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Summary of Significant Accounting Policies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Basis of Presentation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Consolidated Financial Statements include the accounts of Sonoco Products Company and its majority-owned subsidiaries (the &#8220;Company&#8221; or &#8220;Sonoco&#8221;) after elimination of intercompany accounts and transactions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Investments in affiliated companies in which the Company shares control over the financial and operating decisions, but in which the Company is not the primary beneficiary, are accounted for by the equity method of accounting. Income applicable to these equity investments is reflected in &#8220;Equity in earnings of affiliates, net of tax&#8221; in the Consolidated Statements of Income. 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Actual results could differ from those estimates. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Revenue Recognition</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company records revenue when title and risk of ownership pass to the customer, and when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price to the customer is fixed or determinable and when collectibility is reasonably assured. Certain judgments, such as provisions for estimates of sales returns and allowances, are required in the application of the Company&#8217;s revenue policy and, therefore, the results of operations in its Consolidated Financial Statements. Shipping and handling expenses are included in &#8220;Cost of sales,&#8221; and freight charged to customers is included in &#8220;Net sales&#8221; in the Company&#8217;s Consolidated Statements of Income. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Accounts Receivable and Allowance for Doubtful Accounts</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#8217;s trade accounts receivable are non-interest bearing and are recorded at the invoiced amounts. The allowance for doubtful accounts represents the Company&#8217;s best estimate of the amount of probable credit losses in existing accounts receivable. Provisions are made to the allowance for doubtful accounts at such time that collection of all or part of a trade account receivable is in question. The allowance for doubtful accounts is monitored on a regular basis and adjustments are made as needed to ensure that the account properly reflects the Company&#8217;s best estimate of uncollectible trade accounts receivable. Trade accounts receivable balances that are more than 180&#160;days past due are generally 100% provided for in the allowance for doubtful accounts. Account balances are charged off against the allowance for doubtful accounts when the Company determines that the receivable will not be recovered. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">One of the Company&#8217;s customers represented approximately 8% and 11% of the consolidated trade accounts receivable at December&#160;31, 2010 and 2009, respectively. Sales to this customer accounted for approximately 10% of the Company&#8217;s consolidated revenues in 2010 and 12% of the Company&#8217;s consolidated revenue in both 2009 and 2008, and were primarily reported in the Consumer Packaging and Packaging Services segments. The Company&#8217;s next largest customer comprised approximately 5% of the Company&#8217;s consolidated revenues in 2010 and 4% in 2009 and 2008. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Research and Development</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Research and development costs are charged to expense as incurred and include salaries and other directly related expenses. 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Depletion is charged to operations based on the estimated number of units of timber cut during the year. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Goodwill and Other Intangible Assets</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company evaluates its goodwill for impairment at least annually, and more frequently if indicators of impairment are present. In performing the impairment test, the Company uses discounted future cash flows to estimate the fair value of each reporting unit giving consideration to multiples it believes could be obtained in a sale. If the fair value of the reporting unit exceeds the carrying value of the reporting unit&#8217;s assets, including goodwill, there is no impairment. Otherwise, if the carrying value of the reporting unit&#8217;s goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized for the excess. Purchased goodwill is not amortized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Intangible assets are amortized, usually on a straight-line basis, over their respective useful lives, which generally range from three to 20&#160;years. The Company evaluates its intangible assets for impairment whenever indicators of impairment exist. The Company has no intangibles with indefinite lives. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Income Taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company provides for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting requirements and tax laws. Assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Derivatives</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company uses derivatives to mitigate the effect of fluctuations in some of its raw material and energy costs, foreign currency fluctuations and interest rate movements. The Company purchases commodities such as recovered paper, metal and energy generally at market or at fixed prices that are established with the vendor as part of the purchase process for quantities expected to be consumed in the ordinary course of business. The Company may enter into commodity futures or swaps to reduce the effect of price fluctuations. The Company 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&#8217;s consolidated financial statements. The Company is exposed to interest-rate fluctuations as a result of using debt as a source of financing for its operations. The Company may from time to time use traditional, unleveraged interest rate swaps to adjust its mix of fixed and variable rate debt to manage its exposure to interest rate movements. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company records its derivatives as assets or liabilities on the balance sheet at fair value using published market prices or estimated values based on current price quotes and a discounted cash flow model to estimate the fair market value of derivatives. 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New Accounting Pronouncements</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In June&#160;2009, the Financial Accounting Standards Board issued FAS No.168, &#8220;The FASB Accounting Standards Codification<sup style="font-size: 85%; vertical-align: text-top">TM</sup> and the Hierarchy of Generally Accepted Accounting Principles &#8212; a replacement of FASB Statement No.&#160;162.&#8221; This statement established the FASB Accounting Standards Codification (the &#8220;Codification&#8221;) as the source of authoritative U.S. generally accepted accounting principles (GAAP). This statement became effective for financial statements issued for interim and annual periods ending after September&#160;15, 2009, and as of the effective date, all existing accounting standard documents were superseded. Accordingly, in all of its subsequent public filings the Company will reference the Codification as the sole source of authoritative literature. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">No significant new accounting guidance became effective for the Company during fiscal 2010. As of December&#160;31, 2010, there was no issued guidance pending future adoption that is expected to have a significant impact on the Company&#8217;s financial statements when adopted. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 3 - us-gaap:BusinessCombinationDisclosureTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>3. Acquisitions</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company completed four acquisitions during 2010 at an aggregate cost of $137,835 in cash. These acquisitions consisted of Associated Packaging Technologies, Inc. (APT), a supplier of thermoformed containers to the frozen food industry, Madem Reels USA, Inc., a manufacturer of nailed wood and plywood reels for the wire and cable industry, a small tube and core business in Canada, and a small tube and core business in Greece. APT operates four manufacturing facilities (two in the United States, one in Canada, and one in Ireland) and employs more than 400 persons. The all-cash purchase price of APT, including the cost of paying off various obligations, was $119,968. The acquisition is expected to generate annualized sales of approximately $150,000, which will be accounted for in the Company&#8217;s Consumer Packaging segment. 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A gain of $2,172 was recognized on the sale and is reflected under &#8220;Adjustments&#8221; in the table above. Additionally, adjustments totaling $1,164 were made in 2010 to the estimated severance charges that had been recognized late in 2009. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2009, proceeds of $2,775 were received from the disposal of a Canadian recovered paper brokerage business. The net book value of property, plant and equipment written off against the sales proceeds totaled $125. Also written off was associated goodwill totaling $1,643. The resulting gain of $1,007 is included under &#8220;2009 charges&#8221; in the table above. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects to pay the majority of the remaining 2009 Actions restructuring costs by the end of 2011 using cash generated from operations. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2008 Actions</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2008, the Company initiated the following closures in its Tubes and Cores/Paper segment: ten tube and core plants, three in the United States, three in Canada, two in the United Kingdom, one in Spain, and one in China; two paper mills, one in the United States and one in Canada; and a specialty paper machine in the United States. In addition, closures were initiated of four rigid packaging plants in the United States (part of the Consumer Packaging segment) and two fulfillment centers in the United States (part of the Packaging Services segment). 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<b> </b> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 10 - us-gaap:FairValueDisclosuresTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>10. Fair Value Measurements</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The following tables set forth information regarding the Company&#8217;s financial assets and financial liabilities that are measured at fair value at December&#160;31, 2010 and 2009. The Company does not currently have any nonfinancial assets or liabilities that are recognized or disclosed at fair value on a recurring basis. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#8217;s pension plan assets comprise more than 98% of its total postretirement benefit plan assets. The assets of the Company&#8217;s various pension plans and retiree health and life insurance plans are largely invested in the same funds and investments and in similar proportions and, as such, are not shown separately, but are combined in the tables below. Postretirement benefit plan assets are netted against postretirement benefit obligations to determine the funded status of each plan. 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margin-top: 6pt">The fair value of Level 3 real estate investments is determined by the fund sponsor using independent appraisers to value the underlying properties on an annual basis (at a minimum). The property valuations and the key valuation-sensitive assumptions are reviewed by the fund sponsor and adjusted if there has been a significant change in circumstances related to the property since the last valuation. Fair value measurements of investments in the hedge fund of funds employ combinations of the market, income, and cost approach, depending upon the nature of the underlying investments. Level 3 assets comprised approximately 9.1% and 7.0% of the Company&#8217;s total postretirement benefit plan assets at December&#160;31, 2010 and 2009, respectively. They are utilized in order to provide an additional measure of diversification and are not considered a critical part of the Company&#8217;s overall investment strategy. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">As discussed in Note 9, the Company uses derivatives to mitigate the effect of raw material and energy cost fluctuations, foreign currency fluctuations and interest rate movements. Fair value measurements for the Company&#8217;s derivatives are classified under Level 2 because such measurements are determined using published market prices or estimated based on observable inputs such as interest rates, yield curves, spot and future commodity prices and spot and future exchange rates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Certain deferred compensation plan liabilities are funded and the assets invested in various exchange traded mutual funds. 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Awards issued prior to 2009 were issued pursuant to the 1991 Key Employee Stock Plan (the &#8220;1991 Plan&#8221;) or the 1996 Non-Employee Directors Stock Plan (the &#8220;1996 Plan&#8221;). Awards issued after 2008 were issued pursuant to the Sonoco Products Company 2008 Long-Term Incentive Plan (the &#8220;2008 Plan&#8221;), which became effective upon approval by the shareholders on April&#160;16, 2008. The maximum number of shares of common stock that may be issued under the 2008 Plan was set at 8,500,000 shares, subject to certain adjustments, which includes all awards that were granted, forfeited or expired during 2008 under all previous plans. At December&#160;31, 2010, a total of 4,634,268 shares remain available for future grant under the 2008 Plan. After the effective date of the 2008 Plan, no awards may be granted under any previous plan. The Company issues new shares for stock option and stock appreciation right exercises and stock unit conversions. 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margin-top: 6pt">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 long-term rate of return assumption is based on the Company&#8217;s current and expected future portfolio mix by asset class, and expected nominal returns of these asset classes using an economic &#8220;building block&#8221; approach. Expectations for inflation and real interest rates are developed and various risk premiums are assigned to each asset class based primarily on historical performance. The expected long-term rate of return also gives consideration to the expected level of outperformance to be achieved on that portion of the Company&#8217;s investment portfolio under active management. The assumed rate of compensation increase reflects historical experience and management&#8217;s expectations regarding future salary and incentive increases. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><u>Medical Trends</u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The U.S. Retiree Health and Life Insurance Plan makes up approximately 99% of the Retiree Health liability. 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margin-top: 6pt">The Company employs a total-return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a desired level of risk. Alternative assets such as real estate, private equity and hedge funds are used to enhance expected long-term returns while improving portfolio diversification. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews and periodic asset/liability studies. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">At December&#160;31, 2010, total postretirement benefit plan assets were $1,063,424, of which $807,300 were assets of the U.S. Defined Benefit Plan. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>U.S. Defined Benefit Plan</u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The equity investments are diversified among U.S. and non-U.S. stocks of small to large capitalizations. During 2008, the Company completed an asset/liability study for the U.S. Defined Benefit Plan. As a result, the investment mix of the Plan was altered to include a larger percentage allocation to longer duration domestic bonds as well as an increased allocation to international equity securities and alternative investments. The level of domestic equity securities was decreased to accommodate these changes. The current target allocation (midpoint)&#160;for the investment portfolio is: Equity Securities &#8212; 52.5%, Debt Securities &#8212; 34.5% Alternative &#8212; 13% and Cash &#8212; 0%. The large cash position at the end of 2009 was due to the timing of the Company&#8217;s $100,000 contribution in December&#160;2009. 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margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><u>Contributions</u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Based on current actuarial estimates, the Company anticipates that the total contributions to its retirement plans and retiree health and life insurance plans will be approximately $109,000 in 2011, including an $85,000 contribution made to its U.S. qualified defined benefit pension plan in January&#160;2011. No assurances can be made, however, about funding requirements beyond 2011, as they will depend largely on actual investment returns and future actuarial assumptions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt"><u>Plan Changes and Amendments</u> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In December&#160;2010, the Company&#8217;s Board of Directors approved an amendment to the U.S. qualified defined benefit pension plan that resulted in the plan being split into two separate plans effective January&#160;1, 2011. The result of the split is the creation of a plan that includes only active participants (the &#8220;Active Plan&#8221;) and another larger plan that includes only inactive participants (the &#8220;Inactive Plan&#8221;). The projected benefit obligation of the U.S. qualified defined benefit pension at December&#160;31, 2010, is presented prior to the split. The combined projected benefit obligation of the separate plans at January&#160;1, 2011, is approximately $250 higher. Actuarial losses associated with the Active Plan will continue to be amortized over the average remaining service life of the active participants (approximately 10&#160;years) while the actuarial losses associated with the Inactive Plan will be amortized over the remaining life expectancy of the inactive participants (approximately 22&#160;years). The longer amortization period is expected to lower overall benefit plan expense by approximately $13&#160;million in 2011. This benefit will be partially offset by lower assumed rates of return. With the split into two plans, the Company expects to employ a somewhat more conservative asset allocation strategy for the Inactive Plan. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2010, certain retiree medical benefits and life insurance coverage under the Company&#8217;s U.S. Retiree Medical and Life Insurance Plan were changed, reducing the accumulated postretirement benefit obligation by $4,566. The resulting prior service credit will be amortized over a period of approximately four years. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2009, the Company&#8217;s U.S. qualified defined benefit pension plan was amended to allow a lump sum payment option upon termination to plan participants who chose to freeze their benefit December 31, 2009 and move to the SIRP. The effect of this and other smaller amendments was a reduction in the projected benefit obligation of $4,300. Also during 2009, the Company amended its U.S. Retiree Medical and Life Insurance Plan to freeze the Company subsidy for both pre- and post-Medicare retiree medical coverage at 2009 levels effective January&#160;1, 2010 and to eliminate any early retirement reduction factor applied to the Company subsidy for pre-Medicare coverage for current retirees as of December&#160;31, 2009. In addition, the Company will no longer provide post-Medicare retiree medical coverage to its active employees or post-1981 retirees, except for certain union groups. The impact of these changes was an overall reduction in the accumulated postretirement benefit obligation of $17,625, which will be amortized over a period of 3.3&#160;years. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During 2005, the Company announced changes in eligibility for retiree medical benefits effective January&#160;1, 2006, for its U.S. plan. These changes included the elimination of a Company subsidy toward the costs of retiree benefits if certain age and service criteria were not met, as well as the elimination of Company-provided prescription drug benefits for Medicare-eligible retirees for those employees who retired after 1981 and for all future retirees. These changes resulted in an overall reduction in the accumulated postretirement benefit obligation of $38,132 in 2005, which was amortized over a period of 4.6&#160;years. 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In accordance with the Internal Revenue Service&#8217;s &#8220;Safe Harbor&#8221; matching contributions and vesting provisions, the plan had provided 100% Company matching on the first 3% of pretax contributions, 50% Company matching on the next 2% of pretax contributions and 100% immediate vesting. The plan also provides for participant contributions of 1% to 30% of gross pay. The Company&#8217;s matching contribution to the Sonoco Savings Plan was temporarily suspended effective June 1, 2009. A modified matching contribution was subsequently reinstated by the Company effective January&#160;1, 2010. Under the modified matching arrangement, the Company will match 50% on the first 4% of a participant&#8217;s pretax contributions. 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This change had retrospective effect back to 1999, and eliminated the benefits of filing consolidated returns in those periods. In 2010, there was a regulatory clarification of the 2009 law change, which resulted in recognition of a benefit of $5,474, offsetting the prior negative impact. Included in 2008 is an additional benefit of $4,313 from an adjustment to the basis of acquired assets of one of the Company&#8217;s Italian operations due to a change in local tax law. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The benefits included in &#8220;Change in estimates related to prior years&#8221; for each of the years presented consist primarily of adjustments to deferred tax assets and liabilities arising from the availability of more accurate estimates. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Undistributed earnings of international subsidiaries totaled $376,264 at December&#160;31, 2010. 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text-indent:-15px">Gross Unrecognized Tax Benefits at December 31 </div></td> <td>&#160;</td> <td align="left">$</td> <td align="right">28,100</td> <td>&#160;</td> <td>&#160;</td> <td align="left">$</td> <td align="right">45,600</td> <td>&#160;</td> <td>&#160;</td> <td align="left">$</td> <td align="right">34,800</td> <td>&#160;</td> </tr> <tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top: 3px double #000000">&#160;</td> </tr> <!-- End Table Body --> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Of the unrecognized tax benefit balances at December&#160;31, 2010 and December&#160;31, 2009, approximately $19,300 and $28,400, respectively, would have an impact on the effective tax rate if ultimately recognized. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">Interest and/or penalties related to income taxes are reported as part of income tax expense. The Company had approximately $3,800 and $6,500 accrued for interest at December&#160;31, 2010 and December 31, 2009, respectively. Tax expense for the year ended December&#160;31, 2010 includes $1,800 of interest benefit, which is comprised of an interest benefit of approximately $5,300 related to the expiration of statutes of limitations and other releases and interest expense of $3,500 on unrecognized tax benefits. The amounts listed above for accrued interest and interest expense do not reflect the benefit of a federal tax deduction which would be available if the interest were ultimately paid. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company and/or its subsidiaries file federal, state and local income tax returns in the United States and various foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, or non-U.S., income tax examinations by tax authorities for years before 2007. With respect to state and local income taxes, the Company is no longer subject to examination prior to 2005, with few exceptions. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The estimate for the potential outcome of any uncertain tax issue is highly judgmental. The Company believes it has adequately provided for any reasonable 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 limitation on potential assessments expire. Additionally, the jurisdictions in which earnings or deductions are realized may differ from current estimates. As a result, the effective tax rate may fluctuate significantly on a quarterly basis. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 14 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>14. Commitments and Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Contingencies</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. The Company is also currently a defendant in a class action by persons who bought Company stock between February&#160;7, 2007 and September&#160;18, 2007. The complaint, as amended, alleges that the Company issued press releases and made public statements during the class period that were materially false and misleading. The complaint seeks an unspecified amount of damages plus interest and attorneys&#8217; fees. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Some of these exposures have the potential to be material. The Company cannot currently estimate the final outcome of many of the items described or the ultimate amount of potential losses. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">While the ultimate liabilities relating to claims and proceedings may be significant to profitability in the period recognized, it is management&#8217;s opinion that such liabilities, when finally determined, will not have an adverse material effect on Sonoco&#8217;s consolidated financial position or liquidity. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Environmental Matters</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">During the fourth quarter of 2005, the U. S. Environmental Protection Agency (EPA)&#160;notified U.S. Paper Mills Corp. (U.S. Mills), a wholly owned subsidiary of the Company, that U.S. Mills and NCR Corporation (NCR), an unrelated party, would be jointly held responsible to undertake a program to remove and dispose of certain PCB-contaminated sediments at a particular site on the lower Fox River in Wisconsin (the &#8220;Site&#8221;) which is now labeled by the EPA as Phase 1. U.S. Mills and NCR reached an agreement between themselves that each would fund 50% of the costs of remediation, which through December&#160;31, 2010 have totaled approximately $28,900. The Company has expensed a total of $17,650 ($12,500 in 2005 and $5,150 in 2007) for its share of the total estimated cleanup cost. Through December&#160;31, 2010, a total of $14,467 has been spent on remediation of the Site. The remaining accrual of $3,183 represents the Company&#8217;s best estimate of what it is likely to pay to complete the Site project. However, the actual costs associated with cleanup of this particular site are dependent upon many factors and it is reasonably possible that remediation costs could be higher than the current estimate of project costs. The Company acquired U.S. Mills in 2001, and the alleged contamination predates the acquisition. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">In February&#160;2007, the EPA and Wisconsin Department of Natural Resources (WDNR)&#160;issued a general notice of potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)&#160;and a request to participate in remedial action implementation negotiations relating to a stretch of the lower Fox River, including the bay at Green Bay (Operating Units 2 &#8212; 5), to eight potentially responsible parties, including U.S. Mills. Operating Units 2 &#8212; 5 include, but also comprise, a vastly larger area than the Site. Although it has not accepted any liability, U.S. Mills is reviewing this information and discussing possible remediation scenarios, and the allocation of responsibility therefor, with other potentially responsible parties. On April&#160;9, 2007, U.S. Mills, in conjunction with other potentially responsible parties, presented to the EPA and the WDNR a proposed schedule to mediate the allocation issues among eight potentially responsible parties, including U.S. Mills. Non-binding mediation began in May&#160;2007 and continued as bilateral/multilateral negotiations, although no agreement among the parties occurred. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On November&#160;13, 2007, the EPA issued a unilateral Administrative Order for Remedial Action pursuant to Section&#160;106 of CERCLA. The order requires U.S. Mills and the seven other respondents jointly to take various actions to clean up Operating Units 2 &#8212; 5. The order establishes two phases of work. The first phase consists of planning and design work as well as preparation for dredging and other remediation work and initially was required to be completed by December&#160;31, 2008. The second phase consists primarily of dredging and disposing of contaminated sediments and capping of the dredged and less contaminated areas of the river bottom. The second phase was required to begin in 2009 and is expected to continue for several years. The order also provides for a $32.5 per day penalty for failure by a respondent to comply with its terms as well as exposing a non-complying respondent to potential treble damages. Although U.S. Mills has reserved its rights to contest liability for any portion of the work, it is cooperating with the other respondents to comply with the first phase of the order. However, its financial contribution will likely be determined by the lawsuit commenced in June&#160;2008. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On June&#160;12, 2008, NCR and Appleton Papers, Inc. (API), as plaintiffs, commenced suit in the United States District Court for the Eastern District of Wisconsin (No.&#160;08-CV-0016-WCG) against U.S. Mills, as one of a number of defendants, seeking a declaratory judgment allocating among all the parties the costs and damages associated with the pollution and cleanup of the Lower Fox River. The suit also seeks damages from the defendants for amounts already spent by the plaintiffs, including natural resource damages, and future amounts to be spent by all parties with regard to the pollution and cleanup of the Lower Fox River. On December&#160;16, 2009, the court issued an order which concluded that, under the equities of the case, NCR and API were not entitled to any contribution from U.S. Mills and other defendants, thereby granting the defendants&#8217; motions for summary judgment and denying the plaintiffs&#8217; motions for summary judgment. Although an order has been issued by the court, no appealable final judgment has been entered yet; nevertheless, NCR has reported that it intends to appeal the ruling, presumably after entry of the final judgment. Subsequent to the December&#160;2009 ruling, U.S. Mills and other defendants made motions to have the court rule that, on the same basis as the December&#160;2009 ruling, NCR would be responsible for any costs that U.S. Mills and the other defendants might incur, past, present and future. These motions are under advisement by the court. The Company believes that this suit will have a minimal, if any, impact on the total amount of the potential remediation costs associated with Operating Units 2 &#8212; 5, but it may have a substantial impact on U.S. Mills&#8217; share of those costs. U.S. Mills plans to defend the suit vigorously. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">On October&#160;14, 2010, the EPA and WDNR filed suit against NCR, API, U.S. Mills and nine other defendants in the United States District Court for the Eastern District of Wisconsin (No. 10-CV-00910-WCG) pursuant to Sections&#160;106 and 107 of CERCLA. The plaintiffs seek to recover unreimbursed costs incurred for activities undertaken in response to the release and threatened release of hazardous substances from facilities at or near the Lower Fox River and Green Bay as well as damages for injury to, loss of, and destruction of natural resources resulting from such releases. The plaintiffs also seek a ruling that the defendants are liable for future response costs of the plaintiffs and requiring the defendants to comply with the unilateral Administrative Order for Remedial Action discussed in prior filings. The Company does not believe that the remedies sought in the suit materially expand the Company&#8217;s potential liability beyond what has been disclosed in this report or in the Company&#8217;s prior filings with the SEC. U.S. Mills plans to defend the suit vigorously. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">As of December&#160;31, 2010, U.S. Mills had accrued a total of $55,544 for potential liabilities associated with the Fox River contamination (not including amounts accrued for remediation at the Site). That amount represents the minimum of the range of probable loss that can be reasonably estimated based on information available through the date of this report. In two separate actions during 2008, U.S. Mills increased its reserve for all Fox River related liabilities (other than the Site) from $20,000 to $60,825. Accordingly, U.S. Mills recognized additional pretax charges of $40,825 in 2008 for such potential liabilities. Also during 2008, settlements totaling $40,825 were reached on certain of the insurance policies covering the Fox River contamination. The recognition of these insurance settlements offset the impact to earnings of the additional charges in 2008. Through December&#160;31, 2010, a total of $5,281, primarily legal fees, has been spent against this reserve. Although the Company lacks a reasonable basis for identifying any amount within the range of possible loss as a better estimate than any other amount, as has been previously disclosed, the upper end of the range may exceed the net worth of U.S. Mills. However, because the discharges of hazardous materials into the environment occurred before the Company acquired U.S. Mills, and U.S. Mills has been operated as a separate subsidiary of the Company, the Company does not believe that it bears financial responsibility for these legacy environmental liabilities of U.S. Mills. Therefore, the Company continues to believe that the maximum additional exposure to its consolidated financial position is limited to the equity position of U.S. Mills, which was approximately $85,000 at December&#160;31, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has been named as a potentially responsible party at several other environmentally contaminated sites. All of the sites are also the responsibility of other parties. The potential remediation liabilities are shared with such other parties, and, in most cases, the Company&#8217;s share, if any, cannot be reasonably estimated at the current time. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">As of December&#160;31, 2010 and 2009, the Company (and its subsidiaries) had accrued $62,026 and $63,800, respectively, related to environmental contingencies. Of these, a total of $58,727 and $60,414 relate to U.S. Mills at December&#160;31, 2010 and 2009, respectively. These accruals are included in &#8220;Accrued expenses and other&#8221; on the Company&#8217;s Consolidated Balance Sheets. As discussed above, U.S. Mills also recognized a $40,825 benefit from cash settlements reached on certain insurance policies covering the Fox River contamination in 2008. U.S. Mills&#8217; two remaining insurance carriers are in liquidation. It is possible that U.S. Mills may recover from these carriers a small portion of the costs it ultimately incurs. U.S. Mills may also be able to recoup some of the costs it incurs from other parties. There can be no assurance that such claims for recovery would be successful and no amounts have been recognized in the consolidated financial statements of the Company for such potential recovery or recoupment. </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Commitments</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">As of December&#160;31, 2010, 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. These purchase commitments require the Company to make total payments of approximately $386,800, as follows: $63,800 in 2011; $62,600 in 2012; $62,600 in 2013, $58,400 in 2014 and a total of $139,400 from 2015 through 2020. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 15 - us-gaap:EarningsPerShareTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 6pt"><b>15. Shareholders&#8217; Equity and Earnings per Share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Stock Repurchases</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#8217;s Board of Directors has authorized the repurchase of up to 5,000,000 shares of the Company&#8217;s common stock. 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Financial Reporting for Business Segments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Consumer Packaging segment includes the following products and services: round and shaped rigid containers and trays (both composite and plastic); printed flexible packaging; metal and peelable membrane ends and closures; and global brand artwork management. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Tubes and Cores/Paper segment includes the following products: high-performance paper and composite paperboard tubes and cores; fiber-based construction tubes and forms; recycled paperboard, linerboard, corrugating medium, recovered paper and other recycled materials. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">The Packaging Services segment provides the following products and services: designing, manufacturing, assembling, packing and distributing temporary, semipermanent and permanent point-of-purchase displays; and supply chain management services, including contract packing, fulfillment and scalable service centers. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">All Other Sonoco represents the Company&#8217;s businesses that do not meet the aggregation criteria for inclusion as a separate reportable segment under U.S. GAAP. 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