all inventories, total inventory would have been higher by $20,203 and $18,854 at December 31, 2019 and 2018, respectively. Property, plant and equipment Plant assets represent the original cost of land, build- ings and equipment, less depreciation, computed under the straight-line method over the estimated useful lives of the assets, and are reviewed for impairment whenever events indicate the carrying value may not be recoverable. Equipment lives generally range from 3 to 11 years, and buildings from 15 to 40 years. Timber resources are stated at cost. Depletion is charged to operations based on the estimated number of units of timber cut during the year. of the Company’s total trade accounts receivable at December 31, 2019 and 4% at December 31, 2018. The Company’s next largest customer comprised approx- imately 4% of the Company’s net sales in 2019, 4% in 2018 and 3% in 2017. events indicate the carrying value may not be recoverable. Equipment lives generally range from 3 to 11 years, and buildings from 15 to 40 years. Timber resources are stated at cost. Depletion is charged to operations based on the estimated number of Certain of the Company’s customers sponsor and units of timber cut during the year. Goodwill and other intangible assets The Company assesses its goodwill for impairment annually during the third quarter, or from time to time when warranted by the facts and circumstances surround- ing individual reporting units or the Company as a whole. In performing the impairment test, the Company compares the fair value of the reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This quantitative test considers factors such as the amount by which estimated fair value exceeds current carrying value, current year operating performance as compared to prior projections, and implied fair values from comparable trading and transaction multiples. The calculated reporting unit estimated fair values reflect a number of significant management assumptions and estimates including the Company’s forecast of sales, profit margins, and discount rate. Changes in these assumptions could materially impact the estimated fair values. When the Company estimates the fair value of a report- ing unit, it does so using a discounted cash flow model based on projections of future years’ operating results and associated cash flows, corroborated by comparable trad- ing and transaction multiples. The Company’s projections incorporate management’s best estimates of the expected future results, which include expectations related to new and retained business and future operating margins. Pro- jected future cash flows are then discounted to present value using a discount rate management believes is commensurate with the risks inherent in the cash flows. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment. If the carrying value of the report- ing unit exceeds the fair value of that reporting unit, an impairment charge is recognized for the excess. Goodwill is not amortized. Intangible assets are amortized, usually on a straight- line basis, over their respective useful lives, which gen- erally range from 3 to 40 years. The Company evaluates its intangible assets for impairment whenever indicators of impairment exist. The Company has no intangibles with indefinite lives. Income taxes The Company provides for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting requirements and tax laws. Assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes liabilities for uncertain income tax positions based on our estimate of whether it is more likely than not that additional taxes will be required and we report related interest and penalties as income taxes. actively promote multi-vendor supply chain finance arrangements and, in a limited number of cases, the Company has agreed to participate. Accordingly, approx- imately 9% of consolidated annual sales were settled under these arrangements in both 2019 and 2018. Research and development Research and development costs are charged to expense as incurred and include salaries and other directly related expenses. Research and development costs total- ing approximately $23,300 in 2019, $23,200 in 2018 and $21,000 in 2017 are included in “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. Restructuring and asset impairment Costs associated with exit or disposal activities are recognized when the liability is incurred. If assets become impaired as a result of a restructuring action, the assets are written down to fair value, less estimated costs to sell, if applicable. A number of significant estimates and assumptions are involved in the determination of fair value. The Company considers historical experience and all available information at the time the estimates are made; however, the amounts that are ultimately realized upon the sale of divested assets may differ from the estimated fair values reflected in the Company’s Consolidated Financial Statements. Cash and cash equivalents Cash equivalents are composed of highly liquid invest- ments with an original maturity to the Company of gen- erally three months or less when purchased. Cash equivalents are recorded at cost, which approximates market. Inventories Inventories are stated at the lower of cost or net realiz- able value. The last-in, first-out (LIFO) method is used for the valuation of certain of the Company’s domestic inventories, primarily metal, internally manufactured paper and paper purchased from third parties. The LIFO method of accounting was used to determine the carrying costs of approximately 13% and 14% of total inventories at December 31, 2019 and 2018, respectively. The remaining inventories are determined on the first-in, first-out (FIFO) method. If the FIFO method of accounting had been used for all inventories, total inventory would have been higher by $20,203 and $18,854 at December 31, 2019 and 2018, respectively. Property, plant and equipment Plant assets represent the original cost of land, build- ings and equipment, less depreciation, computed under the straight-line method over the estimated useful lives of the assets, and are reviewed for impairment whenever Goodwill and other intangible assets The Company assesses its goodwill for impairment annually during the third quarter, or from time to time when warranted by the facts and circumstances surround- ing individual reporting units or the Company as a whole. In performing the impairment test, the Company compares the fair value of the reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This quantitative test considers factors such as the amount by which estimated fair value exceeds current carrying value, current year operating performance as compared to prior projections, and implied fair values from comparable trading and transaction multiples. The calculated reporting unit estimated fair values reflect a number of significant management assumptions and estimates including the Company’s forecast of sales, profit margins, and discount rate. Changes in these assumptions could materially impact the estimated fair values. When the Company estimates the fair value of a report- ing unit, it does so using a discounted cash flow model based on projections of future years’ operating results and associated cash flows, corroborated by comparable trad- ing and transaction multiples. The Company’s projections incorporate management’s best estimates of the expected future results, which include expectations related to new and retained business and future operating margins. Pro- jected future cash flows are then discounted to present value using a discount rate management believes is commensurate with the risks inherent in the cash flows. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment. If the carrying value of the report- ing unit exceeds the fair value of that reporting unit, an impairment charge is recognized for the excess. Goodwill is not amortized. Intangible assets are amortized, usually on a straight- line basis, over their respective useful lives, which gen- erally range from 3 to 40 years. The Company evaluates its intangible assets for impairment whenever indicators of impairment exist. The Company has no intangibles with indefinite lives. Income taxes The Company provides for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting requirements and tax laws. Assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes liabilities for uncertain income tax positions based on our estimate of whether it is more likely than not that additional taxes will be required and we report related interest and penalties as income taxes. F-8 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-8 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Derivatives Significant estimates and assumptions in estimating the Derivatives The Company elected to early adopt Accounting Stan- dards Update (ASU) 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” as of January 1, 2018. The Company uses derivatives to mitigate the effect of fluctuations in some of its raw material and energy costs, foreign currencies, and, from time to time, interest rates. The Company purchases commodities such as recovered paper, metal, resins and energy, generally at market or at fixed prices that are established with the vendor as part of the purchase proc- ess for quantities expected to be consumed in the ordi- nary course of business. The Company may enter into fair value of acquired customer relationships, technology, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated pro- jections of the underlying business activity change com- pared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, commodity futures or swaps to manage the effect of price or the acquired asset could be impaired. fluctuations. The Company may use foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company’s consolidated financial statements. The Company is exposed to interest-rate fluctuations as a result of using debt as a source of financing for its oper- ations. The Company may from time to time use tradi- tional, unleveraged interest rate swaps to adjust its mix of fixed and variable rate debt to manage its exposure to interest rate movements. The Company records its derivatives as assets or liabilities on the balance sheet at fair value using published market prices or estimated values based on current price and/or rate quotes and discounted estimated cash flows. Changes in the fair value of derivatives are recognized either in net income or in other comprehensive income, depending on the designated purpose of the derivative. Amounts in accumulated other comprehensive income are reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. It is the Company’s policy not to speculate in derivative instruments. Business combinations The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The Company recognizes the identifiable assets acquired, the liabilities assumed, and any non- controlling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, con- tingent consideration and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. Reportable segments The Company identifies its reportable segments by evaluating the level of detail reviewed by the chief operat- ing decision maker, gross profit margins, nature of prod- ucts sold, nature of the production processes, type and class of customer, methods used to distribute products, and nature of the regulatory environment. Of these factors, the Company believes that the most significant in determining the aggregation of operating segments are the nature of the products and the type of customers served. Contingencies Pursuant to U.S. GAAP for accounting for con- tingencies, accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and that the amounts are reasonably estimable. Amounts so accrued are not discounted. 2. New accounting pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2019-12 “Income Taxes,” which provides for certain updates to reduce complexity in the accounting for income taxes, including the utilization of the incremental approach for intraperiod tax allocation, among others. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the implementation of ASU 2019-12 to have a material effect on its consolidated financial statements. In December 2018, the FASB issued ASU 2018-16 “Derivatives and Hedging: Inclusion of the Secured Over- night Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes,” which allows the use of the SOFR and OIS rate as benchmark rates after the Federal Reserve started pub- lishing such daily rates on April 3, 2018. The Company adopted the standard effective January 1, 2019 using the prospective basis. The adoption did not have a material effect on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-14 “Compensation-Retirement Benefits-Defined Benefit Plans-General,” which modifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 are effective for fiscal years beginning after December 15, 2020. The Company does not expect the implementation of ASU 2019-12 to have a material effect on its consolidated financial statements. The Company elected to early adopt Accounting Stan- dards Update (ASU) 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” as of January 1, 2018. The Company uses derivatives to mitigate the effect of fluctuations in some of its raw material and energy costs, foreign currencies, and, from time to time, interest rates. The Company purchases commodities such as recovered paper, metal, resins and energy, generally at market or at fixed prices that are established with the vendor as part of the purchase proc- ess for quantities expected to be consumed in the ordi- nary course of business. The Company may enter into commodity futures or swaps to manage the effect of price fluctuations. The Company may use foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company’s consolidated financial statements. The Company is exposed to interest-rate fluctuations as a result of using debt as a source of financing for its oper- ations. The Company may from time to time use tradi- tional, unleveraged interest rate swaps to adjust its mix of fixed and variable rate debt to manage its exposure to interest rate movements. The Company records its derivatives as assets or liabilities on the balance sheet at fair value using published market prices or estimated values based on current price and/or rate quotes and discounted estimated cash flows. Changes in the fair value of derivatives are recognized either in net income or in other comprehensive income, depending on the designated purpose of the derivative. Amounts in accumulated other comprehensive income are reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. It is the Company’s policy not to speculate in derivative instruments. Business combinations The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The Company recognizes the identifiable assets acquired, the liabilities assumed, and any non- controlling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, con- tingent consideration and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. Significant estimates and assumptions in estimating the fair value of acquired customer relationships, technology, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated pro- jections of the underlying business activity change com- pared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired. Reportable segments The Company identifies its reportable segments by evaluating the level of detail reviewed by the chief operat- ing decision maker, gross profit margins, nature of prod- ucts sold, nature of the production processes, type and class of customer, methods used to distribute products, and nature of the regulatory environment. Of these factors, the Company believes that the most significant in determining the aggregation of operating segments are the nature of the products and the type of customers served. Contingencies Pursuant to U.S. GAAP for accounting for con- tingencies, accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and that the amounts are reasonably estimable. Amounts so accrued are not discounted. 2. New accounting pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2019-12 “Income Taxes,” which provides for certain updates to reduce complexity in the accounting for income taxes, including the utilization of the incremental approach for intraperiod tax allocation, among others. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the implementation of ASU 2019-12 to have a material effect on its consolidated financial statements. In December 2018, the FASB issued ASU 2018-16 “Derivatives and Hedging: Inclusion of the Secured Over- night Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes,” which allows the use of the SOFR and OIS rate as benchmark rates after the Federal Reserve started pub- lishing such daily rates on April 3, 2018. The Company adopted the standard effective January 1, 2019 using the prospective basis. The adoption did not have a material effect on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-14 “Compensation-Retirement Benefits-Defined Benefit Plans-General,” which modifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in ASU 2018-14 are effective for fiscal years beginning after December 15, 2020. The Company does not expect the implementation of ASU 2019-12 to have a material effect on its consolidated financial statements. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-9 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-9 In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The measurement of expected credit losses should be based on relevant information about past events, including histor- ical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. The Company will adopt this standard using a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings of approximately $200 as of January 1, 2020. The Company does not expect the implementation of ASU 2016-13 to have a material effect on its con- solidated financial statements. 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 requir- ing disclosure of key information about leasing arrange- ments 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 proc- esses, accounting systems, and internal controls to ensure the Company’s compliance with reporting and disclosure requirements of the new standard. The Com- pany elected the package of practical expedients permit- ted under the transition guidance and, as also provided for under the standard, has made an accounting policy elec- tion to exclude from the balance sheet leases with a term of 12 months or less. The Company also elected the hind- sight practical expedient to determine the reasonably cer- tain 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 ini- tially 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 con- solidated 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. Other than the pronouncements discussed above, there have been no other newly issued nor newly appli- cable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at December 31, 2019, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 3. Acquisitions and dispositions Acquisitions The Company completed two acquisitions during 2019 at a net cash cost of $297,926. On December 31, 2019, the Company completed the acquisition of Thermoform Engineered Quality, LLC, and Plastique Holdings, LTD, (together “TEQ”), for $187,292, net of cash acquired. The operations acquired consist of three thermoforming and extrusion facilities in the United States along with a thermoforming operation in the United Kingdom and ther- moforming and molded-fiber manufacturing in Poland, which together employ approximately 500 associates. The acquisition of TEQ provides a strong platform to further expand Sonoco’s growing healthcare packaging business. Final consideration is subject to a post-closing adjustment for the change in working capital to the date of closing, which is expected to be completed by the end of the first quarter of 2020. The acquisition was financed using short- term credit facilities. On August 9, 2019, the Company completed the acquisition of Corenso Holdings America, Inc. (“Corenso”) for $110,634, net of cash acquired. Corenso is a leading manufacturer of uncoated recycled paperboard (URB) and high-performance cores used in the paper, packaging films, tape, and specialty industries. Corenso operates a 108,000-ton per year URB mill and core converting facility in Wisconsin Rapids, Wisconsin, as well as a core convert- ing facility in Richmond, Virginia, expanding the Compa- ny’s ability to produce a wide variety of sustainable coreboard grades. The acquisition was financed using available cash and short-term borrowings. The preliminary fair values of the assets acquired and liabilities assumed in connection with the TEQ and Cor- enso acquisitions for the year ended December 31, 2019 are as follows: Trade accounts receivable Inventories Property, plant and equipment Goodwill Other intangible assets Payable to suppliers Other net tangible assets/ (liabilities) Deferred income taxes, net Net assets TEQ Corenso $ 11,781 4,262 42,005 75,595 56,170 (4,965) $ 8,673 8,707 36,928 43,427 29,170 (5,963) 3,243 (799) 405 (10,713) $187,292 $110,634 The amount of goodwill expected to be deductible for income tax purposes is $58,544 for TEQ and $0 for Cor- enso. Goodwill for TEQ and Corenso is comprised of the assembled workforce and increased access to certain markets. As the acquisition of TEQ was completed on December 31, 2019, none of its results are reflected in the Company’s Consolidated Statement of income for the year ended December 31, 2019. Beginning in the first quarter of 2020, TEQ’s results will be reflected in the Company’s Consumer Packaging segment. Corenso’s financial results from August 9, 2019 to December 31, 2019 are included in the Company’s Paper and Industrial Converted Products segment. The allocation of the purchase price of Corenso and TEQ to the tangible and intangible assets acquired and In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The measurement of expected credit losses should be based on relevant information about past events, including histor- ical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. The Company will adopt this standard using a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings of approximately $200 as of January 1, 2020. The Company does not expect the implementation of ASU 2016-13 to have a material effect on its con- solidated financial statements. 3. Acquisitions and dispositions Acquisitions The Company completed two acquisitions during 2019 at a net cash cost of $297,926. On December 31, 2019, the Company completed the acquisition of Thermoform Engineered Quality, LLC, and Plastique Holdings, LTD, (together “TEQ”), for $187,292, net of cash acquired. The operations acquired consist of three thermoforming and extrusion facilities in the United States along with a thermoforming operation in the United Kingdom and ther- moforming and molded-fiber manufacturing in Poland, which together employ approximately 500 associates. The acquisition of TEQ provides a strong platform to further expand Sonoco’s growing healthcare packaging business. Final consideration is subject to a post-closing adjustment for the change in working capital to the date of closing, which is expected to be completed by the end of the first In January 2016, the Financial Accounting Standards quarter of 2020. The acquisition was financed using short- 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 requir- ing disclosure of key information about leasing arrange- ments 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 proc- esses, accounting systems, and internal controls to ensure the Company’s compliance with reporting and disclosure requirements of the new standard. The Com- pany elected the package of practical expedients permit- ted under the transition guidance and, as also provided for under the standard, has made an accounting policy elec- tion to exclude from the balance sheet leases with a term of 12 months or less. The Company also elected the hind- sight practical expedient to determine the reasonably cer- tain 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 ini- tially 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 con- solidated 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. Other than the pronouncements discussed above, there have been no other newly issued nor newly appli- cable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at December 31, 2019, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. term credit facilities. On August 9, 2019, the Company completed the acquisition of Corenso Holdings America, Inc. (“Corenso”) for $110,634, net of cash acquired. Corenso is a leading manufacturer of uncoated recycled paperboard (URB) and high-performance cores used in the paper, packaging films, tape, and specialty industries. Corenso operates a 108,000-ton per year URB mill and core converting facility in Wisconsin Rapids, Wisconsin, as well as a core convert- ing facility in Richmond, Virginia, expanding the Compa- ny’s ability to produce a wide variety of sustainable coreboard grades. The acquisition was financed using available cash and short-term borrowings. The preliminary fair values of the assets acquired and liabilities assumed in connection with the TEQ and Cor- enso acquisitions for the year ended December 31, 2019 are as follows: Trade accounts receivable $ 11,781 $ Inventories Goodwill Property, plant and equipment Other intangible assets Payable to suppliers Other net tangible assets/ (liabilities) Deferred income taxes, net Net assets TEQ Corenso 4,262 42,005 75,595 56,170 (4,965) 8,673 8,707 36,928 43,427 29,170 (5,963) 3,243 (799) 405 (10,713) $187,292 $110,634 The amount of goodwill expected to be deductible for income tax purposes is $58,544 for TEQ and $0 for Cor- enso. Goodwill for TEQ and Corenso is comprised of the assembled workforce and increased access to certain markets. As the acquisition of TEQ was completed on December 31, 2019, none of its results are reflected in the Company’s Consolidated Statement of income for the year ended December 31, 2019. Beginning in the first quarter of 2020, TEQ’s results will be reflected in the Company’s Consumer Packaging segment. Corenso’s financial results from August 9, 2019 to December 31, 2019 are included in the Company’s Paper and Industrial Converted Products segment. The allocation of the purchase price of Corenso and TEQ to the tangible and intangible assets acquired and F-10 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-10 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K liabilities assumed was based on the Company’s prelimi- nary estimates of their fair value, relying on information currently available. Management is continuing to finalize its valuations of certain assets and liabilities listed in the table above, and expects to complete its valuations within one year of the date of the respective acquisitions. The Company does not believe that the results of the business acquired in 2019 were material to the years Consolidated Balance Sheet at December 31, 2019. High- land manufactures thermoformed plastic packaging for fresh produce and dairy products from a single production facility in Plant City, Florida, providing total packaging sol- utions for customers that include sophisticated engineered containers, flexographic printed labels, and inventory management through distribution warehouses in the Southeast and West Coast of the United States. presented, individually or in the aggregate, and are there- During the year ended December 31, 2019, the Com- fore not subject to the supplemental pro-forma information required by ASC 805. Accordingly, this information is not presented herein. The Company completed three acquisitions during 2018 at a net cash cost of $278,777. 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”) for total consideration of $134,847, including net cash pay- ments of $127,782 and debt assumed of $7,065. Final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 for an additional cash payment to the seller of $84. The Conitex Sonoco joint venture was formed in 1998 with Texpack, a Spanish- based global provider of paperboard and paper-based packaging products. Conitex Sonoco produces uncoated recycled paperboard and tubes and cones for the global spun yarn industry, as well as adhesives, flexible inter- mediate bulk containers and corrugated pallets. Conitex Sonoco has approximately 1,250 employees across 13 manufacturing locations in 10 countries (principally in Asia), including four paper mills and seven cone and tube converting operations and two other production facilities. Also on October 1, 2018, the Company acquired a rigid paper facility in Spain (“Compositub”) from Texpack Group Holdings B.V. for a cash payment of $9,956. Final consid- eration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 for an additional cash payment to the seller of $371. Immediately prior to the acquisition, the fair value of the Company’s 30 percent interest in Conitex Sonoco was determined to be $52,543 with a carrying value of $57,327. As the carrying value of the investment exceeded its acquisition-date fair value, the investment was written down to fair value resulting in a charge of $4,784 in “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income for the year ended December 31, 2018. Additionally, foreign currency translation losses related to the Company’s investment in Conitex Sonoco were reclassified out of accumulated other comprehensive loss resulting in a charge of $897 in “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income for the year ended December 31, 2018. On April 12, 2018, the Company completed the acquis- ition of Highland Packaging Solutions (“Highland”). Total consideration for this acquisition was $148,539, including net cash paid of $141,039, along with a contingent pur- chase liability of $7,500 payable in two annual installments if certain sales metrics are achieved. The first year’s metric was met and the Company paid the first installment of $5,000 in 2019. The second 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 pany finalized its valuations of the assets acquired and liabilities assumed in acquisitions completed during 2018. As a result, the following measurement period adjustments were made to the previously disclosed provisional fair values of assets and liabilities acquired and are as follows: Trade accounts receivable Inventories Property, plant and equipment Goodwill Other intangible assets Accrued expenses and other Other net tangible assets/(liabilities) Additional cash consideration Conitex Sonoco Compositub Highland $ (77) — $ 203 50 $ — — (199) 2,246 (1,026) (566) 1,895 (1,895) 300 1,888 (1,782) (138) (404) (40) — — — $ 84 $ 371 $ — Factors comprising the goodwill for Conitex Sonoco and Compositub, of which $2,000 and $1,965, respectively, is expected to be deductible for income tax purposes, include increased access to certain markets as well as the value of the assembled workforce. The financial results of Conitex Sonoco and Compositub are included in the Company’s Paper and Industrial Converted Products segment and Consumer Packaging segment, respectively. All of the goodwill for Highland is expected to be deduc- tible for income tax purposes, and is comprised of increased access to certain markets as well as the value of the assembled workforce. Highland’s financial results are included in the Company’s Consumer Packaging segment and the business operates within the Company’s global plastics division. The Company does not believe that the results of the businesses acquired in 2018 were material to the years presented, individually or in the aggregate, and are there- fore not subject to the supplemental pro-forma information required by ASC 805. Accordingly, this information is not presented herein. The Company completed two acquisitions during 2017 at a net cash cost of $383,725. On July 24, 2017, the Company completed the acquisition of Clear Lam Pack- aging, Inc. (“Clear Lam”) for $164,951, net of cash acquired. Final consideration was subject to an adjust- ment for working capital, which resulted in cash of $1,600 being returned to the Company in 2018. Clear Lam manu- factures high barrier flexible and forming films used to package a variety of products for consumer packaged goods companies, retailers and other industrial manu- facturers, with a focus on structures used for perishable liabilities assumed was based on the Company’s prelimi- nary estimates of their fair value, relying on information currently available. Management is continuing to finalize its valuations of certain assets and liabilities listed in the table above, and expects to complete its valuations within one year of the date of the respective acquisitions. The Company does not believe that the results of the business acquired in 2019 were material to the years presented, individually or in the aggregate, and are there- fore not subject to the supplemental pro-forma information required by ASC 805. Accordingly, this information is not presented herein. The Company completed three acquisitions during 2018 at a net cash cost of $278,777. 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”) for total consideration of $134,847, including net cash pay- ments of $127,782 and debt assumed of $7,065. Final consideration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 for an additional cash payment to the seller of $84. The Conitex Sonoco joint venture was formed in 1998 with Texpack, a Spanish- based global provider of paperboard and paper-based packaging products. Conitex Sonoco produces uncoated recycled paperboard and tubes and cones for the global spun yarn industry, as well as adhesives, flexible inter- mediate bulk containers and corrugated pallets. Conitex Sonoco has approximately 1,250 employees across 13 manufacturing locations in 10 countries (principally in Asia), including four paper mills and seven cone and tube converting operations and two other production facilities. Also on October 1, 2018, the Company acquired a rigid paper facility in Spain (“Compositub”) from Texpack Group Holdings B.V. for a cash payment of $9,956. Final consid- eration was subject to a post-closing adjustment for the change in working capital to the date of closing. This adjustment was settled in February 2019 for an additional cash payment to the seller of $371. Immediately prior to the acquisition, the fair value of the Company’s 30 percent interest in Conitex Sonoco was determined to be $52,543 with a carrying value of $57,327. As the carrying value of the investment exceeded its acquisition-date fair value, the investment was written down to fair value resulting in a charge of $4,784 in “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income for the year ended December 31, 2018. Additionally, foreign currency translation losses related to the Company’s investment in Conitex Sonoco were reclassified out of accumulated other comprehensive loss resulting in a charge of $897 in “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income for the year ended December 31, 2018. On April 12, 2018, the Company completed the acquis- ition of Highland Packaging Solutions (“Highland”). Total consideration for this acquisition was $148,539, including net cash paid of $141,039, along with a contingent pur- chase liability of $7,500 payable in two annual installments if certain sales metrics are achieved. The first year’s metric was met and the Company paid the first installment of $5,000 in 2019. The second 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 Consolidated Balance Sheet at December 31, 2019. High- land manufactures thermoformed plastic packaging for fresh produce and dairy products from a single production facility in Plant City, Florida, providing total packaging sol- utions for customers that include sophisticated engineered containers, flexographic printed labels, and inventory management through distribution warehouses in the Southeast and West Coast of the United States. During the year ended December 31, 2019, the Com- pany finalized its valuations of the assets acquired and liabilities assumed in acquisitions completed during 2018. As a result, the following measurement period adjustments were made to the previously disclosed provisional fair values of assets and liabilities acquired and are as follows: Trade accounts receivable Inventories Property, plant and equipment Goodwill Other intangible assets Accrued expenses and other Other net tangible assets/(liabilities) Additional cash consideration Conitex Sonoco Compositub Highland $ (77) — $ 203 50 $ — — (199) 2,246 (1,026) (566) 1,895 (1,895) 300 1,888 (1,782) (138) (404) (40) — — — $ 84 $ 371 $ — Factors comprising the goodwill for Conitex Sonoco and Compositub, of which $2,000 and $1,965, respectively, is expected to be deductible for income tax purposes, include increased access to certain markets as well as the value of the assembled workforce. The financial results of Conitex Sonoco and Compositub are included in the Company’s Paper and Industrial Converted Products segment and Consumer Packaging segment, respectively. All of the goodwill for Highland is expected to be deduc- tible for income tax purposes, and is comprised of increased access to certain markets as well as the value of the assembled workforce. Highland’s financial results are included in the Company’s Consumer Packaging segment and the business operates within the Company’s global plastics division. The Company does not believe that the results of the businesses acquired in 2018 were material to the years presented, individually or in the aggregate, and are there- fore not subject to the supplemental pro-forma information required by ASC 805. Accordingly, this information is not presented herein. The Company completed two acquisitions during 2017 at a net cash cost of $383,725. On July 24, 2017, the Company completed the acquisition of Clear Lam Pack- aging, Inc. (“Clear Lam”) for $164,951, net of cash acquired. Final consideration was subject to an adjust- ment for working capital, which resulted in cash of $1,600 being returned to the Company in 2018. Clear Lam manu- factures high barrier flexible and forming films used to package a variety of products for consumer packaged goods companies, retailers and other industrial manu- facturers, with a focus on structures used for perishable S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-11 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-11 foods. It has production facilities in Elk Grove Village, Illi- nois, and Nanjing, China. Clear Lam’s financial results are included in the Company’s Consumer Packaging seg- ment. On March 14, 2017, the Company completed the acquisition of Packaging Holdings, Inc. and subsidiaries, including Peninsula Packaging LLC (“Packaging Holdings”), for $218,774, net of cash acquired. Packaging Holdings manufactures thermoformed packaging for a wide range of whole fresh fruits, pre-cut fruits and pro- duce, prepared salad mixes, as well as baked goods in retail supermarkets from five manufacturing facilities, including four in the United States and one in Mex- ico. Packaging Holding’s financial results are included in the Company’s Consumer Packaging segment and the business operates as the Peninsula brand of thermo- formed packaging products within the Company’s global plastics division. Although neither of the acquisitions completed during 2017 were considered individually material, they were considered material on a combined basis. The following table presents the Company’s estimated pro forma con- solidated results for 2017, assuming both acquisitions had occurred January 1, 2016. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been completed as of the beginning of 2016, nor are they necessarily indicative of future consolidated results. Consolidated pro forma supplemental information Year ended December 31, 2017 Packaging Holdings and Clear Lam Net sales Net income attributable to Sonoco Earnings per share: Pro forma basic Pro forma diluted (unaudited) $5,143,066 $ 178,205 $ $ 1.78 1.77 The pro forma information above does not project the Company’s expected results of any future period and gives no effect for any future synergistic benefits that may result from consolidating these subsidiaries or costs from integrating their operations with those of the Company. Pro forma information for 2017 includes adjustments to depreciation, amortization, interest expense, and income taxes. Acquisition-related costs of $4,345 and non-recurring expenses related to fair value adjustments to acquisition-date inventory of $5,750 were recognized in 2017 in connection with the acquisitions of Packaging Holdings and Clear Lam. These costs are excluded from 2017 pro forma net income. The following table presents the aggregate, unaudited financial results for Packaging Holdings and Clear Lam from their respective dates of acquisition: Packaging Holdings and Clear Lam Post-Acquisition Year ended December 31, 2017 Actual net sales Actual net income $215,227 3,886 $ Acquisition-related costs of $8,842, $14,446 and $13,790 were incurred in 2019, 2018 and 2017, respectively. These costs, consisting primarily of legal and professional fees, are included in “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. Acquisition-related costs incurred in 2018 also include the previously discussed charge related to the acquisition-date fair value remeasurement of the Company’s 30 percent investment in Conitex Sonoco and the foreign currency translation losses related to this investment. The Company has accounted for these acquisitions as business combinations under the acquisition method of accounting, in accordance with the business combinations subtopic of the Accounting Standards Codification and, accordingly, has included their results of operations in the Company’s consolidated statements of net income from the respective dates of acquisition. Dispositions There were no dispositions during the years ended 2019, 2018 or 2017. 4. Restructuring and asset impairment Due to its geographic footprint and the cost- competitive nature of its businesses, the Company is constantly seeking the most cost-effective means and structure to serve its customers and to respond to funda- mental changes in its markets. As such, restructuring costs have been and are expected to be a recurring component of the Company’s operating costs. The amount of these costs can vary significantly from year to year depending upon the scope and location of the restructuring activities. Following are the total restructuring and asset impair- ment charges, net of adjustments, recognized during the periods presented: Year ended December 31, 2019 2018 2017 $44,819 15,061 $40,071 $19,834 — 18,585 Restructuring and restructuring-related asset impairment charges Other asset impairments Restructuring/Asset impairment charges $59,880 $40,071 $38,419 “Restructuring and restructuring-related asset impair- ment charges” and “Other asset impairments” are included in “Restructuring/Asset impairment charges” in the Consolidated Statements of Income. The Company expects to recognize future additional costs totaling approximately $2,800 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 2020. foods. It has production facilities in Elk Grove Village, Illi- nois, and Nanjing, China. Clear Lam’s financial results are included in the Company’s Consumer Packaging seg- ment. On March 14, 2017, the Company completed the acquisition of Packaging Holdings, Inc. and subsidiaries, including Peninsula Packaging LLC (“Packaging Holdings”), for $218,774, net of cash acquired. Packaging Holdings manufactures thermoformed packaging for a wide range of whole fresh fruits, pre-cut fruits and pro- duce, prepared salad mixes, as well as baked goods in retail supermarkets from five manufacturing facilities, including four in the United States and one in Mex- ico. Packaging Holding’s financial results are included in the Company’s Consumer Packaging segment and the business operates as the Peninsula brand of thermo- formed packaging products within the Company’s global plastics division. Although neither of the acquisitions completed during 2017 were considered individually material, they were considered material on a combined basis. The following table presents the Company’s estimated pro forma con- solidated results for 2017, assuming both acquisitions had occurred January 1, 2016. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had been completed as of the beginning of 2016, nor are they necessarily indicative of future consolidated results. Consolidated pro forma supplemental information Packaging Holdings and Clear Lam Net sales Net income attributable to Sonoco Earnings per share: Pro forma basic Pro forma diluted Year ended (unaudited) $5,143,066 $ 178,205 $ $ 1.78 1.77 The pro forma information above does not project the Company’s expected results of any future period and gives no effect for any future synergistic benefits that may result from consolidating these subsidiaries or costs from integrating their operations with those of the Company. Pro forma information for 2017 includes adjustments to depreciation, amortization, interest expense, and income taxes. Acquisition-related costs of $4,345 and non-recurring expenses related to fair value adjustments to acquisition-date inventory of $5,750 were recognized in 2017 in connection with the acquisitions of Packaging Holdings and Clear Lam. These costs are excluded from 2017 pro forma net income. The following table presents the aggregate, unaudited financial results for Packaging Holdings and Clear Lam from their respective dates of acquisition: Packaging Holdings and Clear Lam Post-Acquisition Year ended December 31, 2017 Actual net sales Actual net income $215,227 $ 3,886 Acquisition-related costs of $8,842, $14,446 and $13,790 were incurred in 2019, 2018 and 2017, respectively. These costs, consisting primarily of legal and professional fees, are included in “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. Acquisition-related costs incurred in 2018 also include the previously discussed charge related to the acquisition-date fair value remeasurement of the Company’s 30 percent investment in Conitex Sonoco and the foreign currency translation losses related to this investment. The Company has accounted for these acquisitions as business combinations under the acquisition method of accounting, in accordance with the business combinations subtopic of the Accounting Standards Codification and, accordingly, has included their results of operations in the Company’s consolidated statements of net income from the respective dates of acquisition. Dispositions 2019, 2018 or 2017. There were no dispositions during the years ended 4. Restructuring and asset impairment Due to its geographic footprint and the cost- competitive nature of its businesses, the Company is constantly seeking the most cost-effective means and structure to serve its customers and to respond to funda- mental changes in its markets. As such, restructuring costs have been and are expected to be a recurring component of the Company’s operating costs. The year depending upon the scope and location of the restructuring activities. Following are the total restructuring and asset impair- ment charges, net of adjustments, recognized during the periods presented: Year ended December 31, 2019 2018 2017 $44,819 15,061 $40,071 $19,834 — 18,585 Restructuring and restructuring-related asset impairment charges Other asset impairments Restructuring/Asset impairment charges $59,880 $40,071 $38,419 “Restructuring and restructuring-related asset impair- ment charges” and “Other asset impairments” are included in “Restructuring/Asset impairment charges” in the Consolidated Statements of Income. The Company expects to recognize future additional costs totaling approximately $2,800 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 2020. December 31, 2017 amount of these costs can vary significantly from year to F-12 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-12 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K The table below sets forth restructuring and The table below sets forth restructuring and The table below sets forth restructuring and The table below sets forth restructuring and restructuring-related asset impairment charges by type restructuring-related asset impairment charges by report- incurred: able segment: restructuring-related asset impairment charges by type incurred: restructuring-related asset impairment charges by report- able segment: termination benefits $24,864 $15,224 $12,684 Display and Packaging Severance and Asset impairment/ disposal of assets Other costs Total restructuring and restructuring-related asset impairment charges Year ended December 31, 2019 2018 2017 9,674 10,281 6,193 18,654 120 7,030 Consumer Packaging Paper and Industrial Converted Products Protective Solutions Corporate Total restructuring and restructuring-related 2019 Year ended December 31, 2017 2018 $ 6,751 $15,205 2,048 18,800 2,459 $34,850 4,927 519 2,064 4,301 1,532 233 7,410 3,162 463 $44,819 $40,071 $19,834 asset impairment charges $44,819 $40,071 $19,834 Year ended December 31, 2019 2018 2017 Severance and termination benefits $24,864 $15,224 $12,684 Asset impairment/ disposal of assets Other costs Total restructuring and restructuring-related asset impairment charges 9,674 10,281 6,193 18,654 120 7,030 $44,819 $40,071 $19,834 Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions Corporate Total restructuring and restructuring-related asset impairment charges Year ended December 31, 2019 $34,850 2,459 2018 $15,205 18,800 2017 $ 6,751 2,048 4,927 519 2,064 4,301 1,532 233 7,410 3,162 463 $44,819 $40,071 $19,834 The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” on the The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” on the Company’s Consolidated Balance Sheets: Company’s Consolidated Balance Sheets: Accrual activity Liability, December 31, 2017 2018 charges Cash (payments)/receipts Asset write downs/disposals Foreign currency translation Liability, December 31, 2018 2019 charges Cash (payments)/receipts Asset write downs/disposals Foreign currency translation Liability, December 31, 2019 Severance Asset and impairment/ termination benefits disposal of assets Other costs $ 5,982 15,224 (15,844) — (69) $ 5,293 24,864 (19,386) — (6) — $ 1,164 18,654 (17,541) Total $ 7,146 40,071 (6,819) — (32,759) (67) 2 — $ 2,279 10,281 (11,983) $ 7,572 44,819 (26,144) — (14,899) 9 15 $ $ 6,193 26,566 (32,759) — 9,674 5,225 (14,899) — Accrual activity Liability, December 31, 2017 2018 charges Cash (payments)/receipts Asset write downs/disposals Foreign currency translation Liability, December 31, 2018 2019 charges Cash (payments)/receipts Asset write downs/disposals Foreign currency translation Severance and termination benefits $ 5,982 15,224 (15,844) — (69) $ 5,293 24,864 (19,386) — (6) Asset impairment/ disposal of assets $ Other costs — $ 1,164 18,654 (17,541) 6,193 26,566 (32,759) — 9,674 5,225 (14,899) — $ — $ 2,279 10,281 (11,983) Total $ 7,146 40,071 (6,819) — (32,759) (67) 2 $ 7,572 44,819 (26,144) — (14,899) 9 15 $ 10,765 $ — $ 592 $ 11,357 Liability, December 31, 2019 $ 10,765 $ — $ 592 $ 11,357 The Company expects to pay the majority of the remain- ing restructuring reserves by the end of 2020 using cash generated from operations. During 2019, the Company announced the elimination of a forming film production line at a flexible packaging value of $431. Protective Solutions facility in Connecticut for which the Company received cash proceeds of $929, released an environmental reserve of $675, the liability for which was assumed by the buyer, and wrote off assets with a book facility in Illinois, and initiated the closure of a composite “Other costs” in 2019 consist primarily of costs related can and injection molding facility in Germany, a composite to plant closures including equipment removal, utilities, can plant in Malaysia, a molded plastics plant in the United plant security, property taxes and insurance. States (all part of the Consumer Packaging segment), and three tube and core plants—one in the United Kingdom, one in Norway, and one in Estonia (all part of the Paper and Industrial Converted Products segment). Restructur- ing actions in the Protective Solutions segment included charges associated with the exit of a protective packaging facility in Texas. In addition the Company continued to realign its cost structure, resulting in the elimination of approximately 223 positions. “Asset Impairment/Disposal of Assets” recognized in 2019 consist primarily of the following asset impairment charges: $4,124 from the elimination of a forming film line at a flexible packaging facility in Illinois; $3,663 from the closure of a composite can and injection molding facility in During 2018, the Company initiated the closures 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), and five tube and core plants — one in Alabama, one in Canada, one in Indonesia, one in Rus- sia, 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 Pack- aging segment included charges associated with exiting a single-customer contract at a packaging center in Atlanta, Georgia. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately Germany; $909 from the closure of a thermoformed pack- 120 positions. aging plant in California; $325 from the closure of a composite can plant in Malaysia; and $1,827 from various other restructuring actions during 2019. Partially offsetting these losses was a $1,173 gain from the sale of a vacant Included in “Asset Impairment/Disposal of Assets” above in 2018 are losses totaling $4,516 from the dis- position of certain assets as a result of exiting a single- customer contract associated with a packaging center in Atlanta, Georgia. The Company received proceeds of The Company expects to pay the majority of the remain- ing restructuring reserves by the end of 2020 using cash generated from operations. During 2019, the Company announced the elimination of a forming film production line at a flexible packaging facility in Illinois, and initiated the closure of a composite can and injection molding facility in Germany, a composite can plant in Malaysia, a molded plastics plant in the United States (all part of the Consumer Packaging segment), and three tube and core plants—one in the United Kingdom, one in Norway, and one in Estonia (all part of the Paper and Industrial Converted Products segment). Restructur- ing actions in the Protective Solutions segment included charges associated with the exit of a protective packaging facility in Texas. In addition the Company continued to realign its cost structure, resulting in the elimination of approximately 223 positions. “Asset Impairment/Disposal of Assets” recognized in 2019 consist primarily of the following asset impairment charges: $4,124 from the elimination of a forming film line at a flexible packaging facility in Illinois; $3,663 from the closure of a composite can and injection molding facility in Germany; $909 from the closure of a thermoformed pack- aging plant in California; $325 from the closure of a composite can plant in Malaysia; and $1,827 from various other restructuring actions during 2019. Partially offsetting these losses was a $1,173 gain from the sale of a vacant Protective Solutions facility in Connecticut for which the Company received cash proceeds of $929, released an environmental reserve of $675, the liability for which was assumed by the buyer, and wrote off assets with a book value of $431. “Other costs” in 2019 consist primarily of costs related to plant closures including equipment removal, utilities, plant security, property taxes and insurance. During 2018, the Company initiated the closures 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), and five tube and core plants — one in Alabama, one in Canada, one in Indonesia, one in Rus- sia, 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 Pack- aging segment included charges associated with exiting a single-customer contract at a packaging center in Atlanta, Georgia. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately 120 positions. Included in “Asset Impairment/Disposal of Assets” above in 2018 are losses totaling $4,516 from the dis- position of certain assets as a result of exiting a single- customer contract associated with a packaging center in Atlanta, Georgia. The Company received proceeds of S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-13 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-13 $22,163 in conjunction with the sale of fixed assets with a net book value of $24,869, and wrote off inventory with a book value of $1,810. Also included in “Asset Impairment/ Disposal of Assets” are net losses totaling $1,677 from various other restructuring actions during 2018. “Other Costs” in 2018 include a contract termination fee of $9,600 relating to exiting the single-customer con- tract, a one-time building lease contract termination fee of $1,931 relating to the closure of a packaging services center in Mexico, as well as costs related to plant closures including equipment removal, utilities, plant security, prop- erty taxes and insurance. Other asset impairments During the Company’s 2019 long-lived asset impair- ment testing, management concluded that certain assets within the temperature-controlled shipping solution busi- ness associated with the ThermoSafe division, part of the Protective Packaging segment, were impaired as the value of the projected cash flows from these assets was no longer sufficient to recover their carrying values. As a result, the Company recognized a pretax asset impairment charge of $10,099. Also during this testing, the Company impaired the assets and inventory associated with a plas- tic can business line in the United States (part of the Consumer Packaging segment) due to the inability to generate sufficient revenues associated with this product offering. As a result, the Company recognized an asset impairment charge of $4,054. In addition, the single cus- tomer served using certain proprietary technology in our flexible packaging business ended its relationship with Sonoco in 2019, resulting in the recognition of a pretax asset impairment charge for the remaining net book value of fixed assets and intangible assets totaling $908. During the fourth quarter of 2017, the Company recog- nized the impairment of a power generating facility at its Hartsville manufacturing complex. The facility, which is part of the Paper and Industrial Converted Products segment, was determined to have been rendered obsolete by the Company’s new biomass facility and was closed during the first quarter of 2018. As a result, the Company recognized a pretax asset impairment charge of $17,822 in December 2017. Also in 2017, as a result of the continued devaluation of the Venezuelan Bolivar, the Company recognized impair- ment charges against inventories and certain long-term nonmonetary assets totaling $338. The assets were deemed to be impaired as the U.S. dollar value of the projected cash flows from these assets was no longer sufficient to recover their U.S. dollar carrying values. In addition, the Company has recognized foreign exchange remeasurement losses on net monetary assets of $425. These asset impairment charges are included in “Restructuring/Asset impairment charges” in the Compa- ny’s Consolidated Statements of Income. 5. Book overdrafts and cash pooling At December 31, 2019 and 2018, outstanding checks totaling $8,796 and $13,205, respectively, were included in “Payable to suppliers” on the Company’s Consolidated Balance Sheets. In addition, outstanding payroll checks of $38 and $114 as of December 31, 2019 and 2018, respectively, were included in “Accrued wages and other compensation” on the Company’s Consolidated Balance Sheets. The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Com- pany and its participating subsidiaries may maintain either cash deposit or borrowing positions through local cur- rency 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 inter- est terms on both. The Company’s Consolidated Balance Sheets reflect a net cash deposit under this pooling arrangement of $4,409 and $2,562 as of December 31, 2019 and 2018, respectively. 6. Property, plant and equipment Details of the Company’s property, plant and equip- ment at December 31 are as follows: Land Timber resources Buildings Machinery and equipment Construction in progress Accumulated depreciation and depletion Property, plant and equipment, net $ 2019 114,443 42,338 560,334 3,077,500 143,021 $ 2018 110,698 41,862 535,433 2,977,156 159,661 3,937,636 3,824,810 (2,650,794) (2,590,989) $ 1,286,842 $ 1,233,821 Estimated costs for completion of capital additions under construction totaled approximately $102,836 at December 31, 2019. Depreciation and depletion expense amounted to $186,540 in 2019, $188,533 in 2018 and $178,049 in 2017. 7. Leases The Company routinely enters into leasing arrange- ments for real estate (including manufacturing facilities, office space, warehouses, and packaging centers), trans- portation 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 sig- nificant residual value guarantees or restrictive covenants. As the implicit rate in the Company’s leases is not read- ily 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.” $22,163 in conjunction with the sale of fixed assets with a net book value of $24,869, and wrote off inventory with a book value of $1,810. Also included in “Asset Impairment/ Disposal of Assets” are net losses totaling $1,677 from various other restructuring actions during 2018. “Other Costs” in 2018 include a contract termination fee of $9,600 relating to exiting the single-customer con- tract, a one-time building lease contract termination fee of $1,931 relating to the closure of a packaging services center in Mexico, as well as costs related to plant closures including equipment removal, utilities, plant security, prop- erty taxes and insurance. Other asset impairments During the Company’s 2019 long-lived asset impair- ment testing, management concluded that certain assets within the temperature-controlled shipping solution busi- ness associated with the ThermoSafe division, part of the Protective Packaging segment, were impaired as the value of the projected cash flows from these assets was no longer sufficient to recover their carrying values. As a result, the Company recognized a pretax asset impairment charge of $10,099. Also during this testing, the Company impaired the assets and inventory associated with a plas- tic can business line in the United States (part of the Consumer Packaging segment) due to the inability to generate sufficient revenues associated with this product offering. As a result, the Company recognized an asset impairment charge of $4,054. In addition, the single cus- tomer served using certain proprietary technology in our flexible packaging business ended its relationship with Sonoco in 2019, resulting in the recognition of a pretax asset impairment charge for the remaining net book value of fixed assets and intangible assets totaling $908. During the fourth quarter of 2017, the Company recog- nized the impairment of a power generating facility at its Hartsville manufacturing complex. The facility, which is part of the Paper and Industrial Converted Products segment, was determined to have been rendered obsolete by the Company’s new biomass facility and was closed during the first quarter of 2018. As a result, the Company recognized a pretax asset impairment charge of $17,822 in December 2017. Also in 2017, as a result of the continued devaluation of the Venezuelan Bolivar, the Company recognized impair- ment charges against inventories and certain long-term nonmonetary assets totaling $338. The assets were deemed to be impaired as the U.S. dollar value of the projected cash flows from these assets was no longer sufficient to recover their U.S. dollar carrying values. In addition, the Company has recognized foreign exchange remeasurement losses on net monetary assets of $425. These asset impairment charges are included in “Restructuring/Asset impairment charges” in the Compa- ny’s Consolidated Statements of Income. 5. Book overdrafts and cash pooling At December 31, 2019 and 2018, outstanding checks totaling $8,796 and $13,205, respectively, were included in “Payable to suppliers” on the Company’s Consolidated Balance Sheets. In addition, outstanding payroll checks of $38 and $114 as of December 31, 2019 and 2018, respectively, were included in “Accrued wages and other compensation” on the Company’s Consolidated Balance Sheets. The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, the Com- pany and its participating subsidiaries may maintain either cash deposit or borrowing positions through local cur- rency 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 inter- est terms on both. The Company’s Consolidated Balance Sheets reflect a net cash deposit under this pooling arrangement of $4,409 and $2,562 as of December 31, 2019 and 2018, respectively. 6. Property, plant and equipment Details of the Company’s property, plant and equip- ment at December 31 are as follows: Land Timber resources Buildings Machinery and equipment Construction in progress Accumulated depreciation and depletion Property, plant and equipment, net 2019 2018 $ 114,443 42,338 560,334 3,077,500 143,021 $ 110,698 41,862 535,433 2,977,156 159,661 3,937,636 3,824,810 (2,650,794) (2,590,989) $ 1,286,842 $ 1,233,821 Estimated costs for completion of capital additions under construction totaled approximately $102,836 at December 31, 2019. Depreciation and depletion expense amounted to $186,540 in 2019, $188,533 in 2018 and $178,049 in 2017. 7. Leases The Company routinely enters into leasing arrange- ments for real estate (including manufacturing facilities, office space, warehouses, and packaging centers), trans- portation 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 sig- nificant residual value guarantees or restrictive covenants. As the implicit rate in the Company’s leases is not read- ily 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.” F-14 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-14 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K The following table sets forth the balance sheet location and values of the Company’s lease assets and lease The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities at December 31, 2019: liabilities at December 31, 2019: Balance sheet location December 31, 2019 Classification Balance sheet location December 31, 2019 Current operating lease liabilities Current finance lease liabilities Accrued expenses and other Notes payable and current portion Right of use asset—operating leases Other assets of debt Portion Noncurrent operating lease liabilities Long-term debt, net of current $298,393 34,858 $333,251 $ 54,048 10,803 $ 64,851 $253,992 22,274 $276,266 $341,117 Lease assets Operating lease assets Finance lease assets Total lease assets Lease liabilities Current operating lease liabilities Current finance lease liabilities Total current lease liabilities Noncurrent operating lease liabilities Noncurrent finance lease liabilities Total noncurrent lease liabilities Total lease liabilities Right of use asset—operating leases Other assets Accrued expenses and other Notes payable and current portion of debt Noncurrent operating lease liabilities Long-term debt, net of current Portion $298,393 34,858 $333,251 $ 54,048 10,803 $ 64,851 $253,992 22,274 $276,266 $341,117 Classification Lease assets Operating lease assets Finance lease assets Total lease assets Lease liabilities Total current lease liabilities Noncurrent operating lease liabilities Noncurrent finance lease liabilities Total noncurrent lease liabilities Total lease liabilities As of December 31, 2019, the Company has entered Included in depreciation and amortization. into additional leases that have not yet commenced. The Included in interest expense. (b) (c) associated contracts include payments over the (d) Also includes short term lease costs, which are deemed immaterial. In compliance with ASC 842, the Company must pro- vide the prior year disclosures required under the previous lease guidance (ASC 840) for comparative periods pre- sented herein. Rental expense under operating leases for the year ended December 31, 2018 was $80,300 and $68,900 for the year ended December 31, 2017. The following table sets forth the five-year maturity schedule of the Company’s lease liabilities as of December 31, 2019: Operating leases Finance leases Total $ 55,681 $11,124 49,474 43,418 39,831 33,424 9,258 7,322 4,569 2,355 $ 66,805 58,732 50,740 44,400 35,779 167,463 227 167,690 As of December 31, 2019, the Company has entered into additional leases that have not yet commenced. The associated contracts include payments over the respective lease terms totaling $6,200, which are not reflected in the Company’s liabilities recorded as of December 31, 2019. These leases should commence during fiscal year 2020 with lease terms of approximately 12 years. 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 year ended December 31, 2019: payments $389,291 $34,855 $424,146 Lease cost Twelve months ended December 31, 2019 Interest 81,251 1,778 83,029 liabilities $308,040 $33,077 $341,117 Operating lease cost Finance lease cost: Amortization of lease asset Interest on lease liabilities Variable lease cost (a) (a) (b) (c) (a) (d) Total lease cost $ 61,845 6,965 763 51,616 $121,189 (a) Production-related and administrative amounts are included in cost of sales and selling, general and admin- istrative expenses, respectively. respective lease terms totaling $6,200, which are not reflected in the Company’s liabilities recorded as of December 31, 2019. These leases should commence during fiscal year 2020 with lease terms of approximately 12 years. 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 year ended December 31, 2019: Lease cost Operating lease cost Finance lease cost: Twelve months ended December 31, 2019 (a) $ 61,845 Amortization of lease asset (a) (b) Interest on lease liabilities Variable lease cost (c) (a) (d) Total lease cost 6,965 763 51,616 $121,189 (a) Production-related and administrative amounts are included in cost of sales and selling, general and admin- istrative expenses, respectively. Maturity of lease liabilities 2020 2021 2022 2023 2024 Beyond 2024 Total lease Less: Lease (b) Included in depreciation and amortization. Included in interest expense. (c) (d) Also includes short term lease costs, which are deemed immaterial. In compliance with ASC 842, the Company must pro- vide the prior year disclosures required under the previous lease guidance (ASC 840) for comparative periods pre- sented herein. Rental expense under operating leases for the year ended December 31, 2018 was $80,300 and $68,900 for the year ended December 31, 2017. The following table sets forth the five-year maturity schedule of the Company’s lease liabilities as of December 31, 2019: Maturity of lease liabilities 2020 2021 2022 2023 2024 Beyond 2024 Total lease payments Less: Interest Lease Operating leases Finance leases Total $ 55,681 49,474 43,418 39,831 33,424 $11,124 9,258 7,322 4,569 2,355 $ 66,805 58,732 50,740 44,400 35,779 167,463 227 167,690 $389,291 $34,855 $424,146 81,251 1,778 83,029 liabilities $308,040 $33,077 $341,117 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-15 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-15 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 at December 31, 2019, along with other lease-related information for the year ended December 31, 2019: Lease term and discount rate Weighted-average remaining lease term (years): Operating leases Finance leases Weighted-average discount rate: Operating leases Finance leases As of December 31, 2019 10.2 3.8 4.74% 2.97% Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases Operating cash flows used by finance leases Financing cash flows used by finance leases Leased assets obtained in exchange for new operating lease liabilities Leased assets obtained in exchange for new finance lease liabilities 8. Goodwill and other intangible assets Goodwill Twelve months ended December 31, 2019 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 at December 31, 2019, along with other lease-related information for the year ended December 31, 2019: $61,532 763 7,989 28,762 24,106 Lease term and discount rate Weighted-average remaining lease term (years): Operating leases Finance leases Weighted-average discount rate: Operating leases Finance leases 10.2 3.8 4.74% 2.97% 8. Goodwill and other intangible assets Goodwill Twelve months ended December 31, 2019 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases Financing cash flows used by finance leases finance leases Leased assets obtained in exchange for new operating lease liabilities Leased assets obtained in exchange for new finance lease liabilities $61,532 763 7,989 28,762 24,106 As of December 31, 2019 Operating cash flows used by The changes in the carrying amount of goodwill by segment for the year ended December 31, 2019, are as follows: The changes in the carrying amount of goodwill by segment for the year ended December 31, 2019, are as follows: Balance as of January 1, 2019 Acquisitions Measurement period adjustments Foreign currency translation Consumer Packaging $617,332 75,595 (2,461) 777 Display and Packaging $203,414 — — — Paper and Industrial Converted Products $256,947 43,427 2,246 421 Protective Solutions $231,474 — 174 Total $1,309,167 119,022 (215) 1,372 Balance as of January 1, 2019 Acquisitions Measurement period adjustments Foreign currency translation $617,332 $203,414 $256,947 $231,474 $1,309,167 — — — 43,427 2,246 421 — 119,022 174 (215) 1,372 Consumer Packaging 75,595 (2,461) 777 Paper and Industrial Display and Converted Protective Packaging Products Solutions Total Balance as of December 31, 2019 $691,243 $203,414 $303,041 $231,648 $1,429,346 Balance as of December 31, 2019 $691,243 $203,414 $303,041 $231,648 $1,429,346 Acquisitions in 2019 resulted in the addition of $119,022 of goodwill, including $43,427 in connection with the August 2019 acquisition of Corenso and $75,595 in connection with the December 2019 acquisition of TEQ. Additionally, measurement period adjustments were made in 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 $2,246, respectively. These adjustments are reflected above in “Measurement period adjustments.” See Note 3 for addi- tional information. The Company assesses goodwill for impairment annu- ally during the third quarter, or 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 2019. As part of this testing, the Company analyzed certain qual- itative and quantitative factors in determining goodwill impairment. The Company’s assessments reflected a number of significant management assumptions and esti- mates including the Company’s forecast of sales, profit margins, and discount rates. Changes in these assump- tions 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 impair- ment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. A large portion of projected sales in this 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. Total goodwill associated with this reporting unit was $203,414 at December 31, 2019. Based on the latest annual impairment test, the estimated fair value of the Display and Packaging reporting unit exceeded its carrying value by approximately 35%. In its 2019 annual goodwill impairment analysis, projected future cash flows for Display and Packaging were dis- counted at 8.9%. Based on the discounted cash flow model and holding other valuation assumptions constant, Display and Packaging projected operating profits across all future periods would have to be reduced approximately 27%, or the discount rate increased to 12.5%, in order for the estimated fair value to fall below the reporting unit’s carrying value. During the time subsequent to the annual evaluation, and at December 31, 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 manage- ment’s opinion that no such events have occurred. Acquisitions in 2019 resulted in the addition of $119,022 of goodwill, including $43,427 in connection with the August 2019 acquisition of Corenso and $75,595 in connection with the December 2019 acquisition of TEQ. Additionally, measurement period adjustments were made in 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 $2,246, respectively. These adjustments are reflected above in “Measurement period adjustments.” See Note 3 for addi- tional information. Display and Packaging reporting unit is at risk of impair- ment in the near term if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. A large portion of projected sales in this 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. Total goodwill associated with this reporting unit was $203,414 at December 31, 2019. Based on the latest annual impairment test, the estimated fair value of the Display and Packaging reporting unit exceeded its carrying value by approximately 35%. In its The Company assesses goodwill for impairment annu- 2019 annual goodwill impairment analysis, projected ally during the third quarter, or 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 2019. As part of this testing, the Company analyzed certain qual- itative and quantitative factors in determining goodwill impairment. The Company’s assessments reflected a number of significant management assumptions and esti- mates including the Company’s forecast of sales, profit margins, and discount rates. Changes in these assump- tions 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 future cash flows for Display and Packaging were dis- counted at 8.9%. Based on the discounted cash flow model and holding other valuation assumptions constant, Display and Packaging projected operating profits across all future periods would have to be reduced approximately 27%, or the discount rate increased to 12.5%, in order for the estimated fair value to fall below the reporting unit’s carrying value. During the time subsequent to the annual evaluation, and at December 31, 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 manage- ment’s opinion that no such events have occurred. F-16 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-16 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Other intangible assets Other intangible assets 9. Debt Details at December 31 are as follows: Details of the Company’s debt at December 31 were as Details at December 31 are as follows: Details of the Company’s debt at December 31 were as 2019 2018 Other intangible assets, gross: 9. Debt follows: 2019 2018 Other intangible assets, gross: Patents Customer lists Trade names Proprietary technology Land use rights Other Accumulated amortization: Patents Customer lists Trade names Proprietary technology Land use rights Other to customer lists. In addition, measurement period adjustments were made in 2019 to finalize 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. See Note 3 for additional information. In the fourth quarter of 2019, the Company wrote off patents with a net book value totaling $340 resulting from the loss of the single flexible packaging customer it served using the particular technology. Aggregate amortization expense on intangible assets was $51,580, $47,177 and $38,165 for the years ended December 31, 2019, 2018 and 2017, respectively. Amor- tization expense on intangible assets is expected to approximate $54,200 in 2020, $52,500 in 2021, $49,700 in 2022, $44,500 in 2023 and $35,000 in 2024. $ 26,096 $ 22,509 5.75% debentures due November 632,036 548,038 2040 $ 599,244 $ 599,208 32,427 24,525 172 2,125 31,174 28,748 282 2,093 4.375% debentures due November 2021 9.2% debentures due August 2021 Other intangible assets, gross $ 717,381 $ 632,844 249,428 249,116 4,318 167,272 200,000 146,569 4,315 169,976 — 158,949 2018 250,000 120,000 Accumulated amortization $(329,089) $(280,807) Other intangible assets, net $ 388,292 $ 352,037 The acquisitions of Corenso in August 2019 and TEQ in December 2019 resulted in the addition of $29,170 and $56,170, respectively, of intangible assets, mostly related Long-term debt 16,734 33,077 14,727 57,867 — 25,731 1,681,369 1,385,162 488,234 195,445 $1,193,135 $1,189,717 $ (11,669) $ (9,539) (287,831) (246,946) (9,985) (17,910) (51) (1,643) (7,413) (15,400) (48) (1,461) 1.00% Euro loan due May 2021 Term loan, due May 2020 Term loan, due July 2022 Commercial paper, average rate of 2.40% in 2019 and 2.15% in Other foreign denominated debt, average rate of 5.3% in 2019 and 3.7% in 2018 Finance lease obligations Other notes Total debt term notes Less current portion and short- 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 the proceeds were used to make voluntary contributions to the Company’s U.S. defined benefit pension plans. This 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 December 31, 2019 was 100 basis points. There is no required amortization and repayment can be accelerated at any time at the dis- cretion of the Company. On July 20, 2017, the Company entered into a Credit Agreement in connection with a new $750,000 bank credit facility with a syndicate of eight banks replacing an exist- ing credit facility entered into on October 2, 2014, and reflecting substantially the same terms and conditions. Included in the new facility are a $500,000 five-year revolv- ing credit facility and a $250,000 five-year term loan. Based on the pricing grid in the Credit Agreement and the Company’s current credit ratings, the borrowing has an all-in drawn margin of 112.5 basis points above the LIBOR. Borrowings under the Credit Agreement are pre-payable at any time at the discretion of the Company and the term loan has annual amortization payments total- ing $12,500. Proceeds from this term loan were used to repay an earlier term loan and to partially fund the Clear Lam acquisition. During 2018, the Company prepaid an additional $75,000 of the term loan. The $500,000 revolving credit facility supports the Company’s $500,000 commercial paper program. If cir- cumstances were to prevent the Company from issuing commercial paper, it has the contractual right to draw Patents Customer lists Trade names Proprietary technology Land use rights Other 2019 2018 $ 26,096 632,036 32,427 24,525 172 2,125 $ 22,509 548,038 31,174 28,748 282 2,093 Other intangible assets, gross $ 717,381 $ 632,844 Accumulated amortization: Patents Customer lists Trade names Proprietary technology Land use rights Other Accumulated amortization $ (11,669) $ (287,831) (9,985) (17,910) (51) (1,643) (9,539) (246,946) (7,413) (15,400) (48) (1,461) $(329,089) $(280,807) Other intangible assets, net $ 388,292 $ 352,037 The acquisitions of Corenso in August 2019 and TEQ in December 2019 resulted in the addition of $29,170 and $56,170, respectively, of intangible assets, mostly related to customer lists. In addition, measurement period adjustments were made in 2019 to finalize 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. See Note 3 for additional information. In the fourth quarter of 2019, the Company wrote off patents with a net book value totaling $340 resulting from the loss of the single flexible packaging customer it served using the particular technology. Aggregate amortization expense on intangible assets was $51,580, $47,177 and $38,165 for the years ended December 31, 2019, 2018 and 2017, respectively. Amor- tization expense on intangible assets is expected to approximate $54,200 in 2020, $52,500 in 2021, $49,700 in 2022, $44,500 in 2023 and $35,000 in 2024. follows: 5.75% debentures due November 2040 $ 599,244 $ 599,208 2019 2018 4.375% debentures due November 2021 9.2% debentures due August 2021 1.00% Euro loan due May 2021 Term loan, due May 2020 Term loan, due July 2022 Commercial paper, average rate of 2.40% in 2019 and 2.15% in 2018 Other foreign denominated debt, average rate of 5.3% in 2019 and 3.7% in 2018 Finance lease obligations Other notes Total debt Less current portion and short- term notes Long-term debt 249,428 249,116 4,318 167,272 200,000 146,569 4,315 169,976 — 158,949 250,000 120,000 16,734 33,077 14,727 57,867 — 25,731 1,681,369 1,385,162 488,234 195,445 $1,193,135 $1,189,717 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 the proceeds were used to make voluntary contributions to the Company’s U.S. defined benefit pension plans. This 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 December 31, 2019 was 100 basis points. There is no required amortization and repayment can be accelerated at any time at the dis- cretion of the Company. On July 20, 2017, the Company entered into a Credit Agreement in connection with a new $750,000 bank credit facility with a syndicate of eight banks replacing an exist- ing credit facility entered into on October 2, 2014, and reflecting substantially the same terms and conditions. Included in the new facility are a $500,000 five-year revolv- ing credit facility and a $250,000 five-year term loan. Based on the pricing grid in the Credit Agreement and the Company’s current credit ratings, the borrowing has an all-in drawn margin of 112.5 basis points above the LIBOR. Borrowings under the Credit Agreement are pre-payable at any time at the discretion of the Company and the term loan has annual amortization payments total- ing $12,500. Proceeds from this term loan were used to repay an earlier term loan and to partially fund the Clear Lam acquisition. During 2018, the Company prepaid an additional $75,000 of the term loan. The $500,000 revolving credit facility supports the Company’s $500,000 commercial paper program. If cir- cumstances were to prevent the Company from issuing commercial paper, it has the contractual right to draw S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-17 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-17 funds directly on the underlying bank credit facility. The Company had $250,000 of outstanding commercial paper at December 31, 2019 and $120,000 at December 31, 2018. In addition to the $500,000 committed revolving bank credit facility, the Company had approximately $237,000 available under unused short-term lines of credit at December 31, 2019. These short-term lines of credit are for general Company purposes, with interest at mutually agreed-upon rates. 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. As of December 31, 2019, the Company had substantial tolerance above the minimum levels required under these covenants. The principal requirements of debt maturing in the next five years are: 2020 2021 2022 2023 2024 Debt maturities by year $488,234 $444,715 $130,812 $6,639 $3,646 Commodity cash flow hedges The Company has entered into certain derivative con- tracts to manage some of the cost of anticipated pur- chases of natural gas and aluminum. At December 31, 2019, natural gas swaps covering approximately 4.4 million MMBTUs were outstanding. These contracts represent approximately 61% of anticipated U.S. and Canadian usage for 2020. Additionally, the Company had swap contracts covering 1,225 metric tons of aluminum representing approximately 23% of anticipated usage for 2020. The total fair values of the Company’s commodity cash flow hedges were in net loss positions totaling $(1,625) and $(1,571) at December 31, 2019 and December 31, 2018, respectively. The amount of the loss included in accumulated other comprehensive loss at December 31, 2019, expected to be reclassified to the income statement during the next twelve months is $(1,578). Foreign currency cash flow hedges The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales and purchases forecasted to occur in 2020. The net positions of these contracts at December 31, 2019, were as follows: funds directly on the underlying bank credit facility. The Company had $250,000 of outstanding commercial paper at December 31, 2019 and $120,000 at December 31, 2018. In addition to the $500,000 committed revolving bank credit facility, the Company had approximately $237,000 available under unused short-term lines of credit at December 31, 2019. These short-term lines of credit are for general Company purposes, with interest at mutually agreed-upon rates. 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. As of December 31, 2019, the Company had substantial tolerance above the minimum levels required under these covenants. The principal requirements of debt maturing in the next five years are: Debt maturities by year 2020 2021 2022 2023 2024 $488,234 $444,715 $130,812 $6,639 $3,646 as follows: Commodity cash flow hedges The Company has entered into certain derivative con- tracts to manage some of the cost of anticipated pur- chases of natural gas and aluminum. At December 31, 2019, natural gas swaps covering approximately 4.4 million MMBTUs were outstanding. These contracts represent approximately 61% of anticipated U.S. and Canadian usage for 2020. Additionally, the Company had swap contracts covering 1,225 metric tons of aluminum representing approximately 23% of anticipated usage for 2020. The total fair values of the Company’s commodity cash flow hedges were in net loss positions totaling $(1,625) and $(1,571) at December 31, 2019 and December 31, 2018, respectively. The amount of the loss included in accumulated other comprehensive loss at December 31, 2019, expected to be reclassified to the income statement during the next twelve months is $(1,578). Foreign currency cash flow hedges The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales and purchases forecasted to occur in 2020. The net positions of these contracts at December 31, 2019, were 10. Financial instruments and derivatives The following table sets forth the carrying amounts and fair values of the Company’s significant financial instru- ments where the carrying amount differs from the fair value. December 31, 2019 December 31, 2018 Carrying amount Fair value Carrying amount Fair value Long-term debt $1,193,135 $1,351,397 $1,189,717 $1,270,521 Currency Colombian peso Mexican peso Polish zloty Czech koruna Canadian dollar British pound Turkish lira New Zealand dollar Australian dollar Swedish krona Euro Russian ruble Action Quantity Purchase Purchase Purchase Purchase Purchase Purchase Purchase Sell Sell Sell Sell Sell 15,486,745 335,494 89,750 40,333 20,812 6,187 3,419 (439) (929) (3,933) (30,323) (182,187) 10. Financial instruments and derivatives The following table sets forth the carrying amounts and fair values of the Company’s significant financial instru- ments where the carrying amount differs from the fair value. December 31, 2019 December 31, 2018 Carrying amount Fair value Carrying amount Fair value Long-term debt $1,193,135 $1,351,397 $1,189,717 $1,270,521 Currency Colombian peso Mexican peso Polish zloty Czech koruna Canadian dollar British pound Turkish lira New Zealand dollar Australian dollar Swedish krona Euro Russian ruble Action Quantity Purchase Purchase Purchase Purchase Purchase Purchase Purchase Sell Sell Sell Sell Sell 15,486,745 335,494 89,750 40,333 20,812 6,187 3,419 (439) (929) (3,933) (30,323) (182,187) 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 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 December 31, 2019 and 2018, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. To the extent considered effective, the changes in fair value of these contracts are recorded in other comprehensive income and reclassified to income or expense in the period in which the hedged item impacts earnings. The fair values of the Company’s foreign currency cash flow hedges related to forecasted sales and purchases netted to a gain position of $1,058 at December 31, 2019 and a loss position of $(1,712) at December 31, 2018. Gains of $1,057 are expected to be reclassified from accumulated other comprehensive loss 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 December 31, 2019 and December 31, 2018, the net position of these contracts was $1 and $(305) respectively. Gains totaling $107 and losses of $(88) were reclassified from accumulated other comprehensive loss and netted against the carrying value of the capitalized expenditures during the years ended December 31, 2019 and December 31, 2018, respectively. Gains of $1 are expected to be reclassified from accumulated other comprehensive loss and included in the carrying value of the related fixed assets acquired during the next twelve months. 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 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 December 31, 2019 and 2018, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. To the extent considered effective, the changes in fair value of these contracts are recorded in other comprehensive income and reclassified to income or expense in the period in which the hedged item impacts earnings. The fair values of the Company’s foreign currency cash flow hedges related to forecasted sales and purchases netted to a gain position of $1,058 at December 31, 2019 and a loss position of $(1,712) at December 31, 2018. Gains of $1,057 are expected to be reclassified from accumulated other comprehensive loss 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 December 31, 2019 and December 31, 2018, the net position of these contracts was $1 and $(305) respectively. Gains totaling $107 and losses of $(88) were reclassified from accumulated other comprehensive loss and netted against the carrying value of the capitalized expenditures during the years ended December 31, 2019 and December 31, 2018, respectively. Gains of $1 are expected to be reclassified from accumulated other comprehensive loss and included in the carrying value of the related fixed assets acquired during the next twelve months. F-18 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-18 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Other derivatives that they occur. The net positions of these contracts at Other derivatives The Company routinely enters into forward contracts or December 31, 2019, were as follows: swaps to economically hedge the currency exposure of intercompany debt and existing foreign currency denomi- Currency nated 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 Colombian peso Mexican peso Canadian dollar Action Quantity Purchase Purchase Purchase 10,536,995 320,964 10,931 The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and existing foreign currency denomi- nated 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 The fair value of the Company’s other derivatives was $54 and $166 at December 31, 2019 and 2018, respectively. that they occur. The net positions of these contracts at December 31, 2019, were as follows: Currency Colombian peso Mexican peso Canadian dollar Action Quantity Purchase Purchase Purchase 10,536,995 320,964 10,931 The fair value of the Company’s other derivatives was $54 and $166 at December 31, 2019 and 2018, respectively. The following table sets forth the location and fair values of the Company’s derivative instruments: The following table sets forth the location and fair values of the Company’s derivative instruments: Description Derivatives designated as hedging instruments: Commodity contracts Commodity contracts Commodity contracts Commodity contracts Foreign exchange contracts Foreign exchange contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Foreign exchange contracts Balance sheet location 2019 2018 Description Balance sheet location 2019 2018 Fair value at December 31 Fair value at December 31 Prepaid expenses Other assets Other liabilities Prepaid expenses Accrued expenses and other Accrued expenses and other $ — $ — $(1,625) $ — $ 1,236 $ (178) $ 282 $ — $(1,843) (10) $ $ 770 $(2,482) Prepaid expenses Accrued expenses and other $ $ 88 (34) $ 727 $ (561) Derivatives designated as hedging instruments: Commodity contracts Commodity contracts Commodity contracts Commodity contracts Foreign exchange contracts Foreign exchange contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Foreign exchange contracts Prepaid expenses Other assets Accrued expenses and other Other liabilities Prepaid expenses Accrued expenses and other $ — $ — $(1,625) $ — $ 1,236 $ (178) $ 282 $ — $(1,843) (10) $ $ 770 $(2,482) Prepaid expenses Accrued expenses and other $ $ 88 (34) $ 727 $ (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 agree- ments. Company’s fixed-rate U.S. dollar denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt. The swap agreement matures November 1, 2024. Under the terms of the swap agree- ment, the Company will receive semi-annual interest payments in U.S. dollars at a rate of 5.75% and pay inter- Beginning in January 2020, the Company is party to a est in euros at a rate of 3.856%. cross-currency swap agreement with a notional amount of $250,000 to effectively convert a portion of the 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 agree- ments. Beginning in January 2020, the Company is party to a cross-currency swap agreement with a notional amount of $250,000 to effectively convert a portion of the Company’s fixed-rate U.S. dollar denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt. The swap agreement matures November 1, 2024. Under the terms of the swap agree- ment, the Company will receive semi-annual interest payments in U.S. dollars at a rate of 5.75% and pay inter- est in euros at a rate of 3.856%. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-19 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-19 The following table sets forth the effect of the Company’s derivative instruments on financial performance for the The following table sets forth the effect of the Company’s derivative instruments on financial performance for the twelve months ended December 31, 2019, excluding the gains on foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures: twelve months ended December 31, 2019, excluding the gains on foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures: Description Derivatives in cash flow hedging relationships: Foreign exchange contracts Commodity contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Amount 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 $2,495 $ 216 Net sales Cost of sales Cost of sales $ 1,381 $(1,758) 270 $ Location of gain or (loss) recognized in income statement Gain or (loss) recognized Cost of sales Selling, general and administrative $ — $ (704) Description Derivatives in cash flow hedging relationships: Foreign exchange contracts Commodity contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Amount of gain or Location of gain or or (loss) (loss) recognized (loss) reclassified reclassified from in OCI on derivatives from accumulated accumulated OCI OCI into income into income Amount of gain $2,495 $ 216 Net sales Cost of sales Cost of sales $ 1,381 $(1,758) $ 270 Location of gain or (loss) recognized Gain or (loss) in income statement recognized Cost of sales Selling, general and administrative $ — $ (704) Description Total amount of income and expense line items presented in the consolidated statements of income The effects of cash flow hedging: Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Commodity contract: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Revenue Cost of sales $1,381 $(1,488) $1,381 $ — $(1,758) $270 Description Total amount of income and expense line items presented in the consolidated statements of income The effects of cash flow hedging: Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Commodity contract: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Revenue Cost of sales $1,381 $(1,488) $1,381 $ — $(1,758) $270 The following table sets forth the effect of the Company’s derivative instruments on financial performance for the The following table sets forth the effect of the Company’s derivative instruments on financial performance for the twelve months ended December 31, 2018, excluding the gains on foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures: twelve months ended December 31, 2018, excluding the gains on foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures: Description Derivatives in cash flow hedging relationships: Foreign exchange contracts Commodity contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Amount 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 $(2,354) $ 258 Net sales Cost of sales Cost of sales $(203) $ (20) $ 115 Location of gain or (loss) recognized in income statement Gain or (loss) recognized Cost of sales Selling, general and administrative $ — $ 41 Description Derivatives in cash flow hedging relationships: Foreign exchange contracts Commodity contracts Derivatives not designated as hedging instruments: Foreign exchange contracts Amount of gain or Location of gain or or (loss) (loss) recognized (loss) reclassified reclassified from in OCI on derivatives from accumulated accumulated OCI OCI into income into income Amount of gain $(2,354) $ 258 Net sales Cost of sales Cost of sales $(203) $ (20) $ 115 Location of gain or (loss) recognized in income statement Gain or (loss) recognized Cost of sales Selling, general and administrative $ — $ 41 Description Total amount of income and expense line items presented in the condensed consolidated statements of Income The effects of cash flow hedging: Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Commodity contract: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Revenue Cost of sales $ (203) $ 95 $ (203) $ — $ (20) $115 Description Total amount of income and expense line items presented in the condensed consolidated statements of Income The effects of cash flow hedging: Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Commodity contract: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income Revenue Cost of sales $ (203) $ 95 $ (203) $ — $ (20) $115 F-20 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-20 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 11. Fair value measurements 11. Fair value measurements Fair value is defined as exit price, representing the amount that would be received to sell an asset or paid to transfer Fair value is defined as 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 at the measurement date. 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: a liability in an orderly transaction between market participants at the measurement date. 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 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 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 Level 3 – own assumptions. Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The following tables set forth information regarding the Company’s financial assets and financial liabilities that are The following tables set forth information regarding the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis: measured at fair value on a recurring basis: December 31, 2019 Assets measured at NAV (g) Level 1 Level 2 Level 3 Description December 31, 2019 Assets measured at NAV (g) Level 1 Level 2 Level 3 $ (1,625) 1,058 $ — $ — — $ (1,625) 1,058 — $— — 54 — — 54 — Total postretirement benefit plan assets $1,696,401 $1,288,160 $43,267 $364,974 $1,212,114 171,198 192,598 1,201 75,108 938 43,244 $1,212,114 — — $ — $ — — 171,198 — 192,598 1,178 23 — — — — — — 43,244 75,108 938 Hedge derivatives, net: Commodity contracts Foreign exchange contracts Non-hedge derivatives, net: Foreign exchange contracts Postretirement benefit plan assets: Common collective trust (a) Mutual funds (b) Fixed income securities (c) Short-term investments (d) Hedge fund of funds (e) Real estate funds (f) Cash and accrued income $ (1,625) 1,058 $ — $ — $ (1,625) 1,058 — $— — 54 — 54 — $1,212,114 $1,212,114 $ 171,198 192,598 1,201 75,108 938 43,244 23 — $ — — 171,198 — 192,598 1,178 — — — — — 75,108 938 — 43,244 Total postretirement benefit plan assets $1,696,401 $1,288,160 $43,267 $364,974 $— — — — — — — $— Description Hedge derivatives, net: Commodity contracts Foreign exchange contracts Non-hedge derivatives, net: Foreign exchange contracts Postretirement benefit plan assets: Common collective trust (a) Mutual funds (b) Fixed income securities (c) Short-term investments (d) Hedge fund of funds (e) Real estate funds (f) Cash and accrued income Description Hedge derivatives, net: Commodity contracts Foreign exchange contracts Non-hedge derivatives, net: Foreign exchange contracts Deferred compensation plan assets Postretirement benefit plan assets: Common collective trust (a) Mutual funds (b) Fixed income securities (c) Short-term investments (d) Hedge fund of funds (e) Real estate funds (f) Cash and accrued income — — — — — — — — — 71,354 61,249 — 786 824 December 31, 2018 Assets measured at NAV (g) Level 1 Level 2 Level 3 Description December 31, 2018 Assets measured at NAV (g) Level 1 Level 2 Level 3 $ (1,571) (1,712) $ — $ — $ (1,571) (1,712) — $ 862,565 $ 862,565 $ 166 260 157,088 175,543 1,166 71,354 61,249 786 — 260 166 — 38 — $ — — 157,088 — 175,543 1,128 — — — — — Total postretirement benefit plan assets $1,329,751 $ 995,168 $ $333,759 $— — — — $— — — — — — — $— Hedge derivatives, net: Commodity contracts Foreign exchange contracts Non-hedge derivatives, net: Foreign exchange contracts Deferred compensation plan assets Postretirement benefit plan assets: Common collective trust (a) Mutual funds (b) Fixed income securities (c) Short-term investments (d) Hedge fund of funds (e) Real estate funds (f) Cash and accrued income $ (1,571) (1,712) $ — $ — — $ (1,571) (1,712) — 166 260 — — — 260 166 — $ 862,565 157,088 175,543 1,166 71,354 61,249 786 $ $ 862,565 — — 71,354 61,249 — — $ — — 157,088 — 175,543 1,128 38 — — — — — 786 Total postretirement benefit plan assets $1,329,751 $ 995,168 $ 824 $333,759 $— — — — $— — — — — — — $— a. Common collective trust investments consist of domestic and international large and mid capitalization equities, a. Common collective trust investments consist of domestic and international large and mid capitalization equities, including emerging markets and funds invested in both short-term and long-term bonds. Underlying investments are generally valued at closing prices from national exchanges. Commingled funds, private securities, and limited partnerships are valued at unit values or net asset values provided by the investment managers. b. Mutual fund investments are comprised of equity securities of corporations with large capitalizations and also include funds invested in corporate equities in international and emerging markets and funds invested in long-term bonds, which are valued at closing prices from national exchanges. including emerging markets and funds invested in both short-term and long-term bonds. Underlying investments are generally valued at closing prices from national exchanges. Commingled funds, private securities, and limited partnerships are valued at unit values or net asset values provided by the investment managers. b. Mutual fund investments are comprised of equity securities of corporations with large capitalizations and also include funds invested in corporate equities in international and emerging markets and funds invested in long-term bonds, which are valued at closing prices from national exchanges. c. Fixed income securities include funds that invest primarily in government securities and long-term bonds. Underlying c. Fixed income securities include funds that invest primarily in government securities and long-term bonds. Underlying investments are generally valued at closing prices from national exchanges, fixed income pricing models, and independent financial analysts. Fixed income commingled funds are valued at unit values provided by the investment managers. investments are generally valued at closing prices from national exchanges, fixed income pricing models, and independent financial analysts. Fixed income commingled funds are valued at unit values provided by the investment managers. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-21 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-21 $— — — — — — — $— d. Short-term investments include several money market funds used for managing overall liquidity. Underlying invest- ments are generally valued at closing prices from national exchanges. Commingled funds are valued at unit values provided by the investment managers. d. Short-term investments include several money market funds used for managing overall liquidity. Underlying invest- ments are generally valued at closing prices from national exchanges. Commingled funds are valued at unit values provided by the investment managers. e. The hedge fund of funds category includes investments in funds representing a variety of strategies intended to e. The hedge fund of funds category includes investments in funds representing a variety of strategies intended to diversify risks and reduce volatility. It includes event-driven credit and equity investments targeted at economic policy decisions, long and short positions in U.S. and international equities, arbitrage investments and emerging market equity investments. Investments are valued at unit values or net asset values provided by the investment managers. f. This category includes investments in real estate funds (including office, industrial, residential and retail). Underlying diversify risks and reduce volatility. It includes event-driven credit and equity investments targeted at economic policy decisions, long and short positions in U.S. and international equities, arbitrage investments and emerging market equity investments. Investments are valued at unit values or net asset values provided by the investment managers. f. This category includes investments in real estate funds (including office, industrial, residential and retail). Underlying real estate securities are generally valued at closing prices from national exchanges. real estate securities are generally valued at closing prices from national exchanges. g. Certain assets that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical g. Certain assets that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. expedient have not been classified in the fair value hierarchy. The Company’s pension plan assets comprise more than 99% of its total postretirement benefit plan assets. The assets of the Company’s various pension plans and retiree health and life insurance plans are largely invested in the same funds and investments and in similar pro- portions and, as such, are not shown separately, but are combined in the tables above. Postretirement benefit plan assets are netted against postretirement benefit obliga- tions to determine the funded status of each plan. The funded status is recognized in the Company’s Con- solidated Balance Sheets as shown in Note 13. As discussed in Note 10, the Company uses derivatives to mitigate some of 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 classi- fied under Level 2 because such measurements are esti- mated 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 and the 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 nonfinancial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. None of the Company’s finan- cial 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 years ended December 31, 2019 or 2018. For addi- tional fair value information on the Company’s financial instruments, see Note 10. 12. Share-based compensation plans The Company provides share-based compensation to certain employees and non-employee directors in the form of stock appreciation rights, restricted stock units and other share-based awards. Beginning in 2019, share- based awards were issued pursuant to the Sonoco Prod- ucts Company 2019 Omnibus Incentive Plan (the “2019 Plan”), which became effective upon approval by the shareholders on April 17, 2019. Awards issued from 2014 through 2018 were issued pursuant to the Sonoco Prod- ucts Company 2014 Long-Term Incentive Plan (the “2014 Plan”); awards issued from 2012 through 2013 were issued pursuant to the Sonoco Products Company 2012 Long-Term Incentive Plan (the “2012 Plan”); and awards issued from 2009 through 2011 were issued pursuant to the Sonoco Products Company 2008 Long-Term Incentive Plan (the “2008 Plan”). Awards issued prior to 2009 were issued pursuant to the 1991 Key Employee Stock Plan (the “1991 Plan”) or the 1996 Non-Employee Directors Stock Plan (the “1996 Plan”). A total of 12,000,000 shares of common stock are reserved for awards granted under the 2019 Plan. As of the April 17, 2019 effective date, the 2019 Plan super- seded the 2014 Plan and became the only plan under which equity-based compensation may be awarded to employees and non-employee directors. However, any awards under any of the prior plans that were outstanding on the effective date of the 2019 Plan remain subject to the terms and conditions, and continue to be governed, by such prior plans. Awards issued between January 1 and April 16, 2019 were effectively issued under the 2019 Plan when such awards were transferred over to be applied against the 2019 Plan’s reserve. Share reserve reductions for restricted and performance-based stock awards origi- nally granted under the 2014 Plan were weighted higher than stock appreciation rights in accordance with the shareholder-approved conversion formula included within the 2019 Plan. Awards granted under all previous plans which are forfeited, expire or are canceled without delivery of shares, or which result in forfeiture of shares back to the Company, will be added to the total shares available under the 2019 Plan. At December 31, 2019, a total of 10,765,398 shares remain available for future grant under the 2019 Plan. The Company issues new shares for stock appreciation right exercises and stock unit conversions. The Company’s stock-based awards to non-employee directors have not been material. Accounting for share-based compensation Total compensation cost for share-based payment arrangements was $14,334, $10,730 and $13,488, for 2019, 2018 and 2017, respectively. The related tax benefit recognized in net income was $3,500, $2,678, and $5,058, for the same years, respectively. Share-based compensation expense is included in “Selling, general and administrative expenses” in the Consolidated Statements of Income. An “excess” tax benefit is created when the tax deduction for an exercised stock appreciation right, exercised stock option or converted stock unit exceeds the compensation cost that has been recognized in income. The additional net excess tax benefit realized was $3,520, $3,528 and $2,453 for 2019, 2018 and 2017, respectively. Stock appreciation rights Stock appreciation rights (SARs) granted vest over three years and expense is recognized following the graded-vesting method, which results in front-loaded expense being recognized during the early years of the required service period. Unvested SARs are cancelable The Company’s pension plan assets comprise more than 99% of its total postretirement benefit plan assets. The assets of the Company’s various pension plans and retiree health and life insurance plans are largely invested in the same funds and investments and in similar pro- portions and, as such, are not shown separately, but are combined in the tables above. Postretirement benefit plan assets are netted against postretirement benefit obliga- tions to determine the funded status of each plan. The funded status is recognized in the Company’s Con- solidated Balance Sheets as shown in Note 13. (the “1991 Plan”) or the 1996 Non-Employee Directors Stock Plan (the “1996 Plan”). A total of 12,000,000 shares of common stock are reserved for awards granted under the 2019 Plan. As of the April 17, 2019 effective date, the 2019 Plan super- seded the 2014 Plan and became the only plan under which equity-based compensation may be awarded to employees and non-employee directors. However, any awards under any of the prior plans that were outstanding on the effective date of the 2019 Plan remain subject to the terms and conditions, and continue to be governed, by As discussed in Note 10, the Company uses derivatives such prior plans. Awards issued between January 1 and to mitigate some of 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 classi- fied under Level 2 because such measurements are esti- mated 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 and the 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 nonfinancial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. None of the Company’s finan- cial 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 years ended December 31, 2019 or 2018. For addi- tional fair value information on the Company’s financial instruments, see Note 10. 12. Share-based compensation plans The Company provides share-based compensation to certain employees and non-employee directors in the form of stock appreciation rights, restricted stock units and other share-based awards. Beginning in 2019, share- based awards were issued pursuant to the Sonoco Prod- ucts Company 2019 Omnibus Incentive Plan (the “2019 Plan”), which became effective upon approval by the shareholders on April 17, 2019. Awards issued from 2014 through 2018 were issued pursuant to the Sonoco Prod- ucts Company 2014 Long-Term Incentive Plan (the “2014 Plan”); awards issued from 2012 through 2013 were issued pursuant to the Sonoco Products Company 2012 Long-Term Incentive Plan (the “2012 Plan”); and awards issued from 2009 through 2011 were issued pursuant to the Sonoco Products Company 2008 Long-Term Incentive Plan (the “2008 Plan”). Awards issued prior to 2009 were issued pursuant to the 1991 Key Employee Stock Plan April 16, 2019 were effectively issued under the 2019 Plan when such awards were transferred over to be applied against the 2019 Plan’s reserve. Share reserve reductions for restricted and performance-based stock awards origi- nally granted under the 2014 Plan were weighted higher than stock appreciation rights in accordance with the shareholder-approved conversion formula included within the 2019 Plan. Awards granted under all previous plans which are forfeited, expire or are canceled without delivery of shares, or which result in forfeiture of shares back to the Company, will be added to the total shares available under the 2019 Plan. At December 31, 2019, a total of 10,765,398 shares remain available for future grant under the 2019 Plan. The Company issues new shares for stock appreciation right exercises and stock unit conversions. The Company’s stock-based awards to non-employee directors have not been material. Accounting for share-based compensation Total compensation cost for share-based payment arrangements was $14,334, $10,730 and $13,488, for 2019, 2018 and 2017, respectively. The related tax benefit recognized in net income was $3,500, $2,678, and $5,058, for the same years, respectively. Share-based compensation expense is included in “Selling, general and administrative expenses” in the Consolidated Statements of Income. An “excess” tax benefit is created when the tax deduction for an exercised stock appreciation right, exercised stock option or converted stock unit exceeds the compensation cost that has been recognized in income. The additional net excess tax benefit realized was $3,520, $3,528 and $2,453 for 2019, 2018 and 2017, respectively. Stock appreciation rights Stock appreciation rights (SARs) granted vest over three years and expense is recognized following the graded-vesting method, which results in front-loaded expense being recognized during the early years of the required service period. Unvested SARs are cancelable F-22 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-22 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K upon termination of employment, except in the case of death, disability, or involuntary (or good reason) termi- nation within two years of a change in control. The Company grants SARs annually on a discretionary basis to key employees. These SARs have an exercise price equal to the closing market price on the date of the grant and can be settled only in stock. The SARs granted in and since 2015 vest over three years, with one-third vesting on each anniversary date of the grant, and have 10-year terms. As of December 31, 2019, unrecognized compensation cost related to nonvested SARs totaled $2,413. This cost will be recognized over the remaining weighted-average vesting period of approximately 24 months. Noncash stock-based compensation associated with SARs totaled $3,227, $2,415, and $3,719 for 2019, 2018, and 2017, respectively. The aggregate intrinsic value of SARS exercised during 2019, 2018, and 2017 was $11,836, $9,029, and $3,786, respectively. The weighted-average grant date fair value of SARs granted was $8.30, $6.55 and $7.29 per share in 2019, 2018 and 2017, respectively. The Company com- puted the estimated fair values of all SARs using the Black-Scholes option-pricing model applying the assump- tions set forth in the following table: Expected dividend yield Expected stock price volatility Risk-free interest rate Expected life of SARs 2019 2018 2017 2.7% 3.1% 2.7% 16.6% 16.2% 17.2% 2.0% 2.8% 6 years 6 years 2.6% 6 years The assumptions employed in the calculation of the fair value of SARs were determined as follows: • Expected dividend yield – the Company’s annual dividend divided by the stock price at the time of grant. • Expected stock price volatility – based on historical volatility of the Company’s common stock measured weekly for a time period equal to the expected life. • Risk-free interest rate – based on U.S. Treasury yields in effect at the time of grant for maturities equal to the expected life. • Expected life – calculated using the simplified method as prescribed in U.S. GAAP, where the expected life is equal to the sum of the vesting period and the contractual term divided by two. upon termination of employment, except in the case of death, disability, or involuntary (or good reason) termi- nation within two years of a change in control. The Company grants SARs annually on a discretionary basis to key employees. These SARs have an exercise price equal to the closing market price on the date of the grant and can be settled only in stock. The SARs granted in and since 2015 vest over three years, with one-third vesting on each anniversary date of the grant, and have 10-year terms. As of December 31, 2019, unrecognized compensation cost related to nonvested SARs totaled $2,413. This cost will be recognized over the remaining weighted-average vesting period of approximately 24 months. Noncash stock-based compensation associated with SARs totaled $3,227, $2,415, and $3,719 for 2019, 2018, and 2017, respectively. The aggregate intrinsic value of SARS exercised during 2019, 2018, and 2017 was $11,836, $9,029, and $3,786, respectively. The weighted-average grant date fair value of SARs granted was $8.30, $6.55 and $7.29 per share in 2019, 2018 and 2017, respectively. The Company com- puted the estimated fair values of all SARs using the Black-Scholes option-pricing model applying the assump- tions set forth in the following table: Expected dividend yield Expected stock price volatility Risk-free interest rate Expected life of SARs 2019 2018 2017 2.7% 3.1% 2.7% 16.6% 16.2% 17.2% 2.0% 2.8% 6 years 6 years 2.6% 6 years The assumptions employed in the calculation of the fair value of SARs were determined as follows: • Expected dividend yield – the Company’s annual dividend divided by the stock price at the time of grant. • Expected stock price volatility – based on historical volatility of the Company’s common stock measured weekly for a time period equal to the expected life. • Risk-free interest rate – based on U.S. Treasury yields in effect at the time of grant for maturities equal to the expected life. • Expected life – calculated using the simplified method as prescribed in U.S. GAAP, where the expected life is equal to the sum of the vesting period and the contractual term divided by two. The activity related to the Company’s SARs is as follows: The activity related to the Company’s SARs is as follows: Vested Granted Exercised Forfeited/Expired Outstanding, December 31, 2019 Exercisable, December 31, 2019 Nonvested Vested Total 1,119,602 (620,026) 543,278 712,756 620,026 — — (664,797) (135,841) (12,875) — 543,278 (664,797) (148,716) 907,013 655,110 1,562,123 — 655,110 655,110 Outstanding, December 31, 2018 1,832,358 $47.41 Outstanding, December 31, 2018 $60.76 $43.92 $53.36 $52.95 $47.69 Vested Granted Exercised Forfeited/Expired Outstanding, December 31, 2019 Exercisable, December 31, 2019 Weighted- average exercise price Nonvested Vested Total 1,119,602 (620,026) 543,278 712,756 620,026 — — (664,797) (12,875) (135,841) 1,832,358 — 543,278 (664,797) (148,716) 907,013 655,110 1,562,123 — 655,110 655,110 Weighted- average exercise price $47.41 $60.76 $43.92 $53.36 $52.95 $47.69 The weighted average remaining contractual life for SARs outstanding and exercisable at December 31, 2019 was 7.5 years and 6.0 years, respectively. The aggregate intrinsic value for SARs outstanding and exercisable at December 31, 2019 was $13,375 and $8,931, respectively. At December 31, 2019, the fair market value of the Company’s stock used to calculate intrinsic value was $61.72 per share. Performance-based stock awards The Company grants performance contingent restricted stock units (PCSUs) annually on a discretionary basis to executive officers and certain key management employ- ees. The ultimate number of PCSUs awarded is depend- ent upon the degree to which performance, relative to defined targets related to earnings and return on net assets employed, are achieved over a three-year perform- ance cycle. PCSUs granted vest at the end of the three- year performance period if the respective performance targets are met. No units will be awarded if the perform- ance targets are not met. Upon vesting, PCSUs are con- vertible into common shares on a one-for-one basis. Except in the event of the participant’s death, disability, or retirement, if a participant is not employed by the Com- pany at the end of the performance period, no PCSU’s will vest. However, in the event of the participant’s death, disability or retirement prior to full vesting, shares will be issued on a pro rata basis up through the time the partic- ipant’s employment or service ceases. In the event of a change in control, as defined under the 2014 Plan and the 2019 Plan, all unvested PCSUs will vest at target on a pro rata basis if the change in control occurs during the three- year performance period. The weighted average remaining contractual life for SARs outstanding and exercisable at December 31, 2019 was 7.5 years and 6.0 years, respectively. The aggregate intrinsic value for SARs outstanding and exercisable at December 31, 2019 was $13,375 and $8,931, respectively. At December 31, 2019, the fair market value of the Company’s stock used to calculate intrinsic value was $61.72 per share. Performance-based stock awards The Company grants performance contingent restricted stock units (PCSUs) annually on a discretionary basis to executive officers and certain key management employ- ees. The ultimate number of PCSUs awarded is depend- ent upon the degree to which performance, relative to defined targets related to earnings and return on net assets employed, are achieved over a three-year perform- ance cycle. PCSUs granted vest at the end of the three- year performance period if the respective performance targets are met. No units will be awarded if the perform- ance targets are not met. Upon vesting, PCSUs are con- vertible into common shares on a one-for-one basis. Except in the event of the participant’s death, disability, or retirement, if a participant is not employed by the Com- pany at the end of the performance period, no PCSU’s will vest. However, in the event of the participant’s death, disability or retirement prior to full vesting, shares will be issued on a pro rata basis up through the time the partic- ipant’s employment or service ceases. In the event of a change in control, as defined under the 2014 Plan and the 2019 Plan, all unvested PCSUs will vest at target on a pro rata basis if the change in control occurs during the three- year performance period. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-23 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-23 The activity related to performance contingent restricted stock units is as follows: The activity related to performance contingent restricted stock units is as follows: Outstanding, December 31, 2018 Granted Performance adjustments Vested Converted Cancelled Dividend equivalents Nonvested Vested Total 329,532 115,412 (42,866) (84,522) (18,720) — 322,287 651,819 — 115,412 — (42,866) — (177,902) — (18,720) 4,190 4,190 84,522 — (177,902) Outstanding, December 31, 2019 298,836 233,097 531,933 Average grant date fair value per share $ 40.21 $56.04 $45.75 $35.55 $47.75 $60.42 $44.65 Outstanding, December 31, 2018 Granted Performance adjustments Vested Converted Cancelled Dividend equivalents Outstanding, December 31, 2019 Average grant date fair Nonvested Vested Total value per share 329,532 115,412 (42,866) (84,522) 322,287 651,819 — 115,412 — (42,866) 84,522 — — (177,902) (177,902) (18,720) — (18,720) — 4,190 4,190 298,836 233,097 531,933 $ 40.21 $56.04 $45.75 $35.55 $47.75 $60.42 $44.65 2019 PCSU. As of December 31, 2019, the 2019 PCSUs to be awarded are estimated to range from 0 to 228,650 units and are tied to the three-year performance period ending December 31, 2021. 2018 PCSU. As of December 31, 2019, the 2018 PCSUs to be awarded are estimated to range from 0 to 253,962 units and are tied to the three-year performance period ending December 31, 2020. 2017 PCSU. The performance cycle for the 2017 PCSUs was completed on December 31, 2019. Out- standing stock units of 84,522 units were determined to have been earned. The fair value of these units was $5,217 as of December 31, 2019. 2016 PCSU. The performance cycle for the 2016 PCSUs was completed on December 31, 2018. Out- standing stock units of 132,534 units were determined to have been earned, all of which qualified for vesting on December 31, 2018. The fair value of these units was $7,042 as of December 31, 2018. 2015 PCSU. The performance cycle for the 2015 PCSUs was completed on December 31, 2017. Out- standing stock units of 135,695 units were determined to have been earned, all of which qualified for vesting on December 31, 2017. The fair value of these units was $7,211 as of December 31, 2017. The weighted-average grant-date fair value of PCSUs granted was $56.04, $46.33, and $50.11 per share in 2019, 2018 and 2017, respectively. Noncash stock-based compensation associated with PCSUs totaled $5,171, $4,725 and $3,896 for 2019, 2018 and 2017, respectively. As of December 31, 2019, there was approximately $6,806 of total unrecognized compensation cost related to nonvested PCSUs. This cost is expected to be recognized over a weighted-average period of 19 months. Restricted stock awards During 2019, 2018 and 2017, the Company granted awards of restricted stocks units (RSUs) to executive offi- cers and certain key management employees. These awards vest over a three-year period with one-third vest- ing on each anniversary date of the grant. Participants must be actively employed by the Company on the vesting date for shares to be issued, except in the event of the participant’s death, disability, or involuntary (or good rea- son) termination within two years of a change in control prior to full vesting, in which case shares will immediately vest. Once vested, these awards do not expire. The Company from time to time grants special RSUs to certain of its executive officers and directors. These awards normally vest over a five-year period with one-third vesting on each of the third, fourth and fifth anniversaries of the grant, but in some circumstances may vest over a shorter period, or cliff vest at the end of the five-year period. A participant must be actively employed by, or serving as a director of, the Company on the vesting date for shares to be issued. However, certain award agree- ments provide that in the event of the participant’s death, disability or retirement prior to full vesting, shares would be issued on a pro rata basis up through the time the partic- ipant’s employment or service ceases. Officers and directors can elect to defer receipt of RSUs, but key management employees are required to take receipt of stock issued. The weighted-average grant- date fair value of RSUs granted was $57.76, $48.36 and $51.68 per share in 2019, 2018 and 2017, respectively. The fair value of shares vesting during the year was $3,217, $6,900, and $2,790 for 2019, 2018 and 2017, respectively. Noncash stock-based compensation associated with restricted stock grants totaled $3,351, $2,138 and $3,554 for 2019, 2018 and 2017, respectively. As of December 31, 2019, there was $3,768 of total unrecog- nized compensation cost related to nonvested restricted stock units. This cost is expected to be recognized over a weighted-average period of 33 months. The activity related to restricted stock units is as fol- lows: Nonvested Vested Total Average grant date fair value per share Outstanding, December 31, 2018 Granted Vested Converted Cancelled Dividend 158,381 69,686 (54,352) 151,414 309,795 — 69,686 — — (114,981) (114,981) — (18,701) 54,352 (18,701) $38.41 $57.76 $40.00 $50.69 equivalents 1,563 3,923 5,486 $60.71 Outstanding, December 31, 2019 156,577 94,708 251,285 $46.14 Deferred compensation plans Certain officers of the Company receive a portion of their compensation, either current or deferred, in the form of stock equivalent units. Units are granted as of the day the cash compensation would have otherwise been paid 2019 PCSU. As of December 31, 2019, the 2019 PCSUs to be awarded are estimated to range from 0 to 228,650 units and are tied to the three-year performance period ending December 31, 2021. 2018 PCSU. As of December 31, 2019, the 2018 PCSUs to be awarded are estimated to range from 0 to 253,962 units and are tied to the three-year performance period ending December 31, 2020. 2017 PCSU. The performance cycle for the 2017 PCSUs was completed on December 31, 2019. Out- standing stock units of 84,522 units were determined to have been earned. The fair value of these units was $5,217 as of December 31, 2019. 2016 PCSU. The performance cycle for the 2016 PCSUs was completed on December 31, 2018. Out- standing stock units of 132,534 units were determined to have been earned, all of which qualified for vesting on December 31, 2018. The fair value of these units was $7,042 as of December 31, 2018. 2015 PCSU. The performance cycle for the 2015 PCSUs was completed on December 31, 2017. Out- standing stock units of 135,695 units were determined to have been earned, all of which qualified for vesting on December 31, 2017. The fair value of these units was $7,211 as of December 31, 2017. The weighted-average grant-date fair value of PCSUs granted was $56.04, $46.33, and $50.11 per share in 2019, 2018 and 2017, respectively. Noncash stock-based compensation associated with PCSUs totaled $5,171, $4,725 and $3,896 for 2019, 2018 and 2017, respectively. As of December 31, 2019, there was approximately $6,806 of total unrecognized compensation cost related to nonvested PCSUs. This cost is expected to be recognized over a weighted-average period of 19 months. Restricted stock awards During 2019, 2018 and 2017, the Company granted awards of restricted stocks units (RSUs) to executive offi- cers and certain key management employees. These awards vest over a three-year period with one-third vest- ing on each anniversary date of the grant. Participants must be actively employed by the Company on the vesting date for shares to be issued, except in the event of the participant’s death, disability, or involuntary (or good rea- son) termination within two years of a change in control prior to full vesting, in which case shares will immediately vest. Once vested, these awards do not expire. The Company from time to time grants special RSUs to certain of its executive officers and directors. These awards normally vest over a five-year period with one-third vesting on each of the third, fourth and fifth anniversaries of the grant, but in some circumstances may vest over a shorter period, or cliff vest at the end of the five-year period. A participant must be actively employed by, or serving as a director of, the Company on the vesting date for shares to be issued. However, certain award agree- ments provide that in the event of the participant’s death, disability or retirement prior to full vesting, shares would be issued on a pro rata basis up through the time the partic- ipant’s employment or service ceases. Officers and directors can elect to defer receipt of RSUs, but key management employees are required to take receipt of stock issued. The weighted-average grant- date fair value of RSUs granted was $57.76, $48.36 and $51.68 per share in 2019, 2018 and 2017, respectively. The fair value of shares vesting during the year was $3,217, $6,900, and $2,790 for 2019, 2018 and 2017, respectively. Noncash stock-based compensation associated with restricted stock grants totaled $3,351, $2,138 and $3,554 for 2019, 2018 and 2017, respectively. As of December 31, 2019, there was $3,768 of total unrecog- nized compensation cost related to nonvested restricted stock units. This cost is expected to be recognized over a weighted-average period of 33 months. The activity related to restricted stock units is as fol- lows: Nonvested Vested Total value per share Average grant date fair Outstanding, December 31, 2018 Granted Vested Converted Cancelled Dividend Outstanding, December 31, 158,381 151,414 309,795 69,686 (54,352) — 69,686 54,352 — — (114,981) (114,981) (18,701) — (18,701) $38.41 $57.76 $40.00 $50.69 equivalents 1,563 3,923 5,486 $60.71 2019 156,577 94,708 251,285 $46.14 Deferred compensation plans Certain officers of the Company receive a portion of their compensation, either current or deferred, in the form of stock equivalent units. Units are granted as of the day the cash compensation would have otherwise been paid F-24 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-24 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K using the closing price of the Company’s common stock on that day. Deferrals into stock equivalent units are con- dependents in the United States and Canada, based on certain age and/or service eligibility requirements. verted into phantom stock equivalents as if Sonoco shares were actually purchased. The units immediately vest and earn dividend equivalents. Units are distributed in the form of common stock upon retirement over a period elected by the employee. Non-employee directors may elect to defer a portion of their cash retainer or other fees (except chair retainers) 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 Con- tribution (SRC), to their participant accounts in the Sonoco into phantom stock equivalent units as if Sonoco shares Retirement and Savings Plan. were actually purchased. The deferred stock equivalent units accrue dividend equivalents, and are issued in On February 4, 2009, the U.S. qualified defined benefit pension plan was further amended to freeze plan benefits shares of Sonoco common stock six months following for all active, non-union participants effective termination of Board service. Directors must elect to receive these deferred distributions in one, three or five December 31, 2018. Remaining active participants in the U.S. qualified plan became eligible for SRC contributions annual installments. effective January 1, 2019. The components of net periodic benefit cost include using the closing price of the Company’s common stock on that day. Deferrals into stock equivalent units are con- verted into phantom stock equivalents as if Sonoco shares were actually purchased. The units immediately vest and earn dividend equivalents. Units are distributed in the form of common stock upon retirement over a period elected by the employee. Non-employee directors may elect to defer a portion of their cash retainer or other fees (except chair retainers) into phantom stock equivalent units as if Sonoco shares were actually purchased. The deferred stock equivalent units accrue dividend equivalents, and are issued in shares of Sonoco common stock six months following termination of Board service. Directors must elect to receive these deferred distributions in one, three or five annual installments. 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 Con- tribution (SRC), to their participant accounts in the Sonoco Retirement and Savings Plan. On February 4, 2009, the U.S. qualified defined benefit pension plan was further 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 activity related to deferred compensation for equity award units granted to both employees and non-employee the following: directors combined is as follows: Outstanding, December 31, 2018 Deferred Converted Dividend equivalents Outstanding, December 31, 2019 Total 390,354 46,065 (80,288) 11,016 367,147 Retirement plans Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial loss Effect of settlement loss Effect of curtailment Deferred compensation for employees and directors of $2,585, $1,452, and $2,850, which will be settled in Company stock at retirement, was deferred during 2019, Net periodic benefit 2018, and 2017, respectively. loss cost 13. Employee benefit plans Retirement plans and retiree health and life insurance plans The Company provides non-contributory defined bene- fit pension plans for certain of its employees in the United States, Mexico, Belgium, Germany, Greece, France, and Turkey. The Company also sponsors contributory defined benefit pension plans covering certain of its employees in the United Kingdom, Canada and the Netherlands, and provides postretirement healthcare and life insurance benefits to a limited number of its retirees and their Retiree health and life insurance plans Service cost Interest cost Expected return on plan assets Amortization of prior service credit Amortization of net actuarial gain Net periodic benefit income 2019 2018 2017 $ 3,968 57,348 $ 18,652 54,970 $ 18,543 55,873 (65,143) (91,021) (81,212) 1,022 916 910 30,681 2,377 37,391 730 39,209 32,761 — 256 — $ 30,253 $ 21,894 $ 66,084 $ $ 308 467 $ 297 452 313 463 (718) (1,135) (1,636) (498) (498) (823) (1,120) (499) (759) $ (1,264) $ (2,004) $ (2,118) The activity related to deferred compensation for equity award units granted to both employees and non-employee directors combined is as follows: the following: Outstanding, December 31, 2018 Deferred Converted Dividend equivalents Outstanding, December 31, 2019 Total 390,354 46,065 (80,288) 11,016 367,147 Deferred compensation for employees and directors of $2,585, $1,452, and $2,850, which will be settled in Company stock at retirement, was deferred during 2019, 2018, and 2017, respectively. 13. Employee benefit plans Retirement plans and retiree health and life insurance plans The Company provides non-contributory defined bene- fit pension plans for certain of its employees in the United States, Mexico, Belgium, Germany, Greece, France, and Turkey. The Company also sponsors contributory defined benefit pension plans covering certain of its employees in the United Kingdom, Canada and the Netherlands, and provides postretirement healthcare and life insurance benefits to a limited number of its retirees and their Retirement plans Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial loss Effect of settlement loss Effect of curtailment loss Net periodic benefit cost Retiree health and life insurance plans Service cost Interest cost Expected return on plan assets Amortization of prior service credit Amortization of net actuarial gain Net periodic benefit income 2019 2018 2017 $ 3,968 57,348 $ 18,652 54,970 $ 18,543 55,873 (65,143) (91,021) (81,212) 1,022 916 910 30,681 2,377 37,391 730 39,209 32,761 — 256 — $ 30,253 $ 21,894 $ 66,084 $ $ 308 467 $ 297 452 313 463 (718) (1,135) (1,636) (498) (498) (823) (1,120) (499) (759) $ (1,264) $ (2,004) $ (2,118) The following tables set forth the Plans’ obligations and assets at December 31: The following tables set forth the Plans’ obligations and assets at December 31: Change in benefit obligation Benefit obligation at January 1 Service cost Interest cost Plan participant contributions Plan amendments Actuarial loss/(gain) Benefits paid Effect of settlements Effect of curtailments Acquisitions Impact of foreign exchange rates Retirement plans Retiree health and life insurance plans 2019 2018 2019 2018 224 429 1,343 3,968 54,970 57,348 18,652 $1,684,277 $1,837,938 $14,048 $15,691 297 452 620 — (398) (2,569) (45) — — — 308 467 680 — 589 (1,621) 24 — — — (115,153) (92,636) 316,547 (93,053) (21,636) (8,101) 11,952 (2,210) 4,438 1,275 (253) 155 — Change in benefit obligation Benefit obligation at January 1 Service cost Interest cost Plan participant contributions Plan amendments Actuarial loss/(gain) Benefits paid Impact of foreign exchange rates Effect of settlements Effect of curtailments Acquisitions Retirement plans Retiree health and life insurance plans 2019 2018 2019 2018 $1,684,277 $1,837,938 $14,048 $15,691 297 452 620 — (398) (2,569) (45) — — — 18,652 54,970 429 155 (115,153) (93,053) (21,636) (2,210) (253) 4,438 3,968 57,348 224 1,343 316,547 (92,636) 11,952 (8,101) — 1,275 308 467 680 — 589 (1,621) 24 — — — Benefit obligation at December 31 $1,976,197 $1,684,277 $14,495 $14,048 Benefit obligation at December 31 $1,976,197 $1,684,277 $14,495 $14,048 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-25 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-25 Retirement plans Retiree health and life insurance plans 2019 2018 2019 2018 Change in plan assets Fair value of plan assets at January 1 $1,318,832 $1,494,713 $10,919 $ 27,177 The negative contribution reported in 2018 for the Company’s Retiree Health and Life Insurance Plans reflects $14,025 of cash withdrawn from a collectively bargained VEBA in 2018 pursuant to an IRS private letter ruling dated April 1, 2018, permitting the Company to amend the VEBA to provide benefits to active, non-collectively bargained employees in addition to retired collectively bargained employees. Change in plan assets Fair value of plan assets at January 1 $1,318,832 $1,494,713 $10,919 $ 27,177 Retirement plans life insurance plans Company’s Retiree Health and Life Insurance Plans Retiree health and The negative contribution reported in 2018 for the 2019 2018 2019 2018 Retirement plans Retiree health and life insurance plans 2019 2018 2019 2018 Actual return on plan assets Company 242,823 (78,447) 2,327 (915) contributions 215,979 24,524 682 (13,302) Actual return on plan assets Company 242,823 (78,447) 2,327 (915) contributions 215,979 24,524 682 (13,302) Plan participant contributions Benefits paid Impact of foreign exchange rates Effect of settlements Expenses paid Acquisitions Fair value of 224 (92,636) 429 (93,053) 680 (1,621) 620 (2,569) 12,869 (22,380) — (8,101) (7,084) 614 (2,210) (6,670) 1,926 — (106) — — — (92) — Total recognized amounts in the consolidated balance sheets Noncurrent assets Current liabilities Noncurrent liabilities $ 24,196 $ 18,520 $ — $ — (983) (12,935) (13,913) (784) (302,960) (371,030) (830) (2,146) Net liability $(292,677) $(365,445) $(1,614) $(3,129) Plan participant contributions Benefits paid Impact of foreign exchange rates Effect of settlements Expenses paid Acquisitions Fair value of plan assets at December 31$1,683,520 $1,318,832 $12,881 $ 10,919 Funded status of the plans $ (292,677)$ (365,445)$ (1,614)$ (3,129) Items not yet recognized as a component of net peri- odic pension cost that are included in Accumulated Other Comprehensive Loss (Income) as of December 31, 2019 and 2018, are as follows: plan assets at December 31$1,683,520 $1,318,832 $12,881 $ 10,919 Funded status of the plans $ (292,677)$ (365,445)$ (1,614)$ (3,129) Items not yet recognized as a component of net peri- odic pension cost that are included in Accumulated Other Comprehensive Loss (Income) as of December 31, 2019 and 2018, are as follows: Retirement plans Retiree health and life insurance plans 2019 2018 2019 2018 $759,610 $646,254 $(7,055) $(6,964) Net actuarial loss/(gain) Prior service cost/(credit) 6,159 5,514 (279) (777) $765,769 $651,768 $(7,334) $(7,741) The amounts recognized in Other Comprehensive Loss/(Income) include the following: The amounts recognized in Other Comprehensive Loss/(Income) include the following: Retirement plans Retiree health and life insurance plans 2019 2018 2017 2019 2018 2017 Adjustments arising during the period: Net actuarial loss/(gain) Prior service cost/(credit) Net settlements/curtailments Reversal of amortization: Net actuarial (loss)/gain Prior service (cost)/credit $146,414 $ 58,544 $(10,732) $(914) $1,738 $(3,525) — 639 — (32,761) 1,667 (2,377) 2,906 (986) — — — — (30,681) (1,022) (37,391) (916) (39,209) (910) 823 498 1,120 498 759 499 Adjustments arising during the period: Net actuarial loss/(gain) Prior service cost/(credit) Net settlements/curtailments Reversal of amortization: Net actuarial (loss)/gain Prior service (cost)/credit Total recognized in other comprehensive loss/(income) $114,001 $ 22,157 $(82,973) $ 407 $3,356 $(2,267) Total recognized in other comprehensive loss/(income) $114,001 $ 22,157 $(82,973) $ 407 $3,356 $(2,267) Total recognized in net periodic benefit cost and other Total recognized in net periodic benefit cost and other comprehensive loss/(income) $144,254 $ 44,051 $(16,889) $(857) $1,352 $(4,385) comprehensive loss/(income) $144,254 $ 44,051 $(16,889) $(857) $1,352 $(4,385) F-26 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-26 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K reflects $14,025 of cash withdrawn from a collectively bargained VEBA in 2018 pursuant to an IRS private letter ruling dated April 1, 2018, permitting the Company to amend the VEBA to provide benefits to active, non-collectively bargained employees in addition to retired collectively bargained employees. Retiree health and Retirement plans life insurance plans 2019 2018 2019 2018 224 429 680 620 (92,636) (93,053) (1,621) (2,569) 12,869 (22,380) (8,101) (7,084) 614 (2,210) (6,670) 1,926 — — — (106) — — (92) — Current liabilities (13,913) (12,935) (784) (983) $ 24,196 $ 18,520 $ — $ — (302,960) (371,030) (830) (2,146) Net liability $(292,677) $(365,445) $(1,614) $(3,129) Total recognized amounts in the consolidated balance sheets Noncurrent assets Noncurrent liabilities Retiree health and Retirement plans life insurance plans 2019 2018 2019 2018 $759,610 $646,254 $(7,055) $(6,964) Net actuarial loss/(gain) Prior service cost/(credit) 6,159 5,514 (279) (777) $765,769 $651,768 $(7,334) $(7,741) Retirement plans Retiree health and life insurance plans 2019 2018 2017 2019 2018 2017 $146,414 $ 58,544 $(10,732) $(914) $1,738 $(3,525) 1,667 (2,377) 2,906 639 (986) (32,761) — — — — (30,681) (37,391) (39,209) (1,022) (916) (910) 823 498 1,120 498 — — 759 499 Of the amounts included in Accumulated Other Com- prehensive Loss/(Income) as of December 31, 2019, the portions the Company expects to recognize as compo- nents of net periodic benefit cost in 2020 are as follows: Net actuarial loss/ Prior service cost/ (gain) (credit) Retirement Retiree health and plans life insurance plans $22,486 $ (808) 1,037 $23,523 (279) $(1,087) The accumulated benefit obligation for all defined bene- fit plans was $1,959,010 and $1,668,396 at December 31, 2019 and 2018, respectively. The projected benefit obligation (PBO), accumulated benefit obligation (ABO) and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were, $1,658,018, $1,651,740 and $1,341,556, respectively, as of December 31, 2019, and $1,397,040, $1,391,129 and $1,013,173, respectively, as of December 31, 2018. The following table sets forth the Company’s projected benefit payments for the next ten years: and annuity purchases are made. 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 Active Plan, comprised of approximately 600 active participants who continue to accrue benefits in accordance with a flat-dollar multiplier formula. Settlement charges totaling $2,377 and $730 were recognized in 2019 and 2018, respectively, primarily as a result of payments made to certain participants of the Company’s Canadian pension plan who elected a lump-sum distribution option upon retirement. In February 2017, the Company initiated a program to settle a portion of the projected benefit obligation (PBO) relating to terminated vested participants in the U.S. quali- fied retirement plans through either a single, lump-sum payment or the purchase of an annuity. The terminated vested population comprised approximately 15% of the beginning of year PBO of these plans. The Company successfully settled approximately 47% of the PBO for the terminated vested plan participants. As a result of these and other smaller settlements, the Company recognized non-cash settlement charges of $32,761 in 2017. All settlement payments were funded from plan assets and did not require the Company to make any additional cash Retirement plans life insurance plans Retiree health and contributions. Assumptions Year 2020 2021 2022 2023 2024 2025-2029 $ 96,448 $ 93,436 $ 94,786 $ 95,830 $ 97,372 $508,354 $1,344 $1,305 $1,269 $1,230 $1,173 $5,344 Plan termination, settlements, changes and amendments In July 2019, the Company’s Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”), a tax-qualified defined benefit plan, effective September 30, 2019. Upon approval from the Pension Benefit Guaranty Corporation, and following completion of a limited lump sum offering, the Company is expected to settle all remain- ing liabilities under the Inactive Plan through the purchase of annuities. The Company anticipates making additional contributions to the Inactive Plan of approximately $150,000 in late 2020 or early 2021 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, pretax settlement charges totaling approximately $600,000 are expected to be recognized beginning in 2020 as the lump sum payouts The following tables set forth the major actuarial assumptions used in determining the benefit obligation and net periodic cost: Weighted- average assumptions used to determine benefit obligations at December 31 Discount rate 2019 2018 Rate of 2019 2018 compensation increase U.S. U.S. retiree health and retirement life insurance plans plans Foreign plans 2.87% 4.24% 2.89% 4.02% 2.28% 3.11% —% —% 3.04% 3.06% 3.37% 3.65% Of the amounts included in Accumulated Other Com- prehensive Loss/(Income) as of December 31, 2019, the portions the Company expects to recognize as compo- nents of net periodic benefit cost in 2020 are as follows: Net actuarial loss/ (gain) Prior service cost/ (credit) Retirement plans Retiree health and life insurance plans $22,486 $ (808) 1,037 $23,523 (279) $(1,087) The accumulated benefit obligation for all defined bene- fit plans was $1,959,010 and $1,668,396 at December 31, 2019 and 2018, respectively. The projected benefit obligation (PBO), accumulated benefit obligation (ABO) and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were, $1,658,018, $1,651,740 and $1,341,556, respectively, as of December 31, 2019, and $1,397,040, $1,391,129 and $1,013,173, respectively, as of December 31, 2018. The following table sets forth the Company’s projected benefit payments for the next ten years: Year 2020 2021 2022 2023 2024 2025-2029 Retirement plans Retiree health and life insurance plans $ 96,448 $ 93,436 $ 94,786 $ 95,830 $ 97,372 $508,354 $1,344 $1,305 $1,269 $1,230 $1,173 $5,344 Plan termination, settlements, changes and amendments In July 2019, the Company’s Board of Directors approved a resolution to terminate the Sonoco Pension Plan for Inactive Participants (the “Inactive Plan”), a tax-qualified defined benefit plan, effective September 30, 2019. Upon approval from the Pension Benefit Guaranty Corporation, and following completion of a limited lump sum offering, the Company is expected to settle all remain- ing liabilities under the Inactive Plan through the purchase of annuities. The Company anticipates making additional contributions to the Inactive Plan of approximately $150,000 in late 2020 or early 2021 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, pretax settlement charges totaling approximately $600,000 are expected to be recognized beginning in 2020 as the lump sum payouts and annuity purchases are made. 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 Active Plan, comprised of approximately 600 active participants who continue to accrue benefits in accordance with a flat-dollar multiplier formula. Settlement charges totaling $2,377 and $730 were recognized in 2019 and 2018, respectively, primarily as a result of payments made to certain participants of the Company’s Canadian pension plan who elected a lump-sum distribution option upon retirement. In February 2017, the Company initiated a program to settle a portion of the projected benefit obligation (PBO) relating to terminated vested participants in the U.S. quali- fied retirement plans through either a single, lump-sum payment or the purchase of an annuity. The terminated vested population comprised approximately 15% of the beginning of year PBO of these plans. The Company successfully settled approximately 47% of the PBO for the terminated vested plan participants. As a result of these and other smaller settlements, the Company recognized non-cash settlement charges of $32,761 in 2017. All settlement payments were funded from plan assets and did not require the Company to make any additional cash contributions. Assumptions The following tables set forth the major actuarial assumptions used in determining the benefit obligation and net periodic cost: Weighted- average assumptions used to determine benefit obligations at December 31 Discount rate 2019 2018 Rate of compensation increase 2019 2018 U.S. retirement plans U.S. retiree health and life insurance plans Foreign plans 2.87% 4.24% 2.89% 4.02% 2.28% 3.11% —% —% 3.04% 3.06% 3.37% 3.65% S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-27 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-27 Weighted- average assumptions used to determine net periodic benefit cost for years ended December 31 Discount rate 2019 2018 2017 Expected long-term rate of return 2019 2018 2017 Rate of compensation increase 2019 2018 2017 U.S. retirement plans U.S. retiree health and life insurance plans Foreign plans 3.11% 2.78% 2.95% 4.62% 4.84% 4.52% 4.02% 3.36% 3.70% 6.73% 6.95% 6.98% 3.06% 3.28% 3.32% 3.65% 3.62% 3.65% 4.24% 3.59% 4.12% 6.63% 6.87% 6.86% —% 3.40% 3.60% The Company adjusts its discount rates at the end of each fiscal year based on yield curves of high-quality debt instruments over durations that match the expected bene- fit payouts of each plan. The discount rate used to calcu- late the benefit obligation and funded status of the Inactive Plan at December 31, 2019, was determined on a plan termination basis. The expected long-term rate of return assumption is based on the Company’s current and expected future portfolio mix by asset class, and expected nominal returns of these asset classes using an economic “building block” approach. Expectations for inflation and real interest rates are developed and various risk pre- miums are assigned to each asset class based primarily on historical performance. The expected long-term rate of return also gives consideration to the expected level of outperformance to be achieved on that portion of the Company’s investment portfolio under active manage- ment. The assumed rate of compensation increase reflects historical experience and management’s expectations regarding future salary and incentive increases. Medical trends The U.S. Retiree Health and Life Insurance Plan makes up approximately 96% of the Retiree Health liability. There- fore, the following information relates to the U.S. plan only. Healthcare cost trend rate 2019 2018 Pre-age 65 Post-age 65 6.25% 6.50% 6.25% 6.50% Ultimate trend rate 2019 2018 Year at which the rate reaches the ultimate trend rate 2019 2018 Pre-age 65 Post-age 65 4.50% 4.50% 4.50% 4.50% Pre-age 65 Post-age 65 2026 2026 2026 2026 Increasing the assumed trend rate for healthcare costs by one percentage point would increase the accumulated postretirement benefit obligation (the APBO) and total serv- ice and interest cost component approximately $124 and $12, respectively. Decreasing the assumed trend rate for healthcare costs by one percentage point would decrease the APBO and total service and interest cost component approximately $115 and $11, respectively. Based on amendments to the U.S. plan approved in 1999, which became effective in 2003, cost increases borne by the Company are limited to the Urban CPI, as defined. Retirement plan assets The following table sets forth the weighted-average asset allocations of the Company’s retirement plans at 2019 and 2018, by asset category. Asset category Equity securities Debt securities Alternative Cash and short- term investments Total U.S. —% 48.3% 91.6% 38.4% 5.7% 13.3% U.K. Canada 42.1% 38.9% 57.3% 60.5% —% —% 67.9% 55.4% 31.6% 44.0% —% —% 2.7% —% 0.6% 0.6% 0.5% 0.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 The Company employs a total-return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a desired level of risk. Alternative assets such as real estate funds, private equity funds and hedge funds may also be used to enhance expected long-term returns while improving portfolio diversification. Risk toler- ance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews and periodic asset/liability studies. The assets of the Compa- ny’s U.S. pension plans were subject to de-risking meas- ures during 2019 and reallocated to a more conservative mix of primarily fixed income investments pending the annuitization of the Inactive Plan expected in late 2020 or early 2021. At December 31, 2019, postretirement benefit plan assets totaled $1,696,401, of which $1,322,822 were assets of the U.S. Defined Benefit Plans. U.S. defined benefit plans The Company completed separate asset/liability stud- ies for both the Active Plan and Inactive Plan during 2011 and adopted investment guidelines for each. These guide- lines established a dynamic de-risking framework for gradually shifting the allocation of assets to long-duration domestic fixed income from equity and other asset categories, as the relative funding ratio of each plan increased over time. Beginning in 2019, the Company accelerated the de-risking measures in its U.S. defined benefit plans by making voluntary contributions totaling $200,000 to the plans and by reallocating plan assets to a more conservative mix of primarily fixed income retirement life insurance Foreign approximately $115 and $11, respectively. Based on plans plans amendments to the U.S. plan approved in 1999, which Weighted- average assumptions used to determine net periodic benefit cost for years ended December 31 Discount rate 2019 2018 2017 Expected long-term rate of return 2019 2018 2017 Rate of compensation increase 2019 2018 2017 U.S. plans 4.24% 3.59% 4.12% 6.63% 6.87% 6.86% —% 3.40% 3.60% U.S. retiree health and 4.02% 3.36% 3.70% 6.73% 6.95% 6.98% 3.11% 2.78% 2.95% 4.62% 4.84% 4.52% 3.06% 3.28% 3.32% 3.65% 3.62% 3.65% The Company adjusts its discount rates at the end of each fiscal year based on yield curves of high-quality debt instruments over durations that match the expected bene- fit payouts of each plan. The discount rate used to calcu- late the benefit obligation and funded status of the Inactive Plan at December 31, 2019, was determined on a plan termination basis. The expected long-term rate of return assumption is based on the Company’s current and expected future portfolio mix by asset class, and expected nominal returns of these asset classes using an economic “building block” approach. Expectations for inflation and real interest rates are developed and various risk pre- miums are assigned to each asset class based primarily on historical performance. The expected long-term rate of return also gives consideration to the expected level of outperformance to be achieved on that portion of the Company’s investment portfolio under active manage- ment. The assumed rate of compensation increase reflects historical experience and management’s expectations regarding future salary and incentive increases. Medical trends The U.S. Retiree Health and Life Insurance Plan makes up approximately 96% of the Retiree Health liability. There- fore, the following information relates to the U.S. plan only. early 2021. Healthcare cost trend rate 2019 2018 Pre-age 65 Post-age 65 6.25% 6.50% 6.25% 6.50% Ultimate trend rate 2019 2018 Year at which the rate reaches the ultimate trend rate 2019 2018 Pre-age 65 Post-age 65 4.50% 4.50% 4.50% 4.50% Pre-age 65 Post-age 65 2026 2026 2026 2026 Increasing the assumed trend rate for healthcare costs by one percentage point would increase the accumulated postretirement benefit obligation (the APBO) and total serv- ice and interest cost component approximately $124 and $12, respectively. Decreasing the assumed trend rate for healthcare costs by one percentage point would decrease the APBO and total service and interest cost component became effective in 2003, cost increases borne by the Company are limited to the Urban CPI, as defined. Retirement plan assets The following table sets forth the weighted-average asset allocations of the Company’s retirement plans at 2019 and 2018, by asset category. Asset category Equity securities Debt securities Alternative Cash and short- term investments Total U.S. —% 48.3% 91.6% 38.4% 5.7% 13.3% U.K. Canada 42.1% 38.9% 57.3% 60.5% —% —% 67.9% 55.4% 31.6% 44.0% —% —% 2.7% —% 0.6% 0.6% 0.5% 0.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 The Company employs a total-return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a desired level of risk. Alternative assets such as real estate funds, private equity funds and hedge funds may also be used to enhance expected long-term returns while improving portfolio diversification. Risk toler- ance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews and periodic asset/liability studies. The assets of the Compa- ny’s U.S. pension plans were subject to de-risking meas- ures during 2019 and reallocated to a more conservative mix of primarily fixed income investments pending the annuitization of the Inactive Plan expected in late 2020 or At December 31, 2019, postretirement benefit plan assets totaled $1,696,401, of which $1,322,822 were assets of the U.S. Defined Benefit Plans. U.S. defined benefit plans The Company completed separate asset/liability stud- ies for both the Active Plan and Inactive Plan during 2011 and adopted investment guidelines for each. These guide- lines established a dynamic de-risking framework for gradually shifting the allocation of assets to long-duration domestic fixed income from equity and other asset categories, as the relative funding ratio of each plan increased over time. Beginning in 2019, the Company accelerated the de-risking measures in its U.S. defined benefit plans by making voluntary contributions totaling $200,000 to the plans and by reallocating plan assets to a more conservative mix of primarily fixed income F-28 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-28 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K investments. Subsequent to these de-risking actions, the Inactive Plan was terminated effective September 30, 2019. The current target allocation (midpoint) for the Inactive Plan investment portfolio is: Debt Securities – 97% and Cash – 3%. The current target allocation (midpoint) for the Active Plan investment portfolio is: Debt participant contributions of 1% to 100% of gross pay. Since January 1, 2010, the Company has matched 50% on the first 4% of compensation contributed by the partic- ipant as pretax contributions which are immediately fully vested. The Company’s expenses related to the plan for 2019, 2018 and 2017 were approximately $13,400, Securities – 97% and Cash – 3%. $12,500 and $11,200, respectively. investments. Subsequent to these de-risking actions, the Inactive Plan was terminated effective September 30, 2019. The current target allocation (midpoint) for the Inactive Plan investment portfolio is: Debt Securities – 97% and Cash – 3%. The current target allocation (midpoint) for the Active Plan investment portfolio is: Debt Securities – 97% and Cash – 3%. United Kingdom defined benefit plan The equity investments consist of direct ownership and funds and are diversified among U.K. and international stocks of small and large capitalizations. The current tar- get allocation (midpoint) for the investment portfolio is: Equity Securities – 42% and Debt Securities – 58%. Canada defined benefit plan The equity investments consist of direct ownership and funds and are diversified among Canadian and interna- tional stocks of primarily large capitalizations and short to intermediate duration corporate and government bonds. The current target allocation (midpoint) for the investment portfolio is: Equity Securities – 55%, Debt Securities – 44% and Cash – 1%. Retiree health and life insurance plan assets The following table sets forth the weighted-average asset allocations by asset category of the Company’s retiree health and life insurance plan. Asset category Equity securities Debt securities Alternative Cash Total Contributions 2019 —% 91.6% 5.7% 2.7% 2018 48.3% 38.4% 13.3% —% 100.0% 100.0% presented. 14. Income taxes Pretax income Domestic Foreign Total pretax income Current Federal State Foreign Deferred Federal State Foreign Based on current actuarial estimates, the Company anticipates that contributions to its defined benefit plans, excluding the Inactive Plan, will be approximately $25,000 in 2020. Contributions to the Inactive Plan of approx- imately $150,000 are expected to be made in late 2020 or early 2021 in order for the plan to be fully funded on a termination basis at the time of the annuity purchase. No assurances can be made, however, about funding requirements beyond 2020, as they will depend largely on actual investment returns, future actuarial assumptions, and timing of annuity purchases. Sonoco Savings and Retirement Plan The Sonoco Savings and Retirement Plan is a defined contribution retirement plan provided for certain of the Company’s U.S. employees. The plan is comprised of both an elective and non-elective component. The elective component of the plan, which is designed to meet the requirements of section 401(k) of the Internal Revenue Code, allows participants to set aside a portion of their wages and salaries for retirement and encourages saving by matching a portion of their contributions with contributions from the Company. The plan provides for The non-elective component of the plan, the Sonoco Retirement Contribution (SRC), is available to certain employees who are not currently active participants in the Company’s U.S. qualified defined benefit pension plan. The SRC provides for an annual Company contribution of 4% of all eligible pay plus 4% of eligible pay in excess of the Social Security wage base to eligible participant accounts. Participants are fully vested after three years of service or upon reaching age 55, if earlier. The Company’s expenses related to the plan for 2019, 2018 and 2017 were approximately $23,752, $14,995 and $14,540, respectively. Cash contributions to the SRC totaled $14,573, $14,151 and $14,066 in 2019, 2018 and 2017, respectively, and are expected to total approximately $23,000 in 2020. Other plans The Company also provides retirement and postretirement benefits to certain other non-U.S. employees through various Company-sponsored and local government sponsored defined contribution arrangements. For the most part, the liabilities related to these arrangements are funded in the period they arise. The Company’s expenses for these plans were not material for all years The provision for taxes on income for the years ended December 31 consists of the following: 2019 2018 2017 $217,098 163,668 $225,442 153,089 $168,180 146,374 $380,766 $378,531 $314,554 $ 14,933 2,565 45,911 $ 37,345 6,164 38,648 $120,398 5,623 40,328 Total current $ 63,409 $ 82,157 $166,349 $ 25,064 8,599 (3,803) $ (5,571) $ (16,797) 3,499 (6,462) (738) (840) $ Total deferred $ 29,860 $ (7,149) $ (19,760) Total taxes $ 93,269 $ 75,008 $146,589 United Kingdom defined benefit plan The equity investments consist of direct ownership and funds and are diversified among U.K. and international stocks of small and large capitalizations. The current tar- get allocation (midpoint) for the investment portfolio is: Equity Securities – 42% and Debt Securities – 58%. Canada defined benefit plan The equity investments consist of direct ownership and funds and are diversified among Canadian and interna- tional stocks of primarily large capitalizations and short to intermediate duration corporate and government bonds. The current target allocation (midpoint) for the investment portfolio is: Equity Securities – 55%, Debt Securities – 44% and Cash – 1%. Retiree health and life insurance plan assets The following table sets forth the weighted-average asset allocations by asset category of the Company’s retiree health and life insurance plan. Asset category Equity securities Debt securities Alternative Cash Total Contributions 2019 —% 91.6% 5.7% 2.7% 2018 48.3% 38.4% 13.3% —% 100.0% 100.0% Based on current actuarial estimates, the Company anticipates that contributions to its defined benefit plans, excluding the Inactive Plan, will be approximately $25,000 in 2020. Contributions to the Inactive Plan of approx- imately $150,000 are expected to be made in late 2020 or early 2021 in order for the plan to be fully funded on a termination basis at the time of the annuity purchase. No assurances can be made, however, about funding requirements beyond 2020, as they will depend largely on actual investment returns, future actuarial assumptions, and timing of annuity purchases. Sonoco Savings and Retirement Plan The Sonoco Savings and Retirement Plan is a defined contribution retirement plan provided for certain of the Company’s U.S. employees. The plan is comprised of both an elective and non-elective component. The elective component of the plan, which is designed to meet the requirements of section 401(k) of the Internal Revenue Code, allows participants to set aside a portion of their wages and salaries for retirement and encourages saving by matching a portion of their contributions with contributions from the Company. The plan provides for participant contributions of 1% to 100% of gross pay. Since January 1, 2010, the Company has matched 50% on the first 4% of compensation contributed by the partic- ipant as pretax contributions which are immediately fully vested. The Company’s expenses related to the plan for 2019, 2018 and 2017 were approximately $13,400, $12,500 and $11,200, respectively. The non-elective component of the plan, the Sonoco Retirement Contribution (SRC), is available to certain employees who are not currently active participants in the Company’s U.S. qualified defined benefit pension plan. The SRC provides for an annual Company contribution of 4% of all eligible pay plus 4% of eligible pay in excess of the Social Security wage base to eligible participant accounts. Participants are fully vested after three years of service or upon reaching age 55, if earlier. The Company’s expenses related to the plan for 2019, 2018 and 2017 were approximately $23,752, $14,995 and $14,540, respectively. Cash contributions to the SRC totaled $14,573, $14,151 and $14,066 in 2019, 2018 and 2017, respectively, and are expected to total approximately $23,000 in 2020. Other plans The Company also provides retirement and postretirement benefits to certain other non-U.S. employees through various Company-sponsored and local government sponsored defined contribution arrangements. For the most part, the liabilities related to these arrangements are funded in the period they arise. The Company’s expenses for these plans were not material for all years presented. 14. Income taxes The provision for taxes on income for the years ended December 31 consists of the following: Pretax income Domestic Foreign Total pretax income Current Federal State Foreign Total current Deferred Federal State Foreign 2019 2018 2017 $217,098 163,668 $225,442 153,089 $168,180 146,374 $380,766 $378,531 $314,554 $ 14,933 2,565 45,911 $ 63,409 $ 37,345 6,164 38,648 $120,398 5,623 40,328 $ 82,157 $166,349 $ 25,064 8,599 (3,803) $ (5,571) $ (16,797) 3,499 $ (6,462) (738) (840) Total deferred $ 29,860 $ (7,149) $ (19,760) Total taxes $ 93,269 $ 75,008 $146,589 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-29 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-29 Deferred tax (liabilities)/assets are comprised of the following at December 31: 2019 2018 Property, plant and equipment Intangibles Leases $ (91,207) $(102,007) (178,883) — (134,868) (79,332) Gross deferred tax liabilities Retiree health benefits Foreign loss carryforwards U.S. Federal loss and credit carryforwards Capital loss carryforwards Employee benefits Leases Accrued liabilities and other $(305,407) $(280,890) $ 2,405 58,527 $ 2,989 57,581 86,748 2,703 87,295 79,673 63,700 86,655 2,757 114,872 — 102,349 Gross deferred tax assets $ 381,051 $ 367,203 Valuation allowance on deferred tax assets $(105,347) $(103,289) Total deferred taxes, net $ (29,703) $ (16,976) The Company has total federal net operating loss carry- forwards of approximately $77,200 remaining at December 31, 2019. These losses are limited based upon future taxable earnings of the respective entities and expire between 2030 and 2036. U.S. foreign tax credit carryforwards of approximately $70,400 exist at December 31, 2019 and expire in 2027. The Company is evaluating the feasibility of tax planning strategies which could allow a release of valuation allowance related to its foreign tax credits. A conclusion on this matter is expected to be reached in a subsequent quarter and it is reasonably possible that a benefit material to the Company’s financial statements will be recognized at that time. Foreign sub- sidiary loss carryforwards of approximately $238,600 remain at December 31, 2019. Their use is limited to future taxable earnings of the respective foreign sub- sidiaries or filing groups. Approximately $212,400 of these loss carryforwards do not have an expiration date. Of the remaining foreign subsidiary loss carryforwards, approx- imately $9,200 expire within the next five years and approximately $17,000 expire between 2025 and 2039. Foreign subsidiary capital loss carryforwards of approx- imately $15,800 exist at December 31, 2019 and do not have an expiration date. Their use is limited to future capi- tal gains of the respective foreign subsidiaries. Approximately $12,300 in tax value of state loss carry- forwards and $17,600 of state credit carryforwards remain at December 31, 2019. These state loss and credit carry- forwards are limited based upon future taxable earnings of the respective entities and expire between 2020 and 2039. State loss and credit carryforwards are reflected at their “tax” value, as opposed to the amount of expected gross deduction due to the vastly different apportionment and statutory tax rates applicable to the various entities and states in which the Company files. Deferred tax (liabilities)/assets are comprised of the carryforwards of approximately $70,400 exist at following at December 31: 2019 2018 Property, plant and equipment Intangibles Leases $ (91,207) $(102,007) (134,868) (79,332) (178,883) — Gross deferred tax liabilities Retiree health benefits Foreign loss carryforwards U.S. Federal loss and credit carryforwards Capital loss carryforwards Employee benefits Leases Accrued liabilities and other $(305,407) $(280,890) $ 2,405 58,527 $ 2,989 57,581 86,748 2,703 87,295 79,673 63,700 86,655 2,757 114,872 — 102,349 Gross deferred tax assets $ 381,051 $ 367,203 Valuation allowance on deferred tax assets $(105,347) $(103,289) Total deferred taxes, net $ (29,703) $ (16,976) The Company has total federal net operating loss carry- forwards of approximately $77,200 remaining at December 31, 2019. These losses are limited based upon future taxable earnings of the respective entities and expire between 2030 and 2036. U.S. foreign tax credit A reconciliation of the U.S. federal statutory tax rate to the actual consolidated tax expense is as follows: A reconciliation of the U.S. federal statutory tax rate to the actual consolidated tax expense is as follows: Statutory tax rate State income taxes, net of federal tax benefit Valuation allowance Tax examinations including change in reserve for uncertain tax positions Adjustments to prior year deferred taxes Foreign earnings taxed at other than U.S. rates Disposition of business Effect of tax rate changes Deduction related to qualified production activities Transition tax Tax credits Global intangible low-taxed income (GILTI) Foreign-derived intangible income Other, net 2019 2018 2017 $ 79,961 7,767 3,174 21.0% $ 79,491 2.0% 7,534 0.8% (14,902) 21.0% $110,094 4,780 (3,333) 2.0% (3.9)% (1,639) (499) 5,083 — 531 — — (13,310) 12,340 (1,225) 1,086 (0.4)% (0.1)% 1.3% —% 0.1% —% —% (3,076) (1,899) 8,224 — (6,218) 341 3,647 (3.5)% (10,083) 12,878 3.2% (1,174) (0.3)% 245 0.3% (0.8)% (0.5)% 2.2% —% (1.6)% 0.1% 1.0% (2.7)% 3.4% (0.3)% 0.1% 4,895 (1,415) (16,233) 537 (22,183) (5,384) 76,933 (1,197) — — (905) Total taxes $ 93,269 24.5% $ 75,008 19.8% $146,589 35.0% 1.5% (1.1)% 1.6% (0.4)% (5.2)% 0.2% (7.1)% (1.7)% 24.5% (0.4)% —% —% (0.3)% 46.6% Statutory tax rate State income taxes, net of federal tax benefit Valuation allowance Tax examinations including change in reserve for uncertain tax positions Adjustments to prior year deferred taxes Foreign earnings taxed at other than U.S. rates Disposition of business Effect of tax rate changes Deduction related to qualified production activities Transition tax Tax credits Global intangible low-taxed income (GILTI) Foreign-derived intangible income Other, net Total taxes $ 93,269 24.5% $ 75,008 19.8% $146,589 The total amount of the one-time transition tax on cer- tain accumulated foreign earnings as part of the Tax Cuts and Jobs Act (“Tax Act”) was $80,580. Under the provi- sions of the Tax Act, the transition tax is payable in installments over a period of 8 years. The first two install- ments were paid in 2018 and 2019 with the filing of the Company’s 2017 and 2018 federal income tax returns. The liability is further reduced by the deemed overpayment of federal income taxes. The remaining obligation of $46,295 is included in “Other Liabilities” in the Company’s Consolidated Balance Sheet at December 31, 2019. The total amount of the one-time transition tax on cer- tain accumulated foreign earnings as part of the Tax Cuts and Jobs Act (“Tax Act”) was $80,580. Under the provi- sions of the Tax Act, the transition tax is payable in installments over a period of 8 years. The first two install- ments were paid in 2018 and 2019 with the filing of the Company’s 2017 and 2018 federal income tax returns. The liability is further reduced by the deemed overpayment of federal income taxes. The remaining obligation of $46,295 is included in “Other Liabilities” in the Company’s Consolidated Balance Sheet at December 31, 2019. December 31, 2019 and expire in 2027. The Company is evaluating the feasibility of tax planning strategies which could allow a release of valuation allowance related to its foreign tax credits. A conclusion on this matter is expected to be reached in a subsequent quarter and it is reasonably possible that a benefit material to the Company’s financial statements will be recognized at that time. Foreign sub- sidiary loss carryforwards of approximately $238,600 remain at December 31, 2019. Their use is limited to future taxable earnings of the respective foreign sub- sidiaries or filing groups. Approximately $212,400 of these loss carryforwards do not have an expiration date. Of the remaining foreign subsidiary loss carryforwards, approx- imately $9,200 expire within the next five years and approximately $17,000 expire between 2025 and 2039. Foreign subsidiary capital loss carryforwards of approx- imately $15,800 exist at December 31, 2019 and do not have an expiration date. Their use is limited to future capi- tal gains of the respective foreign subsidiaries. Approximately $12,300 in tax value of state loss carry- forwards and $17,600 of state credit carryforwards remain at December 31, 2019. These state loss and credit carry- forwards are limited based upon future taxable earnings of the respective entities and expire between 2020 and 2039. State loss and credit carryforwards are reflected at their “tax” value, as opposed to the amount of expected gross deduction due to the vastly different apportionment and statutory tax rates applicable to the various entities and states in which the Company files. 2019 2018 2017 $ 79,961 21.0% $ 79,491 21.0% $110,094 7,767 3,174 2.0% 7,534 2.0% 0.8% (14,902) (3.9)% 4,780 (3,333) (1,639) (499) 5,083 — 531 — — (0.4)% (0.1)% 1.3% —% 0.1% —% —% (3,076) (1,899) 8,224 — (0.8)% (0.5)% 2.2% —% (6,218) (1.6)% 341 3,647 0.1% 1.0% (13,310) (3.5)% (10,083) (2.7)% 12,340 3.2% (1,225) (0.3)% 1,086 0.3% 12,878 3.4% (1,174) (0.3)% 245 0.1% 4,895 (1,415) (16,233) 537 (22,183) (5,384) 76,933 (1,197) — — (905) 35.0% 1.5% (1.1)% 1.6% (0.4)% (5.2)% 0.2% (7.1)% (1.7)% 24.5% (0.4)% —% —% (0.3)% 46.6% F-30 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-30 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K positions of approximately $1,800, $1,700 and $2,600 for uncertain items arising in 2019, 2018 and 2017, respectively, combined with adjustments related to prior year items, primarily decreases related to lapses of stat- utes of limitations in international, federal and state juris- dictions as well as overall changes in facts and judgment. These adjustments decreased the reserve by a total of approximately $(3,500), $(2,900) and $(2,300) in 2019, 2018 and 2017, respectively. In many of the countries in which the Company oper- ates, earnings are taxed at rates different than in the U.S. This difference is reflected in “Foreign earnings taxed at other than U.S. rates” along with other items, if any, that impacted taxes on foreign earnings in the periods pre- sented. The benefits included in “Adjustments to prior year deferred taxes” for each of the years presented consist primarily of adjustments to deferred tax assets and liabilities arising from changes in estimates. The 2017 benefit included in the “Effect of tax rate changes for the year” relates primarily to changes made as a result of the The 2018 benefits included in “Valuation allowance” includes a benefit of $16,100 related to the revaluation of the valuation allowance on foreign tax credits due to the Tax Act. Tax Act. Of the $13,310 of tax credits for 2019, $10,484 directly offsets the $12,340 of GILTI tax, resulting in a net GILTI tax of $1,856. This net GILTI tax includes a favorable adjustment for revising the estimate of net GILTI tax due on the 2018 tax return of $2,097. The Company maintains its assertion that its undis- tributed foreign earnings are indefinitely reinvested and, accordingly, has not recorded any deferred income tax liabilities that would be due if those earnings were repa- triated. As of December 31, 2019, these undistributed earnings total $916,457. While the majority of these earn- ings have already been taxed in the U.S., a portion would be subject to foreign withholding and U.S. income taxes and credits if distributed. Computation of the deferred tax liability associated with unremitted earnings deemed to be indefinitely reinvested is not practicable at this time. The change in “Tax examinations including change in Reserve for uncertain tax positions reserve for uncertain tax positions” is shown net of asso- ciated deferred taxes and accrued interest. Included in the The following table sets forth the reconciliation of the gross amounts of unrecognized tax benefits at the begin- change are net increases in reserves for uncertain tax ning and ending of the periods indicated: Gross unrecognized tax benefits at January 1 $14,400 $17,100 $17,700 2019 2018 2017 Increases in prior years’ unrecognized tax benefits Decreases in prior years’ unrecognized tax benefits Increases in current year’s unrecognized tax benefits Decreases in unrecognized tax benefits from the lapse of statutes of limitations Settlements — — 700 (1,300) (700) (2,400) 1,300 1,200 1,600 (2,300) 100 (2,600) (600) (300) (200) Gross unrecognized tax benefits at December 31 $12,200 $14,400 $17,100 Of the unrecognized tax benefit balances at December 31, 2019 and December 31, 2018, approx- imately $11,400 and $13,500, respectively, would have an impact on the effective tax rate if ultimately recognized. Interest and/or penalties related to income taxes are reported as part of income tax expense. The Company had approximately $2,000 and $2,100 accrued for interest related to uncertain tax positions at December 31, 2019 and December 31, 2018, respectively. Tax expense for the year ended December 31, 2019, includes approximately $600 of interest expense, which is comprised of an inter- est benefit of approximately $900 related to the adjust- ment of prior years’ items and interest expense of $1,500 on unrecognized tax benefits. The amounts listed above for accrued interest and interest expense do not reflect the benefit of a federal tax deduction which would be available if the interest were ultimately paid. Activity for the year also included $700 of settlements. The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and vari- ous foreign jurisdictions. With few exceptions, the Com- pany is no longer subject to income tax examinations by tax authorities for years before 2012. The Company believes that it is reasonably possible that the amount reserved for uncertain tax positions at December 31, 2019 will decrease by approximately $900 over the next twelve months. This change includes the anticipated increase in reserves related to existing posi- tions 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 The change in “Tax examinations including change in reserve for uncertain tax positions” is shown net of asso- ciated deferred taxes and accrued interest. Included in the change are net increases in reserves for uncertain tax positions of approximately $1,800, $1,700 and $2,600 for uncertain items arising in 2019, 2018 and 2017, respectively, combined with adjustments related to prior year items, primarily decreases related to lapses of stat- utes of limitations in international, federal and state juris- dictions as well as overall changes in facts and judgment. These adjustments decreased the reserve by a total of approximately $(3,500), $(2,900) and $(2,300) in 2019, 2018 and 2017, respectively. In many of the countries in which the Company oper- ates, earnings are taxed at rates different than in the U.S. This difference is reflected in “Foreign earnings taxed at other than U.S. rates” along with other items, if any, that impacted taxes on foreign earnings in the periods pre- sented. The benefits included in “Adjustments to prior year deferred taxes” for each of the years presented consist primarily of adjustments to deferred tax assets and liabilities arising from changes in estimates. The 2017 benefit included in the “Effect of tax rate changes for the year” relates primarily to changes made as a result of the Tax Act. The 2018 benefits included in “Valuation allowance” includes a benefit of $16,100 related to the revaluation of the valuation allowance on foreign tax credits due to the Tax Act. Of the $13,310 of tax credits for 2019, $10,484 directly offsets the $12,340 of GILTI tax, resulting in a net GILTI tax of $1,856. This net GILTI tax includes a favorable adjustment for revising the estimate of net GILTI tax due on the 2018 tax return of $2,097. The Company maintains its assertion that its undis- tributed foreign earnings are indefinitely reinvested and, accordingly, has not recorded any deferred income tax liabilities that would be due if those earnings were repa- triated. As of December 31, 2019, these undistributed earnings total $916,457. While the majority of these earn- ings have already been taxed in the U.S., a portion would be subject to foreign withholding and U.S. income taxes and credits if distributed. Computation of the deferred tax liability associated with unremitted earnings deemed to be indefinitely reinvested is not practicable at this time. Reserve for uncertain tax positions The following table sets forth the reconciliation of the gross amounts of unrecognized tax benefits at the begin- ning and ending of the periods indicated: Gross unrecognized tax benefits at January 1 Increases in prior 2019 2018 2017 $14,400 $17,100 $17,700 years’ unrecognized tax benefits Decreases in prior years’ unrecognized tax benefits Increases in current year’s unrecognized tax benefits Decreases in unrecognized tax benefits from the lapse of statutes of limitations Settlements — — 700 (1,300) (700) (2,400) 1,300 1,200 1,600 (2,300) 100 (2,600) (600) (300) (200) Gross unrecognized tax benefits at December 31 $12,200 $14,400 $17,100 Of the unrecognized tax benefit balances at December 31, 2019 and December 31, 2018, approx- imately $11,400 and $13,500, respectively, would have an impact on the effective tax rate if ultimately recognized. Interest and/or penalties related to income taxes are reported as part of income tax expense. The Company had approximately $2,000 and $2,100 accrued for interest related to uncertain tax positions at December 31, 2019 and December 31, 2018, respectively. Tax expense for the year ended December 31, 2019, includes approximately $600 of interest expense, which is comprised of an inter- est benefit of approximately $900 related to the adjust- ment of prior years’ items and interest expense of $1,500 on unrecognized tax benefits. The amounts listed above for accrued interest and interest expense do not reflect the benefit of a federal tax deduction which would be available if the interest were ultimately paid. Activity for the year also included $700 of settlements. The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and vari- ous foreign jurisdictions. With few exceptions, the Com- pany is no longer subject to income tax examinations by tax authorities for years before 2012. The Company believes that it is reasonably possible that the amount reserved for uncertain tax positions at December 31, 2019 will decrease by approximately $900 over the next twelve months. This change includes the anticipated increase in reserves related to existing posi- tions 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 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-31 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-31 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 effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations in many countries outside of the United States and the taxes paid 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 loss of those benefits 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 inter- company note made in 2012, and the subsequent repay- ment 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”) request- ing 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 dis- tribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the RAR would be approx- imately $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 sec- ond quarter of 2019, and has had continued discussions with IRS Appeals throughout the year. If the matter is not resolved in IRS Appeals, the next step would be to file a petition in Tax Court. The Company strongly believes the position of the IRS with regard to this matter is incon- sistent with applicable tax laws and existing Treasury regu- lations, and that the Company’s previously reported income tax provision for the year in question is appro- priate. 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 Com- pany 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. 15. Revenue recognition The Company records revenue when control is trans- ferred to the customer, which is either upon shipment or over time in cases where the Company is entitled to payment with margin for products produced that are cus- tomer specific without alternative use. The Company recognizes over time revenue under the input method as goods are produced. Revenue that is recognized at a point in time is recognized when the customer obtains control of the goods. Customers obtain control either when goods are delivered to the customer facility, if the Company is responsible for arranging transportation, or when picked up by the customer’s designated carrier. The Company commonly enters into Master Supply Arrange- ments (MSA) with customers to provide goods and/or services over specific time periods. Customers submit purchase orders with quantities and prices to create a contract for accounting purposes. Shipping and handling expenses are included in “Cost of Sales,” and freight charged to customers is included in “Net Sales” in the Company’s Consolidated Statements of Income. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of sales and are accrued using sales data and rebate percen- tages specific to each customer agreement. Accrued customer rebates are included in “Accrued expenses and other” in the Company’s Consolidated Balance Sheets. Payment terms under the Company’s arrangements are short term in nature, generally no longer than 120 days. The Company does provide prompt payment dis- counts 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 after the originating sale. The following table sets forth information about con- tract assets and liabilities from contracts with customers. The balances of the contract assets and liabilities are located in “Other receivables” and “Accrued expenses and other” on the Consolidated Balance Sheets. December 31, 2019 December 31, 2018 Contract assets Contract liabilities $ 56,364 $ 48,786 (17,047) (18,533) 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 effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations in many countries outside of the United States and the taxes paid 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 loss of those benefits 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 inter- company note made in 2012, and the subsequent repay- ment 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”) request- ing 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 dis- tribution, the entire distribution would be characterized as a dividend. The incremental tax liability associated with the income adjustment proposed in the RAR would be approx- imately $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 sec- ond quarter of 2019, and has had continued discussions with IRS Appeals throughout the year. If the matter is not resolved in IRS Appeals, the next step would be to file a petition in Tax Court. The Company strongly believes the position of the IRS with regard to this matter is incon- sistent with applicable tax laws and existing Treasury regu- lations, and that the Company’s previously reported income tax provision for the year in question is appro- priate. 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 Com- pany 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. 15. Revenue recognition The Company records revenue when control is trans- ferred to the customer, which is either upon shipment or over time in cases where the Company is entitled to payment with margin for products produced that are cus- tomer specific without alternative use. The Company recognizes over time revenue under the input method as goods are produced. Revenue that is recognized at a point in time is recognized when the customer obtains control of the goods. Customers obtain control either when goods are delivered to the customer facility, if the Company is responsible for arranging transportation, or when picked up by the customer’s designated carrier. The Company commonly enters into Master Supply Arrange- ments (MSA) with customers to provide goods and/or services over specific time periods. Customers submit purchase orders with quantities and prices to create a contract for accounting purposes. Shipping and handling expenses are included in “Cost of Sales,” and freight charged to customers is included in “Net Sales” in the Company’s Consolidated Statements of Income. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of sales and are accrued using sales data and rebate percen- tages specific to each customer agreement. Accrued customer rebates are included in “Accrued expenses and other” in the Company’s Consolidated Balance Sheets. Payment terms under the Company’s arrangements are short term in nature, generally no longer than 120 days. The Company does provide prompt payment dis- counts 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 after the originating sale. The following table sets forth information about con- tract assets and liabilities from contracts with customers. The balances of the contract assets and liabilities are located in “Other receivables” and “Accrued expenses and other” on the Consolidated Balance Sheets. December 31, 2019 December 31, 2018 Contract assets Contract liabilities $ 56,364 $ 48,786 (17,047) (18,533) F-32 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-32 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Significant changes in the contract assets and liabilities balances during the period were as follows: Significant changes in the contract assets and liabilities balances during the period were as follows: Beginning balance Revenue deferred or rebates accrued Recognized as revenue Rebates paid to customers but not billed during the period the period Increases due to rights to consideration for customer specific goods produced, Transferred to receivables from contract assets recognized at the beginning of Increase as a result of cumulative catch-up arising from changes in the estimate of completion, excluding amounts transferred to receivables during the period Impairment of contract asset Contract asset acquired in a business combination December 31, 2019 December 31, 2018 Contract Contract Contract asset liability asset Contract liability — (29,062) $ 48,786 $(18,533) $ 45,877 $(17,736) — (19,730) — 1,652 — 17,281 — 8,473 — 22,075 51,797 — 48,786 (48,786) — (45,877) — — 4,567 — — — — — — — — — — — Beginning balance Revenue deferred or rebates accrued Recognized as revenue Rebates paid to customers Increases due to rights to consideration for customer specific goods produced, but not billed during the period Transferred to receivables from contract assets recognized at the beginning of the period Increase as a result of cumulative catch-up arising from changes in the estimate of completion, excluding amounts transferred to receivables during the period Impairment of contract asset Contract asset acquired in a business combination December 31, 2019 December 31, 2018 Contract asset Contract liability Contract asset Contract liability $ 48,786 $(18,533) $ 45,877 $(17,736) — (19,730) — 1,652 — 17,281 — (29,062) — 8,473 — 22,075 51,797 — 48,786 (48,786) — (45,877) — — 4,567 — — — — — — — — — — — Ending balance $ 56,364 $(17,047) $ 48,786 $(18,533) Ending balance $ 56,364 $(17,047) $ 48,786 $(18,533) Contract assets and liabilities are generally short in duration given the nature of products produced by the Company. 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 receipts of advanced payments. For multi-year arrangements with pricing mechanisms, the Company will generally defer revenue during the initial term 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 The following tables set forth information about revenue disaggregated by primary geographic regions for the years ended December 31, 2019 and 2018. The tables also include a reconciliation of disaggregated revenue with reportable disclosed in Note 18. segments. 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 receipts of advanced payments. For multi-year arrangements with pricing mechanisms, the Company will generally defer revenue during the initial term 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 18. The following tables set forth information about revenue disaggregated by primary geographic regions for the years ended December 31, 2019 and 2018. The tables also include a reconciliation of disaggregated revenue with reportable segments. Twelve months ended December 31, 2019 Primary geographical markets: Total Twelve months ended December 31, 2019 Primary geographical markets: Consumer Packaging Display and Packaging Protective Solutions Paper and Industrial Converted Products $1,659,071 407,759 108,848 70,504 87,204 $246,735 301,866 — — 5,524 $1,095,437 $407,216 346,102 117,201 277,385 138,614 23,039 — 2,370 79,332 $3,408,459 1,078,766 226,049 350,259 310,674 United States Europe Canada Asia Pacific Other $2,333,386 $554,125 $1,974,739 $511,957 $5,374,207 Total Twelve months ended December 31, 2018 Primary geographical markets: Total Twelve months ended December 31, 2018 Primary geographical markets: Consumer Packaging Display and Packaging Protective Solutions Paper and Industrial Converted Products $1,676,204 418,129 115,183 69,242 81,241 $290,295 294,156 — — 7,858 $1,108,735 $415,135 354,705 131,025 178,509 137,979 25,664 — 3,548 83,330 $3,490,369 1,092,654 246,208 251,299 310,408 United States Europe Canada Asia Pacific Other $2,359,999 $592,309 $1,910,953 $527,677 $5,390,938 Total United States Europe Canada Asia Pacific Other Total United States Europe Canada Asia Pacific Other Total Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions Total $1,659,071 407,759 108,848 70,504 87,204 $246,735 301,866 — — 5,524 $1,095,437 346,102 117,201 277,385 138,614 $407,216 23,039 — 2,370 79,332 $3,408,459 1,078,766 226,049 350,259 310,674 $2,333,386 $554,125 $1,974,739 $511,957 $5,374,207 Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions Total $1,676,204 418,129 115,183 69,242 81,241 $290,295 294,156 — — 7,858 $1,108,735 354,705 131,025 178,509 137,979 $415,135 25,664 — 3,548 83,330 $3,490,369 1,092,654 246,208 251,299 310,408 $2,359,999 $592,309 $1,910,953 $527,677 $5,390,938 16. Commitments and contingencies 16. Commitments and contingencies Pursuant to U.S. GAAP, accruals for estimated losses are recorded at the time information becomes available indicat- ing that losses are probable and that the amounts are reasonably estimable. As is the case with other companies in sim- ilar 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. Pursuant to U.S. GAAP, accruals for estimated losses are recorded at the time information becomes available indicat- ing that losses are probable and that the amounts are reasonably estimable. As is the case with other companies in sim- ilar 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. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-33 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-33 Environmental matters The Company is subject to a variety of environmental and pollution control laws and regulations in all juris- dictions 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 Spartan- burg site was estimated to be $17,400 at the time of the 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 $1,611 on remediation of the Spartanburg site. Based on favorable developments at the Spartanburg site, the Company reduced its estimated environmental reserve by $10,000 during the third quarter of 2019 in order to reflect its revised best estimate of what it is likely to pay in order to complete the remediation. This adjust- ment resulted in a $10,000 reduction in “Selling, general and administrative expenses” in the Company’s Con- solidated Statement of Income for the year ended December 31, 2019. At December 31, 2019 and 2018, the Company’s accrual for environmental contingencies related to the Spartanburg site totaled $5,789 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 finan- cial statements. Other environmental matters The Company has been named as a potentially respon- sible 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 cur- rent 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 December 31, 2019 and 2018, the Company’s accrual for these other sites totaled $2,938 and $4,136, respectively. Summary As of December 31, 2019 and 2018, the Company (and its subsidiaries) had accrued $8,727 and $20,100, respectively, related to environmental contingencies. These accruals are included in “Accrued expenses and other” on the Company’s Consolidated Balance Sheets. Other legal and regulatory matters As described more fully in Note 14 to these Con- solidated Financial Statements, the Company has received a final Revenue Agent’s Report (“RAR”) from the IRS proposing an adjustment to income for the 2013 tax year. The incremental tax liability associated with the proposed adjustment would be approximately $89,000, excluding interest and 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 sec- ond quarter of 2019, and has had continued discussions with IRS Appeals throughout the year. If the matter is not resolved in IRS appeals, the next step would be to file a petition in Tax Court. The Company strongly believes the position of the IRS with regard to this matter is incon- sistent with applicable tax laws and existing Treasury regu- lations, and that the Company’s previously reported income tax provision for the year in question is appro- priate. 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 Com- pany 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. In addition to those described above, the Company is subject to other various legal proceedings, claims and liti- gation arising in the normal course of business. While the outcome of these matters could differ from management’s expectations, the Company does not believe that the reso- lution of these matters has a reasonable possibility of having a material adverse effect on the Company’s finan- cial statements. Commitments As of December 31, 2019, the Company had long-term obligations to purchase electricity and steam, which it uses in its production processes, as well as long-term purchase commitments for certain raw materials, princi- pally old corrugated containers. These purchase commit- ments require the Company to make total payments of approximately $99,323, as follows: $39,707 in 2020; $20,960 in 2021; $23,134 in 2022, $9,325 in 2023 and a total of $6,197 from 2024 through 2028. 17. Shareholders’ equity and earnings per share Stock repurchases The Company occasionally repurchases shares of its common stock to satisfy employee tax withholding obliga- tions in association with the exercise of stock appreciation rights, restricted stock, and performance-based stock awards. These repurchases, which are not part of a pub- licly announced plan or program, totaled 169,290 shares during 2019, 266,652 shares during 2018, and 119,349 shares during 2017, at a cost of $9,608, $14,561 and $6,335, respectively. On February 10, 2016, the Company’s Board of Direc- tors authorized the repurchase of up to 5,000,000 shares of the Company’s common stock. During 2016, a total of 2,030,389 shares were repurchased under this author- ization at a cost of $100,000. No shares were repurchased during 2017 and 2018. Accordingly, at December 31, 2019, a total of 2,969,611 shares remain available for repurchase under this authorization. Environmental matters filed a protest to the proposed deficiency with the IRS. The The Company is subject to a variety of environmental Company received a rebuttal of its protest from the IRS on and pollution control laws and regulations in all juris- dictions 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 Spartan- burg site was estimated to be $17,400 at the time of the 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 $1,611 on remediation of the Spartanburg site. Based on favorable developments at the Spartanburg site, the Company reduced its estimated environmental reserve by $10,000 during the third quarter of 2019 in order to reflect its revised best estimate of what it is likely to pay in order to complete the remediation. This adjust- ment resulted in a $10,000 reduction in “Selling, general and administrative expenses” in the Company’s Con- solidated Statement of Income for the year ended December 31, 2019. At December 31, 2019 and 2018, the Company’s accrual for environmental contingencies related to the Spartanburg site totaled $5,789 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 finan- cial statements. Other environmental matters The Company has been named as a potentially respon- sible 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 cur- rent 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 December 31, 2019 and 2018, the Company’s accrual for these other sites totaled $2,938 and $4,136, respectively. Summary As of December 31, 2019 and 2018, the Company (and its subsidiaries) had accrued $8,727 and $20,100, respectively, related to environmental contingencies. These accruals are included in “Accrued expenses and other” on the Company’s Consolidated Balance Sheets. Other legal and regulatory matters As described more fully in Note 14 to these Con- solidated Financial Statements, the Company has received a final Revenue Agent’s Report (“RAR”) from the IRS proposing an adjustment to income for the 2013 tax year. The incremental tax liability associated with the proposed adjustment would be approximately $89,000, excluding interest and penalties. On January 22, 2018, the Company 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 sec- ond quarter of 2019, and has had continued discussions with IRS Appeals throughout the year. If the matter is not resolved in IRS appeals, the next step would be to file a petition in Tax Court. The Company strongly believes the position of the IRS with regard to this matter is incon- sistent with applicable tax laws and existing Treasury regu- lations, and that the Company’s previously reported income tax provision for the year in question is appro- priate. 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 Com- pany 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. In addition to those described above, the Company is subject to other various legal proceedings, claims and liti- gation arising in the normal course of business. While the outcome of these matters could differ from management’s expectations, the Company does not believe that the reso- lution of these matters has a reasonable possibility of having a material adverse effect on the Company’s finan- cial statements. Commitments As of December 31, 2019, the Company had long-term obligations to purchase electricity and steam, which it uses in its production processes, as well as long-term purchase commitments for certain raw materials, princi- pally old corrugated containers. These purchase commit- ments require the Company to make total payments of approximately $99,323, as follows: $39,707 in 2020; $20,960 in 2021; $23,134 in 2022, $9,325 in 2023 and a total of $6,197 from 2024 through 2028. 17. Shareholders’ equity and earnings per share Stock repurchases The Company occasionally repurchases shares of its common stock to satisfy employee tax withholding obliga- tions in association with the exercise of stock appreciation rights, restricted stock, and performance-based stock awards. These repurchases, which are not part of a pub- licly announced plan or program, totaled 169,290 shares during 2019, 266,652 shares during 2018, and 119,349 shares during 2017, at a cost of $9,608, $14,561 and $6,335, respectively. On February 10, 2016, the Company’s Board of Direc- tors authorized the repurchase of up to 5,000,000 shares of the Company’s common stock. During 2016, a total of 2,030,389 shares were repurchased under this author- ization at a cost of $100,000. No shares were repurchased during 2017 and 2018. Accordingly, at December 31, 2019, a total of 2,969,611 shares remain available for repurchase under this authorization. F-34 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-34 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K to Sonoco: Basic Diluted Cash dividends $ $ $ 2.90 $ 2.88 $ 1.70 $ 3.12 $ 3.10 $ 1.62 $ 1.75 1.74 1.54 been consolidated. 18. Segment reporting Earnings per share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): 2019 2018 2017 to Sonoco $291,785 $313,560 $175,345 Numerator: Net income attributable Denominator: Weighted average common shares outstanding Dilutive effect of stock- based compensation Diluted outstanding shares Per common share: Net income attributable 100,742 100,539 100,237 434 477 615 101,176 101,016 100,852 partners, for $35,000 in cash, bringing the Company’s total ownership in the Asia joint venture to 98.33%. As a result of the purchase, the Company wrote off the $11,695 book value of the noncontrolling interest and recorded a $23,305 reduction in Capital in Excess of Stated Value. One of the Company’s directors, Harry A. Cockrell, is a principal shareholder of PFE Hong Kong Limited. On October 1, 2018, the Company completed the acquisition of the remaining 70% interest in Conitex Sonoco (see Note 3). The acquisition of Conitex Sonoco included joint ventures in Indonesia and China in which the Company owns a controlling interest. The noncontrolling interests relating to these joint ventures were recorded on the opening balance sheet at their fair value of $2,655. During the third quarter of 2017, the Company recorded a $1,341 noncontrolling interest related to the creation of a joint venture for the manufacture of tubes and cores from a facility in Saudi Arabia. The Company owns a 51% share in the joint venture and the assets have No adjustments were made to reported net income in the computation of earnings per share. Protective Solutions. The Company reports its financial results in four report- able segments – Consumer Packaging, Display and Pack- aging, Paper and Industrial Converted Products, and Potentially dilutive securities are calculated in accord- The Consumer Packaging segment includes the follow- ance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock apprecia- tion 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 mar- ing 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 manage- ment; and metal and peelable membrane ends and clo- ket price of the stock during the reporting period or sures. assumed repurchases from proceeds from the exercise of The Display and Packaging segment includes the follow- the SARs were antidilutive. The average number of shares that were not dilutive and therefore not included in the computation of diluted income per share was as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands): Anti-dilutive stock appreciation rights 2019 2018 2017 475 786 487 These stock appreciation rights may become dilutive in future periods if the market price of the Company’s common stock appreciates. Noncontrolling interests In 1994, the Company entered into a joint venture ing 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 follow- ing products: custom-engineered paperboard-based and expanded foam protective packaging and components; agreement with two partners in Asia for the manufacturing and temperature-assurance packaging. and marketing of products in the Asian markets. Prior to December 31, 2018, the Company owned a controlling interest of 79.25% of the joint venture and consolidated the net assets of the Asia joint venture. On December 31, 2018, the Company acquired the 19.08% ownership inter- Restructuring charges, asset impairment charges, gains from the disposition of businesses, insurance settlement gains, acquisition-related costs, non-operating pension costs, interest expense and interest income are included in income before income taxes under est of PFE Hong Kong Limited, one of the joint venture “Corporate.” Earnings per share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): 2019 2018 2017 Numerator: Net income attributable to Sonoco $291,785 $313,560 $175,345 Denominator: Weighted average common shares outstanding Dilutive effect of stock- based compensation Diluted outstanding shares Per common share: Net income attributable to Sonoco: Basic Diluted Cash dividends 100,742 100,539 100,237 434 477 615 101,176 101,016 100,852 $ $ $ 2.90 $ 2.88 $ 1.70 $ 3.12 $ 3.10 $ 1.62 $ 1.75 1.74 1.54 No adjustments were made to reported net income in the computation of earnings per share. Potentially dilutive securities are calculated in accord- ance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock apprecia- tion 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 mar- ket price of the stock during the reporting period or assumed repurchases from proceeds from the exercise of the SARs were antidilutive. The average number of shares that were not dilutive and therefore not included in the computation of diluted income per share was as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands): Anti-dilutive stock appreciation rights 2019 2018 2017 475 786 487 These stock appreciation rights may become dilutive in future periods if the market price of the Company’s common stock appreciates. Noncontrolling interests In 1994, the Company entered into a joint venture agreement with two partners in Asia for the manufacturing and marketing of products in the Asian markets. Prior to December 31, 2018, the Company owned a controlling interest of 79.25% of the joint venture and consolidated the net assets of the Asia joint venture. On December 31, 2018, the Company acquired the 19.08% ownership inter- est of PFE Hong Kong Limited, one of the joint venture partners, for $35,000 in cash, bringing the Company’s total ownership in the Asia joint venture to 98.33%. As a result of the purchase, the Company wrote off the $11,695 book value of the noncontrolling interest and recorded a $23,305 reduction in Capital in Excess of Stated Value. One of the Company’s directors, Harry A. Cockrell, is a principal shareholder of PFE Hong Kong Limited. On October 1, 2018, the Company completed the acquisition of the remaining 70% interest in Conitex Sonoco (see Note 3). The acquisition of Conitex Sonoco included joint ventures in Indonesia and China in which the Company owns a controlling interest. The noncontrolling interests relating to these joint ventures were recorded on the opening balance sheet at their fair value of $2,655. During the third quarter of 2017, the Company recorded a $1,341 noncontrolling interest related to the creation of a joint venture for the manufacture of tubes and cores from a facility in Saudi Arabia. The Company owns a 51% share in the joint venture and the assets have been consolidated. 18. Segment reporting The Company reports its financial results in four report- able segments – Consumer Packaging, Display and Pack- aging, Paper and Industrial Converted Products, and Protective Solutions. The Consumer Packaging segment includes the follow- ing 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 manage- ment; and metal and peelable membrane ends and clo- sures. The Display and Packaging segment includes the follow- ing 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 follow- ing products: custom-engineered paperboard-based and expanded foam protective packaging and components; and temperature-assurance packaging. Restructuring charges, asset impairment charges, gains from the disposition of businesses, insurance settlement gains, acquisition-related costs, non-operating pension costs, interest expense and interest income are included in income before income taxes under “Corporate.” S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-35 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-35 The following table sets forth financial information about each of the Company’s business segments: The following table sets forth financial information about each of the Company’s business segments: Years ended December 31 Years ended December 31 Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions Corporate Consolidated Consumer Packaging Display and Packaging Paper and Industrial Converted Products Protective Solutions Corporate Consolidated $ 5,495 3,293 5,557 $2,333,386 2,359,999 2,123,465 $2,338,881 2,363,292 2,129,022 Total revenue 2019 2018 2017 Intersegment sales1 2019 2018 2017 Sales to unaffiliated customers 2019 2018 2017 Income before income taxes2 2019 2018 2017 Identifiable assets3 2019 $2,239,674 2018 1,993,417 1,890,516 2017 Depreciation, depletion and amortization4 $ 111,919 2019 116,841 2018 98,882 2017 Capital expenditures 2019 2018 2017 $ 228,416 224,505 255,759 64,590 66,659 63,617 $ $558,747 595,855 511,099 $2,111,491 2,042,732 2,007,321 $513,584 529,324 540,665 $ 4,622 3,546 2,863 $ 136,752 131,779 141,141 $ 1,627 1,647 1,896 $554,125 592,309 508,236 $1,974,739 1,910,953 1,866,180 $511,957 527,677 538,769 $ $ $ — $5,522,703 5,531,203 — 5,188,107 — — $ 148,496 140,265 — 151,457 — — $5,374,207 5,390,938 — 5,036,650 — $ 27,723 13,291 2,632 $ 219,052 211,122 161,591 $ 50,201 42,902 42,357 $(144,626) (113,289) (147,785) $ 380,766 378,531 314,554 $452,155 440,972 480,892 $1,701,902 1,472,148 1,346,391 $580,411 535,443 552,425 $ 152,147 141,485 287,497 $5,126,289 4,583,465 4,557,721 $ $ 14,926 18,020 17,090 85,619 74,434 74,850 $ 26,676 26,950 26,803 $ 5,065 19,849 23,908 $ 112,308 91,423 61,443 $ 6,880 5,879 19,031 $ $ — $ 239,140 236,245 — 217,625 — 7,091 8,764 20,914 $ 195,934 192,574 188,913 2,363,292 2,129,022 2,123,465 2,359,999 $2,338,881 $2,333,386 5,495 3,293 5,557 $ Total revenue 2019 2018 2017 Intersegment sales1 2019 2018 2017 Sales to unaffiliated customers 2019 2018 2017 Income before income taxes2 2019 2018 2017 Identifiable assets3 2019 2018 2017 Depreciation, depletion and amortization4 2019 2018 2017 Capital expenditures 2019 2018 2017 $ 64,590 66,659 63,617 $ 228,416 $ 111,919 $2,239,674 1,890,516 1,993,417 224,505 255,759 116,841 98,882 — — — — — — 5,531,203 5,188,107 140,265 151,457 5,390,938 5,036,650 $558,747 $2,111,491 $513,584 $ — $5,522,703 595,855 511,099 2,042,732 2,007,321 529,324 540,665 $ $ 136,752 $ $ — $ 148,496 4,622 3,546 2,863 131,779 141,141 1,627 1,647 1,896 $554,125 $1,974,739 $511,957 $ — $5,374,207 592,309 508,236 1,910,953 1,866,180 527,677 538,769 $ 27,723 $ 219,052 $ 50,201 $(144,626) $ 380,766 13,291 2,632 211,122 161,591 42,902 42,357 (113,289) (147,785) 378,531 314,554 $452,155 $1,701,902 $580,411 $ 152,147 $5,126,289 440,972 480,892 1,472,148 1,346,391 535,443 552,425 141,485 287,497 4,583,465 4,557,721 $ 14,926 $ $ 26,676 $ — $ 239,140 18,020 17,090 $ 5,065 19,849 23,908 85,619 74,434 74,850 91,423 61,443 $ 112,308 $ 26,950 26,803 6,880 5,879 19,031 — — 236,245 217,625 $ 7,091 8,764 20,914 $ 195,934 192,574 188,913 1 2 Intersegment sales are recorded at a market-related transfer price. Included in Corporate above are interest expense, interest income, restructuring/asset impairment charges, property insurance settlement gains, non-operating pension costs, acquisition-related charges, and other non-operational income and expenses associated with the following segments: 1 2 Intersegment sales are recorded at a market-related transfer price. Included in Corporate above are interest expense, interest income, restructuring/asset impairment charges, property insurance settlement gains, non-operating pension costs, acquisition-related charges, and other non-operational income and expenses associated with the following segments: 2019 2018 2017 Consumer Packaging $ 41,155 18,391 9,990 Display and Packaging $ Paper and Industrial Converted Products Protective Solutions Corporate Total (7,358) $ 19,046 2,082 $ 5,270 11,773 24,281 9,083 1,529 3,071 $ $ 96,476 62,550 108,361 144,626 113,289 147,785 2019 2018 2017 Display and Packaging 19,046 2,082 Paper and Industrial Converted Products 5,270 11,773 24,281 Protective Solutions 9,083 1,529 3,071 Consumer Packaging 41,155 18,391 9,990 $ $ (7,358) $ $ $ Corporate Total $ 96,476 62,550 108,361 144,626 113,289 147,785 3 The remaining amounts reported as Corporate consist of interest expense, interest income, non-operating pension costs, and other non-operational income and expenses not associated with a particular segment. Identifiable assets are those assets used by each segment in its operations. Corporate assets consist primarily of cash and cash equivalents, investments in affiliates, headquarters facilities, deferred income taxes and prepaid expenses. 3 The remaining amounts reported as Corporate consist of interest expense, interest income, non-operating pension costs, and other non-operational income and expenses not associated with a particular segment. Identifiable assets are those assets used by each segment in its operations. Corporate assets consist primarily of cash and cash equivalents, investments in affiliates, headquarters facilities, deferred income taxes and prepaid expenses. 4 Depreciation, depletion and amortization incurred at Corporate are allocated to the reportable segments. 4 Depreciation, depletion and amortization incurred at Corporate are allocated to the reportable segments. F-36 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-36 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Sales to unaffiliated customers Europe Canada All other Total Europe Canada All other Total United States $3,408,459 $3,490,369 $3,263,975 1,078,766 1,092,654 226,049 660,933 246,208 561,707 981,178 245,992 545,505 $5,374,207 $5,390,938 $5,036,650 Long-lived assets United States $2,177,918 $1,953,391 $1,962,196 648,648 107,470 224,783 641,600 113,782 241,767 659,615 120,062 108,395 $3,158,819 $2,950,540 $2,850,268 Geographic regions Sales to unaffiliated customers and long-lived assets by geographic region are as follows: Sales are attributed to countries/regions based upon the plant location from which products are shipped. Long- lived assets are comprised of property, plant and equip- ment, goodwill, intangible assets and investment in Geographic regions Sales to unaffiliated customers and long-lived assets by geographic region are as follows: 2019 2018 2017 affiliates (see Notes 6 and 8). 2019 2018 2017 Sales are attributed to countries/regions based upon the plant location from which products are shipped. Long- lived assets are comprised of property, plant and equip- ment, goodwill, intangible assets and investment in affiliates (see Notes 6 and 8). Sales to unaffiliated customers United States Europe Canada All other $3,408,459 $3,490,369 $3,263,975 981,178 245,992 545,505 1,078,766 1,092,654 246,208 561,707 226,049 660,933 Total $5,374,207 $5,390,938 $5,036,650 Long-lived assets United States Europe Canada All other $2,177,918 $1,953,391 $1,962,196 659,615 120,062 108,395 641,600 113,782 241,767 648,648 107,470 224,783 Total $3,158,819 $2,950,540 $2,850,268 19. Accumulated other comprehensive loss 19. Accumulated other comprehensive loss The following table summarizes the components of accumulated other comprehensive loss and the changes in accumulated other comprehensive loss, net of tax as applicable, for the years ended December 31, 2019 and 2018: The following table summarizes the components of accumulated other comprehensive loss and the changes in accumulated other comprehensive loss, net of tax as applicable, for the years ended December 31, 2019 and 2018: Foreign currency items Defined benefit Gains and losses on cash pension items flow hedges Accumulated other comprehensive loss Foreign currency items Defined benefit pension items Gains and losses on cash flow hedges Accumulated other comprehensive loss Balance at December 31, 2017 $(198,495) $(467,136) $ (641) $(666,272) Balance at December 31, 2017 $(198,495) $(467,136) $ (641) $(666,272) (53,504) (50,232) (1,380) (105,116) reclassifications (53,504) (50,232) (1,380) (105,116) Other comprehensive income/(loss) before 30,956 (305) (74,465) (176) Amounts reclassified from accumulated other comprehensive loss to net income Amounts reclassified from accumulated other comprehensive loss to fixed assets Other comprehensive income/(loss) Amounts reclassified from accumulated other comprehensive loss to retained earnings 897 — 29,988 — (52,607) (20,244) — — 71 (305) (1,614) (176) 30,956 (305) (74,465) (176) Balance at December 31, 2018 $(251,102) $(487,380) $(2,431) $(740,913) Balance at December 31, 2018 $(251,102) $(487,380) $(2,431) $(740,913) 9,108 (111,493) 2,061 (100,324) reclassifications 9,108 (111,493) 2,061 (100,324) Other comprehensive income/(loss) before 24,541 (107) (75,890) Amounts reclassified from accumulated other comprehensive loss to net income Amounts reclassified from accumulated other comprehensive loss to fixed assets — — 24,460 — Other comprehensive income/(loss) 9,108 (87,033) 81 (107) 2,035 24,541 (107) (75,890) $(241,994) $(574,413) $ (396) $(816,803) Balance at December 31, 2019 $(241,994) $(574,413) $ (396) $(816,803) Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive loss to net income Amounts reclassified from accumulated other comprehensive loss to fixed assets Other comprehensive income/(loss) Amounts reclassified from accumulated other comprehensive loss to retained earnings Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive loss to net income Amounts reclassified from accumulated other comprehensive loss to fixed assets Other comprehensive income/(loss) Balance at December 31, 2019 897 29,988 (52,607) (20,244) — — 24,460 — 9,108 (87,033) — — — — 71 (305) (1,614) (176) 81 (107) 2,035 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-37 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-37 The following table summarizes the amounts reclassified from accumulated other comprehensive loss and the affected line items in the consolidated statements of net income for the years ended December 31, 2019 and 2018: The following table summarizes the amounts reclassified from accumulated other comprehensive loss and the affected line items in the consolidated statements of net income for the years ended December 31, 2019 and 2018: Details about accumulated other comprehensive loss components Foreign currency items Amounts reclassified to net income Defined benefit pension items (see Note 13) Effect of settlement loss Effect of curtailment loss Amortization of defined benefit pension items Gains and losses on cash flow hedges (see Note 10) Foreign exchange contracts Foreign exchange contracts Commodity contracts Twelve months ended December 31, 2019 Twelve months ended December 31, 2018 $ — — $ (897) (897) Affected line item in the consolidated statements of net income Details about accumulated other comprehensive loss components December 31, December 31, Affected line item in the consolidated statements of net income Selling, general and administrative expenses Foreign currency items Amounts reclassified to net income $ $ (897) expenses Selling, general and administrative (2,377) — (30,382) (32,759) 8,299 (24,460) 1,381 (1,758) 270 (107) 26 (81) (730) (256) (36,689) (37,675) 7,687 Non-operating pension cost Non-operating pension cost Non-operating pension cost Provision for income taxes (29,988) Net income (203) (20) 115 (108) 37 (71) Net sales Cost of sales Cost of sales Income before income taxes Provision for income taxes Net income Defined benefit pension items (see Note 13) Effect of settlement loss Effect of curtailment loss Amortization of defined benefit pension items Gains and losses on cash flow hedges (see Note 10) Foreign exchange contracts Foreign exchange contracts Commodity contracts Twelve months Twelve months ended 2019 — — (2,377) — (30,382) (32,759) 8,299 (24,460) 1,381 (1,758) 270 (107) 26 (81) ended 2018 (897) (730) (256) (37,675) 7,687 (203) (20) 115 (108) 37 (71) Non-operating pension cost Non-operating pension cost (36,689) Non-operating pension cost Provision for income taxes (29,988) Net income Net sales Cost of sales Cost of sales Income before income taxes Provision for income taxes Net income Total reclassifications for the period $(24,541) $(30,956) Net income Total reclassifications for the period $(24,541) $(30,956) Net income F-38 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-38 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K The following table summarizes the tax (expense) benefit amounts for the other comprehensive loss components for The following table summarizes the tax (expense) benefit amounts for the other comprehensive loss components for the years ended December 31, 2019 and 2018: the years ended December 31, 2019 and 2018: For the year ended December 31, 2019 For the year ended December 31, 2018 For the year ended December 31, 2019 For the year ended December 31, 2018 Tax Tax Before tax (expense) amount benefit After tax amount Before tax (expense) amount benefit After tax amount Before tax amount Tax (expense) benefit After tax amount Before tax amount Tax (expense) benefit After tax amount Foreign currency items: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Gains and losses on foreign currency items: Defined benefit pension items: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Net other comprehensive income/(loss) Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Amounts reclassified from accumulated other comprehensive income/(loss) to fixed assets Net other comprehensive income/(loss) from cash flow hedges $ 9,108 $ — $ 9,108 $(53,504) $ — $(53,504) — 897 897 Foreign currency items: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Gains and losses on foreign currency 9,108 (52,607) (52,607) items: — 9,108 — — — — (147,948) 36,455 (111,493) (63,259) 13,027 (50,232) 32,759 (8,299) 24,460 37,675 (7,687) 29,988 from defined benefit pension items (115,189) 28,156 (87,033) (25,584) 5,340 (20,244) 2,711 (650) 2,061 (2,096) 716 (1,380) 107 (26) 81 108 (37) 71 (107) — (107) (305) — (305) Defined benefit pension items: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Net other comprehensive income/(loss) from defined benefit pension items Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications Amounts reclassified from accumulated other comprehensive income/(loss) to net income Amounts reclassified from accumulated other comprehensive income/(loss) to fixed assets Net other comprehensive income/(loss) $ 9,108 $ — $ 9,108 $(53,504) $ — $(53,504) — 9,108 — — — 897 9,108 (52,607) — — 897 (52,607) (147,948) 36,455 (111,493) (63,259) 13,027 (50,232) 32,759 (8,299) 24,460 37,675 (7,687) 29,988 (115,189) 28,156 (87,033) (25,584) 5,340 (20,244) 2,711 (650) 2,061 (2,096) 716 (1,380) 107 (26) 81 108 (37) 71 (107) — (107) (305) — (305) Other comprehensive income/(loss) $(103,370) $27,480 $ (75,890) $(80,484) $ 6,019 $(74,465) Other comprehensive income/(loss) $(103,370) $27,480 $ (75,890) $(80,484) $ 6,019 $(74,465) 2,711 (676) 2,035 (2,293) 679 (1,614) from cash flow hedges 2,711 (676) 2,035 (2,293) 679 (1,614) The change in defined benefit plans includes pretax changes of $(781) and $(71) during the years ended The change in defined benefit plans includes pretax changes of $(781) and $(71) during the years ended December 31, 2019 and 2018, related to one of the Company’s equity method investments. December 31, 2019 and 2018, related to one of the Company’s equity method investments. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-39 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-39 20. Selected quarterly financial data The following table sets forth selected quarterly financial data of the Company: 20. Selected quarterly financial data The following table sets forth selected quarterly financial data of the Company: (unaudited) 2019 Net sales Gross profit Restructuring/Asset impairment charges Net income attributable to Sonoco Per common share: Net income attributable to Sonoco: - basic - diluted Cash dividends - common Market price - high - low 2018 Net sales Gross profit Restructuring/Asset impairment charges Net income attributable to Sonoco Per common share: Net income attributable to Sonoco: - basic - diluted Cash dividends - common Market price - high - low First quarter Second quarter Third quarter Fourth quarter (unaudited) $1,351,705 270,121 10,672 73,663 $1,359,721 275,336 13,355 81,159 $1,353,931 265,485 6,615 92,064 $1,308,850 246,887 29,238 44,899 $ $ $ $ $ 0.73 0.73 0.41 61.79 51.29 $ $ $ $ $ 0.81 0.80 0.43 66.23 59.65 $ $ $ $ $ 0.91 0.91 0.43 66.57 55.44 $ $ $ $ $ 0.45 0.44 0.43 62.77 55.12 $1,304,187 250,602 3,063 74,055 $1,366,373 276,460 3,567 89,412 $1,364,762 259,636 22,061 72,415 $1,355,616 254,308 11,380 77,678 2019 Net sales Gross profit Restructuring/Asset impairment charges Net income attributable to Sonoco Per common share: Net income attributable to Sonoco: - basic - diluted Cash dividends - common Market price - high - low 2018 Net sales Gross profit Restructuring/Asset impairment charges Net income attributable to Sonoco Per common share: Net income attributable to Sonoco: $ $ $ $ $ 0.74 0.73 0.39 55.43 46.55 $ $ $ $ $ 0.89 0.88 0.41 53.80 46.94 $ $ $ $ $ 0.72 0.72 0.41 58.69 51.18 $ $ $ $ $ 0.78 0.77 0.41 58.31 50.30 - basic - diluted Cash dividends - common Market price - high - low First quarter Second quarter Third quarter Fourth quarter $1,351,705 $1,359,721 $1,353,931 $1,308,850 270,121 10,672 73,663 275,336 13,355 81,159 265,485 6,615 92,064 246,887 29,238 44,899 $1,304,187 $1,366,373 $1,364,762 $1,355,616 250,602 3,063 74,055 276,460 3,567 89,412 259,636 22,061 72,415 254,308 11,380 77,678 $ $ $ $ $ $ $ $ $ $ 0.73 0.73 0.41 61.79 51.29 0.74 0.73 0.39 55.43 46.55 $ $ $ $ $ $ $ $ $ $ 0.81 0.80 0.43 66.23 59.65 0.89 0.88 0.41 53.80 46.94 $ $ $ $ $ $ $ $ $ $ 0.91 0.91 0.43 66.57 55.44 0.72 0.72 0.41 58.69 51.18 $ $ $ $ $ $ $ $ $ $ 0.45 0.44 0.43 62.77 55.12 0.78 0.77 0.41 58.31 50.30 F-40 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K F-40 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K Item 9. Changes in and disagreements with accountants on accounting and financial disclosure None. Item 9A. Controls and procedures Disclosure controls and procedures Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information disclosed in the reports that we file or submit is recorded, processed, summarized and reported within the relevant 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 communi- cated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regard- ing required disclosures. Based on this evaluation, our CEO and CFO concluded that such controls and proce- dures, as of December 31, 2019, the end of the period covered by this Annual Report on Form 10-K, were effec- tive at a reasonable assurance level. Management’s report on internal control over financial reporting Our management is responsible for establishing and maintaining adequate internal control over financial report- ing, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, the end of the period covered by this report based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework in Internal Control – Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2019. In conducting management’s evaluation as described above, Corenso Holdings America, Inc. (“Corenso”) acquired August 9, 2019, as well as Thermoform Engineered Qual- ity, LLC, and Plastique Holdings, LTD, (together “TEQ”), acquired December 31, 2019, were excluded. The oper- ations of Corenso and TEQ, excluded from management’s assessment of internal control over financial reporting, collectively represent approximately 0.7% of the Compa- ny’s consolidated revenues and approximately 2.9% of total assets as of December 31, 2019. PricewaterhouseCoopers LLP, an independent regis- tered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2019 as stated in their report, which appears at the beginning of Item 8 of this Annual Report on Form 10-K. Changes in internal control over financial reporting There have been no changes in the Company’s internal control over financial reporting during the three months ended December 31, 2019, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the effectiveness of controls The Company’s management, including the CEO and CFO, does not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent all error and all fraud. Internal control over financial reporting, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives will be met. Because of the inherent limitations in internal control over financial report- ing, no evaluation of controls can provide absolute assur- ance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management over- ride of the controls. The design of any system of controls is based in part on certain assumptions about the like- lihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in con- ditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected timely. Item 9B. Other information Not applicable. 38 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K PART III Item 10. Directors, executive officers and corporate governance The information set forth in the Company’s definitive Proxy Statement for the annual meeting of shareholders to be held on April 15, 2020 (the Proxy Statement), under the captions “Proposal 1: Election of Directors,” and “Delinquent Section 16 Reports,” is incorporated herein by reference. Information about executive officers of the Company is set forth in Item 1 of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.” Code of Ethics – The Company has adopted a code of ethics (as defined in Item 406 of Regulation S-K) that applies to its principal executive officer, principal financial officer, principal accounting officer, and other senior executive and senior financial officers. This code of ethics is available through the Company’s website, www.sonoco.com, and is available in print to any share- holder who requests it. Any waivers or amendments to the provisions of this code of ethics will be posted to this website within four business days after the waiver or amendment. Audit Committee Members – The Company has a sepa- rately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee is comprised of the following members: Thomas E. Whiddon, Chairman; Sundaram Nagajaran; Philippe Guillemot; Marc D. Oken; Blythe J. McGarvie; Richard G. Kyle; Robert R. Hill; and Lloyd M. Yates. Audit Committee Financial Expert – The Company’s Board of Directors has determined that the Company has at least three “audit committee financial experts,” as that term is defined by Item 407(d)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, serving on its audit committee. Thomas E. Whiddon, Blythe J. McGarvie, and Marc D. Oken meet the terms of the defi- nition and are independent based on the criteria in the New York Stock Exchange Listing Standards. Pursuant to the terms of Item 407(d)(5) of Regulation S-K, a person who is determined to be an “audit committee financial expert” will not be deemed an expert for any purpose as a result of being designated or identified as an “audit committee financial expert” pursuant to Item 407, and such designation or identification does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and Board of Directors in the absence of such designation or identification. Further, the designation or identification of a person as an “audit committee financial expert” pursuant to Item 407 does not affect the duties, obligations or liability of any other member of the audit committee or Board of Directors. The Company’s Corporate Governance Guidelines, Audit Committee Charter, Corporate Governance and Nominating Committee Charter and Executive Compensa- tion Committee Charter are available through the Compa- ny’s website, www.sonoco.com. This information is available in print to any shareholder who requests it. Item 11. Executive compensation The information set forth in the Proxy Statement under the caption “Compensation Committee Interlocks and Insider Participation,” under the caption “Executive Compensation,” and under the caption “Director Compen- sation” is incorporated herein by reference. The information set forth in the Proxy Statement under the caption “Compensation Committee Report” is also incorporated herein by reference, but pursuant to the Instructions to Item 407(e)(5) of Regulation S-K, such report shall not be deemed to be “soliciting material” or subject to Regulation 14A, and shall be deemed to be “furnished” and not “filed” and will not be deemed incorporated by reference into any filing under the Secu- rities Act of 1933 or the Securities Exchange Act of 1934 as a result of being so furnished. Item 12. Security ownership of certain beneficial owners and management and related stockholder matters The information set forth in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners,” and under the caption “Security Ownership of Management” is incorporated herein by reference. Equity compensation plan information The following table sets forth aggregated information about all of the Company’s compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance as of December 31, 2019: Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))1 (c) 2,711,373 — 2,711,373 $52.95 — $52.95 10,765,398 — 10,765,398 Plan category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 1 The Sonoco Products Company 2019 Omnibus Incentive Plan (the “2019 Plan”) was adopted at the Company’s 2019 Annual Meeting of Shareholders. The maximum number of shares of common stock that may be issued under S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 39 this plan was set at 12,000,000 shares, which included all shares remaining under the 2014 Plan. Awards granted under all previous plans which are forfeited, expire or are cancelled without delivery of shares, or which result in for- feiture of shares back to the Company, will be added to the total shares available under the 2019 Plan. At December 31, 2019, a total of 10,765,398 shares remain available for future grant under the 2019 Plan. The weighted-average exercise price of $52.95 relates to stock appreciation rights, which account for 1,562,123 of the 2,711,373 securities issuable upon exercise. The remaining 1,149,250 securities relate to deferred compen- sation stock units, performance-contingent restricted stock units and restricted stock unit awards that have no exercise price requirement. Item 13. Certain relationships and related transactions, and director independence The information set forth in the Proxy Statement under the captions “Related Party Transactions” and “Corporate Governance – Director Independence Policies” is incorporated herein by reference. Each current member of the Audit, Corporate Governance and Nominating and Executive Compensation Committees is independent as defined in the listing standards of the New York Stock Exchange. Item 14. Principal accountant fees and services The information set forth in the Proxy Statement under the caption “Independent Registered Public Accounting Firm” is incorporated herein by reference. 40 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K PART IV Item 15. Exhibits and financial statement schedules (a) 1 Financial statements – The following financial statements are provided under Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K: – Report of Independent Registered Public Accounting Firm – Consolidated Balance Sheets as of December 31, 2019 and 2018 – Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 – Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 – Consolidated Statements of Changes in Total Equity for the years ended December 31, 2019, 2018 and 2017 – Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 – Notes to Consolidated Financial Statements 2 Financial statement schedules Schedule II – Valuation and qualifying accounts for the years ended December 31, 2019, 2018 and 2017 Column A Column B Column C - Additions Column D Column E Balance at beginning of year Charged to costs and expenses Charged to other Deductions Balance at end of year Description 2019 Allowance for doubtful accounts LIFO reserve Valuation allowance on deferred tax $ 11,692 18,854 $ 4,320 1,3493 assets 103,289 2,662 2018 Allowance for doubtful accounts LIFO reserve Valuation allowance on deferred tax $ 9,913 17,632 $ 3,471 1,2223 $ $ 322 1 — $1,9522 — $ 14,382 20,203 (1,116)4 (512)5 105,347 (425)1 — $1,2672 — $ 11,692 18,854 assets 47,199 (11,187) 70,9934 3,7165 103,289 2017 Allowance for doubtful accounts LIFO reserve Valuation allowance on deferred tax $ 10,884 17,319 $ 1,439 3133 $ 2431 — $2,6532 — $ 9,913 17,632 assets 49,797 6,967 (2,365)4 7,2005 47,199 1 2 3 4 5 Includes translation adjustments and other insignificant adjustments. Includes amounts written off. Includes adjustments based on pricing and inventory levels. Includes translation adjustments and increases to deferred tax assets which were previously fully reserved. Includes utilization of capital loss carryforwards, net operating loss carryforwards and other deferred tax assets. All other schedules not included have been omitted because they are not required, are not appli- cable or the required information is given in the financial statements or notes thereto. 3 The exhibits listed on the Exhibit Index to this Form 10-K are incorporated herein by reference. S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 41 Item 16. Form 10-K summary The Company has chosen not to provide a Form 10-K summary. Exhibit index 3-1 3-2 4-1 4-2 4-3 4-4 4-5 10-1 10-2 10-3 10-4 10-5 10-6 10-7 10-8 10-9 10-10 10-11 10-12 10-13 Restated Articles of Incorporation, as amended through June 7, 2017 (incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 2017) By-Laws of Sonoco Products Company, as amended October 1, 2018 (incorporated by reference to the Registrant’s Form 8-K filed October 2, 2018) Description of Securities of the Registrant (incorporated by reference to the description in Sonoco’s Form 8-A, Amendment 3, filed July 17, 2019) Indenture, dated as of June 15, 1991, between Registrant and The Bank of New York, as Trustee (incorporated by reference to the Registrant’s Form S-4 (File Number 333-119863)) Form of Second Supplemental Indenture, dated as of November 1, 2010, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as Trustee (including form of 5.75% Notes due 2040)(incorporated by reference to Registrant’s Form 8-K filed October 28, 2010) Form of Third Supplemental Indenture (including form of 4.375% Notes due 2021), between Sonoco Products Company and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Registrant’s Form 8-K filed October 27, 2011) Form of Fourth Supplemental Indenture (including form of 5.75% Notes due 2040), between Sonoco Products Company and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Registrant’s Form 8-K filed October 27, 2011) 1991 Sonoco Products Company Key Employee Stock Plan, as amended (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2007) Sonoco Products Company 1996 Non-employee Directors’ Stock Plan, as amended (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 30, 2007) Sonoco Retirement and Savings Plan (formerly the Sonoco Savings Plan), as amended (incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 2012). Sonoco Products Company 2008 Long-term Incentive Plan (incorporated by reference to the Compa- ny’s Proxy Statement for the Annual Meeting of Shareholders on April 16, 2008) Sonoco Products Company 2012 Long-term Incentive Plan (incorporated by reference to the Compa- ny’s Proxy Statement for the Annual Meeting of Shareholders on April 18, 2012) Sonoco Products Company 2014 Long-term Incentive Plan (incorporated by reference to the Compa- ny’s Proxy Statement for the Annual Meeting of Shareholders on April 16, 2014) Deferred Compensation Plan for Key Employees of Sonoco Products Company (a.k.a. Deferred Compensation Plan for Corporate Officers of Sonoco Products Company), as amended (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 28, 2008) Deferred Compensation Plan for Outside Directors of Sonoco Products Company, as amended (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 28, 2008) Sonoco Products Company Amended and Restated Trust Agreement for Executives, as of October 15, 2008 (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 28, 2008) Sonoco Products Company Amended and Restated Directors Deferral Trust Agreement, as of October 15, 2008 (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 28, 2008) Omnibus Benefit Restoration Plan of Sonoco Products Company, amended and restated as of Jan- uary 1, 2015 (incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 2014) Form of Executive Bonus Life Agreement between the Company and certain executive officers (incorporated by reference to the Registrant’s Form 10-Q for the quarter ended September 26, 2004) Description of Stock Appreciation Rights, Restricted Stock Units and Performance Contingent Restricted Stock Units granted to executive officers of the Registrant on February 8, 2017 (incorporated by reference to Registrant’s Form 8-K filed February 14, 2017) 42 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 10-14 10-15 10-16 Description of Stock Appreciation Rights, Restricted Stock Units and Performance Contingent Restricted Stock Units granted to executive officers of the Registrant on February 14, 2018 (incorporated by reference to Registrant’s Form 8-K filed February 20, 2018) Description of Stock Appreciation Rights, Restricted Stock Units and Performance Contingent Restricted Stock Units granted to executive officers of the Registrant on February 13, 2019 (incorporated by reference to Registrant’s Form 8-K filed February 19, 2019) Description of Stock Appreciation Rights, Restricted Stock Units and Performance Contingent Restricted Stock Units granted to executive officers of the Registrant on February 11, 2020 (incorporated by reference to the Registrant’s Form 8-K filed February 18, 2020) 10-17 Unsecured Five-Year Fixed Rate Assignable Loan Agreement, dated May 25, 2016 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended July 3, 2016) 10-18.1 Credit Agreement, effective July 20, 2017 (incorporated by reference to Registrant’s Form 10-Q for the quarter ended July 2, 2017) 10-18.2 First Amendment to Credit Agreement, dated February 14, 2020 10-19 10-20 10-21 21 23 31 32 99 Term Loan Agreement between Sonoco Products Company and Wells Fargo Bank, National Associa- tion, dated May 17, 2019 Sonoco Products Company 2019 Omnibus Incentive Plan (incorporated by reference to the Compa- ny’s Proxy Statement for the Annual Meeting of Shareholders on April 17, 2019) Equity Purchase Agreement dated November 15, 2019 (incorporated by reference to the Company’s Form 8-K filed November 19, 2019) Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm with respect to Registrant’s Form 10-K Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and 17 C.F.R. 240.13a-14(a) Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 17 C.F.R. 240.13a-14(b) Proxy Statement, filed in conjunction with annual shareholders’ meeting scheduled for April 15, 2020 (to be filed within 120 days after December 31, 2019) 101.INS XBRL 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.SCH Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Taxonomy Exension Label Linkbase Document 101.PRE Taxonomy Extension Presentaiton Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K 43 Signatures Pursuant to the requirements of Section 13 or 15(d) 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, on this 28th day of February 2020. SONOCO PRODUCTS COMPANY /s/ R. Howard Coker R. Howard Coker President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the follow- ing persons on behalf of the Registrant and in the capacities indicated on this 28th day of February 2020. /s/ Julie C. Albrecht Julie C. Albrecht Vice President and Chief Financial Officer (principal financial officer) /s/ J.R. Haley J.R. Haley /s/ R. H. Coker R. H. Coker /s/ H.A. Cockrell H.A. Cockrell /s/ P.L. Davies P.L. Davies /s/ T.J. Drew T.J. Drew /s/ P. Guillemot P. Guillemot /s/ R.R. Hill, Jr. R.R. Hill, Jr. /s/ R.G. Kyle R.G. Kyle /s/ B.J. McGarvie B.J. McGarvie /s/ J.M. Micali J.M. Micali /s/ S. Nagarajan S. Nagarajan /s/ M.D. Oken M.D. Oken /s/ T.E. Whiddon T.E. Whiddon /s/ L.M. Yates L.M. Yates /s/ James W. Kirkland James W. Kirkland Corporate Controller (principal accounting officer) Director (Chairman) President, Chief Executive Officer and Director Director Director Director Director Director Director Director Director Director Director Director Director 44 S O N O C O 2 0 1 9 A N N U A L R E P O R T | F O R M 1 0 - K SONOCO 1 North Second Street Hartsville, SC 29550-3305 US 843 383 7000 • sonoco.com 

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