UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2016

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨(do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at October 21, 2016:

Common stock, no par value: 99,848,875

SONOCO PRODUCTS COMPANY

INDEX

PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements:	3
	Condensed Consolidated Balance Sheets - October 2, 2016 (unaudited) and December 31, 2015 (unaudited)	3
	Condensed Consolidated Statements of Income – Three and Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 2, 2016 (unaudited) and September 27, 2015 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
	Report of Independent Registered Public Accounting Firm	28
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	45
Item 4.	Controls and Procedures.	45
PART II. OTHER INFORMATION		46
Item 1.	Legal Proceedings.	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	47
Item 6.	Exhibits.	47

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SONOCO PRODUCTS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars and shares in thousands)

	October 2, 2016			December 31, 2015*
Assets
Current Assets
Cash and cash equivalents	$	159,321		$	182,434
Trade accounts receivable, net of allowances	669,200			627,962
Other receivables	48,995			46,801
Inventories:
Finished and in process	129,128			139,589
Materials and supplies	247,189			245,894
Prepaid expenses	43,090			64,698
Assets held for sale	183,284			—
	1,480,207			1,307,378
Property, Plant and Equipment, Net	1,068,432			1,112,036
Goodwill	1,076,493			1,140,461
Other Intangible Assets, Net	217,771			245,095
Deferred Income Taxes	48,451			52,626
Other Assets	153,195			156,089
Total Assets	$	4,044,549		$	4,013,685
Liabilities and Equity
Current Liabilities
Payable to suppliers	$	488,730		$	508,057
Accrued expenses and other	304,004			294,227
Notes payable and current portion of long-term debt	60,787			113,097
Accrued taxes	12,050			7,135
Liabilities held for sale	20,126			—
	885,697			922,516
Long-term Debt, Net of Current Portion	1,030,338			1,015,270
Pension and Other Postretirement Benefits	409,464			432,964
Deferred Income Taxes	81,319			72,933
Other Liabilities	48,094			37,129
Commitments and Contingencies
Sonoco Shareholders’ Equity
Common stock, no par value
Authorized 300,000 shares 99,941 and 100,944 shares issued and outstanding at October 2, 2016 and December 31, 2015, respectively	7,175			7,175
Capital in excess of stated value	356,824			404,460
Accumulated other comprehensive loss	(672,235		)	(702,533		)
Retained earnings	1,874,829			1,803,827
Total Sonoco Shareholders’ Equity	1,566,593			1,512,929
Noncontrolling Interests	23,044			19,944
Total Equity	1,589,637			1,532,873
Total Liabilities and Equity	$	4,044,549		$	4,013,685

* The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

See accompanying Notes to Condensed Consolidated Financial Statements

3

SONOCO PRODUCTS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars and shares in thousands except per share data)

	Three Months Ended						Nine Months Ended
	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Net sales	$	1,208,724		$	1,242,592		$	3,640,680		$	3,697,234
Cost of sales	973,351			1,013,219			2,918,041			3,007,155
Gross profit	235,373			229,373			722,639			690,079
Selling, general and administrative expenses	121,583			130,341			382,387			357,893
Restructuring/Asset impairment charges	8,947			19,551			41,453			29,637
Income before interest and income taxes	104,843			79,481			298,799			302,549
Interest expense	13,133			14,340			41,414			42,352
Interest income	696			653			1,646			1,843
Income before income taxes	92,406			65,794			259,031			262,040
Provision for income taxes	29,618			24,775			83,602			75,019
Income before equity in earnings of affiliates	62,788			41,019			175,429			187,021
Equity in earnings of affiliates, net of tax	3,190			2,976			7,457			7,291
Net income	$	65,978		$	43,995		$	182,886		$	194,312
Net (income) attributable to noncontrolling interests	(583		)	(81		)	(1,325		)	(239		)
Net income attributable to Sonoco	$	65,395		$	43,914		$	181,561		$	194,073
Weighted average common shares outstanding:
Basic	100,925			101,548			101,320			101,454
Diluted	101,579			102,405			101,960			102,387
Per common share:
Net income attributable to Sonoco:
Basic	$	0.65		$	0.43		$	1.79		$	1.91
Diluted	$	0.64		$	0.43		$	1.78		$	1.90
Cash dividends	$	0.37		$	0.35		$	1.09		$	1.02

See accompanying Notes to Condensed Consolidated Financial Statements

4

SONOCO PRODUCTS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (unaudited)

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Net income	$	65,978		$	43,995		$	182,886		$	194,312
Other comprehensive income/(loss):
Foreign currency translation adjustments	(3,157		)	(55,520		)	10,282			(114,766		)
Changes in defined benefit plans, net of tax	5,799			6,767			14,753			11,915
Changes in derivative financial instruments, net of tax	641			210			5,263			1,454
Other comprehensive income/(loss)	3,283			(48,543		)	30,298			(101,397		)
Comprehensive income/(loss)	69,261			(4,548		)	213,184			92,915
Net (income) attributable to noncontrolling interests	(583		)	(81		)	(1,325		)	(239		)
Other comprehensive (income)/loss attributable to noncontrolling interests	363			4,413			(1,775		)	4,574
Comprehensive income/(loss) attributable to Sonoco	$	69,041		$	(216	)	$	210,084		$	97,250

See accompanying Notes to Condensed Consolidated Financial Statements

5

SONOCO PRODUCTS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands)

	Nine Months Ended
	October 2, 2016			September 27, 2015
Cash Flows from Operating Activities:
Net income	$	182,886		$	194,312
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairment	7,157			14,773
Depreciation, depletion and amortization	156,542			157,216
Gain on reversal of Fox River environmental reserves	—			(32,543		)
Share-based compensation expense	14,277			4,783
Equity in earnings of affiliates	(7,457		)	(7,291		)
Cash dividends from affiliated companies	7,090			5,480
Net (gain)/loss on disposition of assets	14,809			(6,473		)
Pension and postretirement plan expense	34,165			42,844
Pension and postretirement plan contributions	(39,946		)	(29,416		)
Tax effect of share-based compensation exercises	2,365			3,515
Excess tax benefit of share-based compensation	(2,406		)	(3,525		)
Net increase/(decrease) in deferred taxes	2,998			(7,709		)
Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
Trade accounts receivable	(69,189		)	(70,794		)
Inventories	(11,289		)	(11,982		)
Payable to suppliers	7,678			26,581
Prepaid expenses	3,996			(9,053		)
Accrued expenses	17,037			45,346
Income taxes payable and other income tax items	22,951			3,717
Fox River environmental reserve spending	(687		)	(796		)
Other assets and liabilities	5,700			(845		)
Net cash provided by operating activities	348,677			318,140
Cash Flows from Investing Activities:
Purchase of property, plant and equipment	(142,073		)	(140,869		)
Cost of acquisitions, net of cash acquired	(21,338		)	(17,447		)
Cash paid for disposition of assets	(8,436		)	—
Proceeds from the sale of assets	6,565			31,310
Investment in affiliates and other, net	63			(2,773		)
Net cash used in investing activities	(165,219		)	(129,779		)
Cash Flows from Financing Activities:
Proceeds from issuance of debt	230,393			57,311
Principal repayment of debt	(269,017		)	(105,388		)
Net change in commercial paper	—			—
Net increase/(decrease) in outstanding checks	6,796			(2,609		)
Excess tax benefit of share-based compensation	2,406			3,525
Cash dividends	(109,821		)	(102,702		)
Shares acquired	(65,015		)	(7,729		)
Shares issued	—			1,307
Net cash used in financing activities	(204,258		)	(156,285		)
Effects of Exchange Rate Changes on Cash	(2,313		)	179
Net (Decrease)/Increase in Cash and Cash Equivalents	(23,113		)	32,255
Cash and cash equivalents at beginning of period	182,434			161,168
Cash and cash equivalents at end of period	$	159,321		$	193,423

See accompanying Notes to Condensed Consolidated Financial Statements

6

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 1: Basis of Interim Presentation

In the opinion of the management of Sonoco Products Company (the “Company” or “Sonoco”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, unless otherwise stated) necessary to state fairly the consolidated financial position, results of operations and cash flows for the interim periods reported herein. Operating results for the three and nine months ended October 2, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

With respect to the unaudited condensed consolidated financial information of the Company for the three- and nine-month periods ended October 2, 2016 and September 27, 2015 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 2, 2016 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

During the third quarter of 2016, the Company reached a definitive agreement to sell its rigid plastics blow molding operations for $280,000. The transaction has received regulatory approval and is expected to be completed in early November 2016. The decision to sell the blow molding operations was made to focus on, and provide resources to further enhance, the Company's targeted growth businesses, including flexible packaging, thermoformed rigid plastics, and temperature-assurance packaging.  The Company’s rigid plastics blow molding operations include six manufacturing facilities in the U.S. and one in Canada and are reported within the Company's Consumer Packaging segment.  The sale does not represent a strategic shift for the Company that will have a major effect on the entity’s operations and financial results. Consequently, the sale does not meet the criteria for reporting as a discontinued operation.

In conjunction with the pending sale of its blow molding operations, the following major classes of assets and liabilities were classified as held for sale on the Company’s Condensed Consolidated Balance Sheet as of October 2, 2016:

	October 2, 2016
Assets:
Trade accounts receivable, net of allowances	$	32,115
Inventories	16,937
Prepaid expenses	525
Property, plant and equipment, net	41,539
Other intangible assets, net	15,028
Goodwill	77,140
Assets held for sale	$	183,284
Liabilities:
Payable to suppliers	$	18,674
Accrued expenses and other	1,452
Liabilities held for sale	$	20,126

7

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 2: New Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-15, "Statement of Cash Flows (Topic 230)," which provides clarification on eight cash flow classification issues, including 1) debt prepayment or debt extinguishment costs, 2) settlement of relatively insignificant debt instruments, 3) contingent consideration payments, 4) insurance claim settlements, 5) life insurance settlements, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect the implementation of ASU 2016-15 to have a material effect on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses," which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. The Company does not expect the implementation of ASU 2016-13 to have a material effect on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment transactions, including 1) accounting for income taxes, 2) classification of excess tax benefits in the statement of cash flows, 3) forfeitures, 4) minimum statutory tax withholding requirements, 5) cash flow classification of employee taxes withheld in the form of shares, 6) the practical expedient for estimating the expected term, and 7) intrinsic value. The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the implementation of ASU 2016-09 to have a material effect on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which provides guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. The amendments in this Update affect the guidance in ASU No. 2014-09 and are effective in the same time frame as ASU 2014-09 as discussed below.

In February 2016, the FASB issued ASU 2016-02, which changes accounting for leases and requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance on the balance sheet and requires disclosure of key information about leasing arrangements 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. The guidance is effective for reporting periods beginning after December 15, 2018, including interim periods within those fiscal years and requires retrospective application. The Company is still assessing the impact of ASU 2016-02 on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and not recorded as separate assets. This update was effective for reporting periods beginning after December 15, 2015, and was required to be applied on a retrospective basis. Accordingly, the Company adopted ASU 2015-03 on January 1, 2016. Debt issuance costs totaling $6,584 previously included in "Other Assets" have been reclassified to "Long-Term Debt, Net of Current Portion" on the Company's Condensed Consolidated Balance Sheets as of December 31, 2015.

In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers," which changes the definitions/criteria used to determine when revenue should be recognized from being based on risks and rewards to being based on control. Among other changes, ASU 2014-09 changes the manner in which variable consideration is recognized, requires recognition of the time value of money when payment terms exceed one year, provides clarification on accounting for contract costs, and expands disclosure requirements. The effective date for implementation of ASU 2014-09 has been deferred and is now effective for reporting periods beginning after December 15, 2017. The Company is still assessing the impact of ASU 2014-09 on its consolidated financial statements, but expects the adoption to have the effect of accelerating the timing of revenue recognition compared to current standards for those arrangements under which the Company is producing customer-specific products without alternative use and would be entitled to payment for work completed, including a reasonable margin. The Company has not yet selected a transition method and is currently expecting to adopt this standard in the first quarter of fiscal 2018.

8

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

During the three- and nine-month periods ended October 2, 2016, there have been no other newly issued nor newly applicable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at October 2, 2016, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 

Note 3: Acquisitions

The Company completed the acquisition of a small tube and core business in Australia on June 24, 2016. The all-cash purchase price of the business was $863. In conjunction with this acquisition, the Company recorded net tangible assets of $149, identifiable intangibles of $297, and goodwill of $417, none of which is expected to be tax deductible. This acquisition is expected to generate approximately $800 of annual sales in the Paper and Industrial Converted Products segment.

The Company completed the acquisition of Laminar Medica in the United Kingdom and Czech Republic, from Clinimed (Holdings) Limited, a privately held specialty medical products company based in the U.K. on September 19, 2016. The all-cash purchase price of the business was $17,475. In conjunction with this acquisition, the Company recorded net tangible assets of $6,215, identifiable intangibles of $4,918, and goodwill of $6,342, none of which is expected to be tax deductible. The allocation of the purchase price of Laminar to the tangible and intangible assets acquired and liabilities assumed was based on the Company's preliminary estimates of their fair value, based on information currently available. Management is continuing to finalize its valuation of certain assets and liabilities and expects to complete the allocation by the end of 2016. The acquisition is expected to generate approximately $16,000 of annual sales in the Protective Solutions segment.

The Company completed the acquisition of the temperature-controlled cargo container assets, licenses, trademarks, and manufacturing rights from AAR Corporation on August 30, 2016. Total consideration for this business was $6,000, including cash paid of $3,000, non-contingent deferred payments of $2,000, and a contingent purchase liability totaling $1,000. The non-contingent deferred payments are due in two installments, $1,000 payable 12 months from the closing date, and $1,000 payable 24 months from the closing date. The contingent purchase liability is based upon a highly attainable metric which the Company expects to be met. The contingent liability is payable in two installments, $500 due 36 months from the closing date and $500 due 48 months from the closing date. In relation to this acquisition, the Company recorded net tangible assets of $200 and identifiable intangibles of $5,800. The acquisition is expected to generate approximately $2,500 of annual sales in the Protective Solutions segment.

Subsequent to period end, on November 1, 2016 with an effective date of October 28, 2016, the Company completed the acquisition of Plastic Packaging Inc. (PPI), a privately held Hickory, N.C.-based flexible packaging company for $64,500 cash. Founded in 1957, PPI specializes in short-run, customized flexible packaging for consumer brands in markets including food products (i.e. frozen foods, baked goods, seafood), pet products (i.e. dry food, bird seed, litter), confection (i.e. seasonal promotions, heat-sealed chocolate packaging, hard and soft candy) and health and personal care (i.e. nutraceuticals, diapers, tissues/wipes). PPI operates two manufacturing facilities in Hickory, N.C., and Forest City, N.C., with approximately 170 employees. The acquisition is expected to generate approximately $42,000 of annual sales in the Consumer Packaging segment.

Acquisition-related costs of $943 and $288 were incurred in the three months ended October 2, 2016 and September 27, 2015, respectively. These costs totaled $2,092 and $3,536 for the nine months endedOctober 2, 2016 and September 27, 2015, respectively. Acquisition-related costs consist primarily of legal and professional fees and are included in "Selling, general and administrative expenses" in the Company's Condensed Consolidated Statements of Income.

9

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 4: Shareholders' Equity

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended				Nine Months Ended
	October 2, 2016		September 27, 2015		October 2, 2016		September 27, 2015
Numerator:
Net income attributable to Sonoco	$	65,395	$	43,914	$	181,561	$	194,073
Denominator:
Weighted average common shares outstanding:
Basic	100,925,000		101,548,000		101,320,000		101,454,000
Dilutive effect of stock-based compensation	654,000		857,000		640,000		933,000
Diluted	101,579,000		102,405,000		101,960,000		102,387,000
Reported net income attributable to Sonoco per common share:
Basic	$	0.65	$	0.43	$	1.79	$	1.91
Diluted	$	0.64	$	0.43	$	1.78	$	1.90

Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock appreciation rights (SARs) are used to repurchase the Company’s common stock. Certain SARs are not dilutive because either the exercise price is greater than the average market price of the stock during the reporting period or assumed repurchases from proceeds from the exercise of the SARs were antidilutive. These stock appreciation rights may become dilutive in the future if the market price of the Company's common stock appreciates.

The average number of stock appreciation rights that were not dilutive and therefore not included in the computation of diluted earnings per share during the three- and nine-month periods ended October 2, 2016 and September 27, 2015 was as follows:

	Three Months Ended		Nine Months Ended
	October 2, 2016	September 27, 2015	October 2, 2016	September 27, 2015
Anti-dilutive stock appreciation rights	—	1,165,126	476,581	718,845

No adjustments were made to reported net income attributable to Sonoco in the computations of earnings per share.

Stock Repurchases

On February 10, 2016, the Company’s Board of Directors authorized the repurchase of up to 5,000,000 shares of the Company's common stock. During the nine months ended October 2, 2016, a total of 1,244,143 shares were repurchased under this authorization at a cost of $58,943; accordingly, at October 2, 2016, a total of 3,755,857 shares remain available for repurchase. These repurchases were made under the Company’s previously announced plan to utilize up to $100,000 to repurchase shares during 2016.

The Company frequently repurchases shares of its common stock to satisfy employee tax withholding obligations in association with certain share-based compensation awards. These repurchases, which are not part of a publicly announced plan or program, totaled 135,578 shares in the nine months endedOctober 2, 2016 at a cost of $6,072, and 169,590 shares in the nine months endedSeptember 27, 2015 at a cost of $7,729.

Dividend Declarations

On July 20, 2016, the Board of Directors declared a regular quarterly dividend of $0.37 per share. This dividend was paid on September 9, 2016 to all shareholders of record as of August 12, 2016.

On October 18, 2016, the Board of Directors declared a regular quarterly dividend of $0.37 per share. This dividend is payable December 9, 2016 to all shareholders of record as of November 11, 2016.

10

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 5: Restructuring and Asset Impairment

The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2016 and 2015 are reported as “2016 Actions” and “2015 Actions,” respectively. Actions initiated prior to 2015, all of which were substantially complete at October 2, 2016, are reported as “2014 and Earlier Actions.”

Following are the total restructuring and asset impairment charges/(credits), net of adjustments, and gains on dispositions recognized by the Company during the periods presented: 

	2016						2015
	Third Quarter			Nine Months			Third Quarter			Nine Months
Restructuring/Asset impairment:
2016 Actions	$	3,389		$	29,434		$	—		$	—
2015 Actions	2,852			9,127			7,125			15,033
2014 and Earlier Actions	89			275			361			2,539
Other asset impairments	2,617			2,617			12,065			12,065
Restructuring/Asset impairment charges	$	8,947		$	41,453		$	19,551		$	29,637
Income tax benefit	$	(2,097	)	(10,442		)	$	(1,574	)	(16,850		)
Costs attributable to noncontrolling interests, net of tax	(34		)	(78		)	(5		)	(75		)
Total impact of restructuring/asset impairment charges, net of tax	$	6,816		$	30,933		$	17,972		$	12,712

Pre-tax restructuring and asset impairment charges are included in “Restructuring/Asset impairment charges” in the Condensed Consolidated Statements of Income.

When recognizable in accordance with GAAP, the Company expects to recognize future additional charges totaling approximately $2,650 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 2016. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken.

2016 Actions

During 2016, the Company announced the closure of four tubes and cores plants - one in the United States, one in Canada, one in Ecuador, and one in Switzerland (part of the Paper and Industrial Converted Products segment). The Company closed a packaging services center in Mexico (part of the Display and Packaging segment) and a fulfillment service center in Brazil (part of the Display and Packaging segment). The Company also began manufacturing rationalization efforts in its Reels division (part of the Paper and Industrial Converted Products segment), completed the sales of a paper mill in France (part of the Paper and Industrial Converted Products segment), and a retail security packaging plant in Puerto Rico (part of the Display and Packaging segment). In addition, approximately 120 positions were eliminated in the first nine months of 2016 in conjunction with the Company's ongoing organizational effectiveness efforts.

11

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Below is a summary of 2016 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion. 

2016 Actions	Third Quarter 2016		Total Incurred to Date			Estimated Total Cost
Severance and Termination Benefits
Consumer Packaging	$	766	$	2,218		$	2,468
Display and Packaging	372		3,025			3,525
Paper and Industrial Converted Products	1,187		$	5,328		5,528
Protective Solutions	109		469			469
Corporate	3		1,442			1,442
Asset Impairment / Disposal of Assets
Consumer Packaging	—		(306		)	(306		)
Display and Packaging	475		2,712			2,712
Paper and Industrial Converted Products	—		13,279			13,279
Other Costs
Consumer Packaging	12		314			664
Display and Packaging	37		48			98
Paper and Industrial Converted Products	428		905			1,155
Total Charges and Adjustments	$	3,389	$	29,434		$	31,034

The following table sets forth the activity in the 2016 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: 

2016 Actions	Severance and Termination Benefits			Asset Impairment/ Disposal of Assets			Other Costs			Total
Accrual Activity 2016 Year to Date
Liability at December 31, 2015	$	—		$	—		$	—		$	—
2016 charges	12,482			15,685			1,267			29,434
Cash payments	(8,733		)	(7,322		)	(1,179		)	(17,234		)
Asset write downs/disposals	—			(8,363		)	—			(8,363		)
Foreign currency translation	(2		)	—			(2		)	(4		)
Liability at October 2, 2016	$	3,747		$	—		$	86		$	3,833

Included in "Asset Impairment/Disposal of Assets" above is a loss of $12,694 from the sale of a paperboard mill in France in May 2016. Included in this loss was the divestiture of $8,436 of cash required in order to consummate the disposition with the acquiror. Other assets divested in connection with the sale included net fixed assets of $3,201, and other tangible assets, net of liabilities disposed, of $1,057. Also included in "Asset Impairment/Disposal of Assets" is a loss of $2,421 from the sale of a retail security packaging business in Puerto Rico in July 2016. The Company received proceeds of $1,816 from the sale of this business. Assets written off in connection with the sale included net fixed assets of $217, other tangible assets, net of liabilities disposed, of $858, goodwill of $1,215, and other intangible assets (customer lists) of $1,947.

"Other costs" consist primarily of costs related to plant closures including equipment removal, utilities, plant security, property taxes and insurance. The Company expects to pay the majority of the remaining 2016 Actions restructuring costs by the end of 2016 using cash generated from operations.

12

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

2015 Actions

During 2015, the Company initiated the following restructuring actions in its Consumer Packaging segment: the closure of six rigid paper facilities (two in the United States, one in Canada, one in Russia, one in Germany, and one in the United Kingdom); the closure of a production line at a thermoforming plant in the United States; and the sale of a portion of its metal ends and closures business in the United States. Restructuring actions initiated in the Paper and Industrial Converted Products segment include the closures of a tubes and cores plant and a recycling business in the United States. The Company also recognized an asset impairment charge related to the potential disposition of a paperboard mill in France. Restructuring actions initiated in the Display and Packaging segment consisted of the closure of a printed backer card facility in the United States. In addition, the Company continued to realign its cost structure, resulting in the elimination of approximately 235 positions.

Below is a summary of 2015 Actions and related expenses by segment and by type incurred and estimated to be incurred through completion.

	2016						2015						Total Incurred to Date			Estimated Total Cost
2015 Actions	Third Quarter			Nine Months			Third Quarter			Nine Months
Severance and Termination Benefits
Consumer Packaging	$	642		$	3,476		$	2,997		$	7,465		$	18,523		$	18,673
Display and Packaging	34			126			576			780			1,241			1,241
Paper and Industrial Converted Products	49			209			2,300			7,362			8,688			8,688
Protective Solutions	—			—			39			39			39			39
Corporate	(13		)	(13		)	210			2,409			2,762			2,762
Asset Impairment / Disposal of Assets
Consumer Packaging	$	(268	)	1,506			(53		)	(4,883		)	(2,797		)	(2,797		)
Display and Packaging	—			335			194			211			809			809
Paper and Industrial Converted Products	587			587			230			451			10,785			10,785
Other Costs
Consumer Packaging	$	1,705		2,234			441			936			3,634			4,384
Display and Packaging	79			219			89			89			569			619
Paper and Industrial Converted Products	37			448			102			163			699			749
Corporate	—			—			—			11			11			11
Total Charges and Adjustments	$	2,852		$	9,127		$	7,125		$	15,033		$	44,963		$	45,963

The following table sets forth the activity in the 2015 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:

2015 Actions	Severance and Termination Benefits			Asset Impairment/ Disposal of Assets			Other Costs			Total
Accrual Activity 2016 Year to Date
Liability at December 31, 2015	$	15,376		$	—		$	—		$	15,376
2016 charges	3,890			3,031			3,064			9,985
Adjustments	(92		)	(603		)	(163		)	(858		)
Cash receipts/(payments)	(13,848		)	603			(2,750		)	(15,995		)
Asset write downs/disposals	—			(3,031		)	—			(3,031		)
Foreign currency translation	(32		)	—			5			(27		)
Liability at October 2, 2016	$	5,294		$	—		$	156		$	5,450

13

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

“Other costs” consist primarily of costs related to plant closures including equipment removal, utilities, plant security, property taxes and insurance. The Company expects to pay the majority of the remaining 2015 Actions restructuring costs by the end of 2016 using cash generated from operations.

2014 and Earlier Actions

2014 and Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2015. Charges for these actions in both 2016 and 2015 relate primarily to the cost of plant closures including severance, equipment removal, plant security, property taxes and insurance.

The Company expects to recognize future pretax charges of approximately $100 associated with 2014 and Earlier Actions.

Below is a summary of expenses/(income) incurred by segment for 2014 and Earlier Actions for the three- and nine- month periods ended October 2, 2016 and September 27, 2015. 

	2016				2015
2014 & Earlier Actions	Third Quarter		Nine Months		Third Quarter			Nine Months
Consumer Packaging	$	—	$	—	$	47		$	926
Display and Packaging	—		—		(9		)	(27		)
Paper and Industrial Converted Products	71		123		25			1,059
Protective Solutions	18		152		298			581
Total Charges and Adjustments	$	89	$	275	$	361		$	2,539

The accrual for 2014 and Earlier Actions totaled $344 and $824 at October 2, 2016 and December 31, 2015, respectively, and is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. The accrual relates primarily to unpaid severance. The Company expects the majority of the liability associated with 2014 and Earlier Actions to be paid by the end of 2016 using cash generated from operations.

Other Asset Impairments

In addition to the restructuring charges discussed above, during the Company's annual goodwill impairment testing conducted during the third quarter of 2016, management concluded that goodwill associated with the Company's Paper and Industrial Converted Products - Brazil reporting unit had become impaired as a result of the continued deterioration of economic conditions in Brazil. Accordingly, an impairment charge totaling $2,617, the entire amount of goodwill associated with this reporting unit, was recognized during the third quarter of 2016. No other impairments were identified during this most recently completed annual goodwill impairment testing.

Prior to July 1, 2015, the Company used Venezuela's official exchange rate to report the results of its operations in Venezuela. As a result of significant inflationary increases, and to avoid distortion of its consolidated results from translation of its Venezuelan operations, the Company concluded that it was an appropriate time to begin translating its Venezuelan operations using an alternative exchange rate. Accordingly, effective July 1, 2015, the Company began translating its Venezuelan operations using the most current published Venezuelan exchange rate (which at that time was known as the SIMADI rate). This resulted in a foreign exchange remeasurement loss on net monetary assets. In addition, the use of the significantly higher SIMADI rate resulted in the need to recognize impairment charges against inventories and certain long-term nonmonetary assets as the U.S. dollar value of projected future cash flows from these assets was no longer sufficient to recover their U.S. dollar carrying values. The combined impact of the impairment charges and remeasurement loss was $12,065 on both a before and after-tax basis, recognized in the third quarter of 2015.

These asset impairment charges and remeasurement loss are included in “Restructuring/Asset impairment charges” in the Company’s Condensed Consolidated Statements of Income.

14

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 6: Accumulated Other Comprehensive Loss

The following table summarizes the components of accumulated other comprehensive loss and the changes in the balances of each component of accumulated other comprehensive loss, net of tax as applicable, for the nine months ended October 2, 2016 and September 27, 2015:

	Gains and Losses on Cash Flow Hedges			Defined Benefit Pension Items			Foreign Currency Items			Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(5,152	)	$	(444,244	)	$	(253,137	)	$	(702,533	)
Other comprehensive income/(loss) before reclassifications	1,318			(5,020		)	10,282			6,580
Amounts reclassified from accumulated other comprehensive loss to net income	3,897			19,773			—			23,670
Amounts reclassified from accumulated other comprehensive loss to fixed assets	48			—			—			48
Net current-period other comprehensive income	5,263			14,753			10,282			30,298
Balance at October 2, 2016	$	111		$	(429,491	)	$	(242,855	)	$	(672,235	)
Balance at December 31, 2014	$	(5,962	)	$	(475,286	)	$	(127,603	)	$	(608,851	)
Other comprehensive (loss) before reclassifications	(7,181		)	(8,239		)	(114,766		)	(130,186		)
Amounts reclassified from accumulated other comprehensive loss to net income	8,872			20,154			—			29,026
Amounts reclassified from accumulated other comprehensive loss to fixed assets	(237		)	—			—			(237		)
Net current-period other comprehensive income/(loss)	1,454			11,915			(114,766		)	(101,397		)
Balance at September 27, 2015	$	(4,508	)	$	(463,371	)	$	(242,369	)	$	(710,248	)

15

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

The following table summarizes the effects on net income of significant amounts reclassified from each component of accumulated other comprehensive loss for the three- and nine-month periods ended October 2, 2016 and September 27, 2015: 

	Amount Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended						Nine Months Ended
Details about Accumulated Other Comprehensive Loss Components	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015			Affected Line Item in  the Condensed Consolidated  Statements of Net Income
Gains and losses on cash flow hedges
Foreign exchange contracts	$	(2,370	)	$	(7,034	)	$	(5,217	)	$	(15,323	)	Net sales
Foreign exchange contracts	907			3,811			2,339			8,318			Cost of sales
Commodity contracts	(541		)	(2,244		)	(3,346		)	(7,201		)	Cost of sales
	(2,004		)	(5,467		)	(6,224		)	(14,206		)	Total before tax
	630			1,934			2,327			5,334			Tax benefit
	$	(1,374	)	$	(3,533	)	$	(3,897	)	$	(8,872	)	Net of tax
Defined benefit pension items
Amortization of defined benefit pension items(a)	$	(7,392	)	$	(8,059	)	$	(21,903	)	$	(23,931	)	Cost of sales
Amortization of defined benefit pension items(a)	(2,464		)	(2,686		)	(7,301		)	(7,976		)	Selling, general and  administrative
	(9,856		)	(10,745		)	(29,204		)	(31,907		)	Total before tax
	2,227			3,973			9,431			11,753			Tax benefit
	$	(7,629	)	$	(6,772	)	$	(19,773	)	$	(20,154	)	Net of tax
Total reclassifications for the period	$	(9,003	)	$	(10,305	)	$	(23,670	)	$	(29,026	)	Net of tax

(a) See Note 10 for additional details.

At October 2, 2016, the Company had commodity contracts outstanding to fix the costs of certain anticipated purchases of natural gas and aluminum, and foreign currency contracts to hedge certain anticipated foreign currency denominated sales and purchases. The amounts included in accumulated other comprehensive loss related to these cash flow hedges were net gains of $(342) ($(111) after tax) at October 2, 2016, and net losses of $8,036 ($5,152 after tax) at December 31, 2015.

The cumulative tax impact on Cash Flow Hedges included in Accumulated Other Comprehensive Loss was a provision of $(231) at October 2, 2016, and a benefit of $2,884 at December 31, 2015. During the three- and nine-month periods ended October 2, 2016, the tax benefit on Cash Flow Hedges changed by $(409) and $(3,115), respectively.

The cumulative tax benefit on Defined Benefit Pension Items was $241,263 at October 2, 2016, and $247,788 at December 31, 2015. During the three- and nine-month periods ended October 2, 2016, the tax benefit on Defined Benefit Pension Items changed by $(1,539) and $(6,525), respectively.

During the three- and nine-month periods ended October 2, 2016, changes in noncontrolling interests included foreign currency translation adjustments of $(363) and $1,775, respectively.

16

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 7: Goodwill and Other Intangible Assets

Goodwill

A summary of the changes in goodwill by segment for the nine months ended October 2, 2016 is as follows: 

	Consumer Packaging			Display and Packaging			Paper and Industrial Converted Products			Protective Solutions		Total
Goodwill at December 31, 2015	$	487,342		$	204,629		$	227,325		$	221,165	$	1,140,461
Acquisitions	—			—			417			6,342		6,759
Dispositions	—			(1,215		)	—			—		(1,215		)
Reclassified to assets held for sale	(77,140		)	—			—			—		(77,140		)
Impairment loss	—			—			(2,617		)	—		(2,617		)
Foreign currency translation	7,563			—			2,746			7		10,316
Other	(71		)	—			—			—		(71		)
Goodwill at October 2, 2016	$	417,694		$	203,414		$	227,871		$	227,514	$	1,076,493

Acquisitions in 2016 resulted in the addition of $6,759 of goodwill. Of this total, $417 was recorded in connection with the June 2016 acquisition of a small tubes and cores business in Australia and$6,342 was recorded in connection with the September 2016 acquisition of Laminar Medica.

In July 2016, the Company disposed of a retail security packaging plant in Juncos, Puerto Rico. In connection with this disposal, the Company wrote off $1,215 of goodwill. See Note 5 for additional information.

The Company assesses goodwill for impairment annually and from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole. The Company completed its most recent annual goodwill impairment testing during the third quarter of 2016. As part of this testing, the Company analyzes certain qualitative and quantitative factors in determining goodwill impairment. During this most recent testing, management concluded that goodwill associated with the Company's Paper and Industrial Converted Products - Brazil reporting unit had become impaired as a result of the continued deterioration of economic conditions in Brazil. Accordingly, an impairment charge totaling $2,617, the entire amount of goodwill associated with this reporting unit, was recognized during the three months ended October 2, 2016. The charge is included in “Restructuring/Asset impairment charges” in the Condensed Consolidated Statements of Income. See Note 5 for additional information.

Based on its assessments, the Company concluded that there was no impairment of goodwill for any of its other reporting units. The assessments reflected a number of significant management assumptions and estimates including the Company's forecast of sales volumes and prices, profit margins, income taxes, capital expenditures and changes in working capital requirements. Changes in these assumptions and/or discount rates could materially impact the Company's conclusions.

Although no reporting units failed the assessments noted above, in management’s opinion, the reporting units having the greatest risk of a significant future impairment if actual results fall short of expectations are Display and Packaging, and Paper and Industrial Converted Products - Europe. Total goodwill associated with these reporting units was approximately $203,414 and $91,700, respectively, at October 2, 2016. A large portion of sales in the Display and Packaging reporting unit is concentrated in one customer. The business with this customer is currently under negotiation for contract renewal. If a significant amount of business were lost and not replaced under similar terms, a goodwill impairment charge could be incurred.

17

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Other Intangible Assets

A summary of other intangible assets as of October 2, 2016 and December 31, 2015 is as follows:     

	October 2, 2016			December 31, 2015
Other Intangible Assets, gross:
Patents	$	15,865		$	12,716
Customer lists	347,503			381,938
Trade names	19,271			19,246
Proprietary technology	20,748			17,738
Land use rights	299			297
Other	1,418			1,223
Other Intangible Assets, gross	$	405,104		$	433,158
Accumulated Amortization:
Patents	(5,360		)	(3,784		)
Customer lists	(167,627		)	(171,590		)
Trade names	(2,588		)	(2,171		)
Proprietary technology	(10,769		)	(9,518		)
Land use rights	(42		)	(40		)
Other	(947		)	(960		)
Total Accumulated Amortization	$	(187,333	)	$	(188,063	)
Other Intangible Assets, net	$	217,771		$	245,095

Other intangible assets are amortized on a straight-line basis over their respective useful lives, which generally range from three to forty years. The Company has no intangible assets with indefinite lives.

The Company recorded $11,015 of identifiable intangibles in connection with 2016 acquisitions. Of this total, approximately $4,943 related to customer lists, $3,000 to proprietary technology, $2,898 to patents, and $174 to non-compete agreements. These intangibles will be amortized over their weighted average useful life of 10.6 years. See Note 3 for additional information.

Also during 2016, the Company wrote off customer lists totaling $1,947 in connection with the sale of a retail security packaging business in Puerto Rico. See Note 5 for additional information.

During the third quarter of 2016 the Company reclassified $15,028 of intangible assets to "Assets held for sale" in conjunction with the pending sale of its rigid plastics blow molding business. See Note 1 for additional information.

Aggregate amortization expense was $7,767 and $8,533 for the three months ended October 2, 2016 and September 27, 2015, respectively, and $24,334 and $24,857, for the nine months ended October 2, 2016 and September 27, 2015, respectively. Amortization expense on other intangible assets is expected to total approximately $31,400 in 2016, $29,200 in 2017, $28,800 in 2018, $27,400 in 2019 and $25,100 in 2020.

18

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 8: Financial Instruments and Derivatives

The following table sets forth the carrying amounts and fair values of the Company’s significant financial instruments for which the carrying amount differs from the fair value. 

	October 2, 2016				December 31, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, net of current portion	$	1,030,338	$	1,156,185	$	1,015,270	$	1,081,732

The carrying value of cash and cash equivalents, short-term debt and long-term variable-rate debt approximates fair value. The fair value of long-term debt is determined based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available to the Company for issues with similar terms and maturities. It is considered a Level 2 fair value measurement.

Cash Flow Hedges

At October 2, 2016 and December 31, 2015, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. These contracts, which have maturities ranging to December 2017, qualify as cash flow hedges under U.S. GAAP. 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 Company has determined all hedges to be highly effective and as a result no material ineffectiveness has been recorded.

Commodity Cash Flow Hedges

The Company has entered into certain derivative contracts to manage the cost of anticipated purchases of natural gas and aluminum. At October 2, 2016, natural gas swaps covering approximately 8.3 MMBTUs were outstanding. These contracts represent approximately 74% and 76% of anticipated U.S. and Canadian usage for the remainder of 2016 and 2017, respectively. Additionally, the Company had swap contracts covering 2,464 metric tons of aluminum and 660 short tons of old corrugated containers (OCC), representing approximately 55% and less than 1% of anticipated usage for the remainder of 2016, respectively. The fair values of the Company’s commodity cash flow hedges netted to a gain position of $439 at October 2, 2016 and a loss position of $(3,611) at December 31, 2015. The amount of the gain included in Accumulated Other Comprehensive Loss at October 2, 2016, that is expected to be reclassified to the income statement during the next twelve months is $249.

Foreign Currency Cash Flow Hedges

The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales and purchases forecast to occur in 2016. The net positions of these contracts at October 2, 2016 were as follows (in thousands): 

Currency	Action	Quantity
Colombian peso	purchase	1,917,279
Mexican peso	purchase	129,002
Canadian dollar	purchase	19,917
British pound	purchase	8,427
Russian ruble	purchase	4,918
Turkish lira	purchase	374
New Zealand dollar	sell	(157	)
Polish zloty	sell	(668	)
Australian dollar	sell	(1,522	)
Euro	sell	(10,267	)

The fair value of these foreign currency cash flow hedges netted to a gain position of $202 at October 2, 2016 and a loss position of $(4,612) at December 31, 2015. During the nine months ended October 2, 2016, certain foreign currency cash flow hedges related to construction in progress were settled as the related capital expenditures were made. Losses from these hedges totaling $48 were reclassified from accumulated other comprehensive loss and included in the

19

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

carrying value of the assets acquired. During the next twelve months, a gain of $165 is expected to be reclassified from Accumulated Other Comprehensive Loss to the income statement.

Other Derivatives

The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and existing foreign currency denominated receivables and payables. The Company does not apply hedge accounting treatment under ASC 815 for these instruments. As such, changes in fair value are recorded directly to income and expense in the periods that they occur.

The net positions of these contracts at October 2, 2016, were as follows (in thousands): 

Currency	Action	Quantity
Colombian peso	purchase	2,355,160
Mexican peso	purchase	241,133
Canadian dollar	purchase	13,768

The fair value of the Company’s other derivatives was $(57) and $(2,180) at October 2, 2016 and December 31, 2015, respectively.

The following table sets forth the location and fair values of the Company’s derivative instruments at October 2, 2016 and December 31, 2015: 

Description	Balance Sheet Location	October 2, 2016			December 31, 2015
Derivatives designated as hedging instruments:
Commodity Contracts	Prepaid expenses	$	634		$	8
Commodity Contracts	Other assets	$	252		$	—
Commodity Contracts	Accrued expenses and other	$	(314	)	$	(3,425	)
Commodity Contracts	Other liabilities	$	(133	)	$	(194	)
Foreign Exchange Contracts	Prepaid expenses	$	1,147		$	156
Foreign Exchange Contracts	Accrued expenses and other	$	(945	)	$	(4,768	)
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts	Prepaid expenses	$	119		$	50
Foreign Exchange Contracts	Accrued expenses and other	$	(176	)	$	(2,230	)

While certain of the Company’s derivative contract arrangements with its counterparties provide for the ability to settle contracts on a net basis, the Company reports its derivative positions on a gross basis. There are no collateral arrangements or requirements in these agreements.

20

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three months ended October 2, 2016 and September 27, 2015: 

Description	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)			Location of Gain  or (Loss)  Recognized in Income on Derivatives (Ineffective Portion)	Amount of Gain  or (Loss) Recognized in Income on Derivatives (Ineffective  Portion)
Derivatives in Cash Flow Hedging Relationships:
Three months ended October 2, 2016
Foreign Exchange Contracts	$	130		Net sales	$	(2,370	)	Net sales	$	—
				Cost of sales	$	907
Commodity Contracts	$	(1,110	)	Cost of sales	$	(541	)	Cost of sales	$	(54	)
Three months ended September 27, 2015
Foreign Exchange Contracts	$	(3,161	)	Net sales	$	(7,034	)	Net sales	$	—
				Cost of sales	$	3,811
Commodity Contracts	$	(1,728	)	Cost of sales	$	(2,244	)	Cost of sales	$	(30	)

Description	Location of Gain or (Loss) Recognized in Income Statement	Gain or (Loss) Recognized
Derivatives not Designated as Hedging Instruments:
Three months ended October 2, 2016
Foreign Exchange Contracts	Cost of sales	$	—
	Selling, general and administrative	$	(743	)
Three months ended September 27, 2015
Foreign Exchange Contracts	Cost of sales
	Selling, general and administrative	$	(3,949	)

21

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the nine months endedOctober 2, 2016 and September 27, 2015: 

Description	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion)			Location of Gain  or (Loss)  Recognized in Income on Derivatives (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivatives (Ineffective  Portion)
Derivatives in Cash Flow Hedging Relationships:
Nine months ended October 2, 2016
Foreign Exchange Contracts	$	1,700		Net sales	$	(5,217	)	Net sales	$	—
				Cost of sales	$	2,339
Commodity Contracts	$	406		Cost of sales	$	(3,346	)	Cost of sales	$	(52	)
Nine months ended September 27, 2015
Foreign Exchange Contracts	$	(6,952	)	Net sales	$	(15,323	)	Net sales	$	—
				Cost of sales	$	8,318
Commodity Contracts	$	(5,080	)	Cost of sales	$	(7,201	)	Cost of sales	$	80

Description	Location of Gain or (Loss) Recognized in Income Statement	Gain or (Loss) Recognized
Derivatives not Designated as Hedging Instruments:
Nine months ended October 2, 2016
Foreign Exchange Contracts	Cost of sales	$	—
	Selling, general and administrative	$	373
Nine months ended September 27, 2015
Foreign Exchange Contracts	Cost of sales
	Selling, general and administrative	$	(3,102	)

22

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 9: Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

Level 1 –	Observable inputs such as quoted market prices in active markets;
Level 2 –	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 –	Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table sets forth information regarding the Company’s financial assets and financial liabilities, excluding retirement and postretirement plan assets, measured at fair value on a recurring basis:

Description	October 2, 2016			Level 1		Level 2			Level 3
Hedge derivatives, net:
Commodity contracts	$	439		$	—	$	439		$	—
Foreign exchange contracts	202			—		202			—
Non-hedge derivatives, net:
Foreign exchange contracts	(57		)	—		(57		)	—
Deferred compensation plan assets	341			341		—			—
Description	December 31, 2015			Level 1		Level 2			Level 3
Hedge derivatives, net:
Commodity contracts	$	(3,611	)	$	—	$	(3,611	)	$	—
Foreign exchange contracts	(4,612		)	—		(4,612		)	—
Non-hedge derivatives, net:
Foreign exchange contracts	(2,180		)	—		(2,180		)	—
Deferred compensation plan assets	460			460		—			—

As discussed in Note 8, the Company uses derivatives to mitigate the effect of raw material and energy cost fluctuations, foreign currency fluctuations and, from time to time, interest rate movements. Fair value measurements for the Company’s derivatives are classified under Level 2 because such measurements are estimated based on observable inputs such as interest rates, yield curves, spot and future commodity prices and spot and future exchange rates.

Certain deferred compensation plan liabilities are funded by assets invested in various exchange traded mutual funds. These assets are measured using quoted prices in accessible active markets for identical assets.

The Company does not currently have any non-financial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. None of the Company’s financial assets or liabilities is measured at fair value using significant unobservable inputs. There were no transfers in or out of Level 1 or Level 2 fair value measurements during the three- and nine-month periods ended October 2, 2016.

23

SONOCO PRODUCTS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except shares and per share data)

(unaudited)

Note 10: Employee Benefit Plans

Retirement Plans and Retiree Health and Life Insurance Plans

The Company provides non-contributory defined benefit pension plans for a majority of its employees in the United States and certain of its employees in Mexico and Belgium. The Company also sponsors contributory defined benefit pension plans covering the majority of its employees in the United Kingdom, Canada, and the Netherlands. In addition, the Company provides postretirement healthcare and life insurance benefits to a limited number of its retirees and their dependents in the United States and Canada, based on certain age and/or service eligibility requirements.

The Company froze participation in its U.S. qualified defined benefit pension plan for newly hired salaried and non-union hourly employees effective December 31, 2003. To replace this benefit, the Company provides non-union U.S. employees hired on or after January 1, 2004, with an annual contribution, called the Sonoco Retirement Contribution (SRC), to their participant accounts in the Sonoco Retirement and Savings Plan. The SRC is equal to 4% of the participant's eligible pay plus 4% of eligible pay in excess of the social security wage base. Also eligible for the SRC are former participants of the U.S. qualified defined benefit pension plan who elected to transfer out of that plan under a one-time option effective January 1, 2010.

On February 4, 2009, the U.S. qualified defined benefit pension plan was amended to freeze plan benefits for all active participants effective December 31, 2018. Remaining active participants in the U.S. qualified plan will become eligible for SRC contributions effective January 1, 2019.

The components of net periodic benefit cost include the following: 

	Three Months Ended						Nine Months Ended
	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Retirement Plans
Service cost	$	4,938		$	5,735		$	14,760		$	17,076
Interest cost	14,842			17,657			45,152			52,419
Expected return on plan assets	(21,201		)	(23,485		)	(64,633		)	(69,738		)
Amortization of net transition obligation	—			39			—			120
Amortization of prior service cost	188			185			569			552
Amortization of net actuarial loss