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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-02 · 317 added, 463 removed, 160 unchanged (83% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “anticipate,” “assume,” “believe,” “can,” “committed,” “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

Statements included in this Quarterly Report on Form 10-Q that are not historical in nature, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended.

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

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

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

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

• the effects of economic downturns, inflation, volatility and other macroeconomic factors on the Company and its industry;

• the resiliency of the Company's operating model;

• reduced supply chain and labor disruptions and benefits to the Company therefrom;

• potential impacts of the COVID-19 pandemic on the Company's business, operations and financial condition;

• consumer and customer actions in connection with the COVID-19 pandemic;

• improved productivity and cost containment;

• consumer and customer actions in connection with the COVID-19 pandemic, inflation, and the Russia-Ukraine military conflict;

• improved productivity and cost containment, including cost savings from the Company's investments;

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

• 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;

• costs, timing and effects of restructuring activities;

• effects and timing of, and anticipated synergies and gains resulting from our pending and completed acquisitions and divestitures, including the Company's acquisitions of Ball Metalpack Holding, LLC (“Ball Metalpack”), renamed Sonoco Metal Packaging (“Metal Packaging”), S.P.

Holding, Skjern A/S (“Skjern”), RTS Packaging, LLC ("RTS”), and the Company's sale of its Sonoco Sustainability Solutions (“S3”) business and the sale of South Carolina timberland properties;

• costs, timing and effects of restructuring and portfolio simplification activities;

• adequacy and anticipated amounts and uses of cash flows;

• expected amounts of capital spending;

• refinancing and repayment of debt;

• financial and business strategies and the results expected of them;

• financial results for future periods;

• capital allocation, including expected amounts of capital spending and expected annualized cost savings and other benefits therefrom;

• the Company's capital structure, including the incurrence of debt and the refinancing and repayment of debt;

• financial and business strategies and the results expected of them, including with respect to strategic pricing initiatives, capital deployment and commercial, operational and supply chain excellence;

• financial results and profitability for future periods;

• producing improvements in earnings;

• profitable sales growth and rates of growth;

• strategic pricing initiatives;

• statements about supply constraints or logistics challenges;

• market opportunities and anticipated growth thereof;

• market leadership;

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

• research and development spending;

• expected impact and costs of resolution of legal proceedings;

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• commitments to reduce greenhouse gas emissions;

• the Company's human capital management strategy

• adequacy of income tax provisions, realization of deferred tax assets, outcomes of uncertain tax issues and tax rates;

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• planned stock repurchases.

SONOCO PRODUCTS COMPANY

Such forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management.

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

The risks, uncertainties and assumptions include, without limitation:

SONOCO PRODUCTS COMPANY

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

Such risks, uncertainties and assumptions include, without limitation:

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

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

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

• ability to execute on strategic pricing initiatives;

• financial conditions of customers and suppliers;

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• ability to improve margins and leverage cash flows and financial position;

• ability to manage the mix of business to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;

• ability to manage the mix of business and execute on the Company's portfolio simplification strategy to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;

• ability to maintain innovative technological market leadership and a reputation for quality;

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

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

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

• the costs, timing and results of restructuring activities;

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• accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;

SONOCO PRODUCTS COMPANY

• timing of funding pension and postretirement benefit plan obligations;

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• resolution of income tax contingencies;

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

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

• changes in U.S.

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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;

SONOCO PRODUCTS COMPANY

• accuracy in valuation of deferred tax assets;

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• accuracy of assumptions underlying fair value measurements, accuracy of management’s assessments of fair value and fluctuations in fair value;

• ability to maintain effective internal controls over financial reporting;

• ability to maintain effective disclosure controls and internal controls, including with regard to financial reporting;

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

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• changing climate, climate change regulations and greenhouse gas effects;

• ability to meet commitments to reduce greenhouse gas emissions;

• ability to meet commitments to reduce greenhouse gas emissions and to meet environmental, social, and governance (“ESG”) goals and other sustainability commitments;

• actions of domestic or foreign government agencies and changes in laws and regulations affecting the Company and increased costs of compliance;

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

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

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

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

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

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

In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions, in our future filings with the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K.

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COMPANY OVERVIEW

Sonoco is a leading provider of consumer, industrial, healthcare and protective packaging, with approximately 300 locations in 31 countries.

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

Prior to the divestiture of the Company’s U.S.

display and packaging business on April 4, 2021, this business was included in All Other.

Sonoco is a leading provider of consumer packaging, industrial products, and protective packaging with approximately 310 locations in 32 countries as of April 2, 2023.

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.

Sonoco competes in multiple product categories, with the majority of the Company’s revenues arising from products and services sold to consumer and industrial products companies for use in the packaging of their products for sale or shipment.

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

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

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.

Third Quarter 2022 Compared with Third Quarter 2021

Sonoco’s strategy is to increase its long-term profitability and return capital to shareholders.

Over the past several years, the Company has simplified our business portfolio around fewer, bigger businesses which has reduced operating complexity and improved agility.

The Company is focused on efficient capital deployment into these larger, core business units to improve economic returns and improve integration effectiveness and speed for acquired strategic assets.

In parallel, Sonoco continues to work on commercial, operational, and supply chain excellence programs to shift the mix of our business towards higher-valued products, improve the contracting process to better capture input costs and the value of the services provided, and increase overall productivity.

First Quarter 2023 Compared with First Quarter 2022

RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES

Measures calculated and presented in accordance with generally accepted accounting principles are referred to as GAAP financial measures.

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;

To assess and communicate the financial performance of the Company, Sonoco's management uses, both internally and externally, certain financial performance measures that are not in conformity with generally accepted accounting principles.

These “non-GAAP” financial measures (referred to as “Adjusted”) reflect adjustments to the Company's GAAP results to exclude amounts, including the associated tax effects, relating to:

• restructuring/asset impairment charges 1 ;

• acquisition/divestiture-related costs;

• gains or losses from the divestiture of businesses;

• gains or losses from the divestiture of businesses or other assets;

• losses from the early extinguishment of debt;

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• 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.

1 Restructuring and restructuring-related 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.

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

Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example, “Adjusted Operating Profit” and “Adjusted Net Income.” 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, 2022, under Item 7 - “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Non-GAAP Financial Measures.”

In addition to the “Adjusted” results described above, the Company also uses Adjusted EBITDA and Adjusted EBITDA Margin.

Adjusted EBITDA is defined as net income excluding the following:

interest expense;

interest income;

provision for income taxes;

depreciation, depletion and amortization expense;

non-operating pension costs;

net income/(loss) attributable to noncontrolling interests;

restructuring/asset impairment charges;

changes in LIFO inventory reserves;

gains/losses from the divestiture of businesses or other assets;

acquisition/divestiture-related costs;

derivative (gains)/losses;

and other non-GAAP adjustments, if any, that may arise from time to time.

Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.

The Company's non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to generally accepted accounting principles and may be different from non-GAAP financial

SONOCO PRODUCTS COMPANY

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 continues to provide all information required by GAAP, but it believes that evaluating its ongoing operating results may not be as useful if an investor or other user is limited to reviewing only GAAP financial measures.

The Company consistently applies its non-GAAP performance measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts, including evaluation of the Chief Executive Officer's performance by the Board of Directors.

In addition, these same non-GAAP financial measures are used in determining incentive compensation for the entire management team and in providing earnings guidance to the investing community.

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.

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

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

Furthermore, the calculations of these non-GAAP financial measures are based on subjective determinations of management regarding the nature and classification of events and circumstances that the investor may find material and view differently.

To compensate for these limitations, management believes that it is useful in understanding and analyzing the results of the business to review both GAAP information which includes all of the items impacting financial results and the non-GAAP financial measures that exclude certain elements, as described above.

Whenever reviewing a non-GAAP financial measure, readers are encouraged to review the related reconciliation to fully understand how it differs from the related GAAP measure.

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 in conjunction with management's analysis of the Company's results of operations.

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Net Income Attributable to Sonoco, and Adjusted Diluted Earnings Per Share (“EPS”)

For the three-month period ended April 2, 2023

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

As Reported $ 229,648 $ 193,320 $ 46,912 $ 148,319 $ 1.50

Acquisition/Divestiture-related costs 5,188 5,188 1,280 3,908 0.04

LIFO reserve change (5,425) (5,425) (1,354) (4,071) (0.04)

Amortization of acquisition intangibles 21,164 21,164 5,127 16,037 0.16

Restructuring/Asset impairment charges 28,814 28,814 6,634 22,014 0.22

Gain on divestiture of business and sale

of other assets

(72,010) (72,010) (17,122) (54,888) (0.55)

Non-operating pension costs — 3,658 909 2,749 0.03

Derivative losses 6,085 6,085 1,518 4,567 0.05

Other adjustments (43) (43) 955 (997) (0.01)

Total adjustments $ (16,227) $ (12,569) $ (2,053) $ (10,681) $ (0.10)

Adjusted $ 213,421 $ 180,751 $ 44,859 $ 137,638 $ 1.40

SONOCO PRODUCTS COMPANY

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.

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

For the three-month period ended April 3, 2022

Dollars in thousands, except per share data Operating Profit Income Before Income Taxes Provision for Income Taxes Net Income Attributable to Sonoco Diluted EPS

As Reported $ 169,061 $ 148,672 $ 35,289 $ 115,333 $ 1.17

Acquisition/Divestiture-related costs 48,352 48,352 11,756 36,596 0.37

LIFO reserve change 19,050 19,050 4,833 14,217 0.14

Amortization of acquisition intangibles 18,800 18,800 4,630 14,170 0.14

Restructuring/Asset impairment charges 12,142 12,142 1,635 10,568 0.11

Non-operating pension costs — 1,324 383 942 0.01

Interest expense, net 25,566 — — — — 25,566

Income before income taxes 155,127 20,652 20,690 2,022 1,034 199,525

Provision for income taxes 36,824 4,862 4,938 765 (1,297) 46,092

Income before equity in earnings of affiliates 118,303 15,790 15,752 1,257 2,331 153,433

Equity in earnings of affiliates, net of tax 4,199 — — — — 4,199

Net income 122,502 15,790 15,752 1,257 2,331 157,632

Net (income)/loss attributable to noncontrolling interests (273) 186 — — — (87)

Derivative gains (6,596) (6,596) (1,673) (4,923) (0.05)

Other adjustments (16) (16) 4,194 (4,212) (0.04)

Total adjustments $ 91,732 $ 93,056 $ 25,758 $ 67,358 $ 0.68

Adjusted $ 260,793 $ 241,728 $ 61,047 $ 182,691 $ 1.85

Adjusted EBITDA and Adjusted EBITDA Margin

Three Months Ended

Dollars in thousands April 2, 2023 April 3, 2022

Net income attributable to Sonoco $ 148,319 $ 115,333

Per diluted common share* $ 1.24 $ 0.16 $ 0.16 $ 0.01 $ 0.02 $ 1.60

*Due to rounding individual items may not sum across

(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

Non-operating pension costs 525 — — — (525) —

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

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

Interest expense 34,232 20,581

Interest income (1,562) (1,516)

Provision for income taxes 46,912 35,289

Income before equity in earnings of affiliates $ 109,204 $ 3,176 $ 9,221 $ 825 $ (24,553) $ 97,873

Depreciation, depletion, and amortization 82,137 73,315

Non-operating pension costs 3,658 1,324

Net (loss)/income attributable to noncontrolling interests (55) 274

Restructuring/Asset impairment charges 28,814 12,142

Changes in LIFO inventory reserves (5,425) 19,050

Gain from divestiture of business and sale of other assets (72,010) —

Acquisition/Divestiture related costs 5,188 48,352

Derivative losses/(gains) 6,085 (6,596)

Other non-GAAP adjustments (43) (16)

Adjusted EBITDA $ 276,250 $ 317,532

Net Sales $ 1,729,783 $ 1,770,982

Adjusted EBITDA Margin 16.0 % 17.9 %

The Company does not calculate net income by segment;

therefore, Adjusted EBITDA by Segment is reconciled to the closest GAAP measure of segment profitability, Segment Operating Profit, which is another method to achieve the same result.

Segment Operating Profit is the measure of segment profit or loss reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance in accordance with Accounting Standards Codification 280 “Segment Reporting,” as prescribed by the Financial Accounting Standards Board.

SONOCO PRODUCTS COMPANY

Segment results viewed by Company's management to evaluate segment performance do not include restructuring/asset impairment charges, amortization of acquisition intangibles, acquisition/divestiture-related costs, changes in LIFO inventory reserves, gains/losses from the sale of businesses, 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 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 and All Other.

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended April 2, 2023

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

Segment and Total Operating Profit $ 91,821 $ 94,367 $ 27,233 $ 16,227 $ 229,648

Depreciation, depletion and amortization 1

30,038 24,878 6,057 21,164 82,137

Equity in earnings of affiliates, net of tax 75 1,781 — — 1,856

Net income $ 111,555 $ 3,176 $ 9,221 $ 825 $ (24,553) $ 100,224

Net loss attributable to noncontrolling interests (415) — — — — (415)

Net income attributable to Sonoco $ 111,140 $ 3,176 $ 9,221 $ 825 $ (24,553) $ 99,809

Diluted weighted average common shares outstanding:

Restructuring/Asset impairment charges 2

— — — 28,814 28,814

Per diluted common share* $ 1.12 $ 0.03 $ 0.09 $ 0.01 $ (0.25) $ 1.00

*Due to rounding individual items may not sum across

(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.

Changes in LIFO inventory reserves 3

— — — (5,425) (5,425)

Acquisition/Divestiture-related costs 4

— — — 5,188 5,188

Gain from divestiture of business and other assets 5

— — — (72,010) (72,010)

Derivative losses 6

— — — 6,085 6,085

Other non-GAAP adjustments — — — (43) (43)

Segment Adjusted EBITDA $ 121,934 $ 121,026 $ 33,290 $ — $ 276,250

Net Sales $ 909,278 $ 615,855 $ 204,650

Segment Operating Profit Margin 10.1 % 15.3 % 13.3 %

Segment Adjusted EBITDA Margin 13.4 % 19.7 % 16.3 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $14,427, the Industrial Paper Packaging segment of $2,934, and All Other of $3,803.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $1,576, the Industrial Paper Packaging segment of $24,544, and All Other of $1,157.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $6,102 and the Industrial Paper Packaging segment of $(677).

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $779 and the Industrial Paper Packaging segment of $289.

5 Gains from the divestiture of business and other assets includes the sale of the Company's timberlands ($60,946) and the sale of its S3 business ($11,064), both of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are losses on certain derivatives associated with the Consumer Packaging segment of $874, the Industrial Paper Packaging segment of $3,912, and All Other of $1,242.

SONOCO PRODUCTS COMPANY

Segment Adjusted EBITDA and All Other Adjusted EBITDA Reconciliation

For the Three Months Ended April 3, 2022

Dollars in thousands Consumer Packaging segment Industrial Paper Packaging segment All Other Corporate Total

Segment and Total Operating Profit $ 173,609 $ 72,660 $ 14,524 $ (91,732) $ 169,061

Depreciation, depletion, and amortization 1

25,736 22,624 6,155 18,800 73,315

Equity in earnings of affiliates, net of tax (38) 2,262 — — 2,224

Restructuring/Asset impairment charges 2

— — — 12,142 12,142

Changes in LIFO inventory reserves 3

— — — 19,050 19,050

Acquisition/Divestiture related costs 4

— — — 48,352 48,352

Derivative gains 5

— — — (6,596) (6,596)

Other non-GAAP adjustments — — — (16) (16)

Segment Adjusted EBITDA $ 199,307 $ 97,546 $ 20,679 $ — $ 317,532

Net Sales $ 868,098 $ 699,129 $ 203,755

Segment Operating Profit Margin 20.0 % 10.4 % 7.1 %

Segment Adjusted EBITDA Margin 23.0 % 14.0 % 10.1 %

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $12,189, the Industrial Paper Packaging segment of $2,087, and All Other of $4,524.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $2,311, the Industrial Paper Packaging segment of $7,061, and All Other of $78.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $20,092 and the Industrial Paper Packaging segment of $(1,042).

4 Included in Corporate are Acquisition/Divestiture-related costs are charges associated with the Consumer Packaging segment of $26,694 and the Industrial Paper Packaging segment of $1,057.

5 Included in Corporate are gains on certain derivatives associated with the Consumer Packaging segment of $(956), the Industrial Paper Packaging segment of $(4,281), and All Other of $(1,359).

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) 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

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

Turkey hyperinflationary accounting impact 0.8 —

Changes in LIFO inventory reserve (0.3) —

Insurance settlement gains (2.0) (1.6)

Gain on divestiture of businesses — (2.2)

Other non-operating pension costs 0.9 0.3

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.

OPERATING REVENUE

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:

($ in millions)

Volume/mix $ (52)

Selling prices 250

Acquisitions and divestitures, net 334

Foreign currency translation and other, net (57)

Total sales increase $ 475

The following discussion provides a review of results for the three-month period ended April 2, 2023 versus the three-month period ended April 3, 2022.

Net sales for the first quarter of 2023 declined by $41.2 million or 2.3%, to $1.73 billion , compared to $1.77 billion in the same period last year.

The decline was attributable to lower overall volume/mix, including acquisitions, of $116.4 million, and unfavorable foreign currency translation and other net costs totaling $22.9 million, partially offset by higher selling prices of $98.1 million.

Net income attributable to Sonoco for the first quarter of 2023 increased to $148.3 million, or $1.50 per diluted share, compared to $115.3 million, or $1.17 per diluted share, for the same period of 2022.

Net income in the current period continued to benefit primarily from the Company’s strategic pricing actions in the Industrial Paper Packaging segment and improving manufacturing productivity.

These benefits were partially offset by higher net interest expense and lower overall volume and mix.

SONOCO PRODUCTS COMPANY

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 Metal Packaging acquisition.

Excluding the non-GAAP adjustments shown above, Adjusted Net Income (“Adjusted Earnings”) for the first quarter of 2023 was $137.6 million ($1.40 per diluted share), compared with $182.7 million ($1.85 per diluted share), during the same period in 2022.

GAAP O perating Profit for the first quarter of 2023 was $229.6 million, an increase of 35.8% from the $169.1 million reported in the first-quarter of 2022.

The increase in GAAP Operating Profit was primarily the result of gains from the divestiture of the S3 business and sale of the Company's timberland properties.

Adjusted O perating Profit for the first quarter of 2023 was $213.4 million, a decrease of 18.2% from the $260.8 million reported in the same period in 2022.

The declines in Adjusted Earnings and Adjusted Operating Profit were due to an unfavorable metal price overlap in the Metal Packaging business resulting from the consumption of higher-cost inventories during the first quarter of 2023, as well as lower overall volume and mix.

COSTS AND EXPENSES

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.

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.

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 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.

Cost of goods sold decreased by $44.1 million, or 3.1%, in the first quarter of 2023 compared with the same period last year.

The decrease was driven primarily by lower volumes and lower input costs.

Gross profit was $374.4 million for the three-month period ended April 2, 2023, which was $2.9 million higher than the prior-year period.

The increase in gross margin was driven by strategic pricing actions and the full-quarter impact of the Metal Packaging acquisition, which offset volume declines.

Additionally, gross profit as a percent of sales increased to 21.6% from 21.0% in the prior- year quarter due to these factors.

Selling, general and administrative costs decreased by $2.4 million , or 1.3% , in the first quarter of 2023 compared with the same period last year.

The decrease was due to lower acquisition costs related to the Metal Packaging acquisition, which more than offset inflation increases.

Restructuring/Asset impairment charges totaled $28.8 million in the first quarter of 2023, compared with $12.1 million during 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.

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.

Gain on divestiture of business and other assets of $72.0 million in the first quarter of 2023 reflects gains from the divestiture of the Company's S3 business and the sale of the Company's timberland properties.

Net interest expense for the first quarter of 2023 increased to $32.7 million, compared with $19.1 million during the first quarter of 2022.

The increase is primarily due to higher year-over-year average debt balances resulting from the term loan executed in December 2022 and the prior year financing of the Metal Packaging acquisition, as well as the impact of higher interest rates on the Company's variable rate debt.

The effective tax rates on GAAP and Adjusted Earnings in the first quarter of 2023 were 24.3% and 24.8%, respectively, compared with 23.7% and 25.3%, respectively, in the prior year’s quarter.

The increase in the GAAP effective tax rate is primarily attributable to the absence of a tax benefit received in the first quarter of 2022 associated with the acquisition of Metal Packaging.

The decrease in the tax rate on Adjusted Earnings was due to a variety of small variances, mostly related to items discrete to the period in which they occurred.

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

As previously disclosed, 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 summarizes net sales attributable to each of the Company’s segments and All Other for the first quarters of 2023 and 2022:

Three Months Ended

October 2, 2022 October 3, 2021 %

($ in thousands) April 2, 2023 April 3, 2022 %

Consumer Packaging $ 909,278 $ 868,098 4.7 %

3 unchanged sentences

SONOCO PRODUCTS COMPANY

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

The following table summarizes operating profit attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

Three Months Ended

October 2, 2022 October 3, 2021 %

($ in thousands) April 2, 2023 April 3, 2022 %

Operating profit:

Segment operating profit:

Consumer Packaging $ 91,821 $ 173,609 (47.1) %

1 unchanged sentence

All Other 27,233 14,524 87.5 %

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

Restructuring/Asset impairment charges (28,814) (12,142)

Amortization of acquisition intangibles (21,164) (18,800)

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

Other non-GAAP charges, net 66,205 (60,790)

Operating profit $ 229,648 $ 169,061 35.8 %

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

The following table summarizes Adjusted EBITDA attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

Three Months Ended

October 2, 2022 October 3, 2021

Restructuring/Asset impairment charges/(income):

Consumer Packaging $ 4,350 $ 2,734

Industrial Paper Packaging 7,674 (1,888)

All Other 18 555

Corporate 8,610 2,087

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

Consumer Packaging

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

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

thermoformed plastic trays and containers;

and flexible packaging.

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

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

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

fiber-based protective packaging and components;

and recycled paperboard.

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.

These businesses include the following products and services:

thermoformed rigid plastic trays and devices;

custom-engineered molded foam protective packaging and components;

temperature-assured packaging;

injection molded and extruded containers, spools and parts;

retail security packaging, including printed backer cards, thermoformed blisters and heat-sealing equipment;

and paper amenities.

Prior to the divestiture of the Company’s U.S.

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

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

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

Non-operating pension costs 4,251 — — — (4,251) —

Interest expense, net 67,792 — — — 136 67,928

Income before income taxes $ 476,437 $ 43,357 $ 60,361 $ 62,655 $ 25,298 $ 668,108

Provision for income taxes 116,712 7,339 14,666 15,529 9,607 163,853

Income before equity in earnings of affiliates $ 359,725 $ 36,018 $ 45,695 $ 47,126 $ 15,691 $ 504,255

Equity in earnings of affiliates, net of tax 10,151 — — — — 10,151

Net income $ 369,876 $ 36,018 $ 45,695 $ 47,126 $ 15,691 $ 514,406

Net (income) attributable to noncontrolling interests (642) 286 — — — (356)

Net income attributable to Sonoco $ 369,234 $ 36,304 $ 45,695 $ 47,126 $ 15,691 $ 514,050

Per diluted common share* $ 3.74 $ 0.37 $ 0.46 $ 0.48 $ 0.16 $ 5.21

*Due to rounding individual items may not sum across

(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

Non-operating pension costs 562,818 — — — (562,818) —

Interest expense, net 46,744 — — — 2,165 48,909

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

Income before income taxes $ (247,634) $ 8,889 $ 37,117 $ 12,503 $ 568,040 $ 378,915

Provision for income taxes (91,542) 2,653 9,194 2,984 166,271 89,560

Income before equity in earnings of affiliates $ (156,092) $ 6,236 $ 27,923 $ 9,519 $ 401,769 $ 289,355

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

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

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

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) :

100,039 468 100,507

Per diluted common share* $ (1.51) $ 0.06 $ 0.28 $ 0.09 $ 4.00 $ 2.93

*Due to rounding individual items may not sum across

(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.

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 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 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 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:

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

Amortization of fair value adjustments to Metal Packaging inventory 24.7 —

Acquisition and divestiture-related costs 22.4 9.5

Changes in LIFO inventory reserve 18.7 —

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

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 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, 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 nine months of 2022 increased $1.4 billion from the same period in 2021.

The components of the sales change were:

($ in millions)

Volume/mix $ (39)

Selling prices 823

Acquisitions and divestitures, net 765

Foreign currency translation and other, net (126)

Total sales increase $ 1,423

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

COSTS AND EXPENSES

Cost of goods sold increased $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.

GAAP SG&A costs for the first nine months of 2022 increased $129.3 million, or 31.9 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 2021 foreign VAT refund.

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 $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 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 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 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 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 %

Industrial Paper Packaging 2,087,981 1,809,159 15.4 %

All Other 597,919 562,567 6.3 %

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:

Segment operating profit:

($ in thousands) April 2, 2023 April 3, 2022 %

Adjusted EBITDA:

Consumer Packaging $ 121,934 $ 199,307 (38.8) %

1 unchanged sentence

All Other 33,290 20,679 61.0 %

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

Adjusted EBITDA $ 276,250 $ 317,532 (13.0) %

The following table summarizes restructuring/asset impairment charges attributable to each of the Company’s segments during the first quarters of 2023 and 2022:

Three Months Ended

($ in thousands) April 2, 2023 April 3, 2022

Restructuring/Asset impairment charges:

Amortization of acquisition intangibles (60,361) (37,117)

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

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 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 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):

Consumer Packaging $ 1,576 $ 2,311

4 unchanged sentences

Consumer Packaging

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.

The products produced and sold within the Consumer Packaging segment are generally used to package a variety of consumer pro ducts and consist primarily of round and shaped rigid paper, steel and plastic containers;

metal and peelable membrane ends, closures, and components;

thermoformed plastic trays;

and high-barrier flexible packaging.

These products primarily serve the consumer staples market, focused on food, beverage, household, and personal products.

Segment sales increased approximately 4.7% compared to the prior year’s quarter due to continued strong strategic pricing performance and acquisitions.

Volume and mix were lower as compared to the prior year due to softer demand in metal packaging (aerosol) and rigid plastic food packaging.

Segment operating profit declined 47.1% in the first quarter of 2023 compared to the same period last year.

The decline was largely due t o an unfavorable metal price overlap in metal packaging resulting from the consumption of higher-cost inventories during the first quarter of 2023, as well as volume declines in both metal aerosols and rigid plastics food packaging.

As a result, segment operating margin declined to 10.1% during the quarter from 20.0% for the same period in 2022.

The impact of the unfavorable metal price overlap is expected to lessen beginning in the second quarter as the higher cost metal inventories are consumed.

SONOCO PRODUCTS COMPANY

Year-to-date segment operating profit increased 107.0 percent driven by the Metal Packaging acquisition along with favorable price/cos t, including the benefits of strategic pricing initiatives, and productivity gains.

As a result, segment operating profit margin increased 329 basis points to 15.3 percent.

Consumer Packaging segment operating profit and Adjusted EBITDA decreased by 47.1% and 38.8% , respectively, due to the previously discussed unfavorable metal price overlap and volume declines in metal aerosols and rigid plastics food packaging, which were partially offset by positive manufacturing productivity.

Industrial Paper Packaging

Segment sales increased 15.4 percent year to date versus the prior-year period due to increased selling prices, largely implemented to recover increased raw material and other operating costs, partially offset by a negative volume/mix impact and a negative impact from foreign currency translation.

Segment operating profit increased 48.4 percent from the prior-year period driven by price/cost gains, including the benefits of strategic pricing initiatives .

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

As a result, segment operating margins 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.

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

display and packaging divestiture.

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.

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

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

The primary products produced and sold within the Industrial Paper Packaging segment include goods produced from recycled fiber including paperboard tubes, cones, and cores;

paper-based protective packaging;

and uncoated recycled paperboard for high-end applications such as folding cartons, can board and laminated structures.

Products across this segment support multiple end markets in industrials (construction and building products, and industrial distribution), consumer staples (food and beverage, food distribution, household and personal products), and consumer discretionary (home building, appliances, apparel, and home furnishings), as well as various other end markets.

Segment sales decreased 11.9% from the prior year's quarter due to continued volume and mix declines across a variety of end markets as well as declines due to divestitures and the exit from the corrugated medium market.

Segment operating profit increased 29.9% from the prior year’s quarter, primarily due to strategic pricing actions which were partially offset by lower volume and mix .

As a result, segment operating profit margin improved to 15.3% in the current year's quarter from 10.4% in the prior year.

Industrial Paper Packaging segment operating profit and Adjusted EBITDA improved 29.9% and 24.1%, respectively, primarily due to the benefits of strategic pricing actions and lower material costs, which more than offset lower volumes.

Segment operating profit margin improved to 15.3% in the first quarter of 2023 from 10.4% in the same period last year.

The primary products produced with the All Other group of businesses consist of a variety of packaging materials including plastic, paper, foam, and various other specialty materials serving a wide variety of end markets including consumer staples, consumer discretionary, industrial and pharmaceuticals.

Sales for All Other improved 0.4% from the prior year’s quarter due to strategic pricing actions, which were partially offset by volume and mix declines.

All Other operating profit improved 87.5% in the first quarter of 2023 compared to the same period last year, primarily due to strategic pricing performance and strong productivity.

As a result, operating margin increased to 13.3% in the current year's quarter from 7.1% in the prior year's quarter.

All Other Adjusted EBITDA improved by 61.0% due to the previously mentioned reasons.

Financial Position, Liquidity and Capital Resources

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 $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 $1.6 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 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 $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 $1.3 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 $1.2 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from the Term

Cash generated from operations for the first three months of 2023 was $98.0 million, compared with $1.1 million in the same period of 2022, an increase of $96.9 million.

GAAP net income increased by $32.7 million year over year, reflecting the non-cash gains from the sales of the Company's S3 business and timberland properties during the first quarter of 2023.

Net working capital used $91.5 million of cash in the first three months of 2023, compared with $185.5 million in the same period of 2022, for a year-over-year decrease in the use of cash of $94.0 million.

Beginning in the first quarter of 2022, inventory levels increased to mitigate supply chain uncertainty caused by lack of availability and shipment delays.

While inventories at April 2, 2023 were higher than at April 3, 2022, they decreased during the first quarter of 2023 and increased during the same period last year.

Conversely, changes in accounts payable effectively offset the changes in inventory, as we worked to right-size inventory and the cost of inputs declined, most notably for steel and old corrugated containers.

Lastly, while accounts receivable increased during the first quarter of 2023, the increase was much smaller than experienced during the first quarter of 2022, when growing volumes and higher selling prices increased accounts receivable significantly.

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.

Cash contributions to the Company's retirement plans were $4.9 million in the first quarter of 2023, compared with $28.1 million in the same period last year.

The contributions in the prior year included the final Sonoco Retirement Contribution (“SRC”), the non-elective component of the Sonoco Savings Plan.

The SRC was terminated as of December 31, 2021.

Changes in accrued expenses and other assets and liabilities used $18.9 million in the three-month period ended April 2, 2023, compared with using $2.5 million in the same period last year.

The $16.4 million additional use of cash was largely driven by the higher year over year payout of management incentive compensation.

Investing activities used $3.0 million of cash in the first three months of 2023, compared with $1,415.8 million in the same period last year.

The lower year-over-year use of cash was primarily attributable to the Metal Packaging acquisition on January 26, 2022 for a total of $1,348.6 million.

Capital expenditures during the first three months of 2023 were $83.4

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 $4.1 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.

million, $15.9 million higher than the same period last year.

The year-over-year increase was largely driven by increased strategic investments in growth and productivity projects in the Consumer Packaging segment and the Industrial Packaging segment, including spend on Project Horizon.

Proceeds from the sale of businesses added $13.8 million of cash in the first three months of 2023 as the Company received cash from the sale of its S3 business and proceeds from the sale of assets were $71.2 million higher year over year, primarily due to proceeds from the sale of the Company's timber lands in March 2023.

Other net investing activities used $5.0 million more cash year over year, primarily as a result of the Company's purchase of a 2.7% equity interest in Northstar during the three-month period ended April 2, 2023.

Net capital spending for 2023 is expected to be approximately $305 million, compared to $319 million in 2022.

Financing activities used $118.2 million of cash in the three-month period ended April 2, 2023, while providing $1,392.6 million in the corresponding prior-year period, a year-over-year decrease of $(1.5) billion.

The decrease was largely driven by higher debt proceeds in the prior year used primarily to fund the Metal Packaging acquisition.

These included $1.2 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from a three-year term loan facility.

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

Cash used to repurchase the Company's common stock to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards was $10.6 million in the three-month period ended April 2, 2023, compared to $3.4 million in the same period last year.

The C ompany's cash balances are held in numerous locations throughout the world.

At April 2, 2023 and December 31, 2022, approximately $190.5 million and $170.1 million, respectively, of the Company's reported cash and cash equivalents balances of $209.7 million and $227.4 million, respectively, were held outside of the United States by its foreign subsidiaries.

Cash held outside of the United States is available to meet local liquidity needs or for capital expenditures, acquisitions, and other offshore growth opportunities.

Reflecting the financing actions described above, the Company believes it has ample domestic liquidity from a combination of cash on hand, expected future operating cash flow, and access to bank and capital markets borrowings.

The Company has generally considered its foreign unremitted earnings to be indefinitely invested outside the United States and currently has no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost.

Accordingly, the Company is not providing for taxes on these amounts for financial reporting purposes.

As the Company has maintained sufficient domestic liquidity through a combination of operating cash flow generation and access to bank and capital market borrowings, management has generally considered its foreign unremitted earnings to be indefinitely invested outside the United States and currently has no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost.

Accordingly, as of April 2, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes.

Computation of the potential deferred tax liability associated with unremitted earnings considered to be indefinitely reinvested is not practicable.

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Under this pooling arrangement, the Company and its participating subsidiaries may maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit.

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 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.

The Company operates a $500 million commercial paper program, supported by a $750 million unsecured revolving credit facility with a syndicate of eight banks.

Because it 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.

The Company operates a $500 million commercial paper program, supported by a $750 million unsecured revolving credit facility with a syndicate of banks.

The revolving credit facility is committed through June 2026.

If circumstances were to prevent the Company from issuing commercial paper, it has the contractual right to draw funds on the underlying revolving credit facility.

On January 21, 2022, the Company completed a registered public offering of green bonds with an aggregate principal amount of $1.20 billion.

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

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 Metal Packaging acquisition.

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.

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.

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.

The Company has the contractual right to draw funds directly on the underlying revolving credit facility, which could possibly occur if there were a disruption in the commercial paper market.

Recent events in the banking sector have caused the Company to review and assess risk with respect to our banking partners, including the syndicate of nine banks that participate in our term loan facilities and revolving credit facilities.

All of our banks are considered Large Financial Institutions and subject to higher reporting and stress testing requirements, and six of the nine banks are considered Globally Systemically Important Banks (“GSIB”) and subject to the highest stress testing and capital requirements.

All of the banks that participate in our term loans and the $750 million revolving credit facility which backstops our commercial paper program are of the highest credit.

The Company generally does not hold cash deposits with banks in excess of operational needs, and our operating balances across the world are held in a well-diversified group of international banks.

During the three-month period ended April 2, 2023, the Compa ny reported a net increase in cash and cash equivalents of $5.4 million due to currency translation adjustments resulting from a weaker U.S.

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

At April 2, 2023, the Company had scheduled debt maturities of approximately $448 million over the next twelve months, including $12 million of outstanding commercial paper balances.

Also at April 2, 2023, the Company had approximately $210 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, of which $738 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

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.

investing activities, provide ample liquidity to cover these debt maturities and other cash flow needs of the Company over the remainder of 2023 and beyond.

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 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.

As of April 2, 2023, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

During the three-month period ended April 2, 2023, the Company received net cash proceeds totaling approximately $13.8 million and $70.8 million from the sales of its S3 business and timberland properties, respectively.

The Company used these proceeds for general Corporate purposes.

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 $10 million during the remainder of 2023, which would result in total contributions to these plans of approximately $15 million in 2023.

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

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

Fair Value Measurements, Foreign Exchange Exposure and Risk Management

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As a result of operating globally, the Company is exposed to changes in foreign exchange rates.

The exposure is well diversified, as the Company’s operations are located throughout the world, and the Company generally sells in the same countries where it produces with both revenue and costs transacted in the local currency.

The Company monitors these exposures and from time to time uses traditional currency swaps and forward exchange contracts to hedge a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities or net investment in foreign subsidiaries.

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

The exposure is well diversified, as the Company’s facilities are located throughout the world, and the Company generally sells in the same countries where it produces with both revenue and costs transacted in the local currency.

The Company monitors these exposures and foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company's condensed consolidated financial statements by hedging a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities, or its net investment in foreign subsidiaries.

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

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

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

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

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

At 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.

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

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

At April 2, 2023, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.1 million.

In addition, at April 2, 2023, the Company's “Accumulated other comprehensive loss” included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

Turkey has been deemed to be a highly inflationary economy under U.S.

GAAP since the first quarter of 2022.

Accordingly, the Company considers the 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 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

The impact of applying highly inflationary accounting to Turkey has not been significant to the Company's earnings.

The magnitude of future earnings impacts, however, 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 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 was approximately $17.7 million as of April 2, 2023.

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 $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 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 $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.

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 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 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 translation loss of $155.2 million being recorded in "Accumulated other comprehensive loss" for the nine-month period ended October 2, 2022.

The Company is a purchaser of various raw material inputs such as recovered paper, energy, steel, aluminum, and plastic resin.

The Company generally does not engage in significant hedging activities for these purchases other than for energy and, from time to time, aluminum, because there is usually a high correlation between the primary input costs and the ultimate selling price of its products.

Inputs are generally purchased at market or at fixed prices that are established with individual suppliers as part of the purchase process for quantities expected to be consumed in the ordinary course of business.

On occasion, where the correlation between selling price and input price is less direct, the Company may enter into derivative contracts such as futures or swaps to manage the effect of price fluctuations.

In addition, the Company may occasionally use traditional, unleveraged interest-rate swaps to manage its mix of fixed and variable rate debt and control its exposure to interest rate movements within select ranges.

At April 2, 2023, t he Company had derivative contracts outstanding to hedge the prices on a portion of anticipated natural gas and aluminum purchases.

These contracts, some of which qualify as cash flow hedges, include natural gas swaps totaling approximately 8.4 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 715 metric tons.

These contracts have various maturity dates ranging through December 2024.

The total fair market value of these instruments resulted in a net loss position of $15.0 million and $8.8 million at April 2, 2023 and December 31, 2022, respectively.

The Company routinely enters into derivative currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain anticipated foreign currency cash flows.

These contracts qualify as cash flow hedges and have various maturity dates ranging through May 2024.

The total market value of these instruments resulted in a net gain position of $2.6 million at April 2, 2023 and a net loss position of $0.9 million at December 31, 2022.

In addition, the Company had various currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain foreign currency assets and liabilities as of April 2, 2023 .

During the first three months of 2023, the U.S.

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

The net impact of t hese changes resulte d in a translation gain of $31.6 million being recorded in “Accumulated other comprehensive loss” during the three-month period ended April 2, 2023.

Restructuring and Impairment

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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.

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 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 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” 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.

See Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2022.

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