<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
COMMISSION FILE NO. 33-95318
PORTOLA PACKAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1582719
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
890 FAULSTICH COURT
SAN JOSE, CALIFORNIA 95112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 453-8840
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. YES X NO__.
11,717,824 shares of Registrant's $.001 par value Common Stock, consisting of
2,134,992 shares of nonvoting Class A Common Stock and 9,582,832 shares in the
aggregate of voting Class B Common Stock, Series 1 and 2 combined, were
outstanding at July 8, 1997.
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of
May 31, 1997 and August 31, 1996...................... 3
Consolidated Statements of Operations for
the Three and Nine Months Ended
May 31, 1997 and 1996 ................................. 5
Consolidated Statements of Cash Flows for
the Nine Months Ended May 31, 1997 and 1996 .......... 6
Notes to Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 14
SIGNATURES .................................................. 15
EXHIBIT INDEX .................................................. 16
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MAY 31, AUGUST 31,
1997 1996
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $670 $7,797
Investments 547 710
Accounts receivable, net 25,565 23,835
Inventories 11,498 11,650
Other current assets 3,072 2,061
Deferred income taxes 1,372 1,307
--------- ---------
Total current assets 42,724 47,360
Notes receivable 244 256
Property, plant and equipment, net 77,926 69,773
Goodwill, net 15,379 17,564
Patents, net 2,077 2,235
Covenants not to compete,net 2,583 3,699
Debt financing costs, net 3,550 3,853
Other assets 5,350 7,487
--------- ---------
Total assets $ 149,833 $152,227
--------- ---------
--------- ---------
Continued
The accompanying notes are an integral part of these
consolidated financial statements.
3
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MAY 31, AUGUST 31,
1997 1996
---- ----
(UNAUDITED)
LIABILITIES, REDEEMABLE WARRANTS, COMMON
STOCK AND OTHER STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and
short-term borrowings $10,478 $1,805
Accounts payable 8,519 10,029
Accrued liabilities 11,520 9,157
Accrued interest 2,283 4,999
--------- ---------
Total current liabilities 32,800 25,990
Long-term debt, less current portion 115,914 116,108
Other long term obligations 1,787 2,303
Deferred income taxes 7,056 7,067
--------- ---------
Total liabilities 157,557 151,468
Contingencies (Note 5)
Redeemable warrants to purchase Class A common stock 5,373 4,560
--------- ---------
Common stock and other stockholders' deficit:
Class A convertible common stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding
2,135 shares in 1997 and 1996 2 2
Class B, Series 1, common stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding
8,411 shares May 1997 and 8,507 shares Aug. 1996 8 9
Class B, Series 2, common stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding
1,171 shares in 1997 and 1996 1 1
Additional paid-in capital 8,781 9,280
Notes receivable from stockholders (418) (425)
Cumulative foreign currency translation adjustment (140) (8)
Unrealized holding losses on marketable securities (268) (170)
Accumulated deficit (21,063) (12,490)
--------- ---------
Total common stock and other stockholders'
deficit (13,097) (3,801)
--------- ---------
Total liabilities, redeemable warrants,
common stock and other stockholders' deficit $149,833 $152,227
--------- ---------
--------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
4
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MAY 31, ENDED MAY 31,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 45,037 $ 41,373 $125,008 $115,250
Cost of sales 35,523 29,359 100,612 85,216
--------- --------- --------- ---------
Gross profit 9,514 12,014 24,396 30,034
--------- --------- --------- ---------
Selling, general and administrative 4,071 5,377 13,650 13,622
Research and development 740 569 1,907 1,576
Amortization of intangibles 857 1,343 2,491 3,537
Write-off of intangibles --- --- 1,720 ---
Restructuring costs 1,301 --- 2,394 ---
--------- --------- --------- ---------
6,969 7,289 22,162 18,735
--------- --------- --------- ---------
Income from operations 2,545 4,725 2,234 11,299
--------- --------- --------- ---------
Other (income) expense:
Interest income (115) (369) (404) (1,053)
Interest expense 3,426 3,246 9,965 9,626
Amortization of debt financing costs 115 114 428 375
Other (income) expense (6) 65 5 127
--------- --------- --------- ---------
3,420 3,056 9,994 9,075
--------- --------- --------- ---------
Income (loss) before extraordinary item and
income taxes (875) 1,669 (7,760) 2,224
Provision for income taxes 1,650 907 --- 1,662
--------- --------- --------- ---------
Income (loss) before extraordinary item (2,525) 762 (7,760) 562
Extraordinary item, net of tax benefit of $843 --- --- --- 1,265
--------- --------- --------- ---------
Net income (loss) ($2,525) $762 ($7,760) ($703)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) for common stockholders ($2,812) $533 ($8,573) ($1,355)
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss) per common share:
Income (loss) before extraordinary item ($0.24) $0.05 ($0.73) ($0.01)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) ($0.24) $0.05 ($0.73) ($0.12)
--------- --------- --------- ---------
--------- --------- --------- ---------
Number of shares used in computing per share amounts 11,718 11,798 11,776 11,656
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
MAY 31,
-------
1997 1996
---- ----
(UNAUDITED)
Cash flows from operating activities:
Net loss $(7,760) $ (703)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 11,783 11,349
Write-off of intangibles 1,720
Deferred income taxes 23
Loss on property and equipment dispositions 75 126
Provision for losses on accounts receivable 602 204
Provision for excess and obsolete inventories 271
Provision for restructuring 514
Extraordinary loss on extinguishment of debt 1,952
Changes in working capital:
Accounts receivable (1,738) (2,829)
Inventories 137 (123)
Other current assets (950) (1,058)
Accounts payable (1,912) (546)
Accrued liabilities 1,737 282
Accrued interest (2,716) 1,227
-------- ----------
Net cash provided by operating activities 1,763 9,904
-------- ----------
Cash flows used for investing activities:
Additions to property and equipment (15,706) (19,743)
Proceeds from sale of property, plant and equipment 275
Payment for acquisition, net of cash acquired (1,445)
Payment for Rapid Plast acquisition, net of
cash acquired (2,134)
Proceeds from short term investments 1,000
Decrease (increase) in other assets 1,913 (473)
-------- ----------
Net cash used for investing activities (15,652) (20,661)
-------- ----------
Cash flows from financing activities:
Repayments under debt arrangements (480) (88,443)
Borrowings under debt arrangements 328 114,357
Borrowings under revolving line of credit 8,267
Payment of loan fees (4,324)
Sales of common stock 8
Purchase of common stock (500)
Repayment of notes receivable from shareholder 7
Payment under covenants (728) (719)
-------- ----------
Net cash provided by financing activities 6,894 20,879
-------- ----------
Effect of exchange rate on cash (132) -
-------- ----------
Increase (decrease) in cash and cash equivalents (7,127) 10,122
Cash and cash equivalents at beginning of period 7,797 763
-------- ----------
Cash and cash equivalents at end of period $ 670 $ 10,885
-------- ----------
-------- ----------
Supplemental disclosure of non-cash information:
Acquisition of property and equipment through
long-term capital leases $ 364
--------
--------
The accompanying notes are an integral part of these
consolidated financial statements.
6
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Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been prepared by
Portola Packaging, Inc. and its subsidiaries (the "Company") without audit and
in the opinion of management include all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation. The
accompanying financial statements should be read in conjunction with the audited
financial statements contained in the Company's Form 10-K previously filed with
the Securities and Exchange Commission. Interim results are subject to
significant seasonal variations and the results of operations for the three and
nine months ended May 31, 1997 are not necessarily indicative of the results to
be expected for the full year.
2. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per common share and common equivalent share are computed
by dividing income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Except as
discussed below, the number of common shares is increased by the number of
shares issuable on the exercise of options and warrants when the market price of
the common stock exceeds the exercise price of the options and warrants when
dilutive. This increase in the number of common shares is reduced by the number
of common shares which are assumed to have been purchased with the proceeds from
the exercise of the options or warrants; these purchases are assumed to have
been made at the average price of the common stock during that part of the
period when the market price of the common stock exceeds the exercise price of
the options and warrants. No common stock equivalents were included in the
computation of loss per share for any of the periods presented since their
effect would be anti-dilutive.
Since the Company's warrants include a put provision, Emerging Issues Task
Force (EITF) Consensus 88-9 requires computation of earnings (loss) per share
using the lower of the amount computed assuming conversion, as described above,
or the amount computed assuming exercise of the put option feature of the
warrants. Earnings (loss) per share computed using the put option feature is the
more dilutive of the calculations in the three and nine months ended May 31,
1997 and 1996. The accretion of warrants of $287,000 and $813,000 for the three
and nine months ended May 31, 1997, respectively, and $229,000 and $652,000, for
the three and nine months ended May 31, 1996, is added to the loss for the
periods to derive loss per share.
3. ACQUISITION:
On September 1, 1996, the Company completed the acquisition of Rapid Plast
J-P. Inc., a Canadian federal corporation, for a purchase price of approximately
$3.0 million. Rapid Plast was amalgamated with the company formed to acquire
the capital stock of Rapid Plast, and now operates under the name Portola
Packaging Ltd. Portola Packaging Ltd. is engaged in manufacturing and
distributing plastic bottles, primarily in eastern Canada. The transaction has
been accounted for as a purchase and the results of operations subsequent to the
acquisition date
7
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Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. ACQUISITION: (continued)
have been consolidated with the Company.
Consideration for the acquisition was allocated as follows:
Total consideration paid $2,975,000
Fair value of net assets acquired 2,420,000
----------
Goodwill $ 555,000
----------
----------
In April 1997, the Company designated its eastern Canadian subsidiary and
its United Kingdom subsidiary as "restricted" subsidiaries. These subsidiaries
had previously been designated "unrestricted subsidiaries". The Company's
western Canadian subsidiary continues to be operated as an "unrestricted
subsidiary". Under the terms of the Indenture pertaining to the senior notes
issued in October 1995, amounts that may be invested by the Company in its
unrestricted subsidiaries are subject to limitations.
4. INVENTORIES:
Inventory balances as of May 31, 1997 and August 31, 1996 were as follows:
May 31, Aug 31,
1997 1996
---- ----
(unaudited)
Raw materials $ 5,946 $ 6,023
Work in process 889 858
Finished goods 4,663 4,769
------- -------
$11,498 $11,650
------- -------
------- -------
5. CONTINGENCIES:
The Company is engaged in patent litigation with two separate parties who
are seeking to have the court declare certain patents owned by the Company
invalid. The Company believes its patents are valid, and is vigorously
contesting these actions. However, there can be no assurance that the Company
will be successful in its defense.
The Company is also party to a number of other lawsuits and claims arising
out of the normal course of business. Management does not believe the final
disposition of these matters will have a material adverse effect on the
financial position, results of operations or cash flows of the Company.
In March 1997, the Company was advised that the prospectus used by an
affiliate of the Company in connection with secondary market sales of
approximately $14 million of the Company's senior notes (the "Notes") did not
contain current financial information about the Company. The Notes sold during
this period by the Company's affiliate may be subject to rescission, which may
result in liability for the Company for any loss incurred in connection with a
rescission. No liability has been accrued in the financial statements as of
May 31, 1997 in
8
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Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. CONTINGENCIES: (continued)
connection with this matter since the Company has not made a determination that
it is probable that a loss on rescission will be incurred by the Company. The
Company believes that its cash resources, including its borrowings under its
line of credit, are adequate to cover any such loss without materially affecting
the normal conduct of its business.
6. RESTRUCTURING COSTS:
The Company has taken measures to improve productivity and quality in its
core business, and in December 1996 began implementing a restructuring plan
which consolidated its separate Closure, Packaging and Manufacturing divisions.
This restructuring plan included a reduction in staff and management positions
and the closure of the Company's Portland, Oregon plant in February 1997. The
Company recorded a restructuring charge of approximately $1.1 million primarily
for payroll related charges in connection with this restructuring plan in the
quarter ended February 28, 1997. The Company has negotiated a contract for the
sale of the Portland facility which is expected to be completed in the first
quarter of fiscal 1998.
In March 1997, the Company announced further restructuring changes designed
to provide productivity improvements in its core business. This phase of the
restructure includes an elimination of several additional management positions
and the closure of its Bettendorf, Iowa plant in July 1997. The Bettendorf
plant has been listed for sale. The Company recorded a restructuring charge of
approximately $1.3 million for payroll and facilities related charges in
connection with this restructuring plan in the quarter ended May 31, 1997.
7. WRITE-OFF OF INTANGIBLES:
In connection with the Portland, Oregon plant closing discussed above, the
Company wrote off $1.7 million of goodwill associated with this plant.
8. RECENT ACCOUNTING PRONOUNCEMENTS:
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", and in March 1997 issued
Statement No. 129 (SFAS 129), "Disclosures of Information About Capital
Structure", both of which specify the computation, presentation and disclosure
requirements for Earnings per Share. SFAS 128 and SFAS 129 will become
effective for the Company's 1998 fiscal year. The Company is currently studying
the implications of these statements and has not yet determined the impact of
adopting such statements on the Company's financial statements.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased $3.6 million, or 8.9%, from $41.4 million for the three
months ended May 31, 1996 to $45.0 million for the three months ended May 31,
1997, and increased $9.7 million, or 8.5%, from $115.3 million for the nine
months ended May 31, 1996 to $125.0 million for the nine months ended May 31,
1997. These increases were primarily due to increased sales volumes from
operations in the United Kingdom and Canada as these newer subsidiaries continue
to increase their operations. Sales from domestic operations remained unchanged
for the third quarter of fiscal 1997 as compared to the same period of the
prior year primarily due to the unseasonably cold weather in most of the United
States in fiscal 1997 compared to 1996. Sales from domestic operations for the
nine months ended May 31, 1997 remained constant from the same period in fiscal
1996 due to the unseasonable weather as well as increases in sales of closures
for the first half of fiscal 1997 as compared to fiscal 1996 which were offset
by decreases in equipment sales for the same period.
Gross profit decreased $2.5 million, or 20.8%, to $9.5 million for the
three months ended May 31, 1997, as compared to $12.0 million for the three
months ended May 31, 1996, and decreased $5.6 million, or 18.8%, to $24.4
million for the nine months ended May 31, 1997 from $30.0 million for the
same period in fiscal 1996. Gross profit as a percentage of sales decreased
from 29.0% for the three months ended May 31, 1996 to 21.1% for the three
months ended May 31, 1997, and from 26.1% for the nine months ended May 31,
1996 to 19.5% for the same period in fiscal 1997. The margin decrease was due
to the mix of sales, with higher sales from the Canadian and United Kingdom
operations, each of which have had relatively low margins. In addition,
margins in the domestic closure business were down for the three and nine
month periods ended May 31, 1997 as compared with the same periods of the
prior year. The domestic margins were negatively affected by inefficiencies
in the production process caused by quality issues experienced with its
push-pull product, including inventory write-offs of this product. The
Company has taken measures to improve productivity and quality in its core
business, and in December 1996 began implementing a restructuring plan which
consolidated its separate Closure, Packaging and Manufacturing divisions.
Selling, general and administrative expenses decreased $1.3 million, or
24.3%, to $4.1 million for the three months ended May 31, 1997, as compared to
$5.4 million for the same period in fiscal 1996, and decreased as a percentage
of sales from 13.0% for the three months ended May 31, 1996 to 9.0% for the
three months ended May 31, 1997. For the nine months ended May 31, 1997,
selling, general and administrative expenses were $13.7 million, relatively
unchanged from the same period in fiscal 1996. As a percentage of sales for the
nine months ended May 31, 1997, selling, general and administrative expenses
were 10.9% as compared to 11.8 % for the same period in fiscal 1996. The
decreases are primarily due to lower bonus costs in fiscal 1997 as compared to
fiscal 1996 as a result of operating results and to a lesser extent the effect
of cost control measures implemented during the year. This was partially offset
by increases in personnel in the Company's United Kingdom and Canadian
operations as these companies continue to grow and as a result of the
acquisition of Rapid Plast in September 1996, and by an increase in legal fees
primarily due to patent litigation.
10
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Research and development expense increased $171,000, or 30.1%, to $740,000
for the three months ended May 31, 1997, as compared to $569,000 for the three
months ended May 31, 1996, and increased as a percentage of sales from 1.4% in
the three months ended May 31, 1996 to 1.6% in the three months ended May 31,
1997. The increase was primarily due to increased expenditures for patent
consulting and personnel costs in the three months ended May 31, 1997 as
compared to the same period of fiscal 1996. For the nine months ended May 31,
1997, research and development expense was $1.9 million, an increase of
$331,000, or 21.0%, from $1.6 million for the same period in fiscal 1996. As a
percentage of sales, research and development expense was 1.5% for the nine
months ended May 31, 1997, as compared to 1.4% for the same period in fiscal
1996. The absolute increase in research and development expense was due
primarily to increased staffing to address expanded new product development
opportunities.
Amortization of intangibles (consisting of amortization of patents,
goodwill and covenants not to compete) decreased $486,000, or 36.2 %, to
$857,000 for the three months ended May 31, 1997, as compared to $1.3 million
for the three months ended May 31, 1996, and decreased $1.0 million, or 29.6%,
to $2.5 million for the nine months ended May 31, 1997 as compared to $3.5
million for the same period in fiscal 1996. The decrease was primarily due to a
decrease in patent amortization due to the write-down of patent costs in August
1996.
In February 1997, the Company wrote off goodwill of $1.7 million in
connection with the closure of its Portland, Oregon plant in February 1997.
The Company recorded a restructuring charge of $1.3 million for the three
months ended May 31, 1997 related to employee severance payments and facilities
related charges in connection with the announced closure of its Bettendorf, Iowa
plant, scheduled to close in July 1997. The Company began implementing a
restructuring plan in December 1996 which consolidated its separate Closure,
Packaging and Manufacturing divisions. This restructuring plan included a
reduction in staff positions and the closure of its Portland, Oregon plant in
February 1997. The Company recorded a restructuring charge of $ 1.1 million in
the quarter ended February 28, 1997 primarily for employee severance payments.
Interest income decreased $254,000 to $115,000 for the three months ended
May 31, 1997 from $369,000 for the same period in fiscal 1996, and decreased
$649,000 to $404,000 for the nine months ended May 31, 1997 as compared to
$1,053,000 for the same period in fiscal 1996. This decline was primarily due
to lower levels of invested cash in fiscal 1997 as compared to fiscal 1996.
Higher levels of cash were available for investment during fiscal 1996 due to
completion of the $110 million senior notes financing in early October 1995.
Interest expense increased $180,000 to $3.4 million for the three months
ended May 31, 1997, as compared to $3.2 million for the three months ended May
31, 1996, and increased $339,000 to $10.0 million for the nine months ended May
31, 1997 as compared to $9.6 million for the same period in fiscal 1996. These
increases were due to a higher level of debt in fiscal 1997 due to the issuance
of $110 million of 10.75% senior notes issued on October 2, 1995, and also due
to higher borrowings under the Company's line of credit in fiscal 1997.
11
<PAGE>
Amortization of debt financing costs was $115,000 for the three months
May 31, 1997 compared to $114,000 for the three months ended May 31, 1996, and
increased $53,000 to $428,000 for the nine months ended May 31, 1997 as compared
to $375,000 for the same period in fiscal 1996. Debt financing costs are
primarily attributable to the $110 million senior notes issued in October 1995
and to a lesser extent, debt financing incurred by the Company's Western
Canadian subsidiary.
The Company did not record any tax expense for the first nine months of
fiscal 1997 in anticipation of its expected 0% tax rate for the entire fiscal
year. The actual effective tax rate for the entire fiscal year could vary
substantially depending on actual results achieved. The Company had an
effective tax rate of 11.8% for fiscal 1996. Income tax expense does not bear a
normal relationship to income before income taxes primarily due to nondeductible
goodwill and other intangibles arising from the Company's acquisitions.
An extraordinary item of $1,265,000, net of taxes, was recorded for the
nine months ended May 31, 1996, as loan fees and other costs were expensed in
connection with an early extinguishment of debt resulting from the $110 million
senior notes issue in October 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon cash from operations, borrowings from
financial institutions and sales of common stock to finance its operations,
repay long-term indebtedness and fund capital expenditures and acquisitions. At
May 31, 1997, the Company had cash and cash equivalents of $0.7 million, a
decrease of $7.1 million from August 31, 1996.
Cash provided by operations totaled $1.8 million for the nine months ended
May 31, 1997, an $8.1 million decrease from the $9.9 million provided by
operations for the nine months ended May 31, 1996. This was primarily due to a
net loss of $7.8 million for the nine months ended May 31, 1997 compared to a
loss of $0.7 million for the same period in the prior year. Accounts receivable
used funds of $1.7 million in the first nine months of fiscal 1997 compared to
using funds of $2.8 million in the same period of fiscal 1996, and accounts
payable used funds of $1.9 million in the first nine months of fiscal 1997 as
compared to using funds of $0.5 million in the same period of fiscal 1996.
Accrued interest expense used funds of $2.7 million in the first nine months of
fiscal 1997 compared to providing funds of $1.2 million in the same period of
fiscal 1996.
Cash used in investing activities was $15.7 million for the nine months
ended May 31, 1997, as compared to $20.7 million for the nine months ended May
31, 1996. This consisted primarily of additions to property and equipment.
The Company anticipates capital spending for the entire fiscal year to
approximate $25 million.
Cash provided by financing activities was $6.9 million for the first nine
months of fiscal 1997 compared to $20.9 million for the first nine months of
fiscal 1996. On October 2, 1995 the Company completed an offering of $110
million of senior notes that mature on October 1, 2005. The net proceeds of the
offering were approximately $106 million, of which $83 million was used to
retire the Company's outstanding debt under its senior term loans, revolving
facility and senior subordinated notes. As of May 31, 1997, the Company had
borrowed $8.5 million under its $35 million revolving line of credit.
12
<PAGE>
In March 1997, the Company was advised that the prospectus used by an
affiliate of the Company in connection with secondary market sales of
approximately $14 million of the Company's senior notes (the "Notes") did not
contain current financial information about the Company. The Notes sold during
this period by the Company's affiliate may be subject to rescission, which may
result in liability for the Company for any loss incurred in connection with a
rescission. The Company believes that its cash resources, including its
borrowings under its line of credit, are adequate to cover any such loss without
materially affecting the normal conduct of its business.
At May 31, 1997, the Company had $0.7 million in cash and cash equivalents
as well as borrowing capacity under the revolving credit line (of which $26.5
million was available for draw as of May 31, 1997 and $27.2 million was
available for draw as of July 8, 1997). Management believes that these
resources, together with anticipated cash flow from operations, will be adequate
to fund the Company's operations, debt service requirements and capital
expenditures into fiscal 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS 128), "Earnings per Share", and in March 1997 issued
Statement No. 129 (SFAS 129), "Disclosures of Information About Capital
Structure", both of which specify the computation, presentation and disclosure
requirements for Earnings per Share. SFAS 128 and SFAS 129 will become
effective for the Company's 1998 fiscal year. The Company is currently studying
the implications of these statements and has not yet determined the impact of
adopting such statements on the Company's financial statements.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this report, including, without
limitation, statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" regarding the Company's
financing alternatives, financial position, business strategy, plans and
objectives of management of the Company for future operations and industry
conditions, are forward-looking statements. Although the Company believes that
the expectations reflected in any such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Any forward-looking statements herein are subject to certain
risks and uncertainties in the Company's business, including but not limited to,
competition in its markets and reliance on key customers, all of which may be
beyond the control of the Company. Any one or more of these factors could cause
actual results to differ materially from those expressed in any forward-looking
statement. All subsequent written and oral forward-looking statements
attributable to the Company or any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements disclosed in this
paragraph.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
Number Exhibit Title
- ------ -------------
11.01 Computation of Net Income (Loss) per share.
27.01 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the three (3)
month period ended May 31, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PORTOLA PACKAGING, INC.
(Registrant)
Date: July 10, 1997 /s/ Robert R. Strickland
------------------------
Robert R. Strickland
Vice-President - Finance and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
Date: July 10, 1997 /s/ Patricia Voll
-----------------
Patricia Voll
Vice President, Finance and Accounting
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
- ------- -------------
11.01 Computation of Net Income (Loss) per share.
27.01 Financial Data Schedule.
16
<PAGE>
EXHIBIT 11.01
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MAY 31, ENDED MAY 31,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding for the period 11,718 11,798 11,776 11,656
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in per share calculation 11,718 11,798 11,776 11,656
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) before extraordinary item ($2,525) $762 ($7,760) $562
Less the increase in the put value of warrants (287) (229) (813) (652)
--------- --------- --------- ---------
Income (loss) before extraordinary item ($2,812) $533 ($8,573) ($90)
--------- --------- --------- ---------
--------- --------- --------- ---------
Extraordinary item $1,265
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) ($2,525) $762 ($7,760) ($703)
Less the increase in the put value of warrants (287) (229) (813) (652)
--------- --------- --------- ---------
Net income (loss) ($2,812) $533 ($8,573) ($1,355)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per common share
before extraordinary item ($0.24) $0.05 ($0.73) ($0.01)
Effect of extraordinary item per common share ($0.11)
Net income (loss) per common share ($0.24) $0.05 ($0.73) ($0.12)
</TABLE>
(1) There is no difference between primary and fully diluted net income (loss)
per share for all periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 670
<SECURITIES> 547
<RECEIVABLES> 25,565<F1>
<ALLOWANCES> 0
<INVENTORY> 11,498
<CURRENT-ASSETS> 42,724
<PP&E> 77,926<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 149,833
<CURRENT-LIABILITIES> 32,800
<BONDS> 115,914
0
0
<COMMON> 11
<OTHER-SE> (13,108)
<TOTAL-LIABILITY-AND-EQUITY> 149,833
<SALES> 45,037
<TOTAL-REVENUES> 45,037
<CGS> 35,523
<TOTAL-COSTS> 40,334
<OTHER-EXPENSES> 2,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,541
<INCOME-PRETAX> (875)
<INCOME-TAX> 1,650
<INCOME-CONTINUING> (2,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,525)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
<FN>
<F1> SHOWN NET ALLOWANCE
<F2> SHOWN NET OF DEPRECIATION
</FN>
</TABLE>
