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Pregis Announces Second Quarter 2009 Financial Results
Date:8/13/2009

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 2009 second quarter financial results.

For the second quarter of 2009, the Company generated net sales of $196.0 million, a decrease of 28.8% versus net sales of $275.2 million in the second 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 19.8% compared to the prior year quarter due to the significant and continuing global recession.

Gross profit margin, as a percent of net sales, was 25.0% in the second quarter of 2009, compared to 21.4% in the second quarter of 2008. The 360 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 income of $6.5 million in the second quarter of 2009, which included pre-tax restructuring charges of $5.1 million relating to the Company's cost reduction initiatives, as well as unfavorable foreign currency translation of approximately $1.0 million. This compared to operating income of $7.3 million for the second quarter of 2008 and pre-tax restructuring charges of $2.6 million. Adjusted for the restructuring charge and unfavorable foreign currency translation, operating income for the second quarter of 2009 was $12.6 million, which represents an increase of approximately 27% compared to the 2008 second quarter.

Adjusted EBITDA, or "Consolidated Cash Flow" as defined by our indentures, was $24.2 million in the second quarter of 2009 compared to $25.4 million for the same period in 2008. Adjusted EBITDA is a significant operating measure used by the Company to measure its operating performance and liquidity.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "During the second quarter, despite substantial volume decreases resulting from very difficult economic conditions, we delivered strong Adjusted EBITDA performance due in part to our success in driving aggressive cost reductions as well as our continued disciplined pricing for value, which we maintained in spite of downward pressure on our key raw material costs."

Mr. McDonnell continued, "Looking forward to the second half of 2009, we expect demand to remain weak, particularly in our protective packaging segment. Resin costs have increased by approximately 35% in both North America and Europe through the first seven months of 2009 based on their respective indices and are expected to continue to increase in the third quarter. In response to these cost increases and the expectation of further increases in the third quarter, we anticipate increasing our selling prices in North America and Europe in September 2009 to account for these cost increases. It is critical that these higher costs result in selling price increases so that we can avoid the significant margin compression we experienced last year associated with the excessive time lag between the sharp cost increases and higher selling prices."

Segment Performance

Comments on segment net sales and EBITDA performance for the second quarter of 2009 is as follows:

  • Net sales of the protective packaging segment decreased by $59.8 million, or 33.5%. The 2009 second 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 27.3%.
  • EBITDA of the protective packaging segment increased $0.9 million, or 6.2%. This increase reflects the significant cost savings realized from cost reduction programs as well as year-over-year reductions in the cost of resin and other materials. These impacts were offset by decreased volumes driven by the ongoing recession in North America and Europe.
  • Net sales of the specialty packaging segment decreased $19.4 million, or 20.1%. This sales decline was driven by unfavorable foreign currency translation, as well as decreased volumes driven in part by a reduction in volumes from the termination of a contract with a significant medical products customer. Excluding the impact of unfavorable foreign currency, net sales for the segment decreased 5.9%.
  • EBITDA of the specialty packaging segment decreased $1.8 million, or 15.3%. This decrease was a result of the decline in sales as described above, partially offset by savings resulting from our cost reduction program.

A summary of Adjusted EBITDA, a significant measure required by the Company's indentures and used by the Company to measure its operating performance and liquidity, 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 2009 second quarter results on Friday, August 14, 2009 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-277-1182; International: 617-597-5359; Participant Passcode: 48840899. A replay of the conference call will be available through August 28, 2009. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 59807481.

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 annual report, which is available on its website, www.pregis.com. 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)

                                                     June 30,     December 31,
                                                       2009           2008
    Assets                                          (Unaudited)
    Current assets
      Cash and cash equivalents                       $38,801        $41,179
      Accounts receivable
        Trade, net of allowances of $5,885
         and $5,357  respectively                     124,644        121,736
        Other                                           5,504         13,829
      Inventories, net                                 82,780         87,867
      Deferred income taxes                             4,713          4,336
      Due from Pactiv                                   1,460          1,399
      Prepayments and other current assets              7,333          8,435
                                                        -----          -----
          Total current assets                        265,235        278,781
    Property, plant and equipment, net                236,347        245,124
    Other assets
      Goodwill                                        126,288        127,395
      Intangible assets, net                           39,724         41,254
      Deferred financing costs, net                     6,547          7,734
      Due from Pactiv, long-term                       13,515         13,234
      Pension and related assets                       25,908         22,430
      Other                                               424            424
                                                          ---            ---
          Total other assets                          212,406        212,471
                                                      -------        -------
    Total assets                                     $713,988       $736,376
                                                     --------       --------
    Liabilities and stockholder's equity
    Current liabilities
      Current portion of long-term debt                  $643         $4,902
      Accounts payable                                 75,063         79,092
      Accrued income taxes                              5,182          6,964
      Accrued payroll and benefits                     12,857         11,653
      Accrued interest                                  5,922          6,905
      Other                                            18,894         21,740
                                                       ------         ------
          Total current liabilities                   118,561        131,256
    Long-term debt                                    461,346        460,714
    Deferred income taxes                              22,044         24,913
    Long-term income tax liabilities                   11,552         11,310
    Pension and related liabilities                     5,103          6,119
    Other                                              13,272         11,963
    Stockholder's equity:
        Common stock - $0.01 par value; 1,000
         shares authorized, 149.0035 shares issued
         and outstanding at June 30, 2009 and
         December 31, 2008                                  -              -
        Additional paid-in capital                    151,344        150,610
        Accumulated deficit                           (71,663)       (64,318)
        Accumulated other comprehensive income          2,429          3,809
                                                        -----          -----
          Total stockholder's equity                   82,110         90,101
                                                       ------         ------
    Total liabilities and stockholder's equity       $713,988       $736,376
                                                     --------       --------



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

                                      Three Months Ended    Six Months Ended
                                            June 30,            June 30,
                                        -------------------  -----------------
                                         2009      2008      2009      2008
                                         ----      ----      ----      ----

    Net Sales                          $196,003  $275,216  $381,547  $534,538
    Operating costs and expenses:
      Cost of sales, excluding
       depreciation and amortization    147,049   216,276   288,056   418,770
      Selling, general and
       administrative                    26,403    34,436    54,399    69,175
      Depreciation and amortization      11,305    13,610    22,776    27,150
      Other operating expense, net        4,734     3,628    11,335     3,899
                                          -----     -----    ------     -----
    Total operating costs and expenses  189,491   267,950   376,566   518,994
                                        -------   -------   -------   -------
    Operating income                      6,512     7,266     4,981    15,544
    Interest expense                      9,482    11,820    18,880    23,901
    Interest income                         (95)     (198)     (122)     (426)
    Foreign exchange loss (gain), net    (8,105)       92    (4,931)   (2,921)
                                         ------        --    ------    ------
    Income (loss) before income taxes     5,230    (4,448)   (8,846)   (5,010)
    Income tax expense (benefit)          2,167     1,121    (1,501)    3,831
                                          -----     -----    ------     -----
    Net income (loss)                    $3,063   $(5,569)  $(7,345)  $(8,841)
                                         ------   -------   -------   -------



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


                                                     Six Months
                                                    Ended June 30,
                                                   ---------------
                                                  2009          2008
                                                  ----          ----
      Operating activities
      Net loss                                 $(7,345)       $(8,841)
      Adjustments to reconcile net loss to
       cash provided by operating activities:
        Depreciation and amortization           22,776         27,150
        Deferred income taxes                   (2,845)         1,428
        Unrealized foreign exchange gain        (4,693)        (3,432)
        Amortization of deferred financing
         costs                                   1,187          1,187
        (Gain) loss on disposal of property,
         plant and equipment                      (257)           427
        Stock compensation expense                 734            434
        Changes in operating assets and
         liabilities
          Accounts and other receivables, net    8,436        (11,413)
          Due from Pactiv                            -          5,524
          Inventories, net                       6,504         (6,732)
          Prepayments and other current assets   1,251           (903)
          Accounts payable                      (5,642)        14,481
          Accrued taxes                         (1,963)        (5,035)
          Accrued interest                        (785)          (116)
          Other current liabilities             (1,827)        (3,701)
          Pension and related assets and
           liabilities, net                     (1,825)        (2,004)
          Other, net                            (1,699)          (366)
                                                 ------          ----
      Cash provided by operating activities     12,007          8,088
                                                ------          -----

      Investing activities
      Capital expenditures                      (9,973)       (18,872)
      Proceeds from sale of assets                 363            162
      Other, net                                     -            900
                                                   ---            ---
      Cash used in investing activities         (9,610)       (17,810)
                                                ------        -------

      Financing activities
      Repayment of long-term debt               (4,312)          (976)
      Other, net                                  (215)           198
                                                  ----            ---
      Cash used in financing activities         (4,527)          (778)
      Effect of exchange rate changes on cash
       and cash equivalents                       (248)         1,980
                                                  ----          -----
      Decrease in cash and cash equivalents     (2,378)        (8,520)
      Cash and cash equivalents, beginning
       of period                                41,179         34,989
                                                ------         ------

      Cash and cash equivalents, end of
       period                                  $38,801        $26,469
                                               -------        -------



                       Pregis Holding II Corporation
                          Supplemental Information
                                  (Unaudited)

             Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

                                                             Three Months
                                                             Ended June 30,
    (unaudited)                                            ---------------
    (dollars in thousands)                                2009         2008
                                                          ----         ----

    Net income (loss) of Pregis Holding II Corporation   $3,063      $(5,569)
    Interest expense, net of interest income              9,387       11,622
    Income tax expense                                    2,167        1,121
    Depreciation and amortization                        11,305       13,610
                                                         ------       ------
    EBITDA                                               25,922       20,784

    Other non-cash charges (income):
      Unrealized foreign currency transaction losses
       (gains), net                                      (8,159)        (459)
      Non-cash stock based compensation expense             301          250
      Non-cash asset impairment charge                     (253)           -
      Other non-cash expenses, primarily fixed asset
       disposals and write-offs                               -        1,117
    Net unusual or nonrecurring gains or losses:
      Restructuring, severance and related expenses       5,614            -
      Nonrecurring charges related to acquisitions and
       dispositions                                           -          467
      Other, principally executive management
       severance and recruiting expenses                    164        2,821
    Other adjustments:
      Amounts paid pursuant to management agreement
       with Sponsor                                         599          462
    Pro forma earnings and costs savings                      -            -
                                                            ---          ---

    Adjusted EBITDA ("Consolidated Cash Flow")          $24,188      $25,442
                                                        -------      -------

    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 and is a significant operating
    measure used by the Company to measure its operating performance and
    liquidity.



                       Pregis Holding II Corporation
                         Supplemental Information
                                (Unaudited)

             Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

                                   Twelve Months
    (unaudited)                    Ended June 30,
                                  ---------------
    (dollars in thousands)      2009           2008
                                ----           ----

    Net loss of Pregis
     Holding II Corporation  $(46,235)      $(16,693)
    Interest expense, net of
     interest income           43,477         46,191
    Income tax expense         (7,197)         4,870
    Depreciation and
     amortization              47,970         56,455
                               ------         ------
    EBITDA                     38,015         90,823

    Other non-cash charges
     (income):
      Unrealized foreign currency
       transaction losses
       (gains), net            13,475         (4,245)
      Non-cash stock based
       compensation expense     1,261            809
      Non-cash asset impairment
       charge                  20,101            403
      Other non-cash expenses,
       primarily fixed asset
       disposals and
       write-offs                   -          1,117
    Net unusual or nonrecurring
     gains or losses:
      Restructuring,
       severance and
       related expenses        15,971              -
      Nonrecurring
       charges related
       to acquisitions
       and dispositions             -          4,853
      Other, principally
       executive management
       severance and recruiting
       expenses                   676          7,125
    Other adjustments:
      Amounts paid pursuant to
       management agreement with
       Sponsor                  1,892          2,002
    Pro forma earnings
     and costs savings              -          1,113
                                  ---         -----

    Adjusted EBITDA
     ("Consolidated Cash
     Flow")                   $91,391       $104,000
                              -------       --------

    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 and is a significant operating
    measure used by the Company to measure its operating performance and
    liquidity.



                        Pregis Holding II Corporation
                              Second Quarter 2009
                           Supplemental Information
                                  (Unaudited)
        (Amounts and percentage changes are approximations due to rounding.)

                             Gross Margin Calculations

                    Three Months Ended June 30,     Six Months Ended June 30,
    (dollars in     -----------------------------   -------------------------
     thousands)      2009       2008     Change     2009      2008     Change
                     ----       ----     ------     ----      ----     ------

    Net sales      $196,003  $275,216  $(79,213) $381,547   534,538  (152,991)
    Cost of sales,
     excluding
     depreciation and
     amortization  (147,049) (216,276)   69,227  (288,056) (418,770)  130,714
                   --------  --------    ------  --------  --------   -------
    Gross margin    $48,954   $58,940   $(9,986)  $93,491  $115,768  $(22,277)
                    -------   -------   -------   -------  --------  --------
    Gross margin, as a
     percent of net
     sales             25.0%     21.4%      3.6%     24.5%     21.7%      2.9%
                       ----      ----       ---      ----      ----       ---



                                  Net Sales by Segment

                    Three Months Ended June 30,
                    -------------------------
                      2009           2008             $ Change        % Change
                      ----           ----             --------        --------
                     (dollars in thousands)
    Segment:
    Protective
     Packaging      $118,748       $178,571           $(59,823)        (33.5)%
    Specialty
     Packaging        77,255         96,645            (19,390)        (20.1)%
                      ------         ------            -------
    Total           $196,003       $275,216           $(79,213)        (28.8)%
                    --------       --------           --------


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

    Segment:
    Protective
     Packaging   $(3,335) (1.9)%      $(45,458)    (25.5)%  $(11,030)   (6.2)%
    Specialty
     Packaging    (1,696) (1.8)%        (3,970)     (4.1)%   (13,724)  (14.2)%
    Total        $(5,031) (1.8)%      $(49,428)    (18.0)%  $(24,754)   (9.0)%



                   Six Months Ended June 30,
                   -------------------------
                    2009             2008            $ Change       % Change
                    ----             ----            --------       --------
                     (dollars in thousands)
    Segment:
    Protective
     Packaging    $234,177         $348,138         $(113,961)        (32.7)%
    Specialty
     Packaging     147,370          186,400           (39,030)        (20.9)%
                   -------          -------           -------
    Total         $381,547         $534,538         $(152,991)        (28.6)%
                  --------         --------         ---------


                       Change Attributable to the Following Factors
                        --------------------------------------------
                                                                 Currency
                  Price / Mix                 Volume            Translation
                  -----------                 ------            -----------
    Segment:
    Protective
     Packaging   $(3,078) (0.9)%       $(87,772)   (25.2)%  $(23,111)  (6.6)%
    Specialty
     Packaging      (608) (0.3)%        (10,973)    (5.9)%   (27,449)  (14.7)%
    Total        $(3,686) (0.7)%       $(98,745)   (18.5)%  $(50,560)   (9.5)%



                         Pregis Holding II Corporation
                            Supplemental Information
                                   (Unaudited)
        (Amounts and percentage changes are approximations due to rounding.)

                                EBITDA by Segment

                        Three Months Ended June 30,
                        --------------------------
                             2009        2008         $ Change  % Change
                             ----        ----         --------  --------
                           (dollars in thousands)

    Segment:
    Protective Packaging    $15,372     $14,481         $891       6.2%
    Specialty Packaging      10,118      11,948       (1,830)    (15.3)%
                             ------      ------       ------
       Total segment EBITDA $25,490     $26,429        $(939)     (3.6)%
                            -------     -------        -----


                          Six Months Ended June 30,
                          -------------------------

                             2009        2008         $ Change  % Change
                             ----        ----         --------  --------
                           (dollars in thousands)
    Protective Packaging    $26,739     $29,542      $(2,803)     (9.5)%
    Specialty Packaging      19,429      22,427       (2,998)    (13.4)%
                             ------      ------       ------
       Total segment EBITDA $46,168     $51,969      $(5,801)    (11.2)%
                            -------     -------      -------



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SOURCE Pregis Corporation
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