Restructuring and Asset Impairment

6 Months Ended

Jul. 03, 2011

Restructuring and Asset Impairment [Abstract]

Note 4: Restructuring and Asset Impairment

The Company has engaged in a number of restructuring actions over the past several years. Actions initiated in 2011, 2010, and 2009, are reported as “2011 Actions,” “2010 Actions,” and “2009 Actions,” respectively. Actions initiated prior to 2009, all of which were substantially complete at July 3, 2011, are reported as “Earlier Actions.”

Following are the total restructuring and asset impairment charges, net of adjustments, recognized by the Company during the periods presented:


	2011						2010
	Second			Six			Second			Six
	Quarter			Months			Quarter			Months
Restructuring/Asset impairment:
2011 Actions	$	10,258		$	10,637		$	—		$	—
2010 Actions		(1,163	)		(1,004	)		1,125			3,858
2009 Actions		338			1,473			1,315			3,102
Earlier Actions		145			789			71			(502	)

Restructuring/Asset impairment charges	$	9,578		$	11,895		$	2,511		$	6,458
Income tax benefit		(2,903	)		(3,639	)		(924	)		(2,666	)
Equity method investments, net of tax		—			17			—			218
Costs attributable to Noncontrolling Interests, net of tax		27			70			22			61

Total impact of Restructuring/Asset impairment charges, net of tax	$	6,702		$	8,343		$	1,609		$	4,071

Restructuring and asset impairment charges are included in “Restructuring/Asset impairment charges” in the Condensed Consolidated Statements of Income. Included in “Income tax benefit” above for the three- and six-month periods ended July 3, 2011, is $2,318 from the release of tax reserves associated with the sale of a plastics business in Brazil.

The Company expects to recognize future additional cash costs totaling approximately $2,650 in connection with previously announced restructuring actions and believes that the majority of these charges will be incurred and paid by the end of 2011. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions may be undertaken.

2011 Actions

During 2011, the Company announced the closures of a flexible packaging facility in Canada (part of the Consumer Packaging segment) and a fulfillment service center in the United States (part of the Packaging Services segment). The Company also sold two small businesses, a plastics operation in Brazil and a tubes and core operation in the United States and realigned its fixed cost structure resulting in the elimination of approximately 31 positions.

Below is a summary of 2011 Actions and related expenses by type incurred and estimated to be incurred through completion.


				Total
	Second			Incurred to			Estimated
2011 Actions	Quarter			Date			Total Cost
Severance and Termination Benefits
Tubes and Cores/Paper segment	$	188		$	422		$	422
Consumer Packaging segment		2,594			2,729			2,729
Packaging Services segment		212			212			212
Asset Impairment / Disposal of Assets
Tubes and Cores/Paper segment		(286	)		(286	)		(286	)
Consumer Packaging segment		6,868			6,868			6,868
Other Costs
Consumer Packaging segment		586			596			1,796
Packaging Services segment		96			96			96


Total Charges and Adjustments	$	10,258		$	10,637		$	11,837

The following table sets forth the activity in the 2011 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:


	Severance			Asset
2011 Actions	and			Impairment/
Accrual Activity	Termination			Disposal			Other
2011 Year to Date	Benefits			of Assets			Costs			Total
Liability at December 31, 2010	$	—		$	—		$	—		$	—
2011 charges		3,363			6,582			692			10,637
Cash receipts/(payments)		(736	)		4,999			(692	)		3,571
Asset write downs/disposals		—			(11,581	)		—			(11,581	)
Foreign currency translation		15			—			—			15

Liability at July 3, 2011	$	2,642		$	—		$	—		$	2,642

Included in 2011 charges above is a loss of $6,689 from the sale of a plastics business in Brazil for which the Company received net proceeds of $3,849. Annual sales of this business were approximately $27,000. Partially offsetting the loss was a gain of $1,053 from the sale of a small tubes and cores business in the United States for which the Company received net proceeds of $1,150. Goodwill associated with this business totaled $97 and was written off as part of the sale. Additional impairment charges totaling $946 were recorded in 2011 related primarily to the announced closure of a flexible packaging facility in Canada and the decision not to use certain machinery and equipment acquired in the 2010 acquisition of a tube and core business in Greece. “Other costs” consist primarily of lease termination costs and costs related to plant closures including the cost of equipment removal, utilities, plant security, property taxes and insurance.

The Company expects to pay the majority of the remaining 2011 Actions restructuring costs by the end of 2011 using cash generated from operations.

2010 Actions

During 2010, the Company consolidated two manufacturing operations in the Packaging Services segment into a single facility as well as closed two North American tube and core plants and a North American molded plug manufacturing plant (part of the Tubes and Cores/Paper segment). In addition, the Company continued to realign its fixed cost structure resulting in the elimination of 112 positions in 2010.

Below is a summary of 2010 Actions and related expenses by type incurred and estimated to be incurred through completion.


	2011						2010						Total
	Second			Six			Second			Six			Incurred			Estimated
2010 Actions	Quarter			Months			Quarter			Months			to Date			Total Cost
Severance and Termination Benefits
Tubes and Cores/Paper segment	$	(1	)	$	(43	)	$	(2	)	$	1,225		$	2,359		$	2,359
Consumer Packaging segment		—			—			384			705			705			705
Packaging Services segment		(1	)		(1	)		321			1,473			1,554			1,554
All Other Sonoco		—			182			30			63			300			300
Corporate		—			—			—			—			36			36
Asset Impairment / Disposal of Assets
Tubes and Cores/Paper segment		(1,227	)		(1,222	)		38			38			(333	)		(333	)
Packaging Services segment		—			(429	)		(108	)		(108	)		(565	)		(565	)
All Other Sonoco		—			—			369			369			369			369
Other Costs
Tubes and Cores/Paper segment		44			205			—			—			264			414
Consumer Packaging segment		—			—			—			—			19			19
Packaging Services segment		—			139			24			24			472			472
All Other Sonoco		22			165			69			69			466			466


Total Charges and Adjustments	$	(1,163	)	$	(1,004	)	$	1,125		$	3,858		$	5,646		$	5,796

The following table sets forth the activity in the 2010 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:


	Severance			Asset
2010 Actions	and			Impairment/
Accrual Activity	Termination			Disposal			Other
2011 Year to Date	Benefits			of Assets			Costs			Total
Liability at December 31, 2010	$	1,282		$	—		$	59		$	1,341
2011 charges		181			—			509			690
Adjustments		(43	)		(1,651	)		—			(1,694	)
Cash receipts/(payments)		(872	)		2,737			(568	)		1,297
Asset write downs/disposals		—			(1,086	)		—			(1,086	)
Foreign currency translation		11			—			—			11

Liability at July 3, 2011	$	559		$	—		$	—		$	559

“Adjustments” consist primarily of gains on the sale of assets (land and buildings at a former tube and core facility in Canada and machinery and equipment at a point-of-purchase display facility in the United States), which accounts for the net benefit recognized related to 2010 Actions in the second quarter of 2011. “Other costs” consist primarily of lease termination costs and costs related to plant closures including the cost of equipment removal, utilities, plant security, property taxes and insurance.

The majority of the remaining 2010 Actions restructuring costs are expected to be paid by the end of 2011 using cash generated from operations.

2009 Actions

During 2009, the Company closed a paper mill in the United States and five tube and core plants — three in the United States, one in Europe, and one in Canada (all part of the Tubes and Cores/Paper segment). The Company also closed two rigid paper packaging plants in the United States (part of the Consumer Packaging segment), a fulfillment service center in Germany (part of the Packaging Services segment), a molded plastics facility in the United States (part of All Other Sonoco) and a wooden reel facility in the United States (part of All Other Sonoco). The Company also sold a small Canadian recovered paper brokerage business and realigned its fixed cost structure resulting in the elimination of approximately 225 positions.

Below is a summary of 2009 Actions and related expenses by type incurred and estimated to be incurred through the end of the restructuring initiative.


	2011						2010						Total
	Second			Six			Second			Six			Incurred		Estimated
2009 Actions	Quarter			Months			Quarter			Months			to Date		Total Cost
Severance and Termination Benefits
Tubes and Cores/Paper segment	$	18		$	56		$	(241	)	$	15		$	15,264	$	15,264
Consumer Packaging segment		200			200			60			310			2,555		2,555
Packaging Services segment		—			—			—			(53	)		1,482		1,482
All Other Sonoco		(4	)		8			—			198			1,441		1,441
Corporate		—			(4	)		263			269			923		923
Asset Impairment / Disposal of Assets
Tubes and Cores/Paper segment		—			—			213			175			4,119		4,119
Consumer Packaging segment		—			(10	)		—			—			566		566
Packaging Services segment		—			—			—			—			7		7
All Other Sonoco		—			—			2			2			305		305
Other Costs
Tubes and Cores/Paper segment		(81	)		765			749			1,259			5,550		5,950
Consumer Packaging segment		110			353			266			599			1,178		1,228
Packaging Services segment		95			105			—			180			430		430
All Other Sonoco		—			—			3			148			483		483


Total	$	338		$	1,473		$	1,315		$	3,102		$	34,303	$	34,753

The following table sets forth the activity in the 2009 Actions restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets:


	Severance			Asset
2009 Actions	and			Impairment/
Accrual Activity	Termination			Disposal			Other
2011 Year to Date	Benefits			of Assets			Costs			Total
Liability at December 31, 2010	$	4,696		$	—		$	—		$	4,696
2011 charges		47			—			1,512			1,559
Adjustments		212			(10	)		(289	)		(87	)
Cash receipts/(payments)		(1,130	)		720			(1,223	)		(1,633	)
Asset write downs/disposals		—			(710	)		—			(710	)
Foreign currency translation		3			—			—			3

Liability at July 3, 2011	$	3,828		$	—		$	—		$	3,828

“Other costs” consist primarily of costs related to plant closures including the cost of equipment removal, utilities, plant security, property taxes and insurance.

The Company expects to pay the majority of the remaining 2009 Actions restructuring costs by the end of 2011 using cash generated from operations.

Earlier Actions

Earlier Actions are comprised of a number of plant closures and workforce reductions initiated prior to 2009. Charges/income associated with these actions totaled $145 and $789 during the three- and six-month periods ended July 3, 2011, compared with $71 and $(502) during the three- and six-month periods ended June 27, 2010. The 2010 income resulted from a gain on the sale of land and buildings associated with a former paper mill in France. The accrual for Earlier Actions totaled $713 and $981 at July 3, 2011 and December 31, 2010, respectively, and relates primarily to building lease terminations. The accrual is included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheet. Cash payments during the six months ended July 3, 2011 were $838; while cash received from the sale of a building (a former tube and core facility in Spain) totaled $2,415. The Company expects to recognize future pre-tax charges of approximately $850 associated with Earlier Actions, primarily related to costs of exiting paper mills in Canada, China, and the United States. The Company expects both the liability and the future costs to be fully paid at the end of 2012, using cash generated from operations.