Pregis Announces First Quarter 2008 Financial Results

DEERFIELD, Ill., May 9 /PRNewswire/ -- Pregis Corporation, a leading international manufacturer, marketer, and supplier of protective packaging products and specialty packaging solutions, today announced its 2008 first quarter financial results.

For the first quarter of 2008, the Company generated net sales of $259.3 million, an increase of 8.5% over net sales of $239.0 million in the first quarter of 2007. Excluding the impact of favorable foreign currency translation and sales from two acquisitions made in the second half of 2007, the quarter's net sales were down 3% compared to the prior year quarter.

Gross profit margin, as a percent of net sales, was 21.9% in the first quarter of 2008, compared to 25.5% in the first quarter of 2007. The decline in gross margin resulted primarily from significantly increased costs of resin and other raw materials in the 2008 period, which approximated $7 million of year-over-year unfavorability. In order to mitigate these increases in raw material costs, the Company implemented selling price increases throughout its businesses in the first quarter of 2008. However, the Company has experienced a lag in realizing the benefits from these recent price increases relative to the impact of the increased raw material costs, which resulted in the reduction in its gross margin percentage in the first quarter of 2008.

Commenting on the Company's results, Mike McDonnell, President and Chief Executive Officer, stated, "Our first quarter results were negatively impacted by raw material cost inflation, as well as the weakened economic environment in the U.S. as well as in Europe. Although resin costs stabilized somewhat during the first three months of 2008, we expect continued volatility and remain committed to our disciplined focus on achieving pricing for value and full cost recovery as rapidly as possibly. In addition, we continue to drive efficiency initiatives throughout the organization, both to mitigate the weakened economic environment and to solidify our foundation for future growth."

For the first quarter of 2008, operating income was $8.3 million compared to $16.5 million in the first quarter of 2007, with the reduction driven primarily by increased raw material costs, as noted above.

Segment Performance

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

-- Net sales of the protective packaging segment increased by $12.8
million, or 8.2%. The 2008 first 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 experienced declining volumes in
both its U.S. and European businesses due primarily to the weakened
U.S. and European economies. Excluding the impact of favorable
foreign currency effects and acquisitions, net sales for the segment
decreased 3.8%.
-- Net sales of the flexible packaging segment increased $5.6 million,
or 13.1%. Improvements in pricing and product mix were offset by
volume shortfalls in the segment's Egyptian operations. Excluding
the impact of favorable foreign currency, 2008 net sales for the
segment were comparable to the 2007 period.
-- Net sales of the hospital supplies segment increased $2.3 million,
or 11.9%. Excluding the impact of favorable foreign currency
effects, net sales for the segment decreased 2.1% in the quarter,
primarily due to price erosion resulting from the competitive market
environment.
-- Net sales of the rigid packaging segment were relatively flat
compared to net sales in the first quarter of 2007. However,
excluding the impact of favorable foreign currency effects, net
sales for the segment decreased 1.4% in the quarter, due mainly to
product mix during the quarter.

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 first quarter results on Monday, May 12, 2008 at 10:00 a.m. ET (9:00 a.m. CT). The call can be accessed through the following dial-in numbers: Domestic: 866-510-0708; International: 617-597-5377; Participant Passcode: 95937816. A replay of the conference call will be available through May 23, 2008. The replay may be accessed using the following dial-in information: Domestic: 888-286-8010; International: 617-801-6888; Passcode: 73894836.

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 annual report, which is available on its website, http://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)

March 31, December 31,
Assets 2008 2007
Current assets
Cash and cash
equivalents $42,511 $34,989
Accounts receivable
Trade, net of
allowances of $5,621
and $5,313,
respectively 159,392 148,045
Other 11,202 18,532
Inventories, net 121,952 108,914
Deferred income taxes 3,028 2,991
Due from Pactiv 3,474 7,072
Prepayments and other
current assets 9,903 9,187
Total current assets 351,462 329,730
Property, plant and
equipment, net 287,651 277,398
Other assets
Goodwill 153,803 150,000
Intangible assets, net 48,380 47,910
Deferred financing
costs, net 9,515 10,080
Due from Pactiv, long- term 11,553 12,229
Pension and related
assets 26,741 25,659
Other 1,649 2,313
Total other assets 251,641 248,191
Total assets $890,754 $855,319
Liabilities and
stockholder's equity
Current liabilities
Current portion of
long-term debt $3,982 $2,120
Accounts payable 116,443 100,326
Accrued income taxes 8,519 13,900
Accrued payroll and
benefits 17,662 19,814
Accrued interest 11,684 6,775
Other 22,201 22,436
Total current
liabilities 180,491 165,371
Long-term debt 495,013 475,604
Deferred income taxes 37,294 34,589
Long-term income tax
liabilities 9,781 9,585
Pension and related
liabilities 10,037 9,389
Other 7,277 7,124
Stockholder's equity:
Common stock - $0.01 par
value; 1,000 shares
authorized, 149.0035
shares issued and
outstanding at March
31, 2008 and December
31, 2007 - - Additional paid-in
capital 149,843 149,659
Accumulated deficit (19,860) (16,588)
Accumulated other
comprehensive income 20,878 20,586
Total stockholder's
equity 150,861 153,657
Total liabilities and
stockholder's equity $890,754 $855,319

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

Three Months Ended March 31,
2008 2007

Net sales $259,322 $239,017
Operating costs and
expenses:
Cost of sales, excluding
depreciation
and amortization 202,494 178,002
Selling, general and
administrative 34,739 31,982
Depreciation and
amortization 13,540 12,676
Other operating expense
(income) 271 (183)
Total operating costs and
expenses 251,044 222,477
Operating income 8,278 16,540
Interest expense 12,081 11,261
Interest income (228) (47)
Foreign exchange gain,
net (3,013) (573)
Income (loss) before
income taxes (562) 5,899
Income tax expense 2,710 3,652
Net income (loss) $(3,272) $2,247

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

Three Months Ended March 31,
2008 2007
Operating activities
Net income (loss) $(3,272) $2,247
Adjustments to reconcile
net income (loss) to
cash provided by
operating activities:
Depreciation and
amortization 13,540 12,676
Deferred income taxes 1,810 974
Unrealized foreign
exchange gain (2,972) (604)
Amortization of
deferred financing
costs 594 535
Stock compensation
expense 184 79
Changes in operating
assets and
liabilities, net
of effects of
acquisitions:
Accounts and other
receivables, net 3,671 (3,345)
Due from Pactiv 5,165 - Inventories, net (8,276) (3,721)
Prepayments and other
current assets (554) 317
Accounts payable 10,782 18,592
Accrued taxes (5,400) 2,807
Accrued interest 4,538 4,698
Other current
liabilities (4,006) (4,794)
Pension and related
assets and
liabilities, net (1,035) (64)
Other, net 302 (207)
Cash provided by
operating activities 15,071 30,190

Investing activities
Capital expenditures (10,863) (5,099)
Other, net 63 184
Cash used in investing
activities (10,800) (4,915)

Financing activities
Repayment of long-term
debt (488) (443)
Other, net 1,731 296
Cash provided by (used
in) financing
activities 1,243 (147)
Effect of exchange rate
changes on cash
and cash equivalents 2,008 641
Increase in cash and
cash equivalents 7,522 25,769
Cash and cash
equivalents, beginning
of period 34,989 45,667

Cash and cash
equivalents, end of
period $42,511 $71,436

Pregis Holding II Corporation
Supplemental Information
(Unaudited)

Calculation of Adjusted EBITDA ("Consolidated Cash Flow")

Twelve Months Ended March 31,
(dollars in thousands) 2008 2007

Net loss of Pregis Holding II
Corporation $(10,298) $(4,235)
Interest expense, net of interest
income 46,044 43,592
Income tax expense 6,766 8,220
Depreciation and amortization 56,663 53,219
EBITDA 99,175 100,796

Other non-cash charges (income):
Unrealized foreign currency
transaction gains, net (5,061) (6,274)
Non-cash stock based compensation
expense 663 127
Non-cash asset impairment charge 403 - Impact attributable to application
of purchase accounting - 258
Net unusual or nonrecurring gains or
losses:
Nonrecurring charges related to
acquisitions and dispositions 5,214 6,238
Other, principally executive
management severance and
recruiting expenses 4,830 6,299
Other adjustments:
Amounts paid pursuant to management
agreement with Sponsor 1,981 1,698
Pro forma earnings and costs savings 2,084 -
Adjusted EBITDA ("Consolidated Cash
Flow") $109,289 $109,142

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

Gross Margin Calculations

Three Months Ended March 31,
(dollars in millions) 2008 2007 Change

Net sales $259.3 $239.0 $20.3
Cost of sales, excluding
depreciation and amortization (202.5) (178.0) (24.5)
Gross margin $56.8 $61.0 $(4.2)
Gross margin, as a percent of net
sales 21.9% 25.5% (3.6)%

Net Sales Analysis by Segment

Change Attributable to the
Three Months Ended Following Factors
(dollars March 31, Price/ Currency
in millions) 2008 2007 $ % Mix Volume Acqui- Trans- Change Change sitions lation
Segment:
Protective
Packaging $169.6 $156.8 $12.8 8.2 % 0.3 % (4.1)% 5.4 % 6.6 %
Flexible
Packaging 48.3 42.7 5.6 13.1 % 0.9 % (0.8)% - 13.0 %
Hospital
Supplies 21.1 18.8 2.3 11.9 % (2.2)% 0.1 % - 14.0 %
Rigid
Packaging 21.9 22.0 (0.1) (0.3)% (1.2)% (0.2)% - 1.1 %
Intersegment
elim- inations (1.6) (1.3) (0.3) 24.2 %
Total $259.3 $239.0 $20.3 8.5 % 0.0 % (3.0)% 3.5 % 8.0 %

First Call Analyst:
FCMN Contact:

Source: Pregis Corporation

CONTACT: Keith LaVanway, +1-847-597-9353, klavanway@pregis.com, or
Leslie Braun, +1-847-597-9328, lbraun@pregis.com, both of Pregis Corporation

Web site: http://www.pregis.com/

2008-05-09 17:13:34 0358035 PRNEWSWIRE