Pretium 3 31 2013 Q2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
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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 March 31, 2013
_____________________________________
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
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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.
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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).
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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.
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Pretium Packaging, L.L.C. | Large accelerated filer | o | Accelerated Filer | o |
Non-accelerated filer | ý | Smaller reporting company | o |
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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).
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Pretium Packaging, L.L.C | Yes o | No ý |
Pretium Finance, Inc. | Yes o | No ý |
As of May 6, 2013:
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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
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:
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• | our substantial indebtedness and ability to incur more debt; |
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• | our liquidity and capital resources; |
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• | macroeconomic conditions in the United States, Canada and elsewhere; |
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• | competitive pressures and trends in the plastic packaging industry; |
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• | 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; |
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• | changes in the demand for, supply of or prices of our products; |
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• | changes in U.S. dollar and Canadian dollar exchange rates; |
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• | our ability to successfully implement our business strategy; |
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• | increases in the cost of compliance with laws and regulations; |
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• | catastrophic loss or shutdown of one of our manufacturing facilities; |
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• | our ability to attract and retain qualified management personnel; and |
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• | 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.
PART 1 – FINANCIAL INFORMATION
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Item 1. | Financial Statements |
PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
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| March 31, 2013 | | September 30, 2012 |
Assets | | | |
Current assets: | | | |
Cash | $ | 1,035 |
| | $ | 913 |
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Accounts receivable, net of allowances of $707 and $716 | 27,646 |
| | 24,163 |
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Inventories | 26,154 |
| | 23,895 |
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Prepaid expenses and other assets | 3,201 |
| | 3,671 |
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Deferred tax assets | 664 |
| | 669 |
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Total current assets | 58,700 |
| | 53,311 |
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Property, plant and equipment, net | 69,538 |
| | 72,410 |
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Other assets: | | | |
Goodwill | 40,453 |
| | 40,561 |
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Other intangibles, net | 34,141 |
| | 35,010 |
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Deferred financing fees, net | 5,766 |
| | 6,738 |
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Other non current assets | 383 |
| | 393 |
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Total other assets | 80,743 |
| | 82,702 |
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Total assets | $ | 208,981 |
| | $ | 208,423 |
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Liabilities and Members' Equity | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 95 |
| | $ | 159 |
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Accounts payable | 21,400 |
| | 22,363 |
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Accrued expenses | 6,262 |
| | 6,254 |
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Accrued interest and bank fees | 8,674 |
| | 8,672 |
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Total current liabilities | 36,431 |
| | 37,448 |
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Long-term liabilities: | | | |
Long-term debt, less current maturities | 159,865 |
| | 150,025 |
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Deferred tax liabilities | 9,196 |
| | 9,610 |
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Other long-term liabilities | 564 |
| | 683 |
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Total long-term liabilities | 169,625 |
| | 160,318 |
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Members' equity: | | | |
Members' equity | 2,224 |
| | 9,265 |
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Accumulated other comprehensive income | 701 |
| | 1,392 |
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Total members' equity | 2,925 |
| | 10,657 |
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Total liabilities and members' equity | $ | 208,981 |
| | $ | 208,423 |
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See accompanying notes to condensed consolidated financial statements.
PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
| 2013 | | 2012 | | 2013 | | 2012 |
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Net sales | $ | 62,661 |
| | $ | 59,098 |
| | $ | 115,381 |
| | $ | 114,097 |
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Cost of sales | 54,259 |
| | 50,717 |
| | 100,277 |
| | 98,577 |
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Gross profit | 8,402 |
| | 8,381 |
| | 15,104 |
| | 15,520 |
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Operating expenses: | | | | | | | |
Selling, general and administrative expenses | 4,783 |
| | 4,505 |
| | 9,368 |
| | 9,133 |
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Transaction-related fees and expenses | — |
| | — |
| | 895 |
| | 200 |
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Loss (gain) on foreign currency exchange | 104 |
| | (26 | ) | | 157 |
| | (9 | ) |
Depreciation | 129 |
| | 111 |
| | 258 |
| | 220 |
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Amortization of intangibles | 325 |
| | 325 |
| | 650 |
| | 648 |
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Total operating expenses | 5,341 |
| | 4,915 |
| | 11,328 |
| | 10,192 |
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Income from operations | 3,061 |
| | 3,466 |
| | 3,776 |
| | 5,328 |
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Other expenses: | | | | | | | |
Interest | 4,900 |
| | 4,910 |
| | 9,809 |
| | 9,845 |
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Total other expenses | 4,900 |
| | 4,910 |
| | 9,809 |
| | 9,845 |
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Loss before income tax provision | (1,839 | ) | | (1,444 | ) | | (6,033 | ) | | (4,517 | ) |
Income tax provision | 525 |
| | 822 |
| | 1,008 |
| | 1,451 |
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Net loss | $ | (2,364 | ) | | $ | (2,266 | ) | | $ | (7,041 | ) | | $ | (5,968 | ) |
See accompanying notes to condensed consolidated financial statements.
PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| March 31, | | March 31, |
| 2013 | | 2012 | | 2013 | | 2012 |
Comprehensive Income (Loss): | | | | | | | |
Net loss | $ | (2,364 | ) | | $ | (2,266 | ) | | $ | (7,041 | ) | | $ | (5,968 | ) |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments, net | (433 | ) | | 448 |
| | (691 | ) | | 1,137 |
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Total comprehensive loss | $ | (2,797 | ) | | $ | (1,818 | ) | | $ | (7,732 | ) | | $ | (4,831 | ) |
See accompanying notes to condensed consolidated financial statements.
PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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| Six Months Ended |
| March 31, |
| 2013 | | 2012 |
Cash Flows From Operating Activities | | | |
Net loss | $ | (7,041 | ) | | $ | (5,968 | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
Depreciation | 8,019 |
| | 7,164 |
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Amortization of intangibles | 650 |
| | 648 |
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Amortization of deferred financing fees | 972 |
| | 989 |
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Deferred taxes | (382 | ) | | 489 |
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Changes in assets and liabilities: | | | |
Accounts receivable | (3,616 | ) | | 1,244 |
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Inventories | (2,417 | ) | | (1,532 | ) |
Prepaid expenses and other assets | 462 |
| | 1,072 |
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Accounts payable and accrued expenses | (793 | ) | | (2,295 | ) |
Accrued interest and bank fees | 2 |
| | (28 | ) |
Other | (100 | ) | | 67 |
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Net cash (used in) provided by operating activities | (4,244 | ) | | 1,850 |
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Cash Flows From Investing Activities | | | |
Purchase of property, plant and equipment | (5,396 | ) | | (5,595 | ) |
Net cash used in investing activities | (5,396 | ) | | (5,595 | ) |
Cash Flows From Financing Activities | | | |
Repayments to revolving line of credit | (30,894 | ) | | (31,911 | ) |
Proceeds from revolving line of credit | 40,759 |
| | 35,857 |
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Repayments of other debt obligations | (89 | ) | | (83 | ) |
Payment of bank and other related loan fees | — |
| | (16 | ) |
Net cash provided by financing activities | 9,776 |
| | 3,847 |
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Net increase in cash | 136 |
| | 102 |
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Effect of foreign currency translation adjustment | (14 | ) | | 32 |
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Cash - beginning of period | 913 |
| | 1,156 |
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Cash - end of period | $ | 1,035 |
| | $ | 1,290 |
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Supplemental Disclosure of Cash Flow Information | | | |
Interest paid | $ | 8,816 |
| | $ | 8,856 |
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Income taxes paid | $ | 1,534 |
| | $ | 575 |
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See accompanying notes to condensed consolidated financial statements.
PRETIUM PACKAGING, L.L.C. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
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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.
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.
Inventories, stated at lower of cost or market, consisted of the following at March 31, 2013 and September 30, 2012:
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| March 31, 2013 | | September 30, 2012 |
Finished goods | $ | 14,748 |
| | $ | 12,475 |
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Raw materials | 11,406 |
| | 11,420 |
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Inventories | $ | 26,154 |
| | $ | 23,895 |
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Note 3. | Property, Plant, and Equipment, Net |
Property, plant, and equipment at March 31, 2013 and September 30, 2012 consisted of the following:
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| | March 31, 2013 | | September 30, 2012 |
Land | | $ | 2,120 |
| | $ | 2,120 |
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Buildings and improvements | | 24,500 |
| | 24,962 |
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Machinery and equipment | | 56,332 |
| | 54,469 |
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Molds | | 26,344 |
| | 24,866 |
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Capital improvements in progress | | 3,863 |
| | 1,794 |
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Property, plant and equipment, gross | | 113,159 |
| | 108,211 |
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Accumulated depreciation | | (43,621 | ) | | (35,801 | ) |
Property, plant and equipment, net | | $ | 69,538 |
| | $ | 72,410 |
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Depreciation expense was $4.0 million and $3.6 million during the three month periods ended March 31, 2013 and 2012, respectively. Depreciation expense was $8.0 million and $7.2 million during the six month periods ended March 31, 2013 and 2012, respectively.
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Note 4. | Goodwill and Other Intangible Assets |
Goodwill
The changes in the carrying amount of goodwill for the three month period ended March 31, 2013 and the year ended September 30, 2012 are presented in the table below:
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| | | | | | | | |
| | March 31, 2013 | | September 30, 2012 |
Beginning balance | | $ | 40,561 |
| | $ | 40,354 |
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Currency translation adjustment | | (108 | ) | | 207 |
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Ending balance | | $ | 40,453 |
| | $ | 40,561 |
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Other Intangible Assets
The following table presents the gross carrying amount and accumulated amortization of other intangible assets at March 31, 2013:
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| | Gross carrying amount | | Weighted average amortization period | | Accumulated Amortization | | Currency Translation Adjustment | | Net Book Value |
Customer relationships | | $ | 25,800 |
| | 20 years | | (4,060 | ) | | 124 |
| | $ | 21,864 |
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Trademarks | | 12,280 |
| | Indefinite | | (80 | ) | | 77 |
| | 12,277 |
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Total | | $ | 38,080 |
| | | | (4,140 | ) | | 201 |
| | $ | 34,141 |
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The following table presents the gross carrying amount and accumulated amortization of other intangible assets at September 30, 2012:
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| | 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 |
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Trademarks | | 12,280 |
| | Indefinite | | (80 | ) | | 174 |
| | 12,374 |
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Total | | $ | 38,080 |
| | | | $ | (3,490 | ) | | $ | 420 |
| | $ | 35,010 |
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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 and $0.7 million during each of the the three and six month periods ended March 31, 2013 and 2012, respectively.
At March 31, 2013 and September 30, 2012, long-term debt obligations consisted of the following:
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| March 31, | | September 30, |
| 2013 | | 2012 |
Long-term debt: | | | |
Revolving line of credit | $ | 9,865 |
| | $ | — |
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11.5% senior secured notes | 150,000 |
| | 150,000 |
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Total Senior Debt | 159,865 |
| | 150,000 |
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Other | 95 |
| | 184 |
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Total long-term debt, including current maturities | 159,960 |
| | 150,184 |
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Current maturities of long-term debt | 95 |
| | 159 |
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Total long-term debt, less current maturities | $ | 159,865 |
| | $ | 150,025 |
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Under the terms of the Company’s debt agreements, at March 31, 2013, the scheduled interest rates and maturity dates were as follows:
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| | | |
| 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 |
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* | The revolving line of credit also has interest rate options based on LIBOR plus a margin of 1.5%. At March 31, 2013, the applicable rate under the prime and LIBOR options was 3.75% and 1.7%, respectively. |
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Note 6. | Pretium Capital Structure |
At March 31, 2013, 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 March 31, 2013. 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.
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 $0.8 million during the three month periods ended March 31, 2013 and 2012, respectively. The Company recorded an income tax provision of $1.0 million and $1.5 million during the six month periods ended March 31, 2013 and 2012, respectively.
The Company evaluates the net realizable value of its deferred tax assets each reporting period. The Company must consider all objective evidence, both positive and negative, in evaluating the future realization of its deferred tax assets, including tax loss carry forwards. Historical information is supplemented by all currently available information about future tax years. Realization requires sufficient taxable income to use deferred tax assets. The Company records a valuation allowance for each deferred tax asset for which realization is assessed as not more likely than not. In particular, the Company’s assessment that deferred tax assets will be realized considered the estimate of future taxable income generated from various sources, including the expected recovery of operations from the Canadian subsidiary, and increased profitability due to prior cost reductions, plant restructuring, and revenue growth. If the current estimates of future taxable income are not realized, or future estimates of taxable income are reduced, then the assessment regarding the realization of deferred tax assets could change and have a material impact on the statement of operations. As of March 31, 2013, the Company’s valuation allowance of $3.7 million increased $0.2 million from September 30, 2012.
At March 31, 2013 and September 30, 2012, the total balance of unrecognized tax benefits was $0.1 million.
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.
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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 March 31, 2013.
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 March 31, 2013.
The Company does not have any other financial instruments within the scope of the fair value disclosure requirements as of March 31, 2013.
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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 and $0.6 million during the three and six month periods ended March 31, 2013 and 2012, respectively.
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 and $1.1 million during the three and six month periods ended March 31, 2013 and 2012, respectively.
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 March 31, 2013 and 2012:
|
| | | | | | | | | | | | |
Net Sales | | U.S. | | Canada | | Total |
Quarter ended March 31, 2013 | | $ | 53,881 |
| | $ | 8,780 |
| | $ | 62,661 |
|
Quarter ended March 31, 2012 | | $ | 49,485 |
| | $ | 9,613 |
| | $ | 59,098 |
|
The following table provides the geographic distributions of the Company's net sales for the six month periods ended March 31, 2013 and 2012:
|
| | | | | | | | | | | | |
Net Sales | | U.S. | | Canada | | Total |
Six months ended March 31, 2013 | | $ | 97,622 |
| | $ | 17,759 |
| | $ | 115,381 |
|
Six months ended March 31, 2012 | | $ | 94,092 |
| | $ | 20,005 |
| | $ | 114,097 |
|
The following table provides the geographic distributions of the Company's long-lived assets as of March 31, 2013 and September 30, 2012:
|
| | | | | | | | | | | | |
Total Long-lived Assets | | U.S. | | Canada | | Total |
March 31, 2013 | | $ | 127,400 |
| | $ | 16,732 |
| | $ | 144,132 |
|
September 30, 2012 | | $ | 129,664 |
| | $ | 18,317 |
| | $ | 147,981 |
|
| |
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 lighter weight 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.
The average industry prices per pound of PET and HDPE, as published by Chemical Data as of March 31, 2013, were as follows during the periods indicated:
|
| | | | | | | | | | | | | | | |
| PET | | HDPE |
| 2013 | | 2012 | | 2013 | | 2012 |
October ** | $ | 0.87 |
| | $ | 0.94 |
| | $ | 0.68 |
| | $ | 0.66 |
|
November ** | 0.88 |
| | 0.89 |
| | 0.66 |
| | 0.66 |
|
December ** | 0.88 |
| | 0.84 |
| | 0.66 |
| | 0.71 |
|
1st quarter average cost | 0.88 |
| | 0.89 |
| | 0.67 |
| | 0.68 |
|
January | 0.91 |
| | 0.85 |
| | 0.71 |
| | 0.71 |
|
February | 0.94 |
| | 0.90 |
| | 0.75 |
| | 0.74 |
|
March | 0.91 |
| | 0.91 |
| | 0.75 |
| | 0.77 |
|
2nd quarter average cost | 0.92 |
| | 0.89 |
| | 0.74 |
| | 0.74 |
|
Year to date average cost | 0.90 |
| | 0.89 |
| | 0.70 |
| | 0.71 |
|
Source: ChemData
|
| | | | |
** | Beginning in January 2013, Chemical Data announced a downward non-market adjustment of $0.045 cents per pound of PET. For comparability purposes, the PET average prices per pound prior to January 2013 have been adjusted to reflect the $0.045 cent market adjustment. |
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 March 31, 2013 (“Q2 FY13”) Compared with the Quarter Ended March 31, 2012 (“Q2 FY12”)
Net Sales
|
| | | | | | | | | | | | | | |
| Q2 2013 | | Q2 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Net sales | $ | 62,661 |
| | $ | 59,098 |
| | $ | 3,563 |
| | 6.0 | % |
Net sales were $62.7 million during Q2 FY13, which represents an increase of $3.6 million, or 6%, as compared to $59.1 million during Q2 FY12. The increase in net sales was attributable to a 9% increase in sales volume, which was partially offset by changes in pricing and product mix. The impact of pricing and mix was the combination of the positive shift in mix, with bottle sales up while preform sales were down, which was more than offset by a decrease in average bottle weights compared to the prior year. This combination resulted in a 3% decrease in average selling prices per unit relative to Q2 FY12, which negatively impacted net sales by approximately $2.0 million.
Gross Profit
|
| | | | | | | | | | | | | | |
| Q2 2013 | | Q2 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Gross profit | $ | 8,402 |
| | $ | 8,381 |
| | $ | 21 |
| | 0.3 | % |
Gross profit during Q2 FY13 was $8.4 million, which is unchanged compared to Q2 FY12. The impact of higher net sales was mitigated by the timing of resin costs increases during the period and a lag in our ability to pass through resin price increases under our agreements with our contractual customers. PET resin prices increased monthly from August through February and HDPE resin prices increased in both January and February. Gross profit was also impacted by a $0.5 million increase in depreciation expense and a $0.3 million increase in health care expenses, which was due to several high cost claims, compared to Q2 FY12.
Operating Expenses
|
| | | | | | | | | | | | | | |
| Q2 2013 | | Q2 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Selling, general and administrative expenses | $ | 4,783 |
| | $ | 4,505 |
| | $ | 278 |
| | 6.2 | % |
Other operating expenses | 558 |
| | 410 |
| | 148 |
| | 36.1 | % |
Total operating expenses | $ | 5,341 |
| | $ | 4,915 |
| | $ | 426 |
| | 8.7 | % |
SG&A Expenses
SG&A expenses were $4.8 million during Q2 FY13, which represents an increase of $0.3 million, or 6%, compared to Q2 FY12. The increase compared to Q2 FY12 was driven by increases in selling expenses, employee benefits, and audit and tax related professional fees.
Other Operating Expenses
Other operating expenses during Q2 FY13 were $0.6 million, which represents an increase of $0.1 million compared to Q2 FY12. The increase in other operating expenses is due to unfavorable changes in foreign currency exchange rates, which resulted in a $0.1 million loss during Q2 FY13 compared to an insignificant gain on foreign currency exchange during Q2 FY12.
Other Expenses
|
| | | | | | | | | | | | | | |
| Q2 2013 | | Q2 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Interest expense | $ | 4,900 |
| | $ | 4,910 |
| | $ | (10 | ) | | (0.2 | )% |
Interest expense during Q2 FY13 was $4.9 million, which was unchanged compared to Q2 FY12.
Income Tax Provision
|
| | | | | | | | | | | | | | |
| Q2 2013 | | Q2 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Income tax provision | $ | 525 |
| | $ | 822 |
| | $ | (297 | ) | | (36.1 | )% |
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 $0.5 million during Q2 FY13 and $0.8 million during Q2 FY12 for Robb and PVC based on their pre-tax income or loss.
Performance During the Six Months March 31, 2013 ("FY 2013") Compared with the Six Months Ended March 31, 2012 ("FY 2012")
Net Sales
|
| | | | | | | | | | | | | | |
| FY 2013 | | FY 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Net sales | $ | 115,381 |
| | $ | 114,097 |
| | $ | 1,284 |
| | 1.1 | % |
Net sales were $115.4 million during the six months ended March 31, 2013, which represents an increase of $1.3 million, or 1%, as compared to $114.1 million during the six months ended March 31, 2012. The overall increase in net sales was primarily attributable to a 5% increase in sales volume. The positive impact of higher volumes was partially offset by a 4% decrease as a result of changes in pricing and product mix. We experienced a 4% decrease in our average selling price per unit, which was driven by a shift to lighter weight bottles compared to prior year. The decrease in the average selling price per unit negatively impacted net sales by approximately $4.9 million.
Gross Profit
|
| | | | | | | | | | | | | | |
| FY 2013 | | FY 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Gross profit | $ | 15,104 |
| | $ | 15,520 |
| | $ | (416 | ) | | (2.7 | )% |
Gross profit during the six months ended March 31, 2013 was $15.1 million, which represents a decrease of $0.4 million compared to the six months ended March 31, 2012. The decrease in gross profit compared to the prior year was due to an $0.8 million increase in depreciation expense and a $0.2 million increase in health care expenses. Gross profit was negatively impacted by the timing of resin cost increases during the period and the structural lag in our price pass through agreements with our contractual customers.
Operating Expenses
|
| | | | | | | | | | | | | | |
| FY 2013 | | FY 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Selling, general and administrative expenses | $ | 9,368 |
| | $ | 9,133 |
| | $ | 235 |
| | 2.6 | % |
Other operating expenses | 1,960 |
| | 1,059 |
| | 901 |
| | 85.1 | % |
Total operating expenses | $ | 11,328 |
| | $ | 10,192 |
| | $ | 1,136 |
| | 11.1 | % |
SG&A Expenses
SG&A expenses were $9.4 million during the six months ended March 31, 2013, which represents an increase of $0.2 million, or 3%, compared to the six months ended March 31, 2012. The increase compared to the six months ended March 31, 2012 was driven by increases in selling expenses, employee benefits, and audit and tax related professional fees.
Other Operating Expenses
Other operating expenses during the six months ended March 31, 2013 were $2.0 million, which represents an increase of $0.9 million compared to the six months ended March 31, 2012. 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 during the six months ended March 31, 2013 compared to the six months ended March 31, 2012. Additionally, unfavorable changes in foreign currency exchange rates resulted in a $0.2 million loss during the six months ended March 31, 2013 compared to an insignificant gain on foreign currency exchange during the six months ended March 31, 2012.
Other Expenses
|
| | | | | | | | | | | | | | |
| FY 2013 | | FY 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Interest expense | $ | 9,809 |
| | $ | 9,845 |
| | $ | (36 | ) | | (0.4 | )% |
Interest expense during the six months ended March 31, 2013 was $9.8 million, which was unchanged compared to the six months ended March 31, 2012.
Income Tax Provision
|
| | | | | | | | | | | | | | |
| FY 2013 | | FY 2012 | | $ Change | | % Change |
In thousands | | | | | | | |
Income tax provision | $ | 1,008 |
| | $ | 1,451 |
| | $ | (443 | ) | | (30.5 | )% |
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 $1.0 million during the six months ended March 31, 2013 and $1.5 million during the six months ended March 31, 2012 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 and six month periods ended March 31, 2013 and 2012:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | March 31, | | March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Net Loss to Adjusted EBITDA Reconciliation: | | | | | | | | |
Net loss | | $ | (2,364 | ) | | $ | (2,266 | ) | | $ | (7,041 | ) | | $ | (5,968 | ) |
Interest expense, net | | 4,900 |
| | 4,910 |
| | 9,809 |
| | 9,845 |
|
Tax expense | | 525 |
| | 822 |
| | 1,008 |
| | 1,451 |
|
Depreciation and amortization expense | | 4,365 |
| | 3,891 |
| | 8,669 |
| | 7,812 |
|
EBITDA | | 7,426 |
| | 7,357 |
| | 12,445 |
| | 13,140 |
|
Management fees (a) | | 562 |
| | 563 |
| | 1,125 |
| | 1,126 |
|
Consulting fees (b) | | 305 |
| | 300 |
| | 555 |
| | 550 |
|
Transaction related fees and expenses (c) | | — |
| | — |
| | 895 |
| | 200 |
|
Adjusted EBITDA | | $ | 8,293 |
| | $ | 8,220 |
| | $ | 15,020 |
| | $ | 15,016 |
|
| |
(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 the six months ended March 31, 2013 and the registration of the Notes with the SEC during the six months ended March 31, 2012. |
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 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 March 31, 2013, there was $9.9 million outstanding under our ABL Facility, which bears interest at variable rates and matures on September 30, 2015. At March 31, 2013, letters of credit issued and outstanding were $1.6 million and borrowing availability under the ABL Facility was $18.5 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 March 31, 2013.
Cash Flows
Our cash flows from operating, investing and financing activities for the six month periods ended March 31, 2013 and 2012 are summarized in the following table:
|
| | | | | | | |
| Six Months Ended |
| March 31, |
| 2013 | | 2012 |
Net cash provided by (used in): | | | |
Operating activities | $ | (4,244 | ) | | $ | 1,850 |
|
Investing activities | (5,396 | ) | | (5,595 | ) |
Financing activities | 9,776 |
| | 3,847 |
|
Effect of exchange rates | (14 | ) | | 32 |
|
Net (decrease) increase in cash | $ | 122 |
| | $ | 134 |
|
As of March 31, 2013, we had cash and cash equivalents of $1.0 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 $4.2 million during the six months ended March 31, 2013, compared to $1.9 million of cash generated from operating activities during the six months ended March 31, 2012. The use of cash in operating activities during the six months ended March 31, 2013 was primarily due to higher cash used by operating working capital compared to the six months ended March 31, 2012. The change in operating assets and liabilities used $6.5 million and $1.5 million of cash during the six months ended March 31, 2013 and 2012, respectively. The changes in operating assets and liabilities included:
| |
• | Cash used in accounts receivable was $3.6 million during the six months ended March 31, 2013 compared to $1.2 million of cash generated during the six months ended March 31, 2012, which is reflective of changes in the volume and timing of sales and collections within these periods |
| |
• | Cash used in inventories was $2.4 million and $1.5 million during the six months ended March 31, 2013 and 2012, respectively, which reflects investments in inventory during those periods as we anticipated a higher volume quarter. The six months ended March 31, 2013 was impacted by an increase in inventories during the first three months of the period due to delays in timing of expected shipments as a result of 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 fiscal 2012. We have reduced inventories by $1.0 million since December 31, 2012. |
| |
• | Prepaid expenses and other current assets decreased, providing $0.5 million and $1.1 million of cash during the six months ended March 31, 2013 and 2012, respectively. The cash generated during the six months ended March 31, 2013 was primarily due to a decrease in prepaid insurance. The cash generated during the six months ended March 31, 2012 was primarily due to a decrease in income taxes receivable and prepaid insurance. |
| |
• | Accounts payable and accrued expenses used cash of $0.8 million and $2.3 million during the six months ended March 31, 2013 and 2012, respectively, primarily due to reduced purchasing levels and timing of payments to vendors at March 31. |
Net cash used in investing activities was $5.4 million and $5.6 million during Q2 FY13 and Q2 FY12, respectively, resulting from specific cash purchases of property, plant and equipment.
Net cash provided by financing activities was $9.8 million and $3.8 million during the six months ended March 31, 2013 and 2012, 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 and six month periods ended March 31, 2013.
| |
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 March 31, 2013, 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 March 31, 2013, approximately 6.2%, or $9.9 million, of our debt was floating rate debt and the weighted average interest rate for all debt was 11%. 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 March 31, 2013, 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 March 31, 2013 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART 2 – OTHER INFORMATION
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.
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").
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. | Defaults upon Senior Securities |
None.
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Item 4. | Mine Safety Disclosures |
None.
None.
See the list of exhibits in the Exhibit Index to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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.
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| | | |
| | PRETIUM PACKAGING, L.L.C. |
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Date: | May 6, 2013 | By: | /s/ George A. Abd |
| | | George A. Abd |
| | | President and Chief Executive Officer |
| | | |
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Date: | May 6, 2013 | By: | /s/ Robert A. Robison |
| | | Robert A. Robison |
| | | Vice President and Chief Financial Officer |
EXHIBIT INDEX
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Exhibit No. | Description |
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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 |
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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 |
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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 |
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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 |
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101.INS§ | XBRL Instance Document |
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101.SCH§ | XBRL Taxonomy Extension Schema Document |
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101.CAL§ | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB§ | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE§ | XBRL Taxonomy Extension Presentation Linkbase Document |
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* | 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. |