Exhibit 99.1
Pactiv Fourth Quarter EPS From Continuing Operations of $0.41 Rises 11
Percent; Up 26 Percent Excluding Pension Income
LAKE FOREST, Ill.--(BUSINESS WIRE)--Jan. 22, 2004--
Posts Fourth Consecutive Year of Strong Performance -- Including
Significant Free Cash Flow and Return on Capital
Pactiv Corporation (NYSE:PTV) today reported earnings per share
from continuing operations for the quarter ended December 31, 2003, of
$0.41, an increase of 11 percent from $0.37 per share in 2002. Income
from continuing operations was $66 million compared with $59 million.
Earnings per share from continuing operations excluding pension income
in both years rose 26 percent.
In the quarter the Company adopted FIN No. 46, Consolidation of
Variable Interest Entities, to consolidate the properties covered by
the Company's off balance sheet synthetic lease facility. This
adoption required the Company to recognize, as a cumulative effect of
a change in accounting principles, depreciation expense on the leased
facilities from lease inception to December 31, 2003, of $12 million
after tax, or $0.07 per share. Including this adoption, fourth quarter
net income was $54 million, or $0.34 per share.
Fourth quarter sales rose 5 percent to $818 million from $778
million. Gross margin was 29.5 percent compared with 31.1 percent in
2002 and 30.6 percent in the third quarter of 2003. The sequential
reduction in margin was the result of lower gross margin in the
Foodservice/Food Packaging segment, partially offset by improvement in
Hefty(R) Consumer Products and Protective and Flexible Packaging.
Operating margin of 15.8 percent was even with 2002.
Full year 2003 net income was $183 million, or $1.14 per share,
compared with $148 million, or $0.92 per share, in 2002. The 2003
results included the above-mentioned impact of the FIN No. 46
adoption, as well as the negative impact of a Tenneco Packaging
litigation settlement of $35 million after tax, or $0.22 per share.
The 2002 results included a non-cash impairment charge of $72 million
after tax, or $0.45 per share, related to the adoption of SFAS No.142,
Goodwill and Other Intangible Assets, and a $2 million, or $0.01 per
share, gain from the partial reversal of a previously recorded
restructuring charge. Excluding the impact of these items in both
years, 2003 net income was $230 million, or $1.43 per share, compared
with $218 million, or $1.36 per share, in 2002. Earnings per share
from continuing operations excluding the above-mentioned items, as
well as non-cash pension income, rose 24 percent. See the attached
schedule "Regulation G GAAP Reconciliation" for details. Sales rose 9
percent to $3.1 billion from $2.9 billion.
For the full year the Company generated free cash flow (cash flow
from operating activities of $336 million less capital expenditures of
$112 million) of $224 million. The aforementioned litigation
settlement negatively impacted free cash flow by $19 million.
Full year gross margin was 29.7 percent compared with 31.7 percent
in 2002 primarily due to the impact of higher average resin costs
throughout the year. Operating margin was 14.9 percent compared with
16.1 percent in 2002, reflecting the impact of higher raw material
costs and lower non-cash pension income.
"We posted another solid year of earnings and free cash flow
performance. Likewise, since our spin-off in 1999, return on invested
capital has improved continually and is now well above our weighted
average cost of capital. We are creating substantial value and have
the financial flexibility to continue to add even more value through
internal investment, acquisition, and share repurchase," said Richard
L. Wambold, Pactiv's chairman and chief executive officer. "As we look
at 2004 we are positioned well to take advantage of an improving
economy," Wambold continued.
Business Segment Results
Hefty(R) Consumer Products
Fourth quarter sales of $243 million rose 6 percent from $229
million, reflecting improved pricing and volume gains. Operating
income of $57 million rose 14 percent primarily reflecting price
increases that offset higher raw material costs, and lower advertising
and promotion expenses. Operating margin was 23.5 percent compared
with 21.8 percent in the fourth quarter of 2002 and 21.4 percent in
the third quarter of 2003.
Volume growth continued to be strong in foam tableware and waste
bags, despite a difficult comparison due to robust growth in the
fourth quarter of 2002. Likewise, the Hefty(R) Fun Pals line of
children's plates continued to post volume and market share growth.
Several new Hefty(R) products are planned for later this year.
For the full year, sales of $888 million rose 6 percent from $841
million. Operating profit of $195 million was up 4 percent from $188
million. Operating margin was 22.0 percent compared with 22.4 percent.
Foodservice/Food Packaging
Fourth quarter sales of $354 million grew 5 percent from $338
million last year driven by acquisitions. Base business volume was
flat in an industry that has shown only sporadic demand improvement
and also has been impacted by the West Coast supermarket strikes.
Operating income was $43 million compared with $44 million last year.
Operating margin was 12.1 percent compared with 13.0 percent in 2002
and 15.1 percent in the third quarter of 2003 driven by unfavorable
spread (the difference between selling prices and raw material costs),
actions to reduce inventory that resulted in a temporary increase in
manufacturing costs, and the inclusion of the lower gross margin
Rock-Tenn asset acquisition.
Pactiv is in the process of rolling out its extended shelf life
tray for the red meat case ready market. This product line offers the
lowest cost, most technically advanced extended shelf life tray in the
industry. Due to its unique sealing characteristics, this product
offers processors the opportunity to significantly increase their line
speeds, thereby reducing labor costs and increasing flexibility to
meet their customers' needs. The Rock-Tenn packaging assets acquired
in October 2003 complement Pactiv's current product line with
multi-color, custom-design, and co-extrusion capabilities.
For the full year, sales of $1.37 billion rose 12 percent from
$1.22 billion. Operating income of $178 million increased 13 percent
from $158 million. Operating margin was 13.0 percent versus 12.9
percent.
Protective and Flexible Packaging
Fourth quarter sales for the Protective and Flexible Packaging
segment of $221 million rose 5 percent versus $211 million. Operating
income of $16 million increased 14 percent from $14 million. Operating
margin rose to 7.2 percent compared with 6.6 percent in 2002 and 6.9
percent in the third quarter of 2003. The improvement reflects an
overall lower cost structure, as well as volume growth in North
American protective packaging. Most of the European businesses
continue to lag but are expected to improve as the European economies
strengthen.
For the full year, sales of $879 million increased 8 percent from
$818 million. Operating income of $58 million decreased 7 percent from
$62 million. Full year 2002 results included a $4 million gain from
the partial reversal of a previously recorded restructuring charge.
Full year 2003 operating margin was 6.6 percent compared with 7.6
percent in 2002.
Outlook
When the Company initiated its 2004 outlook in October 2003, raw
material costs were declining and were expected to be stable or
declining in 2004, and demand was expected to strengthen. At this
point, raw material costs are higher than originally expected, and the
economic recovery, while positive for some of our businesses, will
take more time to have its full impact on demand. To be conservative,
the company is adjusting its full year 2004 estimated range of
earnings per share to $1.53 to $1.60, including pension income of $31
million after tax, or $0.19 per share. With respect to the first
quarter, the target is earnings per share in the range of $0.25 to
$0.27.
"We are very optimistic about our ability to perform in 2004 but
feel it is prudent to adjust our outlook for the higher resin costs we
are currently seeing. We expect to see growth continue to improve with
the economic recovery and margin to expand in a more favorable energy
market in the months ahead. Excluding non-cash pension income,
earnings per share are expected to once again show solid growth of
between 14 and 19 percent, and we anticipate another strong year of
free cash flow generation," said Wambold.
Free cash flow for 2004 is anticipated to be in a range of $220
million to $240 million. The tax rate is expected to be 37 percent.
Selling, general, and administrative expense is estimated to be $330
million compared with $302 million in 2003 due to lower pension income
and the full year effect of the Rock-Tenn asset acquisition. The
Company expects to continue its aggressive productivity and
procurement program, again anticipating approximately $30 million in
cost savings in 2004. Depreciation and amortization expense will be
approximately $180 million, capital expenditures will be in the range
of $120 million, and the full year expectation of the average fully
diluted shares outstanding is between 158 million and 159 million.
Other
The attached "Operating Results by Segment" details the impact on
sales of acquisitions, divestitures, and foreign currency exchange.
Also, the attached "Regulation G GAAP Reconciliation" reconciles
non-GAAP financial measures used in this press release with GAAP
financial measure as required by Regulation G.
Cautionary Statements
This press release includes certain "forward-looking statements"
such as those in the Outlook section as well as "positioned well to
take advantage of an improving economy", "new Hefty(R) products are
planned...", "...offers processors the opportunity to significantly
increase...", and "...are expected to improve as the European
economies strengthen." These statements are based on management's
current reasonable and good faith expectations. A variety of factors
may cause actual results to differ materially from these expectations
including a slowdown in economic growth, changes in the competitive
market, increased cost of raw materials, and changes in the regulatory
environment. More detailed information about these and other factors
is contained in the Company's Annual Report on Form 10-K at page 52
filed with the Securities and Exchange Commission as revised and
updated by Forms 10-Q and 8-K as filed with the Commission.
Company Information
Pactiv Corporation, a $3.1 billion company, is a leading provider
of advanced packaging solutions for the consumer, foodservice/food
packaging and protective/flexible packaging markets. The specialty
packaging leader currently operates 80 facilities in 14 countries
around the world. For more information about Pactiv, visit the
company's web site at www.pactiv.com.
Pactiv Corporation
Consolidated Statement of Income
(In millions, except per-share data)
Three months Twelve months
ended December 31, ended December 31,
2003 2002 2003 2002
Sales $ 818 $ 778 $ 3,138 $ 2,880
Costs and expenses
Cost of sales (excl.
depr. and amort.) 577 536 2,206 1,967
Depr. and amort. 41 42 163 158
SG & A 69 76 302 296
Other expense, net 2 1 1 -
Restructuring - - - (4)
Operating income 129 123 466 463
Tenneco Packaging litigation
settlement and other - - 56 -
Interest expense, net 25 25 96 96
Income tax expense 38 39 118 146
Minority interest - - 1 1
Income from cont. oper. 66 59 195 220
Cumulative effect of change
in accounting principles (12) - (12) (72)
Net income $ 54 $ 59 $ 183 $ 148
Avg. common shares
outstanding (diluted) 159.5 160.5 160.1 160.6
Earnings per share
Cont. oper. $ 0.41 $ 0.37 $ 1.21 $ 1.37
Cumulative effect of change
in accounting principles (0.07) - (0.07) (0.45)
Net $ 0.34 $ 0.37 $ 1.14 $ 0.92
Gross margin
(before depr. & amort.) 29.5% 31.1% 29.7% 31.7%
Operating margin 15.8% 15.8% 14.9% 16.1%
Pactiv Corporation
Consolidated Statement of Financial Position
(In millions)
December 31, December 31,
2003 2002
Assets
Current assets
Cash and temporary cash investments $ 140 $ 127
Accounts and notes receivable 374 358
Inventories 399 368
Other 69 51
Total current assets 982 904
Property, plant, and equipment, net 1,522 1,366
Other assets
Goodwill 643 612
Intangible assets, net 298 294
Pension assets, net 195 170
Other 66 66
Total other assets 1,202 1,142
Total assets $3,706 $3,412
Liabilities and shareholders' equity
Current liabilities
Short-term debt, including current
maturities of long-term debt $ 5 $ 13
Accounts payable 198 217
Other 271 271
Total current liabilities 474 501
Long-term debt 1,336 1,224
Other liabilities 827 769
Minority interest 8 21
Shareholders' equity 1,061 897
Total liabilities and
shareholders' equity $3,706 $3,412
Pactiv Corporation
Consolidated Statement of Cash Flows
(In millions)
Twelve months ended December 31, 2003 2002
Operating activities
Income from continuing operations $ 195 $ 220
Adjustments to reconcile income
from continuing operations to
cash provided by continuing operations
Depreciation and amortization 163 158
Deferred income taxes 33 101
Restructuring and other, net - (4)
Noncash retirement benefits, net (64) (109)
Working capital 4 3
Other 5 15
Cash provided by operating activities 336 384
Investing activities
Net proceeds from sale of
businesses and assets 3 7
Expenditures for property, plant,
and equipment (112) (126)
Acquisitions of businesses and assets (82) (125)
Other (3) -
Cash used by investing activities (194) (244)
Financing activities
Issuance of common stock 20 11
Purchase of common stock (87) (40)
Retirement of long-term debt (67) (22)
Net increase (decrease) in short-term debt,
excluding current maturities
of long-term debt - (6)
Cash used by
financing activities (134) (57)
Effect of foreign-currency exchange rate
changes on cash and temporary cash
investments 5 3
Increase in cash and temporary
cash investments 13 86
Cash and temporary cash
investments, January 1 127 41
Cash and temporary cash
investments, December 31 $ 140 $ 127
Pactiv Corporation
Operating Results by Segment
(In millions)
Protective
Three months ended Foodservice/ & Flexible
December 31, 2003 Consumer Food Packaging Packaging
Sales $ 243 $ 354 $ 221
Acquisitions(a) - (17) (1)
Adjusted sales(c) 243 337 220
Operating income 57 43 16
Three months ended
December 31, 2003 Other Total
Sales $ - $ 818
Acquisitions(a) - (18)
Adjusted sales(c) - 800
Operating income 13 129
Protective
Three months ended Foodservice/ & Flexible
December 31, 2002 Consumer Food Packaging Packaging
Sales $ 229 $ 338 $ 211
Foreign exchange(b) - 1 17
Adjusted sales(c) 229 339 228
Operating income 50 44 14
Three months ended
December 31, 2002 Other Total
Sales $ - $ 778
Foreign exchange(b) - 18
Adjusted sales(c) - 796
Operating income 15 123
Protective
Twelve months ended Foodservice/ & Flexible
December 31, 2003 Consumer Food Packaging Packaging
Sales $ 888 $1,371 $ 879
Acquisitions(a) - (111) (5)
Adjusted sales(c) 888 1,260 874
Operating income 195 178 58
Twelve months ended
December 31, 2003 Other Total
Sales $ - $3,138
Acquisitions(a) - (116)
Adjusted sales(c) - 3,022
Operating income 35 466
Protective
Twelve months ended Foodservice/ & Flexible
December 31, 2002 Consumer Food Packaging Packaging
Sales $ 841 $1,221 $ 818
Foreign exchange(b) - 3 68
Adjusted sales(c) 841 1,224 886
Operating income 188 158 62
Twelve months ended
December 31, 2002 Other Total
Sales $ - $2,880
Foreign exchange(b) - 71
Adjusted sales(c) - 2,951
Operating income 55 463
(a) Adjustment to current year sales for incremental sales from
acquisitions.
(b) Adjustment of prior year sales to current year foreign exchange
rates.
(c) Sales adjusted for acquisitions and foreign exchange.
Pactiv Corporation
Regulation G GAAP Reconciliation
Income from Continuing Operations and Earnings per Share
(In millions, except per-share amounts)
Three months ended Twelve months ended
December 31, December 31,
2003 2002 2003 2002
Net income - US GAAP
basis $ 54 $ 59 $ 183 $ 148
Adjustments (net of tax)
to exclude:
Cumulative effect of change
in accounting principles 12 - 12 72
Restructuring and other
charges - - - (2)
Tenneco Packaging litigation
settlement and other - - 35 -
Income from continuing
operations - US GAAP basis
excluding restructuring and
litigation settlement 66 59 230 218
Pension income (11) (16) (40) (65)
Income from continuing
operations excluding
restructuring, litigation
settlement and
pension income(a) $ 55 $ 43 $ 190 $ 153
Average common shares
outstanding (diluted) 159.5 160.5 160.1 160.6
Diluted earnings per
share
Net - US GAAP basis $ 0.34 $ 0.37 $ 1.14 $ 0.92
Adjustments to exclude:
Cumulative effect of change
in accounting principles 0.07 - 0.07 0.45
Restructuring and other
charges - - - (0.01)
Tenneco Packaging litigation
settlement and other - - 0.22 -
Continuing operations
excluding restructuring
and litigation settlement 0.41 0.37 1.43 1.36
Pension income (0.07) (0.10) (0.25) (0.41)
Continuing operations
excluding restructuring,
litigation settlement,
and pension income(a) $ 0.34 $ 0.27 $ 1.18 $ 0.95
Percent change -
2003 vs. 2002 26% 24%
(a) In accordance with generally accepted accounting principles (US
GAAP), reported net income includes the after-tax impacts of
cumulative effect of change in accounting principles,
restructuring activity, Tenneco Packaging litigation settlement,
and pension income. The company's management believes that by
adjusting reported net income to exclude the effects of these
items, the resulting earnings present an operationally-oriented
depiction of the company's performance. The company's management
uses earnings excluding cumulative effect of change in accounting
principles, restructuring, Tenneco Packaging litigation
settlement, and pension income to evaluate operating performance,
to value various business units, and, along with other factors, in
determining management compensation.
Pactiv Corporation
Regulation G GAAP Reconciliation
Outlook for Full Year 2004
Year ended December 31,
2004 (Outlook) 2003 (Actual)
High Estimate Low Estimate
Diluted earnings per
share
Continuing operations -
US GAAP basis $ 1.60 $ 1.53 $ 1.21
Adjustments to exclude:
Tenneco Packaging
litigation settlement
and other - - 0.22
Pension income (0.19) (0.19) (0.25)
Continuing operations
excluding litigation
settlement and pension
income(a) $ 1.41 $ 1.34 $ 1.18
Percent change
- 2004 vs. 2003 19% 14%
Year ended December 31,
2004 (Outlook) 2003 (Actual)
High Estimate Low Estimate
Free cash flow
(in millions)
Cash flow provided by
operating activities -
US GAAP basis $ 360 $ 340 $ 336
Less: capital expenditures (120) (120) (112)
Free cash flow(b) $ 240 $ 220 $ 224
(a) In accordance with generally accepted accounting principles (US
GAAP), reported net income from continuing operations includes the
after-tax effects of Tenneco Packaging litigation settlement and
pension income. The company's management believes that by
adjusting reported net income from continuing operations to
exclude the effects of these items, the resulting earnings present
an operationally-oriented depiction of the company's performance.
The company's management uses earnings excluding Tenneco Packaging
litigation settlement and pension income to evaluate operating
performance, to value business units, and, along with other
factors, in determining management compensation.
(b) Free cash flow is defined as cash flow provided by operating
activities less amounts for capital expenditures. Both of these
amounts have been calculated in accordance with US GAAP. The
company's management believes free cash flow, as defined, provides
a useful measure of the company's liquidity. The company's
management uses free cash flow as a measure of cash available to
fund required or early debt retirement and incremental investing
and/or financing activities, such as, but not limited to,
acquisitions and share repurchases.
CONTACT: Pactiv Corporation
Christine Hanneman, 847-482-2429 (Investor Relations)
channeman@pactiv.com
Lisa Foss, 847-482-2704 (Media Relations)
lfoss@pactiv.com