01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported 2008 net sales of $2,360.5 milliona, up $44.5 million from $2,316.0 million in 2007, as higher selling prices ($111.0 million) were largely offset by lower sales volume ($66.5 million).
Income from operations fell $51.7 million to $241.8 millionb, and net income declined to $135.6 million, or $1.31 per diluted share, from $170.1 million. Management attributed the earnings decline primarily to higher energy and transportation costs, lower volume, and higher wood fiber and labor costs, with a severe fourth-quarter 2008 economic downturn reducing corrugated shipments and forcing about 90,000 tons of mill production cuts. Management expects first-quarter 2009 earnings to be lower than fourth-quarter 2008 earnings.
The company remained a fifth-largest U.S. containerboard and corrugated products producer, operating four containerboard mills and 67 corrugated manufacturing operations. Cash from operations was $269.3 millionc in 2008, versus $300.1 million in 2007, and capital expenditures are expected to be $90.0 million in 2009. Total debt was $659.0 million principal at year-end, with $109.0 million due within one year under the receivables facility, and $130.6 million of unused capacity on its $150.0 million revolver.
Stockholders' equity fell to $683.9 milliond, and the company repurchased 3,142,600 shares during 2008 while paying $1.20 per share in dividends declared. The company reported it was in compliance with its debt covenants at December 31, 2008, but noted that a prolonged and severe downturn could affect its ability to comply. Management also disclosed that it is in material compliance with environmental rules and that its environmental reserve totaled $8.3 million at year-end.
02—Key points
Key Highlights
- Net sales rose 1.9% to $2,360.5 million, driven by price increases of $111.0 million that offset $66.5 million of lower sales volume.
- Net income declined to $135.6 million ($1.31 diluted EPS) from $170.1 million in 2007; income from operations fell 17.6% to $241.8 million.
- Corrugated products volume decreased 2.9% to 30.3 billion square feet, and containerboard sales volume to external customers fell 11.7% to 478,000 tons.
- Cost pressures included energy and transportation (up $56.2 million), wood fiber ($25.1 million), and labor ($17.6 million); purchased fuel costs averaged about 30% higher.
- Operating cash flow was $269.3 million, and the company repurchased $65.7 million of stock in 2008 with $65.0 million remaining under its $150.0 million authorization.
- Debt totaled $659.0 million principal; the company issued $150.0 million of 6.50% senior notes due 2018 in March 2008 to repay its 4.38% notes.
- Management expects first-quarter 2009 earnings to be lower than fourth-quarter 2008 earnings, citing a Valdosta maintenance outage, market-related downtime, and higher chemical costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Packaging Corp. of America kept $0.06.
- Revenue$2.36B100.0%
- Cost of revenue−$1.87B79.2%
- Gross profit$491.4M20.8%
- Operating costs−$249.5M10.6%
- Operating income$241.8M10.2%
- Interest, other & tax−$106.2M4.5%
- Net income$135.6M5.7%
Where FY2008 revenue went
$2.36B- Cost of revenue: $1.87B, 79% of revenue
- Net income: $135.6M, 5.7% of revenue
- SG&A: $173.3M, 7.3% of revenue
- Other operating costs: $76.3M, 3.2% of revenue
- Interest, other & tax: $106.2M, 4.5% of revenue
Kept 5.7% as net incomeNet income $135.6M · 5.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Revenue | $2.36B |
| Cost of Revenue | $1.87B |
| Gross Profit | $491.36M |
| SG&A Expenses | $173.26M |
| Operating Income | $241.81M |
| Net Income | $135.61M |
| EPS (Basic) | $1.32 |
| EPS (Diluted) | $1.31 |
| Shares Outstanding (Basic) | 102.75M |
| Shares Outstanding (Diluted) | 103.59M |
05—Questions
Frequently Asked Questions
How did Packaging Corporation of America perform financially in 2008?
Net sales increased 1.9% to $2,360.5 million, but income from operations fell $51.7 million to $241.8 million and net income fell to $135.6 million from $170.1 million. Diluted EPS was $1.31 compared with $1.61 in 2007. The filing attributes the decline mainly to higher energy, wood fiber, and labor costs along with lower sales volume.
What caused the drop in shipments and production?
The U.S. economy experienced a severe downturn in the fourth quarter of 2008. Corrugated products volume fell 2.9% for the year, and fourth-quarter corrugated volume was down 9.9% compared with the fourth quarter of 2007. Market-related downtime and machine slowbacks reduced mill production by 90,000 tons, the most downtime the mills had taken in a quarter since becoming a standalone company.
Is the company able to meet its debt obligations and covenants?
At December 31, 2008, PCA was in compliance with its covenants. It had $171.6 million of unused borrowing capacity under its existing credit facilities, net of $19.4 million of letters of credit. The filing warns that a prolonged and severe downturn could possibly affect its ability to comply with debt covenants.
What is the company's outlook and capital spending plan?
Management expects first-quarter 2009 earnings to be lower than fourth-quarter 2008 earnings because of a Valdosta maintenance outage, likely market-related downtime, higher energy usage in colder weather, and higher chemical costs. PCA expects 2009 capital expenditures of $90.0 million for maintenance, cost reduction, business growth, and environmental compliance.
Does the company face significant environmental or legal liabilities?
PCA reported spending approximately $23.5 million on environmental compliance in 2008 and carried an environmental reserve of $8.3 million at year-end. It believes it is in material compliance with applicable rules and that future environmental expenditures above the accrued amount will not have a material impact. It also states it does not believe the pending legal actions will have a material adverse effect.
06—Continue