Transcript No Slide Title

Packaging Corporation of America
Citigroup 11th Annual Global Paper and
Forest Products Conference
December 7, 2006
Paul T. Stecko
Chairman and CEO
Packaging Corporation of America
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”.
2
Pure Play in the Right Product
% of Revenues from Containerboard and Corrugated Products
98%
95%
53%
21%
20%
15%
PCA
SmurfitStone
Temple-Inland
Note: Based on company press releases and PCA and analyst estimates
Weyerhaeuser
International
Paper
Koch / GP
3
Containerboard Imports and Exports
as a Percentage of Production
20.0%
15.0%
10.0%
5.0%
0.0%
1995
1996
1997
1998
1999
2000
Export %
Source: AF & PA reports
2001
2002
2003
2004
2005
2006
Sept
YTD
Import %
4
Containerboard Capacity Growth (U.S. Only)
7.0%
5.0%
3.0%
1.0%
-1.0%
-3.0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
5
Source: AF & PA Capacity Survey. Includes permanent shutdowns announced after the survey and current indefinite shutdowns as of December 5, 2006.
Recycled Mills Key Cost and Investment Drivers
% of Total Cash Cost (4)
80%
Key Cost Data
’05 – ‘06
%
1992
70%
60%
U.S. Natural Gas (1)(2)
Increase
$1.74
$7.09
307%
OPEC Crude Oil (1)(3) $17.81
$56.37
217%
$48.30
$58.74
22%
$27.00
$75.08
178%
(per thousand cubic ft.)
40%
40%
Avg.
30%
(per barrel)
20%
Electricity (1)
(per MKWH)
0%
Fiber
Energy
Total
Recycled Fiber(1)
(per ton)
1. Source of pricing data: U.S. Government Energy Information Administration for U.S. natural gas, OPEC crude oil and electricity prices available as of December 4, 2006, and
industry publications for recycled fiber prices which excludes delivery costs of about $20.00 per ton.
2. Wellhead price of natural gas, excluding $1.00 to $1.50 in delivery and transportation costs.
3. Landed cost to U.S.
4. PCA estimate based on Industry publications and cost studies.
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Industry Corrugated Products Demand
Per Workday(2)
Year-over-Year
% Change (1)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
Jan
Feb Mar
Apr
May June July Aug Sept Oct Nov Dec Jan Feb
2005
Mar
Apr
May June July Aug. Sept Oct
2006
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(1)
(2)
Year-over-year change 2005 vs 2004 by month, and January - October 2006
Source: Fiber Box Association
Industry Containerboard Inventory & Pricing
Inventory
000 Tons
Linerboard Prices
Price Per Ton
3,200
$600
3,000
$500
2,800
2,600
$400
2,400
$300
2,200
2,000
$200
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
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Sources: Industry Inventory, Fiber Box Association and American Forest & Paper Association; Linerboard Prices, Industry Publications
Mill System
•
Low Cost
•
Primarily Virgin Fiber
•
Fiber and Energy Flexibility
•
Low Natural Gas Usage
•
Lightweight Capability
•
High Integration Level
Mill
Linerboard
Counce, TN
Valdosta, GA
Total Linerboard
Corrugating Medium
Tomahawk, WI
Filer City, MI
Total Medium
Total System
2005 Production
(000 tons)
* Tomahawk
* Filer City
% of
Production
966
475
1,441
41%
20%
61%
531
375
906
2,347
23%
16%
39%
100%
* Counce
Valdosta
*
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Limited Exposure to Potential Increases
In Wastepaper Prices
Wastepaper Utilization
100%
100%
59%
55%
38%
36%
30%
23%
Solvay
Visy
Norampac
Temple-Inland
Koch / GP
Weyerhaeuser
Smurfit-Stone
19%
International Paper
PCA
10
Source: Industry publications and PCA estimates
Mill Purchased Fuel Mix
4Q ’05 Actual
2000
3%
18%
33%
36%
Natural
Gas
Bark
35%
Bark
Coal
Coal
4%
27%
44%
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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
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Corrugated Products System
Watertown
Minneapolis
Golden Valley
Edmore
Milwaukee
Franklin
Burlington
Conrad
Salt Lake City
Windsor
Chelmsford
Syracuse
Northampton
Buffalo
Colby
Grandville
Plymouth
Acorn
Marshalltown
Omaha
Gas City
Akron
Ashland
Middletown
Northglenn
Denver
Allentown
Trexlertown
Hanover
Lancaster
Pittsburgh
Newark
Baltimore
Fairfield
Harrisonburg
Richmond
Roanoke
Vincennes
Oxnard
Los Angeles
Muskogee
South Gate
Phoenix
Jackson
Knoxville
Morganton
Rutherfordton
Olive
Branch
Plano
Arlington
El Paso
Garland
High Point
Salisbury
Goldsboro
Honea Path
Newberry
Atlanta
Opelika
Jackson
Waco
Jacksonville
Winter
Haven
Corrugated plants
Sheet/specialty plants
Donna
Miami
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Corrugated Products Growth (1)
35
33%
30
Cumulative % Change
25
20
15
10
5
3%
0
-5
1998
1999
2000
2001
PCA
2002
2003
2004
2005
Oct YTD
‘06
Industry
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(1) Shipments per workday / FBA Data for Industry, and PCA actuals
PCA Box Shipments
2005, 2004, 2003 and 2002
MMSF
Per Workday
130
125
120
115
110
105
100
J
F
M
2005
A
M
J
2004
J
A
S
2003
O
N
2002
D
15
E-Commerce Retail Sales
$ Billions
36
30
24
18
12
6
0
2000
2001
2002
2003
4th Quarter
2004
2005
2006
1Q – 3Q Average
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Source: U.S. Department of Commerce, except for 4Q ’06 estimated based on current published reports
Industry Margins – 3Q 2006
Containerboard Segment (1)
Sales ($MM)
EBIT ($MM) (2)
EBIT %
Interest Cost ($MM) (3)
Interest Cost %
(1)
(2)
(3)
(4)
PCA(4)
IP
TIN
SSCC
WY
$ 567
95
$ 1,250
125
$ 746
74
$ 1,733
165
$ 1,245
102
16.7%
10.0%
9.9%
9.5%
8.2%
8
1.4%
31
2.5%
16
2.2%
73
4.2%
24
2.0%
Pre-Tax Earnings ($MM)
$
87
$ 94
$ 58
$ 92
$ 78
Pre-Tax Earnings %
15.3%
7.5%
7.7%
5.3%
6.2%
Company third quarter earnings press releases and SEC filings.
Adjustments were made to the following companies’ reported containerboard segment earnings before interest and taxes per their press releases or SEC filings to eliminate
unusual or non-recurring items with adjustments to International Paper of ($13MM) and to Weyerhaeuser of $6MM.
Total reported company interest cost was pro-rated based on net sales by segment to reflect segment allocated interest cost.
For comparability to other companies for reported segment earnings, PCA results exclude corporate overhead, other expense, net, and solid wood loss from operations. PCA’s
containerboard segment sales, EBIT and pre-tax earnings are calculated as follows:
PCA net sales
Less: Solid Wood net sales
PCA Containerboard sales
$575
(8)
$567
PCA income from operations
Add: Corporate overhead, other expense, net,
and Solid Wood loss from operations
PCA Containerboard EBIT
Less: Interest expense, net
PCA Containerboard pre-tax earnings
$77
18
$95
(8)
$87
17
Strong Credit Profile
September 2006 Data(1)
Adjusted EBITDA(2) /
Adjusted Interest (2)
Debt /
Adjusted EBITDA(2)
Temple Inland
PCA (3)
1.9
2.1
Weyerhaeuser
2.9
International Paper
3.9
Smurfit Stone
7.0
PCA (3)
Debt /
Total Capital
10.4
Temple Inland
43%
Temple Inland
6.9
Weyerhaeuser
49%
Weyerhaeuser
6.7
International Paper
4.5
International Paper
63%
Smurfit Stone
1.5
Smurfit Stone
68%
PCA
50%
(1)
Debt / Adjusted EBITDA, Adjusted EBITDA / Adjusted Interest, and Debt / Total Capital are ratios commonly used by the ratings agencies. Total capital is calculated as total debt plus minority
interest plus shareholders’ equity. Adjusted EBITDA and adjusted interest are calculated for the twelve-month period ended September 30, 2006 and both exclude unusual or non-recurring
items.
(2)
Adjustments ($ 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
Smurfit Stone
384.0
92.0
Temple Inland
Weyerhaeuser
(63.0)
1,508.0
Weyerhaeuser’s reported interest was adjusted to exclude the loss from early debt extinguishment of $15.0 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
Add: plant closure and severance costs
Adjusted EBIT
Add: Depreciation, depletion and amortization as reported the period
Adjusted EBITDA
$ 165.1
1.3
166.4
156.4
$ 322.8
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Source: Company SEC filings and press releases
Dividend Yield (1)
5%
4.5%
4%
3.7%
3.0%
3%
2.6%
2%
1%
0.0%
0%
PCA
WY
IP
TIN
SSCC
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(1)
Based on share prices as of December 1, 2006 and announced annual dividend rates
Strategy
•
Single Business Focus - Operational Excellence
•
Grow Corrugated Products Volume
•
-
Internal Growth
-
Acquisitions
Enhance Shareholder Value Through Financial
and Strategic Flexibility
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