SONOCO PRODUCTS CO (SON) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis contains forward-looking statements, including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and resources. Such forward-looking statements should be read in conjunction with our disclosures under "Forward-Looking Statements" and under “Item 1A. Risk Factors” of this Form 10-K.

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

General Overview

Sonoco is a leading provider of consumer packaging, industrial products and protective packaging with approximately 310 locations in 32 countries as of December 31, 2022. 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. Geographically, in 2022, approximately 72% of sales were generated in the United States, 13% in Europe, 6% in other regions, 5% in Asia, and 3% in Canada.

Sonoco’s strategy is to increase its long-term profitability and return capital to shareholders. Over the past several years, we have simplified our business portfolio around fewer, bigger businesses which has reduced operating complexity and improved agility. We are 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, we have worked on commercial, operational, and supply chain excellence programs to shift the mix of our business towards higher-valued products, improve our contracting process to better capture input costs and the value of the services we provide, and increase overall productivity.

Base operating profit is a non-GAAP financial measure reflecting adjustments to the reported GAAP operating profit for certain items. For an explanation of how and why the Company uses such non-GAAP financial measures, and the types of adjustments made, see "Use of Non-GAAP Financial Measures" below.

The Company's primary focus areas in 2022 were to continue to manage supply chain challenges presented by the COVID-19 pandemic, generate profitable growth, further seek capital investments and acquisitions that augment the Company's core portfolio, improve operating cash flow and profit margins, and enhance the Company's sustainability. 2022 was a pivotal year for the Company as we made significant progress in our growth as a world-class packaging company with a portfolio of highly engineered and sustainable products to support our customers.

On January 26, 2022, the Company completed the acquisition of Ball Metalpack, renamed Sonoco Metal Packaging, a leading supplier of metal packaging for food and household products and the largest aerosol can producer in North America. This acquisition expanded our sustainable packaging portfolio with metal packaging, a highly recyclable packaging substrate. On November 15, 2022, the Company completed the acquisition of Skjern, a privately owned paper manufacturer in Denmark. Skjern produces high-grade paperboard from recycled paper for rigid paper containers, tubes and cores, and other applications. Skjern has programs to reduce its carbon emissions, while its operations are powered by a biomass boiler, making them less reliant on natural gas. The acquisition is expected to expand production capacity for the Company’s converting operations and customers throughout Europe while capitalizing on the growing market for sustainable paper and packaging products. Both acquisitions build on the Company's strategy of investing in our core businesses. See additional information under “—Acquisitions and Divestitures—Acquisitions” below.

During the third quarter of 2022, the Company completed Project Horizon, a $125 million project to transform the corrugated medium machine in Hartsville, South Carolina to produce uncoated recycled paperboard ("URB"). The Company anticipates the upgraded paper machine to be fully operational early in 2023 and expects it to drive significant annualized savings as production ramps through 2023 and beyond. The new URB machine, with a targeted annual production capacity of 180,000 tons, was designed with the goal of being the largest and lowest-cost producer of URB in the world, 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, which commenced in 2020, also included the completion of a new finished goods warehouse on the Hartsville campus as well as other infrastructure improvements to the Hartsville paper manufacturing complex.

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The Company also continued efforts in commercial excellence to reposition pricing of certain items to less volatile indices while improving the timing of recovery for higher manufacturing. The results of these efforts, along with the successful integration of the Metal Packaging acquisition, reflected positively in the Company's 2022 financial results which were a record in the 124-year history of the Company.

As the Company looks to 2023, capital allocation remains a key factor of our strategy. We are focused on driving productivity as we expect to see the benefits of fewer supply chain and labor disruptions. Actions taken over the past several years have built resiliency into our operating model and are expected to help offset inflation. At the same time, we have invested capital in our core consumer and industrial businesses to position us well for longer term growth and profitability. We remain focused on improving returns on invested capital through organic investments in our core, accretive acquisitions, and potential portfolio rationalization while focusing on further improving returns to shareholders.

Use of Non-GAAP Financial Measures

To assess and communicate the financial performance of the Company, Sonoco 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 "Base") reflect adjustments to the Company's GAAP results to exclude amounts, including the associated tax effects, relating to:

•restructuring initiatives;

•asset impairment charges;

•acquisition/divestiture-related costs;

•gains or losses from the divestiture of businesses;

•losses from the early extinguishment of debt;

•non-operating pension costs;

•amortization expense on acquisition intangibles;

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

•certain income tax events and adjustments; and

•other items, if any.

The Company's management believes the exclusion of the above items improves the period-to-period comparability and analysis of the underlying financial performance of the business. The adjusted non-GAAP results are identified using the term “base,” for example, “base earnings.” 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. This change was made to better align the Company's definitions of base results with those of its peers, to better reflect the Company's operating performance, and to increase the usefulness of such measures to the investing community.

The Company’s non-GAAP financial measures are not in accordance with, nor an alternative for, measures conforming to generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Sonoco 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 “base” 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 plan/forecast all the way up through the 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.

Sonoco 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.

Restructuring and restructuring-related asset impairment charges are a recurring item as the Company's restructuring programs often 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. Similarly, non-operating pension expense is a recurring item. However, this expense is subject to significant fluctuations from period to period due to changes in actuarial assumptions, global financial markets (including stock market returns and interest rate changes), plan changes, settlements, curtailments, and other changes in facts and circumstances.

Reconciliations of GAAP to base results are presented under "—Reconciliations of GAAP to Non-GAAP Financial Measures" below in conjunction with management’s discussion and analysis of the Company’s results of operations. 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. Reconciliations are not provided for non-GAAP financial measures related to future years due to the likely occurrence of one or more of the following, the timing and magnitude of which management is unable to reliably forecast: possible gains or losses on the sale of businesses or other assets, restructuring costs and restructuring-related asset impairment charges, acquisition/divestiture-related costs, and the tax effect of these items and/or other income tax-related events. These items could have a significant impact on the Company's future GAAP financial results.

Acquisitions and Divestitures

Acquisitions

The Company completed three acquisitions during 2022 at a net cash cost of approximately $1.4 billion.

On November 15, 2022, the Company completed the acquisition of Skjern, a privately owned manufacturer of paper based in Denmark, for $88.6 million, net of cash acquired. Skjern produces high-grade paperboard from recycled paper for rigid paper containers, tubes and cores, and other applications. The acquisition is expected to expand production capacity for the Company’s converting operations and customers throughout Europe.

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On August 31, 2022, the Company completed the acquisition of Nordeste Tubetes and NE Tubetes (collectively “Nordeste”), two small tube and core operations in Brazil. Total consideration for the two businesses was $6.5 million, including cash paid at closing of $3.9 million, additional payments in October and November 2022 totaling $0.7 million, and deferred payments totaling $1.9 million that are expected to be paid over the next six years.

On January 26, 2022, the Company completed the acquisition of Ball Metalpack, renamed Sonoco Metal Packaging, a leading supplier of sustainable metal packaging for food and household products and the largest aerosol can producer in North America, for $1.3 billion, net of cash acquired. As previously disclosed, final consideration was subject to customary post-closing adjustments for working capital, cash and indebtedness and was finalized in the second quarter of 2022. The Company received cash from the sellers totaling $14.8 million, of which $6.9 million had been reflected as a receivable at the time of the initial purchase price allocation. Prior to the Company's acquisition of Metal Packaging, Ball Metalpack was a joint venture formed in 2018 and owned by Platinum Equity (51%) and Ball Corporation (49%). As of December 31, 2022, Metal Packaging consisted of eight manufacturing plants in the United States and a headquarters facility in Broomfield, Colorado. Factors comprising goodwill at Metal Packaging include increased access to certain markets as well as the value of the assembled workforce.

Also, on November 9, 2022, the Company entered into a definitive agreement to purchase the remaining equity interest in RTS from joint venture partner WestRock Company ("WestRock") and one WestRock paper mill in Chattanooga, Tennessee, for $330 million in cash, subject to customary closing adjustments. In January 2023, both the Company and WestRock received a request for additional information and documentary material (a "Second Request") from the Antitrust Division of the U.S. Department of Justice (the "DOJ"). Issuance of the Second Request extends the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), until 30 days after we and WestRock have each substantially complied with the Second Request, unless the period for review is extended voluntarily by the parties and the DOJ or is terminated earlier by the DOJ. We anticipate completing the transaction in the second half of 2023, subject to the satisfaction or waiver of the closing conditions contained in the purchase agreement, including the expiration or early termination of waiting periods or extensions thereof under the HSR Act. Upon completion of the transaction, the Company will own 100% of RTS, which is currently operated as a joint venture between Sonoco (35% ownership interest) and WestRock (65% ownership interest). The RTS joint venture was formed in 1997 and combined the former protective packaging operations of WestRock and the Company to market solid fiber partitions from recycled paperboard to glass container manufacturers and producers of wine, liquor, food, and pharmaceuticals.

Divestitures

On January 26, 2023, the Company completed the sale of its S3 business, a provider of customized waste and recycling management programs and part of the Company's Industrial Paper Packaging segment, to Northstar Recycling Company, LLC ("Northstar") for a total sales price of $15.3 million, including a 2.7% equity interest in Northstar valued at $5.0 million. The Company expects to recognize a gain from the divestiture of this business of approximately $11.0 million, before tax, in the first quarter of 2023.

As previously disclosed, the Company completed the divestiture of its global display and packaging business in two separate transactions, the European contract packaging business on November 30, 2020 and the U.S. display and packaging business on April 4, 2021. These businesses, which included point-of-purchase displays, fulfillment operations, and contract packaging, were reported in All Other. Although no divestitures were completed in 2022, the Company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the divestiture of plants and/or business units it considers to be suboptimal or nonstrategic. See Note 3 to the Consolidated Financial Statements for further information about acquisitions and divestitures.

Restructuring and Asset Impairment Charges

Due to its geographic footprint (approximately 310 locations in 32 countries as of December 31, 2022) and the cost-competitive nature of its businesses, the Company frequently seeks more cost-effective means and structures to serve its customers, to improve profitability, and to respond to fundamental changes in its markets. As such, restructuring costs have been and are expected to be a recurring component of the Company’s operating costs. The amount of these costs can vary significantly from year to year depending upon the scope and location of the restructuring activities.

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The following table summarizes the impact of restructuring and asset impairment charges for each of the years presented:

During 2022, the Company recognized restructuring charges related to severance for employees terminated as a result of various plant closures or whose positions were eliminated as part of the Company's ongoing organizational effectiveness efforts. Restructuring charges were also incurred during the year for consulting services and costs related to plant closures, including equipment removal, utilities, plant security, property taxes, and insurance at closed facilities. Asset impairment charges were recognized in the Industrial Paper Packaging and Consumer Packaging segments as the result of plant closures and were partially offset by gains from the sales of previously impaired assets and closed facilities during the year. The Company recognized other asset impairment charges in 2022 totaling $10.1 million, primarily as a result of completing the exit of its operations in Russia during the second quarter of 2022. These operations consisted of two small tube and core plants and were part of the Industrial Paper Packaging segment.

During 2021, the Company recognized severance charges for employees terminated as a result of various plant closures, employees impacted by Project Horizon, and employees whose positions were eliminated in conjunction with the Company's ongoing organizational effectiveness efforts. In addition, the Company recognized gains from the sale of real estate in the Industrial Paper Packaging segment and gains from the sale of other assets impaired in the prior year as a result of consolidations in the Company's Plastics - Food thermoforming operations. The Company recognized other asset impairment charges totaling $5.0 million in the year ended December 31, 2021. These charges consisted of fixed asset impairments in the Company's Plastics - Food thermoforming operations, part of the Consumer Packaging segment, and in the temperature-assured packaging business, part of the All Other group of businesses.

The Company expects to recognize future additional costs totaling approximately $8.4 million in connection with previously announced restructuring actions. The Company believes that the majority of these charges will be incurred and paid by the end of 2023. The Company regularly evaluates its cost structure, including its manufacturing capacity, and additional restructuring actions are likely to be undertaken. Restructuring and asset impairment 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 Company operates.

See Note 4 to the Consolidated Financial Statements for further information about restructuring activities and asset impairment charges.

Reconciliations of GAAP to Non-GAAP Financial Measures

The following tables reconcile the Company’s non-GAAP financial measures to their most directly comparable GAAP financial measures for each of the years presented:

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(1) Restructuring/Asset impairment charges are a recurring item as Sonoco’s restructuring actions 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.

(2) Beginning in 2022, the Company redefined base results to exclude amortization of intangible assets related to acquisitions. Prior year results have been revised to conform with the new presentation.

(3)    Includes legal and professional fees related to acquisition and divestiture transactions, whether proposed or consummated. 2022 also includes approximately $33,000 of fair value adjustments to acquisition-date inventory related to Metal Packaging.

(4)     Includes non-operating pension costs, unrealized losses related to commodity hedges of approximately $8,000, change in LIFO inventory reserves of approximately $28,000, and the release of valuation allowance on foreign tax credits of approximately $13,200.

(5)     Non-operating pension costs include settlement charges of approximately $551,000 related primarily to the settlement of the Sonoco Pension Plan for Inactive Participants (the "Inactive Plan") in the second quarter.

(6) Due to the magnitude of certain expenses considered by management to be non-base, the Company reported a 2021 GAAP net loss attributable to Sonoco. In instances where a company incurs a net loss, including potential common shares in the denominator of a diluted earnings per-share computation will have an antidilutive effect on the per-share loss. GAAP therefore requires the exclusion of any unexercised share awards or other like instruments for purposes of calculating weighted average shares outstanding. Accordingly, the Company did not include any unexercised share awards or other like instruments in calculating weighted average shares outstanding for GAAP purposes in the table above, which resulted in basic weighted average common 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 and comparability of base diluted earnings per share, dilutive unexercised share awards were included in the calculation to the same extent they would have been had GAAP net income attributable to Sonoco been equal to base net income attributable to Sonoco.

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Results of Operations – 2022 Versus 2021

Net income/(loss) attributable to Sonoco ("GAAP results") was net income of $466.4 million ($4.72 per diluted share) in 2022, compared with a net loss of $(85.5) million ($(0.86) per diluted share) in 2021.

The GAAP results reflect net after-tax, non-base charges totaling $173.1 million and $478.4 million in 2022 and 2021, respectively. These non-base items consisted of the following:

Adjusted for these items, base net income ("base earnings") in 2022 was $639.5 million ($6.48 per diluted share), compared with $392.9 million ($3.93 per diluted share) in 2021.

Both GAAP and base earnings in 2022 reflect the impact of a positive price/cost relationship which was especially impactful to our Industrial Paper Packaging segment. Additionally, the Metal Packaging acquisition contributed to the year-over-year increase in earnings. These gains were partially offset by declines in volume, particularly in the Industrial Paper Packaging segment, as well as the negative impact of foreign currency exchange rates. GAAP earnings in 2022 were favorably impacted by a $561.3 million decrease in non-operating pension costs which was driven by the settlement of the Inactive Plan in the second quarter of 2021. This was partially offset by a $42.7 million increase in restructuring activity and asset write-offs, which included a $9.2 million impairment charge from the Company's exit of its Russia operations.

The effective tax rates on GAAP and base earnings for the full year 2022 were 20.7% and 23.9%, respectively, compared with 41.9% and 23.7%, respectively in 2021. The decrease in the GAAP effective tax rate for 2022 was due primarily to the prior year regular tax benefit recognized on the Company's reported pretax loss together with a prior year discrete tax benefit from the realization of additional foreign tax credits. The Company's 2022 GAAP rate also benefited from the release of a valuation allowance on foreign tax credits.

Consolidated net sales for 2022 were $7.3 billion, a $1.7 billion, or 29.7%, increase from 2021. The components of the sales change were:

Sales volume/mix declined approximately 2.9% driven by decreases in the Industrial Paper Packaging segment partially offset by increases in the Consumer Packaging segment. Volume/mix growth in the Consumer Packaging segment was driven by food product packaging. Selling prices were higher year over year in all segments due to strong strategic pricing performance. Additionally, sales increased by $1,035.0 million from the acquisition of Metal Packaging in January 2022.

Total domestic sales were $5.2 billion, up 43.3% from 2021, as higher selling prices in all businesses located in the United States and sales from the Metal Packaging acquisition more than offset demand declines, primarily in the Industrial Paper Packaging segment, and the domestic divestiture of the U.S. display and packaging business. International sales were $2.0 billion, up 4.0% from 2021. The year-over-year increase in international sales was driven by increased sales prices.

Costs and Expenses/Margins

Cost of sales increased $1,282.4 million in 2022, or 28.3%, from the prior year. This increase was largely driven by inflation, which had the impact of increasing the Company's LIFO inventory reserves, and costs added by the January 2022 acquisition of Metal Packaging, including expensing the acquisition-date fair value adjustments to finished goods inventory. Gross profit margins increased to 19.9% in 2022 from 19.0% in the prior year due to a positive price/cost relationship.

Selling, general and administrative ("SG&A") expenses increased $149.2 million, or 26.7%, and were 9.8% of sales compared to 10.0% of sales in 2021. The current year increase in SG&A expenses was driven by the January 2022 acquisition of Metal Packaging, increased amortization of acquisition intangibles, higher acquisition and divestiture transaction costs, losses on certain derivative transactions, increased compensation and benefits, increased information technology costs, and the absence of non-recurring insurance gains and VAT refunds in the prior year.

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Restructuring and asset impairment charges totaled $56.9 million and $14.2 million in 2022 and 2021, respectively. The year-over-year increase was driven by higher year-over-year restructuring activity in the current year, including a $9.2 million impairment charge resulting from the Company’s exit from its Russian operations. Prior year restructuring costs were offset by gains recorded in 2021 for the sale of buildings at previously closed facilities. Additional information regarding restructuring actions and asset impairments is provided in Note 4 to the Company’s Consolidated Financial Statements.

Non-operating pension costs were $7.1 million in 2022, compared with $568.4 million in 2021. The year-over-year decrease of $561.3 million was primarily due to the settlement of the Inactive Plan in the second quarter of 2021, resulting in a $538.7 million settlement charge. See Note 13 to the Consolidated Financial Statements for further information on employee benefit plans.

In 2021, the Company recognized a loss on the early extinguishment of debt totaling $20.2 million pursuant to a tender offer through which the Company retired a portion of its 5.750% notes due November 2040. See Note 9 to the Consolidated Financial Statements for further information.

Net interest expense totaled $97.0 million for the year ended December 31, 2022, compared with $59.2 million in 2021. The increase was primarily due to the higher year-over-year debt balances related to the financing of the January 2022 acquisition of Metal Packaging.

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.

Consolidated operating profits, reported as “Operating Profit” in the Company's Consolidated Statements of Income, are comprised of the following:

Segment results viewed by Company management to evaluate segment performance do not include restructuring/asset impairment charges, acquisition/divestiture-related charges, gains or losses from the divestiture of businesses, amortization of acquired intangibles, changes in LIFO inventory reserves, and certain other non-operational income and expenses, if any, the exclusion of which the Company believes improves comparability and analysis. 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.

See Note 18 to the Company’s Consolidated Financial Statements for more information on reportable segments.

Consumer Packaging

Consumer Packaging segment trade sales increased year over year primarily due to sales added by the acquisition of Metal Packaging in January 2022 and strong strategic pricing performance throughout the consumer businesses. Positive volume/mix growth for the full year was driven by food products. Foreign currency translation decreased sales by approximately $63 million year over year due to a stronger U.S. dollar. Domestic sales were approximately $2,960 million, up 84.1%, or $1,352 million, from 2021, while international sales were approximately $808 million, up 6.2%, or $47 million, from 2021.

Segment operating profits increased by $251.1 million year over year and operating profit margins increased from 11.6% to 14.0%. The increases in segment operating profits and operating profit margins were largely driven by the Metal Packaging acquisition, favorable price/cost relationship, including the benefits of strategic pricing initiatives, and productivity gains.

Capital spending in the segment included numerous productivity projects and expansion of manufacturing capabilities in North America (primarily rigid paper containers, metal packaging, and flexible packaging), Europe and Asia (primarily rigid paper containers).

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Industrial Paper Packaging

Domestic trade sales in the segment increased $190 million, or 13.3%, to $1,611 million, while international trade sales increased $31 million, or 2.9%, to $1,073 million. The increase in both domestic and international trade sales resulted primarily from strong strategic pricing performance, with selling prices increased to cover increased raw material and other operating costs. Those gains were partially offset by the negative impact of foreign currency translation of approximately $112 million and lower volume/mix globally in both converted products and paper, which also includes the impact of the exit of the corrugated medium market from the conversion of the Company's #10 paper machine. Segment operating profit increased year over year, driven by a positive price/cost relationship, partially offset by decreased volume/mix, productivity losses, and the negative impact from foreign currency translation due to a stronger dollar.

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 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 discussed above, 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.

In addition to Project Horizon, capital spending in the segment included modifications of several paper machines in North America, numerous productivity projects, and IT investments.

All Other

The year-over-year increase in sales was due to increased selling prices implemented to recover increased costs. The gains due to pricing were partially offset by the $34 million impact of the 2021 divestiture of the Company's U.S. display and packaging business and the negative impact of foreign currency translation.

All Other operating profit increased year over year, driven by a positive price/cost relationship. Operating profit increases were partially offset by foreign currency translation and the impact of the divested display and packaging business.

Capital spending in the All Other group of businesses was mostly related to customer development and productivity related projects in North America, primarily in our molded foam protective packaging and temperature assured businesses.

Financial Position, Liquidity and Capital Resources

Cash Flow

Operating Activities

Cash flows from operations totaled $509.0 million in 2022 compared with $298.7 million in 2021, a year-over-year increase of $210.4 million. Although GAAP net income increased $549.7 million year over year, the increase was largely due to a decline in non-cash pension costs, and their related tax effects, attributable to the pension settlement charges incurred in 2021. Net income in the current year also reflected the earnings impact of the Metal Packaging acquisition and higher non-cash expenses for depreciation and amortization, up $63.6 million, and net asset impairment charges, up $25.5 million. Cash pension contributions in 2022 were $37.4 million, a year-over-year decrease of $126.3 million from 2021 as additional contributions were required in the prior year to fully fund the Inactive Plan prior to settling the plan's obligations in the second quarter of 2021. Cash paid for taxes decreased $10.7 million year over year; 2022 tax payments benefited from additional accelerated tax depreciation in the United States resulting from the Metal Packaging acquisition.

Accrued expenses and other assets and liabilities provided $17.9 million of cash in 2022 and used $13.4 million of cash in 2021. The year-over-year change was largely the result of higher management incentive accruals and higher accrued interest stemming from debt incurred to finance acquisition activity in 2022, partially offset by the second and final payment of certain 2020 payroll taxes that were deferred under the CARES Act.

These provisions of cash were partially offset by changes in net working capital, which consumed $328.7 million of cash in 2022 and $107.4 million of cash in 2021. The additional consumption of $221.3 million was primarily driven by higher inventory levels resulting from pre-buys of steel in the Metal Packaging business, coupled with the impact of inflation and inventory build in the Company's food businesses. Accounts payable used $145.2 million more cash in 2022 than in 2021 as business levels over the last few weeks of 2022 were lower than the comparable period in 2021 and the higher levels of accounts payable at the end of 2021 were paid during 2022. Accounts receivable provided $147.3 million more cash in 2022 than in 2021 as the Company continued to actively manage collections and drive strong customer payment terms compliance.

Investing Activities

Cash used by investing activities was $1,741.4 million in 2022, compared with $165.9 million in 2021. Spending on acquisitions used $1,427.0 million of cash in 2022 compared with $22.2 million in 2021. The increase in acquisition spending was driven by the January 2022 acquisition of Metal Packaging. Capital spending was $328.8 million in 2022, compared with $256.0 million in 2021, an increase of $72.8 million primarily due to increased spending in the Consumer Packaging segment related to numerous productivity projects and expansion of manufacturing capabilities in North America, Europe and Asia. Capital spending on Project Horizon, a $125 million project to convert our corrugated medium machine to a state-of-the-art uncoated recycled paperboard machine, declined year over year as spending was substantially completed in 2022.

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There were no proceeds from the sale of businesses in 2022, compared to $91.6 million in 2021, primarily from the sale of the Company's U.S display and packaging business. The Company received proceeds from the sale of assets totaling $9.6 million in 2022 compared with $13.2 million in the prior year.

Financing Activities

Net cash provided by financing activities totaled $1,294.2 million in 2022, compared with a net use of cash of $513.5 million in 2021. Financing activities in 2022 included net proceeds of $1,189.9 million from the issuance of green bonds and proceeds from a $300 million three-year term loan facility. These proceeds were used primarily to fund the January 2022 acquisition of Metal Packaging. The Company received an additional $400.0 million of proceeds from a 364-day term loan facility on December 2, 2022. These proceeds were used for general corporate purposes, including the repayment of certain short-term debt. The use of cash in 2021 reflects $212.0 million of share repurchases pursuant to a repurchase authorization approved by the Company's Board of Directors in April 2021. No repurchases were made under this authorization in 2022. Cash of $14.5 million was used to purchase the remaining shares of a noncontrolling interest in 2022 and excess cash costs related to the early extinguishment of debt used $20.1 million of cash in 2021.

Cash dividends totaled $187.1 million in 2022 compared to $178.6 million in 2021, reflecting the increase in the quarterly dividend payment from $0.45 per share to $0.49 per share approved by the Board of Directors in February 2022, partially offset by the impact of the share repurchases completed in 2021.

The change in outstanding checks used cash of $18.5 million in 2022 while providing cash of $7.0 million in the prior year. The year-over-year change is the result of the timing and size of the last accounts payable check runs in 2022 and 2021 relative to the Company's December 31 year end.

Capital Resources

Current assets increased year over year by $703 million to $2,361 million at December 31, 2022, and current liabilities increased by $218 million to $1,744 million, resulting in an increase in the Company’s ratio of current assets to current liabilities to 1.4 at December 31, 2022 from 1.1 at December 31, 2021. Current assets were higher as a result of the acquisition of Metal Packaging in January 2022 and higher inventory levels resulting from pre-buys of steel in the Metal Packaging business, coupled with the impact of inflation and inventory build in the Company's food businesses. The year-over-year increase in current liabilities was primarily due to an increase in trade accounts payable stemming from the buildup of inventory, an increase in the short-term borrowings, and higher accrued interest related to the green bonds used to fund the Metal Packaging acquisition.

The Company’s cash balances are held in numerous locations throughout the world. At December 31, 2022 and 2021, approximately $170.1 million and $154.4 million, respectively, of the Company’s reported cash and cash equivalents balances of $227.4 million and $171.0 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. As the Company has maintained sufficient domestic liquidity through a combination of operating cash flow generation and access to bank and capital markets borrowings, we have generally considered our foreign unremitted earnings to be indefinitely invested outside the United States and currently have no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost. Accordingly, as of December 31, 2022, 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.

The Company uses a notional pooling arrangement with an international bank to help manage global liquidity requirements. 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 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, as part of its ongoing efforts to improve cash flow and related liquidity, works with suppliers to improve its terms and conditions, including extending payment terms. Beginning in 2020, the Company also began a voluntary supply chain financing program (the "program") to provide certain suppliers with the opportunity to sell receivables due from the Company to the program's participating financial institution. Such sales are conducted at the sole discretion of both the suppliers and the financial institution on a non-recourse basis at a rate that leverages the credit rating of the Company and thus might be more beneficial to the supplier. No guarantees are provided by the Company or any of its subsidiaries under the program. Responsibility is limited to making payment on the terms originally negotiated with suppliers, regardless of whether those suppliers sell the receivables to the financial institution. The Company does not enter into any agreements with suppliers regarding their participation in the program. All amounts outstanding at December 31, 2022 under the program were recorded within trade accounts payable. The amount owed to the participating financial institution under the program and included in accounts payable for continuing operations was $52.4 million at December 31, 2022 and $46.8 million at December 31, 2021. The Company accounts for all payments made under the program as a reduction to cash flows from operations and reports them within "changes in payable to suppliers" in the Consolidated Statements of Cash Flows. The total amount settled through the program and paid by the Company to the participating financial institution was $270 million during 2022 and $178 million during 2021. A downgrade in the Company's credit rating or changes in the financial markets could limit financial institutions’ willingness to commit funds to, and participate in, the program. However, the Company does not believe a reduction in, or the elimination of, the program would have a material impact on its working capital or cash flows.

The Company’s total debt at December 31, 2022, was $3.2 billion, a year-over-year increase of $1.6 billion. The year-over-year change reflects the following actions taken during 2022:

•On January 21, 2022, the Company completed its inaugural offering of green bonds to support the Company's sustainability strategy and to fund the acquisition of Metal Packaging. The aggregate principal amount of the unsecured notes totaled $1.2 billion, consisting of the following:

◦$400 million aggregate principal amount of 1.800% Notes due 2025,

◦$300 million aggregate principal amount of 2.250% Notes due 2027, and

◦$500 million aggregate principal amount of 2.850% Notes due 2032.

•On January 21, 2022, the Company entered into a $300 million term loan facility, maturing on January 27, 2025, with a syndicate of eight banks. The funds from this facility were drawn on January 26, 2022 and used, along with a portion of the net proceeds from the bonds and commercial paper borrowings, to fund the acquisition of Metal Packaging.

29 FORM 10-K SONOCO 2022 ANNUAL REPORT

•On December 2, 2022, the Company entered into a $400 million term loan facility, maturing on December 1, 2023, with a syndicate of banks. The full amount was drawn on December 2, 2022, and the proceeds used for general corporate purposes, including repayment of certain short-term debt.

As previously disclosed, the Company also maintains a $750 million, unsecured revolving credit facility, maturing in June 2026, that supports the Company's $500 million commercial paper program.

At December 31, 2022, the Company had approximately $227 million in cash and cash equivalents on hand and $750 million in committed availability under its revolving credit facility, all of which was available for drawdown. 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.

As of December 31, 2022, the Company had scheduled debt maturities of $502.4 million, $15.0 million, $715.3 million, $14.6 million, and $302.0 million in 2023, 2024, 2025, 2026, and 2027, respectively. See Note 9 to the Consolidated Financial Statements for additional information regarding the Company's contractual principal debt maturities.

The Company's contractual obligation maturities for interest payments on outstanding fixed-rate, long-term debt, as well as financing fees on the backstop line of credit, are expected to total approximately $78.8 million in both 2023 and 2024, $72.2 million in 2025, $71.6 million in 2026, and $64.9 million in 2027.

Capital spending is expected to total approximately $350 million in 2023, slightly higher than 2022, due to anticipated capital investments in our Consumer Packaging segment, including Metal Packaging, which will more than offset the impact of the completion of spending on Project Horizon in 2022. Consistent with its past practice, the Company expects to continue investing in its capital assets in subsequent periods but does not currently have significant contractual commitments.

The Company believes cash on hand and available credit, combined with expected net cash flows generated from operating and investing activities, will provide sufficient liquidity to cover these and other cash flow needs of the Company over the course of 2023 and beyond.

Acquisitions and internal investments are key elements of the Company’s growth strategy. The Company believes that its cash on hand, coupled with cash generated from operations and available borrowing capacity will enable it to support this strategy. Although the Company believes that it has excess borrowing capacity beyond its current lines of credit, there can be no assurance that such financing would be available or available on terms that are acceptable to the Company. The Company continually assesses its operational footprint as well as its overall portfolio of businesses and may consider the divestiture of plants and/or business units it considers to be suboptimal or nonstrategic. Should these efforts result in the future sale of any plants or business units, management expects to utilize the proceeds to pay down debt and/or invest in growth projects or strategic acquisitions.

The net underfunded position of the Company’s various U.S and international defined benefit pension and postretirement plans was $98 million at the end of 2022, compared with $97 million at the end of 2021. The Company contributed approximately $37 million to its benefit plans in 2022, including a $22 million contribution to the Sonoco Retirement Contribution ("SRC"). Benefit plan contributions in 2023 are expected to total approximately $15 million. Future funding requirements will depend largely on actual investment returns, future actuarial assumptions, legislative actions, and changes to the Company's benefit offerings.

As previously disclosed, the Sonoco Retirement and Savings Plan was amended in the prior year to eliminate the SRC and to increase the Company's 401(k) matching contribution to 100% of the first 6% of eligible contributions effective as of December 31, 2021. The amendment was neutral to total expense in 2022; however, operating cash flow was negatively affected in 2022 as it reflected both the annual funding of the SRC earned in 2021 and the higher 401(k) matching contributions.

Total equity increased $223 million during 2022 as net income of $467 million and stock-based compensation of $31 million were partially offset by other comprehensive loss of $70 million, dividends of $188 million, the purchase of a noncontrolling interest of $13 million, and share repurchases of $5 million for tax share withholdings on vested stock compensation granted to employees. The primary driver of other comprehensive loss was a $69 million translation loss from the impact of a stronger U.S. dollar on the Company’s foreign investments.

On April 20, 2021, the Company’s Board of Directors authorized the repurchase of the Company's common stock up to an aggregate amount of $350 million. The Company purchased a total of 3.29 million shares under this authorization during 2021 at a cost of $212 million. No shares were repurchased under this authorization during 2022; accordingly, a total of $138 million remains available for share repurchases at December 31, 2022.

Although the ultimate determination of whether to pay dividends is within the sole discretion of the Board of Directors and is based on a variety of factors, the Company plans to continue paying dividends consistent with historical practice as earnings and the Company's liquidity permit. Dividends per common share were $1.92 in 2022, $1.80 in 2021 and $1.70 in 2020. On February 8, 2023, the Company declared a regular quarterly dividend of $0.49 per common share payable on March 10, 2023, to shareholders of record on February 22, 2023.

The Company routinely enters into leasing arrangements for real estate (including manufacturing facilities, office space, warehouses, and packaging centers), transportation equipment (automobiles, forklifts, and trailers), and office equipment (copiers and postage machines). Lease contracts with a term of 12 months or less are not recorded on the consolidated balance sheet. Leased assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation arising from the lease. Leased assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most real estate leases, in particular, include one or more options to renew, with renewal terms that typically extend the lease term in increments from one to five years. For additional information regarding the Company's contractual lease obligations, see Note 7 to the Consolidated Financial Statements.

As of December 31, 2022, the Company had long-term obligations to purchase electricity and steam, which it uses in its production processes, as well as long-term purchase commitments for certain raw materials, principally old corrugated containers. For additional information regarding the Company's purchase commitment obligations, see Note 16 to the Consolidated Financial Statements.

Risk Management

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 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 may use 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 consolidated financial statements by hedging 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.

30 FORM 10-K SONOCO 2022 ANNUAL REPORT

Due to the highly inflationary economy in Venezuela, the Company considers the U.S. dollar to be the functional currency of its Venezuelan operations and uses the official exchange rate when remeasuring the financial results of those operations. Economic conditions in Venezuela have worsened considerably over the past several years and there is no indication that conditions are due to improve in the foreseeable future. Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the subsidiary. At December 31, 2022, the carrying value of the Company's net investment in its Venezuelan operations was approximately $2.1 million. In addition, at December 31, 2022, the Company's accumulated other comprehensive loss included a cumulative translation loss of approximately $3.8 million related to its Venezuela operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of these 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. GAAP. Accordingly, effective as of the beginning of the second quarter of 2022, the Company considers the U.S. dollar to be the functional currency of its 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 was a pretax charge to earnings of approximately $2.7 million (approximately $2.1 million after tax) in 2022. 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. dollar. 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, as of December 31, 2022, was approximately $18.5 million.

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 December 31, 2022, the Company had derivative contracts outstanding to hedge the prices on a portion of anticipated natural gas and aluminum purchases. These contracts, which qualify as cash flow hedges, included natural gas swaps covering approximately 0.2 million metric million British thermal units ("MMBTUs") and aluminum swaps covering 983 metric tons. In addition, at December 31, 2022, the Company had certain other commodity contracts outstanding to manage the cost of anticipated natural gas purchases for which the Company does not apply hedge accounting. These contracts consist of natural gas swaps covering approximately 7.3 million MMBTUs. The Company's combined designated and non-designated derivative contracts totaled approximately 70% and 13% of anticipated natural gas and aluminum usage, respectively, in North America for 2023.

The Company routinely enters into forward contracts to hedge certain anticipated foreign currency denominated sales, purchases, and capital spending. For such contracts that are designated and qualify as a cash flow hedge under Accounting Standards Codification ("ASC") 815, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the periods during which the hedged transaction affects earnings. At December 31, 2022, the total notional amount of these contracts, in U.S. dollar terms, was $110 million, of which $28 million related to the Mexican peso, $27 million to the Polish zloty, $25M to the Canadian dollar, $11 million to the Euro, $7 million to the British pound, $6 million to the Colombian peso, and $6 million to all other currencies. The Company also routinely enters into forward contracts to economically hedge the currency exposure of intercompany debt and foreign currency denominated receivables and payables. The Company does not apply hedge accounting treatment under ASC 815 for these instruments. As such, changes in fair value are recorded directly to income and expense in the periods that they occur.

The total fair market value of the Company's derivatives was a net unfavorable position of $(9.3) million at December 31, 2022, and a net favorable position of $1.5 million at December 31, 2021. Derivatives are marked to fair value using published market prices, if available, or using estimated values based on current price quotes and a discounted cash flow model. See Note 10 to the Consolidated Financial Statements for more information on financial instruments.

The Company is subject to various federal, state and local environmental laws and regulations in the United States and in each of the countries where we conduct business, concerning, among other matters, solid waste disposal, wastewater effluent and air emissions. Although the costs of compliance have not been significant due to the nature of the materials and processes used in manufacturing operations, such laws also make generators of hazardous wastes and their legal successors financially responsible for the cleanup of sites contaminated by those wastes. The Company has been named a potentially responsible party at several environmentally contaminated sites. These regulatory actions and a small number of private party lawsuits are believed to represent the Company’s largest potential environmental liabilities. The Company has accrued $7.3 million at December 31, 2022, compared with $7.4 million at December 31, 2021, with respect to these sites. See “Environmental Charges” in Item 3 – Legal Proceedings and Note 16 to the Consolidated Financial Statements for more information on environmental matters.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to inventories, bad debts, derivatives, income taxes, share-based compensation, goodwill, intangible assets, restructuring, pension and other postretirement benefits, environmental liabilities, and contingencies and litigation. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results could differ from those estimates. The impact of and any associated risks related to estimates, assumptions and accounting policies are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to the Consolidated Financial Statements, if applicable, where such estimates, assumptions and accounting policies affect the Company’s reported and expected financial results.

The Company believes the accounting policies discussed in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K are critical to understanding the results of its operations. The following discussion represents those policies that involve the more significant judgments and estimates used in the preparation of the Company’s Consolidated Financial Statements.

31 FORM 10-K SONOCO 2022 ANNUAL REPORT

Business Combinations

The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business Combinations." The Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of the consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.

Significant estimates and assumptions in estimating the fair value of acquired customer relationships, technology, and other identifiable intangible assets include future cash flows that the Company expects to generate from the acquired assets, discount rate, customer attrition rate, and long-term revenue growth projections. Projecting discounted future cash flows requires the Company to make significant estimates regarding projected revenues, projected earnings before interest, taxes, depreciation, and amortization margins, discount rates and customer attrition rates. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense on definite lived intangible assets. If the estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could become impaired.

For leases in which the acquired business is a lessee, the Company measures the lease liability at the present value of the remaining lease payments, as if the acquired lease were a new lease of the Company at the acquisition date. The Company measures the right-of-use asset at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.

Impairment of Long-Lived, Intangible and Other Assets

Assumptions and estimates used in the evaluation of potential impairment can result in adjustments affecting the carrying values of long-lived, intangible and other assets and the recognition of impairment expense in the Company’s Consolidated Financial Statements. The Company evaluates its long-lived assets (property, plant and equipment), definite-lived intangible assets and other assets (including right of use lease assets, notes receivable and equity investments) for impairment whenever indicators of impairment exist, or when it commits to sell the asset. If the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible asset group is less than the carrying value of that asset group, an asset impairment charge is recognized. Key assumptions and estimates used in the projection of expected future cash flows generally include price levels, sales growth, profit margins and asset life. The amount of an impairment charge, if any, is calculated as the excess of the asset’s carrying value over its fair value, generally represented by the discounted future cash flows from that asset or, in the case of assets the Company evaluates for sale, estimated sale proceeds less costs to sell. The Company takes into consideration historical data and experience together with all other relevant information available when estimating the fair values of its assets. However, fair values that could be realized in actual transactions may differ from the estimates used to evaluate impairment. In addition, changes in the assumptions and estimates may result in a different conclusion regarding impairment.

Impairment of Goodwill

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 Accounting Standards Codification 350 - "Intangibles-Goodwill and Other."

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 qualitative evaluations considered factors such as the macroeconomic environment, the industry, the Company's overall financial performance, the current and projected financial performance of specific reporting units, and business strategy changes. The quantitative tests, described further below, relied on the current outlook of reporting unit management for future operating results and took into consideration, among other things, specific business unit risk, the countries in which the reporting units operate, and implied fair values based on comparable trading multiples.

When performing a quantitative analysis, the Company estimates the fair value of its reporting units using a discounted cash flow model based on projections of future years’ operating results and associated cash flows. The Company's assessments reflect significant management assumptions and estimates related to the Company's forecast of sales growth, gross profit margins and discount rates, which are validated by observed comparable trading and transaction multiples based on guideline public companies. The Company’s model discounts projected future cash flows, forecasted over a seven-year period, with an estimated residual growth rate. The Company’s projections incorporate management’s estimates of the most-likely expected future results. Projected future cash flows are discounted to present value using a discount rate that management believes is appropriate for the reporting unit.

The Company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements. Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusions regarding goodwill impairment may change as well.

In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption. Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment. Other than in Plastics - Healthcare 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" in this Annual Report on Form 10-K.

32 FORM 10-K SONOCO 2022 ANNUAL REPORT

Although no reporting units failed the annual impairment test, in management’s opinion, the goodwill of the Plastics - Healthcare and the Protexic reporting units are at risk of impairment in the near term if each 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.

Sensitivity Analysis

In its 2022 annual goodwill impairment analysis, projected future cash flows for the Plastics - Healthcare and Protexic reporting units were discounted at 9.8% and 9.5%, respectively, and their estimated fair values were determined to exceed their carrying values by approximately 18.0% and 18.3%, respectively. Based on the discounted cash flow model and holding other valuation assumptions constant, the discount rates for the Plastics - Healthcare and Protexic reporting units would have to be increased to 11.0% and 11.5%, respectively, in order for the estimated fair values of the reporting units to fall below their carrying values. Total goodwill associated with the Plastics - Healthcare and Protexic reporting units was $62.6 million and $29.1 million, respectively, at December 31, 2022.

Income Taxes

The Company follows ASC 740, Accounting for Income Taxes, which requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not such assets will not be realized. Deferred tax assets generally represent expenses that have been recognized for financial reporting purposes, but for which the corresponding tax deductions will occur in future periods. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations.

For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those positions not meeting the more-likely-than-not standard, no tax benefit has been recognized in the financial statements. Associated interest has also been recognized, where applicable.

The estimate for the potential outcome of any uncertain tax issue is highly judgmental. The Company believes it has adequately provided for any reasonably foreseeable outcome related to these matters. 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 limitations on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the eventual resolution of these matters could have a different impact on the effective rate than currently reflected or expected.

Stock-Based Compensation Plans

The Company utilizes share-based compensation in the form of restricted stock units, performance contingent restricted stock units, and other share-based awards. The amount of share-based compensation expense associated with performance contingent restricted stock units is based on estimates of future performance using measures defined in the stock plan descriptions for each award granted. As of December 31, 2022, these performance measures include the following:

•Base earnings per share — three-year sum of forecasted future and historical annual base earnings per share for the three-year measurement period associated with each award; and

•Return on invested capital — three-year simple average calculated using the annual returns calculated by dividing 1) net base operating profit after tax (derived from historical or projected base earnings) by 2) the average of total historical or projected debt plus equity for the respective annual periods.

Changes in estimates regarding the future achievement of these performance measures may result in significant fluctuations from period to period in the amount of share-based compensation expense recognized in the Company’s Consolidated Financial Statements.

Pension and Postretirement Benefit Plans

The Company has significant pension and postretirement benefit liabilities and costs that are measured using actuarial valuations. The largest of the Company's pension plans are the U.S.-based Sonoco Pension Plan (the "Active Plan") and the Sonoco U.K. Retirement Benefits Plan (the "U.K. Plan"). Other significant benefit plans include the U.S. Retirement and Retiree Health and Life Insurance Plan and the U.S. nonqualified retirement plans.

During 2022, the Company recorded total pension and postretirement benefit expenses of approximately $10.7 million, compared with $595.6 million during 2021, a reduction of $584.9 million. The year-over-year decrease was due primarily to the previously disclosed settlement of the Company's Inactive Plan liabilities in the second quarter of 2021. Charges in 2022 reflect $10.7 million of expected returns on plan assets at an average assumed rate of 3.03% and interest cost of $10.8 million at a weighted-average discount rate of 2.55%. Pension and postretirement benefit expense in 2021 reflects $23.3 million of expected returns on plan assets at an average assumed rate of 3.61% and interest cost of $24.4 million at a weighted-average discount rate of 2.43%. Settlement charges totaling $550.7 million were recognized in 2021, primarily related to the settlement of all remaining liabilities under the Inactive Plan in June 2021 through the purchase of annuities. The Company projects that total benefit plan expenses will be approximately $15 million in 2023, approximately $5 million higher than in 2022, due primarily to an increase in interest costs stemming from higher discount rates.

Cumulative net actuarial losses decreased slightly from $105 million at December 31, 2021 to $103 million at December 31, 2022, as the favorable impact of higher year-over-year discount rates and ongoing amortization of actuarial losses was partially offset by additional actuarial losses stemming from lower-than-expected asset returns on the U.K. Plan. Remaining actuarial losses/gains outside of the 10% corridor defined by U.S. GAAP are amortized over the average remaining service life of the plan’s active participants or the average remaining life expectancy of the plan’s inactive participants if all, or almost all, of the plan’s participants are inactive.

In October 2021, the Sonoco Retirement and Savings Plan was amended to eliminate the SRC and to increase the Company's 401(k) matching contribution to 100% of the first 6% of eligible contributions effective as of December 31, 2021. The amendment was neutral to total expense in 2022. However, the Company's operating cash flow was negatively affected in 2022 as it reflected both the annual funding of the SRC earned in 2021 and the higher 401(k) matching contributions.

Contributions to its pension and postretirement plans in 2022 totaled $37.4 million, including an SRC contribution of $21.9 million. Contributions in 2021 totaled $163.7 million, including contributions of $124.4 million to the Inactive Plan in order to be fully funded on a termination basis at the time the plan was annuitized. Contributions to the Company's benefit plans in 2023 are expected to total approximately $15 million. Future funding requirements will depend largely on actual investment returns, future actuarial assumptions, legislative actions, and changes to the Company's benefit offerings.

33 FORM 10-K SONOCO 2022 ANNUAL REPORT

The actuarial valuations used to evaluate the plans employ key assumptions that can have a significant effect on the calculated amounts. The key assumptions used at December 31, 2022 in determining the projected benefit obligation and the accumulated benefit obligation for U.S. retirement and retiree health and life insurance plans include: discount rates of 5.10% for the Active Plan, 4.97% for the Company's non-qualified retirement plans, 4.92% for the Company's retiree health and life insurance plan, and 4.80% for the U.K. Plan. The rate of compensation increase was 2.99% for the retiree health and life insurance plan and 3.75% for the U.K. Plan.

The key assumptions used to determine the 2022 net periodic benefit cost for U.S. retirement and retiree health and life insurance plans include: discount rates of 3.05% for the Active Plan, 2.66% for the non-qualified retirement plans, 2.48% for the retiree health and life insurance plan, and 1.95% for the U.K. Plan; an expected long-term rate of return on plan assets of 3.27% for the Active Plan and 2.90% for the U.K. Plan; and a rate of compensation increase of 3.01% and 3.65% for the retiree health and life insurance plan and U.K. Plan, respectively.

The Company adjusts its discount rates at the end of each fiscal year based on yield curves of high-quality debt instruments over durations that match the expected benefit payouts of each plan. The expected rate of return assumption is derived by taking into consideration the targeted plan asset allocation, projected future returns by asset class and active investment management. A third-party asset return model was used to develop an expected range of returns on plan investments over a 12- to 15-year period, with the expected rate of return selected from a best estimate range within the total range of projected results. The Company periodically re-balances its plan asset portfolio in order to maintain the targeted allocation levels. The rate of compensation increase assumption is generally based on salary and incentive compensation increases. A key assumption for the U.S. retiree health and life insurance plan is a medical cost trend rate beginning at 6.50% for post-age 65 participants and trending down to an ultimate rate of 4.5% in 2030. The ultimate trend rate of 4.5% represents the Company’s best estimate of the long-term average annual medical cost increase over the duration of the plan’s liabilities. It provides for real growth in medical costs in excess of the overall inflation level.

The sensitivity to changes in the critical assumptions for the Company’s U.S. plans as of December 31, 2022, is as follows:

Other assumptions and estimates impacting the projected liabilities of these plans include inflation, participant withdrawal and mortality rates and retirement ages. The Company evaluates the assumptions used in projecting the pension and postretirement liabilities and associated expenses annually. These judgments, assumptions and estimates may affect the carrying value of pension and postretirement plan net assets and liabilities and pension and postretirement plan expenses in the Company’s Consolidated Financial Statements. See Note 13 to the Consolidated Financial Statements for additional information on the Company’s pension and postretirement plans.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is provided in Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.