PTV Pactiv Corp.

For the quarter ended September 30, 2010, Pactiv Corporation (NYSE: PTV) today announced that income from continuing operations was $79 million, or $0.59 per share, compared with $79 million, or $0.59 per share, in 2009. Results included approximately $21 million, or $0.16 per share, of a favorable tax liability adjustment related to the expiration of the U.S. federal tax statute of limitations for 2006. Sales rose 12 percent to $944 million from $839 million, reflecting 11-percent higher volume and 1-percent higher pricing. The acquisition of PWP Industries added $42 million to third quarter sales.

“We had good volume performance in the quarter in markets that continue to be weak, with organic volume growth of 6 percent and the PWP acquisition adding 5 percent. However, margins were compressed as raw material costs increased in the quarter, and we incurred approximately $11 million of higher operating costs related to the startup of new production processes and equipment. In addition, there was approximately $9 million in expense related to the proposed sale of Pactiv,” said Richard L. Wambold, Pactiv’s chairman and chief executive officer.

Third quarter gross margin was 26.3 percent compared with 33.0 percent last year, as unfavorable spread (the difference between selling prices and raw material costs) and higher operating costs more than offset higher volume and the favorable impact of productivity and cost reduction programs. Operating margin was 12.4 percent compared with 17.6 percent.

Free cash flow in the third quarter was $100 million compared with a use of $31 million last year. Last year’s number included a pension contribution net of favorable cash tax effects of $170 million.

For the nine-month period, income from continuing operations was $202 million, or $1.51 per share, compared with $237 million, or $1.78 per share, last year. Included in the 2010 results is a $3 million, or $0.02 per share, first-quarter charge related to reduced tax deductibility of Medicare Part D retiree drug subsidies under the Patient Protection and Affordable Care Act, as well as a third quarter favorable tax liability adjustment of approximately $21 million, or $0.16 per share. Operating margin was 13.4 percent compared with 17.8 percent. Sales of $2.69 billion rose 7 percent from $2.50 billion. The acquisition of PWP added $83 million to year-to-date sales. Gross margin was 27.4 percent versus 33.8 percent in 2009. Year-to-date free cash flow was $154 million compared with $136 million in 2009.

Business Segment Results

Hefty® Consumer Products

Third quarter sales of $333 million rose 7 percent from $312 million, reflecting a 9-percent volume increase and 2-percent unfavorable pricing. Volume growth primarily reflected increases in branded and private label waste bags, partially offset by declines in some other product lines. The lower pricing largely was due to unfavorable mix.

Operating income was $58 million compared with $80 million last year as unfavorable spread more than offset higher volume. Operating margin was 17.4 percent compared with 25.6 percent last year.

For the nine-month period, sales of $985 million rose 4 percent from $951 million. Operating income was $185 million compared with $223 million last year. Operating margin was 18.8 percent compared with 23.4 percent.

Foodservice/Food Packaging

Third quarter sales of $611 million rose 16 percent from $527 million, based on 12-percent volume growth and 4-percent higher pricing. All of PWP’s sales are included in this segment. The organic volume increase reflected continued growth in cups, as well as increases in produce packaging, processor trays, and paper-based items, which offset declines in some traditional product lines, such as carry-out containers.

Operating income was $64 million compared with $73 million last year, as a result of unfavorable spread and higher operating costs, partially offset by higher volume. Operating margin was 10.5 percent versus 13.9 percent in 2009.

For the nine-month period, sales of $1.71 billion rose 10.0 percent from $1.56 billion in 2009. Operating income was $182 million compared with $234 million. Operating margin was 10.6 percent compared with 15.0 percent last year.

Other

“Income from continuing operations” as used in this press release refers to “income from continuing operations attributable to Pactiv” which excludes minority interest. This press release includes certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP is shown in the attached “Regulation G GAAP Reconciliations” or in the attached “Operating Results by Segment.”

Cautionary Statements

This press release includes certain “forward-looking statements.” A variety of factors may cause actual results to differ materially from these expectations including a slowdown in economic growth, changes in the competitive market, increased cost of raw materials, and changes in the regulatory environment. More detailed information about these and other factors is contained in the Company’s Annual Report on Form 10-K at page 23 filed with the Securities and Exchange Commission as revised and updated by Forms 10-Q and 8-K as filed with the Commission.

Company Information

Pactiv Corporation (NYSE: PTV) is a leader in the consumer and foodservice/food packaging markets it serves. With 2009 sales of $3.4 billion, Pactiv derives more than 80 percent of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. Pactiv’s Hefty® brand products include waste bags, slider storage bags, disposable tableware, and disposable cookware. Pactiv’s foodservice/food packaging offering is one of the broadest in the industry, including both custom and stock products in a variety of materials. For more information, visit www.pactiv.com.

        Pactiv Corporation Consolidated Statement of Income     (In millions, except per share data) Three months ended September 30, Nine months ended September 30, 2010 2009 2010 2009   Sales $ 944 $ 839 $ 2,694 $ 2,506   Costs and expenses

Cost of sales (excluding depreciation and amortization)

696 562 1,955 1,658 Depreciation and amortization 49 46 145 138 Selling, general, and administrative 84 83 236 263 Other expense/(income)   (2 )   -     (2 )   1   Operating income 117 148 360 446 Other income/(expense) Interest income - - - 1 Interest expense, net of capitalized interest (25 ) (23 ) (74 ) (70 ) Share of income from joint ventures   1     -     1     -   Income before income taxes 93 125 287 377

 

Income tax expense (a)   13     45     84     139   Income from continuing operations 80 80 203 238   Discontinued operations, net of tax   2     15     2     14   Net income $ 82   $ 95     205     252    

Less: Net income attributable to noncontrolling interest

  1     1     1     1   Net income attributable to Pactiv $ 81   $ 94   $ 204   $ 251      

Amounts attributable to Pactiv common shareholders

Income from continuing operations, net of tax $ 79 $ 79 $ 202 $ 237 Discontinued operations, net of tax   2     15     2     14   Net income $ 81   $ 94   $ 204   $ 251     Average common shares outstanding (diluted) 134.4 133.2 134.1 132.8  

Diluted earnings per share of common stock attributable to Pactiv common shareholders:

Income from continuing operations 0.59 0.59 1.51 1.78 Discontinued operations, net of tax   0.01     0.11     0.01     0.10   Net income $ 0.60   $ 0.70   $ 1.52   $ 1.88     Gross margin (before deprec. & amort.) 26.3 % 33.0 % 27.4 % 33.8 %   Operating margin 12.4 % 17.6 % 13.4 % 17.8 %   (a) Year to date 2010 income tax expense includes a favorable $21 million tax liability adjustment ($0.16 per share) related to the expiration of U.S. federal tax statute of limitations for 2006 and a $2.5 million adjustment ($0.02 per share) for the write-off of deferred tax assets associated with Medicare Part D subsidies.     Pactiv Corporation Condensed Consolidated Statement of Financial Position     (In millions)   September 30, 2010 December 31, 2009   Assets Current assets Cash and temporary cash investments $ 52 $ 46 Accounts and notes receivable (a), (b) 477 328 Inventories 482 390 Other   48   68 Total current assets   1,059   832

Property, plant, and equipment, net

1,234 1,172 Other assets Goodwill 1,236 1,135 Intangible assets, net 368 372 Other   62   63 Total other assets   1,666   1,570     Total assets $ 3,959 $ 3,574   Liabilities and equity Current liabilities

Short-term debt, including current maturities of long-term debt (b)

$ 165 $ 5 Accounts payable 190 144 Other   239   268 Total current liabilities   594   417 Long-term debt 1,270 1,270 Pension and postretirement benefits 598 694 Other liabilities 246 192 Pactiv shareholders' equity 1,236 985 Noncontrolling interest   15   16   Total liabilities and equity $ 3,959 $ 3,574   (a) Receivables totaling $110 million were sold at December 31, 2009.   (b) As a result of changes to ASC 810 "Consolidation," accounts and notes receivables and short-term debt at September 30, 2010 include $130 million of securitized receivables.     Pactiv Corporation Condensed Consolidated Statement of Cash Flows     (In millions)   Nine months ended September 30, 2010 2009   Operating activities Net income $ 205 $ 252 Less results from discontinued operations   (2 )   (14 ) Income from continuing operations 203 238 Adjustments to reconcile income from continuing operations to cash provided (used) by continuing operations Depreciation and amortization 145 138 Deferred income taxes 6 100 Restructuring and other - (1 ) Noncash pension income (36 ) (27 ) Noncash compensation expense 11 13 Working capital (79 ) 129 Pension contribution - (400 ) Other   4     4   Cash provided (used) by operating activities - continuing operations 254 194 Cash provided (used) by operating activities - discontinued operations   -     (3 ) Cash provided (used) by operating activities $ 254   $ 191     Investing activities Expenditures for property, plant, and equipment (100 ) (78 ) Net proceeds from sales of assets - - Acquisitions of businesses and assets (203 ) (20 ) Other continuing operations investing activities   1     2   Cash provided (used) by investing activities $ (302 ) $ (96 )   Financing activities Issuance of common stock 3 2 Revolving credit facility borrowings 160 - Revolving credit facility payments (130 ) (70 ) Asset securitization borrowings 20 - Dividends paid to noncontrolling interest (2 ) (1 ) Other   2     (2 ) Cash provided (used) by financing activities $ 53   $ (71 )  

Effect of foreign-currency exchange rate changes on cash and temporary cash investments

  1     -   Increase (decrease) in cash and temporary cash investments 6 24 Cash and temporary cash investments, January 1   46     80   Cash and temporary cash investments, September 30 $ 52   $ 104           Pactiv Corporation Operating Results by Segment     (In millions)   Foodservice / Consumer Food Packaging Other Total Three months ended September 30, 2010 Sales $ 333 $ 611 $ - $ 944 Adjustments to sales for acquisitions   -     (42 )   -     (42 ) Sales adjusted for acquisitions $ 333   $ 569   $ -   $ 902     Operating income (loss) $ 58 $ 64 $ (5 ) $ 117   Operating margin 17.4 % 10.5 % 12.4 %   Three months ended September 30, 2009 Sales $ 312 $ 527 $ - $ 839   Operating income (loss) $ 80 $ 73 $ (5 ) $ 148   Operating margin 25.6 % 13.9 % 17.6 %       Nine months ended September 30, 2010 Sales $ 985 $ 1,709 $ - $ 2,694 Adjustments to sales for acquisitions   -     (83 )   -     (83 ) Sales adjusted for acquisitions $ 985   $ 1,626   $ -   $ 2,611     Operating income (loss) $ 185 $ 182 $ (7 ) $ 360   Operating margin 18.8 % 10.6 % 13.4 %   Nine months ended September 30, 2009 Sales $ 951 $ 1,555 $ - $ 2,506   Operating income (loss) $ 223 $ 234 $ (11 ) $ 446   Operating margin 23.4 % 15.0 % 17.8 %         Pactiv Corporation Regulation G GAAP Reconciliations   Income from Continuing Operations and Earnings per Share   (In millions, except per-share amounts) Three months ended September 30, Nine months ended September 30,

2010

2009

2010

2009

  Income from continuing operations attributable to Pactiv - GAAP basis $ 79 $ 79 $ 202 $ 237   Adjustments (net of tax) to exclude: Tax liability adjustment   (21 )   -     (21 )   -   Income from continuing operations attributable to Pactiv excluding tax liability adjustment - US GAAP basis(a) $ 58   $ 79   $ 181   $ 237     Average common shares outstanding (diluted) 134.4 133.2 134.1 132.8   Diluted earnings per share EPS from continuing operations - GAAP basis $ 0.59 $ 0.59 $ 1.51 $ 1.78   Adjustments (net of tax) to exclude: Tax liability adjustment   (0.16 )   -     (0.16 )   -   EPS from continuing operations excluding restructuring and other charges (a) $ 0.43   $ 0.59   $ 1.35   $ 1.78       Free Cash Flow   Three months ended September 30, Nine months ended September 30, (In millions)

2010

2009

2010

2009

  Cash flow provided by operating activities - GAAP basis $ 135 $ (21 ) $ 254 $ 194 Less: Capital expenditures - continuing operations (35 ) (29 ) (100 ) (78 ) (Increase) decrease in asset securitization program     19       20   Free cash flow (b) $ 100   $ (31 ) $ 154   $ 136         (a) In accordance with generally accepted accounting principles (US GAAP), income from continuing operations and reported earnings per share in 2010 include a $21 million favorable tax liability adjustment related to the expiration of U.S. federal tax statute of limitations for 2006. The company's management believes that by adjusting income from continuing operations and reported earnings per share to exclude the effect of these infrequently occurring, non-operational items, the resulting income from operations and earnings per share present a more meaningful, operationally-oriented depiction of company performance. The company's management excludes these items from income from continuing operations and earnings per share when evaluating operating performance and, along with other factors, in determining management compensation.   (b) In 2009, we measured free cash flow as cash flow from operating activities excluding the change in our asset-securitization-program balance, less capital expenditures, all of which are calculated in accordance with GAAP. However, due to changes in ASC 810 "Consolidation," securitized borrowings are now included in our consolidated financials in 2010. Therefore, free cash flow is defined as cash flow from operating activities less capital expenditures. We believe that free cash flow provides a useful measure of our liquidity. We use free cash flow as a measure of cash available to fund early or required debt retirement and incremental investments such as, but not limited to, acquisitions and share repurchases. However, free cash flow has limitations, in that it does not represent residual cash flow available for discretionary expenditures. Some of our expenditures are mandatory. The amount of mandatory versus discretionary expenditures can vary significantly between periods.