UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended November 30, 1999
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 number 33-95318
PORTOLA PACKAGING, INC.
(Exact name of Registrant as specified in its Charter)
|
Delaware
|
94-1582719
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(IRS Employer Identification Number)
|
890 Faulstich Court
San Jose, CA 95112
(Address of Principal Executive Offices including Zip Code)
(408) 453-8840
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
since last report)
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
12,115,896 shares of Registrant's $.001 par value Common Stock, consisting of
2,134,992 shares of nonvoting Class A Common Stock and 9,980,904 shares in the
aggregate of voting Class B Common Stock, Series 1 and 2 combined, were
outstanding at December 11, 1999.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of
November 30, 1999 and August 31, 1999
Condensed Consolidated Statements of Operations for the Three Months Ended
November 30, 1999 and November 30, 1998
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
November 30, 1999 and November 30, 1998
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Liquidity and Capital Resources
Recent Accounting Pronouncements
Impact of the Year 2000 Issue
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, August 31,
1999 1999
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $2,826 $2,372
Accounts receivable, net........................ 24,300 26,151
Inventories..................................... 13,371 13,363
Other current assets............................ 968 799
Deferred income taxes........................... 1,952 1,952
------------ ------------
Total current assets......................... 43,417 44,637
Property, plant and equipment, net............... 89,272 91,637
Goodwill, net.................................... 14,843 15,402
Patents, net..................................... 2,320 2,417
Covenants not to compete, net.................... 78 86
Debt financing costs, net........................ 2,405 2,508
Other assets..................................... 1,505 757
------------ ------------
Total assets............................... $153,840 $157,444
============ ============
LIABILITIES, REDEEMABLE WARRANTS, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............... $435 $820
Accounts payable................................ 11,269 10,063
Book overdraft.................................. -- 3,338
Accrued liabilities............................. 5,613 6,139
Accrued compensation............................ 3,322 2,138
Accrued interest................................ 1,430 5,134
------------ ------------
Total current liabilities...................... 22,069 27,632
Long-term debt, less current portion............. 139,221 136,275
Other long term obligations...................... 902 917
Deferred income taxes............................ 5,295 5,295
------------ ------------
Total liabilities............................ 167,487 170,119
------------ ------------
Commitments and contingencies (Note 4)
Minority interest................................ 1,093 1,120
------------ ------------
Redeemable warrants to purchase Class A
Common Stock................................... 12,306 12,222
------------ ------------
Common stock and other shareholders'
equity (deficit):
Class A convertible Common Stock of $.001
par value:
Authorized: 5,203 shares; Issued and
outstanding 2,135 shares in both periods..... 2 2
Class B, Series 1, Common Stock of $.001
par value:
Authorized: 17,715 shares; Issued and
outstanding: 8,809 shares in 1999 and
8,636 shares in 1998......................... 8 8
Class B, Series 2, convertible Common Stock
of $.001 par value:
Authorized: 2,571 shares; Issued and
outstanding 1,171 shares in both periods..... 1 1
Additional paid-in capital..................... 8,195 8,171
Notes receivable from shareholders............. (357) (375)
Accumulated other comprehensive loss........... (915) (1,234)
Accumulated deficit............................ (33,980) (32,590)
------------ ------------
Total common stock and other
shareholders' equity (deficit)........... (27,046) (26,017)
------------ ------------
Total liabilities, redeemable
warrants, common stock and other
shareholders' equity (deficit)........... $153,840 $157,444
============ ============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months
Ended November 30,
---------------------
1999 1998
---------- ----------
Sales........................... $47,613 $44,759
Cost of sales................... 37,389 33,264
---------- ----------
Gross profit................ 10,224 11,495
---------- ----------
Selling, general and
administrative................ 7,447 6,174
Research and development........ 616 788
Amortization of intangibles..... 899 585
---------- ----------
8,962 7,547
---------- ----------
Income from operations...... 1,262 3,948
---------- ----------
Other (income) expense:
Interest income............... -- (80)
Interest expense.............. 3,060 3,522
Amortization of debt
financing costs............. 103 120
Minority interest............. (27) --
Loss (gain) from sale of
property plant and
equipment................... 47 (1)
Other expense (income), net... 120 (178)
---------- ----------
3,303 3,383
---------- ----------
(Loss) income before
income taxes.............. (2,041) 565
Income tax (benefit) provision.. (735) 201
---------- ----------
Net (loss) income............... ($1,306) $364
========== ==========
Number of shares used in
computing basic per share
amounts....................... 12,090 11,792
========== ==========
Basic (loss) earnings
per share..................... ($0.11) $0.03
Number of shares used in
computing diluted per share
amounts....................... 12,090 14,415
========== ==========
Diluted (loss) earnings
per share..................... ($0.11) $0.03
The accompanying notes are an integral part of the
condensed consolidated financial statements.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months
Ended November 30,
---------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net (loss) income...................................... ($1,306) $364
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization........................ 5,207 4,049
Deferred income taxes................................ -- (74)
Loss (gain) on property and equipment dispositions... 47 (1)
Provision for doubtful accounts...................... 53 62
Provision for excess and obsolete inventories........ 67 93
Equity in losses of affiliates....................... 238 --
Minority interest.................................... (27) --
Changes in working capital:
Accounts receivable.................................. 1,891 3,661
Inventories.......................................... (41) 160
Other current assets................................. (107) (1,410)
Accounts payable..................................... 1,739 (1,699)
Accrued liabilities.................................. (107) 369
Accrued interest..................................... (3,704) (3,070)
---------- ----------
Net cash provided by operating activities............ 3,950 2,504
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment............. (2,462) (2,986)
Increase in other assets............................... (309) (974)
---------- ----------
Net cash used in investing activities................ (2,771) (3,960)
---------- ----------
Cash flows from financing activities:
Decrease in book overdraft............................. (3,338) --
Borrowings under long-term debt arrangements, net...... 2,552 3,577
Decrease in notes receivable from shareholders......... 18 --
Issuance of common stock............................... 24 --
---------- ----------
Net cash (used in) provided by financing activities.. (744) 3,577
---------- ----------
Effect of exchange rate changes on cash.................. 19 (16)
---------- ----------
Increase in cash and cash equivalents................ 454 2,105
Cash and cash equivalents at beginning of period......... 2,372 3,570
---------- ----------
Cash and cash equivalents at end of period............... $2,826 $5,675
========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation:
The unaudited condensed 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 condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements contained in the Company's Form
10-K previously filed with the Securities and Exchange Commission. The
August 31, 1999 condensed consolidated balance sheet data was derived
from audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Interim results are subject to seasonal variations and the results of
operations for the three months ended November 30, 1999 are not
necessarily indicative of the results to be expected for the full fiscal
year ending August 31, 2000.
2. Computation of Earnings (Loss) Per Common Share:
Basic EPS is computed as net income (loss) divided by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible
securities. Common equivalent shares are excluded from the November 30,
1999 computation of net loss per share as their effect is anti-dilutive.
3. Inventories:
Inventory balances as of November 30, 1999 and August 31, 1999 were
as follows (in thousands):
November 30, August 31,
1999 1999
----------- -----------
(unaudited)
Raw materials.................... $6,649 $7,300
Work in process.................. 1,452 1,145
Finished goods................... 5,270 4,918
----------- -----------
$13,371 $13,363
=========== ===========
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Commitments and Contingencies:
On July 1, 1999, the Company entered into an agreement to provide a
total of $3.5 million in support services to Sand Hill Systems, Inc.,
(SHS), then a wholly-owned subsidiary. The agreement terminated
September 30, 1999, when the services provided under the agreement
reached an aggregate value of $3.5 million. The Company received a
promissory note for $3.5 million from SHS which bears interest at a rate
equal to the base rate used in the Company's Senior Revolving Credit
facility less one-half of one percent. The note was subsequently assumed
by a company controlled by the Chief Executive Officer of Portola
Packaging, Inc., in exchange for an ownership interest in SHS. All
outstanding principal and interest amounts due on the note are payable in
full on the earlier date of July 1, 2003 or the occurrence of one of the
following events: nine months after a public offering equal to or
exceeding $20 million in the aggregate; the sale of all or substantially
all of the assets of SHS; or an event of default under the note. As of
November 30, 1999, the Company had not received any payments related to
the note, and as such, no income related to the services agreement had
been recognized. In September 1999 the Company's interest in SHS was
reduced from 100% to less than 25%. As such, effective October 1, 1999,
SHS is being accounted for as an equity method investment.
The Company is currently engaged in patent infringement litigation
with two separate parties who are seeking to have the court declare
certain patents owned by the Company invalid. These parties have also
included allegations of anti-trust violations in their complaints. The
Company believes that its patents are valid and is contesting these
allegations vigorously. The Company is also subject to other legal
proceedings and claims arising out of the normal course of business.
Based on the facts currently available, management believes that the
ultimate amount of liability beyond reserves provided, if any, for any
pending actions will not have a material adverse effect on the financial
position of the Company. However, the ultimate outcome of any litigation
is uncertain, and either unfavorable or favorable outcomes could have a
material impact on the results of operations or liquidity of the Company
in a particular period.
On August 11, 1999, the Company signed a letter of intent to enter
into a new five-year senior secured credit facility providing for up to
$50.0 million for operating purposes and an additional $10.0 million
available for acquisition purposes. The new credit facility would be
subject to a borrowing base and covenants similar to those in the
existing senior credit facility. Currently, the Company is negotiating
with the banks to finalize the terms of the new facility.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 established accounting and reporting standards
for derivative instruments and hedging activities and requires the
recognition of all derivatives in the balance sheet at their fair market
values. The implementation date of this standard was recently delayed
by the issuance of SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133" and it is not effective for the Company until fiscal year 2001.
The impact of adopting this statement on the Company's current financial
statements would not be material.
6. Segment Information:
In fiscal year 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". Prior period
amounts have been restated in accordance with the requirements of the new
standard.
The Company's reportable operating businesses are organized primarily
by geographic region. The United States and United Kingdom segments
offer the Company's principal closure product lines, and the Company's
Canada segment offers both closure and bottle product lines. The Company
evaluates the performance of its segments and allocates resources to them
based on earnings before interest, taxes, depreciation, amortization and
certain non-operating income and expenses. Certain Company businesses
and activities, including the equipment division, Portola Allied Tool and
general corporate costs, do not meet the definition of a reportable
operating segment and have been aggregated into "Other". Certain
corporate expenses related to the domestic closure operations, including
human resources, finance, selling and information technology costs, have
been allocated to the United States segment for purposes of determining
Adjusted EBITDA. The accounting policies of the segments are consistent
with those policies used by the Company as a whole.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The table below presents information about reported segments for the
three month periods ended November 30, (in thousands):
United United
States Canada Kingdom Other Total
---------- --------- --------- --------- ---------
Revenues................... 1999 $28,773 $6,228 $6,172 $6,440 $47,613
1998 31,408 5,759 4,993 2,599 44,759
Adjusted EBITDA............ 1999 6,429 989 1,114 (2,376) 6,156
1998 8,349 690 806 (1,795) 8,050
Intersegment revenues of $1.5 million and $1.2 million have been
eliminated from the segment totals presented above for the periods ended
November 30, 1999 and 1998, respectively.
The table below presents a reconciliation of total segment Adjusted
EBITDA to total consolidated income before income taxes for the three
month periods ended November 30, (in thousands):
1999 1998
----------- ------------
Total Adjusted EBITDA - for reportable
segments.............................. $6,156 $8,050
Depreciation and amortization.............. (5,207) (4,049)
Interest expense, net...................... (3,060) (3,442)
Gain (loss) from sale of property, plant
and equipment......................... (47) 1
Other...................................... 117 5
----------- ------------
Consolidated (loss) income before
income taxes.......................... ($2,041) $565
=========== ============
7. Other Comprehensive (Loss) Income:
In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The following is a breakdown of other
comprehensive (loss) income for the three month periods ended November
30, (in thousands):
1999 1998
--------- ---------
Net (loss) income.......................... ($1,306) $364
Cumulative translation adjustment.......... 319 137
--------- ---------
Total comprehensive (loss) income.......... ($987) $501
========= =========
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Subsequent Events:
On December 20, 1999, the Company deposited $1.4 million in a United
States bank in preparation for the acquisition of the 45% interest it
does not currently own in Shanghai Portola Packaging LLC (SHPPC). If
completed, the transaction will be accounted for as a purchase and
accordingly the purchase price will be allocated to the underlying assets
and liabilities acquired based on the proportional change in ownership
and the respective estimated fair values at the date when the purchase is
finalized. Any excess purchase price over the estimated fair values of
the assets acquired will be allocated to goodwill.
SHPPC is located in the Shanghai province of China and manufactures
and sells closures primarily for the Asian marketplace. After the
purchase, SHPPC will continue to be operated as an "unrestricted"
subsidiary pursuant to the terms of the Company's senior revolving credit
facility and the senior note indenture, each of which was entered into in
October 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Act of 1934, as amended. Certain statements included in
this Form 10-Q, including, without limitation, statements related to the
impact of the final disposition of legal matters in the "Commitments and
Contingencies" footnote to the condensed consolidated financial
statements, anticipated cash flow sources and uses under "Liquidity and
Capital Resources", the mitigation of the Year 2000 issue under "Impact of
the Year 2000 Issue" and other statements contained in the "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 and elsewhere in this
report.
Results of Operations
Sales increased $2.8 million, or 6.3%, from $44.8 million for the
three months ended November 30, 1998 to $47.6 million for the three
months ended November 30, 1999. This increase was primarily due to the
addition of $3.0 million in sales from the consolidation of our Mexican
operations beginning in the second quarter of fiscal 1999, and increased
sales in our United Kingdom subsidiary of $1.2 million due to an increase
in sales volume. Also contributing to the sales growth for the quarter
was the addition of sales from our new subsidiary, Portola Allied Tool of
$962,000, increased sales from our Canadian operations of $469,000
primarily due to an increase in bottle prices, and the addition of $1.1
million in sales from newly operational joint ventures in China and the
United States. Decreased sales in the domestic closure operations are
due primarily to decreased sales volume of $2.6 million. Decreased sales
from the equipment division of $900,000 also offset the increase in
sales.
Gross profit decreased $1.3 million to $10.2 million or 21.4% of
sales for the first quarter of fiscal 2000 as compared to $11.5 million,
or 25.7%, for the first quarter of fiscal 1999. A majority of the
decrease was attributable to decreased margins in the domestic closure
operations of $2.5 million primarily caused by a decrease in sales volume
in September and October of 1999, and increased resin costs that we will
be unable to pass on to our customers until the second quarter of fiscal
2000. The decrease in domestic closures gross margin was partially
offset by the addition of $574,000 in gross profit from the consolidation
of our Mexican operations and from the addition of $541,000 in gross
profits from our new domestic joint ventures.
Selling, general and administrative expenses increased $1.2 million,
or 19.4%, to $7.4 million for the three months ended November 30, 1999,
as compared to $6.2 million for the same period in fiscal year 1999, and
increased as a percentage of sales from 13.8% for the three months ended
November 30, 1998 to 15.5% for the three months ended November 30, 1999.
The increase was primarily due to the addition of $705,000 of expenses
related to our new domestic joint ventures and from expenses related to
Sand Hill Systems Inc., previously a wholly-owned subsidiary of the
Company (see Note 4 to Notes to Condensed Consolidated Financial
Statements). Part of the increase was also attributable to the addition
of $307,000 of expenses related to the consolidation of our Mexican
operations and the addition of $162,000 of expenses related to our new
domestic subsidiary, Portola Allied Tool. International selling expenses
also increased by $205,000 due to an increase in related employee, travel
and supplies costs. These increases were partially offset by a decrease
of $109,000 in employee costs from our United Kingdom operations.
Research and development expense decreased $172,000, or 21.8%, to
$616,000 for the three months ended November 30, 1999, as compared to
$788,000 for the three months ended November 30, 1998, and decreased as a
percentage of sales from 1.8% in the three months ended November 30, 1998
to 1.3% in the three months ended November 30, 1999. The decrease in
research and development expense was primarily due to the effect of the
reimbursement of certain tool development costs that offset expenses and
a decrease in prototype expenses.
Amortization of intangibles (consisting of amortization of patents,
goodwill and covenants not to compete) increased $314,000, or 53.7%, to
$899,000 for the three months ended November 30, 1999, as compared to
$585,000 for the three months ended November 30, 1998. The increase was
primarily due to the increase of goodwill amortization expense related to
the acquisition of our Mexican subsidiary and the acquisition of Portola
Allied Tool.
Interest income decreased $80,000 for the three months ended November
30, 1999 as compared to the same period in fiscal year 1999. This
decline was primarily due to fluctuations in the levels of invested cash
in fiscal 2000 as compared to fiscal 1999.
Interest expense decreased $462,000 to $3.1 million for the three
months ended November 30, 1999, as compared to $3.5 million for the three
months ended November 30, 1998. This decrease reflects the payoff of our
Canadian term loan during fiscal year 1999, the payoff of a U.K.
acquisition note in the first quarter of fiscal year 2000 and reduced
interest rates for certain borrowings under our senior credit facility.
Amortization of debt financing costs decreased $17,000 for the three
months ended November 30, 1999 to $103,000 from $120,000 for the three
months ended November 30, 1998. The decrease in debt financing costs is
primarily attributable to the write-off of the western Canadian debt
costs in fiscal 1999 due to the early payoff of this debt. The remaining
debt financing costs are primarily attributable to the $110 million
senior notes issued in October 1995.
Other expense of $120,000 for the three months ended November 30,
1999 is comprised primarily of equity in losses of affiliates of $238,000
offset by gains on foreign currency transactions. Other income of
$178,000 for the three months ended November 30, 1998 was primarily due
to foreign currency gains.
The Company recorded a benefit from income taxes of $735,000 for the
three months ended November 30, 1999 based on its pre-tax loss using an
effective tax rate of 36%. The actual effective tax rate for the entire
fiscal year could vary substantially depending on actual results
achieved. The Company recorded a provision for income taxes of $201,000
for the three month period ending November 30, 1998.
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 November 30, 1999, the Company had
cash and cash equivalents of $2.8 million, an increase of $454,000 from
August 31, 1999.
Cash provided by operations totaled $4.0 million for the three months
ended November 30, 1999, which represents a $1.5 million increase from
the $2.5 million provided by operations for the three months ended
November 30, 1998. Accounts payable provided funds of $1.7 million in
the first three months of fiscal 2000 compared to using funds of $1.7
million in the first three months of fiscal year 1999, and accrued
expenses used funds of $107,000 in the first quarter of fiscal 2000 as
compared to providing funds of $369,000 in the same period of fiscal year
1999. The increase in funds provided by accounts payable was partially
offset by a decrease in funds provided by accounts receivable, from $3.7
million in the first quarter of fiscal year 1999 to $1.9 million for the
same period in fiscal year 2000. In addition, accrued interest expense
used funds of $3.7 million in the first quarter of fiscal 2000 compared
to using funds of $3.1 million in the same period of fiscal year 1999.
Cash used in investing activities was $2.8 million for the three
months ended November 30, 1999, as compared to using $4.0 million for the
three months ended November 30, 1998. In both periods the use of cash
consisted primarily of additions to property, plant and equipment and for
the first quarter of fiscal 1999 included an $825,000 investment in the
Company's Chinese joint venture.
Cash used by financing activities was $744,000 for the first quarter
of fiscal year 2000 as compared to providing $3.6 million for the first
quarter of fiscal year 1999. The decrease was principally due to $3.3
million of cash used in the first quarter of fiscal year 2000 to satisfy
a book overdraft and decreased borrowings under the Company's line of
credit in the first quarter of fiscal year 2000 as compared to the same
period in fiscal year 1999.
At November 30, 1999, the Company had $2.8 million in cash and cash
equivalents as well as borrowing capacity under the revolving credit line
(of which $6.0 million was available for draw as of November 30, 1999).
While there can be no assurances, 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 year 2000.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 established accounting
and reporting standards for derivative instruments and hedging activities
and requires the recognition of all derivatives in the balance sheet at
their fair market values. The implementation date of this standard was
recently delayed by the issuance of SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133" and it is not effective for the Company
until fiscal year 2001. The impact of adopting this statement on the
Company's current financial statements would not be material.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written
using two digits, rather than four, to define the applicable year.
Software programs and hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including a temporary
inability to engage in normal business activities.
Using mainly internal personnel and operating cash flows, the Company
has modified or replaced portions of hardware and software so that its
systems properly recognize dates beyond December 31, 1999. However, the
operational effectiveness of the Company in the year 2000 will be partly
based on the ability of its suppliers and customers to successfully
complete their Year 2000 resolution processes and operate effectively in
the new year. While the Company believes it has taken reasonable steps to
mitigate potential Year 2000 issues, the failure of suppliers to deliver
raw materials on time or for customers to buy product in normal quantities
and frequencies could have a material impact on the Company's financial
results.
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
|
|
10.30
|
Summary description of the Company Bonus Plan and Company
Profit Sharing Plan.
|
|
10.31
|
$3.5 million Variable Rate Promissory Note, dated as of
July 1, 1999, by Sand Hill Systems, Inc., in favor of
the Company.
|
|
10.32
|
Services Agreement, dated as of July 1, 1999, by and
between the Company and Sand Hill Systems, Inc.
|
|
10.33
|
Release and Assumption Agreement, dated as of September
17, 1999, by and among the Company, Sand Hill
Systems, Inc., and Portola Company IV LLC.
|
|
10.34
|
Amended and Restated Stock Pledge Agreement, dated as
of October 4, 1999, by Portola Company IV LLC in favor
of the Company
|
|
27.01
|
Financial Data Schedule.
|
(b) The Company did not file any reports on Form 8-K during the three (3)
month period ended November 30, 1999.
PORTOLA PACKAGING, INC.
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.
Dated: January 10, 2000
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|
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|
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Dennis L. Berg
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Vice President, Finance and
Chief Financial Officer
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(Principal Financial Officer
and Duly Authorized Officer)
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EXHIBIT INDEX
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Exhibit Number
|
Exhibit Title
|
|
10.30
|
Summary description of the Company Bonus Plan and Company
Profit Sharing Plan.
|
|
10.31
|
$3.5 million Variable Rate Promissory Note, dated as of
July 1, 1999, by Sand Hill Systems, Inc., in favor of
the Company.
|
|
10.32
|
Services Agreement, dated as of July 1, 1999, by and
between the Company and Sand Hill Systems, Inc.
|
|
10.33
|
Release and Assumption Agreement, dated as of September
17, 1999, by and among the Company, Sand Hill
Systems, Inc., and Portola Company IV LLC.
|
|
10.34
|
Amended and Restated Stock Pledge Agreement, dated as
of October 4, 1999, by Portola Company IV LLC in favor
of the Company
|
|
27.01
|
Financial Data Schedule.
|
