Citigroup 10 th Annual Global Paper, Forest Products and Packaging Conference December 1, 2005
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Transcript of Citigroup 10 th Annual Global Paper, Forest Products and Packaging Conference December 1, 2005
Citigroup
10th Annual Global Paper, Forest Products and Packaging Conference
December 1, 2005
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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PCA is a Major Producer of Containerboard
20%
18%
13%
10%9%
7%
0%
5%
10%
15%
20%
25%
SSCC WY IP GP TIN PCA
Source: AF & PA U.S. Containerboard Statistics October 2005, adjusted for indefinite mill shuts
Market Share
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Pure Play in the Right Product
% of Revenues from Containerboard and Corrugated Products
Weyerhaeuser PCA InternationalPaper
Temple-InlandSmurfit-Stone
Georgia-Pacific
97%
70%
58%
19% 17% 15%
Note: Based on company press releases and PCA and analyst estimates
5
0.0%
5.0%
10.0%
15.0%
20.0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Sept.YTD
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 shuts announced after the survey and current indefinite shuts as of November 28, 2005.
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-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Jan Feb Mar Apr May June July Aug Sept Oct
Industry Corrugated Products VolumePer Workday – 2005 vs. 2004
% Change
Sources: Fiber Box Association
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2000
2200
2400
2600
2800
3000
3200
Industry Containerboard Inventory
Sources: Fiber Box Association and American Forest & Paper Association
(000 tons)
1996 1997 1998 1999 2000 2001 2002 2004 20052003
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Linerboard Trendline Pricing
0
100
200
300
400
500
'71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Source: RISI North America Pulp and Paper Review
Nominal Nominal Trendline
$/Ton
10
Mill2004 Production
(000 tons)% of
ProductionLinerboard
Counce, TN 999 43%Valdosta, GA 457 20%
Total Linerboard 1,456 63%
Corrugating MediumTomahawk, WI 572 24%Filer City, MI 290 13%
Total Medium 862 37%Total System 2,318 100%
Mill System
* Counce
* Tomahawk
* Filer City
Valdosta *
• Low Cost
• Primarily Virgin Fiber
• Fiber and Energy Flexibility
• Low Natural Gas Usage
• Lightweight Capability
11
$/Ton
Source: Industry publications for OCC pricing excluding delivery costs
1999 2000 2001 2002 2003 2004 2005
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
Recycled Fiber Prices HistoricallyHave Been Very Volatile
China’s Source’s of OCC (2003)
HK
JAP
Oth
er
63%19% U.S.EUR
12
0.4 0.3
3.0
6.46.9
9.410.0
10.711.5
12.313.2
14.115.1
16.1
17.2
0
2
4
6
8
10
12
14
16
18
1985 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: 2003 Almanac of China’s Paper Industry for total wastepaper imports, primarily OCC. Projections reflect an average growth in imports of 7% per year.
Actual Projected
China Wastepaper Imports
(millions of tons)
13
100% 100%
59% 58%
38% 36%30%
23%19%
Limited Exposure to Potential IncreasesIn Wastepaper Prices
Wastepaper Utilization
Source: Industry publications and PCA estimates
Solvay Norampac Temple-Inland Georgia-Pacific International Paper
Visy Weyerhaeuser Smurfit-Stone PCA
14
0.00
3.00
6.00
9.00
12.00
15.00
18.00
J'03
F M A M J J A S O N D J'04
F M A M J J A S O N D J'05
F M A M J J A S O N D J'06
F M
$ Per M2BTU
Natural Gas Coal
Price of Natural Gas(1) and Coal(2)
(1) Delivered cost per M2BTU of natural gas based upon NYMEX actual (January 2003 – November 2005) and futures (December 2005 – March 2006) monthly closing prices on November 28, 2005, plus estimated transportation, utility, taxes and other cost add-ons of $0.55 to $1.30 per M2BTU.
(2) Delivered cost of coal per M2BTU including estimated coal costs, plus estimated transportation, taxes and handling cost add-ons of $0.75 to $0.80 per M2BTU.
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5%
14%
49%
32%
Mill Purchased Fuel Mix
Nat
ura
l
Gas
Bark
Coal
Oil
September 20052000
36%
4%
27%
33%
Natural Gas
Bark
Coal
Oil
16
6058
43
23
18
3
0
10
20
30
40
50
60
70
GP WY IP SSCC TIN PCA
Annual Natural Gas Usage (1)
(Millions of M2BTU)
Source: Company third quarter earnings release conference call disclosures and PCA estimates
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$0.72$0.69
$0.48
$0.27 $0.26
$0.08
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
WY GP TIN SSCC IP PCA
EPS Impact of $5.00 per M2BTU Natural Gas Price Increase
Source: Company third quarter earnings release conference call disclosures and PCA estimates
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Corrugated Products
Differentiated Operating Strategy
• Stand-alone profit centers
• Value-added products
• 70% local accounts
• Over 8,000 customers
• Top 30 accounts represent
only about 30% of sales
19Corrugated 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
20
-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 Sept. YTD
2005
PCA Industry
Sept. YTD 2005
PCA + 4.6%
Industry - 1.4%
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6.6
4.4 4.43.8 3.7
2.8
0
2
4
6
8
Capital Expenditures as a Percent of Sales2000 Through 2004 Average
PCA Temple International Weyerhaeuser Georgia Smurfit Inland Paper Pacific Stone
Percent
Source: SEC filings for Containerboard and Packaging segment of each company
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Current Debt Structure
Asset Securitization $ 109 4.223 October 2006 (Receivables Revolving Credit Facility)
Term Loan 39 5.313 July 2008
5-Year Notes 150 4.375 August 2008
10-Year Notes 400 5.750 August 2010
Total $ 698 5.192
Revolver (2) $ 100 July 2008
Cash On Hand $ 184
(1) Excludes $3.0 million of unamortized debt discount related to the 5-year and 10-year notes.(2) Undrawn as of September 30, 2005. Pay 20bps for the $100 million commitment.
Amount ($MM) (1)
Cash InterestRate (%) Maturity
As of Sept. 30, 2005
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Temple Inland 2.1
Weyerhaeuser 2.6
Georgia Pacific 3.0
International Paper 3.9
Smurfit Stone 6.2
Temple Inland 42%
Weyerhaeuser 52%
Georgia Pacific 59%
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
Georgia Pacific 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 nonrecurring 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.
Georgia Pacific 261.0 Temple Inland 100.0 International Paper 25.0 Weyerhaeuser 49.0 Smurfit Stone 380.0
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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Dividend Yield (1)
(1) Based on closing share prices as of November 28, 2005 and announced annual dividend rates
4.4%
3.2% 3.1%
2.2%
1.5%
00%
1%
2%
3%
4%
5%
PCA IP WY TIN GP 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