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Pregis Announces Second Quarter 2008 Financial Results

DEERFIELD, Ill., Aug. 13 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its financial results for the second quarter of 2008.

The Company's net sales in the second quarter were $275.2 million, an increase of 13.9% over net sales of $241.5 million in the second quarter of 2007. Excluding the impact of favorable foreign currency translation and the revenues from two acquisitions made in the second half of 2007, the quarter's net sales increased 1.6% compared to the prior year quarter.

Gross profit margin, as a percent of net sales, was 21.4% in the second quarter of 2008, compared to 25.1% in the second quarter of 2007. The decline in gross margin is largely a result of significantly increased costs of resin, fuel and other raw materials in the 2008 period, which approximated $10 million of unfavorability compared to the second quarter of 2007. Resin costs for North America as measured by the CMAI index were 31% higher than costs in the first half of 2007.

Commenting on the Company's results for the second quarter, Mike McDonnell, President and Chief Executive Officer, stated, "Our results continue to be negatively impacted by economic weakness in North America and Europe as well as by escalating raw material and fuel costs. We continue to aggressively raise selling prices to offset the cost increases. While we have had some success in achieving price increases, they have not been sufficient to offset the increased costs. As such, we have announced additional selling price increases for the third quarter of over 20% for North America and over 10% for the European market. In these times of unprecedented raw material and fuel cost inflation, we are striving to realize the full amount of the third quarter price increases with minimal lag in order to restore our margins. In addition, we are committed to further p/p>

Depreciation and amortization 56,455 53,339

EBITDA 90,823 103,474

Other non-cash charges (income):

Unrealized foreign currency

transaction gains, net (4,245) (4,381)

Non-cash stock based compensation

expense 809 187

Non-cash asset impairment charge 403 -

Other non-cash expenses, primarily

fixed asset disposals and write-

offs 1,117 -

Net unusual or nonrecurring gains or


Nonrecurring charges related to

acquisitions and dispositions 4,853 5,280

Other, principally restructuring

and severance expenses 7,125 5,888

Other adjustments:

Amounts paid pursuant to management

agreement with Sponsor 2,002 1,764

Pro forma earnings and costs savings 1,113 -

Adjusted EBITDA ("Consolidated Cash

Flow") $104,000 $112,212

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

Second Quarter 2008

Supplemental Information


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

Gross Margin Calculations

Three Months Ended Six Months Ended

June 30, June 30,

(dollars in millions) 2008 2007 Change 2008 2007 Change

Net sales $275.2 $241.5 $33.7 $534.5 $480.5 $54.0

Cost of sales, excluding

depreciation and

amortization (216.3) (180.8) (35.5) (418.7) (358.8) (59.9)

Gross margin $58.9 $60.7 $(1.8) $115.8 $121.7 $(5.9)

Gross margin, as a percent

of net sales 21.4% 25.1% (3.7)% 21.7% 25.3% (3.6)%

Net Sales Analysis by Segment

Change Attributable to the

Following Factors

Three Months Ended Currency

June 30, Price/ Acqui- Trans-

2008 2007 $ Change % Change Mix Volume sitions lation

(dollars in millions)



Packaging $178.6 $154.8 $23.8 15.4% 0.9% 1.2% 5.9% 7.4%


Packaging 50.9 43.9 7.0 15.8% (0.9)% 1.9% - 14.8%


Supplies 21.7 18.3 3.4 18.5% (3.5)% 5.7% - 16.3%


Packaging 25.6 25.1 0.5 2.3% (4.6)% 7.7% - (0.8)%


eliminations (1.6) (0.6) (1.0)

Total $275.2 $241.5 $33.7 13.9% (0.3)% 1.9% 3.8% 8.5%

Change Attributable to the

Following Factors

Six Months Ended Currency

June 30, Price/ Acqui- Trans-

2008 2007 $ Change % Change Mix Volume sitions lation

(dollars in millions)



Packaging $348.2 $311.6 $36.6 11.8% 0.4% (1.0)% 5.3% 7.1%


Packaging 99.1 86.6 12.5 14.5% - 0.5% - 14.0%


Supplies 42.8 37.2 5.6 15.2% (2.8)% 2.8% - 15.2%


Packaging 47.6 47.0 0.6 1.1% (3.0)% 4.0% - 0.1%


eliminations (3.2) (1.9) (1.3)

Total $534.5 $480.5 $54.0 11.2% (0.3)% (0.3)% 3.5% 8.3%

rice increases to offset the impact of additional commodity cost inflation as well as recover the significant cost increases absorbed in the first half of this year."

Mr. McDonnell continued, "In addition to aggressively increasing selling prices, we are driving significant productivity and cost reduction initiatives. During the second quarter, we implemented a company-wide restructuring program, which is in addition to the overhead reduction initiatives which we implemented at the end of last year and the first quarter of this year. The restructuring program is well underway and we will begin to see the impact from the program in the second half of this year. Our quarter's results reflect $2.6 million of pre-tax severance charges related to these programs, and we expect to incur additional pre-tax severance charges of approximately $2.1 million over the remainder of 2008. We expect these programs to generate annual savings in excess of $20 million."

For the second quarter of 2008, operating income was $7.3 million compared to $14.2 million in the second quarter of 2007, with the reduction driven primarily by increased raw material and fuel costs as well as the $2.6 million restructuring charge relating to the Company's various cost reduction initiatives.

For the six month period, net sales grew to $534.5 million, an 11.2% increase compared to net sales of $480.5 million for the comparable 2007 period. Excluding the impact of favorable foreign currency translation and revenues from two acquisitions made in the second half of 2007, net sales for the six months of 2008 were relatively flat compared to the prior year period. Gross profit margin declined to 21.7% for the 2008 six month period compared to 25.3% for the 2007 period, also due primarily to the increased costs of resin, fuel and other raw materials, which approximated $20 million of unfavorability in the year-to-date period.

Segment Performance

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

-- Net sales of the protective packaging segment increased by

$23.8 million, or 15.4%. The 2008 second 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 also achieved pricing

improvement, primarily from price increases implemented in the U.S.

businesses in the first quarter as well as modest volume growth.

Excluding the impact of favorable foreign currency effects and

acquisitions, net sales for the segment increased 2.1%.

-- Net sales of the flexible packaging segment increased $7.0 million, or

15.8%. The segment's increase in sales volume was partially offset by

unfavorable product mix as a greater portion of the sales volume was

lower priced unprinted films. Excluding the impact of favorable

foreign currency, 2008 net sales for the segment increased 1.0%.

-- Net sales of the hospital supplies segment increased $3.4 million, or

18.5%, driven by growth in procedure packs as well as the segment's

geographic expansion efforts, partially offset by price erosion

resulting from the competitive market environment. Excluding the

impact of favorable foreign currency effects, net sales for the segment

increased 2.2% in the quarter.

-- Net sales of the rigid packaging segment increased $0.5 million, or

2.3%. Excluding the impact of unfavorable foreign currency effects in

the quarter, net sales for the segment increased 3.1% in the quarter,

due mainly to higher sales volume of films and thermoformed products,

partially offset by price erosion resulting from the competitive market


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 second quarter results on Thursday, August 14, 2008 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-700-5192; International: 617-213-8833; Participant Passcode: 53769110. A replay of the conference call will be available through August 28, 2008. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 44786881.

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)

June 30, 2008 December 31, 2007

Assets (Unaudited)

Current assets

Cash and cash

equivalents $26,469 $34,989

Accounts receivable

Trade, net of

allowances of $6,199

and $5,313, respectively 172,790 148,045

Other 12,484 18,532

Inventories, net 120,631 108,914

Deferred income taxes 3,052 2,991

Due from Pactiv 2,170 7,072

Prepayments and other

current assets 10,295 9,187

Total current assets 347,891 329,730

Property, plant and

equipment, net 284,482 277,398

Other assets

Goodwill 153,867 150,000

Intangible assets, net 47,373 47,910

Deferred financing

costs, net 8,922 10,080

Due from Pactiv,

long-term 14,537 12,229

Pension and related

assets 27,455 25,659

Other 3,171 2,313

Total other assets 255,325 248,191

Total assets $887,698 $855,319

Liabilities and

stockholder's equity

Current liabilities

Current portion of

long-term debt $2,195 $2,120

Accounts payable 120,153 100,326

Accrued income taxes 8,956 13,900

Accrued payroll and

benefits 17,012 19,814

Accrued interest 7,064 6,775

Other 23,221 22,436

Total current

liabilities 178,601 165,371

Long-term debt 494,031 475,604

Deferred income taxes 37,527 34,589

Long-term income tax

liabilities 11,792 9,585

Pension and related

liabilities 9,683 9,389

Other 7,197 7,124

Stockholder's equity:

Common stock - $0.01

par value; 1,000

shares authorized,

149.0035 shares issued

and outstanding at

June 30, 2008 and

December 31, 2007 - -

Additional paid-in

capital 150,093 149,659

Accumulated deficit (25,429) (16,588)

Accumulated other

comprehensive income 24,203 20,586

Total stockholder's

equity 148,867 153,657

Total liabilities and

stockholder's equity $887,698 $855,319

Pregis Holding II Corporation

Consolidated Statements of Operations


(dollars in thousands)

Three Months Ended Six Months Ended

June 30, June 30,

2008 2007 2008 2007

Net sales $275,216 $241,530 $534,538 $480,547

Operating costs and


Cost of sales,



and amortization 216,276 180,830 418,770 358,832

Selling, general and

administrative 34,436 32,714 69,175 64,696

Depreciation and

amortization 13,610 13,818 27,150 26,494

Other operating

expense (income),

net 3,628 (1) 3,899 (184)

Total operating costs

and expenses 267,950 227,361 518,994 449,838

Operating income 7,266 14,169 15,544 30,709

Interest expense 11,820 11,860 23,901 23,121

Interest income (198) (385) (426) (432)

Foreign exchange loss

(gain), net 92 (1,149) (2,921) (1,722)

Income (loss) before

income taxes (4,448) 3,843 (5,010) 9,742

Income tax expense 1,121 3,017 3,831 6,669

Net income (loss) $(5,569) $826 $(8,841) $3,073

Pregis Holding II Corporation

Consolidated Statements of Cash Flows


(dollars in thousands)

Six Months Ended June 30,

2008 2007

Operating activities

Net income (loss) $(8,841) $3,073

Adjustments to reconcile

net income (loss) to

cash provided by

operating activities:

Depreciation and

amortization 27,150 26,494

Deferred income taxes 1,428 1,678

Unrealized foreign

exchange gain (3,432) (1,878)

Amortization of

deferred financing

costs 1,187 1,079

Loss on disposal of

property, plant and

equipment 427 62

Stock compensation

expense 434 183

Changes in operating

assets and

liabilities, net

of effects of


Accounts and other

receivables, net (11,413) (15,377)

Due from Pactiv 5,524 7,935

Inventories, net (6,732) (12,033)

Prepayments and other

current assets (903) 348

Accounts payable 14,481 23,501

Accrued taxes (5,035) (4,429)

Accrued interest (116) 129

Other current

liabilities (3,701) (2,314)

Pension and related

assets and

liabilities, net (2,004) (577)

Other, net (366) 8

Cash provided by

operating activities 8,088 27,882

Investing activities

Capital expenditures (18,872) (13,768)

Proceeds from sale of

assets 162 209

Other, net 900 (35)

Cash used in investing

activities (17,810) (13,594)

Financing activities

Repayment of long-term

debt (976) (897)

Other, net 198 376

Cash used in financing

activities (778) (521)

Effect of exchange rate

changes on cash

and cash equivalents 1,980 1,013

Increase (decrease) in

cash and cash

equivalents (8,520) 14,780

Cash and cash

equivalents, beginning

of period 34,989 45,667

Cash and cash

equivalents, end of

period $26,469 $60,447

Pregis Holding II Corporation

Supplemental Information


Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

(unaudited) Twelve Months Ended June 30,

(dollars in thousands) 2008 2007

Net loss of Pregis Holding II

Corporation $(16,693) $(5,185)

Interest expense, net of interest

income 46,191 44,673

Income tax expense 4,870 10,647<

SOURCE Pregis Corporation
Copyright©2008 PR Newswire.
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