SONOCO PRODUCTS CO 10-Q

Item 1. Financial Statements. SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Dollars and shares in thousands) July 3, 2022 December 31, 2021 Assets Current Assets Cash and cash equivalents $ 174,996 $ 170,978 Trade accounts receivable, net of allowances 1,025,680 755,609 Other receivables 98,735 95,943 Inventories, net: Finished and in process 457,139 199,823 Materials and supplies 517,352 362,290 Prepaid expenses 102,582 74,034 2,376,484 1,658,677 Property, Plant and Equipment, Net 1,628,818 1,297,500 Goodwill 1,658,358 1,324,501 Other Intangible Assets, Net 733,214 278,143 Deferred Income Taxes 23,026 25,818 Right of Use Asset-Operating Leases 296,643 268,390 Other Assets 272,967 220,206 Total Assets $ 6,989,510 $ 5,073,235 Liabilities and Equity Current Liabilities Payable to suppliers $ 938,934 $ 721,312 Accrued expenses and other 386,663 381,350 Notes payable and current portion of long-term debt 399,025 411,557 Accrued taxes 20,516 11,544 1,745,138 1,525,763 Long-term Debt, Net of Current Portion 2,727,916 1,199,106 Noncurrent Operating Lease Liabilities 254,520 234,167 Pension and Other Postretirement Benefits 153,807 158,265 Deferred Income Taxes 130,421 70,482 Other Liabilities 41,317 35,911 Sonoco Shareholders’ Equity Common stock, no par value Authorized 300,000 shares 97,495 and 97,370 shares issued and outstanding at July 3, 2022 and December 31, 2021, respectively 7,175 7,175 Capital in excess of stated value 128,332 119,690 Accumulated other comprehensive loss ( 430,677 ) ( 359,425 ) Retained earnings 2,224,845 2,070,005 Total Sonoco Shareholders’ Equity 1,929,675 1,837,445 Noncontrolling Interests 6,716 12,096 Total Equity 1,936,391 1,849,541 Total Liabilities and Equity $ 6,989,510 $ 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 (the "United States" or "U.S."). 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 Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Net sales $ 1,913,332 $ 1,382,754 $ 3,684,314 $ 2,736,058 Cost of sales 1,526,331 1,120,101 2,925,748 2,195,504 Gross profit 387,001 262,653 758,566 540,554 Selling, general and administrative expenses 178,962 128,807 369,323 274,037 Restructuring/Asset impairment charges/(income) 10,563 ( 1,445 ) 22,705 5,401 Loss on divestiture of business — — — 5,516 Operating profit 197,476 135,291 366,538 255,600 Non-operating pension costs 1,677 555,009 3,002 562,293 Interest expense 23,947 17,513 44,528 36,014 Interest income 786 2,719 2,302 3,489 Loss from the early extinguishment of debt — 20,184 — 20,184 Income/(Loss) before income taxes 172,638 ( 454,696 ) 321,310 ( 359,402 ) Provision for/(Benefit from) income taxes 44,599 ( 118,151 ) 79,888 ( 94,106 ) Income/(Loss) before equity in earnings of affiliates 128,039 ( 336,545 ) 241,422 ( 265,296 ) Equity in earnings of affiliates, net of tax 3,728 2,306 5,952 3,350 Net income/(loss) 131,767 ( 334,239 ) 247,374 ( 261,946 ) Net (income)/loss attributable to noncontrolling interests ( 95 ) 169 ( 369 ) 172 Net income/(loss) attributable to Sonoco $ 131,672 $ ( 334,070 ) $ 247,005 $ ( 261,774 ) Weighted average common shares outstanding: Basic 97,999 100,082 97,961 100,571 Diluted 98,686 100,082 98,621 100,571 Per common share: Net income/(loss) attributable to Sonoco: Basic $ 1.34 $ ( 3.34 ) $ 2.52 $ ( 2.60 ) Diluted $ 1.33 $ ( 3.34 ) $ 2.50 $ ( 2.60 ) 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 Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Net income/(loss) $ 131,767 $ ( 334,239 ) $ 247,374 $ ( 261,946 ) Other comprehensive (loss)/income: Foreign currency translation adjustments ( 70,314 ) 12,596 ( 69,608 ) ( 19,945 ) Changes in defined benefit plans, net of tax ( 1,928 ) 422,745 ( 1,737 ) 428,130 Changes in derivative financial instruments, net of tax ( 2,090 ) 3,482 460 4,440 Other comprehensive (loss)/ income $ ( 74,332 ) $ 438,823 $ ( 70,885 ) $ 412,625 Comprehensive income: 57,435 104,584 176,489 150,679 Less: Net (income)/loss attributable to noncontrolling interests $ ( 95 ) $ 169 $ ( 369 ) $ 172 Less: Other comprehensive loss/(income) attributable to noncontrolling interests $ 524 $ ( 759 ) $ ( 367 ) $ ( 239 ) Comprehensive income attributable to Sonoco $ 57,864 $ 103,994 $ 175,753 $ 150,612 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 ) Share-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 Net loss ( 334,239 ) ( 334,070 ) ( 169 ) Other comprehensive income: Translation gain 12,596 11,837 759 Defined benefit plan adjustment, net of tax 422,745 422,745 Derivative financial instruments, net of tax 3,482 3,482 Other comprehensive income $ 438,823 $ 438,064 $ 759 Dividends ( 45,503 ) ( 45,503 ) Issuance of stock awards 246 41 246 Shares repurchased ( 154,519 ) ( 1,819 ) ( 154,519 ) Share-based compensation 4,827 4,827 July 4, 2021 $ 1,822,433 98,829 $ 7,175 $ 166,295 $ ( 344,456 ) $ 1,982,430 $ 10,989 6 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 ) Share-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 Net income 131,767 131,672 95 Other comprehensive loss Translation loss ( 70,314 ) ( 69,790 ) ( 524 ) Defined benefit plan adjustment, net of tax ( 1,928 ) ( 1,928 ) Derivative financial instruments, net of tax ( 2,090 ) ( 2,090 ) Other comprehensive loss $ ( 74,332 ) $ ( 73,808 ) $ ( 524 ) Dividends ( 48,041 ) ( 48,041 ) Issuance of stock awards 263 13 263 Shares repurchased ( 574 ) ( 10 ) ( 574 ) Share-based compensation 8,377 8,377 July 3, 2022 $ 1,936,391 97,495 $ 7,175 $ 128,332 $ ( 430,677 ) $ 2,224,845 $ 6,716 See accompanying Notes to Condensed Consolidated Financial Statements 7 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Six Months Ended July 3, 2022 July 4, 2021 Cash Flows from Operating Activities: Net income $ 247,374 $ ( 261,946 ) Adjustments to reconcile net income to net cash provided by operating activities: Asset impairments 9,683 4,852 Depreciation, depletion and amortization 145,952 121,792 Loss on early extinguishment of debt — 20,184 Share-based compensation expense 19,065 11,199 Equity in earnings of affiliates ( 5,952 ) ( 3,350 ) Cash dividends from affiliated companies 4,369 3,930 Net loss/(gain) on disposition of assets ( 648 ) ( 3,279 ) Net loss on divestiture of businesses — 5,516 Pension and postretirement plan expense 4,826 576,297 Pension and postretirement plan contributions ( 30,843 ) ( 162,352 ) Net increase/(decrease) in deferred taxes 12,657 ( 154,242 ) Change in assets and liabilities, net of effects from acquisitions and foreign currency adjustments: Trade accounts receivable ( 174,064 ) ( 104,925 ) Inventories ( 232,734 ) ( 61,724 ) Payable to suppliers 148,319 121,054 Prepaid expenses ( 1,539 ) ( 2,581 ) Income taxes payable and other income tax items 26,447 7,965 Accrued expenses and other assets and liabilities 11,553 ( 16,437 ) Net cash provided by operating activities 184,465 101,953 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 148,917 ) ( 99,959 ) Cost of acquisitions, net of cash acquired ( 1,333,769 ) ( 2,353 ) Proceeds from the sale of businesses, net — 86,071 Proceeds from the sale of assets 4,798 7,433 Other net investing proceeds ( 2,376 ) 4,304 Net cash used in investing activities ( 1,480,264 ) ( 4,504 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 1,570,137 18,361 Principal repayment of debt ( 51,142 ) ( 259,225 ) Net change in commercial paper ( 91,000 ) 128,000 Net decrease in outstanding checks ( 14,599 ) ( 15,620 ) Proceeds from foreign exchange forward contracts and interest rate swaps — 4,387 Cash dividends ( 91,525 ) ( 90,401 ) Purchase of noncontrolling interest ( 14,474 ) — Excess cash costs of early extinguishment of debt — ( 20,111 ) Payments for share repurchases ( 3,984 ) ( 159,571 ) Net cash provided/(used) by financing activities 1,303,413 ( 394,180 ) Effects of Exchange Rate Changes on Cash ( 3,596 ) ( 4,588 ) Net Increase/(Decrease) in Cash and Cash Equivalents 4,018 ( 301,319 ) Cash and cash equivalents at beginning of period 170,978 564,848 Cash and cash equivalents at end of period $ 174,996 $ 263,529 See accompanying Notes to Condensed Consolidated Financial Statements 8 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- and six-month periods ended July 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- and six-month periods ended July 3, 2022 and July 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 August 2, 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 and Vintage Disclosures." The amendments in this update eliminate the accounting guidance for troubled debt restructurings 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." 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 six-month period ended July 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 July 3, 2022, there are no other pronouncements pending adoption that are expected to have a material impact on the Company’s consolidated financial statements. 9 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, renamed Sonoco Metal Packaging ("Metal Packaging"), 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. As previously disclosed, final consideration was subject to customary post-closing adjustments for working capital, cash and indebtedness and was finalized in the second quarter of 2022. The Company received cash from the sellers totaling $ 14,820 , of which $ 6,924 was included in "Other receivables" in the Company's Condensed Consolidated Balance Sheet at April 3, 2022. Prior to the Company's acquisition of Metal Packaging, Ball Metalpack Holding, LLC was a joint venture formed in 2018 and owned by Platinum Equity ( 51 %) and Ball Corporation ( 49 %). Metal Packaging 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, and further expands the Company's sustainable packaging portfolio to include metal packaging. The Company's initial preliminary fair values of the assets acquired and the liabilities assumed in the Metal Packaging acquisition, as well as revised preliminary fair values reflecting measurement period adjustments made during the second quarter of 2022, are as follows: Initial Allocation Measurement Period Adjustments Revised Allocation Trade accounts receivable $ 123,001 $ — $ 123,001 Inventories 190,070 575 190,645 Prepaid expenses 44,530 — 44,530 Property, plant and equipment 333,496 ( 418 ) 333,078 Right of use asset - operating leases 38,000 — 38,000 Other intangible assets 498,000 — 498,000 Goodwill 366,098 ( 10,151 ) 355,947 Other net tangible assets 48,069 ( 196 ) 47,873 Payable to suppliers ( 105,580 ) — ( 105,580 ) Accrued expenses and other ( 25,253 ) 489 ( 24,764 ) Notes payable and current portion of long-term debt ( 46,463 ) — ( 46,463 ) Noncurrent operating lease liabilities ( 30,448 ) — ( 30,448 ) Long-term debt ( 39,543 ) — ( 39,543 ) Deferred income taxes ( 52,312 ) 1,805 ( 50,507 ) Total purchase price, net of cash acquired $ 1,341,665 $ ( 7,896 ) $ 1,333,769 The allocation of the purchase price of Metal Packaging to the tangible and intangible assets acquired and liabilities assumed, as reflected under the heading "Revised Valuation" in the table above, is 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; trade accounts receivable; and accrued expenses and other, and expects to complete its valuations within one year of the date of acquisition. Factors comprising goodwill include increased access to certain markets as well as the value of the assembled workforce. Approximately 67 % of goodwill is expected to be deductible for income tax purposes. Metal Packaging's financial results are included in the Company's Consumer Packaging segment. 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. 10 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table presents the unaudited financial results for Metal Packaging for the three-month period ended July 3, 2022 and from the date of acquisition through July 3, 2022: Supplemental Information (unaudited) Three Months Ended January 26 to Metal Packaging July 3, 2022 July 3, 2022 Net sales $ 291,332 $ 462,550 Net income $ 30,428 $ 44,447 The following table presents the Company’s estimated unaudited pro forma consolidated results for the three- and six-month periods ended July 3, 2022 and July 4, 2021, assuming the acquisition of Metal Packaging 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 Six Months Ended Consolidated July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Net sales $ 1,913,332 $ 1,573,964 $ 3,733,902 $ 3,123,580 Net income/(loss) attributable to Sonoco $ 140,360 $ ( 337,526 ) $ 305,240 $ ( 320,031 ) 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 and six months ended July 3, 2022 and July 4, 2021 includes adjustments to depreciation, amortization, and income taxes based upon the preliminary fair value allocation of the purchase price to Metal Packaging'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 $ 4,117 and $ 26,402 and charges related to fair value adjustments to acquisition-date inventory of $ 8,155 and $ 33,155 were recognized during the three- and six-month periods ended July 3, 2022, respectively. 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- and divestiture-related costs totaled $ 12,281 and $ 60,633 during the three- and six-month periods ended July 3, 2022, respectively, primarily related to the Metal Packaging acquisition. These costs include charges related 11 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) to fair value adjustments to acquisition-date inventory totaling $ 8,155 and $ 33,155 during the three- and six-month periods ended July 3, 2022, respectively, which are included in "Cost of sales" in the Company's Condensed Consolidated Statements of Income. Other acquisition-related costs consisting primarily of investment banking fees, representation and warranty insurance premiums, legal and professional fees, and other transaction costs, totaled $ 4,126 and $ 27,478 during the three- and six-month periods ended July 3, 2022, respectively, and are included in "Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. Acquisition and divestiture-related costs totaled $ 1,462 and $ 11,488 during the three- and six-month periods ended July 4, 2021, respectively. 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/(loss) per Share The following table sets forth the computation of basic and diluted earnings/(loss) per share: Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Numerator: Net income/(loss) attributable to Sonoco $ 131,672 $ ( 334,070 ) $ 247,005 $ ( 261,774 ) Denominator: Weighted average common shares outstanding: Basic 97,999 100,082 97,961 100,571 Dilutive effect of stock-based compensation 687 — 660 — Diluted 98,686 100,082 98,621 100,571 Net income/(loss) attributable to Sonoco per common share: Basic $ 1.34 $ ( 3.34 ) $ 2.52 $ ( 2.60 ) Diluted $ 1.33 $ ( 3.34 ) $ 2.50 $ ( 2.60 ) Cash dividends $ 0.49 $ 0.45 $ 0.94 $ 0.90 No adjustments were made to "Net income/(loss) attributable to Sonoco" in the computations of net income/(loss) 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 anti-dilutive. 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- and six-month periods ended July 3, 2022 and July 4, 2021 were as follows (in thousands): Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Anti-dilutive stock appreciation rights 374 — 387 214 12 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued unless doing so is anti-dilutive. Such securities have an anti-dilutive impact in those periods in which a loss is reported. Diluted net loss per share of common stock for the three- and six-month periods ended July 4, 2021 is the same as basic net loss per share because otherwise dilutive securities are excluded from the computation of diluted net loss per share. The following table sets forth the potentially dilutive securities excluded from the computation of diluted net loss per share during the three- and six-month periods ended July 4, 2021: Three Months Ended Six Months Ended July 4, 2021 July 4, 2021 Dilutive securities excluded due to reported loss 486 469 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 six months ended July 3, 2022. On May 10, 2021, the Company entered into an accelerated share repurchase agreement ("ASR Agreement") with a financial institution to repurchase outstanding shares of the Company's common stock. In exchange for an upfront payment of $ 150,000 , which was funded with available cash on hand, the financial institution delivered 1,751 initial shares to the Company, representing 80 % of the expected number of shares to be repurchased during the repurchase period based upon an estimated average repurchase price of $ 68.50 per share. The initial shares received were retired by the Company. The final number of shares to be repurchased and retired were based on the Company's volume-weighted average share price during the repurchase period, less a discount and subject to certain adjustments. The financial institution could have elected to settle all or any part of the transaction at any time between July 9, 2021 and September 11, 2021. As of July 4, 2021, the unsettled portion of the ASR Agreement represented a forward contract indexed to the Company's own stock which was recognized within shareholders’ equity as "Capital in excess of stated value." On May 6, 2021, the Company repurchased 54 shares for $ 3,615 from a private stockholder based upon the average closing stock price on that day. The cost of these share repurchases, as well as those related to the accelerated share agreement mentioned above, was allocated to "Capital in excess of stated value" on the Company's Condensed Consolidated Balance Sheet for the period ended July 4, 2021. The Company regularly 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 70 shares during the six months ended July 3, 2022, at a cost of $ 3,984 , and 98 shares during the six months ended July 4, 2021, at a cost of $ 5,956 . Dividend Declarations On April 20, 2022, the Board of Directors declared a regular quarterly dividend of $ 0.49 per share. This dividend was paid on June 10, 2022 to all shareholders of record as of May 10, 2022. On July 20, 2022, the Board of Directors declared a regular quarterly dividend of $ 0.49 per share. This dividend is payable on September 9, 2022 to all shareholders of record as of August 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 July 3, 2022. 13 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 5: Restructuring and Asset Impairments 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/(income), net of adjustments, recognized during the periods presented: Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Restructuring and restructuring-related asset impairment charges/(income) $ 6,857 $ ( 1,853 ) $ 12,610 $ 844 Other asset impairments 3,706 408 10,095 4,557 Restructuring/Asset Impairment Charges/(Income) $ 10,563 $ ( 1,445 ) $ 22,705 $ 5,401 The table below sets forth restructuring and restructuring-related asset impairment charges/(income) by type incurred: Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Severance and Termination Benefits $ 2,214 $ 2,438 $ 4,313 $ 3,866 Asset Impairments/(Gains from Disposal of Assets) 787 ( 5,621 ) 1,232 ( 6,485 ) Other Costs 3,856 1,330 7,065 3,463 Restructuring and restructuring-related asset impairment charges/(income) $ 6,857 $ ( 1,853 ) $ 12,610 $ 844 The table below sets forth restructuring and restructuring-related asset impairment charges/(income) by reportable segment: Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Consumer Packaging $ 2,544 $ 173 $ 4,179 $ 1,258 Industrial Paper Packaging 1,007 ( 4,372 ) 2,355 ( 2,939 ) All Other ( 495 ) 2,355 ( 417 ) 2,520 Corporate 3,801 ( 9 ) 6,493 5 Restructuring and restructuring-related asset impairment charges/(income) $ 6,857 $ ( 1,853 ) $ 12,610 $ 844 Restructuring and restructuring-related asset impairment charges/(income) are included in “Restructuring/Asset impairment charges/(income)” 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) 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 Impairments/ Disposal of Assets Other Costs Total Accrual Activity Liability at December 31, 2021 $ 10,917 $ — $ 1,873 $ 12,790 2022 charges 4,313 1,232 7,065 12,610 Cash (payments)/receipts ( 7,024 ) 4,076 ( 7,163 ) ( 10,111 ) Asset write downs/disposals — ( 5,308 ) — ( 5,308 ) Foreign currency translation ( 83 ) — ( 38 ) ( 121 ) Liability at July 3, 2022 $ 8,123 $ — $ 1,737 $ 9,860 "Severance and Termination Benefits" during the first six months of 2022 includes the cost of severance for approximately 150 employees whose positions were eliminated in conjunction with the Company's ongoing organizational effectiveness efforts. "Asset Impairments/Disposal of Assets" during the first six months of 2022 consists primarily of asset impairment charges related to plant closures in the Consumer Packaging and Industrial Paper Packaging segments, partially offset by a gain from the sale of a previously closed facility in our "All Other" group of businesses. Cash proceeds in the first six months of 2022 relate to the sale of this facility as well as the partial sale of a previously closed operation in Canada, part of the Industrial Paper Packaging segment. “Other Costs” during the first six months of 2022 consists primarily of consulting services and 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 $ 2,300 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. Other Asset Impairments The Company recognized other asset impairment charges totaling $ 3,706 and $ 10,095 in the three and six months ended July 3, 2022, respectively. The charges in the three and six months ended July 3, 2022 include net asset impairment charges totaling $ 3,452 and $ 9,165 , respectively, resulting from the Company's decision in the first quarter of 2022 to exit its operations in Russia, consisting of two small tube and core plants in our Industrial Paper Packaging segment, as a result of the ongoing Russia-Ukraine conflict. These charges incl ude $ 3,747 of cumulative translation adjustment losses that were reclassified from accumulated other comprehensive income upon completion of the Company's exit from Russia on July 1, 2022. The charges also include $ 254 and $ 930 of fixed asset impairments in the Company's plastics foods operatio ns, part of the Consumer Packaging segment, in the three and six months ended July 3, 2022, respectively. 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. The Company recognized other asset impairment charges totaling $ 408 and $ 4,557 in the three and six months ended July 4, 2021, respectively. The year-to-date charges consist of fixed asset impairments totaling $ 2,158 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. The assets were impaired as the value of their projected undiscounted cash flows was determined to no longer be sufficient to recover their carrying value. These impairment charges are included in “Restructuring/Asset impairment charges/(income)” in the Company’s Condensed Consolidated Statements of Income. 15 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 six months ended July 3, 2022 and July 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 ( 73,722 ) ( 3,893 ) 3,047 ( 74,568 ) Amounts reclassified from accumulated other comprehensive loss to net income 3,747 2,156 ( 2,199 ) 3,704 Amounts reclassified from accumulated other comprehensive loss to fixed assets — — ( 388 ) ( 388 ) Other comprehensive (loss)/income ( 69,975 ) ( 1,737 ) 460 ( 71,252 ) Balance at July 3, 2022 $ ( 339,051 ) $ ( 93,134 ) $ 1,508 $ ( 430,677 ) Balance at December 31, 2020 $ ( 194,024 ) $ ( 562,747 ) $ ( 71 ) $ ( 756,842 ) Other comprehensive (loss)/income before reclassifications ( 20,184 ) 10,888 5,219 ( 4,077 ) Amounts reclassified from accumulated other comprehensive loss to net loss — 417,242 ( 733 ) 416,509 Amounts reclassified from accumulated other comprehensive loss to fixed assets — — ( 46 ) ( 46 ) Other comprehensive (loss)/income ( 20,184 ) 428,130 4,440 412,386 Balance at July 4, 2021 $ ( 214,208 ) $ ( 134,617 ) $ 4,369 $ ( 344,456 ) 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 effects on net income of significant amounts reclassified from each component of accumulated other comprehensive loss for the three- and six-month periods ended July 3, 2022 and July 4, 2021: Amount Reclassified from Accumulated Other Comprehensive Loss Three Months Ended Six Months Ended Details about Accumulated Other Comprehensive Loss Components July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Affected Line Item in the Condensed Consolidated Statements of Income Foreign currency items Loss on Russia restructuring (a) $ ( 3,747 ) — $ ( 3,747 ) — Restructuring/Asset impairment charges Gains/(losses) on cash flow hedges Foreign exchange contracts 843 1,489 1,866 1,829 Net sales Foreign exchange contracts ( 1,011 ) ( 1,190 ) ( 1,706 ) ( 1,418 ) Cost of sales Commodity contracts 1,979 646 2,937 575 Cost of sales 1,811 945 3,097 986 Income/(Loss) before income taxes Income tax impact ( 529 ) ( 241 ) ( 898 ) ( 253 ) Provision for/(Benefit from) income taxes 1,282 704 2,199 733 Net income/(loss) Defined benefit pension items Effect of settlement loss (b) ( 74 ) ( 547,631 ) ( 430 ) ( 547,631 ) Non-operating pension costs Amortization of defined benefit pension items (b) ( 1,255 ) ( 6,432 ) ( 2,426 ) ( 13,333 ) Non-operating pension costs ( 1,329 ) $ ( 554,063 ) ( 2,856 ) ( 560,964 ) Income/(Loss) before income taxes Income tax impact 335 142,090 700 143,722 Provision for/(Benefit from) income taxes ( 994 ) $ ( 411,973 ) ( 2,156 ) ( 417,242 ) Net income/(loss) Total reclassifications for the period $ ( 3,459 ) $ ( 411,269 ) $ ( 3,704 ) $ ( 416,509 ) Net income/(loss) (a) See Note 5 for additional details. (b) 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) 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 July 3, 2022 and July 4, 2021: Three months ended July 3, 2022 Three months ended July 4, 2021 Before Tax Amount Tax (Expense) Benefit After Tax Amount Before Tax Amount Tax (Expense) Benefit After Tax Amount Foreign currency items: Other comprehensive (loss)/income before reclassifications $ ( 73,537 ) $ — $ ( 73,537 ) $ 11,837 $ — $ 11,837 Amounts reclassified from accumulated other comprehensive loss to net income/(loss) (a) 3,747 — 3,747 — — — Net other comprehensive (loss)/income from foreign currency items ( 69,790 ) — ( 69,790 ) — 11,837 — 11,837 Defined benefit pension items: Other comprehensive (loss)/income before reclassifications ( 3,907 ) 985 ( 2,922 ) 14,213 ( 3,441 ) 10,772 Amounts reclassified from accumulated other comprehensive loss to net income/(loss) (b) 1,329 ( 335 ) 994 554,063 ( 142,090 ) 411,973 Net other comprehensive (loss)/income from defined benefit pension items ( 2,578 ) 650 ( 1,928 ) 568,276 ( 145,531 ) 422,745 Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications ( 474 ) 139 ( 335 ) 5,674 ( 1,452 ) 4,222 Amounts reclassified from accumulated other comprehensive loss to net income/(loss) ( 1,811 ) 529 ( 1,282 ) ( 945 ) 241 ( 704 ) Amounts reclassified from accumulated other comprehensive loss to fixed assets ( 668 ) 195 ( 473 ) ( 49 ) 13 ( 36 ) Net other comprehensive income/(loss) from cash flow hedges ( 2,953 ) 863 ( 2,090 ) 4,680 ( 1,198 ) 3,482 Other comprehensive income/(loss) $ ( 75,321 ) $ 1,513 $ ( 73,808 ) $ 584,793 $ ( 146,729 ) $ 438,064 (a) See Note 5 for additional details. (b) See Note 11 for additional details. 18 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 six-month periods ended July 3, 2022 and July 4, 2021: Six months ended July 3, 2022 Six months ended July 4, 2021 Before Tax Amount Tax (Expense) Benefit After Tax Amount Before Tax Amount Tax (Expense) Benefit After Tax Amount Foreign currency items: Other comprehensive loss before reclassifications $ ( 73,722 ) $ — $ ( 73,722 ) $ ( 20,184 ) $ — $ ( 20,184 ) Amounts reclassified from accumulated other comprehensive loss to net income/(loss) (a) 3,747 — 3,747 — — — Net other comprehensive loss from foreign currency items ( 69,975 ) — ( 69,975 ) ( 20,184 ) — ( 20,184 ) Defined benefit pension items: Other comprehensive (loss)/income before reclassifications ( 5,183 ) 1,290 ( 3,893 ) 14,364 ( 3,476 ) 10,888 Amounts reclassified from accumulated other comprehensive loss to net income/(loss) (b) 2,856 ( 700 ) 2,156 560,964 ( 143,722 ) 417,242 Net other comprehensive (loss)/income from defined benefit pension items ( 2,327 ) 590 ( 1,737 ) 575,328 ( 147,198 ) 428,130 Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications 4,271 ( 1,224 ) 3,047 7,012 ( 1,793 ) 5,219 Amounts reclassified from accumulated other comprehensive loss to net income/(loss) ( 3,097 ) 898 ( 2,199 ) ( 986 ) 253 ( 733 ) Amounts reclassified from accumulated other comprehensive loss to fixed assets ( 552 ) 164 ( 388 ) ( 62 ) 16 ( 46 ) Net other comprehensive income/(loss) from cash flow hedges 622 ( 162 ) 460 5,964 ( 1,524 ) 4,440 Other comprehensive income/(loss) $ ( 71,680 ) $ 428 $ ( 71,252 ) $ 561,108 $ ( 148,722 ) $ 412,386 (a) See Note 5 for additional details. (b) See Note 11 for additional details. Note 7: Goodwill and Other Intangible Assets Goodwill A summary of the changes in goodwill for the six months ended July 3, 2022 is as follows: Consumer Packaging Industrial Paper Packaging All Other Total Goodwill at December 31, 2021 $ 572,416 $ 367,780 $ 384,305 $ 1,324,501 2022 Acquisitions 366,098 — — 366,098 Foreign currency translation ( 10,377 ) ( 8,918 ) ( 2,795 ) ( 22,090 ) Measurement period adjustments ( 10,151 ) — — ( 10,151 ) Goodwill at July 3, 2022 $ 917,986 $ 358,862 $ 381,510 $ 1,658,358 Goodwill activity reflected under the captions "2022 Acquisitions" and "Measurement period adjustments" relate to the January 26, 2022 acquisition of Metal Packaging. See Note 3 for additional information. 19 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 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, 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. 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 $ 62,404 at July 3, 2022. During the time subsequent to the annual evaluation, and at July 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. 20 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 July 3, 2022 and December 31, 2021 is as follows: July 3, 2022 December 31, 2021 Other Intangible Assets, gross: Patents $ 29,307 $ 29,315 Customer lists 1,048,443 592,195 Trade names 31,837 32,043 Proprietary technology 57,728 22,846 Other 2,777 2,807 Total Other Intangible Assets, gross $ 1,170,092 $ 679,206 Accumulated Amortization: Patents $ ( 17,099 ) $ ( 16,275 ) Customer lists ( 379,576 ) ( 347,274 ) Trade names ( 15,042 ) ( 14,106 ) Proprietary technology ( 23,117 ) ( 21,394 ) Other ( 2,044 ) ( 2,014 ) Total Accumulated Amortization $ ( 436,878 ) -436878000 $ ( 401,063 ) Other Intangible Assets, net $ 733,214 $ 278,143 The acquisition of Metal Packaging on January 26, 2022 resulted in the addition of $ 498,000 of intangible assets, primarily customer lists 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 Metal Packaging 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 $ 20,871 and $ 12,111 for the three months ended July 3, 2022 and July 4, 2021, respectively, an d $ 39,671 and $ 24,860 for the six months ended July 3, 2022 and July 4, 2021, respectively. Amortization expense on other intangible assets is expected to total approximately $ 81,200 in 2022, $ 79,500 in 2023, $ 71,400 in 2024, $ 60,900 in 2025 and $ 57,900 in 2026. Note 8: Debt Details of the Company's debt at July 3, 2022 and December 31, 2021 are as follows: July 3, 2022 December 31, 2021 Commercial paper $ 258,000 $ 349,000 Syndicated term loan due February 2025 299,559 — 1.800 % notes due February 2025 397,978 — 2.250 % notes due February 2027 297,654 — 2.850 % notes due February 2032 495,004 — 3.125 % notes due May 2030 595,629 595,342 5.750 % notes due November 2040 536,198 536,182 Other foreign denominated debt 42,745 55,432 Finance lease obligations 107,521 60,282 Other debt 96,653 14,425 Total debt $ 3,126,941 $ 1,610,663 Less current portion and short-term notes 399,025 411,557 Long-term debt $ 2,727,916 $ 1,199,106 21 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 . These 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 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 to partially fund the January 26, 2022 acquisition of Metal Packaging. 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 Metal Packaging. 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. Borrowings under the Term Loan Facility mature on January 27, 2025. On April 28, 2021, the Company commenced a cash tender offer to purchase up to $ 300,000 of the $ 600,000 then-outstanding principal amount of its 5.750 % notes due November 2040. Upon expiration of the tender offer on May 25, 2021, the Company repurchased 10.53 % of its outstanding 5.750 % notes for a total cash cost of $ 81,961 , as shown below: Principal Amount Tendered Premium and Other Amounts Paid Total Cash Paid 5.750 % notes due November 2040 $ 63,206 $ 18,755 $ 81,961 On April 28, 2021, the Company entered into a reverse treasury lock agreement intended to fix the cash cost to fund approximately $ 100,000 of the maximum $ 300,000 principal amount subject to being tendered. The settlement of the reverse treasury lock on May 13, 2021 resulted in a loss of $ 1,356 . In addition, the Company wrote off a proportional share of unamortized bond issuance costs and unamortized original issue discounts associated with the 5.750 % notes. These non-cash write-offs net to $ 73 , which combined with the hedge loss and premium and other amounts paid, resulted in a pretax loss from the early extinguishment of debt totaling $ 20,184 during each of the three- and six-month periods ended July 4, 2021. The Company's 150,000 euro-denominated loan, which bore 1 % annual interest, matured on May 25, 2021, and a U.S. dollar equivalent cash payment of $ 177,780 was made to settle the debt. On April 7, 2021, the Company entered into two forward contracts to buy a total of 150,000 euros in order to manage foreign currency risk related to the Company's funding of the debt repayment upon maturity. The Company recognized a gain of $ 4,387 upon the May 21, 2021 maturity of these forward contracts. The gain is included in "Selling, general and administrative expenses" in the Company's Condensed Consolidated Statements of Income for the three and six months ended July 4, 2021 and the proceeds from the settlement of the contracts and the debt maturity payment are reflected in "Net cash provided/(used) by financing activities" in the Company's Condensed Consolidated Statement of Cash Flows for the six months ended July 4, 2021. Certain of the Company’s debt agreements impose restrictions with respect to the maintenance of financial ratios and the disposition of assets. The most restrictive covenants currently require the Company to maintain a minimum level of interest coverage and a minimum level of net worth, as defined in the agreements. As of July 3, 2022, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants. 22 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 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. July 3, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, net of current portion $ 2,727,916 $ 2,569,487 $ 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 July 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 December 2024, 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. 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 July 3, 2022, these contracts included natural gas swaps covering approximately 1.1 million MMBTUs. These contracts represented approximately 25 % of anticipated usage in North America for the remainder of 2022, and 1 % of anticipated usage in both 2023 and 2024. 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 July 3, 2022, the Company had designated swap contracts covering 84 metric tons of aluminum as cash flow hedges. These contracts represented approximately 3 % 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 $ 2,700 and $ 1,491 at July 3, 2022 and December 31, 2021, respectively. The amount of the gain included in Accumulated Other Comprehensive Income at July 3, 2022 expected to be reclassified to the income statement during the next twelve months is $ 2,696 . 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 July 3, 2022 were as follows (in thousands): Currency Action Quantity Colombian peso purchase 13,591,224 Mexican peso purchase 244,790 Polish zloty purchase 44,467 Czech koruna purchase 33,398 Euro purchase 10,449 Turkish lira purchase 9,356 Canadian dollar purchase 7,809 British pound purchase 1,005 Brazilian real sell ( 6,286 ) The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to a gain position of $ 379 and $ 336 at July 3, 2022 and December 31, 2021, respectively. Gains of $ 379 are expected to be 23 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 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 July 3, 2022 and December 31, 2021, the net position of these contracts was $( 938 ) and $( 457 ), respectively. During the six months ended July 3, 2022, losses from these hedges totaling $ 657 were reclassified from accumulated other comprehensive loss and included in the carrying value of the capitalized expenditures. Losses of $ 875 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. 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 July 3, 2022, were as follows (in thousands): Currency Action Quantity Colombian peso purchase 31,847,040 Indonesian rupiah purchase 30,335,671 Mexican peso purchase 388,269 Turkish lira purchase 36,904 Thai baht purchase 9,251 Canadian dollar purchase 4,026 Euro purchase 20 Commodity Hedges The Company has entered into non-designated derivative contracts to manage the cost of anticipated purchases of natural gas. At July 3, 2022, these contracts consisted of natural gas swaps covering approximately 5.3 million MMBTUs and represented approximately 46 % of anticipated usage in North America for the remainder of 2022, and 27 % and 17 % of anticipated usage in 2023 and 2024, respectively. 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 six months ended July 3, 2022. The fair value of the Company’s non-designated derivatives position was a gain of $ 3,679 and $ 92 at July 3, 2022 and December 31, 2021, respectively. 24 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 location and fair values of the Company’s derivative instruments at July 3, 2022 and December 31, 2021: Description Balance Sheet Location July 3, 2022 December 31, 2021 Derivatives designated as hedging instruments: Commodity Contracts Prepaid expenses $ 2,822 $ 1,599 Commodity Contracts Other assets $ 5 $ — Commodity Contracts Accrued expenses and other $ ( 127 ) $ ( 108 ) Foreign Exchange Contracts Prepaid expenses $ 936 $ 848 Foreign Exchange Contracts Accrued expenses and other $ ( 1,432 ) $ ( 969 ) Foreign Exchange Contracts Other liabilities $ ( 63 ) $ — Derivatives not designated as hedging instruments: Commodity Contracts Prepaid expenses $ 4,688 $ 1,815 Commodity Contracts Other assets $ 197 $ — Commodity Contracts Accrued expenses and other $ — $ ( 1,132 ) Commodity Contracts Other liabilities $ ( 957 ) $ — Foreign Exchange Contracts Prepaid expenses $ 26 $ 135 Foreign Exchange Contracts Accrued expenses and other $ ( 275 ) $ ( 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. The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three months ended July 3, 2022 and July 4, 2021, excluding the amount of 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 July 3, 2022 Foreign Exchange Contracts $ ( 1,324 ) Net sales $ 843 Cost of sales $ ( 1,011 ) Commodity Contracts $ 850 Cost of sales $ 1,979 Three months ended July 4, 2021 Foreign Exchange Contracts $ 751 Net sales $ 1,489 Cost of sales $ ( 1,190 ) Commodity Contracts $ 4,847 Cost of sales $ 646 Description Gain or (Loss) Recognized Location of Gain or (Loss) Recognized in Income Statement Derivatives not Designated as Hedging Instruments: Three months ended July 3, 2022 Commodity Contracts $ 506 Cost of sales Foreign Exchange Contracts $ ( 1,142 ) Selling, general and administrative Three months ended July 4, 2021 Commodity Contracts $ 56 Cost of sales Foreign Exchange Contracts $ 220 Selling, general and administrative 25 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Three months ended July 3, 2022 Three months ended July 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 $ 843 $ 968 $ 1,489 $ ( 544 ) 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 $ 843 $ ( 1,011 ) $ 1,489 $ ( 1,190 ) Commodity contracts: Amount of gain reclassified from accumulated other comprehensive loss into net income $ — $ 1,979 $ — $ 646 26 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 27 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 28 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 six months ended July 3, 2022 and July 4, 2021, excluding the amount of 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: Six months ended July 3, 2022 Foreign Exchange Contracts $ 88 Net sales $ 1,866 Cost of sales $ ( 1,706 ) Commodity Contracts $ 4,183 Cost of sales $ 2,937 Six months ended July 4, 2021 Foreign Exchange Contracts $ 563 Net sales $ 1,829 Cost of sales $ ( 1,418 ) Commodity Contracts $ 6,601 Cost of sales $ 575 Description Gain or (Loss) Recognized Location of Gain or (Loss) Recognized in Income Statement Derivatives not Designated as Hedging Instruments: Six months ended July 3, 2022 Commodity Contracts $ 7,498 Cost of sales Foreign Exchange Contracts $ 201 Selling, general and administrative Six months ended July 4, 2021 Commodity Contracts $ 434 Cost of sales Foreign Exchange Contracts $ ( 405 ) Selling, general and administrative Six months ended July 3, 2022 Six months ended July 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 $ 1,866 $ 1,231 $ 1,829 $ ( 843 ) Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income $ 1,866 $ ( 1,706 ) $ 1,829 $ ( 1418 ) Commodity contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income $ — $ 2,937 $ — $ 575 29 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 July 3, 2022 Assets measured at NAV Level 1 Level 2 Level 3 Hedge derivatives, net: Commodity contracts $ 2,700 $ — $ — $ 2,700 $ — Foreign exchange contracts $ ( 559 ) $ — $ — $ ( 559 ) $ — Non-hedge derivatives, net: Commodity contracts $ 3,928 $ — $ — $ 3,928 $ — Foreign exchange contracts $ ( 249 ) $ — $ — $ ( 249 ) $ — 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- and six-month periods ended July 3, 2022. 30 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 Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Retirement Plans Service cost $ 837 $ 1,020 $ 1,663 $ 1,981 Interest cost 2,671 9,657 5,381 19,764 Expected return on plan assets ( 2,278 ) ( 8,650 ) ( 5,143 ) ( 18,311 ) Amortization of prior service cost 232 235 453 461 Amortization of net actuarial loss 1,181 6,378 2,316 13,249 Effect of settlement loss 74 547,631 430 547,631 Net periodic benefit cost $ 2,717 $ 556,271 $ 5,100 $ 564,775 Retiree Health and Life Insurance Plans Service cost $ 79 $ 95 $ 161 $ 189 Interest cost 66 50 130 100 Expected return on plan assets ( 110 ) ( 111 ) ( 222 ) ( 224 ) Amortization of net actuarial gain ( 158 ) ( 181 ) ( 343 ) ( 377 ) Net periodic benefit income $ ( 123 ) $ ( 147 ) $ ( 274 ) $ ( 312 ) Settlement Charges The Company recognized settlement ch arges of $ 430 and $ 340 during the six months ended July 3, 2022 and July 4, 2021, respectively. 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. The Company terminated the Sonoco Pension Plan for Inactive Participants (the "Inactive Plan"), a tax-qualified defined benefit plan, effective September 30, 2019, and settled the liabilities of the Inactive Plan in the second quarter of 2021 through a combination of lump-sum payments and the purchase of group annuity contracts. Non-cash, pre-tax settlement charges totaling $ 547,291 were recognized in the second quarter of 2021 as the lump sum payouts and annuity purchases were made. Contributions The Company made aggregate contributions of $ 8,895 and $ 139,687 to its defined benefit retirement and retiree health and life insurance plans during the six months ended July 3, 2022 and July 4, 2021, respectively. The 2021 contributions include $ 133,000 contributed to the Inactive Plan during the second quarter of 2021 in order for it to be fully funded upon final settlement. The Company expects to make additional aggregate contributions of approximately $ 6,800 to its defined benefit retirement and retiree health and life insurance plans over the remainder of 2022. 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 31 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 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 were funded annually in the first quarter, following the year in which the benefit was earned. SRC contributions totaled $ 21,948 and $ 22,665 during the six months ended July 3, 2022 and July 4, 2021, respectively. No additional SRC contributions will occur. The Company recognized expense related to the SRC of $ 5,499 and $ 11,834 for the three- and six-month periods ended July 4, 2021. Note 12: Income Taxes The Company’s effective tax rates for the three- and six-month periods ended July 3, 2022 were 25.8 % and 24.9 %, respectively, and its rates for the three- and six-month periods ended July 4, 2021 were 26.0 % and 26.2 %, 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 lower 2022 rate was primarily 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 resulting from the increase in projected earnings associated with the Metal Packaging 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 $ 1,000 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 July 3, 2022 could increase by approximately $ 200 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 performed after contemplating all the relevant facts and circumstances in accordance with guidance under ASC 842. Most real estate leases, in particular, include one or more options to renew, with renewal terms that typically extend the lease term in increments from one to five 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 Metal Packaging 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 32 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) 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. The following table sets forth the balance sheet location and aggregate values of the Company’s lease assets and lease liabilities at July 3, 2022 and December 31, 2021: Classification Balance Sheet Location July 3, 2022 December 31, 2021 Lease Assets Operating lease assets Right of Use Asset - Operating Leases $ 296,643 $ 268,390 Finance lease assets Other Assets 108,606 55,826 Total lease assets $ 405,249 $ 324,216 Lease Liabilities Current operating lease liabilities Accrued expenses and other $ 48,968 $ 45,305 Current finance lease liabilities Notes payable and current portion of debt 15,583 6,952 Total current lease liabilities $ 64,551 $ 52,257 Noncurrent operating lease liabilities Noncurrent Operating Lease Liabilities $ 254,520 $ 234,167 Noncurrent finance lease liabilities Long-term Debt, Net of Current Portion 91,938 53,330 Total noncurrent lease liabilities $ 346,458 $ 287,497 Total lease liabilities $ 411,009 $ 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- and six-month periods ended July 3, 2022 and July 4, 2021: Three Months Ended Six Months Ended Lease Cost July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Operating lease cost (a) $ 13,251 $ 11,902 $ 26,048 $ 25,097 Finance lease cost: Amortization of lease asset (a) 3,278 1,332 5,989 2,657 Interest on lease liabilities (b) 1,281 337 2,247 630 Variable lease cost (a) (c) 7,167 6,689 14,522 12,773 Total lease cost $ 24,977 $ 20,260 $ 48,806 $ 41,157 (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 . 33 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 six-month periods ended July 3, 2022 and July 4, 2021: Six Months Ended July 3, 2022 July 4, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases $ 26,295 $ 26,620 Operating cash flows used by finance leases $ 2,247 $ 630 Financing cash flows used by finance leases $ 6,019 $ 2,156 Noncash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 22,046 $ 6,705 Leased assets obtained in exchange for new finance lease liabilities $ 7,511 $ 5,879 Modification to leased assets for (decrease) increase in operating lease liabilities $ ( 4,139 ) $ 6,845 Modification to leased assets for increase in finance lease liabilities $ 14 $ 9,586 Termination reclasses to decrease operating lease assets $ ( 3,230 ) $ ( 4,319 ) Termination reclasses to decrease operating lease liabilities $ ( 3,109 ) $ ( 4,336 ) Termination reclasses to decrease finance lease assets $ ( 386 ) $ ( 21 ) Termination reclasses to decrease finance lease liabilities $ ( 9 ) $ ( 23 ) 34 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. July 3, 2022 December 31, 2021 Contract Assets $ 65,377 $ 51,106 Contract Liabilities $ ( 25,631 ) $ ( 18,993 ) Significant changes in the contract assets and liabilities balances during the six months ended July 3, 2022 and the year ended December 31, 2021 were as follows: July 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 — ( 32,207 ) — ( 36,527 ) Recognized as revenue 10,656 7,238 Rebates paid to customers — 20,330 — 26,983 Increases due to rights to consideration for customer specific goods produced, but not billed during the period 57,270 — 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 8,107 ( 5,417 ) — — Ending Balance $ 65,377 $ ( 25,631 ) $ 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 35 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 July 3, 2022 and July 4, 2021. The tables also include a reconciliation of disaggregated revenue with reportable segments. Three months ended July 3, 2022 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 791,096 $ 436,680 $ 161,587 $ 1,389,363 Europe 109,910 117,376 22,563 249,849 Canada 27,980 29,312 — 57,292 Asia 23,407 76,803 270 100,480 Other 37,589 67,231 11,528 116,348 Total $ 989,982 $ 727,402 $ 195,948 $ 1,913,332 Three months ended July 4, 2021 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 413,576 $ 346,367 $ 142,236 $ 902,179 Europe 110,248 104,238 21,930 236,416 Canada 30,193 23,985 — 54,178 Asia 18,375 78,189 279 96,843 Other 25,411 55,753 11,974 93,138 Total $ 597,803 $ 608,532 $ 176,419 $ 1,382,754 36 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following tables set forth information about revenue disaggregated by primary geographic regions for the six-month periods ended July 3, 2022 and July 4, 2021. The tables also include a reconciliation of disaggregated revenue with reportable segments. Six months ended July 3, 2022 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 1,445,511 $ 853,965 $ 327,660 $ 2,627,136 Europe 230,080 234,203 46,689 510,972 Canada 59,188 56,481 — 115,669 Asia 49,041 150,422 563 200,026 Other 74,261 131,458 24,792 230,511 Total $ 1,858,081 $ 1,426,529 $ 399,704 $ 3,684,314 Six months ended July 4, 2021 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 811,373 $ 671,589 $ 316,967 $ 1,799,929 Europe 225,428 200,922 43,339 469,689 Canada 56,336 45,031 — 101,367 Asia 39,528 151,561 520 191,609 Other 47,891 104,826 20,747 173,464 Total $ 1,180,556 $ 1,173,929 $ 381,573 $ 2,736,058 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 prepared and fresh food markets along with other packaging for consumer products. The products produced and sold within the Consumer Packaging 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; and flexible packaging. Total assets of the Consumer Packaging segment increased $ 1,656,155 upon the acquisition of Metal Packaging on January 26, 2022. The Industrial Paper Packaging segment serves 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; reels; and recycled paperboard. 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. Pr ior 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. 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, amortization of acquisition intangibles, changes in last-in, first-out ("LIFO") inventory reserves, losses from the early extinguishment of debt, interest income and expense, 37 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, the prior year's segment operating profit has been revised to conform with the current presentation for comparability. SEGMENT FINANCIAL INFORMATION Three Months Ended Six Months Ended July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021 Net sales: Consumer Packaging $ 989,982 $ 597,804 $ 1,858,081 $ 1,180,556 Industrial Paper Packaging 727,402 608,531 1,426,529 1,173,929 All Other 195,948 176,419 399,704 381,573 Consolidated $ 1,913,332 $ 1,382,754 $ 3,684,314 $ 2,736,058 Intersegment sales: Consumer Packaging $ 2,116 $ 1,199 $ 3,526 $ 2,852 Industrial Paper Packaging 33,496 27,700 67,136 54,596 All Other 2,522 2,140 5,223 5,165 Consolidated $ 38,134 $ 31,039 $ 75,885 $ 62,613 Operating profit: Segment operating profit: Consumer Packaging $ 139,421 $ 65,296 $ 313,030 $ 146,656 Industrial Paper Packaging 94,201 59,818 166,862 112,117 All Other 16,529 15,607 31,053 34,364 Restructuring/Asset impairment (charges)/income ( 10,563 ) 1,445 ( 22,705 ) ( 5,401 ) Amortization of acquisition intangibles ( 20,871 ) ( 12,111 ) ( 39,671 ) ( 24,860 ) Other non-base income/(charges), net ( 21,241 ) 5,236 ( 82,031 ) ( 7,276 ) Consolidated $ 197,476 $ 135,291 $ 366,538 $ 255,600 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 $ 1,883 on remediation of the Spartanburg site. At July 3, 2022 and December 31, 2021, the Company's accrual for environmental contingencies related to the Spartanburg site totaled $ 5,517 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. 38 SONOCO PRODUCTS COMPANY 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 July 3, 2022 and December 31, 2021, the Company's accrual for these other sites totaled $ 1,696 and $ 1,825 , respectively. Summary As of July 3, 2022 and December 31, 2021, the Company (and its subsidiaries) had accrued $ 7,213 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. 39 SONOCO PRODUCTS COMPANY 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 July 3, 2022, and the related condensed consolidated statements of income, comprehensive income, and changes in total equity for the three-month and six-month periods ended July 3, 2022 and July 4, 2021 and the condensed consolidated statements of cash flows for the six-month periods ended July 3, 2022 and July 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 August 2, 2022 40 SONOCO PRODUCTS COMPANY