<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 FEBRUARY 28, 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 April 3, 1997.
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
February 28, 1997 and August 31, 1996................... 3
Consolidated Statements of Operations for
the Three and Six Months Ended
February 28, 1997 and February 29, 1996 .................. 5
Consolidated Statements of Cash Flows for
the Six Months Ended February 28, 1997 and
February 29, 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 4. Submission of Matters to a
Vote of Security Holders...................... 14
Item 6. Exhibits and Reports on Form 8-K.............. 15
SIGNATURES .............................................. 16
- ----------
EXHIBIT INDEX .............................................. 17
- -------------
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)
FEBRUARY 28, AUGUST 31,
1997 1996
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,326 $7,797
Investments 466 710
Accounts receivable, net 22,780 23,835
Inventories 11,679 11,650
Other current assets 3,294 2,061
Deferred income taxes 1,405 1,307
----- -----
Total current assets 41,950 47,360
Notes receivable 248 256
Property, plant and equipment, net 76,068 69,773
Goodwill, net 15,683 17,564
Patents, net 2,130 2,235
Covenants not to compete, net 2,835 3,699
Debt financing costs, net 3,670 3,853
Other assets 5,596 7,487
----- -----
Total assets $148,180 $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)
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES, REDEEMABLE WARRANTS, COMMON
STOCK AND OTHER STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt
and short-term borrowings $4,468 $1,805
Accounts payable 8,536 10,029
Accrued liabilities 9,498 9,157
Accrued interest 5,078 4,999
----- -----
Total current liabilities 27,580 25,990
Long-term debt, less current portion 116,684 116,108
Other long term obligations 1,978 2,303
Deferred income taxes 7,056 7,067
----- -----
Total liabilities 153,298 151,468
Contingencies (Note 5)
Redeemable warrants to purchase Class A
common stock 5,086 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 Feb. 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 (10) (8)
Unrealized holding losses on marketable
securities (317) (170)
Accumulated deficit (18,251) (12,490)
------- -------
Total common stock and other
stockholders' deficit (10,204) (3,801)
------- -------
Total liabilities, redeemable warrants,
common stock and other stockholders'
deficit $148,180 $152,227
------- -------
------- -------
</TABLE>
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 ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
(UNAUDITED) (UNAUDITED)
FEB. 28, FEB. 29, FEB. 28, FEB. 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $40,079 $35,910 $79,971 $73,877
Cost of sales 32,974 27,675 65,089 55,857
------ ------ ------ ------
Gross profit 7,105 8,235 14,882 18,020
----- ----- ------ ------
Selling, general and administrative 4,525 3,879 9,579 8,245
Research and development 573 655 1,167 1,007
Amortization of intangibles 879 1,055 1,634 2,194
Write-off of intangibles 1,720 -- 1,720 --
Restructuring costs 1,093 -- 1,093 --
----- ----- ------ ------
8,790 5,589 15,193 11,446
----- ----- ------ ------
Income (loss) from operations (1,685) 2,646 (311) 6,574
------- ----- ----- -----
Other (income) expense:
Interest income (89) (418) (289) (684)
Interest expense 3,373 3,317 6,539 6,380
Amortization of debt financing costs 115 135 313 261
Other expense 257 -- 11 62
-------- ------ -------- --------
3,656 3,034 6,574 6,019
-------- ------ -------- --------
Income (loss) before extraordinary
item and income taxes (5,341) (388) (6,885) 555
Provision for (benefit from)
income taxes (1,032) 608 (1,650) 755
-------- ------ -------- --------
Loss before extraordinary item (4,309) (996) (5,235) (200)
Extraordinary item, net of tax
benefit of $843 -- -- -- 1,265
-------- ------ -------- --------
Net loss ($4,309) ($996) ($5,235) ($1,465)
-------- ------ -------- --------
-------- ------ -------- --------
Loss per common share:
Loss before extraordinary item ($0.39) ($0.10) ($0.49) ($0.05)
Net loss ($0.39) ($0.10) ($0.49) ($0.16)
Number of shares used in computing
per share amounts 11,798 11,797 11,806 11,585
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
------------------------
FEB. 28, FEB. 29,
-------- --------
1997 1996
---- ----
(UNAUDITED)
Cash flows from operating activities:
Net loss $ (5,235) $ (1,465)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 7,305 8,072
Write-off of intangibles 1,720
Deferred income taxes 23
Loss on property and equipment dispositions 70
Provision for (recovery of) losses on
accounts receivable 302 (154)
Provision for excess and obsolete inventories 519
Provision for restructuring 279
Write-off loan fees 2,109
Changes in working capital:
Accounts receivable 1,347 755
Inventories (292) (314)
Other current assets (1,173) (726)
Accounts payable (1,895) (2,876)
Accrued liabilities (50) (1,042)
Accrued interest 79 4,177
-------- --------
Net cash from operating activities 2,976 8,559
-------- --------
Cash flows used for investing activities:
Additions to property and equipment (9,284) (16,372)
Proceeds from sale of property, plant and
equipment 261
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 in other assets 1,873 807
-------- --------
Net cash used for investing activities (9,284) (16,010)
-------- --------
Cash flows from financing activities:
Repayment of senior note (57,000)
Repayment of revolving line of credit (15,383)
Repayment of long term debt obligations (783) (365)
Proceeds from public debt offering 110,000
Repayment of subordinated note (10,000)
Borrowings under debt arrangements 222
Borrowing under revolving line of credit 2,430 4,146
Repayments under revolving line of credit (5,512)
Repayment of notes receivable from shareholder 7
Repurchase of common stock (500)
Payment of loan fee (4,019)
Prepayment penalty (157)
Payment under covenants (537) (496)
-------- --------
Net cash from financing activities 839 21,214
-------- --------
Effect of exchange rate on cash (2) -
-------- --------
Increase (decrease) in cash and cash
equivalents (5,471) 13,763
Cash and cash equivalents at beginning of period 7,797 763
-------- --------
Cash and cash equivalents at end of period $ 2,326 $ 14,526
-------- --------
-------- --------
Supplemental disclosure of non-cash information:
Acquisition of property and equipment through
long-term capital leases $ 1,370
--------
--------
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
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 six months ended February 28, 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 six
months ended February 28, 1997 and February 29, 1996. The accretion of
warrants of $270,000 and $526,000 for the three and six months ended February
28, 1997, respectively, and $217,000 and $423,000, for the three and six
months ended February 29, 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
<PAGE>
Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. ACQUISITION: (continued)
have been consolidated with the Company. Portola Packaging Ltd. was being
operated as an "unrestricted subsidiary" at February 28, 1997. In early
April 1997, Portola Packaging Ltd. became a "restricted subsidiary". Prior
to the change in the status of Portola Packaging Ltd., amounts that could
be invested by the Company in Portola Packaging Ltd. were subject to
limitations pursuant to the terms of the Indenture pertaining to the senior
notes issued in October 1995.
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
---------
---------
4. INVENTORIES:
Inventory balances as of February 28, 1997 and August 31, 1996 were as
follows:
Feb 28, Aug 31,
1997 1996
---- ----
(unaudited)
Raw materials $5,442 $6,023
Work in process 685 858
Finished goods 5,552 4,769
------- -------
$11,679 $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 intends to
vigorously contest 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 Securities and Exchange Commission ("SEC") informed
the Company of its view that approximately $14 million of the Company's
senior notes ("Notes") were sold by an affiliate of the Company during a
period in which the SEC believes that the Company did not have a current
effective registration statement. The Notes sold during this period by the
Company's affiliate may be subject to rescission, which may involve liability
by the Company for any loss incurred in connection with a rescission.
8
<PAGE>
Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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 positions
and the closure of its Portland, Oregon plant in February 1997. The Portland
facility has been listed for sale. 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.
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. SUBSEQUENT EVENTS:
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 expects to
record a restructuring charge in connection with this restructuring plan in
the quarter ended May 31, 1997, although it is not able to estimate the
amount of such charge at this time.
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.
9. 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased $4.2 million, or 11.6%, from $35.9 million for the three
months ended February 29, 1996 to $40.1 million for the three months ended
February 28, 1997, and increased $6.1 million, or 8.2%, from $73.9 million
for the six months ended February 29, 1996 to $80.0 million for the six
months ended February 28, 1997. These increases were primarily due to
increased sales from operations in the United Kingdom and Canada as these
newer subsidiaries continue to increase their operations. Sales from
domestic operations remained relatively constant for both periods, as
declines in equipment sales were offset by increases in closure sales.
Gross profit decreased $1.1 million, or 13.7%, to $7.1 million for the
three months ended February 28, 1997, as compared to $8.2 million for the
three months ended February 29, 1996, and decreased $3.1 million, or 17.4%,
to $14.9 million for the six months ended February 28, 1997 from $18.0
million for the same period in fiscal 1996. Gross profit as a percentage of
sales decreased from 22.9% for the three months ended February 29, 1996 to
17.7% for the three months ended February 28, 1997, and from 24.4% for the
six months ended February 29, 1996 to 18.6% 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, all of which have had relatively
low margins. In addition, margins in the domestic closure business were down
slightly for the three and six month periods ended February 28, 1997 as
compared with the same periods of the prior year. 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 positions and the closure of its Portland,
Oregon plant in February 1997. The Company recorded a restructuring charge
of approximately $1.1 million and wrote off goodwill of $1.7 million in
connection with this restructuring plan in the quarter ended February 28,
1997. Additionally, in March 1997, the Company announced further
restructuring changes designed to improve productivity, and announced the
closure of its Bettendorf, Iowa plant scheduled to occur in July 1997.
Selling, general and administrative expenses increased $646,000, or
16.6%, to $4.5 million for the three months ended February 28, 1997, as
compared to $3.9 million for the same period in fiscal 1996, and increased as
a percentage of sales from 10.8% for the three months ended February 29, 1996
to 11.3% for the three months ended February 28, 1997. For the six months
ended February 28, 1997, selling, general and administrative expenses were
$9.6 million, an increase of $1.3 million, or 16.2%, from expenses of $8.2
million for the same period in fiscal 1996. As a percentage of sales for the
six months ended February 28, 1997, selling, general and administrative
expenses were 12.0% as compared to 11.2% for the same period in fiscal 1996.
These increases are primarily due to increases in personnel in the sales and
marketing area, 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 an increase in legal
fees primarily due to patent litigation.
10
<PAGE>
Research and development expense decreased $82,000, or 12.5%, to
$573,000 for the three months ended February 28, 1997, as compared to
$655,000 for the three months ended February 29, 1996, and decreased as a
percentage of sales from 1.8% in the three months ended February 29, 1996 to
1.4% in the three months ended February 28, 1997. The decrease was primarily
due to fewer expenditures for patent consulting in the three months ended
February 28, 1997 as compared to the same period of fiscal 1996. For the six
months ended February 28, 1997, research and development expense was $1.2
million, an increase of $160,000, or 15.9%, from $1.0 million for the same
period in fiscal 1996. As a percentage of sales, research and development
expense was 1.5% for the six months ended February 28, 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 $176,000, or 16.7 %, to
$879,000 for the three months ended February 28, 1997, as compared to $1.1
million for the three months ended February 29, 1996, and decreased $560,000,
or 25.5%, to $1.6 million for the six months ended February 28, 1997 as
compared to $2.2 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 $1.1 million primarily
for employee severance payments in connection with the closure of its
Portland, Oregon plant in February 1997 in connection with its restructuring
plan. In March 1997 the Company announced further restructuring plans
designed to improve productivity which include the closure of its Bettendorf,
Iowa plant scheduled for July 1997. The Company anticipates it will record
an additional restructuring charge in connection with this restructuring plan
in the quarter ended May 31, 1997, although it is not able to estimate the
amount of such charge at this time.
Interest income decreased $329,000 to $89,000 for the three months ended
February 28, 1997 from $418,000 for the same period in fiscal 1996, and
decreased $395,000 to $289,000 for the six months ended February 28, 1997 as
compared to $684,000 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 $56,000 to $3.4 million for the three months
ended February 28, 1997, as compared to $3.3 million for the three months
ended February 29, 1996, and increased $159,000 to $6.5 million for the six
months ended February 28, 1997 as compared to $6.4 million for the same
period in fiscal 1996. These increases were primarily due to a higher level
of debt in fiscal 1997 due to the issuance of $110 million of 10.75% senior
notes due on October 2, 1995, and to a lesser extent to borrowings under the
Company's line of credit in fiscal 1997.
Amortization of debt financing costs decreased $20,000 for the three
months ended February 28, 1997 to $115,000 from $135,000 for the three months
ended February 29, 1997, and increased $52,000 to $313,000 for the six months
ended February 28, 1997 as compared to $261,000 for the same period in fiscal
1996. Debt financing costs are primarily attributable to
11
<PAGE>
the $110 million senior notes issued in October 1995 and to a lesser extent,
debt financing incurred in Western Canada.
Other expense was $257,000 for the three months ended February 28, 1997
which was primarily due to a foreign currency loss on intercompany
transactions. There was no other expense for the same period in fiscal 1996.
Other expense for the six months ended February 28, 1997 was $11,000 compared
to $62,000 for the same period in fiscal 1996.
The Company recorded a benefit from income taxes of $1.7 million for the
six months ended February 28, 1997 based on its pre-tax loss using an
effective tax rate of 24% in anticipation of its expected 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
six months ended February 29, 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 February 28, 1997, the Company had cash and cash
equivalents of $2.3 million, a decrease of $5.5 million from August 31, 1996.
Cash provided by operations totaled $3.0 million for the six months
ended February 28, 1997, a $5.6 million decrease from the $8.6 million
provided by operations for the six months ended February 29, 1996. Other
current assets used funds of $1.2 million in the six months ended February
28, 1997, compared to using funds of $726,000 in the same period of the prior
year. Accounts payable used funds of $1.9 million in the first half of
fiscal 1997 compared to using funds of $2.9 million in the first half of
fiscal 1996, and accrued expenses used funds of $50,000 in the first six
months of fiscal 1997 as compared to using funds of $1.0 million in the same
period of fiscal 1996. Accrued interest expense provided funds of $79,000 in
the first half of fiscal 1997 compared to providing funds of $4.2 million in
the same period of fiscal 1996.
Cash used in investing activities was $9.3 million for the three months
ended February 28, 1997, as compared to $16.0 million for the three months
ended February 29, 1997. This consisted primarily of additions to property
and equipment.
Cash provided by financing activities was $839,000 for the first half of
fiscal 1997 compared to $21.2 million for the first half 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 February 28, 1997, the Company had
borrowed $2 million under its $35 million revolving line of credit.
12
<PAGE>
At February 28, 1997, the Company had $2.3 million in cash and cash
equivalents as well as borrowing capacity under the revolving credit line (of
which $33 million was available for draw as of February 28, 1997 and $27
million was available for draw as of April 4, 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.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Portola Packaging, Inc. is a privately-held company, and currently has no
class of voting securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended. The Company has two classes of
common equity, Class A Common Stock and Class B Common Stock, Series 1 and
Series 2. Shares of Class A Common Stock are not entitled to vote. The
Company's Class B Common Stock, Series 1 and Class B Common Stock, Series 2
have the same voting rights, each share being entitled to one vote.
The annual meeting of the stockholders of the Company was held on January 17,
1997 for the purpose of electing six members of the Board of Directors of the
Company and ratifying the selection by the Board of Directors of the
Company's independent public accountants for the fiscal year ending August
31, 1997. Proxies representing 5,341,537 shares of the 8,506,640 shares of
Class B Common Stock, Series 1 issued and outstanding on the record date, or
approximately 63.0% of the outstanding shares of such Series, were received
and entitled to be voted at the annual meeting. Proxies representing 1,756
shares of the 1,171,430 shares of Class B Common Stock, Series 2 shares
issued and outstanding on the record date, or approximately 0.15% of the
outstanding shares of such Series, were received and entitled to be voted at
the annual meeting. The holders of Class B Common Stock, Series 1 and Series
2, vote as a single class.
Jack L. Watts, Larry C. Williams, Christopher Behrens, Jeffrey Pfeffer and
Timothy Tomlinson each received 5,343,293 votes, representing approximately
55% of the total voting shares outstanding and all shares present and voting
at the annual meeting, and each such individual was elected to serve as a
Director of the Company until the Company's next annual meeting. Martin
Imbler received 5,339,537 votes, representing approximately 55% of the total
voting shares outstanding and all shares present and voting at the annual
meeting, and such individual was elected to serve as a Director of the
Company until the Company's next annual meeting. The holders of the
5,343,293 shares represented and entitled to vote at the annual meeting,
representing all shares present and voting at the meeting, also ratified and
approved the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the Company for the fiscal year ending August 31, 1997.
14
<PAGE>
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
- ------ -------------
10.44 The Company's Management Deferred Compensation Plan is incorporated
by reference to Exhibit 10.44 to Post-Effective Amendment No. 2 to
the Company's Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on March 11, 1997.
11.01 Computation of Net 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 February 28, 1997.
15
<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: April 10, 1997 /s/ Robert R. Strickland
------------------------
Robert R. Strickland
Vice-President - Finance and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
Date: April 10, 1997 /s/ Patricia Voll
-----------------
Patricia Voll
Vice President, Finance and Accounting
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
10.44 The Company's Management Deferred Compensation Plan is incorporated
by reference to Exhibit 10.44 to Post-Effective Amendment No. 2 to
the Company's Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on March 11, 1997.
11.01 Computation of Net Loss per share.
27.01 Financial Data Schedule.
17
<PAGE>
EXHIBIT 11.01
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------ ----------------
1997 1996 1997 1996
------- ------- ------- ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding for the period 11,798 11,797 11,806 11,585
------- ------- ------- ------
Shares used in per share calculation 11,798 11,797 11,806 11,585
------- ------- ------- ------
------- ------- ------- ------
Loss before extraordinary item ($4,309) ($996) ($5,235) ($200)
Less the increase in the put value of warrants (270) (217) (526) (423)
------- ------- ------- ------
Loss before extraordinary item ($4,579) ($1,213) ($5,761) ($623)
------- ------- ------- ------
------- ------- ------- ------
Extraordinary item $1,265
------- ------- ------- ------
------- ------- ------- ------
Net loss ($4,309) ($996) ($5,235) ($1,465)
Less the increase in the put value of warrants (270) (217) (526) (423)
------- ------ ------- ------
Net loss ($4,579) ($1,213) ($5,761) ($1,888)
------- ------- ------- ------
------- ------- ------- ------
Net loss per share
before extraordinary item ($0.39) ($0.10) ($0.49) ($0.05)
------- ------- ------- ------
------- ------- ------- ------
Effect of extraordinary item per share ($0.11)
------- ------- ------- ------
------- ------- ------- ------
Net loss per share ($0.39) ($0.10) ($0.49) ($0.16)
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
(1) There is no difference between primary and fully diluted net 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> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 2,326
<SECURITIES> 466
<RECEIVABLES> 22,780<F1>
<ALLOWANCES> 0
<INVENTORY> 11,679
<CURRENT-ASSETS> 41,950
<PP&E> 76,068<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 148,180
<CURRENT-LIABILITIES> 27,580
<BONDS> 116,684
0
0
<COMMON> 11
<OTHER-SE> (10,215)
<TOTAL-LIABILITY-AND-EQUITY> 148,180
<SALES> 40,079
<TOTAL-REVENUES> 40,079
<CGS> 32,974
<TOTAL-COSTS> 38,072
<OTHER-EXPENSES> 3,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,488
<INCOME-PRETAX> (5,341)
<INCOME-TAX> (1,032)
<INCOME-CONTINUING> (4,309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,309)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
<FN>
<F1>SHOWN NET OF ALLOWANCE
<F2>SHOWN NET OF DEPRECIATION
</FN>
</TABLE>
