Attached files

file filename
EX-32.1 - 906 CERTIFICATION - PRETIUM PACKAGING L L Cpretium930201210kex321.htm
EX-32.2 - 906 CERTIFICATION - PRETIUM PACKAGING L L Cpretium930201210kex322.htm
EX-31.1 - 302 CERTIFICATION - PRETIUM PACKAGING L L Cpretium930201210kex311.htm
EX-31.2 - 302 CERTIFICATION - PRETIUM PACKAGING L L Cpretium930201210kex312.htm



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

FORM 10-K
(Mark One)
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2012
 
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 fiscal year ended September 30, 2012
_____________________________________
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 if the Registrant is a well known seasoned issuer as defined in Rule 405 of the securities Act.
Pretium Packaging, L.L.C
Yes ¨
No ý
Pretium Finance, Inc.
Yes ¨
No ý

Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
Pretium Packaging, L.L.C
Yes ¨
No ý
Pretium Finance, Inc.
Yes ¨
No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Pretium Packaging, L.L.C
 ý
Pretium Finance, Inc.
 ý

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 March 31, 2012 the aggregate market value of Pretium Packaging L.L.C. and Pretium Finance, Inc. equity held by non-affiliates
were each $0.

As of November 30, 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-K is a combined annual 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 (I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

_____________________________________
DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., part I, part II, etc.) into
which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or other information statement; and
(3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933: NONE





1


Index to Annual Report on Form 10-K

 
 
Page
 
 
 
 
 
 
 
 
 
 
 




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. “PVC” 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 “PVC Acquisition” refers to Pretium's acquisition of PVC on February 16, 2010. The “Acquisition” refers collectively to Pretium Holding's acquisition of Pretium, the PVC 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 in an 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. Our financial reporting is based on the twelve months ended on September 30 (i.e. "FY 2012" refers to the fiscal year ended September 30, 2012).

FORWARD LOOKING STATEMENTS
This annual report contains statements which may be “forward-looking statements” within the meaning of the federal securities laws. These statements, written, oral or otherwise made, may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” or “will,” or the negative thereof or other variations thereon or comparable terminology.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this annual report under Item 1 “Business”, Item 1A “Risk Factors” and Item 7 “Management Discussion and Analysis of Financial Condition and Results of Operations” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
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 other factors discussed in this annual report under the heading Item 1A "Risk Factors."

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this annual report are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except as required by law.

ii


PART I
Item 1.
Description of Business.
General
Founded in 1992 and based in Chesterfield, Missouri, we are one of the nation’s largest manufacturers of customized, high performance rigid plastic bottles and containers primarily made from polyethylene terephthalate (“PET”) and high density polyethylene (“HDPE”) resins. We market our products largely into the food, personal care, household products, healthcare and pharmaceutical end markets. We sell our products to a diversified customer base, ranging from Fortune 500 companies to smaller privately-owned businesses with a focus on customers with small-to-medium annual volume requirements. We currently operate 11 manufacturing facilities, nine in the United States and two in Canada, generating approximately 83% of net sales domestically and 17% from Canada in FY 2012.
Industry Overview
We compete in the rigid plastic container segment of the global container and packaging market. We operate in a sub segment of the rigid plastic container market that serves customers with small-to-medium annual volume requirements. Further, we target specific end markets (such as food, personal care, household products, healthcare and pharmaceutical end markets) that we believe are stable and recession resistant and we have grown our product design and manufacturing capabilities to meet the needs of those markets.
The plastic packaging market includes containers for beverages, food, household products, cosmetics, toiletries and pharmaceuticals, among others. End market demand for plastic bottles and containers includes the following: (i) beverage bottles and jars (including bottled water, sports drinks, soft drinks and teas); (ii) other bottles and jars (including food, household products, toiletries, cosmetics and pharmaceuticals); and (iii) other plastic containers (including pails, tubs, cups, bowls). PET is the most commonly used resin in food and beverage applications, while HDPE is primarily used in household products, beverages and pharmaceuticals.
Products
We design, manufacture and sell a broad range of customized, high performance bottles and containers, representing over 1.2 billion units across over 2,750 different SKUs in FY 2012. The majority of our products are manufactured for a specific customer on an exclusive basis. We use proprietary stock and custom molds and we own a majority of our tooling and molds. To supplement our core blow molding operations and to provide greater value to our customers, we offer an array of services and flexible manufacturing options designed to provide packaging solutions that we believe differentiate our customers’ products from their competition. In addition to manufacturing plastic bottles and containers, we offer our customers design and engineering services, decoration technologies (including in-mold labeling, pad printing, heat transfer and silk screen), product conceptualization (including CAD drawings, three dimensional designs, models and prototypes) and custom packaging configurations. This wide breadth of capabilities allows us to fulfill the needs of customers with small-to-medium annual volume requirements for differentiated products or supply services.
We focus on PET and HDPE products, but have capabilities in all major resin types. During FY 2012 we utilized over 108 million pounds of resin to manufacture our products with 60% of that resin volume comprised of PET, 33% comprised of HDPE and the remaining 7% comprised of a variety of other resin types. We use all major blow molding technologies in the manufacturing of plastic bottles and containers, including one and two-step stretch blow molding ("SBM"), extrusion blow-molding ("EBM"), and injection blow molding ("IBM"). We also utilize injection molding ("IM"), primarily for the manufacture of preforms, which are then used to manufacture bottles in the two-step SBM process.
PET
Our PET bottles and containers are used primarily for food and personal care products. PET products are generally characterized by a glass-like, high-gloss transparent appearance, making it the resin of choice to replace glass in a variety of packaging applications. Our custom PET products include salad dressing containers, peanut-butter jars, pickle jars, large wide-mouth containers for snack food (pretzels, nuts and candy), bottles for juices, sauces and jellies, liquor bottles and shampoo and hand soap containers. We believe our engineering, design and manufacturing capabilities create a competitive advantage for containers with very wide openings over 100 millimeters which require technical expertise and specific equipment to manufacture.
We also offer stock bottles to serve customers requiring lower purchase volumes, more standard designs and rapid delivery. We offer an “on-the-floor” stock bottle program that includes over 100 standard bottle types that are held in inventory and are available for immediate delivery.

1


We also operate injection molding assets primarily for the purpose of producing PET preforms for use in our two-step SBM process. Preforms are an injection molded part which appear very similar to a test tube, in various sizes. These preforms are used as the raw material in the second step of the two-step process and are subsequently blown into bottles on other production lines. We manufacture preforms at two sites and ship those preforms to other facilities (because of their compact size, preforms can be shipped much more cost effectively than bottles) closer to our customers, for final production into bottles. Our extensive library of over 100 preform types allows us to provide our customers with a wide range of options for new bottle design and enables a speedy time to market leveraging this established asset base.
HDPE
HDPE is used primarily to make containers and bottles for personal care, healthcare, beverage, household and industrial products. HDPE containers are designed to provide barrier properties for transportation, storage and handling of aggressive chemicals and personal care products. Our HDPE products are characterized by design flexibility and opaque or translucent aesthetics. Representative products include shampoo bottles, lotion bottles, household cleaner containers, medical device components and office equipment (ink cartridges). In addition, we manufacture highly specialized barrier enhanced HDPE products, which are used for the safe transportation, storage, and handling of aggressive chemicals, as well as prolonging the product shelf life. We believe we are one of the only companies with an in-line process for this barrier application. These enhanced properties allow for the packaging of more aggressive chemical products for agricultural chemicals, diagnostic chemicals and other products which require this higher level of packaging performance. Furthermore, many of our HDPE products require a high degree of design collaboration with customers as well as extensive testing, qualification and certification, making switching suppliers costly and time-consuming.
Other Resins
To meet a wider variety of customer specifications, we also manufacture products using a variety of other resins. Our capabilities with these additional resins enable us to provide a broader offering to customers.
Research, Product Development & Design
Our design and manufacturing professionals collaborate throughout the process, from concept generation through production start-up. We partner with customers to solve issues concerning cost effectiveness, consumer appeal, brand equity, packaging impact and manufacturing efficiency. We balance all the aesthetic, functionality, quality and cost requirements of our customers’ packaging to develop a commercially successful container product. We have a PET design center in Hazleton, Pennsylvania staffed by design and engineering professionals to work on new bottle designs and innovative product design solutions with and for our customers.
Customers and End Markets
We have a diverse customer base. Customers include large multi-national companies, private label programs, and a variety of smaller privately-owned companies across our end market coverage. Our top ten customers represented approximately 38% of our FY 2012 net sales, with no single customer accounting for more than 5%.
We primarily target customers that require rapid commercialization of small-to-medium annual volume customized bottles and containers. The number of orders varies significantly by customer, but several of the largest customers typically receive multiple shipments per day. We have built a leading niche market position for small-to-medium annual volume requirements and generate strong customer loyalty by maintaining our competitive advantages of rapid speed-to-market, customization, sophisticated design, decorating capabilities and consistent performance and quality standards.
Key purchasing factors for our customer base include historical relationships, customized product offering, quality and performance characteristics, manufacturing flexibility, customer service, quick response times and cost. We typically serve as the sole or majority supplier of certain SKUs to our customers. We maintain long term supply agreements for products representing a majority of our FY 2012 revenues. These supply agreements typically include a customer commitment to purchase all or substantially all of a certain bottle or SKU from us.
Our diverse product range enables us to serve a wide variety of end markets, with the four major end markets being food and beverage, personal care products, household and industrial products and pharmaceuticals. The food and beverage sector (including cooking products, dry foods, condiments and sauces, pickles and peppers, syrups and other food products) continues to be the largest plastic packaging end market, and accounted for 39% of our revenues in FY 2012. For FY 2012, our revenues from other key sectors were as follows: 25% for household and industrial products (including cleaners, detergents and automobile products), 12% for personal care (including hair products, skin-care and soaps), 12% for pharmaceutical (including medical device components, instruments and pill bottles), and 12% for other end market product applications.

2


Sales and Marketing
We reach our customers through a centralized sales, marketing and customer service team of 29 dedicated professionals and the limited use of distributors. Our sales, production and support staff meet with customers to understand their needs and improve our product offerings and services. Manufacturing and engineering personnel also work closely with sales personnel and customer service representatives to satisfy our customers’ needs through the production of high-quality, value-added products and on-time deliveries. Our scale enables us to dedicate certain sales and marketing efforts to particular products, customers or geographic regions, when applicable.
Our marketing effort is aided by a dedicated Product Design and Development group, with professionals at several locations throughout North America and at our design center in Hazleton, Pennsylvania. These professionals provide product design and development, start up assistance and support as well as working closely with customer design and product launch teams. We provide our customers with modeling, 3D rendering of bottles as well as the design of packaging alternatives for shipping bottles to minimize logistics costs and provide environmental benefits in source reduction and reduced energy consumption. We have a technical sales team with significant knowledge of our products and processes, particularly in specialized products.
We supplement our direct sales efforts through our website, which allows potential customers to order samples and browse real-time inventory in addition to many other functions.
Manufacturing and Distribution
We manufacture rigid plastic packaging containers utilizing all major manufacturing processes and resin types. Our manufacturing processes include EBM, one and two-step SBM, IBM and IM. EBM is a widely used and versatile blow molding process. It is used for bottles of all sizes and places fewer limitations on bottle proportions and shapes. One and two-step SBM, which primarily uses PET resin, produces clear, glass-like containers that have strength, surface gloss and stiffness. The two-step process uses injection molded preforms to manufacture PET bottles. IBM primarily is used to manufacture smaller bottles and containers that require extremely accurate weight control, excellent neck-finishing detail and superior finish or texture. IM is used to manufacture closures and to mold preforms for the two-step PET manufacturing applications.
In the injection process, resin pellets are melted to a molten state and injected into a multi-cavity steel mold where the resin is allowed to solidify to take the final shape of the part. IBM involves the creation of a preform that is then inserted into a blow station where high-pressure air is used to mold the preform into the bottle. Molten plastic is extruded into a long tube and then high-pressure air is used to form the bottle. In SBM, the units are molded and then they are reheated and placed in aluminum dies where high pressure air is used to form the bottle. The final cured parts are transferred to corrugated containers for shipment to customers or for post-molding secondary operations. Our decorating processes include silk screening, in-mold labeling, heat transfer labeling, pressure sensitive labeling, pad printing, and offset printing.
We monitor raw materials and continuously test finished good shipments to ensure that both our inputs and outputs meet our quality specifications. Our quality control processes include extensive testing and quality checks throughout all stages of the production process. We monitor for quality assurance throughout the molding process, applying computerized statistical process control as well as manual sampling to optimize production efficiencies.
Our manufacturing capabilities and distribution network allow us to provide a high level of service to our customers throughout the United States and Canada. We have historically made, and intend to continue to make, significant capital investments in plant and equipment to improve productivity and maintain competitive advantages.
Our facilities are strategically located to address the needs of our customers across our core end markets. This distribution footprint is sometimes augmented by the use of third party warehousing. Our products are typically delivered by third party common carrier. In most cases our customers pay those carriers directly for the delivery of the product, but in some cases we will provide product on a delivered basis utilizing common carriers.
Our raw materials consist of various resins, colorants, and packaging materials. Resin is our largest raw material cost. We have historically purchased raw material from a large network of suppliers to ensure competitive pricing and access to product supply in all market conditions. Over the last few years we have increased efficiencies in resin purchasing by rationalizing our supplier base and focusing our efforts on a select number of large global resin manufacturers. We maintain strong relationships with key suppliers and expect that such relationships will continue in the foreseeable future. The resin market is a global market and we believe that we will be able to purchase adequate quantities of plastic resins at market prices.
Competition
Our market is comprised primarily of three types of manufacturers:
Long-run suppliers: Typically produce over 150 million units annually per customer application; characterized by low material margin products and less production flexibility serving mass markets (e.g., bottled water and soft drinks).

3


Medium/short-run suppliers: Typically produce between 5 million and 25 million units annually per customer application; characterized by medium to high material margin products, greater production flexibility, and custom design capabilities serving specialty and some mass markets.
Short-run suppliers: Typically produce less than 5 million units annually per customer application; characterized by high material margin products, high production flexibility, and high design and customization capabilities serving niche and specialty markets.
We do not compete in the long-run supplier segment of the market, but compete on a product by product basis in each region where we have operations in the other two segments of the market. Our competitors include both small regional players and large national operators. Our business continues to be primarily local in nature and dependent on specific capabilities at each plant. As such, we believe there is no one firm who competes with us on all products in all geographies. Furthermore, given the constraints associated with shipping costs, foreign competition has a relatively limited presence in our markets. In addition to product type and location, the nature of competition changes as overall product run size increases. For smaller applications of approximately five million or less in annual customer volume requirements, we generally compete with small producers who often operate out of a single facility and do not possess the advantages of scale that we are able to achieve. For medium run sizes up to approximately 25 million in annual customer volume requirements, we compete on a limited basis with larger packaging companies as well as the small regional players.
Employees
As of September 30, 2012, we employed 984 employees in the United States and Canada. None of our domestic employees are unionized. Substantially all of our employees in Canada, representing approximately 16% of our total employees as of September 30, 2012, are represented by the National Union of Automobile, Aerospace, Transport and Other Workers of Canada, Union of Food and Commerce Workers, and Canadian Union Communication, Energy and Paperworkers. Our collective bargaining agreements with employees of our Pointe Claire, Quebec facility represented by the National Union of Automobile, Aerospace, Transport and Other Workers of Canada and Union Food and Commerce Workers expired in April 2009. Negotiations are ongoing to enter into new agreements. We believe our relations with employees are satisfactory.
Environmental Matters and Government Regulations
The production, distribution and sale of our products and our present ownership and operation of real property are subject to extensive and frequently changing federal, state, local and foreign environmental laws and regulations, including those pertaining to the discharge of materials into the environment, exposure to hazardous material, the handling and disposal of wastes and cleanup of contaminated soil and ground water, or otherwise relating to the protection of the environment. We believe that we are in material compliance with applicable environmental laws and regulations, and are not a party to any pending legal proceedings or claims for non-compliance with environmental laws and regulations.
In addition to environmental laws and regulations, we are subject to numerous other federal, state, local and foreign laws and regulations. A portion of our revenue comes from sales of plastic packaging sold into the food and healthcare end markets. Pursuant to the Federal Food, Drug and Cosmetic Act (“FDCA”), the U.S. Food and Drug Administration (“FDA”) regulates our products that are intended for drug packaging or food packaging purposes. Specifically, we are subject to FDA regulations that require that our drug and food packaging products are safe and suitable for their intended uses, including that they are manufactured in a manner that complies with the FDA’s applicable good manufacturing practices. The FDA requires that we ensure that each component part of our products and the final packaging product will not render the food or drug packaged inside our product to be adulterated or misbranded under the FDCA. Furthermore, some of our products are regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act. We believe our drug and food packaging products comply with all applicable requirements.
Intellectual Property
We rely on a combination of patents, trademarks, unpatented proprietary know-how and trade secrets, copyrights and other intellectual property rights, confidentiality agreements with employees and consultants and other protective measures to protect our proprietary rights. We do not believe that any individual item of our intellectual property portfolio is material to our current business. We employ various methods, including confidentiality and non-disclosure agreements with third parties, employees and consultants, to protect our trade secrets and know-how. We have licensed, and may license in the future, patents, trademarks, trade secrets and similar proprietary rights to and from third parties.

4


Available Information
Our annual report, quarterly reports, current reports and amendments to those reports are available without charge on our website, www.pretiumpkg.com, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (“SEC”). We will also provide a free copy of any of our filed documents upon written request to: Pretium Packaging, L.L.C., 15450 South Outer Forty Drive, Suite 120, Chesterfield, Missouri 63017, Attention: Chief Financial Officer.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issues that file electronically with the SEC (http://www.sec.gov).


5


Item 1A.
Risk Factors.
We have a substantial amount of indebtedness, which may adversely affect our cash flow, our ability to operate our business and our ability to satisfy our obligations under the Notes.
We have a significant amount of indebtedness. As of September 30, 2012, we had approximately $150.2 million of indebtedness outstanding, all of which is secured and, based on our borrowing base, we had approximately $28.4 million available for borrowings under the ABL Facility, subject to meeting customary borrowing conditions. Our substantial amount of indebtedness could have important consequences for us. For example, it could:
increase our vulnerability to adverse economic, industry or competitive developments;
result in an event of default if we fail to satisfy our obligations with respect to the Notes or other debt or fail to comply with the financial and other restrictive covenants contained in the ABL Facility and the indenture governing the Notes or agreements governing our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to foreclose on our assets securing such debt;
require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
make it more difficult for us to satisfy our obligations with respect to the Notes;
increase our cost of borrowing;
restrict us from making strategic acquisitions or causing us to make non-strategic divestitures;
limit our ability to service our indebtedness, including the Notes;
limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting; and
prevent us from raising the funds necessary to repurchase all Notes tendered to us upon the occurrence of certain changes of control, which failure to repurchase would constitute a default under the indenture governing the Notes.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations, prospects or ability to satisfy our obligations under the Notes.
Borrowings under the ABL Facility bear interest at variable rates. If we were to borrow funds under the ABL Facility and these rates were to increase significantly, our ability to borrow additional funds may be reduced and the risks related to our substantial indebtedness would intensify. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection for this risk.
Despite our substantial indebtedness level, we and our subsidiaries will still be able to incur substantial additional amounts of debt, which could further exacerbate the risks associated with our indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future, including additional secured debt. Our ABL Facility provides for borrowings up to $30.0 million, and includes an uncommitted incremental facility that, if committed, would increase borrowing capacity, subject to borrowing base capacity. All of the borrowings under the ABL Facility are secured by liens that rank senior to the liens of the holders of the Notes on the collateral. Although the credit agreement governing the ABL Facility and the indenture governing the Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. Moreover, if we incur any additional indebtedness secured by liens that rank equally with those securing the Notes, the holders of such indebtedness will be entitled to share ratably with you in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us and we cannot assure you any collateral would be sufficient to cover all obligations. In addition, the indenture governing the Notes and the agreement governing the ABL Facility do not prevent us from incurring obligations that do not constitute indebtedness thereunder. If new debt is added to our and our

6


subsidiaries’ existing debt levels, the risks associated with our substantial indebtedness described above, including our possible inability to secure our debt, will increase.
We may not be able to generate sufficient cash to service the Notes or our other indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on our indebtedness, including the Notes, and to fund our operations will depend on our ability to generate cash in the future. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on the Notes or our other indebtedness.
If our cash flows and capital resources are insufficient to meet our debt service obligations or to fund our other liquidity needs, we may need to refinance all or a portion of our debt, including the Notes, before maturity, seek additional equity capital, reduce or delay scheduled expansions and capital expenditures or sell material assets or operations. We cannot assure you that we would be able to refinance or restructure our indebtedness, obtain equity capital or sell assets or operations on commercially reasonable terms or at all. In addition, the terms of existing or future debt instruments, including the indenture governing the Notes, may limit or prevent us from taking any of these actions. Our inability to take these actions and to generate sufficient cash flow to satisfy our debt service and other obligations could have a material adverse effect on our business, results of operation and financial condition, as well as on our ability to satisfy our obligations in respect of the Notes.
If for any reason we are unable to meet our debt service obligations, we would be in default under the terms of the agreements governing such outstanding indebtedness. If such a default were to occur, the lenders under such indebtedness could elect to declare all amounts outstanding under it immediately due and payable, and in the case of the ABL Facility, the lenders would not be obligated to continue to advance funds under the ABL Facility. If the amounts outstanding under our debt were accelerated, it could cause an event of default under other indebtedness or allow other indebtedness to be accelerated. We cannot assure you that our assets will be sufficient to repay in full the money owed to the banks or to holders of Notes if any indebtedness were accelerated.
Increases in resin prices or a shortage of available resin could adversely affect our business and our financial performance.
Production of our products requires a large amount of plastic resins. Plastic resins are subject to price fluctuations, including those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced. Over the past several years, we have at times experienced rapidly increasing resin prices. We do not pay a fixed price for resins. We pass through 100% of changes in resin costs to all of our customers under current arrangements based on published price indexes, although our pass through mechanisms are typically subject to a one to four month timing delay. There is no assurance that we will be able to continue to pass through all future price fluctuations. If increases in resin prices continue, net sales and profitability may be materially and adversely affected, both in the short-term as we attempt to pass through changes in the price of resin to customers under current agreements and in the long-term as we negotiate new agreements or if our customers seek product substitution.
A sustained significant increase in resin prices relative to other packaging materials, to the extent that those costs are not passed on to the end-consumer, would make plastic containers less economical for our customers and could result in a slower pace of conversions to, or reductions in the use of, plastic containers.
We source plastic resin primarily from major industry suppliers. We have long-standing relationships with certain of these suppliers but have not entered into a firm supply contract with any of them. We may not be able to arrange for other sources of resin in quantities sufficient to meet all of our future obligations in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers. Any such shortage may materially negatively impact our competitive position versus companies that are able to better or more cheaply source resin.
We may not be able to successfully compete and our customers may not continue to purchase our products.
The plastic packaging industry is intensely competitive and we compete with multiple companies in the sale of each of our product lines. We compete on the basis of a number of factors, including service, quality, product characteristics, the ability to timely supply products to customers, the ability to minimize our customers’ freight expenses, and price. Additionally, we compete with manufacturers of other packaging materials such as metal, glass, paper and plastic packaging materials made with different manufacturing processes. Some of these products are not susceptible to fluctuations in the price of plastic resins, which consequently can have a negative effect on our competitive position compared to substitute products. Our competitors may have financial and other resources that are greater than ours and may be better able to react to market conditions and to withstand price competition. In addition, our customers may move container production in-house and shift their purchases from finished products to preforms or cease purchasing our products entirely. Furthermore, we may be unable to attract new

7


customers away from our competitors due to the significant costs associated with switching suppliers due to freight expenses if our facilities are located further away from the prospective customer than those of our competitors or if the prospective customer has a long-term supply arrangement with a competitor. Competition could result in our products losing market share or our having to reduce our prices, either of which would have a material adverse effect on our business, results of operations and financial condition.
Macroeconomic conditions may adversely impact our business.
Our industry has been affected by current economic factors, including the deterioration of national, regional and local economic conditions, declines in employment levels and shifts in consumer spending patterns. The recent disruptions in the overall economy and volatility in the financial markets have reduced, and may continue to reduce, consumer confidence in the economy, negatively affecting consumer spending, which could be harmful to our financial position and results of operations. As a result, decreased cash flow generated from our business may adversely affect our financial position and our ability to fund our operations.
We may pursue and complete acquisitions, which could adversely affect our business.
We continually seek to identify opportunities for the acquisition of other companies, assets and product lines that either complement or expand our existing business and create economic value. We continually evaluate potential acquisitions and may pursue such acquisitions that could be material in size and scope. There is no assurance that we will be able to consummate any such transactions. We may not be able to fund future acquisitions because of limitations under our indebtedness or otherwise, including due to the limited availability of funds if the financial markets are impaired. Acquisitions involve a number of special risks, including:
diverting our limited management resources that would otherwise be available for our ongoing current business;
the integration of acquired products into our existing product lines;
the increasing demands on our operational systems; and
possible adverse effects on our reported operating results, particularly during the first several reporting periods after such acquisitions are completed.
We may agree to assume liabilities or we may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing due diligence in connection with historical acquisitions and any future acquisitions. We may require sellers to indemnify us against undisclosed liabilities. However, we cannot assure you that indemnification rights we obtain will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any of these liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
Our intellectual property rights may be inadequate to protect our business.
We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a combination of patent, trademark and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.
In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, to protect our know-how and trade secrets. We cannot assure you that these methods will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of an unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information, and there can be no assurance that others will not independently develop the same or similar technology or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights.

8


We have licensed, and may license in the future, patents, trademarks, trade secrets, and similar proprietary rights to third parties. While we attempt to ensure that our intellectual property and similar proprietary rights are protected when entering into business relationships and licensing arrangements, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. However, we cannot assure you that we will have sufficient resources to enforce our intellectual property rights against third parties. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.
If third parties claim that we infringe on their intellectual property rights, our operating profits could be adversely affected.
Our success depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights of third parties. Although we believe our intellectual property rights and those of our customers are sufficient to allow us to conduct our business without incurring liability to third parties, we face the risk of claims that we have infringed on the intellectual property rights of such persons. Any such claims of patent or other intellectual property infringement, even those without merit, could cause us to cease making, licensing, or using products that incorporate the challenged intellectual property; require us to redesign or reengineer our products, if feasible; divert management’s attention and resources; or require us to pay damages, enter into royalty or licensing agreements (which may not be available on reasonable terms, or at all) in order to obtain the right to use a third party’s intellectual property. Any such litigation could be protracted and costly and could have a material adverse effect on our business and results of operations.
Compliance with current and future environmental regulations could affect our business operations.
Our products and operations are subject to extensive and frequently changing federal, state, local and foreign environmental laws and regulations, including laws and regulations that impose limits on the discharge, release, transport, handling, and use of, or regulate exposure to, hazardous materials, establish standards for the treatment, storage and disposal of solid and hazardous materials and require clean up of contaminated sites. Future laws and regulations, or future enforcement or interpretation of existing laws or regulations, could increase the cost of producing, or otherwise adversely affect the demand for, plastic products. Although past compliance has not required significant capital expenditures, we cannot predict with certainty our future capital expenditure requirements. Although we believe we are in substantial compliance with applicable environmental laws and regulations and are not a party to any pending legal proceedings or claims for non-compliance with environmental laws and regulations, failure to comply with environmental laws and regulations could result in severe fines and penalties by governments or courts of law. Furthermore, future or currently unknown violations, contamination of sites currently or formerly owned or operated by us (including contamination caused by prior owners and operators of such sites) or the off-site disposal of regulated materials could result in additional compliance or remediation costs or other liabilities, which could be material.
In addition, the plastic packaging industry, including us, is subject to federal, state, local and foreign laws and regulations designed to reduce solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees and limits on the use of plastic products. In particular, certain states have enacted laws or regulations requiring products packaged in plastic containers to comply with standards intended to encourage recycling and increased use of recycled materials. Future laws or regulations could further prohibit, tax or restrict the sale or use of certain types of plastic and other containers, and could impose stricter requirements, such as recycling or deposits for each container, that seek to divert containers and packaging materials from disposal as waste in landfills. Changes in laws or regulations regarding the use of disposable plastic products, including those relating to the recycling or reuse of plastic products, could increase the cost of our products. Such additional costs could make our products less competitive with products made from other materials. While container legislation has been adopted in a few jurisdictions, similar legislation has been defeated in public referenda in several states, local elections and state and local legislative sessions. Although we believe that the laws and regulations promulgated to date have not had a material adverse effect on us, there can be no assurance that future laws or regulations, or future enforcement or interpretation of existing laws or regulations, would not have a material adverse effect on us. In addition, various consumer and special interest groups have lobbied from time to time for the implementation of these and other similar measures. Furthermore, a decline in consumer preference for plastic products in general, or for certain types of plastic products in particular, due to environmental considerations could have a negative effect on our business.
Other government regulations could affect our business operations.
In addition to environmental laws and regulations, numerous other federal, state, local and foreign laws and regulations affect us. A substantial portion of our net sales comes from sales of plastic packaging sold into the food and healthcare end markets. Pursuant to the FDCA, the FDA regulates the material content of direct-contact food and drug packages we manufacture. Furthermore, some of our products are regulated by the CPSC pursuant to various federal laws, including the Consumer

9


Product Safety Act and the Poison Prevention Packaging Act. Both the FDA and the CPSC can require the manufacturer of defective products to repurchase or recall these products and may also impose fines or penalties on the manufacturer. Similar laws exist in some states, cities and other countries in which we sell products. Although we use FDA-approved resins and pigments in our products that directly contact food and drug products and we believe our products are in material compliance with all applicable requirements, we remain subject to the risk that our products could be found not to be in compliance with these and other requirements. A recall of any of our products or any fines and penalties imposed in connection with noncompliance could have a materially adverse effect on us.
We also are subject to various laws and regulations concerning workplace safety, such as the Occupational Safety and Health Act, as well as numerous other federal, state, local and foreign government laws and regulations. Such regulations are subject to changes which can increase our cost of compliance and failure to comply with any such law or regulation could result in the imposition of severe fines or penalties. See Item 1 “Business—Environmental Matters and Government Regulation”.
Increased labor cost, competition for employees or labor disputes could disrupt our operations and have an adverse effect on our business.
As of September 30, 2012, we employed 984 employees in the United States and Canada. Substantially all of our employees in Canada, representing approximately 16% of our total employees as of September 30, 2012, are represented by The National Union of Automobile, Aerospace, Transport and Other Workers of Canada, Union of Food and Commerce Workers and Canadian Union Communication, Energy and Paperworkers. Our collective bargaining agreements with employees of our Pointe Claire, Quebec facility represented by the National Union of Automobile, Aerospace, Transport and Other Workers of Canada and Union Food and Commerce Workers expired in April 2009. Negotiations are ongoing to enter into new agreements. We may not be able to enter into new agreements on satisfactory terms or at all. We believe our relations with employees are satisfactory, although we cannot assure you that will continue to be the case.
We benefit from our established and experienced workforce and our future success depends, in part, on our ability to continue to attract, motivate and retain sufficient employees. If we are unable to attract new qualified employees and/ or motivate and retain our current employees, our business and operations could be adversely affected. Additionally, any increase in competition for labor could require us to pay higher wages, which would increase labor costs.
Additionally, new legal requirements, particularly with respect to health care reform, could increase the cost of our employee benefits. The health care reform legislation enacted by the U.S. Congress is intended to result in significant changes to the U.S. healthcare system. This legislation may lead to additional costs related to the implementation of the new healthcare regulations and may impair our ability to provide the same level of coverage, which could have a material adverse effect on our business and results of operations.
The catastrophic loss of any facility or critical equipment could adversely affect our business.
The catastrophic loss of any of our facilities or critical equipment due to unanticipated events, such as earthquakes, fires, an act of terrorism or violent weather, may increase our production costs or reduce our sales during the affected period. Additionally, the interruptions to our production capability may require us to make significant capital expenditures, which could have a material adverse effect on our operations and net sales.
If we are unable to develop product innovations and improve our production technology and expertise, we could lose customers or market share.
Our success will depend on our ability to adapt to technological changes in the plastic packaging industry. If we are unable to timely develop and introduce new products, or enhance existing products, in response to changing market conditions or customer requirements or demands, our competitiveness could be materially and adversely affected.
Loss of senior management team members could adversely affect our business operations.
A large part of our success depends on our experienced and committed senior management. Current management has extensive experience in the manufacturing, sales, finance and engineering sectors and the loss of any key member could adversely affect our operations and business objectives.
We are subject to the effects of fluctuations in foreign currency exchange rates.
As a result of our Canadian operations, a portion of our net sales, and some of our costs, assets and liabilities, are denominated in Canadian currency. Our Canadian operations represent approximately 17% of our net sales for FY 2012. As our reporting currency is U.S. dollars, we must translate Canadian currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for the preparation of our consolidated financial statements. Consequently, any

10


changes in the currency exchange rates may unpredictably and adversely affect our consolidated operating results. For example, during times of a strengthening U.S. dollar, our reported Canadian net sales and earnings will be reduced because the Canadian currency will translate into fewer U.S. dollars. Conversely, a weakening U.S. dollar will effectively increase the dollar-equivalent of our expenses denominated in Canadian currencies.
A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identifiable intangible assets acquired. In accordance with accounting principles generally accepted in the U.S. (“GAAP”), goodwill and indefinite-lived intangible assets are evaluated for impairment annually or more frequently if circumstances indicate impairment may have occurred. Impairment assessment under GAAP requires that we consider, among other factors, differences between the current book value and estimated fair value of our net assets. As of September 30, 2012, the net carrying value of goodwill and other intangible assets represented approximately $75.6 million, or 36%, of our total assets.
Based on our annual impairment testing conducted in FY 2012, and a review of any potential indicators of impairment, we concluded that the carrying value of goodwill and other intangible assets were not impaired. If goodwill or other assets are further impaired based on a future impairment test, we could be required to record additional non-cash impairment charges to our operating income. Such non-cash impairment charges, if significant, could materially and adversely affect our results of operations in the period recognized.
The interests of Castle Harlan, our sponsor, may be in conflict with the interests of debtholders.
A significant portion of the economic and voting power in respect of the membership interests of Pretium Holding is beneficially owned by Castle Harlan and its affiliates. As a result, Castle Harlan has significant control over our affairs, policies and operations, such as the appointment of management, future issuances of our securities, the payments of distributions by us, if any in respect of our membership interests, if any, on our membership interests, the incurrence of debt by us, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with the interests of debtholders. Additionally, Castle Harlan is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Castle Harlan may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as investment funds associated with or designated by Castle Harlan continue to indirectly own a significant amount of the economic and voting power in respect of the membership interests of Pretium Holding, Castle Harlan will continue to be able to strongly influence or effectively control our decisions.


11


Item 2.
Properties.
We conduct our business from our 10,000 square foot, leased corporate headquarters in Chesterfield, Missouri (St. Louis metropolitan area). We operate nine manufacturing plants in the United States and two in Canada. Of our 11 manufacturing facilities, we own six facilities and lease the remaining five. Our network of facilities is located to service major markets across the United States and Canada, providing high levels of customer service, short delivery times, and low freight costs. All of our facilities are located in areas that have convenient access to major transportation routes and skilled labor pools.
The following table sets forth our principal manufacturing facilities:
    
Location
 
Square Footage
 
Owned/Leased
Anaheim, CA
 
118,000

 
Leased
Hazleton, PA
 
123,000

 
Leased
Hermann, MO
 
98,000

 
Owned
Manchester, PA
 
142,400

 
Leased
Muscatine, IA (a)
 
180,000

 
Owned
Nashua, NH (a)
 
72,000

 
Owned
Paris, IL
 
146,000

 
Owned
Peru, IL
 
81,000

 
Owned
Philmont, NY
 
98,500

 
Owned
Pointe-Claire, Quebec
 
218,000

 
Leased
Seymour, IN
 
93,000

 
Owned
St. Laurent, Quebec
 
34,500

 
Leased
Walterboro, SC
 
61,000

 
Owned
(a)
We have two owned manufacturing facilities, Muscatine, Iowa and Nashua, New Hampshire, that were closed subsequent to the Acquisition and are currently for sale.
In addition to the facilities above, we own a 160,000 square foot warehouse near our Hazleton manufacturing facility and maintain warehouse space, as needed, in close proximity to certain other manufacturing facilities.
Item 3.
Legal Proceedings.
We are a party to various legal proceedings in the ordinary course of business. Although our legal and financial liability with respect to such proceedings cannot be estimated with certainty, we do not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on our financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.

12


PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of November 30, 2012, the Company was the sole holder of the shares of Pretium Finance’s common stock and Pretium Intermediate was the sole holder of record of the Company’s equity, which, in turn is directly wholly-owned by Pretium Holding. There is no public trading market for our equity. We have never paid or declared a cash dividend. Our debt agreements restrict our ability and the ability of our subsidiaries to pay dividends.
Item 6.
Selected Financial Data.
The following tables sets forth certain selected historical consolidated financial data as of and for the periods indicated. We have derived this data from our audited consolidated financial statements. The following tables should be read in conjunction with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements included under Item 8 "Financial Statements and Supplementary Data."
 
Predecessor
 
 
Successor
 
 
 
 
 
October 1,
 
 
February 17,
 
 
 
 
 
 
 
 
 
2009 through
 
 
2010 through
 
 
 
 
Statement of Operations Data (in thousands):
Fiscal
 
February 16,
 
 
September 30,
 
Fiscal
2008
 
2009
 
2010
 
 
2010
 
2011
 
2012
Net sales
$
186,126

 
$
164,674

 
$
58,621

 
 
$
148,991

 
$
237,241

 
$
232,233

Cost of sales
162,174

 
137,317

 
49,125

 
 
129,149

 
205,931

 
200,715

Gross profit
23,952

 
27,357

 
9,496

 
 
19,842

 
31,310

 
31,518

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
13,537

 
14,060

 
5,439

 
 
12,726

 
18,262

 
18,538

Restructuring expenses

 
790

 

 
 
6,684

 
2,473

 

Transaction-related fees and expenses

 

 

 
 

 
1,537

 
598

Loss (gain) on foreign currency exchange
948

 
342

 
(576
)
 
 
(197
)
 
(260
)
 
27

Depreciation
108

 
116

 
52

 
 
241

 
384

 
451

Amortization of intangibles

 

 

 
 
887

 
1,305

 
1,298

Bank related loan costs
440

 
2,159

 
917

 
 

 

 

Acquisition fees and expenses

 

 
1,184

 
 
10,770

 

 

Total operating expenses
15,033

 
17,467

 
7,016

 
 
31,111

 
23,701

 
20,912

Income (loss) from operations
8,919

 
9,890

 
2,480

 
 
(11,269
)
 
7,609

 
10,606

Other expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Interest
15,006

 
15,990

 
7,007

 
 
8,200

 
16,339

 
19,649

Loss on extinguishment of debt

 

 

 
 

 
5,470

 

Total other expenses
15,006

 
15,990

 
7,007

 
 
8,200

 
21,809

 
19,649

Loss before income tax (benefit) provision
(6,087
)
 
(6,100
)
 
(4,527
)
 
 
(19,469
)
 
(14,200
)
 
(9,043
)
Income tax (benefit) provision
(339
)
 
(948
)
 
(365
)
 
 
164

 
1,958

 
2,539

Net loss
$
(5,748
)
 
$
(5,152
)
 
$
(4,162
)
 
 
$
(19,633
)
 
$
(16,158
)
 
$
(11,582
)

13


 
Predecessor
 
 
Successor
 
 
 
 
 
Balance Sheet Data (in thousands):
As of September 30,
 
 
As of September 30,
2008
 
2009
 
 
2010
 
2011
 
2012
Cash and cash equivalents
$
514

 
$
318

 
 
$
1,278

 
$
1,156

 
$
913

Property, plant and equipment, net
37,772

 
33,597

 
 
82,697

 
77,172

 
72,410

Total assets
114,330

 
101,876

 
 
216,197

 
217,935

 
208,423

Total debt
119,918

 
115,437

 
 
106,459

 
150,857

 
150,184

Total members' (deficit) equity
(32,281
)
 
(37,647
)
 
 
68,088

 
21,573

 
10,657

 
Predecessor
 
 
Successor
 
 
 
 
 
October 1,
 
 
February 17,
 
 
 
 
 
 
 
 
 
2009 through
 
 
2010 through
 
 
 
 
Statement of Cash Flow Data (in thousands):
Fiscal
 
February 16,
 
 
September 30,
 
Fiscal
2008
 
2009
 
2010
 
 
2010
 
2011
 
2012
Net cash provided by (used in) operating activities
$
13,850

 
$
20,514

 
$
(84
)
 
 
$
(3,261
)
 
$
5,046

 
$
10,013

Net cash used in investing activities
(8,833
)
 
(5,235
)
 
(2,379
)
 
 
(172,453
)
 
(8,387
)
 
(9,619
)
Net cash (used in) provided by financing activities
(5,643
)
 
(15,837
)
 
4,126

 
 
176,981

 
3,214

 
(689
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial and Other Data (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA (1)
$
17,960

 
$
18,541

 
$
5,595

 
 
$
(2,923
)
 
$
16,847

 
$
26,725

Adjusted EBITDA (1)
19,348

 
21,832

 
7,250

 
 
21,726

 
31,980

 
30,923

Depreciation
9,041

 
8,651

 
3,115

 
 
7,459

 
13,403

 
14,821

Amortization of intangibles

 

 

 
 
887

 
1,305

 
1,298

Capital expenditures
8,833

 
5,235

 
2,379

 
 
6,028

 
8,387

 
9,619

(1) 
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. Refer to Item 7 under Non-GAAP Financial Measures for an itemization of those items and a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated above.

14


Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to assist you in understanding our consolidated financial condition and results of operations for the periods presented and should be read in conjunction with, and is qualified in its entirety by reference to our historical financial statements, including the related notes appearing elsewhere in this annual report.
Overview
We are one of the nation’s largest manufacturers of customized, high performance rigid plastic bottles and containers. The principal resins used in our production processes are PET and HDPE, although we use other resins based on customer requirements. We market our products largely into the food, personal care, household products, healthcare and pharmaceutical end markets. We currently operate 11 manufacturing facilities.
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 (defined as net sales minus raw material costs) and contribution margin (defined as sales price minus variable costs), though smaller units have lower transaction 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 quarterly and annual periods indicated:
 
FY 2012
 
FY 2011
 
FY 2010
 
Q1
 
Q2
 
Q3
 
Q4
 
FY
 
Q1
 
Q2
 
Q3
 
Q4
 
FY
 
Q1
 
Q2
 
Q3
 
Q4
 
FY
PET
$
0.93

 
$
0.93

 
$
0.89

 
$
0.85

 
$
0.90

 
$
0.77

 
$
0.92

 
$
0.97

 
$
0.97

 
$
0.91

 
$
0.65

 
$
0.72

 
$
0.72

 
$
0.68

 
$
0.69

HDPE
$
0.67

 
$
0.74

 
$
0.70

 
$
0.66

 
$
0.69

 
$
0.65

 
$
0.69

 
$
0.77

 
$
0.71

 
$
0.70

 
$
0.70

 
$
0.65

 
$
0.66

 
$
0.59

 
$
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 costs decline. We pass through 100% of the 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.
As a result of this timing delay, 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 within 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.

15


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.
The PVC Acquisition
In February 2010, we acquired PVC. PVC had little direct business overlap with our business, which has enabled us to achieve significant cost synergies through implementation of an integration plan including resin purchasing efficiencies, manufacturing cost savings, consolidation of certain of the two companies’ plants and lower overhead costs as a result of the closure of PVC’s corporate headquarters. As a result of this transaction, all references in this annual report to the Company before February 16, 2010 shall be referred to as "Predecessor". All references in this annual report to the Company after February 16, 2010 shall be referred to as "Successor".
Plant consolidation activities related to the PVC Acquisition included the consolidation of the Nashua, New Hampshire operation into the Philmont, New York plant, and the consolidation of PVC’s Hazleton, Pennsylvania operations into our Hazleton plant. In Hazleton, both companies operated facilities in the same city presenting the opportunity to combine the manufacturing assets of both facilities, reduce the fixed operating costs in the manufacturing operation through overhead reductions, and create a strong platform for expanded future growth. The former PVC facility was converted to a warehouse and distribution center managing the distribution of the products from the Hazleton manufacturing site. In addition, both Pretium and PVC operated specialty EBM facilities in the Northeast, in Nashua and Philmont, respectively. As both facilities had excess capacity, we were able to consolidate substantially all manufacturing assets and business from the Nashua facility into the Philmont site. This consolidation was done to realize a leveraging of the fixed costs of the Philmont site available from the reduction of the overhead of the Nashua facility.
Subsequent to the PVC Acquisition, we transitioned the operations of our Muscatine, Iowa plant to our Seymour, Indiana and Manchester, Pennsylvania plants, resulting in further cost savings. The Muscatine transition began in August 2010 and was completed in March 2011. This consolidation was driven by the deterioration in sales to the agricultural chemical market over several years which, while not one of our primary markets, was the Muscatine plant’s primary market. This consolidation was made possible by the PVC Acquisition as the acquired Manchester facility operates the same specialty barrier process for the manufacture of specialty bottles as was in place in Muscatine. Similar to the other consolidations, this project allowed us to eliminate redundant processes and facilities and better leverage our costs.
Total restructuring costs incurred during the fiscal year ended September 30, 2011 were $2.5 million. These costs consisted of facility consolidation costs ($1 million) and other exit costs ($1.5 million). Total restructuring costs incurred during the period of February 17, 2010 to September 30, 2010 were $6.7 million and were comprised of severance payments ($2.7 million), facility consolidation costs ($1.7 million) and other exit costs ($2.3 million). There were no restructuring costs incurred during the fiscal year ended September 30, 2012.
Effects of Inflation
While inflationary increases in certain costs, such as resin and energy, have had an effect on our operating results over the past three years, changes in general inflation have had a minimal effect on our operating results in each of the last three fiscal years. Sales prices and volumes have historically been more strongly influenced by supply and demand factors in specific markets than by inflationary factors. Our costs, especially resin, can fluctuate substantially, sometimes within a relatively short period of time, and can have a significant effect on our business, financial condition and results of operations.

16


Results of Operations
The following discussion of our financial condition and results of operations covers certain periods prior to the Acquisition. As a result of the Acquisition, our historical results of operations are not comparable on a period to period basis. Therefore, for comparison purposes, we have presented the results of operations for the fiscal year ended September 30, 2010 on a pro forma basis as if the transactions occurred on October 1, 2009. We believe that this approach is beneficial to the reader by providing an easier-to-read discussion of our results of operations and provides the reader with information from which to analyze our financial results that is consistent with the manner that management reviews and analyzes results of operations. The discussion is provided for comparative purposes only and the value of such a comparison may be limited.
The following table sets forth our historical results of operations for the periods indicated below.
 
Fiscal 2010
 
 
 
 
 
 
 
Predecessor
 
 
Successor
 
 
 
 
 
 
 
October 1, 2009 through February 16, 2010
 
 
February 17, 2010 through September 30, 2010
 
 
 
 
 
 
 
 
 
 
Pro Forma Fiscal 2010
 
Successor
Statement of Operations Data
 
 
 
 
Fiscal 2011
 
Fiscal 2012
(in thousands):
 
 
 
 
 
Net sales
$
58,621

 
 
$
148,991

 
$
234,118

 
$
237,241

 
$
232,233

Cost of sales
49,125

 
 
129,149

 
200,243

 
205,931

 
200,715

Gross profit
9,496

 
 
19,842

 
33,875

 
31,310

 
31,518

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
5,439

 
 
12,726

 
22,778

 
18,262

 
18,538

Restructuring expenses

 
 
6,684

 
6,684

 
2,473

 

Transaction-related fees and expenses

 
 

 

 
1,537

 
598

Loss (gain) on foreign currency exchange
(576
)
 
 
(197
)
 
(773
)
 
(260
)
 
27

Depreciation
52

 
 
241

 
386

 
384

 
451

Amortization of intangibles

 
 
887

 
1,371

 
1,305

 
1,298

Bank related loan costs
917

 
 

 
917

 

 

Acquisition fees and expenses
1,184

 
 
10,770

 
847

 

 

Total operating expenses
7,016

 
 
31,111

 
32,210

 
23,701

 
20,912

Income (loss) from operations
2,480

 
 
(11,269
)
 
1,665

 
7,609

 
10,606

Other expense:
 
 
 
 
 
 
 
 
 
 
Interest
7,007

 
 
8,200

 
15,609

 
16,339

 
19,649

Loss on extinguishment of debt

 
 

 

 
5,470

 

Other

 
 

 
135

 

 

Total other expenses
7,007

 
 
8,200

 
15,744

 
21,809

 
19,649

Loss before income tax provision
(4,527
)
 
 
(19,469
)
 
(14,079
)
 
(14,200
)
 
(9,043
)
Income tax (benefit) provision
(365
)
 
 
164

 
229

 
1,958

 
2,539

Net loss
$
(4,162
)
 
 
$
(19,633
)
 
$
(14,308
)
 
$
(16,158
)
 
$
(11,582
)

Performance during the Fiscal Year Ended September 30, 2012 (“FY 2012”) Compared with the Fiscal Year Ended September 30, 2011 (“FY 2011”)

The following is a discussion of the results of operations for FY 2012 and FY 2011:
Net Sales

17


 
FY 2012
 
FY2011
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Net sales
$
232,233

 
$
237,241

 
(5,008
)
 
(2.1
)%
Net sales were $232.2 million during FY 2012, which represents a decrease of $5.0 million, or 2%, as compared to $237.2 million during FY 2011. The decrease in net sales was primarily attributable to lower resin prices, which resulted in lower transaction prices, combined with a shift in product mix to lighter weight products compared to FY 2011. Total units sold increased approximately 1%, driven by a 6% increase in sales of preforms, while bottle sales were flat compared to FY 2011. The impact of the increase in unit volumes to net sales was more than offset by the impact of the shift in product mix and lower transaction prices compared to FY 2011.
Gross Profit
 
FY 2012
 
FY2011
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Gross profit
$
31,518

 
$
31,310

 
208

 
0.7
%
Gross profit during FY 2012 was $31.5 million, which represents an increase of $0.2 million compared to $31.3 million during FY 2011. Gross margin as a percentage of net sales was 13.6% during FY 2012 compared to 13.2% during FY 2011. Gross profit was positively impacted during FY 2012 by lower conversion costs, which was primarily driven by integration-related manufacturing variances of $2.4 million in FY 2011 being eliminated in FY 2012, and a planned reduction in direct labor costs. The impact of the reduction in conversion costs was partially offset by a $1.4 million increase in depreciation expense. Gross profit excluding depreciation expense increased $1.6 million compared to FY 2011. Gross profit excluding depreciation expense as a percentage of net sales was 19.8% during FY 2012 compared to 18.7% during FY 2011.
Operating Expenses
 
FY 2012
 
FY2011
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
18,538

 
$
18,262

 
276

 
1.5
 %
Other operating expenses
2,374

 
5,439

 
(3,065
)
 
(56.4
)%
Total operating expenses
$
20,912

 
$
23,701

 
(2,789
)
 
(11.8
)%
SG&A Expenses
SG&A expenses for FY 2012 were $18.5 million, compared to expenses of $18.3 million in FY 2011. The increase compared to FY 2011 was driven by additional administrative expenses to support our assessment of the design and operating effectiveness of our internal controls over financial reporting.
Other Operating Expenses
Other operating expenses during FY 2012 were $2.4 million, which represents a decrease of $3.1 million, or 56.4% compared to FY 2011. The improvement in other operating expenses is primarily due to $2.5 million of restructuring costs incurred during FY 2011 related to plant integrations as part of our PVC integration plan, which was completed during FY 2011. In addition, transaction related fees and expenses decreased $0.9 million driven by a $0.4 million decrease in fees associated with the registration of the Notes with the SEC during FY 2011 and a $0.5 million decrease in professional fees associated with our exploration of acquisition opportunities. The impact of unfavorable changes in foreign currency exchange rates compared to FY2011 partially offset the decreases in transaction related fees and expenses and restructuring expenses by $0.3 million.

18


Other Expenses
 
FY 2012
 
FY2011
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Interest expense
$
19,649

 
$
16,339

 
3,310

 
20.3
 %
Loss on extinguishment of debt

 
5,470

 
(5,470
)
 
(100.0
)%
Total other expenses
$
19,649

 
$
21,809

 
(2,160
)
 
(9.9
)%
Interest expense during FY 2012 was $19.6 million, which represents an increase of $3.3 million, or 20.3%, compared to FY 2011. Interest expense, excluding amortization of deferred financing fees, increased $2.7 million compared to FY 2011 due to the increased level of indebtedness as a result of the Refinancing. Amortization of deferred financing fees included in interest expense increased $0.6 million due to the capitalization of $9.7 million of deferred financing fees as a result of the Refinancing.
We recorded a $5.5 million loss on the extinguishment of debt repaid in connection with the Refinancing on March 31, 2011. The amount represents the write off of net deferred financing costs from previously outstanding costs, original issue discount, prepayment penalties and other related costs from the Refinancing.
Income Tax Provision
 
FY 2012
 
FY2011
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Income tax provision
$
2,539

 
$
1,958

 
581

 
29.7
%
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 PVC, are subject to corporate income taxes under Subchapter C of the Internal Revenue Code. We recognized an income tax provision of $2.5 million and $2.0 million during FY 2012 and FY 2011, respectively, for Robb and PVC based on their pre-tax income or loss.

Performance during the Fiscal Year Ended September 30, 2011 (“FY 2011”) Compared with the Pro Forma Fiscal Year Ended September 30, 2010 (“PF 2010”)

The following is a discussion of the results of operations for FY 2011 and PF 2010:
Net Sales
 
FY 2011
 
PF 2010
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Net sales
$
237,241

 
$
234,118

 
3,123

 
1.3
%
Net sales during FY 2011 were $237.2 million, which represents an increase of $3.1 million, or 1.3%, as compared to $234.1 million during PF 2010. With significant increases in raw material costs, particularly in PET resin, during the current period, 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 one to four month delay. The impact of higher transaction pricing was offset by a decrease in overall volumes resulting from the closure of our Muscatine, IA facility, which ceased most operations in late 2010 and was closed in March 2011.
Gross Profit
 
FY 2011
 
PF 2010
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Gross profit
$
31,310

 
$
33,875

 
(2,565
)
 
(7.6
)%

19


Gross profit during FY 2011 was $31.3 million (or 13.2% of net sales), which represents a decrease of $2.6 million, or 7.6% as compared to $33.9 million (or 14.5% of net sales) during PF 2010. During FY 2011, we experienced significant resin price increases. 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 FY 2011 margins. The decrease in gross profit percentage was offset slightly by the cost reductions resulting from consolidation of our operations.
Operating Expenses
 
FY 2011
 
PF 2010
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
18,262

 
$
22,778

 
(4,516
)
 
(19.8
)%
Other operating expenses
5,439

 
9,432

 
(3,993
)
 
(42.3
)%
Total operating expenses
$
23,701

 
$
32,210

 
(8,509
)
 
(26.4
)%
SG&A Expenses
SG&A expenses during FY 2011 were $18.3 million, which represents a decrease of $4.5 million, or 19.8%, as compared to PF 2010. The decrease is due to SG&A reductions derived from the termination of operations of the PVC headquarters in Eatontown, NJ, along with other reductions related to our integration plan, which reduced the impact to on-going expenses.
Other Operating Expenses
Other operating expenses during FY 2011 were $5.4 million, which represents a decrease of $4.0 million, or 42.3%, as compared to PF 2010. The FY 2011 other operating expenses primarily consisted of $2.5 million of restructuring costs related to plant integrations as part of our PVC integration plan, $1.0 million of professional fees associated with our exploration of acquisition opportunities, and $0.5 million of fees associated with the registration of the Notes with the SEC. The PF 2010 other operating expenses includes $6.7 million of restructuring expenses related to the initial steps of our PVC integration plan.
Other Expenses
 
FY 2011
 
PF 2010
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Interest expense
$
16,339

 
$
15,609

 
730

 
4.7
 %
Loss on extinguishment of debt
5,470

 

 
5,470

 
100.0
 %
Other

 
135

 
(135
)
 
(100.0
)%
Total other expenses
$
21,809

 
$
15,744

 
6,065

 
38.5
 %
Interest expense during FY 2011 was $16.3 million, which represents an increase of $0.7 million, or 4.7%, as compared to $15.6 million during PF 2010. The amortization of deferred financing fees included in interest expense during FY 2011 and PF 2010 was $1.3 million and $0.4 million, respectively. Interest expense, excluding amortization of deferred financing fees, decreased $0.2 million during FY 2011 primarily due to the lower borrowing levels in place for us after the Acquisition. Prior to the Refinancing in March 2011, our borrowing levels and effective interest rate of these borrowings were lower than levels reflected in PF 2010. For the period subsequent to the Refinancing, our borrowing levels and effective interest rate increased compared to the levels reflected in PF 2010.
Income Tax Provision
 
FY 2011
 
PF 2010
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Income tax provision
$
1,958

 
$
229

 
1,729

 
755.0
%
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 PVC, are subject to corporate income taxes under Subchapter C of the Internal Revenue Code. For FY 2011, we recognized an

20


income tax provision of $2.0 million compared to a provision of $0.2 million for the PF 2010 Period for Robb and PVC based on their pre-tax income or loss recognized.

21


Non-GAAP Financial Measures
We have included information concerning EBITDA and Adjusted EBITDA in this annual report because they are the bases upon which our management assesses our operating performance and are components of certain covenants in our ABL Facility. 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.
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 periods indicated below:
 
Predecessor
 
 
Successor
 
 
 
 
 
October 1,
 
 
February 17,
 
 
 
 
 
 
 
 
 
2009 through
 
 
2010 through
 
 
 
 
Net Loss to Adjusted EBITDA Reconciliation (in thousands):
Fiscal
 
February 16,
 
 
September 30,
 
Fiscal
2008
 
2009
 
2010
 
 
2010
 
2011
 
2012
Net loss
$
(5,748
)
 
$
(5,152
)
 
$
(4,162
)
 
 
$
(19,633
)
 
$
(16,158
)
 
$
(11,582
)
Interest expense
15,006

 
15,990

 
7,007

 
 
8,200

 
16,339

 
19,649

Income tax (benefit) provision
(339
)
 
(948
)
 
(365
)
 
 
164

 
1,958

 
2,539

Depreciation and amortization expense
9,041

 
8,651

 
3,115

 
 
8,346

 
14,708

 
16,119

EBITDA
17,960

 
18,541

 
5,595

 
 
(2,923
)
 
16,847

 
26,725

Management fees (a)

 

 

 
 
1,350

 
2,252

 
2,252

Consulting fees (b)

 

 

 
 
699

 
1,045

 
1,050

Transaction related fees and expenses (c)

 

 

 
 

 
1,537

 
598

Workers comp settlement (d)

 

 

 
 

 

 
298

Loss on extinguishment of debt (e)

 

 

 
 

 
5,470

 

Restructuring expenses (f)

 
790

 

 
 
6,684

 
2,473

 

Integration-related manufacturing variances (g)

 

 

 
 
1,129

 
2,356

 

Acquisition fees and expenses (h)

 

 
1,184

 
 
10,770

 

 

Fair value inventory step up (i)

 

 

 
 
2,782

 

 

Bank related loan costs (j)
440

 
2,159

 
917

 
 

 

 

Non-cash foreign exchange loss (gain) (k)
948

 
342

 
(446
)
 
 

 

 

Adjusted EBITDA
$
19,348

 
$
21,832

 
$
7,250

 
 
$
20,491

 
$
31,980

 
$
30,923

(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 professional fees associated with the registration of our notes with the SEC and the exploration of acquisition opportunities.

22


(d)
Represents the final settlement of outstanding workers compensation claims associated with our closed facility in Muscatine, IA.
(e)
We recorded a loss on the extinguishment of debt repaid in connection with the Refinancing on March 31, 2011. The amount represents the write off of net deferred financing costs from previously outstanding costs, original issue discount, prepayment penalties and other related costs from the Refinancing.
(f)
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 incurred as part of the PVC integration plan.
(g)
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 PVC'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 $2.4 million were incurred during FY 2011. These material and labor variances associated with the integration plans ceased in the quarter ended June 30, 2011.
(h)
Represents transaction related costs as included in acquisition fees and expenses in the consolidated statement of operations. For the period October 1, 2009 to February 16, 2010, approximately $0.6 million of these costs were deferred acquisition related costs that were previously capitalized under FASB Statement No. 141, Business Combinations, (now part of ASC Topic 805 Business Combinations).
(i)
Represents the increase in inventories to fair value in the purchase accounting adjustments recorded as a result of the Acquisition. The amount was charged to costs of goods during the period February 17, 2010 to September 30, 2010.
(j)
Represents deferred financing fees as included in bank related loan costs in the consolidated statement of operations.
(k)
Represents the foreign currency translation impact on debt previously held by our Canadian subsidiary. Concurrent with the Acquisition, the debt held at the Canadian subsidiary was repaid in full.
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. Our measurements of EBITDA and Adjusted EBITDA and the ratios related thereto may not be comparable to similarly titled measures of other companies. Furthermore, 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.

23


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 September 30, 2012, there were no borrowings outstanding under our ABL Facility, which bears interest at variable rates and matures on September 30, 2015. At September 30, 2012, letters of credit issued and outstanding were $1.6 million and borrowing availability under the ABL Facility was $28.4 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.
On March 31, 2011, the Company and Pretium Finance issued $150.0 million aggregate principal amount of the Notes. The Notes are guaranteed by all of the Company's existing and future domestic subsidiaries (other than Pretium Finance) and mature on April 1, 2016.
We were in compliance with all of the covenants contained in our Notes and ABL Facility as of September 30, 2012.
Cash Flows
Our cash flows from operating, investing and financing activities for the fiscal years ended September 30, 2012 and 2011 are summarized in the following table:
 
FY 2012
 
FY 2011
Net cash provided by (used in):
 
 
 
Operating activities
$
10,013

 
$
5,046

Investing activities
(9,619
)
 
(8,387
)
Financing activities
(689
)
 
3,214

Effect of exchange rates
52

 
5

Net (decrease) increase in cash
$
(243
)
 
$
(122
)
As of September 30, 2012, we had cash and cash equivalents of $0.9 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 provided by operating activities was $10.0 million during FY 2012, compared to $5.0 million of cash provided by operating activities during FY 2011. This improvement was primarily due to higher income from operations (excluding non-cash charges for depreciation and amortization) and an increase in cash provided by operating working capital compared to FY 2011. The change in operating assets and liabilities provided $3.5 million of cash during FY 2012 and used $0.1 million during FY 2011. The changes in operating assets and liabilities included:
Cash provided by accounts receivable of $1.6 million and $1.4 million during FY 2012 and FY 2011, respectively, reflecting timing of shipments within both periods and an improvement in days sales outstanding attributable to improvements in collection efforts during FY 2012.
Cash provided by inventories was $0.5 million during FY 2012 due to improvements in inventory management and lower resin costs. Inventories required $4.9 million of cash during FY 2011 primarily due to significant increases in resin costs during the period, particularly PET.
Changes in prepaid expenses and other current assets provided $0.5 million of cash during FY 2012 and used $0.5 million of cash during FY 2011. The generation of cash during FY 2012 was primarily due to a decrease in income taxes receivable while the use of cash in FY 2011 was primarily due to an increase in income taxes receivable.
Changes in accounts payable and accrued expenses provided cash of $1.0 million and used cash of $3.0 million during FY 2012 and FY 2011, respectively, primarily due to timing of payments to vendors at September 30.
Accrued interest and bank fees generated cash of $6.9 million during FY 2011, due to an increase in accrued interest as a result of increased indebtedness and a change in the timing of interest payments as a result of the Refinancing. The Notes require payment of interest semiannually on April 1 and October 1. At September 30, 2012 and 2011 there was six months of interest accrued under the Notes, and therefore the change in accrued interest during FY 2012 was not significant.

Net cash used in investing activities was $9.6 million and $8.4 million during FY 2012 and FY 2011, respectively, resulting from specific cash purchases of property, plant and equipment.

24


Financing activities used $0.7 million of cash during FY 2012 and generated $3.2 million during FY 2011. The use of cash during FY 2012 was primarily due to paying off all outstanding borrowings under the ABL Facility during the period. The cash provided by financing activities during FY 2011 represented borrowings under our ABL Facility to fund operating and investing activities.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).

Contractual Obligations
The following table reflects our contractual commitments associated with our debt and other obligations as of September 30, 2012:
 
 
 
Payments due:
 
Total
 
Less than 1 year
 
1 to 3 years
 
3 to 5 years
 
More than 5 years
Operating lease obligations
$
13,989

 
$
3,597

 
$
5,726

 
$
4,666

 
$

Long-term debt (1)
150,184

 
159

 
25

 
150,000

 

Interest on indebtedness (1)
60,386

 
17,261

 
34,500

 
8,625

 

Management agreement (2)
12,375

 
2,250

 
4,500

 
4,500

 
1,125

Consulting agreement (3)
6,636

 
1,041

 
2,082

 
2,082

 
1,431

Purchase obligations (4)
17,899

 
17,899

 

 

 

Total contractual obligations
$
261,469

 
$
42,207

 
$
46,833

 
$
169,873

 
$
2,556

(1)
Consists of our obligations of principal and interest payments under the Notes and the ABL Facility as of September 30, 2012.
(2)
Consists of our obligations under our management agreement. See Item 13 “Certain Relationships and Related Transactions, and Director Independence—Management Agreement.”
(3)
Consists of our obligations under our consulting agreement. See Item 13 “Certain Relationships and Related Transactions, and Director Independence—Consulting Agreement.”
(4)
Consists of open purchase orders as of September 30, 2012.
Critical Accounting Policies
We evaluated the accounting policies used in the preparation of our financial statements and related notes and believes those policies to be reasonable and appropriate. Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included elsewhere in this annual report. Certain of these accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are 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 are described below. We believe that the amounts recorded in our financial statements related to these areas are based on our best judgments and estimates, although actual results could differ materially under different assumptions or conditions.
Accounts Receivable
Accounts receivable are stated at the amount we expect to collect from outstanding balances. Accounts receivable are recorded at the invoiced amount and do not bear interest. We grant trade credit to our customers, which primarily are manufacturers of personal care products, food, household chemicals, lawn and garden products, and industrial chemical products, and to bottle distributors that sell to such manufacturers. We perform periodic credit evaluations of our customers and generally do not require collateral. We maintain allowances for doubtful accounts for estimated losses resulting from customers’ potential failure to make payments. The allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in

25


our existing accounts receivable. Such estimate is based on historical experience and known specific factors associated with such customers.
Inventories
Inventories include material, labor and overhead and are stated at the lower of cost or market with cost determined by the average cost method. We utilize historical experience and any other known specific factors, such as future demand and market conditions, to provide estimated reserves for excess and obsolete inventory. If actual market conditions deteriorate, additional inventory reserves may be recorded.
Goodwill and Other Indefinite-Lived Intangible Assets
We account for goodwill and other indefinite-lived intangible assets in accordance with the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 350, Goodwill and Other Intangible Assets. In accordance with ASC 350, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired or that there is a probable reduction in the fair value of a reporting unit below its aggregate carrying value. We perform the impairment test of the carrying values of our goodwill and indefinite-lived intangible assets at the reporting unit level during the second quarter of each fiscal year using balances as of December 31.
The goodwill impairment test involves a two-step process. The first step involves comparing the estimated fair value of the reporting unit with its aggregate carrying value, including goodwill. If the reporting unit’s aggregate carrying value exceeds its estimated fair value, we perform the second step of the goodwill impairment test. The second step involves comparing the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill to measure the amount of impairment loss, if any.
The impairment test for indefinite-lived intangibles involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
As a result of these tests, we recorded no impairment charges for the fiscal year ended September 30, 2012.
Long-Lived Assets
We account for long-lived assets, including intangible assets that are amortized, in accordance with FASB ASC 360-10-05-4, Impairment or Disposal of Long-Lived Assets (“FASB ASC 360-10-05-4”) which requires that all long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the related long-lived assets or a situation in which it is more likely than not that we will dispose of such assets. If indicators of impairment are present, reviews are performed to determine whether the carrying value of the long-lived assets to be held and used is impaired. Such reviews involve a comparison of the carrying amount of the asset group to the future net undiscounted cash flows expected to be generated by those assets over their remaining useful lives. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the assets exceeds their fair value and the impaired assets are written down to their fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows. Assets to be disposed are reported at the lower of the carrying amount or fair value, less costs to dispose.
Income Taxes
We are a limited liability company. For income tax purposes, we are considered a pass-through tax entity. Accordingly, we are generally not subject to federal or state income taxes, except for certain states in which it conducts business, and no provision for income taxes has been made in these consolidated financial statements other than for certain subsidiaries which are Subchapter C Corporations.
For those subsidiaries, which are Subchapter C Corporations, we account for income taxes in accordance with the asset and liability based approach. Under that approach, deferred income tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when such differences are expected to reverse. A valuation allowance is recorded, if necessary, to reduce deferred tax assets to their estimated realizable value.
We have adopted FASB ASC 740, Income Taxes, which creates a single model to address accounting for uncertainty in tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

26


Foreign Operations
Our functional currency is the U.S. dollar, except for Pretium Canada Company (“Pretium Canada”), whose functional currency is the Canadian dollar. Results of operations and cash flows are generally translated at average exchange rates during the period, and assets and liabilities are translated at end of period exchange rates. Translation adjustments resulting from this process are reported as a component of members’ equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other than the functional currency are generally included in the results of operations as incurred.
Fair Value of Financial Instruments and Other Intangibles
The carrying amounts in our consolidated balance sheets for debt at September 30, 2012 and 2011 are reported on an amortized cost basis, which approximates the fair value of the debt based on the borrowing rates available to us at those balance sheet dates for loans with similar terms and maturities.
The carrying amounts of cash, receivables, payables, and other current assets and liabilities approximate fair value because of the short term maturity of those instruments.
We measure fair value in accordance with accounting guidance that requires an entity to base fair value on an exit price and maximize the use of observable inputs and minimize the use of unobservable inputs when determining an exit price. Fair value is the price to sell an asset or transfer a liability between market participants at the measurement date. Fair value measurements assume the asset or liability is exchanged in an orderly manner; the exchange is in the principal market for that asset or liability (or in the most advantageous market when no principal market exists); and the market participants are independent, knowledgeable, able and willing to transact an exchange.
Considerable judgment is required in interpreting market data used to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
As described above, we evaluate our intangible and long-lived assets for impairment or recoverability and, if necessary, measure their fair value. Such fair value is determined in accordance with FASB ASC 820, Fair Value Measurements and Disclosures, using unobservable inputs or an income approach, which represent Level 3 inputs under FASB ASC 820.
Revenue Recognition
Revenue is recognized from product sales when there is persuasive evidence of an arrangement, the price is fixed or determinable, the goods are shipped and the title and risk of loss pass to the customer, and collectability is reasonably assured. We record shipping and handling costs charged to customers in net sales, with the related expense recorded in cost of sales. Sales are recorded net of discounts, allowances and returns. Sales allowances are recorded as a reduction to sales in accordance with guidance under ASC 605-50, Customer Payments and Incentives. We pass resin cost adjustments to customers in the form of price adjustments on future quantities sold, typically subject to a one to four month timing delay, and there are no unbilled amounts reflected in our financial statements.
Restructuring Expenses
We account for costs incurred in connection with the closure and consolidation of facilities and functions in accordance with FASB ASC 420, Exit or Disposal Cost Obligations; FASB ASC 712, Compensation — Nonretirement Postemployment Benefits; FASB ASC 360-10-05-4; FASB ASC 805, Business Combinations (“FASB ASC 805”); and Emerging Issues Task Force (“EITF”) No. 95-3 (superseded by FASB ASC 805). Such costs include employee termination benefits (one-time arrangements and benefits attributable to prior service); termination of contractual obligations; the write-down of current and long-term assets to the lower of cost or fair value; and other direct incremental costs including relocation of employees, inventory and equipment.

27


Recent Accounting Pronouncements
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 in fiscal 2012 concerned disclosure only and did 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 Company does not currently expect the adoption of this update in fiscal 2013 will have a significant effect on its consolidated financial statements and related disclosures.
In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). ASU 2012-02 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 an indefinite-lived intangible asset 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 an indefinite-lived intangible asset is less than its carrying amount, then the performance of the quantitative impairment test, as currently prescribed by ASC Topic 350-30, is required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company does not currently expect the adoption of this update in fiscal 2013 will have a significant effect on its consolidated financial statements and related disclosures.
Item 7A.
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 September 30, 2012, 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 September 30, 2012, we had no floating rate debt outstanding and the weighted average interest rate for all debt was 11.5%.

28


Item 8.
Financial Statements and Supplementary Data


Index to Financial Statements
 
 
Page #
 
 
 
 
 
 
 
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


29



Report of Independent Registered Public Accounting Firm
The Board of Directors
Pretium Packaging, LLC:
We have audited the accompanying consolidated balance sheets of Pretium Packaging, LLC and subsidiaries (the Company) as of September 30, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), changes in members' equity (deficit), and cash flows for the years ended September 30, 2012 and 2011 and the periods from February 17, 2010 to September 30, 2010 (Successor period) and from October 1, 2009 to February16, 2010 (Predecessor period). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pretium Packaging, LLC and subsidiaries as of September 30, 2012 and 2011, and the results of their operations and their cash flows for the years ended September 30, 2012 and 2011 and the periods from February 17, 2010 to September 30, 2010 (Successor period) and from October 1, 2009 to February 16, 2010 (Predecessor period), in conformity with U.S. generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, all of the Company's operations were acquired by Pretium Intermediate Holding, LLC on the close of business on February 16, 2010 in a transaction accounted for as a business combination. As a result of the acquisition, the consolidated financial information for the periods after acquisition is presented on a different cost basis than that for the periods before the acquisition and, therefore, is not comparable.

 
 
/s/ KPMG LLP
 
 
 
St. Louis, Missouri
November 30, 2012
 



30


PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30,
2012
 
September 30,
2011
Assets
 
 
 
Current assets:
 
 
 
Cash
$
913

 
$
1,156

Accounts receivable, net of allowances of $716 and $754
24,163

 
25,543

Inventories
23,895

 
24,017

Prepaid expenses and other assets
3,671

 
4,047

Deferred tax assets
669

 
642

Total current assets
53,311

 
55,405

Property, plant and equipment, net
72,410

 
77,172

Other assets:
 
 
 
Goodwill
40,561

 
40,354

Other intangibles, net
35,010

 
35,874

Deferred financing fees, net
6,738

 
8,688

Other non current assets
393

 
442

Total other assets
82,702

 
85,358

Total assets
$
208,423

 
$
217,935

Liabilities and Members' Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
159

 
$
169

Accounts payable
22,363

 
21,570

Accrued expenses
6,254

 
5,727

Accrued interest and bank fees
8,672

 
8,711

Total current liabilities
37,448

 
36,177

Long-term liabilities:
 
 
 
Long-term debt, less current maturities
150,025

 
150,688

Deferred tax liabilities
9,610

 
8,691

Other long-term liabilities
683

 
806

Total long-term liabilities
160,318

 
160,185

 
 
 
 
Members' equity:
 
 
 
Members' equity
9,265

 
21,636

Accumulated other comprehensive income (loss)
1,392

 
(63
)
Total members' equity
10,657

 
21,573

Total liabilities and members' equity
$
208,423

 
$
217,935


See accompanying notes to consolidated financial statements.

31


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

 
Successor
 
 
Predecessor
 
 
 
 
 
February 17, 2010 through September 30,
 
 
October 1, 2009 through February 16,
 
Fiscal year ended September 30,
 
 
 
 
 
 
 
 
2012
 
2011
 
2010
 
 
2010
Net sales
$
232,233

 
$
237,241

 
$
148,991

 
 
$
58,621

Cost of sales
200,715

 
205,931

 
129,149

 
 
49,125

Gross profit
31,518

 
31,310

 
19,842

 
 
9,496

 
 
 
 
 

 
 

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
18,538

 
18,262

 
12,726

 
 
5,439

Restructuring expenses

 
2,473

 
6,684

 
 

Transaction-related fees and expenses
598

 
1,537

 

 
 

Loss (gain) on foreign currency exchange
27

 
(260
)
 
(197
)
 
 
(576
)
Depreciation
451

 
384

 
241

 
 
52

Amortization of intangibles
1,298

 
1,305

 
887

 
 

Bank related loan costs

 

 

 
 
917

Acquisition fees and expenses

 

 
10,770

 
 
1,184

Total operating expenses
20,912

 
23,701

 
31,111

 
 
7,016

Income (loss) from operations
10,606

 
7,609

 
(11,269
)
 
 
2,480

Other expenses:
 
 
 
 
 
 
 
 
Interest
19,649

 
16,339

 
8,200

 
 
7,007

Loss on extinguishment of debt

 
5,470

 

 
 

Total other expenses
19,649

 
21,809

 
8,200

 
 
7,007

Loss before income tax provision (benefit)
(9,043
)
 
(14,200
)
 
(19,469
)
 
 
(4,527
)
Income tax provision (benefit)
2,539

 
1,958

 
164

 
 
(365
)
Net loss
$
(11,582
)
 
$
(16,158
)
 
$
(19,633
)
 
 
$
(4,162
)

See accompanying notes to consolidated financial statements.


32


PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)


 
Successor
 
 
Predecessor
 
 
 
 
 
February 17, 2010 through September 30,
 
 
October 1, 2009 through February 16,
 
Fiscal year ended September 30,
 
 
 
 
 
 
 
 
2012
 
2011
 
2010
 
 
2010
Comprehensive Income (Loss):