Restatement to Previously Issued Financial Statements | Restatement of Previously Issued Financial Statements Misstatements at the Irapuato Packaging Center As previously reported in its 2014 amended Annual Report on Form 10-K/A filed on August 26, 2015, the Company discovered certain accounting irregularities at a contract packaging center in Irapuato, Mexico, part of the Display and Packaging segment, in July 2015, in the course of closing its books for the second quarter of 2015. 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, 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. On August 26, 2015, the Company also filed a Quarterly Report on Form 10-Q for the period ended June 28, 2015 in which it restated the previously issued condensed consolidated financial statements for the three- and six-month periods ended June 29, 2014. On August 28, 2015, the Company filed an amended Quarterly Report on Form 10-Q/A for the period ended March 29, 2015 in which it restated the previously issued 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 nine-month periods ended September 28, 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 September 28, 2014 Effect of Restatement September 28, 2014 Net sales $ 1,263,574 $ (1,071 ) $ 1,262,503 Cost of sales 1,035,910 4,149 1,040,059 Gross profit 227,664 (5,220 ) 222,444 Selling, general and administrative expenses 110,507 — 110,507 Restructuring/Asset impairment charges 5,908 — 5,908 Income before interest and income taxes 111,249 (5,220 ) 106,029 Interest expense 13,620 — 13,620 Interest income 702 — 702 Income before income taxes 98,331 (5,220 ) 93,111 Provision for income taxes 28,891 (1,352 ) 27,539 Income before equity in earnings of affiliates 69,440 (3,868 ) 65,572 Equity in earnings of affiliates, net of tax 2,294 — 2,294 Net income $ 71,734 $ (3,868 ) $ 67,866 Net (income) attributable to noncontrolling interests (810 ) — (810 ) Net income attributable to Sonoco $ 70,924 $ (3,868 ) $ 67,056 Weighted average common shares outstanding: Basic 102,128 — 102,128 Diluted 103,087 — 103,087 Per common share: Net income attributable to Sonoco: Basic $ 0.69 $ (0.03 ) $ 0.66 Diluted $ 0.69 $ (0.04 ) $ 0.65 Cash dividends $ 0.32 $ — $ 0.32 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended September 28, 2014 as Previously Reported Effect of Restatement September 28, 2014 as Restated Net income $ 71,734 $ (3,868 ) $ 67,866 Other comprehensive income/(loss): Foreign currency translation adjustments (48,018 ) 373 (47,645 ) Changes in defined benefit plans, net of tax 4,386 — 4,386 Changes in derivative financial instruments, net of tax (1,229 ) — (1,229 ) Other comprehensive income/(loss) (44,861 ) 373 (44,488 ) Comprehensive income 26,873 (3,495 ) 23,378 Net (income) attributable to noncontrolling interests (810 ) — (810 ) Other comprehensive loss attributable to noncontrolling interests 250 — 250 Comprehensive income attributable to Sonoco $ 26,313 $ (3,495 ) $ 22,818 CONDENSED CONSOLIDATED STATEMENT OF INCOME Nine Months Ended September 28, 2014 Effect of Restatement September 28, 2014 Net sales $ 3,696,580 $ 3,571 $ 3,700,151 Cost of sales 3,024,876 14,120 3,038,996 Gross profit 671,704 (10,549 ) 661,155 Selling, general and administrative expenses 360,712 — 360,712 Restructuring/Asset impairment charges 11,571 — 11,571 Income before interest and income taxes 299,421 (10,549 ) 288,872 Interest expense 40,574 — 40,574 Interest income 1,878 — 1,878 Income before income taxes 260,725 (10,549 ) 250,176 Provision for income taxes 82,053 (2,731 ) 79,322 Income before equity in earnings of affiliates 178,672 (7,818 ) 170,854 Equity in earnings of affiliates, net of tax 6,896 — 6,896 Net income $ 185,568 $ (7,818 ) $ 177,750 Net (income) attributable to noncontrolling interests (858 ) — (858 ) Net income attributable to Sonoco $ 184,710 $ (7,818 ) $ 176,892 Weighted average common shares outstanding: Basic 102,451 — 102,451 Diluted 103,425 — 103,425 Per common share: Net income attributable to Sonoco: Basic $ 1.80 $ (0.07 ) $ 1.73 Diluted $ 1.79 $ (0.08 ) $ 1.71 Cash dividends $ 0.95 $ — $ 0.95 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Nine Months Ended September 28, 2014 as Previously Reported Effect of Restatement September 28, 2014 as Restated Net income $ 185,568 $ (7,818 ) $ 177,750 Other comprehensive income/(loss): Foreign currency translation adjustments (46,854 ) 311 (46,543 ) Changes in defined benefit plans, net of tax 387 11,516 11,903 Changes in derivative financial instruments, net of tax 80 — 80 Other comprehensive income/(loss) (46,387 ) 11,827 (34,560 ) Comprehensive income 139,181 4,009 143,190 Net (income) attributable to noncontrolling interests (858 ) — (858 ) Other comprehensive loss attributable to noncontrolling interests 115 — 115 Comprehensive income attributable to Sonoco $ 138,438 $ 4,009 $ 142,447 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 28, 2014 as Previously Reported Effect of Restatement September 28, 2014 as Restated Cash Flows from Operating Activities: Net income $ 185,568 $ (7,818 ) $ 177,750 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment 4,139 — 4,139 Depreciation, depletion and amortization 144,728 — 144,728 Gain on reversal of Fox River environmental reserves — — — Share-based compensation expense 11,789 — 11,789 Equity in earnings of affiliates (6,896 ) — (6,896 ) Cash dividends from affiliated companies 5,494 — 5,494 Gain on disposition of assets (1,173 ) — (1,173 ) Pension and postretirement plan expense 29,780 — 29,780 Pension and postretirement plan contributions (58,421 ) — (58,421 ) Tax effect of share-based compensation exercises 2,341 — 2,341 Excess tax benefit of share-based compensation (2,511 ) — (2,511 ) Net change in deferred taxes 18,076 (1,361 ) 16,715 Change in assets and liabilities, net of effects from acquisitions, dispositions, and foreign currency adjustments: Trade accounts receivable (102,862 ) 2,856 (100,006 ) Inventories 1,018 — 1,018 Payable to suppliers 28,661 (299 ) 28,362 Prepaid expenses (10,772 ) — (10,772 ) Accrued expenses 20,823 3,920 24,743 Income taxes payable and other income tax items 13,776 (1,370 ) 12,406 Fox River environmental reserve spending (15,000 ) — (15,000 ) Other assets and liabilities (1,161 ) 4,072 2,911 Net cash provided by operating activities 267,397 — 267,397 Cash Flows from Investing Activities: Purchase of property, plant and equipment (135,287 ) — (135,287 ) Cost of acquisitions, net of cash acquired (10,964 ) — (10,964 ) Proceeds from the sale of assets 6,451 — 6,451 Investment in affiliates and other, net (4,520 ) — (4,520 ) Net cash used in investing activities (144,320 ) — (144,320 ) Cash Flows from Financing Activities: Proceeds from issuance of debt 30,526 — 30,526 Principal repayment of debt (30,267 ) — (30,267 ) Net increase in commercial paper 36,000 — 36,000 Net decrease in outstanding checks (712 ) — (712 ) Excess tax benefit of share-based compensation 2,511 — 2,511 Cash dividends (96,446 ) — (96,446 ) Shares acquired (48,731 ) — (48,731 ) Shares issued 2,482 — 2,482 Net cash used in financing activities (104,637 ) — (104,637 ) Effects of Exchange Rate Changes on Cash (4,451 ) — (4,451 ) Net Decrease in Cash and Cash Equivalents 13,989 — 13,989 Cash and cash equivalents at beginning of period 217,567 — 217,567 Cash and cash equivalents at end of period $ 231,556 $ — $ 231,556 |