Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - PRETIUM PACKAGING L L CFinancial_Report.xls
EX-32.2 - PRETIUM PACKAGING L L Cpretium1231201110qex322.htm
EX-31.1 - PRETIUM PACKAGING L L Cpretium1231201110qex311.htm
EX-32.1 - PRETIUM PACKAGING L L Cpretium1231201110qex321.htm
EX-31.2 - PRETIUM PACKAGING L L Cpretium1231201110qex312.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________

FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to

For the quarterly period ended December 31, 2011
_____________________________________
PRETIUM PACKAGING, L.L.C.
PRETIUM FINANCE, INC.
(Exact name as specified in its charter)
_____________________________________

15450 South Outer Forty Drive
Chesterfield, Missouri 63017
(314) 727-8200
Commission File Number
Registrant
IRS Employer Identification Number
State or other jurisdiction of incorporation or organization
333-176592
Pretium Packaging, L.L.C.
43-1817802
Delaware
333-176592-08
Pretium Finance, Inc.
30-0668528
Delaware

Securities registered under Section 12(b) of the Exchange Act:   None
Securities registered under Section 12(g) of the Exchange Act:   None
_____________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Pretium Packaging, L.L.C
Yes ý
No ¨
Pretium Finance, Inc.
Yes ý
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Pretium Packaging, L.L.C
Yes ý
No ¨
Pretium Finance, Inc.
Yes ý
No ¨








Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and smaller reporting company” in Rule 12b-2 of the Exchange Act.
Pretium Packaging, L.L.C.
Large accelerated filer
o
Accelerated Filer
o
Non-accelerated filer
ý
Smaller reporting company
o

Pretium Finance, Inc.
Large accelerated filer
o
Accelerated Filer
o
Non-accelerated filer
ý
Smaller reporting company
o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Pretium Packaging, L.L.C
Yes o
No ý
Pretium Finance, Inc.
Yes o
No ý

As of February 13, 2012:
Pretium Packaging, L.L.C.
100% of Membership Interests owned by Pretium Intermediate Holding, LLC.
Pretium Finance, Inc.
100 shares of Common Stock, par value $0.01 per share outstanding.

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Pretium Packaging, L.L.C. and Pretium Finance, Inc. Pretium Finance, Inc. meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.







Index to Form 10-Q





























i


Unless otherwise noted, references to the terms “the Company”, “Pretium”, “we,” “us” and “our” refer to Pretium Packaging, L.L.C. and its consolidated subsidiaries. “Pretium Finance” refers to Pretium Finance, Inc. “Novapak” refers to PVC Container Corporation. “Robb” refers to Robb Container Corporation. “Pretium Intermediate” refers to Pretium Intermediate Holding, LLC. “Pretium Holding” and “our parent” refer to Pretium Holding, LLC, an entity controlled by Castle Harlan and its affiliates. “Castle Harlan” refers to Castle Harlan, Inc. The “Novapak Acquisition” refers to Pretium's acquisition of Novapak on February 16, 2010. The “Acquisition” refers collectively to Pretium Holding's acquisition of Pretium, the Novapak Acquisition and the restructuring of Pretium's equity and debt on February 16, 2010. The “Refinancing” means, collectively, (1) the issuance on March 31, 2011 of senior secured notes with a maximum aggregate principal amount of $150.0 million (the “Notes”) and the application of the net proceeds therefrom and (2) the closing of our new asset backed revolving credit facility (the “ABL Facility”) and the initial borrowings thereunder.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements which may be "forward-looking statements" within the meaning of the federal securities laws, All of the statements other than historical facts, are forward-looking statements. As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words “could,” “anticipate,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.
Although we believe that these statements are based on reasonable assumptions, they are subject to numerous risks, uncertainties and other factors that may be beyond our control. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.
These risks, uncertainties and other factors include, but are not limited to:
our substantial indebtedness and ability to incur more debt;
our liquidity and capital resources;
macroeconomic conditions in the United States, Canada and elsewhere;
competitive pressures and trends in the plastic packaging industry;
changes in the prevailing prices and availability of resin and other raw materials and our ability to pass on increases in raw material prices on a timely basis;
changes in the demand for, supply of or prices of our products;
changes in U.S. dollar and Canadian dollar exchange rates;
our ability to successfully implement our business strategy;
increases in the cost of compliance with laws and regulations;
catastrophic loss or shutdown of one of our manufacturing facilities;
our ability to attract and retain qualified management personnel;
increased labor costs or prolonged work stoppages at any of our facilities with unionized labor; and
The foregoing factors should not be construed as exhaustive and should be read together with important information regarding risks and factors that may affect the Company’s future performance set forth under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (under "Item 1A Risk Factors").
These statements reflect the current views and assumptions of management with respect to future events. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The inclusion of any statement in this Quarterly Report on Form 10-Q does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.


ii


PART 1 – FINANCIAL INFORMATION

Item 1.
Financial Statements

PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
December 31,
2011
 
September 30,
2011
Assets
 
 
 
Current assets:
 
 
 
Cash
$
1,120

 
$
1,156

Accounts receivable, net of allowances of $780 and $754
22,264

 
25,543

Inventories
24,703

 
24,017

Prepaid expenses and other assets
3,650

 
4,047

Deferred tax assets
630

 
642

Total current assets
52,367

 
55,405

Property, plant and equipment, net
76,267

 
77,172

Other assets:
 
 
 
Goodwill
40,450

 
40,354

Other intangibles, net
35,754

 
35,874

Deferred financing fees, net
8,210

 
8,688

Other non current assets
422

 
442

Total other assets
84,836

 
85,358

Total assets
$
213,470

 
$
217,935

Liabilities and Members' Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
172

 
$
169

Accounts payable
17,857

 
21,570

Accrued expenses
5,236

 
5,727

Accrued interest and bank fees
4,377

 
8,711

Total current liabilities
27,642

 
36,177

Long-term liabilities:
 
 
 
Long-term debt, less current maturities
157,430

 
150,688

Deferred tax liabilities
9,035

 
8,691

Other long-term liabilities
803

 
806

Total long-term liabilities
167,268

 
160,185

 
 
 
 
Members' equity:
 
 
 
Members' equity
17,934

 
21,636

Accumulated other comprehensive income (loss)
626

 
(63
)
Total members' equity
18,560

 
21,573

Total liabilities and members' equity
$
213,470

 
$
217,935


See accompanying notes to condensed consolidated financial statements.

1


PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)

 
Three Months Ended
 
December 31,
 
2011
 
2010
 
 
 
 
Net sales
$
54,999

 
$
54,388

Cost of sales
47,860

 
46,130

Gross profit
7,139

 
8,258

 
 
 
 
Operating expenses:
 
 
 
Selling, general and administrative expenses
4,628

 
4,531

Restructuring expenses

 
1,022

Transaction-related fees and expenses
200

 

Loss (gain) on foreign currency exchange
17

 
(57
)
Depreciation
109

 
92

Amortization of intangibles
323

 
325

Total operating expenses
5,277

 
5,913

Income from operations
1,862

 
2,345

Other expenses:
 
 
 
Interest
4,935

 
3,311

Total other expenses
4,935

 
3,311

Loss before income tax provision
(3,073
)
 
(966
)
Income tax provision
629

 
759

Net loss
$
(3,702
)
 
$
(1,725
)

See accompanying notes to condensed consolidated financial statements.


2


PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 
Three Months Ended
 
December 31,
 
2011
 
2010
Cash Flows From Operating Activities
 
 
 
Net loss
$
(3,702
)
 
$
(1,725
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation
3,598

 
3,140

Amortization of intangibles
323

 
325

Amortization of deferred financing fees
494

 
176

Noncash interest expense

 
329

Deferred taxes
333

 
691

Changes in assets and liabilities:
 
 
 
Accounts receivable
3,390

 
3,155

Inventories
(469
)
 
(2,513
)
Prepaid expenses and other assets
630

 
1,257

Accounts payable and accrued expenses
(4,398
)
 
(2,818
)
Accrued interest and bank fees
(4,334
)
 
67

Other
29

 
28

Net cash (used in) provided by operating activities
(4,106
)
 
2,112

Cash Flows From Investing Activities
 
 
 
Purchase of property, plant and equipment
(2,673
)
 
(2,615
)
Net cash used in investing activities
(2,673
)
 
(2,615
)
Cash Flows From Financing Activities
 
 
 
Members' investment

 
950

Repayments to revolving line of credit
(16,225
)
 
(21,044
)
Proceeds from revolving line of credit
23,011

 
21,344

Repayments on term loan

 
(687
)
Repayments of other debt obligations
(41
)
 
(39
)
Payment of bank and other related loan fees
(16
)
 

Net cash provided by financing activities
6,729

 
524

Net (decrease) increase in cash
(50
)
 
21

Effect of foreign currency translation adjustment
14

 
13

Cash - beginning of period
1,156

 
1,278

Cash - end of period
$
1,120

 
$
1,312

Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
$
8,759

 
$
2,651

Income taxes paid
$
65

 
$
43

See accompanying notes to condensed consolidated financial statements.

3


PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)

Note 1.
Summary of Significant Accounting Policies
Basis of Presentation
Pretium Packaging, L.L.C. (the “Company”) was formed in 1998 (its origins date back to 1992) as a Delaware limited liability company for the purpose of acquiring and operating plastics manufacturing related businesses.
On February 16, 2010, all of the Company's operations were acquired by Pretium Intermediate Holding, LLC. (the “Acquisition”), a newly formed Delaware corporation for the purpose of the Acquisition. This transaction was accounted for as a business combination, which required an allocation of the total consideration to the identifiable assets and liabilities measured at fair value at the acquisition date. The Company is now a wholly owned subsidiary of Pretium Intermediate Holding, LLC (“Pretium Intermediate”), which is a wholly owned subsidiary of Pretium Holding, LLC (“Pretium Holding”).
As a result of this transaction, all references in these condensed consolidated financial statements to the Company before February 16, 2010 shall be referred to as “Predecessor”. All references in these consolidated financial statements to the Company after February 16, 2010 shall be referred to as “Successor”.
The Acquisition was valued at $134.0 million As part of the transaction, certain previous owners of the Predecessor received partnership units of Pretium Holding valued at $12.4 million. As a result, the Successor is a 100% owned subsidiary of Pretium Intermediate. At the same time, Robb Container Corporation (“Robb”), a wholly owned subsidiary of the Company, purchased 100% of the stock of PVC Container Corporation (“PVC”) for $47.0 million (the “PVC Acquisition”).
The Company conducts its business from its corporate headquarters in Chesterfield, Missouri, with nine manufacturing plants in the United States and two in Canada (“Pretium Canada”). The Company manufactures a variety of injection blow molded (“IBM”), extrusion blow molded (“EBM”), injection stretch blow molded (“SBM”) and injection molded (“IM”) plastic bottles, jars, containers, preforms, and closures.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the complete consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011.
Other than as specifically indicated in these “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, the Company has not materially changed its significant accounting policies from those disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2011.


4


New Accounting Standards
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income (“ASU 2011-05”). This update requires that the components of net income, the components of other comprehensive income and the total of comprehensive income be presented as a single continuous financial statement or in two separate but consecutive statements. The option of presenting other comprehensive income in the statement of stockholders’ equity is eliminated. This update also requires the presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 reinstated the requirements for the presentation of reclassifications that were in place prior to the issuance of ASU 2011-05 and did not change the effective date for ASU 2011-05. For public entities, the amendments in ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. The adoption of this guidance concerns disclosure only and will not have an impact on the Company's consolidated financial position or results of operations.
In September 2011, the FASB issued ASU No. 2011-08, Testing for Goodwill Impairment (“ASU 2011-08”). ASU 2011-08 amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the performance of the two-step goodwill impairment test, as currently prescribed by ASC Topic 350, is required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance will not have a significant impact on the Company's consolidated financial position or results of operations.


Note 2.
Inventories

Inventories, stated at lower of cost or market, consisted of the following at December 31, 2011 and September 30, 2011:  
 
 
December 31,
2011
 
September 30,
2011
Inventories:
 
 
 
Finished goods
$
14,232

 
$
12,849

Raw materials
10,471

 
11,168

Inventories
$
24,703

 
$
24,017








5


Note 3.
Property, Plant, and Equipment, Net

Property, plant, and equipment at December 31, 2011 and September 30, 2011 consisted of the following:  

 
 
December 31,
2011
 
September 30,
2011
Land
 
$
2,120

 
$
2,120

Buildings and improvements
 
23,580

 
23,549

Machinery and equipment
 
49,556

 
48,805

Molds
 
22,304

 
21,635

Capital improvements in progress
 
3,129

 
1,790

 
 
100,689

 
97,899

Accumulated depreciation
 
(24,422
)
 
(20,727
)
Property, plant and equipment, net
 
$
76,267

 
$
77,172


Depreciation expense for the three month periods ended December 31, 2011 and 2010 was $3.6 million and $3.1 million, respectively.


Note 4.
Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the three month period ended December 31, 2011 and the year ended September 30, 2011 are presented in the table below: 
 
 
December 31,
2011
 
September 30,
2011
Beginning balance
 
$
40,354

 
$
40,413

Currency translation adjustment
 
96

 
(59
)
Ending balance
 
$
40,450

 
$
40,354


Other Intangible Assets

The following table presents the gross carrying amount and accumulated amortization of other intangible assets at December 31, 2011:

 
 
Gross carrying amount
 
Weighted average amortization period
 
Accumulated Amortization
 
Currency Translation Adjustment
 
Net Book Value
Customer relationships
 
$
25,800

 
20 Years
 
(2,435
)
 
115

 
$
23,480

Trademarks
 
12,280

 
Indefinite
 
(80
)
 
74

 
12,274

Total
 
$
38,080

 
 
 
(2,515
)
 
189

 
$
35,754





6


The following table presents the gross carrying amount and accumulated amortization of other intangible assets at September 30, 2011:
 
 
Gross carrying amount
 
Weighted average amortization period
 
Accumulated Amortization
 
Currency Translation Adjustment
 
Net Book Value
Customer relationships
 
$
25,800

 
20 Years
 
$
(2,112
)
 
$
(1
)
 
$
23,687

Trademarks
 
12,280

 
Indefinite
 
(80
)
 
(13
)
 
12,187

Total
 
$
38,080

 
 
 
$
(2,192
)
 
$
(14
)
 
$
35,874


Customer relationships are amortized over 20 Years. The accumulated amortization related to the Trademarks is related to the subsequent amortization of the PVC trademarks. The Pretium trademark is not amortized and has an indefinite useful life.

Amortization expense for the three-month periods ended December 31, 2011 and 2010 was $0.3 million.


Note 5.
Long-term Debt

At December 31, 2011 and September 30, 2011, long-term debt obligations consisted of the following:
 
 
December 31,
 
September 30,
 
2011
 
2011
Long-term debt:
 
 
 
Revolving line of credit
$
7,290

 
$
504

11.5% senior secured notes
150,000

 
150,000

Total Senior Debt
157,290

 
150,504

Other
312

 
353

Total long-term debt, including current maturities
157,602

 
150,857

Current maturities of long-term debt
172

 
169

Total long-term debt, less current maturities
$
157,430

 
$
150,688


Under the terms of the Company’s debt agreements at December 31, 2011, the scheduled interest rates and maturity dates were as follows:
 
 
Interest rates on Successor agreements
 
Scheduled maturity dates
Revolving line of credit
Prime plus 0.5% *
 
September 30, 2015
11.5% senior secured notes
11.5%
 
April 1, 2016

*
The revolving line of credit also has interest rate options based on LIBOR plus a margin of 1.5%. At December 31, 2011 the applicable rate under the prime and LIBOR options was 3.75% and 1.78%, respectively.




7


Note 6.
Pretium Capital Structure
At December 31, 2011, the Company’s capital structure consisted of 1 share of its Class A Member units, held by Pretium Intermediate. Pretium Intermediate is 100% owned by Pretium Holding as of December 31, 2011. The membership units of Pretium Holding are designated Class A units, Class B-1 units, Class B-2 units and Class B-3 units. The Class A and B-2 units contain certain distribution and liquidation preferences, the Class B-1 units contain voting rights and the Class B-3 units are non-voting units intended for employees and directors. At December 31, 2011, 100% of the membership interests in the Company were held by Pretium Intermediate.
During the three month period ended December 31, 2010, the Company received an investment from its sole member of $0.95 million.


Note 7.
Income Taxes

The Company is a pass-through tax entity except for certain states in which it conducts business. No provision for income taxes has been made in these condensed consolidated financial statements other than for certain subsidiaries which are Subchapter C Corporations.

The effective tax rate differs from the statutory tax rate for the Company primarily due to the Company’s pass-through entity treatment for tax purposes. For the three months ended December 31, 2011, and 2010, losses before income tax at the partnership level exceeded the income before income tax at the subsidiary level and the Company recorded an income tax provision of $0.6 million and $0.8 million for the three month periods ended December 31, 2011 and 2010, respectively.

The Company evaluates the net realizable value of its deferred tax assets each reporting period. The Company must consider all objective evidence, both positive and negative, in evaluating the future realization of its deferred tax assets, including tax loss carry forwards. Historical information is supplemented by all currently available information about future tax years. Realization requires sufficient taxable income to use deferred tax assets. The Company records a valuation allowance for each deferred tax asset for which realization is assessed as not more likely than not. In particular, the Company’s assessment that deferred tax assets will be realized considered the estimate of future  taxable income generated from various sources, including the expected recovery of operations from the Canadian subsidiary, and increased profitability due to prior cost reductions, plant restructuring, and revenue growth. If the current estimates of future taxable income are not realized, or future estimates of taxable income are reduced, then the assessment regarding the realization of deferred tax assets could change and have a material impact on the statement of operations. As of December 31, 2011, the Company’s valuation allowance of $3.1 million increased $0.1 million from September 30, 2011.

At December 31, 2011 and September 30, 2011, the total balance of unrecognized tax benefits was $0.1 million.


Note 8.
Contingencies
The Company is involved in various claims and legal proceedings and administrative actions arising in the ordinary course of business. In the opinion of management, the ultimate conclusion of these matters will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.



8


Note 9.
Restructuring Initiatives

During fiscal 2010, the Company implemented several initiatives to restructure and realign certain manufacturing and administrative resources subsequent to the acquisitions discussed in Note 2. These plans included the elimination of certain redundant administrative positions at the former Novapak corporate headquarters in Eatontown, New Jersey, which was completed in September 2010. They also included the closure and relocation of all manufacturing operations at the Nashua, New Hampshire facility into the Philmont, New York location, which was completed in June 2010. In addition, two Hazleton, Pennsylvania operations were combined with one location retained as a shipping warehouse. The Hazleton consolidation was completed in August 2010. In August 2010 the Company closed the Muscatine, Iowa facility and transferred its operations to Seymour, Indiana and Manchester, Pennsylvania. The Muscatine transition was completed in March 2011. The total cost incurred during the three-month period ended December 31, 2010 was $1.0 million, which was comprised of severance payments ($0.2 million), facility consolidation costs ($0.6 million), and other exit costs ($0.2 million). There were no such costs incurred during the three month period ended December 31, 2011.


Note 10.
Fair Value Measurement
The Company's financial instruments consist primarily of cash equivalents, trade receivables, trade payables and debt instruments. The book value of these instruments is a reasonable estimate of their respective fair values.
The Company does not have any financial assets or liabilities measured at fair value on a recurring basis as of December 31, 2011.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill and other indefinite-lived intangible assets, on at least an annual basis.
The Company does not have any other financial instruments within the scope of the fair value disclosure requirements as of December 31, 2011.
 

Note 11.
Related Party Transactions
On February 17, 2010, the former majority owner of the Company, who now serves on the Company's Board of Directors, entered into a seven year consulting agreement (including a non-competition clause). The Company's cost for these services was $0.3 million for each of the three month periods ended December 31, 2011 and 2010.
The Company has entered into a management agreement to retain Castle Harlan, Inc. to provide business and organizational strategy, financial and investment management, advisory, and merchant and investment banking services to the Company. In exchange for these services, the Company pays management fees of $2.3 million, annually. The Company recorded total expense related to this agreement of $0.6 million for each three month period ended December 31, 2011 and 2010.
The fees for both of these related party agreements are included within selling, general and administrative expenses in the condensed consolidated statements of operations.




9


Note 12.
Segment Information
The Company operates as a single reportable segment based on the “management” approach. This approach designates the internal reporting used by management for making decisions and assessing performance as the source of the reportable segments.
The following table provides the geographic distributions of the Company's net sales for the three month periods ended December 31, 2011 and 2010:
 
Net Sales
 
U.S.
 
Canada
 
Total
Quarter ended December 31, 2011
 
$
44,607

 
$
10,392

 
$
54,999

Quarter ended December 31, 2010
 
$
45,514

 
$
8,874

 
$
54,388

 
The following table provides the geographic distributions of the Company's long-lived assets as of December 31, 2011 and September 30, 2011:

Total Long-lived Assets
 
U.S.
 
Canada
 
Total
December 31, 2011
 
$
134,305

 
$
18,166

 
$
152,471

September 30, 2011
 
$
135,415

 
$
17,985

 
$
153,400



10


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011, including the financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations, and the interim condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q.

Selected Factors Affecting Our Results
Our net sales are derived from the manufacture and sale of plastic containers to our customers. We operate manufacturing facilities which are typically located in close proximity to our customers. Our profitability is driven by several factors including, but not limited to, (i) the number of units produced, (ii) the amount of resin consumed, (iii) the efficiency of our manufacturing operations, (iv) the level of customization of our products, and (v) the product mix of the book of business in any given period. The number of units produced is driven by both packaging market trends, such as the long term trend of conversion towards plastic packaging, as well as customer specific demand.
Our product mix is reasonably stable with most products providing a similar material margin (i.e., net sales minus raw material costs) and contribution margin (sales price minus variable costs). The only significant exception is with regard to preforms sold. While we utilize most of the preforms we manufacture internally to produce bottles for customers, we also sell preforms to customers who then manufacture their own bottles. This enables us to utilize already established capital assets. Sold preforms are manufactured by the injection molding process and generally have the lowest material margin of any product we sell.
Our raw materials consist of resins, colorants, and packaging materials. Over the past several years there have been significant fluctuations in the price of resin, which is our largest component of cost of goods sold. Various factors including changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced have contributed to these price fluctuations. Primary resins used in our products are PET and HDPE. Our other manufacturing costs consist of labor, utilities and facilities maintenance.
Based on certain resin industry indices, the following table summarizes average market prices per pound of PET and HDPE resins in the United States during the periods indicated:
 
 
Three months ended December 31,
 
2011
 
2010
PET
$
0.93

 
$
0.77

HDPE
$
0.67

 
$
0.65

Source: ChemData

Our raw material costs and product unit sales prices fluctuate with changes in the prices of the resins utilized in production. When resin prices increase, our raw materials costs increase, and when resin prices decrease, our raw materials cost decline. We pass through 100% of changes in resin costs by means of corresponding changes in product pricing, in accordance with our customer contracts and agreements with these customers and industry practice. These pass through mechanisms are typically subject to a one to four month timing delay.


11


However, during periods of increasing resin costs, there can be a lag between changes in market prices and when that price change is passed through to customers. For example, in periods of rising resin prices, increases in unit sales pricing lag the increases in raw material costs. Therefore the analysis of trends in our net sales and raw material costs must take this effect into consideration. We believe that material margin, which ultimately is reflected in gross profit, is a key measure of profitability, as it is reflective of our ability to pass-through resin costs. In addition, our net sales will fluctuate as we pass along increased resin costs to customers with often limited effects to gross profit.
Selling, general and administrative costs consist primarily of management and clerical salaries, legal, accounting and other professional fees, insurance, commissions, travel and various other costs.
We have a disciplined capital expenditures policy, investing in new projects and equipment only when we believe it will result in incremental net sales with our customers. Our maintenance capital expenditures, which we identify as the minimum capital expenditures to service current customer volumes and initiatives, are approximately $3-3.5 million annually.


Results of Operations
Performance during the Quarter Ended December 31, 2011 (“Q1 FY12”) Compared with the Quarter Ended December 31, 2010 (“Q1 FY11”)

Net Sales
Net sales were $55.0 million during Q1 FY12, which represents an increase of $0.6 million, or 1.1%, as compared to $54.4 million during Q1 FY11. With significant increases in raw material costs, particularly in PET resin, over the past year, we had higher transaction prices because we operate with resin price pass through mechanisms with our customers that allow us to pass through changes in resin costs typically subject to a one to four month delay. Overall volume was slightly lower than the prior year with a higher mix of preform sales in Q1 FY12 compared to Q1 FY11.
Cost of Sales
Cost of sales was $47.9 million during Q1 FY12, which represents an increase of $1.7 million, or 3.8%, as compared to $46.1 million during Q1 FY11. The increase in cost of sales is primarily due to significantly higher PET resin costs in Q1 FY12 as compared to Q1 FY11. In addition, depreciation expense during Q1 FY12 increased $0.4 million compared to Q1 FY11 as a result of capital expenditures since the date of the Acquisition.
Gross Profit
Gross profit for the Q1 FY12 was $7.1 million (or 13.0% of net sales), which represents a decrease of $1.1 million, or 13.6% as compared to $8.3 million (or 15.2% of net sales) for Q1 FY11. The decrease in gross margin as a percentage of net sales is primarily due to significantly higher PET resin costs and the increased amount of depreciation expense in Q1 FY12 compared to Q1 FY11. As we pass through changes in resin costs to all of our customers, a timing delay, typically one to four months, exists and the pass through is generally not recognized in the period in which resin costs changed. This timing delay negatively impacted the Q1 FY12 margins.

Operating Expenses
SG&A Expenses
SG&A expenses for Q1 FY12 were $4.6 million, compared to expenses of $4.5 million in Q1 FY11.

12



Other Operating Expenses
Other operating expenses during Q1 FY12 were $0.6 million, which represents a decrease of $0.7 million compared to Q1 FY11. The Q1 FY12 other operating expenses primarily consisted of $0.2 million of fees associated with the registration of the Notes with the Securities and Exchange Commission (“SEC”) and $0.4 million of depreciation and amortization. The Q1 FY11 period includes $1.0 million of restructuring expenses related to our integration plan subsequent to the Acquisition and $0.4 million of depreciation and amortization.
Interest Expense
Interest expense for the Q1 FY12 period was $4.9 million, which represents an increase of $1.6 million as compared to Q1 FY11. The increase is due to the increased level of indebtedness and effective interest rate compared to Q1 FY11 as a result of the Refinancing.
Income Tax Provision
As a limited liability company, we are a pass-through tax entity. No provision, except for certain states in which we conduct business, as well as certain of our subsidiaries, is made in the financial statements for income taxes. Our subsidiaries, Robb and Novapak, are subject to corporate income taxes under Subchapter C of the Internal Revenue Code. For Q1 FY12, we recognized an income tax provision of $0.6 million compared to a provision of $0.8 million for Q1 FY11 for Robb and Novapak based on their pre-tax income or loss recognized.


Non-GAAP Financial Measures
To supplement the Company's financial information presented in accordance with GAAP, management, from time to time, uses additional measures to clarify and enhance understanding of past performance and prospects for the future.
EBITDA and Adjusted EBITDA are supplemental measures to assess our operating performance that are not required by, or presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are not measures of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as measures of our liquidity. When evaluating EBITDA and Adjusted EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA and Adjusted EBITDA, (ii) whether EBITDA and Adjusted EBITDA have remained at positive levels historically, and (iii) how EBITDA and Adjusted EBITDA compares to our outstanding debt.
We define EBITDA as net income (loss) plus interest expense, tax expense (benefit), and depreciation and amortization, and Adjusted EBITDA as EBITDA further adjusted to eliminate the impact of certain noteworthy items that we do not consider indicative of our ongoing operating performance.
The following table presents a reconciliation of net loss to EBITDA and Adjusted EBITDA for the three month periods ended December 31, 2011 and 2010:


13


 
 
Three Months Ended
 
 
December 31,
 
December 31,
 
 
2011
 
2010
Net Loss to Adjusted EBITDA Reconciliation:
 
 
 
 
Net loss
 
$
(3,702
)
 
$
(1,725
)
Interest expense, net
 
4,935

 
3,311

Tax expense
 
629

 
759

Depreciation and amortization expense
 
3,921

 
3,465

EBITDA
 
5,783

 
5,810

Management fees (a)
 
563

 
563

Consulting fees (b)
 
250

 
250

Restructuring expenses (c)
 

 
1,022

Transaction related fees and expenses (d)
 
200

 

Integration-related manufacturing variances (e)
 

 
1,063

Adjusted EBITDA
 
$
6,796

 
$
8,708


(a)
In connection with the Acquisition, we entered into a management services agreement with Castle Harlan to provide business and organizational strategy, financial and investment management, advisory, and merchant and investment banking services.
(b)
In connection with the Acquisition, we entered into a consulting agreement with Keith S. Harbison, the controlling equity holder of Pretium prior to the Acquisition, and an equity co-investor in Pretium Holding.
(c)
Represents the implementation of several initiatives to restructure and realign manufacturing and administrative resources. These costs incurred in connection with these initiatives consisted of severance, facility consolidation costs, and other exit costs. Restructuring expenses were incurred as part of the integration plan initiated subsequent to the Acquisition.
(d)
Represents professional fees associated with our exploration of acquisition opportunities and the registration of the Notes with the SEC.
(e)
As a result of the Acquisition and related operational integration plans, we consolidated the Nashua, New Hampshire operation into the Philmont, New York plant and we consolidated Novapak's Hazelton, Pennsylvania operation into our Hazelton, Pennsylvania plant. Beginning in July 2010, we experienced certain material and labor variances from our standard operating costs reflected in our historical results. We consider these material and labor variances to be noteworthy as we incurred incremental costs to manufacture our products. Variances in the amount of $1.1 million were incurred during the three month period ended December 31, 2010. These material and labor variances associated with the integration plans ceased in the period ended June 30, 2011.
Our measurements of EBITDA and Adjusted EBITDA and the ratios related thereto may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA and Adjusted EBITDA in this Quarterly Report on Form 10-Q because they are the bases upon which our management assesses our operating performance, are components of certain covenants in our ABL Facility and we believe that such information is used by certain investors as measures of evaluating our operating performance. Furthermore, we believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of debt issuers, many of which present EBITDA and Adjusted EBITDA when reporting their results. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by other noteworthy items.


14


EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our operating results or cash flows as reported under GAAP. Some of these limitations are:
EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
EBITDA and Adjusted EBITDA do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments, on our debt;
although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
EBITDA and Adjusted EBITDA are adjusted for certain noteworthy and non-cash income or expense items that are reflected in our statements of cash flows; and
other companies in our industry will calculate the measures differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only for supplemental purposes.


Liquidity and Capital Resources
Liquidity
Our principal ongoing source of operating liquidity is cash generated by our business operations and borrowings from our ABL Facility.
On March 31, 2011 the Company and Pretium Finance issued the Notes. The Notes have a maximum aggregate principal amount of $150.0 million, are guaranteed by the Company's subsidiaries (other then Pretium Finance) and mature on April 1, 2016.
Concurrently with the completion of the offering of the Notes, we entered into the ABL Facility, which was subsequently amended on April 20, 2011 to provide additional borrowing capacity thereunder, among other things. The ABL Facility provides senior secured financing of up to $30.0 million, subject to borrowing base and certain other restrictions on availability. As of December 31, 2011, there was $7.3 million outstanding under our ABL Facility. Borrowings under the ABL Facility bear interest at variable rates and mature on September 30, 2015. At December 31, 2011, letters of credit issued and outstanding were $1.6 million and borrowing availability was $21.1 million.
We believe that cash flows from operations and borrowings from the ABL Facility will be sufficient to meet our existing liquidity needs for the next 12 months. We were in compliance with all of the covenants contained in our Notes and ABL Facility as of December 31, 2011.



15


Cash Flows
Quarter Ended December 31, 2011 (“Q1 FY12”) Compared with the Quarter Ended December 31, 2010 (“Q1 FY11”)
As of December 31, 2011, we had cash and cash equivalents of $1.1 million. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these investments approximates fair value.
Cash used in operating activities was $4.1 million during Q1 FY12 compared to $2.1 million of cash provided by operating activities during Q1 FY11. Cash used in operating activities in Q1 FY12 was primarily due to the payment of accrued interest under the Notes on October 1, 2011. The change in operating assets and liabilities used $5.2 million of cash during Q1 FY12 and $0.8 million during Q1 FY11. The changes in operating assets and liabilities included:
Cash provided by accounts receivable of $3.4 million and $3.2 million during Q1 FY12 and Q1 FY11, respectively, reflected decreased seasonal sales and timing of shipments within both periods. The decrease in each period was also driven by improvements in days sales outstanding due to strong collection efforts during those periods.
Cash used in inventories of $0.5 million and $2.5 million during Q1 FY12 and Q1 FY11, respectively, reflected increased resin costs and our investment in inventory during those periods as we entered into a higher volume quarter.
Changes in accounts payable and accrued expenses used cash of $4.4 million and $2.8 million during Q1 FY12 and Q1 FY11, respectively, primarily due to timing of payments to vendors at December 31.
Accrued interest and bank fees used cash of $4.3 million during Q1 FY12 and generated cash of $0.1 million during Q1 FY11. The use of cash in the current period reflects the $8.7 million interest payment made on October 3, 2011. The change compared to the prior period is due to the increased level of indebtedness and effective interest rate compared to Q1 FY11 as a result of the Refinancing. 

Net cash used in investing activities was $2.7 million and $2.6 million during Q1 FY12 and Q1 FY11, respectively, resulting from specific cash purchases of property, plant and equipment.
Net cash provided by financing activities was $6.7 million and $0.5 million during Q1 FY12 and Q1 FY11, respectively. The cash generated during Q1 FY12 primarily represented borrowings under our ABL Facility to fund the interest due October 1, 2011 under the Notes.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).

New Accounting Standards
Refer to "Note 1 Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, for a description of new accounting pronouncements, including the expected impact on the Company’s condensed consolidated financial statements and related disclosures.

Critical Accounting Policies
Management has evaluated the accounting policies used in the preparation of the Company’s condensed financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are

16


subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011, filed on December 19, 2011, in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis and in "Note 1 Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.” There were no significant changes to the Company’s critical accounting policies during the quarter ended December 31, 2011.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in connection with changes in foreign exchange rates and interest rates, primarily in connection with interest on the outstanding balance under our ABL Facility.

Foreign Exchange Risk

We are exposed to fluctuations in foreign currency cash flows related to our Canadian operations, intercompany product shipments and intercompany loans. Additionally, we are exposed to volatility in the translation of foreign currency earnings to U.S. dollars. Primary exposures include the U.S. dollar versus functional currencies of our major markets, which include the Canadian dollar. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to protect anticipated exposures. We do not consider the potential loss arising from a hypothetical 10% adverse change in quoted foreign currency exchange rates, as of December 31, 2011, to be material.

Interest Rate Risk

We are exposed to interest rate volatility with regard to the current existing issuances of variable rate debt under our ABL Facility. Primary exposure includes movements in the U.S. prime rate and LIBOR. We manage interest rate risk by incurring a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain an ongoing balance between floating and fixed rates on this mix of indebtedness through the use of interest rate swaps when necessary. At December 31, 2011, approximately 4.6%, or $7.3 million of our debt was floating rate debt and the weighted average interest rate for all debt was 11.1%. If the relevant interest rates for all of the Company's floating rate debt was 100 basis points higher than actual in the three-month period ended December 31, 2011, the Company's interest expense would have increased by less than $0.1 million.

Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management carried out an evaluation (as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to the Company and its consolidated subsidiaries required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange

17


Commission's rules and forms, and (ii) is accumulated and communicated to the Company's management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Controls and Procedures
In addition, the Company's management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of the Chief Executive Officer and the Chief Financial Officer, of changes in the Company's internal control over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that there were no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2011 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.

18


PART 2 – OTHER INFORMATION

Item 1.
Legal Proceedings

The Company is involved in various legal proceedings and administrative actions arising in the ordinary course of business. The information regarding these proceedings and actions is included under "Note 8 Contingencies” to the Company’s Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Item 1A.
Risk Factors

There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (under "Item 1A Risk Factors").

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.
Defaults upon Senior Securities

None.

Item 4.
[REMOVED AND RESERVED]


Item 5.
Other Information

None.

Item 6.
Exhibits

See the list of exhibits in the Exhibit Index to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.


19


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 
 
PRETIUM PACKAGING, L.L.C.
 
 
 
 
 
 
 
 
Date: 
February 13, 2012
By:
/s/ George A. Abd
 
 
 
George A. Abd
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
 
Date: 
February 13, 2012
By:
/s/ Robert A. Robison
 
 
 
Robert A. Robison
 
 
 
Vice President and Chief Financial Officer





20


EXHIBIT INDEX

Exhibit No.
Description
 
 
31.1 *
Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2 *
Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1 *
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2 *
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101
The following materials from Pretium Packaging, L.L.C. and Pretium Finance, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011 are furnished herewith, formatted in XBRL (eXtensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011, (ii) the Unaudited Condensed Consolidated Statement of Operations for the three months ended December 31, 2011 and December 31, 2010, (iii) the Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and December 31, 2010, and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.

*
Filed herewith.


21