01—Abstract
Summary
Summary of the 10-K filed February 22, 2011. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) reported 2010 net sales of $2.44 billiona, up from $2.15 billion in 2009, and net income of $205.4 million, or $2.00 per diluted share, compared with $265.9 million in 2009.
Income from operations fell to $185.4 millionb from $352.5 million, mainly because of the reversal of 2009 alternative fuel mixture tax credits and the recording of cellulosic biofuel credits in the income tax line. Excluding tax credits and special items, the company reported net income of $166.3 million, or $1.62 per diluted share, versus $95.9 million, or $0.94, in 2009. Higher sales prices and volumes drove the improvement, partly offset by higher fiber, transportation and labor costs.
Recycled fiber costs more than doubled, up 122% on average. The company is the fifth largest U.S. producer of containerboard and corrugated products by production capacity and operates four containerboard mills and 67 corrugated manufacturing operations. Operating cash flow rose to $349.9 millionc in 2010, and cash and equivalents declined to $196.6 million after $321.3 million of investing outflows, largely for energy optimization projects at the Counce and Valdosta linerboard mills.
The company also disclosed a $102.0 milliond reserve for uncertain tax positions tied to its cellulosic biofuel credits, which the IRS is expected to review, and a putative Sherman Act class action seeking treble damages that the company says is without merit. For 2011, PCA expects first-quarter earnings before special items to fall below the $53 million reported for the fourth quarter of 2010, reflecting planned mill maintenance outages, higher fiber and energy costs and a higher effective tax rate. The company plans capital expenditures of $255.0 million in 2011, including $115.0 million for the energy optimization projects.
02—Key points
Key Highlights
- Net sales rose 13.4% to $2.44 billion in 2010, driven by higher sales volumes and prices of corrugated products and containerboard.
- Net income was $205.4 million ($2.00 per diluted share), down from $265.9 million ($2.60) in 2009, mainly due to the alternative fuel mixture tax credit accounting.
- Excluding tax credits and special items, net income was $166.3 million ($1.62 per diluted share) versus $95.9 million ($0.94) in 2009.
- Income from operations fell 47.4% to $185.4 million, reflecting the reversal of $96.0 million of 2009 alternative fuel mixture credits.
- A $102.0 million reserve for uncertain tax positions was recorded for cellulosic biofuel credits tied to the Filer City, Michigan mill, with IRS review pending.
- Operating cash flow increased to $349.9 million, while capital expenditures of $320.2 million were concentrated in the energy optimization projects at Counce and Valdosta.
- Management expects 2011 first-quarter earnings before special items to be lower than fourth-quarter 2010 earnings before special items of $53 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Packaging Corp. of America kept $0.08.
- Revenue$2.44B100.0%
- Cost of revenue−$1.90B78.1%
- Gross profit$532.2M21.9%
- Operating costs−$346.8M14.2%
- Operating income$185.4M7.6%
- Interest, other & tax$20.1M0.8%
- Net income$205.4M8.4%
Where FY2010 revenue went
$2.44B- Cost of revenue: $1.90B, 78% of revenue
- Operating income: $185.4M, 7.6% of revenue
- R&D: $10.9M, 0.4% of revenue
- SG&A: $182.5M, 7.5% of revenue
- Other operating costs: $153.4M, 6.3% of revenue
Kept 7.6% as operating incomeOperating income $185.4M · 7.6%R&D $10.9M · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 22, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $2.44B$2.15B | +13.4% |
| Cost of Revenue | $1.90B$1.72B | +10.6% |
| Gross Profit | $532.20M$426.58M | +24.8% |
| R&D Expenses | $10.90M$9.40M | +16.0% |
| SG&A Expenses | $182.49M$173.44M | +5.2% |
| Operating Income | $185.38M$352.45M | −47.4% |
| Net Income | $205.44M$265.89M | −22.7% |
| EPS (Basic) | $2.02$2.62 | −22.9% |
| EPS (Diluted) | $2.00$2.60 | −23.1% |
| Shares Outstanding (Basic) | 101.68M101.58M | +0.1% |
| Shares Outstanding (Diluted) | 102.61M102.36M | +0.2% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2010 even though net sales increased?
Net income fell to $205.4 million from $265.9 million because 2009 included $168.4 million of alternative fuel mixture credits in operating income. In 2010, the company reversed a portion of those credits out of operating income and recorded cellulosic biofuel credits in the income tax line, reducing income from operations to $185.4 million. Excluding tax credits and special items, net income increased to $166.3 million from $95.9 million.
What is the status of the Sherman Act lawsuit?
PCA and eight other U.S. and Canadian containerboard producers were named in consolidated class action litigation alleging a conspiracy to limit containerboard supply from August 2005 onward. The complaint seeks treble damages and attorney's fees. PCA believes the allegations are without merit and says the case is in preliminary stages, so it cannot predict the outcome or estimate a range of reasonably possible losses.
How is the company funding its energy optimization projects?
The company expects to spend about $295 million over two years on energy optimization projects at its Counce and Valdosta linerboard mills, with completion expected in the fourth quarter of 2011. As of December 31, 2010, it had $143.3 million of general capital commitments for 2011, including $109.2 million for these projects. PCA believes cash on hand and operating cash flow will be sufficient to fund these commitments, and it had $172.2 million of unused borrowing capacity under its credit facilities.
What dividend and share repurchase activity did the company report?
PCA declared $0.15 per share quarterly dividends in 2010, totaling $0.60 per share, the same as 2009. It repurchased 1,740,392 shares for $40.9 million during 2010 and had $24.1 million remaining under its $150.0 million repurchase authorization as of December 31, 2010. The company said it expects to continue paying regular cash dividends, without assurance as to timing or level.
06—Continue