10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
|
|
|
(mark one)
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|
|
þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the Quarterly Period Ended March 31, 2009
|
OR
|
o
|
|
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)
|
|
|
Delaware
(State or other jurisdiction
of
incorporation or organization)
|
|
36-2552989
(I.R.S. Employer
Identification No.)
|
|
|
|
|
|
|
1900 West Field Court
Lake Forest, Illinois
(Address of principal executive
offices)
|
|
60045
(Zip Code)
|
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
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
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|
Large accelerated
filer þ
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
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:
131,933,477 as of April 30, 2009. (See Notes to Financial
Statements.)
TABLE OF
CONTENTS
|
|
|
* |
|
No response to this item is included herein because either it is
inapplicable or there is nothing to report. |
2
PART I —
FINANCIAL INFORMATION
|
|
ITEM 1.
|
Financial
Statements (Unaudited)
|
Consolidated
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
(In millions, except share and per share data)
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
$
|
766
|
|
|
$
|
808
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization
|
|
|
473
|
|
|
|
598
|
|
Selling, general, and administrative
|
|
|
80
|
|
|
|
71
|
|
Depreciation and amortization
|
|
|
46
|
|
|
|
46
|
|
Restructuring and other
|
|
|
—
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599
|
|
|
|
729
|
|
Operating income
|
|
|
167
|
|
|
|
79
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
—
|
|
|
|
1
|
|
Interest expense, net of interest capitalized
|
|
|
(23
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
144
|
|
|
|
53
|
|
Income tax expense
|
|
|
53
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
91
|
|
|
|
35
|
|
Discontinued operations, net of tax
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to Pactiv
|
|
$
|
91
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
131,708,127
|
|
|
|
130,593,232
|
|
Diluted
|
|
|
132,485,534
|
|
|
|
132,107,033
|
|
Basic earnings per share of common stock attributable to Pactiv
common shareholders
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock attributable to
Pactiv common shareholders
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the financial statements are an
integral part of this statement.
3
Condensed
Consolidated Statement of Financial Position
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions, except share data)
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments
|
|
$
|
152
|
|
|
$
|
80
|
|
Accounts and notes receivable
|
|
|
|
|
|
|
|
|
Trade, less allowances of $9 and $7 at the respective dates
|
|
|
231
|
|
|
|
264
|
|
Other
|
|
|
13
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total accounts and notes receivable
|
|
|
244
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
190
|
|
|
|
161
|
|
Work in process
|
|
|
61
|
|
|
|
55
|
|
Raw materials
|
|
|
79
|
|
|
|
78
|
|
Other materials and supplies
|
|
|
47
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
377
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
822
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
1,200
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,123
|
|
|
|
1,124
|
|
Intangible assets, net
|
|
|
392
|
|
|
|
396
|
|
Pension asset
|
|
|
5
|
|
|
|
5
|
|
Noncurrent deferred income tax asset
|
|
|
115
|
|
|
|
141
|
|
Other
|
|
|
63
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,698
|
|
|
|
1,731
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,720
|
|
|
$
|
3,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
128
|
|
|
$
|
115
|
|
Taxes accrued
|
|
|
51
|
|
|
|
14
|
|
Interest accrued
|
|
|
28
|
|
|
|
20
|
|
Accrued promotions, rebates, and discounts
|
|
|
60
|
|
|
|
68
|
|
Accrued payroll and benefits
|
|
|
59
|
|
|
|
66
|
|
Other
|
|
|
44
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
370
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,345
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
|
1,144
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
88
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities related to discontinued operations
|
|
|
30
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Pactiv shareholders’ equity
|
|
|
|
|
|
|
|
|
Common stock — $0.01 par value,
350,000,000 shares authorized, 131,897,727 and
131,510,270 shares issued and outstanding, after deducting
39,885,450 and 40,272,907 shares held in treasury, at the
respective dates
|
|
|
1
|
|
|
|
1
|
|
Premium on common stock and other capital surplus
|
|
|
709
|
|
|
|
710
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(26
|
)
|
|
|
(16
|
)
|
Pension and postretirement plans
|
|
|
(1,681
|
)
|
|
|
(1,689
|
)
|
Gain (loss) on derivatives
|
|
|
7
|
|
|
|
7
|
|
Retained earnings
|
|
|
1,717
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
Total Pactiv shareholders’ equity
|
|
|
727
|
|
|
|
639
|
|
Noncontrolling interest
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
743
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
3,720
|
|
|
$
|
3,725
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the financial statements are an
integral part of this statement.
4
Condensed
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
For the three months ended March 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income attributable to Pactiv
|
|
$
|
91
|
|
|
$
|
34
|
|
Discontinued operations
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
91
|
|
|
|
35
|
|
Adjustments to reconcile income from continuing operations to
cash provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46
|
|
|
|
46
|
|
Deferred income taxes
|
|
|
20
|
|
|
|
8
|
|
Restructuring and other
|
|
|
—
|
|
|
|
12
|
|
Pension income
|
|
|
(7
|
)
|
|
|
(12
|
)
|
Noncash compensation expense
|
|
|
3
|
|
|
|
5
|
|
Net working capital
|
|
|
67
|
|
|
|
(64
|
)
|
Pension contributions
|
|
|
(100
|
)
|
|
|
—
|
|
Other
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities —
continuing operations
|
|
|
116
|
|
|
|
29
|
|
Cash provided (used) by operating activities —
discontinued operations
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities
|
|
$
|
116
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Expenditures for property, plant, and equipment
|
|
$
|
(23
|
)
|
|
$
|
(47
|
)
|
Acquisitions of businesses and assets
|
|
|
(20
|
)
|
|
|
—
|
|
Other investing activities
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by investing activities
|
|
$
|
(42
|
)
|
|
$
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
$
|
—
|
|
|
$
|
1
|
|
Purchase of common stock
|
|
|
—
|
|
|
|
(2
|
)
|
Revolving credit facility payment
|
|
|
—
|
|
|
|
(20
|
)
|
Other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by financing activities
|
|
$
|
(1
|
)
|
|
$
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and temporary
cash investments
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and temporary cash investments
|
|
|
72
|
|
|
|
(43
|
)
|
Cash and temporary cash investments, January 1
|
|
|
80
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments, March 31
|
|
$
|
152
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the financial statements are an
integral part of this statement.
5
Consolidated
Statement of Changes in Equity
(In
millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pactiv Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
capital
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
stock
|
|
|
surplus
|
|
|
earnings
|
|
|
income (loss)
|
|
|
interest
|
|
|
equity
|
|
|
Three months ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
1
|
|
|
$
|
710
|
|
|
$
|
1,626
|
|
|
$
|
(1,698
|
)
|
|
$
|
16
|
|
|
$
|
655
|
|
Premium on common stock issued (371,322 shares)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Translation of foreign currency statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in pension and postretirement plan funded status, net of
tax of $5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
$
|
1
|
|
|
$
|
709
|
|
|
$
|
1,717
|
|
|
$
|
(1,700
|
)
|
|
$
|
16
|
|
|
$
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
1
|
|
|
$
|
683
|
|
|
$
|
1,402
|
|
|
$
|
(862
|
)
|
|
$
|
15
|
|
|
$
|
1,239
|
|
Premium on common stock issued (417,578 shares)
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Treasury stock repurchased (75,218 shares)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Translation of foreign currency statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
Stock-based compensation
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Impact of adopting SFAS No. 158 measurement date
change, net of tax of $4
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Change in pension and postretirement plan funded status, net of
tax of $9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
$
|
1
|
|
|
$
|
686
|
|
|
$
|
1,443
|
|
|
$
|
(848
|
)
|
|
$
|
16
|
|
|
$
|
1,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the financial statements are an
integral part of this statement.
6
Consolidated
Statement of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
For the three months ended March 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
Consolidated net income
|
|
$
|
91
|
|
|
$
|
34
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Pension and postretirement plans
|
|
|
8
|
|
|
|
13
|
|
Net currency translation gain (loss)
|
|
|
(10
|
)
|
|
|
4
|
|
Gain (loss) on derivatives
|
|
|
—
|
|
|
|
(2
|
)
|
Total other comprehensive income (loss)
|
|
|
(2
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive income (loss)
|
|
|
89
|
|
|
|
49
|
|
Comprehensive income (loss) attributable to the noncontrolling
interest
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Pactiv
|
|
$
|
89
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the financial statements are an
integral part of this statement.
7
Notes to
Financial Statements (Unaudited)
Note 1. Basis
of Presentation
The consolidated statement of income for the three-month period
ended March 31, 2009, and 2008, the condensed consolidated
statement of financial position at March 31, 2009, the
condensed consolidated statement of cash flows for the
three-month period ended March 31, 2009, and 2008, the
condensed consolidated statement of changes in equity for the
three-month period ended March 31, 2009, and 2008, and the
condensed consolidated statement of comprehensive income (loss)
for the three-month period ended March 31, 2009, and 2008
are unaudited. In our opinion, the accompanying financial
statements contain all normal recurring adjustments necessary to
present fairly the results of operations, financial position,
and cash flows for the periods and at the dates indicated. These
statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC).
They do not include all of the information and footnotes
required by generally accepted accounting principles.
Accordingly, these statements should be read in conjunction with
Pactiv’s
Form 10-K
for the year ended December 31, 2008, which may be found at
www.pactiv.com, under the Investor Relations link, in the
subsection entitled “SEC Filings,” or a free copy may
be obtained by contacting Investor Relations at
(866) 456-5439.
Certain reclassifications have been made to the prior year
financial information to conform with 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.
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operated
one manufacturing facility in North Carolina with approximately
100 employees. The results of this business 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, other institutional foodservice outlets, food
processors, and grocery chains.
|
|
|
•
|
Other includes 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.
|
|
Note 2.
|
Summary
of Accounting Policies
|
For a complete discussion of our accounting policies, refer to
Pactiv’s most recent filing on
Form 10-K.
Accounts
and Notes Receivable
On a recurring basis, we sell an undivided interest in a pool of
trade receivables meeting certain criteria to a third party as
an alternative to debt financing. Such sales, which represent a
form of off-balance-sheet financing, are recorded as a reduction
of accounts and notes receivable in the statement of financial
position. Related proceeds are included in cash provided by
operating activities in the statement of cash flows. At
March 31, 2009, receivables totaling $118 million were
sold, while receivables totaling $90 million were sold at
March 31, 2008. Discounts and fees related to such sales
were $1 million for the three-month period ended
8
March 31, 2009 and March 31, 2008. These expenses are
included in “other expense” in the statement of
income. In the event that either Pactiv or the third-party
purchaser of the trade receivables were to discontinue this
program, our debt would increase, or our cash balance would
decrease, by an amount corresponding to the level of sold
receivables at such time.
Changes
in Accounting Principles
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 157, “Fair Value Measurements.”
SFAS No. 157 establishes a framework for measuring
fair value by providing a standard definition of fair value as
it applies to assets and liabilities. SFAS No. 157,
which does not require the use of any new fair value
measurements, clarifies the application of other accounting
pronouncements that require or permit fair value measurements.
SFAS No. 157 was effective as of January 1, 2008,
and did not have a material effect on our financial statements
upon adoption and as of March 31, 2009.
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an Amendment of
SFAS Nos. 87, 88, 106, and 132(R).” We adopted the
recognition and disclosure provisions of SFAS No. 158
on December 31, 2006. We recorded a charge to accumulated
other comprehensive income of $41 million upon adoption. We
adopted the measurement provisions of SFAS No. 158 on
January 1, 2008, using the transition method based on the
data as of our September 30, 2007, measurement date. As a
result, we increased “retained earnings” by
$7 million after tax in 2008.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value as of specified election dates.
SFAS No. 159 expands the use of fair value
measurement, but does not eliminate disclosure requirements of
other accounting standards, including SFAS No. 157.
SFAS No. 159 was effective January 1, 2008, and
it did not impact our financial statements upon adoption and as
of March 31, 2009. We did not choose to measure any
financial instruments at fair value as permitted under the
statement.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations,” which replaces
SFAS No. 141, “Business Combinations.”
SFAS No. 141(R) retains the underlying concepts of
SFAS No. 141 in that all business combinations are
still required to be accounted for at fair value using the
acquisition method of accounting, but it changes the application
of the acquisition method in a number of significant ways. In
this regard, the pronouncement requires that
(1) acquisition-related costs generally be expensed as
incurred, (2) noncontrolling interests be recorded at fair
value, (3) in-process research and development costs be
recorded at fair value as an indefinite lived intangible asset,
(4) restructuring costs associated with a business
combination generally be expensed subsequent to the date of such
a combination, and (5) changes in valuation allowances on
deferred tax assets and income tax uncertainties after the
acquisition date generally be recorded as income tax expense.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations that occur in fiscal years
beginning after December 15, 2008, with the exception of
accounting for valuation allowances on deferred taxes and
acquired tax contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of SFAS No. 141(R) would also be subject to the
provisions of SFAS No. 141(R).
SFAS No. 141(R) was effective January 1, 2009,
and did not have a material impact our financial statements upon
adoption and as of March 31, 2009.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements — an Amendment of Accounting Research
Bulletin (ARB) No. 51.” SFAS No. 160 is
effective for fiscal years, and interim periods within such
fiscal years, beginning on or after December 15, 2008.
SFAS No. 160 requires that noncontrolling (minority)
interests be recognized as equity (but separate from
parents’ equity) in consolidated financial statements, and
that net earnings related to noncontrolling interests be
included in consolidated net income, but identified separately
on the face of the income statement.
9
SFAS No. 160 also amends some of ARB
No. 51’s consolidation procedures, and expands
disclosure requirements regarding the interests of parents and
noncontrolling interests. SFAS No. 160 was effective
January 1, 2009, and did not have a material impact on our
financial statements upon adoption and as of March 31, 2009.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities — an amendment of FASB Statement
No. 133.” SFAS No. 161 is effective for
fiscal years, and interim periods within such fiscal years,
beginning on or after November 15, 2008.
SFAS No. 161 requires enhanced disclosures about an
entity’s derivative and hedging activities, specifically
how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and how
derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and
cash flows. SFAS No. 161 was effective January 1,
2009, and did not have a material impact our financial
statements upon adoption and as of March 31, 2009.
|
|
Note 3.
|
Restructuring
and Other
|
In 2008, we implemented a cost reduction program that included
the consolidation of two small facilities, asset
rationalizations, and headcount reductions. The program is
essentially complete with the exception of a small idle plant
held for sale. The accrued restructuring balance of
$2 million as of December 31, 2008, and March 31,
2009, is for remaining severance payments. Cash payments related
to restructuring and other was immaterial for the three-month
period ended March 31, 2009.
In the first quarter of 2008, we recorded a charge of
approximately $9 million after tax, or $0.07 per share.
Cash payments related to restructuring and other charges were
$1 million after tax for the three-month period ended
March 31, 2008.
|
|
Note 4.
|
Business
Combination
|
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operated
one manufacturing facility in North Carolina with approximately
100 employees. The results of this business have been
included in the consolidated financial statements as of that
date.
The total cost of the acquisition was allocated to the assets
acquired and the liabilities assumed based on their respective
fair values in accordance with requirements of
SFAS No. 141(R). Goodwill and other intangible assets
recorded in connection with the acquisition totaled
$2 million and $3 million, respectively, and all of
the goodwill is expected to be deductible for tax purposes.
Recorded intangible assets pertain to customer relationships and
are being amortized over a
15-year
period.
The following table summarizes the preliminary estimated fair
values of the assets acquired and liabilities assumed as of the
acquisition date.
|
|
|
|
|
(In millions)
|
|
|
|
|
Current assets
|
|
$
|
4
|
|
Property, plant, and equipment
|
|
|
12
|
|
Intangible assets
|
|
|
3
|
|
Goodwill
|
|
|
2
|
|
|
|
|
|
|
Total assets acquired
|
|
|
21
|
|
|
|
|
|
|
Current liabilities
|
|
|
1
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
20
|
|
|
|
|
|
|
10
|
|
Note 5.
|
Discontinued
Operations
|
On October 12, 2005, we completed the sale of most of our
protective and flexible packaging businesses to Pregis
Corporation for $523 million. Amounts recorded in our
financial statements related to those businesses are classified
as being applicable to discontinued operations.
Liabilities related to discontinued operations totaled
$30 million at March 31, 2009, and at
December 31, 2008.
|
|
Note 6.
|
Long-Term
Debt and Financing Arrangements
|
We have a revolving credit facility, and borrowings under this
facility totaled $70 million at March 31, 2009. At
that date, the fair value of this debt was equal to the
outstanding balance.
As a part of the Prairie acquisition, we assumed its liability
for $5 million borrowed from the Illinois Department
Finance Authority (IDFA), which was funded by industrial
development revenue bonds issued by the IDFA. This debt will
mature on December 1, 2010, and bears interest at varying
rates (0.8% as of March 31, 2009) not to exceed 12%
per annum.
|
|
Note 7.
|
Goodwill
and Intangible Assets
|
The changes in the carrying values of goodwill between
December 31, 2008 and March 31, 2009 are shown in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Foodservice/
|
|
|
|
|
(In millions)
|
|
Products
|
|
|
Food Packaging
|
|
|
Total
|
|
|
Balance, December 31, 2008
|
|
$
|
289
|
|
|
$
|
835
|
|
|
$
|
1,124
|
|
Goodwill additions
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
$
|
290
|
|
|
$
|
833
|
|
|
$
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
(In millions)
|
|
value
|
|
|
amortization
|
|
|
value
|
|
|
amortization
|
|
|
Intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
87
|
|
|
$
|
70
|
|
|
$
|
87
|
|
|
$
|
69
|
|
Customer relationships
|
|
|
209
|
|
|
|
25
|
|
|
|
206
|
|
|
|
21
|
|
Other
|
|
|
144
|
|
|
|
82
|
|
|
|
145
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
177
|
|
|
|
438
|
|
|
|
171
|
|
Intangible assets not subject to amortization (primarily
trademarks)
|
|
|
129
|
|
|
|
—
|
|
|
|
129
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
569
|
|
|
$
|
177
|
|
|
$
|
567
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets of $3 million were recorded in connection
with the acquisition of WinCup and are being amortized over a
15-year
period for both book and tax purposes. Amortization expense for
intangible assets was $6 million for the three months ended
March 31, 2009, and $7 million for the three months
ended March 31, 2008. Amortization expense is estimated to
total $26 million for 2009, $25 million for 2010,
$24 million for 2011, $23 million for 2012, and
$19 million for 2013.
In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” we review the carrying value of
our goodwill and indefinite-lived intangibles for possible
impairment. Our annual review is conducted in the fourth quarter
of the year, or earlier if warranted by events or changes in
circumstances. There were no events
11
or changes in circumstances in the first quarter of 2009 that
warranted an impairment review of the goodwill and
indefinite-lived intangibles.
|
|
Note 8.
|
Property,
Plant, and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Original cost
|
|
|
|
|
|
|
|
|
Land, buildings, and improvements
|
|
$
|
652
|
|
|
$
|
654
|
|
Machinery and equipment
|
|
|
1,826
|
|
|
|
1,808
|
|
Other, including construction in progress
|
|
|
127
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,605
|
|
|
$
|
2,587
|
|
Less accumulated depreciation and amortization
|
|
|
(1,405
|
)
|
|
|
(1,378
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant, and equipment
|
|
$
|
1,200
|
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest was immaterial for the three months ended
March 31, 2009, and was $1 million for the three
months ended March 31, 2008.
Total gross unrecognized income tax benefits were
$53 million as of March 31, 2009, and $57 million
as of December 31, 2008. The total amount of unrecognized
income tax benefits that, if recognized, would favorably impact
our effective tax rate for continuing operations in future
periods was $32 million at March 31, 2009, and
$34 million at December 31, 2008. As of March 31,
2009, it is reasonably possible that the amount of unrecognized
income tax benefits may increase or decrease during the
following twelve months. However, it is not expected that any
such changes, individually or in total, would significantly
affect our operating results or financial condition.
It is our continuing practice to record accruals for interest
and penalties related to income tax matters as income tax
expense. Such accruals totaled $11 million as of
March 31, 2009, and $10 million as of
December 31, 2008. Expense recorded in the first quarter of
2009 for interest and penalties for continuing operations was
immaterial.
U.S. federal income tax returns filed for the years 2005
through 2007 are open for examination by the Internal Revenue
Service. Various state, local, and foreign tax returns filed for
the years 2002 through 2007 are open for examination by tax
authorities in those jurisdictions.
At March 31, 2009, and December 31, 2008, total gross
unrecognized income tax benefits included $14 million
related to discontinued operations, all of which, if recognized,
would impact income from discontinued operations in future
periods. Expense recorded in the first quarter of 2009 for
interest and penalties for discontinued operations was
immaterial.
In connection with the adoption of SFAS No. 123(R),
“Share-Based Payment,” we elected to use the
simplified method in calculating our additional paid-in capital
pool, as described in FASB Staff Position
No. FAS 123(R) — 3, “Transition
Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards.” SFAS No. 123(R)
requires that tax deductions for compensation costs in excess of
amounts recognized for accounting purposes be reported as cash
flow from financing activities, rather than as cash flow from
operating activities. Such “excess” amounts totaled
$2 million for the three months ended March 31, 2009.
12
Earnings
Per Share
Earnings from continuing operations per share of common stock
outstanding were computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
(In millions, except share and per share data)
|
|
2009
|
|
|
2008
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
91
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of
common stock outstanding
|
|
|
131,708,127
|
|
|
|
130,593,232
|
|
|
|
|
|
|
|
|
|
|
Basic earnings from continuing
operations per share
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
91
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
shares of common stock outstanding
|
|
|
131,708,127
|
|
|
|
130,593,232
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
136,296
|
|
|
|
808,961
|
|
Performance shares
|
|
|
639,671
|
|
|
|
702,443
|
|
Restricted shares
|
|
|
1,440
|
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of
common stock outstanding, including
dilutive securities
|
|
|
132,485,534
|
|
|
|
132,107,033
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings from continuing
operations per share
|
|
$
|
0.69
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
We did not repurchase stock in the first quarter of 2009. In the
same period of 2008, we acquired 75,218 shares of our
common stock at an average price of $26.38 per share, for a
total of $2 million.
Rabbi
Trust
In November 1999, we established a rabbi trust and reserved
3,200,000 shares of Pactiv common stock for the trust.
These shares were issued to the trust in January 2000. This
trust is designed to assure the payment of deferred compensation
and supplemental pension benefits. These shares are not
considered outstanding for purposes of financial reporting.
13
|
|
Note 11.
|
Pension
Plans and Other Postretirement Benefits
|
The impact of pension plans on pretax income was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Components of net periodic benefit income (expense)
|
|
|
|
|
|
|
|
|
Service cost of benefits earned
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Interest cost of benefit obligations
|
|
|
(60
|
)
|
|
|
(60
|
)
|
Expected return on plan assets
|
|
|
83
|
|
|
|
87
|
|
Amortization of unrecognized net losses
|
|
|
(12
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit income (expense)
|
|
$
|
7
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
We have postretirement health care and life insurance plans that
cover certain of our salaried and hourly employees who retire in
accordance with the various provisions of such plans. Benefits
may be subject to deductibles, copayments, and other
limitations. These postretirement plans are not funded, and we
reserve the right to change them. Interest cost of benefit
obligations of $1 million for three months ended
March 31, 2009, and $2 million for the three months
ended March 31, 2008, accounted for the total net periodic
benefit expense for our postretirement plans.
|
|
Note 12.
|
Segment
Information
|
We report the results of our segments in accordance with
SFAS No. 131, “Disclosures About Segments of an
Enterprise and Related Information.” Our three segments are
Consumer Products, Foodservice/Food Packaging, and Other. See
Note 1 for additional details.
The following table sets forth certain segment information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
Foodservice/Food
|
|
|
|
|
(In millions)
|
|
Products
|
|
Packaging
|
|
Other
|
|
Total
|
|
For the three months ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
283
|
|
|
$
|
483
|
|
|
$
|
—
|
|
|
$
|
766
|
|
Operating income (loss)
|
|
|
74
|
|
|
|
95
|
|
|
|
(2
|
) (b)
|
|
|
167
|
|
Total assets
|
|
|
1,240
|
|
|
|
2,115
|
|
|
|
365
|
(c)
|
|
|
3,720
|
|
For the three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
290
|
|
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
808
|
|
Operating income (loss) (a)
|
|
|
30
|
|
|
|
47
|
|
|
|
2
|
(b)
|
|
|
79
|
|
Total assets
|
|
|
1,325
|
|
|
|
2,218
|
|
|
|
301
|
(c)
|
|
|
3,844
|
|
|
|
|
(a) |
|
Includes restructuring and other charges of $14 million
($5 million for Consumer Products, $8 million for
Foodservice/Food Packaging, and $1 million for Other). |
|
(b) |
|
Includes pension plan income and unallocated corporate expenses. |
|
(c) |
|
Includes administrative service operations. |
|
|
Note 13.
|
Noncontrolling
Interests
|
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements — an Amendment of Accounting Research
Bulletin (ARB) No. 51.” SFAS No. 160 is
effective for fiscal years, and interim periods within such
fiscal years, beginning on or after December 15, 2008.
SFAS No. 160 requires that noncontrolling (minority)
interests be recognized as equity (but separate from
14
parents’ equity) in consolidated financial statements, and
that net earnings related to noncontrolling interests be
included in consolidated net income, but identified separately
on the face of the income statement. SFAS No. 160 also
amends some of ARB No. 51’s consolidation procedures,
and expands disclosure requirements regarding the interests of
parents and noncontrolling interests. In order to meet the
SFAS No. 160 disclosure requirements upon adoption, we
have added a quarterly statement of shareholders’ equity
and a quarterly statement of comprehensive income (loss) to our
interim reporting.
SFAS No. 160 also requires disclosure of the effects
of any changes in a parent’s ownership interest in a
subsidiary on the equity attributable to the parent. There were
no changes in ownership interest in our subsidiaries for the
three months ended March 31, 2009, or March 31, 2008,
respectively.
The preceding notes are an integral part of the foregoing
financial statements.
15
|
|
ITEM 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
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.
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operated
one manufacturing facility in North Carolina with approximately
100 employees. The results of this business 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 includes 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 2008, we implemented a cost reduction program that included
the consolidation of two small facilities, asset
rationalizations, and headcount reductions. The program is
essentially complete with the exception of a small idle plant
held for sale. The accrued restructuring balance of
$2 million as of December 31, 2008, and March 31,
2009, is for remaining severance payments. Cash payments related
to restructuring and other was immaterial for the three-month
period ended March 31, 2009.
In the first quarter of 2008, we recorded a charge of
approximately $9 million after tax, or $0.07 per share.
Cash payments related to restructuring and other charges were
$1 million after tax for the three-month period ended
March 31, 2008.
Significant
Trends, Opportunities and Challenges
The primary raw materials used to manufacture our products are
plastic resins, principally polystyrene and polyethylene. The
prices of plastic resins are affected by the prices of crude oil
and natural gas, as well as supply and demand factors of various
intermediate petrochemicals. In recent years, there have been
significant movements in resin prices, which rose to historic
highs in 2008, and dropped precipitously at the end of 2008 and
into early 2009. In the first quarter of 2009, prices have risen
moderately. Average industry prices for polystyrene were
approximately 35% lower in the first quarter of 2009 than in the
same period of 2008. Average industry prices for polyethylene
were approximately 30% lower in the first quarter of 2009,
compared with the same period in 2008. We have historically
adjusted our selling prices, in many areas of our business, to
reflect changes in raw material costs, although there is usually
a lag of several months. Some of our
16
business is pursuant to contracts that have price indexes that
automatically adjust, usually quarterly, to reflect changes in
certain raw materials.
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 have
declined, we have seen a favorable impact on our margins.
However, the extent and duration of energy-related cost
reductions is uncertain.
Due to the current economic downturn and lower consumer
confidence, the markets for our packaging products are
experiencing weak demand. While we experienced some improvement
in demand for our products in March and April, market demand is
difficult to predict in this uncertain environment.
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 effect on our
operating results in future years.
Worldwide stock markets declined significantly in 2008 and, as a
result, our U.S. pension plan was substantially underfunded
at December 31, 2008. See the “Liquidity and Capital
Resources” section for further discussion of the impact on
the company of this underfunding.
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
Three
Months Ended March 31, 2009, Compared with Three Months
Ended March 31, 2008
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Increase
|
|
|
|
ended March 31,
|
|
|
(decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
283
|
|
|
$
|
290
|
|
|
$
|
(7
|
)
|
|
|
(2.4
|
)%
|
Foodservice/Food Packaging
|
|
|
483
|
|
|
|
518
|
|
|
|
(35
|
)
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
766
|
|
|
$
|
808
|
|
|
$
|
(42
|
)
|
|
|
(5.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales decreased 5%, reflecting a decline in volume of 3%, lower
pricing of 1%, and unfavorable foreign exchange of 1%.
Sales for Consumer Products declined 2%, reflecting a decrease
in volume of 5% impacted by weaker consumer demand, offset
partially by favorable pricing of 3%. Volume growth in cups and
cutlery partially offset declines in waste bags and disposable
plates.
Foodservice/Food Packaging sales fell 7%, driven by average
selling price decreases of 3%, lower volume of 2%, and
unfavorable foreign exchange of 2%. Continued growth in cups and
cutlery, partially as a result of new business, was more than
offset by softness in market demand.
17
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
|
|
|
ended
|
|
|
Increase
|
|
|
|
March 31,
|
|
|
(decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
|
$74
|
|
|
|
$30
|
|
|
|
$44
|
|
|
|
146.7
|
%
|
Foodservice/Food Packaging
|
|
|
95
|
|
|
|
47
|
|
|
|
48
|
|
|
|
102.1
|
|
Other
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
(200.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$167
|
|
|
|
$79
|
|
|
|
$88
|
|
|
|
111.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income increased primarily as a result of an
$82 million improvement in spread, lower restructuring
costs of $14 million, and lower operating costs of
$12 million driven by improvement in logistics costs and
productivity. This was offset, in part, by lower sales volume of
$9 million, higher advertising and promotional expenses of
$8 million, and lower pension income of $5 million.
The following table shows the impact of restructuring and other
charges on 2008 operating income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income - three months ended March 31, 2008
|
|
|
|
GAAP
|
|
|
Restructuring and
|
|
|
Excluding restructuring
|
|
(In millions)
|
|
basis
|
|
|
other charges
|
|
|
and other charges
|
|
|
Consumer Products
|
|
$
|
30
|
|
|
$
|
5
|
|
|
$
|
35
|
|
Foodservice/Food Packaging
|
|
|
47
|
|
|
|
8
|
|
|
|
55
|
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79
|
|
|
$
|
14
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
|
|
|
ended
|
|
|
Increase
|
|
|
|
March 31,
|
|
|
(decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
|
$74
|
|
|
$
|
35
|
|
|
$
|
39
|
|
|
|
111.4
|
%
|
Foodservice/Food Packaging
|
|
|
95
|
|
|
|
55
|
|
|
|
40
|
|
|
|
72.7
|
|
Other
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
(166.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$167
|
|
|
$
|
93
|
|
|
$
|
74
|
|
|
|
79.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in operating income for Consumer Products was
driven mainly by favorable spread of $44 million and lower
operating costs of $8 million, offset partially by higher
advertising and promotional expense of $8 million and lower
sales volume of $6 million.
Higher operating income for Foodservice/Food Packaging was
driven primarily by favorable spread of $38 million and
lower operating costs of $4 million, partially offset by
lower volume of $3 million.
The decrease in Other operating income was due mainly to lower
pension income.
18
Income
from Continuing Operations
We recorded income from continuing operations of
$91 million, or $0.69 per share, compared with
$35 million, or $0.26 per share, in 2008. The change was
driven primarily by higher operating income of $56 million
($88 million before tax) as described previously.
Liquidity
and Capital Resources
Capitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Increase
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
(decrease)
|
|
|
Short-term debt, including current maturities of long-term debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Long-term debt
|
|
|
1,345
|
|
|
|
1,345
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,345
|
|
|
|
1,345
|
|
|
|
—
|
|
Noncontrolling interest
|
|
|
16
|
|
|
|
16
|
|
|
|
—
|
|
Pactiv shareholders’ equity
|
|
|
727
|
|
|
|
639
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,088
|
|
|
$
|
2,000
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total debt to total capitalization
|
|
|
64.4
|
%
|
|
|
67.3
|
%
|
|
|
|
|
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
Increase
|
(In millions)
|
|
2009
|
|
2008
|
|
(decrease)
|
|
Cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
116
|
|
|
$
|
24
|
|
|
$
|
92
|
|
Investing activities
|
|
|
(42
|
)
|
|
|
(46
|
)
|
|
|
4
|
|
Financing activities
|
|
|
(1
|
)
|
|
|
(22
|
)
|
|
|
21
|
|
The increase in cash provided by operating activities was driven
primarily by higher income from continuing operations of
$56 million. In addition, a reduction in accounts
receivable compared with an increase in accounts receivable in
the same quarter last year contributed $45 million, a
smaller inventory build than prior year added $33 million,
and lower noncash retirement benefits added $5 million.
This was offset partially by a $100 million pretax
contribution to our U.S. pension plan, reduced by related
favorable cash tax effects of approximately $50 million.
The increase in cash used by investing activities was driven by
lower capital expenditures of $24 million partially offset
by the acquisition of WinCup for $20 million.
Cash used by financing activities increased as a result of the
repayment of long-term revolving debt of $20 million in
2008.
Capital
Commitments
Commitments for authorized capital expenditures totaled
approximately $50 million at March 31, 2009. 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, 2008.
19
Liquidity
and Off-Balance-Sheet Financing
We use various sources of funding to manage liquidity. Sources
of liquidity include cash flow from operations and a
5-year
revolving credit facility of $750 million, under which
$70 million was outstanding at March 31, 2009. We were
in full compliance with the financial and other covenants of our
revolving credit agreement at the end of the period. The two
financial covenant ratios contained in our debt agreements are
an interest coverage ratio and the total debt to EBITDA ratio.
The interest coverage ratio is defined as consolidated earnings
before interest, taxes, depreciation and amortization (EBITDA)
divided by interest expense. The minimum required ratio is 3.50
to 1. The total debt to EBITDA ratio is calculated by dividing
the total debt by EBITDA. The maximum permitted total debt to
EBITDA ratio is 3.50 to 1.
The interest coverage ratio and the debt to EBITDA ratio are
shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus
|
|
|
Less
|
|
|
|
|
|
|
Twelve months
|
|
|
Three months
|
|
|
Three months
|
|
|
Twelve months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
(In millions)
|
|
December 31, 2008
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
March 31, 2009
|
|
|
Net income (1)
|
|
$
|
217
|
|
|
$
|
91
|
|
|
$
|
34
|
|
|
$
|
274
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash restructuring and other (2)
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
Interest expense, net of interest capitalized (1)
|
|
|
106
|
|
|
|
23
|
|
|
|
27
|
|
|
|
102
|
|
Income tax expense (1)
|
|
|
120
|
|
|
|
53
|
|
|
|
18
|
|
|
|
155
|
|
Depreciation and amortization (1)
|
|
|
182
|
|
|
|
46
|
|
|
|
46
|
|
|
|
182
|
|
Noncontrolling interest (1)
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
638
|
|
|
$
|
213
|
|
|
$
|
137
|
|
|
$
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
638
|
|
|
|
|
|
|
|
|
|
|
$
|
714
|
|
Interest expense, net of interest capitalized (1)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage ratio
|
|
|
6.02
|
|
|
|
|
|
|
|
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt (3)
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
$
|
1,345
|
|
EBITDA
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt to EBITDA ratio
|
|
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts per the consolidated statement of income (for 2008
information, refer to our 2008
10-K and
first quarter 2008
10-Q). |
|
(2) |
|
Amounts per the consolidated statement of cash flows (for 2008
information, refer to our 2008
10-K and
first quarter 2008
10-Q). |
(3) Amounts per the consolidated statement of financial
position.
We also use an asset securitization facility as a form of
off-balance-sheet financing. At March 31, 2009,
$118 million was securitized under this facility, and
$130 million was securitized at December 31, 2008. We
do not participate in financial commercial paper markets.
We have a U.S. qualified pension plan that covers
approximately 7,000 of our employees, as well as approximately
65,000 others, mostly retirees and persons who worked for
predecessor companies that were part of Tenneco. The requirement
to make contributions to this plan is a function of several
factors, the most important of which are the return on plan
assets and applicable funding discount rate used in calculating
plan liabilities. We are not required to make a contribution to
this plan in 2009; however, we have elected to make
20
a contribution to the plan in 2009 to lessen the impact in the
future. We contributed $100 million pretax in February
2009, and an additional $100 million pretax in April 2009.
After making a total 2009 contribution of $200 million
($130 million after tax), and assuming the plan assets earn
an actual rate of return in 2009 equal to our expected long-term
rate of return of 9% and the pension funding discount rate as of
January 1, 2010, is 6.95%, unchanged from the rate as of
January 1, 2009, we estimate a minimum required cash
contribution in 2010 to the U.S. pension plan on an
after-tax basis of approximately $18 million.
Holding the pension funding discount rate constant, each one
percentage-point increase (decrease) in the annual actual rate
of return up to 15% would reduce (increase) the minimum cash
contribution on an after-tax basis by approximately
$17 million. On the same basis, each one percentage-point
increase in the actual rate of return above 15% would reduce the
minimum required after-tax cash contribution by approximately
$5 million.
Holding the actual rate of return constant, each one-half
percentage-point increase (decrease) in the pension funding
discount rate would reduce (increase) the minimum required
after-tax cash contribution by approximately $95 million.
The above funding scenarios all assume we would maintain a
funded ratio above 80% as defined in the Pension Protection Act
of 2006 in order to avoid certain benefit restrictions on our
plan. However, as long as our funded ratio is above 60%, those
benefit restrictions do not have a meaningful impact on us or
the plan. This allows us more flexibility in the timing of
pension contributions.
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.
Changes
in Accounting Principles
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, “Fair Value Measurements.”
SFAS No. 157 establishes a framework for measuring
fair value by providing a standard definition of fair value as
it applies to assets and liabilities. SFAS No. 157,
which does not require the use of any new fair value
measurements, clarifies the application of other accounting
pronouncements that require or permit fair value measurements.
SFAS No. 157 was effective as of January 1, 2008,
and did not have a material effect on our financial statements
upon adoption and as of March 31, 2009.
We adopted the measurement provisions of SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an Amendment of
SFAS Nos. 87, 88, 106, and 132(R),” on January 1,
2008, using the transition method, based on data from our
September 30, 2007, measurement date. As a result, we
increased “retained earnings” by $7 million after
tax in 2008.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value as of specified election dates.
SFAS No. 159 expands the use of fair value
measurement, but does not eliminate disclosure requirements of
other accounting standards, including SFAS No. 157.
SFAS No. 159 was effective January 1, 2008, and
it did not impact our financial statements upon adoption and as
of March 31, 2009. We did not choose to measure any
financial instruments at fair value as permitted under the
statement.
In December 2007, the FASB issued SFAS No. 141(R),
“Business Combinations,” which replaces
SFAS No. 141, “Business Combinations.”
SFAS No. 141(R) retains the underlying concepts of
SFAS No. 141 in that all business combinations are
still required to be accounted for at fair value using the
acquisition method of accounting, but it changes the application
of the acquisition method in a number of significant ways. In
this regard, the pronouncement requires that
(1) acquisition-related costs generally be expensed as
21
incurred, (2) noncontrolling interests be recorded at fair
value, (3) in-process research and development costs be
recorded at fair value as an indefinite lived intangible asset,
(4) restructuring costs associated with a business
combination generally be expensed subsequent to the date of such
a combination, and (5) changes in valuation allowances on
deferred tax assets and income tax uncertainties after the
acquisition date generally be recorded as income tax expense.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations that occur in fiscal years
beginning after December 15, 2008, with the exception of
accounting for valuation allowances on deferred taxes and
acquired tax contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of SFAS No. 141(R) would also be subject to the
provisions of SFAS No. 141(R).
SFAS No. 141(R) was effective January 1, 2009,
and did not have a material impact our financial statements upon
adoption and as of March 31, 2009.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements — an Amendment of Accounting Research
Bulletin (ARB) No. 51.” SFAS No. 160 is
effective for fiscal years, and interim periods within such
fiscal years, beginning on or after December 15, 2008.
SFAS No. 160 requires that noncontrolling (minority)
interests be recognized as equity (but separate from
parents’ equity) in consolidated financial statements, and
that net earnings related to noncontrolling interests be
included in consolidated net income, but identified separately
on the face of the income statement. SFAS No. 160 also
amends some of ARB No. 51’s consolidation procedures,
and expands disclosure requirements regarding the interests of
parents and noncontrolling interests. SFAS No. 160 was
effective January 1, 2009, and did not have a material
impact on our financial statements upon adoption and as of
March 31, 2009.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities — an amendment of FASB Statement
No. 133.” SFAS No. 161 is effective for
fiscal years, and interim periods within such fiscal years,
beginning on or after November 15, 2008.
SFAS No. 161 requires enhanced disclosures about an
entity’s derivative and hedging activities, specifically
how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and how
derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and
cash flows. SFAS No. 161 was effective January 1,
2009, and did not have a material impact our financial
statements upon adoption and as of March 31, 2009.
Critical
Accounting Policies
For a complete discussion of the company’s critical
accounting policies, refer to Pactiv’s most recent filing
on
Form 10-K.
22
CAUTIONARY
STATEMENT FOR PURPOSES OF “SAFE HARBOR” PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements included in this Quarterly Report on
Form 10-Q,
including statements in the “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” section and in the notes to the financial
statements, are “forward-looking statements.” All
statements other than statements of historical fact, including
statements regarding prospects and future results, are
forward-looking. These forward-looking statements generally can
be identified by the use of terms and phrases such as
“will”, “believe”, “anticipate”,
“may”, “might”, “could”,
“expect”, “estimated”, “projects”,
“intends”, “foreseeable future”, and similar
terms and phrases. These forward-looking statements are not
based on historical facts, but rather on our current
expectations or projections about future events. Accordingly,
these forward-looking statements are subject to known and
unknown risks and uncertainties. While we believe that the
assumptions underlying these forward-looking statements are
reasonable and make the statements in good faith, actual results
almost always vary from expected results, and the differences
could be material.
See “Risk Factors” section (Item 1A) in our most
recently filed Securities and Exchange Commission (SEC)
Form 10-K
and Part II (Item 1A) of this report for some of the
factors that we believe could cause our actual results to differ
materially from future results expressed or implied by these
forward-looking statements. These factors include the following:
|
|
|
|
•
|
Changes in consumer demand and selling prices for our products,
including new products that our competitors or we may introduce
that could impact sales and margins.
|
|
|
•
|
Material substitutions and changes in costs of raw materials,
including plastic resins, labor, utilities, or transportation
that could impact our expenses and margins.
|
|
|
•
|
Changes in laws or governmental actions, including changes in
regulations such as those relating to air emissions or plastics
generally.
|
|
|
•
|
The availability or cost of capital could impact growth or
acquisition opportunities.
|
|
|
•
|
Workforce factors such as strikes or other labor interruptions.
|
|
|
•
|
The general economic, political, and competitive conditions in
countries in which we operate, including currency fluctuations
and other risks associated with operating outside of the U.S.
|
|
|
•
|
Changes in (1) assumptions regarding the long-term rate of
return on pension assets and other factors, (2) the
discount rate, and (3) the level of amortization of
actuarial gains and losses.
|
|
|
•
|
Changes in
U.S. and/or
foreign governmental regulations relating to pension plan
funding.
|
|
|
•
|
Changes enacted by the SEC, the FASB, or other regulatory or
accounting bodies. See “Changes in Accounting
Principles.”
|
|
|
•
|
Competition from producers located in countries that have lower
labor and other costs.
|
|
|
•
|
Our ability to integrate new businesses that we have acquired
and may acquire, or to dispose of businesses or business
segments that we may wish to divest.
|
23
|
|
ITEM 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Derivative
Financial Instruments
We are exposed to market risks related to changes in foreign
exchange rates, interest rates, and commodity prices. To manage
these risks we may enter into various hedging contracts in
accordance with established policies and procedures. We do not
use hedging instruments for trading purposes and are not a party
to any transactions involving leveraged derivatives.
Commodity
Derivatives
During the fourth quarter of 2008, we entered into natural gas
purchase agreements with third parties, hedging a portion of the
first half of 2009 purchases of natural gas used in the
production processes at certain of our plants. These purchase
agreements are marked to market, with the resulting gains or
losses recognized in earnings when hedged transactions are
recorded. The mark-to-market adjustments at March 31, 2009,
were immaterial.
Interest
Rates
At March 31, 2009, we had public debt securities of
$1.276 billion outstanding, with fixed interest rates and
maturities ranging from 3 to 18 years. Should we decide to
redeem these securities prior to their stated maturity, we would
incur costs based on the fair value of the securities at that
time.
In addition, we have a revolving line of credit, against which
we borrowed $70 million at March 31, 2009. The fair
value of the debt at that date was equal to the outstanding
balance.
As a part of the acquisition of Prairie Packaging Inc.
(Prairie), we assumed its liability for $5 million borrowed
from the Illinois Development Finance Authority (IDFA), which
was funded by industrial development revenue bonds issued by the
IDFA. The debt matures on December 1, 2010, and bears
interest at varying rates (0.8% as of March 31, 2009), not
to exceed 12% per annum.
The following table provides information about Pactiv’s
financial instruments that are sensitive to interest rate risks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
|
|
|
(In millions, except percentages)
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fixed rate debt
|
|
|
|
|
|
|
|
|
|
$
|
250
|
|
|
$
|
1,026
|
|
|
$
|
1,276
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
5.7
|
%
|
|
|
7.7
|
%
|
|
|
7.3
|
%
|
Fair value
|
|
|
|
|
|
|
|
|
|
$
|
253
|
|
|
$
|
1,083
|
|
|
$
|
1,336
|
|
Floating rate debt
|
|
$
|
5
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
$
|
75
|
|
Average interest rate
|
|
|
0.8
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
2.5
|
%
|
Fair value
|
|
$
|
5
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
$
|
75
|
|
Prior to our spin-off from Tenneco Inc., we entered into an
interest rate swap to hedge our exposure to interest rate
movements. We settled this swap in November 1999, incurring a
$43 million loss, which is being recognized as additional
interest expense over the average life of the underlying debt.
In April 2007, we entered into interest rate swap agreements to
hedge the interest rate risk related to $250 million of the
debt expected to be issued in connection with the acquisition of
Prairie. The swap agreements were terminated on June 20,
2007, resulting in a gain of $9 million. This gain is being
recorded as a reduction of interest expense over the average
life of the underlying debt.
24
|
|
ITEM 4.
|
Controls
and Procedures
|
Our disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e)
and
15d-15(e))
are designed to ensure that information required to be disclosed
by us in reports we file or submit under the Securities Exchange
Act is recorded, processed, summarized, and reported within the
appropriate time periods. We, under the supervision of and with
the participation of our management, including our principal
executive officer and principal financial officer, have
evaluated the effectiveness of our disclosure controls and
procedures, and we and such officers have concluded that such
controls and procedures were adequate and effective as of
March 31, 2009.
There were no changes in internal controls over financial
reporting (as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
during the quarter ended March 31, 2009, that materially
affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
25
PART II —
OTHER INFORMATION
|
|
ITEM 1.
|
Legal
Proceedings
|
We are party to various legal proceedings arising from our
operations. We establish reserves for claims and proceedings
when it is probable that liabilities exist and where reasonable
estimates of such liabilities can be made. While it is not
possible to predict the outcome of any of these matters, based
on our assessment of the facts and circumstances now known, we
do not believe that any of these matters, individually or in the
aggregate, will have a material adverse effect on our financial
position. However, actual outcomes may be different from those
expected and could have a material effect on our results of
operations or cash flows in a particular period.
There has been no material change in the risk factors disclosed
in our
Form 10-K
for the year ended December 31, 2008.
|
|
ITEM 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
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In July 2006, the board of directors approved the repurchase of
10 million shares of our common stock. As of March 31,
2009, the remaining number of shares authorized to be
repurchased was 522,361. We repurchase shares using open market
or privately negotiated transactions. Repurchased shares are
held in treasury for general corporate purposes. There is no
expiration date for the current share repurchase authorization.
We did not repurchase stock in the first quarter of 2009.
Exhibits designated with an asterisk in the following index are
furnished or filed herewith; all other exhibits are incorporated
by reference.
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Exhibit No.
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Description
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2
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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).
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3
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.1
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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).
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3
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.2
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Amended and Restated By-laws of the registrant adopted
July 12, 2007 (incorporated herein by reference to
Exhibit 3.1 to Pactiv Corporation’s Current Report on
Form 8-K
dated July 13, 2007, File
No. 1-15157).
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4
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.1
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Specimen Stock Certificate of Pactiv Corporation Common Stock
(incorporated herein by reference to Exhibit 4.1 to Pactiv
Corporation’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
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4
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.2(a)
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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).
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4
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.2(b)
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Amendment No. 1 to Rights Agreement, dated as of
November 7, 2002, by and between the registrant and
National City Bank, as rights agent (incorporated herein by
reference to Exhibit 4.4(a) to Pactiv Corporation’s
Registration Statement on
Form S-8
dated November 8, 2002, File
No. 333-101121).
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26
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Exhibit No.
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Description
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4
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.3(a)
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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).
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4
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.3(b)
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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).
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4
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.3(c)
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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).
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4
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.3(d)
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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).
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4
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.3(e)
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Fourth 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(e) to
Pactiv Corporation’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
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4
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.3(f)
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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).
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4
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.3(g)
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Sixth Supplemental Indenture dated as of June 25, 2007 to
Indenture, dated as of September 29, 1999, between Pactiv
Corporation and the Bank of New York Trust Company, N.A.,
as Trustee (incorporated herein by reference to Exhibit 4.1
to Pactiv Corporation’s Current Report on
Form 8-K
dated June 25, 2007, File
No. 1-15157).
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4
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.3(h)
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Seventh Supplemental Indenture dated as of June 25, 2007 to
Indenture, dated as of September 29, 1999, between Pactiv
Corporation and the Bank of New York Trust Company, N.A.,
as Trustee (incorporated herein by reference to Exhibit 4.2
to Pactiv Corporation’s Current Report on
Form 8-K
dated June 25, 2007, File
No. 1-15157).
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4
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.4
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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).
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10
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.1
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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).
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10
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.2
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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. 1-12387).
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10
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.3
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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).
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10
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.4
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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).
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10
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.5
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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).
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27
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Exhibit No.
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Description
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10
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.6
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Amended and Restated Change in Control Severance Benefit Plan
for Key Executives as of December 31, 2006 (incorporated
herein by reference to Exhibit 10.6 to Pactiv
Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2006, File
No. 1-15157)
(superseding Pactiv Corporation Change in Control Severance
Benefit Plan for Key Executives as of March 1, 2005).
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10
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.7
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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).
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10
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.8
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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).
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10
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.9
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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).
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10
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.10
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Pactiv Corporation 2002 Incentive Compensation Plan
(incorporated herein by reference to Exhibit 4.7 to Pactiv
Corporation’s Registration Statement on
Form S-8
dated November 8, 2002, File
No. 333-101121).
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10
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.11
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Credit Agreement, dated as of April 19, 2006, among the
registrant, Bank of America, N.A., as Administrative Agent, JP
Morgan Chase Bank, N.A., as Syndication Agent and L/C Issuer,
BNP Paribas, Suntrust Bank, and Citibank, N.A., as
Co-Documentation Agents, and the other financial institutions
party thereto (incorporated herein by reference to
Exhibit 10.15 to Pactiv Corporation’s Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2006, File
No. 1-15157).
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10
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.12
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Pactiv Corporation Defined Retirement Savings Plan (incorporated
herein by reference to Exhibit 10.16 to Pactiv
Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2004, File
No. 1-15157).
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10
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.13
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Form of Pactiv Corporation Non-Qualified Stock Option Award
Agreement (incorporated herein by reference to
Exhibit 10.17 to Pactiv Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2004, File
No. 1-15157).
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10
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.14
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Form of Pactiv Corporation Performance Share Award Agreement
(incorporated herein by reference to Exhibit 10.18 to
Pactiv Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2004, File
No. 1-15157).
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10
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.15
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Summary of Compensation Arrangements of Directors (incorporated
herein by reference to Exhibit 10.19 to Pactiv
Corporation’s Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006, File
No. 1-15157).
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10
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.16
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Summary of Named Executive Officer Compensation Arrangements
(incorporated herein by reference to Exhibit 10.20 to
Pactiv Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2004, File
No. 1-15157).
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10
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.17
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Stock Purchase agreement dated as of June 23, 2005, among
Pactiv Corporation and certain of its affiliates, as sellers,
and PFP Holding II Corporation, as purchaser (incorporated
herein by reference to Exhibit 10.21 to Pactiv
Corporation’s Current Report on
Form 8-K
dated June 23, 2005, File
No. 1-15157).
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10
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.18
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Receivables Purchase Agreement, dated as of December 21,
2006, among the registrant and Atlantic Asset Securitization LLC
and Calyon New York Branch, as agent for Purchasers
(incorporated herein by reference to Exhibit 10.22 to
Pactiv Corporation’s Annual Report on
Form 10-K
for the year ended December 31, 2006, File
No. 1-15157).
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10
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.19
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Agreement and Plan of Merger dated April 10, 2007, among
Pactiv Corporation, Meadow Acquisition Corp., Prairie Packaging,
Inc., Earl W. Shapiro, and Benjamin M. Shapiro (incorporated
herein by reference to Exhibit 10.23 to Pactiv
Corporation’s Current Report on
Form 8-K
dated April 12, 2006, File
No. 1-15157).
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28
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Exhibit No.
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Description
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10
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.20
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Continuing Agreement for Standby Letters of Credit between
Pactiv Corporation and JPMorgan Chase Bank, N.A. dated
June 5, 2007 (incorporated herein by reference to
Exhibit 10.20 to Pactiv Corporation’s Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2007,
File No. 1-15157).
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10
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.21
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Credit Agreement between Pactiv Corporation and JPMorgan Chase
Bank, N.A. dated June 5, 2007 (incorporated herein by
reference to Exhibit 10.21 to Pactiv Corporation’s
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, File
No. 1-15157).
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11
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None.
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15
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None.
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18
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None.
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19
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None.
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22
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None.
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23
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None.
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24
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None.
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*31
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.1
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Rule 13a-14(a)/15d-14(a)
Certification.
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*31
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.2
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Rule 13a-14(a)/15d-14(a)
Certification.
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**32
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.1
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Section 1350 Certification.
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**32
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.2
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Section 1350 Certification.
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* |
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Filed herewith |
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** |
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Furnished herewith |
29
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
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By:
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/s/ EDWARD
T. WALTERS
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Edward T. Walters
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 8, 2009
30
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
Donald E. King
Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer)
Date: May 8, 2009
31