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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 351 added, 166 removed, 283 unchanged (65% of the section changed)

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Statements included in this Quarterly Report on Form 10-Q that are not historical in nature are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended.

In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as "anticipate," "assume," "believe," "can," "committed," "commitment," "consider," "could," “estimate,” "expect," "forecast," "future," "goal," "guidance," “intend,” "may," "might," "objective," "opportunity," "outlook," “plan,” "potential," "project," “strategy,” “target,” “will,” “would,” or the negative thereof, and similar expressions identify forward-looking statements.

Forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, statements regarding:

In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as "aim," "anticipate," "assume," "believe," "can," "committed," "consider," "could," “estimate,” "expect," "forecast," "future," "goal," "guidance," “intend,” "may," "might," "objective," "opportunity," "outlook," “plan,” "potential," "project," "seek," "should," “strategy,” “target,” “will,” “would,” or the negative thereof, and similar expressions identify forward-looking statements.

Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:

• availability and supply of raw materials, and offsetting high raw material costs, including the potential impact of changes in tariffs;

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• improving margins and leveraging strong cash flow and financial position;

• effects of acquisitions and divestitures, including the Company's acquisition of Ball Metalpack;

• realization of synergies resulting from acquisitions, including the acquisition of Ball Metalpack;

• effects of acquisitions and divestitures, including the acquisition of Metal Packaging;

• realization of synergies resulting from acquisitions, including the acquisition of Metal Packaging;

• costs, timing and effects of restructuring activities;

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• profitable sales growth and rates of growth;

• strategic pricing initiatives;

• any projections of the amount, timing or impact of cost savings or restructuring and other charges and planning structural cost reductions and productivity initiatives;

• statements about supply constraints or logistics challenges;

• market leadership;

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Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements.

Such risks, uncertainties and assumptions include, without limitation:

• availability and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars and the impact of war and other geopolitical tensions (such as the ongoing conflict between Russia and Ukraine and economic sanctions related thereto), and the Company's ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;

The risks, uncertainties and assumptions include, without limitation:

SONOCO PRODUCTS COMPANY

• availability and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars and the impact of war and other geopolitical tensions (such as the ongoing Russia-Ukraine conflict and economic sanctions related thereto), and the Company's ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;

• impacts arising as a result of the COVID-19 pandemic on our results of operations, financial condition, value of assets, liquidity, prospects, growth, and on the industries in which we operate and that we serve, resulting from, without limitation, recent and ongoing financial market volatility, potential governmental actions, changes in consumer behaviors and demand, changes in customer requirements, disruptions to the Company's suppliers and supply chain, availability of labor and personnel, necessary modifications to operations and business, and uncertainties about the extent and duration of the pandemic;

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• competitive pressures, including new product development, industry overcapacity, customer and supplier consolidation, and changes in competitors' pricing for products;

• ability to execute on strategic pricing initiatives;

• financial conditions of customers and suppliers;

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• ability to identify and successfully close suitable acquisitions at the levels needed to meet growth targets;

• ability to successfully integrate newly acquired businesses, including Ball Metalpack, into the Company's operations and realize synergies and other anticipated benefits within the expected time period, or at all;

• ability to successfully integrate newly acquired businesses, including Metal Packaging, into the Company's operations and realize synergies and other anticipated benefits within the expected time period, or at all;

• the costs, timing and results of restructuring activities;

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• resolution of income tax contingencies;

• foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;

• foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges or other derivatives;

• changes in U.S.

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• accuracy in valuation of deferred tax assets;

SONOCO PRODUCTS COMPANY

• accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management's assessment of goodwill impairment;

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• liability for and costs of resolution of litigation, regulatory actions, or other legal proceedings;

SONOCO PRODUCTS COMPANY

• liability for and anticipated costs of environmental remediation actions;

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• international, national and local economic and market conditions and levels of unemployment;

• economic disruptions resulting from war and other geopolitical tensions (such as the ongoing conflict between Russia and Ukraine), terrorist activities and natural disasters;

• accelerating inflation.

• economic disruptions resulting from war and other geopolitical tensions, including the ongoing Russia-Ukraine conflict and the Company's withdrawal from Russian operations, terrorist activities and natural disasters;

• accelerating inflation and activities and operations in highly inflationary economies.

More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company's Annual Report on Form 10-K under Item 1A-"Risk Factors" and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission.

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Each of the Company’s operating units has its own sales staff and maintains direct sales relationships with its customers.

On a consolidated basis, by the end of 2021 the impacts of COVID-19 on the Company had largely dissipated.

For most of the Company's business units, first quarter 2022 sales demand equaled or exceeded pre-pandemic levels.

On a consolidated basis, by the end of 2021 the impacts of the COVID-19 pandemic on the Company had largely dissipated.

For most of the Company's business units, second quarter 2022 sales demand equaled or exceeded pre-pandemic levels.

The Company has incurred, and expects to continue to incur for the foreseeable future, localized temporary disruptions in its supply chain and customer demand due to localized resurgences of COVID-19.

However, absent a future widespread resurgence, or the emergence of a more virulent COVID-19 strain, the Company does not expect such impacts to have a substantial negative effect on the Company's operations or financial results.

First Quarter 2022 Compared with First Quarter 2021

However, absent a future widespread resurgence, or the emergence of a more severe COVID-19 variant of concern, the Company does not expect such impacts to have a material negative effect on the Company's operations or financial results.

Second Quarter 2022 Compared with Second Quarter 2021

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

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The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures in the Company’s Condensed Consolidated Statements of Income for each of the periods presented.

These non-GAAP financial measures (referred to as “Base”) are the GAAP measures adjusted to exclude amounts (dependent upon the applicable period), including the associated tax effects, relating to restructuring initiatives, asset impairment charges, non-operating pension costs, acquisition and divestiture-related costs, gains/losses from the divestiture of businesses, amortization of acquisition intangibles, changes in last-in, first-out ("LIFO") inventory reserves, and certain other items, if any, including other income tax-related adjustments and/or events, the exclusion of which the Company believes improves the comparability and analysis of the underlying financial performance of the business.

These non-GAAP financial measures (referred to as “Base”) are the GAAP measures adjusted to exclude amounts (dependent upon the applicable period), including the associated tax effects, relating to restructuring initiatives, asset impairment charges, non-operating pension costs, acquisition and divestiture-related costs, gains/losses from the divestiture of businesses, amortization of acquisition intangibles, changes in last-in, first-out ("LIFO") inventory reserves, losses from the early extinguishment of debt, and certain other items, if any, including other income tax-related adjustments and/or events, the exclusion of which the Company believes improves the comparability and analysis of the underlying financial performance of the business.

More information about the Company's use of non-GAAP financial measures is provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 under Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Use of Non-GAAP Financial Measures."

For the three months ended April 3, 2022

SONOCO PRODUCTS COMPANY

For the three months ended July 3, 2022

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments (1)

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*Due to rounding individual items may not sum across

SONOCO PRODUCTS COMPANY

(1) Restructuring/asset impairment charges are a recurring item as Sonoco’s restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency.

Although recurring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur.

In the first quarter of 2022, the Company recognized asset impairment charges of $5,713 related to the Company's decision to exit its operations in Russia given the ongoing Russia-Ukraine conflict.

Of the $12,142 in restructuring/asset impairments, approximately $6,300 were cash expenses.

In the second quarter of 2022, the Company recognized additional impairment charges of $3,452 related to its exit from Russia given the ongoing Russia-Ukraine conflict.

(2) Beginning in 2022, the Company redefined base results to exclude amortization of intangible assets related to acquisitions.

(3) Consists of legal, professional, and other service fees related to acquisition and divestiture transactions, whether potential or consummated, and charges related to the partial amortization of inventory "step-ups" associated with purchase accounting adjustments on acquisition transactions.

The majority of these charges relate to the January 2022 acquisition of Ball Metalpack.

(4) Other Adjustments include after-tax charges of $14,217 related to increases in the Company's LIFO reserve.

The remaining $8,193 after-tax net gain relates to certain derivative transactions and discrete tax adjustments, which were partially offset by non-operating pension charges.

For the three months ended April 4, 2021

(3) Consists of $3,216 of legal, professional, and other service fees related to acquisition and divestiture transactions, whether proposed or consummated, and charges of $6,056 related to expensing the remainder of the inventory fair value adjustments associated with the acquisition of Metal Packaging.

(4) Other Adjustments include after-tax charges of $4,777 related to increases in the Company's LIFO reserve, $1,208 related to non-operating pension costs, and $1,979 of net charges primarily related to certain derivative transactions, partially offset by $567 of favorable discrete tax adjustments.

SONOCO PRODUCTS COMPANY

For the three months ended July 4, 2021

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments (1)

Amortization of Acquisition Intangibles (2)

Acquisition/Divestiture Related (3)

Other Adjustments (4)

Amortization of Acquisition Intangibles Acquisition/Divestiture Related Other Adjustments (2)

Operating profit $ 135,291 $ (1,445) $ 12,111 $ 1,462 $ (6,698) $ 140,721

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Interest expense, net 14,794 — — — 2,165 16,959

Loss from the early extinguishment of debt 20,184 — — — (20,184) —

Income before income taxes $ (454,696) $ (1,445) $ 12,111 $ 1,462 $ 566,330 $ 123,762

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Net income attributable to Sonoco $ (334,070) $ (2,160) $ 9,111 $ 791 $ 420,062 $ 93,734

Diluted weighted average common shares outstanding (3) :

100,082 543 100,625

Per diluted common share* $ (3.34) $ (0.02) $ 0.09 $ 0.01 $ 4.17 $ 0.93

*Due to rounding individual items may not sum across

(1) Restructuring charges are a recurring item as Sonoco’s restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency.

Asset impairment charges totaling $4,149 were recognized in 2021 related to certain assets in the Company's perimeter-of-the-store thermoforming operations and temperature-assured packaging business for which the projected undiscounted cash flows were not sufficient to cover their carrying value.

(2) Beginning in 2022, the Company redefined base results to exclude amortization of intangible assets related to acquisitions.

Prior year has been revised to conform with current year presentation.

(3) Consists of legal, professional, and other service fees related to acquisition and divestiture transactions, whether potential or consummated.

(4) Includes non-operating pension costs, the loss from the divestiture of the U.S.

display and packaging business, partially offset by gains from insurance proceeds.

In the second quarter of 2021 gains totaling approximately $5,500 were recognized related to the sale of previously closed facilities in the Company's tubes and core business.

These were partially offset by net restructuring and asset impairment charges, mostly related to severance and asset write-offs, totaling approximately $4,000.

(2) Includes after tax pension settlement charges of $406,495 associated with the settlement of the Inactive Plan in the second quarter of 2021, other non-operating pension costs of $6,113, losses from the early extinguishment of debt of $14,997, and other net charges totaling $198.

These charges were partially offset by a foreign value added tax ("VAT") refund, including applicable interest, of $3,102, a hedge gain related to a euro-denominated loan repayment of $3,318, and the benefit of discrete tax items totaling $1,321 .

(3) Due to the magnitude of non-base losses in the second quarter 2021, the Company reported a GAAP net loss attributable to Sonoco.

In instances where a company has a net loss, GAAP requires that the company shall not consider any unexercised share awards or other like instruments dilutive for purposes of calculating weighted average shares outstanding.

Accordingly, the Company did not consider any unexercised share awards dilutive in calculating weighted average shares outstanding for GAAP purposes in the table above, which resulted in Basic Weighted Average Shares Outstanding and Diluted Weighted Average Common Shares Outstanding being the same.

However, the Company also presents base net income attributable to Sonoco, which excludes the net non-base items.

In order to maintain consistency in the computation of Base Diluted EPS, unexercised stock instruments that meet GAAP requirements for dilution were considered dilutive to the same extent they would be if GAAP net income attributable to Sonoco were equal to base net income attributable to Sonoco.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three months ended April 3, 2022 versus the three months ended April 4, 2021.

Net sales for the first quarter of 2022 increased 30.9 percent to $1.77 billion , compared with $1.35 billion in the same period last year.

This improvement reflects increases from higher selling prices, primarily implemented to offset inflation, sales added from the January 26, 2022 acquisition of Ball Metalpack, now Sonoco Metal Packaging, and volume/mix

The following discussion provides a review of results for the three months ended July 3, 2022 versus the three months ended July 4, 2021.

Net sales for the second quarter of 2022 increased 38.4 percent to $1.91 billion , compared with $1.38 billion in the same period last year.

This improvement reflects strong pricing performance and sales added from the January 26, 2022 acquisition of Ball Metalpack Holding, LLC, renamed Sonoco Metal Packaging ("Metal Packaging").

Net income/(loss) attributable to Sonoco for the second quarter of 2022 increased to $131.7 million, or $1.33 per diluted share, compared to $(334.1) million, or $(3.34) per diluted share, for the same period of 2021.

Net income in the current

SONOCO PRODUCTS COMPANY

growth of approximately 2 percent.

These sales increases were partially offset by sales lost as a result of the April 4, 2021 divestiture of the Company's U.S.

display and packaging business and the negative effect of foreign exchange rate changes year over year.

Net income attributable to Sonoco for the first quarter of 2022 increased to $115.3 million, or $1.17 per diluted share, compared to $72.3 million, or $0.71 per diluted share, for the same period of 2021.

Net income in the current period reflects increases from acquisitions, net of divestitures, and other operational improvements, both of which are described in more detail below.

These benefits were partially offset by higher net interest expense related to higher borrowings, mostly to fund the acquisition of Ball Metalpack, in 2022.

Additionally, Net income in the current quarter includes net after-tax, non-base charges totaling $67.4 million, while results for the first quarter of 2021 included net after-tax, non-base charges totaling $29.0 million.

The net increase in non-base items further offset the year-over-year gains.

period benefited primarily from the Company's strategic pricing initiatives, increases from acquisitions and operational improvements.

These benefits were partially offset by higher net interest expense in 2022 related to higher borrowings resulting from the funding of the Metal Packaging acquisition in January 2022.

Additionally, net income in the current quarter includes net after-tax, non-base charges totaling $42.1 million, while results for the second quarter of 2021 included net after-tax, non-base charges totaling $427.8 million.

The net decrease in non-base items was primarily driven by the 2021 settlement and annuitization of the Inactive Plan.

These non-base items consisted of the following, after tax:

Three Months Ended

($ in millions) April 3, 2022 April 4, 2021

Partial amortization of purchase accounting step-up on Ball Metalpack inventory $ 18.7 $ —

($ in millions) July 3, 2022 July 4, 2021

Amortization of fair value adjustments to Metal Packaging inventory $ 6.1 $ —

Acquisition and divestiture-related costs 3.2 0.8

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Changes in LIFO inventory reserve 4.8 —

Impairment related to exit from Russia 5.7 —

Impairment and restructuring related charges 4.9 5.2

Non-operating pension costs 0.9 5.5

All other non-base items, including derivative gains and discrete income tax items in 2022 (9.1) 0.8

Loss from exiting Russia 3.5 —

All other net restructuring and asset impairment charges 6.3 (2.2)

Pension settlement charges (Inactive Plan) — 406.5

Other non-operating pension costs 1.2 6.1

Loss from the early extinguishment of debt — 15.0

Euro derivative gain related to euro loan repayment — (3.3)

Refund of foreign VAT and applicable interest — (3.1)

Discrete non-base income tax gains (0.6) (1.3)

All other non-base charges 1.9 0.2

Total non-base charges, after tax $ 42.1 $ 427.8

Adjusted for these items, base net income attributable to Sonoco (base earnings) for the first quarter of 2022 increased 80.4 percent to $182.7 million, or $1.85 per diluted share, from $101.3 million, or $1.00 per diluted share, in 2021.

First quarter base operating profit increased 71.1 percent from last year's first quarter as a result of a positive price/cost relationship and the acquisition of Ball Metalpack in January 2022, which was partially offset by the divestiture of the Company' s U.S.

display and packaging business on April 4, 2021.

Volume/mix and productivity improvements both were slightly positive in the first quarter of 2022.

These year-over-year gains were somewhat offset by increased compensation and benefit costs.

The b ase effective tax rate for the current year’s quarter was slightly lower than prior year's rate.

Adjusted for these items, base net income attributable to Sonoco (base earnings) for the second quarter of 2022 increased 85.4 percent to $173.8 million, or $1.76 per diluted share, from $93.7 million, or $0.93 per diluted share, in 2021 and second-quarter base operating profit increased 77.8 percent to $250.2 million.

As noted above, these improvements reflect strong strategic pricing performance and the accretive effects of the January 2022 acquisition of the Metal Packaging business.

These year-over-year gains were partially offset by increased compensation and benefit costs.

The base effective tax rate for the current year’s quarter was 25.0 percent compared with the prior year's rate of 26.3 percent.

The difference is due to the mix of base earnings by tax jurisdiction.

OPERATING REVENUE

Net sales for the first quarter of 2022 increased $418 million, or 30.9 percent, from the prior-year quarter.

Net sales for the second quarter of 2022 increased $531 million, or 38.4 percent, from the prior-year quarter.

The components of the sales change were:

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Total sales increase $ 531

COSTS AND EXPENSES

Cost of goods sold increased $324.0 million, or 30.1 percent, in the first quarter of 2022 compared with the same period last year.

The increase was driven primarily by inflation, including increases in the Company's LIFO inventory reserves, higher volume and acquisitions, net of divestitures, which included a 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 .

These year-over-year increases were partially offset by the favorable impact of foreign currency translation.

Gross profit was $371.6 million for the three months ended April 3, 2022, which was $93.7 million higher than the prior-year period.

Additionally, gross profit as a percent of sales increased to 21.0 percent from 20.5 percent in the prior-year quarter as overall sales price increases more than offset higher material and other operating costs.

Selling price gains were driven by a combination of passing through higher costs and benefits realized by strategic pricing initiatives aimed at capturing more of the value provided by the Company's products.

Net sales added by acquisitions and divestitures were driven by the January 26, 2022 acquisition of Metal Packaging.

SONOCO PRODUCTS COMPANY

GAAP selling, general and administrative expenses ("SG&A") for the quarter increased $45.1 million, or 31.1 percent, year over year.

This increase was driven by increased costs related to acquisition and divestiture activity, increased amortization of acquisition intangibles, and increased compensation and other employee benefits.

The prior year's results include a loss on the Company's divestiture of its U.S.

display and packaging business of $5.5 million in the first quarter of 2021.

Restructuring/Asset impairment charges totaled $12.1 million in the first quarter of 2022 compared with $6.8 million in the same period last year.

The year-over-year increase was the result of higher restructuring activity in the current year, a $5.7 million impairment charge stemming from the Company's decision to exit its operations in Russia, and the non-recurren ce of prior-year gains from the sales of buildings at previously closed facilities.

COSTS AND EXPENSES

Cost of goods sold increased $406.2 million, or 36.3 percent, in the second quarter of 2022 compared with the same period last year.

The increase was driven primarily by inflation, which also had the impact of increasing the Company's LIFO inventory reserves, and costs added by the acquisition of Metal Packaging, including expensing the remainder of acquisition-date fair value adjustments to finished goods inventory as the inventory was sold to customers during the quarter.

These year-over-year increases were partially offset by the translation impact of an overall stronger dollar in the current year.

G ross profit was $387.0 million for the three months ended July 3, 2022, which was $124.3 million higher than the prior-year period.

Additionally, gross profit as a percent of sales increased to 20.2 percent from 19.0 percent in the prior-year quarter as overall sales price increases more than offset higher material and other operating costs largely due to the Company's strategic pricing initiatives.

GAAP selling, general and administrative ("SG&A") expenses for the quarter increased $50.2 million, or 38.9 percent, year over year.

T his increase reflects higher amortization, acquisition, and normal operating SG&A expenses stemming from the Metal Packaging acquisition;

higher employee compensation and benefit costs;

and the non-recurrence of prior-year gains on derivatives.

Restructuring/Asset impairment charges/(income) totale d $10.6 million in the second quarter of 2022 compared with $(1.4) million in the same period last year.

The year-over-year increase was the result of higher restructuring activity in the current year, a $3.5 million charge stemming from the Company's decision to exit its operations in Russia, and the non-recurren ce of prior-year gains from the sales of buildings at previously closed facilities.

Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Non-operating pension costs were $6.0 million lower in the first quarter of 2022 compared to the same period last year due to the settlement of the Sonoco Pension Plan for Inactive Participants (the "Inactive Plan") in the second quarter of 2021 and the absence of any costs related to the Inactive Plan in the current year.

Non-operating pension costs were $553.3 million lower in the second quarter of 2022 compared to the same period last year due to the settlement of the Inactive Plan in the second quarter of 2021 and the absence of any costs related to the Inactive Plan in the current year.

Additional information regarding non-operating pension costs is provided in Note 11 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

GAAP net interest expense for the first quarter of 2022 increased to $19.1 million, compared with $17.7 million during the first quarter of 2021, due primarily to higher average debt balances resulting from the financing transactions used to fund the January 26, 2022 acquisition of Ball Metalpack.

The 2022 first-quarter effective tax rates on GAAP and base earnings were 23.7 percent and 25.3 percent, respectively, compared with negative 25.2 percent and 25.7 percent, respectively, in the prior year’s quarter.

The lower GAAP rate for 2022 is due largely to the release of valuation allowances on the Company's state net operating loss carryforwards due to an increase in forecasted taxable income driven by the Ball Metalpack acquisition.

Additionally, in the second quarter of 2021 the Company executed a cash tender offer pursuant to which it retired a portion of its 5.750% notes due November 2040, recognizing a loss on early extinguishment of debt totaling $20.2 million.

See Note 8 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

GAAP net interest expense for the second quarter of 2022 increased to $23.2 million, compared with $14.8 million during the second quarter of 2021, due primarily to higher average debt balances resulting from the financing transactions used to fund the January 26, 2022 acquisition of Metal Packaging.

The 2022 second-quarter effective GAAP tax rate of 25.8 percent was relatively flat compared to 26.0 percent in the prior year’s quarter.

REPORTABLE SEGMENTS

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 following table recaps net sales attributable to each of the Company’s segments and All Other for the first quarters of 2022 and 2021 ( $ in thousands ):

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 following table recaps net sales attributable to each of the Company’s segments and All Other for the second quarters of 2022 and 2021 ( $ in thousands ):

Three Months Ended

April 3, 2022 April 4, 2021 %

July 3, 2022 July 4, 2021 %

Consumer Packaging $ 989,982 $ 597,804 65.6 %

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SONOCO PRODUCTS COMPANY

The following table recaps operating profit attributable to each of the Company’s segments during the first quarters of 2022 and 2021 ( $ in thousands ):

The following table recaps operating profit attributable to each of the Company’s segments during the second quarters of 2022 and 2021 ( $ in thousands ):

Three Months Ended

April 3, 2022 April 4, 2021 %

July 3, 2022 July 4, 2021 %

Operating profit:

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All Other 16,529 15,607 5.9 %

Restructuring/Asset impairment charges (12,142) (6,846) 77.4 %

Restructuring/Asset impairment (charges)/income (10,563) 1,445

Amortization of acquisition intangibles (20,871) (12,111)

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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.

The following table recaps restructuring/asset impairment charges attributable to each of the Company’s segments during the first quarter of 2022 and 2021 ( $ in thousands ):

Accordingly, the prior year's segment operating profit has been revised to conform with the current presentation for comparability.

The following table recaps restructuring/asset impairment charges/(income) attributable to each of the Company’s segments during the second quarter of 2022 and 2021 ( $ in thousands ):

Three Months Ended

April 3, 2022 April 4, 2021

Restructuring/Asset impairment charges:

July 3, 2022 July 4, 2021

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 2,798 $ 581

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Consumer Packaging

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;

The Consumer Packaging segment primarily serves prepared and fresh food markets along with other packaging for consumer products.

The products produced and sold within this segment are generally used to package a variety of consumer products and consist primarily of round and shaped rigid paper containers, steel tinplate cans and aerosol containers;

thermoformed plastic trays and containers;

printed flexible packaging;

and global brand artwork management.

Segment sales increased 49.0 percent compared to the prior year's quarter due primarily to the Ball Metalpack acquisition and higher selling prices primarily implemented to help offset inflation.

Overall, segment volume/mix improved approximately 4 percent during the quarter due to gains in flexible packaging and plastic food packaging.

Flexible packaging's volume/mix improvement was driven by strong confectionery, food service and other food products.

Increased volume/mix in plastic food packaging reflects higher demand in both the fresh and prepared food markets.

Global rigid paper containers volume/mix was essentially flat in the quarter.

Segment operating profit increased 113.4 percent due primarily to the Ball Metalpack acquisition, favorable price/cost recovery, strong volume/mix and favorable productivity.

As a result, segment operating margin improved to 20.0 percent in the quarter from 14.0 percent in the 2021 period.

and flexible packaging.

Segment sales increased approximately 66 percent compared to the prior year's quarter due primarily to the acquisition of Metal Packaging and strong pricing.

Overall, segment volume/mix was essentially flat during the second quarter of 2022.

Global rigid paper containers volume/mix increased approximately 1 percent as gains in Asia, Latin America and Europe more than offset slightly lower volume in North America, which was impacted by ongoing supply chain issues affecting certain of our North American customers.

Flexible packaging volume improved approximately 4 percent during the second quarter of 2022, which was more than offset by an unfavorable mix of business.

Demand for rigid plastic food containers declined as increased volume/mix from prepared food markets was more than offset by volume declines from fresh berry markets that were impacted by inclement weather and plant consolidations.

SONOCO PRODUCTS COMPANY

Segment operating profit increased 114 percent with the main driver being the Metal Packaging acquisition, along with favorable price/cos t, including the benefits of strategic pricing initiatives, and productivity improvements .

As a result, segment operating margin improved to 14 percent in the quarter from 11 percent in the 2021 period.

Industrial Paper Packaging

The Industrial Paper Packaging segment includes the following products:

fiber-based packaging tubes, cones, and cores;

fiber-based construction tubes;

The Industrial Paper Packaging segment serves a variety of customers who use its products to package their goods for transport, storage or sale or to produce similar fiber-based products.

The primary products produced and sold within this segment include fiber-based tubes, cones, and cores;

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.

Segment sales increased 23.7 percent from the prior year's quarter largely due to higher selling prices primarily implemented to offset raw material and non-material inflation, and sales from businesses acquired in the prior year.

These positives were partially offset by volume/mix declines of approximately 2 percent.

Volume/mix declines were driven by severe winter weather, supply chain disruptions and operational closures in China stemming from COVID-19 restrictions.

Volume declines were concentrated in Asia and Europe tube and core operations, as well as recycling and fiber protective packaging in North America.

Segment operating profit increased 38.9 percent from the prior year's quarter, driven by a positive price/cost impact which was somewhat offset by lower volume/mix and productivity declines.

As a result, segment operating profit margin improved to 10.4% in the current year's quarter from 9.2% in the prior year.

and recycled paperboard.

Segment sales increased 20 percent from the prior year's quarter largely due to strong pricing performance, modestly offset by the negative impacts of foreign exchange and lower volume/mix.

Volume/mix declined approximately 2 percent in the second quarter as tube and core volume/mix gains in North America and Latin America were more than offset by volume declines in global paper, fiber protective packaging and tube, core and cone operations in Europe and Asia.

Segment operating profit increased 57 percent from the prior year's quarter, driven by a positive price/cost impact, including the benefits of strategic pricing initiatives, which was somewhat offset by lower volume/mix.

As a result, segment operating profit margin improved to 13 percent in the current year's quarter from 10 percent in the prior year.

Businesses grouped as All Other include healthcare packaging, protective and retail security packaging and industrial plastic products.

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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.

Sales for All Other declined 0.7 percent from the prior year's quarter due primarily to the impact of the U.S.

Sales for All Other improved 11 percent from the prior year's quarter due primarily to strong pricing performance.

Volume/mix for the businesses in All Other was essentially flat as growth in industrial plastics was offset by slight declines in retail security and temperature-assured packaging.

All Other operating profi t improved 5.9 percent from the prior year's quarter due primarily to positive price/cost performance and favorable productivity.

Operating margin declined slightly to 8.4 percent in the quarter from 8.8 percent in 2021.

SONOCO PRODUCTS COMPANY

Six Months Ended July 3, 2022 Compared with Six Months Ended July 4, 2021

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

For the six months ended July 3, 2022

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments (1)

Amortization of Acquisition Intangibles (2)

Acquisition/Divestiture Related (3)

Other Adjustments (4)

Operating profit $ 366,538 $ 22,705 $ 39,671 $ 60,633 $ 21,398 $ 510,945

Non-operating pension costs 3,002 — — — (3,002) —

Interest expense, net 42,226 — — — 136 42,362

Income before income taxes $ 321,310 $ 22,705 $ 39,671 $ 60,633 $ 24,264 $ 468,583

Provision for income taxes 79,888 2,477 9,790 14,764 10,842 117,761

Income before equity in earnings of affiliates $ 241,422 $ 20,228 $ 29,881 $ 45,869 $ 13,422 $ 350,822

Equity in earnings of affiliates, net of tax 5,952 — — — — 5,952

Net income $ 247,374 $ 20,228 $ 29,881 $ 45,869 $ 13,422 $ 356,774

Net (income) attributable to noncontrolling interests (369) 100 — — — (269)

Net income attributable to Sonoco $ 247,005 $ 20,328 $ 29,881 $ 45,869 $ 13,422 $ 356,505

Per diluted common share* $ 2.50 $ 0.21 $ 0.30 $ 0.47 $ 0.14 $ 3.61

*Due to rounding individual items may not sum across

In the first half of 2022, the Company recognized charges of $9,165 related to the Company's decision to exit its operations in Russia given the ongoing Russia-Ukraine conflict.

(2) Beginning in 2022, the Company redefined base results to exclude amortization of intangible assets related to acquisitions.

(3) Consists of legal, professional, and other service fees related to acquisition and divestiture transactions, whether proposed or consummated totaling $21,155, and charges related to inventory fair value adjustments associated with Metal Packaging totaling $24,714.

(4) Other Adjustments include after-tax charges of $18,994 related to increases in the Company's LIFO reserve and non-operating pension charges of $2,150, partially offset by net gains related to certain derivative transactions totaling $3,081 and discrete tax adjustments totaling $4,641.

Discrete tax adjustments during the six-month period ended July 3, 2022 include the release of valuation allowances on foreign tax credit carryforwards and state net operating losses.

SONOCO PRODUCTS COMPANY

For the six months ended July 4, 2021

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments (1)

Amortization of Acquisition Intangibles Acquisition/Divestiture Related Other Adjustments (2)

Operating profit $ 255,600 $ 5,401 $ 24,860 $ 11,488 $ (4,212) $ 293,137

Non-operating pension costs 562,293 — — — (562,293) —

Interest expense, net 32,525 — — — 2,165 34,690

Loss from the early extinguishment of debt 20,184 — — — (20,184) —

Income before income taxes $ (359,402) $ 5,401 $ 24,860 $ 11,488 $ 576,100 $ 258,447

Provision for income taxes (94,106) 2,341 6,158 2,794 149,778 66,965

Income before equity in earnings of affiliates $ (265,296) $ 3,060 $ 18,702 $ 8,694 $ 426,322 $ 191,482

Equity in earnings of affiliates, net of tax 3,350 — — — — 3,350

Net income $ (261,946) $ 3,060 $ 18,702 $ 8,694 $ 426,322 $ 194,832

Net (income) attributable to noncontrolling interests 172 — — — — 172

Net income attributable to Sonoco $ (261,774) $ 3,060 $ 18,702 $ 8,694 $ 426,322 $ 195,004

Diluted Weighted average common shares outstanding (3) :

100,571 498 101,069

Per diluted common share* $ (2.60) $ 0.03 $ 0.19 $ 0.09 $ 4.22 $ 1.93

*Due to rounding individual items may not sum across

(1) Restructuring/Asset impairment charges are a recurring item as Sonoco’s restructuring programs usually require several years to fully implement and the Company is continually seeking to take actions that could enhance its efficiency.

In the first six months of 2021 net restructuring and asset impairment charges, mostly related to consulting charges, severance, and asset impairment charges, totaled approximately $3,060.

(2) Includes after tax pension settlement charges of $406,495 associated with the settlement of the Inactive Plan in the second quarter of 2021, other non-operating pension costs of $11,500, losses from the early extinguishment of debt of $14,997, a loss from the sale of business of $3,310, and other net charges totaling $644.

These charges were partially offset by a VAT refund, including applicable interest, of $3,102, a hedge gain related to a euro-denominated loan repayment of $3,318, the benefit of discrete tax items totaling $1,437, and insurance gains of $2,767 .

(3) Due to the magnitude of non-base losses in the second quarter 2021, the Company reported a GAAP net loss attributable to Sonoco.

However, the Company also presents base net income attributable to Sonoco, which excludes the net non-base items.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the six months ended July 3, 2022 compared with the six months ended July 4, 2021.

Net sales for the first six months of 2022 increased 34.7 percent to $3,684.3 million, compared with $2,736.1 million in t he same period last year.

This improvement reflects increases from strong pricing performance and sales added from the January 26, 2022 acquisition of Metal Packaging.

These benefits were partially offset by the negative impact of foreign currency translation and the April 2021 U.S.

display and packaging divestiture.

Excluding the impact of the divestiture, volume/mix increased sales by approximately 9 percent, driven by strong gains in temperature-assured packaging, retail security packaging, industrial plastics and molded foam components which were somewhat offset by lower demand in healthcare packaging.

All Other operating profit declined 22.6 percent from the prior year's quarter due primarily to the impact of the U.S.

Net income/(loss) attributable to Sonoco for the first six months of 2022 increased to $247.0 million, or $2.50 per diluted share, compared to $(261.8) million, or $(2.60) per diluted share, reported for the same period of 2021.

GAAP net income

SONOCO PRODUCTS COMPANY

for the first six months of 2022 includes after-tax, non-base charges totaling $109.5 million .

GAAP net loss for the first six months of 2021 includes after-tax non-base charges totaling $456.8 million .

The major components of these non-base amounts are shown below:

Six Months Ended

($ in millions) July 3, 2022 July 4, 2021

Amortization of acquisition intangibles $ 29.9 $ 18.7

Amortization of fair value adjustments to Metal Packaging inventory 24.7 —

Acquisition and divestiture-related costs 21.2 8.7

Changes in LIFO inventory reserve 19.0 —

Loss from exiting Russia 9.2 —

All other net restructuring and asset impairment charges 11.1 3.1

Pension settlement charges (Inactive Plan) — 406.5

Other non-operating pension costs 2.1 11.5

Loss from the early extinguishment of debt — 15.0

Discrete non-base income tax gains (4.6) (1.4)

Refund of foreign VAT and applicable interest — (3.1)

Euro derivative gain related to euro loan repayment — (3.3)

All other non-base gains (3.1) 1.1

Total non-base charges, after tax $ 109.5 $ 456.8

Adjusted for these items, Base earnings for the six-month period ending July 3, 2022 increased 82.8 percent to $356.5 million, or $3.61 per diluted share, from $195.0 million, or $1.93 per diluted share, in the same period in 2021.

The increase in Base earnings of $161.5 million is largely attributable to strong pricing performance, earnings from the Metal Packaging acquisition, and productivity improvements.

These gains were partially offset by the 2021 divestiture of the Company's U.S.

display and packaging business and increased compensation and benefit costs.

OPERATING REVENUE

Net sales for the first six months of 2022 increased $948 million from the same period in 2021.

The components of the sales change were:

($ in millions)

Volume/mix $ 13

Selling prices 573

Acquisitions and divestitures, net 431

Foreign currency translation and other, net (69)

Total sales increase $ 948

Net sales added by acquisitions and divestitures were driven by the January 26, 2022 acquisition of Metal Packaging.

COSTS AND EXPENSES

Cost of goods sold increased $730.2 million, or 33.3 percent, w hile the Company's gross profit margin percentage increased to 20.6 percent for the first six months of 2022, compared to 19.8 percent in the prior-year period.

The increase was driven primarily by inflation, which also had the impact of increasing the Company's LIFO inventory reserves, and costs added by the acquisition of Metal Packaging, including expensing the acquisition-date fair value adjustments to finished goods inventory.

Gross profit margin improved due to positive price/cost relationship and productivity improvements.

SONOCO PRODUCTS COMPANY

GAAP SG&A costs for the first six months of 2022 increased $95.3 million, or 34.8 percent, year over year.

The year-over-year increase was largely driven by h igher acquisition and divestiture transaction costs, increased amortization of acquisition intangibles, increased compensation and other benefit costs, and absence of non-recurring gains from 2021 life insurance gains and a second quarter 2021 foreign VAT refund.

Net restructuring costs and asset impairment charges totaled $22.7 million i n the first six months of 2022, compared with $5.4 million of net charges in the same period last year.

The year-over-y ear increase was driven by higher year-over-year restructuring activity in the current year, including a $9.2 million impairment charge resulting from the Company's exit from its Russian operations.

Prior year restructuring costs were offset by gains recorded in 2021 for the sale of buildings at previously closed facilities.

Non-operating pension costs decreased $559.3 million yea r over year due to the $547.3 million non-cash settlement charge recognized in the second quarter of 2021 upon settling the liabilities associated with the Inactive Plan.

Additional information regarding pension settlement charges is provided in Note 11 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

See Note 8 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

GAAP net interest expense for the first six months of 2022 increased to $42.2 million, c ompared with $32.5 million during the first six months of 2021.

The increase was primarily due to higher debt balances related to the financing transactions used to fund the Metal Packaging acquisition in January 2022.

The effective tax rates on GAAP and Base earnings in the first six months of 2022 were 24.9 percent and 25.1 percent, respectively, compared with 26.2 percent and 25.9 percent for the GAAP loss and Base earnings, respectively, in the prior-year period.

The decrease in the 2022 GAAP rate was largely driven by the absence of the 2021 pension settlement charge and the 2022 release of valuation allowances on the Company's state net operating loss carryforwards.

The base rate was lower than in the prior year due largely to an increase in the amount of the U.S.

research and development credit recognized in the current year's period.

SONOCO PRODUCTS COMPANY

REPORTABLE SEGMENTS

The following table recaps net sales attributable to each of the Company's segments during the first six months of 2022 and 2021 ( $ in thousands ):

Six Months Ended

July 3, 2022 July 4, 2021 % Change

Consumer Packaging $ 1,858,081 $ 1,180,556 57.4 %

Industrial Paper Packaging 1,426,529 1,173,929 21.5 %

All Other 399,704 381,573 4.8 %

Consolidated $ 3,684,314 $ 2,736,058 34.7 %

The following table recaps operating profit attributable to each of the Company's segments during the first six months of 2022 and 2021 ( $ in thousands ):

Six Months Ended

July 3, 2022 July 4, 2021 % Change

Operating profit:

Segment operating profit:

Consumer Packaging $ 313,030 $ 146,656 113.4 %

Industrial Paper Packaging 166,862 112,117 48.8 %

All Other 31,053 34,364 (9.6) %

Restructuring/Asset impairment charges (22,705) (5,401)

Amortization of acquisition intangibles (39,671) (24,860)

Other non-base charges, net (82,031) (7,276)

Consolidated $ 366,538 $ 255,600 43.4 %

Segment results viewed by Company management to evaluate segment performance do not include restructuring charges and income, asset impairment charges, acquisition and divestiture-related charges, or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business.

Accordingly, the term “segment operating profit” is a non-GAAP measure and is defined as the segment’s portion of “operating profit” excluding those items.

All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments.

Effective January 1, 2022, the Company changed its measure of segment operating profit to exclude amortization of acquisition intangibles.

Accordingly, the prior year's segment operating profit has been revised to conform with the current presentation for comparability.

The following table recaps restructuring/asset impairment charges/(income) attributable to each of the Company’s segments during the first six months of 2022 and 2021 ( $ in thousands ):

Six Months Ended

July 3, 2022 July 4, 2021

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 5,109 $ 3,416

Industrial Paper Packaging 11,520 (2,939)

All Other (417) 4,919

Corporate 6,493 5

Consolidated $ 22,705 $ 5,401

Consumer Packaging

Segment sales increased 57.4 percent year to date compared to the prior-year period driven by increased selling prices, largely implemented to recover increased raw material and other operating costs, sales added by the acquisition of Metal Packaging, and a modest increase in volume.

SONOCO PRODUCTS COMPANY

Year-to-date segment operating profit increased 113.4 percent driven by the Metal Packaging acquisition along with favorable price/cos t, including the benefits of strategic pricing initiatives, and productivity gains.

As a result, segment operating profit margin increased 442 basis points to 16.8 percent .

Industrial Paper Packaging

Segment sales increased 21.5 percent year to date versus the prior-year period due to increased selling prices, largely implemented to recover increased raw material and other operating costs, partially offset by a negative volume/mix impact and a negative impact from foreign currency translation.

Segment operating profit increased 48.8 percent from the prior-year period driven by price/cost gains, including the benefits of strategic pricing initiatives .

These gains were partially offset by somewhat lower volume and a negative impact from foreign exchange.

As a result, segment operating margins wer e up 215 basis points to 11.7 percent .

Sales for All Other increased 4.8 percent year to date due primarily to increased selling prices, which were implemented to recover increased costs, and increased volume.

These gains were reduced by the impact of the 2021 U.S.

display and packaging divestiture .

Operating margin declined to 7.1 percent in the quarter from 9.1 percent in 2021 in part due to the impact of the divestiture of U.S.

display and packaging business.

Furthermore, unfavorable productivity more than offset the favorable impacts of price/cost and volume/mix on operating margins.

Excluding that divestiture, volume/mix for businesses grouped in All Other improved approximately 4.3 percent , driven primarily by demand improvements in several businesses, most notably plastics industrial and temperature-assured businesses.

All Other operating profit declined 9.6 percent year to date due to the impact of the divested display and packaging business and a negative impact from foreign exchange.

These were partially offset by a positive price/cost relationship.

Segment operating margin declined to 7.8 percent year to date from 9.0 percent in 2021.

Critical Accounting Policies and Estimates

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Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusions regarding goodwill impairment may change as well.

SONOCO PRODUCTS COMPANY

In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption.

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Risk Factors" on pages 9-19 of the Company's 2021 Annual Report on Form 10-K.

SONOCO PRODUCTS COMPANY

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.

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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.

Total goodwill associated with the Plastics – Healthcare reporting unit was $63.7 million at April 3, 2022.

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, profit margins do not improve as expected, or other assumptions change, such as the discount rate, goodwill impairment charges may be possible in the future.

Total goodwill associated with the Plastics – Healthcare reporting unit was $62.4 million at July 3, 2022.

Based on the most-recent annual impairment test, the estimated fair value of the Plastics – Healthcare reporting unit exceeded its carrying value by 13.3%.

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Other Asset Impairments - Russia

The Company recognized an asset impairment charge of $5.7 million during the three months ended April 3, 2022 as a result of management's decision to exit the Company's operations in Russia due to the ongoing Russia-Ukraine conflict.

The Company expects to complete this exit by June 30, 2022.

The Company's operations in Russia consist of two small tube and core plants in our Industrial Paper Packaging segment with approximately 70 employees and annual sales of approximately $21 million for the year ended December 31, 2021.

Upon completion of its exit from Russia, the Company expects that approximately $3.5 million of cumulative currency translation adjustment losses will be reclassified from accumulated other comprehensive income and recognized as an additional loss on the Company's Condensed Consolidated Statements of Income.

The Company recognized asset impairment charges totaling $9.2 million during the six months ended July 3, 2022 as a result of exiting its operations in Russia due to the ongoing Russia-Ukraine conflict.

The impairment charges included $3.7 million of cumulative currency translation adjustment losses that were reclassified from accumulated other comprehensi ve income upon completion of the Company's exit from Russia on July 1, 2022.

The impairment charges are reflected in "Restructuring/Asset impairment charges/(income)" in the Company's Condensed Consolidated Statements of Income for the six months ended July 3, 2022.

These operations consisted of two small tube and core plants in our Industrial Paper Packaging segment w ith approximately 70 employees and annual sales in 2021 of approximately $21 million.

Financial Position, Liquidity and Capital Resources

Operating cash flows totaled $1.1 million in the three months ended April 3, 2022, compared with $138.7 million during the same period last year, a decrease of $137.7 million.

This decrease was driven by increases in net working capital which used $155.5 million more cash in the first three months of 2022 compared to the same period last year.

This increased use was driven by a more pronounced increase in business activity in the first quarter of 2022 as compared to last year's first quarter, inflation, and a normal seasonal build of inventory in the newly acquired Metal Packaging business (formerly Ball Metalpack).

T he Company continues to actively manage all components of net working capital in an effort to minimize the impact on cash utilization while also supporting the needs of our customers and mitigating stock out risk.

The year-over-year increased net working capital use was partially offset by the $43.0 million year-over-year increase in Net Income.

Cash generated from operations for the first six months of 2022 was $184.5 million, compared with $102.0 million in the same period of 2021, an increase of $82.5 million.

While GAAP net income increased by $509.3 million, this was partially offset by the year-over-year change in non-cash after-tax pension and post-retirement plan expense of $415.8 million, which was primarily driven by the settlement of one of the Company's U.S.

pension plans in the second quarter of 2021.

However, the pension settlement resulted in significantly higher 2021 cash contributions to the Company's pension plans of $162.4 million compared to $30.8 million in 2022.

Net working capital was a use of $258.5 million of cash in the first six months of 2022, compared with a use of $45.6 million in the same period last year.

While current-year inflation was a key driver of that increase, seasonal inventory build in the Company's newly-acquired Metal Packaging business also contributed to the change.

The Company continues to actively manage all components of net working capital in an effort to minimize the impact on cash utilization while also supporting the needs of our customers and mitigating stock-out risk.

Changes in accrued expenses and other assets and liabilities provided $11.6 million in the six months ended July 3, 2022 compared with using $16.4 million in the same period last year.

The $28.0 million increased provision of operating cash flow was largely driven by higher interest accruals stemming from debt issued in connection with the Metal Packaging acquisition and higher year-over-year management incentive accruals.

Investing activities used $1.48 billion of cash in the first six months of 2022, compared with $4.5 million in the same period last year.

The higher year-over-year use of cash was primarily attributable to acquisition spending, which increased $1.3 billion from the prior year due to the acquisition of Metal Packaging on January 26, 2022.

Net capital expenditures during the first six months of 2022 were $144.1 million , $51.6 million higher than the same period last year.

While spending continued for Project Horizon, the modernization of the Company's Hartsville paper mill complex which began in 2020, the year-over-year increase was largely driven by increased strategic investments in growth and

SONOCO PRODUCTS COMPANY

Changes in accrued expenses and other assets and liabilities provided $0.2 million in the three months ended April 3, 2022 compared with providing $20.2 million in the same period last year.

The $19.9 million decreased provision of operating cash flow was mostly the result of timing of collection of rebates and other receivables that benefited the prior year's period.

Despite $11.2 million higher income tax expense recognized in the first quarter of 2022, cash paid for income taxes only increased approximately $6 million over the prior-year quarter.

This was largely attributable to the impact of deferred tax items.

Cash used in investing activities was $1.42 billion in the three months ended April 3, 2022, compared with $39.0 million in the same period last year, a higher year-over-year use of cash of $1.38 billion.

This increase was almost entirely attributable to acquisition spending, which was $1.35 billion higher year over year due to the purchase of Ball Metalpack.

Capital spending during the first three months of 2022 was $67.5 million, $28.0 million higher than the same period last year.

While spending continued for Project Horizon, the modernization of the Company's Hartsville paper mill complex, the year-over-year increase was largely driven by increased strategic investments in growth and productivity projects in the Consumer Packaging segment.

Capital spending for the remainder of 2022 is expected to be approximately $260 million, bringing total capital spending in 2022 to approximately $325 million, compared to $256.0 million in 2021.

productivity projects in the Consumer Packaging segment.

Capital spending for the remainder of 2022 is expected to be approximately $180.9 million, bringing total 2022 net capital spending to approximately $325 million, compared to $242.9 million in 2021.

Proceeds from the sale of businesses added $86.1 million of cash in the first six months of 2021 as the Company received cash from the sale of its U.S.

display and packaging business as well as from the working capital settlement and release of escrow from the 2020 sale of its European contract packaging business.

Other net investing proceeds, primarily insurance proceeds received in 2021, were $6.7 million lower year over year.

Financing activities provided $1.39 billion of cash in the three months ended April 3, 2022, while using $69.8 million in the corresponding prior year period, a year-over-year increase of $1.46 billion.

This increase was driven by net debt proceeds/repayments, which provided $1.48 billion more cash year over year.

Current-year borrowings include $1.19 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from a new term loan facility, which were used primarily to fund the acquisition of Ball Metalpack.

The Company used cash of $14.5 million to repurchase a noncontrolling interest in the first quarter of 2021.

The Company paid cash dividends of $43.7 million during the three months ended April 3, 2022, a decrease of $1.4 million over the same period last year due to lower outstanding shares stemming from repurchases of the Company's common stock during the last three quarters of 2021.

Cash and cas h equivalents totaled $151.5 million and $171.0 million at April 3, 2022 and December 31, 2021, respectively.

Financing activities provided $1.30 billion of cash in the six months ended July 3, 2022, while using $394.2 million in the corresponding prior-year period, a year-over-year increase of $1.7 billion.

The increase was driven by higher net debt proceeds/repayments, which provided $1.5 billion more cash year over year.

Current-year borrowings include $1.19 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from the Term Loan Facility, which were used primarily to fund the Metal Packaging acquisition.

The Company used cash of $14.5 million to purchase a noncontrolling interest in the first quarter of 2022.

Cash used to repurchase the Company's common stock was $4.0 million in the first six months of 2022 compared to $159.6 million in the same period last year.

The year-over-year decrease of $155.6 million was primarily the result of an accelerated share repurchase executed in the prior year pursuant to an authorization approved by the Company's Board of Directors in April 2021.

Cash and cas h equivalents totaled $175.0 million and $171.0 million at July 3, 2022 and December 31, 2021, respectiv ely.

Of these totals, approximately $144.3 million and $154.4 million, respectively, were held outside of the United States by the Company’s foreign subsidiaries.

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Because the bank maintains a security interest in the cash deposits, and has the right to offset the cash deposits against the borrowings, the bank provides the Company and its participating subsidiaries favorable interest terms on both.

During the three months ended April 3, 2022, the Company reported a net increase in cash and cash equivalents of $2.6 million due to currency translation adjustments resulting from a weaker U.S.

During the six months ended July 3, 2022, the Company reported a net decrease in cash and cash equivalents of $3.6 million due to currency translation adjustments resulting from a stronger U.S.

dollar relative to certain foreign currencies in which cash and cash equivalents were held.

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The unsecured notes (the "Notes") consisted of the following (dollars in thousands):

SONOCO PRODUCTS COMPANY

Principal Amount Issuance Costs and Discounts Net Proceeds Interest Rate Maturity

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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 Notes are 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 $1.19 billion to partially fund the acquisition of Ball Metalpack.

Also on January 21, 2022, the Company entered into a $300 million three-year term loan facility (the "Term Loan Facility") with a syndicate of eight banks.

The full $300 million was drawn from this facility on January 26, 2022, and the proceeds used to partially fund the acquisition of Ball Metalpack.

The Company used an amount equal to the net proceeds from the Notes to partially fund the Metal Packaging acquisition.

SONOCO PRODUCTS COMPANY

Also on January 21, 2022, the Company entered into a $300 million term loan facility (the "Term Loan Facility") with a syndicate of eight banks.

The full $300 million was drawn from this facility on January 26, 2022, and the proceeds used to partially fund the Metal Packaging acquisition.

Interest is assessed at the SOFR plus a margin based on a pricing grid that uses the Company's credit ratings.

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There is no required amortization and repayment can be accelerated at any time without penalty at the Company's discretion.

At April 3, 2022, the Company had scheduled debt maturities of approximately $441 million over the next twelve months, including $322 million of outstanding commercial paper balances.

Also at April 3, 2022, the Company had $152 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, of which $428 million was available for draw down net of outstanding commercial paper balances.

Borrowings under the Term Loan Facility mature on January 27, 2025.

At July 3, 2022, the Company had scheduled debt maturities of approximately $399 million over the next twelve months, including $258 million of outstanding commercial paper balances.

Also at July 3, 2022, the Company had $175 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, of which $492 million was available for draw down net of outstanding commercial paper balances.

The Company believes these amounts, combined with expected net cash flows generated from operating and investing activities, will provide ample liquidity to cover these debt maturities and other cash flow needs of the Company over the course of the next twelve months.

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The most restrictive covenants currently require the Company to maintain a minimum level of interest coverage and a minimum level of net worth, as defined in the agreements.

As of April 3, 2022, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

As of July 3, 2022, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

The Company continually explores strategic acquisition opportunities which may result in the use of cash.

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The Company’s foreign operations are exposed to political, geopolitical and cultural risks, but the risks are mitigated by diversification and the relative stability of the countries in which the Company has significant operations.

SONOCO PRODUCTS COMPANY

Due to the highly inflationary economy in Venezuela, the Company considers the U.S.

dollar to be the functional currency of its Venezuelan operations and uses the official exchange rate when remeasuring the financial results of those operations.

Economic conditions in Venezuela have worsened considerably over the past several years and there is no indication that conditions are due to improve in the foreseeable future.

Economic conditions in Venezuela have worsened considerably over the past several years and there is no indication that conditions are likely to improve in the foreseeable future.

Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the Company's Venezuelan subsidiary.

At April 3, 2022, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.0 million.

In addition, at April 3, 2022, the Company's Accumulated Other Comprehensive Loss included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

Turkey has experienced a cumulative rate of inflation over the last three years of slightly more than 100 percent, the threshold at which it is deemed to be a highly inflationary economy under U.S.

The Company is continuing to monitor the inflation rate in Turkey and is assessing the impact that accounting for Turkey as highly inflationary might have on its financial results in the second quarter of 2022.

The Company's net investment in its operations in Turkey was approximately $18.0 million at April 3, 2022.

At July 3, 2022, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.0 million.

In addition, at July 3, 2022, the Company's Accumulated Other Comprehensive Loss included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

During the first quarter of 2022, the three-year cumulative rate of inflation in Turkey rose above 100 percent, the threshold at which it is deemed to be a highly inflationary economy under U.S.

Accordingly, effective as of the beginning of the second quarter of 2022, the Company considers the U.S.

dollar to be the functional currency of its

SONOCO PRODUCTS COMPANY

operations in Turkey and has remeasured monetary assets and liabilities denominated in Turkish lira to U.S.

dollars with changes recorded through earnings.

The impact of applying highly inflationary accounting to Turkey in the second quarter of 2022 was a pretax charge of approximately $1.8 million (approximately $1.4 million after tax).

The magnitude of future earnings impacts is uncertain as such impacts are dependent upon unpredictable further movements in the Turkish lira relative to the U.S.

In addition to remeasurement-related charges, significant deterioration in the Turkish economy could result in the recognition of future impairment charges.

However, the Company believes its exposure is limited to its net investment in Turkey of approximately $17.0 million as of July 3, 2022.

The Company routinely enters into derivative currency contracts to fix the exchange rate on certain anticipated foreign currency cash flows.

The total market value of these instruments was a net unfavorable position of $1.1 million at April 3, 2022 and a net favorable position of $(0.1) million at December 31, 2021.

These contracts qualify as cash flow hedges and have maturities ranging to July 2022.

In addition, at April 3, 2022, the Company had various currency contracts outstanding to fix the exchange rate on certain foreign currency assets and liabilities.

Although placed as an economic hedge, the Company does not apply hedge accounting to these contracts, the fair value of which was not material at April 3, 2022 and December 31, 2021.

The total market value of these instruments was a net unfavorable position of $0.6 million at July 3, 2022 and a net unfavorable position of $0.1 million at December 31, 2021.

These contracts qualify as cash flow hedges and have maturities ranging to September 2023.

In addition, at July 3, 2022, the Company had various currency contracts outstanding to fix the exchange rate on certain foreign currency assets and liabilities.

Although placed as an economic hedge, the Company does not apply hedge accounting to these contracts, the fair value of which was not material at July 3, 2022 and December 31, 2021.

The Company routinely enters into derivative commodity contracts to fix the cost of a portion of anticipated raw materials and energy-related purchases.

The total net fair market value of these instruments was a favorable position of $10.6 million at April 3, 2022 and an unfavorable position of $2.2 million at December 31, 2021.

Natural gas and aluminum hedge contracts covering an equivalent of 3.9 million MMBTUs and 252 metric tons, respectively, were outstanding at April 3, 2022.

These contracts, some of which are designated as cash flow hedges, have maturities ranging to December 2022.

The total net fair market value of these instruments was a favorable position of $6.6 million at July 3, 2022 and a favorable position of $2.2 million at December 31, 2021.

Natural gas and aluminum hedge contracts covering an equivalent of 6.4 million MMBTUs and 84 metric tons, respectively, were outstanding at July 3, 2022.

These contracts, some of which are designated as cash fl ow hedges, have maturities ranging to December 2024.

Pursuant to the registered public offering of unsecured 2.850% notes with a principal amount of $500.0 million maturing on February 1, 2032, the Company entered into treasury lock derivative instruments with two banks, with a notional principal amount of $150.0 million each on December 29, 2021.

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During the first quarter of 2022, the U.S.

dollar strengthened against the euro and British pound and weakened against the Canadian dollar, Brazilian real, and Mexican peso, the functional currencies in which a majority of the Company's foreign investments are held.

The net impact of these changes resulted in a net translation loss of $0.2 million being recorded in "Accumulated other comprehensive loss" for the three months ended April 3, 2022.

dollar strengthened against the euro, the British pound, the Canadian dollar, the Brazilian real, and the Mexican peso, the functional currencies in which a majority of the Company's foreign investments are held.

The net impact of these changes resulted in a net translation loss of $73.7 million being recorded in "Accumulated other comprehensive loss" for the six months ended July 3, 2022.

Restructuring and Impairment

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis