Lake Forest, Illinois, 21 December 2009 -- Pactiv Corporation (NYSE: PTV) today announced a change in accounting for inventories from a combination of the use of the last in, first out (LIFO) method and first in, first out (FIFO) method to the FIFO method. The company believes the change is preferable because the FIFO method
- better reflects the current value of inventories;
- provides better matching of sales and expenses, particularly during periods of resin price volatility, because the lag between resin price changes and selling price changes will be reduced by approximately two months;
- provides uniformity across all operations with respect to the method of inventory accounting; and
- enhances comparability with peers.
In addition, the cash tax deferral benefits of the LIFO accounting method largely have been eliminated by the year-over-year lower resin prices in 2009. This change in accounting method will lower cash tax payments in 2010 by an estimated USD 8 million. Furthermore, the convergence of U.S. and international accounting standards will likely eliminate LIFO because international accounting standards do not allow its use.
The change to FIFO is effective with 2009 results. The attached schedule provides the historic effect of the change on earnings per share from 2004 through nine months of 2009. This change is expected to have minimal impact on Pactiv’s fourth quarter earnings. Adjusting the full year 2009 earnings per share outlook provided in October to reflect the change to FIFO accounting results in an EPS outlook range of USD 2.26 to USD 2.30. Before its 2009 full year earnings release, the company expects to issue 2008 full year and quarterly income statements and 2009 quarterly income statements through nine months reflecting the effect of this accounting change.
Because of the unpredictability of resin prices, the potential effect of this accounting change on 2010 earnings can not be predicted. In a relatively stable resin price environment, this change is anticipated to have little or no effect on earnings. The only 2010 cash flow effect of this change is the reduction in cash tax payments.
Pactiv Corporation (NYSE: PTV) is a leader in the consumer and food service/food packaging markets it serves. With 2008 sales of USD 3.6 billion, Pactiv derives more than 80% of its sales from market sectors in which it holds the No. 1 or No. 2 market-share position. Pactiv’s products include waste bags, slider storage bags, disposable tableware, and disposable cookware. Pactiv’s food service/food packaging offering is one of the broadest in the industry, including custom and stock products in a variety of materials. For more information, visit www.pactiv.com.