01—Abstract
Summary
Summary of the 10-K filed February 21, 2012. Cited figures are marked; the original filing is the authoritative source.
Packaging Corporation of America (PCA) is the fourth largest producer of containerboard and corrugated products in the United States by production capacity.
In 2011 it produced 2.5 million tons of containerboard, with about 80% consumed in its own corrugated plants, and shipped about 32.5 billion square feet of corrugated products. Net sales were $2.62 billiona in 2011, up from $2.44 billion in 2010, and net income was $158.0 million ($1.57 per diluted share), down from $205.4 million in 2010. The 2010 result included $86.8 million of alternative energy tax credits recorded in income from operations and a tax benefit, so the company's results excluding special items were $161.8 million ($1.61 per diluted share) in 2011 versus $166.3 million ($1.62 per diluted share) in 2010, as reported in the filing's non-GAAP reconciliation.
Operating performance was driven by higher corrugated volumes (up 5.0%) and higher prices, offset by increased costs for transportation, chemicals, fiber and labor. Cash from operations was $345.5 millionb in 2011. PCA spent $280.2 million on property, plant and equipment additions and $57.3 million on corrugated acquisitions, and it repurchased $125.0 million of common stock while paying $76.0 million in dividends.
Total debt obligations rose to $830.3 millionc at year end, and the quarterly dividend was raised to $0.20 per share from $0.15. Key items for investors include a pending tax matter: PCA amended its 2009 tax return in February 2012, which is expected to produce a first-quarter 2012 non-cash, after-tax charge of $23 million. The company carries a $102.0 million reserve for uncertain tax positions tied to cellulosic biofuel credits, and the IRS is reviewing those credits.
Separately, PCA and eight other containerboard producers face a Sherman Act class action (Kleen Products) seeking treble damages, which the company says is without merit. PCA expects first-quarter 2012 earnings, excluding special items, to be approximately equal to fourth-quarter 2011 reported earnings of $0.40d per diluted share.
02—Key points
Key Highlights
- Net sales rose to $2,620.1 million in 2011 from $2,435.6 million in 2010, an increase of $184.5 million, or 7.6%, driven by higher volumes and prices.
- Net income was $158.0 million ($1.57 per diluted share) in 2011, compared with $205.4 million ($2.00 per diluted share) in 2010; excluding special items, net income was $161.8 million ($1.61 per diluted share) versus $166.3 million ($1.62 per diluted share).
- Corrugated products volume increased 5.0% to 32.5 billion square feet, and containerboard production reached a record 2,499,000 tons.
- Cash flow from operations was $345.5 million, and PCA spent $280.2 million on capital expenditures for property, plant and equipment.
- The company repurchased $125.0 million of common stock in 2011 and raised its quarterly dividend to $0.20 per share from $0.15 in 2010.
- Total debt obligations were $830.3 million at year end 2011, up from $680.6 million, after a new $150.0 million term loan and a $250.0 million revolving credit facility were put in place in October 2011.
- A February 2012 amendment to the 2009 tax return is expected to produce a first-quarter 2012 non-cash, after-tax charge of $23 million, and the IRS is reviewing cellulosic biofuel credits, with a $102.0 million reserve for uncertain tax positions on record.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Packaging Corp. of America kept $0.06.
- Revenue$2.62B100.0%
- Cost of revenue−$2.08B79.3%
- Gross profit$542.0M20.7%
- Operating costs−$269.3M10.3%
- Operating income$272.7M10.4%
- Interest, other & tax−$114.7M4.4%
- Net income$158.0M6.0%
Where FY2011 revenue went
$2.62B- Cost of revenue: $2.08B, 79% of revenue
- Net income: $158.0M, 6.0% of revenue
- R&D: $12.5M, 0.5% of revenue
- SG&A: $258.6M, 9.9% of revenue
- Interest, other & tax: $114.7M, 4.4% of revenue
Kept 6.0% as net incomeNet income $158.0M · 6.0%R&D $12.5M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 21, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.62B$2.44B | +7.6% |
| Cost of Revenue | $2.08B$1.90B | +9.2% |
| Gross Profit | $542.02M$532.20M | +1.8% |
| R&D Expenses | $12.50M$10.90M | +14.7% |
| SG&A Expenses | $258.55M$182.49M | +41.7% |
| Operating Income | $272.75M$185.38M | +47.1% |
| Net Income | $158.03M$205.44M | −23.1% |
| EPS (Basic) | $1.59$2.02 | −21.3% |
| EPS (Diluted) | $1.57$2.00 | −21.5% |
| Shares Outstanding (Basic) | 99.28M101.68M | −2.4% |
| Shares Outstanding (Diluted) | 100.38M102.61M | −2.2% |
05—Questions
Frequently Asked Questions
How did PCA's earnings change in 2011?
Net income fell to $158.0 million from $205.4 million in 2010, largely because 2010 included alternative energy tax credits. Excluding special items, net income was $161.8 million ($1.61 per diluted share) in 2011 compared with $166.3 million ($1.62 per diluted share) in 2010. Income from operations rose to $272.7 million from $185.4 million, mainly because 2010 was reduced by a reversal of alternative fuel mixture credits.
What is the main tax risk disclosed?
PCA's 2009 cellulosic biofuel producer credits are under IRS review. The company recorded a $102.0 million reserve for uncertain tax positions tied to the proprietary process at its Filer City mill. In February 2012 it amended its 2009 return to change the gallons claimed between two credits, which is expected to produce a first-quarter 2012 non-cash, after-tax charge of $23 million. As of December 31, 2011 it had as much as $167.5 million of tax credits available to offset future federal taxes.
What legal proceedings could affect the company?
PCA and eight other U.S. and Canadian containerboard producers are defendants in the Kleen Products class action, filed in the Northern District of Illinois. It alleges a Sherman Act conspiracy to limit containerboard supply and inflate prices from August 2005 onward, and seeks treble damages. PCA believes the allegations are without merit, but because the case is in early discovery, it cannot predict the outcome or estimate a range of possible losses.
What is the outlook for early 2012?
PCA expects corrugated shipments in the first quarter of 2012 to be higher, with four additional workdays compared with the fourth quarter of 2011, and expects a full quarter's earnings benefit from its major energy projects. It also expects normal cost increases, maintenance outages at the Counce and Valdosta mills, and a higher tax rate. The company expects first-quarter 2012 earnings, excluding special items, to be approximately equal to fourth-quarter 2011 reported earnings of $0.40 per diluted share.
How is PCA's liquidity and debt position?
At December 31, 2011 PCA had $326.7 million in unused borrowing capacity under its credit facilities, after $14.3 million of letters of credit. Its debt included a $150.0 million term loan due 2016, $109.0 million drawn on the receivables facility, $400.0 million of 5.75% senior notes due 2013 and $150.0 million of 6.50% senior notes due 2018. The company says it was in compliance with its debt covenants at year end, and its capital expenditure plan for 2012 is $40.4 million.
06—Continue