Restatement of Previously Issued Financial Statements

Misstatements at the Irapuato Packaging Center

In July 2015, in the course of closing its books for the second quarter of 2015, the Company discovered certain accounting irregularities at a contract packaging center in Irapuato, Mexico, part of the Display and Packaging segment.

Promptly upon discovery, the Company reported these accounting irregularities to the Audit Committee of the Board of Directors, and a formal investigation into the matter was initiated to determine whether any adjustments would be required with respect to the Company's previously issued financial statements. The Audit Committee retained independent outside legal and accounting advisers to assist with this investigation.

Through this investigation, which concluded in August 2015, the irregularities were found to have consisted of a pattern of unsupported journal entries and other actions involving the Irapuato finance, plant, and pack center managers that misstated revenue, cost of sales, trade accounts receivable, other receivables, prepaid expenses, accrued expenses and other, and trade accounts payable for reporting periods dating back to 2011. The misstatements were made to conceal shortfalls in operating profits at the Irapuato packaging center. Neither cash nor previously reported cash flows from operations were affected. The Irapuato finance manager did not fully disclose the extent of his conduct to his managers, and concealed these irregularities from senior management, corporate finance, and our independent registered public accounting firm.

The Company determined that revenue and cost of sales had been misstated from 2012 through the first quarter of 2015, resulting in a cumulative overstatement of net income of approximately $23,315, or $0.23 per diluted common share. Of this overstatement, approximately $2,139 related to the first quarter of 2015, while $10,817, $9,758, and $601 related to the years ending December 31, 2014, 2013, and 2012, respectively. The reported balance sheets were also misstated for the annual and interim periods from 2012 through the first quarter of 2015.

Other Items

In addition to the misstatements related to the Irapuato, Mexico, packaging center, certain out-of-period adjustments were made in 2014 that the Company concluded at the time, based on its evaluation of both quantitative and qualitative factors, were not material to any of its previously issued financial statements. These adjustments included the following:

•

As disclosed in the Company's Form 10-Q for the three and six-month periods ending June 29, 2014, during the second quarter of 2014 the Company recorded a valuation allowance of $11,516 on deferred tax assets related to the pension plan of a foreign subsidiary. This valuation allowance should have been established in years prior to 2014 when the deferred tax assets were recognized. The error affected comprehensive income, but not net income, from 2010 through the first quarter of 2014.

•

In December 2014, the valuation of finished goods and work in process inventory in our Flexible Packaging business (part of the Consumer Packaging segment) was found to have been based on incorrect costing standards resulting in the overstatement of finished goods and work in process inventory and a corresponding understatement of cost of sales totaling $1,184. Pretax operating profits for the segment had been overstated by approximately $924 in 2012 and $260 in 2013. The adjustment resulted in a $770 reduction in the Company's reported net income in 2014.


•	In December 2014, an out-of-period adjustment was made that reduced both deferred tax expense and deferred tax liabilities in various jurisdictions by a total of $3,202. Of this adjustment, approximately $639 related to 2013, $491 to 2012, $789 to 2011, $910 to 2010, and $373 to 2009.

Analysis

In its assessment of materiality, the Company considered, both individually and in the aggregate, the misstatements at the contract packaging center in Irapuato, Mexico, and the impact of the other items discussed above. Its assessment included an evaluation of the qualitative and quantitative factors relevant to that assessment.

Conclusion

The Company concluded that the misstatements associated with the Irapuato packaging center warranted restatement of the previously reported financial statements for the years ended December 31, 2014, 2013, and 2012, the interim periods within the year ended December 31, 2014, and for the three-month period ended March 29, 2015. The impact of the accounting irregularities prior to 2012 was not material. The Irapuato packaging center commenced operations in 2010 and those operations were not fully to scale until 2012.

The Audit Committee of the Board of Directors analyzed these misstatements, and, after consulting with management, concluded on August 9, 2015, that the financial statements for the years ended December 31, 2012, 2013, and 2014, the interim periods within the year ended December 31, 2014, and for the three-month period ended March 29, 2015, should be restated and should no longer be relied upon.

Restatement Details

On August 26, 2015, the Company filed an amended Annual Report on Form 10-K/A for the year ended December 31, 2014 in which it restated the previously issued consolidated financial statements for the years ended December 31, 2014, 2013, and 2012, and for the three- and nine-month periods ended September 28, 2014, for the misstatements related to Irapuato. In addition, the previously issued consolidated financial statements were revised to reflect in the proper periods the previously recorded out-of-period adjustments discussed above.

The Company expects to file by the end of August 2015 an amended Quarterly Report on Form 10-Q/A for the period ended March 29, 2015, in which it will provide restated condensed consolidated financial statements for the three-month periods ended March 29, 2015 and March 30, 2014.

Restated condensed consolidated financial statements for the three- and six-month periods ended June 29, 2014, along with a reconciliation of the amounts previously reported to the restated amounts, are provided below.



CONDENSED CONSOLIDATED STATEMENT OF INCOME
	Three Months Ended
	June 29, 2014 as Previously Reported			Effect of Restatement			June 29, 2014 as Restated
Net sales	$	1,247,380		$	236		$	1,247,616
Cost of sales	1,015,643			3,023			1,018,666
Gross profit	231,737			(2,787		)	228,950
Selling, general and administrative expenses	126,455			—			126,455
Restructuring/Asset impairment charges	3,671			—			3,671
Income before interest and income taxes	101,611			(2,787		)	98,824
Interest expense	13,670			—			13,670
Interest income	535			—			535
Income before income taxes	88,476			(2,787		)	85,689
Provision for income taxes	29,993			(722		)	29,271
Income before equity in earnings of affiliates	58,483			(2,065		)	56,418
Equity in earnings of affiliates, net of tax	3,126			—			3,126
Net income	$	61,609		$	(2,065	)	$	59,544
Net (income) attributable to noncontrolling interests	(125		)	—			(125		)
Net income attributable to Sonoco	$	61,484		$	(2,065	)	$	59,419
Weighted average common shares outstanding:
Basic	102,461			—			102,461
Diluted	103,446			—			103,446
Per common share:
Net income attributable to Sonoco:
Basic	$	0.60		$	(0.02	)	$	0.58
Diluted	$	0.59		$	(0.02	)	$	0.57
Cash dividends	$	0.32		$	—		$	0.32



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended
	June 29, 2014 as Previously Reported			Effect of Restatement			June 29, 2014 as Restated
Net income	$	61,609		$	(2,065	)	$	59,544
Other comprehensive income/(loss):
Foreign currency translation adjustments	8,523			(86		)	8,437
Changes in defined benefit plans, net of tax	(8,173		)	11,516			3,343
Changes in derivative financial instruments, net of tax	1,073			—			1,073
Other comprehensive income/(loss)	1,423			11,430			12,853
Comprehensive income	63,032			9,365			72,397
Net (income) attributable to noncontrolling interests	(125		)	—			(125		)
Other comprehensive (income) attributable to noncontrolling interests	(254		)	—			(254		)
Comprehensive income attributable to Sonoco	$	62,653		$	9,365		$	72,018



CONDENSED CONSOLIDATED STATEMENT OF INCOME
	Six Months Ended
	June 29, 2014 as Previously Reported			Effect of Restatement			June 29, 2014 as Restated
Net sales	$	2,433,006		$	4,642		$	2,437,648
Cost of sales	1,988,966			9,971			1,998,937
Gross profit	444,040			(5,329		)	438,711
Selling, general and administrative expenses	250,205			—			250,205
Restructuring/Asset impairment charges	5,663			—			5,663
Income before interest and income taxes	188,172			(5,329		)	182,843
Interest expense	26,954			—			26,954
Interest income	1,176			—			1,176
Income before income taxes	162,394			(5,329		)	157,065
Provision for income taxes	53,162			(1,380		)	51,782
Income before equity in earnings of affiliates	109,232			(3,949		)	105,283
Equity in earnings of affiliates, net of tax	4,602			—			4,602
Net income	$	113,834		$	(3,949	)	$	109,885
Net (income) attributable to noncontrolling interests	(48		)	—			(48		)
Net income attributable to Sonoco	$	113,786		$	(3,949	)	$	109,837
Weighted average common shares outstanding:
Basic	102,614			—			102,614
Diluted	103,590			—			103,590
Per common share:
Net income attributable to Sonoco:
Basic	$	1.11		$	(0.04	)	$	1.07
Diluted	$	1.10		$	(0.04	)	$	1.06
Cash dividends	$	0.63		$	—		$	0.63



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Six Months Ended
	June 29, 2014 as Previously Reported			Effect of Restatement			June 29, 2014 as Restated
Net income	$	113,834		$	(3,949	)	$	109,885
Other comprehensive income/(loss):
Foreign currency translation adjustments	1,164			(62		)	1,102
Changes in defined benefit plans, net of tax	(3,999		)	11,516			7,517
Changes in derivative financial instruments, net of tax	1,309			—			1,309
Other comprehensive income/(loss)	(1,526		)	11,454			9,928
Comprehensive income	112,308			7,505			119,813
Net (income) attributable to noncontrolling interests	(48		)	—			(48		)
Other comprehensive (income) attributable to noncontrolling interests	(135		)	—			(135		)
Comprehensive income attributable to Sonoco	$	112,125		$	7,505		$	119,630



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
	Six Months Ended
	June 29, 2014 as Previously Reported			Effect of Restatement			June 29, 2014 as Restated
Cash Flows from Operating Activities:
Net income	$	113,834		$	(3,949	)	$	109,885
Adjustments to reconcile net income to net cash provided by operating activities:
Asset impairment	791			—			791
Depreciation, depletion and amortization	95,516			—			95,516
Gain on reversal of Fox River environmental reserves	—			—			—
Share-based compensation expense	9,245			—			9,245
Equity in earnings of affiliates	(4,602		)	—			(4,602		)
Cash dividends from affiliated companies	3,527			—			3,527
Gain on disposition of assets	(940		)	—			(940		)
Pension and postretirement plan expense	19,431			—			19,431
Pension and postretirement plan contributions	(53,592		)	—			(53,592		)
Tax effect of share-based compensation exercises	2,030			—			2,030
Excess tax benefit of share-based compensation	(2,130		)	—			(2,130		)
Net change in deferred taxes	5,584			(676		)	4,908
Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments:
Trade accounts receivable	(84,127		)	—			(84,127		)
Inventories	(10,666		)	—			(10,666		)
Payable to suppliers	21,039			(2,224		)	18,815
Prepaid expenses	(10,624		)	—			(10,624		)
Accrued expenses	10,066			7,553			17,619
Income taxes payable and other income tax items	10,584			(704		)	9,880
Fox River environmental reserve spending	(14,934		)	—			(14,934		)
Other assets and liabilities	(4,498		)	—			(4,498		)
Net cash provided by operating activities	105,534			—			105,534
Cash Flows from Investing Activities:
Purchase of property, plant and equipment	(85,886		)	—			(85,886		)
Cost of acquisitions, net of cash acquired	(10,964		)	—			(10,964		)
Proceeds from the sale of assets	3,588			—			3,588
Investment in affiliates and other, net	138			—			138
Net cash used in investing activities	(93,124		)	—			(93,124		)
Cash Flows from Financing Activities:
Proceeds from issuance of debt	26,946			—			26,946
Principal repayment of debt	(23,411		)	—			(23,411		)
Net increase in commercial paper	51,000			—			51,000
Net decrease in outstanding checks	3,915			—			3,915
Excess tax benefit of share-based compensation	2,130			—			2,130
Cash dividends	(64,353		)	—			(64,353		)
Shares acquired	(29,739		)	—			(29,739		)
Shares issued	2,508			—			2,508
Net cash used in financing activities	(31,004		)	—			(31,004		)
Effects of Exchange Rate Changes on Cash	807			—			807
Net Decrease in Cash and Cash Equivalents	(17,787		)	—			(17,787		)
Cash and cash equivalents at beginning of period	217,567			—			217,567
Cash and cash equivalents at end of period	$	199,780		$	—		$	199,780