<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(mark one)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-15157
----------------------------
PACTIV CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2552989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST FIELD COURT 60045
LAKE FOREST, ILLINOIS (Zip Code)
(Address of principal executive offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 482-2000
------------------------
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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock, par value $.01 per share: 162,392,942 shares as of July 31,
2000. (See Notes to Financial Statements.)
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<PAGE> 2
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning,
among other things, the prospects and developments of the company (as defined)
and business strategies for its operations, all of which are subject to risks
and uncertainties. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These forward-looking statements are
identified as "forward-looking statements" or by their use of terms (and
variations thereof) and phrases such as "will," "anticipate," "intend,"
"estimate," "expect," and similar terms (and variations thereof) and phrases.
When a forward-looking statement includes a statement of the assumptions or
bases underlying the forward-looking statement, the company cautions that, while
it believes such assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, the
company or its management expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or will be achieved or accomplished.
The company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include the following: (i) changes in consumer demand and prices;
(ii) changes in prices of raw materials; (iii) risks associated with
international operations; (iv) the general economic, political and competitive
conditions in markets and countries where the company operates; (v) governmental
actions; (vi) changes in capital availability or costs; (vii) the cost of
compliance with changes in regulations, including environmental regulations;
(viii) workforce factors such as strikes or labor interruptions; (ix) the
company's ability to identify and make appropriate acquisitions and to integrate
operations of acquired businesses quickly and in a cost-effective manner; (x)
changes by the Financial Accounting Standards Board or other accounting
regulatory bodies of authoritative generally accepted accounting principles or
policies; (xi) the timing and occurrence (or non-occurrence) of transactions and
events which may be subject to circumstances beyond the company's control; (xii)
the company's ability to recognize forecasted savings from its restructuring
programs on a timely basis; and (xiii) the company's ability to function as a
"stand-alone" independent entity following its spin-off from Tenneco Inc. in
November 1999.
1
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial statements (Unaudited)
Statement of Income (Loss)............................. 3
Condensed Statement of Financial Position.............. 4
Condensed Statement of Cash Flows...................... 5
Notes to Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................ 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings*................................ 18
Item 2. Changes in Securities*............................ 18
Item 3. Defaults Upon Senior Securities*.................. 18
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 18
Item 5. Other Information*................................ 18
Item 6. Exhibits and Reports on Form 8-K.................. 18
</TABLE>
------------------------
* No response to this item is included herein either because it is inapplicable
or there is nothing to report.
2
<PAGE> 4
STATEMENT OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- ------------ -------------- ------------
(IN MILLIONS, EXCEPT SHARE AND PER-SHARE DATA) (CONSOLIDATED) (COMBINED) (CONSOLIDATED) (COMBINED)
<S> <C> <C> <C> <C>
SALES..................................... $ 769 $ 738 $ 1,455 $ 1,404
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales (excluding depreciation and
amortization shown below)............ 543 480 1,040 924
Depreciation and amortization........... 45 46 90 94
Selling, general, and administration.... 81 110 148 208
Other (income) expense, net............. (2) 3 (9) 5
Restructuring........................... -- -- -- 29
------------ ------------ ------------ ------------
667 639 1,269 1,260
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST EXPENSE, INCOME TAXES,
AND MINORITY INTEREST................... 102 99 186 144
Interest expense, net of interest
capitalized.......................... 33 32 67 68
Income tax expense...................... 29 21 50 24
Minority interest....................... 1 -- 1 --
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS......... 39 46 68 52
Income (loss) from discontinued operations,
net of income tax....................... -- 9 134 (163)
------------ ------------ ------------ ------------
Income (loss) before extraordinary loss... 39 55 202 (111)
Extraordinary loss, net of income tax..... -- -- -- (7)
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle.......... 39 55 202 (118)
Cumulative effect of change in accounting
principle, net of income tax............ -- -- -- (32)
------------ ------------ ------------ ------------
Net income (loss)......................... $ 39 $ 55 $ 202 $ (150)
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER SHARE
Average shares of common stock outstanding
Basic................................... 162,303,344 167,119,483 164,862,367 166,937,362
Diluted................................. 162,351,787 167,501,881 164,910,429 167,319,412
Basic earnings (loss) per share of common
stock
Continuing operations................... $ 0.24 $ 0.28 $ 0.41 $ 0.31
Discontinued operations................. -- 0.05 0.82 (0.98)
Extraordinary loss...................... -- -- -- (0.04)
Cumulative effect of change in accounting
principle............................ -- -- -- (0.19)
------------ ------------ ------------ ------------
$ 0.24 $ 0.33 $ 1.23 $ (0.90)
------------ ------------ ------------ ------------
Diluted earnings (loss) per share of common
stock
Continuing operations................... $ 0.24 $ 0.28 $ 0.41 $ 0.31
Discontinued operations................. -- 0.05 0.82 (0.98)
Extraordinary loss...................... -- -- -- (0.04)
Cumulative effect of change in accounting
principle............................ -- -- -- (0.19)
------------ ------------ ------------ ------------
$ 0.24 $ 0.33 $ 1.23 $ (0.90)
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
3
<PAGE> 5
CONDENSED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
-------------- -----------------
(IN MILLIONS, EXCEPT SHARE DATA) (CONSOLIDATED) (CONSOLIDATED)
<S> <C> <C>
ASSETS
Current assets
Cash and temporary cash investments....................... $ 10 $ 12
Accounts and notes receivable
Trade, less allowances of $13 million and $11 million in
the respective periods................................ 345 279
Income taxes............................................ 41 30
Other................................................... 10 42
Inventories
Finished goods.......................................... 286 260
Work in process......................................... 60 45
Raw materials........................................... 58 71
Other materials and supplies............................ 37 53
Other..................................................... 71 74
------ ------
Total current assets...................................... 918 866
------ ------
Property, plant, and equipment, net......................... 1,364 1,396
------ ------
Other non-current assets
Goodwill and intangibles, net............................. 953 981
Pension assets............................................ 1,006 941
Other..................................................... 176 209
------ ------
Total other non-current assets............................ 2,135 2,131
------ ------
Net assets of discontinued operations....................... 49 195
------ ------
TOTAL ASSETS.............................................. $4,466 $4,588
------ ------
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Short-term debt, including current maturities of long-term
debt.................................................... $ 20 $ 325
Accounts payable, trade................................... 219 265
Interest accrued.......................................... 15 17
Other..................................................... 328 313
------ ------
Total current liabilities................................. 582 920
------ ------
Long-term debt.............................................. 1,740 1,741
------ ------
Deferred income taxes....................................... 430 321
Deferred credits and other liabilities...................... 214 236
Minority interest........................................... 21 20
------ ------
Total liabilities......................................... 2,987 3,238
------ ------
Shareowners' equity
Common stock (169,098,959 and 168,372,798 shares
outstanding in the respective periods).................. 2 2
Premium on common stock and other capital surplus......... 1,475 1,468
Accumulated other comprehensive loss...................... (15) (24)
Retained earnings (deficit)............................... 106 (96)
------ ------
1,568 1,350
Less treasury stock (10,401,043 and 0 shares, at cost, in
the respective periods)................................. 89 --
------ ------
Total shareowners' equity................................. 1,479 1,350
------ ------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY................. $4,466 $4,588
------ ------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
4
<PAGE> 6
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
-------------- ----------
(IN MILLIONS) (CONSOLIDATED) (COMBINED)
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations........................... $ 68 $ 52
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations:
Depreciation and amortization.......................... 90 94
Deferred income taxes.................................. 34 89
Restructuring.......................................... -- 29
Pension income......................................... (54) (43)
Allocated interest, net of tax......................... -- 44
Increase in net working capital........................ (132) (193)
Other.................................................. 6 (55)
----- -------
Cash provided by continuing operations...................... 12 17
Cash used by discontinued operations........................ -- (62)
----- -------
Cash provided (used) by operating activities................ 12 (45)
----- -------
INVESTING ACTIVITIES
Net proceeds related to sale of discontinued operations..... 394 306
Net proceeds from sale of businesses and assets............. 44 28
Expenditures for property, plant, and equipment............. (73) (75)
Acquisitions of businesses and assets....................... -- (2)
Expenditures for property, plant, and equipment and business
acquisitions -- discontinued operations................... -- (1,129)
Other....................................................... -- 6
----- -------
Cash provided (used) by investing activities................ 365 (866)
----- -------
FINANCING ACTIVITIES
Issuance of common stock.................................... 7 --
Purchase of common stock.................................... (80) --
Issuance of long-term debt.................................. -- 1,760
Retirement of long-term debt................................ (4) (29)
Net decrease in short-term debt, excluding current
maturities of long-term debt.............................. (302) (1)
Cash distribution to former parent.......................... -- (810)
----- -------
Cash (used) provided by financing activities................ (379) 920
----- -------
Effect of foreign-exchange rate changes on cash and
temporary cash investments................................ -- 2
----- -------
(Decrease) increase in cash and temporary cash
investments............................................... (2) 11
Cash and temporary cash investments, January 1.............. 12 7
----- -------
Cash and temporary cash investments, June 30................ $ 10 $ 18
----- -------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common equity interest received in sale of containerboard
operations................................................ $ -- $ 194
Principal amount of long-term debt assumed by buyers of
containerboard operations................................. $ -- $(1,760)
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
5
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) November 4, 1999, in connection with a corporate reorganization, Pactiv
Corporation's former parent company, Tenneco Inc. (Tenneco), and its
subsidiaries completed various intercompany transfers and distributions designed
to restructure and separate their then-existing businesses, assets, liabilities,
and operations so that, among other things, the packaging businesses and certain
corporate and administrative service operations of Tenneco would be owned by
Pactiv Corporation (Pactiv). Tenneco subsequently distributed pro rata to
holders of its common stock all of the outstanding common stock of Pactiv (the
spin-off). Prior to the spin-off, Pactiv was named Tenneco Packaging Inc. (TPI).
As used herein, the term "company" or "Pactiv" refers, for periods prior to
the spin-off, to TPI and certain other subsidiaries through which Tenneco
conducted its packaging businesses, and, for periods after the spin-off, to
Pactiv and its consolidated subsidiaries.
Prior to the spin-off, all of the outstanding common stock of the company
was owned directly or indirectly by Tenneco. The financial statements present
the results of operations, financial position, and cash flows of the company as
if it were a separate entity for all periods. The former parent's historical
basis in the assets and liabilities of the company has been carried over to
Pactiv. All per-share information is presented on a diluted basis, unless
otherwise noted.
The financial statements at June 30, 2000, and for the three and six months
then ended are presented on a consolidated basis. The December 31, 1999,
statement of financial position is presented on a consolidated basis, while the
financial statements for the three and six months ended June 30, 1999 are
presented on a combined basis. Certain amounts in prior years' financial
statements and related notes have been reclassified to conform with the
presentation used for the second quarter of 2000.
In the company's opinion, the accompanying unaudited financial statements
of Pactiv contain all normal recurring adjustments necessary to present fairly
the financial position, results of operations, and cash flows for the periods
indicated. These statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles. It is presumed that users of this interim financial
information have read or have access to the audited financial statements for the
preceding year. Accordingly, these statements should be read in conjunction with
the company's Form 10-K for the year ended December 31, 1999.
(2) In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard-packaging operation to a new joint
venture with Madison Dearborn Partners, Inc., called Packaging Corporation of
America (PCA). For the contribution, which was completed in April 1999, Pactiv
received approximately $2 billion in the form of cash and the assumption of debt
and retained a 45% equity interest in PCA, which was subsequently reduced to 43%
as a result of equity issued to management. The equity interest was valued at
approximately $200 million.
The assets contributed to the joint venture represented substantially all
of the assets of the company's paperboard-packaging operation, and included four
mills, sixty-seven corrugated plants, and an ownership or leasehold interest in
approximately 950,000 acres of timberland. Prior to the transaction, the company
borrowed $1.8 billion and used $1.2 billion of the proceeds to acquire assets
used by the containerboard business under operating leases and timber-cutting
rights, and to purchase accounts receivable that this business had previously
sold to a third party. The remainder of the borrowings ($600 million) was
remitted to Tenneco to repay a portion of its short-term debt. As a result of
the transaction, the company recorded an estimated loss of $293 million ($178
million after tax, or $1.07 per share) in the first quarter of 1999 based on the
amount by which the carrying value of the containerboard assets exceeded their
fair value, less selling costs.
In April 1999, Tenneco reached an agreement, which closed in June 1999, to
sell the paperboard-packaging operation's remaining business, its folding-carton
operation, to Caraustar Industries for $73 million.
6
<PAGE> 8
As a result of the sale, the company recorded a gain of $14 million ($9 million
after tax, or $0.05 per share), which was included in discontinued operations.
In the fourth quarter of 1999, the company recorded an additional $53
million loss ($37 million after tax, or $0.21 per share) on the disposition of
the paperboard-packaging operation related to events that occurred subsequent to
the sale, including final settlement regarding working capital, revisions to
actuarially determined estimates of pension-plan curtailment costs, and changes
in estimates regarding retained liabilities.
In February 2000, Pactiv sold 85% of its interest in PCA and used the net
proceeds ($398 million) primarily to repay debt. The company recorded a related
gain of $224 million ($134 million after tax, or $0.80 per share). The company
retained 6% common equity interest in PCA.
Net assets as of June 30, 2000 and 1999, and results of operations for the
three and six months then ended, for the paperboard-packaging operation were as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS) THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ -------------
2000 1999 2000 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net assets at end of period................................. $49 $133 $ 49 $ 133
--- ---- ---- -----
Sales....................................................... $-- $ 53 $ -- $ 445
--- ---- ---- -----
Income from operations before income taxes and interest
allocation.................................................. $-- $ 4 $ -- $ 22
Gain on folding carton-business sale........................ -- 14 -- 14
Gain (loss) on containerboard-business sales................ -- -- 224 (293)
--- ---- ---- -----
Income (loss) before income taxes and interest allocation... -- 18 224 (257)
Income tax expense (benefit)................................ -- 9 90 (99)
--- ---- ---- -----
Income (loss) before interest allocation.................... -- 9 134 (158)
Allocated interest expense, net............................. -- -- -- 5
--- ---- ---- -----
Income (loss) from discontinued operations.................. $-- $ 9 $134 $(163)
--- ---- ---- -----
</TABLE>
(3) In December 1999, the company entered into an agreement to sell its
aluminum foil reroll facility in Clayton, New Jersey, and its aluminum
packer-processor facility in Shelbyville, Kentucky, for $44 million. The company
recorded a related gain of $6.4 million ($3.7 million after tax, or $0.02 per
share) during 2000. The proceeds from this transaction, which closed in January
2000, were primarily used to repay debt.
Under a transition-service agreement, the company provides certain
administrative services to these businesses based on contractual fee
arrangements.
(4) In the first quarter of 1999, the company recorded an extraordinary
charge of $10 million, ($7 million after tax, or $0.04 per share) related to the
retirement of debt in connection with the previously discounted contribution of
assets to the PCA joint venture.
(5) In the first quarter of 1999, a plan was adopted to realign company
functions and to close Tenneco's headquarters facility in Greenwich,
Connecticut. This plan, for which a $29 million pre-tax charge ($17 million
after tax, or $0.10 per share) was recorded, included the elimination of
approximately 40 positions. Approximately $30 million was received in the second
quarter of 1999 related to the sale of the Greenwich facility. These
restructuring actions were completed in 1999 and were executed in accordance
with the company's initial plan.
In the fourth quarter of 1999, Pactiv adopted an extensive restructuring
plan to exit non-core businesses and to reduce overhead costs. As a result, the
company recorded a $154 million charge ($91 million after tax, or $0.54 per
share). This charge was related to (1) the sale of the company's forest-products
and aluminum foil container businesses in Europe ($68 million), for which cash
proceeds of $20 million were received in the fourth quarter of 1999, and the
sale of certain assets of the company's administrative-service and
corporate-aircraft operations ($10 million); (2) impairment of long-lived assets
of the company's packaging-polyethylene business ($68 million); and (3)
severance costs ($8 million) associated with the elimination
7
<PAGE> 9
of 161 positions, primarily in the company's international operations. The
impairment of the packaging-polyethylene business assets was recorded following
the completion of an evaluation of strategic alternatives for the business, and
represented the difference between the carrying value of the assets and the
forecasted future cash flows therefrom, computed on a discounted basis.
Amounts related to the restructuring plans described previously are shown
in the following table.
<TABLE>
<CAPTION>
(IN MILLIONS) SIX MONTHS ENDED
JUNE 30, 2000
-------------------------
BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, CASH ASSET JUNE 30,
1999 PAYMENTS ACCOUNT 2000
------------ -------- ---------- ----------
<S> <C> <C> <C> <C>
Severance...................................... $8 $5 $-- $3
Other.......................................... 1 -- -- 1
-- -- --- --
$9 $5 $-- $4
-- -- --- --
</TABLE>
(6) In May 1999, Tenneco, Pactiv, and a number of containerboard
manufacturers were named as defendants in a civil class-action antitrust lawsuit
pending in the United States district court for the Eastern District of
Pennsylvania. The company also was named as a defendant in a related
class-action antitrust lawsuit. The lawsuits allege that the defendants
conspired to raise linerboard prices for corrugated containers and corrugated
sheets from October 1, 1993, through November 30, 1995, in violation of Section
1 of the Sherman Act. The lawsuits seek treble damages in an unspecified amount,
plus attorney fees. Pactiv's management believes that the allegations have no
merit, is vigorously defending the claims, and believes that the outcome will
not have a material adverse effect on the company's financial position or
results of operations. Pactiv is responsible for defending the claims against
Tenneco and for any liability resulting therefrom.
The company is party to various legal proceedings arising from its
operations. Management believes that the outcome of these proceedings,
individually and in the aggregate, will not have a material effect on the
company's financial position or results of operations.
(7) The company is subject to a variety of environmental and
pollution-control laws and regulations in all jurisdictions in which it
operates. Pactiv provides related reserves where it is probable that liabilities
exist and where reasonable estimates of the liabilities can be made. Estimated
liabilities are subject to change as more information becomes available
regarding the magnitude of possible clean-up costs and the cost and
effectiveness of alternative clean-up technologies. However, management believes
that any additional costs that may be incurred as more information becomes
available will not have a material effect on the financial condition or results
of operations of the company.
(8) In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, Reporting on the Costs of
Start-Up Activities, which requires that costs of start-up activities be
expensed as incurred. This statement became effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires that previously capitalized costs
related to start-up activities be expensed as a cumulative effect of change in
accounting principle upon adoption. The company adopted SOP 98-5 on January 1,
1999, and recorded a related after-tax charge of $32 million (net of a $9
million tax benefit), or $0.19 per share, which pertained to previously
capitalized start-up costs of its foreign operations and its administrative
service operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes new
accounting and reporting standards requiring that all derivative instruments,
including such instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at fair value. FAS No.
133 will become effective for fiscal years beginning after June 15, 2000. Pactiv
is currently evaluating the new standard, but has not yet determined the impact,
if any, it will have on its financial position or results of operations.
8
<PAGE> 10
In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This
issue addresses the recognition, measurement, and income-statement
classification for various types of sales incentives, including discounts,
coupons, rebates, and free products. Pactiv is required to implement EITF 00-14
in the fourth quarter of 2000. Pactiv is currently analyzing the impact of this
consensus on the company's consolidated financial statements.
(9) At the time of the spin-off, Pactiv exercised its right to make a
one-time draw under a $1.5 billion term-loan agreement in the amount of $300
million at a floating-interest rate based on LIBOR, adjusted for reserve
requirements, plus a specified margin. As a result of the sale of the majority
of Pactiv's interest in PCA, all amounts borrowed under this facility were
repaid in the first quarter of 2000.
(10) Tenneco's historical practice had been to incur indebtedness for the
consolidated group at the parent-company level, or at a limited number of
subsidiaries, rather than at the operating-company level. Consequently, prior to
the spin-off, corporate debt and related interest expense were allocated to
Pactiv, generally based on the ratio of the company's net assets to Tenneco's
consolidated net assets plus debt. Similarly, interest expense was allocated at
a rate equivalent to the weighted-average cost of all corporate debt, which was
8.1% for the six months ended June 30, 1999. Total interest expense allocated to
the company for the six months ended June 30, 1999, was $68 million. Although
interest costs and the related tax effect were allocated to the company for
financial-reporting purposes, Pactiv was not billed for these amounts. Changes
in allocated corporate debt and allocated after-tax interest expense were
included in combined equity. Although management believes that the historical
allocation of corporate debt and interest was reasonable, it is not necessarily
indicative of debt requirements and related interest costs of Pactiv as a
separate public company.
(11) In November 1999, Pactiv established a grantor trust and reserved
3,200,000 shares of common stock for the trust. This trust is a so-called "rabbi
trust" designed to assure the payment of deferred compensation and supplemental
pension benefits. The shares were issued to the trust in January 2000. The trust
is included in Pactiv's financial statements. Consequently, the shares of common
stock issued are not considered to be outstanding.
(12) In connection with the spin-off, one share of Pactiv common stock was
issued for each share of Tenneco common stock then owned. Accordingly, basic
earnings per share for 1999 was calculated using the former parent's
weighted-average number of shares outstanding for the three-month period from
April 1, 1999, to June 30, 1999, and the six-month period from January 1, 1999,
to June 30, 1999. For 2000, the weighted-average number of Pactiv shares
outstanding for the corresponding three- and six-month periods was used to
calculate basic earnings per share. Diluted earnings per share were calculated
in the same manner, adjusting for the potential issuance of additional shares
related to stock options, restricted stock, and performance shares.
9
<PAGE> 11
Earnings from continuing operations per share of common stock outstanding
were computed as follows.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT SHARE AND THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
PER-SHARE DATA) ------------------------------ ------------------------------
2000 1999 2000 1999
-------------- ------------ -------------- ------------
(CONSOLIDATED) (COMBINED) (CONSOLIDATED) (COMBINED)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income from continuing operations... $ 39 $ 46 $ 68 $ 52
------------ ------------ ------------ ------------
Average shares of common stock
outstanding...................... 162,303,344 167,119,483 164,862,367 166,937,362
------------ ------------ ------------ ------------
Earnings from continuing operations
per average share of common
stock............................ $ 0.24 $ 0.28 $ 0.41 $ 0.31
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE
Income from continuing operations... $ 39 $ 46 $ 68 $ 52
------------ ------------ ------------ ------------
Average shares of common stock
outstanding...................... 162,303,344 164,862,367
Effect of dilutive securities
Restricted stock................. -- --
Stock options.................... 180 118
Performance shares............... 48,263 47,944
------------ ------------
Average shares of common stock
outstanding including dilutive
securities..................... 162,351,787 167,501,881 164,910,429 167,319,412
------------ ------------ ------------ ------------
Earnings from continuing operations
per average share of common
stock............................ $ 0.24 $ 0.28 $ 0.41 $ 0.31
------------ ------------ ------------ ------------
</TABLE>
In February 2000, the company announced its intention to repurchase
approximately $100 million of Pactiv's common stock. During the first six months
of 2000, the company repurchased 10,382,900 shares of its common stock for $88
million.
(13) The company's operating segments include:
(a) Consumer and foodservice/food packaging, which relates to the
manufacture and sale of disposable plastic, molded-fiber, pressed-paperboard,
and aluminum packaging products for the consumer, foodservice, and
food-packaging markets.
(b) Protective and flexible packaging, which relates to the manufacture and
sale of plastic, paperboard, and molded-fiber protective- and flexible-packaging
products. Major markets served by protective-packaging products include
electronics, automotive, furniture, and e-commerce, whereas flexible-packaging
products are used mainly in food, medical, pharmaceutical, chemical, and
hygienic applications.
(c) Other, which relates to corporate and administrative service operations
and pension-plan income and expense.
Prior to the spin-off, the combined results of the consumer and
foodservice/food packaging and protective and flexible businesses were reported
under the specialty-packaging segment by Tenneco. During the fourth quarter of
1999, the company changed the composition of its operating segments because of
modifications in its management-reporting structure triggered by the spin-off.
Segment information for the three and six months ended June 30, 1999 has been
restated to conform with current segment presentation. Products are transferred
between segments and geographic areas on a basis intended to reflect, as nearly
as possible, market values.
10
<PAGE> 12
The following table sets forth certain segment information.
<TABLE>
<CAPTION>
SEGMENT
(IN MILLIONS) --------------------------------------
CONSUMER AND
FOODSERVICE/ PROTECTIVE AND RECLASSIFICATIONS
FOOD FLEXIBLE AND
PACKAGING PACKAGING OTHER ELIMINATIONS TOTAL
------------ -------------- ------ ----------------- ------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
JUNE 30, 2000
Sales to external customers..... $ 570 $ 199 $ -- $ -- $ 769
Income before interest, income
taxes, and minority
interest...................... 76 10 16(a) -- 102
FOR THE THREE MONTHS ENDED JUNE
30, 1999
Sales to external customers..... 535 203 -- -- 738
Income (loss) before interest,
income taxes, and minority
interest...................... 88 23 (12)(a) -- 99
Income from discontinued
operations.................... -- -- 9 -- 9
AT JUNE 30, 2000, AND FOR THE
SIX MONTHS THEN ENDED
Sales to external customers..... 1,048 407 -- -- 1,455
Income before interest, income
taxes, and minority
interest...................... 135 20 31(a) -- 186
Income from discontinued
operations.................... -- -- 134 -- 134
Total assets.................... 2,303 885 1,248(b) 30 4,466
Net assets of discontinued
operations.................... -- -- 49 -- 49
FOR THE SIX MONTHS ENDED JUNE
30, 1999
Sales to external customers..... 994 410 -- -- 1,404
Income (loss) before interest,
income taxes, and minority
interest...................... 152 42 (50)(a)(c) -- 144
Loss from discontinued
operations.................... -- -- (163) -- (163)
Extraordinary loss.............. -- -- (7) -- (7)
Cumulative effect of change in
accounting principle.......... (1) (16) (15) -- (32)
</TABLE>
(a) Includes pension-plan income and unallocated corporate expenses.
(b) Includes assets related to pension plans (net), administrative-service
operations, and the discontinued paperboard-packaging business.
(c) Includes restructuring and other charges.
The above notes are an integral part of the foregoing financial statements.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.
STRATEGIC REALIGNMENT
In July 1998, Tenneco's board of directors authorized management to develop
a broad range of strategic alternatives to separate its automotive,
paperboard-packaging, and specialty-packaging businesses. Subsequently, Tenneco
completed the following actions:
- In January 1999, Tenneco reached an agreement to contribute the
containerboard assets of its paperboard-packaging operation to a new
joint venture with Madison Dearborn Partners, Inc. called Packaging
Corporation of America (PCA). For the contribution, which was
completed in April 1999, Pactiv received approximately $2 billion in
the form of cash and debt assumption and retained a 45% equity
interest in PCA, which was subsequently reduced to 43% as a result
of equity issued to management. The equity interest was valued at
approximately $200 million.
- In April 1999, Tenneco reached an agreement to sell the
paperboard-packaging segment's remaining business, its
folding-carton operation, to Caraustar Industries for $73 million.
This transaction closed in June 1999.
- Also in April 1999, Tenneco's board of directors approved the
spin-off.
- In June 1999, Tenneco's board of directors authorized the
specialty-packaging business to sell its interest in PCA, 85% of
which was sold by Pactiv through a registered public offering in
February 2000 for net proceeds of $398 million.
- In August 1999, Tenneco received a letter ruling from the Internal
Revenue Service that the spin-off would be considered to be a
tax-free event for U.S. federal income-tax purposes.
- On November 4, 1999, Tenneco completed the spin-off by issuing a
dividend of the common stock of Pactiv to Tenneco shareowners.
The paperboard-packaging segment is classified as a discontinued operation
in the financial statements. See the notes to financial statements included in
this document for further information.
Before the spin-off, Tenneco realigned substantially all of its existing
debt through a combination of tender offers, exchange offers, and other
refinancings. The realignment was financed through borrowings by Tenneco
Automotive (formerly Tenneco, which changed its name to Tenneco Automotive Inc.
in connection with the spin-off) under a new credit facility, the issuance by
Tenneco Automotive of subordinated debt, Pactiv's issuance of public debt, and
borrowings by Pactiv under new credit facilities.
RESTRUCTURING AND OTHER CHARGES
In the first quarter of 1999, a plan was adopted to realign company
functions in connection with the contribution of the containerboard assets to
the PCA joint venture and to close Tenneco's headquarters facility in Greenwich,
Connecticut. This plan, for which a $29 million pre-tax charge ($17 million
after tax, or $0.10 per share) was recorded, included the elimination of
approximately forty positions. Approximately $30 million was received in the
second quarter of 1999 related to the sale of the Greenwich facility. These
restructuring actions were completed in 1999 and were executed in accordance
with the company's initial plan.
In the fourth quarter of 1999, Pactiv adopted an extensive restructuring
plan to exit non-core businesses and to reduce overhead costs. As a result, the
company recorded a $154 million charge ($91 million after tax, or $0.54 per
share). This charge was related to (1) the sale of the company's forest-products
and aluminum foil container businesses in Europe ($68 million), for which cash
proceeds of $20 million were received in the fourth quarter of 1999, and the
sale of certain assets of the company's administrative-service and corporate-
aircraft operations ($10 million); (2) impairment of long-lived assets held for
use in the company's packaging-polyethylene business ($68 million); and (3)
severance costs ($8 million) associated with the elimination of 161 positions,
primarily in the company's international operations. The impairment of the
packaging-polyethylene business assets was recorded following the completion of
an evaluation of strategic
12
<PAGE> 14
alternatives for the business, and represented the difference between the
carrying value of the assets and the forecasted future cash flows therefrom,
computed on a discounted basis.
In total, Pactiv expects to realize annual savings of $75 million from the
restructuring actions. Of this, an estimated $30 million was realized in 1999,
and an additional $45 million is anticipated to occur in 2000 ($40 million) and
2001 ($5 million).
SECOND QUARTER ENDED JUNE 30, 2000, AND 1999
RESULTS OF CONTINUING OPERATIONS
Sales
Details of sales were as follows.
<TABLE>
<CAPTION>
SECOND QUARTER
(DOLLARS IN MILLIONS) ----------------------
2000 1999 CHANGE
---- ---- ------
<S> <C> <C> <C>
Consumer and foodservice/food packaging..................... $570 $535 6.5%
Protective and flexible packaging........................... 199 203 (2.0)
Other....................................................... -- -- --
---- ----
$769 $738 4.2%
---- ----
</TABLE>
Second quarter 2000 sales grew 4%, to $769 million, over the comparable
period in 1999. Excluding the negative impact of foreign-currency exchange rates
and divestitures, sales increased 10% in the current period driven equally by
volume and price increases.
Sales of the consumer and foodservice/food packaging business advanced 7%
in 2000's second quarter. Adjusting for the negative impact of divestitures,
sales of this segment grew 11%, driven equally by volume and price increases. In
the second quarter of 2000, sales of protective and flexible products declined
2% compared with the second quarter of 1999. Excluding the negative effect of
foreign-currency fluctuations and businesses divested in late 1999, this
segment's sales were up 9%, driven primarily by growth in the company's global
protective-packaging business.
Operating Income (Income before Interest Expense, Income Taxes, and
Minority Interest)
Operating income (loss) by segment appears below.
<TABLE>
<CAPTION>
SECOND QUARTER
--------------
2000 1999 CHANGE
(DOLLARS IN MILLIONS) ---- ---- ------
<S> <C> <C> <C>
Consumer and foodservice/food packaging..................... $ 76 $88 (13.6)%
Protective and flexible packaging........................... 10 23 (56.5)
Other....................................................... 16 (12) --
---- ---
$102 $99 3.0%
---- ---
</TABLE>
Operating income increased to $102 million in the second quarter of 2000
from $99 million in 1999's second quarter. The increase resulted primarily from
higher volume and selling prices, significant reductions in corporate-overhead
costs, offset partially by higher resin costs. Operating income as a percent of
sales was 13% in 2000's second quarter, approximately the same as last year's
second quarter.
Operating income for the consumer and foodservice/food packaging segment
was $76 million for the current quarter, compared with $88 million for 1999. The
$12 million decrease was driven by higher material and transportation costs,
offset, in part, by higher volume and selling prices. Operating margin in the
second quarter of 2000 improved to 13% of sales from 11% before gains from asset
dispositions in the first quarter of this year but lagged the 16% level achieved
in the second quarter of 1999 when resin costs were significantly lower.
13
<PAGE> 15
Operating income for the protective and flexible segment was $10 million in
the second quarter of 2000, compared with $23 million in the prior year. The
primary cause of the decline in operating income was the substantial increase in
resin and other raw material costs, partly offset by higher selling prices. The
negative impact of foreign-currency exchange rates, the loss of income from
divestitures, and inefficiencies associated with plant consolidations and
start-ups also contributed to the decline.
Operating income in the other segment was $16 million in the second quarter
of 2000, compared with a loss of $12 million in 1999. The improvement resulted
from reductions in corporate-overhead costs and higher pension income.
Interest Expense, Net of Interest Capitalized
Interest expense was $33 million in 2000's second quarter, up slightly from
1999 principally because of increased borrowings in the current quarter to fund
Pactiv's share-repurchase program.
Income Taxes
Pactiv's effective tax rate for the second quarter of 2000 was 42%,
compared with a rate of 31% for 1999. The lower tax rate in 1999 was related to
the spin-off of Pactiv as a stand-alone company.
Income from Continuing Operations
The company recorded net income from continuing operations of $39 million
($0.24 per share) in the second quarter of 2000, compared with net income of $46
million ($0.28 per share) in 1999.
DISCONTINUED OPERATIONS
In the second quarter of 1999, the company recorded income from
discontinued operations, net of income tax, of $9 million ($0.05 per share),
which was comprised principally of an after-tax gain on the sale of the
company's folding carton business.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
RESULTS OF CONTINUING OPERATIONS
Sales
Details of sales were as follows.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(DOLLARS IN MILLIONS) --------------------------
2000 1999 CHANGE
------ ------ ------
<S> <C> <C> <C>
Consumer and foodservice/food packaging..................... $1,048 $ 994 5.4%
Protective and flexible packaging........................... 407 410 (0.7)
Other....................................................... -- -- --
------ ------
$1,455 $1,404 3.6%
------ ------
</TABLE>
Sales in the six months ended June 30, 2000 grew 4%, to $1,455 million,
over the comparable period in 1999. Excluding the negative impact of
foreign-currency exchange rates and divestitures, sales increased 9%, driven by
price increases of 6% and unit-volume gains of 3%.
Sales of the consumer and foodservice/food packaging business advanced 5%
in the first six months of 2000 over the comparable period in 1999. Adjusting
for the negative impact of divestitures, sales grew 9%, driven principally by
price increases. In the six months ended June 30, 2000, sales of protective and
flexible products declined slightly compared with the same period in 1999.
Excluding the negative effect of foreign-currency exchange rates and businesses
divested in late 1999, this segment's sales were up 10% in the first half of
2,000, primarily as a result of volume growth.
14
<PAGE> 16
Operating Income (Income before Interest Expense, Income Taxes, and
Minority Interest)
Operating income (loss) by segment appears below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999 CHANGE
(DOLLARS IN MILLIONS) ---- ---- ------
<S> <C> <C> <C>
Consumer and foodservice/food packaging..................... $135 $152 (11.2)%
Protective and flexible packing............................. 20 42 (52.4)
Other....................................................... 31 (50) --
---- ----
$186 $144 29.2%
---- ----
</TABLE>
Included in 1999's results were restructuring and other charges of $29
million. Excluding the effect of these unusual items, operating income by
segment was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999 CHANGE
(DOLLARS IN MILLIONS) ---- ---- ------
<S> <C> <C> <C>
Consumer and foodservice/food packaging..................... $135 $152 (11.2)%
Protective and flexible packaging........................... 20 42 (52.4)
Other....................................................... 31 (21) --
---- ----
$186 $173 7.5%
---- ----
</TABLE>
Operating income before unusual items was $186 million for the six months
ended June 30, 2000, up 8% over the same period in 1999, as significant
reductions in corporate-overhead expenses, higher pension income, and
selling-price and volume increases partially offset higher resin costs.
Operating income for the consumer and foodservice/food packaging segment
was $135 million for the first six months of 2000, compared with $152 million
for 1999, as volume and selling price increases were more than offset by higher
raw material and transportation costs and start-up costs associated with the
company's Mexican molded-fibre operation.
Operating income for the protective and flexible segment was $20 million in
the first six months of 2000, compared with $42 million for the comparable
period in 1999. The operating-income decline was caused primarily by a reduction
in spread between selling prices and resin costs, the absence of income from
divestitures, inefficiencies associated with plant consolidations and start-ups,
and the negative impact of foreign-currency exchange rates.
Operating income for the other segment was $31 million for the six months
ended June 30, 2000, compared with a loss of $21 million before unusual items in
1999. This segment's improvement in operating income resulted from reductions in
corporate-overhead costs, higher pension income, and the impact of billing
Tenneco Automotive for the full cost of administrative services provided to it
by Pactiv.
Interest Expense, Net of Interest Capitalized
Interest expense was $67 million for the first six months of 2000, down
slightly from the prior year. Prior to the spin-off, corporate debt of Tenneco
and related interest expense were allocated to Pactiv, and related changes were
recorded as a component of Pactiv's combined equity.
Income Taxes
Pactiv's effective tax rate for the six months ended June 30, 2000, was 42%
compared with 31% for the comparable period in 1999. The lower tax rate in 1999
was related to the spin-off of Pactiv as a stand-alone company.
Income from Continuing Operations
The company recorded net income from continuing operations of $68 million
($0.41 per share) for the six months ended June 30, 2000, compared with net
income of $52 million ($0.31 per share) for the same period in 1999.
15
<PAGE> 17
DISCONTINUED OPERATIONS AND EXTRAORDINARY CHARGE
For the first six months of 2000, income from discontinued operations, net
of income tax, was $134 million ($0.82 per share), which represented the gain on
the February 2000 sale of the majority of the company's interest in PCA. In the
first six months of 1999, the company recorded a loss from discontinued
operations of $163 million ($0.98 per share), which was comprised principally of
an after-tax loss of $178 million ($1.07 per share) on the contribution of the
company's containerboard assets to the PCA joint venture. Also during the first
half of 1999, an extraordinary after-tax charge of $7 million ($0.04 per share)
was recorded as a result of the early retirement of debt in connection with the
contribution of these assets.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
Details of the company's capital structure appear below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999 CHANGE
(IN MILLIONS) -------- ------------ ------
<S> <C> <C> <C>
Short-term debt and current maturities of long-term debt.... $ 20 $ 325 $(305)
Long-term debt.............................................. 1,740 1,741 (1)
------ ------ -----
Total debt................................................ 1,760 2,066 (306)
Minority interest........................................... 21 20 1
Shareholders' equity........................................ 1,479 1,350 129
------ ------ -----
$3,260 $3,436 $(176)
------ ------ -----
</TABLE>
Pactiv's ratio of debt to total capitalization was 54% and 60% at June 30,
2000, and December 31, 1999, respectively. Total borrowings declined $306
million during the first six months of 2000 as proceeds from the sale of PCA
stock were used to repay debt.
Shareholders' equity increased $129 million in the first half of 2000
primarily as a result of the recording of income from continuing and
discontinued operations of $68 million and $134 million, respectively, offset
partially by the impact of repurchasing $88 million of common stock.
Cash Flows
A summary of cash flows appears below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
(CONSOLIDATED) (COMBINED)
(IN MILLIONS) -------------- ----------
<S> <C> <C>
Cash provided (used) by:
Operating activities...................................... $ 12 $(45)
Investing activities...................................... 365 (866)
Financing activities...................................... (379) 920
</TABLE>
Cash provided by operating activities was $12 million in the first six
months of 2000, while $45 million was used by operations in the same period in
1999. The $57 million increase in operating cash flow was comprised of a $62
million decrease in cash used by discontinued operations, offset, in part, by a
$5 million decrease in cash provided by continuing operations.
Investing activities provided $365 million in cash flow in the first six
months of 2000, but used $866 million in the same period of 1999. The difference
was principally related to transactions associated with the discontinued
paperboard-packaging operations.
Cash used by financing activities was $379 million for the six months ended
June 30, 2000, while $920 million was generated from financing activities during
the same period in 1999. The use of cash during the first six months of 2000 was
primarily caused by the retirement of debt in connection with the sale of the
company's interest in PCA and the use of cash to fund the company's
share-repurchase program. During the second quarter of 1999, the company
borrowed approximately $1.8 billion in connection with the formation of
16
<PAGE> 18
the PCA joint venture and used approximately $1.2 billion of the borrowings to
purchase assets used by and previously sold accounts receivable of the former
containerboard business. The remaining proceeds from these borrowings were
contributed to Tenneco to fund the retirement of the parent company's debt.
Capital Commitments
The company estimates that expenditures aggregating approximately $103
million will be required after December 31, 1999, to complete projects
authorized at that date, and for which substantial commitments have been made.
Liquidity
Pactiv's management believes that cash flows from operations, combined with
available borrowing capacity under its credit facilities, will generally be
sufficient to meet capital requirements.
At the time of the spin-off, Pactiv exercised its right to make a one-time
draw under a $1.5 billion term-loan agreement in the amount of $300 million at a
floating-interest rate based on LIBOR, adjusted for reserve requirements, plus a
specified margin. As a result of the sale of the majority of Pactiv's interest
in PCA on February 2, 2000, all amounts borrowed under this facility were repaid
in the first quarter of 2000.
Pactiv entered into certain revolving-credit agreements in connection with
the spin-off. As of June 30, 2000, the company was in full compliance with
financial and other customary covenants under these agreements.
CHANGES IN ACCOUNTING PRINCIPLES
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-5, Reporting on the Costs of
Start-Up Activities, which requires that costs of start-up activities be
expensed as incurred. This statement became effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires that previously capitalized costs
related to start-up activities be expensed as a cumulative effect of change in
accounting principle upon adoption. The company adopted SOP 98-5 on January 1,
1999, and recorded a related after-tax charge of $32 million (net of a $9
million tax benefit), or $0.19 per share, which pertained to previously
capitalized start-up costs of its foreign operations and its
administrative-service operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes new
accounting and reporting standards requiring that all derivative instruments,
including such instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at fair value. FAS No.
133 becomes effective for fiscal years beginning after June 15, 2000. Pactiv is
currently evaluating the new standard, but has not yet determined the impact, if
any, it will have on its financial position or results of operations.
In May 2000, the FASB's Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-14, Accounting for Certain Sales Incentives. This
issue addresses the recognition, measurement, and income-statement
classification for various types of sales incentives, including discounts,
coupons, rebates, and free products. Pactiv is required to implement EITF 00-14
in the fourth quarter of 2000. Pactiv is currently analyzing the impact of this
consensus on the company's consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company is exposed to market risks related to changes in
foreign-currency exchange rates, interest rates, and commodity prices. To manage
these risks, the company, from time to time, enters into various hedging
contracts in accordance with the company's policies and procedures. The company
does not use hedging instruments for trading purposes and is not a party to any
transactions involving leveraged derivatives. There have been no material
changes in the amounts and types of hedging transactions since December 31,
1999.
17
<PAGE> 19
PART II -- OTHER INFORMATION
ITEMS 1-3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's 2000 Annual Meeting of Shareowners was held on May 10, 2000,
for the purpose of (i) electing directors, (ii) ratifying the appointment of
Arthur Andersen LLP as independent public accountants for the year 2000, and
(iii) transacting such other business properly brought before the meeting. At
the meeting, the following persons were elected to the company's Board of
Directors, each for a term to expire at the company's 2001 annual meeting of
shareowners:
<TABLE>
<CAPTION>
NUMBER OF VOTES
------------------------
NOMINEE FOR WITHHELD
------- ----------- ---------
<S> <C> <C>
Mark Andrews................................................ 151,439,396 2,510,469
Larry D. Brady.............................................. 151,807,894 2,141,971
Robert J. Darnall........................................... 151,841,915 2,107,950
Mary R. (Nina) Henderson.................................... 151,761,608 2,188,257
Roger B. Porter............................................. 151,568,471 2,381,394
Paul T. Stecko.............................................. 149,566,369 4,383,496
Richard L. Wambold.......................................... 151,790,730 2,159,135
</TABLE>
The Shareowners also ratified the appointment of Arthur Andersen LLP as the
company's independent auditors for the year 2000 by a vote of 152,892,400 votes
cast for ratification, 495,950 votes cast against ratification, and 561,515
abstentions.
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
The exhibits filed herewith are designated by an asterisk in the following
index; all other exhibits are incorporated by reference:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2 Distribution Agreement by and between Tenneco Inc. and the
registrant (incorporated herein by reference to Exhibit 2 to
Pactiv Corporation's Current Report on Form 8-K dated
November 11, 1999, File No. 1-15157).
3 Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3.1 to Pactiv
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-15157).
3.1 Amended and Restated By-laws of the registrant (incorporated
herein by reference to Exhibit 3.2 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
4.1 Specimen Stock Certificate of Pactiv Corporation Common
Stock (incorporated herein by reference to Exhibit 4.1 to
Pactiv Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 1-15157).
4.2 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 Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
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).
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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 Corporation's 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 Corporation's 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 Corporation's 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 1999, between the
registrant and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference to Exhibit 4.3(e) to
Pactiv Corporation's 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 Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, 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 Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.1 Human Resources Agreement, dated as of November 4, 1999, by
and between Tenneco Inc. and the registrant (incorporated
herein by reference to Exhibit 16.1 to Tenneco Inc.'s
Current Report on Form 8-K dated November 4, 1999, File No.
1-12387).
10.2 Tax Sharing Agreement, dated as of November 3, 1999, by and
between Tenneco Inc. and the registrant (incorporated herein
by reference to Exhibit 16.2 to Tenneco Inc.'s Current
Report on Form 8-K dated November 4, 1999, File No. 12387).
10.3 Amended and Restated Transition Services Agreement, dated as
of November 4, 1999, by and between Tenneco Inc. and the
registrant (incorporated herein by reference to Exhibit 10.3
to Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q
for quarterly period ended September 30, 1999, File No.
1-12387).
10.4 Trademark Transition License Agreement, dated as of November
4, 1999, by and between Tenneco Inc. and the registrant
(incorporated herein by reference to Exhibit 10.4 to Pactiv
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, File No. 1-15157).
10.5 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Executive Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.5 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.6 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.6 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.7 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Change in Control Severance Benefit Plan for Key
Executives (incorporated herein by reference to Exhibit 10.7
to Pactiv Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-15157).
10.8 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.8 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.9 Pactiv Corporation (formerly known as Tenneco Packaging
Inc.) Stock Ownership Plan (incorporated herein by reference
to Exhibit 10.9 to Pactiv Corporation's Quarterly Report
Form 10-Q for the quarter ended September 30, 1999, File No.
1-15157).
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.10 Professional Services Agreement, dated August 22, 1996, by
and between Tenneco Business Services Inc. and Newport News
Shipbuilding Inc. (incorporated herein by reference to
Exhibit 10.28 of Tenneco Inc.'s Form 10, File No. 1-12387).
10.11 Pactiv Corporation Rabbi Trust (incorporated herein by
reference to Exhibit 10.11 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.12 Tenneco Rabbi Trust Agreement (incorporated herein by
reference to Exhibit 10.12 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 3, 1999,
File No. 1-15157).
10.13(a) Contribution Agreement, dated as of January 25, 1999, by and
among the registrant, PCA Holdings LLC and Packaging
Corporation of America (the "Contribution
Agreement")(incorporated herein by reference to Exhibit
10.30 to Tenneco Inc.'s Current Report on Form 8-K dated
April 12, 1999, File No. 1-12387).
10.13(b) Letter Agreement, dated as of April 12, 1999, by and among
the registrant, PCA Holdings LLC and Packaging Corporation
of America, amending the Contribution Agreement
(incorporated herein by reference to Exhibit 10.31 to
Tenneco Inc.'s Current Report on Form 8-K dated April 12,
1999, File No. 1-12387).
10.14 Stockholders Agreement, as amended, dated as of April 12,
1999, by and among the registrant, PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference to Exhibit 10.32 to Tenneco Inc.'s Current Report
on Form 8-K dated April 12, 1999, File No. 1-12387).
10.15 Registration Rights Agreement, as amended, dated as of April
12, 1999, by and among the registrant, PCA Holdings LLC and
Packaging Corporation of America (incorporated herein by
reference to Exhibit 10.33 to Tenneco Inc.'s Current Report
on Form 8-K dated April 12, 1999, File No. 1-12387).
10.16 Release Agreement dated as of October 18, 1999, by and
between Dana G. Mead and Tenneco Management Company, and
Modification of Release Agreement dated as of October 18,
1999, by and among Dana G. Mead, Tenneco Inc. and Tenneco
Management Company (incorporated herein by reference to
Exhibit 10.18 to Tenneco Automotive Inc.'s Quarterly Report
on Form 10-Q for quarterly period ended September 30, 1999,
File No. 1-12387).
10.17 Employment Agreement, dated as of March 11, 1997, by and
between Richard L. Wambold and Tenneco Inc. (incorporated
herein by reference to Exhibit 10.17 to Pactiv Corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, File No. 1-15157).
10.18 Short Term Credit Agreement, dated as of September 29, 1999,
among the registrant, Bank of America, N.A., as
Administrative Agent, Credit Suisse First Boston, as
Syndication Agent, Bank One, NA and Banque Nationale de
Paris, as Co-Documentation Agents, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 4.4 to Tenneco Packaging Inc.'s Registration
Statement on Form S-4, File No. 333-82923).
10.19 Long Term Credit Agreement, dated as of September 29, 1999,
among the registrant, Bank of America, N.A., as
Administrative Agent, Credit Suisse First Boston, as
Syndication Agent, Bank One, NA and Banque Nationale de
Paris, as Co-Documentation Agents, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 4.3 to Tenneco Packaging Inc.'s Registration
Statement on Form S-4, File No. 333-82923).
10.20 Term Loan Agreement, dated as of November 3, 1999, between
the registrant and Bank of America (incorporated herein by
reference to Exhibit 10.21 to Pactiv Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, File No. 1-15157).
10.21 Letter of Agreement dated September 10, 1999, by and among
Tenneco Inc., Bank of America, N.A., and Bank of America
Securities LLC, related to Term Loan Agreement, dated as of
November 3, 1999, by and between the registrant and Bank of
America (incorporated herein by reference to Exhibit 10.22
to Pactiv Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 1-15157).
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.22 Participation Agreement, dated as of October 28, 1999, among
the registrant, First Security Bank, N.A., Bank of America,
as Administrative Agent, and the other financial
institutions party thereto (incorporated herein by reference
to Exhibit 10.23 to Pactiv Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, File No.
1-15157).
10.23 Agreement and General Release dated January 28, 2000,
between the registrant and Paul J. Griswold (incorporated by
reference to Exhibit 10.23 to Pactiv Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999,
File No. 1-15157).
11 None.
*12 Computation of Ratio of Earnings to Fixed Charges.
15 None.
18 None.
19 None.
22 None.
23 None.
*27.1 Financial Data Schedule, June 30, 2000.
*27.2 Amended Financial Data Schedule, June 30, 1999.
99 None.
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2000.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACTIV CORPORATION
By: /s/ ANDREW A. CAMPBELL
------------------------------------
Andrew A. Campbell
Vice President, Finance and
Chief Financial Officer
Date: August 14, 2000
22
