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Pactiv 10-Q 2009
e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
     
(mark one)    
 
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2009
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Commission File Number 1-15157
 
 
(Exact name of registrant as specified in its charter)
 
     
Delaware
  36-2552989
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
     
     
1900 West Field Court
Lake Forest, Illinois
(Address of principal executive offices)
  60045
(Zip Code)
 
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 þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
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 $0.01 per share: 131,964,136 as of July 31, 2009. (See Notes to Financial Statements.)
 


 

 
 
         
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 
 
* No response to this item is included herein because either it is inapplicable or there is nothing to report.


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PART I — FINANCIAL INFORMATION
 
ITEM 1.  Financial Statements (Unaudited)
 
 
                                 
    Three months ended June 30,     Six months ended June 30,  
(In millions, except share and per share data)   2009     2008     2009     2008  
 
Sales
  $ 901     $ 951     $ 1,667     $ 1,759  
Costs and expenses
                               
Cost of sales, excluding depreciation and amortization
    575       704       1,048       1,302  
Selling, general, and administrative
    100       70       180       141  
Depreciation and amortization
    46       46       92       92  
Other
    1             1        
Restructuring and other
          2             16  
                                 
      722       822       1,321       1,551  
Operating income
    179       129       346       208  
Other income (expense)
                               
Interest income
    1             1       1  
Interest expense, net of interest capitalized
    (24 )     (27 )     (47 )     (54 )
                                 
Income before income taxes
    156       102       300       155  
Income tax expense
    59       38       112       56  
                                 
Income from continuing operations
    97       64       188       99  
Discontinued operations, net of tax
    (1 )     (3 )     (1 )     (4 )
                                 
Net income attributable to Pactiv
  $ 96     $ 61     $ 187     $ 95  
                                 
Earnings per share
                               
Weighted-average number of shares of common stock outstanding
                               
Basic
    131,931,203       130,809,701       131,808,513       130,689,928  
Diluted
    132,472,333       131,980,485       132,441,477       132,083,402  
Basic earnings per share of common stock attributable to Pactiv common shareholders
                               
Continuing operations
  $ 0.73     $ 0.50     $ 1.42     $ 0.76  
Discontinued operations
    (0.01 )     (0.03 )     (0.01 )     (0.03 )
                                 
Total
  $ 0.72     $ 0.47     $ 1.41     $ 0.73  
                                 
Diluted earnings per share of common stock attributable to Pactiv common shareholders
                               
Continuing operations
  $ 0.73     $ 0.49     $ 1.42     $ 0.75  
Discontinued operations
    (0.01 )     (0.03 )     (0.01 )     (0.03 )
                                 
Total
  $ 0.72     $ 0.46     $ 1.41     $ 0.72  
                                 
 
The accompanying notes to the financial statements are an integral part of this statement.


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    June 30,
    December 31,
 
(In millions, except share data)   2009     2008  
 
Assets
               
Current assets
               
Cash and temporary cash investments
  $ 227     $ 80  
Accounts and notes receivable
               
Trade, less allowances of $8 and $7 at the respective dates
    279       264  
Other
    12       47  
                 
Total accounts and notes receivable
    291       311  
                 
Inventories
               
Finished goods
    183       161  
Work in process
    59       55  
Raw materials
    85       78  
Other materials and supplies
    48       50  
                 
Total inventories
    375       344  
                 
Deferred income tax assets
    16       14  
                 
Other
    16       16  
                 
Total current assets
    925       765  
                 
Property, plant, and equipment, net
    1,191       1,209  
                 
Other assets
               
Goodwill
    1,128       1,124  
Intangible assets, net
    385       396  
Pension asset
    6       5  
Noncurrent deferred income tax asset
    100       161  
Other
    64       65  
                 
Total other assets
    1,683       1,751  
                 
Total assets
  $ 3,799     $ 3,725  
                 
                 
Liabilities and equity
               
Current liabilities
               
Accounts payable
  $ 158     $ 115  
Taxes accrued
    40       14  
Interest accrued
    20       20  
Accrued promotions, rebates, and discounts
    81       68  
Accrued payroll and benefits
    83       66  
Other
    52       50  
                 
Total current liabilities
    434       333  
                 
Long-term debt
    1,345       1,345  
                 
Pension and postretirement benefits
    1,021       1,266  
                 
Other
    99       96  
                 
Noncurrent liabilities related to discontinued operations
    31       30  
                 
Pactiv shareholders’ equity
               
Common stock — $0.01 par value, 350,000,000 shares authorized, 131,946,803 and 131,510,270 shares issued and outstanding, after deducting 39,837,223 and 40,272,907 shares held in treasury, at the respective dates
    1       1  
Premium on common stock and other capital surplus
    716       710  
Accumulated other comprehensive income (loss)
               
Currency translation adjustment
    (10 )     (16 )
Pension and postretirement plans
    (1,674 )     (1,689 )
Gain (loss) on derivatives
    7       7  
Retained earnings
    1,813       1,626  
                 
Total Pactiv shareholders’ equity
    853       639  
Noncontrolling interest
    16       16  
                 
Total equity
    869       655  
                 
Total liabilities and equity
  $ 3,799     $ 3,725  
                 
 
The accompanying notes to the financial statements are an integral part of this statement.


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For the six months ended June 30 (In millions)   2009     2008  
 
Operating activities
               
Net income attributable to Pactiv
  $ 187     $ 95  
Discontinued operations
    1       4  
                 
Income from continuing operations
    188       99  
Adjustments to reconcile income from continuing operations to cash provided (used) by operating activities:
               
Depreciation and amortization
    92       92  
Deferred income taxes
    52       19  
Restructuring and other
    (1 )     11  
Pension income
    (17 )     (25 )
Noncash compensation expense
    10       9  
Net working capital
    91       (130 )
Pension contributions
    (200 )      
Other
          (5 )
                 
Cash provided (used) by operating activities — continuing operations
    215       70  
Cash provided (used) by operating activities — discontinued operations
          (6 )
                 
Cash provided (used) by operating activities
  $ 215     $ 64  
                 
Investing activities
               
Expenditures for property, plant, and equipment
  $ (49 )   $ (86 )
Acquisitions of businesses and assets
    (20 )      
Other investing activities
    1        
                 
Cash provided (used) by investing activities
  $ (68 )   $ (86 )
                 
Financing activities
               
Issuance of common stock
  $ 1     $ 2  
Purchase of common stock
          (2 )
Revolving credit facility payment
          (20 )
Other
    (1 )     (2 )
                 
Cash provided (used) by financing activities
  $     $ (22 )
                 
Effect of foreign exchange rate changes on cash and temporary cash investments
          2  
                 
Increase (decrease) in cash and temporary cash investments
    147       (42 )
Cash and temporary cash investments, January 1
    80       95  
                 
Cash and temporary cash investments, June 30
  $ 227     $ 53  
                 
 
The accompanying notes to the financial statements are an integral part of this statement.


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(In millions, except share data)
 
                                                 
    Pactiv Shareholders              
          Premium on
                         
          common stock
          Accumulated
             
          and other
          other
             
    Common
    capital
    Retained
    comprehensive
    Noncontrolling
    Total
 
    stock     surplus     earnings     income (loss)     interest     equity  
 
Six months ended June 30, 2009
                                               
                                                 
Balance, December 31, 2008
  $ 1     $ 710     $ 1,626     $ (1,698 )   $ 16     $ 655  
Premium on common stock issued (435,684 shares)
            12                               12  
Translation of foreign currency statements
                            6               6  
Stock-based compensation
            (6 )                             (6 )
Gain (loss) on derivatives
                                               
Change in pension and postretirement plan funded status, net of tax of $9
                            15               15  
Net income
                    187                       187  
Total comprehensive income (loss)
                                               
                                                 
Balance, June 30, 2009
  $        1     $      716     $   1,813     $   (1,677 )   $       16     $      869  
                                                 
                                                 
Six months ended June 30, 2008
                                               
                                                 
Balance, December 31, 2007
  $ 1     $ 683     $ 1,402     $ (862 )   $ 15     $ 1,239  
Premium on common stock issued (472,025 shares)
            10                               10  
Treasury stock repurchased (75,218 shares)
            (2 )                             (2 )
Translation of foreign currency statements
                            9       1       10  
Stock-based compensation
                                           
Gain (loss) on derivatives
                            (1 )             (1 )
Impact of adopting SFAS No. 158 measurement date change, net of tax of $4
                    7                       7  
Change in pension and postretirement plan funded status, net of tax of $13
                            20               20  
Net income
                    95                       95  
Total comprehensive income (loss)
                                               
                                                 
Balance, June 30, 2008
  $ 1     $ 691     $ 1,504     $ (834 )   $ 16     $ 1,378  
                                                 
 
The accompanying notes to the financial statements are an integral part of this statement.


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    Three months
    Six months
 
    ended
    ended
 
    June 30,     June 30,  
(In millions)   2009     2008     2009     2008  
 
Consolidated net income
  $ 96     $ 61     $ 187     $ 95  
Other comprehensive income (loss)
                               
Pension and postretirement plans
    7       7       15       20  
Net currency translation gain (loss)
    16       6       6       10  
Gain (loss) on derivatives
          1             (1 )
                                 
Total other comprehensive income (loss)
    23       14       21       29  
                                 
Consolidated comprehensive income (loss)
    119       75       208       124  
Comprehensive income (loss) attributable to the noncontrolling interest
                      1  
                                 
Comprehensive income (loss) attributable to Pactiv
  $ 119     $  75     $ 208     $ 123  
                                 
 
The accompanying notes to the financial statements are an integral part of this statement.


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Note 1.  Basis of Presentation
 
The consolidated statement of income for the three- and six-month periods ended June 30, 2009, and 2008, the condensed consolidated statement of financial position at June 30, 2009, the condensed consolidated statement of cash flows for the six-month period ended June 30, 2009, and 2008, the consolidated statement of changes in equity for the six-month period ended June 30, 2009, and 2008, and the consolidated statement of comprehensive income (loss) for the three- and six-month periods ended June 30, 2009, and 2008 are unaudited. In our opinion, the accompanying financial statements contain all normal recurring adjustments necessary to present fairly the results of operations, financial position, and cash flows for the periods and at the dates indicated. These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They do not include all of the information and footnotes required by generally accepted accounting principles. Accordingly, these statements should be read in conjunction with Pactiv’s Form 10-K for the year ended December 31, 2008, which may be found at www.pactiv.com, under the Investor Relations link, in the subsection entitled “SEC Filings,” or a free copy may be obtained by contacting Investor Relations at (866) 456-5439. Certain reclassifications have been made to the prior year financial information to conform with the current year presentation.
 
We acquired 100% of the stock of Prairie Packaging, Inc. (Prairie) on June 5, 2007. The results of Prairie’s operations have been included in the consolidated financial statements as of that date.
 
On January 5, 2009, we purchased the polypropylene cup business of WinCup for $20 million. This business operated one manufacturing facility in North Carolina with approximately 100 employees. The results of this business have been included in the consolidated financial statements as of that date.
 
We have three reporting segments:
 
  •  Consumer Products manufactures disposable plastic, foam, molded fiber, pressed paperboard, and aluminum packaging products, and sells them to customers such as grocery stores, mass merchandisers, and discount chains. Products include waste bags, food storage bags, and disposable tableware and cookware. We sell many of our consumer products under well-known trademarks, such as Hefty®.
 
  •  Foodservice/Food Packaging manufactures foam, clear plastic, aluminum, pressed paperboard, and molded fiber packaging products, and sells them to customers in the food distribution channel, who prepare and process food for consumption. Customers include foodservice distributors, restaurants, other institutional foodservice outlets, food processors, and grocery chains.
 
  •  Other includes corporate and administrative service operations and retiree benefit income and expense.
 
The accounting policies of the reporting segments are the same as those for Pactiv as a whole. Where discrete financial information is not available by segment, reasonable allocations of expenses and assets/liabilities are used.
 
We have evaluated subsequent events through August 7, 2009, the filing date of this Form 10-Q, and have determined that there were no subsequent events to recognize or disclose in these financial statements.
 
Note 2.  Summary of Accounting Policies
 
For a complete discussion of our accounting policies, refer to Pactiv’s most recent filing on Form 10-K.
 
 
On a recurring basis, we sell an undivided interest in a pool of trade receivables meeting certain criteria to a third party as an alternative to debt financing. Such sales, which represent a form of off-balance-sheet financing, are recorded as a reduction of accounts and notes receivable in the statement of financial position.


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Related proceeds are included in cash provided by operating activities in the statement of cash flows. At June 30, 2009, receivables totaling $129 million were sold, while receivables totaling $100 million were sold at June 30, 2008. Discounts and fees related to such sales were immaterial for the three-month period and $1 million for the six-month period ended June 30, 2009, compared to $1 million for the three-month period and $2 million for the six-month period ended June 30, 2008. These expenses are included in “other expense” in the statement of income. In the event that either Pactiv or the third-party purchaser of the trade receivables were to discontinue this program, our debt would increase, or our cash balance would decrease, by an amount corresponding to the level of sold receivables at such time.
 
 
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS No. 157, which does not require the use of any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 was effective as of January 1, 2008, and did not have a material effect on our financial statements upon adoption and as of June 30, 2009.
 
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of SFAS Nos. 87, 88, 106, and 132(R).” We adopted the recognition and disclosure provisions of SFAS No. 158 on December 31, 2006. We recorded a charge to accumulated other comprehensive income of $41 million upon adoption. We adopted the measurement provisions of SFAS No. 158 on January 1, 2008, using the transition method based on the data as of our September 30, 2007, measurement date. As a result, we increased “retained earnings” by $7 million after tax in 2008.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value as of specified election dates. SFAS No. 159 expands the use of fair value measurement, but does not eliminate disclosure requirements of other accounting standards, including SFAS No. 157. SFAS No. 159 was effective January 1, 2008, and it did not impact our financial statements upon adoption and as of June 30, 2009. We did not choose to measure any financial instruments at fair value as permitted under the statement.
 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value using the acquisition method of accounting, but it changes the application of the acquisition method in a number of significant ways. In this regard, the pronouncement requires that (1) acquisition-related costs generally be expensed as incurred, (2) noncontrolling interests be recorded at fair value, (3) in-process research and development costs be recorded at fair value as an indefinite lived intangible asset, (4) restructuring costs associated with a business combination generally be expensed subsequent to the date of such a combination, and (5) changes in valuation allowances on deferred tax assets and income tax uncertainties after the acquisition date generally be recorded as income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations that occur in fiscal years beginning after December 15, 2008, with the exception of accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also be subject to the provisions of SFAS No. 141(R). SFAS No. 141(R) was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 is effective for


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fiscal years, and interim periods within such fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires that noncontrolling (minority) interests be recognized as equity (but separate from parents’ equity) in consolidated financial statements, and that net earnings related to noncontrolling interests be included in consolidated net income, but identified separately on the face of the income statement. SFAS No. 160 also amends some of ARB No. 51’s consolidation procedures, and expands disclosure requirements regarding the interests of parents and noncontrolling interests. SFAS No. 160 was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 is effective for fiscal years, and interim periods within such fiscal years, beginning on or after November 15, 2008. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities, specifically how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009. This FSP amends FASB No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP No. FAS 107-1 and APB 28-1 is effective for our June 30, 2009 interim financial reporting, and did not have a material effect on our financial statements upon adoption.
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 is effective for fiscal years, and interim periods within such fiscal years, ending after June 15, 2009. SFAS No. 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for our June 30, 2009 interim financial reporting, and did not have a material effect on our financial statements upon adoption.
 
Note 3.  Restructuring and Other
 
In 2008, we implemented a cost reduction program that included the consolidation of two small facilities, asset rationalizations, and headcount reductions. The program is essentially complete with the exception of a small idle plant held for sale. The accrued restructuring balance of $1 million as of June 30, 2009, and $2 million as of December 31, 2008, is for remaining severance payments. Cash payments related to restructuring and other were $1 million pretax for the six-month period ended June 30, 2009.
 
In the first half of 2008, we recorded a charge of $10 million after tax, or $0.08 per share. Cash payments related to restructuring and other charges were $3 million after tax for the six-month period ended June 30, 2008.
 
Note 4.  Business Combination
 
On January 5, 2009, we purchased the polypropylene cup business of WinCup for $20 million. The results of this business have been included in the consolidated financial statements as of that date.
 
The total cost of the acquisition was allocated to the assets acquired and the liabilities assumed based on their respective fair values in accordance with requirements of SFAS No. 141(R). Goodwill and other intangible assets recorded in connection with the acquisition totaled $2 million and $3 million, respectively, and all of


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the goodwill is expected to be deductible for tax purposes. Recorded intangible assets pertain to customer relationships and are being amortized over a 15-year period.
 
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.
 
         
(In millions)      
 
Current assets
  $ 4  
Property, plant, and equipment
    12  
Intangible assets
    3  
Goodwill
    2  
         
Total assets acquired
    21  
         
Current liabilities
    1  
         
Total liabilities assumed
    1  
         
Net assets acquired
  $ 20  
         
 
Note 5.  Discontinued Operations
 
On October 12, 2005, we completed the sale of most of our protective and flexible packaging businesses to Pregis Corporation for $523 million. Amounts recorded in our financial statements related to those businesses are classified as being applicable to discontinued operations.
 
Liabilities related to discontinued operations totaled $31 million at June 30, 2009 and $30 million at December 31, 2008.
 
Note 6.  Long-Term Debt and Financing Arrangements
 
We have a revolving credit facility, and borrowings under this facility totaled $70 million at June 30, 2009. At that date, the fair value of this debt was equal to the outstanding balance.
 
As a part of the Prairie acquisition, we assumed its liability for $5 million borrowed from the Illinois Department Finance Authority (IDFA), which was funded by industrial development revenue bonds issued by the IDFA. This debt will mature on December 1, 2010, and bears interest at varying rates (0.7% as of June 30, 2009) not to exceed 12% per annum.
 
Note 7.  Financial Instruments
 
 
At June 30, 2009, and December 31, 2008, the fair value of cash and temporary cash investments, short- and long-term receivables, accounts payable, and short-term debt were the same as, or not materially different from, the amount recorded for these assets and liabilities. The fair value of long-term debt was approximately $1.4 billion at June 30, 2009, and at December 31, 2008. The recorded amount was $1.3 billion at June 30, 2009 and at December 31, 2008. The fair value of long-term debt was based on quoted market prices for our debt instruments.
 
 
On January 1, 2009, we adopted SFAS No. 161 which requires enhanced disclosures about an entity’s derivative and hedging activities, specifically how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how


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derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
 
We use derivative instruments, principally swaps, forward contracts, and options, to manage our exposure to movements in foreign currency values, interest rates, and commodity prices.
 
 
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the hedge instruments are reclassified from OCI to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable.
 
 
From time to time, we use derivative financial instruments to hedge our exposure to changes in foreign currency exchange rates, principally using foreign currency purchase and sale contracts with terms of less than one year. We do so to mitigate our exposure to exchange rate changes related to third-party trade receivables and accounts payable. Net gains or losses on such contracts are recognized in the statement of income as offsets to foreign currency exchange gains or losses on the underlying transactions. In the statement of cash flows, cash receipts and payments related to hedging contracts are classified in the same way as cash flows from the transactions being hedged. We had no open foreign currency contracts as of June 30, 2009.
 
 
We entered into interest rate swap agreements in connection with the acquisition of Prairie. The agreements were terminated on June 20, 2007, resulting in a gain of $9 million. This gain is being recorded as a reduction of interest expense over the average life of the underlying debt. Amounts recognized in earnings related to our hedging transactions were $1 million for the six months ended June 30, 2009, and immaterial for the six months ended June 30, 2008.
 
 
During the second quarter of 2009, we entered into natural gas purchase agreements with third parties, hedging a portion of the second half of 2009 purchases of natural gas used in the production processes at certain of our plants. These purchase agreements are marked to market, with the resulting gains or losses recognized in earnings when hedged transactions are recorded. The mark-to-market adjustments at June 30, 2009, were immaterial.
 
To minimize volatility in our margins due to large fluctuations in the price of commodities, in the second quarter of 2009 we entered into swap contracts to manage risks associated with market fluctuations in resin prices. These contracts are designated as cash flow hedges of forecasted commodity purchases. As of June 30, 2009, we have hedged, on a monthly basis, approximately 8% of the expected resin purchase volume for the second half of 2009. Assuming the market prices of the swap contracts remain unchanged from the prices at June 30, 2009, an estimated gain of $1 million is expected to be reclassified to earnings in the second half of 2009.
 
Fair Value Measurements
 
We apply the provisions of SFAS No. 157 to our financial assets and liabilities that are recorded at fair value, which consist of derivative contracts that are used to hedge exposures to interest rate, commodity, and currency risks. SFAS No. 157 sets out a fair value hierarchy that groups fair value measurement inputs into three


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classifications: Level 1, Level 2, or Level 3. Level 1 inputs are quoted prices in an active market for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. All of our fair value measurements for derivative contracts use Level 2 inputs.
 
The following table provides a summary of the fair value of our derivative instruments recorded in the consolidated balance sheet:
 
                     
        Fair value as of
    Fair value as of
 
(In millions)   Balance sheet location   June 30, 2009     December 31, 2008  
 
Asset derivatives
                   
Derivatives designated as hedging instruments:
                   
Commodity contracts
  Other current assets   $  1     $  —  
                     
Total asset derivatives
      $ 1     $  
                     
 
The following table indicates the amounts recognized in OCI for those derivatives designated as cash flow hedges for the six months ended June 30, 2009, and June 30, 2008.
 
                                     
    Gain or (Loss)
  Location of Gain or (Loss)
  (Gain) or Loss
    Recognized in OCI
  Reclassified from OCI into
  Reclassified from OCI into
    (Effective Portion)   Income (Effective Portion)   Income (Effective Portion)
(In millions)   2009   2008       2009   2008
 
Commodity Contracts
  $ 1     $  —     Cost of Sales   $  —     $  —  
Interest Rate Contracts
  $  —     $     Interest Expense   $ (1 )   $  
 
There were no transactions that ceased to qualify as a cash flow hedge in the first half of 2009 or 2008.
 
Note 8.  Goodwill and Intangible Assets
 
The changes in the carrying values of goodwill between December 31, 2008, and June 30, 2009, are shown in the following table.
 
                         
    Consumer
    Foodservice/
       
(In millions)   Products     Food Packaging     Total  
 
Balance, December 31, 2008
  $ 289     $ 835     $ 1,124  
Goodwill additions
    1       1       2  
Foreign currency translation adjustment
          2       2  
                         
Balance, June 30, 2009
  $   290     $   838     $ 1,128  
                         


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Intangible assets are summarized in the following table.
 
                                 
    June 30, 2009     December 31, 2008  
    Carrying
    Accumulated
    Carrying
    Accumulated
 
(In millions)   value     amortization     value     amortization  
 
Intangible assets subject to amortization
                               
Patents
  $ 87     $ 71     $ 87     $ 69  
Customer relationships
    209       29       206       21  
Other
    145       85       145       81  
                                 
      441       185       438       171  
Intangible assets not subject to amortization (primarily trademarks)
    129             129        
                                 
    $ 570     $ 185     $ 567     $ 171  
                                 
 
Intangible assets of $3 million were recorded in connection with the acquisition of WinCup and are being amortized over a 15-year period for both book and tax purposes. Amortization expense for intangible assets was $13 million for the six months ended June 30, 2009, and $14 million for the six months ended June 30, 2008. Amortization expense is estimated to total $26 million for 2009, $25 million for 2010, $24 million for 2011, $23 million for 2012, and $19 million for 2013.
 
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we review the carrying value of our goodwill and indefinite-lived intangibles for possible impairment. Our annual review is conducted in the fourth quarter of the year, or earlier if warranted by events or changes in circumstances. There were no events or changes in circumstances in the first half of 2009 that warranted an impairment review of the goodwill and indefinite-lived intangibles.
 
Note 9.  Property, Plant, and Equipment, Net
 
                 
    June 30,
    December 31,
 
(In millions)   2009     2008  
 
Original cost
               
Land, buildings, and improvements
  $ 660     $ 654  
Machinery and equipment
    1,846       1,808  
Other, including construction in progress
    132       125  
                 
    $ 2,638     $ 2,587  
Less accumulated depreciation and amortization
    (1,447 )     (1,378 )
                 
Net property, plant, and equipment
  $ 1,191     $ 1,209  
                 
 
Capitalized interest was immaterial for the six months ended June 30, 2009, and was $2 million for the six months ended June 30, 2008.
 
Note 10.  Income Taxes
 
Total gross unrecognized income tax benefits were $56 million as of June 30, 2009, and $57 million as of December 31, 2008. The total amount of unrecognized income tax benefits that, if recognized, would favorably impact our effective tax rate for continuing operations in future periods was $34 million at June 30, 2009, and at December 31, 2008. As of June 30, 2009, it is reasonably possible that the amount of unrecognized income tax benefits may increase or decrease during the following twelve months. However, it is not expected that any such changes, individually or in total, would significantly affect our operating results or financial condition.


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It is our continuing practice to record accruals for interest and penalties related to income tax matters as income tax expense. Such accruals totaled $12 million as of June 30, 2009, and $10 million as of December 31, 2008. Expense recorded in the first half of 2009 for interest and penalties for continuing operations was $1 million.
 
U.S. federal income tax returns filed for the years 2005 through 2007 are open for examination by the Internal Revenue Service. Various state, local, and foreign tax returns filed for the years 2002 through 2007 are open for examination by tax authorities in those jurisdictions.
 
At June 30, 2009, and December 31, 2008, total gross unrecognized income tax benefits included $14 million related to discontinued operations, all of which, if recognized, would impact income from discontinued operations in future periods. Expense recorded in the first half of 2009 for interest and penalties for discontinued operations was immaterial.
 
In connection with the adoption of SFAS No. 123(R), “Share-Based Payment,” we elected to use the simplified method in calculating our additional paid-in capital pool, as described in FASB Staff Position No. FAS 123(R) — 3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” SFAS No. 123(R) requires that tax deductions for compensation costs in excess of amounts recognized for accounting purposes be reported as cash flow from financing activities, rather than as cash flow from operating activities. Such “excess” amounts totaled $2 million for the six months ended June 30, 2009.
 
Note 11.  Common Stock
 
 
Earnings from continuing operations per share of common stock outstanding were computed as follows:
 
                                 
    Three months ended June 30,     Six months ended June 30,  
(In millions, except share and per share data)   2009     2008     2009     2008  
 
Basic earnings per share
                               
Income from continuing operations
  $ 97     $ 64     $ 188     $ 99  
                                 
Weighted-average number of shares of common stock outstanding
    131,931,203       130,809,701       131,808,513       130,689,928  
                                 
Basic earnings from continuing operations per share
  $ 0.73     $ 0.50     $ 1.42     $ 0.76  
                                 
Diluted earnings per share
                               
Income from continuing operations
  $ 97     $ 64     $ 188     $ 99  
                                 
Weighted-average number of shares of common stock outstanding
    131,931,203       130,809,701       131,808,513       130,689,928  
Effect of dilutive securities
                               
Stock options
    243,625       638,655       193,273       724,786  
Performance shares
    297,505       530,293       439,691       666,640  
Restricted shares
          1,836             2,048  
                                 
Weighted-average number of shares of common stock outstanding, including dilutive securities
    132,472,333       131,980,485       132,441,477       132,083,402  
                                 
Diluted earnings from continuing operations per share
  $ 0.73     $ 0.49     $ 1.42     $ 0.75  
                                 
 
We did not repurchase stock in the first half of 2009. In the same period of 2008, we acquired 75,218 shares of our common stock at an average price of $26.38 per share, for a total of $2 million.


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In November 1999, we established a rabbi trust and reserved 3,200,000 shares of Pactiv common stock for the trust. These shares were issued to the trust in January 2000. This trust is designed to assure the payment of deferred compensation and supplemental pension benefits. These shares are not considered outstanding for purposes of financial reporting.
 
Note 12.  Pension Plans and Other Postretirement Benefits
 
The impact of pension plans on pretax income was as follows:
 
                                 
    Three months
    Six months
 
    ended
    ended
 
    June 30,     June 30,  
(In millions)   2009     2008     2009     2008  
 
Components of net periodic benefit income (expense)
                               
Service cost of benefits earned
  $ (3 )   $ (4 )   $ (7 )   $ (8 )
Interest cost of benefit obligations
    (60 )     (60 )     (120 )     (120 )
Expected return on plan assets
    86       88       169       175  
Amortization of unrecognized net losses
     (13 )      (11 )     (25 )     (22 )
                                 
Total net periodic benefit income (expense)
  $ 10     $ 13     $ 17     $ 25  
                                 
 
We have postretirement health care and life insurance plans that cover certain of our salaried and hourly employees who retire in accordance with the various provisions of such plans. Benefits may be subject to deductibles, copayments, and other limitations. These postretirement plans are not funded, and we reserve the right to change them. Interest cost of benefit obligations was $1 million for the three-month period and $2 million for the six-month period ended June 30, 2009, and was $1 million for the three-month period and $3 million for the six-month period ended June 30, 2008. Interest cost of benefit obligations accounted for the total net periodic benefit expense for our postretirement plans.
 
Note 13.  Segment Information
 
We report the results of our segments in accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” Our three segments are Consumer Products, Foodservice/Food Packaging, and Other. See Note 1 for additional details.
 
The following tables set forth certain segment information.
 
                                 
    Consumer
    Foodservice/Food
             
(In millions)   Products     Packaging     Other     Total  
 
For the three months ended June 30, 2009
                               
Sales to external customers
  $ 356     $ 545     $     $ 901  
Operating income (loss)
    94       89       (4 ) (b)     179  
For the three months ended June 30, 2008
                               
Sales to external customers
  $ 358     $ 593     $     $ 951  
Operating income (loss) (a)
    61       68         (b)     129  


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    Consumer
    Foodservice/Food
             
(In millions)   Products     Packaging     Other     Total  
 
At June 30, 2009, and for the six months then ended
                               
Sales to external customers
  $ 639     $ 1,028     $     $ 1,667  
Operating income (loss)
    168       184       (6 ) (b)     346  
Total assets
    1,280       2,122       397   (c)     3,799  
At June 30, 2008, and for the six months then ended
                               
Sales to external customers
  $ 648     $ 1,111     $     $ 1,759  
Operating income (loss) (a)
    91       115       2   (b)     208  
Total assets
    1,373       2,249       320   (c)     3,942  
 
 
(a) Includes restructuring and other charges of $2 million for Consumer Products for the three months ended June 30, 2008, and $16 million for the six months ended June 30, 2008 ($7 million for Consumer Products, $8 million for Foodservice/Food Packaging, and $1 million for Other).
 
(b) Includes pension plan income and unallocated corporate expenses.
 
(c) Includes administrative service operations.
 
Note 14.  Noncontrolling Interests
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 is effective for fiscal years, and interim periods within such fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires that noncontrolling (minority) interests be recognized as equity (but separate from parents’ equity) in consolidated financial statements, and that net earnings related to noncontrolling interests be included in consolidated net income, but identified separately on the face of the income statement. SFAS No. 160 also amends some of ARB No. 51’s consolidation procedures, and expands disclosure requirements regarding the interests of parents and noncontrolling interests. In order to meet the SFAS No. 160 disclosure requirements upon adoption, we have added a statement of shareholders’ equity and a statement of comprehensive income (loss) to our interim reporting.
 
SFAS No. 160 also requires disclosure of the effects of any changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent. There were no changes in ownership interest in our subsidiaries for the six months ended June 30, 2009, or June 30, 2008, respectively.
 
The preceding notes are an integral part of the foregoing financial statements.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Financial statements for all periods presented in this report were prepared on a consolidated basis in accordance with generally accepted accounting principles consistently applied. All per share information is presented on a diluted basis unless otherwise noted. Certain reclassifications have been made to prior year financial information to conform to the current year presentation.
 
We acquired 100% of the stock of Prairie Packaging, Inc. (Prairie) on June 5, 2007. The results of Prairie’s operations have been included in the consolidated financial statements as of that date.
 
On January 5, 2009, we purchased the polypropylene cup business of WinCup for $20 million. This business operated one manufacturing facility in North Carolina with approximately 100 employees. The results of this business have been included in the consolidated financial statements as of that date.
 
We have three reporting segments:
 
  •  Consumer Products manufactures disposable plastic, foam, molded fiber, pressed paperboard, and aluminum packaging products, and sells them to customers such as grocery stores, mass merchandisers, and discount chains. Products include waste bags, food storage bags, and disposable tableware and cookware. We sell many of our consumer products under well-known trademarks, such as Hefty®.
 
  •  Foodservice/Food Packaging manufactures foam, clear plastic, aluminum, pressed paperboard, and molded fiber packaging products, and sells them to customers in the food distribution channel, who prepare and process food for consumption. Customers include foodservice distributors, restaurants, and other institutional foodservice outlets, food processors, and grocery chains.
 
  •  Other includes corporate and administrative service operations and retiree benefit income and expense.
 
The accounting policies of the reporting segments are the same as those for Pactiv as a whole. Where discrete financial information is not available by segment, reasonable allocations of expenses and assets/liabilities are used.
 
 
In 2008, we implemented a cost reduction program that included the consolidation of two small facilities, asset rationalizations, and headcount reductions. The program is essentially complete with the exception of a small idle plant held for sale. The accrued restructuring balance of $1 million as of June 30, 2009, and $2 million as of December 31, 2008, is for remaining severance payments. Cash payments related to restructuring and other were $1 million pretax for the six-month period ended June 30, 2009.
 
In the first half of 2008, we recorded a charge of $10 million after tax, or $0.08 per share. Cash payments related to restructuring and other charges were $3 million after tax for the six-month period ended June 30, 2008.


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The primary raw materials used to manufacture our products are plastic resins, principally polystyrene and polyethylene. Average industry prices for polystyrene and polyethylene as published by Chemical Market Associates, Inc. are depicted in the following graphs.
 
     
CMAI Polystyrene (cents/lb)   CMAI Polyethylene (cents/lb)
 
GRAPH   GRAPH
 
The prices of plastic resins are affected by the prices of crude oil and natural gas, as well as supply and demand factors of various intermediate petrochemicals. In recent years, there have been significant movements in resin prices, which rose to historic highs in 2008, and dropped precipitously at the end of 2008 and into early 2009. In the second quarter of 2009, prices rose moderately from the first quarter of 2009. We have historically adjusted our selling prices to reflect changes in raw material costs, although there is usually a lag of several months. Some of our business is pursuant to contracts that have price indices that automatically adjust after a set number of months, usually three or six, to reflect changes in certain raw materials.
 
Our business is sensitive to other energy-related cost movements, particularly those that affect transportation and utility costs. Historically, we have been able to mitigate the effect of higher energy-related costs with productivity improvements and other cost reductions. As energy costs have declined, we have seen a favorable impact on our margins in the first half of 2009.
 
The economic downturn that began in late 2007 has impacted consumer spending in many areas and has reduced demand for some of our products. However, our overall volume has not been adversely impacted by the economic downturn.
 
In 2006, we began to introduce “lean” principles and tools in many of our operating facilities. We are expanding the use of lean principles to help us accelerate productivity improvements by reducing inventory and scrap levels, providing rapid stock replenishment, shortening scheduling cycles, improving our “one-stop shopping” service, eliminating nonvalue-added activities, and streamlining processes. As this is a long-term process, we expect our ability to use these tools throughout the organization will have a positive effect on our operating results in future years.
 
Worldwide stock markets declined significantly in 2008 and, as a result, our U.S. pension plan was substantially underfunded at December 31, 2008. See the “Liquidity and Capital Resources” section for further discussion of the impact on the company of this underfunding.
 
We believe that cash flow from operations, available cash reserves, and the ability to obtain cash under our credit facility and asset securitization program will be sufficient to meet current and future potential pension funding, liquidity, and capital requirements.


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Three Months Ended June 30, 2009, Compared with Three Months Ended June 30, 2008
 
 
                                 
    Three months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 356     $ 358     $ (2 )     (0.6 )%
Foodservice/Food Packaging
    545       593       (48 )     (8.1 )
                                 
Total
  $ 901     $ 951     $ (50 )     (5.3 )%
                                 
 
Sales declined 5%, reflecting growth in volume of 4%, lower pricing of 8%, and unfavorable foreign exchange of 1%.
 
Sales for Consumer Products decreased 1%, reflecting lower pricing of 7% due to normal price declines related to lower raw material costs, offset partially by a volume increase of 6%. There was volume growth in all categories, with particular strength in tableware and a rebound in waste bags.
 
Foodservice/Food Packaging sales fell 8%, driven by lower average selling prices of 9% and unfavorable foreign exchange of 2%, offset partially by volume growth of 3%. The lower pricing was related to decreases in raw material costs and the volume increase primarily was related to strength in sales to quick service restaurants.
 
 
                                 
    Three months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 94     $ 61     $ 33       54.1 %
Foodservice/Food Packaging
    89       68       21       30.9  
Other
    (4 )           (4 )     (100.0 )
                                 
Total
  $ 179     $ 129     $   50       38.8 %
                                 
 
Operating income increased primarily as a result of a $46 million improvement in spread (the difference between selling prices and raw material costs), lower operating costs of $17 million driven by productivity and lower freight and utility rates, and higher volume of $17 million. This was offset, in part, by higher selling, general, and administrative (SG&A) expense of $30 million. Approximately half of the SG&A increase was due to higher incentive compensation accruals driven by record first half performance. The remainder of the increase was a combination of higher advertising and promotion expense in support of the launch of Hefty® Odor Block® unscented odor control waste bags and the mark-to-market effect of the increase in our stock price during the quarter on deferred compensation expense.


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The following table shows the impact of restructuring and other charges on 2008 operating income by segment.
 
                         
    Operating income - three months ended June 30, 2008  
    GAAP
    Restructuring and
    Excluding restructuring
 
(In millions)   basis     other charges     and other charges  
 
Consumer Products
  $ 61     $ 2     $ 63  
Foodservice/Food Packaging
    68        —       68  
Other
                 
                         
Total
  $ 129     $ 2     $ 131  
                         
 
We believe that focusing on operating income excluding the effect of restructuring and other charges is a meaningful alternative way of evaluating our operating results. The restructuring and other charges relate to actions that will have an ongoing effect on our company. Considering such charges as being only applicable to the periods in which they are recognized could make our operating performance in those periods more difficult to evaluate relative to other periods in which there are no such charges. We use operating income excluding restructuring and other charges to evaluate operating performance and, along with other factors, in determining management compensation.
 
The following table shows operating income excluding restructuring and other charges.
 
                                 
    Three months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 94     $ 63     $ 31       49.2 %
Foodservice/Food Packaging
    89       68       21       30.9  
Other
    (4 )           (4 )     (100.0 )
                                 
Total
  $ 179     $ 131     $  48       36.6 %
                                 
 
The increase in operating income for Consumer Products was driven mainly by favorable spread of $32 million, lower operating costs of $9 million, and higher volume of $5 million, offset partially by higher SG&A expense of $15 million.
 
Higher operating income for Foodservice/Food Packaging was driven primarily by favorable spread of $14 million, increased volume of $12 million, and lower operating costs of $8 million, partially offset by higher SG&A expense of $10 million and unfavorable foreign exchange of $2 million.
 
The decrease in Other operating income was due mainly to higher general and administrative expense.
 
 
We recorded income from continuing operations of $97 million, or $0.73 per share, compared with $64 million, or $0.49 per share, in 2008. The change was driven primarily by higher operating income of $31 million ($50 million before tax) as described previously.


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Six Months Ended June 30, 2009, Compared with Six Months Ended June 30, 2008
 
 
                                 
    Six months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 639     $ 648     $ (9 )     (1.4 )%
Foodservice/Food Packaging
    1,028       1,111       (83 )     (7.5 )
                                 
Total
  $ 1,667     $ 1,759     $   (92 )     (5.2 )%
                                 
 
Sales decreased 5%, reflecting lower pricing of 5% and unfavorable foreign exchange of 1%, offset in part by higher volume of 1%. The decrease in pricing was due to normal price declines related to lower raw material costs.
 
Sales for Consumer Products declined 1%, reflecting lower pricing of 2%, offset partially by an increase in volume of 1%.
 
Foodservice/Food Packaging sales fell 8%, as higher volume of 1% was more than offset by average selling price decreases of 6% and unfavorable foreign exchange of 1%.
 
 
                                 
    Six months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 168     $ 91     $ 77       84.6 %
Foodservice/Food Packaging
    184       115       69       60.0  
Other
    (6 )     2       (8 )     (400.0 )
                                 
Total
  $ 346     $ 208     $ 138       66.3 %
                                 
 
Operating income increased primarily as a result of a $128 million improvement in spread, lower operating costs of $28 million driven by productivity and lower freight and utility rates, and lower restructuring costs of $16 million. This was offset, in part, by higher SG&A expense of $39 million, primarily due to higher incentive compensation accruals reflecting record first half performance and increased advertising and promotional expense.
 
The following table shows the impact of restructuring and other charges on 2008 operating income by segment.
 
                         
    Operating income - six months ended June 30, 2008  
    GAAP
    Restructuring and
    Excluding restructuring
 
(In millions)   basis     other charges     and other charges  
 
Consumer Products
  $ 91     $ 7     $ 98  
Foodservice/Food Packaging
    115       8       123  
Other
    2       1       3  
                         
Total
  $ 208     $  16     $ 224  
                         
 
We believe that focusing on operating income excluding the effect of restructuring and other charges is a meaningful alternative way of evaluating our operating results. The restructuring and other charges relate to actions that will have an ongoing effect on our company. Considering such charges as being only applicable to the periods in which they are recognized could make our operating performance in those periods more difficult to evaluate relative to other periods in which there are no such charges. We use operating income excluding


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restructuring and other charges to evaluate operating performance and, along with other factors, in determining management compensation.
 
The following table shows operating income excluding restructuring and other charges.
 
                                 
    Six months
       
    ended
    Increase
 
    June 30,     (decrease)  
(In millions)   2009     2008     Amount     Percent  
 
Consumer Products
  $ 168     $ 98     $ 70       71.4 %
Foodservice/Food Packaging
    184       123       61       49.6  
Other
    (6 )     3       (9 )     (300.0 )
                                 
Total
  $ 346     $ 224     $ 122       54.5 %
                                 
 
The increase in operating income for Consumer Products was driven mainly by favorable spread of $76 million and lower operating costs of $16 million, offset partially by higher SG&A expense of $22 million.
 
Higher operating income for Foodservice/Food Packaging was driven primarily by favorable spread of $52 million, lower operating costs of $12 million, and higher volume of $9 million, partially offset by increased SG&A expense of $8 million and unfavorable foreign exchange of $2 million.
 
The decrease in Other operating income was due mainly to higher compensation accruals as a result of the record first half performance, and lower pension income.
 
 
We recorded income from continuing operations of $188 million, or $1.42 per share, for the six months ended June 30, 2009, compared with $99 million, or $0.75 per share, in 2008. The change was driven primarily by higher operating income of $88 million ($138 million before tax) as described previously.
 
Liquidity and Capital Resources
 
 
                         
    June 30,
    December 31,
    Increase
 
(In millions)   2009     2008     (decrease)  
 
Short-term debt, including current maturities of long-term debt
  $     $     $  
Long-term debt
    1,345       1,345        
                         
Total debt
    1,345       1,345        
Noncontrolling interest
    16       16        
Pactiv shareholders’ equity
    853       639       214  
                         
Total capitalization
  $ 2,214     $ 2,000     $   214  
                         
Ratio of total debt to total capitalization
    60.7 %     67.3 %        


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    Six months
       
    ended
       
    June 30,     Increase
 
(In millions)   2009     2008     (decrease)  
 
Cash provided (used) by:
                       
Operating activities
  $ 215     $ 64     $ 151  
Investing activities
    (68 )     (86 )     18  
Financing activities
          (22 )     22  
 
The increase in cash provided by operating activities was driven primarily by higher income from continuing operations of $89 million. In addition, a reduction in accounts receivable compared with an increase in accounts receivable the previous year contributed $74 million, an increase in other current liabilities added $50 million, a smaller inventory build than prior year added $38 million, and an increase in tax accruals added $16 million. This was offset partially by a $200 million pretax contribution to our U.S. pension plan, reduced by related favorable cash tax effects of approximately $70 million.
 
The increase in cash used by investing activities was driven by lower capital expenditures of $37 million partially offset by the acquisition of the WinCup polypropylene cup business for $20 million.
 
Cash used by financing activities increased as a result of the repayment of long-term revolving debt of $20 million in 2008.
 
 
Commitments for authorized capital expenditures totaled approximately $43 million at June 30, 2009. It is anticipated that the majority of these expenditures will be funded from existing cash and short-term investments and internally generated cash.
 
 
There has been no material change in the company’s aggregate contractual obligations since December 31, 2008.
 
 
We use various sources of funding to manage liquidity. Sources of liquidity include cash flow from operations and a 5-year revolving credit facility of $750 million, under which $70 million was outstanding at June 30, 2009. We were in full compliance with the financial and other covenants of our revolving credit agreement at the end of the period. The two financial covenant ratios contained in our debt agreements are an interest coverage ratio and the total debt to EBITDA ratio. The interest coverage ratio is defined as consolidated earnings before interest, taxes, depreciation and amortization, and other unusual noncash items (EBITDA) divided by interest expense. The minimum required ratio is 3.50 to 1. The total debt to EBITDA ratio is calculated by dividing the total debt by EBITDA. The maximum permitted total debt to EBITDA ratio is 3.50 to 1.


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The interest coverage ratio and the debt to EBITDA ratio are shown in the following table.
 
                                 
          Plus
    Less
       
    Twelve months
    Six months
    Six months
    Twelve months
 
    ended
    ended
    ended
    ended
 
(In millions)   December 31, 2008     June 30, 2009     June 30, 2008     June 30, 2009  
 
Net income (1)
  $ 217     $ 187     $ 95     $ 309  
Adjustments:
                               
Noncash restructuring and other (2)
    12       (1 )     11        
Interest expense, net of interest capitalized (1)
    106       47       54       99  
Income tax expense (1)
    120       112       56       176  
Depreciation and amortization (1)
    182       92       92       182  
Noncontrolling interest (1)
    1                   1  
                                 
EBITDA
  $ 638     $   437     $   308     $ 767  
                                 
EBITDA
  $ 638                     $ 767  
Interest expense, net of interest capitalized (1)
    106                       99  
                                 
Interest coverage ratio
    6.02                       7.75  
                                 
Total debt (3)
  $ 1,345                     $ 1,345  
EBITDA
    638                       767  
                                 
Total debt to EBITDA ratio
    2.11                       1.75  
                                 
 
 
(1) Amounts per the consolidated statement of income (for 2008 information, refer to our 2008 10-K and second quarter 2008 10-Q).
 
(2) Amounts per the consolidated statement of cash flows (for 2008 information, refer to our 2008 10-K and second quarter 2008 10-Q).
 
(3) Amounts per the consolidated statement of financial position.
 
We also use an asset securitization facility as a form of off-balance-sheet financing. At June 30, 2009, $129 million was securitized under this facility, and $130 million was securitized at December 31, 2008. We do not participate in financial commercial paper markets.
 
We have a U.S. qualified pension plan that covers approximately 7,000 of our employees, as well as approximately 65,000 others, mostly retirees and persons who worked for predecessor companies that were part of Tenneco. The requirement to make contributions to this plan is a function of several factors, the most important of which are the return on plan assets and applicable funding discount rate used in calculating plan liabilities. We are not required to make a contribution to this plan in 2009; however, we have elected to make contributions in 2009 to lessen the impact of possible required contributions in the future. We contributed $200 million pretax in the first half of 2009, and an additional $200 million pretax in July. The related cash tax benefits of the contributions were $140 million ($120 million in 2009 and $20 million that will carry over into 2010).
 
Having made 2009 contributions totaling $400 million ($280 million after tax), and assuming the plan assets earn an actual rate of return in 2009 equal to our expected long-term rate of return of 9% and the pension funding discount rate as of January 1, 2010, is 6.41%, unchanged from the rate as of June 30, 2009, there would be no required cash contribution in 2010 to the U.S. pension plan. Holding the pension funding discount rate at 6.41%, plan assets could earn a return as low as 8% in 2009 and there would be no required cash contribution in 2010 to the U.S. pension plan.
 
Holding the pension funding discount rate constant, each one percentage-point increase (decrease) in the annual actual rate of return from 8% up to 13% would reduce (increase) the minimum cash contribution on an


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after-tax basis by approximately $17 million. On the same basis, each one percentage-point increase in the actual rate of return above 13% would reduce the minimum required after-tax cash contribution by approximately $6 million.
 
Holding the actual rate of return constant, each one-half percentage-point increase (decrease) in the pension funding discount rate would reduce (increase) the minimum required after-tax cash contribution by approximately $95 million.
 
The above funding scenarios all assume we would maintain a funded ratio above 80% as defined in the Pension Protection Act of 2006 in order to avoid certain benefit restrictions on our plan. However, as long as our funded ratio is above 60%, those benefit restrictions do not have a meaningful impact on us or the plan. This allows us more flexibility in the timing of pension contributions.
 
We believe that cash flow from operations, available cash reserves, and the ability to obtain cash under our credit facility and asset securitization program will be sufficient to meet current and future potential pension funding, liquidity, and capital requirements.
 
 
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS No. 157, which does not require the use of any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 was effective as of January 1, 2008, and did not have a material effect on our financial statements upon adoption and as of June 30, 2009.
 
We adopted the measurement provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of SFAS Nos. 87, 88, 106, and 132(R),” on January 1, 2008, using the transition method, based on data from our September 30, 2007, measurement date. As a result, we increased “retained earnings” by $7 million after tax in 2008.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value as of specified election dates. SFAS No. 159 expands the use of fair value measurement, but does not eliminate disclosure requirements of other accounting standards, including SFAS No. 157. SFAS No. 159 was effective January 1, 2008, and it did not impact our financial statements upon adoption and as of June 30, 2009. We did not choose to measure any financial instruments at fair value as permitted under the statement.
 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value using the acquisition method of accounting, but it changes the application of the acquisition method in a number of significant ways. In this regard, the pronouncement requires that (1) acquisition-related costs generally be expensed as incurred, (2) noncontrolling interests be recorded at fair value, (3) in-process research and development costs be recorded at fair value as an indefinite lived intangible asset, (4) restructuring costs associated with a business combination generally be expensed subsequent to the date of such a combination, and (5) changes in valuation allowances on deferred tax assets and income tax uncertainties after the acquisition date generally be recorded as income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations that occur in fiscal years beginning after December 15, 2008, with the exception of accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would


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also be subject to the provisions of SFAS No. 141(R). SFAS No. 141(R) was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 is effective for fiscal years, and interim periods within such fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires that noncontrolling (minority) interests be recognized as equity (but separate from parents’ equity) in consolidated financial statements, and that net earnings related to noncontrolling interests be included in consolidated net income, but identified separately on the face of the income statement. SFAS No. 160 also amends some of ARB No. 51’s consolidation procedures, and expands disclosure requirements regarding the interests of parents and noncontrolling interests. SFAS No. 160 was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 is effective for fiscal years, and interim periods within such fiscal years, beginning on or after November 15, 2008. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities, specifically how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 was effective January 1, 2009, and did not have a material impact on our financial statements upon adoption and as of June 30, 2009.
 
In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009. This FSP amends FASB No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. FSP No. FAS 107-1 and APB 28-1 is effective for our June 30, 2009 interim financial reporting, and did not have a material effect on our financial statements upon adoption.
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 is effective for fiscal years, and interim periods within such fiscal years, ending after June 15, 2009. SFAS No. 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for our June 30, 2009 interim financial reporting, and did not have a material effect on our financial statements upon adoption.
 
 
For a complete discussion of the company’s critical accounting policies, refer to Pactiv’s most recent filing on Form 10-K.


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Certain statements included in this Quarterly Report on Form 10-Q, including statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and in the notes to the financial statements, are “forward-looking statements.” All statements other than statements of historical fact, including statements regarding prospects and future results, are forward-looking. These forward-looking statements generally can be identified by the use of terms and phrases such as “will”, “believe”, “anticipate”, “may”, “might”, “could”, “expect”, “estimated”, “projects”, “intends”, “foreseeable future”, and similar terms and phrases. These forward-looking statements are not based on historical facts, but rather on our current expectations or projections about future events. Accordingly, these forward-looking statements are subject to known and unknown risks and uncertainties. While we believe that the assumptions underlying these forward-looking statements are reasonable and make the statements in good faith, actual results almost always vary from expected results, and the differences could be material.
 
See “Risk Factors” section (Item 1A) in our most recently filed Securities and Exchange Commission (SEC) Form 10-K and Part II (Item 1A) of this report for some of the factors that we believe could cause our actual results to differ materially from future results expressed or implied by these forward-looking statements. These factors include the following:
 
  •  Changes in consumer demand and selling prices for our products, including new products that our competitors or we may introduce that could impact sales and margins.
 
  •  Material substitutions and changes in costs of raw materials, including plastic resins, labor, utilities, or transportation that could impact our expenses and margins.
 
  •  Changes in laws or governmental actions, including changes in regulations such as those relating to air emissions or plastics generally.
 
  •  The availability or cost of capital could impact growth or acquisition opportunities.
 
  •  Workforce factors such as strikes or other labor interruptions.
 
  •  The general economic, political, and competitive conditions in countries in which we operate, including currency fluctuations and other risks associated with operating outside of the U.S.
 
  •  Changes in (1) assumptions regarding the long-term rate of return on pension assets and other factors, (2) the discount rate, and (3) the level of amortization of actuarial gains and losses.
 
  •  Changes in U.S. and/or foreign governmental regulations relating to pension plan funding.
 
  •  Changes enacted by the SEC, the FASB, or other regulatory or accounting bodies. See “Changes in Accounting Principles.”
 
  •  Competition from producers located in countries that have lower labor and other costs.
 
  •  Our ability to integrate new businesses that we have acquired and may acquire, or to dispose of businesses or business segments that we may wish to divest.


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ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk
 
 
We are exposed to market risks related to changes in foreign exchange rates, interest rates, and commodity prices. To manage these risks we may enter into various hedging contracts in accordance with established policies and procedures. We do not use hedging instruments for trading purposes and are not a party to any transactions involving leveraged derivatives.
 
 
During the second quarter of 2009, we entered into natural gas purchase agreements with third parties, hedging a portion of the second half of 2009 purchases of natural gas used in the production processes at certain of our plants. These purchase agreements are marked to market, with the resulting gains or losses recognized in earnings when hedged transactions are recorded. The mark-to-market adjustments at June 30, 2009, were immaterial.
 
 
To minimize volatility in our margins due to large fluctuations in the price of commodities, in the second quarter of 2009 we entered into swap contracts to manage risks associated with market fluctuations in resin prices. These contracts are designated as cash flow hedges of forecasted commodity purchases. As of June 30, 2009, we have hedged, on a monthly basis, approximately 8% of the expected resin purchase volume for the second half of 2009. Assuming the market prices of the swap contracts remain unchanged from the prices at June 30, 2009, an estimated gain of $1 million is expected to be reclassified to earnings in the second half of 2009.
 
 
At June 30, 2009, we had public debt securities of $1.276 billion outstanding, with fixed interest rates and maturities ranging from 3 to 18 years. Should we decide to redeem these securities prior to their stated maturity, we would incur costs based on the fair value of the securities at that time.
 
In addition, we have a revolving line of credit, against which we borrowed $70 million at June 30, 2009. The fair value of the debt at that date was equal to the outstanding balance.
 
As a part of the acquisition of Prairie Packaging Inc. (Prairie), we assumed its liability for $5 million borrowed from the Illinois Development Finance Authority (IDFA), which was funded by industrial development revenue bonds issued by the IDFA. The debt matures on December 1, 2010, and bears interest at varying rates (0.7% as of June 30, 2009), not to exceed 12% per annum.
 
The following table provides information about Pactiv’s financial instruments that are sensitive to interest rate risks.
 
                                         
    Maturities        
(In millions, except percentages)   2010     2011     2012     Thereafter     Total  
 
Fixed rate debt
                  $   250     $ 1,026     $ 1,276  
Average interest rate
                    5.7 %     7.7 %     7.3 %
Fair value
                  $ 258     $ 1,104     $ 1,362  
Floating rate debt
  $ 5     $   70                     $ 75  
Average interest rate
      0.7 %     3.3 %                     3.1 %
Fair value
  $ 5     $ 70                     $ 75  


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Prior to our spin-off from Tenneco Inc., we entered into an interest rate swap to hedge our exposure to interest rate movements. We settled this swap in November 1999, incurring a $43 million loss, which is being recognized as additional interest expense over the average life of the underlying debt.
 
In April 2007, we entered into interest rate swap agreements to hedge the interest rate risk related to $250 million of the debt expected to be issued in connection with the acquisition of Prairie. The swap agreements were terminated on June 20, 2007, resulting in a gain of $9 million. This gain is being recorded as a reduction of interest expense over the average life of the underlying debt.
 
 
Our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the appropriate time periods. We, under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures, and we and such officers have concluded that such controls and procedures were adequate and effective as of June 30, 2009.
 
There were no changes in internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended June 30, 2009, that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


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ITEM 1.  Legal Proceedings
 
We are party to various legal proceedings arising from our operations. We establish reserves for claims and proceedings when it is probable that liabilities exist and where reasonable estimates of such liabilities can be made. While it is not possible to predict the outcome of any of these matters, based on our assessment of the facts and circumstances now known, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.
 
ITEM 1A.  Risk Factors
 
There has been no material change in the risk factors disclosed in our Form 10-K for the year ended December 31, 2008.
 
ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
In July 2006, the board of directors approved the repurchase of 10 million shares of our common stock. As of June 30, 2009, the remaining number of shares authorized to be repurchased was 522,361. We repurchase shares using open market or privately negotiated transactions. Repurchased shares are held in treasury for general corporate purposes. There is no expiration date for the current share repurchase authorization.
 
We did not repurchase stock in the first half of 2009.
 
ITEM 3.  None
 
ITEM 4.  Submission of Matters to a Vote of Security Holders
 
The company’s 2009 annual meeting of shareholders was held on May 15, 2009, for the purpose of (1) electing directors, (2) ratifying the engagement of Ernst & Young LLP as our independent public accountants for the year 2009, and (3) acting upon such other matters as might be properly brought before the meeting or any adjournment or postponement thereof.
 
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 2010 annual meeting of shareholders:
 
                         
    Number of Votes  
Nominee
  For     Withheld     Abstain  
 
Larry D. Brady
    111,494,644       1,659,595       178,330  
K. Dane Brooksher
    111,450,811       1,711,716       170,043  
Robert J. Darnall
    107,404,493       5,739,112       188,965  
Mary R. (Nina) Henderson
    111,536,681       1,628,091       167,797  
N. Thomas Linebarger
    111,346,213       1,788,466       197,891  
Roger B. Porter
    109,578,418       3,523,212       230,940  
Richard L. Wambold
    109,931,882       3,234,782       165,907  
Norman H. Wesley
    111,528,754       1,633,101       170,715  
 
The shareholders ratified the appointment of Ernst & Young LLP as our independent auditors for the year 2009, with 112,664,871 votes for ratification, 451,234 votes against ratification, and 216,464 votes abstaining.


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ITEM 5.  None
 
ITEM 6.  Exhibits
 
Exhibits designated with an asterisk in the following index are furnished or filed herewith; all other exhibits are incorporated by reference.
 
         
Exhibit No.
 
Description
 
  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 .1   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 .2   Amended and Restated By-laws of the registrant adopted July 12, 2007 (incorporated herein by reference to Exhibit 3.1 to Pactiv Corporation’s Current Report on Form 8-K dated July 13, 2007, 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(a)   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 .2(b)   Amendment No. 1 to Rights Agreement, dated as of November 7, 2002, by and between the registrant and National City Bank, as rights agent (incorporated herein by reference to Exhibit 4.4(a) to Pactiv Corporation’s Registration Statement on Form S-8 dated November 8, 2002, File No. 333-101121).
  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).
  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 29, 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 .3(g)   Sixth Supplemental Indenture dated as of June 25, 2007 to Indenture, dated as of September 29, 1999, between Pactiv Corporation and the Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to Pactiv Corporation’s Current Report on Form 8-K dated June 25, 2007, File No. 1-15157).


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Exhibit No.
 
Description
 
  4 .3(h)   Seventh Supplemental Indenture dated as of June 25, 2007 to Indenture, dated as of September 29, 1999, between Pactiv Corporation and the Bank of New York Trust Company, N.A., as Trustee (incorporated herein by reference to Exhibit 4.2 to Pactiv Corporation’s Current Report on Form 8-K dated June 25, 2007, 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. 1-12387).
  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   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 .5   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 .6   Amended and Restated Change in Control Severance Benefit Plan for Key Executives as of December 31, 2006 (incorporated herein by reference to Exhibit 10.6 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-15157) (superseding Pactiv Corporation Change in Control Severance Benefit Plan for Key Executives as of March 1, 2005).
  10 .7   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 .8   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 .9   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 .10   Pactiv Corporation 2002 Incentive Compensation Plan (incorporated herein by reference to Exhibit 4.7 to Pactiv Corporation’s Registration Statement on Form S-8 dated November 8, 2002, File No. 333-101121).
  10 .11   Credit Agreement, dated as of April 19, 2006, among the registrant, Bank of America, N.A., as Administrative Agent, JP Morgan Chase Bank, N.A., as Syndication Agent and L/C Issuer, BNP Paribas, Suntrust Bank, and Citibank, N.A., as Co-Documentation Agents, and the other financial institutions party thereto (incorporated herein by reference to Exhibit 10.15 to Pactiv Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 1-15157).
  10 .12   Pactiv Corporation Defined Retirement Savings Plan (incorporated herein by reference to Exhibit 10.16 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-15157).
  10 .13   Form of Pactiv Corporation Non-Qualified Stock Option Award Agreement (incorporated herein by reference to Exhibit 10.17 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-15157).

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Exhibit No.
 
Description
 
  10 .14   Form of Pactiv Corporation Performance Share Award Agreement (incorporated herein by reference to Exhibit 10.18 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-15157).
  10 .15   Summary of Compensation Arrangements of Directors (incorporated herein by reference to Exhibit 10.19 to Pactiv Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 1-15157).
  10 .16   Summary of Named Executive Officer Compensation Arrangements (incorporated herein by reference to Exhibit 10.20 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 1-15157).
  10 .17   Stock Purchase agreement dated as of June 23, 2005, among Pactiv Corporation and certain of its affiliates, as sellers, and PFP Holding II Corporation, as purchaser (incorporated herein by reference to Exhibit 10.21 to Pactiv Corporation’s Current Report on Form 8-K dated June 23, 2005, File No. 1-15157).
  10 .18   Receivables Purchase Agreement, dated as of December 21, 2006, among the registrant and Atlantic Asset Securitization LLC and Calyon New York Branch, as agent for Purchasers (incorporated herein by reference to Exhibit 10.22 to Pactiv Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, File No. 1-15157).
  10 .19   Agreement and Plan of Merger dated April 10, 2007, among Pactiv Corporation, Meadow Acquisition Corp., Prairie Packaging, Inc., Earl W. Shapiro, and Benjamin M. Shapiro (incorporated herein by reference to Exhibit 10.23 to Pactiv Corporation’s Current Report on Form 8-K dated April 12, 2006, File No. 1-15157).
  10 .20   Continuing Agreement for Standby Letters of Credit between Pactiv Corporation and JPMorgan Chase Bank, N.A. dated June 5, 2007 (incorporated herein by reference to Exhibit 10.20 to Pactiv Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File No. 1-15157).
  10 .21   Credit Agreement between Pactiv Corporation and JPMorgan Chase Bank, N.A. dated June 5, 2007 (incorporated herein by reference to Exhibit 10.21 to Pactiv Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File No. 1-15157).
  11     None.
  15     None.
  18     None.
  19     None.
  22     None.
  23     None.
  24     None.
  *31 .1   Rule 13a-14(a)/15d-14(a) Certification.
  *31 .2   Rule 13a-14(a)/15d-14(a) Certification.
  **32 .1   Section 1350 Certification.
  **32 .2   Section 1350 Certification.
 
 
* Filed herewith
 
** Furnished herewith

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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/  EDWARD T. WALTERS
Edward T. Walters
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
Date: August 7, 2009


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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/  DONALD E. KING
Donald E. King
Corporate Controller and Chief Accounting Officer
(Principal Accounting Officer)
 
Date: August 7, 2009


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