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Pregis Announces First Quarter 2008 Financial Results

DEERFIELD, Ill., May 9 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2008 first quarter financial results.

For the first quarter of 2008, the Company generated net sales of $259.3 million, an increase of 8.5% over net sales of $239.0 million in the first quarter of 2007. Excluding the impact of favorable foreign currency translation and sales from two acquisitions made in the second half of 2007, the quarter's net sales were down 3% compared to the prior year quarter.

Gross profit margin, as a percent of net sales, was 21.9% in the first quarter of 2008, compared to 25.5% in the first quarter of 2007. The decline in gross margin resulted primarily from significantly increased costs of resin and other raw materials in the 2008 period, which approximated $7 million of year-over-year unfavorability. In order to mitigate these increases in raw material costs, the Company implemented selling price increases throughout its businesses in the first quarter of 2008. However, the Company has experienced a lag in realizing the benefits from these recent price increases relative to the impact of the increased raw material costs, which resulted in the reduction in its gross margin percentage in the first quarter of 2008.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "Our first quarter results were negatively impacted by raw material cost inflation, as well as the weakened economic environment in the U.S. as well as in Europe. Although resin costs stabilized somewhat during the first three months of 2008, we expect continued volatility and remain committed to our disciplined focus on achieving pricing for value and full cost recovery as rapidly as possibly. In addition, we continue to drive efficiency initiatives throughout the organization, both to mitigate the recurring charges related to

acquisitions and dispositions 5,214 6,238

Other, principally executive

management severance and

recruiting expenses 4,830 6,299

Other adjustments:

Amounts paid pursuant to management

agreement with Sponsor 1,981 1,698

Pro forma earnings and costs savings 2,084 -

Adjusted EBITDA ("Consolidated Cash

Flow") $109,289 $109,142

Note to above:

EBITDA is defined as net income before interest expense, interest income,

income tax expense, depreciation and amortization. Adjusted EBITDA,

referred to as Consolidated Cash Flow within the context of the Company's

indentures, is presented herein because it is a material element of the

fixed charge coverage ratio and secured indebtedness leverage ratio

included in the Company's indentures.

Pregis Holding II Corporation

First Quarter 2008

Supplemental Information


(Amounts and percentage changes are approximations due to rounding.)

Gross Margin Calculations

Three Months Ended March 31,

(dollars in millions) 2008 2007 Change

Net sales $259.3 $239.0 $20.3

Cost of sales, excluding

depreciation and amortization (202.5) (178.0) (24.5)

Gross margin $56.8 $61.0 $(4.2)

Gross margin, as a percent of net

sales 21.9% 25.5% (3.6)%

Net Sales Analysis by Segment

Change Attributable to the

Three Months Ended Following Factors

(dollars March 31, Price/ Currency

in millions) 2008 2007 $ % Mix Volume Acqui- Trans-

Change Change sitions lation



Packaging $169.6 $156.8 $12.8 8.2 % 0.3 % (4.1)% 5.4 % 6.6 %


Packaging 48.3 42.7 5.6 13.1 % 0.9 % (0.8)% - 13.0 %


Supplies 21.1 18.8 2.3 11.9 % (2.2)% 0.1 % - 14.0 %


Packaging 21.9 22.0 (0.1) (0.3)% (1.2)% (0.2)% - 1.1 %



inations (1.6) (1.3) (0.3) 24.2 %

Total $259.3 $239.0 $20.3 8.5 % 0.0 % (3.0)% 3.5 % 8.0 %

weakened economic environment and to solidify our foundation for future growth."

For the first quarter of 2008, operating income was $8.3 million compared to $16.5 million in the first quarter of 2007, with the reduction driven primarily by increased raw material costs, as noted above.

Segment Performance

Comments on segment net sales performance for the first quarter of 2008 are as follows:
-- Net sales of the protective packaging segment increased by $12.8

million, or 8.2%. The 2008 first quarter sales growth was driven by

favorable foreign currency translation, as well as the incremental

sales generated by the Petroflax and Besin entities acquired in the

second half of 2007. The segment experienced declining volumes in

both its U.S. and European businesses due primarily to the weakened

U.S. and European economies. Excluding the impact of favorable

foreign currency effects and acquisitions, net sales for the segment

decreased 3.8%.

-- Net sales of the flexible packaging segment increased $5.6 million,

or 13.1%. Improvements in pricing and product mix were offset by

volume shortfalls in the segment's Egyptian operations. Excluding

the impact of favorable foreign currency, 2008 net sales for the

segment were comparable to the 2007 period.

-- Net sales of the hospital supplies segment increased $2.3 million,

or 11.9%. Excluding the impact of favorable foreign currency

effects, net sales for the segment decreased 2.1% in the quarter,

primarily due to price erosion resulting from the competitive market


-- Net sales of the rigid packaging segment were relatively flat

compared to net sales in the first quarter of 2007. However,

excluding the impact of favorable foreign currency effects, net

sales for the segment decreased 1.4% in the quarter, due mainly to

product mix during the quarter.

A summary of a significant measure required by the Company's indentures is presented in the supplemental information at the end of this release.

Conference Call:

The Company will conduct an investor conference call to review its 2008 first quarter results on Monday, May 12, 2008 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-510-0708; International: 617-597-5377; Participant Passcode: 95937816. A replay of the conference call will be available through May 23, 2008. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 73894836.

About Pregis:

Pregis Corporation is a leading global provider of innovative protective, flexible, and foodservice packaging and hospital supply products. The specialty-packaging leader currently operates 47 facilities in 18 countries around the world. Pregis Corporation is a wholly owned subsidiary of Pregis Holding II Corporation. For more information about Pregis, visit the Company's web site at

Safe Harbor Statement:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by the Company's use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," "should," or "will," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company's control. For a discussion of key risk factors, please see the risk factors disclosed in the Company's annual report, which is available on its website, These risks may cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these risk and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no duty to update its forward-looking statements.

Pregis Holding II Corporation

Consolidated Balance Sheets


(dollars in thousands)

March 31, December 31,

Assets 2008 2007

Current assets

Cash and cash

equivalents $42,511 $34,989

Accounts receivable

Trade, net of

allowances of $5,621

and $5,313,

respectively 159,392 148,045

Other 11,202 18,532

Inventories, net 121,952 108,914

Deferred income taxes 3,028 2,991

Due from Pactiv 3,474 7,072

Prepayments and other

current assets 9,903 9,187

Total current assets 351,462 329,730

Property, plant and

equipment, net 287,651 277,398

Other assets

Goodwill 153,803 150,000

Intangible assets, net 48,380 47,910

Deferred financing

costs, net 9,515 10,080

Due from Pactiv, long-

term 11,553 12,229

Pension and related

assets 26,741 25,659

Other 1,649 2,313

Total other assets 251,641 248,191

Total assets $890,754 $855,319

Liabilities and

stockholder's equity

Current liabilities

Current portion of

long-term debt $3,982 $2,120

Accounts payable 116,443 100,326

Accrued income taxes 8,519 13,900

Accrued payroll and

benefits 17,662 19,814

Accrued interest 11,684 6,775

Other 22,201 22,436

Total current

liabilities 180,491 165,371

Long-term debt 495,013 475,604

Deferred income taxes 37,294 34,589

Long-term income tax

liabilities 9,781 9,585

Pension and related

liabilities 10,037 9,389

Other 7,277 7,124

Stockholder's equity:

Common stock - $0.01 par

value; 1,000 shares

authorized, 149.0035

shares issued and

outstanding at March

31, 2008 and December

31, 2007 - -

Additional paid-in

capital 149,843 149,659

Accumulated deficit (19,860) (16,588)

Accumulated other

comprehensive income 20,878 20,586

Total stockholder's

equity 150,861 153,657

Total liabilities and

stockholder's equity $890,754 $855,319

Pregis Holding II Corporation

Consolidated Statements of Operations


(dollars in thousands)

Three Months Ended March 31,

2008 2007

Net sales $259,322 $239,017

Operating costs and


Cost of sales, excluding


and amortization 202,494 178,002

Selling, general and

administrative 34,739 31,982

Depreciation and

amortization 13,540 12,676

Other operating expense

(income) 271 (183)

Total operating costs and

expenses 251,044 222,477

Operating income 8,278 16,540

Interest expense 12,081 11,261

Interest income (228) (47)

Foreign exchange gain,

net (3,013) (573)

Income (loss) before

income taxes (562) 5,899

Income tax expense 2,710 3,652

Net income (loss) $(3,272) $2,247

Pregis Holding II Corporation

Consolidated Statements of Cash Flows


(dollars in thousands)

Three Months Ended March 31,

2008 2007

Operating activities

Net income (loss) $(3,272) $2,247

Adjustments to reconcile

net income (loss) to

cash provided by

operating activities:

Depreciation and

amortization 13,540 12,676

Deferred income taxes 1,810 974

Unrealized foreign

exchange gain (2,972) (604)

Amortization of

deferred financing

costs 594 535

Stock compensation

expense 184 79

Changes in operating

assets and

liabilities, net

of effects of


Accounts and other

receivables, net 3,671 (3,345)

Due from Pactiv 5,165 -

Inventories, net (8,276) (3,721)

Prepayments and other

current assets (554) 317

Accounts payable 10,782 18,592

Accrued taxes (5,400) 2,807

Accrued interest 4,538 4,698

Other current

liabilities (4,006) (4,794)

Pension and related

assets and

liabilities, net (1,035) (64)

Other, net 302 (207)

Cash provided by

operating activities 15,071 30,190

Investing activities

Capital expenditures (10,863) (5,099)

Other, net 63 184

Cash used in investing

activities (10,800) (4,915)

Financing activities

Repayment of long-term

debt (488) (443)

Other, net 1,731 296

Cash provided by (used

in) financing

activities 1,243 (147)

Effect of exchange rate

changes on cash

and cash equivalents 2,008 641

Increase in cash and

cash equivalents 7,522 25,769

Cash and cash

equivalents, beginning

of period 34,989 45,667

Cash and cash

equivalents, end of

period $42,511 $71,436

Pregis Holding II Corporation

Supplemental Information


Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

Twelve Months Ended March 31,

(dollars in thousands) 2008 2007

Net loss of Pregis Holding II

Corporation $(10,298) $(4,235)

Interest expense, net of interest

income 46,044 43,592

Income tax expense 6,766 8,220

Depreciation and amortization 56,663 53,219

EBITDA 99,175 100,796

Other non-cash charges (income):

Unrealized foreign currency

transaction gains, net (5,061) (6,274)

Non-cash stock based compensation

expense 663 127

Non-cash asset impairment charge 403 -

Impact attributable to application

of purchase accounting - 258

Net unusual or nonrecurring gains or



SOURCE Pregis Corporation
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