UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File
Number: 1-15157
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PACTIV CORPORATION
(Exact name of Registrant as
Specified in its Charter)
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Delaware
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36-2552989
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1900 West Field Court
Lake Forest, Illinois
(Address of principal executive offices)
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60045
(Zip Code)
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Registrants telephone number, including area code:
(847) 482-2000
Securities
registered pursuant to Section 12 (b) of the
Act:
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Name of each Exchange
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Title of each class
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on which registered
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Common Stock ($.01 par value) and associated Preferred
Stock Purchase Rights
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New York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes ü No
Indicate by check mark if the
registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes No ü
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.
Yes ü No
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes No
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer ü
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Accelerated filer
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Non-accelerated filer
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Smaller Reporting company
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the
registrant is a shell company (as defined by
Rule 12b-2
of the Exchange Act).
Yes No ü
State the aggregate market value of
the voting and non-voting common equity held by non-affiliates
of the registrant. The aggregate market value is computed by
reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of the last
business day of the registrants most recently completed
second fiscal quarter.
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Class of Voting Stock and Number of Shares
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Market Value of Common Stock held by
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Held by Non-Affiliates at June 30, 2009
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Non-Affiliates
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Common Stock 131,840,454 shares
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$2,860,937,852
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
REGISTRANTS CLASSES OF COMMON STOCK, AS OF THE LATEST
PRACTICABLE DATE. Common Stock ($.01 par value).
132,337,357 shares outstanding as of January 31, 2010.
(See Note 11 to the Financial Statements.)
Documents Incorporated by Reference:
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Part of the Form 10-K
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Document
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into which incorporated
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Pactiv Corporations Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held May 14, 2010
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Part III
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Overview
Pactiv Corporation is a leading producer of consumer and
foodservice/food packaging products. With one of the broadest
product lines in the specialty packaging industry, we derive
more than 80% of our sales from market sectors in which we hold
the No. 1 or No. 2 market share position. Our business
operates 43 manufacturing facilities in North America, and 1 in
Germany. We also have 2 joint-venture interests in China. In
2009, 96% of our $3.4 billion in sales was generated in
North America.
We have three reporting segments:
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Consumer Products manufactures disposable plastic, foam,
molded fiber, pressed paperboard, and aluminum packaging
products, and sells them to customers such as grocery stores,
mass merchandisers, and discount chains. Products include waste
bags, food storage bags, and disposable tableware and cookware.
We sell many of our consumer products under well-known
trademarks, such as
Hefty®.
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Foodservice/Food Packaging manufactures foam, clear
plastic, aluminum, pressed paperboard, and molded fiber
packaging products, and sells them to customers in the food
distribution channel, who prepare and process food for
consumption. Customers include foodservice distributors,
restaurants, other institutional foodservice outlets, food
processors, and grocery chains.
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Other includes corporate and administrative service
operations and retiree benefit income and expense.
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On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operates
one manufacturing facility in North Carolina. The results of
this business have been included in the consolidated financial
statements as of that date.
Our company was incorporated in the state of Delaware in 1965
under the name of Packaging Corporation of America, operating as
a subsidiary of Tenneco Inc. (Tenneco). In November 1995, we
changed our name to Tenneco Packaging Inc. In November 1999, we
were spun-off from Tenneco as an independent company, and
changed our name to Pactiv Corporation.
In this report, we sometimes refer to Pactiv Corporation and its
subsidiaries as Pactiv or the company.
Products
and Markets
Consumer
Products
We manufacture, market, and sell consumer products such as
plastic storage bags for food and household items; plastic waste
bags; aluminum cookware; and foam, pressed paperboard, plastic,
and molded fiber tableware. These products are typically used by
consumers in their homes and are sold through a variety of
retailers, including supermarkets and mass merchandisers. Many
of these products are sold under such recognized brand names as:
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Hefty®
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Hefty®
Ultra
Flex®
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Hefty®
Hearty
Mealstm
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Hefty®
Baggies®
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Hefty®
Cinch
Sak®
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Hefty®
Elegantware®
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Kordite®
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Hefty®
The
Gripper®
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Hefty®
Zoo
Pals®
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Hefty®
OneZip®
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Hefty®
Kitchen
Fresh®
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Hefty®
Easy
Grip®
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Hefty®
Odor
Block®
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Hefty®
Renew®
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Hefty®
EZ
Foil®
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In 2009, Consumer Products accounted for 38% of our sales.
Foodservice/Food
Packaging
We are a leading provider of packaging products to the
foodservice, supermarket, restaurant, and food packaging
markets. Our products are designed to protect food during
distribution, aid retailers in merchandising food products, and
help customers prepare and serve meals in their homes.
1
In 2009, Foodservice/Food Packaging accounted for 62% of our
sales.
Foodservice customers use our products to merchandise and sell
food products on their premises and for takeout meals. Products
include tableware items, such as plates, bowls, and cups, and a
broad line of takeout service containers, made from clear
plastic, microwaveable plastic, foam, molded fiber, paperboard,
and aluminum.
Food packaging products for supermarkets include clear
rigid-display packaging for produce, delicatessen, and bakery
applications; microwaveable containers for prepared,
ready-to-eat meals; and foam trays for meat and produce. We also
manufacture plastic zipper closures for a variety of other
packaging applications.
Food processor products include dual-ovenable paperboard
containers, molded fiber egg cartons, meat and poultry trays,
and aluminum containers.
Business
Strategy
Our business strategy is to grow by expanding our existing
businesses and by making strategic acquisitions. Through our
broad product lines and custom-design capability, we offer
customers a range of products to fit their needs. As a result,
we are a primary supplier to several national retailers,
restaurant chains, and distributors, and have developed
long-term relationships with key participants in the packaging
and foodservice distribution markets. These relationships enable
us to better identify and penetrate new markets.
Market
Presence
Many of our products have strong market share positions,
including those in key markets such as zipper bags, tableware,
foam trays, foodservice foam containers, clear rigid-display
packaging, and aluminum cookware. In 2009, we derived more than
80% of our sales from market sectors in which we hold the
No. 1 or No. 2 market share position. This is a
reflection of the:
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Strength of our
Hefty®
brands
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Breadth of our product lines
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Ability to offer one-stop shopping to our customers
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Strength of our supply chain capabilities
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New
Products
Successful development of new products and value-added product
line extensions are essential to our continued growth. Our
acquisition of Prairie Packaging, Inc. (Prairie) has broadened
our product offering, particularly in the area of cups and
cutlery. We spent $33 million on research and development
activities in 2009, $32 million in 2008, and
$35 million in 2007.
Service
Capabilities
The Foodservice/Food Packaging segments one face to
the customer strategy continues to deliver positive
results. The systems and information management infrastructure
and distribution network supporting this customer-linked
manufacturing process help us to reduce supply chain costs,
enhance customer service, and improve productivity.
Productivity/Cost
Reduction
Our continued focus on productivity enhancements and
manufacturing and logistics cost reductions is key to improving
our profitability. In 2009, approximately 20% of our research
and development spending and 15% of our capital spending was
devoted to efforts to reduce costs and improve manufacturing and
distribution efficiency.
2
Strategic
Acquisitions
Strategic acquisitions have been an important element of our
growth strategy. Since the beginning of 2000, $1.3 billion
has been invested to acquire businesses that complement
and/or
expand our core businesses, including $1 billion in 2007
for Prairie. We focus on products that have strong growth
characteristics and attractive margins, which provide the
opportunity to leverage our existing distribution channels and
core capabilities.
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operates
one manufacturing facility in North Carolina.
Marketing,
Distribution, and Customers
We have a sales and marketing staff of approximately
500 people. Our consumer products are sold through a direct
sales force and a national network of brokers and
manufacturers representatives. We primarily use a direct
sales force to sell to our foodservice and food packaging
customers.
Wal-Mart Stores, Inc., which accounted for approximately 21% of
our consolidated sales in 2009 and in 2008, was the only
customer that accounted for more than 10% of our sales. Our
backlog of orders is not material.
Analysis
of Sales
The following table sets forth information regarding sales from
continuing operations.
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2009
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2008
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2007
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(In millions)
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Amount
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% Total
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Amount
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% Total
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Amount
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% Total
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Consumer Products
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$
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1,285
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38
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%
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$
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1,342
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38
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%
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$
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1,221
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38
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%
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Foodservice/Food Packaging
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2,075
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62
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2,225
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62
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2,032
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62
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Total
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$
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3,360
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100
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%
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$
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3,567
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100
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%
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$
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3,253
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100
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%
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See Note 14 to the financial statements for additional
segment and geographic information.
Competition
Our businesses face significant competition in all of our
product lines from numerous national and regional companies of
various sizes. Many of our competitors, particularly in the
foodservice industry, are significantly smaller and have lower
fixed costs. Certain competitors offer a more specialized
variety of packaging materials and concepts and may serve more
geographic regions through various distribution channels. Our
success in obtaining business is driven primarily by our price,
quality, product features, and service.
Raw
Materials
The principal raw materials we use are plastic resins, aluminum,
paperboard, and recycled paper. More than 80% of our sales were
from products made from different types of plastics, including
polystyrene, polyethylene, polypropylene, and amorphous
polyethylene terephthalate. These raw materials are readily
available from a wide variety of suppliers. Our overall supply
of raw materials was adequate in 2009, and we believe that our
raw material supply will remain adequate in 2010.
Environmental
Regulation
We are subject to a variety of environmental and pollution
control laws and regulations. Costs to continually monitor our
compliance with these laws and regulations are a recurring part
of our operations. These costs are not a significant percentage
of total operating costs. We do not expect continued compliance
to have a material impact on our results of operations,
financial condition, or cash flows.
3
Change in
Accounting Method
In 2009, we changed our method of accounting for inventory from
a combination of the
last-in,
first-out (LIFO) method and the
first-in,
first-out (FIFO) method to the FIFO method. All of our
businesses now use the FIFO method of accounting for inventory.
In accordance with Accounting Standards Codification (ASC)
250-10
Accounting Changes and Error Corrections, all prior
periods presented have been retrospectively adjusted to apply
the new method of accounting. The cumulative effect of the
change in accounting principle on periods prior to those
presented has been reflected as an adjustment to the opening
balance of retained earnings as of January 1, 2005. For a
summary of the effect of the retrospective adjustments resulting
from the change in accounting principle for inventory costs for
the years ended December 31, 2008, and 2007, see
Note 2 to the financial statements. For a summary of the
effect on the unaudited interim quarters of 2009, see
Note 16 to the financial statements.
Other
At December 31, 2009, we employed approximately
12,000 people, including persons employed by our Asian
joint ventures. Our relations with employees remain satisfactory.
We own a number of U.S. and foreign patents, trademarks,
and other intellectual property that are significant with regard
to the manufacture, marketing, and distribution of certain
products. We also use numerous software licenses. The
intellectual property and licensing rights we hold are adequate
for our business.
Available
Information
Our website address is www.pactiv.com. Our investor relations
link on this website has the following information available
free of charge:
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Annual reports on
Form 10-K
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Quarterly reports on
Form 10-Q
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Current reports on
Form 8-K
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Amendments to these reports
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Code of business conduct/ethics
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Code of ethical conduct for financial managers
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Certain other corporate governance documents
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Investor relations information is updated on our website as soon
as reasonably practical after we electronically file or furnish
information to the Securities and Exchange Commission. In
addition, copies of our annual report on
Form 10-K
are made available, free of charge, upon request.
General economic conditions affect demand for our products and
impact our production and selling costs. Listed below are some
of the factors that may impact our results and cause our
performance to differ materially from the results we may
project. These are in addition to general economic factors and
other items discussed elsewhere in this report (for example, in
the Managements Discussion and Analysis of Financial
Condition and Results of Operations).
Product
Changes and Innovation
We operate in a very competitive environment. Historically,
product innovation and development have been key to our
obtaining and maintaining market share and margins. Our future
sales and profitability are partially impacted by our ability to
anticipate and react more effectively than our competitors to
changes in consumer demand for the types of products we sell.
This requires understanding customer desires, creating products
that meet those desires, and producing and selling products in a
cost effective manner.
4
Changes
in Customers
We must address the demands of both the consumers who ultimately
purchase and use our products and the retailers and others who
sell our products to end-users. This is necessary for both of
our segments, but it is particularly important in our Consumer
Products segment. Our sales and margins can be impacted by
changes in our distribution channels, customer mix, and
merchandising strategies. Examples include customer
concentration, consolidation, and substitution of unbranded
products for branded products.
Although we have a diverse customer base, we have several large
customers. These large customers provide us with cost saving
opportunities that may not be available with smaller, more
diverse accounts. However, large customers can take actions that
put pressure on our margins. Moreover, a significant downturn in
the financial condition of one or more large customers could
have an adverse effect on our business results.
Increases
in Production Costs
Most of our products are made from plastic. Plastic resin prices
are impacted by the price of oil, natural gas, and chemical
intermediaries, such as benzene and ethylene, which can be
volatile and affected by many factors, including overall
economic activity, geopolitical situations (particularly in oil
exporting regions), natural disasters, and governmental policies
and regulation.
Our margins can be negatively impacted by the difference in
timing of raw material cost increases and corresponding product
selling price increases. Similarly, changes in labor, utility,
or transportation costs can affect our margins.
Laws
Relating to Use or Manufacture of Plastic Products
Changes in laws or governmental actions regarding the use of
disposable plastic products, such as laws relating to recycling
or reuse of plastic products, could increase the cost of our
products. Such additional costs could make our products less
competitive with products made from other materials. Similarly,
changes in laws regarding air emissions, including so-called cap
and trade legislation, could increase our manufacturing costs.
Growth/Acquisitions
and Divestitures
Growth, internally and through acquisitions, is an important
element of our business strategy. We currently have adequate
sources of liquidity for our operations. However, our ability to
grow could be impacted if our cost of capital were to increase
or if capital were to become more difficult to obtain. Our
future success will depend somewhat on our ability to integrate
new businesses that we may acquire, dispose of businesses or
business segments that we may wish to divest, and redeploy
proceeds from possible divestitures.
International
Issues
Currently most of our production and sales are in the United
States. Competition from products manufactured in countries that
have lower labor and other costs than the United States could
negatively impact our profitability. Additionally, if we were to
manufacture or sell more of our products in countries outside of
the United States, we would be exposed to additional economic,
political, competitive, and foreign currency exchange risks.
Pension
Plans
At the time of our spin-off from Tenneco in 1999, we became the
sponsor of Tenneco (now Pactiv) pension plans. These plans cover
most of our employees as well as individuals/beneficiaries from
many companies previously owned by Tenneco, but not owned by
Pactiv. As a result, while persons who are not current employees
do not accrue benefits under the plans, the total number of
individuals/beneficiaries covered by these plans is much larger
than would have been the case if only Pactiv personnel were
participants. For this reason, the impact of the pension plans
on our net income, shareholders equity and cash from
operations is
5
greater than is typically found at similarly sized companies.
Changes in the following factors can have a disproportionate
effect on our results compared with similarly sized companies:
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Assumptions regarding the long-term rate of return on pension
assets and other factors
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Interest rate used to discount projected benefit obligations
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Level of amortization of actuarial gains and losses
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Governmental regulations relating to funding of retirement plans
in the U.S. and foreign countries
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Financial market performance
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ITEM 1B.
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Unresolved
Staff Comments.
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None.
Headquarters
Our corporate headquarters is located at 1900 West Field
Court, Lake Forest, Illinois 60045. Our general telephone number
is
(847) 482-2000.
Manufacturing
and Distribution Facilities
Our Consumer Products and Foodservice/Food Packaging segments
operate 43 manufacturing and 9 distribution facilities in North
America (United States, Mexico, and Canada). We also have a
manufacturing facility in Germany that supports our
Foodservice/Food Packaging segment. In addition, we have
research and development centers in Canandaigua, New York, and
Vernon Hills, Illinois. We also have joint-venture interests in
a corrugated-converting operation in Shaoxing, China (62.5%
owned) and in a folding carton operation in Dongguan, China (51%
owned).
Our plants and equipment are well maintained and in good
operating condition. We have satisfactory title to our owned
properties, which are subject to certain liens that do not
detract materially from the value or use of the properties.
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ITEM 3.
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Legal
Proceedings.
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We are party to other legal proceedings arising from our
operations. We establish reserves for claims and proceedings
when it is probable that liabilities exist and where reasonable
estimates of such liabilities can be made. While it is not
possible to predict the outcome of any of these matters, based
on our assessment of the facts and circumstances now known, we
do not believe that any of these matters, individually or in the
aggregate, will have a material adverse effect on our financial
position. However, actual outcomes may be different from those
expected and could have a material effect on our results of
operations or cash flows in a particular period.
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ITEM 4.
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Submission
of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
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ITEM 4.1.
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Executive
Officers of the Registrant.
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Our executive officers, as of February 26, 2010, are listed
below. This information is being included in Part I of this
Form 10-K
pursuant to Instruction 3 to Item 401(b) of
Regulation S-K.
Richard L. Wambold, 58, Chairman of the Board of Directors,
President, and Chief Executive Officer.
Mr. Wambold has served as Chairman since March 2000,
President since June 1999, and Chief Executive Officer since our
spin-off in November 1999. Prior to 1999, Mr. Wambold
served as Executive Vice President and General Manager of our
foodservice/food packaging and consumer products business units.
6
Edward T. Walters, 58, Senior Vice President and Chief
Financial Officer.
Mr. Walters has served as Senior Vice President and
Chief Financial Officer since July 2008. Prior to that date, he
served as vice president and controller since 1999.
Mr. Walters has been with Pactiv and predecessor companies
since 1975 in various financial, planning and general management
positions.
Joseph E. Doyle, 50, Vice President, General Counsel, and
Secretary.
Mr. Doyle was appointed Vice President, General
Counsel, and Secretary of the company on February 1, 2007.
Prior to joining the company, he was a partner at the law firm
of Mayer Brown LLP from 2001 to 2007.
Peter J. Lazaredes, 59, Executive Vice President and General
Manager, Foodservice/Food Packaging.
Mr. Lazaredes has served as Executive Vice President and
General Manager, Foodservice/Food Packaging, since July 2004.
Prior to 2004, and since he joined the company in 1996,
Mr. Lazaredes held various senior management positions in
the companys foodservice/food packaging business unit.
John N. Schwab, 60, Senior Vice President and General
Manager,
Hefty®
Consumer Products.
Mr. Schwab has served as Senior Vice President and
General Manager,
Hefty®
Consumer Products, since January 2001. Prior to 2001, and since
he joined the company in 1995, Mr. Schwab held various
senior management positions in the companys consumer
products business unit.
Michael O. Oliver, 56, Vice President and Chief Human
Resources Officer.
Mr. Oliver has served as Vice President and Chief Human
Resources Officer since May 2008. Prior to joining the company,
Mr. Oliver served as Senior Vice President, Human
Resources, for Brady Corporation from February 1997 to April
2008.
7
PART II
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ITEM 5.
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Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity
Securities.
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The outstanding shares of Pactiv Corporation common stock
($0.01 par value) are listed on the New York Stock Exchange
under the symbol PTV. Stock price and dividend
information for 2009 and 2008 are shown below.
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2009
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2008
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Price/share
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Dividends
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Price/share
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Dividends
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High
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Low
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paid
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High
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Low
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paid
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First quarter
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$
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25.31
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$
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10.62
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$
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$
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29.52
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$
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23.00
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$
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Second quarter
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23.52
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14.01
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27.34
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20.82
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Third quarter
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26.81
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20.04
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28.49
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|
|
18.98
|
|
|
|
|
|
Fourth quarter
|
|
|
27.71
|
|
|
|
22.27
|
|
|
|
|
|
|
|
26.95
|
|
|
|
20.44
|
|
|
|
|
|
At January 31, 2010, there were approximately 28,726
holders of record of the companys common stock, including
brokers and other nominees.
We periodically consider alternatives to increase shareholder
value, including dividend payments. Dividend declarations are at
the discretion of our board of directors. We currently do not
pay a dividend.
In July 2006, the board of directors approved the repurchase of
10 million shares of our common stock. As of
December 31, 2009, the remaining number of shares
authorized to be repurchased was 522,361. We repurchase shares
using open market or privately negotiated transactions.
Repurchased shares are held in treasury for general corporate
purposes. There is no expiration date for the current share
repurchase authorization. We did not repurchase stock in the
fourth quarter of 2009.
8
The following graph compares, for the five years ended
December 31, 2009, the cumulative total return for the
companys common stock with the cumulative total return for
the Standard & Poors (S&P)
500®
stock index and a custom composite index. The latter index is
comprised of the following companies: Aptar Group Inc., Bemis
Co., Crown Holdings, Inc., Sealed Air Corp., and Sonoco Products
Co. These companies were selected in good faith based on their
similarity with the companys business. The historical
performance of the companys stock shown in this graph is
not necessarily indicative of future performance.
Cumulative
Total Return
Based on an assumed initial investment of $100 on
December 31, 2004
with dividends reinvested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Pactiv Corp.
|
|
$
|
100
|
|
|
$
|
87
|
|
|
$
|
141
|
|
|
$
|
105
|
|
|
$
|
98
|
|
|
$
|
95
|
|
S&P
500®
Index
|
|
$
|
100
|
|
|
$
|
105
|
|
|
$
|
121
|
|
|
$
|
128
|
|
|
$
|
81
|
|
|
$
|
102
|
|
Custom Composite Index (5 stocks)
|
|
$
|
100
|
|
|
$
|
108
|
|
|
$
|
129
|
|
|
$
|
123
|
|
|
$
|
95
|
|
|
$
|
123
|
|
9
|
|
ITEM 6.
|
Selected
Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
2006 (1)
|
|
|
2005 (1)
|
|
|
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
1,285
|
|
|
$
|
1,342
|
|
|
$
|
1,221
|
|
|
$
|
1,085
|
|
|
$
|
989
|
|
Foodservice/Food Packaging
|
|
|
2,075
|
|
|
|
2,225
|
|
|
|
2,032
|
|
|
|
1,832
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,360
|
|
|
|
3,567
|
|
|
|
3,253
|
|
|
|
2,917
|
|
|
|
2,756
|
|
Income from continuing operations attributable to Pactiv, net of
income tax (2)
|
|
|
308
|
|
|
|
220
|
|
|
|
243
|
|
|
|
278
|
|
|
|
145
|
|
Discontinued operations, net of tax
|
|
|
15
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Pactiv
|
|
$
|
323
|
|
|
$
|
216
|
|
|
$
|
244
|
|
|
$
|
275
|
|
|
$
|
56
|
|
Weighted average number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
133.471
|
|
|
|
132.473
|
|
|
|
132.870
|
|
|
|
139.704
|
|
|
|
148.849
|
|
Earnings (loss) per share attributable to Pactiv common
shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations (3)
|
|
$
|
2.31
|
|
|
$
|
1.66
|
|
|
$
|
1.83
|
|
|
$
|
1.99
|
|
|
$
|
0.97
|
|
Discontinued operations
|
|
|
0.11
|
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
|
|
(0.02
|
)
|
|
|
(0.60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.42
|
|
|
$
|
1.63
|
|
|
$
|
1.84
|
|
|
$
|
1.97
|
|
|
$
|
0.37
|
|
Statement of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,574
|
|
|
$
|
3,761
|
|
|
$
|
3,798
|
|
|
$
|
2,792
|
|
|
$
|
2,854
|
|
Short-term debt, including current maturities of long-term debt
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
3
|
|
Long-term debt
|
|
|
1,270
|
|
|
|
1,345
|
|
|
|
1,574
|
|
|
|
771
|
|
|
|
869
|
|
Pactiv shareholders equity
|
|
|
985
|
|
|
|
671
|
|
|
|
1,257
|
|
|
|
887
|
|
|
|
854
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
161
|
|
|
$
|
350
|
|
|
$
|
437
|
|
|
$
|
372
|
|
|
$
|
266
|
|
Cash provided (used) by investing activities
|
|
|
(129
|
)
|
|
|
(137
|
)
|
|
|
(1,164
|
)
|
|
|
(75
|
)
|
|
|
283
|
|
Cash provided (used) by financing activities
|
|
|
(66
|
)
|
|
|
(226
|
)
|
|
|
638
|
|
|
|
(294
|
)
|
|
|
(595
|
)
|
Pension contributions (4)
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant, and equipment
|
|
|
111
|
|
|
|
136
|
|
|
|
151
|
|
|
|
78
|
|
|
|
143
|
|
Other
Information:
The company has never paid a dividend.
|
|
|
(1)
|
|
2008 through 2005 have been
adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements.
|
|
(2)
|
|
Includes restructuring and other
charges (credits) of $16 million in 2008, ($1) million
in 2006, and $6 million in 2005, as well as a realized
foreign currency exchange gain of $31 million in 2006.
|
|
(3)
|
|
2006 includes $0.14 per share for a
realized foreign currency exchange gain and $0.21 for income tax
liability adjustments.
|
|
(4)
|
|
In 2009, pension contributions were
$411 million net of income tax.
|
See Note 5 to the financial statements for discontinued
operations.
10
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Basis of
Presentation
Financial statements for all periods presented in this report
were prepared on a consolidated basis in accordance with
generally accepted accounting principles consistently applied.
All per share information is presented on a diluted basis unless
otherwise noted. Certain reclassifications have been made to the
prior years financial information to conform to current year
presentation.
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operates
one manufacturing facility in North Carolina. The results of
this business have been included in the consolidated financial
statements as of that date.
We acquired 100% of the stock of Prairie Packaging, Inc.
(Prairie) on June 5, 2007. The results of Prairies
operations have been included in the consolidated financial
statements as of that date.
In January 2007, we purchased an additional 1% interest in a
folding carton operation in Dongguan, China. This brought our
interest to 51%, requiring us to include the joint venture in
our consolidated financial statements.
On October 12, 2005, we sold substantially all of our
protective and flexible packaging businesses. The results of the
sold businesses, as well as costs and charges associated with
the transaction, are classified as discontinued operations.
We have three reporting segments:
|
|
|
|
|
Consumer Products manufactures disposable plastic, foam,
molded fiber, pressed paperboard, and aluminum packaging
products, and sells them to customers such as grocery stores,
mass merchandisers, and discount chains. Products include waste
bags, food storage bags, and disposable tableware and cookware.
We sell many of our consumer products under well-known
trademarks, such as
Hefty®.
|
|
|
|
Foodservice/Food Packaging manufactures foam, clear
plastic, aluminum, pressed paperboard, and molded fiber
packaging products, and sells them to customers in the food
distribution channel, who prepare and process food for
consumption. Customers include foodservice distributors,
restaurants, other institutional foodservice outlets, food
processors, and grocery chains.
|
|
|
|
Other includes corporate and administrative service
operations and retiree benefit income and expense.
|
The accounting policies of the reporting segments are the same
as those for Pactiv as a whole. Where discrete financial
information is not available by segment, reasonable allocations
of income, expenses, assets, and liabilities are used.
In 2009, we changed our method of accounting for inventory from
a combination of the
last-in,
first-out (LIFO) method and the
first-in,
first-out (FIFO) method to the FIFO method. In accordance with
Accounting Standards Codification (ASC)
250-10
Accounting Changes and Error Corrections, all prior
periods presented have been retrospectively adjusted to apply
the new method of accounting. For more information on the change
in inventory accounting method, see the Inventory
Valuation section and Note 2 to the financial
statements. As a result of the accounting change, the
discussions included in Item 7 reflect our results adjusted
for the accounting change.
Subsequent
Events
In February 2010, the board of directors approved an Agreement
and Plan of Merger with PWP Holdings, Inc. whereby Pactiv will
acquire PWP Holdings and PWP Industries for $200 million.
This transaction is expected to close in the late first quarter
or early second quarter of 2010. PWP Industries manufactures and
sells amorphous polyethylene terephthalate (APET) products in
the food service market.
11
In February 2010, the board of directors also approved the
repurchase of an additional 10 million shares of our common
stock. This amount is in addition to the remaining
522,361 shares authorized to be repurchased as of
December 31, 2009.
We have evaluated subsequent events through the filing date of
this Form 10-K, and have determined that there were no
other subsequent events to recognize or disclose in these
financial statements.
Executive
Overview
Business
Our primary business involves the manufacture and sale of
consumer and specialty packaging products for the consumer and
foodservice/food packaging markets. We operate 46 manufacturing
facilities in 5 countries.
We sell our products to a wide array of customers worldwide.
Customers include grocery stores, mass merchandisers, discount
chains, restaurants, distributors, and packer processors, who
prepare and process food for consumption.
Greater than 80% of our sales come from products made from
different types of plastic resins, principally polystyrene and
polyethylene, and, to a lesser extent, polypropylene and
amorphous polyethylene terephthalate.
Consumer products include waste bags, food storage bags
and disposable tableware and cookware. These products, made from
various raw materials including plastic, aluminum, and paper,
are sold under such well-known brand names as
Hefty®,
Hefty®
Baggies®,
Hefty®
OneZip®,
Hefty®
Cinch
Sak®,
Hefty®
The
Gripper®,
Hefty®
Zoo
Pals®,
Kordite®,
Hefty®
Odor
Block®,
and
Hefty®
EZ
Foil®.
Foodservice and food packaging products include foam,
clear plastic, aluminum, pressed paperboard, and molded fiber
packaging for customers in the food distribution channel.
Significant
Trends, Opportunities, and Challenges
Risks
Several opportunities and challenges may influence our continued
growth.
Near-term risks include:
|
|
|
|
|
The impact of raw material cost volatility
|
|
|
The ability to maintain or increase selling prices
|
|
|
The continued effectiveness of our productivity and procurement
initiatives
|
|
|
Economic and financial market conditions
|
Longer-term risks include:
|
|
|
|
|
Potential changes in consumer demand or governmental regulations
|
|
|
Possible supplier and customer consolidations
|
|
|
Potential increases in foreign-based competition
|
|
|
Possible growth in market share of unbranded products
|
We expect to continue to be successful by:
|
|
|
|
|
Adjusting selling prices to offset raw material price movements
|
|
|
Implementing aggressive cost management and productivity programs
|
|
|
Leveraging our existing products into new distribution channels
|
|
|
Introducing innovative new products
|
|
|
Making strategic acquisitions
|
|
|
Growing our business by following, where appropriate, our dual
brand/private label strategy
|
12
Raw
Materials and Energy-Related Costs
The primary raw materials used to manufacture our products are
plastic resins, principally polystyrene and polyethylene.
Average industry prices for polystyrene and polyethylene as
published by Chemical Market Associates, Inc. are depicted in
the following graphs.
|
|
|
Polystyrene (cents/lb.)
|
|
Polyethylene (cents/lb.)
|
|
|
|
|
|
|
The prices of plastic resins are affected by the prices of crude
oil and natural gas, as well as supply and demand factors of
various intermediate petrochemicals. In recent years, there have
been significant movements in resin prices, which rose to
historic highs in 2008, and dropped precipitously at the end of
2008 and into early 2009. At the end of 2009, prices were
increasing but still were moderately lower than at the end of
2008. We have historically adjusted our selling prices to
reflect changes in raw material costs, although there is usually
a lag of several months. Some of our business is pursuant to
contracts that have price indices that automatically adjust
after a set number of months, usually three or six, to reflect
changes in certain raw materials.
Our business is sensitive to other energy-related cost
movements, particularly those that affect transportation and
utility costs. Historically, we have been able to mitigate the
effect of higher energy-related costs with productivity
improvements and other cost reductions. As energy costs have
declined, we have seen a favorable impact on our margins.
However, the extent and duration of energy-related cost
reductions is uncertain.
Demand
The economic downturn that began in late 2007 has impacted
consumer spending in many areas and has reduced demand for some
of our products. However, our overall volume has not been
adversely impacted by the economic downturn.
Productivity
Improvements
In 2006, we began to introduce lean principles and
tools in many of our operating facilities. We are expanding the
use of lean principles to help us accelerate productivity
improvements by reducing inventory and scrap levels, providing
rapid stock replenishment, shortening scheduling cycles,
improving our one-stop shopping service, eliminating
nonvalue-added activities, and streamlining processes. As this
is a long-term process, we expect our ability to use these tools
throughout the organization will have a positive effect on our
operating results in future years.
Pension
Worldwide stock markets declined significantly in 2008 and, as a
result, our U.S. pension plan was substantially underfunded
by approximately $1.1 billion at December 31, 2008. By
the end of 2009, our U.S. pension plan underfunding was
reduced by approximately one half due to a combination of
$550 million of pension contributions, funded completely by
cash flow from operations, and a 26% return earned during 2009
on pension plan assets. See the Liquidity and
Shareholders Equity sections for further
discussion of the impact on the company of its pension plan
funding status.
13
We believe that cash flow from operations, available cash
reserves, and the ability to obtain cash under our credit
facility and asset securitization program will be sufficient to
meet current and future potential pension funding, liquidity,
and capital requirements.
Restructuring
In 2008, we implemented a cost reduction program that included
the consolidation of two small facilities, asset
rationalizations, and headcount reductions. In 2008, we recorded
a charge of approximately $10 million after tax, or $0.08
per share. Cash payments related to restructuring and other
charges were $2 million for the year ended
December 31, 2008. Cash payments related to restructuring
and other were $1 million pretax for the year ended
December 31, 2009. The program is essentially complete with
the exception of a small idle plant held for sale.
Results
of Continuing Operations
Year
2009 compared with 2008
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
1,285
|
|
|
$
|
1,342
|
|
|
$
|
(57
|
)
|
|
|
(4.2
|
)%
|
Foodservice/Food Packaging
|
|
|
2,075
|
|
|
|
2,225
|
|
|
|
(150
|
)
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,360
|
|
|
$
|
3,567
|
|
|
$
|
(207
|
)
|
|
|
(5.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales declined 6%, reflecting lower pricing of 8% and
unfavorable foreign exchange of 1%, offset partially by volume
growth of 3%.
Sales for Consumer Products decreased 4%, reflecting lower
pricing of 6%, offset partially by higher volume of 2%. The
price decline reflects normal reductions due to lower raw
material costs. Volume growth was a result of increases in
tableware, partially offset by a decline in waste bags. Waste
bag volume was down due to a decline in the overall waste bag
market.
Foodservice/Food Packaging sales fell 7%, driven by lower
average selling prices of 9% and unfavorable foreign exchange of
1%, offset partially by volume growth of 3%. The lower pricing
was related to decreases in raw material costs. The volume
increase primarily was related to continued growth in cups and
cutlery.
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
297
|
|
|
$
|
207
|
|
|
$
|
90
|
|
|
|
43.5
|
%
|
Foodservice/Food Packaging
|
|
|
300
|
|
|
|
234
|
|
|
|
66
|
|
|
|
28.2
|
|
Other
|
|
|
(18
|
)
|
|
|
3
|
|
|
|
(21
|
)
|
|
|
(700.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
579
|
|
|
$
|
444
|
|
|
$
|
135
|
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
Operating income increased primarily as a result of lower
operating costs of $63 million driven by productivity and
lower freight and utility rates, an $87 million improvement
in spread (the difference between selling prices and raw
material costs), higher volume of $42 million and lower
restructuring costs of $16 million. This was offset, in
part, by higher selling, general, and administrative (SG&A)
expense of $68 million. The increase in SG&A expense
was primarily a result of higher incentive compensation
accruals, increased advertising expense, and lower pension
income.
14
The following table shows the impact of restructuring and other
charges on 2008 operating income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income - twelve months ended December 31, 2008
|
|
|
|
GAAP
|
|
|
Restructuring and
|
|
|
Excluding restructuring
|
|
(In millions)
|
|
basis (1)
|
|
|
other
|
|
|
and other
|
|
|
Consumer Products
|
|
$
|
207
|
|
|
$
|
5
|
|
|
$
|
212
|
|
Foodservice/Food Packaging
|
|
|
234
|
|
|
|
10
|
|
|
|
244
|
|
Other
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
444
|
|
|
$
|
16
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
We believe that focusing on operating income excluding the
effect of restructuring and other charges is a meaningful
alternative way of evaluating our operating results. The
restructuring and other charges relate to actions that will have
an ongoing effect on our company. Considering such charges as
being only applicable to the periods in which they are
recognized could make our operating performance in those periods
more difficult to evaluate relative to other periods in which
there are no such charges. We use operating income excluding
restructuring and other charges to evaluate operating
performance and, along with other factors, in determining
management compensation.
The following table shows operating income excluding
restructuring and other charges for 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
297
|
|
|
$
|
212
|
|
|
$
|
85
|
|
|
|
40.1
|
%
|
Foodservice/Food Packaging
|
|
|
300
|
|
|
|
244
|
|
|
|
56
|
|
|
|
23.0
|
|
Other
|
|
|
(18
|
)
|
|
|
4
|
|
|
|
(22
|
)
|
|
|
(550.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
579
|
|
|
$
|
460
|
|
|
$
|
119
|
|
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The increase in operating income for Consumer Products was
driven mainly by favorable spread of $71 million, lower
operating costs of $37 million, offset partially by higher
SG&A expense of $33 million. The increase in SG&A
expense primarily was due to higher advertising expense in
support our
Hefty®
Odor
Block®
unscented odor control waste bags which launched at the end of
2008.
Higher operating income for Foodservice/Food Packaging was
driven primarily by increased volume of $33 million and
lower operating costs of $27 million, partially offset by
higher SG&A expense of $14 million.
The decrease in Other operating income was due mainly to lower
pension income, higher incentive compensation accruals, and
higher legal and insurance costs.
Income
Taxes
Our effective tax rate for 2009 was 36.4%, compared with 35.1%
for 2008.
Income
from Continuing Operations attributable to Pactiv
We recorded income from continuing operations of
$308 million, or $2.31 per share, compared with
$220 million, or $1.66 per share, in 2008. The change was
driven primarily by higher operating income of $84 million
(including lower restructuring of $10 million after tax) as
described previously.
15
Discontinued
Operations
Income
(Loss) from Discontinued Operations
In 2009, we recorded income from discontinued operations of
$15 million, which was primarily related to the expiration
of the statute of limitations on the 2005 tax year for tax
liabilities which had been recorded in conjunction with divested
businesses. In 2008, we recorded expense from discontinued
operations of $4 million, which was attributed to taxes
associated with business dispositions which occurred in prior
years.
Liabilities related to discontinued operations, which included
obligations related to income taxes and certain royalty payments
were as follows:
|
|
|
|
|
|
|
|
|
At December 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
11
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total liabilities related to discontinued operations
|
|
$
|
11
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
Capitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
At December 31 (In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
(decrease)
|
|
|
Short-term debt, including current maturities of long-term
debt (2)
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
5
|
|
Long-term debt
|
|
|
1,270
|
|
|
|
1,345
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,275
|
|
|
|
1,345
|
|
|
|
(70
|
)
|
Noncontrolling interest
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
Pactiv shareholders equity
|
|
|
985
|
|
|
|
671
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,276
|
|
|
$
|
2,032
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of total debt to total capitalization
|
|
|
56.0
|
%
|
|
|
66.2
|
%
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
|
(2) |
|
Short-term debt payable in December 2010. |
Total equity increased $314 million in 2009 as detailed
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pactiv
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
Noncontrolling
|
|
|
|
|
(In millions)
|
|
equity
|
|
|
interest
|
|
|
Total
|
|
|
Total equity at December 31, 2008 (1)
|
|
$
|
671
|
|
|
$
|
16
|
|
|
$
|
687
|
|
Increase (decrease) in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit liability adjustments
|
|
|
(40
|
)
|
|
|
|
|
|
|
(40
|
)
|
Foreign currency translation adjustments
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Gain (loss) on derivatives
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Net income
|
|
|
323
|
|
|
|
1
|
|
|
|
324
|
|
Stock-based compensation and common stock issued in connection
with stock option exercises
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Dividends paid to noncontrolling interest
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity at December 31, 2009
|
|
$
|
985
|
|
|
$
|
16
|
|
|
$
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
16
Cash
Flows
Cash flows for continuing and discontinued operations were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
(decrease)
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
in cash flow
|
|
|
Cash provided (used) by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
161
|
|
|
$
|
350
|
|
|
$
|
(189
|
)
|
Investing activities
|
|
|
(129
|
)
|
|
|
(137
|
)
|
|
|
8
|
|
Financing activities
|
|
|
(66
|
)
|
|
|
(226
|
)
|
|
|
160
|
|
The decrease in cash provided by operating activities was driven
primarily by a $550 million pretax contribution to our
U.S. pension plan, reduced by related favorable cash tax
effects of approximately $139 million. This was offset
partially by favorable working capital of $156 million and
higher income from continuing operations of $88 million.
The change in working capital was due to the favorable effect of
lower raw material costs in 2009 compared to 2008 as well as
higher incentive compensation liabilities.
The decrease in cash used by investing activities was driven by
lower capital expenditures of $25 million, partially offset
by the acquisition of the WinCup polypropylene cup business for
$20 million.
The decrease in cash used by financing activities was a result
of long-term revolving debt repayments of $160 million in
2008.
Capital
Commitments
Commitments for authorized capital expenditures totaled
approximately $61 million at December 31, 2009. It is
anticipated that the majority of these expenditures will be
funded over the next 12 months from existing cash and
short-term investments and internally generated cash.
Contractual
Obligations
We enter into arrangements that obligate us to make future
payments under long-term contracts. Our long-term contractual
obligations at December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in
|
|
|
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
More than
|
|
(In millions)
|
|
Total
|
|
|
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
Long-term debt obligations (1)
|
|
$
|
2,275
|
|
|
$
|
99
|
|
|
$
|
431
|
|
|
$
|
158
|
|
|
$
|
1,587
|
|
Operating lease obligations
|
|
|
137
|
|
|
|
30
|
|
|
|
43
|
|
|
|
24
|
|
|
|
40
|
|
Purchase obligations (2)
|
|
|
408
|
|
|
|
275
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities (3)
|
|
|
158
|
|
|
|
20
|
|
|
|
30
|
|
|
|
44
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,978
|
|
|
$
|
424
|
|
|
$
|
637
|
|
|
$
|
226
|
|
|
$
|
1,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes fixed rate notes, plus related interest payment
obligations, based on rates in effect at December 31, 2009. |
|
(2) |
|
Includes open capital commitments, amounts related to the
purchase of minimum quantities of raw materials at current
market prices under supply agreements and other long-term vendor
agreements with specific payment provisions and early
termination penalties. |
|
(3) |
|
Includes undiscounted workers compensation obligations,
and undiscounted and unfunded postretirement medical and
supplemental pension funding requirements. |
Liquidity
and Off-Balance Sheet Financing
We use various sources of funding to manage liquidity. Sources
of liquidity include cash flow from operations and a
5-year
revolving credit facility of $750 million, under which no
balance was outstanding at December 31,
17
2009. We were in full compliance with the financial and other
covenants of our revolving credit agreement at the end of the
period. The two financial covenant ratios contained in our debt
agreements are an interest coverage ratio and the total debt to
EBITDA ratio. The interest coverage ratio is defined as
consolidated earnings before interest, taxes, depreciation and
amortization, and other unusual noncash items (EBITDA) divided
by interest expense. The minimum required ratio is 3.50 to 1.
The total debt to EBITDA ratio is calculated by dividing the
total debt by EBITDA. The maximum permitted total debt to EBITDA
ratio is 3.50 to 1.
The interest coverage ratio and the debt to EBITDA ratio are
shown in the following table.
|
|
|
|
|
|
|
Twelve months ended
|
|
(In millions)
|
|
December 31, 2009
|
|
|
Net income attributable to Pactiv (1)
|
|
$
|
323
|
|
Adjustments:
|
|
|
|
|
Noncash restructuring and other (2)
|
|
|
(1
|
)
|
Discontinued operations, net of tax (l)
|
|
|
(15
|
)
|
Interest expense, net of interest capitalized (1)
|
|
|
94
|
|
Income tax expense (1)
|
|
|
177
|
|
Depreciation and amortization (1)
|
|
|
184
|
|
Noncontrolling interest (1)
|
|
|
1
|
|
|
|
|
|
|
EBITDA
|
|
$
|
763
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
763
|
|
Interest expense, net of interest capitalized (1)
|
|
|
94
|
|
|
|
|
|
|
Interest coverage ratio
|
|
|
8.12
|
|
|
|
|
|
|
|
|
|
|
|
Total debt (3)
|
|
$
|
1,275
|
|
EBITDA
|
|
|
763
|
|
|
|
|
|
|
Total debt to EBITDA ratio
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts per the consolidated statement of income. |
|
(2) |
|
Amounts per the consolidated statement of cash flows. |
|
(3) |
|
Amounts per the consolidated statement of financial position. |
There have been no stated events of default, which would permit
the lenders to accelerate the debt if not cured within
applicable grace periods, or any cross default provisions in our
debt agreements.
We also use an asset securitization facility as a form of
off-balance-sheet financing. At December 31, 2009,
$110 million was securitized under this facility, and
$130 million was securitized at December 31, 2008. We
do not participate in financial commercial paper markets.
We have a U.S. qualified pension plan that covers
approximately 7,000 of our employees, as well as approximately
65,000 others, mostly retirees and persons who worked for
predecessor companies that were part of Tenneco. The requirement
to make contributions to this plan is a function of several
factors, the most important of which are the return on plan
assets and applicable funding discount rate used in calculating
plan liabilities. We were not required to make a contribution to
this plan in 2009, however, we elected to make contributions in
2009 of $550 million pretax. The related cash tax benefits
of the contributions are $193 million, of which
$139 million was realized in 2009 and $54 million will
carry over into 2010.
In 2009, the plan assets earned approximately 26% and as of
December 31, 2009, the Employee Retirement Income Security
Act (ERISA) funding discount rate was 6.6% based on the
24-month
average as of September 2009.
As of December 31, 2009, our U.S. pension plan was 94%
funded on an ERISA basis, which determines the minimum funding
requirements for the plan. As long as our funded ratio is above
60%, there is no meaningful
18
impact on us or the plan. We do not expect to make additional
sizeable contributions to the plan for the foreseeable future.
We believe that cash flow from operations, available cash
reserves, and the ability to obtain cash under our credit
facility and asset securitization program will be sufficient to
meet current and future potential pension funding, liquidity,
and capital requirements.
Year
2008 compared with 2007
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
1,342
|
|
|
$
|
1,221
|
|
|
$
|
121
|
|
|
|
9.9
|
%
|
Foodservice/Food Packaging
|
|
|
2,225
|
|
|
|
2,032
|
|
|
|
193
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,567
|
|
|
$
|
3,253
|
|
|
$
|
314
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales grew 10%, reflecting 6% volume growth primarily from the
inclusion of acquisition sales, an increase in net pricing of
$124 million, and foreign currency exchange gains of
$6 million.
The 10% increase in sales for Consumer Products reflected volume
improvement of 7% primarily from the inclusion of acquisition
sales, and an increase in net pricing of $33 million.
Sales growth of 10% for Foodservice/Food Packaging was
attributable to a volume gain of 5% principally a result of the
inclusion of acquisition sales, favorable pricing of
$91 million, and foreign currency exchange gains of
$6 million.
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
207
|
|
|
$
|
226
|
|
|
$
|
(19
|
)
|
|
|
(8.4
|
)%
|
Foodservice/Food Packaging
|
|
|
234
|
|
|
|
245
|
|
|
|
(11
|
)
|
|
|
(4.5
|
)
|
Other
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
250.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
444
|
|
|
$
|
469
|
|
|
$
|
(25
|
)
|
|
|
(5.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
Operating income declined as favorable volume of
$36 million and lower advertising and promotional
(A&P) costs of $5 million were more than offset by
higher operating costs of $29 million, restructuring
charges of $16 million, acquisition-related depreciation
and amortization of $16 million, and unfavorable spread of
$6 million. The higher operating costs were driven
primarily by the impact of higher utility and freight costs.
The following table shows the impact of restructuring and other
charges on 2008 operating income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income - twelve months ended December 31, 2008
|
|
|
|
GAAP
|
|
|
Restructuring and
|
|
|
Excluding restructuring
|
|
(In millions)
|
|
basis (1)
|
|
|
other
|
|
|
and other
|
|
|
Consumer Products
|
|
$
|
207
|
|
|
$
|
5
|
|
|
$
|
212
|
|
Foodservice/Food Packaging
|
|
|
234
|
|
|
|
10
|
|
|
|
244
|
|
Other
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
444
|
|
|
$
|
16
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
19
We believe that focusing on operating income excluding the
effect of restructuring and other charges is a meaningful
alternative way of evaluating our operating results. The
restructuring and other charges relate to actions that will have
an ongoing effect on our company. Considering such charges as
being only applicable to the periods in which they are
recognized could make our operating performance in those periods
more difficult to evaluate relative to other periods in which
there are no such charges. We use operating income excluding
restructuring and other charges to evaluate operating
performance and, along with other factors, in determining
management compensation.
The following table shows operating income excluding
restructuring and other charges for 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
(In millions)
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Amount
|
|
|
Percent
|
|
|
Consumer Products
|
|
$
|
212
|
|
|
$
|
226
|
|
|
$
|
(14
|
)
|
|
|
(6.2
|
)%
|
Foodservice/Food Packaging
|
|
|
244
|
|
|
|
245
|
|
|
|
(1
|
)
|
|
|
(0.4
|
)
|
Other
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
300.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
460
|
|
|
$
|
469
|
|
|
$
|
(9
|
)
|
|
|
(1.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The decline in operating income for the Consumer Products
business was driven principally by unfavorable spread of
$27 million and higher operating costs of $6 million,
offset partially by higher volume of $13 million and lower
A&P costs of $5 million.
Operating income for the Foodservice/Food Packaging business was
essentially flat, reflecting higher volume of $23 million
and favorable spread of $21 million, offset by higher
operating costs of $23 million, acquisition-related
depreciation and amortization of $15 million, higher
SG&A expense of $3 million, and unfavorable foreign
currency exchange of $2 million. The increase in operating
costs was driven primarily by higher utility and freight costs.
The increase in operating income for the Other segment primarily
reflects lower legal-related expenses.
Income
Taxes
Our effective tax rate for 2008 was 35.1%, compared with 35.5%
for 2007.
Income
from Continuing Operations attributable to Pactiv
We recorded income from continuing operations of
$220 million, or $1.66 per share, compared with
$243 million, or $1.83 per share, in 2007. The decline was
driven primarily by lower operating income of $16 million
(including a restructuring charge of $10 million after tax)
as described previously, and higher interest costs of
$6 million after tax related to the financing of the
Prairie acquisition.
Discontinued
Operations
Income
(Loss) from Discontinued Operations
In 2008, we recorded expense from discontinued operations of
$4 million, which was attributed to taxes associated with
business dispositions which occurred in prior years. In 2007, we
recorded income from discontinued operations of $1 million,
which was related to final working capital adjustments and taxes
associated with business dispositions.
In 2007, $27 million of deferred taxes was reclassified as
liabilities related to discontinued operations as a result of
the adoption of certain provisions of Financial Accounting
Standards Board (FASB) ASC
740-10,
Income Taxes.
20
Changes
in Accounting Principles
The FASB has issued a number of accounting pronouncements
effective in 2009 or 2008, as disclosed in Note 2 to the
financial statements. None of these changes in accounting
principles had a material effect upon adoption in 2008 or 2009.
The FASB issued Statement of Financial Accounting Standards
(SFAS) No. 166, Accounting for Transfers of Financial
Assets, which is effective for interim and annual periods
beginning after November 15, 2009. SFAS No. 166,
which is not yet included in the Codification, requires
additional information about transfers of financial assets and
where companies have continuing exposure to the risk related to
transferred financial assets. SFAS No. 166 eliminates
the concept of a qualifying special purpose entity, changes the
requirements for derecognizing financial assets, and requires
additional disclosures. We are currently reviewing
SFAS No. 166, and evaluating the impact of its
adoption on our financial statements.
Critical
Accounting Policies
Following are our accounting policies that involve the exercise
of considerable judgment and the use of estimates. These have
the most significant impact on our financial condition and
results of operations.
Revenue
Recognition
We recognize sales when the risks and rewards of ownership have
transferred to customers, which generally occurs as products are
shipped. In arriving at net sales, we estimate the amount of
deductions from sales that are likely to be earned or taken by
customers in conjunction with incentive programs. These include
volume rebates, early payment discounts, and coupon offerings.
Estimates are based on historical trends and are reviewed
quarterly for possible revision. In addition, we pay slotting
fees and participate in cooperative advertising programs. The
costs for all such programs are accounted for as reductions to
revenues. In the event that future sales deduction trends vary
significantly from past or expected trends, reported sales may
increase or decrease by a material amount.
Inventory
Valuation
Our inventories are stated at the lower of cost or market using
the FIFO method. We periodically review inventory balances to
identify slow-moving
and/or
obsolete items. This determination is based on a number of
factors, including new product introductions, changes in
consumer demand patterns, and historical usage trends.
In 2009, we changed our method of accounting for inventory from
a combination of the LIFO method and the FIFO method to the FIFO
method. All of our businesses now use the FIFO method of
accounting for inventory. We believe the new method of
accounting for inventory is preferable because the FIFO method
better reflects the current value of inventories on the
Consolidated Statement of Financial Position, provides better
matching of revenue and expenses under our business model, and
provides uniformity across our operations with respect to the
method of inventory accounting for financial reporting.
In accordance with ASC
250-10
Accounting Changes and Error Corrections, all prior
periods presented have been retrospectively adjusted to apply
the new method of accounting. The cumulative effect of the
change in accounting principle on periods prior to those
presented has been reflected as an adjustment to the opening
balance of retained earnings as of January 1, 2005. For a
summary of the effect of the retrospective adjustments resulting
from the change in accounting principle for inventory costs for
the years ended December 31, 2008, and 2007, see
Note 2 to the financial statements. For a summary of the
effect on the unaudited interim quarters of 2009, see
Note 16 to the financial statements.
Pension
Plans
The FASB issued ASC
715-20,
Compensation Retirement Benefits of
which we adopted the recognition and disclosure provisions on
December 31, 2006. See Changes in Accounting
Principles in Note 2 to the financial statements for
additional information. Total pretax pension plan income was
$36 million in 2009,
21
$49 million in 2008, and $50 million in 2007, and
represented the net pension income, which is recorded as an
offset to SG&A expenses, and our production
operations pension service costs, which are recorded in
cost of sales. We estimate that our noncash pretax pension
income will increase to $48 million in 2010.
Projections of pension income are based on a number of factors,
including estimates of future returns on pension plan assets;
estimates of discount rates; assumptions pertaining to the
amortization of actuarial gains/losses; expectations regarding
employee compensation; and assumptions related to participant
turnover, retirement age, and life expectancy.
In developing our assumption regarding the expected rate of
return on pension plan assets, we estimate future returns on
various classes of assets, risk free rates of return, and
long-term inflation rates. Since 1976, our U.S. qualified
pension plans annual rate of return on assets has averaged
10%. Historically, the plan has invested approximately 70% of
its assets in equity securities and 30% in fixed-income
investments. After considering all of these factors, we
concluded that the use of a 9% rate of return was appropriate
for 2009. Holding all other assumptions constant, a one-half
percentage-point change in the rate of return assumption would
impact our pretax pension income by approximately
$20 million.
The discount rate assumption for our U.S. pension plan is
based on the composite yield of a portfolio of high quality
corporate bonds constructed with durations to match the
plans future benefit obligations. In this connection, the
discount rate assumption for our U.S. plan was 5.75% at our
December 31, 2009, measurement date and 6.74% at our
December 31, 2008, measurement date. Holding all other
assumptions constant, a one-half percentage-point change in the
discount rate would impact our pretax pension income by
approximately $3 million. For more information on our
pension plan, see Note 13 to the financial statements.
22
CAUTIONARY
STATEMENT FOR PURPOSES OF SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements included in this Annual Report on
Form 10-K,
including statements in the Managements Discussion
and Analysis of Financial Condition and Results of
Operations section and in the notes to the financial
statements, are forward-looking statements. All
statements other than statements of historical fact, including
statements regarding prospects and future results, are
forward-looking. These forward-looking statements generally can
be identified by the use of terms and phrases such as
will, believe, anticipate,
may, might, could,
expect, estimated, projects,
intends, foreseeable future, and similar
terms and phrases. These forward-looking statements are not
based on historical facts, but rather on our current
expectations or projections about future events. Accordingly,
these forward-looking statements are subject to known and
unknown risks and uncertainties. While we believe that the
assumptions underlying these forward-looking statements are
reasonable and make the statements in good faith, actual results
almost always vary from expected results, and differences could
be material.
In the Risk Factors section (Item 1A), we have
attempted to list some of the factors that we believe could
cause our actual results to differ materially from future
results expressed or implied by these forward-looking
statements. These factors include the following:
|
|
|
|
|
Changes in consumer demand and selling prices for our products,
including new products that our competitors or we may introduce
that could impact sales and margins.
|
|
|
|
Material substitutions and changes in costs of raw materials,
including plastic resins, labor, utilities, or transportation
that could impact our expenses and margins.
|
|
|
|
Changes in laws or governmental actions, including changes in
regulations such as those relating to air emissions or plastics
generally.
|
|
|
|
The availability or cost of capital could impact growth or
acquisition opportunities.
|
|
|
|
Workforce factors such as strikes or other labor interruptions.
|
|
|
|
The general economic, political, and competitive conditions in
countries in which we operate, including currency fluctuations
and other risks associated with operating outside of the U.S.
|
|
|
|
Changes in (1) assumptions regarding the long-term rate of
return on pension assets and other factors, (2) the
discount rate, and (3) the level of amortization of
actuarial gains and losses.
|
|
|
|
Changes in
U.S. and/or
foreign governmental regulations relating to pension plan
funding.
|
|
|
|
Changes enacted by the Securities and Exchange Commission, the
Financial Accounting Standards Board, or other regulatory or
accounting bodies. See Changes in Accounting
Principles.
|
|
|
|
Competition from producers located in countries that have lower
labor and other costs.
|
|
|
|
Our ability to integrate new businesses that we have acquired
and may acquire or to dispose of businesses or business segments
that we may wish to divest.
|
23
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Derivative
Financial Instruments
We are exposed to market risks related to changes in foreign
currency exchange rates, interest rates, and commodity prices.
To manage these risks we may enter into various hedging
contracts in accordance with established policies and
procedures. We do not use hedging instruments for trading
purposes and are not a party to any transactions involving
leveraged derivatives.
Commodity
Derivatives
During the fourth quarter of 2009, we entered into natural gas
purchase agreements with third parties, hedging a portion of the
first half of 2010 purchases of natural gas used in the
production processes at certain of our plants. These purchase
agreements are marked to market, with the resulting gains or
losses recognized in earnings when hedged transactions are
recorded. The mark-to-market adjustments at December 31,
2009, were immaterial.
Cash
Flow Hedges
To minimize volatility in our margins due to large fluctuations
in the price of commodities, in the second quarter of 2009 we
entered into swap contracts to manage risks associated with
market fluctuations in resin prices. These contracts were
designated as cash flow hedges of forecasted commodity
purchases. All monthly swap contracts entered into in the third
quarter of 2009 have expired. There were no contracts
outstanding as of December 31, 2009, and no gains are
expected to be reclassified to earnings in the first quarter of
2010.
Interest
Rates
At December 31, 2009, we had public debt securities of
$1.276 billion outstanding, with fixed interest rates and
maturities ranging from 2 to 18 years. Should we decide to
redeem these securities prior to their stated maturity, we would
incur costs based on the fair value of the securities at that
time.
In addition, we have a
5-year
revolving credit facility of $750 million, which expires in
2011, under which no balance was outstanding at
December 31, 2009.
As a part of the acquisition of Prairie Packaging Inc.
(Prairie), we assumed Prairies liability for
$5 million borrowed from the Illinois Development Finance
Authority (IDFA), which were funded by industrial development
revenue bonds issued by the IDFA. The debt matures on
December 1, 2010, and bears interest at varying rates (0.4%
as of December 31, 2009) not to exceed 12% per annum.
The following table provides information about Pactivs
financial instruments that are sensitive to interest rate risks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
|
|
|
|
|
(In millions, except percentages)
|
|
2010
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fixed rate debt
|
|
|
|
|
|
$
|
250
|
|
|
$
|
1,026
|
|
|
$
|
1,276
|
|
Average interest rate
|
|
|
|
|
|
|
5.7
|
%
|
|
|
7.7
|
%
|
|
|
7.3
|
%
|
Fair value
|
|
|
|
|
|
$
|
267
|
|
|
$
|
1,195
|
|
|
$
|
1,462
|
|
Floating rate debt
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
Average interest rate
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
0.4
|
%
|
Fair value
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
Prior to our spin-off from Tenneco, we entered into an interest
rate swap to hedge our exposure to interest rate movements. We
settled this swap in November 1999, incurring a $43 million
loss, which is being recognized as additional interest expense
over the life of the underlying debt.
In April 2007, we entered into interest rate swap agreements to
hedge the interest rate risk related to $250 million of the
debt expected to be issued in connection with the acquisition of
Prairie. We entered into these swap agreements to moderate the
risk of interest rate changes during the period from the date
the agreement to acquire Prairie was signed to the date the
notes used to finance the acquisition were issued. The swap
agreements were terminated on June 20, 2007, resulting in a
gain of $9 million. This gain is being recognized as a
reduction of interest expense over the average life of the
underlying debt.
24
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data.
|
Index of
the Financial Statements of Pactiv Corporation
and Consolidated Subsidiaries
|
|
|
|
|
|
|
Page
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
34
|
|
25
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
effective internal control over financial reporting (as defined
in
Rules 13a-15(f)
under the Securities Exchange Act of 1934). Our internal control
over financial reporting is designed to provide reasonable
assurance to our management and board of directors regarding the
preparation and fair presentation of published financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
We assessed the effectiveness of our internal controls over
financial reporting as of December 31, 2009. In making this
assessment, we used the criteria set forth in the Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
our assessment using those criteria, we concluded that
Pactivs internal control over financial reporting at
December 31, 2009, was effective.
Our internal control over financial reporting as of
December 31, 2009, was audited by Ernst & Young
LLP, the independent registered public accounting firm who also
audited the companys consolidated financial statements.
Ernst & Youngs attestation report on the
companys internal control over financial reporting appears
on page 28.
26
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Pactiv Corporation
We have audited the accompanying consolidated statement of
financial position of Pactiv Corporation (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of income, changes in equity, comprehensive income
(loss), and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index at
Item 15. These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Pactiv Corporation at December 31,
2009 and 2008, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, in 2009 the Company changed its method of accounting
for inventory and in 2008 the Company adopted the requirement to
measure the funded status of its defined benefit pension and
postretirement healthcare plans as of the date of the year-end
statement of financial position.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Pactiv Corporations internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 26, 2010
expressed an unqualified opinion thereon.
Chicago, Illinois
February 26, 2010
27
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Pactiv Corporation
We have audited Pactiv Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Pactiv
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Pactiv Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statement of financial position of Pactiv
Corporation as of December 31, 2009 and 2008, and the
related consolidated statements of income, changes in equity,
comprehensive income (loss) and cash flows for each of the three
years in the period ended December 31, 2009, and our report
dated February 26, 2010 expressed an unqualified opinion
thereon.
Chicago, Illinois
February 26, 2010
28
Consolidated
Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
For years ended December 31
|
|
|
|
|
|
|
|
|
|
(In millions, except share and per share data)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
1,285
|
|
|
$
|
1,342
|
|
|
$
|
1,221
|
|
Foodservice/Food Packaging
|
|
|
2,075
|
|
|
|
2,225
|
|
|
|
2,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,360
|
|
|
|
3,567
|
|
|
|
3,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization
|
|
|
2,241
|
|
|
|
2,638
|
|
|
|
2,325
|
|
Selling, general, and administrative
|
|
|
349
|
|
|
|
281
|
|
|
|
286
|
|
Depreciation and amortization
|
|
|
184
|
|
|
|
182
|
|
|
|
166
|
|
Other
|
|
|
7
|
|
|
|
6
|
|
|
|
7
|
|
Restructuring and other
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,781
|
|
|
|
3,123
|
|
|
|
2,784
|
|
Operating income
|
|
|
579
|
|
|
|
444
|
|
|
|
469
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1
|
|
|
|
2
|
|
|
|
5
|
|
Interest expense, net of interest capitalized
|
|
|
(94
|
)
|
|
|
(106
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
486
|
|
|
|
340
|
|
|
|
378
|
|
Income tax expense
|
|
|
177
|
|
|
|
119
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
309
|
|
|
|
221
|
|
|
|
245
|
|
Discontinued operations, net of tax
|
|
|
15
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
324
|
|
|
|
217
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to the noncontrolling interest
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Pactiv
|
|
$
|
323
|
|
|
$
|
216
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Pactiv common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
308
|
|
|
$
|
220
|
|
|
$
|
243
|
|
Discontinued operations, net of tax
|
|
|
15
|
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
323
|
|
|
$
|
216
|
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
131,967,907
|
|
|
|
130,925,861
|
|
|
|
130,912,229
|
|
Diluted
|
|
|
133,471,047
|
|
|
|
132,473,458
|
|
|
|
132,869,555
|
|
Basic earnings per share of common stock attributable to Pactiv
common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.33
|
|
|
$
|
1.68
|
|
|
$
|
1.85
|
|
Discontinued operations
|
|
|
0.12
|
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.45
|
|
|
$
|
1.65
|
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock attributable to
Pactiv common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.31
|
|
|
$
|
1.66
|
|
|
$
|
1.83
|
|
Discontinued operations
|
|
|
0.11
|
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.42
|
|
|
$
|
1.63
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The accompanying notes to the financial statements are an
integral part of this statement.
29
Consolidated
Statement of Financial Position
|
|
|
|
|
|
|
|
|
At December 31 (In millions, except share data)
|
|
2009
|
|
|
2008 (1)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments
|
|
$
|
46
|
|
|
$
|
80
|
|
Accounts and notes receivable
|
|
|
|
|
|
|
|
|
Trade, less allowances of $6 and $7 at the respective dates
|
|
|
277
|
|
|
|
264
|
|
Other
|
|
|
51
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total accounts and notes receivable
|
|
|
328
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
240
|
|
|
|
209
|
|
Work in process
|
|
|
39
|
|
|
|
55
|
|
Raw materials
|
|
|
63
|
|
|
|
78
|
|
Other materials and supplies
|
|
|
48
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
390
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
832
|
|
|
|
797
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
1,172
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,135
|
|
|
|
1,128
|
|
Intangible assets, net
|
|
|
372
|
|
|
|
396
|
|
Noncurrent deferred income tax asset
|
|
|
|
|
|
|
161
|
|
Other
|
|
|
63
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,570
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,574
|
|
|
$
|
3,761
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term debt, including current maturities of long-term debt
|
|
$
|
5
|
|
|
$
|
|
|
Accounts payable
|
|
|
144
|
|
|
|
115
|
|
Taxes accrued
|
|
|
24
|
|
|
|
14
|
|
Interest accrued
|
|
|
20
|
|
|
|
20
|
|
Accrued promotions, rebates, and discounts
|
|
|
73
|
|
|
|
68
|
|
Accrued payroll and benefits
|
|
|
97
|
|
|
|
66
|
|
Other
|
|
|
54
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
417
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,270
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
|
694
|
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
120
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities related to discontinued operations
|
|
|
11
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Pactiv shareholders equity
|
|
|
|
|
|
|
|
|
Common stock $0.01 par value,
350,000,000 shares authorized, 132,334,417 and
131,510,270 shares issued and outstanding, after deducting
39,448,760 and 40,272,907 shares held in treasury, at the
respective dates
|
|
|
1
|
|
|
|
1
|
|
Premium on common stock and other capital surplus
|
|
|
729
|
|
|
|
710
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
(3
|
)
|
|
|
(16
|
)
|
Pension and postretirement plans
|
|
|
(1,729
|
)
|
|
|
(1,689
|
)
|
Gain (loss) on derivatives
|
|
|
6
|
|
|
|
7
|
|
Retained earnings
|
|
|
1,981
|
|
|
|
1,658
|
|
|
|
|
|
|
|
|
|
|
Total Pactiv shareholders equity
|
|
|
985
|
|
|
|
671
|
|
Noncontrolling interest
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,001
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
3,574
|
|
|
$
|
3,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The accompanying notes to the financial statements are an
integral part of this statement.
30
Consolidated
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
For the twelve months ended December 31 (In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
324
|
|
|
$
|
217
|
|
|
$
|
246
|
|
Discontinued operations
|
|
|
(15
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
309
|
|
|
|
221
|
|
|
|
245
|
|
Adjustments to reconcile income from continuing operations to
cash provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
184
|
|
|
|
182
|
|
|
|
166
|
|
Deferred income taxes
|
|
|
208
|
|
|
|
112
|
|
|
|
37
|
|
Restructuring and other
|
|
|
(1
|
)
|
|
|
12
|
|
|
|
|
|
Pension income
|
|
|
(36
|
)
|
|
|
(49
|
)
|
|
|
(50
|
)
|
Noncash compensation expense
|
|
|
16
|
|
|
|
16
|
|
|
|
9
|
|
Pension contributions
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
Changes in components of working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(16
|
)
|
|
|
(14
|
)
|
|
|
103
|
|
(Increase) decrease in inventories
|
|
|
7
|
|
|
|
22
|
|
|
|
4
|
|
(Increase) decrease in prepayments and other current assets
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
Increase (decrease) in accounts payable
|
|
|
28
|
|
|
|
(45
|
)
|
|
|
(26
|
)
|
Increase (decrease) in taxes accrued
|
|
|
(30
|
)
|
|
|
(66
|
)
|
|
|
(16
|
)
|
Increase (decrease) in interest accrued
|
|
|
|
|
|
|
(2
|
)
|
|
|
15
|
|
Increase (decrease) in other current liabilities
|
|
|
36
|
|
|
|
(23
|
)
|
|
|
(37
|
)
|
Other
|
|
|
8
|
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities
continuing operations
|
|
|
164
|
|
|
|
358
|
|
|
|
445
|
|
Cash provided (used) by operating activities
discontinued operations
|
|
|
(3
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities
|
|
$
|
161
|
|
|
$
|
350
|
|
|
$
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant, and equipment
|
|
$
|
(111
|
)
|
|
$
|
(136
|
)
|
|
$
|
(151
|
)
|
Acquisitions of businesses and assets
|
|
|
(20
|
)
|
|
|
|
|
|
|
(1,015
|
)
|
Net proceeds from the sale of a business or assets
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Other investing activities
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by investing activities
|
|
$
|
(129
|
)
|
|
$
|
(137
|
)
|
|
$
|
(1,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
19
|
|
Purchase of common stock
|
|
|
|
|
|
|
(2
|
)
|
|
|
(108
|
)
|
Issuance of long-term debt, net of discounts
|
|
|
|
|
|
|
|
|
|
|
498
|
|
Retirement of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
Revolving credit facility borrowings
|
|
|
|
|
|
|
|
|
|
|
432
|
|
Revolving credit facility payment
|
|
|
(70
|
)
|
|
|
(230
|
)
|
|
|
(132
|
)
|
Dividends paid to noncontrolling interest
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by financing activities
|
|
$
|
(66
|
)
|
|
$
|
(226
|
)
|
|
$
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and temporary
cash investments
|
|
|
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and temporary cash investments
|
|
|
(34
|
)
|
|
|
(15
|
)
|
|
|
(86
|
)
|
Cash and temporary cash investments, January 1
|
|
|
80
|
|
|
|
95
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments, December 31
|
|
$
|
46
|
|
|
$
|
80
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
93
|
|
|
$
|
109
|
|
|
$
|
81
|
|
Cash paid for income taxes continuing operations
|
|
|
4
|
|
|
|
59
|
|
|
|
94
|
|
Cash paid for income taxes discontinued operations
|
|
|
4
|
|
|
|
7
|
|
|
|
8
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The accompanying notes to the financial statements are an
integral part of this statement.
31
Consolidated
Statement of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pactiv Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium on
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
and other
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
(In millions, except share amounts)
|
|
stock
|
|
|
capital surplus
|
|
|
earnings
|
|
|
income (loss)
|
|
|
interest
|
|
|
equity
|
|
|
Balance, December 31, 2006 (1)
|
|
$
|
1
|
|
|
$
|
757
|
|
|
$
|
1,191
|
|
|
$
|
(1,063
|
)
|
|
$
|
10
|
|
|
$
|
896
|
|
Premium on common stock issued (1,138,286 shares)
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Treasury stock repurchased (3,374,821 shares)
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
Translation of foreign currency statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
1
|
|
|
|
16
|
|
Stock-based compensation
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Pension and postretirement benefit liability adjustments, net of
tax of $116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
178
|
|
Dividends paid to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Purchase of equity from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
2
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 (1)
|
|
$
|
1
|
|
|
$
|
683
|
|
|
$
|
1,435
|
|
|
$
|
(862
|
)
|
|
$
|
15
|
|
|
$
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium on common stock issued (1,028,245 shares)
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Treasury stock repurchased (75,218 shares)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Translation of foreign currency statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
1
|
|
|
|
(39
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Impact of adopting ASC
715-20-65
measurement date change, net of tax of $4
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Pension and postretirement benefit liability adjustments, net of
tax of $(468)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(795
|
)
|
|
|
|
|
|
|
(795
|
)
|
Dividends paid to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
1
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (1)
|
|
$
|
1
|
|
|
$
|
710
|
|
|
$
|
1,658
|
|
|
$
|
(1,698
|
)
|
|
$
|
16
|
|
|
$
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium on common stock issued (806,759 shares)
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Translation of foreign currency statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Pension and postretirement benefit liability adjustments, net of
tax of $16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
(40
|
)
|
Dividends paid to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
323
|
|
|
|
|
|
|
|
1
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
1
|
|
|
$
|
729
|
|
|
$
|
1,981
|
|
|
$
|
(1,726
|
)
|
|
$
|
16
|
|
|
$
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The accompanying notes to the financial statements are an
integral part of this statement.
32
Consolidated
Statement of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Net income
|
|
$
|
324
|
|
|
$
|
217
|
|
|
$
|
246
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement plans
|
|
|
(40
|
)
|
|
|
(795
|
)
|
|
|
178
|
|
Net currency translation gain (loss)
|
|
|
13
|
|
|
|
(39
|
)
|
|
|
16
|
|
Gain (loss) on derivatives
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(28
|
)
|
|
|
(835
|
)
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated comprehensive income (loss)
|
|
|
296
|
|
|
|
(618
|
)
|
|
|
448
|
|
Comprehensive income (loss) attributable to the noncontrolling
interest
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Pactiv
|
|
$
|
295
|
|
|
$
|
(620
|
)
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The accompanying notes to the financial statements are an
integral part of this statement.
33
Notes to
Financial Statements
|
|
Note 1.
|
Basis of
Presentation
|
Financial statements for all periods presented in this report
were prepared on a consolidated basis in accordance with
generally accepted accounting principles consistently applied,
except for changes in accounting principles disclosed in
Note 2. All per share information is presented on a diluted
basis unless otherwise noted. Certain reclassifications have
been made to prior years financial information to conform to
current year presentation.
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operates
one manufacturing facility in North Carolina. The results of
this business have been included in the consolidated financial
statements as of that date.
We have three reporting segments:
|
|
|
|
|
Consumer Products manufactures disposable plastic, foam,
molded fiber, pressed paperboard, and aluminum packaging
products, and sells them to customers such as grocery stores,
mass merchandisers, and discount chains. Products include waste
bags, food storage bags, and disposable tableware and cookware.
We sell many of our consumer products under well-known
trademarks such as
Hefty®.
|
|
|
|
Foodservice/Food Packaging manufactures foam, clear
plastic, aluminum, pressed paperboard, and molded fiber
packaging products, and sells them to customers in the food
distribution channel, who prepare and process food for
consumption. Customers include foodservice distributors,
restaurants, other institutional foodservice outlets, food
processors, and grocery chains.
|
|
|
|
Other includes corporate and administrative service
operations and retiree benefit income and expense.
|
The accounting policies of the reporting segments are the same
as those for Pactiv as a whole. Where discrete financial
information is not available by segment, reasonable allocations
of expenses and assets/liabilities are used.
In 2009, we changed our method of accounting for inventory from
a combination of the
last-in,
first-out (LIFO) method and the
first-in,
first-out (FIFO) method to the FIFO method. In accordance with
Accounting Standards Codification (ASC)
250-10
Accounting Changes and Error Corrections, all prior
periods presented have been retrospectively adjusted to apply
the new method of accounting. For more information on the change
in inventory accounting method, see Note 2 to the financial
statements.
Subsequent
Events
In February 2010, the board of directors approved an Agreement
and Plan of Merger with PWP Holdings, Inc. whereby Pactiv will
acquire PWP Holdings and PWP Industries for $200 million.
This transaction is expected to close in the late first quarter
or early second quarter of 2010. PWP Industries manufactures and
sells amorphous polyethylene terephthalate (APET) products in
the food service market.
In February 2010, the board of directors also approved the
repurchase of an additional 10 million shares of our common
stock. This amount is in addition to the remaining
522,361 shares authorized to be repurchased as of
December 31, 2009.
We have evaluated subsequent events through the filing date of
this Form 10-K, and have determined that there were no
other subsequent events to recognize or disclose in these
financial statements.
|
|
Note 2.
|
Summary
of Accounting Policies
|
Consolidation
Our financial statements include all majority-owned
subsidiaries. Investments in 20% to 50% owned companies in which
we have the ability to exert significant influence over
operating and financial policies are accounted for using the
equity method of accounting. All inter-company transactions are
eliminated.
34
Notes to
Financial Statements (Continued)
Foreign
Currency Translation
Financial statements of international operations are translated
into U.S. dollars using
end-of-period
exchange rates for assets and liabilities and weighted-average
exchange rates for sales, expenses, gains, and losses.
Translation adjustments are recorded as a component of
shareholders equity.
Cash
and Temporary Cash Investments
We define cash and temporary cash investments as checking
accounts, money market accounts, certificates of deposit, and
U.S. Treasury notes having an original maturity of
90 days or less.
Accounts
and Notes Receivable
Trade accounts receivable are classified as current assets and
are reported net of allowances for doubtful accounts. We record
such allowances based on a number of factors, including
historical trends and specific customer situations.
On a recurring basis, we sell an undivided interest in a pool of
trade receivables meeting certain criteria to a third party as
an alternative to debt financing. Such sales, which represent a
form of off-balance-sheet financing, are recorded as a reduction
of accounts and notes receivable in the statement of financial
position. Related proceeds are included in cash provided by
operating activities in the statement of cash flows. At
December 31, 2009, receivables aggregating
$110 million were sold, while receivables totaling
$130 million were sold at December 31, 2008. Discounts
and fees related to such sales were $1 million in 2009, and
$4 million in both 2008 and 2007. These expenses are
included in other expense in the statement of
income. In the event that either Pactiv or the third-party
purchaser of the trade receivables were to discontinue this
program, our debt would increase, or our cash balance would
decrease, by an amount corresponding to the level of sold
receivables at such time.
Inventories
Our inventories are stated at the lower of cost or market using
the FIFO method. We periodically review inventory balances to
identify slow-moving
and/or
obsolete items. This determination is based on a number of
factors, including new product introductions, changes in
consumer demand patterns, and historical usage trends.
In 2009, we changed our method of accounting for inventory from
a combination of the LIFO method and the FIFO method to the FIFO
method. All of our businesses now use the FIFO method of
accounting for inventory. We believe the new method of
accounting for inventory is preferable because the FIFO method
better reflects the current value of inventories on the
Consolidated Statement of Financial Position, provides better
matching of revenue and expenses under our business model, and
provides uniformity across our operations with respect to the
method of inventory accounting for financial reporting.
In accordance with ASC
250-10
Accounting Changes and Error Corrections, all prior
periods presented have been retrospectively adjusted to apply
the new method of accounting.
35
Notes to
Financial Statements (Continued)
The following table presents the line items on the statement of
income that were impacted by the accounting change for the years
ended December 31, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
(In millions, except per share data)
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Cost of Sales, excluding depreciation and amortization
|
|
$
|
2,636
|
|
|
$
|
2,638
|
|
|
$
|
2,322
|
|
|
$
|
2,325
|
|
Operating income
|
|
|
446
|
|
|
|
444
|
|
|
|
472
|
|
|
|
469
|
|
Income tax expense
|
|
|
120
|
|
|
|
119
|
|
|
|
135
|
|
|
|
133
|
|
Income from continuing operations
|
|
|
222
|
|
|
|
221
|
|
|
|
246
|
|
|
|
245
|
|
Net income attributable to Pactiv
|
|
|
217
|
|
|
|
216
|
|
|
|
245
|
|
|
|
244
|
|
Earnings (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.66
|
|
|
$
|
1.65
|
|
|
$
|
1.87
|
|
|
$
|
1.86
|
|
Diluted
|
|
$
|
1.64
|
|
|
$
|
1.63
|
|
|
$
|
1.85
|
|
|
$
|
1.84
|
|
The following table presents the line items on the statement of
financial position that were impacted by the accounting change
as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
As Originally
|
|
|
(In millions)
|
|
Reported
|
|
As Adjusted
|
|
Inventories
|
|
$
|
344
|
|
|
$
|
391
|
|
Deferred income tax assets
|
|
|
14
|
|
|
|
|
|
Goodwill
|
|
|
1,124
|
|
|
|
1,128
|
|
Other current liabilities
|
|
|
50
|
|
|
|
55
|
|
Retained earnings
|
|
|
1,626
|
|
|
|
1,658
|
|
The following table presents the line items on the statement of
cash flows that were impacted by the accounting change for the
years ended December 31, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
(In millions)
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Net income
|
|
$
|
218
|
|
|
$
|
217
|
|
|
$
|
247
|
|
|
$
|
246
|
|
Deferred income taxes
|
|
|
113
|
|
|
|
112
|
|
|
|
38
|
|
|
|
37
|
|
(Increase) decrease in inventories
|
|
|
20
|
|
|
|
22
|
|
|
|
1
|
|
|
|
4
|
|
36
Notes to
Financial Statements (Continued)
The following table presents the segment information line items
that were impacted by the accounting change for the years ended
December 31, 2008, and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
As Originally
|
|
|
|
|
|
As Originally
|
|
|
|
|
(In millions)
|
|
Reported
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
As Adjusted
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
207
|
|
|
$
|
207
|
|
|
$
|
227
|
|
|
$
|
226
|
|
Foodservice/Food Packaging
|
|
|
236
|
|
|
|
234
|
|
|
|
247
|
|
|
|
245
|
|
Other
|
|
|
3
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
446
|
|
|
$
|
444
|
|
|
$
|
472
|
|
|
$
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
1,307
|
|
|
$
|
1,326
|
|
|
$
|
1,345
|
|
|
$
|
1,365
|
|
Foodservice/Food Packaging
|
|
|
2,070
|
|
|
|
2,102
|
|
|
|
2,125
|
|
|
|
2,159
|
|
Other
|
|
|
348
|
|
|
|
333
|
|
|
|
295
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,725
|
|
|
$
|
3,761
|
|
|
$
|
3,765
|
|
|
$
|
3,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a summary of the effect of the retrospective adjustments
resulting from the change in accounting principle for inventory
costs for the interim quarters of 2009, see Note 16 to the
financial statements.
Property,
Plant, and Equipment, Net
Depreciation is recorded on a straight-line basis over the
estimated useful lives of assets. Useful lives range from 10 to
40 years for buildings and improvements and from 3 to
25 years for machinery and equipment. Depreciation expense
totaled $158 million in 2009, $155 million in 2008,
and $143 million in 2007.
We capitalize certain costs related to the purchase and
development of software used in our business. Such costs are
amortized over the estimated useful lives of the assets, ranging
from 3 to 12 years. Capitalized software development costs,
net of amortization at December 31 were $16 million in
2009, and $20 million in 2008.
We periodically re-evaluate the carrying values and estimated
useful lives of long-lived assets to determine if adjustments
are warranted. We use estimates of undiscounted cash flows from
long-lived assets to determine whether the book value of such
assets is recoverable over the assets remaining useful
lives.
Goodwill
and Intangibles, Net
We review the carrying value of our goodwill and
indefinite-lived intangibles for possible impairment on an
annual basis. Our annual review is conducted in the fourth
quarter of the year, or earlier if warranted by events or
changes in circumstances.
Possible impairment of goodwill is determined using a two-step
process.
|
|
|
|
|
The first step requires that the fair value of individual
reporting units be compared with their respective carrying
values. If the carrying value of a reporting unit exceeds its
fair value, a second step is performed to measure the amount of
impairment, if any.
|
|
|
|
The second step requires that the fair value of a reporting unit
be allocated to all of its assets and liabilities, including
indefinite-lived intangibles. Any remaining fair value is the
implied goodwill, which is then compared with the carrying value
of goodwill.
|
We test goodwill for impairment at the reporting unit level. Our
four reporting units are Institutional, Specialty (both part of
the Foodservice reporting segment), Consumer, and Other
(Corporate functions). Our operating
37
Notes to
Financial Statements (Continued)
segments are each deemed to be a reporting unit as none of the
operating segments components qualifies as a separate
reporting unit or the operating segment is comprised of only one
component.
Estimates of fair value used in testing goodwill and
indefinite-lived intangible assets for possible impairment are
determined using the discounted cash flow method. This approach
uses estimates and assumptions regarding the amount and timing
of projected cash flows, discount rates reflecting the risk
inherent in future cash flows, perpetual growth rates, and
appropriate market comparables. We believe this is the most
appropriate method as it reflects how Pactiv, as well as other
investors, typically value packaging industry companies. We also
compare the result of the discounted cash flow method to the
enterprise value (market capitalization plus debt) of Pactiv.
The many assumptions used in the cash flow analysis are subject
to the accuracy of our projections of volume, selling price, raw
materials costs and SG&A expenses. The percentage by which
projected discounted cash flows would have to decrease to have a
failure in step one of the impairment test is 61% for Consumer,
61% for Institutional, and 70% for Specialty. Our Other
reporting unit has no goodwill or indefinite-lived intangible
assets.
Intangible assets that are not deemed to have an indefinite life
are amortized over their useful lives. We use undiscounted cash
flows, excluding interest charges, to assess the recoverability
of the carrying value of such assets, and record an impairment
loss if the carrying value of assets exceeds their fair value.
See Note 8 for additional information.
Environmental
Liabilities
We are subject to a variety of environmental and pollution
control laws and regulations. From time to time, we identify
costs or liabilities arising from compliance with environmental
laws and regulations. When related liabilities are probable and
can be reasonably estimated, we establish appropriate reserves.
Estimated liabilities may change as additional information
becomes available. We appropriately adjust our reserves as new
information on possible
clean-up
costs, expense and effectiveness of alternative
clean-up
methods, and other potential liabilities is received. We do not
expect that any additional liabilities recorded as a result of
the availability of new information will have a material adverse
effect on our financial position. However, such costs could have
a material effect on our results of operations or cash flows in
a particular period.
Revenue
Recognition
We recognize sales when the risks and rewards of ownership have
transferred to customers, which generally occurs as products are
shipped. In arriving at net sales, we estimate the amount of
deductions from sales that are likely to be earned or taken by
customers in conjunction with incentive programs. These include
volume rebates, early payment discounts, and coupon offerings.
Estimates are based on historical trends and are reviewed
quarterly for possible revision. In addition, we pay slotting
fees and participate in cooperative advertising programs. The
cost for all such programs are accounted for as reductions to
revenues.
Freight
We record amounts billed to customers for shipping and handling
as sales, and record shipping and handling expenses as cost of
sales.
38
Notes to
Financial Statements (Continued)
General
and Administrative Expenses
Total noncash pension income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Pension income (recorded as an offset to selling, general, and
administrative costs)
|
|
$
|
44
|
|
|
$
|
54
|
|
|
$
|
54
|
|
Pension service costs associated with production operations
(recorded in cost of sales)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncash pension income
|
|
$
|
36
|
|
|
$
|
49
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
Research and development costs, which are expensed as incurred,
totaled $33 million in 2009, $32 million in 2008, and
$35 million in 2007.
Advertising
Advertising production costs are expensed as incurred, while
advertising media costs are expensed in the period in which the
related advertising first takes place. Advertising expenses were
$28 million in 2009, $8 million in 2008, and
$13 million in 2007.
Stock-Based
Compensation
We account for stock-based compensation under ASC
718-10
Compensation Stock Compensation, which
requires that the fair value of all share-based payments to
employees, including stock options, be recognized in financial
statements. ASC
718-10
superseded prior authoritative guidance which required that the
intrinsic-value method be used in determining compensation
expense for share-based payments to employees. Employee
compensation expense is based on the grant date fair value of
awards, and is recognized in the Statement of Income over the
period that recipients of awards are required to provide related
service (normally the vesting period).
Income
Taxes
We use the asset and liability method of accounting for income
taxes. This method requires that deferred tax assets and
liabilities be recorded to reflect the future tax consequences
of temporary differences between the tax and financial statement
basis of assets and liabilities. If we determine that it is more
likely than not that a portion of deferred tax assets will not
be realized in a future period, we reduce deferred tax assets by
recording a valuation allowance. Estimates used to recognize
deferred tax assets are subject to revision in subsequent
periods based on new facts or circumstances.
We do not accrue for U.S. federal income taxes on
unremitted earnings of foreign subsidiaries because we intend to
reinvest those earnings in foreign operations. Unremitted
earnings of foreign subsidiaries totaled $50 million at
December 31, 2009, and $47 million at
December 31, 2008. The unrecognized deferred tax liability
associated with unremitted earnings totaled approximately
$10 million at December 31, 2009, and $7 million
at December 31, 2008.
Earnings
Per Share
Basic earnings per share is computed by dividing income
attributable to Pactiv common shareholders by the
weighted-average number of shares outstanding. Diluted earnings
per share is calculated in the same manner; however, adjustments
are made to reflect the potential issuance of dilutive shares.
39
Notes to
Financial Statements (Continued)
Risk
Management
From time to time, we use derivative financial instruments to
hedge our exposure to changes in foreign currency exchange
rates, principally using foreign currency purchase and sale
contracts with terms of less than 1 year. We do so to
mitigate our exposure to exchange rate changes related to
third-party trade receivables and accounts payable. Net gains or
losses on such contracts are recognized in the statement of
income as offsets to foreign currency exchange gains or losses
on the underlying transactions. In the statement of cash flows,
cash receipts and payments related to hedging contracts are
classified in the same way as cash flows from the transactions
being hedged. We had no open foreign currency contracts as of
December 31, 2009.
Interest rate risk management is accomplished through the use of
swaps. Interest rate swaps are booked at their fair value at
each reporting date, with an equal offset recorded either in
earnings or accumulated other comprehensive income depending on
the designation (or lack thereof) of each swap as a hedging
instrument.
From time to time, we employ commodity forward or other
derivative contracts to hedge our exposure to adverse changes in
the price of certain commodities used in our production
processes. We do not use derivative financial instruments for
speculative purposes. See Note 7 for additional information.
Changes
in Accounting Principles
The Financial Accounting Standards Board (FASB) issued ASC
105-10,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles,
which was effective for fiscal years, and interim periods within
such fiscal years, ending after September 15, 2009. ASC
105-10
establishes an authoritative United States GAAP superseding all
pre-existing accounting standards and literature. ASC
105-10 did
not have a material effect on our financial statements upon
adoption or as of December 31, 2009. We have updated all
references to specific authoritative guidance within our annual
financial reporting to reflect the new Accounting Standards
Codification structure.
The FASB issued ASC
820-10,
Fair Value Measurements and Disclosures which was
effective as of January 1, 2008. ASC
820-10
establishes a framework for measuring fair value by providing a
standard definition of fair value as it applies to assets and
liabilities. ASC
820-10,
which does not require the use of any new fair value
measurements, clarifies the application of other accounting
pronouncements that require or permit fair value measurements.
ASC 820-10
did not have a material effect on our financial statements upon
adoption and as of December 31, 2009.
The FASB issued ASC
715-20,
Compensation Retirement Benefits, of
which we adopted the recognition and disclosure provisions on
December 31, 2006. We recorded a charge to accumulated
other comprehensive income of $41 million upon adoption. We
adopted the measurement provisions of ASC
715-20-65 on
January 1, 2008, using the transition method based on the
data as of our September 30, 2007, measurement date. As a
result, we increased retained earnings by
$7 million after tax in 2008.
The FASB issued ASC
825-10,
Financial Instruments which was effective
January 1, 2008. ASC
825-10
permits entities to choose to measure many financial instruments
and certain other items at fair value as of specified election
dates. ASC
825-10
expands the use of fair value measurement, but does not
eliminate disclosure requirements of other accounting standards,
including ASC
820-10. ASC
825-10 did
not impact our financial statements upon adoption and as of
December 31, 2009. We did not choose to measure any
financial instruments at fair value as permitted under the
statement.
The FASB issued ASC
805-10,
Business Combinations, which replaces prior
authoritative guidance on business combinations, and was
effective on a prospective basis for all business combinations
that occur in fiscal years beginning after December 15,
2008, with the exception of accounting for valuation allowances
on deferred taxes and acquired tax contingencies. ASC
805-10
retains the underlying concepts of the prior authoritative
guidance in that all business combinations are still required to
be accounted for at fair value using the acquisition method of
accounting, but it changes the application of the acquisition
method in a number of significant ways. In this regard, the
pronouncement requires that (1) acquisition-related costs
40
Notes to
Financial Statements (Continued)
generally be expensed as incurred, (2) noncontrolling
interests be recorded at fair value, (3) in-process
research and development costs be recorded at fair value as an
indefinite lived intangible asset, (4) restructuring costs
associated with a business combination generally be expensed
subsequent to the date of such a combination, and
(5) changes in valuation allowances on deferred tax assets
and income tax uncertainties after the acquisition date
generally be recorded as income tax expense. ASC
805-10
amends ASC
740-10,
Income Taxes such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of ASC
805-10 would
also be subject to the provisions of ASC
805-10. ASC
805-10 was
effective on January 1, 2009, and did not have a material
impact on our financial statements upon adoption and as of
December 31, 2009.
The FASB issued ASC
810-10-45,
Consolidation which was effective for fiscal years,
and interim periods within such fiscal years, beginning on or
after December 15, 2008. ASC
810-10-45
requires that noncontrolling (minority) interests be recognized
as equity (but separate from the parents equity) in
consolidated financial statements, and that net earnings related
to noncontrolling interests be included in consolidated net
income, but identified separately on the face of the income
statement. ASC
810-10-45
also amends prior authoritative guidance, and expands disclosure
requirements regarding the interests of parents and
noncontrolling interests. ASC
810-10-45
was effective on January 1, 2009, and did not have a
material impact on our financial statements upon adoption and as
of December 31, 2009.
The FASB issued the disclosure requirements within ASC
815-10-65,
Derivatives and Hedging which was effective for
fiscal years, and interim periods within such fiscal years,
beginning on or after November 15, 2008. ASC
815-10
requires (1) enhanced disclosures about an entitys
derivative and hedging activities, specifically how and why an
entity uses derivative instruments, (2) how derivative
instruments and related hedged items are accounted for under ASC
815-10 and
its related interpretations, and (3) how derivative
instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. ASC
815-10 was
effective on January 1, 2009, and did not have a material
impact on our financial statements upon adoption and as of
December 31, 2009.
The FASB issued the disclosure requirements within ASC
825-10-65,
Financial Instruments which was effective for
interim reporting periods ending after June 15, 2009. ASC
825-10-65
amends prior authoritative guidance to require disclosures about
fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual
financial statements. ASC
825-10-65
also amends ASC
270-10,
Interim Reporting, to require those disclosures in
summarized financial information at interim reporting periods.
ASC
825-10-65
was effective for our June 30, 2009 interim reporting, and
did not have a material effect on our financial statements upon
adoption and as of December 31, 2009.
The FASB issued ASC
855-10,
Subsequent Events which was effective for fiscal
years, and interim periods within such fiscal years, ending
after June 15, 2009. ASC
855-10
requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that
is, whether that date represents the date the financial
statements were issued or were available to be issued. ASC
855-10 was
effective for our June 30, 2009 interim reporting, and did
not have a material effect on our financial statements upon
adoption and as of December 31, 2009.
The FASB issued the disclosure requirements within ASC
715-20-65
Compensation Retirement Benefits which
was effective for fiscal years ending after December 15,
2009. ASC
715-20-65
requires enhanced disclosures about plan assets in an
employers defined benefit pension or other postretirement
plan, including (1) information on investment policies and
strategies, (2) the fair value of each major category of
plan assets, (3) the inputs and valuation techniques used
to measure the fair value of plan assets, (4) the effect of
fair value measurements using significant unobservable inputs
(Level 3) on changes in plan assets for the period,
and (5) significant concentrations of risk within plan
assets. ASC
715-20-65
was effective for our December 31, 2009, reporting, and did
not have a material impact on our financial statements upon
adoption.
The FASB issued Statement of Financial Accounting Standards
(SFAS) No. 166, Accounting for Transfers of Financial
Assets, which is effective for interim and annual periods
beginning after November 15, 2009.
41
Notes to
Financial Statements (Continued)
SFAS No. 166, which is not yet included in the
Codification, requires additional information about transfers of
financial assets and where companies have continuing exposure to
the risk related to transferred financial assets.
SFAS No. 166 eliminates the concept of a qualifying
special purpose entity, changes the requirements for
derecognizing financial assets, and requires additional
disclosures. We are currently reviewing SFAS No. 166,
and evaluating the impact of its adoption on our financial
statements.
Estimates
Financial statement presentation requires management to make
estimates and assumptions that affect reported amounts for
assets, liabilities, sales, and expenses. Actual results may
differ from such estimates.
|
|
Note 3.
|
Restructuring
and Other
|
In 2008, we implemented a cost reduction program that included
the consolidation of two small facilities, asset
rationalizations, and headcount reductions. The program is
essentially complete with the exception of a small idle plant
held for sale. The accrued restructuring balance of
$1 million as of December 31, 2009, and
$2 million as of December 31, 2008, is for remaining
severance payments. Cash payments related to restructuring and
other were $1 million pretax for the year ended
December 31, 2009. In 2008, we recorded a charge of
approximately $10 million after tax, or $0.08 per share.
Cash payments related to restructuring and other charges were
$2 million for the year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
|
|
|
|
|
(In millions)
|
|
Severance
|
|
|
write-offs
|
|
|
Other (1)
|
|
|
Total
|
|
|
Restructuring costs for the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
(4
|
)
|
|
$
|
5
|
|
Foodservice/Food Packaging
|
|
|
6
|
|
|
|
2
|
|
|
|
2
|
|
|
|
10
|
|
Other
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
(2
|
)
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists principally of a gain on the sale of one of our
facilities and asset removal and transfer costs. |
|
|
Note 4.
|
Business
Combinations
|
On January 5, 2009, we purchased the polypropylene cup
business of WinCup for $20 million. This business operates
one manufacturing facility in North Carolina. The results of
this business have been included in the consolidated financial
statements as of that date.
The total cost of the acquisition was allocated to the assets
acquired and the liabilities assumed based on their respective
fair values. Goodwill and other intangible assets recorded in
connection with the acquisition totaled $1 million and
$3 million, respectively, and all of the goodwill is
expected to be deductible for tax purposes. Recorded intangible
assets pertain to customer relationships and are being amortized
over a
15-year
period.
Appraisals of the fair-market value and physical counts of the
assets acquired during the third quarter of 2009 resulted in
goodwill being decreased by $1 million, and property,
plant, and equipment being increased by the same amount.
42
Notes to
Financial Statements (Continued)
The following table summarizes the preliminary estimated fair
values of the assets acquired and liabilities assumed as of the
acquisition date.
|
|
|
|
|
(In millions)
|
|
|
|
|
Current assets
|
|
$
|
4
|
|
Property, plant, and equipment
|
|
|
13
|
|
Intangible assets
|
|
|
3
|
|
Goodwill
|
|
|
1
|
|
|
|
|
|
|
Total assets acquired
|
|
|
21
|
|
|
|
|
|
|
Current liabilities
|
|
|
1
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
1
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
20
|
|
|
|
|
|
|
We acquired 100% of the stock of Prairie Packaging, Inc.
(Prairie) on June 5, 2007. The results of Prairies
operations have been included in the consolidated financial
statements as of that date.
|
|
Note 5.
|
Discontinued
Operations
|
On October 12, 2005, we sold substantially all of our
protective and flexible packaging businesses. The results of the
sold businesses, as well as costs and charges associated with
the transaction, are classified as discontinued operations.
In 2009, we recorded $15 million of income from
discontinued operations primarily related to the expiration of
the statute of limitations on the 2005 tax year for tax
liabilities which had been recorded in conjunction with divested
businesses. In 2008, we recorded expense from discontinued
operations of $4 million, which was attributed to taxes
associated with the disposition of a business. Liabilities
related to discontinued operations, which included obligations
related to income taxes, certain royalty payments, and the costs
of closing a facility in Europe, were as follows:
|
|
|
|
|
|
|
|
|
At December 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
11
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total liabilities related to discontinued operations
|
|
$
|
11
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
43
Notes to
Financial Statements (Continued)
|
|
Note 6.
|
Long-Term
Debt, Short-Term Debt, and Financing Arrangements
|
Long-Term
Debt
|
|
|
|
|
|
|
|
|
At December 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
Notes due 2010, effective interest rate of 0.4%
|
|
$
|
|
|
|
$
|
5
|
|
Borrowings under a
5-year,
$750 million revolving credit facility
|
|
|
|
|
|
|
70
|
|
Notes due 2012, effective interest rate of 5.7%
|
|
|
250
|
|
|
|
250
|
|
Notes due 2017, effective interest rate of 8.1%
|
|
|
300
|
|
|
|
300
|
|
Notes due 2018, effective interest rate of 6.3%, net of
$1 million of unamortized discount
|
|
|
249
|
|
|
|
249
|
|
Notes due 2025, effective interest rate of 7.9%, net of
$1 million of unamortized discount
|
|
|
275
|
|
|
|
275
|
|
Notes due 2027, effective interest rate of 8.4%, net of
$4 million of unamortized discount
|
|
|
196
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,270
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Debt
|
|
|
|
|
|
|
|
|
At December 31 (In millions)
|
|
2009
|
|
2008
|
|
Current maturities of long-term debt
|
|
$
|
5
|
|
|
$
|
|
|
At December 31, 2009, the aggregate maturities of debt
outstanding were $5 million due in 2010, $250 million
due in 2012, and $1.026 billion thereafter.
We were in full compliance with financial and other covenants in
our various credit agreements at December 31, 2009.
There have been no stated events of default which would permit
the lenders to accelerate the debt if not cured within
applicable grace periods, or any cross default provisions in our
debt agreements. We had no short-term borrowings as of
December 31, 2009.
In 1999, our former parent, Tenneco realigned certain of its
debt in preparation for the spin-off of Pactiv. In conjunction
with this realignment, we entered into an interest rate swap to
hedge our exposure to interest rate movement. We settled this
swap in November 1999 at a loss of $43 million. The loss on
the swap is being recognized as additional interest expense over
the life of the underlying notes. At December 31, 2009, the
unamortized balance was $35 million.
|
|
Note 7.
|
Financial
Instruments
|
Asset
and Liability Instruments
At December 31, 2009, and 2008, the fair value of cash and
temporary cash investments, short- and long-term receivables,
accounts payable, and short-term debt were the same as, or not
materially different from, the amount recorded for these assets
and liabilities. The fair value of long-term debt was
approximately $1.5 billion at December 31, 2009, and
approximately $1.4 billion at December 31, 2008. The
recorded amount was $1.3 billion at December 31, 2009,
and at December 31, 2008. The fair value of long-term debt
was based on quoted market prices for our debt instruments.
Instruments
with Off-Balance Sheet Risk (Including
Derivatives)
We use derivative instruments, principally swaps, forward
contracts, and options, to manage our exposure to movements in
foreign currency values, interest rates, and commodity prices.
44
Notes to
Financial Statements (Continued)
Cash Flow
Hedges
For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on
the derivative is reported as a component of other comprehensive
income (OCI) and reclassified into earnings in the same period
or periods in which the hedged transaction affects earnings.
Financial instruments designated as cash flow hedges are
assessed both at inception and quarterly thereafter to ensure
they are effective in offsetting changes in the cash flows of
the related underlying exposures. The fair value of the hedge
instruments are reclassified from OCI to earnings if the hedge
ceases to be highly effective or if the hedged transaction is no
longer probable.
Foreign
Currency
From time to time, we use derivative financial instruments to
hedge our exposure to changes in foreign currency exchange
rates, principally using foreign currency purchase and sale
contracts with terms of less than one year. We do so to mitigate
our exposure to exchange rate changes related to third-party
trade receivables and accounts payable. Net gains or losses on
such contracts are recognized in the statement of income as
offsets to foreign currency exchange gains or losses on the
underlying transactions. In the statement of cash flows, cash
receipts and payments related to hedging contracts are
classified in the same way as cash flows from the transactions
being hedged. We had no open foreign currency contracts as of
December 31, 2009.
Interest
Rates
We entered into interest rate swap agreements in connection with
the acquisition of Prairie. The agreements were terminated on
June 20, 2007, resulting in a gain of $9 million. This
gain is being recorded as a reduction of interest expense over
the average life of the underlying debt. Amounts recognized in
earnings related to our hedging transactions were
$1 million for the year ended December 31, 2009, and
December 31, 2008.
Commodity
During the fourth quarter of 2009, we entered into natural gas
purchase agreements with third parties, hedging a portion of the
first half of 2010 purchases of natural gas used in the
production processes at certain of our plants. These purchase
agreements are marked to market, with the resulting gains or
losses recognized in earnings when hedged transactions are
recorded. The
mark-to-market
adjustments at December 31, 2009, were immaterial.
To minimize volatility in our margins due to large fluctuations
in the price of commodities, in the second quarter of 2009 we
entered into swap contracts to manage risks associated with
market fluctuations in resin prices. These contracts were
designated as cash flow hedges of forecasted commodity
purchases. All monthly swap contracts entered into in the third
quarter of 2009 have expired. There were no contracts
outstanding as of December 31, 2009, and no gains are
expected to be reclassified to earnings in the first quarter of
2010.
Fair
Value Measurements
Financial assets and liabilities that are recorded at fair value
consist of derivative contracts that are used to hedge exposures
to interest rate, commodity, and currency risks. ASC
820-10-35
sets out a fair value hierarchy that groups fair value
measurement inputs into three classifications: Level 1,
Level 2, or Level 3. Level 1 inputs are quoted
prices in an active market for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs
are unobservable inputs for the asset or liability. All of our
fair value measurements for derivative contracts use
Level 2 inputs.
There were no outstanding derivative instruments recorded in the
consolidated balance sheet as of December 31, 2009, and as
of December 31, 2008.
45
Notes to
Financial Statements (Continued)
The following table indicates the amounts recognized in OCI for
those derivatives designated as cash flow hedges for the years
ended December 31, 2009, and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) or Loss
|
|
|
|
|
|
|
|
|
Reclassified from OCI into
|
|
|
Gain or (Loss)
|
|
|
|
Income
|
|
|
Recognized in OCI
|
|
Location of Gain or (Loss)
|
|
(Effective
|
|
|
(Effective Portion)
|
|
Reclassified from OCI into
|
|
Portion)
|
(In millions)
|
|
2009
|
|
2008
|
|
Income (Effective Portion)
|
|
2009
|
|
2008
|
|
Commodity Contracts
|
|
$
|
|
|
|
$
|
|
|
|
Cost of Sales
|
|
$
|
(2
|
)
|
|
$
|
|
|
Interest Rate Contracts
|
|
$
|
|
|
|
$
|
|
|
|
Interest Expense
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
There were no transactions that ceased to qualify as a cash flow
hedge in the years ended December 31, 2009, or 2008.
|
|
Note 8.
|
Goodwill
and Intangible Assets
|
Changes in the carrying value of goodwill during 2009 and 2008
by reporting segment are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Foodservice/
|
|
|
|
|
(In millions)
|
|
Products
|
|
|
Food Packaging
|
|
|
Total
|
|
|
Balance, December 31, 2007 (1)
|
|
$
|
288
|
|
|
$
|
839
|
|
|
$
|
1,127
|
|
Goodwill adjustment
|
|
|
3
|
|
|
|
13
|
|
|
|
16
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (1)
|
|
$
|
291
|
|
|
$
|
837
|
|
|
$
|
1,128
|
|
Goodwill additions
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Goodwill adjustment
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
291
|
|
|
$
|
844
|
|
|
$
|
1,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
Goodwill and other intangible assets recorded in connection with
the WinCup acquisition totaled $1 million and
$3 million, respectively. Recorded intangible assets
pertain to customer relationships and are being amortized over a
15-year
period.
Details of intangible assets are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
(In millions)
|
|
Carrying value
|
|
|
amortization
|
|
|
Carrying value
|
|
|
amortization
|
|
|
Intangible assets subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
87
|
|
|
$
|
74
|
|
|
$
|
87
|
|
|
$
|
69
|
|
Customer relationships
|
|
|
209
|
|
|
|
36
|
|
|
|
206
|
|
|
|
21
|
|
Other
|
|
|
145
|
|
|
|
88
|
|
|
|
145
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
198
|
|
|
|
438
|
|
|
|
171
|
|
Intangible assets not subject to amortization (primarily
trademarks)
|
|
|
129
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
570
|
|
|
$
|
198
|
|
|
$
|
567
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Notes to
Financial Statements (Continued)
The weighted-average amortization period used for patents and
other intangible assets subject to amortization is 15 years
and 18 years, respectively. Amortization of intangible
assets was $26 million for the year ended December 31,
2009. Amortization expense is estimated to total
$25 million in 2010, $24 million in 2011,
$23 million in 2012, $19 million in 2013, and
$19 million in 2014.
|
|
Note 9.
|
Property,
Plant, and Equipment, Net
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Original cost
|
|
|
|
|
|
|
|
|
Land, buildings, and improvements
|
|
$
|
667
|
|
|
$
|
654
|
|
Machinery and equipment
|
|
|
1,929
|
|
|
|
1,808
|
|
Other, including construction in progress
|
|
|
96
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,692
|
|
|
$
|
2,587
|
|
Less accumulated depreciation and amortization
|
|
|
(1,520
|
)
|
|
|
(1,378
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant, and equipment
|
|
$
|
1,172
|
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest was $1 million in 2009, and
$2 million in both 2008 and 2007.
Details of income (loss) from continuing operations before
income taxes are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
458
|
|
|
$
|
321
|
|
|
$
|
357
|
|
Foreign operations
|
|
|
28
|
|
|
|
19
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
486
|
|
|
$
|
340
|
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
Shown below are details of income tax expense for continuing
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(35
|
)
|
|
$
|
10
|
|
|
$
|
71
|
|
State and local
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
14
|
|
Foreign
|
|
|
7
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
7
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
186
|
|
|
|
101
|
|
|
|
31
|
|
State and local
|
|
|
19
|
|
|
|
7
|
|
|
|
3
|
|
Foreign
|
|
|
2
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
|
|
112
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
177
|
|
|
$
|
119
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
47
Notes to
Financial Statements (Continued)
A reconciliation of the difference between the
U.S. statutory federal income tax rate and our effective
income tax rate is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
U.S. statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increase (decrease) in income tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income taxed at various rates
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
0.5
|
|
State and local taxes on income, net of federal income tax
benefit
|
|
|
2.3
|
|
|
|
(0.3
|
)
|
|
|
3.0
|
|
Domestic production deduction
|
|
|
0.0
|
|
|
|
(0.1
|
)
|
|
|
(1.3
|
)
|
Research and experimentation credit
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
Income tax reserve increase
|
|
|
0.5
|
|
|
|
2.8
|
|
|
|
1.4
|
|
Income tax reserve decrease
|
|
|
(0.9
|
)
|
|
|
(1.8
|
)
|
|
|
(2.2
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
36.4
|
%
|
|
|
35.1
|
%
|
|
|
35.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The components of our net deferred tax assets and liabilities
are summarized in the following table.
|
|
|
|
|
|
|
|
|
December 31 (In millions)
|
|
2009
|
|
|
2008 (1)
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Tax loss carryforwards
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
42
|
|
|
$
|
15
|
|
State and local
|
|
|
3
|
|
|
|
|
|
Foreign
|
|
|
12
|
|
|
|
18
|
|
Tax Credits
|
|
|
15
|
|
|
|
5
|
|
Pensions (2)
|
|
|
240
|
|
|
|
412
|
|
Postretirement benefits
|
|
|
37
|
|
|
|
38
|
|
Benefits of ASC
740-10
|
|
|
11
|
|
|
|
11
|
|
Other items
|
|
|
29
|
|
|
|
14
|
|
Valuation allowance (3)
|
|
|
(35
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
354
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
362
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
362
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (assets) liabilities
|
|
$
|
8
|
|
|
$
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
|
(2) |
|
Decrease mainly due to realized tax benefits from pension
contributions. |
|
(3) |
|
Related to federal and foreign tax loss and tax credit
carryforwards. |
We had federal net operating loss carryforwards of
$77 million as of December 31, 2009, which will expire
in 2030 and federal capital loss carryforwards of
$44 million as of December 31, 2009, which will expire
in 2011. State net operating loss carryforwards of
$3 million at December 31, 2009, will expire at
various dates
48
Notes to
Financial Statements (Continued)
from 2015 to 2030. Foreign net operating loss carryforwards at
December 31, 2009, totaled $47 million, and have an
unlimited life.
We had federal tax credit carryforwards of $5 million, as
of December 31, 2009, which will expire at various dates
from 2017 to 2030. State tax credit carryforwards at
December 31, 2009, totaled $13 million
($8 million, net of the federal benefit of state tax), of
which $10 million will expire at various dates from 2011 to
2024, with the balance having an unlimited life. Foreign tax
credit carryforwards of $2 million at December 31,
2009, will expire in 2019 and 2020.
The FASB issued certain provisions within ASC
740-10
Income Taxes which clarifies the application of
prior authoritative guidance and was effective as of
January 1, 2007. ASC
740-10
establishes a threshold condition that a tax position must meet
for any part of the benefit of such a position to be recognized
in the financial statements. In addition, ASC
740-10
provides guidance regarding measurement, derecognition,
classification, and disclosure of tax positions.
Changes in the balance of unrecognized income tax benefits are
detailed below.
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Balance at January 31
|
|
$
|
57
|
|
|
$
|
53
|
|
Increases related to prior year tax positions
|
|
|
20
|
|
|
|
12
|
|
Decreases related to prior year tax positions
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Increases pertaining to current year tax positions
|
|
|
1
|
|
|
|
5
|
|
Settlements
|
|
|
(2
|
)
|
|
|
(11
|
)
|
Expiration of statute of limitations
|
|
|
(14
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
58
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized income tax benefits that, if
recognized, would favorably impact our effective tax rate for
continuing operations in future periods was $50 million as
of December 31, 2009. As of December 31, 2009, it is
reasonably possible that the balance of unrecognized income tax
benefits may increase or decrease during the following twelve
months. However, it is not expected that any such changes would
significantly affect, individually or in total, our operating
results or financial condition.
It is our continuing practice to record accruals for interest
and penalties related to income tax matters in income tax
expense. Such accruals totaled $11 million as of
December 31, 2009, and $10 million as of
December 31, 2008. Expense recorded through
December 31, 2009, for interest and penalties related to
continuing operations was $3 million.
U.S. federal income tax returns filed for the years 2006
through 2008 are open for examination by the Internal Revenue
Service. Various state, local, and foreign tax returns filed for
the years 2002 through 2008 are open for examination by tax
authorities in those jurisdictions.
Included in unrecognized income tax benefits at
December 31, 2009, was $1 million related to
discontinued operations, all of which, if recognized, would
impact income from discontinued operations in future periods. In
2009, an income tax benefit of $15 million was recorded,
which included the reversal of $2 million of interest and
penalties as a result of the expiration of the 2005 tax year
statute of limitations.
In connection with the adoption of ASC
718-10
Compensation Stock Compensation, we
elected to use the simplified method in calculating our
additional paid-in capital pool upon adoption of ASC
718-10, as
described in prior authoritative guidance. ASC
718-10
requires that tax deductions for compensation costs in excess of
amounts recognized for accounting purposes be reported as cash
flow from financing activities, rather than as cash flow from
operating activities. Such excess amounts were
$1 million in 2009, immaterial in 2008, and
$23 million in 2007.
49
Notes to
Financial Statements (Continued)
We have 350 million shares of common stock ($0.01 par
value) authorized, of which 132,334,417 shares were issued
and outstanding as of December 31, 2009.
Reserves
Reserved shares at December 31, 2009, were as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
Thrift plans
|
|
|
860
|
|
2002 incentive compensation plan
|
|
|
15,151
|
|
|
|
|
|
|
Total
|
|
|
16,011
|
|
|
|
|
|
|
Stock
Plans
2002 Incentive Compensation Plan In
November 1999, we initiated a stock ownership plan that permits
the granting of a variety of incentives, including common stock,
restricted stock, performance shares, stock appreciation rights,
and stock options, to directors, officers, and employees. In May
2002, the 1999 plan was succeeded by the 2002 plan, and all
balances under the 1999 plan were transferred to the new plan,
which remains in effect until amended or terminated. Under the
2002 plan, up to 27 million shares of common stock can be
issued (including shares issued under the prior plan), of which
17 million were issued or granted as of December 31,
2009.
Restricted stock, performance share, and stock option awards
generally require that, among other things, grantees remain with
the company for certain periods of time. Performance shares
granted under the plan vest upon the attainment of specified
performance goals in the 3 years following the date of
grant.
Changes in performance share balances were as follows:
|
|
|
|
|
|
|
Performance
|
|
|
|
shares
|
|
|
Outstanding, December 31, 2007
|
|
|
2,058,968
|
|
Granted
|
|
|
655,850
|
|
Canceled
|
|
|
(128,089
|
)
|
Paid
|
|
|
(867,663
|
)
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
1,719,066
|
|
Granted
|
|
|
606,325
|
|
Canceled
|
|
|
(152,692
|
)
|
Paid
|
|
|
(604,410
|
)
|
|
|
|
|
|
Outstanding, December 31, 2009
|
|
|
1,568,289
|
|
|
|
|
|
|
Additional information related to performance shares is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
|
|
grant date
|
|
Pretax
|
|
Associated
|
|
|
|
|
fair value
|
|
compensation
|
|
tax
|
|
Impact on
|
(In millions, except per share data)
|
|
per share
|
|
expense
|
|
benefit
|
|
net income
|
|
2009
|
|
$
|
20.10
|
|
|
$
|
16
|
|
|
$
|
6
|
|
|
$
|
10
|
|
2008
|
|
|
28.31
|
|
|
|
16
|
|
|
|
6
|
|
|
|
10
|
|
2007
|
|
|
32.64
|
|
|
|
13
|
|
|
|
5
|
|
|
|
8
|
|
There was $20 million after tax of unamortized performance
share expense at December 31, 2009, of which
$8 million will be charged against net income in 2010 and
$12 million in 2011.
50
Notes to
Financial Statements (Continued)
Summarized below are changes in stock option balances.
|
|
|
|
|
|
|
|
|
|
|
Shares under
|
|
|
Weighted-average
|
|
|
|
option
|
|
|
exercise price
|
|
|
Outstanding, January 1, 2008
|
|
|
5,407,096
|
|
|
$
|
22.69
|
|
Exercised
|
|
|
(559,703
|
)
|
|
|
14.52
|
|
Canceled
|
|
|
(117,096
|
)
|
|
|
32.81
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31,2008
|
|
|
4,730,297
|
|
|
|
23.41
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31,2008
|
|
|
4,730,297
|
|
|
|
23.41
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2009
|
|
|
4,730,297
|
|
|
|
23.41
|
|
Exercised
|
|
|
(429,190
|
)
|
|
|
13.87
|
|
Canceled
|
|
|
(683,824
|
)
|
|
|
37.88
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31,2009
|
|
|
3,617,283
|
|
|
|
21.80
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31,2009
|
|
|
3,617,283
|
|
|
|
21.80
|
|
|
|
|
|
|
|
|
|
|
Summarized below is information regarding stock options
outstanding and exercisable at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Weighted-average
|
|
average
|
|
|
|
|
remaining
|
|
exercise
|
Range of exercise price
|
|
Number
|
|
contractual life
|
|
price
|
|
$ 7 to $12
|
|
|
153,691
|
|
|
|
0.8
|
|
|
$
|
11.72
|
|
$13 to $21
|
|
|
2,040,042
|
|
|
|
2.9
|
|
|
|
18.51
|
|
$22 to $29
|
|
|
983,839
|
|
|
|
4.7
|
|
|
|
23.98
|
|
$30 to $37
|
|
|
263,671
|
|
|
|
8.0
|
|
|
|
32.86
|
|
$38 to $45
|
|
|
176,040
|
|
|
|
6.3
|
|
|
|
40.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,617,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2 for additional information regarding stock-based
compensation accounting.
Employee 401(k) Plans We have qualified
401(k) plans for employees, under which eligible participants
may make contributions equal to a percentage of their annual
salary. We matched a portion of such contributions with Pactiv
common stock until February 2006. Effective March 2006, all
matching contributions are in cash. The company or plan
participants may contribute additional amounts in accordance
with the plans terms. We incurred 401(k) plan expense of
$10 million in 2009, 2008, and 2007.
Rabbi Trust In November 1999, we established
a rabbi trust and reserved 3,200,000 shares of Pactiv
common stock for the trust. These shares were issued to the
trust in January 2000. This trust is designed to assure the
payment of deferred compensation and supplemental pension
benefits. These shares are not considered outstanding for
purposes of financial reporting.
51
Notes to
Financial Statements (Continued)
Earnings
Per Share
Earnings from continuing operations per share of common stock
outstanding were computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except share and per share data)
|
|
2009
|
|
|
2008 (1)
|
|
|
2007 (1)
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Pactiv
|
|
$
|
308
|
|
|
$
|
220
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding
|
|
|
131,967,907
|
|
|
|
130,925,861
|
|
|
|
130,912,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings from continuing operations per share attributable
to Pactiv
|
|
$
|
2.33
|
|
|
$
|
1.68
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Pactiv
|
|
$
|
308
|
|
|
$
|
220
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding
|
|
|
131,967,907
|
|
|
|
130,925,861
|
|
|
|
130,912,229
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
328,072
|
|
|
|
648,682
|
|
|
|
1,149,964
|
|
Performance shares
|
|
|
1,175,068
|
|
|
|
897,216
|
|
|
|
805,085
|
|
Restricted shares
|
|
|
|
|
|
|
1,699
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstanding,
including dilutive securities
|
|
|
133,471,047
|
|
|
|
132,473,458
|
|
|
|
132,869,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings from continuing operations per share
attributable to Pactiv
|
|
$
|
2.31
|
|
|
$
|
1.66
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
The following table summarizes annual repurchases of our common
stock for 2007 through 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price
|
|
|
(In millions)
|
|
Number of shares
|
|
paid per share
|
|
Total outlay
|
|
2009
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
2008
|
|
|
75,218
|
|
|
$
|
26.38
|
|
|
$
|
2
|
|
2007
|
|
|
3,374,821
|
|
|
$
|
32.14
|
|
|
$
|
108
|
|
Pactiv has 50 million shares of preferred stock
($0.01 par value) authorized, none of which was issued at
December 31, 2009.
|
|
Note 13.
|
Pension
Plans and Other Postretirement Benefits
|
We have pension plans that cover the majority of our employees.
Benefits are based on years of service and, for most salaried
employees, final average compensation. Assets of our
U.S. qualified plan consist principally of equity and fixed
income securities.
We have postretirement health care and life insurance plans that
cover certain of our salaried and hourly employees who retire in
accordance with the various provisions of such plans. Benefits
may be subject to deductibles, co-payments, and other
limitations. These postretirement plans are not funded, and we
reserve the right to change them.
52
Notes to
Financial Statements (Continued)
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 was enacted. Starting
in 2006, this act expanded Medicare coverage, primarily by
adding a prescription drug benefit for Medicare-eligible
participants. The act provides employers currently sponsoring
prescription drug programs for Medicare-eligible participants
with a range of options to coordinate with the new government
sponsored program to potentially reduce employers costs.
These options include supplementing the government program on a
secondary payor basis, or accepting a direct subsidy from the
government to support a portion of the costs of employers
programs.
Our plans currently provide prescription drug benefits that are
coordinated with the related Medicare benefits. As a result,
subsidies from Medicare for prescription drug benefits will
average approximately $1.1 million per year.
Effective December 31, 2006, we adopted the recognition and
disclosure provisions of ASC
715-10. See
Note 2.
During 2009 we contributed $550 million pretax to the plan
and plan assets earned a return of approximately 26%. As of
December 31, 2009, our U.S. pension plan was 94%
funded on an Employee Retirement Income Security Act (ERISA)
basis, which determines the minimum funding requirements for the
plan. As long as our funded ratio is above 60%, there is no
meaningful impact on us or to the plan. We do not expect to make
additional sizeable contributions to the plan for the
foreseeable future.
53
Notes to
Financial Statements (Continued)
Financial data pertaining to our pension and postretirement
benefit plans is shown on the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans
|
|
|
Postretirement plans
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Changes in projected benefit obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
3,707
|
|
|
$
|
3,907
|
|
|
$
|
73
|
|
|
$
|
85
|
|
Currency rate conversion
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Service cost of benefits earned
|
|
|
15
|
|
|
|
20
|
|
|
|
1
|
|
|
|
1
|
|
Interest cost of benefit obligations
|
|
|
240
|
|
|
|
300
|
|
|
|
4
|
|
|
|
7
|
|
Actuarial (gains) losses
|
|
|
403
|
|
|
|
(166
|
)
|
|
|
(5
|
)
|
|
|
(13
|
)
|
Benefits paid
|
|
|
(282
|
)
|
|
|
(350
|
)
|
|
|
(11
|
)
|
|
|
(15
|
)
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
7
|
|
Plan amendments
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Medicare Part D reimbursement
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at December 31
|
|
$
|
4,084
|
|
|
$
|
3,707
|
|
|
$
|
68
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of plan assets (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
$
|
2,506
|
|
|
$
|
3,920
|
|
|
$
|
|
|
|
$
|
|
|
Currency rate conversion
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
665
|
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
556
|
|
|
|
11
|
|
|
|
6
|
|
|
|
8
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
7
|
|
Benefits paid
|
|
|
(282
|
)
|
|
|
(350
|
)
|
|
|
(11
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$
|
3,447
|
|
|
$
|
2,506
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development of amounts recognized in the statement of financial
position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31
|
|
$
|
(637
|
)
|
|
$
|
(1,201
|
)
|
|
$
|
(68
|
)
|
|
$
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(7
|
)
|
Noncurrent liabilities
|
|
|
(631
|
)
|
|
|
(1,198
|
)
|
|
|
(62
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset (liability) at December 31
|
|
$
|
(637
|
)
|
|
$
|
(1,201
|
)
|
|
$
|
(68
|
)
|
|
$
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax amounts recognized in accumulated other comprehensive
income (loss) at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gains (losses)
|
|
$
|
(2,751
|
)
|
|
$
|
(2,722
|
)
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
Prior service credit costs
|
|
|
2
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,749
|
)
|
|
$
|
(2,720
|
)
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and projected benefit obligations
recognized in other comprehensive income (loss) during year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gains (losses)
|
|
$
|
(79
|
)
|
|
|
|
|
|
$
|
5
|
|
|
|
|
|
Amortization of net actuarial gains
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
$
|
(28
|
)
|
|
|
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
plans
|
|
|
|
|
|
plans
|
|
|
|
|
|
Effect of amortization of net actuarial losses and prior service
credits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on 2010 net periodic benefit income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gains (losses)
|
|
$
|
75
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For 2008, the change in benefit obligation and plan assets are
for the period beginning October 1, 2007 and ending
December 31, 2008, including amounts recorded in the
statement of income and in other comprehensive
income in 2008. |
54
Notes to
Financial Statements (Continued)
Benefit payments expected to be made under the pension and
postretirement benefit plans over the next 10 years are
summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
plans, net of expected
|
(In millions)
|
|
Pension plans
|
|
Medicare subsidy
|
|
2010
|
|
$
|
297
|
|
|
$
|
5
|
|
2011
|
|
|
296
|
|
|
|
5
|
|
2012
|
|
|
300
|
|
|
|
5
|
|
2013
|
|
|
304
|
|
|
|
4
|
|
2014
|
|
|
318
|
|
|
|
4
|
|
2015-2019
|
|
|
1,522
|
|
|
|
23
|
|
We expect to contribute $15 million to our pension and post
retirement plans in 2010.
The impact of pension plans on pretax income from continuing
operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of net periodic benefit income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned
|
|
$
|
(15
|
)
|
|
$
|
(16
|
)
|
|
$
|
(18
|
)
|
Interest cost of benefit obligations
|
|
|
(240
|
)
|
|
|
(240
|
)
|
|
|
(228
|
)
|
Expected return on plan assets
|
|
|
342
|
|
|
|
349
|
|
|
|
344
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses
|
|
|
(50
|
)
|
|
|
(44
|
)
|
|
|
(47
|
)
|
Unrecognized prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional cost due to ASC
715-20 (1)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit income (expense)
|
|
$
|
36
|
|
|
$
|
49
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
ASC 715-20,
Compensation Retirement Benefits, Defined
Benefit Plans. |
In 2009, our nonqualified and foreign plans had net periodic
benefit expense of $12 million.
Pension plan actuarial assumptions used to determine projected
benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Actuarial assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
6.74
|
%
|
|
|
6.39
|
%
|
Compensation increases
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
Return on assets
|
|
|
9.00
|
|
|
|
9.00
|
|
|
|
9.00
|
|
The net periodic benefit income for 2009 was determined using
the assumptions listed for 2008.
For all of our worldwide pension plans, accumulated benefit
obligations totaled $4.045 billion in 2009 and
$3.677 billion in 2008.
Pension plans with accumulated benefit obligations in excess of
plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(In millions)
|
|
2009
|
|
2008
|
|
Projected benefit obligations
|
|
$
|
4,067
|
|
|
$
|
3,695
|
|
Accumulated benefit obligations
|
|
|
4,029
|
|
|
|
3,665
|
|
Fair value of plan assets
|
|
|
3,428
|
|
|
|
2,490
|
|
55
Notes to
Financial Statements (Continued)
The discount rate assumption for our U.S. qualified plan is
based on the composite yield of a portfolio of high quality
corporate bonds constructed with durations to match the
plans future benefit obligations. A one-percentage-point
change in the discount rate impacts the projected benefit
obligation by approximately $360 million.
Plan
Assets
In developing the assumption for the return on pension plan
assets, we receive independent input on asset allocation
strategies, projections regarding long-term rates of return on
various asset classes, risk free rates of return, and long-term
inflation rates. Since 1976, our U.S. qualified pension
plans annual rate of return on assets has averaged 10%. At
December 31, 2009, the percentage of pension plan assets
invested in equity and fixed income securities was approximately
72% and 28%, respectively. The investment policy of the pension
plan is to achieve a rate of return sufficient to meet the
immediate and long-term benefit obligations of the plan. The
investment strategy seeks to maximize long-term return within an
acceptable level of risk by balancing investments in assets with
higher expected rates of return such as equity securities and
assets with lower expected volatility such as fixed-income
securities. Risk tolerances are based on careful consideration
of plan liabilities, plan funded status, and the companys
financial condition. Investment risk is measured and monitored
on an ongoing basis through quarterly investment portfolio
reviews, annual liability measurements, and periodic
asset/liability studies. The plan generally maintains an asset
allocation of approximately 70% in equities and 30% in fixed
income securities. Equity investments include U.S. and
non-U.S. stocks,
as well as growth, value, and small and large capitalization
stocks. Other equity like asset classes, such as private equity
investments, are used to enhance long-term returns, while
increasing portfolio diversification. Fixed-income investments
include corporate bonds, government bonds, asset backed
securities (including mortgages), and cash. After considering
all of these factors, we concluded that a 9% rate of return on
assets assumption for our U.S. plan was appropriate for
2009 and 2008.
The majority of the pension plan assets are invested in equities
of which a substantial portion is invested in
U.S. equities. A broad-based decline in equity values
around the world or a general decline in U.S. equity values
would have a significant adverse effect on the pension plan. The
plan also has a large holding of bonds that pay a fixed rate of
interest. A material increase in interest rates would reduce the
value these bonds.
56
Notes to
Financial Statements (Continued)
The fair values of pension plan assets at December 31,
2009, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
active markets for
|
|
|
observable
|
|
|
unobservable
|
|
(In millions)
|
|
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
Asset category
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash and cash equivalents
|
|
$
|
92
|
|
|
$
|
|
|
|
$
|
92
|
|
|
$
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective funds (a)
|
|
|
664
|
|
|
|
|
|
|
|
664
|
|
|
|
|
|
International companies
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
US large cap companies
|
|
|
1,251
|
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
US mid cap companies
|
|
|
360
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
US small cap companies
|
|
|
122
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective funds
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Corporate bonds
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
Corporate bonds (S&P rating of A or higher)
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
|
|
|
|
Corporate bonds (S&P rating of lower than A)
|
|
|
328
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
Government securities
|
|
|
151
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
Mortgage backed securities
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Other fixed income (b)
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective funds
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Private equity funds (c)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,447
|
|
|
$
|
1,764
|
|
|
$
|
1,653
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This asset category includes funds that invest in international
companies including companies from countries classified as
Emerging Markets by MSCI. |
|
(b) |
|
This asset category includes municipal bonds. |
|
(c) |
|
This asset category includes venture capital funds. |
The change in the fair value of pension plan assets using
Level 3 or significant unobservable inputs during the year
ended December 31, 2009, is detailed in the table below.
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using
|
|
|
|
significant unobservable inputs
|
|
|
|
Private equity
|
|
|
|
|
(In millions)
|
|
funds
|
|
|
Total
|
|
|
Beginning balance at December 31, 2008
|
|
$
|
36
|
|
|
$
|
36
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Relating to assets sold during the period
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Purchases, sales, and settlements
|
|
|
4
|
|
|
|
4
|
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2009
|
|
$
|
30
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
We use a market-related method for calculating the value of plan
assets. This method recognizes the difference between actual and
expected returns on plan assets over time. The market-related
value of plan assets (MRVA)
57
Notes to
Financial Statements (Continued)
as of January 1, 2010, is $4.191 billion. Each year,
the expected gain on plan assets (MRVA multiplied by the
expected rate of return) is compared with the change in fair
market value of assets (adjusted for pension benefit payments
and expenses) during the year to determine the asset gain or
loss for the year just ended.
The asset gain or loss for the year just ended is amortized over
five years to the pool of amortizable actuarial gains or losses
accumulated from prior years. Also added to the amortizable pool
are all other actuarial gains or losses, which have occurred
during the year just ended. The pool is amortized using the
corridor approach in ASC
715-20. The
corridor amount is 10% of the greater of the MRVA or the pension
benefit obligation. The amount of actuarial gains or losses to
be amortized as a component of pension income is the amount of
the pool in excess of the corridor amount. The accumulated pool
of amortizable losses as of January 1, 2010, was
$1.543 billion. The amortization period is determined by
the weighted-average of the life expectancy of inactive plan
participants and the remaining service expectancy of active plan
participants. As of January 1, 2010, this weighted average
is 21.2 years.
The impact of postretirement benefit plans, other than pensions,
on pretax income from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost of benefits earned
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost of benefit obligations
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
Prior service costs
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Losses
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement benefit plan costs
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial assumptions used to determine postretirement benefit
obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Actuarial assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care cost inflation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to age 65
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.6
|
%
|
After age 65
|
|
|
8.0
|
|
|
|
8.0
|
|
|
|
9.8
|
|
Discount rate
|
|
|
5.75
|
|
|
|
6.74
|
|
|
|
6.39
|
|
|
|
|
(1) |
|
Assumed to decline to 5% in 2017. |
A one percentage-point change in assumed health-care cost
inflation would have the following effects:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
1% increase
|
|
1% decrease
|
|
Effect on total service and interest costs
|
|
$
|
|
|
|
$
|
|
|
Effect on postretirement benefit obligations
|
|
|
2
|
|
|
|
(2
|
)
|
We contributed $6 million and $8 million in 2009 and
2008, respectively, to fund postretirement medical plan
obligations. We expect to contribute $6 million to fund our
postretirement medical plan obligations in 2010.
|
|
Note 14.
|
Segment
and Geographic Area Information
|
Our three reporting segments are Consumer Products,
Foodservice/Food Packaging, and Other. See Note 1 for
additional details.
Products are transferred between segments and among geographic
areas, as nearly as possible, using market value. Wal-Mart
Stores, Inc., accounted for approximately 21% of our
consolidated sales in 2009 and 2008. These sales were reflected
primarily in the results of the Consumer Products segment and,
to a lesser extent, in the results of the Foodservice/Food
Packaging segment. Our backlog of orders is not material.
58
Notes to
Financial Statements (Continued)
The following table sets forth certain segment information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Foodservice/
|
|
|
|
|
|
|
|
(In millions)
|
|
Products
|
|
|
Food Packaging
|
|
|
Other
|
|
|
Total
|
|
|
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,285
|
|
|
$
|
2,075
|
|
|
$
|
|
|
|
$
|
3,360
|
|
Depreciation and amortization
|
|
|
63
|
|
|
|
114
|
|
|
|
7
|
|
|
|
184
|
|
Operating income (loss)
|
|
|
297
|
|
|
|
300
|
|
|
|
(18
|
) (b)
|
|
|
579
|
|
Total assets
|
|
|
1,270
|
|
|
|
2,122
|
|
|
|
182
|
|
|
|
3,574
|
|
Capital expenditures related to continuing operations
|
|
|
13
|
|
|
|
92
|
|
|
|
6
|
|
|
|
111
|
|
Noncash items other than depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(20
|
) (c)
|
|
|
(20
|
)
|
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,342
|
|
|
$
|
2,225
|
|
|
$
|
|
|
|
$
|
3,567
|
|
Depreciation and amortization
|
|
|
63
|
|
|
|
112
|
|
|
|
7
|
|
|
|
182
|
|
Operating income (loss) (d)
|
|
|
207
|
|
|
|
234
|
|
|
|
3
|
(b)
|
|
|
444
|
(a)
|
Total assets (d)
|
|
|
1,326
|
|
|
|
2,102
|
|
|
|
333
|
|
|
|
3,761
|
|
Capital expenditures related to continuing operations
|
|
|
25
|
|
|
|
105
|
|
|
|
6
|
|
|
|
136
|
|
Noncash items other than depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(33
|
) (c)
|
|
|
(33
|
)
|
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,221
|
|
|
$
|
2,032
|
|
|
$
|
|
|
|
$
|
3,253
|
|
Depreciation and amortization
|
|
|
62
|
|
|
|
97
|
|
|
|
7
|
|
|
|
166
|
|
Operating income (loss) (d)
|
|
|
226
|
|
|
|
245
|
|
|
|
(2
|
) (b)
|
|
|
469
|
|
Total assets (d)
|
|
|
1,365
|
|
|
|
2,159
|
|
|
|
274
|
|
|
|
3,798
|
|
Capital expenditures related to continuing operations
|
|
|
16
|
|
|
|
129
|
|
|
|
6
|
|
|
|
151
|
|
Noncash items other than depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
(41
|
) (c)
|
|
|
(41
|
)
|
|
|
|
(a) |
|
Included restructuring and other charges of $16 million in
2008 ($5 million for Consumer Products, $10 million
for Foodservice/Food Packaging, and $1 million for Other). |
|
(b) |
|
Included pension plan income and unallocated corporate expense. |
|
(c) |
|
Included pension plan income and stock-based compensation
expense. |
|
(d) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
59
Notes to
Financial Statements (Continued)
The following table sets forth certain geographic area
information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic area
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
(In millions)
|
|
States
|
|
|
Foreign (1)
|
|
|
Total
|
|
|
At December 31, 2009, and for the year then ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers (2)
|
|
$
|
3,054
|
|
|
$
|
307
|
|
|
$
|
3,360
|
|
Long-lived assets (3)
|
|
|
1,131
|
|
|
|
103
|
|
|
|
1,234
|
|
Total assets
|
|
|
3,266
|
|
|
|
307
|
|
|
|
3,574
|
|
At December 31, 2008, and for the year then ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers (2)
|
|
$
|
3,240
|
|
|
$
|
327
|
|
|
$
|
3,567
|
|
Long-lived assets (3)
|
|
|
1,172
|
|
|
|
107
|
|
|
|
1,279
|
|
Total assets (4)
|
|
|
3,470
|
|
|
|
292
|
|
|
|
3,761
|
|
At December 31, 2007, and for the year then ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers (2)
|
|
$
|
2,946
|
|
|
$
|
307
|
|
|
$
|
3,253
|
|
Long-lived assets (3)
|
|
|
1,301
|
|
|
|
121
|
|
|
|
1,422
|
|
Total assets (4)
|
|
|
3,461
|
|
|
|
337
|
|
|
|
3,798
|
|
|
|
|
(1) |
|
Sales to external customers and long-lived assets for individual
countries (primarily Germany, Canada, and Mexico) were not
material. |
(2) Geographic assignment is based on location of selling
business.
|
|
(3)
|
Long-lived assets include all long-term assets other than net
assets of discontinued operations, goodwill, intangibles, and
deferred taxes.
|
|
(4)
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements.
|
|
|
Note 15.
|
Commitments
and Contingencies
|
Capital
Commitments
Commitments for authorized capital expenditures totaled
approximately $61 million at December 31, 2009. It is
anticipated that the majority of these expenditures will be
funded over the next 12 months from existing cash and
short-term investments and internally generated cash.
Lease
Commitments
Certain of our facilities, equipment, and other assets are
leased under long-term arrangements. Minimum lease payments
under noncancelable operating leases with lease terms in excess
of 1 year are expected to total $30 million in 2010,
$24 million in 2011, $19 million in 2012,
$13 million in 2013, $10 million in 2014, and
$40 million in subsequent years.
Commitments under capital leases are not significant. Total
rental costs for continuing operations totaled $37 million
in 2009, $35 million in 2008, and $31 million in 2007,
and included minimum rentals under noncancelable operating
leases of $37 million, $35 million, and
$31 million for the respective periods.
Litigation
We are party to other legal proceedings arising from our
operations. We establish reserves for claims and proceedings
when it is probable that liabilities exist and where reasonable
estimates of such liabilities can be made. While it is not
possible to predict the outcome of any of these matters, based
on our assessment of the
60
Notes to
Financial Statements (Continued)
facts and circumstances now known, we do not believe that any of
these matters, individually or in the aggregate, will have a
material adverse effect on our financial position. However,
actual outcomes may be different from those expected and could
have a material effect on our results of operations or cash
flows in a particular period.
Environmental
Matters
We are subject to a variety of environmental and pollution
control laws and regulations. From time to time, we identify
costs or liabilities arising from compliance with environmental
laws and regulations. When related liabilities are probable and
can be reasonably estimated, we establish appropriate reserves.
Estimated liabilities may change as additional information
becomes available. We appropriately adjust our reserves as new
information on possible
clean-up
costs, expense and effectiveness of alternative
clean-up
methods and other potential liabilities is received. We do not
expect that any additional liabilities recorded as a result of
the availability of new information will have a material adverse
effect on our financial position. However, such costs could have
a material effect on our results of operations or cash flows in
a particular period.
|
|
Note 16.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Pactiv
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
|
|
|
from
|
|
|
|
|
|
|
|
|
|
Cost of
|
|
|
Restructuring
|
|
|
continuing
|
|
|
discontinued
|
|
|
|
|
(In millions)
|
|
Sales
|
|
|
sales (1)
|
|
|
and other
|
|
|
operations (1)
|
|
|
operations
|
|
|
Net income (1)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
766
|
|
|
$
|
495
|
|
|
$
|
|
|
|
$
|
77
|
|
|
$
|
|
|
|
$
|
77
|
|
Second quarter
|
|
|
901
|
|
|
|
601
|
|
|
|
|
|
|
|
81
|
|
|
|
(1
|
)
|
|
|
80
|
|
Third quarter
|
|
|
839
|
|
|
|
562
|
|
|
|
|
|
|
|
79
|
|
|
|
15
|
|
|
|
94
|
|
Fourth quarter
|
|
|
854
|
|
|
|
583
|
|
|
|
|
|
|
|
71
|
|
|
|
1
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,360
|
|
|
$
|
2,241
|
|
|
$
|
|
|
|
$
|
308
|
|
|
$
|
15
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
808
|
|
|
$
|
585
|
|
|
$
|
14
|
|
|
$
|
43
|
|
|
$
|
(1
|
)
|
|
$
|
42
|
|
Second quarter
|
|
|
951
|
|
|
|
706
|
|
|
|
2
|
|
|
|
63
|
|
|
|
(3
|
)
|
|
|
60
|
|
Third quarter
|
|
|
925
|
|
|
|
700
|
|
|
|
(2
|
)
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Fourth quarter
|
|
|
883
|
|
|
|
647
|
|
|
|
2
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,567
|
|
|
$
|
2,638
|
|
|
$
|
16
|
|
|
$
|
220
|
|
|
$
|
(4
|
)
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
First quarter 2009 through third quarter 2009 and all four
quarters of 2008 have been adjusted for the change in inventory
accounting method. |
61
Notes to
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Pactiv common shareholders (1)
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock
|
|
|
Diluted earnings per share of common stock
|
|
|
|
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Net
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
Net
|
|
|
Stock price/share
|
|
|
|
operations
|
|
|
operations
|
|
|
income
|
|
|
operations
|
|
|
operations
|
|
|
income
|
|
|
High
|
|
|
Low
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.58
|
|
|
$
|
|
|
|
$
|
0.58
|
|
|
$
|
0.58
|
|
|
$
|
|
|
|
$
|
0.58
|
|
|
$
|
25.31
|
|
|
$
|
10.62
|
|
Second quarter
|
|
|
0.61
|
|
|
|
(0.01
|
)
|
|
|
0.60
|
|
|
|
0.61
|
|
|
|
(0.01
|
)
|
|
|
0.60
|
|
|
|
23.52
|
|
|
|
14.01
|
|
Third quarter
|
|
|
0.60
|
|
|
|
0.12
|
|
|
|
0.72
|
|
|
|
0.59
|
|
|
|
0.11
|
|
|
|
0.70
|
|
|
|
26.81
|
|
|
|
20.04
|
|
Fourth quarter
|
|
|
0.54
|
|
|
|
0.01
|
|
|
|
0.55
|
|
|
|
0.53
|
|
|
|
0.01
|
|
|
|
0.54
|
|
|
|
27.71
|
|
|
|
22.27
|
|
Total year
|
|
|
2.33
|
|
|
|
0.12
|
|
|
|
2.45
|
|
|
|
2.31
|
|
|
|
0.11
|
|
|
|
2.42
|
|
|
|
27.71
|
|
|
|
10.62
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.32
|
|
|
$
|
|
|
|
$
|
0.32
|
|
|
$
|
0.32
|
|
|
$
|
|
|
|
$
|
0.32
|
|
|
$
|
29.52
|
|
|
$
|
23.00
|
|
Second quarter
|
|
|
0.49
|
|
|
|
(0.03
|
)
|
|
|
0.46
|
|
|
|
0.48
|
|
|
|
(0.03
|
)
|
|
|
0.45
|
|
|
|
27.34
|
|
|
|
20.82
|
|
Third quarter
|
|
|
0.45
|
|
|
|
|
|
|
|
0.45
|
|
|
|
0.45
|
|
|
|
|
|
|
|
0.45
|
|
|
|
28.49
|
|
|
|
18.98
|
|
Fourth quarter
|
|
|
0.42
|
|
|
|
|
|
|
|
0.42
|
|
|
|
0.41
|
|
|
|
|
|
|
|
0.41
|
|
|
|
26.95
|
|
|
|
20.44
|
|
Total year
|
|
|
1.68
|
|
|
|
(0.03
|
)
|
|
|
1.65
|
|
|
|
1.66
|
|
|
|
(0.03
|
)
|
|
|
1.63
|
|
|
|
29.52
|
|
|
|
18.98
|
|
|
|
|
(1) |
|
The sum of amounts shown for individual quarters may not equal
the total for the year because of changes in the
weighted-average number of shares outstanding throughout the
year. First quarter 2009 through third quarter 2009 and the full
year 2008 have been adjusted for the change in inventory
accounting method. |
The following tables present the changes to the interim quarters
of 2009 for the change in inventory accounting method, as
described in Note 2 to the financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September 30, 2009
|
|
June 30, 2009
|
|
March 31, 2009
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
(In millions)
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Cost of Sales, excluding depreciation and amortization
|
|
$
|
573
|
|
|
$
|
562
|
|
|
$
|
575
|
|
|
$
|
601
|
|
|
$
|
473
|
|
|
$
|
495
|
|
Operating income
|
|
|
137
|
|
|
|
148
|
|
|
|
179
|
|
|
|
153
|
|
|
|
167
|
|
|
|
145
|
|
Income tax expense
|
|
|
41
|
|
|
|
45
|
|
|
|
59
|
|
|
|
49
|
|
|
|
53
|
|
|
|
45
|
|
Income from continuing operations
|
|
|
73
|
|
|
|
80
|
|
|
|
97
|
|
|
|
81
|
|
|
|
91
|
|
|
|
77
|
|
Net income attributable to Pactiv
|
|
|
87
|
|
|
|
94
|
|
|
|
96
|
|
|
|
80
|
|
|
|
91
|
|
|
|
77
|
|
Earnings (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.67
|
|
|
$
|
0.72
|
|
|
$
|
0.72
|
|
|
$
|
0.60
|
|
|
$
|
0.69
|
|
|
$
|
0.58
|
|
Diluted
|
|
$
|
0.65
|
|
|
$
|
0.70
|
|
|
$
|
0.72
|
|
|
$
|
0.60
|
|
|
$
|
0.69
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
|
September 30, 2009
|
|
June 30, 2009
|
|
March 31, 2009
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
|
As Originally
|
|
|
(In millions)
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Reported
|
|
As Adjusted
|
|
Net income
|
|
$
|
275
|
|
|
$
|
252
|
|
|
$
|
187
|
|
|
$
|
157
|
|
|
$
|
91
|
|
|
$
|
77
|
|
Deferred income taxes
|
|
|
114
|
|
|
|
100
|
|
|
|
52
|
|
|
|
34
|
|
|
|
20
|
|
|
|
11
|
|
Net working capital (1)
|
|
|
92
|
|
|
|
129
|
|
|
|
91
|
|
|
|
139
|
|
|
|
67
|
|
|
|
90
|
|
|
|
|
(1) |
|
Impacts the (increase) decrease in inventories |
62
Notes to
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2009
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
As Originally
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
As Originally
|
|
|
|
|
(In millions)
|
|
Reported
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
As Adjusted
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
72
|
|
|
$
|
80
|
|
|
$
|
94
|
|
|
$
|
80
|
|
|
$
|
74
|
|
|
$
|
63
|
|
Foodservice/Food Packaging
|
|
|
70
|
|
|
|
73
|
|
|
|
89
|
|
|
|
77
|
|
|
|
95
|
|
|
|
84
|
|
Other
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
137
|
|
|
$
|
148
|
|
|
$
|
179
|
|
|
$
|
153
|
|
|
$
|
167
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2009
|
|
|
June 30, 2009
|
|
|
March 31, 2009
|
|
|
|
As Originally
|
|
|
|
|
|
As Originally
|
|
|
|
|
|
As Originally
|
|
|
|
|
(In millions)
|
|
Reported
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
As Adjusted
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products
|
|
$
|
1,248
|
|
|
$
|
1,250
|
|
|
$
|
1,280
|
|
|
$
|
1,275
|
|
|
$
|
1,240
|
|
|
$
|
1,249
|
|
Foodservice/Food Packaging
|
|
|
2,099
|
|
|
|
2,111
|
|
|
|
2,122
|
|
|
|
2,130
|
|
|
|
2,115
|
|
|
|
2,135
|
|
Other
|
|
|
216
|
|
|
|
211
|
|
|
|
397
|
|
|
|
396
|
|
|
|
365
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,563
|
|
|
$
|
3,572
|
|
|
$
|
3,799
|
|
|
$
|
3,801
|
|
|
$
|
3,720
|
|
|
$
|
3,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17.
|
Noncontrolling
Interests
|
The FASB issued ASC
810-10-45,
Consolidation which was effective for fiscal years,
and interim periods within such fiscal years, beginning on or
after December 15, 2008. ASC
810-10-45
requires that noncontrolling (minority) interests be recognized
as equity (but separate from the parents equity) in
consolidated financial statements, and that net earnings related
to noncontrolling interests be included in consolidated net
income, but identified separately on the face of the income
statement. ASC
810-10-45
also amends prior authoritative guidance, and expands disclosure
requirements regarding the interests of parents and
noncontrolling interests. In order to meet the ASC
810-10-45
disclosure requirements upon adoption, we have added a statement
of shareholders equity and a statement of comprehensive
income (loss) to our interim reporting.
ASC
810-10-45
also requires disclosure of the effects of any changes in a
parents ownership interest in a subsidiary on the equity
attributable to the parent. In January 2007, we purchased an
additional 1% interest in a folding carton operation in
Dongguan, China. This brought our interest to 51%, requiring us
to include the joint venture in our consolidated financial
statements. There were no changes in ownership interest in our
subsidiaries in 2009 or 2008, and the effect in 2007 of the
additional 1% interest in Dongguan, China had an immaterial
impact on the equity attributable to Pactiv.
The preceding notes are an integral part of the foregoing
financial statements.
63
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e)
and
15d-15(e))
are designed to ensure that information required to be disclosed
by us in reports we file or submit under the Securities Exchange
Act is recorded, processed, summarized, and reported within the
appropriate time periods. We, under the supervision of and with
the participation of our management, including our principal
executive officer and principal financial officer, have
evaluated the effectiveness of our disclosure controls and
procedures, and we and such officers have concluded that such
controls and procedures were adequate and effective as of
December 31, 2009. We completed our evaluation of such
controls and procedures in connection with the preparation of
this annual report on
Form 10-K
on February 26, 2010.
There have been no significant changes in our internal controls
or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses therein. There were no changes in
internal controls over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
during the quarter ended December 31, 2009, that materially
affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
|
|
ITEM 9B.
|
Other
Information.
|
None.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers, and Corporate Governance.
|
Information regarding our executive officers required by this
Item 10 is set forth in Item 4.1 of Part I,
Executive Officers of the Registrant.
The following information required by this Item 10 is
included in our Proxy Statement related to our May 14,
2010, Annual Meeting of Shareholders, and is incorporated by
reference herein.
|
|
|
|
|
Information regarding our directors
|
|
|
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934
|
|
|
Information regarding our code of ethics
|
|
|
ITEM 11.
|
Executive
Compensation.
|
Information regarding the compensation of certain of the
companys executive officers required in Item 11 is
included in our Proxy Statement related to our May 14,
2010, Annual Meeting of Shareholders, and is incorporated by
reference herein.
64
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information regarding the security ownership of certain
beneficial owners and management and related stockholder matters
of the company required in Item 12 is included in our Proxy
Statement related to our May 14, 2010 Annual Meeting of
Shareholders, and is incorporated by reference herein.
The following table summarizes our equity compensation plans at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares of
|
|
|
|
|
|
|
common stock
|
|
|
Number of shares of
|
|
|
|
available for future
|
|
|
common stock to be
|
|
|
|
issuance under
|
|
|
issued upon exercise
|
|
Weighted-average
|
|
equity-compensation
|
|
|
of outstanding
|
|
exercise price of
|
|
plans (excluding
|
|
|
options, warrants
|
|
outstanding options,
|
|
shares reflected in
|
Plan category
|
|
and rights (a)
|
|
warrants and rights
|
|
the first column)
|
|
Equity compensation plans approved by shareholders
|
|
|
5,185,572 (b
|
)
|
|
$
|
21.80
|
|
|
|
9,965,678
|
|
|
|
|
(a) |
|
Does not include Pactiv common stock index units (common stock
equivalents) under the companys deferred compensation
plan. The deferred compensation is unfunded, and allows
participants to defer receipt of certain compensation and to
elect to have such deferred amounts indexed against various
investment options, including the Pactiv Stock Index Fund.
Participants may elect to have their deferred amounts paid in
cash or in Pactiv common stock. If all persons who had their
deferred compensation indexed against the Pactiv Stock Index
Fund elected to receive their payout in Pactiv common stock,
494,673 shares of common stock would be issuable as of
December 31, 2009. |
|
(b) |
|
Includes outstanding options and performance share awards.
Outstanding performance share awards are subject to achievement
of performance criteria, vesting, and continued employment, and
are paid in stock. See Note 11 to the financial statements
for additional information. |
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Information required in Item 13 is included in our Proxy
Statement related to our May 14, 2010, Annual Meeting of
Shareholders, and is incorporated by reference herein.
|
|
ITEM 14.
|
Principal
Accounting Fees and Services.
|
Information required in Item 14 is included in our Proxy
Statement related to our May 14, 2010, Annual Meeting of
Shareholders, and is incorporated by reference herein.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules.
|
Financial
Statements Included in Item 8
See Index of Financial Statements of Pactiv Corporation
and Consolidated Subsidiaries in Item 8,
Financial Statements and Supplementary Data.
65
Index of
Financial Statements and Schedules Included in
Item 15
|
|
|
|
|
|
|
Page
|
|
|
Schedule II Valuation and qualifying
accounts three years ended December 31, 2009
|
|
|
67
|
|
|
|
|
|
|
Schedules Omitted as Not Required or Inapplicable
|
|
|
|
|
Schedule I Condensed financial information of
registrant
|
|
|
|
|
Schedule III Real estate and accumulated
depreciation
|
|
|
|
|
Schedule IV Mortgage loans on real estate
|
|
|
|
|
Schedule V Supplemental information concerning
property casualty insurance operations
|
|
|
|
|
66
Schedule II
Valuation and Qualifying Accounts
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Charged to
|
|
Charged to
|
|
|
|
|
|
|
Balance at
|
|
(reversed
|
|
(reversed
|
|
|
|
Balance
|
|
|
beginning
|
|
from) costs
|
|
from) other
|
|
|
|
at end of
|
Description
|
|
of year
|
|
and expenses
|
|
accounts
|
|
Deductions
|
|
Year
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
6
|
|
Year ended December 31, 2008
|
|
|
6
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
7
|
|
Year ended December 31, 2007
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8
|
|
Year ended December 31, 2008 (1)
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Year ended December 31, 2007 (1)
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
$
|
33
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35
|
|
Year ended December 31, 2008
|
|
|
40
|
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
33
|
|
Year ended December 31, 2007
|
|
|
42
|
|
|
|
(5
|
)
|
|
|
3
|
|
|
|
|
|
|
|
40
|
|
|
|
|
(1) |
|
Adjusted for the change in inventory accounting method, as
described in Note 2 to the financial statements. |
67
Index of
Exhibits
The following exhibits are filed as part of this Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2009. (Exhibits
designated with an asterisk are filed with this report; all
other exhibits are incorporated by reference.)
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
2
|
|
|
Distribution Agreement by and between Tenneco Inc. and the
registrant (incorporated herein by reference to Exhibit 2
to Pactiv Corporations Current Report on
Form 8-K
dated November 11, 1999, File
No. 1-15157).
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3.1 to Pactiv
Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
3
|
.2
|
|
Amended and Restated By-laws of the registrant (incorporated
herein by reference to Exhibit 3.1 to Pactiv
Corporations Current Report on
Form 8-K
dated September 4, 2009, File
No. 1-15157).
|
|
4
|
.1
|
|
Specimen Stock Certificate of Pactiv Corporation Common Stock
(incorporated herein by reference to Exhibit 4.1 to Pactiv
Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.2(a)
|
|
Qualified Offer Plan Rights Agreement, dated as of
November 4, 1999, by and between the registrant and First
Chicago Trust Company of New York, as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to Pactiv
Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.2(b)
|
|
Amendment No. 1 to Rights Agreement, dated as of
November 7, 2002, by and between the registrant and
National City Bank, as rights agent (incorporated herein by
reference to Exhibit 4.4(a) to Pactiv Corporations
Registration Statement on
Form S-8
dated November 8, 2002, File
No. 333-101121).
|
|
4
|
.3(a)
|
|
Indenture, dated September 29, 1999, by and between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.1 to Tenneco
Packaging Inc.s Registration Statement on
Form S-4,
File
No. 333-82923).
|
|
4
|
.3(b)
|
|
First Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(b) to
Pactiv Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.3(c)
|
|
Second Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999, between
the registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(c) to
Pactiv Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.3(d)
|
|
Third Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(d) to
Pactiv Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.3(e)
|
|
Fourth Supplemental Indenture, dated as of November 4,
1999, to Indenture dated as of September 29, 1999, between
the registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(e) to
Pactiv Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.3(f)
|
|
Fifth Supplemental Indenture, dated as of November 4, 1999,
to Indenture dated as of September 29, 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(f) to
Pactiv Corporations Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
4
|
.3(g)
|
|
Sixth Supplemental Indenture dated as of June 25, 2007 to
Indenture, dated as of September 29, 1999, between Pactiv
Corporation and the Bank of New York Trust Company, N.A.,
as Trustee (incorporated herein by reference to Exhibit 4.1
to Pactiv Corporations Current Report on
Form 8-K
dated June 25, 2007, File
No. 1-15157).
|
68
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
4
|
.3(h)
|
|
Seventh Supplemental Indenture dated as of June 25, 2007 to
Indenture, dated as of September 29, 1999, between Pactiv
Corporation and the Bank of New York Trust Company, N.A.,
as Trustee (incorporated herein by reference to Exhibit 4.2
to Pactiv Corporations Current Report on
Form 8-K
dated June 25, 2007, File
No. 1-15157).
|
|
4
|
.4
|
|
Registration Rights Agreement, dated as of November 4,
1999, by and between the registrant and the trustees under the
Pactiv Corporation Rabbi Trust (incorporated herein by reference
to Exhibit 4.4 to Pactiv Corporations Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
10
|
.1
|
|
Pactiv Corporation (formerly known as Tenneco Packaging Inc.)
Executive Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.5 to Pactiv Corporations
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
10
|
.2
|
|
Pactiv Corporation (formerly known as Tenneco Packaging Inc.)
Supplemental Executive Retirement Plan (incorporated herein by
reference to Exhibit 10.6 to Pactiv Corporations
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
10
|
.3
|
|
Amended and Restated Change in Control Severance Benefit Plan
for Key Executives (incorporated herein by reference to
Exhibit 10.6 to Pactiv Corporations Current Report on
Form 8-K
dated September 4, 2009, File
No. 1-15157).
|
|
10
|
.4
|
|
Pactiv Corporation (formerly known as Tenneco Packaging Inc.)
Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10.8 to Pactiv Corporations Quarterly Report
on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
10
|
.5
|
|
Pactiv Corporation Rabbi Trust (incorporated herein by reference
to Exhibit 10.11 to Pactiv Corporations Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 1999, File
No. 1-15157).
|
|
10
|
.6
|
|
Pactiv Corporation 2002 Incentive Compensation Plan
(incorporated herein by reference to Exhibit 4.7 to Pactiv
Corporations Registration Statement on
Form S-8
dated November 8, 2002, File
No. 333-101121).
|
|
10
|
.7
|
|
Credit Agreement, dated as of April 19, 2006, among the
registrant, Bank of America, N.A., as Administrative Agent, JP
Morgan Chase Bank, N. A., as Syndication Agent and L/C Issuer,
BNP Paribas, Suntrust Bank, and Citibank, N. A., Inc., as
Co-Documentation Agents, and the other financial institutions
party thereto (incorporated herein by reference to
Exhibit 10.15 to Pactiv Corporations Quarterly Report
on
Form 10-Q
for the quarter ended March 31, 2006, File
No. 1-15157).
|
|
10
|
.8
|
|
Pactiv Corporation Deferred Retirement Savings Plan
(incorporated herein by reference to Exhibit 10.16 to
Pactiv Corporations Annual Report on
Form 10-K
for the year ended December 31, 2004, File
No. 1-15157).
|
|
10
|
.9
|
|
Receivables Purchase Agreement, dated as of December 21,
2006, among the registrant and Atlantic Asset Securitization LLC
and Calyon New York Branch, as agent for Purchasers
(incorporated herein by reference to Exhibit 10.22 to
Pactiv Corporations Annual Report on
Form 10-K
for the year ended December 31, 2006, File
No. 1-15157).
|
|
10
|
.10
|
|
Continuing Agreement for Standby Letters of Credit between
Pactiv Corporation and JPMorgan Chase Bank, N.A. dated
June 5, 2007 (incorporated herein by reference to
Exhibit 10.20 to Pactiv Corporations Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2007, File
No. 1-15157).
|
|
10
|
.11
|
|
Credit Agreement between Pactiv Corporation and JPMorgan Chase
Bank, N.A. dated June 5, 2007 (incorporated herein by
reference to Exhibit 10.21 to Pactiv Corporations
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, File
No. 1-15157).
|
|
11
|
|
|
None.
|
|
12
|
|
|
None.
|
|
13
|
|
|
None.
|
|
14
|
|
|
Code of Ethical Conduct for Financial Managers (posted to
companys website, www.pactiv.com) in accordance with
Item 406(c)(2) of
Regulation S-K.
|
69
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
15
|
|
|
None.
|
|
16
|
|
|
None.
|
*
|
18
|
|
|
Letter regarding change in accounting principle.
|
*
|
21
|
|
|
List of subsidiaries of Pactiv Corporation.
|
|
22
|
|
|
None.
|
*
|
23
|
|
|
Consent of Ernst & Young LLP.
|
*
|
24
|
|
|
Powers of Attorney for the following directors of Pactiv
Corporation: Larry D. Brady, K. Dane Brooksher, Robert J.
Darnall, Mary R. (Nina) Henderson, N. Thomas Linebarger, Roger
B. Porter, and Norman H. Wesley.
|
*
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification.
|
*
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification.
|
*
|
*32
|
.1
|
|
Section 1350 Certification.
|
*
|
*32
|
.2
|
|
Section 1350 Certification.
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PACTIV CORPORATION
|
|
|
|
By:
|
/s/ Richard
L. Wambold
|
Richard L. Wambold
Chairman, President and
Chief Executive Officer
Date: February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following on
behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Richard
L. Wambold
Richard
L. Wambold
|
|
Chairman, President, Chief Executive Officer and Director
(principal executive officer)
|
|
February 26, 2010
|
/s/ Edward
T. Walters
Edward
T. Walters
|
|
Senior Vice President and Chief Financial Officer (principal
financial officer)
|
|
February 26, 2010
|
/s/ Donald
E. King
Donald
E. King
|
|
Corporate Controller and Chief Accounting Officer (principle
accounting officer)
|
|
February 26, 2010
|
/s/ Larry
D. Brady*
Larry
D. Brady
|
|
Director
|
|
February 26, 2010
|
/s/ K.
Dane Brooksher*
K.
Dane Brooksher
|
|
Director
|
|
February 26, 2010
|
/s/ Robert
J. Darnall*
Robert
J. Darnall
|
|
Director
|
|
February 26, 2010
|
/s/ Mary
R. (Nina) Henderson*
Mary
R. (Nina) Henderson
|
|
Director
|
|
February 26, 2010
|
/s/ N.
Thomas Linebarger*
N.
Thomas Linebarger
|
|
Director
|
|
February 26, 2010
|
/s/ Roger
B. Porter*
Roger
B. Porter
|
|
Director
|
|
February 26, 2010
|
/s/ Norman
H. Wesley*
Norman
H. Wesley
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
*By:
/s/ Joseph
E. Doyle
Joseph
E. Doyle
Attorney-in-fact
|
|
|
|
February 26, 2010
|
71