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Pregis Announces Fourth Quarter and Full Year 2008 Financial Results
Date:3/26/2009

DEERFIELD, Ill., March 26 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2008 fourth quarter and full year financial results.

For the fourth quarter of 2008, the Company generated net sales of $219.6 million, a decrease of 13.4% versus net sales of $253.7 million in the fourth quarter of 2007. Excluding incremental revenue from 2007 acquisitions, as well as a $20 million impact of unfavorable foreign currency translation, as the U.S. dollar strengthened significantly against the euro and pound sterling, net sales for the quarter decreased 6.8%.

For the full year, 2008 net sales increased 4.1% to $1.019 billion as compared to $979.4 million in 2007. Excluding a $21 million impact of favorable foreign currency translation on a year-to-date basis and incremental revenue from 2007 acquisitions, 2008 net sales decreased 1.1%.

Gross profit margin, as a percent of net sales, was 20.7% in the fourth quarter of 2008, compared to 23.9% in the fourth quarter of 2007. The margin decline was primarily the result of decreased sales volumes due to weakened demand across our segments, offset in part by the impact of selling price increases implemented in the third quarter of 2008 as well the impact of our 2008 cost reduction initiatives. For the full year, our gross profit margin, as a percent of net sales, decreased to 21.6% for 2008 compared to 24.4% for 2007. The decline for the year was primarily due to increased costs of resin, fuel and other raw materials, combined with the significant decline in volumes in the latter part of the year, offset by the impact of selling price increases and cost reduction initiatives.

The Company generated an operating loss in the fourth quarter of 2008 of $12.3 million, compared to operating income of $4.9 million for the fourth quarter of 2007. The fourth quarter operating loss reflects a $19.1 million non-cash goodwill impairment charge within one of the Company's specialty packaging businesses driven by the anticipation of a significant reduction in future revenue from a customer that had historically comprised a material portion of the reporting unit's annual revenues. Adjusted for this goodwill impairment charge, unfavorable foreign currency translation of $1.3 million, restructuring activity of $1.5 million, and a related curtailment gain of $3.7 million, operating income for the fourth quarter of 2008 was $5.8 million. This represents a decline of approximately 34% compared to operating income of $8.8 million for the fourth quarter of 2007, also adjusted for restructuring activity of $2.8 million, a $3.1 million write-off of third party due diligence and legal costs related to a potential acquisition that was not consummated, and an unusual insurance gain of $2.0 million. The fourth quarter's decline in earnings was driven by a reduction in sales volumes, offset in part by cost savings from the Company's various productivity and cost reduction programs as well as favorable impact from the Company' third quarter selling price increases.

Operating income for the full year of 2008 was $13.3 million, compared to 2007 operating income of $46.0 million. For the full year, 2008 operating income, adjusted for the aforementioned fourth quarter goodwill impairment charge of $19.1 million, favorable foreign currency translation of $2.0 million, restructuring activity of $9.3 million, and a related curtailment gain of $3.7 million, was $36.0 million. This represents a decline of approximately 27% compared to 2007 operating income of $49.2 million, also adjusted for restructuring activity of $2.9 million, a $3.1 million write-off of third party due diligence and legal costs related to a potential acquisition that was not consummated, and an unusual insurance gain of $2.8 million. For the year, the decline in earnings was driven by higher costs of resin and other raw materials through much of the year, mitigated in part by the benefit of the Company's selling price increases and productivity and cost reduction programs.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "2008 featured some of the most challenging market conditions this industry has ever faced. Rapidly escalating raw materials costs had a significant negative impact on our performance in the first half of the year, while unprecedented economic weakness in both the North American and European economies negatively impacted us in the second half, particularly in the fourth quarter. However, despite these significant headwinds we still generated solid earnings and cash flow. We took aggressive pricing action in response to the escalating raw material costs and remain committed to maintaining pricing discipline. In addition, we successfully implemented a number of aggressive productivity and cost reduction initiatives which will benefit our business going forward."

Mr. McDonnell continued, "We enter 2009 with the expectation that it will be a very challenging year, given the continuing economic uncertainty. Although we were very successful in 2008 in reducing costs through our various cost reduction and restructuring initiatives, we recognize that based on our 2009 outlook, additional cost reductions are required. To this point, we are implementing additional restructuring initiatives to reduce our cost structure by optimizing our manufacturing footprint and our organizational structure and operating processes. This next phase of our restructuring should be fully implemented by mid-2009. We estimate that these new initiatives should drive 2009 year-over-year savings of approximately $15 million to $20 million, which will help offset the economic weakness we believe will continue throughout 2009."

Segment Performance

In the fourth quarter of 2008, the Company hired a new executive to manage the operations of the flexible packaging, hospital supplies and rigid packaging businesses as an integrated unit, in support of the Company's strategy to drive synergies across these businesses. In the fourth quarter of 2008, the Company began reporting the operations of its flexible packaging, hospital supplies and rigid packaging business as one reportable segment, Specialty Packaging, to be aligned with the aforementioned changes in its internal management structure. As a result, the Company now reports two reportable segments:

  • Protective Packaging - This segment manufactures, markets, sells and distributes protective packaging products in North America and Europe. Its protective mailers, air-encapsulated bubble products, sheet foam, engineered foam, inflatable airbag systems, honeycomb products and other protective packaging products are manufactured and sold for use in cushioning, void-fill, surface-protection, containment and blocking & bracing applications.
  • Speciality Packaging - This segment provides innovative packaging solutions for food, medical, and other specialty packaging applications primarily in the European market.

Comments on segment net sales performance for the fourth quarter of 2008 are as follows:

  • Net sales of the protective packaging segment decreased by $25.5 million, or 15.3%. The 2008 fourth quarter sales decline was driven by a 16% volume decline attributed to the weakened economic conditions in both the U.S. and European markets, along with unfavorable foreign currency translation. The volume declines were partially offset by improved pricing in the segment's U.S. and European operations, reflecting the benefit of selling price increases implemented in the third quarter of 2008. Excluding the impacts of unfavorable foreign currency effects and incremental revenue growth from acquisitions, net sales for the segment decreased 12.1%.
  • Net sales of the specialty packaging segment decreased $8.5 million, or 9.9%. The decrease was due primarily to unfavorable foreign currency translation. Excluding the impact of unfavorable foreign currency, the segment's 2008 fourth quarter net sales increased 3.0%, driven by higher sales volumes in fresh-food flexible packaging products, flexible films and surgical procedure packs.

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 fourth quarter and full year results on Friday, March 27, 2009 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 800-510-9834; International: 617-614-3669; Participant Passcode: 28484117. A replay of the conference call will be available through April 10, 2009. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 45812911.

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 www.pregis.com.

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 filings with the Securities & Exchange Commission, including the Company's annual report on Form 10-K and quarterly reports on Form 10-Q. 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
                                    Unaudited
               (dollars in thousands, except shares and per share data)

                                                           December 31,
                                                           ------------
                                                          2008      2007
                                                          ----      ----
    Assets
    Current assets
      Cash and cash equivalents                          $41,179   $34,989
      Accounts receivable
        Trade, net of allowances of $5,357
         and $5,313, respectively                        121,736   148,045
        Other                                             13,829    18,532
      Inventories, net                                    87,867   108,914
      Deferred income taxes                                4,336     2,991
      Due from Pactiv                                      1,399     7,072
      Prepayments and other current assets                 8,435     9,187
                                                           -----     -----
            Total current assets                         278,781   329,730
    Property, plant and equipment, net                   245,124   277,398
    Other assets
      Goodwill                                           127,395   150,000
      Intangible assets, net                              41,254    47,910
      Deferred financing costs, net                        7,734    10,080
      Due from Pactiv, long-term                          13,234    12,229
      Pension and related assets                          22,430    25,659
      Other                                                  424     2,313
                                                             ---     -----
             Total other assets                          212,471   248,191
                                                         -------   -------
    Total assets                                        $736,376  $855,319
                                                        --------  --------
    Liabilities and stockholder's equity
    Current liabilities
      Current portion of long-term debt                   $4,902    $2,120
      Accounts payable                                    79,092   100,326
      Accrued income taxes                                 6,964    13,900
      Accrued payroll and benefits                        11,653    19,814
      Accrued interest                                     6,905     6,775
      Other                                               21,740    22,436
                                                          ------    ------
             Total current liabilities                   131,256   165,371
    Long-term debt                                       460,714   475,604
    Deferred income taxes                                 24,913    34,589
    Long-term income tax liabilities                      11,310     9,585
    Pension and related liabilities                        6,119     9,389
    Other                                                 11,963     7,124
    Stockholder's equity:
      Common stock - $0.01 par value; 1,000 shares
       authorized, 149.0035 shares issued and
       outstanding at December 31, 2008 and 2007               -         -
      Additional paid-in capital                         150,610   149,659
      Accumulated deficit                                (64,318)  (16,588)
      Accumulated other comprehensive income               3,809    20,586
                                                           -----    ------
             Total stockholder's equity                   90,101   153,657
                                                          ------   -------
    Total liabilities and stockholder's equity          $736,376  $855,319
                                                        --------  --------



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

                                    Three Months Ended        Year Ended
                                       December 31,          December 31,
                                       ------------          ------------
                                      2008      2007        2008      2007
                                      ----      ----        ----      ----

    Net sales                       $219,638  $253,689  $1,019,364  $979,399
    Operating costs and expenses:
      Cost of sales, excluding
       depreciation and
       amortization                  174,247   192,977     798,690   740,235
      Selling, general and
       administrative                 27,393    39,691     127,800   137,180
      Depreciation and amortization   11,610    15,063      52,344    55,799
      Goodwill impairment             19,057         -      19,057         -
      Other operating expense
       (income), net                    (354)    1,030       8,146       190
                                        ----     -----       -----       ---
    Total operating costs and
     expenses                        231,953   248,761   1,006,037   933,404
                                     -------   -------   ---------   -------
    Operating income                 (12,315)    4,928      13,327    45,995
    Interest expense                  11,776    11,953      49,069    46,730
    Interest income                     (357)     (428)       (875)   (1,325)
    Foreign exchange loss (gain),
     net                               8,087     1,188      14,728    (2,339)
                                       -----     -----      ------    ------
    Income (loss) before income
     taxes                           (31,821)   (7,785)    (49,595)    2,929
    Income tax expense (benefit)      (4,894)     (496)     (1,865)    7,708
                                      ------      ----      ------     -----
      Net loss                      $(26,927)  $(7,289)   $(47,730)  $(4,779)
                                    --------   -------    --------   -------



                           Pregis Holding II Corporation
                       Consolidated Statements of Cash Flows
                                      Unaudited
                               (dollars in thousands)

                                                       Year ended December 31,
                                                       -----------------------
                                                            2008     2007
                                                            ----     ----
    Operating activities
    Net loss                                             $(47,730) $(4,779)
    Adjustments to reconcile net loss to cash
     provided by operating activities:
      Depreciation and amortization                        52,344   55,799
      Deferred income taxes                                (7,769)  (2,110)
      Unrealized foreign exchange loss (gain)              14,022   (2,692)
      Amortization of deferred financing costs              2,374    2,194
      Gain on disposal of property, plant and equipment      (313)    (332)
      Stock compensation expense                              951      558
      Defined benefit pension plan expense (income)          (187)   2,256
      Curtailment gain on defined benefit pension plan     (3,736)       -
      Gain on insurance settlement                              -   (2,873)
      Goodwill impairment                                  19,057        -
      Trademark impairment                                  1,297      403
      Impairment of interest rate swap asset                1,299        -
      Changes in operating assets and liabilities, net
       of effects of acquisitions:
        Accounts receivable, net                           13,907   (5,444)
        Due from Pactiv                                     6,630   11,542
        Inventories, net                                   13,597   (8,186)
        Prepayments and other current assets                   79     (279)
        Accounts payable                                  (13,121)  12,269
        Accrued taxes                                      (6,373)  (5,695)
        Accrued interest                                       68      467
        Other current liabilities                          (7,014)    (382)
        Pension and related assets and liabilities, net    (3,149)  (2,726)
        Other, net                                          3,421    1,185
                                                            -----    -----
    Cash provided by operating activities                  39,654   51,175
                                                           ------   ------

    Investing activities
    Capital expenditures                                  (30,882) (34,626)
    Proceeds from sale of assets                            1,063      775
    Other business acquisitions, net of cash acquired        (958) (28,785)
    Insurance proceeds                                      3,205      884
    Other, net                                               (969)    (226)
                                                             ----     ----
    Cash used in investing activities                     (28,541) (61,978)
                                                          -------  -------
    Financing activities
    Proceeds from issuance of long-term debt                 (115)     218
    Repayment of long-term debt                            (1,893)  (1,828)
    Deferred financing costs                                    -   (1,237)
                                                              ---   ------
    Cash used in financing activities                      (2,008)  (2,847)
    Effect of exchange rate changes on cash and
     cash equivalents                                      (2,915)   2,972
                                                           ------    -----
    Increase (decrease) in cash and cash equivalents        6,190  (10,678)
    Cash and cash equivalents, beginning of year           34,989   45,667
                                                           ------   ------
    Cash and cash equivalents, end of year                $41,179  $34,989
                                                          -------  -------



                           Pregis Holding II Corporation
                              Supplemental Information
                                     (Unaudited)

               Calculation of Adjusted EBITDA ("Consolidated Cash Flow")
               ---------------------------------------------------------

                                                      Year Ended December 31,
                                                      -----------------------
    (unaudited)                                            2008      2007
    (dollars in thousands)                                 ----      ----

    Net loss of Pregis Holding II Corporation            $(47,730)  $(4,779)
    Interest expense, net of interest income               48,194    45,405
    Income tax expense (benefit)                           (1,865)    7,708
    Depreciation and amortization                          52,344    55,799
                                                           ------    ------
    EBITDA                                                 50,943   104,133

    Other non-cash charges (income):
      Unrealized foreign currency transaction losses
       (gains), net                                        14,736    (2,692)
      Non-cash stock based compensation expense               951       558
      Non-cash asset impairment charge                     20,354       403
      Other non-cash expenses, primarily fixed
       asset disposals and write-offs                         427         -
    Net unusual or nonrecurring gains or losses:
      Restructuring, severence and related expenses        11,418     4,325
      Curtailment gain                                     (3,736)        -
      Nonrecurring charges related to acquisitions
       and dispositions                                         -     5,582
      Other unusual and nonrecurring gains or losses        1,283         -
    Other adjustments:
      Amounts paid pursuant to management agreement
       with Sponsor                                         1,724     1,894
    Pro forma earnings and costs savings                        -     3,547
                                                              ---     -----
    Adjusted EBITDA ("Consolidated Cash Flow")            $98,100  $117,750
                                                          -------  --------

    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
                         Fourth Quarter and Full Year 2008
                             Supplemental Information
                                    (Unaudited)
        (Amounts and percentage changes are approximations due to rounding.)

                                  Gross Margin Calculations
                                  -------------------------

                        Three Months Ended              Year Ended
                           December 31,                 December 31,
                           ------------                 ------------
    (dollars in
     millions)      2008      2007     Change     2008       2007    Change
                    ----      ----     ------     ----       ----    ------
    Net sales     $219,638  $253,689 $(34,051) $1,019,364  $979,399  $39,965
    Cost of
     sales,
     excluding
     depreciation
     and
     amortization (174,247) (192,977)  18,730    (798,690) (740,235) (58,455)
                  --------  --------   ------     --------  -------  -------
    Gross margin   $45,391   $60,712 $(15,321)   $220,674  $239,164 $(18,490)
                    ------   -------  -------     -------   -------  -------
    Gross margin,
     as a percent
     of net sales     20.7%     23.9%    (3.2)%      21.6%     24.4%    (2.8)%
                      ----     -----     -----      -----     -----     -----



                                  Net Sales Analysis by Segment
                                  -----------------------------

                                  Three months ended December 31,
                                  -------------------------------
                            2008        2007       $ Change      % Change
                            ----        ----       --------      --------
                                      (dollars in thousands)
    Segment:
    Protective Packaging  $141,750     $167,281     $(25,531)     (15.3)%
    Specialty Packaging     77,888       86,408       (8,520)      (9.9)%
                            ------       ------       ------
    Total                 $219,638     $253,689     $(34,051)     (13.4)%


                                       Change Attributable to the
                                            Following Factors
                                            -----------------
                              Price/                               Currency
                               Mix       Volume     Acquisitions  Translation
                               ---       ------     ------------  -----------

    Segment:
    Protective Packaging       4.3%        (16.4)%       2.0%      (5.2)%
    Specialty Packaging       (0.7)%         3.7%                 (12.9)%
    Total                      2.6%         (9.4)%       1.3%      (7.9)%



                                      Year ended December 31,
                                      -----------------------
                            2008        2007       $ Change      % Change
                            ----        ----       --------      --------
                                     (dollars in thousands)
    Segment:
    Protective Packaging  $661,976      $636,939     $25,037        3.9%
    Specialty Packaging    357,388       342,460      14,928        4.4%
                           -------       -------      ------
    Total               $1,019,364      $979,399     $39,965        4.1%
                        ----------      --------     -------



                                       Change Attributable to the
                                            Following Factors
                                            -----------------
                              Price/                               Currency
                               Mix       Volume     Acquisitions  Translation
                               ---       ------     ------------  -----------

    Segment:
    Protective Packaging       2.7%         (5.1)%       4.5%       1.8%
    Specialty Packaging       (0.3)%         1.5%          -        3.2%
    Total                      1.6%         (2.7)%       2.9%       2.3%


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SOURCE Pregis Corporation
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