SONOCO PRODUCTS CO (SON) FY 2023 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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2022 items and year-to-year comparisons between 2022 and 2021 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, 2022.

General Overview

Sonoco is a multi-billion dollar global designer, developer, and manufacturer of a variety of highly-engineered and sustainable packaging serving multiple end markets. As of December 31, 2023, the Company had approximately 310 locations in 33 countries, serving some of the world’s best-known brands in some 85 nations. 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 2023, approximately 71% of sales were generated in the United States, 14% in Europe, 5% in Asia, 3% in Canada, and 7% in other regions.

Sonoco’s goal 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 and increase overall productivity, as well as strategic pricing initiatives to better capture input costs and the value of the services we provide.

The Company's primary focus areas in 2023 were to continue to focus on improving returns on promising organic investments and acquisitions to better manage our business mix, improve profits, improve generation of operating cash flow and free cash flow, and operate the business with better efficiency. Another focus area in 2023 was the Company’s continued commitment to promote accountability and transparency in its sustainability and corporate responsibility programs.

On September 8, 2023, the Company completed the acquisition of the remaining 65% interest in RTS Packaging from joint venture partner WestRock Company (“WestRock”) and the acquisition of a paper mill in Chattanooga, Tennessee (the “Chattanooga Mill”) from WestRock. These acquisitions further strengthened and expanded the Company’s 100% recycled fiber-based packaging solutions to serve consumer wine, spirits, food, beauty and healthcare markets. On December 1, 2023, the Company completed the acquisition in Brazil of Inapel, significantly expanding the Company’s presence in the flexible packaging services market in Latin America. Both acquisitions build on the Company's strategy of investing in our core businesses. See “Acquisitions and Divestitures—Acquisitions” below for more information.

The Company made other changes in its portfolio in 2023 including the sales of its U.S. and Mexico BulkSak businesses and its S3 business. The Company also sold approximately 55,000 acres of timberland properties as we now produce paper exclusively from recycled fiber and no longer require natural tree fiber for production. In January 2024, the Company entered into a definitive agreement to sell its Protective Solutions business, part of the All Other group of businesses, to Black Diamond Capital Management, LLC. These actions were the result of Sonoco’s continuing evaluation of its business portfolio and were consistent with the Company’s strategic and investment priorities.

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The Company also continued efforts to improve productivity through focus on operational excellence including the implementation of automation programs and commercial excellence where we are realigning pricing models to value versus legacy cost-based inputs. The results of these efforts reflected positively in the Company's 2023 financial results.

As the Company looks to 2024, we expect year-over-year sales to be up modestly and year-over-year price/cost impacts to be negative. We intend to aggressively manage costs and generate positive productivity while navigating global volume uncertainties. 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 executing strategic initiatives to simplify our portfolio and capture synergies from our recent acquisitions to advance Sonoco through 2024 and beyond.

Use of Non-GAAP Financial Measures

To assess and communicate the financial performance of the Company, Sonoco’s management uses, both internally and externally, certain financial performance measures that are not in conformity with GAAP. These “non-GAAP” financial measures (referred to as “Adjusted”) reflect adjustments to the net income attributable to the Company (“GAAP results”) to exclude amounts, including the associated tax effects, relating to:

•restructuring/asset impairment charges1;

•acquisition, integration and divestiture-related costs;

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

•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;

•derivative gains/losses;

•other non-operating income and losses; and

•certain other items, if any.

1 Restructuring and restructuring-related asset impairment charges are a recurring item as the Company’s restructuring programs usually require several years to fully implement, and the Company is continually seeking to take actions that could enhance its efficiency. Although recurring, these charges are subject to significant fluctuations from period to period due to the varying levels of restructuring activity and the inherent imprecision in the estimates used to recognize the impairment of assets and the wide variety of costs and taxes associated with severance and termination benefits in the countries in which the restructuring actions occur.

The Company’s management believes the exclusion of the amounts relating to the above-listed items improves the period-to-period comparability and analysis of the underlying financial performance of the business. Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example, “Adjusted Operating Profit,” “Adjusted Net Income” (referred to as “Adjusted Earnings”), and Adjusted Diluted Earnings Per Share (referred to as “Adjusted EPS”).

In addition to the “Adjusted” results described above, the Company also uses Adjusted EBITDA and Adjusted EBITDA Margin. Adjusted EBITDA is defined as net income excluding the following: interest expense; interest income; provision for income taxes; depreciation, depletion and amortization expense; non-operating pension costs; net income attributable to noncontrolling interests; restructuring/asset impairment charges; changes in LIFO inventory reserves; gains/losses from the divestiture of businesses and other assets; other income; acquisition, integration and divestiture-related costs; derivative gains/losses; and other non-GAAP adjustments, if any, that may arise from time to time. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.

The Company’s non-GAAP financial measures are not calculated in accordance with, nor are they an alternative for, measures conforming to GAAP, and they 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.

The Company presents these non-GAAP financial measures to provide investors with information to evaluate Sonoco’s operating results in a manner similar to how management evaluates business performance. The Company consistently applies its non-GAAP financial measures presented herein and uses them for internal planning and forecasting purposes, to evaluate its ongoing operations, and to evaluate the ultimate performance of management and each business unit against plans/forecasts. 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.

Material limitations associated with the use of such measures include 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 any limitations in such non-GAAP financial measures, management believes that it is useful in evaluating the Company’s results to review both GAAP information, which includes all of the items impacting financial results, and the related non-GAAP financial measures that exclude certain elements, as described above. Further, Sonoco management does not, nor does it suggest that investors should, consider any non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever reviewing a non-GAAP financial measure, investors are encouraged to review the related reconciliation to understand how it differs from the most directly comparable GAAP measure.

Reconciliations of GAAP to Non-GAAP 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. 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, integration and 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.

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Acquisitions and Divestitures

Acquisitions

The Company completed two acquisitions during 2023 at a net cash cost of approximately $372.6 million.

On December 1, 2023, the Company completed the acquisition of Inapel, a manufacturer of single-layer and multilayer materials for flexible packaging in Brazil for a net cash purchase price of $59.2 million, subject to customary working capital adjustments. With the acquisition of Inapel, the Company added approximately 500 employees and two manufacturing locations in the Sao Paulo region of Brazil. The acquisition significantly expanded the Company’s presence in the flexible packaging services market in Latin America.

On September 8, 2023, the Company completed the acquisition of the remaining 65% interest in RTS Packaging from joint venture partner WestRock, and the acquisition of the Chattanooga Mill from WestRock for net cash consideration of $313.4 million, subject to a final working capital adjustment of $0.5 million that 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. With the acquisition of the remaining interest in RTS Packaging and the acquisition of the Chattanooga Mill, the Company added approximately 1,100 employees, fourteen converting operations, including ten in the United States, two in Mexico, two in South America, and one paper mill in the United States.

Divestitures

On January 30, 2024, the Company entered into a definitive agreement to sell its Protective Solutions business, part of the All Other group of businesses, to Black Diamond Capital Management, LLC for an estimated $80.0 million in cash. The transaction is expected to be completed in the first half of 2024, subject to the satisfaction or waiver of customary closing conditions. This business provides foam components and integrated material solutions for various industrial end markets. The business operates nine manufacturing facilities and has approximately 900 employees. This sale is the result of Sonoco’s continuing evaluation of its business portfolio and is consistent with the Company’s strategic and investment priorities.

On July 1, 2023, the Company completed the sale of its U.S. BulkSak business, which consisted of the manufacturing and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners and was a part of the Company’s Industrial Paper Packaging segment, to U.S. BulkSak Holdings, LLC. The cash selling price, as adjusted for the final working capital settlement, was $20.3 million with cash proceeds totaling $18.3 million received in 2023, and the remaining $2.0 million held in escrow to be released to the Company within 18 months from the date of the sale, pursuant to the settlement of any indemnity claims. As a result of the U.S. BulkSak divestiture, the Company recognized a pretax gain of $6.8 million included in “Gain/(Loss) on divestiture of business and other assets” in the Company’s Consolidated Statements of Income.

Also on July 1, 2023, the Company agreed to the sale of its Mexico BulkSak business. The sale closed in December 2023 for a cash selling price, as adjusted for working capital, of $1.1 million. As a result of the Mexico BulkSak sale, the Company recognized a pretax gain of $0.1 million which is included in “Gain/(Loss) on divestiture of business and other assets” in the Company’s Consolidated Statements of Income.

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 Co. (“Northstar”), for total cash proceeds of $13.8 million. An additional $1.5 million of proceeds are being held in escrow and will be released to the Company twenty months following the date of the divestiture, pursuant to any indemnification claims. The Company recognized a pretax gain of $11.1 million during the first quarter of 2023, which is included in “Gain/(Loss) on divestiture of business and other assets” in the Company’s Consolidated Statements of Income and is entitled to receive additional proceeds of $3.2 million 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 $5.0 million. This investment is being accounted for under the measurement alternative (i.e., cost less impairment, adjusted for any qualifying observable price changes).

Sale of Assets

Following the completion of Project Horizon in the third quarter of 2022, 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, consisting of approximately 55,000 acres, to Manulife Investment Management for net cash proceeds of $70.8 million. The Company disposed of assets with a net book value of $9.9 million as part of the sale, and recognized a pretax gain from the sale of these assets of $60.9 million during the year ended December 31, 2023, which is included in “Gain/(Loss) on divestiture of business and other assets” in the Company’s Consolidated Statements of Income.

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 33 countries as of December 31, 2023) 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 2023, 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. The largest of these plant closures was the closure of the Company’s paper mill in Hutchinson, Kansas, which was part of the Industrial Paper Packaging segment. Restructuring charges were also incurred during the year for 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.

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. 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.

The Company expects to recognize future additional costs totaling approximately $2.3 million in connection with previously announced restructuring actions that were underway as of December 31, 2023. The Company believes that the majority of these charges will be incurred and paid by the end of 2024. 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 in conjunction with management's analysis of the Company’s results of operations:

Adjusted Operating Profit, Adjusted Income Before Income Taxes, Adjusted Provision for Income Taxes, Adjusted Earnings Attributable to Sonoco, and Adjusted EPS

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Adjusted EBITDA and Adjusted EBITDA Margin

The Company does not calculate net income by segment; therefore, Adjusted EBITDA by Segment is reconciled to the closest GAAP measure of segment profitability, Segment Operating Profit, which is another method to achieve the same result. Segment Operating Profit is the measure of segment profit or loss reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance in accordance with Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” as prescribed by the Financial Accounting Standards Board.

Segment results, which are reviewed by the Company’s management to evaluate segment performance, do not include the following: restructuring/asset impairment charges; amortization of acquisition intangibles; acquisition, integration, and divestiture-related costs; changes in LIFO inventory reserves; gains/losses from the sale of businesses or other assets; gains/losses on derivatives; or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other. Total operating profit is comprised of the sum of segment and All Other operating profit plus certain items that have been allocated to Corporate, including amortization of acquisition intangibles; restructuring/asset impairment charges; changes in LIFO inventory reserves; acquisition, integration and divestiture-related costs; gains/losses from the sale of businesses or other assets; gains/losses on derivatives; and certain other items that were excluded from segment and All Other operating profit.

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1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $57,044, the Industrial Paper Packaging segment of $16,121, and All Other of $14,099.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $8,059, the Industrial Paper Packaging segment of $38,754, and All Other of $7,623.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(10,915) and the Industrial Paper Packaging segment of $(902).

4 Included in Corporate are acquisition, integration and divestiture-related costs associated with the Consumer Packaging segment of $1,738 and the Industrial Paper Packaging segment of $5,810.

5 Included in Corporate are gains from the sale of the Company’s timberland properties in the amount of $(60,945), the sale of its S3 business in the amount of $(11,065), and the sales of its BulkSak businesses in the amount of $(6,919), all of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are gains on derivatives associated with the Consumer Packaging segment of $(257), the Industrial Paper Packaging segment of $(1,290), and All Other of $(365).

7 Included in Corporate are other non-GAAP adjustments associated with the Industrial Paper Packaging segment of $3,762 and the All Other group of businesses of $3,249.

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1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $55,089, the Industrial Paper Packaging segment of $8,053, and All Other of $17,285.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $13,865 and the Industrial Paper Packaging segment of $24,745.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $26,753 and the Industrial Paper Packaging segment of $1,692.

4 Included in Corporate are acquisition, integration, and divestiture-related costs associated with the Consumer Packaging segment of $38,690 and the Industrial Paper Packaging segment of $1,885.

5 Included in Corporate are net losses on derivatives associated with the Consumer Packaging segment of $1,230, the Industrial Paper Packaging segment of $5,789, and All Other of $1,748.

Results of Operations – 2023 Versus 2022

Net income attributable to Sonoco (“GAAP results”) were $475.0 million ($4.80 per diluted share) in 2023, compared with $466.4 million ($4.72 per diluted share) in 2022.

GAAP results reflect net after-tax, adjusted charges totaling $44.9 million and $173.1 million in 2023 and 2022, respectively. These adjustments are presented in the “Reconciliations of GAAP to Non-GAAP Financial Measures” tables. Adjusted for these items, Adjusted Earnings in 2023 was $519.9 million ($5.26 per diluted share), compared with $639.5 million ($6.48 per diluted share) in 2022.

The GAAP results were slightly higher in 2023 as a result of the full year impact of the acquisition of Metal Packaging, the acquisition of the remaining interest in RTS Packaging, and the acquisition of the Chattanooga Mill, gains from divestitures and sale of assets, and lower acquisition, integration and divestiture-related costs. These favorable factors were partially offset by lower volumes across the portfolio and unfavorable metal price overlap. Adjusted Earnings in 2023 declined as a result of lower volumes across the portfolio, inflationary pricing pressure within retail in the Consumer Packaging segment, and unfavorable index-related pricing in the Industrial Paper Packaging segment.

Consolidated net sales for 2023 were $6.8 billion, a $0.5 billion, or 6.5%, decrease from 2022. The components of the sales change were:

The lower year-over-year sales were driven by lower volumes across the portfolio and were partially offset by sales from acquisitions. Volume challenges in the Consumer segment resulted from inflationary pricing pressures within retail. This impact, along with unfavorable pricing, was partially offset by the full year impact in 2023 of the January 2022 acquisition of Metal Packaging. Along with unfavorable volume, the Industrial segment was unfavorably impacted by index pricing, partially offset by the impact of the current year acquisitions of the remaining interest in RTS Packaging and the acquisition of the Chattanooga Mill. Volume/mix declines in the All Other group of businesses were partially offset by positive pricing.

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Total domestic sales were $4.8 billion, down 7.9% from 2022, driven by lower volumes across the portfolio, partially offset by revenue from acquisitions. International sales were $2.0 billion, down 2.8% from 2022.

Costs and Expenses/Margins

Cost of sales decreased $465.3 million in 2023, or 8.0%, from the prior year. The decrease was attributable to the lower sales volume, which was partially offset by lower input costs, primarily for steel and old corrugated cardboard. Gross profit margins increased to 21.2% in 2023 from 19.9% in the prior year primarily due to the previously mentioned lower input costs.

Selling, general and administrative expenses (“SG&A”) increased $34.5 million, or 4.9%, and were 10.9% of sales in 2023 compared to 9.8% of sales in 2022. The current year increase was related to higher compensation, benefits, group medical, and information technology costs resulting from inflation and the impact of acquisitions. These increases were partially offset by lower year-over-year acquisition, integration, and divestiture-related costs. These costs were higher in the prior year due to the January 2022 acquisition of Metal Packaging.

Restructuring and asset impairment charges totaled $56.9 million in both 2023 and 2022. The 2023 charges reflect the closure costs of several operations, including a paper mill in Kansas, a perimeter-of-the-store facility in California, and medical plastics facilities in the United States and United Kingdom. The 2022 charges include severance and other plant closure costs as well as a $9.2 million impairment charge resulting from the Company’s exit from its Russian operations. Additional information regarding restructuring actions and asset impairments is provided in Note 4 to the Company’s Consolidated Financial Statements.

Other income, net was $39.7 million in 2023, reflecting a gain of $44.0 million resulting from the remeasurement of the Company’s previously held equity interest in RTS Packaging to fair value, partially offset by a loss of $4.3 million from the settlement of a contract associated with the acquisition of the Chattanooga Mill that was determined to have unfavorable terms given market conditions at the time of the acquisition. See Note 3 to the Consolidated Financial Statements for further information.

Non-operating pension costs were $14.3 million in 2023, compared with $7.1 million in 2022. The year-over-year increase of $7.2 million was primarily due to higher interest costs on the Company’s defined benefit pension liabilities, resulting from higher year-over-year discount rates. See Note 14 to the Consolidated Financial Statements for further information on employee benefit plans.

Net interest expense totaled $126.3 million for the year ended December 31, 2023, compared with $97.0 million in 2022. The increase was primarily due to higher year-over-year average debt balances resulting from the term loans executed in December 2022 and August 2023 and the impact of higher interest rates on the Company’s variable debt. Additional information regarding the Company’s indebtedness is provided in Note 10 to the Company’s Consolidated Financial Statements.

The effective tax rates on GAAP and Adjusted Earnings for the full year 2023 were 24.3% and 24.6%, respectively, compared with 20.7% and 23.9%, respectively in 2022. The increase in the GAAP effective tax rate for 2023 was due primarily to the absence in 2023 of a release of a valuation allowance on foreign tax credits. The increase in the effective tax rate on Adjusted Earnings was primarily due to a variance in tax rates between jurisdictions in which the respective income and charges were taxed.

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.

Effective January 1, 2024, the Company will integrate its flexible packaging and thermoforming 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 will change its operating and reporting structure to reflect the way it plans to manage its operations, evaluate performance, and allocate resources going forward. Therefore, in future reporting periods, the Company’s consumer thermoforming businesses will move from the All Other group of businesses to the Consumer Packaging segment. The Company’s Industrial Paper Packaging segment will not be affected by these changes. As of and for the year ended December 31, 2023, there were no changes to the manner in which the Company reviewed financial information at the segment level; therefore, these changes had no impact on the Company’s reporting structure.

Total operating profit, reported as “Operating Profit” in the Company’s Consolidated Statements of Income, is comprised of the following:

Segment results, which are reviewed by Company management to evaluate segment performance, do not include: restructuring/asset impairment charges: amortization of acquired intangibles: acquisition, integration, and divestiture-related charges; changes in LIFO inventory reserves; gains/losses from the sale of businesses or other assets; gains/losses on derivatives; or certain other items, if any, the exclusion of which the Company believes improves the comparability and analysis of the ongoing operating performance of the business. Accordingly, the term “segment operating profit” is defined as the segment’s portion of “operating profit” excluding those items. All other general corporate expenses have been allocated as operating costs to each of the Company’s reportable segments and All Other.

See Note 19 to the Company’s Consolidated Financial Statements for more information on reportable segments.

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Consumer Packaging

Consumer Packaging segment net sales decreased year over year as volumes continued to be impacted by inflationary pricing pressures within retail and volume declines from customer retail destocking throughout the year. Domestic sales were approximately $2,780 million, down 6.1%, or $180 million, from 2022, while international sales were approximately $847 million, up 4.9%, or $39 million, from 2022.

Segment operating profits decreased by $144.0 million year over year and operating profit margins decreased to 10.5% from 14.0%. The decreases in operating profit and operating margins were primarily due to unfavorable volume/mix and the unfavorable impact of metal price overlap of approximately $35 million. These unfavorable impacts were partially offset by improved productivity.

Capital spending in the segment included numerous automation projects in North America and Europe and expansion of manufacturing capabilities in North America, Europe, South America, and Asia.

Industrial Paper Packaging

Industrial Packaging segment net sales decreased year over year due to unfavorable volume and index-related pricing declines. Domestic trade sales in the segment decreased $222 million, or 13.8%, to $1,389 million, while international trade sales decreased $89 million, or 8.3%, to $985 million.

Segment operating profit decreased year over year, driven by the unfavorable volume and index-related pricing, partially offset by the full-year impact of strategic pricing initiatives.

Capital spending in the segment included numerous automation projects in North America, productivity projects in North America and Europe, and capacity improvements in North America, Europe, and Asia.

All Other

All Other net sales decreased year over year due to lower volumes, primarily in temperature assured packaging as COVID-related demand declined.

All Other operating profit increased year over year, driven by ongoing structural improvement programs to improve profitability across this diversified collection of businesses, favorable strategic pricing initiatives and strong productivity. These favorable factors were partially offset by the impact of the lower volumes.

Capital spending in the All Other group of businesses was mostly related to customer development and automation projects in North America.

Financial Position, Liquidity, and Capital Resources

Cash Flow

Operating Activities

Cash flows from operations totaled $882.9 million in 2023 compared with $509.0 million in 2022, a year-over-year increase of $373.9 million. GAAP net income increased by $8.9 million year over year, reflecting a non-cash gain in 2023 resulting from the remeasurement of the Company’s previously held equity interest in RTS Packaging to fair value, and gains from the sale of the Company’s timberland properties, and the sales of its S3 and BulkSak businesses. Net income in the current year also reflected a $32.2 million year-over-year increase in non-cash depreciation, depletion and amortization expense and a $5.0 million increase in net non-cash asset impairment charges. Cash contributions to the Company’s pension and postretirement plans in 2023 were $14.7 million, compared with $37.4 million in 2022, a year-over-year decrease of $22.7 million. The prior year contributions included the final Sonoco Retirement Contribution (“SRC”), the non-elective component of the Sonoco Savings Plan. The SRC was terminated as of December 31, 2021. Accrued expenses and other assets and liabilities used $46.7 million of cash in 2023 and provided $17.9 million of cash in 2022. The year-over-year change was largely driven by the higher payout of management incentive compensation in 2023. Cash paid for taxes increased by $66.9 million year over year. Tax payments in 2022 benefited from additional accelerated tax depreciation in the United States resulting from the Metal Packaging acquisition, while the 2023 payments did not have this benefit.

Net working capital provided $218.8 million of cash in 2023, while it used $328.7 million of cash in 2022, for a year-over-year increase in operating cash flows of $547.5 million. The year-over-year improvement was driven largely by inventory reductions in the current year. Inventory levels at the end of 2022 were higher than usual as the Company sought to mitigate supply chain uncertainty caused by lack of availability and shipment delays. Inventory levels decreased in 2023, most notably in tinplate steel, as the Company focused on reducing inventory in a lower sales volume environment. The year-over-year decrease in accounts payable was attributable to the lower spending on inventories and a decline in the cost of inputs (principally steel and old corrugated containers). Accounts receivable provided $27.4 million more cash in 2023 than in 2022,

31 FORM 10-K SONOCO 2023 ANNUAL REPORT

reflecting the Company’s active management of collections and compliance with payment terms, along with the impact of lower volumes and lower selling prices.

Investing Activities

Investing activities used $619.3 million of cash in 2023, compared with $1,741.4 million in 2022. The lower year-over-year use of cash was primarily attributable to lower acquisition spending as the Company invested $372.6 million in acquisitions in 2023 (RTS Packaging, the Chattanooga Mill, and Inapel) compared with $1,427.0 million in 2022 (Metal Packaging, Skjern, and Nordeste). Capital expenditures in 2023 were $363.1 million, $34.3 million higher than the previous year. The year-over-year increase was driven by increased investments in various automation projects and strategic growth and productivity projects in both the Consumer Packaging and the Industrial Packaging segments. Proceeds from the sale of businesses provided $33.2 million of cash in 2023 as the Company received cash from the sale of its S3 and BulkSak businesses. Proceeds from the sale of assets totaled $80.3 million in 2023, primarily from the sale of the Company’s timberland properties, compared with $9.6 million in the prior year. In addition, the Company’s year-over-year investments in affiliated companies increased $8.6 million, including a 2.7% equity interest in Northstar valued at $5.0 million which the Company acquired on January 26, 2023, as part of the sale of its S3 business to Northstar. Other net investing proceeds provided $6.6 million more cash year over year, primarily as a result of higher life insurance proceeds received in the current year.

Financing Activities

Net cash used by financing activities totaled $352.0 million in 2023, compared with a net provision of cash totaling $1,294.2 million in 2022. Financing activities in 2023 included the net repayment of debt totaling $150.4 million as the Company utilized its strong operating cash flows and proceeds from the sale of assets to repay syndicated term loans ahead of their scheduled maturities. The Company received net debt proceeds of $1,518.8 million from the issuance of green bonds and a three-year term loan facility in 2022 that were used primarily to fund the January 2022 acquisition of Metal Packaging. The change in outstanding checks provided cash of $6.4 million in 2023 while using cash of $18.5 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 2023 and 2022 relative to the Company’s December 31 year end. Cash used to repurchase the Company’s common stock to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards was $10.6 million in 2023, compared to $4.5 million in 2022. Also in 2022, the Company used cash of $14.5 million to purchase the remaining 33% ownership interest in Graffo Paranaense de Embalagens S/A from the three noncontrolling partners.

Cash dividends totaled $197.4 million in 2023 compared to $187.1 million in 2022, reflecting the increase in the quarterly dividend payment from $0.49 per share to $0.51 per share approved by the Board in April 2023.

Capital Resources

The Company’s cash balances are held in numerous locations throughout the world. At December 31, 2023 and 2022, approximately $93.8 million and $170.1 million, respectively, of the Company’s reported cash and cash equivalents balances of $151.9 million and $227.4 million, respectively, were held outside of the United States by its foreign subsidiaries. Cash held outside of the United States is available to meet local liquidity needs, or for capital expenditures, acquisitions, and other offshore growth opportunities. 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, 2023, the Company is not providing for taxes on these amounts for financial reporting purposes. Computation of the potential deferred tax liability associated with unremitted earnings considered to be indefinitely reinvested is not practicable.

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 with 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 voluntary supply chain financing programs (the “SCF Programs”) to provide certain suppliers with the opportunity to sell receivables due from the Company to the SCF Programs’ 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 SCF Programs. 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 SCF Programs. All amounts outstanding at December 31, 2023 under the SCF Programs were recorded within trade accounts payable. The amount owed to the participating financial institution under the SCF Programs and included in accounts payable for continuing operations was $35.8 million at December 31, 2023 and $52.4 million at December 31, 2022. The Company accounts for all payments made under the SCF Programs 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 SCF Programs and paid by the Company to the participating financial institution was $188 million during 2023 and $270 million during 2022. 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 SCF Programs. However, the Company does not believe a reduction in, or the elimination of, the SCF Programs would have a material impact on its working capital or cash flows.

The Company’s total debt at December 31, 2023, was $3.1 billion, a year-over-year decrease of $0.1 billion. The year-over-year change reflects the following actions taken during 2023:

•On August 7, 2023, the Company entered into a $900 million term loan facility, maturing on August 7, 2028, with a consortium of Farm Credit System institutions (see Note 10 for more information). A total of $600 million was drawn on August 7, 2023 and used to repay the syndicated term loans that were due in December 2023 and January 2025 and to make certain capital expenditures and to reimburse the Company for certain capital expenditures it had made in its operation of waste disposal facilities in rural areas. An additional $270 million was drawn on September 8, 2023 and used to partially fund the acquisition of the remaining interest in RTS Packaging and the acquisition of the Chattanooga Mill (see Note 3 for more information). As of December 31, 2023, the Company had repaid a total of $295 million of the amounts drawn and had outstanding borrowings of $575 million under the term loan facility.

32 FORM 10-K SONOCO 2023 ANNUAL REPORT

•The Company utilized its strong operating cash flows and proceeds from the sale of assets to repay syndicated term loans of $700 million in July and August 2023, ahead of their scheduled maturities.

On August 7, 2023, the Company increased the commitments under its unsecured revolving credit facility by $150 million to an aggregate amount of $900 million. The Company entered into this five-year facility, which supports its $500 million commercial paper program, on June 30, 2021.

At December 31, 2023, the Company had approximately $152 million in cash and cash equivalents on hand and $900 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, 2023, the Company had scheduled debt maturities of $47.1 million, $449.8 million, $21.8 million, $310.4 million, and $583.7 million in 2024, 2025, 2026, 2027, and 2028, respectively. See Note 10 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 $78.9 million in 2024, $72.4 million in 2025, $71.2 million in 2026, $64.5 million in 2027, and $63.9 million in 2028.

Capital spending is expected to total approximately $350 million in 2024, in line with 2023 (when excluding the impact of proceeds from asset sales). The Company expects increasing levels of investment for profit generating projects in the Rigid Paper, Flexibles, and Metal Packaging businesses centered around footprint optimization, automation, and sales growth support. These increases are expected to be offset by moderating year-over-year levels of maintenance capital.

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 2024 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 $127 million at the end of 2023, compared with $98 million at the end of 2022. The increase in the unfunded position reflects an additional unfunded liability of approximately $12 million associated with the acquisition of the remaining interest in RTS Packaging and the related assumption of the RTS Packaging Pension Plan (“RTS Plan”). The Company contributed approximately $14.7 million to its benefit plans in 2023. Benefit plan contributions in 2024 are expected to total approximately $19 million. Future funding requirements will depend largely on actual investment returns, future actuarial assumptions, legislative actions, and changes to the Company’s benefit offerings.

Current assets decreased year over year by $311 million to $2,050 million at December 31, 2023, and current liabilities decreased by $579 million to $1,165 million, resulting in an increase in the Company’s ratio of current assets to current liabilities to 1.8 at December 31, 2023 from 1.4 at December 31, 2022. Current assets were lower principally due to year-over-year reductions in inventory while current liabilities decreased primarily due to the repayment of the syndicated term loan that was due in December 2023.

Total equity increased $359 million during 2023 as net income of $476 million, other comprehensive income of $63 million and stock-based compensation of $28 million were partially offset by dividends of $199 million and share repurchases of $11 million for tax share withholding on vested stock compensation granted to employees. The primary driver of other comprehensive income was a $70 million translation gain from the impact of a weaker U.S. dollar on the Company’s foreign investments.

On April 20, 2021, the Board 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 or 2023; accordingly, a total of $138 million remains available for share repurchases at December 31, 2023.

Although the ultimate determination of whether to pay dividends is within the sole discretion of the Board 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 $2.02 in 2023, $1.92 in 2022 and $1.80 in 2021. On February 14, 2024, the Company declared a regular quarterly dividend of $0.51 per common share payable on March 8, 2024, to shareholders of record on February 28, 2024.

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, 2023, 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 17 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.

33 FORM 10-K SONOCO 2023 ANNUAL REPORT

Because the economy in Venezuela is considered highly inflationary under U.S. GAAP, 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, 2023, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million. In addition, accumulated other comprehensive loss at December 31, 2023 included a cumulative translation loss of approximately $3.8 million related to the Company’s Venezuela operations. These translation losses would be reclassified to net income in the event of a complete exit of the business or deconsolidation of these operations.

Turkey has been deemed to be a highly inflationary economy under U.S. GAAP since the first quarter of 2022. Accordingly, the Company considers the U.S. dollar to be the functional currency of its operations in Turkey and has remeasured monetary assets and liabilities denominated in Turkish lira to U.S. dollars with changes recorded through earnings. The cumulative impact of applying highly inflationary accounting to Turkey has been a pretax charge to earnings of $6.5 million ($5.0 million after tax), including $3.8 million ($2.9 million after tax) during 2023. 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, 2023, was approximately $17.8 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, 2023, 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 0.1 million metric million British thermal units (“MMBTUs”) and aluminum swaps covering 488 metric tons. In addition, at December 31, 2023, 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 5.4 million MMBTUs. The Company’s combined designated and non-designated derivative contracts totaled approximately 76% and 10% of anticipated natural gas and aluminum usage, respectively, in North America for 2024.

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 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, 2023, the total notional amount of these contracts, in U.S. dollar terms, was $125 million, of which $34 million related to the Mexican peso, $33 million to the Polish zloty, $26 million to the Canadian dollar, $11 million to the Brazilian real, $7 million to the Danish krone, $6 million to the Colombian peso, $5 million to the Czech koruna and $3 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.

During 2023, the Company became party to cross-currency swap agreements with a total notional amount of $500 million 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 agreement provides 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 such 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 swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense. For the year ended December 31, 2023, the fair value of the Company’s net investment hedges was a loss position of $5.1 million, and a loss of $3.8 million (net of income taxes of $1.3 million) was reported as a component of accumulated other comprehensive loss within foreign currency items.

The total fair market value of the Company’s derivatives was a net unfavorable position of $10.4 million and $9.7 million at December 31, 2023 and December 31, 2022, respectively. 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 11 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 PRP 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 had accrued $7.3 million at December 31, 2023 with respect to these sites. See “Environmental Charges” in Item 3 – Legal Proceedings and Note 17 to the Consolidated Financial Statements for more information on environmental matters.

34 FORM 10-K SONOCO 2023 ANNUAL REPORT

Critical Accounting 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 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.

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, property, plant, and equipment, 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 patents, customer relationships, trade names, proprietary 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 on property, plant, and equipment 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 acquired in a business combination, 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. When the implicit rate in the acquired lease is not readily determinable, the Company calculates the lease liabilities using discount rates based upon the Company’s incremental secured borrowing rate for the region in which the acquisition was completed. An assessment of the certainty associated with the exercise of any lease renewal, termination, and purchase options included in the acquired lease contracts is also performed. 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 and other 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 that reporting unit, 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, as determined in accordance with ASC 350, “Intangibles-Goodwill and Other,” are the same as, or one level below, its operating segments, as determined in accordance with ASC 280, “Segment Reporting.”

The Company completed its most recent annual goodwill impairment testing during the third quarter of 2023. 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

35 FORM 10-K SONOCO 2023 ANNUAL REPORT

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 weighted average of the income and market approaches. Under the income approach, the Company uses 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 under the market approach. The Company’s model discounts projected future cash flows, forecasted over a five-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 the Plastics-Medical reporting unit, previously known as Plastics-Healthcare, which is discussed below, there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to the 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.

Although no reporting units failed the annual impairment test, in management’s opinion, the goodwill of the Plastics-Medical reporting unit is at risk of impairment in the near term if its 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 the 2023 annual goodwill impairment analysis, projected future cash flows for the Plastics-Medical reporting unit were discounted at 12.0%, and its estimated fair value was determined to exceed its carrying value by approximately 29.9%. Based on the discounted cash flow model and holding other valuation assumptions constant, the discount rate for this unit would have to be increased to 14.5% in order for the estimated fair value of the reporting unit to fall below its carrying value. Total goodwill associated with the Plastics-Medical reporting unit was $64.2 million at December 31, 2023.

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.

Share-Based Compensation Plans

The Company utilizes share-based compensation in the form of restricted stock units, performance contingent restricted stock units (“PCSUs”), and other share-based awards. The fair value of the Company’s restricted stock units is equal to the closing price of the Company’s stock on the date of grant discounted for any projected dividends that are not eligible to be received during the vesting period. The amount of share-based compensation expense associated with PCSUs is based on estimates of future performance using measures defined in the stock plan descriptions for each award granted. As of December 31, 2023, these performance measures include the following:

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

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

For the most recent award grant in 2023, the performance payout will be subject to adjustment by a total stock return modifier as determined by the Company’s relative performance within its targeted peer group. 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. See Note 13 to the Consolidated Financial Statements for additional information on the Company’s share-based compensation plans.

36 FORM 10-K SONOCO 2023 ANNUAL REPORT

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 and postretirement plans include the U.S.-based Sonoco Pension Plan, the U.S. nonqualified retirement plans, the U.S. Retirement and Retiree Health and Life Insurance Plan, and the Sonoco U.K. Retirement Benefits Plan. On September 8, 2023, the Company completed the acquisition of the remaining 65% ownership interest of the RTS Packaging joint venture, which included the assumption of the RTS Plan. At the time of the acquisition, the RTS Plan had a projected benefit obligation (“PBO”) of $43.9 million and plan assets of $32.3 million resulting in an unfunded pension obligation of $11.6 million.

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, 2023 in determining the PBO and the accumulated benefit obligation for retirement and retiree health and life insurance plans include discount rates and rates of compensation increase. The key assumptions used to determine the 2023 net periodic benefit cost for retirement and retiree health and life insurance plans include discount rates, expected long-term rate of return on plan assets, and rates of compensation increase.

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 is 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.

The sensitivity to changes in the critical assumptions for the Company’s U.S. and U.K. plans as of December 31, 2023, is as follows:

Another key assumption for the U.S. retiree health and life insurance plan is a medical cost trend rate beginning at 7.25% for post-age 65 participants and trending down to an ultimate rate of 4.5% in 2033. 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.

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 14 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.