Add
PTV to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PTV > SEC Filings for PTV > Form 10-Q on 4-Nov-2008 | All Recent SEC Filings |
4-Nov-2008
Quarterly Report
Basis of Presentation
Financial statements for all periods presented in this report were prepared on a consolidated basis in accordance with generally accepted accounting principles consistently applied. All per share information is presented on a diluted basis unless otherwise noted. Certain reclassifications have been made to prior year financial information to conform to the current year presentation.
We acquired 100% of the stock of Prairie Packaging, Inc. (Prairie) on June 5, 2007. The results of Prairie's operations have been included in the consolidated financial statements as of that date.
We have three reporting segments:
• Consumer Products manufactures disposable plastic, foam, molded fiber, pressed paperboard, and aluminum packaging products, and sells them to customers such as grocery stores, mass merchandisers, and discount chains. Products include waste bags, food storage bags, and disposable tableware and cookware. We sell many of our consumer products under well-known trademarks, such as Hefty®.
• Foodservice/Food Packaging manufactures foam, clear plastic, aluminum, pressed paperboard, and molded fiber packaging products, and sells them to customers in the food distribution channel, who prepare and process food for consumption. Customers include foodservice distributors, restaurants, and other institutional foodservice outlets, food processors, and grocery chains.
• Other relates to corporate and administrative service operations and retiree benefit income and expense.
The accounting policies of the reporting segments are the same as those for Pactiv as a whole. Where discrete financial information is not available by segment, reasonable allocations of expenses and assets/liabilities are used.
Restructuring and Other
In the first quarter of 2008, we began the implementation of a cost reduction program that includes the consolidation of two small facilities, asset rationalizations, and headcount reductions. The program is expected to increase after tax earnings by $8 million, or $0.06 per share, in 2008, and $13 million, or $0.10 per share, on an annualized basis. In the first nine months of 2008, we recorded a charge of $9 million after tax, or $0.07 per share. Cash payments related to restructuring and other charges were cash neutral for the nine-month period ended September 30, 2008.
In July 2008, as part of the program, we sold one of the idled facilities for $8 million in cash. This resulted in a gain in the third quarter of 2008 of approximately $3 million after tax ($5 million pretax). As a result, the entire program's cash requirement will be approximately $2 million. We expect the charge for the full program to be approximately $10 million after tax, or $0.08 per share.
Information related to restructuring and associated actions on a pretax basis is included in the following tables.
Asset
(In millions) Severance write-offs Other (a) Total
Accrued restructuring balance at June 30, 2008 $ 5 $ - $ - $ 5
Additions/adjustments to the account
Consumer Products 1 1 (5 ) (3 )
Foodservice/Food Packaging - - 1 1
Other - - - -
Total additions/adjustments 1 1 (4 ) (2 )
Cash payments (3 ) - 7 4
Charges against asset accounts - (1 ) (3 ) (4 )
Accrued restructuring balance at September 30, 2008 $ 3 $ - $ - $ 3
|
Asset
(In millions) Severance write-offs Other (a) Total
Restructuring charges for the nine months ended
September 30, 2008
Consumer Products $ 2 $ 6 $ (4 ) $ 4
Foodservice/Food Packaging 6 2 1 9
Other 1 - - 1
Total $ 9 $ 8 $ (3 ) $ 14
Projected total restructuring costs
Consumer Products $ 2 $ 7 $ (4 ) $ 5
Foodservice/Food Packaging 6 2 2 10
Other 1 - - 1
Total $ 9 $ 9 $ (2 ) $ 16
|
(a) Consists principally of a gain on the sale of one of our facilities and asset removal and transfer costs.
Significant Trends, Opportunities and Challenges
The primary raw materials used to manufacture our products are plastic resins, principally polystyrene and polyethylene. Average industry prices for polystyrene were approximately 20% higher in the third quarter of 2008 than in the same period of 2007. Average industry prices for polyethylene were approximately 30% higher in the third quarter of 2008, compared with the same period in 2007. Over time, we have been able to raise selling prices in many areas of our business to offset the dollar effect of resin cost increases, although there usually is a lag of several months. We continue to closely monitor the resin marketplace. As oil prices fall from their historic highs, we expect that we will also see a reduction in resin costs, which should have a favorable impact on spread (the difference between selling prices and raw material costs). However, the extent and timing of the resin cost reduction and resulting spread improvement is uncertain.
Our business is sensitive to other energy-related cost movements, particularly those that affect transportation and utility costs. Historically, we have been able to mitigate the effect of higher energy-related costs with productivity improvements and other cost reductions. As energy costs decline, we should see a favorable impact on our margins. However, if energy-related costs increase significantly in the future, we may not be able to fully offset such increases with productivity gains.
Due to the current economic downturn and lower consumer confidence, the markets for our packaging products are experiencing weakened demand. This trend is likely to continue into 2009. While our businesses have performed well in this difficult environment, demand will be difficult to predict. We have begun adjusting our production and procurement levels accordingly.
In 2006, we began to introduce "lean" principles and tools in many of our operating facilities. We are expanding the use of lean principles to help us accelerate productivity improvements by reducing inventory and scrap levels, providing rapid stock replenishment, shortening scheduling cycles, improving our "one-stop shopping" service, eliminating nonvalue-added activities, and streamlining processes. As this is a long-term process, we expect our ability to use these tools throughout the organization will have a positive affect on our operating results in future years.
Worldwide stock markets have declined significantly in 2008 and interest rates on corporate bonds in the U.S. have risen significantly. These events will likely have an impact on the value of U.S. qualified pension plan assets and liabilities at the next funding measurement date. The next calculation of funding requirements for our U.S. qualified plan will be January 1, 2009. Based on the value of pension plan assets and interest rates as of the measurement date, it is possible that we would be required to make a significant cash contribution to our pension plan in 2009. In the absence of a major recovery in the value of pension plan assets or a major upward movement in interest rates by year-end 2008, it is likely that we, in accordance with SFAS No. 158, will recognize a substantial reduction to shareholder's equity on our balance sheet as of year-
end 2008. This potential reduction to equity would have no effect on income, cash flow, debt-covenant compliance, or requirements to make contributions to the pension plan.
We believe that cash flow from operations, available cash reserves, and the ability to obtain cash under our credit facility and asset securitization program will be sufficient to meet current and future potential pension funding, liquidity, and capital requirements.
Results of Continuing Operations
The acquisition of Prairie positively impacted our overall sales, volume, and operating income. However, due to the integration of Prairie into our other businesses, we are unable to quantify the precise dollar effect on our overall results.
Three Months Ended September 30, 2008, Compared with Three Months Ended
September 30, 2007
Sales
Three months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 342 $ 326 $ 16 4.9 %
Foodservice/Food Packaging 583 546 37 6.8
Total $ 925 $ 872 $ 53 6.1 %
|
Sales increased 6%, reflecting favorable pricing of 5% and volume growth of 1%.
Sales for Consumer Products rose 5%, reflecting an increase in net pricing of 3% and volume growth of 2%. The volume increase primarily was driven by growth in tableware.
Foodservice/Food Packaging sales increased 7%, reflecting average selling price increases of 5%, volume growth of 1%, and favorable foreign exchange of 1%. The growth in volume primarily represents new cup business.
Operating Income
Three months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 51 $ 53 $ (2 ) (3.8 )%
Foodservice/Food Packaging 52 71 (19 ) (26.8 )
Other (1 ) (2 ) 1 50.0
Total $ 102 $ 122 $ (20 ) (16.4 )%
|
The decline in operating income was primarily a result of a $19 million reduction in spread and higher operating costs of $14 million driven primarily by the impact of higher energy costs on utilities and freight costs. This was offset, in part, by lower advertising and promotional expenses of $6 million; lower selling, general, and administrative (SG&A) expenses of $5 million; and a restructuring credit of $2 million related to the sale of an idled facility as a part of our restructuring program.
The following table shows the impact of restructuring and other charges (credits) on 2008 operating income by segment.
Operating income - three months ended September 30, 2008
GAAP Restructuring and Excluding restructuring
(In millions) basis other and other
Consumer Products $ 51 $ (3 ) $ 48
Foodservice/Food Packaging 52 1 53
Other (1 ) - (1 )
Total $ 102 $ (2 ) $ 100
|
We believe that focusing on operating income excluding the effect of restructuring and other charges (credits) is a meaningful alternative way of evaluating our operating results. The restructuring and other charges (credits) relate to actions that will have an ongoing effect on our company. Considering such charges (credits) as being only applicable to the periods in which they are recognized could make our operating performance in those periods more difficult to evaluate relative to other periods in which there are no such charges. We use operating income excluding restructuring and other charges (credits) to evaluate operating performance and, along with other factors, in determining management compensation.
The following table shows operating income excluding restructuring and other charges (credits).
Three months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 48 $ 53 $ (5 ) (9.4 )%
Foodservice/Food Packaging 53 71 (18 ) (25.4 )
Other (1 ) (2 ) 1 50.0
Total $ 100 $ 122 $ (22 ) (18.0 )%
|
The decline in operating income was primarily a result of a $19 million reduction in spread and higher operating costs of $14 million driven primarily by the impact of higher energy costs on utilities and freight costs. This was offset, in part, by lower advertising and promotional expenses of $6 million and lower selling, general, and administrative (SG&A) expenses of $5 million.
The decrease in operating income for Consumer Products was driven mainly by unfavorable spread of $12 million, offset partially by lower advertising and promotional expense of $6 million.
Operating income for Foodservice/Food Packaging declined from last year primarily due to higher operating costs of $12 million and unfavorable spread of $7 million. The increase in operating costs was driven primarily by the impact of higher energy costs on utilities and freight costs.
Income from Continuing Operations
We recorded income from continuing operations of $53 million, or $0.40 per share, compared with $59 million, or $0.45 per share, in 2007. The change was driven primarily by lower operating income (net of restructuring) as described previously, offset partially by a decrease in interest expense of $3 million as a result of debt reduction, and a $3 million income tax benefit from a favorable conclusion of a Canadian transfer pricing tax audit.
Nine Months Ended September 30, 2008, compared with Nine Months Ended September 30, 2007
Sales
Nine months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 990 $ 881 $ 109 12.4 %
Foodservice/Food Packaging 1,694 1,496 198 13.2
Total $ 2,684 $ 2,377 $ 307 12.9 %
|
Sales grew 13%, reflecting 9% volume growth, 3% favorable pricing, and a 1% benefit from foreign exchange. The volume growth was driven primarily by the inclusion of acquisition sales.
The 12% increase in sales for Consumer Products reflected volume improvement of 11% and an increase in net pricing of 1%. Growth in tableware and disposable cookware drove the volume improvement offset partially by a decline in shipments of waste bags. The volume growth in tableware was primarily a result of the inclusion of acquisition sales.
Sales growth of 13% in Foodservice/Food Packaging was driven by 8% volume growth from the inclusion of acquisition sales, as well as 4% favorable price, and 1% favorable foreign exchange.
Operating Income
Nine months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 142 $ 165 $ (23 ) (13.9 )%
Foodservice/Food Packaging 167 189 (22 ) (11.6 )
Other 1 (1 ) 2 200.0
Total $ 310 $ 353 $ (43 ) (12.2 )%
|
Operating income decreased 12% as favorable volume of $54 million and favorable SG&A of $9 million were more than offset by unfavorable spread of $48 million, higher operating costs of $28 million, restructuring charges of $14 million, and acquisition-related depreciation and amortization of $17 million. The increase in operating costs was driven primarily by the impact of higher utility and freight costs.
The following table shows the impact of restructuring and other charges on 2008 operating income by segment.
Operating income - nine months ended September 30, 2008
GAAP Restructuring and Excluding restructuring
(In millions) basis other and other
Consumer Products $ 142 $ 4 $ 146
Foodservice/Food Packaging 167 9 176
Other 1 1 2
Total $ 310 $ 14 $ 324
|
We believe that focusing on operating income excluding the effect of restructuring and other charges is a meaningful alternative way of evaluating our operating results. The restructuring and other charges relate to actions that will have an ongoing effect on our company. Considering such charges as being only applicable to the periods in which they are recognized could make our operating performance in those periods more difficult to evaluate relative to other periods in which there are no such charges. We use operating income excluding
restructuring and other charges to evaluate operating performance and, along with other factors, in determining management compensation.
The following table shows operating income excluding restructuring and other charges.
Nine months Increase
ended September 30, (decrease)
(In millions) 2008 2007 Amount Percent
Consumer Products $ 146 $ 165 $ (19 ) (11.5 )%
Foodservice/Food Packaging 176 189 (13 ) (6.9 )
Other 2 (1 ) 3 300.0
Total $ 324 $ 353 $ (29 ) (8.2 )%
|
Operating income decreased 8% as favorable volume of $54 million and favorable SG&A of $9 million were more than offset by unfavorable spread of $48 million, higher operating costs of $28 million, and acquisition-related depreciation and amortization of $17 million. The increase in operating costs was driven primarily by higher utility and freight costs.
The 12% decline in operating income for the Consumer Products business was driven principally by unfavorable spread of $48 million, and higher operating costs of $4 million, offset partially by higher volume of $21 million, and lower advertising and promotion costs of $12 million.
The 7% decrease in operating income for the Foodservice/Food Packaging business reflected higher volume of $33 million, which was more than offset by higher operating costs of $24 million, acquisition-related depreciation and amortization of $14 million, and higher SG&A expense of $7 million. The increase in operating costs was driven primarily by higher utility and freight costs.
Income from Continuing Operations
We recorded income from continuing operations of $152 million, or $1.15 per share, for the nine months ended September 30, 2008, compared with $185 million, or $1.39 per share, in 2007. The decline was driven primarily by a decrease in operating income of $27 million (including restructuring of $9 million after tax) as described previously and an increase in interest expense of $8 million related to the financing of the Prairie acquisition, offset partially by a $3 million income tax benefit from a favorable conclusion of a Canadian transfer pricing tax audit.
Liquidity and Capital Resources
Capitalization
September 30, December 31, Increase
(In millions) 2008 2007 (decrease)
Short-term debt, including current maturities of
long-term debt $ - $ - $ -
Long-term debt 1,425 1,574 (149 )
Total debt 1,425 1,574 (149 )
Minority interest 13 13 -
Shareholders' equity 1,415 1,226 189
Total capitalization $ 2,853 $ 2,813 $ 40
Ratio of total debt to total capitalization 49.9 % 56.0 %
|
Shareholders' equity increased $189 million from December 31, 2007, to September 30, 2008, as detailed in the following table.
(In millions)
Shareholders' equity at December 31, 2007 $ 1,226 Increase (decrease) Change in pension and postretirement plans 27 Foreign currency translation adjustments (3 ) Loss on derivatives (1 ) Adoption of SFAS No. 158(1) measurement date change 7 Stock repurchases (2 ) Net income 148 Stock-based compensation and common stock issued in connection with stock option exercises 13 Shareholders' equity at September 30, 2008 $ 1,415 |
(1) Statement of Financial Accounting Standards (SFAS) No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an Amendment of SFAS Nos. 87, 88, 106, and 132(R)."
Cash Flows
Nine months
ended September 30, Increase
(In millions) 2008 2007 (decrease)
Cash provided (used) by:
Operating activities $ 203 $ 276 $ (73 )
Investing activities (109 ) (1,125 ) 1,016
Financing activities (151 ) 735 (886 )
|
The decrease in cash provided by operating activities was driven primarily by increases in accounts receivable of $106 million ($93 million due to the change in amounts drawn under our asset securitization facility), increases in inventories of $39 million, lower income from continuing operations of $33 million, and a decrease in accrued interest of $18 million. This was offset partially by a increase in accounts payable and other current liabilities of $60 million, lower cash taxes of $33 million, higher depreciation and amortization of $18 million, and non-cash restructuring expenses of $13 million.
Cash used by investing activities this year was driven by amounts spent on capital expenditures to support growth in cups and cutlery. Cash used by investing activities last year primarily reflected amounts spent on the acquisition of Prairie of $1 billion and capital expenditures of $103 million.
Cash used by financing activities in 2008 was driven by the repayment of long-term revolving debt of $150 million. Cash provided by financing activities in 2007 included the issuance of long-term debt used to finance the Prairie acquisition of $932 million, the cash tax benefit associated with stock option exercises of $26 million, and the issuance of common stock of $19 million. This was offset partially by the repayment of long-term and revolving debt of $99 million and $40 million, respectively and the repurchase of company stock of $107 million.
Capital Commitments
Commitments for authorized capital expenditures totaled approximately $51 million at September 30, 2008. It is anticipated that the majority of these expenditures will be funded from existing cash and short-term investments and internally generated cash.
Contractual Obligations
There was no material change in the company's aggregate contractual obligations since December 31, 2007.
Liquidity and Off-Balance-Sheet Financing
. . .
|
|