SONOCO PRODUCTS CO 10-Q

Item 1. Financial Statements. SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Dollars and shares in thousands) March 31, 2024 December 31, 2023* Assets Current Assets Cash and cash equivalents $ 172,213 $ 151,937 Trade accounts receivable, net of allowances 939,724 904,898 Other receivables 102,357 106,644 Inventories, net: Finished and in process 335,124 324,910 Materials and supplies 413,898 448,591 Prepaid expenses 101,288 113,385 Total Current Assets 2,064,604 2,050,365 Property, Plant and Equipment, Net 1,921,848 1,906,137 Goodwill 1,796,077 1,810,654 Other Intangible Assets, Net 828,085 853,670 Deferred Income Taxes 27,848 31,329 Right of Use Asset-Operating Leases 332,587 314,944 Other Assets 227,231 224,858 Total Assets $ 7,198,280 $ 7,191,957 Liabilities and Equity Current Liabilities Payable to suppliers $ 722,562 $ 707,490 Accrued expenses and other 393,789 400,014 Notes payable and current portion of long-term debt 453,710 47,132 Accrued taxes 7,248 10,641 Total Current Liabilities 1,577,309 1,165,277 Long-term Debt, Net of Current Portion 2,630,424 3,035,868 Noncurrent Operating Lease Liabilities 282,877 265,454 Pension and Other Postretirement Benefits 142,422 142,900 Deferred Income Taxes 99,685 100,788 Other Liabilities 38,081 49,835 Commitments and Contingencies Sonoco Shareholders’ Equity Common stock, no par value Authorized 300,000 shares 98,255 and 97,957 shares issued and outstanding at March 31, 2024 and December 31, 2023 , respectively 7,175 7,175 Capital in excess of stated value 159,343 159,047 Accumulated other comprehensive loss ( 385,369 ) ( 366,262 ) Retained earnings 2,639,209 2,624,380 Total Sonoco Shareholders’ Equity 2,420,358 2,424,340 Noncontrolling Interests 7,124 7,495 Total Equity 2,427,482 2,431,835 Total Liabilities and Equity $ 7,198,280 $ 7,191,957 * The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (the “United States” or “U.S.”). See accompanying Notes to Condensed Consolidated Financial Statements (unaudited) 3 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Dollars and shares in thousands except per share data) Three Months Ended March 31, 2024 April 2, 2023 Net sales $ 1,637,543 $ 1,729,783 Cost of sales 1,299,990 1,355,355 Gross profit 337,553 374,428 Selling, general and administrative expenses 193,482 187,976 Restructuring/Asset impairment charges 31,618 28,814 Gain on divestiture of business and other assets — 72,010 Operating profit 112,453 229,648 Non-operating pension costs 3,295 3,658 Interest expense 31,220 34,232 Interest income 3,558 1,562 Income before income taxes 81,496 193,320 Provision for income taxes 17,360 46,912 Income before equity in earnings of affiliates 64,136 146,408 Equity in earnings of affiliates, net of tax 1,137 1,856 Net income 65,273 148,264 Net (income)/loss attributable to noncontrolling interests ( 96 ) 55 Net income attributable to Sonoco $ 65,177 $ 148,319 Weighted average common shares outstanding: Basic 98,498 98,167 Diluted 99,159 98,615 Per common share: Net income attributable to Sonoco: Basic $ 0.66 $ 1.51 Diluted $ 0.66 $ 1.50 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited) 4 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (Dollars in thousands) Three Months Ended March 31, 2024 April 2, 2023 Net income $ 65,273 $ 148,264 Other comprehensive (loss)/income: Foreign currency translation adjustments ( 19,786 ) 31,808 Changes in defined benefit plans, net of tax 43 916 Changes in derivative financial instruments, net of tax 169 2,514 Other comprehensive (loss)/income ( 19,574 ) 35,238 Comprehensive income: 45,699 183,502 Less: Net (income)/loss attributable to noncontrolling interests ( 96 ) 55 Less: Other comprehensive loss/(income) attributable to noncontrolling interests 467 ( 239 ) Comprehensive income attributable to Sonoco $ 46,070 $ 183,318 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited) 5 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY (unaudited) (Dollars and shares in thousands) Total Equity Common Shares Capital in Excess of Stated Value Accumulated Other Comprehensive Loss Retained Earnings Noncontrolling Interests Outstanding Amount December 31, 2023 $ 2,431,835 97,957 $ 7,175 $ 159,047 $ ( 366,262 ) $ 2,624,380 $ 7,495 Net income 65,273 65,177 96 Other comprehensive (loss)/income: Translation loss ( 19,786 ) ( 19,319 ) ( 467 ) Defined benefit plan adjustment, net of tax 43 43 Derivative financial instruments, net of tax 169 169 Other comprehensive loss $ ( 19,574 ) $ ( 19,107 ) $ ( 467 ) Dividends ( 50,348 ) ( 50,348 ) Issuance of stock awards 204 460 204 Shares repurchased ( 9,139 ) ( 162 ) ( 9,139 ) Share-based compensation 8,325 8,325 Other 906 906 March 31, 2024 $ 2,427,482 98,255 $ 7,175 $ 159,343 $ ( 385,369 ) $ 2,639,209 $ 7,124 Total Equity Common Shares Capital in Excess of Stated Value Accumulated Other Comprehensive Loss Retained Earnings Noncontrolling Interests Outstanding Amount December 31, 2022 $ 2,072,797 97,645 $ 7,175 $ 140,539 $ ( 430,083 ) $ 2,348,183 $ 6,983 Net income/(loss) 148,264 148,319 ( 55 ) Other comprehensive income: Translation income 31,808 31,569 239 Defined benefit plan adjustment, net of tax 916 916 Derivative financial instruments, net of tax 2,514 2,514 Other comprehensive income $ 35,238 $ 34,999 $ 239 Dividends ( 48,203 ) ( 48,203 ) Issuance of stock awards 472 485 472 Shares repurchased ( 10,576 ) ( 175 ) ( 10,576 ) Share-based compensation 7,573 7,573 April 2, 2023 $ 2,205,565 97,955 $ 7,175 $ 138,008 $ ( 395,084 ) $ 2,448,299 $ 7,167 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited) 6 SONOCO PRODUCTS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Three Months Ended March 31, 2024 April 2, 2023 Cash Flows from Operating Activities: Net income $ 65,273 $ 148,264 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairments 8,346 18,616 Depreciation, depletion and amortization 90,559 82,137 Share-based compensation expense 8,325 7,573 Equity in earnings of affiliates, net ( 1,137 ) ( 1,856 ) Cash dividends from affiliated companies 41 1,875 Net loss/(gain) on disposition of assets 18 ( 60,615 ) Net gain on divestiture of business and other assets — ( 11,065 ) Pension and postretirement plan expense 4,104 4,408 Pension and postretirement plan contributions ( 3,989 ) ( 4,931 ) Net (decrease)/increase in deferred tax liabilities ( 4,869 ) 1,588 Change in assets and liabilities, net of effects from acquisitions, divestitures and foreign currency adjustments: Trade accounts receivable ( 43,334 ) ( 33,485 ) Inventories 18,407 13,549 Payable to suppliers 25,697 ( 71,553 ) Prepaid expenses ( 3,572 ) 350 Income taxes payable and other income tax items 9,436 22,030 Accrued expenses and other assets and liabilities ( 7,070 ) ( 18,883 ) Net cash provided by operating activities 166,235 98,002 Cash Flows from Investing Activities: Purchases of property, plant and equipment ( 86,458 ) ( 83,401 ) Cost of acquisitions, net of cash acquired ( 452 ) — Proceeds from the sale of business, net — 13,839 Proceeds from the sale of assets, net 101 71,405 Investment in affiliated companies — ( 5,000 ) Other net investing activities 5,077 190 Net cash used by investing activities ( 81,732 ) ( 2,967 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 19,674 9,621 Principal repayment of debt ( 21,448 ) ( 84,162 ) Net change in commercial paper — 12,000 Net (decrease)/increase in book cash overdrafts ( 1,614 ) 2,670 Cash dividends ( 50,144 ) ( 47,731 ) Payments for share repurchases ( 9,139 ) ( 10,576 ) Net cash used by financing activities ( 62,671 ) ( 118,178 ) Effects of Exchange Rate Changes on Cash ( 1,556 ) 5,356 Net Increase in Cash and Cash Equivalents 20,276 ( 17,787 ) Cash and cash equivalents at beginning of period 151,937 227,438 Cash and cash equivalents at end of period $ 172,213 $ 209,651 See accompanying Notes to Condensed Consolidated Financial Statements (unaudited) 7 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 1: Basis of Interim Presentation In the opinion of the management of Sonoco Products Company (the “Company” or “Sonoco”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, unless otherwise stated) necessary to state fairly the consolidated financial position, results of operations and cash flows for the interim periods reported herein. Operating results for the three-month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. As previously disclosed, effective January 1, 2024, the Company integrated its flexible packaging and thermoformed packaging businesses within its Consumer Packaging segment in order to streamline operations, enhance customer service, and better position the business for accelerated growth. As a result, the Company changed its operating and reporting structure to reflect the way it now manages its operations, evaluates performance, and allocates resources. As a result of these changes, the Company’s consumer thermoformed businesses moved from the All Other group of businesses to the Consumer Packaging segment. The Company’s Industrial Paper Packaging segment was not affected by these changes. All prior year segment results presented herein have been recast to conform to the new presentation. Note 2: New Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax disclosures to require disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The purpose of the amendment is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. The Company will begin providing the enhanced reportable segment financial disclosures effective with its Annual Report on Form 10-K for the year ending December 31, 2024. In September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The amendments in this ASU require that a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs in each annual reporting period, including a description of key payment terms, amounts outstanding, and a rollforward of the outstanding obligation. In each interim reporting period, the amount outstanding requires disclosure. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this standard in the first quarter of 2023, with the exception of the amendment on rollforward information, which will be provided in the Company’s Annual Report on Form 10-K for the year ending December 31, 2024. During the three-month period ended March 31, 2024, there were no other newly issued or newly applicable accounting pronouncements that had, or are expected to have, a material impact on the Company’s financial statements. Further, at March 31, 2024, there were no other pronouncements pending adoption that are expected to have a material impact on the Company’s condensed consolidated financial statements. 8 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 3: Acquisitions and Divestitures Acquisitions As previously disclosed, on December 1, 2023, the Company completed the acquisition of Inapel Embalagens Ltda. (“Inapel”), a manufacturer of single-layer and multilayer materials for flexible packaging in Brazil, for net consideration of $ 64,544 , including $ 59,228 of cash paid at closing and additional obligations to the seller totaling $ 5,316 that will be paid throughout 2024. This additional purchase consideration is recorded in “Payable to suppliers” in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2024. With the acquisition of Inapel, the Company added approximately 500 employees and two manufacturing locations in the São Paulo region of Brazil. The financial results of Inapel are included in the Company’s Consumer Packaging segment . The Company’s initial allocation of the assets acquired and liabilities assumed in the acquisition of Inapel, as well as revised preliminary fair values reflecting adjustments made during the measurement period, are as follows: Initial Allocation Measurement Period Adjustments Preliminary Allocation Trade accounts receivable $ 30,301 $ ( 133 ) $ 30,168 Other receivables 6,088 70 6,158 Inventories 9,269 — 9,269 Prepaid expenses 1,430 — 1,430 Property, plant and equipment 11,456 17,459 28,915 Right of use asset - operating leases 217 — 217 Other intangible assets 8,653 ( 1,094 ) 7,559 Goodwill 15,704 ( 7,130 ) 8,574 Other assets 793 — 793 Payable to suppliers ( 15,899 ) 3,058 ( 12,841 ) Accrued expenses and other ( 5,733 ) ( 1,350 ) ( 7,083 ) Noncurrent operating lease liabilities ( 117 ) — ( 117 ) Deferred income taxes ( 2,934 ) ( 5,564 ) ( 8,498 ) Total purchase price, net of cash acquired $ 59,228 $ 5,316 $ 64,544 The allocation of the purchase price of Inapel to the tangible and intangible assets acquired and liabilities assumed, as reflected under the heading “Preliminary Allocation” in the table above, is based on the Company’s preliminary determinations of fair value using information currently available. Management is continuing to finalize its valuation of certain assets and liabilities including, but not limited to, inventory; property, plant and equipment; goodwill; other intangible assets; and deferred income taxes. The Company expects to complete its valuations within one year of the date of acquisition. Goodwill for Inapel, none of which is expected to be deductible for income tax purposes, is primarily attributable to the assembled workforce and synergies of the combined organization. On September 8, 2023, the Company completed the acquisition of the remaining 65 % interest in RTS Packaging, LLC (“RTS Packaging”) from joint venture partner WestRock Company (“WestRock”) and the acquisition of a paper mill in Chattanooga, Tennessee (the “Chattanooga Mill”) from WestRock for net cash consideration of $ 313,388 . In December 2023, the Company agreed to a final working capital settlement of $ 452 , which was paid to WestRock in January 2024. Prior to completing the acquisitions, the Company held a 35 % ownership interest in the RTS Packaging joint venture which was formed in 1997 and combined the former protective packaging operations of WestRock and Sonoco to market recycled paperboard to glass container manufacturers and producers of wine, liquor, food, and pharmaceuticals. The financial results of RTS Packaging and the Chattanooga Mill are included in the Company’s Industrial Paper Packaging segment. 9 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table provides a summary of the purchase consideration (as defined under Accounting Standards Codification (“ASC”) 805) transferred for the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill: Purchase Consideration Cash consideration, net of cash acquired $ 313,388 Fair value of previously held interest in RTS Packaging 59,472 Final working capital adjustment 452 Settlement of preexisting relationships 1,235 Purchase consideration transferred $ 374,547 The Company’s initial allocation of the assets acquired and liabilities assumed in the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill, as well as revised preliminary fair values reflecting adjustments made during the measurement period, are as follows: Initial Allocation Measurement Period Adjustments Preliminary Allocation Trade accounts receivable $ 17,488 $ — $ 17,488 Other receivables — — — Inventories 20,209 ( 947 ) 19,262 Prepaid expenses 2,720 ( 589 ) 2,131 Property, plant and equipment 73,483 753 74,236 Right of use asset - operating leases 34,604 290 34,894 Other intangible assets 199,560 ( 8,995 ) 190,565 Goodwill 92,657 14,909 107,566 Other assets 2,465 ( 412 ) 2,053 Payable to suppliers ( 7,320 ) — ( 7,320 ) Accrued expenses and other ( 15,167 ) ( 25 ) ( 15,192 ) Notes payable and current portion of long-term debt ( 24 ) — ( 24 ) Noncurrent operating lease liabilities ( 29,905 ) — ( 29,905 ) Pension and other postretirement benefits ( 10,761 ) ( 768 ) ( 11,529 ) Long-term debt ( 1,942 ) — ( 1,942 ) Deferred income taxes ( 3,419 ) ( 2,502 ) ( 5,921 ) Other long-term liabilities ( 3,293 ) 1,478 ( 1,815 ) Net assets acquired $ 371,355 $ 3,192 $ 374,547 The initial allocation of the purchase price of the remaining interest in RTS Packaging and the Chattanooga Mill to the tangible and intangible assets acquired and liabilities assumed, as reflected in the table above, is based on the Company’s preliminary determination of their fair values using information currently available. Management is continuing to finalize its valuation of certain assets and liabilities including, but not limited to, inventory; property, plant and equipment; goodwill; other intangible assets; and deferred income taxes. The Company expects to complete its valuations within one year of the date of acquisition. Goodwill for RTS Packaging and the Chattanooga Mill, of which $ 87,191 is expected to be deductible for income tax purposes, is primarily attributable to the synergies of the combined organization and the assembled workforce. The Company has accounted for these acquisitions as business combinations under the acquisition method and has included the results of operations of the acquired businesses in the Company’s Condensed Consolidated Statements of Income for the three-month period ended March 31, 2024. The Company believes that these acquisitions were not material to the periods presented and are therefore not subject to the ASC 805 requirement to provide supplemental pro-forma financial information. Accordingly, this information is not presented herein. 10 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Divestiture of Businesses On April 1, 2024, subsequent to the end of the first quarter, the Company completed the sale of its Protective Solutions business (“Protexic”), which was part of the All Other group of businesses, to Black Diamond Capital Management, LLC for cash proceeds of $ 81,795 . This business provided foam components and integrated material solutions for various industrial end markets. This sale was the result of the Company’s continuing evaluation of its business portfolio and is consistent with the Company’s strategic and investment priorities. The Company is finalizing its calculation but estimates that the gain on the disposition will be approximately $ 3,000 after recognizing foreign currency translation losses and remaining selling costs. The Company used the majority of the cash proceeds from the sale to pay down debt. The sale of the Protexic business did not represent a strategic shift for the Company and will not have a major effect on its operations or financial results. Consequently, this sale will not meet the criteria for reporting as a discontinued operation. On January 26, 2023, the Company completed the sale of its Sonoco Sustainability Solutions (“S3”) business, a provider of customized waste and recycling management programs and part of the Company’s Industrial Paper Packaging segment, to Northstar Recycling Co. (“Northstar”), for total cash proceeds of $ 13,839 . An additional $ 1,500 of proceeds are being held in escrow and are expected to be released to the Company, pursuant to any indemnification claims, twenty months following the date of the divestiture. The Company wrote off net assets totaling $ 4,274 as part of the divestiture of the business, including $ 3,042 of allocated goodwill, and recognized a pretax gain of $ 11,065 during the first quarter of 2023, which is included in “Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. The escrow balance is reflected as a long-term receivable in “Other assets” in the Company’s Condensed Consolidated Balance Sheets as of March 31, 2024. The Company is also entitled to receive additional proceeds of $ 3,200 in the second quarter of 2024 if certain conditions are met. This contingent consideration will be recognized as an additional gain on the sale at the point the contingencies are resolved. On January 26, 2023, in connection with the sale of the S3 business, the Company acquired a 2.7 % equity interest in Northstar valued at $ 5,000 . This investment is being accounted for under the measurement alternative (i.e., cost less impairment, adjusted for any qualifying observable price changes). The sale of the S3 business did not represent a strategic shift for the Company or have a major effect on its operations or financial results. Consequently, this sale did not meet the criteria for reporting as a discontinued operation. Sale of Assets With the completion of Project Horizon, the Company’s project to convert the corrugated medium machine in Hartsville, South Carolina, to produce uncoated recycled paperboard, the Company now produces paper exclusively from recycled fibers and no longer requires natural tree fiber for production. Accordingly, on March 29, 2023, the Company sold its timberland properties, totaling approximately 55,000 acres, to Manulife Investment Management for net cash proceeds of $ 70,802 . The Company disposed of assets with a net book value of $ 9,857 as part of the sale, and recognized a pretax gain from the sale of these assets of $ 60,945 during the three-month period ended April 2, 2023, which is included in “Gain on divestiture of business and other assets” in the Company’s Condensed Consolidated Statements of Income. Acquisition, Integration, and Divestiture-Related Costs Acquisition, integration, and divestiture-related costs totaled $ 5,661 and $ 5,188 during the three-month periods ended March 31, 2024 and April 2, 2023, respectively. These costs include legal and professional fees, as well as employee-related and other integration activity costs that are included in “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income. 11 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 4: Shareholders’ Equity Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended March 31, 2024 April 2, 2023 Numerator: Net income attributable to Sonoco $ 65,177 $ 148,319 Denominator: Weighted average common shares outstanding: Basic 98,498 98,167 Dilutive effect of share-based compensation 661 448 Diluted 99,159 98,615 Net income attributable to Sonoco per common share: Basic $ 0.66 $ 1.51 Diluted $ 0.66 $ 1.50 Cash dividends $ 0.51 $ 0.49 No adjustments were made to “Net income attributable to Sonoco” in the computations of net income attributable to Sonoco per common share. Anti-dilutive Securities Potentially dilutive securities are calculated in accordance with the treasury stock method, which assumes the proceeds from the exercise of all dilutive stock appreciation rights (“SARs”) are used to repurchase the Company’s common stock. Certain SARs are not dilutive because either the exercise price is greater than the average market price of the stock during the reporting period or assumed repurchases from proceeds from the exercise of the SARs were anti-dilutive. These SARs may become dilutive in the future if the market price of the Company’s common stock appreciates. The average numbers of SARs that were anti-dilutive and, therefore, not included in the computation of diluted earnings per share during the three-month periods ended March 31, 2024 and April 2, 2023 were as follows (in thousands): Three Months Ended March 31, 2024 April 2, 2023 Anti-dilutive stock appreciation rights 340 343 Stock Repurchases On April 20, 2021, the Company’s Board of Directors (the “Board”) authorized the repurchase of the Company’s common stock in an aggregate amount of up to $ 350,000 . Following several repurchase transactions in 2021, a total of $ 137,972 remained available for share repurchases under this authorization as of December 31, 2021. No shares were repurchased under this authorization during the years ended December 31, 2023 or 2022 or the three-month period ended March 31, 2024. The Company regularly repurchases shares of its common stock to satisfy employee tax withholding obligations in association with certain share-based compensation awards. These repurchases, which are not part of a publicly announced plan or program, totaled 162 shares during the three-month period ended March 31, 2024, at a cost of $ 9,139 , and 175 shares during the three-month period ended April 2, 2023, at a cost of $ 10,576 . Dividend Declarations On February 14, 2024, the Board declared a regular quarterly dividend of $ 0.51 per share. This dividend was paid on March 8, 2024 to all shareholders of record as of February 28, 2024. 12 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) On April 17, 2024, the Board declared a regular quarterly dividend of $ 0.52 per share. This dividend is payable on June 10, 2024 to all shareholders of record as of May 10, 2024. Note 5: Restructuring and Asset Impairments Due to its geographic footprint and the cost-competitive nature of its businesses, the Company is continually seeking more cost-effective means and structures to serve its customers and to respond to changes in its markets. As such, restructuring costs have been, and are expected to be, a recurring component of the Company’s operating costs. The amount of these costs can vary significantly from quarter to quarter and from year to year depending upon the scope, nature, and location of the restructuring activities. Following are the total restructuring and asset impairment charges, net of adjustments, recognized during the periods presented: Three Months Ended March 31, 2024 April 2, 2023 Restructuring/Asset impairment charges $ 31,618 $ 28,814 The table below sets forth restructuring and restructuring-related asset impairment charges by type incurred: Three Months Ended March 31, 2024 April 2, 2023 Severance and termination benefits $ 17,993 $ 5,516 Asset impairments 8,844 19,193 Other costs 4,781 4,105 Restructuring and restructuring-related asset impairment charges $ 31,618 $ 28,814 The table below sets forth restructuring and restructuring-related asset impairment charges attributable to each reportable segment, the “All Other” group of businesses, and Corporate-related activity: Three Months Ended March 31, 2024 April 2, 2023 Consumer Packaging $ 4,925 $ 2,680 Industrial Paper Packaging 22,603 24,544 All Other 1,148 53 Corporate 2,942 1,537 Restructuring and restructuring-related asset impairment charges $ 31,618 $ 28,814 Restructuring and restructuring-related asset impairment charges are included in “Restructuring/Asset impairment charges” in the Company’s Condensed Consolidated Statements of Income. 13 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” in the Company’s Condensed Consolidated Balance Sheets: Severance and Termination Benefits Asset Impairments/ Disposal of Assets Other Costs Total Accrual Activity Liability at December 31, 2023 $ 14,315 $ — $ 1,638 $ 15,953 2024 charges 17,993 8,844 4,781 31,618 Cash payments ( 6,314 ) ( 498 ) ( 2,218 ) ( 9,030 ) Asset writedowns/disposals — ( 8,346 ) — ( 8,346 ) Foreign currency translation ( 81 ) — ( 15 ) ( 96 ) Liability at March 31, 2024 $ 25,913 $ — $ 4,186 $ 30,099 “Severance and termination benefits” during the first three months of 2024 includes the cost of severance for approximately 95 employees whose positions were eliminated in conjunction with the Company’s ongoing organizational effectiveness efforts, including the relocation of certain facilities in Greece and Germany, and severance related to the closures of paper mills in Sumner, Washington (the “Sumner Mill”) and Kilkis, Greece, the closures of two small industrial converted products facilities in China, and the planned closure of an industrial converted products facility in Mississauga, Canada, all part of the Industrial Paper Packaging segment. “Asset impairments” during the first three months of 2024 consists primarily of asset impairment charges related to the closure of the Sumner Mill. “Other costs” during the first three months of 2024 consists primarily of equipment removal, utilities, plant security, property taxes, insurance and environmental remediation costs related to the closure of the Sumner Mill, and ongoing facility carrying costs of plant closures in the prior year. The Company expects to pay the majority of the remaining restructuring reserves by the end of 2024 using cash generated from operations. The Company also expects to recognize future additional charges totaling approximately $ 5,300 in connection with previously announced restructuring actions and believes that the majority of these charges will be incurred and paid by the end of 2024. The Company continually evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken. 14 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 6: Accumulated Other Comprehensive Loss The following table summarizes the components of accumulated other comprehensive loss and the changes in the balances of each component of accumulated other comprehensive loss, net of tax as applicable, for the three-month periods ended March 31, 2024 and April 2, 2023: Foreign Currency Items Defined Benefit Pension Items Cash Flow Hedges Accumulated Other Comprehensive Loss Balance at December 31, 2023 $ ( 267,578 ) $ ( 99,627 ) $ 943 $ ( 366,262 ) Other comprehensive (loss)/income before reclassifications ( 19,319 ) ( 932 ) 518 ( 19,733 ) Amounts reclassified from accumulated other comprehensive loss to net income — 975 ( 349 ) 626 Other comprehensive (loss)/income ( 19,319 ) 43 169 ( 19,107 ) Balance at March 31, 2024 $ ( 286,897 ) $ ( 99,584 ) $ 1,112 $ ( 385,369 ) Balance at December 31, 2022 $ ( 338,316 ) $ ( 90,973 ) $ ( 794 ) $ ( 430,083 ) Other comprehensive income/(loss) before reclassifications 31,569 ( 393 ) 2,645 33,821 Amounts reclassified from accumulated other comprehensive loss to net income — 1,309 ( 431 ) 878 Amounts reclassified from accumulated other comprehensive loss to property, plant, and equipment — — 300 300 Other comprehensive income 31,569 916 2,514 34,999 Balance at April 2, 2023 $ ( 306,747 ) $ ( 90,057 ) $ 1,720 $ ( 395,084 ) 15 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table summarizes the effects on net income of significant amounts reclassified from each component of accumulated other comprehensive loss for the three-month periods ended March 31, 2024 and April 2, 2023: Amount Reclassified from Accumulated Other Comprehensive Loss Three Months Ended Details about Accumulated Other Comprehensive Loss Components March 31, 2024 April 2, 2023 Affected Line Item in the Condensed Consolidated Statements of Income Gains/(losses) on cash flow hedges Foreign exchange contracts (a) $ 436 $ 1,062 Net sales Foreign exchange contracts (a) ( 75 ) ( 454 ) Cost of sales Commodity contracts (a) — ( 32 ) Cost of sales 361 576 Income before income taxes Income tax impact ( 12 ) ( 145 ) Provision for income taxes 349 431 Net income Defined benefit pension items Effect of settlement loss (b) — ( 686 ) Non-operating pension costs Amortization of defined benefit pension items (b) ( 1,230 ) ( 1,071 ) Non-operating pension costs ( 1,230 ) ( 1,757 ) Income before income taxes Income tax impact 255 448 Provision for income taxes ( 975 ) ( 1,309 ) Net income Total reclassifications for the period $ ( 626 ) $ ( 878 ) Net income (a) See Note 9 for additional details. (b) See Note 11 for additional details. 16 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table summarizes the before and after tax amounts for the various components of other comprehensive income/(loss) for the three-month periods ended March 31, 2024 and April 2, 2023: Three Months Ended March 31, 2024 Three Months Ended April 2, 2023 Before Tax Amount Tax (Expense) Benefit After Tax Amount Before Tax Amount Tax (Expense) Benefit After Tax Amount Foreign currency items: Net other comprehensive (loss)/income from foreign currency items $ ( 16,788 ) $ ( 2,531 ) $ ( 19,319 ) $ 31,569 $ — $ 31,569 Defined benefit pension items: Other comprehensive (loss)/income before reclassifications ( 876 ) ( 56 ) ( 932 ) ( 760 ) 367 ( 393 ) Amounts reclassified from accumulated other comprehensive loss to net income (a) 1,230 ( 255 ) 975 1,757 ( 448 ) 1,309 Net other comprehensive income/(loss) from defined benefit pension items 354 ( 311 ) 43 997 ( 81 ) 916 Gains and losses on cash flow hedges: Other comprehensive income/(loss) before reclassifications 536 ( 18 ) 518 3,536 ( 891 ) 2,645 Amounts reclassified from accumulated other comprehensive loss to net income (b) ( 361 ) 12 ( 349 ) ( 576 ) 145 ( 431 ) Amounts reclassified from accumulated other comprehensive loss to property, plant and equipment — — — 401 ( 101 ) 300 Net other comprehensive income/(loss) from cash flow hedges 175 ( 6 ) 169 3,361 ( 847 ) 2,514 Other comprehensive (loss)/income $ ( 16,259 ) $ ( 2,848 ) $ ( 19,107 ) $ 35,927 $ ( 928 ) $ 34,999 (a) See Note 11 for additional details. (b) See Note 9 for additional details. 17 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 7: Goodwill and Other Intangible Assets Goodwill A summary of the changes in goodwill for the three-month period ended March 31, 2024 is as follows: Consumer Packaging Industrial Paper Packaging All Other Total Goodwill at December 31, 2023 $ 1,056,241 $ 506,406 $ 248,007 $ 1,810,654 Foreign currency translation ( 4,427 ) ( 2,808 ) ( 212 ) ( 7,447 ) Measurement period adjustments ( 7,130 ) — — ( 7,130 ) Goodwill at March 31, 2024 $ 1,044,684 $ 503,598 $ 247,795 $ 1,796,077 Goodwill activity reflected under the caption “Measurement period adjustments” relates to the prior year acquisition of Inapel. See Note 3 for additional information. The Company assesses goodwill for impairment annually during the third quarter, or from time to time when warranted by the facts and circumstances surrounding individual reporting units or the Company as a whole. The Company completed its most recent annual goodwill impairment testing during the third quarter of 2023 and analyzed certain qualitative and quantitative factors in determining whether a goodwill impairment existed. The Company’s assessments reflected a number of significant management assumptions and estimates including the Company’s forecast of sales growth, gross profit margins, and discount rates. Changes in these assumptions could materially impact the Company’s conclusions. Based on its assessments, the Company concluded that there was no impairment of goodwill for any of its reporting units. Although no reporting units failed the annual impairment test, in management’s opinion the goodwill balance of the Plastics-Medical reporting unit is at risk of impairment in the near term if the reporting unit’s operations do not perform in line with management’s expectations, or if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate. At March 31, 2024, the total goodwill associated with the Plastics-Medical reporting unit was $ 63,991 . During the time subsequent to the annual evaluation, and at March 31, 2024, the Company considered whether any events and/or changes in circumstances had resulted in the likelihood that the goodwill of any of its reporting units may have been impaired. It is management’s opinion that no such events and/or changes in circumstances have occurred. 18 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Other Intangible Assets A summary of other intangible assets as of March 31, 2024 and December 31, 2023 is as follows: March 31, 2024 December 31, 2023 Other Intangible Assets, gross: Patents $ 29,297 $ 29,304 Customer lists 1,277,948 1,282,689 Trade names 41,738 41,836 Proprietary technology 56,848 56,857 Other 6,820 6,916 Total Other Intangible Assets, gross $ 1,412,651 $ 1,417,602 Accumulated Amortization: Patents $ ( 19,956 ) $ ( 19,549 ) Customer lists ( 511,699 ) ( 493,778 ) Trade names ( 20,146 ) ( 18,845 ) Proprietary technology ( 29,971 ) ( 29,013 ) Other ( 2,794 ) ( 2,747 ) Total Accumulated Amortization ( 584,566 ) ( 563,932 ) Other Intangible Assets, net $ 828,085 $ 853,670 During the first quarter of 2024, the Company recorded measurement period adjustments related to the December 1, 2023 acquisition of Inapel that reduced the previously reported fair value of customer lists by $ 1,094 . The effect on amortization expense in the prior period was immaterial. See Note 3 for additional information. Other intangible assets are amortized using the straight-line method over their respective useful lives when management has determined that the straight-line method approximates the pattern of consumption of the respective intangible assets or in relation to the asset’s specific pattern of consumption if management has determined that the straight-line method does not provide a fair approximation of the consumption of benefits. These lives generally range from three to forty years . The Company has no intangible assets with indefinite lives. Aggregate amortization expense was $ 22,939 and $ 21,164 for the three-month periods ended March 31, 2024 and April 2, 2023, respectively. Amortization expense on other intangible assets is expected to total approximately $ 90,200 in 2024, $ 78,900 in 2025, $ 75,000 in 2026, $ 73,900 in 2027 and $ 72,900 in 2028. Note 8: Supply Chain Financing The Company facilitates voluntary supply chain financing programs (the “SCF Programs”) to provide certain of its suppliers with the opportunity to sell receivables due from the Company to the participating financial institutions in the programs. Such sales are conducted at the sole discretion of both the suppliers and the financial institutions on a nonrecourse basis at a rate that leverages the Company’s credit rating and thus might be more beneficial to the supplier. No guarantees are provided by the Company or any of its subsidiaries under the SCF Programs. The Company’s responsibility under the agreements is limited to making payment to the financial institutions for confirmed invoices based on the terms originally negotiated with its suppliers. Both the Company and the financial institutions have the right to terminate the SCF Programs by providing 30 days prior written notice to the other party. The Company does not enter into any agreements with suppliers regarding their participation in the SCF Programs. 19 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following table sets forth the balance sheet location and values of the Company’s SCF Program obligations at March 31, 2024 and December 31, 2023: Balance Sheet Line Item March 31, 2024 December 31, 2023 Payable to suppliers (a) $ 35,645 $ 35,847 (a) The payment of these obligations is included in net cash provided by operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. Note 9: Financial Instruments and Derivatives The following table sets forth the carrying amounts and fair values of the Company’s significant financial instruments for which the carrying amount differs from the fair value. March 31, 2024 December 31, 2023 Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, net of current portion $ 2,630,424 $ 2,485,816 $ 3,035,868 $ 2,890,009 The carrying value of cash and cash equivalents and short-term debt approximates fair value. The fair value of long-term debt is determined based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available to the Company for issues with similar terms and maturities which is considered a Level 2 fair value measurement. Cash Flow Hedges At March 31, 2024 and December 31, 2023, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. These contracts, w hich have maturities ranging from April 2024 to December 2024, qualify as cash flow hedges under U.S. generally accepted accounting principles (“GAAP”). For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. Cash flows from derivative financial instruments designated as cash flow hedges are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Commodity Cash Flow Hedges Certain derivative contracts entered into to manage the cost of anticipated purchases of natural gas and aluminum have been designated by the Company as cash flow hedges. At March 31, 2024, these contracts included natural gas swaps covering approximately 0.05 million m etric million British thermal units (“MMBTUs”). These contracts represented approximatel y 0.9 % o f anticipated usage in North America for 2024 . The Company also has certain natural gas hedges that it does not treat as cash flow hedges. See “Non-Designated Derivatives” below for a discussion of these hedges. At March 31, 2024 , the Company had also designated swap contracts covering 355 metric tons of aluminum as cash flow hedges. The fair value of the Company’s commodity cash flow hedges netted to loss positions of $( 66 ) and $( 41 ) at March 31, 2024 and December 31, 2023, respectively. The amount of the loss included in accumulated other comprehensive loss at March 31, 2024 expected to be reclassified to the income statement during the next twelve months is $( 66 ). 20 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Foreign Currency Cash Flow Hedges The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales and purchases expected to occur in 2024 and 2025. The net positions of these contracts at March 31, 2024 were as follows (in thousands): Currency Action Quantity Colombian peso purchase 16,966,782 Mexican peso purchase 429,499 Polish zloty purchase 98,802 Danish krone purchase 34,765 Swedish krona sell ( 4,855 ) Czech koruna purchase 86,121 Canadian dollar purchase 25,729 Euro purchase 1,744 Turkish lira purchase 43,173 Brazilian real purchase 41,819 British pound sell ( 800 ) The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to gain positions of $ 1,697 and $ 1,502 at March 31, 2024 and December 31, 2023, respectively. Gains of $ 1,697 are expected to be reclassified from accumulated other comprehensive income to the income statement during the next twelve months. Net Investment Hedge During the fourth quarter of 2023, the Company became a party to cross-currency swap agreements with a total notional amount of $ 500,000 to effectively convert a portion of the Company’s fixed-rate U.S. dollar denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt. The swap agreements, which have a maturity of December 18, 2026, provide for the Company to receive semi-annual interest payments in U.S. dollars at a fixed rate and to make semi-annual interest payments in euros at a fixed rate. The risk management objective of entering into the swap agreements is to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in euros. The agreements are designated as net investment hedges for accounting purposes. The gain or loss on the net investment hedge derivative instrument is included in the “Foreign currency translation” component of “Accumulated other comprehensive loss” until the net investment is sold, diluted, or liquidated. Interest payments received for the cross-currency swaps are excluded from the net investment hedge effectiveness assessment and are recorded in “Interest expense” in the Company’s Condensed Consolidated Statements of Income. The assumptions used in measuring fair value of the cross-currency swaps are considered level 2 inputs, which are based upon the Euro-to-U.S. dollar exchange rate market. The fair value of the Company’s net investment hedges was a gain position of $ 4,850 and a loss position of $ 5,073 at March 31, 2024 and December 31, 2023, respectively. A translation gain of $ 3,613 (net of income taxes of $ 1,237 ) and a translation loss of $ 3,779 (net of income taxes of $ 1,294 ) were reported as components of “Accumulated other comprehensive loss” within “Foreign currency items” at March 31, 2024 and December 31, 2023, respectively. As a result of continued strengthening of the U.S. dollar against the euro, as well as a reduction in the differential between U.S. and European interest rates, the fair value of the Company’s net investment hedge continued to appreciate into the month of April 2024. On April 15, 2024, subsequent to the end of the first quarter of 2024, the Company terminated the swap agreements and received a cash settlement of $ 11,634 . The foreign currency translation gain of approximately $ 3,143 , net of tax, will be included as a component of “Accumulated other comprehensive loss” in the second quarter of 2024. Following the unwind of the swaps, the Company entered into new cross-currency swap agreements with a total notional amount of $ 500,000 to effectively convert a portion of the Company’s fixed-rate U.S. dollar-denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt. The new swap agreements have a maturity of May 1, 2027. 21 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Non-Designated Derivatives The Company routinely enters into other derivative contracts which are not designated for hedge accounting treatment under ASC 815. As such, changes in fair value of these non-designated derivatives are recorded directly to income and expense in the periods that they occur. Cash flows from derivative financial instruments not designated as hedges are classified as cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows. Foreign Currency Hedges The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and foreign currency denominated receivables and payables. The net currency positions of these non-designated contracts at March 31, 2024, were as follows (in thousands): Currency Action Quantity Indonesian rupiah purchase 19,814,218 Colombian peso purchase 67,308,931 Mexican peso purchase 412,841 Canadian dollar purchase 7,981 Commodity Hedges The Company has entered into non-designated derivative contracts to manage the cost of a nticipated purchases of natural gas. At March 31, 2024, these contracts consisted of natural gas swaps covering approximately 6.6 million MMBTUs and represented approximately 87 % and 33 % of anticipated usage for 2024 and 2025, respectively. The fair value of the Company’s non-designated derivatives position was a loss of $( 6,690 ) a nd $( 6,790 ) at March 31, 2024 and December 31, 2023, respectively. The following table sets forth the location and fair values of the Company’s derivative instruments at March 31, 2024 and December 31, 2023: Description Balance Sheet Location March 31, 2024 December 31, 2023 Derivatives designated as hedging instruments: Commodity Contracts Prepaid expenses $ 28 $ 67 Commodity Contracts Accrued expenses and other ( 94 ) ( 108 ) Foreign Exchange Contracts Prepaid expenses 2,323 2,525 Foreign Exchange Contracts Accrued expenses and other ( 626 ) ( 1,024 ) Net Investment Hedge Prepaid expense 4,192 5,567 Net Investment Hedge Other assets 744 — Net Investment Hedge Other liabilities ( 86 ) ( 10,640 ) Derivatives not designated as hedging instruments: Commodity Contracts Prepaid expenses $ 103 $ 12 Commodity Contracts Other assets 250 — Commodity Contracts Accrued expenses and other ( 6,666 ) ( 6,782 ) Commodity Contracts Other liabilities ( 176 ) — Foreign Exchange Contracts Prepaid expenses 5 130 Foreign Exchange Contracts Accrued expenses and other ( 206 ) ( 159 ) While certain of the Company’s derivative contract arrangements with its counterparties provide for the ability to settle contracts on a net basis, the Company reports its derivative positions on a gross basis. There are no collateral arrangements or requirements in these agreements. 22 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three-month periods ended March 31, 2024 and April 2, 2023, excluding the amount of foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures: Description Amount of Gain or (Loss) Recognized in OCI on Derivatives Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income Derivatives in Cash Flow Hedging Relationships: Three-month period ended March 31, 2024 Foreign Exchange Contracts $ 561 Net sales $ 436 Cost of sales ( 75 ) Commodity Contracts $ ( 25 ) Cost of sales $ — Three-month period ended April 2, 2023 Foreign Exchange Contracts $ 3,613 Net sales $ 1,062 Cost of sales ( 454 ) Commodity Contracts $ ( 77 ) Cost of sales $ ( 32 ) Description Gain or (Loss) Recognized Location of Gain or (Loss) Recognized in Income Statement Derivatives not Designated as Hedging Instruments: Three-month period ended March 31, 2024 Commodity Contracts $ ( 2,558 ) Cost of sales Foreign Exchange Contracts $ 305 Selling, general and administrative Three-month period ended April 2, 2023 Commodity Contracts $ ( 9,708 ) Cost of sales Foreign Exchange Contracts $ 2,137 Selling, general and administrative Three-month period ended March 31, 2024 Three-month period ended April 2, 2023 Description Revenue Cost of sales Revenue Cost of sales Total amount of income and expense line items presented in the Condensed Consolidated Statements of Income $ 436 $ ( 75 ) $ 1,062 $ ( 486 ) Gain or (loss) on cash flow hedging relationships: Foreign exchange contracts: Amount of gain or (loss) reclassified from accumulated other comprehensive loss into net income $ 436 $ ( 75 ) $ 1,062 $ ( 454 ) Commodity contracts: Amount of gain reclassified from accumulated other comprehensive loss into net income $ — $ — $ — $ ( 32 ) 23 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 10: Fair Value Measurements Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows: Level 1 – Observable inputs such as quoted market prices in active markets; Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 – Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets that are calculated at Net Asset Value per share (“NAV”) are not required to be categorized within the fair value hierarchy. The following table sets forth information regarding the Company’s financial assets and financial liabilities, excluding retirement and postretirement plan assets, measured at fair value on a recurring basis: Description March 31, 2024 Assets measured at NAV Level 1 Level 2 Level 3 Hedge derivatives, net: Commodity contracts $ ( 66 ) $ — $ — $ ( 66 ) $ — Foreign exchange contracts $ 1,697 $ — $ — $ 1,697 $ — Net investment hedge $ 4,850 $ — $ — $ 4,850 $ — Non-hedge derivatives, net: Commodity contracts $ ( 6,489 ) $ — $ — $ ( 6,489 ) $ — Foreign exchange contracts $ ( 201 ) $ — $ — $ ( 201 ) $ — Description December 31, 2023 Assets measured at NAV Level 1 Level 2 Level 3 Hedge derivatives, net: Commodity contracts $ ( 41 ) $ — $ — $ ( 41 ) $ — Foreign exchange contracts $ 1,502 $ — $ — $ 1,502 $ — Net investment hedge $ ( 5,073 ) $ — $ — $ ( 5,073 ) $ — Non-hedge derivatives, net: Commodity contracts $ ( 6,770 ) $ — $ — $ ( 6,770 ) $ — Foreign exchange contracts $ ( 29 ) $ — $ — $ ( 29 ) $ — As discussed in Note 9, the Company uses derivatives to mitigate the effect of commodity fluctuations, foreign currency fluctuations and, from time to time, interest rate movements. Fair value measurements for the Company’s derivatives are classified under Level 2 because such measurements are estimated based on observable inputs such as interest rates, yield curves, spot and future commodity prices and spot and future exchange rates. None of the Company’s financial assets or liabilities are measured at fair value using significant unobservable inputs. There were no transfers in or out of Level 1 or Level 2 fair value measurements during the three-month period ended March 31, 2024. The Company measures certain non-financial assets and non-financial liabilities at fair value on a non-recurring basis. See Note 3 for a discussion of assets acquired and liabilities assumed in acquisitions and Note 5 for a discussion of asset impairments associated with restructuring activities. The fair value of assets determined based on third-party appraisals and classified as Level 3 measurements due to the use of significant unobservable inputs was not material at March 31, 2024 or December 31, 2023. 24 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Note 11: Employee Benefit Plans Retirement Plans and Retiree Health and Life Insurance Plans The Company provides non-contributory defined benefit pension plans for certain of its employees in the United States, Mexico, Belgium, Germany, Greece, France, and Turkey. The Company also sponsors contributory defined benefit pension plans covering certain of its employees in the United Kingdom, Canada and the Netherlands, and provides postretirement healthcare and life insurance benefits to a limited number of its retirees and their dependents in the United States and Canada, based on certain age and/or service eligibility requirements. The components of net periodic benefit cost/(income) include the following: Three Months Ended March 31, 2024 April 2, 2023 Retirement Plans Service cost $ 755 $ 687 Interest cost 4,709 4,294 Expected return on plan assets ( 2,796 ) ( 2,444 ) Amortization of prior service cost 205 219 Amortization of net actuarial loss 1,075 1,045 Effect of settlement loss — 686 Net periodic benefit cost $ 3,948 $ 4,487 Retiree Health and Life Insurance Plans Service cost $ 54 $ 62 Interest cost 250 130 Expected return on plan assets ( 98 ) ( 79 ) Amortization of prior service cost 96 — Amortization of net actuarial gain ( 146 ) ( 193 ) Net periodic benefit cost/(income) $ 156 $ ( 80 ) Settlement Charges The Company recognized settlement ch arges of $ 686 during the three-month period ended April 2, 2023. These charges resulted from payments made to certain participants in the Company’s non-union Canadian pension plan who elected a lump sum distribution option upon retirement. No settlement charges were recognized during the three-month period ended March 31, 2024. Contributions The Company made aggregate contributions of $ 3,989 and $ 4,931 to its defined benefit retirement and retiree health and life insurance plans during the three-month periods ended March 31, 2024 and April 2, 2023, respectively. The Company expects to make additional aggregate contributions of approximately $ 16,300 to its defined benefit retirement and retiree health and life insurance plans over the remainder of 2024. Note 12: Income Taxes The Company’s effective tax rates for the three-month periods ended March 31, 2024 and April 2, 2023 were 21.3 % and 24.3 %, respectively. The Company’s effective tax rates varied from the U.S. statutory rate due primarily to rate differences between U.S. and non-U.S. jurisdictions and the relative amounts earned in those jurisdictions, state income taxes, and discrete tax adjustments. The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and various foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2017. 25 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The Company’s reserve for uncertain tax benefits increased by $ 137 from December 31, 2023 to March 31, 2024 due primarily to an increase in reserves related to existing tax positions. The Company believes that it is reasonably possible that the amount reserved for unrecognized tax benefits at March 31, 2024 could decrease by approximately $ 9,432 over the next twelve months. Although the Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental, management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis. The Company has operations and pays taxes in many countries outside of the U.S. and taxes on those earnings are subject to varying rates. The Company is not dependent upon the favorable benefit of any one jurisdiction to an extent that the loss of such benefit would have a material effect on the Company’s overall effective tax rate. Note 13: Leases The Company routinely enters into leasing arrangements for real estate (including manufacturing facilities, office space, and warehouses), transportation equipment (automobiles, forklifts, and trailers), and office equipment (copiers and postage machines). The assessment of the certainty associated with the exercise of various lease renewal, termination, and purchase options included in the Company’s lease contracts is performed after contemplating all the relevant facts and circumstances in accordance with guidance under ASC 842 - “Leases.” Most of the Company’s real estate leases, in particular, include one or more options to renew, with renewal terms that typically extend the lease term in increments from one to five years . The Company’s leases do not have any significant residual value guarantees or restrictive covenants. As the implicit rate in the Company’s leases is normally not readily determinable, the Company generally calculates its lease liabilities using discount rates based upon the Company’s incremental secured borrowing rate, which contemplates and reflects a particular geographical region’s interest rate for the leases active within that region of the Company’s global operations. The Company further utilizes a portfolio approach by assigning a “short” rate to contracts with lease terms of 10 years or less and a “long” rate for contracts greater than 10 years. The Company completed the acquisitions of the remaining interest in RTS Packaging and the Chattanooga Mill on September 8, 2023. The acquisitions included operating lease liabilities of $ 34,604 . For additional information about these acquisitions, see Note 3. The following table sets forth the balance sheet location and aggregate values of the Company’s lease assets and lease liabilities at March 31, 2024 and December 31, 2023: Classification Balance Sheet Location March 31, 2024 December 31, 2023 Lease Assets Operating lease assets Right of Use Asset - Operating Leases $ 332,587 $ 314,944 Finance lease assets Other Assets 92,684 94,026 Total lease assets $ 425,271 $ 408,970 Lease Liabilities Current operating lease liabilities Accrued expenses and other $ 55,269 $ 54,803 Current finance lease liabilities Notes payable and current portion of debt 23,259 18,791 Total current lease liabilities $ 78,528 $ 73,594 Noncurrent operating lease liabilities Noncurrent Operating Lease Liabilities $ 282,877 $ 265,454 Noncurrent finance lease liabilities Long-term Debt, Net of Current Portion 63,955 70,203 Total noncurrent lease liabilities $ 346,832 $ 335,657 Total lease liabilities $ 425,360 $ 409,251 26 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Certain of the Company’s leases include variable costs. Variable costs include lease payments that were volume or usage-driven in accordance with the use of the underlying asset, and also non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the right of use assets recorded on the balance sheet were determined based upon factors considered at the commencement date of the leases, subsequent changes in the rate or index that were not contemplated in the right of use asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term. The following table sets forth the components of the Company’s total lease cost for the three-month periods ended March 31, 2024 and April 2, 2023: Three Months Ended Lease Cost March 31, 2024 April 2, 2023 Operating lease cost (a) $ 16,192 $ 13,411 Finance lease cost: Amortization of lease asset (a) 3,440 3,270 Interest on lease liabilities (b) 1,056 1,194 Variable lease cost (a) (c) 10,100 9,378 Total lease cost $ 30,788 $ 27,253 (a) Production-related and administrative amounts are included in cost of sales and selling, general and administrative expenses, respectively. (b) Included in interest expense. (c) Also includes short term lease costs, which are deemed immaterial . The following table sets forth certain lease-related information for the three-month periods ended March 31, 2024 and April 2, 2023: Three Months Ended March 31, 2024 April 2, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases $ 14,355 $ 13,561 Operating cash flows used by finance leases $ 1,056 $ 1,194 Financing cash flows used by finance leases $ 3,946 $ 4,581 Noncash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 26,818 $ 6,513 Leased assets obtained in exchange for new finance lease liabilities $ 2,292 $ 2,805 Modification to leased assets for increase in operating lease liabilities $ 4,171 $ 3,957 Termination reclasses to decrease operating lease assets $ ( 1,202 ) $ ( 2,029 ) Termination reclasses to decrease operating lease liabilities $ ( 1,432 ) $ ( 2,090 ) Termination reclasses to decrease finance lease assets $ — $ ( 962 ) Termination reclasses to decrease finance lease liabilities $ — $ ( 12 ) Note 14: Revenue Recognition The Company records revenue when control is transferred to the customer, which is either upon shipment or over time in cases where the Company is entitled to payment with margin for products produced that are customer specific without alternative use. The Company recognizes over time revenue under the input method as goods are produced. Revenue that is recognized at a point in time is recognized when the customer obtains control of the goods. Customers obtain control either when goods are delivered to the customer facility, if the Company is responsible for arranging transportation, or when picked up by the customer’s designated carrier. The Company commonly enters into Master 27 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Supply Arrangements with customers to provide goods and/or services over specific time periods. Customers submit purchase orders with quantities and prices to create a contract for accounting purposes. Shipping and handling expenses are included in “Cost of sales,” and freight charged to customers is included in “Net sales” in the Company’s Condensed Consolidated Statements of Income. The Company has rebate agreements with certain customers. These rebates are recorded as reductions of revenue and are accrued using sales data and rebate percentages specific to each customer agreement. Accrued customer rebates are included in “Accrued expenses and other” in the Company’s Condensed Consolidated Balance Sheets. Payment terms under the Company’s sales arrangements are short term, generally no longer than 120 days. The Company does provide prompt payment discounts to certain customers if invoices are paid within a predetermined period. Prompt payment discounts are treated as a reduction of estimated revenue and are determinable within a short time period following the sale. The following table sets forth the effects of contract assets and liabilities from contracts with customers. Contract assets and liabilities are reported in “Other receivables” and “Accrued expenses and other,” respectively, in the Company’s Condensed Consolidated Balance Sheets. March 31, 2024 December 31, 2023 Contract Assets $ 53,170 $ 54,334 Contract Liabilities $ ( 21,758 ) $ ( 24,973 ) Significant changes in the contract assets and liabilities balances during the three-month period ended March 31, 2024 and the year ended December 31, 2023 were as follows: March 31, 2024 December 31, 2023 Contract Asset Contract Liability Contract Asset Contract Liability Beginning Balance $ 54,334 $ ( 24,973 ) $ 56,008 $ ( 22,423 ) Acquired as part of a business combination — — — ( 1,436 ) Revenue deferred or rebates accrued — ( 16,449 ) — ( 53,464 ) Recognized as revenue 2,079 11,761 Rebates paid to customers — 17,585 — 40,589 Increases due to rights to consideration for customer specific goods produced, but not billed during the period 53,170 — 54,334 — Transferred to receivables from contract assets recognized at the beginning of the period and acquired as part of business combinations ( 54,334 ) — ( 56,008 ) — Ending Balance $ 53,170 $ ( 21,758 ) $ 54,334 $ ( 24,973 ) Contract assets represent goods produced without alternative use for which the Company is entitled to payment with margin prior to shipment. Upon shipment, the Company is entitled to bill the customer, and therefore amounts included in contract assets will be reduced with the recording of an account receivable as they represent an unconditional right to payment. Contract liabilities represent revenue deferred due to pricing mechanisms utilized by the Company in certain multi-year arrangements, volume rebates, and receipts of advance payments. For multi-year arrangements with pricing mechanisms, the Company will generally defer revenue during the first half of the arrangement and will release the deferral over the second half of the contract term. Contract assets and liabilities are generally short in duration given the nature of products produced by the Company. 28 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) The following tables set forth information about revenue disaggregated by primary geographic regions for the three-month periods ended March 31, 2024 and April 2, 2023. The tables also include a reconciliation of disaggregated revenue with reportable segments. The Company’s reportable segments are aligned by product nature as disclosed in Note 15 . Three-month period ended March 31, 2024 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 677,915 $ 354,366 $ 109,568 $ 1,141,849 Europe 112,787 97,700 14,390 224,877 Canada 30,452 24,770 — 55,222 Asia 25,905 56,950 354 83,209 Other 63,518 59,274 9,594 132,386 Total $ 910,577 $ 593,060 $ 133,906 $ 1,637,543 Three-month period ended April 2, 2023 Consumer Packaging Industrial Paper Packaging All Other Total Primary Geographical Markets: United States $ 737,791 $ 360,780 $ 127,127 $ 1,225,698 Europe 118,840 107,808 18,051 244,699 Canada 28,803 26,952 — 55,755 Asia 24,136 58,831 330 83,297 Other 48,438 61,484 10,412 120,334 Total $ 958,008 $ 615,855 $ 155,920 $ 1,729,783 Note 15: Segment Reporting The Company’s operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other. Effective January 1, 2024, the Company integrated its flexible packaging and thermoformed packaging businesses within the Consumer Packaging segment in order to streamline operations, enhance customer service and better position the business for accelerated growth. As a result, the Company changed its operating and reporting structure to reflect the way it now manages its operations, evaluates performance, and allocates resources. Accordingly, the Company’s consumer thermoformed businesses have moved from the All Other group of businesses to the Consumer Packaging segment. Prior year segment results presented below have been recast to conform with the current presentation. In addition, effective January 1, 2024, the Company began conducting its recycling operations, part of the Industrial Paper Packaging segment, as a procurement function. As a result, no recycling net sales are recorded and the margin from the operations reduces “Cost of sales.” The products produced and sold within the Consumer Packaging segment consist primarily of round and shaped rigid paper, steel and plastic containers; metal and peelable membrane ends, closures, and components; thermoformed plastic trays and applications; and high-barrier flexible packaging. The primary products produced and sold within the Industrial Paper Packaging segment include paperboard tubes, cones, and cores; paper-based protective packaging; and uncoated recycled paperboard. 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. The following tables set forth net sales, intersegment sales, segment operating profit, and the reconciliation of segment operating profit to “Income before income taxes.” 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 ASC 280 - “Segment Reporting,” as prescribed by the FASB. 29 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) SEGMENT FINANCIAL INFORMATION Three Months Ended March 31, 2024 April 2, 2023 Net sales: Consumer Packaging $ 910,577 $ 958,008 Industrial Paper Packaging 593,060 615,855 Total reportable segments $ 1,503,637 $ 1,573,863 All Other 133,906 155,920 Net Sales $ 1,637,543 $ 1,729,783 Intersegment sales (1) : Consumer Packaging $ 3,545 $ 2,007 Industrial Paper Packaging 28,417 38,720 Total reportable segments $ 31,962 $ 40,727 All Other 1,791 2,789 Intersegment Sales $ 33,753 $ 43,516 Segment operating profit (2) : Consumer Packaging $ 93,027 $ 96,494 Industrial Paper Packaging 65,844 94,367 Segment operating profit $ 158,871 $ 190,861 (1) Intersegment sales are recorded at a market-related transfer price. (2) Segment operating profit viewed by the Company’s management to evaluate segment performance does not include the following: restructuring/asset impairment charges; amortization of acquisition intangibles; acquisition, integration and divestiture-related costs; changes in last-in, first-out inventory reserves; gains/losses from the sale of businesses or other assets; derivative gains/(losses); 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. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and the All Other group of businesses. 30 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) RECONCILIATION OF SEGMENT OPERATING PROFIT TO INCOME BEFORE INCOME TAXES Three Months Ended March 31, 2024 April 2, 2023 Segment operating profit $ 158,871 $ 190,861 All Other operating profit 17,125 22,560 Corporate Restructuring/Asset impairment charges ( 31,618 ) ( 28,814 ) Amortization of acquisition intangibles ( 22,939 ) ( 21,164 ) Gains from divestiture of business and other assets — 72,010 Acquisition, integration and divestiture-related costs ( 5,661 ) ( 5,188 ) Changes in LIFO inventory reserves ( 431 ) 5,425 Derivative gains/(losses) 286 ( 6,085 ) Other operating (charges)/income, net (3) ( 3,180 ) 43 Operating profit $ 112,453 $ 229,648 Non-operating pension costs ( 3,295 ) ( 3,658 ) Interest expense ( 31,220 ) ( 34,232 ) Interest income 3,558 1,562 Income before income taxes $ 81,496 $ 193,320 (3) Primarily consists of losses related to highly inflationary accounting in Turkey and consulting fees. Note 16: Commitments and Contingencies Pursuant to U.S. GAAP, accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and that the amounts are reasonably estimable. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings from a variety of sources. Some of these exposures, as discussed below, have the potential to be material. Environmental Matters The Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. Spartanburg In connection with its acquisition of Tegrant in November 2011, the Company identified potential environmental contamination at a site in Spartanburg, South Carolina. Since the acquisition, the Company has spent a total of $ 2,175 on remediation of the Spartanburg site. At March 31, 2024 and December 31, 2023, the Company’s accrual for environmental contingencies related to the Spartanburg site totaled $ 5,225 and $ 5,259 , respectively. The Company cannot currently estimate its potential liability, damages or range of potential loss, if any, beyond the amounts accrued with respect to this exposure. However, the Company does not believe that the resolution of this matter has a reasonable possibility of having a material adverse effect on the Company’s financial statements. Other environmental matters The Company has been named as a potentially responsible party at several other environmentally contaminated sites. All of the sites are also the responsibility of other parties. The potential remediation liabilities are shared with such other parties, and, in most cases, the Company’s share, if any, cannot be reasonably estimated at the current time. However, the Company does not believe that the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company’s financial statements. At March 31, 2024 and December 31, 2023, the Company’s accrual for these other sites totaled $ 2,001 and $ 1,992 , respectively. 31 SONOCO PRODUCTS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars and shares in thousands except per share data) (unaudited) Summary As of March 31, 2024 and December 31, 2023, the Company and its subsidiaries had accrued $ 7,226 and $ 7,251 , respectively, related to environmental contingencies. These accruals are included in “Accrued expenses and other” in the Company’s Condensed Consolidated Balance Sheets. Other Legal Matters In addition to those matters described above, the Company is subject to other various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters could differ from management’s expectations, the Company does not believe the resolution of these matters has a reasonable possibility of having a material adverse effect on the Company’s financial statements. 32 SONOCO PRODUCTS COMPANY