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Pregis Announces Third Quarter 2008 Financial Results
Date:11/13/2008

DEERFIELD, Ill., Nov. 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 third quarter of 2008.

The Company's net sales in the third quarter were $265.2 million, an increase of 8.2% over net sales of $245.2 million in the third quarter of 2007. Excluding the impact of favorable foreign currency translation and sales from an acquisition made in the fourth quarter of 2007, the quarter's net sales increased 2.5% compared to the prior year quarter.

Gross profit margin, as a percent of net sales, was 22.4% in the third quarter of 2008, compared to 23.1% in the third quarter of 2007. The decline in gross margin was primarily due to significantly increased costs of resin, fuel and other raw materials in the 2008 period. According to the CMAI indices, resin costs in the U.S. and Europe increased approximately 31% and 17%, respectively, in the third quarter of 2008 compared to the third quarter of 2007. The third quarter gross margin percentage improved 100-basis points compared to the gross profit margin of 21.4% in the second quarter of 2008, reflecting the impact of selling price increases implemented during the quarter as well as the impact of continued cost reduction initiatives.

For the third quarter of 2008, operating income was $10.1 million compared to $10.4 million in the third quarter of 2007, with the reduction driven primarily by pre-tax severance charges totaling $5.2 million relating to the Company's various productivity and cost reduction programs. The third quarter pre-tax severance charges include $3.9 million relating to the Eerbeek, Netherlands plant closure previously announced.

Commenting on the Company's results for the third quarter, Mike McDonnell, President and Chief Executive Officer, stated, "Overall, we are pleased with the results we achieved in the third quarter. We made good progress with our pricing actions in the quarter; however, we have yet to recover the significantly higher raw material costs absorbed in the first half of the year. Even as market conditions become more difficult, we will maintain our commitment to pricing discipline."

Mr. McDonnell continued, "We also remain committed to improving our profitability through aggressive productivity and cost reduction initiatives. During the third quarter, through the significant efforts of our Pregis management and employees, we realized savings of close to $5 million from these programs. Given the very weak general economic conditions within which we are currently operating, including the possibility of a recession in the U.S. and further worldwide economic slowdown, we expect the next few quarters to be challenging. As a result, we are diligently working to identify additional cost reduction opportunities to help mitigate the impact of the weakened economic environment and drive long-term sustainable profit growth."

For the nine months ended September 30, 2008, net sales grew to $799.7 million, higher by 10.2% compared to net sales of $725.7 million for the comparable 2007 period. Excluding the impact of favorable foreign currency translation and sales from two acquisitions made in the second half of 2007, net sales for the nine months of 2008 were relatively flat compared to the prior year period. Gross profit margin percentage declined to 21.9% for the 2008 nine month period compared to 24.6% for the 2007 period, primarily due to increased costs of resin, fuel and other raw materials, partially offset by the impact from the Company's cost reduction initiatives.

For the nine month period, operating income was $25.6 million compared to $41.1 million for same period of 2007, with the reduction driven primarily by higher raw material costs as well as pre-tax severance charges totaling $7.8 million relating to its productivity and cost reduction initiatives. The Company expects to incur additional restructuring charges of approximately $3.3 million over the remainder of 2008 and through the first half of 2009 to complete implementation of these initiatives. Combined with the overhead optimization efforts started at the end of 2007, these programs are currently expected to generate annual savings in excess of $25 million.

Segment Performance

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

-- Net sales of the protective packaging segment increased by $13.9 million, or 8.8%. The 2008 third quarter sales growth was driven by favorable foreign currency translation, as well as the incremental sales generated by the Besin entity acquired in the fourth quarter of 2007. The segment also achieved pricing improvement in its U.S. and European operations, which more than offset the volume declines attributed to the weakened economic conditions in these markets. Excluding the impacts of favorable foreign currency effects and revenue growth from acquisitions, net sales for the segment increased 2.6%.

-- Net sales of the flexible packaging segment increased $4.2 million, or 9.4%. The increase was driven by favorable foreign currency translation and favorable pricing, partially offset by lower volumes due mainly to weaker economic conditions in Germany, the segment's principal market. Excluding the impact of favorable foreign currency, the segment's 2008 third quarter net sales were relatively flat compared to the prior year period.

-- Net sales of the hospital supplies segment increased $2.0 million, or 10.5%, 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, the segment's 2008 third quarter net sales were relatively flat compared to the prior year period.

-- Net sales of the rigid packaging segment decreased nominally by $0.1 million. Excluding the impact of unfavorable foreign currency effects in the quarter, net sales for the segment increased 6.1% in the quarter, due mainly to higher sales volume of films and thermoformed products, partially offset by price erosion resulting from the competitive market environment.

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 third quarter results on Friday, November 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: 800-591-6942; International: 617-614-4909; Participant Passcode: 68623125. A replay of the conference call will be available through November 28, 2008. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 92661107.

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 http://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)

September 30, 2008 December 31, 2007

Assets (Unaudited)

Current assets

Cash and cash equivalents $30,038 $34,989

Accounts receivable

Trade, net of allowances of

$5,366 and $5,313, respectively 157,467 148,045

Other 12,756 18,532

Inventories, net 114,546 108,914

Deferred income taxes 2,971 2,991

Due from Pactiv 607 7,072

Prepayments and other current

assets 9,073 9,187

Total current assets 327,458 329,730

Property, plant and equipment, net 257,777 277,398

Other assets

Goodwill 148,414 150,000

Intangible assets, net 43,592 47,910

Deferred financing costs, net 8,328 10,080

Due from Pactiv, long-term 13,208 12,229

Pension and related assets 25,155 25,659

Other 431 2,313

Total other assets 239,128 248,191

Total assets $824,363 $855,319

Liabilities and stockholder's equity

Current liabilities

Current portion of long-term debt $2,125 $2,120

Accounts payable 104,326 100,326

Accrued income taxes 7,880 13,900

Accrued payroll and benefits 16,953 19,814

Accrued interest 11,437 6,775

Other 25,462 22,436

Total current liabilities 168,183 165,371

Long-term debt 465,804 475,604

Deferred income taxes 32,342 34,589

Long-term income tax liabilities 10,780 9,585

Pension and related liabilities 8,658 9,389

Other 7,006 7,124

Stockholder's equity:

Common stock - $0.01 par value; 1,000

shares authorized, 149.0035 shares

issued and outstanding at

September 30, 2008 and

December 31, 2007 - -

Additional paid-in capital 150,337 149,659

Accumulated deficit (37,391) (16,588)

Accumulated other comprehensive

income 18,644 20,586

Total stockholder's equity 131,590 153,657

Total liabilities and stockholder's

equity $824,363 $855,319

Pregis Holding II Corporation

Consolidated Statements of Operations

Unaudited

(dollars in thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Net sales $265,188 $245,163 $799,726 $725,710

Operating costs and expenses:

Cost of sales, excluding

depreciation and

amortization 205,673 188,426 624,443 547,258

Selling, general and

administrative 31,232 32,793 100,407 97,489

Depreciation and amortization 13,584 14,242 40,734 40,736

Other operating expense

(income), net 4,601 (656) 8,500 (840)

Total operating costs and

expenses 255,090 234,805 774,084 684,643

Operating income 10,098 10,358 25,642 41,067

Interest expense 13,392 11,656 37,293 34,777

Interest income (92) (465) (518) (897)

Foreign exchange loss (gain),

net 9,562 (1,805) 6,641 (3,527)

Income (loss) before income

taxes (12,764) 972 (17,774) 10,714

Income tax expense (benefit) (802) 1,535 3,029 8,204

Net income (loss) $(11,962) $(563) $(20,803) $2,510

Pregis Holding II Corporation

Consolidated Statements of Cash Flows

Unaudited

(dollars in thousands)

Nine Months Ended September 30,

2008 2007

Operating activities

Net income (loss) $(20,803) $2,510

Adjustments to reconcile net income

(loss) to cash provided by operating

activities:

Depreciation and amortization 40,734 40,736

Deferred income taxes (1,419) 713

Unrealized foreign exchange loss

(gain) 6,814 (3,254)

Amortization of deferred financing

costs 1,781 1,636

Loss (gain) on disposal of property,

plant and equipment (246) (51)

Stock compensation expense 678 334

Impairment of interest rate swap asset 1,299 -

Gain on insurance settlement - (884)

Changes in operating assets and

liabilities, net of effects of

acquisitions:

Accounts and other receivables, net (12,024) (14,384)

Due from Pactiv 6,630 9,202

Inventories, net (9,738) (14,249)

Prepayments and other current assets (143) 1,381

Accounts payable 7,568 15,336

Accrued taxes (4,778) (1,551)

Accrued interest 4,577 5,011

Other current liabilities 1,871 1,027

Pension and related assets and

liabilities, net (2,815) (153)

Other, net 177 (2,994)

Cash provided by operating activities 20,163 40,366

Investing activities

Capital expenditures (25,270) (23,162)

Proceeds from sale of assets 1,042 382

Acquisition of business, net of cash

acquired - (8,898)

Insurance proceeds 1,868 884

Other, net (593) (35)

Cash used in investing activities (22,953) (30,829)

Financing activities

Repayment of long-term debt (1,435) (1,360)

Other, net 62 300

Cash used in financing activities (1,373) (1,060)

Effect of exchange rate changes on cash

and cash equivalents (788) 2,748

Increase (decrease) in cash and cash

equivalents (4,951) 11,225

Cash and cash equivalents, beginning of

period 34,989 45,667

Cash and cash equivalents, end of period $30,038 $56,892

Pregis Holding II Corporation

Supplemental Information

(Unaudited)

Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

Twelve Months Ended September 30,

(dollars in thousands) 2008 2007

Net loss of Pregis Holding II Corporation $(28,092) $(3,553)

Interest expense, net of interest income 48,300 44,818

Income tax expense 2,533 11,801

Depreciation and amortization 55,797 54,717

EBITDA 78,538 107,783

Other non-cash charges (income):

Unrealized foreign currency transaction

losses (gains), net 7,846 (6,109)

Non-cash stock based compensation expense 902 269

Non-cash asset impairment charge 403 -

Other non-cash expenses, primarily fixed

asset disposals and write-offs 427 -

Net unusual or nonrecurring gains or losses:

Restructuring, severance and related

expenses 12,409 5,051

Nonrecurring charges related to

acquisitions and dispositions 4,512 3,044

Other unusual or nonrecurring gains or

losses 123 792

Other adjustments:

Amounts paid pursuant to management

agreement with Sponsor 1,834 1,802

Pro forma earnings and costs savings 454 1,480

Adjusted EBITDA ("Consolidated Cash Flow") $107,448 $114,112

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

Third Quarter 2008

Supplemental Information

(Unaudited)

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

Gross Margin Calculations

Three Months Ended Nine Months Ended

September 30, September 30,

(dollars in millions) 2008 2007 Change 2008 2007 Change

Net sales $265.2 $245.2 $20.0 $799.7 $725.7 $74.0

Cost of sales, excluding

depreciation and

amortization (205.7) (188.5) (17.2) (624.4) (547.3) (77.1)

Gross margin $59.5 $56.7 $2.8 $175.3 $178.4 $(3.1)

Gross margin, as a percent

of net sales 22.4% 23.1% (0.7)% 21.9% 24.6% (2.7)%

Net Sales Analysis by Segment

Change Attributable

Three Months Ended to the Following Factors

September 30, Currency

$ % Price/ Acquis- Transl-

2008 2007 Change Change Mix Volume itions ation

(dollars in

millions)

Segment:

Protective

Packaging $172.1 $158.2 $13.9 8.8% 5.5% (2.9)% 3.9% 2.3%

Flexible

Packaging 48.9 44.7 4.2 9.4% 3.7% (3.0)% - 8.7%

Hospital

Supplies 20.7 18.7 2.0 10.5% (1.4)% 2.2% - 9.7%

Rigid

Packaging 25.2 25.3 (0.1) (0.6)% (1.8)% 7.9% - (6.7)%

Intersegment

eliminations (1.7) (1.7) -

Total $265.2 $245.2 $20.0 8.2% 3.9% (1.4)% 2.5% 3.2%

Change Attributable

Nine Months Ended to the Following Factors

September 30, Currency

$ % Price/ Acquis- Transl-

2008 2007 Change Change Mix Volume itions ation

(dollars in

millions)

Segment:

Protective

Packaging $520.3 $469.7 $50.6 10.8% 2.1% (1.0)% 5.4% 4.3%

Flexible

Packaging 148.0 131.3 16.7 12.8% 1.2% (0.6)% - 12.2%

Hospital

Supplies 63.5 55.9 7.6 13.6% (2.4)% 2.6% - 13.4%

Rigid

Packaging 72.7 72.4 0.3 0.5% (1.0)% 3.7% - (2.2)%

Intersegment

eliminations (4.8) (3.6) (1.2)

Total $799.7 $725.7 $74.0 10.2% 1.3% (0.5)% 3.5% 5.9%


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SOURCE Pregis Corporation
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