Sonoco Products Co: Form 10-Q for the period ended Jul 2, 2023

FORWARD LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q that are not historical in nature, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, the Company and its representatives may from time to time make other oral or written statements that are also “forward-looking statements.” Words such as “anticipate,” “assume,” “believe,” “can,” “committed,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “goal,” “guidance,” “intend,” “likely,” “may,” “might,” “objective,” “opportunity,” “outlook,” “plan,” “potential,” “project,” “seek,” “strategy,” “target,” “will,” “would,” or the negative thereof, and similar expressions identify forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:

• availability and supply of raw materials and energy, and offsetting high raw material and energy costs, including the potential impact of changes in tariffs;
• the effects of economic downturns, inflation, volatility and other macroeconomic factors on the Company and its industry;
• the resiliency of the Company’s operating model;
• reduced supply chain and labor disruptions and benefits to the Company therefrom;
• potential impacts of the COVID-19 pandemic on the Company’s business, operations and financial condition;
• consumer and customer actions in connection with the COVID-19 pandemic, inflation, and the Russia-Ukraine military conflict;
• improved productivity and cost containment, including cost savings from the Company’s investments;
• improving margins and leveraging strong cash flow and financial position;
• effects and timing of, and anticipated synergies and gains resulting from our pending and completed acquisitions and divestitures, including the Company’s acquisitions of Ball Metalpack Holding, LLC, renamed Sonoco Metal Packaging (“Metal Packaging”), S.P. Holding, Skjern A/S (“Skjern”), RTS Packaging, LLC (“RTS”), Nordeste Tubetes and NE Tubetes (“Nordeste”), and the Company’s sale of its Sonoco Sustainability Solutions (“S3”) business, its U.S. and Mexico BulkSak businesses, and its South Carolina timberland properties;
• costs, timing and effects of restructuring and portfolio simplification activities;
• adequacy and anticipated amounts and uses of cash flows;
• capital allocation, including expected amounts of capital spending and expected annualized cost savings and other benefits therefrom;
• the Company’s capital structure, including the incurrence of debt and the refinancing and repayment of debt;
• financial and business strategies and the results expected of them, including with respect to strategic pricing initiatives, capital deployment and commercial, operational and supply chain excellence;
• financial results and profitability for future periods;
• producing improvements in earnings;
• profitable sales growth and rates of growth;
• market opportunities and anticipated growth thereof; as well as improvements in demand for the Company’s products;
• market leadership;
• expected impact and costs of resolution of legal proceedings;
• extent of, and adequacy of provisions for, environmental liabilities and sustainability commitments;
• commitments to reduce greenhouse gas emissions;
• the Company’s human capital management strategy
• adequacy of income tax provisions, realization of deferred tax assets, outcomes of uncertain tax issues and tax rates;
• goodwill impairment charges and fair values of reporting units;
• future asset impairment charges and fair values of assets;
• anticipated contributions to pension and postretirement benefit plans, fair values of plan assets, long-term rates of return on plan assets, and projected benefit obligations and payments;
• expected impact of implementation of new accounting pronouncements;
• creation of long-term value and returns for shareholders;
• continued payment of dividends; and
• planned stock repurchases.

Such forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management. Such information includes, without limitation, discussions as to guidance and other estimates, perceived opportunities, expectations, beliefs, plans, strategies, goals and objectives concerning our future financial and operating performance. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements. Such risks, uncertainties and assumptions include, without limitation:

• availability, transportation and pricing of raw materials, energy and transportation, including the impact of potential changes in tariffs or sanctions and escalating trade wars and the impact of war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine and economic sanctions related thereto), and the Company’s ability to pass raw material, energy and transportation price increases and surcharges through to customers or otherwise manage these commodity pricing risks;
• impacts arising as a result of the COVID-19 pandemic on our results of operations, financial condition, value of assets, liquidity, prospects, growth, and on the industries in which we operate and that we serve, resulting from, without limitation, recent and ongoing financial market volatility, potential governmental actions, changes in consumer behaviors and demand, changes in customer requirements, disruptions to the Company’s suppliers and supply chain, availability of labor and personnel, necessary modifications to operations and business, and uncertainties about the extent and duration of the pandemic;
• costs of labor;
• work stoppages due to labor disputes;
• success of new product development, introduction and sales, including successful timing of new product or product innovation introductions;
• success of implementation of new manufacturing technologies and installation of manufacturing equipment, including the startup of new facilities and lines;
• consumer demand for products and changing consumer preferences, including changes related to inflation and other macroeconomic factors;
• ability to be the low-cost global leader in customer-preferred packaging solutions within targeted segments;
• competitive pressures, including new product development, industry overcapacity, customer and supplier consolidation, and changes in competitors’ pricing for products;
• financial conditions of customers and suppliers;
• ability to maintain or increase productivity levels, contain or reduce costs, and maintain positive price/cost relationships;
• ability to negotiate or retain contracts with customers, including in segments with concentration of sales volume;
• inventory management strategies of customers;
• collection of receivables from customers;
• ability to improve margins and leverage cash flows and financial position;
• ability to manage the mix of business and execute on the Company’s portfolio simplification strategy, including with respect to divestitures, to take advantage of growing markets while reducing cyclical effects of some of the Company’s existing businesses on operating results;
• ability to maintain innovative technological market leadership and a reputation for quality;
• ability to attract and retain talented and qualified employees, managers and executives;
• ability to profitably maintain and grow existing domestic and international business and market share;
• ability to identify and successfully close suitable acquisitions at the levels needed to meet growth targets;
• ability to successfully integrate newly acquired businesses into the Company’s operations and realize synergies and other anticipated benefits within the expected time period, or at all;
• availability of credit to us, our customers and suppliers in needed amounts and on reasonable terms;
• effects of our indebtedness on our cash flow and business activities;
• fluctuations in interest rates and our borrowing costs;
• fluctuations in obligations and earnings of pension and postretirement benefit plans;
• accuracy of assumptions underlying projections of benefit plan obligations and payments, valuation of plan assets, and projections of long-term rates of return;
• timing of funding pension and postretirement benefit plan obligations;
• cost of employee and retiree medical, health and life insurance benefits;
• resolution of income tax contingencies;
• foreign currency exchange rate fluctuations, interest rate and commodity price risk and the effectiveness of related hedges;
• changes in U.S. and foreign tariffs, tax rates, tax laws, regulations and interpretations thereof, including income, sales and use, property, value added, employment, and other taxes;
• the adoption of new, or changes in, accounting standards or interpretations;
• accuracy in valuation of deferred tax assets;
• accuracy of assumptions underlying projections related to goodwill impairment testing, and accuracy of management’s assessment of goodwill impairment;
• accuracy of assumptions underlying fair value measurements, accuracy of management’s assessments of fair value and fluctuations in fair value;
• ability to maintain effective disclosure controls and internal controls, including with regard to financial reporting;
• liability for and costs of resolution of litigation, regulatory actions, or other legal proceedings;
• liability for and anticipated costs of environmental remediation actions;
• effects of environmental laws and regulations;
• operational disruptions at our major facilities;
• failure or disruptions in our information technologies;
• substantially lower than normal crop yields;
• loss of consumer or investor confidence;
• ability to protect our intellectual property rights;
• changes in laws and regulations relating to packaging for food products and foods packaged therein, other actions and public concerns about products packaged in our containers, or chemicals or substances used in raw materials or in the manufacturing process;
• changing consumer attitudes toward plastic packaging;
• changing climate, climate change regulations and greenhouse gas effects;
• ability to meet commitments to reduce greenhouse gas emissions and to meet environmental, social, and governance (“ESG”) goals and other sustainability commitments, and challenges in implementation;
• actions of domestic or foreign government agencies and changes in laws and regulations affecting the Company and increased costs of compliance;
• international, national and local economic and market conditions and levels of unemployment;
• economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine), terrorist activities and natural disasters; and
• accelerating inflation and the activities and operations in highly inflationary economies.

More information about the risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or forecasted in forward-looking statements is provided in the Company’s Annual Report on Form 10-K under Item 1A-“Risk Factors” and throughout other sections of that report and in other reports filed with the Securities and Exchange Commission. In light of these various risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. You are, however, advised to review any further disclosures we make on related subjects, and about new or additional risks, uncertainties and assumptions, in our future filings with the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K.

COMPANY OVERVIEW

Sonoco is a leading provider of consumer packaging, industrial products, and protective packaging with approximately 310 locations in 32 countries as of July 2, 2023. The Company’s operating and reporting structure consists of two reportable segments, Consumer Packaging and Industrial Paper Packaging, with all remaining businesses reported as All Other.

Sonoco competes in multiple product categories, with the majority of the Company’s revenues arising from products and services sold to consumer and industrial products companies for use in the packaging of their products for sale or shipment. The Company also manufactures uncoated recycled paperboard for both internal use and open market sale. Each of the Company’s operating units has its own sales staff and maintains direct sales relationships with its customers.

Sonoco’s strategy is to increase its long-term profitability and return capital to shareholders. Over the past several years, the Company has simplified our business portfolio around fewer, bigger businesses which has reduced operating complexity and improved agility. For example, during the quarter ended July 2, 2023, the Company completed the divestiture of its non-core U.S. BulkSak businesses, consisting of the manufacturing and distribution of flexible intermediate bulk containers, plastic and fiber pallets, and custom fit liners, for a total cash selling price of $20.8 million, and agreed to sell its Mexico BulkSak business for a total cash selling price of $1.5 million. The Company is focused on efficient capital deployment into its larger, core business units to improve economic returns and improve integration effectiveness and speed for acquired strategic assets. In parallel, Sonoco continues to work on commercial, operational, and supply chain excellence programs to shift the mix of our business towards higher-valued products, improve the contracting process to better capture input costs and the value of the services provided, and increase overall productivity.

Second Quarter 2023 Compared with Second Quarter 2022

RECONCILIATIONS OF GAAP TO 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 generally accepted accounting principles. These “non-GAAP” financial measures (referred to as “Adjusted”) reflect adjustments to the Company’s GAAP results to exclude amounts, including the associated tax effects, relating to:

• restructuring/asset impairment charges1;
• acquisition/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; and
• 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 these amounts improves the period-to-period comparability and analysis of the underlying financial performance of the business. Non-GAAP figures previously identified by the term “Base” are now identified using the term “Adjusted,” for example, “Adjusted Operating Profit”, “Adjusted Net Income” (referred to as “Adjusted Earnings”) and “Adjusted EPS.” More information about the Company’s use of non-GAAP financial measures is provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Non-GAAP Financial Measures.”

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

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

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

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

Dollars in thousands, except per share data

41

SONOCO PRODUCTS COMPANY

Dollars in thousands, except per share data

Adjusted EBITDA and Adjusted EBITDA Margin

Dollars in thousands

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

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

Dollars in thousands

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $14,205, the Industrial Paper Packaging segment of $2,565, and All Other of $3,769.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $1,928, the Industrial Paper Packaging segment of $1,987, and All Other of $2,952.

3 Included in Corporate are changes in LIFO inventory reserves associated with and the Industrial Paper Packaging segment of $(1,575).

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $112 and the Industrial Paper Packaging segment of $60.

5Included in Corporate is the gain from the sale of the Company’s U.S. BulkSak businesses, associated with the Industrial Paper Packaging segment, in the amount of $(7,371).

6 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(600), the Industrial Paper Packaging segment of $(2,835), and All Other of $(853).

SONOCO PRODUCTS COMPANY

Dollars in thousands

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $14,423, the Industrial Paper Packaging segment of $2,038, and All Other of $4,410.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $2,798, the Industrial Paper Packaging segment of $4,459, and All Other of $(495).

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $4,150 and the Industrial Paper Packaging segment of $2,190.

4 Included in Corporate are Acquisition/Divestiture-related costs are charges associated with the Consumer Packaging segment of $10,490.

5 Included in Corporate are net losses on derivatives associated with the Consumer Packaging segment of $406, the Industrial Paper Packaging segment of $1,819, and All Other of $577.

RESULTS OF OPERATIONS

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

OVERVIEW

Net sales for the second quarter of 2023 declined by $208.0 million or 10.9%, to $1.71 billion, compared to $1.91 billion in the same period last year. The decline was attributable to lower overall volumes, including the impact of divestitures, of $189.8 million, lower selling prices of $15.0 million, destocking trends among our customers, and the unfavorable impact of foreign currency translation.

Net income attributable to Sonoco for the second quarter of 2023 decreased to $114.6 million, or $1.16 per diluted share, compared to $131.7 million, or $1.33 per diluted share, for the same period of 2022. Net income in the current period continued to benefit primarily from the Company’s strategic pricing actions in the Industrial Paper Packaging segment and improving manufacturing productivity; however, these benefits were offset by lower overall volume and mix and higher net interest expense. Adjusted Earnings for the second quarter of 2023 were $136.0 million ($1.38 per diluted share), compared with $173.8 million ($1.76 per diluted share), during the same period in 2022.

GAAP operating profit for the second quarter of 2023 was $187.9 million, a decrease of 4.9% from the $197.5 million reported in the second-quarter of 2022. The decrease in GAAP operating profit was primarily the result of lower overall volume and mix across most of the businesses, destocking trends among our customers, partially offset by the favorable impact of strategic pricing actions in the Industrial Paper Packaging segment, manufacturing productivity, the gain on the divestiture of the U.S. BulkSak businesses, and lower quarter over quarter restructuring and acquisition/divestiture-related costs. Adjusted Operating Profit for the second quarter of 2023 was $210.9 million, a decrease of 15.7% from the $250.2 million reported in the same period in 2022. The declines in Adjusted Earnings and Adjusted Operating Profit were due to lower overall volume and mix across most of the businesses, partially offset by favorable impact of strategic pricing actions and manufacturing productivity.

COSTS AND EXPENSES

Cost of goods sold decreased by $178.4 million, or 11.7%, in the second quarter of 2023 compared with the same period last year. The decrease was driven primarily by lower volumes and lower input costs.

Gross profit was $357.3 million for the three-month period ended July 2, 2023, which was $29.7 million lower than the prior-year period. The decrease in gross profit was driven by volume declines which were partially offset by the benefit from strategic pricing actions and productivity. Gross profit as a percent of sales increased to 21.0% from 20.2% in the prior-year quarter.

Selling, general and administrative costs decreased by $8.2 million, or 4.6%, in the second quarter of 2023 compared with the same period last year. The decrease was due to lower year-over-year management incentive accruals, which more than offset salary inflation increases.

Restructuring/Asset impairment charges totaled $6.1 million in the second quarter of 2023, compared with $10.6 million during the same period last year. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on divestiture of business and other assets of $7.4 million in the second quarter of 2023 reflects the gain from the divestiture of the Company’s U.S. BulkSak businesses.

Net interest expense for the second quarter of 2023 increased to $32.3 million, compared with $23.2 million during the second quarter of 2022. The increase of $9.2 million was primarily due to higher quarter-over-quarter average debt balances resulting from the term loan executed in December 2022 and the impact of higher interest rates on the Company’s variable rate debt.

The effective tax rates reflected in GAAP net income and Adjusted Earnings in the second quarter of 2023 were 26.8% and 25.6%, respectively, compared with 25.8% and 25.0%, respectively, in the prior year’s quarter. The increase in the effective tax rates on both GAAP and Adjusted Earnings was due primarily to activity discrete to the second quarter of 2022. The GAAP rate varied more from the prior year’s quarter due to variances in tax rates between the 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. The following table summarizes net sales attributable to each of the Company’s segments and All Other for the second quarters of 2023 and 2022:

(Dollars in thousands)

45

The following table summarizes operating profit attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2023 and 2022:

(Dollars in thousands)

The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments, and the All Other group of businesses during the second quarters of 2023 and 2022:

(Dollars in thousands)

The following table summarizes restructuring/asset impairment charges/(income) attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the second quarters of 2023 and 2022:

(Dollars in thousands)

Consumer Packaging

The products produced and sold within the Consumer Packaging segment are generally used to package a variety of consumer products and consist primarily of round and shaped rigid paper, steel and plastic containers; metal and peelable membrane ends, closures, and components; thermoformed plastic trays; and high-barrier flexible packaging. These products primarily serve the consumer staples market, focused on food, beverage, household, and personal products.

Segment sales decreased approximately 6.7% compared to the prior year’s quarter as volumes were impacted by destocking trends among our customers and inflationary pressures within the retail sector.

Segment operating profit and Adjusted EBITDA decreased by 31.7% and 25.3%, respectively. The decline was largely due to continued unfavorable metal price overlap in metal packaging and non-market share related volume declines in several key food and aerosol accounts. These declines were partially offset by continued strong performance in the flexible packaging and rigid paper container businesses.

Industrial Paper Packaging

The primary products produced and sold within the Industrial Paper Packaging segment include goods produced from recycled fiber including paperboard tubes, cones, and cores; paper-based protective packaging; and uncoated recycled paperboard for high-end applications such as folding cartons, can board and laminated structures. Products across this segment support multiple end markets in industrials (construction and building products, and industrial distribution), consumer staples (food and beverage, food distribution, household and personal products), and consumer discretionary (home building, appliances, apparel, and home furnishings), as well as various other end markets.

Segment sales decreased 19.6% from the prior year’s quarter due to general volume and mix declines attributable to both the exit from the corrugated medium market and the sale of S3, as well as weakness in global demand for converted paper, which appears to have shown limited signs of near-term improvement.

Segment operating profit and Adjusted EBITDA decreased 7.6% and 4.8%, respectively, as the impact of lower volumes was partially offset by the price/cost benefits of strategic pricing actions and lower material costs. Segment operating profit margin improved to 15% in the second quarter of 2023 from 13% in the same period last year and Segment Adjusted EBITDA margin improved to 20% in the second quarter compared to 17% in the same period last year due to favorable resets in commercial contracts with certain customers and suppliers and improved operational efficiencies in our manufacturing facilities.

All Other

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

Sales improved 0.3% from the prior year’s quarter due to strategic pricing actions, which were largely offset by volume and mix declines.

Operating profit improved 73.5% and Adjusted EBITDA improved 52.8% in the second quarter of 2023 compared to the same period last year, primarily due to positive strategic pricing performance and strong productivity. As a result, operating margin increased to 14.6% in the second quarter of 2023 compared to 8.4% in the same quarter last year.

Six Months Ended July 2, 2023 Compared with Six Months Ended July 3, 2022

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 in the Company’s Condensed Consolidated Statements of Income for each of the periods presented.

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

Dollars in thousands, except per share data

Dollars in thousands, except per share data

48

Adjusted EBITDA and Adjusted EBITDA Margin

Dollars in thousands

49

The following tables reconcile Segment Operating Profit, the closest GAAP measure of profitability, to Segment Adjusted EBITDA.

Dollars in thousands

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $28,633, the Industrial Paper Packaging segment of $5,499, and All Other of $7,571.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $3,504, the Industrial Paper Packaging segment of $26,531, and All Other of $4,109.

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $(6,103) and the Industrial Paper Packaging segment of $(897).

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $892 and the Industrial Paper Packaging segment of $349.

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 sale of its U.S. BulkSak businesses in the amount of $(7,371), all of which are associated with the Industrial Paper Packaging segment.

6 Included in Corporate are losses on derivatives associated with the Consumer Packaging segment of $274, the Industrial Paper Packaging segment of $1,133, and All Other of $389.

SONOCO PRODUCTS COMPANY

Dollars in thousands

1 Included in Corporate is the amortization of acquisition intangibles associated with the Consumer Packaging segment of $26,612, the Industrial Paper Packaging segment of $4,125, and All Other of $8,934.

2 Included in Corporate are restructuring/asset impairment charges associated with the Consumer Packaging segment of $5,109, the Industrial Paper Packaging segment of $11,520, and All Other of $(417).

3 Included in Corporate are changes in LIFO inventory reserves associated with the Consumer Packaging segment of $24,242 and the Industrial Paper Packaging segment of $1,148.

4 Included in Corporate are Acquisition/Divestiture-related costs associated with the Consumer Packaging segment of $37,184 and the Industrial Paper Packaging segment of $1,066.

5 Included in Corporate are net gains on derivatives associated with the Consumer Packaging segment of $(550), the Industrial Paper Packaging segment of $(2,462), and All Other of $(782).

RESULTS OF OPERATIONS

The following discussion provides a review of results for the six-month period ended July 2, 2023 compared with the six-month period ended July 3, 2022.

OVERVIEW

Net sales for the first six months of 2023 decreased 6.8 percent to $3.4 billion, compared with $3.7 billion in the same period last year. The decline was attributable to lower overall volume/mix, including the impact of acquisitions and divestitures of $306.1 million and the unfavorable impact of foreign currency translation totaling approximately $26.2 million. These reductions were partially offset by higher selling prices in the amount of $83.1 million.

Net income attributable to Sonoco for the first six months of 2023 increased to $263.0 million, or $2.66 per diluted share, compared to $247.0 million, or $2.50 per diluted share, reported for the same period of 2022. These GAAP results include net after-tax, non-GAAP charges totaling $10.6 million and $109.5 million in the first six months of 2023 and 2022, respectively. In both years, these net non-GAAP charges included acquisition/divestiture-related charges, amortization of acquisition intangibles, restructuring/asset impairment charges, changes in LIFO inventory reserves, and other non-GAAP adjustments as reflected in the preceding reconciliations. In addition, the non-GAAP adjustments in 2023 also included gains from the divestiture of businesses and from the sale of other assets.

Excluding these non-GAAP adjustments, Adjusted Earnings for the six-month period ended July 2, 2023 decreased 23.3 percent to $273.6 million, or $2.77 per diluted share, from $356.5 million, or $3.61 per diluted share, in the same period in 2022.

The decrease in Adjusted Earnings of $82.9 million was largely attributable to lower volumes in most businesses and higher interest expense. Price/cost, though favorable in the Industrial Paper Packaging segment and All Other, was more than offset by negative price/cost in the Consumer Packaging segment. These declines were partially offset by strong year-over-year productivity improvements.

COSTS AND EXPENSES

Cost of goods sold decreased $222.4 million, or 7.6 percent, while the Company’s gross profit margin percentage increased to 21.3 percent for the first six months of 2023, compared to 20.6 percent in the prior-year period. The decrease in cost of goods sold was driven primarily by lower volumes, lower input costs, and the non-recurrence in the current year of $33.2 million acquisition-date fair value adjustments to finished goods inventory recognized in cost of goods sold in the first six months of 2022 in connection with the Metal Packaging acquisition.

GAAP Selling, general and administrative costs for the first six months of 2023 decreased $10.6 million, or 2.9 percent, year over year. The decrease was largely driven by lower year-over-year acquisition/divestiture-related costs and lower management incentive compensation costs, partially offset by salary inflation.

Net restructuring costs and asset impairment charges totaled $34.9 million in the first six months of 2023, compared with $22.7 million of net charges in the same period last year. The year-over-year increase was primarily the result of costs associated with the closure of the Company’s paper mill in Hutchinson, Kansas in the first quarter of 2023. Charges in the first six months of 2022 included $9.2 million of asset impairment charges resulting from the Company’s exit from its operations in Russia. Additional information regarding restructuring and asset impairment charges is provided in Note 5 to the Company’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on divestiture of business and other assets of $79.4 million in the six-month period ended July 3, 2023 reflects gains from the sales of the Company’s timberland properties and S3 and U.S. BulkSak businesses.

Non-operating pension costs increased $4.0 million year over year due primarily to higher interest costs resulting from rising interest rates. Additional information regarding costs of the Company’s retirement plans is provided in Note 11 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

GAAP net interest expense for the first six months of 2023 increased to $65.0 million, compared with $42.2 million during the first six months of 2022. The increase of $22.8 million was primarily due to higher year-over-year average debt balances resulting from the term loan executed in December 2022 and the impact of higher interest rates on the Company’s variable rate debt.

The effective tax rates reflected in GAAP net income and Adjusted Earnings in the first six months of 2023 were 25.4 percent and 25.2 percent, respectively, compared with 24.9 percent and 25.1 percent for the GAAP net income and Adjusted Earnings, respectively, in the prior-year period. The increase in the effective tax rate on GAAP net income was due primarily to activity discrete to the second quarter of 2022. The effective tax rate on Adjusted Earnings was flat year over year.

REPORTABLE SEGMENTS

The following table summarizes net sales attributable to each of the Company’s reportable segments, and the All Other group of businesses during the first six months of 2023 and 2022:

(Dollars in thousands)

The following table summarizes operating profit attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the first six months of 2023 and 2022:

(Dollars in thousands)

The following table summarizes Adjusted EBITDA attributable to each of the Company’s reportable segments and the All Other group of businesses during the first six months of 2023 and 2022:

(Dollars in thousands)

The following table summarizes restructuring/asset impairment charges/(income) attributable to each of the Company’s reportable segments, the All Other group of businesses, and Corporate-related activity during the first six months of 2023 and 2022:

(Dollars in thousands)

53

Consumer Packaging

Segment sales decreased 1.4 percent year to date compared to the prior-year period as $57.9 million from higher selling prices, largely implemented to recover increased raw material and other operating costs, and approximately $78.7 million of sales from the January 2022 Metal Packaging acquisition, were more than offset by $157.1 million of unfavorable volume/mix and $4.7 million from the unfavorable impact of foreign currency translation.

Year-to-date segment operating profit decreased 40.2 percent as both unfavorable price/cost and unfavorable volume/mix were only partially offset by productivity gains. As a result, segment operating profit margin decreased from 16.8 percent in the first six months of 2022 to 10.2 percent in the first six months of 2023.

Industrial Paper Packaging

Segment sales decreased 15.8 percent year to date versus the prior-year period due to unfavorable volume/mix of $192.3 million, the impact of divestitures of $10.9 million, and other unfavorable impacts, principally foreign currency translation totaling $22.3 million.

Segment operating profit increased 8.7 percent from the prior-year period driven by price/cost gains, including the benefits of strategic pricing initiatives. These gains were partially offset by lower volumes and a negative impact from foreign exchange. As a result, segment operating margins were up 341 basis points to 15.1 percent.

All Other

Sales for All Other increased 0.4 percent year to date to increased selling prices, which were implemented to recover increased costs, and increased productivity, were mostly offset by the impact of lower volumes.

All Other operating profit increased 80.0 percent year to date due to the impact of a favorable price/cost relationship and strong productivity gains, partially offset by the impact of lower volumes. Segment operating margin increased to 13.9 percent year to date from 7.8 percent in 2022.

Financial Position, Liquidity and Capital Resources

Cash generated from operations for the first six months of 2023 was $348.6 million, compared with $184.5 million in the same period of 2022, an increase of $164.1 million. GAAP net income increased by $15.6 million year over year, reflecting the non-cash gains from the sales of the Company’s S3 business, U.S. BulkSak businesses and timberland properties during the first six months of 2023. Cash contributions to the Company’s retirement plans were $7.5 million in the first six months of 2023, compared with $30.8 million in the same period last year. The contributions in the prior year included the final Sonoco Retirement Contribution (“SRC”), the non-elective component of the Sonoco Savings Plan. The SRC was terminated as of December 31, 2021. Net working capital provided $0.9 million of cash in the first six months of 2023, while it used $258.5 million in the same period last year, for a year-over-year increase in operating cash flow of $259.4 million. The year-over-year improvement was driven largely by inventory reductions in the current year. Beginning in the first six months of 2022, inventory levels increased to mitigate supply chain uncertainty caused by lack of availability and shipment delays. While inventories at July 2, 2023 were at a consistent level with July 3, 2022, they decreased during the first six months of 2023 driven by a strong focus on inventory reduction across all businesses. 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). While accounts receivable increased during the first six months of 2023, the increase was much smaller than experienced during the first six months of 2022, when higher selling prices increased accounts receivable significantly. The Company continues to actively manage all components of net working capital, particularly inventory reduction initiatives in response to supply chain normalization, in an effort to manage operational efficiency and cash management goals while supporting the needs of its customers.

Changes in accrued expenses and other assets and liabilities used $38.0 million in the six-month period ended July 2, 2023, compared with a cash provision of $5.6 million in the same period last year. The $43.5 million additional use of cash was largely driven by the higher year-over-year payout of management incentive compensation.

Investing activities used $80.4 million of cash in the first six months of 2023, compared with $1,480.3 million in the same period last year. The lower year-over-year use of cash was primarily attributable to lower acquisition spending as the Company invested $1,333.8 million in the Metal Packaging acquisition in the first six months of 2022, but did not complete any acquisitions in the first six months of 2023. Capital expenditures during the first six months of 2023 were $161.7 million, $12.8 million higher than the same period last year. The year-over-year increase was largely driven by increased investments in strategic growth and productivity projects in both the Consumer Packaging and the Industrial Packaging segments. Proceeds from the sale of businesses provided $13.8 million of cash in the first six months of 2023 as the Company received cash from the sale of its S3 business and proceeds from the sale of assets were $67.1 million higher year over year, primarily due to proceeds from the sale of the Company’s timberland properties in March 2023. Other net investing activities used $2.1 million more cash year over year, primarily as a result of the Company’s purchase of a 2.7% equity interest in Northstar during the six-month period ended July 2, 2023. Net capital spending for 2023 is expected to be approximately $305 million compared to $319 million in 2022.

Financing activities used $185.0 million of cash in the six-month period ended July 2, 2023, while providing $1,303.4 million in the corresponding prior-year period, a year-over-year decrease of $1.5 billion. The decrease was largely driven by higher debt proceeds in the prior year, primarily to fund the Metal Packaging acquisition. These included $1.2 billion of net proceeds from the issuance of unsecured notes and $300 million of proceeds from a three-year term loan facility. The Company used cash of $14.5 million to purchase a noncontrolling interest in Graffo in the first quarter of 2022. Cash used to repurchase the Company’s common stock to satisfy employee tax withholding obligations in association with the exercise of certain share-based compensation awards was $10.6 million in the six-month period ended July 2, 2023, compared to $4.0 million in the same period last year.

The Company’s cash balances are held in numerous locations throughout the world. At July 2, 2023 and December 31, 2022, approximately $173.0 million and $170.1 million, respectively, of the Company’s reported cash and cash equivalents balances of $319.2 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 market borrowings, management has generally considered its foreign unremitted earnings to be indefinitely invested outside the United States and currently has no plans to repatriate such earnings, other than excess cash balances that can be repatriated at minimal tax cost. Accordingly, as of July 2, 2023 the Company is not providing for taxes on these amounts for financial reporting purposes. Computation of the potential deferred tax liability associated with unremitted earnings considered to be indefinitely reinvested is not practicable.

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 cash deposit and borrowing positions.

The Company operates a $500 million commercial paper program, supported by a $750 million unsecured revolving credit facility with a syndicate of banks. The revolving credit facility is committed through June 2026. The Company has the contractual right to draw funds directly on the underlying revolving credit facility, which could possibly occur if there were a disruption in the commercial paper market.

Recent events in the banking sector have caused the Company to review and assess risk with respect to our banking partners, including the syndicate of nine banks that participate in our term loan facilities and revolving credit facilities. All of our banks are considered Large Financial Institutions and subject to higher reporting and stress testing requirements, and six of the nine banks are considered Globally Systemically Important Banks (“GSIB”) and subject to the highest stress testing and capital requirements. All of the banks that participate in our term loans and the $750 million revolving credit facility which backstops our commercial paper program are of the highest credit quality. The Company generally does not hold cash deposits with banks in excess of operational needs, and our operating balances across the world are held in a well-diversified group of international banks.

During the six-month period ended July 2, 2023, the Company reported a net increase in cash and cash equivalents of $8.6 million due to currency translation adjustments resulting from a weaker U.S. dollar relative to certain foreign currencies in which cash and cash equivalents were held.

At July 2, 2023, the Company had scheduled debt maturities of approximately $437 million over the next twelve months, including no outstanding commercial paper balances. Also at July 2, 2023, the Company had approximately $319 million in cash and cash equivalents on hand and $750 million in committed capacity under its revolving credit facility, all of which was available for draw down. The Company believes these amounts, combined with expected net cash flows generated from operating and investing activities, provide ample liquidity to cover these debt maturities and other cash flow needs of the Company over the remainder of 2023 and beyond.

Certain of the Company’s debt agreements impose restrictions with respect to the maintenance of financial ratios and the disposition of assets. The most restrictive covenants currently require the Company to maintain a minimum level of interest coverage and a minimum level of net worth, as defined in the agreements. As of July 2, 2023, the Company’s interest coverage and net worth were substantially above the minimum levels required under these covenants.

During the six-month period ended July 2, 2023, the Company received net cash proceeds totaling approximately $13.8 million and $70.8 million from the sale of its S3 business and timberland properties, respectively. The Company used these proceeds for general Corporate purposes. Cash proceeds totaling $16.8 million from the sale of its U.S. BulkSak businesses were received on July 3, 2023 after the end of the reporting period, with the remainder held in escrow.

The Company continually explores strategic acquisition opportunities which may result in the use of cash. Given the nature of the acquisition process, the timing and amounts of such expenditures are not always predictable. The Company expects that any acquisitions requiring funding in excess of cash on hand would be financed using existing credit facilities or additional borrowings.

The Company anticipates making additional contributions to its other pension and postretirement plans of approximately $7 million during the remainder of 2023, resulting in expected total contributions to these plans of approximately $14 million in 2023. Future funding requirements beyond the current year will vary depending largely on actual investment returns, future actuarial assumptions, and legislative actions.

Fair Value Measurements, Foreign Exchange Exposure and Risk Management

Certain assets and liabilities are reported in the Company’s financial statements at fair value, the fluctuation of which can impact the Company’s financial position and results of operations. Items reported by the Company at fair value on a recurring basis include derivative contracts and pension and deferred compensation related assets. The valuation of the vast majority of these items is based either on quoted prices in active and accessible markets or on other observable inputs.

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 foreign currency forward contracts and other risk management instruments to manage exposure to changes in foreign currency cash flows and the translation of monetary assets and liabilities on the Company’s condensed consolidated financial statements by hedging a portion of forecasted transactions that are denominated in foreign currencies, foreign currency assets and liabilities, or its net investment in foreign subsidiaries. The Company’s foreign operations are exposed to political, geopolitical, and cultural risks, but these risks are mitigated by diversification and the relative stability of the countries in which the Company has significant operations.

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 are no indications that conditions are likely to improve in the foreseeable future. Further deterioration could result in the recognition of an impairment charge or a deconsolidation of the subsidiary. At July 2, 2023, the carrying value of the Company’s net investment in its Venezuelan operations was approximately $2.1 million. In addition, at July 2, 2023, the Company’s “Accumulated other comprehensive loss” included a cumulative translation loss of $3.8 million related to its Venezuelan operations which would need to be reclassified to net income in the event of a complete exit of the business or a deconsolidation of the Venezuelan operations.

Turkey has been deemed to be a highly inflationary economy under U.S. GAAP since the first quarter of 2022. Accordingly, the Company considers the U.S. dollar to be the functional currency of its operations in Turkey and has remeasured monetary assets and liabilities denominated in Turkish lira to U.S. dollars with changes recorded through earnings. The cumulative impact of applying highly inflationary accounting to Turkey has been a pretax charge to earnings of $5.2 million ($4.1 million after tax), including $2.5 million ($2.0 million after tax) during the six-month period ended July 2, 2023. The magnitude of future earnings impacts, however, is uncertain as such impacts are dependent upon unpredictable movements in the Turkish lira relative to the U.S. 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 was approximately $16.9 million as of July 2, 2023.

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 July 2, 2023, the Company had derivative contracts outstanding to hedge the prices on a portion of anticipated natural gas and aluminum purchases. These contracts, some of which qualify as cash flow hedges, include natural gas swaps totaling approximately 7.0 million metric million British thermal units (“MMBTUs”) and aluminum swaps totaling 447 metric tons. These contracts have various maturity dates ranging through December 2024. The total fair market value of these instruments resulted in a net loss position of $10.8 million and $8.8 million at July 2, 2023 and December 31, 2022, respectively.

The Company routinely enters into derivative currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain anticipated foreign currency cash flows. These contracts qualify as cash flow hedges and have various maturity dates ranging through May 2024. The total market value of these instruments resulted in a net gain position of $3.9 million at July 2, 2023 and a net loss position of $0.9 million at December 31, 2022.

In addition, the Company had various currency contracts to mitigate the risk of unfavorable fluctuations in the exchange rate on certain foreign currency assets and liabilities as of July 2, 2023. During the first six months of 2023, the U.S. dollar weakened against the euro, the British pound, the Brazilian real, the Mexican peso and the Polish zloty, which are the functional currencies in which a majority of the Company’s foreign investments are held. The net impact of these changes resulted in translation income of $53.6 million being recorded in “Accumulated other comprehensive loss” during the six-month period ended July 2, 2023.

Restructuring and Impairment

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

New Accounting Pronouncements

Information regarding new accounting pronouncements is provided in Note 2 to the Company’s Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.

OTHER ITEMS

Critical Accounting Policies and Estimates

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

Information about the Company’s exposure to market risk is discussed under Part I, Item 2 in this Quarterly Report on Form 10-Q and was disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 28, 2023. There have been no other material quantitative or qualitative changes in market risk exposure since the date of that filing.

Evaluation of Disclosure Controls and Procedures

Under the supervision, and with the participation, of our management, including our Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation pursuant to Rule 13a-15(b) under the Exchange Act of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our CEO and CFO concluded that such controls and procedures, as of July 2, 2023, the end of the period covered by this Quarterly Report on Form 10-Q, were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information that is required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting occurring during the quarter ended July 2, 2023, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.