morgan stanley basic materials conference 2006 february 23, 2006 packaging corporation of america...
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Morgan StanleyBasic Materials Conference 2006
February 23, 2006
Packaging Corporation of America
Paul T. SteckoChairman and CEO
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Certain statements in this presentation are forward-looking statements. Forward-looking statements include statements about our future financial condition, our industry and our business strategy. Statements that contain words such as “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope” or similar expressions, are forward-looking statements. These forward-looking statements are based on the current expectations of PCA.
Because forward-looking statements involve inherent risks and uncertainties, the plans, actions and actual results of PCA could differ materially. Among the factors that could cause plans, actions and results to differ materially from PCA’s current expectations are those identified under the caption “Risk Factors” in PCA’s Form 10K filed with the Securities and Exchange Commission and available at the SEC’s website at “www.sec.gov”.
Packaging Corporation of America
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Pure Play in the Right Product
% of Revenues from Containerboard and Corrugated Products
Weyerhaeuser PCA InternationalPaper
Temple-InlandSmurfit-Stone
Koch / GP
97%
76%
58%
19% 18%15%
Note: Based on company press releases and PCA and analyst estimates
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0.0%
5.0%
10.0%
15.0%
20.0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Export % Import %
Containerboard Imports and Exportsas a Percentage of Production
Source: AF & PA reports
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Containerboard Capacity Growth (U.S. Only)
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: AF & PA Capacity Survey. Includes permanent shutdowns announced after the survey and current indefinite shutdowns as of February 20, 2006.
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-7.0%
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan'06
Industry Corrugated Products DemandPer Workday(2)
Year-over-Year% Change (1)
(1) Year-over-year change 2005 vs 2004 by month, and Jan. 2006(2) Source: Fiber Box Association
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2000
2200
2400
2600
2800
3000
3200
3400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1985 – 2004 Inventory 2005 Inventory
Total Industry Containerboard Inventories1985 - 2005
Source: FBA
•
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2000
2200
2400
2600
2800
3000
3200
$200
$300
$400
$500
$600
Inventory Linerboard Prices
Industry Containerboard Inventory & Pricing
Sources: Industry Inventory, Fiber Box Association and American Forest & Paper Association; Linerboard Prices, Industry Publications
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Price Per Ton000 Tons
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Mill2005 Production
(000 tons)% of
ProductionLinerboard
Counce, TN 966 41%Valdosta, GA 475 20%
Total Linerboard 1,441 61%
Corrugating MediumTomahawk, WI 531 23%Filer City, MI 375 16%
Total Medium 906 39%Total System 2,347 100%
Mill System
* Counce
* Tomahawk
* Filer City
Valdosta *
• Low Cost
• Primarily Virgin Fiber
• Fiber and Energy Flexibility
• Low Natural Gas Usage
• Lightweight Capability
• High Integration Level
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$/Ton
10
30
50
70
90
110
130
150
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F
Recycled Fiber Prices HistoricallyHave Been Very Volatile
HK
JAP
Oth
er
63%19% U.S.EUR
China’s Sources of OCC (2003)
Source: Industry publications for OCC pricing excluding delivery costs
1999 2000 2001 2002 2003 2004 2005 2006
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100% 100%
59%55%
38% 36%30%
23%19%
Limited Exposure to Potential IncreasesIn Wastepaper Prices
Wastepaper Utilization
Source: Industry publications and PCA estimates
Solvay Norampac Temple-Inland Koch / GP International Paper
Visy Weyerhaeuser Smurfit-Stone PCA
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Natural Gas as a Percent of Total Mill Purchased Fuels
0.0%
10.0%
20.0%
30.0%
40.0%
2000 2001 2002 2003 2004 2005 Dec. '05
$0.00
$5.00
$10.00
$15.00
% Use(1)
Avg. Price/M2BTU(2)
(1) PCA actual consumption(2) Delivered NYMEX pipeline price
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3%
18%
44%
35%
Mill Purchased Fuel Mix
Nat
ura
l Gas
Bark
Coal
Oil
4Q ’05 Actual2000
36%
4%
27%
33%
Natural Gas
Bark
Coal
Oil
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Corrugated Products
Differentiated Operating Strategy
• Stand-alone profit centers
• Value-added products
• Two-thirds local accounts
• Over 8,300 customers
• Top 30 accounts represent
only about 30% of sales
15Corrugated plantsSheet/specialty plants
Corrugated Products System
Oxnard
Garland
Phoenix
Salt Lake City Windsor
NorthglennDenver
El Paso
Waco
Plano
Los Angeles
OmahaMarshalltown
MinneapolisGolden Valley
Muskogee
Colby
Jackson
Winter Haven
Jacksonville
Opelika
Atlanta
NewberryHonea Path
RutherfordtonMorgantonKnoxville
GoldsboroSalisbury
High Point
Roanoke
RichmondHarrisonburg
Baltimore
Northampton
Chelmsford
Watertown
Syracuse
Buffalo
Conrad
Milwaukee
Burlington
Vincennes
Gas City
AllentownTrexlertown
LancasterHanover
Edmore
GrandvillePlymouth
Akron
Pittsburgh
Middletown Newark
Ashland
South Gate
Arlington
Donna
Fairfield
Franklin
Acorn
Jackson
OliveBranch
St. Louis
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-5
0
5
10
15
20
25
30
35
Corrugated Products Growth
Cu
mu
lati
ve %
Ch
ang
e
Source: FBA Data for Industry
1998 1999 2000 2001 2002 2003 2004 2005
PCA Industry
2005
PCA 4.6%
Industry 0.6%
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Debt Structure
Asset Securitization $ 109 4.72 October 2006 (Receivables Revolving Credit Facility)
Term Loan 39 5.78 July 2008
5-Year Notes 150 4.38 August 2008
10-Year Notes 400 5.75 August 2013
Total $ 698 5.30
Revolver (2) $ 100 July 2008
Cash On Hand $ 113
(1) Excludes $2.9 million of unamortized debt discount related to the 5-year and 10-year notes.(2) Undrawn as of December 31, 2005.
Amount ($MM) (1)
Cash InterestRate (%) Maturity
As of December 31, 2005
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Temple Inland 2.1
Weyerhaeuser 2.6
International Paper 3.9
Smurfit Stone 6.2
Temple Inland 42%
Weyerhaeuser 52%
International Paper 65%
Smurfit Stone 69%
Debt / Adjusted EBITDA(2) / Debt / Adjusted EBITDA(2) Adjusted Interest (2) Total Capital
Temple Inland 6.4
Weyerhaeuser 5.6
International Paper 4.4
Smurfit Stone 2.1
(1) Debt / Adjusted EBITDA, Adjusted EBITDA / Adjusted Interest, and Debt / Total Capital are ratios commonly used by the ratings agencies. Total capital is calculated as total debt plus minority interest plus shareholders’ equity. Adjusted EBITDA and adjusted interest are calculated for the 12 month period ended September 30, 2005 and both exclude unusual or non-recurring items.
(2) Adjustments ($ in millions) were made to the following companies’ reported income before interest and taxes per their SEC filings or press releases to eliminate unusual or non-recurring
items.
International Paper 25.0 Temple Inland 100.0 Smurfit Stone 380.0 Weyerhaeuser 49.0
Weyerhaeuser’s reported interest was adjusted to exclude the loss from early debt extinguishment of $73.0 million and income received from the sale of an investment of $115.0 million. International Paper’s reported interest was adjusted to exclude interest income related to a tax audit agreement and collection of a note receivable of $54.0 million. No other adjustments were made to the other companies’ reported interest.
(3) PCA’s adjusted EBITDA is calculated as follows:
Income before interest and taxes, as reported for the period $ 175.7Less: STV Dividends (39.2)Add: plant closure and severance costs 2.2
Adjusted EBIT 138.7Add: Depreciation, depletion and amortization as reported the period 159.4
Adjusted EBITDA $ 298.1
Source: Company SEC filings and press releases
PCA (3) 2.3
PCA (3) 10.5
PCA 47%
Strong Credit Profile September 2005 Data(1)
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Secondary Offering and Share Repurchase December 2005
MDP Ownership of PCA Stock 44.1 40.8% 59.2%
Secondary Offering of PCA Common Stock by MDP (17.8) $21.50
PCA Common Stock ShareRepurchase from MDP (4.5) $20.69
MDP Remaining Ownership after 21.8 21.0% 79.0%Secondary and Share Repurchase
Madison Dearborn Partners (MDP)
Note: As a result of share repurchase and retirement, basic shares outstanding were reduced from 108.2 million shares to 103.7 million shares.
Million % of Total Price / Public Market Shares PCA Shares Share Float
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Dividend Yield (1)
(1) Based on share prices as of February 20, 2006 and announced annual dividend rates
4.3%
3.0% 2.9%
2.3%
0.0%0%
1%
2%
3%
4%
5%
PCA IP WY TIN SSCC
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• Single Business Focus - Operational Excellence
• Grow Corrugated Products Volume- Internal Growth
- Acquisitions
• Enhance Shareholder Value Through Financial and Strategic Flexibility
Strategy
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• Strong Containerboard Fundamentals
• Pure Play in Containerboard
• Strong Management Team With Proven Track Record
• Low Dependence on Natural Gas and Oil
• Strong Business Profile – Low Cost Mills and Profitable Box Plants With an Outstanding Product Mix and Customer Base
• Attractive Dividend Yield
• Focus on Shareholder Value
Investor Highlights