PRETIUM PACKAGING L L C - FORM 10-Q - February 12, 2013

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

FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 quarterly period ended December 31, 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 whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Pretium Packaging, L.L.C
Yes ý
No ¨
Pretium Finance, Inc.
Yes ý
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Pretium Packaging, L.L.C
Yes ý
No ¨
Pretium Finance, Inc.
Yes ý
No ¨








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

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

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

As of February 12, 2013:
Pretium Packaging, L.L.C.
100% of Membership Interests owned by Pretium Intermediate Holding, LLC.
Pretium Finance, Inc.
100 shares of Common Stock, par value $0.01 per share outstanding.

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





Index to Form 10-Q

 
 
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 “Notes” means the senior secured notes issued on March 31, 2011 in an aggregate principal amount of $150.0 million. The “ABL Facility” means our asset backed revolving credit facility.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements which may be "forward-looking statements" within the meaning of the federal securities laws, All of the statements other than historical facts, are forward-looking statements. As a general matter, forward-looking statements are those focused upon anticipated events or trends, expectations, and beliefs relating to matters that are not historical in nature. The words “could,” “anticipate,” “preliminary,” “expect,” “believe,” “estimate,” “intend,” “plan,” “will,” “foresee,” “project,” “forecast,” or the negative thereof or variations thereon, and similar expressions identify forward-looking statements.
Although we believe that these statements are based on reasonable assumptions, they are subject to numerous risks, uncertainties and other factors that may be beyond our control. These known and unknown risks, uncertainties and other factors could cause actual results to differ materially from those matters expressed in, anticipated by or implied by such forward-looking statements.
These risks, uncertainties and other factors include, but are not limited to:
•
our substantial indebtedness and ability to incur more debt;
•
our liquidity and capital resources;
•
macroeconomic conditions in the United States, Canada and elsewhere;
•
competitive pressures and trends in the plastic packaging industry;
•
changes in the prevailing prices and availability of resin and other raw materials and our ability to pass on increases in raw material prices on a timely basis;
•
changes in the demand for, supply of or prices of our products;
•
changes in U.S. dollar and Canadian dollar exchange rates;
•
our ability to successfully implement our business strategy;
•
increases in the cost of compliance with laws and regulations;
•
catastrophic loss or shutdown of one of our manufacturing facilities;
•
our ability to attract and retain qualified management personnel; and
•
increased labor costs or prolonged work stoppages at any of our facilities with unionized labor.
The foregoing factors should not be construed as exhaustive and should be read together with important information regarding risks and factors that may affect the Company’s future performance set forth under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 (under "Item 1A Risk Factors").
These statements reflect the current views and assumptions of management with respect to future events. 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. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The inclusion of any statement in this Quarterly Report on Form 10-Q does not constitute an admission by the Company or any other person that the events or circumstances described in such statement are material.

ii

PART 1 – FINANCIAL INFORMATION

Item 1.
Financial Statements

PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
December 31,
2012
 
September 30,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash
$
1,191

 
$
913

Accounts receivable, net of allowances of $707 and $716
20,802

 
24,163

Inventories
27,126

 
23,895

Prepaid expenses and other assets
2,303

 
3,671

Deferred tax assets
691

 
669

Total current assets
52,113

 
53,311

Property, plant and equipment, net
71,233

 
72,410

Other assets:
 
 
 
Goodwill
40,522

 
40,561

Other intangibles, net
34,604

 
35,010

Deferred financing fees, net
6,250

 
6,738

Other non current assets
390

 
393

Total other assets
81,766

 
82,702

Total assets
$
205,112

 
$
208,423

Liabilities and Members' Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
140

 
$
159

Accounts payable
19,838

 
22,363

Accrued expenses
6,992

 
6,254

Accrued interest and bank fees
4,375

 
8,672

Total current liabilities
31,345

 
37,448

Long-term liabilities:
 
 
 
Long-term debt, less current maturities
157,980

 
150,025

Deferred tax liabilities
9,440

 
9,610

Other long-term liabilities
625

 
683

Total long-term liabilities
168,045

 
160,318

 
 
 
 
Members' equity:
 
 
 
Members' equity
4,588

 
9,265

Accumulated other comprehensive income
1,134

 
1,392

Total members' equity
5,722

 
10,657

Total liabilities and members' equity
$
205,112

 
$
208,423


See accompanying notes to condensed consolidated financial statements.

1

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

 
Three Months Ended
 
December 31,
 
2012
 
2011
 
 
 
 
Net sales
$
52,720

 
$
54,999

Cost of sales
46,018

 
47,860

Gross profit
6,702

 
7,139

 
 
 
 
Operating expenses:
 
 
 
Selling, general and administrative expenses
4,585

 
4,628

Transaction-related fees and expenses
895

 
200

Loss on foreign currency exchange
53

 
17

Depreciation
129

 
109

Amortization of intangibles
325

 
323

Total operating expenses
5,987

 
5,277

Income from operations
715

 
1,862

Other expenses:
 
 
 
Interest
4,909

 
4,935

Total other expenses
4,909

 
4,935

Loss before income tax provision
(4,194
)
 
(3,073
)
Income tax provision
483

 
629

Net loss
$
(4,677
)
 
$
(3,702
)

See accompanying notes to condensed consolidated financial statements.


2

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


 
Three Months Ended
 
December 31,
 
2012
 
2011
Comprehensive Income (Loss):
 
 
 
Net loss
$
(4,677
)
 
$
(3,702
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments, net
(258
)
 
689

Total comprehensive loss
$
(4,935
)
 
$
(3,013
)

See accompanying notes to condensed consolidated financial statements.


3

PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended
 
December 31,
 
2012
 
2011
Cash Flows From Operating Activities
 
 
 
Net loss
$
(4,677
)
 
$
(3,702
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
3,979

 
3,598

Amortization of intangibles
325

 
323

Amortization of deferred financing fees
488

 
494

Deferred taxes
(182
)
 
333

Changes in assets and liabilities:
 
 
 
Accounts receivable
3,313

 
3,390

Inventories
(3,284
)
 
(469
)
Prepaid expenses and other assets
1,367

 
630

Accounts payable and accrued expenses
(1,734
)
 
(4,398
)
Accrued interest and bank fees
(4,297
)
 
(4,334
)
Other
(50
)
 
29

Net cash used in operating activities
(4,752
)
 
(4,106
)
Cash Flows From Investing Activities
 
 
 
Purchase of property, plant and equipment
(2,900
)
 
(2,673
)
Net cash used in investing activities
(2,900
)
 
(2,673
)
Cash Flows From Financing Activities
 
 
 
Repayments to revolving line of credit
(15,493
)
 
(16,225
)
Proceeds from revolving line of credit
23,473

 
23,011

Repayments of other debt obligations
(44
)
 
(41
)
Payment of bank and other related loan fees
—

 
(16
)
Net cash provided by financing activities
7,936

 
6,729

Net increase (decrease) in cash
284

 
(50
)
Effect of foreign currency translation adjustment
(6
)
 
14

Cash - beginning of period
913

 
1,156

Cash - end of period
$
1,191

 
$
1,120

 
 
 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
$
8,713

 
$
8,759

Income taxes paid
$
277

 
$
65


See accompanying notes to condensed consolidated financial statements.

4

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

Note 1.
Summary of Significant Accounting Policies
Basis of Presentation
Pretium Packaging, L.L.C. (the “Company”) was formed in 1998 (its origins date back to 1992) as a Delaware limited liability company for the purpose of acquiring and operating plastics manufacturing related businesses.
On February 16, 2010, all of the Company's operations were acquired by Pretium Intermediate Holding, LLC (the “Acquisition”), a newly formed Delaware limited liability company for the purpose of the Acquisition. This transaction was accounted for as a business combination, which required an allocation of the total consideration to the identifiable assets and liabilities measured at fair value at the acquisition date. The Company is now a wholly owned subsidiary of Pretium Intermediate Holding, LLC (“Pretium Intermediate”), which is a wholly owned subsidiary of Pretium Holding, LLC (“Pretium Holding”).
The Company conducts its business from its corporate headquarters in Chesterfield, Missouri, with nine manufacturing plants in the United States and two in Canada (“Pretium Canada”). The Company manufactures a variety of injection blow molded (“IBM”), extrusion blow molded (“EBM”), injection stretch blow molded (“SBM”) and injection molded (“IM”) plastic bottles, jars, containers, preforms, and closures.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the complete consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012.
Other than as specifically indicated in these “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, the Company has not materially changed its significant accounting policies from those disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2012.
Recently Issued and Adopted Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update is 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 did not have a significant impact on the Company's consolidated financial position or results of operations.

5

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. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the performance of the two-step goodwill impairment test, as currently prescribed by ASC Topic 350, is required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance did not have a significant impact on the Company's consolidated financial position or results of operations.
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. 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 adoption of this guidance did not have a significant impact on the Company's consolidated financial position or results of operations.
Note 2.
Inventories
Inventories, stated at lower of cost or market, consisted of the following at December 31, 2012 and September 30, 2012:  
 
 
December 31,
2012
 
September 30,
2012
Finished goods
$
16,175

 
$
12,475

Raw materials
10,951

 
11,420

Inventories
$
27,126

 
$
23,895

Note 3.
Property, Plant, and Equipment, Net
Property, plant, and equipment at December 31, 2012 and September 30, 2012 consisted of the following:  
 
 
December 31,
2012
 
September 30,
2012
Land
 
$
2,120

 
$
2,120

Buildings and improvements
 
24,246

 
24,962

Machinery and equipment
 
55,780

 
54,469

Molds
 
25,676

 
24,866

Capital improvements in progress
 
3,127

 
1,794

Property, plant and equipment, gross
 
110,949

 
108,211

Accumulated depreciation
 
(39,716
)
 
(35,801
)
Property, plant and equipment, net
 
$
71,233

 
$
72,410


6

Depreciation expense was $4.0 million and $3.6 million during the three month periods ended December 31, 2012 and 2011, respectively.
Note 4.
Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the three month period ended December 31, 2012 and the year ended September 30, 2012 are presented in the table below: 
 
 
December 31,
2012
 
September 30,
2012
Beginning balance
 
$
40,561

 
$
40,354

Currency translation adjustment
 
(39
)
 
207

Ending balance
 
$
40,522

 
$
40,561

Other Intangible Assets
The following table presents the gross carrying amount and accumulated amortization of other intangible assets at December 31, 2012:
 
 
Gross carrying amount
 
Weighted average amortization period
 
Accumulated Amortization
 
Currency Translation Adjustment
 
Net Book Value
Customer relationships
 
$
25,800

 
20 years
 
(3,735
)
 
201

 
$
22,266

Trademarks
 
12,280

 
Indefinite
 
(80
)
 
138

 
12,338

Total
 
$
38,080

 
 
 
(3,815
)
 
339

 
$
34,604

The following table presents the gross carrying amount and accumulated amortization of other intangible assets at September 30, 2012:
 
 
Gross carrying amount
 
Weighted average amortization period
 
Accumulated Amortization
 
Currency Translation Adjustment
 
Net Book Value
Customer relationships
 
$
25,800

 
20 years
 
$
(3,410
)
 
$
246

 
$
22,636

Trademarks
 
12,280

 
Indefinite
 
(80
)
 
174

 
12,374

Total
 
$
38,080

 
 
 
$
(3,490
)
 
$
420

 
$
35,010

Customer relationships are amortized over 20 years. The accumulated amortization related to the Trademarks is related to the subsequent amortization of the PVC trademarks. The Pretium trademark is not amortized and has an indefinite useful life.
Amortization expense was $0.3 million during each of the the three month periods ended December 31, 2012 and 2011.

7

Note 5.
Long-term Debt
At December 31, 2012 and September 30, 2012, long-term debt obligations consisted of the following:
 
December 31,
 
September 30,
 
2012
 
2012
Long-term debt:
 
 
 
Revolving line of credit
$
7,980

 
$
—

11.5% senior secured notes
150,000

 
150,000

Total Senior Debt
157,980

 
150,000

Other
140

 
184

Total long-term debt, including current maturities
158,120

 
150,184

Current maturities of long-term debt
140

 
159

Total long-term debt, less current maturities
$
157,980

 
$
150,025

Under the terms of the Company’s debt agreements, at December 31, 2012, the scheduled interest rates and maturity dates were as follows:
 
Interest rates
 
Scheduled maturity dates
Revolving line of credit
Prime plus 0.5% *
 
September 30, 2015
11.5% senior secured notes
11.5%
 
April 1, 2016
*
The revolving line of credit also has interest rate options based on LIBOR plus a margin of 1.5%. At December 31, 2012, the applicable rate under the prime and LIBOR options was 3.75% and 1.71%, respectively.
Note 6.
Pretium Capital Structure
At December 31, 2012, the Company’s capital structure consisted of 1 share of its Class A Member units, held by Pretium Intermediate. Pretium Intermediate is 100% owned by Pretium Holding as of December 31, 2012. The membership units of Pretium Holding are designated Class A units, Class B-1 units, Class B-2 units and Class B-3 units. The Class A and B-2 units contain certain distribution and liquidation preferences, the Class B-1 units contain voting rights and the Class B-3 units are non-voting units intended for employees and directors.
Note 7.
Income Taxes
The Company is a pass-through tax entity except for certain states in which it conducts business. No provision for income taxes has been made in these condensed consolidated financial statements other than for certain subsidiaries which are Subchapter C Corporations.
The effective tax rate differs from the statutory tax rate for the Company primarily due to the Company’s pass-through entity treatment for tax purposes. Losses before income tax at the partnership level exceeded the income before income tax at the subsidiary level and the Company recorded an income tax provision of $0.5 million and $0.6 million during the three month periods ended December 31, 2012 and 2011, respectively.

8

The Company evaluates the net realizable value of its deferred tax assets each reporting period. The Company must consider all objective evidence, both positive and negative, in evaluating the future realization of its deferred tax assets, including tax loss carry forwards. Historical information is supplemented by all currently available information about future tax years. Realization requires sufficient taxable income to use deferred tax assets. The Company records a valuation allowance for each deferred tax asset for which realization is assessed as not more likely than not. In particular, the Company’s assessment that deferred tax assets will be realized considered the estimate of future  taxable income generated from various sources, including the expected recovery of operations from the Canadian subsidiary, and increased profitability due to prior cost reductions, plant restructuring, and revenue growth. If the current estimates of future taxable income are not realized, or future estimates of taxable income are reduced, then the assessment regarding the realization of deferred tax assets could change and have a material impact on the statement of operations. As of December 31, 2012, the Company’s valuation allowance of $3.7 million increased $0.1 million from September 30, 2012.
At December 31, 2012 and September 30, 2012, the total balance of unrecognized tax benefits was $0.1 million.
Note 8.
Contingencies
The Company is involved in various claims and legal proceedings and administrative actions arising in the ordinary course of business. In the opinion of management, the ultimate conclusion of these matters will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.
Note 9.
Fair Value Measurement
The Company's financial instruments consist primarily of cash equivalents, trade receivables, trade payables and debt instruments. The book value of these instruments is a reasonable estimate of their respective fair values.
The Company does not have any financial assets or liabilities measured at fair value on a recurring basis as of December 31, 2012.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are tested for impairment on the occurrence of a triggering event or in the case of goodwill and other indefinite-lived intangible assets, on at least an annual basis. The Company completed its annual impairment test of the carrying values of goodwill and indefinite-lived trademarks as of December 31, 2012 and concluded there was no impairment. The Company did not identify any events or changes in circumstances that would indicate that the carrying amount of long-lived assets may not be recoverable as of December 31, 2012.
The Company does not have any other financial instruments within the scope of the fair value disclosure requirements as of December 31, 2012.
Note 10.
Related Party Transactions
On February 17, 2010, the former majority owner of the Company, who now serves on the Company's Board of Directors, entered into a seven year consulting agreement (including a non-competition clause). The Company's cost for these services was $0.3 million for each of the three month periods ended December 31, 2012 and 2011.

9

The Company has entered into a management agreement to retain Castle Harlan, Inc. to provide business and organizational strategy, financial and investment management, advisory, and merchant and investment banking services to the Company. In exchange for these services, the Company pays management fees of $2.3 million, annually. The Company recorded total expense related to this agreement of $0.6 million for each of the three month periods ended December 31, 2012 and 2011.
The fees for both of these related party agreements are included within selling, general and administrative expenses in the condensed consolidated statements of operations.
Note 11.
Segment Information
The Company operates as a single reportable segment based on the “management” approach. This approach designates the internal reporting used by management for making decisions and assessing performance as the source of the reportable segments.
The following table provides the geographic distributions of the Company's net sales for the three month periods ended December 31, 2012 and 2011:
Net Sales
 
U.S.
 
Canada
 
Total
Quarter ended December 31, 2012
 
$
43,741

 
$
8,979

 
$
52,720

Quarter ended December 31, 2011
 
$
44,607

 
$
10,392

 
$
54,999

The following table provides the geographic distributions of the Company's long-lived assets as of December 31, 2012 and September 30, 2012:
Total Long-lived Assets
 
U.S.
 
Canada
 
Total
December 31, 2012
 
$
128,734

 
$
17,625

 
$
146,359

September 30, 2012
 
$
129,664

 
$
18,317

 
$
147,981


10

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, including the financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations, and the interim condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q.
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. Preforms are manufactured by the injection molding process and generally have the lowest material margin of any product we sell.
Our raw materials consist of resins, colorants and packaging materials. Over the past several years there have been significant fluctuations in the price of resin, which is our largest component of cost of goods sold. Various factors including changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced have contributed to these price fluctuations. Primary resins used in our products are PET and HDPE. Our other manufacturing costs consist of labor, utilities and facilities maintenance.
Based on certain resin industry indices, the following table summarizes average market prices per pound of PET and HDPE resins in the United States during the periods indicated:
 
Three months ended December 31,
 
2012
 
2011
PET
$
0.92

 
$
0.93

HDPE
$
0.66

 
$
0.67

Source: ChemData

11

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.
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.
Effects of Inflation
While inflationary increases in certain costs, such as freight, transportation, utilities, health insurance and wages, 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. Sales prices are primarily impacted by changes in resin prices which are driven by fluctuations in petrochemicals, feedstock, and in foreign currency and the general impact of supply and demand. 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.
Results of Operations
Performance during the Quarter Ended December 31, 2012 (“Q1 FY13”) Compared with the Quarter Ended December 31, 2011 (“Q1 FY12”)
Net Sales
 
Q1 2013
 
Q1 2012
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Net sales
$
52,720

 
$
54,999

 
$
(2,279
)
 
(4.1
)%
Net sales were $52.7 million during Q1 FY13, which represents a decrease of $2.3 million, or 4%, as compared to $55.0 million during Q1 FY12. The overall decrease in net sales was primarily attributable to lower resin prices which resulted in lower transaction prices compared to Q1 FY12. Bottle sales volume increased 1%, while preform sales decreased 19%, in each case, compared to Q1 FY12. The decrease in preform sales was primarily driven by a weak apple crop in the Eastern U.S. and Canada which impacted our largest preform customer's demand for preforms used in filling apple juice.

12

Gross Profit
 
Q1 2013
 
Q1 2012
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Gross profit
$
6,702

 
$
7,139

 
$
(437
)
 
(6.1
)%
Gross profit during Q1 FY13 was $6.7 million, which represents a decrease of $0.4 million compared to $7.1 million during Q1 FY12. Gross profit as a percentage of net sales was 12.7% during Q1 FY13 compared to 13.0% during Q1 FY12. The decrease in gross profit is primarily attributable to an increase in depreciation expense of $0.4 million, or 10%, compared to Q1 FY12. The impact of the decrease in net sales noted above was offset by a $1.4 million decrease in material costs and a $0.8 million decrease in conversion costs compared to Q1 FY12.
Operating Expenses
 
Q1 2013
 
Q1 2012
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
4,585

 
$
4,628

 
$
(43
)
 
(0.9
)%
Other operating expenses
1,402

 
649

 
753

 
116.0
 %
Total operating expenses
$
5,987

 
$
5,277

 
$
710

 
13.5
 %
SG&A Expenses
SG&A expenses were $4.6 million during Q1 FY13, which was unchanged compared to Q1 FY12.
Other Operating Expenses
Other operating expenses during Q1 FY13 were $1.4 million, which represents an increase of $0.8 million compared to Q1 FY12. The increase in other operating expenses is due to a $0.7 million increase in transaction related fees and expenses associated with our exploration of acquisition opportunities in Q1 FY13 compared to Q1 FY12.
Other Expenses
 
Q1 2013
 
Q1 2012
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Interest expense
$
4,909

 
$
4,935

 
$
(26
)
 
(0.5
)%
Interest expense during Q1 FY13 was $4.9 million, which was unchanged compared to Q1 FY12.
Income Tax Provision
 
Q1 2013
 
Q1 2012
 
$ Change
 
% Change
In thousands
 
 
 
 
 
 
 
Income tax provision
$
483

 
$
629

 
$
(146
)
 
(23.2
)%
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

13

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 $0.5 million during Q1 FY13 and $0.6 million during Q1 FY12 for for Robb and PVC based on their pre-tax income or loss.
Non-GAAP Financial Measures
We have included information concerning EBITDA and Adjusted EBITDA in this quarterly 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 three month periods ended December 31, 2012 and 2011:
 
 
Three Months Ended
 
 
December 31,
 
 
2012
 
2011
Net Loss to Adjusted EBITDA Reconciliation:
 
 
 
 
Net loss
 
$
(4,677
)
 
$
(3,702
)
Interest expense, net
 
4,909

 
4,935

Tax expense
 
483

 
629

Depreciation and amortization expense
 
4,304

 
3,921

EBITDA
 
5,019

 
5,783

Management fees (a)
 
563

 
563

Consulting fees (b)
 
250

 
250

Transaction related fees and expenses (c)
 
895

 
200

Adjusted EBITDA
 
$
6,727

 
$
6,796

(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 exploration of acquisition opportunities during Q1 FY13 and the registration of the Notes with the SEC during Q1 FY12.
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

14

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 under our ABL Facility.
The ABL Facility provides senior secured financing of up to $30.0 million, subject to borrowing base and certain other restrictions on availability. As of December 31, 2012, there was $8.0 million outstanding under our ABL Facility, which bears interest at variable rates and matures on September 30, 2015. At December 31, 2012, letters of credit issued and outstanding were $1.6 million and borrowing availability under the ABL Facility was $20.4 million.
We believe that cash flows from operations and borrowings under 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 the Notes and ABL Facility as of December 31, 2012.


15

Cash Flows
Our cash flows from operating, investing and financing activities for the three month periods ended December 31, 2012 and 2011 are summarized in the following table:
 
Three months ended December 31,
 
2012
 
2011
Net cash provided by (used in):
 
 
 
Operating activities
$
(4,752
)
 
$
(4,106
)
Investing activities
(2,900
)
 
(2,673
)
Financing activities
7,936

 
6,729

Effect of exchange rates
(6
)
 
14

Net (decrease) increase in cash
$
278

 
$
(36
)
As of December 31, 2012, we had cash and cash equivalents of $1.2 million. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. The carrying value of these investments approximates fair value.
Cash used in operating activities was $4.8 million during Q1 FY13, compared to $4.1 million of cash used in operating activities during Q1 FY12. Cash used in operating activities during both periods was primarily due to the payment of accrued interest under the Notes on October 1, 2012 and 2011. The change in operating assets and liabilities used $4.7 million of cash during Q1 FY13 and $5.2 million during Q1 FY12. The changes in operating assets and liabilities included:
•
Cash provided by accounts receivable of $3.3 million and $3.4 million during Q1 FY13 and Q1 FY12, respectively, reflected timing of shipments and lower sales during both quarters as compared to the quarters ended September 30. 2012 and 2011.
•
Cash used in inventories was $3.3 million and $0.5 million during Q1 FY13 and Q1 FY12, respectively. The increase in cash used in inventories compared to Q1 FY12 primarily reflects inventory build during Q1 FY13 due to delays in timing of expected shipments, which were impacted by several customer shutdowns as a result of hurricane Sandy in the Northeast and an increase in the number and length of holiday related shutdowns relative to Q1 FY12.
•
Prepaid expenses and other current assets decreased, providing $1.4 million and $0.6 million of cash during during Q1 FY13 and Q1 FY12, respectively. The cash generated during both periods was primarily due to collection of vendor rebates and a decrease in income taxes receivable and prepaid insurance.
•
Accounts payable and accrued expenses used cash of $1.7 million and $4.4 million during Q1 FY13 and Q1 FY12, respectively. The decrease in cash used in accounts payable and accrued expenses compared to Q1 FY12 primarily reflects changes in related inventory levels and changes in certain vendor payment terms.
•
Accrued interest and bank fees used cash of $4.3 million during both Q1 FY13 and Q1 FY12. The use of cash during both periods reflects the $8.7 million in interest payments made on October 1, 2012 and 2011. The Notes require payment of interest semiannually on April 1 and October 1 and, at December 31, 2012 and 2011 there was three months of interest accrued under the Notes.

16

Net cash used in investing activities was $2.9 million and $2.7 million during Q1 FY13 and Q1 FY12, respectively, resulting from specific cash purchases of property, plant and equipment.
Net cash provided by financing activities was $7.9 million and $6.7 million during Q1 FY13 and Q1 FY12, respectively. The cash generated during both periods primarily 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).
New Accounting Standards
Refer to "Note 1 Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q, for a description of new accounting pronouncements, including the expected impact on the Company’s condensed consolidated financial statements and related disclosures.
Critical Accounting Policies
Management has evaluated the accounting policies used in the preparation of the Company’s condensed financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis and in "Note 1 Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.” There were no significant changes to the Company’s critical accounting policies during the three month period ended December 31, 2012.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in connection with changes in foreign exchange rates and interest rates, primarily in connection with interest on the outstanding balance under our ABL Facility.
Foreign Exchange Risk
We are exposed to fluctuations in foreign currency cash flows related to our Canadian operations, intercompany product shipments and intercompany loans. Additionally, we are exposed to volatility in the translation of foreign currency earnings to U.S. dollars. Primary exposures include the U.S. dollar versus functional currencies of our major markets, which include the Canadian dollar. We assess foreign currency risk based on transactional cash flows, identify naturally offsetting positions and purchase hedging instruments to protect anticipated exposures. We do not consider the potential loss arising from a hypothetical 10% adverse change in quoted foreign currency exchange rates, as of December 31, 2012, to be material.

17

Interest Rate Risk
We are exposed to interest rate volatility with regard to the current existing issuances of variable rate debt under our ABL Facility. Primary exposure includes movements in the U.S. prime rate and LIBOR. We manage interest rate risk by incurring a mix of indebtedness bearing interest at both floating and fixed rates at inception and maintain an ongoing balance between floating and fixed rates on this mix of indebtedness through the use of interest rate swaps when necessary. At December 31, 2012, approximately 5.0%, or $8.0 million, of our debt was floating rate debt and the weighted average interest rate for all debt was 11.0%. If the relevant interest rates for all of the Company's floating rate debt was 100 basis points higher than actual during the three month period ended December 31, 2012, the Company's interest expense would have increased by less than $0.1 million.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management carried out an evaluation (as required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to the Company and its consolidated subsidiaries required to be disclosed by the Company in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) is accumulated and communicated to the Company's management, including its principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Controls and Procedures
In addition, the Company's management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of the Chief Executive Officer and the Chief Financial Officer, of changes in the Company's internal control over financial reporting. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that there were no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.

18

PART 2 – OTHER INFORMATION


Item 1.
Legal Proceedings
The Company is involved in various legal proceedings and administrative actions arising in the ordinary course of business. The information regarding these proceedings and actions is included under "Note 8 Contingencies” to the Company’s Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 1A.
Risk Factors
There have been no material changes to any of the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 (under "Item 1A Risk Factors").
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
None.
Item 5.
Other Information
None.
Item 6.
Exhibits
See the list of exhibits in the Exhibit Index to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

19

SIGNATURES

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

 
 
PRETIUM PACKAGING, L.L.C.
 
 
 
 
 
 
 
 
Date: 
February 12, 2013
By:
/s/ George A. Abd
 
 
 
George A. Abd
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
 
Date: 
February 12, 2013
By:
/s/ Robert A. Robison
 
 
 
Robert A. Robison
 
 
 
Vice President and Chief Financial Officer





20

EXHIBIT INDEX

Exhibit No.
Description
 
 
31.1 *
Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2 *
Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1 *
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2 *
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS§
XBRL Instance Document
 
 
101.SCH§
XBRL Taxonomy Extension Schema Document
 
 
101.CAL§
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.LAB§
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE§
XBRL Taxonomy Extension Presentation Linkbase Document

*
Filed herewith.
§

In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.


21

PRETIUM PACKAGING L L C Reports