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Pregis Announces Third Quarter 2011 Financial Results
Date:11/14/2011

DEERFIELD, Ill., Nov. 14, 2011 /PRNewswire/ -- Pregis Corporation ("the Company"), a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2011 third quarter financial results.

Pregis – Results from Continuing and Discontinued Operations

For the third quarter of 2011, the Company generated net sales of $241.1 million, an increase of 7.8% versus net sales of $223.7 million in the third quarter of 2010. Gross margin as a percent of net sales was 20.9% for the third quarter of 2011 compared to 21.2% for the same period last year.

Adjusted EBITDA, or "Consolidated Cash Flow" as defined by our indentures, is a significant operating measure used by the Company to measure its operating performance and liquidity.  Adjusted EBITDA was $22.9 million in the third quarter of 2011 compared to $20.2 million for the same period in 2010.

Divestitures

During October 2011, the Company announced the sale of multiple businesses.  The proceeds from the transactions will be used to repay a portion of the Company's ABL credit facility and will be otherwise retained for debt repayment, general corporate purposes, and future reinvestment.  In the first transaction, management entered into a definitive agreement with Boise Paper Holding, L.L.C. to sell the Hexacomb business for $125 million. This business was previously included in the Company’s protective packaging segment and manufactures honeycomb protective packaging material made from kraft paper.  In the second transaction, management entered into a definitive agreement with an affiliate of Sun European Partners, LLP (the European advisor to Sun Capital Partners, Inc.) to sell the Kobusch-Sengewald business for euro 160 million (approximately $220 million).  Kobusch Sengewald included both our flexibles and rigid packaging businesses.  This business has historically been included in specialty packaging segment and manufactures flexible and foodservice packaging such as films, bags, pouches, and labels.  As part of this divestiture, the Company sold certain assets which historically have been a part of the Hospital Supplies business.  Both sales are expected close during the fourth quarter of 2011.

The Hexacomb business met the criteria for “Assets held for sale” in accordance with Accounting Standards Codification (“ASC”) Topic 360 (“ASC 360”), Property, Plant, and Equipment as of September 30, 2011. The Kobusch-Sengewald business did not meet the criteria for “Assets held for sale” as of September 30, 2011, due to ongoing negotiations and related uncertainty. The Hexacomb assets and liabilities are reflected as “held for sale” on the consolidated balance sheets in accordance with ASC 360 at September 30, 2011 and December 31, 2010.  In addition, the results of operations for the Hexacomb business have been presented as discontinued operations in accordance with ASC 205-20, Results of Operations – Discontinued Operations for all periods presented.

Pregis – Results from Continuing Operations

For the third quarter of 2011, the Company generated net sales from continuing operations of $212.0 million, an increase of 7.2% versus net sales from continuing operations of $197.7 million in the third quarter of 2010. The increase was driven primarily by the impact of selling price increases and favorable foreign currency translation. Excluding the impact of favorable foreign currency translation, net sales from continuing operations for the three months ended September 30, 2011 increased 2.9% compared to the same period in 2010.

Gross margin as a percent of net sales decreased year-over-year to 19.9% for the third quarter of 2011, compared to 20.5% for the same period of 2010.  The year-over-year decline in gross margin as a percentage of net sales was due to cost increases of over $5 million in key raw materials offset by the impact of selling price increases implemented during the past twelve months.  The majority of the products we sell are plastic-resin based, and therefore our operations are highly sensitive to fluctuations in the costs of plastic resins.  In the third quarter of 2011 as compared to the same period of 2010, average resin costs were higher by approximately 10% in North America and 17% in Europe, as measured by the Chemical Market Associates, Inc. ("CMAI") index and ICIS index, their respective market indices.

Commenting on the Company's third quarter results, Glenn Fischer, President and Chief Executive Officer, stated, "I am very pleased with our strong third quarter performance.  Our adjusted EBITDA from continuing and discontinued operations of $22.9 million was the highest quarterly EBITDA performance since the third quarter of 2009.  We were able to drive year-over-year EBITDA improvement by continuing to reduce our cost structure, as well as offsetting significant resin cost increases with the impact of our selling price initiatives over the past twelve months."

Mr. Fischer continued, "In October, we announced the divestiture of our Hexacomb and Kobusch-Sengewald business units.  The sale of these businesses is part of Pregis' objective to optimize our overall business unit portfolio.  The divestment of these businesses will allow us to focus our energy on driving the operating performance of our core global protective packaging business."

Segment Performance –Continuing Operations

Comments on segment net sales and EBITDA performance for the third quarter of 2011 are as follows:

  • Net sales of the protective packaging segment increased by $7.0 million, or 6.1%. This increase was driven primarily by the impact from selling price increases and favorable foreign currency translation.  Excluding favorable foreign currency translation, net sales for the third quarter 2011 increased 3.2%.
  • EBITDA of the protective packaging segment decreased $0.2 million, or 2.0%, compared to the same quarter of 2010.  This decrease was primarily due to increased key raw material costs partially offset by selling price increases.
  • Net sales of the specialty packaging segment increased $7.3 million, or 8.9% compared to the same quarter 2010.  This increase was primarily driven by the impact of selling price increases and favorable foreign currency translation.  Excluding the favorable foreign currency translation, net sales for the third quarter 2011 increased 2.4%.
  • EBITDA of the specialty packaging segment increased $2.3 million, or 29.3%, due primarily to the Company's cost reduction efforts.

  • Previously, the results of the Hexacomb business were reported as protective packaging in the Company's segment analysis.  As a result of the pending sale of the Hexacomb business, the results of the Hexacomb business are now reported as discontinued operations.

    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 2011 third quarter results on Wednesday, November 16, 2011 at 10:00 a.m. ET (9:00 a.m. CT).  The call can be accessed through the following dial-in numbers: Domestic: 866-761-0748; International: 617-614-2706; Participant Passcode: 32326120. A replay of the conference call will be available through November 30, 2011.  The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 64436210.

    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 CorporationConsolidated Balance SheetsUnaudited(dollars in thousands)September 30, 2011December 31, 2010(Unaudited)AssetsCurrent assetsCash and cash equivalents

    $
    21,247$
    46,159Accounts receivableTrade, net of allowances of $8,536 and $7,151 respectively

    123,328106,652Other

    16,40718,509Inventories, net

    89,86983,123Deferred income taxes

    3,1863,140Due from Pactiv

    1,1671,161Assets held for sale

    99,46599,348Prepayments and other current assets

    9,3088,560Total current assets

    363,977366,652Property, plant and equipment, net of accumulateddepreciation of $215,546 and $190,927, respectively

    180,149184,433Other assetsGoodwill

    60,51078,706Intangible assets, net

    45,70750,177Deferred financing costs, net

    6,2184,816Due from Pactiv, long-term

    6,3228,168Pension and related assets

    11,85911,848Restricted Cash

    3,5033,501Other

    383397Total other assets

    134,502157,613Total assets$
    78,628$
    708,698Liabilities and stockholder's equityCurrent liabilitiesCurrent portion of long-term debt

    $
    2,601$
    46,363Accounts payable

    98,65291,751Accrued income taxes

    -2,268Accrued payroll and benefits

    14,77512,810Accrued interest

    12,6537,654Liabilities held for sale

    18,46916,167Other

    18,14119,679Total current liabilities

    165,291196,692Long-term debt

    492,081442,909Deferred income taxes

    13,72114,185Long-term income tax liabilities

    3,9905,732Pension and related liabilities

    3,7324,149Other

    13,80818,500Stockholder's equity:Common stock - $0.01 par value; 1,000 shares authorized, 149.0035 shares issued and outstanding atSeptember 30, 2011 and December 31, 2010

    --Additional paid-in capital

    155,992155,055Accumulated deficit

    (161,374)(119,400)Accumulated other comprehensive loss

    (8,613)(9,124)Total stockholder's equity

    (13,995)26,531Total liabilities and stockholder's equity$
    78,628$
    708,698Pregis Holding II CorporationConsolidated Statements of OperationsUnaudited(dollars in thousands)Three Months Ended September 30,Nine Months Ended September 30,2011201020112010Net Sales$
    211,995$
    97,727$
    25,217$
    575,451Operating costs and expenses:Cost of sales, excluding depreciation and amortization

    169,904157,236498,258454,511Selling, general and administrative

    25,95325,56781,71283,966Depreciation and amortization

    11,52510,96835,03632,283Goodwill impairment

    18,072-18,072-Other operating expense, net

    3,8233,8714,2405,345Total operating costs and expenses

    229,277197,642637,318576,105Operating income (loss) from continuing operations(17,282)85(12,101)(654)Interest expense, net of interest income

    12,40511,71737,59235,284Foreign exchange (gain) loss, net

    1,768(427)1,170333Loss from continuing operations before income taxes(31,455)(11,205)(50,863)(36,271)Income tax expense (benefit)

    356(1,979)(2,866)(8,581)Loss from continuing operations(31,811)(9,226)(47,997)(27,690)Income from discontinued operations, net of tax2,4861,3096,0233,983Net loss$
    (29,325)$
    (7,917)$
    (41,974)$
    (23,707)Net Sales from continuing operations$
    211,995$
    97,727$
    25,217$
    575,451Net Sales from discontinued operations29,10525,95485,04476,067Total Net Sales$
    241,100$
    223,681$
    710,261$
    51,518Pregis Holding II CorporationConsolidated Statements of Cash FlowsUnaudited(dollars in thousands)Nine Months Ended September 30,20112010Cash flow from operating activities of continuing operationsNet loss

    $
    (41,974)$
    (23,707)Adjustments to reconcile net loss to cash provided by operating activities of continuing operations:Income from discontinued operations

    (6,023)(3,983)Depreciation and amortization

    35,03632,283Amortization of inventory step-up

    -406Deferred income taxes

    (1,175)(10,167)Unrealized foreign exchange loss

    1,328690Amortization of deferred financing costs

    3,0802,615Amortization of debt discount

    2,5242,174Gain on disposal of property, plant and equipment

    (250)1,737Stock compensation expense

    9371,389Goodwill impairment

    18,072-Changes in operating assets and liabilitiesAccounts and other receivables, net

    (15,581)(18,211)Due from Pactiv

    1,905(169)Inventories, net

    (7,440)(10,898)Prepayments and other current assets

    (259)(184)Accounts payable

    6,94118,263Accrued taxes

    (4,442)855Accrued interest

    4,7804,469Other current liabilities

    2,074(331)Pension and related assets and liabilities, net

    (437)(1,428)Other, net

    (1,088)(2,070)Cash used in operating activities of continuing operations(1,992)(6,267)Investing activities of continuing operationsCapital expenditures

    (26,528)(20,207)Proceeds from sale of assets

    342535Proceeds from sale leaseback, net of costs

    -17,875Acquisition of business, net of cash acquired

    (2,733)(31,655)Change in restricted cash

    (2)(3,501)Cash used in investing activities of continuing operations(28,921)(36,953)Financing activities of continuing operationsRepayment of debt

    (43,000)-Proceeds from ABL credit facility

    44,891-Proceeds from revolving credit facility

    500500Proceeds from foreign lines of credit draws

    3753,670Deferred financing fees

    (4,822)-Other, net

    (252)71Cash provided by/(used in) financing activities of continuing operations(2,308)4,241Effect of exchange rate changes on cashand cash equivalents

    264(1,722)Decrease in cash and cash equivalents from continuing operations(32,957)(40,701)Cash flow from discontinued operationsCash flows from operating activities of discontinued operations, net

    7,8506,534Cash flows from investing activities of discontinued operations, net

    (580)(1,612)Effect of exchange rate changes on cash

    (6)(69)Net decrease in cash and cash equivalents(25,693)(35,848)Cash and cash equivalents, beginning of period

    46,15978,168Cash and cash equivalents of discontinued/held-for-sale operations, beginning of period

    1,6862,267Net decrease in cash and cash equivalents(25,693)(35,848)Less: cash and cash equivalents of discontinued/held for sale operations at end of period

    (905)(2,058)Cash and cash equivalents, end of period$
    21,247$
    42,529Pregis Holding II CorporationSupplemental Information(Unaudited)Calculation of Adjusted EBITDA ("Consolidated Cash Flow")(unaudited)Three Months Ended September 30,(dollars in thousands)2011 2010 Net loss of Pregis Holding II Corporation continuing operations

    $ (31,811)$ (9,226)Interest expense, net of interest income

    12,40511,717Income tax (benefit) expense

    356(1,979)Depreciation and amortization

    11,52510,968EBITDA

    (7,525)11,480Other non-cash charges (income): Unrealized foreign currency transaction losses (gains), net

    1,906(431)Non-cash stock based compensation expense

    360330Non-cash asset impairment charge

    18,072-Loss on sale leaseback transaction

    -1,837Net unusual or nonrecurring gains or losses: Restructuring, severance and related expenses

    1662,218Other unusual or nonrecurring gains or losses

    5,042538Other adjustments: Amounts paid pursuant to management agreement with Sponsor

    5851,511Discontinued operations

    4,2542,757Pro forma adjusted EBITDA of acquired business

    --Adjusted EBITDA (“Consolidated Cash Flow”)

    $  22,860$ 20,240(unaudited)Three Months Ended September 30,(dollars in thousands)2011 2010 Net income of discontinued operations

    $
    2,486$   1,309Interest expense, net of interest income

    167Income tax (benefit) expense

    807763Depreciation and amortization

    532678EBITDA

    3,8412,757Other non-cash charges (income): Unrealized foreign currency transaction losses (gains), net

    --Non-cash stock based compensation expense

    --Non-cash asset impairment charge

    --Loss on sale leaseback transaction

    --Net unusual or nonrecurring gains or losses: Restructuring, severance and related expenses

    18-Other unusual or nonrecurring gains or losses

    395-Other adjustments: Amounts paid pursuant to management agreement with Sponsor

    --Discontinued operations

    --Pro forma adjusted EBITDA of acquired business

    --Adjusted EBITDA (“Consolidated Cash Flow”)

    $
    4,254$   2,757Note 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 CorporationSupplemental Information(Unaudited)Calculation of Adjusted EBITDA ("Consolidated Cash Flow")(unaudited)Twelve Months Ended September 30,(dollars in thousands)2011 2010 Net loss of Pregis Holding II Corporation continuing operations

    $ (64,066)$ (38,921)Interest expense, net of interest income

    50,31249,529Income tax (benefit) expense

    (4,542)(10,739)Depreciation and amortization

    46,49140,988EBITDA

    28,19540,857Other non-cash charges (income): Unrealized foreign currency transaction losses (gains), net

    1,547118Non-cash stock based compensation expense

    2,6391,681Non-cash asset impairment charge

    18,072194Loss on sale leaseback transaction

    -1,837Net unusual or nonrecurring gains or losses: Restructuring, severance and related expenses

    6,5515,629Other unusual or nonrecurring gains or losses

    9,23611,418Other adjustments: Amounts paid pursuant to management agreement with Sponsor

    2,1662,508Discontinued operations

    14,04710,964Pro forma adjusted EBITDA of acquired business

    -1,410Adjusted EBITDA (“Consolidated Cash Flow”)

    $  82,453$  76,616(unaudited)Twelve Months Ended September 30,(dollars in thousands)2011 2010 Net income of discontinued operations

    $
    8,758$
    7,890Interest expense, net of interest income

    114105Income tax (benefit) expense

    2,002130Depreciation and amortization

    2,5712,717EBITDA

    13,44510,842Other non-cash charges (income): Unrealized foreign currency transaction losses (gains), net

    --Non-cash stock based compensation expense

    --Non-cash asset impairment charge

    --Loss on sale leaseback transaction

    --Net unusual or nonrecurring gains or losses: Restructuring, severance and related expenses

    57122Other unusual or nonrecurring gains or losses

    545-Other adjustments: Amounts paid pursuant to management agreement with Sponsor

    --Discontinued operations

    --Pro forma adjusted EBITDA of acquired business

    --Adjusted EBITDA (“Consolidated Cash Flow”)

    $  14,047$  10,964Note 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 CorporationThird Quarter 2011Supplemental Information(Unaudited)(Amounts and percentage changes are approximations due to rounding.)Gross Margin CalculationsGross Margin CalculationThree Months Ended September 30,(dollars in thousands)20112010ChangeNet sales from continuing operations

    $ 211,995$ 197,727$ 14,268Net sales from discontinued operations

    29,10525,9543,151Total Net Sales

    241,100223,68117,419Cost of sales, excluding depreciation andamortization of continuing operations

    (169,904)(157,236)(12,668)Cost of sales, excluding depreciation andamortization of discontinued operations

    (20,688)(19,065)(1,623)Total Cost of sales, excluding depreciation and

    (190,592)(176,301)(14,291)amortizationGross margin of continuing operations

    42,09140,4911,600Gross margin of discontinued operations

    8,4176,8891,528Total gross margin

    50,50847,3803,128Gross margin, as a percent of net sales of continuing operations

    19.9%20.5%(0.6)%Gross margin, as a percent of net sales of discontinued operations

    28.9%26.5%2.4 %Total gross margin, as a percent of total net sales

    20.9%21.2%(0.3)%Net Sales by SegmentChange Attributable to theFollowing FactorsThree Months Ended September 30,Price /Currency20112010$ Change% ChangeMixVolumeAcquisitionTranslation(dollars in thousands)Segment:Protective Packaging

    $
    22,877$
    5,860$
    7,0176.1 %$ 3,258

    2.8 %$
    422

    0.4 %$
    -

    - %$ 3,337

    2.9 %Specialty Packaging

    89,11881,8677,2518.9 %2,591

    3.2 %(619)

    (0.8)%-

    - %5,279

    6.5 %Total

    $
    211,995$
    97,727$
    4,2687.2 %$ 5,849

    3.0 %$ (197)

    (0.1)%$
    -

    - %$ 8,616

    4.3 %EBITDA by SegmentThree Months Ended September 30,20112010$ Change% Change(dollars in thousands)Segment:Protective Packaging

    $ 10,842$ 11,063$
    (221)(2.0)%Specialty Packaging

    9,9257,6742,25129.3 %   Total segment EBITDA

    $ 20,767$ 18,737$
    2,03010.8 %
    '/>"/>

    SOURCE Pregis Corporation
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