Why did PCA swing to a net loss in 2003?

The company reported a net loss of $14.4 million for 2003, compared with net income of $48.2 million in 2002. The main drivers were a $76.6 million one-time charge related to the July 2003 debt refinancing, a $16.0 million fourth-quarter settlement with Pactiv Corporation over benefit-related matters, lower sales prices, and higher energy and wood costs.

What did the debt refinancing accomplish?

In July 2003, PCA tendered for 99.3% of its $550.0 million 9 5/8% senior subordinated notes and closed a $150.0 million offering of 4 3/8% five-year notes and a $400.0 million offering of 5 3/4% ten-year notes. It also replaced its senior credit facility with a new unsecured facility that includes a $100.0 million revolver and a $50.0 million term loan. The filing states that interest expense excluding the $73.3 million of refinancing-related expenses was $19.2 million lower than in 2002.

What is the status of the linerboard antitrust litigation?

PCA, Pactiv and Tenneco agreed in November 2003 to settle the class action lawsuits, providing a full release of claims against PCA, subject to court approval, with a hearing set for March 2004. About 160 plaintiffs opted out and filed about ten direct action complaints, which are not covered by the settlement and are consolidated in In re Linerboard. Management believes it is not reasonably possible that this litigation will have a material adverse effect.

What is PCA's dividend policy and recent acquisition activity?

On October 13, 2003, PCA announced a quarterly cash dividend of $0.15 per share, or $0.60 annually. The first payment was made January 15, 2004, and a second quarterly dividend of $0.15 was announced on March 4, 2004. The company also acquired Acorn Corrugated Box Company for approximately $38 million on February 10, 2004, and expects to pay regular dividends subject to future earnings and financial condition.

What are the company's 2004 capital spending plans?

PCA expects capital expenditures of $110.0 million to $115.0 million in 2004, used primarily for maintenance, cost reduction, business growth and environmental compliance. As of December 31, 2003, it had $37.5 million of capital commitments and $141.0 million of unused borrowing capacity, and management believes operating cash flow and available cash will be adequate for the next 12 months.

PKG 10-K FY2003 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 12, 2004. Cited figures are marked; the original filing is the authoritative source.

Packaging Corporation of America (PCA) reported 2003 net sales of $1,735.5 million^a, essentially flat versus $1,735.9 million in 2002, as higher sales volumes were entirely offset by lower sales prices.

Operating income fell to $96.9 million^b from $145.3 million, and the company posted a net loss of $14.4 million, or $(0.14) per diluted share, compared with net income of $48.2 million in 2002. The results were weighed down by a $76.6 million one-time charge tied to the July 2003 debt refinancing, a $16.0 million fourth-quarter settlement of benefit-related matters with Pactiv Corporation, rising energy and wood costs, and lower prices. Corrugated products volume rose 2.1% to 28.1 billion square feet.

The company refinanced its capital structure in 2003. It tendered for 99.3% of its $550.0 million^c 9 5/8% senior subordinated notes and issued $150.0 million of 4 3/8% five-year notes and $400.0 million of 5 3/4% ten-year notes. Total debt was $697.96 million at year-end, down from $742.2 million, and cash and equivalents rose to $172.0 million.

Operating cash flow was $244.9 million^d, and the company had $141.0 million of unused borrowing capacity. Management also announced its first quarterly cash dividend of $0.15 per share, paid in January 2004, and a $38 million acquisition of Acorn Corrugated Box Company in February 2004. Litigation risk centers on the linerboard antitrust matters.

Pactiv, Tenneco and PCA agreed in November 2003 to settle the class actions, subject to court approval, while about 160 opt-out plaintiffs have filed direct action complaints that are not covered by the settlement. Management believes the outcome of that litigation is not reasonably possible to have a material adverse effect. Environmental compliance spending was $12.4 million in 2003, and the company holds a $4.3 million environmental reserve.

02—Key points

Key Highlights

Net sales of $1,735.5 million were essentially flat versus $1,735.9 million in 2002, as volume gains were offset by lower sales prices.
Net loss of $14.4 million, or $(0.14) per diluted share, compared with 2002 net income of $48.2 million, or $0.45 per diluted share.
Operating income fell to $96.9 million from $145.3 million, pressured by a $13.4 million price decline and higher energy ($7.9 million) and wood ($4.8 million) costs.
Debt refinancing in July 2003 produced a one-time charge of $76.6 million ($46.7 million after tax), including a $55.9 million tender premium.
Total long-term debt was $697.96 million at December 31, 2003, down from $742.2 million, and cash rose to $172.0 million.
Operating cash flow was $244.9 million, and the company announced its first quarterly dividend of $0.15 per share, paid January 15, 2004.
Linerboard antitrust class action settlement signed November 2003 (subject to court approval), but about 160 opt-out plaintiffs filed direct actions outside the settlement.

03—Questions

Frequently Asked Questions

Why did PCA swing to a net loss in 2003?
The company reported a net loss of $14.4 million for 2003, compared with net income of $48.2 million in 2002. The main drivers were a $76.6 million one-time charge related to the July 2003 debt refinancing, a $16.0 million fourth-quarter settlement with Pactiv Corporation over benefit-related matters, lower sales prices, and higher energy and wood costs.
What did the debt refinancing accomplish?
In July 2003, PCA tendered for 99.3% of its $550.0 million 9 5/8% senior subordinated notes and closed a $150.0 million offering of 4 3/8% five-year notes and a $400.0 million offering of 5 3/4% ten-year notes. It also replaced its senior credit facility with a new unsecured facility that includes a $100.0 million revolver and a $50.0 million term loan. The filing states that interest expense excluding the $73.3 million of refinancing-related expenses was $19.2 million lower than in 2002.
What is the status of the linerboard antitrust litigation?
PCA, Pactiv and Tenneco agreed in November 2003 to settle the class action lawsuits, providing a full release of claims against PCA, subject to court approval, with a hearing set for March 2004. About 160 plaintiffs opted out and filed about ten direct action complaints, which are not covered by the settlement and are consolidated in In re Linerboard. Management believes it is not reasonably possible that this litigation will have a material adverse effect.
What is PCA's dividend policy and recent acquisition activity?
On October 13, 2003, PCA announced a quarterly cash dividend of $0.15 per share, or $0.60 annually. The first payment was made January 15, 2004, and a second quarterly dividend of $0.15 was announced on March 4, 2004. The company also acquired Acorn Corrugated Box Company for approximately $38 million on February 10, 2004, and expects to pay regular dividends subject to future earnings and financial condition.
What are the company's 2004 capital spending plans?
PCA expects capital expenditures of $110.0 million to $115.0 million in 2004, used primarily for maintenance, cost reduction, business growth and environmental compliance. As of December 31, 2003, it had $37.5 million of capital commitments and $141.0 million of unused borrowing capacity, and management believes operating cash flow and available cash will be adequate for the next 12 months.

04—Continue

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