UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

or

Commission File No. 0-516

SONOCO PRODUCTS COMPANY

One North Second Street
Post Office Box 160
Hartsville, South Carolina 29551-0160
Telephone: 843-383-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock at June 30, 2004:

Common stock, no par value: 97,990,696

SONOCO PRODUCTS COMPANY

INDEX

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

SONOCO PRODUCTS COMPANY

* The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles.

See accompanying Notes to Condensed Consolidated Financial Statements

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SONOCO PRODUCTS COMPANY

See accompanying Notes to Condensed Consolidated Financial Statements

4

SONOCO PRODUCTS COMPANY

See accompanying Notes to Condensed Consolidated Financial Statements

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SONOCO PRODUCTS COMPANY

Note 1: Basis of Interim Presentation

In the opinion of the management of Sonoco Products Company (the “Company”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for the interim periods reported herein. Operating results for the three and six months ended June 27, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s annual report for the fiscal year ended December 31, 2003.

With respect to the unaudited condensed consolidated financial information of the Company for the three and six month periods ended June 27, 2004 and June 29, 2003 included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated July 28, 2004 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

During the fourth quarter of 2003, the Company completed the sale of its High Density Film business to Hilex Poly Co., LLC, Los Angeles, California. Operating results of this business have been presented for the three and six months ended June 29, 2003 as “Income from discontinued operations, net of income taxes” in the Company’s Condensed Consolidated Statements of Income. Items included in the Notes to Condensed Consolidated Financial Statements that relate to the Consolidated Statement of Income for the three and six months ended June 29, 2003 have been restated to reflect the reclassification of the Company’s High Density Film business as discontinued operations.

Note 2: Acquisitions/Joint Ventures

Acquisition of CorrFlex Graphics, LLC

On May 28, 2004, the Company completed its purchase of CorrFlex Graphics, LLC (“CorrFlex”) for an all-cash purchase price of approximately $250,000. CorrFlex, a privately held company, is one of the nation’s largest point-of-purchase display companies. The acquired business, which is known as Sonoco CorrFlex, LLC, is reflected in the Consumer Packaging segment beginning in June of 2004.

The unaudited proforma combined historical results, as if CorrFlex had been acquired at the beginning of fiscal 2003 and 2004 are estimated to be:

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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)

The proforma results include amortization of intangibles and interest expense on debt assumed to finance the purchase. The proforma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each period presented, nor are they necessarily indicative of future consolidated results.

European Joint Venture

On April 19, 2004, the Company announced that it had signed a definitive agreement with Ahlstrom Corporation, Helsinki, Finland (“Ahlstrom”) to combine each of the companies’ respective European paper-based tube/core and coreboard operations into a joint venture that will operate under the name Sonoco-Alcore S.a.r.l. The Company, which will contribute to the joint venture ownership positions in 25 tube and core plants and six paper mills, will hold a 64.5% interest in the joint venture. Ahlstrom, a leader in high-performance fiber-based materials serving niche markets worldwide, will contribute 15 tube and core plants and one paper mill to the joint venture and will hold a 35.5% interest in it. The Company is currently awaiting regulatory approval by the European Union and expects to finalize this joint venture by the end of 2004.

Note 3: Discontinued Operations

The financial statements and accompanying notes for prior periods have been restated to report the revenues and expenses of the components of the Company that were disposed of separately as discontinued operations. Income from discontinued operations, net of income taxes for the three and six months ended June 29, 2003 represents the results of operations of the Company’s High Density Film business unit, which was sold in December 2003.

The following table sets forth the operating results for the High Density Film business unit, which was previously reported in the Company’s Consumer Packaging segment:

No interest expense or income was allocated to this business unit.

The Company has no continuing involvement in the management or operations of the divested business.

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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)

Note 4: Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

Stock options to purchase approximately 4,487 and 8,120 shares at June 27, 2004 and June 29, 2003, respectively, were not dilutive and, therefore, are not included in the computations of diluted income per common share amounts. No adjustments were made to reported net income in the computations of earnings per share.

Note 5: Restructuring Programs

In August 2003, the Company announced general plans to reduce its overall cost structure by $54,000 pretax by realigning and centralizing a number of staff functions and eliminating excess plant capacity. Pursuant to these plans, the Company has initiated or completed 12 plant closings and has terminated approximately 850 employees. As of June 27, 2004, the Company had incurred cumulative charges, net of adjustments, of approximately $60,978 pretax associated with these activities. Of this amount, $37,037 was related to the Industrial Packaging segment, $9,167 was related to the Consumer Packaging segment and $14,774 was associated with Corporate. These restructuring charges, net of adjustments, consisted of severance and termination benefits of $45,431, asset impairment charges of $9,994 and other exit costs of $5,553. The Company expects to recognize an additional cost of approximately $4,000 pretax in the future associated with these activities, which is comprised of approximately $2,100 in severance and termination benefits, $300 in asset impairment charges and $1,600 in other exit costs. Of this amount, approximately $3,100 is related to the Industrial Packaging segment and approximately $900 is related to the Consumer Packaging segment. The Company also expects to announce throughout the remainder of 2004 the closing of approximately five additional plants in furtherance of these plans. The costs associated with these future plant closings have not yet been determined. In conjunction with the Company’s review of its restructuring accrual in the second quarter of 2004, it was determined that one of the plants that had originally been identified to be closed pursuant to these plans would not be closed due to changes in certain factors. In response to this determination, the Company reduced its restructuring accrual for the Consumer Packaging segment, which resulted in negative charges, net of adjustments, in both the three and six months ended June 27, 2004.

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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)

During the three months ended June 27, 2004, the Company recognized restructuring charges, net of adjustments, of $5,768 ($3,720 after tax), which are reflected as “Restructuring charges” on the Company’s Condensed Consolidated Statements of Income. Of these charges, $6,214 was attributed to the Industrial Packaging segment, and ($446) was related to the Consumer Packaging segment. These restructuring charges, net of adjustments, consisted of severance and termination benefits of $3,649, asset impairment charges of $1,475 and other exit costs of $644.

During the three months ended June 29, 2003, the Company recognized restructuring charges, net of adjustments, of $7,828 ($7,894 after tax) related to previously announced restructuring plans, all of which was attributed to the Industrial Packaging segment. These restructuring charges, net of adjustments, consisted of severance and termination benefits of $7,041, asset impairment charges of $729 and other exit costs of $58.

During the six months ended June 27, 2004, the Company recognized restructuring charges, net of adjustments, of $7,096 ($4,577 after tax). Of these charges, $7,441 was attributed to the Industrial Packaging segment, and ($345) was related to the Consumer Packaging segment. These restructuring charges, net of adjustments, consisted of severance and termination benefits of $4,224, asset impairment charges of $1,698 and other exit costs of $1,174.

During the six months ended June 29, 2003, the Company recognized restructuring charges, net of adjustments, of $8,965 ($8,622 after tax) related to previously announced restructuring plans. Of these charges, $8,465 was attributed to the Industrial Packaging segment, and $500 was related to the Consumer Packaging segment. These restructuring charges, net of adjustments, consisted of severance and termination benefits of $7,678, asset impairment charges of $729 and other exit costs of $558. Additionally, the Company’s High Density Film business, which was divested in December 2003, incurred restructuring charges of approximately $200 ($128 after tax) in the six months ended June 29, 2003.

The following table sets forth the activity in the restructuring accrual included in “Accrued expenses and other” on the Company’s Condensed Consolidated Balance Sheets. Restructuring charges are included in “Restructuring charges” on the Company’s Condensed Consolidated Statements of Income. In accordance with the agreement of sale for the High Density Film business, the liability of that business associated with the restructuring has been retained by the Company and is, therefore, included in the table below:

During the six months ended June 27, 2004, the Company recognized writeoffs of impaired equipment and facilities in the Industrial Packaging segment in the amount of $1,058 and $640, respectively. Other exit costs are primarily associated with lease termination and other miscellaneous plant closing costs.

The Company expects to pay the remaining restructuring costs, with the exception of ongoing pension subsidies and certain building lease termination expenses, by the end of the second quarter of 2005, using cash generated from operations.

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SONOCO PRODUCTS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands except per share data)
(unaudited)

Note 6: Comprehensive Income

The following table reconciles net income to comprehensive income:

     The following table summarizes the components of accumulated other comprehensive income and the changes in accumulated other comprehensive income, net of tax as applicable, for the six months ended June 27, 2004:

The cumulative tax benefit of the Minimum Pension Liability Adjustments was $25,312 at June 27, 2004 and December 31, 2003. Additionally, the deferred tax liability associated with Other items was $2,067 and $940 at June 27, 2004 and December 31, 2003, respectively.

Note 7: Goodwill and Other Intangible Assets

Goodwill

A summary of the changes in goodwill for the six months ended June 27, 2004 is as follows: