1
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(mark one)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-15157
------------------------
PACTIV CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 36-2552989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices) (Zip Code)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-2000
------------------------
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 twelve 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 ninety days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Common stock, par value $0.01 per share: 158,966,749 as of July 31, 2001.
(See Notes to Financial Statements.)
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2
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, the prospects and developments of Pactiv Corporation (the
company), business strategies for its operations, and cost savings from its
restructuring efforts, all of which are subject to risks and uncertainties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements are identified as "forward-
looking statements" or by their use of terms (and variations thereof) and
phrases such as "will", "anticipate", "intend", "estimate", "expect", and
similar terms (and variations thereof) and phrases.
When a forward-looking statement includes a statement of the assumptions or
bases underlying the forward-looking statement, the company cautions that, while
it believes such assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, the
company or its management expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or will be achieved or accomplished.
The company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include the following: (i) changes in consumer demand and prices;
(ii) material substitutions and changes in prices of raw materials including
plastic resin; (iii) risks associated with international operations including
foreign exchange rates; (iv) the general economic, political and competitive
conditions in markets and countries where the company operates; (v) governmental
actions; (vi) changes in capital availability or costs; (vii) the cost of
compliance with changes in regulations, including environmental regulations;
(viii) workforce factors such as strikes or labor interruptions; (ix) the
company's ability to identify and make appropriate acquisitions and to integrate
operations of acquired businesses quickly and in a cost-effective manner; (x)
changes by the Financial Accounting Standards Board or other accounting
regulatory bodies of authoritative generally accepted accounting principles or
policies; (xi) the timing and occurrence (or non-occurrence) of transactions and
events which may be subject to circumstances beyond the company's control; and
(xii) the company's ability to recognize forecasted savings from its
restructuring programs on a timely basis.
1
3
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Income....................... 3
Condensed Consolidated Statement of Financial
Position.............................................. 4
Condensed Consolidated Statement of Cash Flows......... 5
Notes to Financial Statements (Unaudited).............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings*................................ 18
Item 2. Changes in Securities*............................ 18
Item 3. Defaults Upon Senior Securities*.................. 18
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 18
Item 5. Other Information*................................ 18
Item 6. Exhibits and Reports on Form 8-K.................. 18
</Table>
- ------------------------
* No response to this item is included herein either because it is inapplicable
or there is nothing to report.
2
4
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
(In millions, except share and per-share data) ------------ ------------ ------------ ------------
SALES.............................................. $ 745 $ 820 $ 1,440 $ 1,558
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales, excluding depreciation and
amortization................................... 510 585 999 1,124
Selling, general, and administrative............. 86 90 166 167
Depreciation and amortization.................... 43 45 88 90
Other (income) expense, net...................... 1 (2) 2 (9)
------------ ------------ ------------ ------------
640 718 1,255 1,372
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES, AND
MINORITY INTEREST................................ 105 102 185 186
Interest expense, net of interest capitalized.... 28 33 57 67
Income tax expense............................... 32 29 53 50
Minority interest................................ -- 1 1 1
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS.................. 45 39 74 68
Income from discontinued operations, net of income
tax.............................................. 24 -- 28 134
------------ ------------ ------------ ------------
NET INCOME......................................... $ 69 $ 39 $ 102 $ 202
============ ============ ============ ============
Average number of share of common stock outstanding
Basic............................................ 158,689,891 162,303,344 158,530,819 164,862,367
Diluted.......................................... 159,250,514 162,351,787 158,904,514 164,910,429
EARNINGS PER SHARE
Basic and diluted earnings per share of common
stock
Continuing operations............................ $ 0.28 $ 0.24 $ 0.47 $ 0.41
Discontinued operations.......................... 0.15 -- 0.17 0.82
------------ ------------ ------------ ------------
$ 0.43 $ 0.24 $ 0.64 $ 1.23
============ ============ ============ ============
</Table>
The accompanying notes to financial statements are an integral part of this
statement.
3
5
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<Table>
<Caption>
JUNE 30, 2001 DECEMBER 31, 2000
(In millions, except share data) ------------- -----------------
ASSETS
Current assets
Cash and temporary cash investments....................... $ 15 $ 26
Restricted cash........................................... 8 --
Accounts and notes receivable
Trade, less allowances of $12 and $17 at the respective
dates................................................ 253 275
Income taxes........................................... -- 38
Other.................................................. 7 82
Inventories
Finished goods......................................... 234 238
Work in process........................................ 45 55
Raw materials.......................................... 66 76
Other materials and supplies........................... 34 32
Other..................................................... 74 78
------ ------
Total current assets...................................... 736 900
------ ------
Property, plant, and equipment, net......................... 1,253 1,231
------ ------
Other assets
Goodwill and intangibles, net............................. 922 940
Pension assets, net....................................... 1,000 945
Other..................................................... 95 135
------ ------
Total other assets........................................ 2,017 2,020
Net assets of discontinued operations....................... -- 72
------ ------
TOTAL ASSETS................................................ $4,006 $4,223
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt, including current maturities of long-term
debt...................................................... $ 11 $ 13
Accounts payable.......................................... 235 233
Interest accrued.......................................... 11 14
Other..................................................... 223 252
------ ------
Total current liabilities................................. 480 512
------ ------
Long-term debt.............................................. 1,302 1,560
------ ------
Deferred income taxes....................................... 497 474
------ ------
Deferred credits and other liabilities...................... 115 116
------ ------
Minority interest........................................... 22 22
------ ------
Shareholders' equity
Common stock (158,847,324 and 158,176,937 shares issued
and outstanding, after deducting 11,759,094 and
11,761,094 shares held in treasury, at the respective
dates)................................................. 2 2
Premium on common stock and other capital surplus......... 1,390 1,383
Accumulated other comprehensive income (loss)............. (55) 3
Retained earnings......................................... 253 151
------ ------
Total shareholders' equity................................ 1,590 1,539
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $4,006 $4,223
====== ======
</Table>
The accompanying notes to financial statements are an integral part of this
statement.
4
6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
2001 2000
FOR THE SIX MONTHS ENDED JUNE 30 (In millions) ----- -----
OPERATING ACTIVITIES
Income from continuing operations........................... $ 74 $ 68
Adjustments to reconcile income from continuing operations
to cash provided by continuing operations:
Depreciation and amortization............................. 88 90
Deferred income taxes..................................... 38 34
Pension income............................................ (54) (54)
Net working capital....................................... 8 (132)
Other..................................................... 6 6
----- -----
Cash provided by operating activities....................... 160 12
----- -----
INVESTING ACTIVITIES
Net proceeds related to sale of discontinued operations..... 87 394
Net proceeds from sale of businesses and assets............. 71 44
Expenditures for property, plant, and equipment............. (64) (73)
Acquisitions of businesses and assets....................... (13) --
Other....................................................... 1 --
----- -----
Cash provided by investing activities....................... 82 365
----- -----
FINANCING ACTIVITIES
Issuance of common stock.................................... 8 7
Purchase of common stock.................................... -- (80)
Retirement of long-term debt................................ (258) (4)
Net decrease in short-term debt, excluding current
maturities of long-term debt.............................. (2) (302)
----- -----
Cash used by financing activities........................... (252) (379)
----- -----
Effect of foreign-exchange rate changes on cash and
temporary cash investments................................ (1) --
----- -----
DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS............. (11) (2)
Cash and temporary cash investments, January 1.............. 26 12
----- -----
CASH AND TEMPORARY CASH INVESTMENTS, JUNE 30................ $ 15 $ 10
===== =====
</Table>
The accompanying notes to financial statements are an integral part of this
statement.
5
7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The Consolidated Statement of Income for the three- and six-month periods
ended June 30, 2001, and 2000, the Condensed Consolidated Statement of Financial
Position at June 30, 2001, and the Condensed Consolidated Statement of Cash
Flows for the three- and six-month periods ended June 30, 2001, and 2000, are
unaudited. In the company's opinion, the accompanying financial statements
contain all normal recurring adjustments necessary to present fairly the
financial position, results of operations, and cash flows for the periods
indicated. These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles. It is presumed that users of the accompanying interim
financial information have read, or have access to, the company's audited
financial statements for the preceding year. Accordingly, these statements
should be read in conjunction with the company's Form 10-K for the year ended
December 31, 2000. Certain amounts in the prior year's financial statements have
been reclassified to conform with the presentation used in 2001.
NOTE 2. CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133. In June 2000, the
FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment to SFAS No. 133. SFAS No. 133, as
amended, requires that derivative instruments, including certain derivative
instruments embedded in other contracts, be recorded as either assets or
liabilities measured at fair value and that changes in derivative instruments'
fair value be recognized currently in earnings unless specific hedge-accounting
criteria are met. The company adopted SFAS 133, as amended, on January 1, 2001.
In accordance with the transition provisions of SFAS 133, the company was not
required to record a transition adjustment, and the adoption of SFAS 133 did not
have a material effect on the earnings or statement of financial position of the
company.
In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This
issue addresses the recognition, measurement, and income-statement
classification of various types of sales incentives, including discounts,
coupons, rebates, and free products. Upon adopting EITF No. 00-14, which is
required effective with the fourth quarter of 2001, the company will be required
to reclassify as deductions from sales certain expenses that historically have
been included in selling, general, and administrative costs. If this
reclassification had been made for the second quarter of 2001 and 2000, sales
and selling, general, and administrative costs would have been reduced by $6
million and $10 million, respectively.
In January 2001, the EITF reached a consensus on Issue 3 of No. 00-22,
Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered in
the Future. This consensus requires that certain rebate offers and free products
that are delivered subsequent to a single exchange transaction be recognized
when incurred and reported as a reduction of sales. The impact of this issue,
which the company adopted in the first quarter of 2001, on the company's
consolidated financial statements was immaterial.
In April 2001, the EITF reached a consensus on Issue No. 00-25, Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products. This consensus requires that consideration
provided by a vendor to a purchaser of the vendor's products be recognized as a
reduction of sales, except in those instances where an identifiable and
measurable benefit is or will be received by the vendor from the purchaser. Upon
adopting Issue No. 00-25, which is required effective with the fourth quarter of
2001, the company will be required to reclassify as deductions from sales
certain expenses that historically have been included in selling, general, and
administrative costs. If this reclassification had been
6
8
made for the second quarter of 2001 and 2000, sales and selling, general, and
administrative costs would have been reduced by approximately $14 million in
both periods.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
business combinations initiated after June 30, 2001, be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles are
to be evaluated against these new criteria, which may result in certain
intangibles being classified as goodwill, or vice versa. SFAS No. 142 does not
permit goodwill and certain intangibles to be amortized, but requires that
impairment loss be recognized if recorded amounts exceed fair values. The
provisions of each statement that apply to goodwill and intangible assets
acquired prior to June 30, 2001 will be adopted by the company on January 1,
2002. The company expects that the adoption of these accounting standards may
initially result in certain intangibles being reclassified as goodwill and
reduce the level of amortization of goodwill and intangibles; however, it is
possible that future impairment reviews may result in periodic write-downs of
these assets.
NOTE 3. RESTRUCTURING
In the fourth quarter of 1999, the company recorded a $154 million
restructuring charge, $91 million after tax, or $0.54 per share, related to the
decision to exit non-core businesses and to reduce overhead costs. The
restructuring included (1) the sale of the company's forest products and
aluminum foil container businesses in Europe ($68 million), for which cash
proceeds of $20 million were received in the fourth quarter of 1999; (2) the
sale of certain assets of the company's administrative service and corporate
aircraft operations ($10 million); (3) impairment of long-lived assets of the
company's packaging polyethylene business ($68 million); and (4) severance costs
related to the elimination of 161 positions, primarily in the company's
international operations ($8 million). The impairment charge for the packaging
polyethylene business' assets was deemed necessary following completion of an
evaluation of strategic alternatives for the business, and represented the
difference between the carrying value of the assets and the forecasted future
cash flows of the business, computed on a discounted basis. These restructuring
actions generally were completed in 2000; however, $1 million of the charge was
reversed in the fourth quarter of 2000, as one planned product line
consolidation was not undertaken and, as a result, 14 positions were not
eliminated.
In the fourth quarter of 2000, the company recorded a restructuring charge
of $71 million, $47 million after tax, or $0.29 per share. Of this amount, $45
million was for the impairment of assets held for sale, including those related
to the packaging polyethylene business and the company's interest in Sentinel
Polyolefins LLC, a protective packaging joint venture. In January 2001, the
company received cash proceeds of $72 million from the disposition of those
assets. The remaining $26 million charge reflected the adoption of a
restructuring plan to realign operations and exit low-margin businesses of the
company's Protective and Flexible Packaging segment. Specifically, this charge
was related to (1) plant closures in North America and Europe, including the
elimination of 202 positions ($6 million); (2) other workforce reductions (187
positions), mainly in Europe ($6 million); (3) impairment of European long-lived
assets held for sale ($10 million); and (4) asset write-offs related to the
elimination of certain low-margin product lines ($4 million). The impairment
charge for the European assets was recorded following completion of an
evaluation of strategic alternatives for the related businesses and represented
the difference between the carrying value of the assets and their estimated of
fair market value. The cash cost of executing the fourth-quarter 2000
restructuring plan will amount to approximately $15 million, principally for
severance and lease terminations.
Activity related to the 2000 restructuring plan is shown in the following
table.
<Table>
<Caption>
SEVERANCE OTHER TOTAL
(In millions) --------- ----- -----
Balance at December 31, 2000................................ $12 $ 5 $17
--- --- ---
Cash payments............................................... (4) (1) (5)
--- --- ---
Balance at June 30, 2001.................................... $ 8 $ 4 $12
--- --- ---
</Table>
7
9
As a result of these restructurings, an estimated $70 million of savings
was realized in 1999 and 2000, and an additional $16 million is expected to be
realized in 2001 ($10 million) and 2002 ($6 million), primarily reflecting
reductions in both cost of sales and selling, general, and administrative costs.
NOTE 4. DISPOSITIONS AND DISCONTINUED OPERATIONS
In the fourth quarter of 2000, the company recorded an impairment charge of
$45 million, $29 million after tax, or $0.18 per share, for assets held for
sale, including those related to the packaging polyethylene business and the
company's interest in Sentinel Polyolefins LLC, for which cash proceeds of $72
million were received in January 2001.
In February 2000, the company sold 85% of its interest in Packaging
Corporation of America (PCA) and used the net proceeds of $398 million primarily
to repay debt. The company recorded a related gain of $224 million, $134 million
after tax, or $0.80 per share. As a result, the company's equity interest in PCA
was reduced to 6%. In the first quarter of 2001, the company sold a portion of
its remaining interest in PCA and recorded a related gain of $8 million, $4
million after tax, or $0.02 per share. In April 2001, the company sold its
remaining interest in PCA and recorded a related gain of $49 million, $24
million after tax, or $0.15 per share. Net proceeds from the 2001 transactions
totaled $87 million, which were used primarily to repay debt.
In December 1999, the company entered into an agreement to sell its
aluminum foil reroll facility in Clayton, New Jersey, and its aluminum
packer-processor facility in Shelbyville, Kentucky, for $44 million. The company
recorded a related gain of $6 million ($4 million after tax, or $0.02 per share)
in 2000, and used the proceeds from the transaction primarily to repay debt.
NOTE 5. DEBT
At the time of the company's spin-off from Tenneco Inc., which occurred in
November 1999, the company exercised its right to make a one-time draw under a
$1.5 billion term-loan facility in the amount of $300 million at a
floating-interest rate based on LIBOR, adjusted for reserve requirements, plus a
specified margin. All amounts borrowed under this facility were repaid in the
first quarter of 2000 following the company's sale of the majority of its
interest in PCA.
In conjunction with the spin-off, the company entered into a five-year,
$750 million revolving-credit agreement and a 364-day, $250 million
revolving-credit agreement. Effective September 27, 2000, the 364-day
revolving-credit agreement was extended for an additional 364-day period and
total availability under the agreement was increased to $300 million, of which
$265 million has been committed.
NOTE 6. PROPERTY, PLANT, AND EQUIPMENT, NET
Depreciation is recorded on a straight-line basis over the estimated useful
lives of assets. Useful lives range from 10 to 40 years for buildings and
improvements and from 3 to 25 years for machinery and equipment. In the second
quarter of 2001, the company changed its estimated useful lives for certain
assets in the North American Protective and Flexible business to be consistent
with those used for similar assets in its other business segment. This change
did not have a material impact on the company's financial position or cash
flows, and increased net income for the three months ended June 30, 2001, by
approximately $0.2 million.
8
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NOTE 7. EARNINGS PER SHARE
Earnings from continuing operations per share of common stock outstanding
was computed as follows.
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2001 2000 2001 2000
(In millions, except share and per-share data) ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE
Income from continuing operations....... $ 45 $ 39 $ 74 $ 68
------------ ------------ ------------ ------------
Average shares of common stock
outstanding.......................... 158,689,891 162,303,344 158,530,819 164,862,367
------------ ------------ ------------ ------------
Earnings from continuing operations per
average share of common stock........ $ 0.28 $ 0.24 $ 0.47 $ 0.41
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE
Income from continuing operations....... $ 45 $ 39 $ 74 $ 68
------------ ------------ ------------ ------------
Average shares of common stock
outstanding.......................... 158,689,891 162,303,344 158,530,819 164,862,367
Effect of dilutive securities
Restricted stock..................... 16,450 -- 14,460 --
Stock options........................ 364,164 180 191,034 118
Performance shares................... 180,009 48,263 168,201 47,944
------------ ------------ ------------ ------------
Average shares of common stock outstanding
including dilutive securities........ 159,250,514 162,351,787 158,904,514 164,910,429
------------ ------------ ------------ ------------
Earnings from continuing operations per
average share of common stock........ $ 0.28 $ 0.24 $ 0.47 $ 0.41
------------ ------------ ------------ ------------
</Table>
In November 1999, the company established a grantor trust and reserved
3,200,000 shares of Pactiv common stock for the trust, which were issued to it
in January 2000. This so-called "rabbi trust" is designed to assure payment of
deferred compensation and supplemental pension benefits. These shares are not
considered to be outstanding for purposes of financial reporting.
NOTE 8. SEGMENT INFORMATION
The company has three operating segments: Consumer and Foodservice/Food
Packaging, which relates to the manufacture and sale of disposable plastic,
molded-fiber, pressed-paperboard, and aluminum packaging products for the
consumer, foodservice, and food packaging markets; Protective and Flexible
Packaging, which relates to the manufacture and sale of plastic, paperboard, and
molded-fiber products for protective packaging markets such as electronics,
automotive, furniture, and e-commerce and for flexible packaging applications in
food, medical, pharmaceutical, chemical, and hygienic markets; and Other, which
relates to corporate and administrative service operations and pension-plan
income and expense.
9
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The following table sets forth certain segment information.
<Table>
<Caption>
SEGMENT
--------------------------------------------
CONSUMER AND PROTECTIVE RECLASSIFICATION
FOODSERVICE/ AND FLEXIBLE AND
FOOD PACKAGING PACKAGING OTHER ELIMINATIONS TOTAL
(In millions) -------------- ------------ ------ ---------------- ------
FOR THE THREE MONTHS ENDED JUNE
30, 2001
Sales to external customers.... $ 541 $204 $ -- $ -- $ 745
Income before interest, income
taxes, and minority
interest..................... 76 12 17(a) -- 105
Income from discontinued
operations, net.............. -- -- 24 -- 24
FOR THE THREE MONTHS ENDED JUNE
30, 2000
Sales to external customers.... 610 210 -- -- 820
Income before interest, income
taxes, and minority
interest..................... 76 10 16(a) -- 102
AT JUNE 30, 2001 AND FOR THE
SIX MONTHS THEN ENDED
Sales to external customers.... $1,025 $415 $ -- $ -- $1,440
Income before interest, income
taxes, and minority
interest..................... 133 21 31(a) -- 185
Income from discontinued
operations, net.............. -- -- 28 -- 28
Total assets................... 2,011 744 1,416(b) (165) 4,006
AT JUNE 30, 2000, AND FOR THE
SIX MONTHS THEN ENDED
Sales to external customers.... 1,127 431 -- -- 1,558
Income before interest, income
taxes, and minority
interest..................... 135 20 31(a) -- 186
Income from discontinued
operations, net.............. -- -- 134 -- 134
Total assets................... 2,168 885 1,387(b) (86) 4,354
Net assets of discontinued
operations................... -- -- 49 -- 49
</Table>
(a) Includes pension-plan income and unallocated corporate expenses.
(b) Includes assets related to pension plans (net) and administrative service
operations.
NOTE 9. RESTRICTED CASH
The company, on an interim basis, collects cash from customers for the
purchaser of its divested packaging polyethylene business. Such amounts ($8
million at June 30, 2001) are classified as restricted cash.
NOTE 10. ACCOUNTS AND NOTES RECEIVABLE
The company sells trade receivables ($115 million, $120 million, and $111
million at June 30, 2001, December 31, 2000, and June 30, 2000, respectively) to
a third party in the ordinary course of business. Such sales are reflected as a
reduction of accounts and notes receivable in the statement of financial
position, and related proceeds are included in cash provided (used) by operating
activities in the statement of cash flows. Discounts and fees related to these
sales ($1 million and $2 million in the second quarter of 2001 and 2000,
respectively) are included in other income (expense) in the statement of income.
The company has no retained interest in any of the sold receivables.
The above notes are an integral part of the foregoing financial statements.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BASIS OF PRESENTATION
Financial statements for all periods presented herein have been prepared on
a consolidated basis in accordance with generally accepted accounting principles
consistently applied. Certain amounts in the prior year's financial statements
have been reclassified to conform with the presentation used in 2001.
The company has three operating segments: Consumer and Foodservice/Food
Packaging, which relates to the manufacture and sale of disposable plastic,
molded-fiber, pressed-paperboard, and aluminum packaging products for the
consumer, foodservice, and food packaging markets; Protective and Flexible
Packaging, which relates to the manufacture and sale of plastic, paperboard, and
molded-fiber products for protective packaging markets such as electronics,
automotive, furniture, and e-commerce and for flexible packaging applications in
food, medical, pharmaceutical, chemical, and hygienic markets; and Other, which
relates to corporate and administrative service operations and pension-plan
income and expense.
RESTRUCTURING AND OTHER
In the fourth quarter of 1999, the company recorded a $154 million
restructuring charge, $91 million after tax, or $0.54 per share, related to the
decision to exit non-core businesses and to reduce overhead costs. The
restructuring included (1) the sale of the company's forest products and
aluminum foil container businesses in Europe ($68 million), for which cash
proceeds of $20 million were received in the fourth quarter of 1999; (2) the
sale of certain assets of the company's administrative service and corporate
aircraft operations ($10 million); (3) impairment of long-lived assets of the
company's packaging polyethylene business ($68 million); and (4) severance costs
related to the elimination of 161 positions, primarily in the company's
international operations ($8 million). The impairment charge for the packaging
polyethylene business' assets was deemed necessary following completion of an
evaluation of strategic alternatives for the business, and represented the
difference between the carrying value of the assets and the forecasted future
cash flows of the business, computed on a discounted basis. These restructuring
actions generally were completed in 2000; however, $1 million of the charge was
reversed in the fourth quarter of 2000, as one planned product line
consolidation was not undertaken and, as a result, 14 positions were not
eliminated.
In the fourth quarter of 2000, the company recorded a restructuring charge
of $71 million, $47 million after tax, or $0.29 per share. Of this amount, $45
million was for the impairment of assets held for sale, including those related
to the packaging polyethylene business and the company's interest in Sentinel
Polyolefins LLC, a protective packaging joint venture. In January 2001, the
company received cash proceeds of $72 million from the disposition of those
assets. The remaining $26 million charge reflected the adoption of a
restructuring plan to realign operations and exit low-margin businesses of the
company's Protective and Flexible Packaging segment. Specifically, this charge
was related to (1) plant closures in North America and Europe, including the
elimination of 202 positions ($6 million); (2) other workforce reductions (187
positions), mainly in Europe ($6 million); (3) impairment of European long-lived
assets held for sale ($10 million); and (4) asset write-offs related to the
elimination of certain low-margin product lines ($4 million). The impairment
charge for the European assets was recorded following completion of an
evaluation of strategic alternatives for the related businesses and represented
the difference between the carrying value of the assets and their estimated fair
market value. The cash cost of executing the fourth-quarter 2000 restructuring
plan will amount to approximately $15 million, principally for severance and
lease termination obligations.
An estimated $70 million of savings was realized in 1999 and 2000, and an
additional $16 million is expected to be realized in 2001 ($10 million) and 2002
($6 million), primarily reflecting reductions in both cost of sales and selling,
general, and administrative costs.
See note 3 to the financial statements for additional information related
to the company's restructuring program.
11
13
THREE MONTHS ENDED JUNE 30, 2001, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
RESULTS OF CONTINUING OPERATIONS
Sales
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
(Dollars in millions) -------------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $541 $610 (11.3)%
Protective and Flexible Packaging........................... 204 210 (2.9)
---- ----
Total....................................................... $745 $820 (9.1)%
---- ----
</Table>
Sales declined $75 million, or 9.1%, versus the prior year. Excluding the
negative impact of foreign-currency exchange rates, divestitures, and
discontinued product lines, sales were essentially even with last year.
Sales for the Consumer and Foodservice/Food Packaging segment were down $69
million, or 11.3%, from the second quarter of 2000. Excluding the negative
effect of foreign-currency exchange rates, divestitures, and discontinued
product lines, sales for this segment fell 0.9% versus last year. Sales growth
continued in Hefty(R) consumer products, led by increases in tableware and
OneZip(R) food bags, while in foodservice/food packaging product lines, sales
declined slightly primarily because of soft economic conditions in the U.S.
Sales of protective and flexible products declined $6 million, or 2.9%, compared
with 2000. Excluding the negative impact of foreign-currency exchange rates and
businesses divested in 2000, sales for this segment rose 1.5%, as higher sales
in Europe were offset partially by an economy-related decline in North America.
Operating Income (Income before Interest Expense, Income Taxes, and
Minority Interest)
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
(Dollars in millions) -------------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $ 76 $ 76 --%
Protective and Flexible Packaging........................... 12 10 20.0
Other....................................................... 17 16 6.3
---- ----
Total....................................................... $105 $102 2.9%
---- ----
</Table>
Operating income in 2000 included $1 million of gain on the sale of a
business. Excluding the effect of this unusual item, operating income by segment
was as follows:
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30,
(Dollars in millions) -------------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $ 76 $ 75 1.3%
Protective and Flexible Packaging........................... 12 10 20.0
Other....................................................... 17 16 6.3
---- ----
Total....................................................... $105 $101 4.0%
---- ----
</Table>
Operating income before unusual items was $105 million in 2001, an increase
of $4 million, or 4.0%, from 2000. The improvement was driven principally by the
favorable impact of selling price increases put into effect in 2000, moderating
raw material costs, and initial cost savings from the protective and flexible
restructuring program, offset partially by economy-related volume declines in
North America.
Operating income before unusual items for the Consumer and Foodservice/Food
Packaging segment increased $1 million, or 1.3%, in 2001, driven principally by
the favorable impact of 2000 selling price increases and moderating raw material
costs.
12
14
Operating income for the Protective and Flexible Packaging segment rose $2
million, or 20.0%, from 2000. This improvement was attributable primarily to
initial cost savings related to the fourth quarter 2000 restructuring program,
offset partly by lower North American volume.
Operating income for the Other segment increased $1 million, or 6.3%, from
2000, primarily because of lower unallocated corporate expenses.
Interest Expense, Net of Interest Capitalized
Interest expense was $28 million in 2001, down $5 million, or 15.2%, from
2000, principally because of a decline in borrowings.
Income Taxes
The company's effective tax rate for 2001 was 41.4%, compared with 41.9%
for the same period in 2000.
Income from Continuing Operations
The company recorded net income from continuing operations of $45 million,
or $0.28 per share, in 2001, compared with $39 million, or $0.24 per share, in
the second quarter of 2000.
Discontinued Operations
In the second quarter of 2001, the company recorded income from
discontinued operations, net of income tax, of $24 million, or $0.15 per share,
which represented the after-tax gain on the sale of the company's remaining
holdings of PCA stock. See note 4 to the financial statements for additional
information regarding the company's holdings of PCA stock.
SIX MONTHS ENDED JUNE 2001, COMPARED WITH SIX MONTHS ENDED JUNE 2000
RESULTS OF CONTINUING OPERATIONS
Sales
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
(Dollars in millions) ----------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $1,025 $1,127 (9.1)%
Protective and Flexible Packaging........................... 415 431 (3.7)
------ ------
Total....................................................... $1,440 $1,558 (7.6)%
------ ------
</Table>
Sales declined $118 million, or 7.6%, versus the prior year. Excluding the
negative impact of foreign-currency exchange rates, divestitures, and
discontinued product lines, sales increased 0.9% versus the same period last
year.
Sales for the Consumer and Foodservice/Food Packaging segment were down
$102 million, or 9.1%, from the first half of 2000. Excluding the negative
effect of foreign-currency exchange rates, divestitures, and discontinued
product lines, sales for this segment rose 1.1% versus last year, primarily
because of volume growth in Hefty (R) consumer products and the carryover effect
of 2000 price increases. Sales of protective and flexible products declined $16
million, or 3.7%, compared with 2000. Excluding the negative impact of
foreign-currency exchange rates and businesses divested in 2000, sales for this
segment increased slightly, driven primarily by the carry-over effect of 2000
price increases.
13
15
Operating Income (Income before Interest Expense, Income Taxes, and
Minority Interest)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
(Dollars in millions) -----------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $133 $135 (1.5)%
Protective and Flexible Packaging........................... 21 20 5.0
Other....................................................... 31 31 --
---- ----
Total....................................................... $185 $186 (0.5)%
---- ----
</Table>
Operating income in 2000 included $6 million of gain on the sale of a
business. Excluding the effect of this unusual item, operating income by segment
was as follows:
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
(Dollars in millions) -----------------
2001 2000 CHANGE
---- ---- ------
Consumer and Foodservice/Food Packaging..................... $133 $129 3.1%
Protective and Flexible Packaging........................... 21 20 5.0
Other....................................................... 31 31 --
---- ----
Total....................................................... $185 $180 2.8%
---- ----
</Table>
Operating income before unusual items was $185 million in 2001, an increase
of $5 million, or 2.8%, from 2000. The improvement was driven principally by the
favorable impact of selling price increases put into effect in 2000, initial
cost savings from the restructuring program, and moderating raw material prices.
Operating income before unusual items for the Consumer and Foodservice/Food
Packaging segment increased $4 million, or 3.1%, in 2001, driven principally by
2000 selling price increases, volume growth in consumer products, and moderating
raw material prices, offset, in part, by the effect of the divestiture of the
packaging polyethylene business in the first quarter of 2001.
Operating income for the Protective and Flexible Packaging segment improved
$1 million, or 5.0%, from 2000. This improvement was driven mainly by the
favorable impact of 2000 price increases, increased European volume, and initial
cost savings related to the fourth quarter 2000 restructuring program, offset,
in part, by lower North American volume.
Operating income for the Other segment was essentially unchanged with the
same period last year.
Interest Expense, Net of Interest Capitalized
Interest expense was $57 million in 2001, down $10 million, or 14.9%, from
2000, principally because of a decline in borrowings.
Income Taxes
The company's effective tax rate for 2001 was 41.5%, compared with 41.8%
for the same period in 2000.
Income from Continuing Operations
The company recorded net income from continuing operations of $74 million,
or $0.47 per share, in 2001, compared with $68 million, or $0.41 per share, in
2000. Excluding the impact of the 2000 gain on the sale of a business, net
income from continuing operations rose $10 million, or $0.08 per share, versus
2000.
Discontinued Operations
In 2001, the company recorded income from discontinued operations, net of
income tax, of $28 million, or $0.17 per share, which represented the after-tax
gain on the sale of the company's remaining holdings of PCA stock. In 2000, the
company recorded income from discontinued operations, net of income tax, of $134
million, or $0.82 per share, which represented the gain on the February 2000
sale of the majority of the
14
16
company's equity interest in PCA. See note 4 to the financial statements for
additional information regarding the company's holdings of PCA stock.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
<Table>
<Caption>
(Dollars in millions)
JUNE 30, DECEMBER 31,
2001 2000 CHANGE
-------- ------------ ------
Short-term debt, including current maturities of long-term
debt...................................................... $ 11 $ 13 $ (2)
Long-term debt.............................................. 1,302 1,560 (258)
------ ------ -----
Total debt.................................................. 1,313 1,573 (260)
Minority interest........................................... 22 22 --
Shareholders' equity........................................ 1,590 1,539 51
------ ------ -----
$2,925 $3,134 $(209)
------ ------ -----
</Table>
The company's ratio of debt to total capitalization was 44.9% and 50.2% at
June 30, 2001, and December 31, 2000, respectively. Total borrowings declined
$260 million during 2001, as free cash flow and proceeds from the sale of the
packaging polyethylene business and PCA stock were used to repay debt.
Shareholders' equity increased $51 million in 2001, primarily as a result
of the recording of income from continuing and discontinued operations of $74
million and $28 million, respectively, offset partially by an unfavorable
foreign-currency translation adjustment and a decrease in unrealized gains on
PCA stock holdings.
Cash Flows
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
(In millions) ----------------
2001 2000
----- -----
Cash provided (used) by:
Operating activities...................................... $ 160 $ 12
Investing activities...................................... 82 365
Financing activities...................................... (252) (379)
</Table>
Cash provided by operating activities was $160 million in 2001, versus $12
million in the same period last year. The $148 million increase was driven
mainly by improvements in working capital management.
Investing activities generated cash aggregating $82 million in 2001 and
$365 million in the same period of 2000. The $82 million generated in 2001
principally represented proceeds from the sale of the company's packaging
polyethylene business and the sale of its remaining interest in PCA, offset, in
part, by expenditures for property, plant, and equipment and the acquisition of
assets from a former joint venture. The $365 million provided in 2000 was driven
principally by the receipt of proceeds from the sale of 85% of the company's
interest in PCA, offset partially by capital expenditures.
Cash used by financing activities was $252 million in 2001, driven
primarily by retirement of debt. Cash used by financing activities was $379
million in 2000, driven principally by the retirement of debt and the repurchase
of company stock.
Allowance for Bad Debts
The company's allowance for bad debts totaled $12 million at June 30, 2001,
compared with $17 million at December 31, 2000. The $5 million decrease was
related to clearing old, uncollectible receivables for which reserves had been
established in prior years, which had no impact on net income or free cash flow
for the three- and six-month periods ended June 30, 2001.
15
17
Capital Commitments
Open commitments for authorized expenditures totaled approximately $136
million at June 30, 2001. It is anticipated that the majority of these
expenditures will be funded over the next twelve months from existing cash and
short-term investments, internally generated cash, and borrowings.
Liquidity
The company's management believes that cash flow from operations, along
with available borrowing capacity under its credit facilities, will be
sufficient to meet capital requirements. See note 5 to the financial statements
for additional information concerning liquidity.
CHANGES IN ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133. In June 2000, the
FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment to SFAS No. 133. SFAS No. 133, as
amended, requires that derivative instruments, including certain derivative
instruments embedded in other contracts, be recorded as either assets or
liabilities measured at fair value and that changes in derivative instruments'
fair value be recognized currently in earnings unless specific hedge-accounting
criteria are met. The company adopted SFAS 133, as amended, on January 1, 2001.
In accordance with the transition provisions of SFAS 133, the company was not
required to record a transition adjustment, and the adoption of SFAS 133 did not
have a material effect on the earnings or statement of financial position of the
company.
In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This
issue addresses the recognition, measurement, and income-statement
classification of various types of sales incentives, including discounts,
coupons, rebates, and free products. Upon adopting EITF No. 00-14, which is
required effective with the fourth quarter of 2001, the company will be required
to reclassify as deductions from sales certain expenses that historically have
been included in selling, general, and administrative costs. If this
reclassification had been made for the second quarter of 2001 and 2000, sales
and selling, general, and administrative costs would have been reduced by $6
million and $10 million, respectively.
In January 2001, the EITF reached a consensus on Issue 3 of No. 00-22,
Accounting for "Points' and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to be Delivered in
the Future. This consensus requires that certain rebate offers and free products
that are delivered subsequent to a single exchange transaction be recognized
when incurred and reported as a reduction of sales. The impact of this issue,
which the company adopted in the first quarter of 2001, on the company's
consolidated financial statements was immaterial.
In April 2001, the EITF reached a consensus on Issue No. 00-25, Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products. This consensus requires that consideration
provided by a vendor to a purchaser of the vendor's products be recognized as a
reduction of sales, except in those instances where an identifiable and
measurable benefit is or will be received by the vendor from the purchaser. Upon
adopting Issue No. 00-25, which is required effective with the fourth quarter of
2001, the company will be required to reclassify as deductions from sales
certain expenses that historically have been included in selling, general, and
administrative costs. If this reclassification had been made for the second
quarter of 2001 and 2000, sales and selling, general, and administrative costs
would have been reduced by approximately $14 million in both periods.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
business combinations initiated after June 30, 2001, be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles are
to be evaluated against these new criteria, which may result in certain
intangibles being classified as goodwill, or vice versa. SFAS No. 142 does not
permit goodwill and certain intangibles to be amortized, but requires that
impairment loss be
16
18
recognized if recorded amounts exceed fair values. The provisions of each
statement that apply to goodwill and intangible assets acquired prior to June
30, 2001 will be adopted by the company on January 1, 2002. The company expects
that the adoption of these accounting standards may initially result in certain
intangibles being reclassified as goodwill and reduce the level of amortization
of goodwill and intangibles; however, it is possible that future impairment
reviews may result in periodic write-downs of these assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS
The company is exposed to market risks related to changes in
foreign-currency exchange rates, interest rates, and commodity prices. To manage
these risks, the company, from time to time, enters into various hedging
contracts in accordance with the company's policies and procedures. The company
does not use hedging instruments for trading purposes and is not a party to any
transactions involving leveraged derivatives.
Foreign-Currency Exchange
The company uses foreign-currency forward contracts to hedge its exposure
to adverse changes in exchange rates, primarily related to the Euro, British
pound, and Canadian dollar. Hedging is accomplished through the use of financial
instruments, with related gains or losses offsetting gains or losses on
underlying assets or liabilities.
In managing foreign-currency risk, the company aggregates existing
positions and hedges residual exposures through third-party derivative
contracts. The following table summarizes foreign-currency forward contracts in
effect at June 30, 2001, all of which will mature in 2001.
<Table>
<Caption>
NOTIONAL AMOUNT WEIGHTED-AVERAGE NOTIONAL AMOUNT
IN FOREIGN CURRENCY SETTLEMENT RATE IN U.S. DOLLARS
(In millions, except settlement rates) ------------------- ---------------- ---------------
Euros
-- Purchase.............................. 80 0.845 68
-- Sell.................................. (205) 0.845 (173)
Canadian dollars
-- Purchase.............................. 9 0.657 6
-- Sell.................................. (18) 0.657 (12)
British pounds
-- Purchase.............................. 60 1.409 85
-- Sell.................................. (71) 1.409 (100)
U.S. dollars
-- Purchase.............................. 149 1.000 149
-- Sell.................................. (19) 1.000 (19)
</Table>
Interest Rates
The company is exposed to interest-rate risk on revolving-credit debt that
bears interest at a floating rate based on LIBOR. In addition, the company has
issued public-debt securities with fixed interest rates and original maturity
dates ranging from 4 to 26 years.
At the end of the first quarter of 2001, the company entered into interest
rate swap agreements ("swaps") which effectively convert floating-rate debt on
its synthetic lease obligations to fixed-rate debt. This action was taken
primarily to reduce the company's exposure to interest-rate risk. These swaps
are accounted for as cash flow hedges, with changes in value recorded as a
component of accumulated other comprehensive income on the balance sheet. As of
June 30, 2001, $1 million of deferred net gains on derivative instruments has
been accumulated in other comprehensive income. Because of the highly effective
nature of the hedges, there was no impact on the earnings of the company.
17
19
PART II -- OTHER INFORMATION
ITEMS 1-3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's 2001 Annual Meeting of Shareholders was held on May 17, 2001,
for the purpose of (i) electing directors, (ii) ratifying the appointment of
Arthur Andersen LLP as independent public accountants for the year 2001, and
(iii) acting upon such other matters as might be properly brought before the
meeting or any adjournment or postponement thereof.
At the meeting, the following persons were elected to the company's Board
of Directors, each for a term to expire at the company's 2002 annual meeting of
shareholders:
<Table>
<Caption>
NUMBER OF VOTES
--------------------------
NOMINEE FOR WITHHELD
------- ----------- ---------
Larry D. Brady....................................... 145,775,690 1,203,021
Robert J. Darnall.................................... 145,765,719 1,212,992
Mary R. (Nina) Henderson............................. 145,756,974 1,221,737
Roger B. Porter...................................... 145,745,012 1,233,699
Paul T. Stecko....................................... 145,299,922 1,678,789
Richard L. Wambold................................... 145,740,183 1,238,528
</Table>
The shareholders also ratified the appointment of Arthur Andersen LLP as
the company's independent auditors for the year 2001, with a vote of 145,360,463
votes cast for ratification, 992,083 votes cast against ratification, and
626,165 abstentions.
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibits designated with an asterisk in the following index are filed
herewith; all other exhibits are incorporated by reference:
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2 Distribution Agreement by and between Tenneco Inc. and the
registrant (incorporated herein by reference to Exhibit 2 to
Pactiv Corporation's Current Report on Form 8-K dated
November 11, 1999, File No. 1-15157).
3 Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3.1 to Pactiv
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-15157).
3.1 Amended and Restated By-laws of the registrant (incorporated
herein by reference to Exhibit 3.2 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
3.2* Amended and Restated By-laws of the registrant adapted May
17, 2001.
4.1 Specimen Stock Certificate of Pactiv Corporation Common
Stock (incorporated herein by reference to Exhibit to Pactiv
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-15157).
4.2 Qualified Offer Plan Rights Agreement, dated as of November
4, 1999, by and between the registrant and First Chicago
Trust Company of New York, as Rights Agent (incorporated
herein by reference to Exhibit 4.2 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
4.3(a) Indenture, dated September 29, 1999, by and between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.1 to Tenneco
Packaging Inc.'s Registration Statement on Form S-4, File
No. 333-82923).
</Table>
18
20
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.3(b) First Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(b) to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.3(c) Second Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(c) to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.3(d) Third Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(d) to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.3(e) Fourth Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(e) to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.3(f) Fifth Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(f) to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.4 Registration Rights Agreement, dated as of November 4, 1999,
by and between the registrant and the trustees under the
Pactiv Corporation Rabbi Trust (incorporated herein by
reference to Exhibit 4.4 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
9 None.
10.1 Human Resources Agreement, dated as of November 4, 1999, by
and between Tenneco Inc. and the registrant (incorporated
herein by reference to Exhibit 16.1 to Tenneco Inc.'s
Current Report on Form 8-K dated November 4, 1999, File No.
1-12387).
10.2 Tax Sharing Agreement, dated as of November 3, 1999, by and
between Tenneco Inc. and the registrant (incorporated herein
by reference to Exhibit 16.2 to Tenneco Inc.'s Current
Report on Form 8-K dated November 4, 1999, File No. 12387).
10.3 Amended and Restated Transition Services Agreement, dated as
of November 4, 1999, by and between Tenneco Inc. and the
registrant (incorporated herein by reference to Exhibit 10.3
to Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q
for quarterly period ended September 30, 1999, File No.
1-12387).
10.4 Trademark Transition License Agreement, dated as of November
4, 1999, by and between Tenneco Inc. and the registrant
(incorporated herein by reference to Exhibit 10.4 to Pactiv
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-15157).
10.5 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Executive Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.5 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.6 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.6 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.7 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Change in Control Severance Benefit Plan for Key
Executives (incorporated herein by reference to Exhibit 10.7
to Pactiv Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-15157).
10.8 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.8 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.9 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Stock Ownership Plan (incorporated herein by reference
to Exhibit 10.9 to Pactiv Corporation's Quarterly Report
Form 10-Q for the quarter ended September 30, 1999, File No.
1-15157).
</Table>
19
21
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.10 Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and Newport News
Shipbuilding Inc. (incorporated herein by reference to
Exhibit 10.28 of Tenneco Inc.'s Form 10, File No. 1-12387).
10.11 Pactiv Corporation Rabbi Trust (incorporated herein by
reference to Exhibit 10.11 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.12 Tenneco Rabbi Trust Agreement (incorporated herein by
reference to Exhibit 10.12 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.13(a) Contribution Agreement, dated as of January 25, 1999, by and
among the registrant, PCA Holdings LLC and Packaging
Corporation of America (the "Contribution
Agreement")(incorporated herein by reference to Exhibit
10.30 to Tenneco Inc.'s Current Report on Form 8-K dated
April 12, 1999, File No. 1-12387).
10.13(b) Letter Agreement, dated as of April 12, 1999, by and among
the registrant, PCA Holdings LLC and Packaging Corporation
of America, amending the Contribution Agreement
(incorporated herein by reference to Exhibit 10.31 to
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
10.14 Stockholders Agreement, as amended, dated as of April 12,
1999, by and among the registrant, PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference to Exhibit 10.32 to Tenneco Inc.'s Current Report
on Form 8-K dated April 12, 1999, File No. 1-12387).
10.15 Registration Rights Agreement, as amended, dated as of April
12, 1999, by and among the registrant, PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference to Exhibit 10.33 to Tenneco Inc.'s Current Report
on Form 8-K dated April 12, 1999, File No. 1-12387).
10.16 Release Agreement dated as of October 18, 1999, by and
between Dana G. Mead and Tenneco Management Company, and
Modification of Release Agreement dated as of October
18,1999, by and among Dana G. Mead, Tenneco Inc. and Tenneco
Management Company (incorporated herein by reference to
Exhibit 10.18 to Tenneco Automotive Inc.'s Quarterly Report
on Form 10-Q for quarterly period ended September 30, 1999,
File No. 1-12387).
10.17 Employment Agreement, dated as of March 11, 1997, by and
between Richard L. Wambold and Tenneco Inc. (incorporated
herein by reference to Exhibit 10.17 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.18 Short Term Credit Agreement, dated as of September 29, 1999,
among the registrant, Bank of America, N.A., as
Administrative Agent, Credit Suisse First Boston, as
Syndication Agent, Bank One, NA and Banque Nationale de
Paris, as Co-Documentation Agents, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 4.4 to Tenneco Packaging Inc.'s Registration
Statement on Form S-4, File No. 333-82923).
10.18(a) First Amendment, dated as of September 27, 2000, among the
registrant, various financial institutions, and Bank of
America, N.A., as Administrative Agent, amending the Short
Term Credit Agreement.
10.19 Long Term Credit Agreement, dated as of September 29, 1999,
among the registrant, Bank of America, N.A., as
Administrative Agent, Credit Suisse First Boston, as
Syndication Agent, Bank One, NA and Banque Nationale de
Paris, as Co-Documentation Agents, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 4.3 to Tenneco Packaging Inc.'s Registration
Statement on Form S-4, File No. 333-82923).
10.20 Term Loan Agreement, dated as of November 3, 1999, between
the registrant and Bank of America (incorporated herein by
reference to Exhibit 10.21 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.21 Letter of Agreement dated September 10, 1999, by and among
Tenneco Inc., Bank of America, N.A., and Bank of America
Securities LLC, related to Term Loan Agreement, dated as of
November 3, 1999, by and between the registrant and Bank of
America (incorporated herein by reference to Exhibit 10.22
to Pactiv Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-15157).
</Table>
20
22
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.22 Participation Agreement, dated as of October 28, 1999, among
the registrant, First Security Bank, N.A., Bank of America,
as Administrative Agent, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 10.23 to Pactiv Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, File No.
1-15157).
10.23 Agreement and General Release dated January 28, 2000,
between the registrant and Paul J. Griswold (incorporated by
reference to Exhibit 10.23 to Pactiv Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-15157).
11 None.
*12 Computation of Ratio of Earnings to Fixed Charges.
13 None.
15 None.
16 None.
18 None.
19 None.
22 None.
23 None.
27.1 None.
99 None.
</Table>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
21
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACTIV CORPORATION
By: /s/ ANDREW A. CAMPBELL
------------------------------------
Andrew A. Campbell
Senior Vice President and Chief
Financial Officer
(principal financial and accounting
officer)
Date: August 10, 2001
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