01—Abstract
Summary
Summary of the 10-K filed March 9, 2005. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PKG) reported net sales of $1,890.1 milliona for 2004, up $154.6 million, or 8.9%, from $1,735.5 million in 2003, driven by improved corrugated products and containerboard sales volumes and prices.
Net income rose to $68.7 millionb ($0.64 diluted earnings per share) from a net loss of $14.4 million in 2003, which had included a $76.6 million debt-refinancing charge and a $16.0 million Pactiv benefits settlement. Income before interest and taxes increased to $140.5 million from $96.9 million, while gross margin as a percentage of sales declined from 17.2% to 15.8% due to higher energy, recycled and wood fiber costs. The filing also includes a $27.8 million net joint venture dividend from Southern Timber Venture, LLC, which contributed materially to 2004 operating income.
Cash flow from operations was $215.3 millionc, and the company ended 2004 with $213.3 million in cash and cash equivalents. Total debt was $698.0 million at year-end, with $141.0 million of unused borrowing capacity under its credit agreements. Management projects 2005 capital expenditures of $110.0 million to $115.0 million and announced a quarterly dividend increase to $0.25 per share ($1.00 annually), up from $0.15 per share.
The company also disclosed a shutdown plan for the number three paper machine at its Tomahawk, Wisconsin mill, which would reduce capacity by 66,000 tons, while restarting the number one machine at Filer City, Michigan. The filing notes that a 2004 error understated the intercompany profit reserve for inventory, and quarterly figures were adjusted accordingly after the third-quarter 10-Q. Legal exposure relates mainly to the linerboard antitrust direct-action cases, which management believes are not reasonably likely to have a material adverse effect.
02—Key points
Key Highlights
- Net sales rose 8.9% to $1,890.1 million in 2004, with corrugated products volume up 6.6% to 29.9 billion square feet.
- Net income was $68.7 million, or $0.64 diluted EPS, compared with a net loss of $14.4 million in 2003.
- Income before interest and taxes increased $43.6 million to $140.5 million, including a $27.8 million net dividend from Southern Timber Venture, LLC.
- Gross profit as a percentage of sales declined to 15.8% from 17.2%, reflecting higher energy, recycled fiber and wood fiber costs.
- Operating cash flow was $215.3 million; year-end cash was $213.3 million and total debt was $698.0 million.
- The quarterly dividend was increased to $0.25 per share ($1.00 annually) from $0.15 per share, payable April 15, 2005.
- 2005 capital expenditures are projected at $110.0 million to $115.0 million, and a Tomahawk paper machine will be shut down, reducing capacity by 66,000 tons.
03—Questions
Frequently Asked Questions
How did Packaging Corporation of America perform in 2004 compared with 2003?
Net sales increased $154.6 million, or 8.9%, to $1,890.1 million, and net income improved to $68.7 million from a net loss of $14.4 million. The 2003 results included a $76.6 million debt-refinancing charge and a $16.0 million Pactiv benefits settlement, which did not recur in 2004.
What drove the decline in gross margin?
Gross profit as a percentage of sales fell from 17.2% to 15.8%, primarily due to increased energy costs, including transportation ($19.2 million), higher recycled and wood fiber costs ($16.7 million), and higher salary and contract labor expenses, partially offset by higher sales volume and prices.
How much did interest expense change, and why?
Interest expense, net, fell $92.2 million, or 75.7%, to $29.6 million. The 2003 figure included $73.3 million of expenses from the July 2003 debt refinancing, and excluding that charge interest expense was $18.9 million lower due to lower rates and debt levels.
What is the company's dividend policy and capital spending outlook?
PCA increased its quarterly dividend to $0.25 per share, payable April 15, 2005 to holders of record on March 15, 2005. It expects capital expenditures of $110.0 million to $115.0 million in 2005, primarily for maintenance, cost reduction, business growth and environmental compliance, and it states that no restrictions currently limit dividend payments under its existing indebtedness agreements.
What operational changes were announced at the mills?
On January 20, 2005, PCA announced it would shut down the number three paper machine at its Tomahawk, Wisconsin mill after resuming reliable production on the number one machine at Filer City, Michigan. The Tomahawk shutdown reduces productive capacity by 66,000 tons, to 507,000 tons at that mill and 2,335,000 tons for the total containerboard system, and the plan could change with market conditions.
04—Continue