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Pregis Announces First Quarter 2009 Financial Results

DEERFIELD, Ill., May 12 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2009 first quarter financial results.

For the first quarter of 2009, the Company generated net sales of $185.5 million, a decrease of 28.5% versus net sales of $259.3 million in the first quarter of 2008. Excluding the impact of unfavorable foreign currency translation, resulting from the U.S. dollar strengthening against the euro and pound sterling, the quarter's net sales were down 18.8% compared to the prior year quarter due to continuing global economic weakness.

Gross profit margin, as a percent of net sales, was 24.0% in the first quarter of 2009, compared to 21.9% in the first quarter of 2008. The 210 basis point increase in margin percentage was driven by the impact of the Company's aggressive cost reduction initiatives, continued disciplined pricing, and the impact from lower raw material costs.

The Company generated an operating loss of $1.5 million in the first quarter of 2009, which included pre-tax restructuring charges of $6.7 million relating to the Company's cost reduction initiatives, as well as unfavorable foreign currency translation of approximately $2.0 million. This compared to operating income of $8.3 million for the first quarter of 2008. Adjusted for the restructuring charge and unfavorable foreign currency translation, operating income for the first quarter of 2009 was $7.2 million, which represents a decline of approximately 13% compared to the 2008 first quarter.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "During the quarter, despite very weak demand, we were able to substantially increase our margin percentages through our focus on driving sustainable cost reductions throughout our organization as well as continuing our disciplined pricing for value, which we maintained in spite of downward pressure on our key raw material costs. I would like to once again thank our 4000 employees for their passion, hard work, and continued focus on our customers during these extraordinarily difficult economic times".

Mr. McDonnell continued, "We expect weak demand to continue throughout 2009, particularly in our protective packaging businesses, so we continue to aggressively execute our cost reduction initiatives, which will help to mitigate the impacts of the weak economic environment as well as drive increased profitability when the economy recovers. We also will continue to focus on our disciplined pricing for value as well as driving our key growth objectives through our product innovation and geographic expansion efforts."

In the first quarter of 2009, the Company commenced the next phase of its global restructuring program, building on the work completed in 2008. This next phase of restructuring will focus on optimizing the Company's organizational structure and operating processes as well as additional overhead headcount reductions. These restructuring activities are expected to generate 2009 year-over-year savings of $15 to $20 million and should be fully implemented by Q3 2009. During the first quarter of 2009, the Company realized year-over-year cost savings of approximately $9.5 million relating to its various 2008 and 2009 cost reduction programs.

Segment Performance

Comments on segment net sales performance for the first quarter of 2009 are as follows:

  • Net sales of the protective packaging segment decreased by $54.1 million, or 31.9%. The 2009 first quarter sales decline was driven by significant decreases in volume in both the U.S. and European businesses resulting from continued economic weakness in both markets, as well as unfavorable foreign currency translation. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 24.8%.
  • Net sales of the specialty packaging segment decreased $19.6 million, or 21.9%. This sales decline was driven by unfavorable foreign currency translation, as well as decreased volumes driven in part by a reduction in volumes from a significant medical products customer, offset in part by positive pricing. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 6.9%.

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

                            Pregis Holding II Corporation
                            Consolidated Balance Sheets
                             (dollars in thousands)

                                       March 31, 2009  December 31, 2008
                                       --------------  -----------------
      Assets                             (Unaudited)
      Current assets
        Cash and cash equivalents             $42,356            $41,179
        Accounts receivable
          Trade, net of allowances of
           $5,175 and $5,357
           respectively                       110,646            121,736
          Other                                 4,121             13,829
        Inventories, net                       83,678             87,867
        Deferred income taxes                   4,353              4,336
        Due from Pactiv                         1,404              1,399
        Prepayments and other current
         assets                                 7,919              8,435
                                                -----              -----
              Total current assets            254,477            278,781
      Property, plant and equipment,
       net                                    231,371            245,124
      Other assets
        Goodwill                              125,673            127,395
        Intangible assets, net                 39,035             41,254
        Deferred financing costs, net           7,141              7,734
        Due from Pactiv, long-term             12,819             13,234
        Pension and related assets             22,270             22,430
        Other                                     409                424
                                                  ---                ---
              Total other assets              207,347            212,471
                                              -------            -------
      Total assets                           $693,195           $736,376
                                             --------           --------
      Liabilities and stockholder's equity
      Current liabilities
        Current portion of long-term
         debt                                  $4,156             $4,902
        Accounts payable                       64,802             79,092
        Accrued income taxes                    5,130              6,964
        Accrued payroll and benefits           12,132             11,653
        Accrued interest                       10,596              6,905
        Other                                  19,858             21,740
                                               ------             ------
              Total current liabilities       116,674            131,256
      Long-term debt                          449,530            460,714
      Deferred income taxes                    19,935             24,913
      Long-term income tax liabilities         10,637             11,310
      Pension and related liabilities           5,233              6,119
      Other                                    13,544             11,963
      Stockholder's equity:
        Common stock - $0.01 par value;
         1,000 shares authorized,
         149.0035 shares issued and
          outstanding at March 31, 2009
          and December 31, 2008                    -                  -
        Additional paid-in capital            151,043            150,610
        Accumulated deficit                   (74,726)           (64,318)
        Accumulated other
         comprehensive income                   1,325              3,809
                                                -----              -----
              Total stockholder's equity       77,642             90,101
                                               ------             ------
      Total liabilities and
       stockholder's equity                  $693,195           $736,376
                                             --------           --------

                           Pregis Holding II Corporation
                        Consolidated Statements of Operations
                              (dollars in thousands)

                              Three Months Ended March 31,
                                   2009          2008
                                   ----          ----

      Net sales                $185,544      $259,322
      Operating costs and
        Cost of sales,
         excluding depreciation
         and amortization       141,007       202,494
        Selling, general
         administrative          27,996        34,739
        Depreciation and
         amortization            11,471        13,540
        Other operating
         expense, net             6,601           271
                                  -----           ---
      Total operating
       costs and expenses       187,075       251,044
                                -------       -------
      Operating income
       (loss)                    (1,531)        8,278
      Interest expense            9,398        12,081
      Interest income               (27)         (228)
      Foreign exchange
       loss (gain), net           3,174        (3,013)
                                  -----        ------
      Loss before income
       taxes                    (14,076)         (562)
      Income tax expense
       (benefit)                 (3,668)        2,710
                                 ------         -----
      Net loss                 $(10,408)      $(3,272)
                               --------       -------

                           Pregis Holding II Corporation
                       Consolidated Statements of Cash Flows
                             (dollars in thousands)
                                 Three Months Ended March 31,
                                      2009         2008
                                      ----         ----
      Operating activities
      Net loss                    $(10,408)     $(3,272)
      Adjustments to reconcile
       net loss to cash provided
       by operating activities:
        Depreciation and
         amortization               11,471       13,540
        Deferred income taxes       (4,056)       1,810
        Unrealized foreign
         exchange loss (gain)        3,466       (2,972)
        Amortization of
         deferred financing
         costs                         594          594
        Gain on disposal of
         property, plant and
         equipment                    (211)           -
        Stock compensation
         expense                       433          184
        Changes in operating assets
         and liabilities, net
        of effects of acquisitions:
          Accounts and other
           receivables, net         15,908        3,671
          Due from Pactiv                -        5,165
          Inventories, net           1,314       (8,276)
          Prepayments and
           other current assets        329         (554)
          Accounts payable         (11,442)      10,782
          Accrued taxes             (2,127)      (5,400)
          Accrued interest           3,936        4,538
          Other current
           liabilities                (140)      (4,006)
          Pension and
           related assets and
           liabilities, net           (926)      (1,035)
          Other, net                   256          302
                                       ---          ---
      Cash provided by
       operating activities          8,397       15,071
                                     -----       ------

      Investing activities
      Capital expenditures          (5,096)     (10,863)
      Proceeds from sale of
       assets                          266            -
      Other, net                         -           63
                                       ---          ---
      Cash used in investing
       activities                   (4,830)     (10,800)
                                    ------      -------

      Financing activities
      Repayment of long-term
       debt                           (446)        (488)
      Other, net                      (119)       1,731
                                      ----        -----
      Cash (used in)
       provided by financing
       activities                     (565)       1,243
      Effect of exchange rate
       changes on cash
       and cash equivalents         (1,825)       2,008
                                    ------        -----
      Increase in cash and
       cash equivalents              1,177        7,522
      Cash and cash
       equivalents, beginning
       of period                    41,179       34,989
                                    ------       ------

      Cash and cash
       equivalents, end of
       period                      $42,356      $42,511
                                   -------      -------

                        Pregis Holding II Corporation
                             Supplemental Information

          Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

                           Twelve Months Ended March 31,
    (unaudited)            ----------------------------

    (dollars in thousands)      2009          2008
                                ----          ----

    Net loss of Pregis
     Holding II
     Corporation             $(54,866)     $(10,298)
    Interest expense,
     net of interest
     income                    45,713        46,044
    Income tax expense         (8,243)        6,766
    Depreciation and
     amortization              50,275        56,663
                               ------        ------
    EBITDA                     32,879        99,175

    Other non-cash charges
       foreign currency
       transaction losses
       (gains), net            21,175        (5,061)
      Non-cash stock
       based compensation
       expense                  1,210           663
      Non-cash asset
       impairment charge       20,354           403
      Other non-cash
       primarily fixed
       asset disposals
       and write-offs             427             -
    Net unusual or nonrecurring
     gains or losses:
       severance and
       related expenses        17,298         4,830
      Curtailment gain         (3,736)            -
       charges related
       to acquisitions
       and dispositions             -         5,214
      Other unusual or
       gains or losses          1,283             -
    Other adjustments:
      Amounts paid
       pursuant to
       management agreement
       with Sponsor             1,755         1,981
    Pro forma earnings
     and costs savings              -         2,084
                                  ---         -----

    Adjusted EBITDA
     Cash Flow")              $92,645      $109,289
                              -------      --------

    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 2009
                               Supplemental Information
    (Amounts and percentage changes are approximations due to rounding.)

                             Gross Margin Calculations

                                          Three Months Ended March 31,
      (dollars in thousands)               2009      2008   Change
                                           ----      ----   ------

      Net sales                         $185,544  $259,322  $(73,778)
      Cost of sales, excluding
        depreciation and amortization   (141,007) (202,494)   61,487
                                        --------  --------    ------
      Gross margin                       $44,537   $56,828  $(12,291)
                                         -------   -------  --------
      Gross margin, as a percent of
       net sales                            24.0%     21.9%      2.1%
                                            ----      ----       ---

                              Net Sales Analysis by Segment

              Three Months Ended                  Change Attributable to the
                  March 31,                           Following Factors
                -------------                   ----------------------------
                                 $        %      Price /             Currency
                  2009   2008  Change    Change    Mix    Volume   Translation
                  ----   ----  ------   ------   -------  ------   -----------
                 (dollars in
     Packaging $115,429 $169,567 $(54,138) (31.9)%   0.3%  (25.1)%    (7.1)%
     Packaging   70,115   89,755  (19,640) (21.9)%   1.2%   (8.1)%   (15.0)%
                 ------   ------  -------
    Total      $185,544 $259,322 $(73,778) (28.5)%   0.6%  (19.4)%    (9.7)%
               -------- -------- --------

Conference Call:

The Company will conduct an investor conference call to review its 2009 first quarter results on Wednesday, May 13, 2009 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-788-0545; International: 857-350-1683; Participant Passcode: 59297809. A replay of the conference call will be available through May 27, 2009. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 95759792.

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 46 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.

SOURCE Pregis Corporation
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