SONOCO PRODUCTS CO 10-Q

Item 1. Financial Statements. SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Dollars and shares in thousands) April 3, 2022 December 31, 2021 Assets Current Assets Cash and cash equivalents $ 151,537 $ 170,978 Trade accounts receivable, net of allowances 1,000,415 755,609 Other receivables 110,731 95,943 Inventories, net: Finished and in process 418,000 199,823 Materials and supplies 450,251 362,290 Prepaid expenses 119,711 74,034 2,250,645 1,658,677 Property, Plant and Equipment, Net 1,640,774 1,297,500 Goodwill 1,688,308 1,324,501 Other Intangible Assets, Net 756,967 278,143 Deferred Income Taxes 25,590 25,818 Right of Use Asset-Operating Leases 315,604 268,390 Other Assets 278,100 220,206 Total Assets $ 6,955,988 $ 5,073,235 Liabilities and Equity Current Liabilities Payable to suppliers $ 872,340 $ 721,312 Accrued expenses and other 383,597 381,350 Notes payable and current portion of long-term debt 440,698 411,557 Accrued taxes 18,370 11,544 1,715,005 1,525,763 Long-term Debt, Net of Current Portion 2,730,146 1,199,106 Noncurrent Operating Lease Liabilities 272,157 234,167 Pension and Other Postretirement Benefits 153,818 158,265 Deferred Income Taxes 124,918 70,482 Other Liabilities 41,013 35,911 Sonoco Shareholders’ Equity Common stock, no par value Authorized 300,000 shares 97,492 and 97,370 shares issued and outstanding at April 3, 2022 and December 31, 2021, respectively 7,175 7,175 Capital in excess of stated value 120,266 119,690 Accumulated other comprehensive loss ( 356,869 ) ( 359,425 ) Retained earnings 2,141,214 2,070,005 Total Sonoco Shareholders’ Equity 1,911,786 1,837,445 Noncontrolling Interests 7,145 12,096 Total Equity 1,918,931 1,849,541 Total Liabilities and Equity $ 6,955,988 $ 5,073,235 * 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 April 3, 2022 April 4, 2021 Net sales $ 1,770,982 $ 1,353,304 Cost of sales 1,399,417 1,075,403 Gross profit 371,565 277,901 Selling, general and administrative expenses 190,362 145,230 Restructuring/Asset impairment charges 12,142 6,846 Loss on divestiture of business — 5,516 Operating profit 169,061 120,309 Non-operating pension costs 1,324 7,284 Interest expense 20,581 18,501 Interest income 1,516 770 Income before income taxes 148,672 95,294 Provision for income taxes 35,289 24,045 Income before equity in earnings of affiliates 113,383 71,249 Equity in earnings of affiliates, net of tax 2,224 1,044 Net income 115,607 72,293 Net (income)/loss attributable to noncontrolling interests ( 274 ) 4 Net income attributable to Sonoco $ 115,333 $ 72,297 Weighted average common shares outstanding: Basic 97,924 101,046 Diluted 98,554 101,492 Per common share: Net income attributable to Sonoco: Basic $ 1.18 $ 0.72 Diluted $ 1.17 $ 0.71 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 April 3, 2022 April 4, 2021 Net income $ 115,607 $ 72,293 Other comprehensive (loss)/ income: Foreign currency translation adjustments 706 ( 32,541 ) Changes in defined benefit plans, net of tax 191 5,385 Changes in derivative financial instruments, net of tax 2,550 958 Other comprehensive income/(loss) $ 3,447 $ ( 26,198 ) Comprehensive income: 119,054 46,095 Net (income)/loss attributable to noncontrolling interests ( 274 ) $ 4 Other comprehensive (income)/ loss attributable to noncontrolling interests ( 891 ) 520 Comprehensive income attributable to Sonoco $ 117,889 $ 46,619 See accompanying Notes to Condensed Consolidated Financial Statements 5 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY (unaudited) (Dollars in thousands) Total Equity Common Shares Capital in Excess of Stated Value Accumulated Other Comprehensive Loss Retained Earnings Noncontrolling Interests Outstanding Amount December 31, 2020 $ 1,910,528 100,447 $ 7,175 $ 314,056 $ ( 756,842 ) $ 2,335,216 $ 10,923 Net income/(loss) 72,293 72,297 ( 4 ) Other comprehensive income/(loss): Translation loss ( 32,541 ) ( 32,021 ) ( 520 ) Defined benefit plan adjustment, net of tax 5,385 5,385 Derivative financial instruments, net of tax 958 958 Other comprehensive loss $ ( 26,198 ) $ ( 25,678 ) $ ( 520 ) Dividends ( 45,510 ) ( 45,510 ) Issuance of stock awards 364 245 364 Shares repurchased ( 5,051 ) ( 85 ) ( 5,051 ) Stock-based compensation 6,372 6,372 April 4, 2021 $ 1,912,798 100,607 $ 7,175 $ 315,741 $ ( 782,520 ) $ 2,362,003 $ 10,399 Total Equity Common Shares Capital in Excess of Stated Value Accumulated Other Comprehensive Loss Retained Earnings Noncontrolling Interests Outstanding Amount December 31, 2021 $ 1,849,541 97,370 $ 7,175 $ 119,690 $ ( 359,425 ) $ 2,070,005 $ 12,096 Net income 115,607 115,333 274 Other comprehensive income/(loss): Translation income/(loss) 706 ( 185 ) 891 Defined benefit plan adjustment, net of tax 191 191 Derivative financial instruments, net of tax 2,550 2,550 Other comprehensive income $ 3,447 $ 2,556 $ 891 Dividends ( 44,124 ) ( 44,124 ) Purchase of noncontrolling interest ( 13,196 ) ( 7,080 ) ( 6,116 ) Issuance of stock awards 377 182 377 Shares repurchased ( 3,410 ) ( 60 ) ( 3,410 ) Stock-based compensation 10,689 10,689 April 3, 2022 $ 1,918,931 97,492 $ 7,175 $ 120,266 $ ( 356,869 ) $ 2,141,214 $ 7,145 See accompanying Notes to Condensed Consolidated Financial Statements 6 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Three Months Ended April 3, 2022 April 4, 2021 Cash Flows from Operating Activities: Net income $ 115,607 $ 72,293 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment 5,511 4,149 Depreciation, depletion and amortization 70,602 61,599 Share-based compensation expense 10,689 6,372 Equity in earnings of affiliates ( 2,224 ) ( 1,044 ) Cash dividends from affiliated companies 350 350 Net loss/(gain) on disposition of assets 190 ( 1,861 ) Net loss on divestiture of businesses — 5,516 Pension and postretirement plan expense 2,232 14,674 Pension and postretirement plan contributions ( 28,095 ) ( 26,338 ) Net increase/(decrease) in deferred taxes 4,613 ( 6,933 ) Change in assets and liabilities, net of effects from acquisitions and foreign currency adjustments: Trade accounts receivable ( 129,670 ) ( 44,307 ) Inventories ( 116,169 ) ( 36,682 ) Payable to suppliers 60,356 51,039 Prepaid expenses ( 6,954 ) ( 336 ) Income taxes payable and other income tax items 13,786 20,056 Accrued expenses and other assets and liabilities 236 20,168 Net cash provided by operating activities 1,060 138,715 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 67,507 ) ( 39,549 ) Cost of acquisitions, net of cash acquired ( 1,348,589 ) ( 2,353 ) Proceeds from the sale of assets 183 234 Other net investing proceeds 145 2,701 Net cash used in investing activities ( 1,415,768 ) ( 38,967 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 1,530,145 4,934 Principal repayment of debt ( 33,117 ) ( 11,350 ) Net change in commercial paper ( 27,000 ) — Net decrease in outstanding checks ( 15,759 ) ( 13,208 ) Cash dividends ( 43,747 ) ( 45,142 ) Purchase of noncontrolling interest ( 14,474 ) — Payments for share repurchases ( 3,410 ) ( 5,051 ) Net cash provided/(used) by financing activities 1,392,638 ( 69,817 ) Effects of Exchange Rate Changes on Cash 2,629 ( 7,247 ) Net (Decrease)/Increase in Cash and Cash Equivalents ( 19,441 ) 22,684 Cash and cash equivalents at beginning of period 170,978 564,848 Cash and cash equivalents at end of period $ 151,537 $ 587,532 See accompanying Notes to Condensed Consolidated Financial Statements 7 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 1: Basis of Interim Presentation In the opinion of the management of Sonoco Products Company (the “Company” or “Sonoco”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, unless otherwise stated) necessary to state fairly the consolidated financial position, results of operations and cash flows for the interim periods reported herein. Operating results for the three months ended April 3, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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, 2021. With respect to the unaudited condensed consolidated financial information of the Company for the three-month periods ended April 3, 2022 and April 4, 2021 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 May 3, 2022 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act. Note 2: New Accounting Pronouncements In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments — Credit Losses (Topic 326), Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The amendments in this update also require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases. The Company does not expect this pronouncement to materially affect its consolidated financial statements. In October 2021, the FASB issued ASU 2021-08 – Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under current accounting standards, contract assets and contract liabilities acquired in a business combination are to be recorded at fair value using the ASC 805 measurement principle. ASU 2021-08 requires the acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606: Revenue from Contracts with Customers as if the acquirer had originated the contracts rather than at fair value. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt ASU 2021-08 on a prospective basis as of January 1, 2022. The election to use practical expedients allowed under ASU 2021-08 will be applied on an acquisition-by-acquisition basis. There was no impact to the Company’s consolidated financial statements as of the adoption date. During the three-month period ended April 3, 2022, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on the Company’s financial statements. Further, at April 3, 2022, there are no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 8 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 3: Acquisitions and Divestitures Acquisitions On January 26, 2022, the Company completed the acquisition of Ball Metalpack Holding, LLC ("Ball Metalpack"), a leading supplier of sustainable metal packaging for food and household products and the largest aerosol can producer in North America, for $ 1,348,589 , net of cash acquired. Ball Metalpack was a joint venture owned by Platinum Equity ( 51 %) and Ball Corporation ( 49 %). Ball Metalpack was formed in 2018 and consists of eight manufacturing plants in the United States and a headquarters facility in Broomfield, Colorado. This acquisition fits the Company's strategy of investing in its core businesses as it complements the Company's largest Consumer Packaging franchise – global rigid paper containers. In addition, it further expands the Company's sustainable packaging portfolio to include metal packaging. Final consideration is subject to customary post-closing adjustments for working capital, cash and indebtedness. The Company's funding of the acquisition was based on an estimate of cash on hand at closing. The actual cash on hand at January 26, 2022 was $ 6,924 lower than estimated; accordingly, the Company has recorded a receivable for this amount from the sellers on its Condensed Consolidated Balance Sheet at April 3, 2022. The post-closing adjustments are expected to be finalized during the second quarter of 2022. The preliminary fair values of the assets acquired and the liabilities assumed in the Ball Metalpack acquisition are as follows: Trade accounts receivable $ 123,001 Inventories 190,070 Prepaid expenses 44,530 Property, plant and equipment 333,496 Right of use asset - operating leases 38,000 Other intangible assets 498,000 Goodwill 366,098 Payable to suppliers ( 105,580 ) Accrued expenses and other ( 25,253 ) Notes payable and current portion of long-term debt ( 46,463 ) Noncurrent operating lease liabilities ( 30,448 ) Long-term debt ( 39,543 ) Deferred income taxes ( 52,312 ) Other net tangible assets 48,069 Net assets, excluding cash $ 1,341,665 Factors comprising goodwill include increased access to certain markets as well as the value of the assembled workforce. Approximately 78 % of goodwill is expected to be deductible for income tax purposes. Ball Metalpack's financial results are included in the Company's Consumer Packaging segment. The allocation of the purchase price of Ball Metalpack 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 including, but not limited to: inventory; property, plant and equipment; goodwill; other intangible assets; deferred income taxes; and trade accounts receivable, and expects to complete its valuations within one year of the date of acquisition. The Company has accounted for this acquisition as a business combination under the acquisition method and has included the results of operations of the acquired business in the Company's Condensed Consolidated Statements of Income from the date of acquisition. These results include a $ 25,000 charge related to the amortization of the fair value step-up of finished goods inventory acquired and sold through to customers from the date of acquisition through April 3, 2022. The following table presents the unaudited financial results for Ball Metalpack from the date of acquisition through the end of the three month period ended April 3, 2022: 9 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Supplemental Information (unaudited) January 26 to Ball Metalpack April 3, 2022 Actual net sales $ 171,228 Actual net income $ 14,019 The following table presents the Company’s estimated unaudited pro forma consolidated results for the three month periods ended April 3, 2022 and April 4, 2021, assuming the acquisition of Ball Metalpack had occurred on January 1, 2021. This unaudited pro forma information is presented for informational purposes only and does not purport to represent the results of operations that would have been achieved if the acquisition had been completed at the beginning of 2021, nor is it necessarily indicative of future consolidated results. Pro Forma Supplemental Information (unaudited) Three Months Ended Consolidated April 3, 2022 April 4, 2021 Net sales $ 1,820,570 $ 1,549,616 Net income attributable to Sonoco $ 164,881 $ 20,813 The unaudited pro forma information above does not project the Company’s expected results for any future period and gives no effect to any future synergistic benefits that may result from the combination or the costs of integrating the acquired operations with those of the Company. Unaudited pro forma information for the three-month periods ended April 3, 2022 and April 4, 2021 includes adjustments to depreciation, amortization, and income taxes based upon the fair value allocation of the purchase price to Ball Metalpack's tangible and intangible assets acquired and liabilities assumed as though the acquisition had occurred on January 1, 2021. Interest expense on the additional debt issued by the Company to fund the acquisition and retention bonuses incurred related to the acquisition are also included in the unaudited pro forma information as if the acquisition had occurred on January 1, 2021. Acquisition-related costs of $ 22,284 and a charge related to fair value adjustments to acquisition-date inventory of $ 25,000 were recognized during the three months ended April 3, 2022. These costs are excluded from 2022 unaudited pro forma net income and are instead reflected in 2021 pro forma net income as though they were incurred on January 1, 2021. Divestitures As previously disclosed, the Company completed the sale of its U.S. display and packaging business, part of the All Other group of businesses, to Hood Container Corporation on April 4, 2021 for $ 80,000 in cash. This business provided design, manufacturing and fulfillment of point-of-purchase displays, as well as contract packaging services, for consumer product customers and had approximately 450 employees. Its operations included eight manufacturing and fulfillment facilities and four sales and design centers. The selling price was adjusted at closing for certain transaction expenses and for anticipated differences between targeted levels of working capital and the projected levels at the time of closing. Net cash proceeds of $ 79,704 were received on April 5, 2021 and the Company recognized a loss on the divestiture of this business of $ 5,516 , before tax, in the first quarter of 2021. During the quarter ended October 3, 2021, the Company finalized the working capital settlement related to this sale. The settlement resulted in additional cash proceeds of $ 1,971 and the buyer's assumption of certain liabilities totaling $ 786 . As a result, the Company recognized a reduction in the previously reported loss on the sale of this business of $ 2,757 , before tax, in the third quarter of 2021, bringing the total loss on the sale of business to $ 2,759 , before tax. The Company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the divestiture of plants and/or business units it considers to be suboptimal or nonstrategic. Acquisition and Divestiture-Related Costs Acquisition-related costs totaled $ 48,352 during the three months ended April 3, 2022 primarily related to the Ball Metalpack acquisition. These charges included the partial amortization of the fair value step-up of finished goods inventory of $ 25,000 , included in "Cost of sales" in the Company's Condensed Consolidated Statements of Income, and other acquisition-related charges of $ 23,352 . These other charges consisted primarily of investment banking fees, representation and warranty insurance premiums, legal and professional fees, and other transaction costs and are included in "Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. 10 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Acquisition and divestiture-related costs totaled $ 10,025 during the three months ended April 4, 2021. These costs, consisting primarily of legal and professional fees, are included in “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. Note 4: Shareholders' Equity Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended April 3, 2022 April 4, 2021 Numerator: Net income attributable to Sonoco $ 115,333 $ 72,297 Denominator: Weighted average common shares outstanding: Basic 97,924 101,046 Dilutive effect of stock-based compensation 630 446 Diluted 98,554 101,492 Net income attributable to Sonoco per common share: Basic $ 1.18 $ 0.72 Diluted $ 1.17 $ 0.71 Cash dividends $ 0.45 $ 0.45 No adjustments were made to "Net income attributable to Sonoco" in the computations of net income attributable to Sonoco per common share. Anti-dilutive Securities Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock appreciation rights ("SARs") are used to repurchase the Company’s common stock. Certain SARs are not dilutive because either the exercise price is greater than the average market price of the stock during the reporting period or assumed repurchases from proceeds from the exercise of the SARs were antidilutive. These SARs may become dilutive in the future if the market price of the Company's common stock appreciates. The average numbers of SARs that were anti-dilutive and, therefore, not included in the computation of diluted earnings per share during the three month periods ended April 3, 2022 and April 4, 2021 were as follows (in thousands): Three Months Ended April 3, 2022 April 4, 2021 Anti-dilutive stock appreciation rights 401 427 Stock Repurchases On April 20, 2021, the Company's Board of Directors (the "Board") authorized the repurchase of the Company's common stock in an aggregate amount of up to $ 350,000 . Following several repurchase transactions in 2021, a total of $ 137,972 remained available for share repurchases under this authorization as of December 31, 2021. No shares were purchased under this authorization during the three months ended April 3, 2022. 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 60 shares during the three months ended April 3, 2022, at a cost of $ 3,410 , and 85 shares during the three months ended April 4, 2021, at a cost of $ 5,051 . 11 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Dividend Declarations On February 9, 2022, the Board of Directors declared a regular quarterly dividend of $ 0.45 per share. This dividend was paid on March 10, 2022 to all shareholders of record as of February 23, 2022. On April 20, 2022, the Board of Directors declared a regular quarterly dividend of $ 0.49 per share. This dividend is payable on June 10, 2022 to all shareholders of record as of May 10, 2022. Noncontrolling interests In April 2015, the Company acquired a 67 % controlling interest in Graffo Paranaense de Embalagens S/A (“Graffo”). Prior to March 31, 2022, the Company consolidated 100% of Graffo, with the partner's 33 % share included in “Noncontrolling Interests” within the equity section of the balance sheet. On March 31, 2022, the Company paid $ 14,474 in cash to acquire the remaining 33 % ownership interest from the three noncontrolling partners, which resulted in a $ 6,116 reduction in noncontrolling interest, a $ 7,080 charge to capital in excess of stated value, and a $ 1,278 reduction to accrued expenses and other on the Company's Condensed Consolidated Balance Sheet as of April 3, 2022. Note 5: Restructuring and Asset Impairment Due to its geographic footprint and the cost-competitive nature of its businesses, the Company is continually seeking the most cost-effective means and structure to serve its customers 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 significantly from quarter to quarter and from year to year depending upon the scope and location of the restructuring activities. Following are the total restructuring and asset impairment charges, net of adjustments, recognized during the periods presented: Three Months Ended April 3, 2022 April 4, 2021 Restructuring and restructuring-related asset impairment charges $ 5,753 $ 2,697 Other asset impairments 6,389 4,149 Restructuring/Asset Impairment Charges $ 12,142 $ 6,846 12 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The table below sets forth restructuring and restructuring-related asset impairment charges by type incurred: Three Months Ended April 3, 2022 April 4, 2021 Severance and Termination Benefits $ 2,099 $ 1,428 Asset Impairments/(Gains from Disposal of Assets) 445 ( 864 ) Other Costs 3,209 2,133 Restructuring and restructuring-related asset impairment charges $ 5,753 $ 2,697 The table below sets forth restructuring and restructuring-related asset impairment charges by reportable segment: Three Months Ended April 3, 2022 April 4, 2021 Consumer Packaging $ 1,635 $ 1,085 Industrial Paper Packaging 1,348 1,433 All Other 78 165 Corporate 2,692 14 Restructuring and restructuring-related asset impairment charges $ 5,753 $ 2,697 Restructuring and restructuring-related asset impairment charges are included in “Restructuring/Asset impairment charges” in the Company's Condensed Consolidated Statements of Income. The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets: Severance and Termination Benefits Asset Impairment/ Disposal of Assets Other Costs Total Accrual Activity Liability at December 31, 2021 $ 10,917 $ — $ 1,873 $ 12,790 2022 charges 2,099 445 3,209 5,753 Cash (payments)/receipts ( 4,932 ) 33 ( 4,570 ) ( 9,469 ) Asset write downs/disposals — ( 478 ) — ( 478 ) Foreign currency translation 5 — ( 38 ) ( 33 ) Liability at April 3, 2022 $ 8,089 $ — $ 474 $ 8,563 "Severance and Termination Benefits" during the first three months of 2022 includes the cost of severance for approximately 125 employees whose positions were eliminated in conjunction with the Company's ongoing organizational effectiveness efforts. "Asset Impairment/Disposal of Assets" during the first three months of 2022 consists primarily of asset impairments in the Industrial Paper Packaging segment. “Other Costs” during the first three months of 2022 consists 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 restructuring reserves by the end of 2022 using cash generated from operations. The Company also expects to recognize future additional charges totaling approximately $ 2,100 in connection with previously announced restructuring actions and believes that the majority of these charges will be incurred and paid by the end of 2022. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken. 13 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Other Asset Impairments The Company recognized other asset impairment charges totaling $ 6,389 and $ 4,149 in the three months ended April 3, 2022 and April 4, 2021, respectively. The charges in the three months ended April 3, 2022 include $ 5,713 of impairment charges related to the Company's decision to ex it its operations in Russia, part of the Industrial Paper Packaging segment, as a result of the ongoing Russia-Ukraine conflict, and $ 676 of fixed asset impairments in the Company's plastics foods operatio ns, part of the Consumer Packaging segment. Other asset impairment charges in the first quarter of 2021 consisted of fixed asset impairments totaling $ 1,750 in the Company's plastics foods operations, part of the Consumer Packaging segment, and $ 2,399 in the temperature-assured packaging business, part of the All Other group of businesses. These assets were determined to be impaired as the value of their projected undiscounted cash flows was no longer sufficient to recover their carrying value. These impairment charges 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 and shares in thousands except per share data) (unaudited) Note 6: Accumulated Other Comprehensive Loss The following table summarizes the components of accumulated other comprehensive loss and the changes in the balances of each component of accumulated other comprehensive loss, net of tax as applicable, for the three months ended April 3, 2022 and April 4, 2021: Foreign Currency Items Defined Benefit Pension Items Cash Flow Hedges Accumulated Other Comprehensive Loss Balance at December 31, 2021 $ ( 269,076 ) $ ( 91,397 ) $ 1,048 $ ( 359,425 ) Other comprehensive (loss)/income before reclassifications ( 185 ) $ ( 971 ) $ 5,119 $ 3,963 Amounts reclassified from accumulated other comprehensive loss to net income — 1,162 ( 2,654 ) ( 1,492 ) Amounts reclassified from accumulated other comprehensive loss to fixed assets — — 85 85 Other comprehensive (loss)/income ( 185 ) 191 2,550 2,556 Balance at April 3, 2022 $ ( 269,261 ) $ ( 91,206 ) $ 3,598 $ ( 356,869 ) Balance at December 31, 2020 $ ( 194,024 ) $ ( 562,747 ) $ ( 71 ) $ ( 756,842 ) Other comprehensive loss before reclassifications ( 32,021 ) 115 998 ( 30,908 ) Amounts reclassified from accumulated other comprehensive loss to net income — 5,270 ( 30 ) 5,240 Amounts reclassified from accumulated other comprehensive loss to fixed assets — — ( 10 ) ( 10 ) Other comprehensive (loss)/income ( 32,021 ) 5,385 958 ( 25,678 ) Balance at April 4, 2021 $ ( 226,045 ) $ ( 557,362 ) $ 887 $ ( 782,520 ) 15 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table summarizes the effects on net income of significant amounts reclassified from each component of accumulated other comprehensive loss for the three month periods ended April 3, 2022 and April 4, 2021: Amount Reclassified from Accumulated Other Comprehensive Loss Three Months Ended Details about Accumulated Other Comprehensive Loss Components April 3, 2022 April 4, 2021 Affected Line Item in the Condensed Consolidated Statements of Income Gains/(losses) on cash flow hedges Foreign exchange contracts $ 566 $ 340 Net sales Foreign exchange contracts ( 695 ) ( 228 ) Cost of sales Commodity contracts 3,850 ( 71 ) Cost of sales $ 3,721 $ 41 Income before income taxes ( 1,067 ) ( 11 ) Provision for income taxes $ 2,654 $ 30 Net income Defined benefit pension items Effect of settlement loss (a) ( 356 ) — Non-operating pension costs Amortization of defined benefit pension items (a) ( 1,171 ) ( 6,901 ) Non-operating pension costs $ ( 1,527 ) $ ( 6,901 ) Income before income taxes 365 1,631 Provision for income taxes $ ( 1,162 ) $ ( 5,270 ) Net income Total reclassifications for the period $ 1,492 $ ( 5,240 ) Net income (a) See Note 11 for additional details. 16 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table summarizes the before and after tax amounts for the various components of other comprehensive income/(loss) for the three-month periods ended April 3, 2022 and April 4, 2021: Three months ended April 3, 2022 Three months ended April 4, 2021 Before Tax Amount Tax (Expense) Benefit After Tax Amount Before Tax Amount Tax (Expense) Benefit After Tax Amount Foreign currency items: Net other comprehensive loss from foreign currency items $ ( 185 ) $ — $ ( 185 ) $ ( 32,021 ) $ — $ ( 32,021 ) Defined benefit pension items: Other comprehensive (loss)/income before reclassifications ( 1,276 ) 305 ( 971 ) 151 ( 36 ) 115 Amounts reclassified from accumulated other comprehensive loss to net income (a) 1,527 ( 365 ) 1,162 6,901 ( 1,631 ) 5,270 Net other comprehensive income/(loss) from defined benefit pension items 251 ( 60 ) 191 7,052 ( 1,667 ) 5,385 Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications 7,179 ( 2,060 ) 5,119 1,338 ( 340 ) 998 Amounts reclassified from accumulated other comprehensive loss to net income ( 3,721 ) 1,067 ( 2,654 ) ( 41 ) 11 ( 30 ) Amounts reclassified from accumulated other comprehensive loss to fixed assets 117 ( 32 ) 85 ( 13 ) 3 ( 10 ) Net other comprehensive income/(loss) from cash flow hedges 3,575 ( 1,025 ) 2,550 1,284 ( 326 ) 958 Other comprehensive income/(loss) $ 3,641 $ ( 1,085 ) $ 2,556 $ ( 23,685 ) $ ( 1,993 ) $ ( 25,678 ) (a) See Note 11 for additional details. 17 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 7: Goodwill and Other Intangible Assets Goodwill A summary of the changes in goodwill for the three months ended April 3, 2022 is as follows: Consumer Packaging Industrial Paper Packaging All Other Total Goodwill at December 31, 2021 $ 572,415 $ 367,780 $ 384,305 $ 1,324,501 2022 Acquisitions 366,098 — — 366,098 Foreign currency translation ( 751 ) ( 757 ) ( 783 ) ( 2,291 ) Goodwill at April 3, 2022 $ 937,762 $ 367,023 $ 383,522 $ 1,688,308 Goodwill from 2022 acquisitions relates to the acquisition of Ball Metalpack. See Note 3 for additional information. The Company 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. The Company completed its most recent annual goodwill impairment testing during the third quarter of 2021, and analyzed certain qualitative and quantitative factors in determining whether a goodwill impairment existed. The Company's assessments reflected a number of significant management assumptions and estimates including the Company's forecast of sales growth, gross profit margins, and discount rates. Changes in these assumptions could materially impact the Company's conclusions. Based on its assessments, the Company concluded that there was no impairment of goodwill for any of its reporting units. Although no reporting units failed the annual impairment test, in management’s opinion the goodwill of the Plastics - Healthcare reporting unit is at risk of impairment in the near term if the reporting unit's operations do not perform in line with management's expectations, or if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. Although beginning to benefit from economic recovery, the results of the Plastics - Healthcare reporting unit have been negatively impacted by end-market weakness due to the COVID-19 pandemic. In addition, the unit is facing near-term headwinds from higher raw material and other cost increases. Assuming COVID-19 infection rates continue to decline, management expects market demand will improve throughout 2022 and that selling price increases and/or cost reductions, including restructuring actions and investments in production efficiency projects, will mitigate the impacts of recent raw material and other cost inflation. However, should it become apparent that the ongoing post-COVID-19 recovery is likely to be significantly weaker, delayed, or prolonged compared to management’s current expectations, significant negative price/cost relationships will persist over the long-term, or profit margins do not improve as expected, goodwill impairment charges may be possible in the future. In the annual goodwill impairment analysis completed during the third quarter of 2021, projected future cash flows for the Plastics - Healthcare reporting unit were discounted at 8.3 % and its estimated fair value was determined to exceed its carrying value by approximately 13.3 %. Based on the discounted cash flow model and holding other valuation assumptions constant, projected operating profits across all future periods would have to be reduced approximately 13.0 %, or the discount rate increased to 9.3 %, in order for the estimated fair value of the reporting unit to fall below carrying value. Total goodwill associated with this reporting unit was $ 63,681 at April 3, 2022. During the time subsequent to the annual evaluation, and at April 3, 2022, the Company considered whether any events and/or changes in circumstances had resulted in the likelihood that the goodwill of any of its reporting units may have been impaired. It is management's opinion that no such events and/or changes in circumstances have occurred. 18 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Other Intangible Assets A summary of other intangible assets as of April 3, 2022 and December 31, 2021 is as follows: April 3, 2022 December 31, 2021 Other Intangible Assets, gross: Patents $ 29,320 $ 29,315 Customer lists 1,054,757 592,195 Trade names 32,020 32,043 Proprietary technology 57,846 22,846 Other 2,808 2,807 Total Other Intangible Assets, gross $ 1,176,751 $ 679,206 Accumulated Amortization: Patents $ ( 16,701 ) $ ( 16,275 ) Customer lists ( 364,315 ) ( 347,274 ) Trade names ( 14,497 ) ( 14,106 ) Proprietary technology ( 22,233 ) ( 21,394 ) Other ( 2,038 ) ( 2,014 ) Total Accumulated Amortization $ ( 419,784 ) $ ( 401,063 ) Other Intangible Assets, net $ 756,967 $ 278,143 The acquisition of Ball Metalpack on January 26, 2022 resulted in the addition of $ 498,000 of intangible assets, primarily customer relationships and proprietary technology, which are expected to be amortized over their average useful lives of approximately 13.6 years. See Note 3 for additional information about the Ball Metalpack acquisition. Other Intangible Assets are amortized on a straight-line basis over their respective useful lives, which generally range from three to forty years . The Company has no intangible assets with indefinite lives. Aggregate amortization expense was $ 18,800 and $ 12,749 for the three months ended April 3, 2022 and April 4, 2021, respectively, and on an annual basis is expected to total approximately $ 81,400 in 2022, $ 79,700 in 2023, $ 71,000 in 2024, $ 60,500 in 2025 and $ 57,900 in 2026. Note 8: Debt Details of the Company's debt at April 3, 2022 and December 31, 2021 are as follows: April 3, 2022 December 31, 2021 Commercial paper $ 322,000 $ 349,000 Syndicated term loan due February 2025 299,516 — 1.800 % notes due February 2025 397,787 — 2.250 % notes due February 2027 297,529 — 2.850 % notes due February 2032 494,876 — 3.125 % notes due May 2030 595,487 595,342 5.750 % notes due November 2040 536,190 536,182 Other foreign denominated debt 48,829 55,432 Finance lease obligations 110,077 60,282 Other debt 68,553 14,424 Total debt $ 3,170,844 $ 1,610,662 Less current portion and short-term notes 440,698 411,557 Long-term debt $ 2,730,146 $ 1,199,106 19 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) On January 21, 2022, the Company completed a registered public offering of green bonds with an aggregate principal amount of $ 1,200,000 . The unsecured notes (the "Notes") consisted of the following: Principal Amount Issuance Costs and Discounts Net Proceeds Interest Rate Maturity 2025 Notes $ 400,000 $ ( 2,356 ) $ 397,644 1.800 % February 1, 2025 2027 Notes 300,000 ( 2,565 ) 297,435 2.250 % February 1, 2027 2032 Notes 500,000 ( 5,220 ) 494,780 2.850 % February 1, 2032 Total $ 1,200,000 $ ( 10,141 ) $ 1,189,859 The Notes are the Company’s senior unsecured obligations and rank equal in right of payment to the Company’s other senior unsecured debt from time to time outstanding. The indenture governing the Notes contains certain covenants with respect to the Company that, among other things, restrict the entry into additional secured indebtedness, sale and leaseback transactions and certain mergers, consolidations and transfers of all or substantially all of the Company’s assets. The Company used an amount equal to the net proceeds from the Notes of $ 1,189,859 to partially fund the acquisition of Ball Metalpack. Also on January 21, 2022, the Company entered into a $ 300,000 three-year term loan facility (the "Term Loan Facility") with a syndicate of eight banks. The full $ 300,000 was drawn from this facility on January 26, 2022, and the proceeds used to partially fund the acquisition of Ball Metalpack. Interest is assessed at the Secured Overnight Financing Rate ("SOFR") plus a margin based on a pricing grid that uses the Company’s credit ratings. The current SOFR margin is 122.5 basis points. There is no required amortization and repayment can be accelerated at any time without penalty at the Company's discretion. Note 9: Financial Instruments and Derivatives The following table sets forth the carrying amounts and fair values of the Company’s significant financial instruments for which the carrying amount differs from the fair value. April 3, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, net of current portion $ 2,730,146 $ 2,766,118 $ 1,199,106 $ 1,434,711 The carrying value of cash and cash equivalents and short-term 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 which is considered a Level 2 fair value measurement. Cash Flow Hedges At April 3, 2022 and December 31, 2021, 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 September 2023, qualify as cash flow hedges under U.S. GAAP. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. 20 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Commodity Cash Flow Hedges Certain derivative contracts entered into to manage the cost of anticipated purchases of natural gas and aluminum have been designated by the Company as cash flow hedges. At April 3, 2022, these contracts included natural gas swaps covering approximately 1.3 million MMBTUs. These contracts represented approximately 23 % of anticipated usage in North America for the remainder of 2022. The Company also has certain natural gas hedges that it does not treat as cash flow hedges. See "Non-Designated Derivatives" below for a discussion of these hedges. At April 3, 2022, the Company had designated swap contracts covering 252 metric tons of aluminum as cash flow hedges. These contracts represented approximately 5 % of anticipated aluminum usage for the remainder of 2022. The fair value of the Company’s commodity cash flow hedges netted to a gain position of $ 3,865 at April 3, 2022 and a gain position of $ 1,491 at December 31, 2021. The amount of the gain included in Accumulated Other Comprehensive Income at April 3, 2022 expected to be reclassified to the income statement during the next twelve months is $ 3,865 . Foreign Currency Cash Flow Hedges The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales, purchases, and capital spending expected to occur in 2022 and 2023. The net positions of these contracts at April 3, 2022 were as follows (in thousands): Currency Action Quantity Colombian peso purchase 20,628,988 Mexican peso purchase 362,683 Polish zloty purchase 66,273 Czech koruna purchase 49,946 Turkish lira purchase 12,957 Canadian dollar purchase 12,513 Euro purchase 11,543 British pound purchase 2,144 Brazilian real sell ( 22,941 ) Russian ruble sell ( 67,719 ) The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to a gain position of $ 1,421 and $ 336 at April 3, 2022 and December 31, 2021, respectively. Gains of $ 1,421 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 April 3, 2022 and December 31, 2021, the net position of these contracts was $( 333 ) and $( 457 ), respectively. During the three months ended April 3, 2022, losses from these hedges totaling $( 432 ) were reclassified from accumulated other comprehensive loss and included in the carrying value of the capitalized expenditures. Losses of $( 264 ) 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. Non-Designated Derivatives The Company routinely enters into other derivative contracts which are not designated for hedge accounting treatment under ASC 815. As such, changes in fair value of these non-designated derivatives are recorded directly to income and expense in the periods that they occur. 21 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Foreign Currency Hedges The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and foreign currency denominated receivables and payables. The net currency positions of these non-designated contracts at April 3, 2022, were as follows (in thousands): Currency Action Quantity Colombian peso purchase 31,293,571 Indonesian rupiah purchase 28,410,441 Mexican peso purchase 394,099 Turkish lira purchase 41,644 Canadian dollar purchase 6,258 Thai baht sell ( 12,571 ) Commodity Hedges The Company has entered into non-designated derivative contracts to manage the cost of anticipated purchases of natural gas. At April 3, 2022, these contracts consisted of natural gas swaps covering approximately 2.6 million MMBTUs and represented approximately 46 % of anticipated usage in North America for the remainder of 2022. Interest Rate Hedges Pursuant to the registered public offering of unsecured 2.850 % notes with a principal amount of $ 500,000 maturing on February 1, 2032, the Company entered into treasury lock derivative instruments with two banks, with a notional principal amount of $ 150,000 each on December 29, 2021. These instruments had the risk management objective of reducing exposure to the Company of increases in the underlying Treasury index up to the date of pricing of the notes. The fair value of the contracts was a net loss position of $( 550 ) at December 31, 2021. The derivatives were settled when the bonds priced on January 11, 2022, with the Compan y recognizing a gain on the settlement of $ 5,201 . The gain is included in "Selling, general and administrative expenses" on the Company's Condensed Consolidated Statements of Income for the three months ended April 3, 2022. The fair value of the Company’s non-designated derivatives position was a gain of $ 6,717 and $ 92 at April 3, 2022 and December 31, 2021, respectively. The following table sets forth the location and fair values of the Company’s derivative instruments at April 3, 2022 and December 31, 2021: Description Balance Sheet Location April 3, 2022 December 31, 2021 Derivatives designated as hedging instruments: Commodity Contracts Prepaid expenses $ 3,865 $ 1,599 Commodity Contracts Accrued expenses and other $ — $ ( 108 ) Foreign Exchange Contracts Prepaid expenses $ 1,913 $ 848 Foreign Exchange Contracts Accrued expenses and other $ ( 756 ) $ ( 969 ) Foreign Exchange Contracts Other liabilities $ ( 69 ) $ — Derivatives not designated as hedging instruments: Commodity Contracts Prepaid expenses $ 6,729 $ 1,815 Commodity Contracts Accrued expenses and other $ — $ ( 1,132 ) Foreign Exchange Contracts Prepaid expenses $ 85 $ 135 Foreign Exchange Contracts Accrued expenses and other $ ( 97 ) $ ( 176 ) Interest Rate Lock Contract Accrued expenses and other $ — $ ( 550 ) 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. 22 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except 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 April 3, 2022 and April 4, 2021, 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 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 Derivatives in Cash Flow Hedging Relationships: Three months ended April 3, 2022 Foreign Exchange Contracts $ 955 Net sales $ 566 Cost of sales $ ( 695 ) Commodity Contracts $ 6,224 Cost of sales $ 3,850 Three months ended April 4, 2021 Foreign Exchange Contracts $ ( 188 ) Net sales $ 340 Cost of sales $ ( 228 ) Commodity Contracts $ 1,754 Cost of sales $ ( 71 ) Description Gain or (Loss) Recognized Location of Gain or (Loss) Recognized in Income Statement Derivatives not Designated as Hedging Instruments: Three months ended April 3, 2022 Commodity Contracts $ 6,992 Cost of sales Foreign Exchange Contracts $ 1,343 Selling, general and administrative Three months ended April 4, 2021 Commodity Contracts $ 378 Cost of sales Foreign Exchange Contracts $ ( 625 ) Selling, general and administrative Three months ended April 3, 2022 Three months ended April 4, 2021 Description Revenue Cost of sales Revenue Cost of sales Total amount of income and expense line items presented in the Condensed Consolidated Statements of Income $ 566 $ 3,155 $ 340 $ ( 299 ) Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive loss into net income $ 566 $ ( 695 ) $ 340 $ ( 228 ) Commodity contracts: Amount of gain/(loss) reclassified from accumulated other comprehensive loss into net income $ — $ 3,850 $ — $ ( 71 ) 23 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 10: Fair Value Measurements Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows: Level 1 – Observable inputs such as quoted market prices in active markets; Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 – Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions Assets that are calculated at Net Asset Value per share (NAV) are not required to be categorized within the fair value hierarchy. 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 April 3, 2022 Assets measured at NAV Level 1 Level 2 Level 3 Hedge derivatives, net: Commodity contracts $ 3,865 $ — $ — $ 3,865 $ — Foreign exchange contracts $ 1,088 $ — $ — $ 1,088 $ — Non-hedge derivatives, net: Commodity contracts $ 6,729 $ — $ — $ 6,729 $ — Foreign exchange contracts $ ( 12 ) $ — $ — $ ( 12 ) $ — Description December 31, 2021 Assets measured at NAV Level 1 Level 2 Level 3 Hedge derivatives, net: Commodity contracts $ 1,491 $ — $ — $ 1,491 $ — Foreign exchange contracts $ ( 121 ) $ — $ — $ ( 121 ) $ — Non-hedge derivatives, net: Commodity contracts $ 683 $ — $ — $ 683 $ — Foreign exchange contracts $ ( 41 ) $ — $ — $ ( 41 ) $ — Interest rate lock contract $ ( 550 ) $ — $ — $ ( 550 ) $ — As discussed in Note 9, the Company uses derivatives to mitigate the effect of commodity 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. The Company does not currently have any non-financial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. None of the Company’s financial assets or liabilities are measured at fair value using significant unobservable inputs. There were no transfers in or out of Level 1 or Level 2 fair value measurements during the three-month period ended April 3, 2022. 24 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 11: Employee Benefit Plans Retirement Plans and Retiree Health and Life Insurance Plans The Company provides non-contributory defined benefit 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 dependents in the United States and Canada, based on certain age and/or service eligibility requirements. The components of net periodic benefit cost include the following: Three Months Ended April 3, 2022 April 4, 2021 Retirement Plans Service cost $ 826 $ 961 Interest cost 2,710 10,107 Expected return on plan assets ( 2,865 ) ( 9,661 ) Amortization of prior service cost 221 226 Amortization of net actuarial loss 1,135 6,871 Effect of settlement loss 356 — Net periodic benefit cost $ 2,383 $ 8,504 Retiree Health and Life Insurance Plans Service cost $ 82 $ 94 Interest cost 64 50 Expected return on plan assets ( 112 ) ( 113 ) Amortization of net actuarial gain ( 185 ) ( 196 ) Net periodic benefit income $ ( 151 ) $ ( 165 ) The Company made aggregate contributions of $ 6,147 and $ 3,673 to its defined benefit retirement and retiree health and life insurance plans during the three months ended April 3, 2022 and April 4, 2021, respectively. The Company expects to make additional aggregate contributions of approximately $ 10,000 to its defined benefit retirement and retiree health and life insurance plans over the remainder of 2022. Settlement Charges The Company recognized settlement ch arges of $ 356 during the three months ended April 3, 2022. These charges resulted from payments made to certain participants in the Company's non-union Canadian pension plan who elected a lump sum distribution option upon retirement. Additional settlement charges related to the Canadian pension plans may be recognized over the remainder of 2022 as a result of ongoing lump-sum distributions. Sonoco Retirement and Savings Plan The Sonoco Retirement and Savings 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. Effective January 1, 2022, the Company's match on elective contributions to the plan increased from 50 % of the first 4 % of compensation contributed by participants to 100 % of the first 6 % as a result of changes to the plan, described below. The non-elective component of the plan, the Sonoco Retirement Contribution ("SRC"), was eliminated effective January 1, 2022. The SRC provided for an annual Company contribution equal to 4 % of the participant's eligible pay plus 4 % of eligible pay in excess of the social security wage base to eligible participant accounts. SRC contributions, which are funded annually in the first quarter, totaled $ 21,948 and $ 22,665 during the quarters ended April 3, 2022 and April 4, 25 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 2021, respectively. No additional SRC contributions will occur. The Company recognized expense related to the SRC of $ 6,335 for the three months ended April 4, 2021. Note 12: Income Taxes The Company’s effective tax rates for the three-month periods ended April 3, 2022 and April 4, 2021 were 23.7 % and 25.2 %, respectively. The Company's effective tax rates varied from the U.S. statutory rate due primarily to rate differences between U.S. and non-U.S. jurisdictions and the relative amounts earned in those jurisdictions, state income taxes, and discrete tax adjustments that were not consistent year-over-year. The primary driver of the lower 2022 rate was the release of valuation allowances on the Company's state net operating loss carryforwards resulting from the increase in projected earnings associated with the Ball Metalpack acquisition. The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and various foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2015. The Company’s reserve for uncertain tax benefits has increased by $ 724 since December 31, 2021 due primarily to an increase in reserves related to existing tax positions. The Company believes that it is reasonably possible that the amount reserved for unrecognized tax benefits at April 3, 2022 could decrease by approximately $ 160 over the next twelve months. Although the Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental, management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations and pays taxes in many countries outside of the U.S. and taxes on those earnings are subject to varying rates. The Company is not dependent upon the favorable benefit of any one jurisdiction to an extent that the loss of such benefit would have a material effect on the Company’s overall effective tax rate. Note 13: Leases The Company routinely enters into leasing arrangements for real estate (including manufacturing facilities, office space, and warehouses), transportation equipment (automobiles, forklifts, and trailers), and office equipment (copiers and postage machines). The assessment of the certainty associated with the exercise of various lease renewal, termination, and purchase options included in the Company's lease contracts is at the Company's sole discretion. Most real estate leases, in particular, include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. The Company's leases do not have any significant residual value guarantees or restrictive covenants. As the implicit rate in the Company's leases is normally not readily determinable, the Company generally calculates its 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. The Company completed the acquisition of Ball Metalpack on January 26, 2022. The acquisition included both operating and finance lease assets and liabilities. The acquired operating lease liabilities of $ 33,910 had a weighted average remaining lease maturity term and discount rate of 11.0 years and 2.8 %, respectively, and the acquired finance lease liabilities of $ 46,687 had a weighted average remaining lease maturity term and discount rate of 3.8 years and 7.5 %, respectively, as of the date of the acquisition. 26 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table sets forth the balance sheet location and aggregate values of the Company’s lease assets and lease liabilities at April 3, 2022 and December 31, 2021: Classification Balance Sheet Location April 3, 2022 December 31, 2021 Lease Assets Operating lease assets Right of Use Asset - Operating Leases $ 315,604 $ 268,390 Finance lease assets Other Assets 111,681 55,826 Total lease assets $ 427,285 $ 324,216 Lease Liabilities Current operating lease liabilities Accrued expenses and other $ 50,215 $ 45,305 Current finance lease liabilities Notes payable and current portion of debt 14,777 6,952 Total current lease liabilities $ 64,992 $ 52,257 Noncurrent operating lease liabilities Noncurrent Operating Lease Liabilities $ 272,157 $ 234,167 Noncurrent finance lease liabilities Long-term Debt, Net of Current Portion 95,300 53,330 Total noncurrent lease liabilities $ 367,457 $ 287,497 Total lease liabilities $ 432,449 $ 339,754 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 assets recorded on the balance sheet were determined based upon factors considered at the commencement date of the leases, subsequent changes in the rate or index that were not contemplated in the right of use asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term. The following table sets forth the components of the Company's total lease cost for the three month periods ended April 3, 2022 and April 4, 2021: Three Months Ended Lease Cost April 3, 2022 April 4, 2021 Operating lease cost (a) $ 12,797 $ 13,195 Finance lease cost: Amortization of lease asset (a) 2,711 1,324 Interest on lease liabilities (b) 966 293 Variable lease cost (a) (c) 7,355 6,085 Total lease cost $ 23,829 $ 20,897 (a) Production-related and administrative amounts are included in cost of sales and selling, general and administrative expenses, respectively. (b) Included in interest expense. (c) Also includes short term lease costs, which are deemed immaterial . 27 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table sets forth certain lease-related information for the three months ended April 3, 2022 and April 4, 2021: Three Months Ended April 3, 2022 April 4, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases $ 13,152 $ 13,934 Operating cash flows used by finance leases $ 966 $ 293 Financing cash flows used by finance leases $ 2,643 $ 1,024 Noncash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 19,520 $ 4,281 Leased assets obtained in exchange for new finance lease liabilities $ 5,910 $ 5,406 Modification to leased assets for increase in operating lease liabilities $ 1,484 $ 3,496 Modification to leased assets for increase in finance lease liabilities $ 290 $ 3,779 Termination reclasses to decrease operating lease assets $ ( 1,913 ) $ ( 235 ) Termination reclasses to decrease operating lease liabilities $ ( 1,828 ) $ ( 249 ) Termination reclasses to decrease finance lease assets $ — $ ( 22 ) Termination reclasses to decrease finance lease liabilities $ — $ ( 23 ) 28 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 14: Revenue Recognition The Company 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 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 Arrangements 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 Condensed Consolidated Statements of Income. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of revenue and are accrued using sales data and rebate percentages specific to each customer agreement. Accrued customer rebates are included in "Accrued expenses and other" in the Company's Condensed Consolidated Balance Sheets. Payment terms under the Company's sales arrangements are short term, generally no longer than 120 days. The Company does provide prompt payment discounts to certain customers if invoices are paid within a predetermined period. Prompt payment discounts are treated as a reduction of revenue and are determinable within a short time period following the sale. The following tables set forth the effects of contract assets and liabilities from contracts with customers. Contract assets and liabilities are reported in "Other receivables" and "Accrued expenses and other," respectively, on the Company's Condensed Consolidated Balance Sheets. April 3, 2022 December 31, 2021 Contract Assets $ 67,185 $ 51,106 Contract Liabilities $ ( 28,489 ) $ ( 18,993 ) Significant changes in the contract assets and liabilities balances during the three months ended April 3, 2022 and the year ended December 31, 2021 were as follows: April 3, 2022 December 31, 2021 Contract Asset Contract Liability Contract Asset Contract Liability Beginning Balance $ 51,106 $ ( 18,993 ) $ 48,390 $ ( 16,687 ) Revenue deferred or rebates accrued — ( 23,377 ) — ( 36,527 ) Recognized as revenue 9,098 7,238 Rebates paid to customers — 10,200 — 26,983 Increases due to rights to consideration for customer specific goods produced, but not billed during the period 59,259 — 51,106 — Transferred to receivables from contract assets recognized at the beginning of the period ( 51,106 ) — ( 48,390 ) — Acquired as part of a business combination 7,926 ( 5,417 ) — — Ending Balance $ 67,185 $ ( 28,489 ) $ 51,106 $ ( 18,993 ) Contract assets and liabilities are generally short in duration given the nature of products produced by the Company. Contract assets represent goods produced without alternative use for which the Company is entitled to payment with margin prior to shipment. Upon shipment, the Company is entitled to bill the customer, and therefore amounts included in contract assets will be reduced with the recording of an account receivable as they represent an unconditional right to payment. Contract liabilities represent revenue deferred due to pricing mechanisms utilized by the Company in certain multi-year arrangements, volume rebates, and payments received in advance. For multi-year arrangements with pricing 29 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) mechanisms, the Company will generally defer revenue during the first half of the arrangement and will release the deferral over the back half of the contract term. The Company's reportable segments are aligned by product nature as disclosed in Note 15 . The following tables set forth information about revenue disaggregated by primary geographic regions for the three-month periods ended April 3, 2022 and April 4, 2021. The tables also include a reconciliation of disaggregated revenue with reportable segments. Three months ended April 3, 2022 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 654,414 $ 417,286 $ 166,074 $ 1,237,774 Europe 120,170 116,827 24,125 261,122 Canada 31,208 27,170 — 58,378 Asia 25,634 73,619 292 99,545 Other 36,672 64,227 13,264 114,163 Total $ 868,098 $ 699,129 $ 203,755 $ 1,770,982 Three months ended April 4, 2021 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 397,797 $ 325,222 $ 174,731 $ 897,750 Europe 115,180 96,684 21,409 233,273 Canada 26,143 21,046 — 47,189 Asia 21,153 73,372 241 94,766 Other 22,480 49,073 8,773 80,326 Total $ 582,753 $ 565,397 $ 205,154 $ 1,353,304 Note 15: Segment Reporting The Company's operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as "All Other." The Consumer Packaging segment primarily serves processed and fresh food markets along with other packaging for direct-to-consumer products and includes the following products and services: round and shaped rigid paper containers; two- and three-piece steel tinplate cans and aerosol containers; metal and peelable membrane ends and closures; thermoformed plastic trays and containers; printed flexible packaging; and global brand artwork management. Total assets of the Consumer Packaging segment increased $ 1,666,345 during the first quarter of 2022 due to the acquisition of Ball Metalpack (now Sonoco Metal Packaging). The Industrial Paper Packaging segment includes the following products and services: fiber-based tubes, cores, and cones; fiber-based construction tubes; fiber-based protective packaging and components; wooden, metal and composite wire and cable reels and spools; and recycled paperboard, corrugating medium, recovered paper and material recycling services. Businesses grouped as All Other include healthcare packaging, protective and retail security packaging and industrial plastic products. These businesses include the following products and services: thermoformed rigid plastic trays and devices; custom-engineered molded foam protective packaging and components; temperature-assured packaging; injection molded and extruded containers, spools and parts; retail security packaging, including printed backer cards, thermoformed blisters and heat-sealing equipment; and paper amenities. Prior to the divestiture of the Company's U.S. display and packaging business on April 4, 2021, this business, which included point-of-purchase displays, fulfillment operations, and contract packaging, was reported in All Other. 30 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table sets forth net sales, intersegment sales and operating profit for the Company’s reportable segments and All Other. “Segment operating profit” is defined as the segment’s portion of “Operating profit” excluding restructuring and asset impairment charges, acquisition expenses, interest income and expense, income taxes or certain other items, if any, the exclusion of which the Company believes improves comparability and analysis of the financial performance of the business. General corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other. Effective January 1, 2022, the Company changed its measure of segment operating profit to exclude amortization of acquisition intangibles. Accordingly, prior year's segment operating profit has been revised to conform with the current presentation. SEGMENT FINANCIAL INFORMATION Three Months Ended April 3, 2022 April 4, 2021 Net sales: Consumer Packaging $ 868,098 $ 582,753 Industrial Paper Packaging 699,129 565,397 All Other 203,755 205,154 Consolidated $ 1,770,982 $ 1,353,304 Intersegment sales: Consumer Packaging $ 1,411 $ 1,653 Industrial Paper Packaging 33,638 26,896 All Other 2,701 3,025 Consolidated $ 37,750 $ 31,574 Operating profit: Segment operating profit: Consumer Packaging $ 173,609 $ 81,360 Industrial Paper Packaging 72,660 52,299 All Other 14,524 18,757 Restructuring/Asset impairment charges ( 12,142 ) ( 6,846 ) Amortization of acquisition intangibles ( 18,800 ) ( 12,749 ) Other non-base income/(charges), net ( 60,790 ) ( 12,512 ) Consolidated $ 169,061 $ 120,309 Note 16: Commitments and Contingencies Pursuant to U.S. GAAP, accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and that the amounts are reasonably estimable. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings from a variety of sources. Some of these exposures, as discussed below, have the potential to be material. Environmental Matters The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. Spartanburg In connection with its acquisition of Tegrant in November 2011, the Company identified potential environmental contamination at a site in Spartanburg, South Carolina. Since the acquisition, the Company has spent a total of $ 1,876 on remediation of the Spartanburg site. At April 3, 2022 and December 31, 2021, the Company's accrual for environmental contingencies related to the Spartanburg site totaled $ 5,524 and $ 5,555 , respectively. The Company cannot currently estimate its potential liability, damages or range of potential loss, if any, beyond the amounts accrued with respect to this exposure. However, the Company does not believe that the resolution of this matter has a reasonable possibility of having a material adverse effect on the Company's financial statements. 31 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Other environmental matters The Company has been named as a potentially responsible party at several other environmentally contaminated sites. All of the sites are also the responsibility of other parties. The potential remediation liabilities are shared with such other parties, and, in most cases, the Company’s share, if any, cannot be reasonably estimated at the current time. However, the Company does not believe that the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company's financial statements. At April 3, 2022 and December 31, 2021, the Company's accrual for these other sites totaled $ 1,739 and $ 1,825 , respectively. Summary As of April 3, 2022 and December 31, 2021, the Company (and its subsidiaries) had accrued $ 7,263 and $ 7,380 , respectively, related to environmental contingencies. These accruals are included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. Other Legal Matters In addition to those matters described above, the Company is subject to other various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters could differ from management’s expectations, the Company does not believe the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company’s financial statements. 32 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Sonoco Products Company, Results of Review of Interim Financial Statements We have reviewed the accompanying condensed consolidated balance sheet of Sonoco Products Company and its subsidiaries (the “Company”) as of April 3, 2022, and the related condensed consolidated statements of income, comprehensive income, changes in total equity and cash flows for the three-month periods ended April 3, 2022 and April 4, 2021, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, changes in total equity and of cash flows for the year then ended (not presented herein), and in our report dated February 28, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/PricewaterhouseCoopers LLP Charlotte, North Carolina May 3, 2022 33 SONOCO PRODUCTS COMPANY