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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-02 · 242 added, 253 removed, 381 unchanged (57% of the section changed)

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

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

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

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

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

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

• effects of pending and completed acquisitions and divestitures, including the acquisitions of Metal Packaging and Skjern;

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

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• strategic pricing initiatives;

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

• statements about supply constraints or logistics challenges;

• market leadership;

• the efficiency, capacity, and competitiveness of the Company’s production capabilities and anticipated cost savings related thereto;

• research and development spending;

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• challenges and assessments from tax authorities resulting from differences in interpretation of tax laws, including income, sales and use, property, value added, employment, and other taxes;

• accuracy in valuation of deferred tax assets;

SONOCO PRODUCTS COMPANY

• accuracy in valuation of deferred tax assets;

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

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

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

For most of the Company ’ s business units, sales demand in 2022 has equaled or exceeded pre-pandemic levels.

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

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

Second Quarter 2022 Compared with Second Quarter 2021

Third Quarter 2022 Compared with Third Quarter 2021

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

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

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

• restructuring initiatives;

• asset impairment charges;

• acquisition/divestiture-related costs;

• gains or losses from the divestiture of businesses;

• losses from the early extinguishment of debt;

• non-operating pension costs;

• amortization expense on acquisition intangibles;

• changes in last-in, first-out ( “ LIFO ”) inventory reserves;

• certain income tax events and adjustments;

• other items, if any.

The Company's management believes the exclusion of these items improves the period-to-period comparability and analysis of the underlying financial performance of the business.

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

” As previously disclosed, effective January 1, 2022, the Company modified its definition of base results to include adjustments for amortization-related expense on acquisition intangibles.

Accordingly, base results for 2021 have been revised to conform with the current presentation.

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.

In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles.

Sonoco management does not, nor does it suggest that investors should, consider these non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Material limitations associated with the use of such measures include that they do not reflect all costs included in operating expenses and may not be comparable with similarly named financial measures of other companies.

Furthermore, these non-GAAP financial measures are based on subjective determinations of management regarding the nature and classification of events and circumstances.

SONOCO PRODUCTS COMPANY

For the three months ended July 3, 2022

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

Amortization of Acquisition Intangibles (2)

Acquisition/Divestiture Related (3)

Other Adjustments (4)

Sonoco presents these non-GAAP financial measures to provide users with information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance.

To compensate for any limitations in such non-GAAP financial measures, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information and the related non-GAAP financial measures.

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

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

For the three-month period ended October 2, 2022

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments Amortization of Acquisition Intangibles Acquisition/Divestiture Related Other Adjustments (1)

Operating profit $ 181,942 $ 20,652 $ 20,690 $ 2,022 $ (215) $ 225,091

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*Due to rounding individual items may not sum across

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

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

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

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

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

SONOCO PRODUCTS COMPANY

For the three months ended July 4, 2021

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

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

(1) See table in “Results of Operations – Overview” below for details related to the after-tax impact of major components.

For the three-month period ended October 3, 2021

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments Amortization of Acquisition Intangibles (1)(2)

Acquisition/Divestiture Related Other Adjustments (1)

Operating profit $ 126,512 $ 3,488 $ 12,257 $ 1,015 $ (8,585) $ 134,687

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Interest expense, net 14,219 — — — — 14,219

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

Income before income taxes $ 111,768 $ 3,488 $ 12,257 $ 1,015 $ (8,060) $ 120,468

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*Due to rounding individual items may not sum across

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

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

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

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

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

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

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

Net income in the current

(1) See table in “Results of Operations – Overview” below for details related to the after-tax impact of major components.

(2) Effective January 1, 2022, the Company changed its measure of base operating profit to exclude amortization of acquisition intangibles.

Accordingly, base operating profit for 2021 has been revised to conform with the current presentation.

SONOCO PRODUCTS COMPANY

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

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

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

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

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

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three-month period ended October 2, 2022 versus the three-month period ended October 3, 2021.

Net sales for the third quarter of 2022 increased 33.6 percent to $1.89 billion, compared with $1.42 billion in the same period last year.

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

Net income attributable to Sonoco for the third quarter of 2022 increased to $122.2 million, or $1.24 per diluted share, compared to $111.1 million, or $1.12 per diluted share, for the same period of 2021.

Net income in the current period benefited primarily from the Company ’ s strategic pricing initiatives, increases from acquisitions and operational improvements.

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

Additionally, net income in the current quarter includes net after-tax, non-base charges totaling $35.3 million, while results for the third quarter of 2021 included net after-tax, non-base income totaling $11.3 million.

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

Three Months Ended

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

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

($ in millions) October 2, 2022 October 3, 2021

Impairment and restructuring related charges $ 16.0 $ 3.2

Amortization of acquired intangibles 15.8 9.2

Acquisition and divestiture related costs 1.3 0.8

Amortization of acquisition intangibles 15.7 9.1

Net loss/(gain) on derivatives 1.1 (2.2)

Turkey hyperinflationary accounting impact 0.8 —

Changes in LIFO inventory reserve (0.3) —

Loss from exiting Russia 3.5 —

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

Pension settlement charges (Inactive Plan) — 406.5

Insurance settlement gains (2.0) (1.6)

Gain on divestiture of businesses — (2.2)

Other non-operating pension costs 0.9 0.3

Loss from the early extinguishment of debt — 15.0

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

Refund of foreign VAT and applicable interest — (3.1)

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

All other non-base charges 1.9 0.2

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

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

Net recognized benefit on 2017 amended U.S.

income tax return — (30.0)

Other non-base income tax charges 1.7 12.1

All other non-base items — (0.9)

Total non-base charges/(income), after tax $ 35.3 $ (11.3)

Adjusted for these items, base net income attributable to Sonoco ("base earnings") for the third quarter of 2022 increased 57.8 percent to $157.5 million, or $1.60 per diluted share, from $99.8 million, or $1.00 per diluted share, in 2021, and third-quarter base operating profit increased 67.1 percent to $225.1 million.

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

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

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

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

OPERATING REVENUE

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

Net sales for the third quarter of 2022 increased $475 million, or 33.6 percent, from the prior-year quarter.

The components of the sales change were:

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Total sales increase $ 475

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

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

SONOCO PRODUCTS COMPANY

Net sales added by acquisitions and divestitures were driven by the Metal Packaging acquisition.

COSTS AND EXPENSES

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

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

Cost of goods sold increased $365.6 million, or 31.6 percent, in the third quarter of 2022 compared with the same period last year.

The increase was driven primarily by inflation and incremental costs added by the acquisition of Metal Packaging.

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

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

Gross profit was $367.1 million for the three-month period ended October 2, 2022, which was $109.4 million higher than the prior-year period.

Additionally, gross profit as a percent of sales increased to 19.4 percent from 18.2 percent in the prior-year quarter as overall sales price increases more than offset higher material and other operating costs largely due to the Company's strategic pricing initiatives.

GAAP selling, general and administrative ( “ SG&A ” ) expenses for the quarter increased $34.0 million, or 26.0 percent, year over year.

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

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

higher employee compensation and benefit costs;

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

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

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

and gains on derivatives in the prior year.

Restructuring/Asset impairment charges totaled $20.7 million in the third quarter of 2022 compared with $3.5 million in the same period last year.

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

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

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

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

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

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

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

GAAP net interest expense for the third quarter of 2022 increased to $25.6 million, compared with $14.2 million during the third quarter of 2021, due primarily to higher average debt balances resulting from the financing transactions used to fund the January 26, 2022 acquisition of Metal Packaging.

The 2022 third-quarter effective tax rates on GAAP and base earnings were 23.7 percent and 23.1 percent, respectively, compared with 2.3 percent and 18.8 percent, respectively, in the prior year’s quarter.

The increase in the GAAP effective tax rate was primarily due to the absence of a third-quarter 2021 benefit received in association with the amendment of the Company’s 2017 tax return to report increased utilization of its foreign tax credits.

The higher base tax rate is largely attributable to the 2022 absence of a release of uncertain tax position reserves upon expiration of the statute of limitations that occurred in the third-quarter of 2021.

REPORTABLE SEGMENTS

The Company's operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

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

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

Three Months Ended

July 3, 2022 July 4, 2021 %

October 2, 2022 October 3, 2021 %

Consumer Packaging $ 1,030,549 $ 598,969 72.1 %

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All Other 198,215 180,994 9.5 %

Consolidated $ 1,913,332 $ 1,382,754 38.4 %

Net sales $ 1,890,216 $ 1,415,193 33.6 %

SONOCO PRODUCTS COMPANY

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

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

Three Months Ended

July 3, 2022 July 4, 2021 %

October 2, 2022 October 3, 2021 %

Operating profit:

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All Other 15,373 12,895 19.2 %

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

Total segment operating profit 225,091 134,687 67.1 %

Restructuring/Asset impairment charges (20,652) (3,488)

Amortization of acquisition intangibles (20,690) (12,257)

Other non-base charges, net (1,807) 7,570

Consolidated $ 197,476 $ 135,291 46.0 %

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

Operating profit $ 181,942 $ 126,512 43.8 %

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

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

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

All other 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.

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

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

Three Months Ended

July 3, 2022 July 4, 2021

October 2, 2022 October 3, 2021

Restructuring/Asset impairment charges/(income):

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Corporate 8,610 2,087

Consolidated $ 10,563 $ (1,445)

Restructuring/Asset impairment charges $ 20,652 $ 3,488

Consumer Packaging

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and flexible packaging.

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

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

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

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

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

SONOCO PRODUCTS COMPANY

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

Segment sales increased approximately 72 percent compared to the prior year ’ s quarter due primarily to the acquisition of Metal Packaging and strong strategic pricing performance.

Positive volume/mix growth in the segment was driven by global rigid paper containers, where gains were seen in North America, Asia, and Latin America, and in the flexible packaging business.

These gains were partially offset by the negative impacts of foreign exchange due to the stronger U.S.

Segment operating profit increased 93 percent with the main driver being the Metal Packaging acquisition, along with favorable price/cos t, including the benefits of strategic pricing actions supported by positive volume/mix and p roductivity .

As a result, segment operating margin improved to 12 percent in the quarter from 11 percent in the 2021 period.

SONOCO PRODUCTS COMPANY

Industrial Paper Packaging

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and recycled paperboard.

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

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

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

Segment sales increased 4 percent from the prior year's quarter due to strong strategic pricing performance, partially offset by the negative impacts of foreign exchange and lower volume/mix globally in both paper and converted products.

Segment operating profit increased 48 percent from the prior year ’ s quarter, driven by positive price/cost, including the benefits of strategic pricing actions, which was somewhat offset by lower volume/mix.

As a result, segment operating profit margin improved to 12 percent in the current year's quarter from 9 percent in the prior year.

During the third quarter of 2022, as part of Project Horizon, the #10 paper machine on the Company's Hartsville campus was shut down to allow for its conversion from a corrugated medium machine to an uncoated recycled paperboard ( “ URB ” ) machine.

This planned shutdown resulted in an expected loss of volume and lower absorption of fixed costs.

Late in the third quarter, the #10 machine began production of URB.

As previously disclosed, the new URB machine was designed with the goal of being one of the largest and lowest-cost producers of URB in the world, with a targeted annual production capacity of 180,000 tons and capable of producing a wide range of high-value paper grades to service the Company's Industrial Paper Packaging businesses and external trade customers.

Project Horizon is expected to drive significant annualized cost savings as production ramps through 2023 and beyond.

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

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display and packaging business on April 4, 2021, this business, which included point-of-purchase displays, fulfillment operations, and contract packaging, was reported in All Other.

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

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

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

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

SONOCO PRODUCTS COMPANY

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

Sales for All Other improved 10 percent from the prior year’s quarter due primarily to positive strategic pricing performance.

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

All Other operating profit improved 19.2 percent from the prior year's quarter due primarily to positive strategic pricing performance.

Operating margin increased slightly to 7.8 percent in the quarter from 7.1 percent in 2021.

Nine Months Ended October 2, 2022 Compared with Nine Months Ended October 3, 2021

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

For the six months ended July 3, 2022

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

Amortization of Acquisition Intangibles (2)

Acquisition/Divestiture Related (3)

Other Adjustments (4)

SONOCO PRODUCTS COMPANY

For the nine-month period ended October 2, 2022

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments Amortization of Acquisition Intangibles Acquisition/Divestiture Related Other Adjustments (1)

Operating profit $ 548,480 $ 43,357 $ 60,361 $ 62,655 $ 21,183 $ 736,036

10 unchanged sentences

*Due to rounding individual items may not sum across

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

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

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

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

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

SONOCO PRODUCTS COMPANY

For the six months ended July 4, 2021

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

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

(1) See table in “Results of Operations – Overview” below for details related to the after-tax impact of major components.

For the nine-month period ended October 3, 2021

Dollars in thousands, except per share data GAAP Restructuring/Asset Impairments Amortization of Acquisition Intangibles (1)(2)

Acquisition/Divestiture Related Other Adjustments (1)

Operating profit $ 382,112 $ 8,889 $ 37,117 $ 12,503 $ (12,797) $ 427,824

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Equity in earnings of affiliates, net of tax 5,701 — — — — 5,701

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

Net (loss)/income $ (150,391) $ 6,236 $ 27,923 $ 9,519 $ 401,769 $ 295,056

Net (income) attributable to noncontrolling interests (243) — — — — (243)

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

Net (loss)/income attributable to Sonoco $ (150,634) $ 6,236 $ 27,923 $ 9,519 $ 401,769 $ 294,813

Diluted Weighted average common shares outstanding (3) :

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*Due to rounding individual items may not sum across

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

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

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

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

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

(1) See table in “Results of Operations – Overview” below for details related to the after-tax impact of major components.

(2) Effective January 1, 2022, the Company changed its measure of base operating profit to exclude amortization of acquisition intangibles.

Accordingly, base operating profit for 2021 has been revised to conform with the current presentation.

(3) Due to the magnitude of certain expenses considered by management to be non-base and included in Other Adjustments, the Company reported a year-to-date GAAP Net loss attributable to Sonoco.

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

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

SONOCO PRODUCTS COMPANY

RESULTS OF OPERATIONS

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

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

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

The following discussion provides a review of results for the nine-month period ended October 2, 2022 compared with the nine-month period ended October 3, 2021.

Net sales for the first nine months of 2022 increased 34.3 percent to $5.6 billion, compared with $4.2 billion in the same period last year.

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

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

display and packaging divestiture.

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

GAAP net income

SONOCO PRODUCTS COMPANY

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

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

Net income/(loss) attributable to Sonoco for the first nine months of 2022 increased to $369.2 million, or $3.74 per diluted share, compared to $(150.6) million, or $(1.51) per diluted share, reported for the same period of 2021.

These GAAP results include net after-tax, non-base charges totaling $144.8 million and $445.4 million in the first nine months of 2022 and 2021, respectively.

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

Six Months Ended

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

Nine Months Ended

($ in millions) October 2, 2022 October 3, 2021

Other net restructuring and asset impairment charges $ 27.1 $ 6.2

Loss from exiting Russia 9.2 —

Amortization of acquisition intangibles 45.7 27.9

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Changes in LIFO inventory reserve 18.7 —

Loss from exiting Russia 9.2 —

All other net restructuring and asset impairment charges 11.1 3.1

Pension settlement charges (Inactive Plan) — 406.5

Other non-operating pension costs 2.1 11.5

Turkey hyperinflationary accounting impact 0.8 —

Net gain on other derivatives (1.7) (2.2)

Insurance settlement gains (2.1) (4.4)

Loss from the early extinguishment of debt — 15.0

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

Loss on divestiture of businesses — 1.2

Refund of foreign VAT and applicable interest — (3.1)

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

Other non-operating pension costs 3.1 11.8

Pension settlement charges (Inactive Plan) — 406.5

Other non-base income tax (gains)/charges (3.0) 11.9

Net recognized benefit on 2017 amended U.S.

income tax return — (30.0)

All other non-base gains (0.1) (1.6)

Total non-base charges, after tax $ 144.8 $ 445.4

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

Adjusted for these items, base earnings for the nine-month period ending October 2, 2022 increased 74 percent to $514.1 million, or $5.21 per diluted share, from $294.8 million, or $2.93 per diluted share, in the same period in 2021.

The increase in base earnings of $219.2 million is largely attributable to strong pricing performance, earnings from the Metal Packaging acquisition, and productivity improvements.

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

display and packaging business and increased compensation and benefit costs.

display and packaging business, higher interest expense related to the financing of the Metal Packaging acquisition, and increased compensation and benefit costs.

SONOCO PRODUCTS COMPANY

OPERATING REVENUE

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

Net sales for the first nine months of 2022 increased $1.4 billion from the same period in 2021.

The components of the sales change were:

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COSTS AND EXPENSES

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

Cost of goods sold increased $1,095.9 million, or 32.7 percent, while the Company ’ s gross profit margin percentage increased to 20.2 percent for the first nine months of 2022, compared to 19.2 percent in the prior-year period.

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

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

SONOCO PRODUCTS COMPANY

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

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

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

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

GAAP SG&A costs for the first nine months of 2022 increased $129.3 million, or 31.9 percent, year over year.

Net restructuring costs and asset impairment charges totaled $43.4 million in the first nine months of 2022, compared with $8.9 million of net charges in the same period last year.

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

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

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

Non-operating pension costs decreased $558.6 million year over year due to the settlement in the second quarter of 2021 of the Inactive Plan and the resulting $547.3 million settlement charge .

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

Additionally, in the second quarter of 2021 the Company recognized a loss on the early extinguishment of debt totaling $20.2 million.

This loss was pursuant to a tender offer through which the Company retired a portion of its 5.750% notes due November 2040.

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

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

GAAP net interest expense for the first nine months of 2022 increased to $67.8 million, compared with $46.7 million during the first nine months of 2021.

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

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

The effective tax rates on GAAP and Base earnings in the first nine months of 2022 were 24.5 percent and 24.5 percent, respectively, compared with 37.0 percent and 23.6 percent for the GAAP loss and Base earnings, respectively, in the prior-year period.

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

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

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

The base rate was higher than in the prior year due largely to the 2022 absence of a release of uncertain tax position reserves upon expiration of the statute of limitations that occurred in 2021.

SONOCO PRODUCTS COMPANY

REPORTABLE SEGMENTS

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

Six Months Ended

July 3, 2022 July 4, 2021 % Change

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

Nine-Month Period Ended

October 2, 2022 October 3, 2021 % Change

Consumer Packaging $ 2,888,630 $ 1,779,525 62.3 %

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All Other 597,919 562,567 6.3 %

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

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

Six Months Ended

July 3, 2022 July 4, 2021 % Change

Net sales $ 5,574,530 $ 4,151,251 34.3 %

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

Nine-Month Period Ended

October 2, 2022 October 3, 2021 % Change

Operating profit:

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All Other 46,426 47,259 (1.8) %

Total segment operating profit 736,036 427,824 72.0 %

Restructuring/Asset impairment charges (43,357) (8,889)

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Other non-base charges, net (83,838) 294

Consolidated $ 366,538 $ 255,600 43.4 %

Operating profit $ 548,480 $ 382,112 43.5 %

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

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

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

All other 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.

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

Six Months Ended

July 3, 2022 July 4, 2021

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

Nine-Month Period Ended

October 2, 2022 October 3, 2021

Restructuring/Asset impairment charges/(income):

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Corporate 15,103 2,092

Consolidated $ 22,705 $ 5,401

Restructuring/Asset impairment charges $ 43,357 $ 8,889

Consumer Packaging

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

Segment sales increased 62.3 percent year to date compared to the prior-year period driven by increased selling prices, largely implemented to recover increased raw material and other operating costs, sales added by the acquisition of Metal Packaging, and increased volume.

SONOCO PRODUCTS COMPANY

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

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

As a result, segment operating margins were up 265 basis points to 11.9 percent.

Sales for All Other increased 6.3 percent year to date due primarily to increased selling prices, which were implemented to recover increased costs, and increased volume.

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display and packaging divestiture.

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

Excluding that divestiture, volume/mix for businesses grouped in All Other improved approximately 2.7 percent, driven primarily by demand improvements in several businesses, most notably molded foam and temperature-assured packaging businesses.

All Other operating profit declined 1.8 percent year to date due to the impact of the divested display and packaging business and a negative impact from foreign exchange.

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Segment operating margin declined to 7.8 percent year to date from 8.4 percent in 2021.

Critical Accounting Policies and Estimates

Goodwill impairment evaluation

The Company assesses its goodwill for impairment annually and from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole.

If the fair value of a reporting unit exceeds the carrying value of the reporting unit's assets, including goodwill, there is no impairment.

If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess.

The Company's reporting units are the same as, or one level below, its operating segments, as determined in accordance with ASC 350.

The Company completed its most recent annual goodwill impairment testing during the third quarter of 2021.

For testing purposes, the Company performed an assessment of each reporting unit using either a qualitative evaluation or a quantitative test.

There have been no changes to the Company's annual qualitative and quantitative tests, or underlying assumptions, from what is disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on February 28, 2022.

The Company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements.

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

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

Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment.

Other than in Plastics - Healthcare, which is discussed below, there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to expected future results in any of its reporting units sufficient to result in goodwill impairment.

management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, introduction of a superior technology, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in "Item 1A.

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

SONOCO PRODUCTS COMPANY

Although no reporting units failed the annual impairment test, in management’s opinion, the goodwill of the Plastics - Healthcare reporting unit is at risk of impairment in the near term if the reporting unit's operations do not perform in line with management's expectations, or if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate.

Although beginning to benefit from the 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 over the coming year 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.

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

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

Sensitivity Analysis

In its 2021 annual goodwill impairment analysis, projected future cash flows for the Plastics - Healthcare reporting unit were discounted at 8.3%.

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.

Other Asset Impairments - Russia

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

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

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

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

Financial Position, Liquidity and Capital Resources

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

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

pension plans in the second quarter of 2021.

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

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

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

Cash generated from operations for the first nine months of 2022 was $322.1 million, compared with $220.1 million in the same period of 2021, an increase of $102.0 million.

GAAP net income increased by $520.3 million year over year, as prior year net income included non-cash, after-tax pension settlement charges totaling $406.5 million from the settlement of the Inactive Plan.

Cash contributions to the Company's retirement plans were $33.5 million in 2022, significantly lower than the $165.3 million of contributions in the prior year, due to contributions required in 2021 to fully fund the Inactive Plan prior to settlement.

Net working capital used $317.0 million of cash in the first nine months of 2022, compared with $74.6 million in the same period of 2021.

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

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

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

Changes in accrued expenses and other assets and liabilities provided $15.7 million in the nine-month period ended October 2, 2022 compared with using $8.5 million in the same period last year.

The $24.3 million increased provision of operating cash flow was largely driven by higher interest accruals stemming from debt issued in connection with the Metal Packaging acquisition and higher year-over-year management incentive accruals.

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

Investing activities used $1.6 billion of cash in the first nine months of 2022, compared with $50.9 million in the same period last year.

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

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

SONOCO PRODUCTS COMPANY

productivity projects in the Consumer Packaging segment.

Net capital expenditures during the first nine months of 2022 were $230.7 million, $84.7 million higher than the same period last year.

While spending continued for Project Horizon, the modernization of the Company's Hartsville paper mill complex which began in 2020, the year-over-year increase was largely driven by increased strategic investments in growth and productivity projects in the Consumer Packaging segment, including incremental capital spending associated with the acquisition of Metal Packaging.

Capital spending for the remainder of 2022 is expected to be approximately $69 million, bringing total 2022 net capital spending to approximately $300 million, compared to $242.9 million in 2021.

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

Proceeds from the sale of businesses added $91.6 million of cash in the first nine months of 2021 as the Company received cash from the sale of its U.S.

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

Other net investing proceeds, primarily insurance proceeds received in 2021, were $8.8 million lower year over year.

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

Financing activities provided $1.3 billion of cash in the nine-month period ended October 2, 2022, while using $563.2 million in the corresponding prior-year period, a year-over-year increase of $1.8 billion.

The increase was driven by higher net debt proceeds/repayments, which provided $1.7 billion more cash year over year.

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

Current-year borrowings include $1.2 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from the Term

SONOCO PRODUCTS COMPANY

Loan Facility, which were used primarily to fund the Metal Packaging acquisition.

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

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

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

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

Cash used to repurchase the Company's common stock was $4.1 million in the first nine months of 2022 compared to $159.7 million in the same period last year.

The higher share repurchases in the prior year were primarily the result of an accelerated share repurchase executed pursuant to an authorization approved by the Company's Board of Directors in April 2021.

Cash and cas h equivalents totaled $182.2 million and $171.0 million at October 2, 2022 and December 31, 2021, respectively.

Of these totals, approximately $149.6 million and $154.4 million, respectively, were held outside of the United States by the Company’s foreign subsidiaries.

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

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

During the nine-month period ended October 2, 2022, the Company reported a net decrease in cash and cash equivalents of $11.2 million due to currency translation adjustments resulting from a stronger U.S.

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

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

SONOCO PRODUCTS COMPANY

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

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

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

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

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

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

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

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

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

At October 2, 2022, the Company had scheduled debt maturities of approximately $417 million over the next twelve months, including $285 million of outstanding commercial paper balances.

Also at October 2, 2022, the Company had $182 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, of which $465 million was available for draw down net of outstanding commercial paper balances.

SONOCO PRODUCTS COMPANY

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

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.

As of October 2, 2022, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

On September 23, 2022, the Company entered into a definitive agreement to acquire S.P.

Holding, Skjern A/S ("Skjern"), a privately owned manufacturer of paper based in Skjern, Denmark.

The estimated $88 million (purchase price subject to foreign currency fluctuations) all-cash transaction is expected to be completed in the fourth quarter of 2022, subject to customary closing conditions, and is expected to be funded using cash on hand and available borrowing capacity.

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

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The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $4 million during the remainder of 2022, which would result in total contributions to these plans of approximately $38 million in 2022.

Future funding requirements beyond the current year will vary depending largely on actual investment returns, future actuarial assumptions, and legislative actions.

Future funding requirements beyond the current year will vary depending largely on actual investment returns, future actuarial assump tions, and legislative actions.

Fair Value Measurements, Foreign Exchange Exposure and Risk Management

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

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

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

At October 2, 2022, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.0 million .

In addition, at October 2, 2022, the Company's Accumulated Other Comprehensive Loss included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

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

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

dollar to be the functional currency of its

SONOCO PRODUCTS COMPANY

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

dollar to be the functional currency of its operations in Turkey and has remeasured monetary assets and liabilities denominated in Turkish lira to U.S.

dollars with changes recorded through earnings.

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

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

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

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

The impact of applying highly inflationary accounting to Turkey through the end of the third quarter of 2022 was a pretax charge of approximately $2.8 million (approximately $2.1 million after tax).

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

In addition to remeasurement-related charges, significant deterioration in the

SONOCO PRODUCTS COMPANY

Turkish economy could result in the recognition of future impairment charges.

However, the Company believes its exposure is limited to its net investment in Turkey which as of October 2, 2022, approximated $16.3 million .

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

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

The total market value of these instruments was a net unfavorable position of $1.5 million at October 2, 2022 and a net unfavorable position of $0.1 million at December 31, 2021.

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

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

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

In addition, at October 2, 2022, the Company had various currency contracts outstanding to fix the exchange rate on certain foreign currency assets and liabilities.

Although placed as an economic hedge, the Company does not apply hedge accounting to these contracts, the fair value of which was not material at October 2, 2022 and December 31, 2021.

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

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

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

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

The total net fair market value of these instruments was a favorable position of $4.3 million and $2.2 million at October 2, 2022 and December 31, 2021, respectively.

Natural gas contracts covering approximately 8.8 million MMBTUs were outstanding at October 2, 2022.

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

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

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The derivatives were settled when the bonds priced on January 11, 2022, with the Company recognizing a gain on the settlement of $5.2 million.

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

During the first nine months of 2022, the U.S.

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

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

The net impact of these changes resulted in a translation loss of $155.2 million being recorded in "Accumulated other comprehensive loss" for the nine-month period ended October 2, 2022.

Restructuring and Impairment

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SONOCO PRODUCTS COMPANY

Critical Accounting Policies and Estimates

Goodwill Impairment Evaluation

The Company assesses its goodwill for impairment annually and from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole.

If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s assets, including goodwill, there is no impairment.

If the carrying value of a reporting unit exceeds the fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess.

The Company's reporting units are the same as, or one level below, its operating segments, as determined in accordance with ASC 350.

The Company completed its most recent annual goodwill impairment testing during the third quarter of 2022.

For testing purposes, the Company performed an assessment of each reporting unit using either a qualitative evaluation or a quantitative test.

The Company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements.

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

Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment.

Other than in the Plastics - Healthcare and Protexic reporting units, which are discussed below, there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to expected future results in any of its reporting units sufficient to result in goodwill impairment.

In management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, introduction of a superior technology, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in “Item 1A.

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

Sensitivity Analysis

In the annual goodwill impairment analys is completed during the third quarter of 2022, projected future cash flows for the Plastics - Healthcare reporting unit were discounted at 9.8% and its estimated fair value was determined to exceed its carrying value by approximately 18.0%.

Based on the discounted cash flow model and holding other valuation assumptions constant, the discount rate would have to be increased to 11.0% in order for the estimated fair value of the reporting unit to fall below carrying value.

Total goodwill associated with this reporting unit was $60.7 million at October 2, 2022.

The projected future cash flows for the Protexic reporting unit were discounted at 9.5% and its estimated fair value was determined to exceed its carrying value by approximately 18.3%.

Based on the discounted cash flow model and holding other valuation assumptions constant, the discount rate would have to be increased to 11.5% in order for the estimated fair value of the reporting unit to fall below carrying value.

Total goodwill associated with this reporting unit was $29.1 million at October 2, 2022.

Other Asset Impairments - Russia

The Company recognized asset impairment charges totaling $9.2 million during the nine-month period ended October 2, 2022 as a result of exiting its operations in Russia due to the ongoing Russia-Ukraine conflict.

The impairment charges are reflected in “Restructuring/Asset impairment charges” in the Company's Condensed Consolidated Statements of Income for the nine-month period ended October 2, 2022.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis