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 February 29, 2000
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 [ ]
12,171,897 shares of Registrant's $.001 par value Common Stock, consisting of
2,134,992 shares of nonvoting Class A Common Stock and 10,036,905 shares in the
aggregate of voting Class B Common Stock, Series 1 and 2 combined, were
outstanding at March 31, 2000.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of
February 29, 2000 and August 31, 1999
Condensed Consolidated Statements of Operations for the Three and Six Months
Emded February 29, 2000 and February 28, 1999
Condensed Consolidated Statements of Cash Flows for the Three and Six Months
Ended February 29, 2000 and February 28, 1999
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
PART II. Other Information
Item 4: Submission of Matters to a Vote of Security Holders
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)
February 29, August 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $1,126 $2,372
Accounts receivable, net........................ 23,399 26,151
Inventories..................................... 13,908 13,363
Other current assets............................ 1,138 799
Deferred income taxes........................... 1,952 1,952
------------ ------------
Total current assets......................... 41,523 44,637
Property, plant and equipment, net............... 88,141 91,637
Goodwill, net.................................... 14,187 15,402
Patents, net..................................... 2,234 2,417
Covenants not to compete, net.................... 69 86
Debt financing costs, net........................ 2,284 2,508
Other assets..................................... 1,463 757
------------ ------------
Total assets............................... $149,901 $157,444
============ ============
LIABILITIES, REDEEMABLE WARRANTS, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............... $439 $820
Accounts payable................................ 12,629 10,063
Book overdraft.................................. -- 3,338
Accrued liabilities............................. 3,529 6,139
Accrued compensation............................ 3,206 2,138
Accrued interest................................ 4,791 5,134
------------ ------------
Total current liabilities...................... 24,594 27,632
Long-term debt, less current portion............. 135,666 136,275
Other long term obligations...................... 925 917
Deferred income taxes............................ 5,306 5,295
------------ ------------
Total liabilities............................ 166,491 170,119
------------ ------------
Commitments and contingencies (Note 4)
Minority interest................................ 1,053 1,120
------------ ------------
Redeemable warrants to purchase Class A
Common Stock................................... 12,401 12,222
------------ ------------
Common stock and other shareholders'
equity (deficit):
Class A convertible Common Stock, $.001
par value:
Authorized: 5,203 shares; Issued and
outstanding 2,135 shares in both periods..... 2 2
Class B, Series 1, Common Stock, $.001
par value:
Authorized: 17,715 shares; Issued and
outstanding: 8,865 shares in 2000 and
8,769 shares in 1999......................... 8 8
Class B, Series 2, convertible Common Stock,
$.001 par value:
Authorized: 2,571 shares; Issued and
outstanding 1,171 shares in both periods..... 1 1
Additional paid-in capital..................... 8,245 8,171
Notes receivable from shareholders............. (378) (375)
Accumulated other comprehensive loss........... (970) (1,234)
Accumulated deficit............................ (36,952) (32,590)
------------ ------------
Total common stock and other
shareholders' equity (deficit)........... (30,044) (26,017)
------------ ------------
Total liabilities, minority interest,
redeemable warrants, common stock and
other shareholders' equity (deficit)..... $149,901 $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 For the Six
Months Ended, Months Ended,
--------------------- ---------------------
2/29/00 2/28/99 2/29/00 2/28/99
---------- ---------- ---------- ----------
Sales........................... $46,878 $43,275 $94,491 $88,034
Cost of sales................... 37,408 33,527 74,797 66,791
---------- ---------- ---------- ----------
Gross profit................ 9,470 9,748 19,694 21,243
---------- ---------- ---------- ----------
Selling, general and
administrative................ 7,930 6,970 15,377 13,144
Research and development........ 817 611 1,433 1,399
Amortization of intangibles..... 836 582 1,735 1,167
---------- ---------- ---------- ----------
9,583 8,163 18,545 15,710
---------- ---------- ---------- ----------
Income (loss) from
operations................ (113) 1,585 1,149 5,533
---------- ---------- ---------- ----------
Other (income) expense:
Interest income............... (108) (89) (108) (169)
Interest expense.............. 4,047 3,597 7,107 7,119
Amortization of debt
financing costs............. 107 120 210 240
Minority interest............. (38) (194) (65) (194)
Loss from sale of property
plant and equipment......... 23 48 70 47
Other expense, net............ 351 252 471 74
---------- ---------- ---------- ----------
4,382 3,734 7,685 7,117
---------- ---------- ---------- ----------
Loss before income
taxes..................... (4,495) (2,149) (6,536) (1,584)
Income tax benefit.............. (1,618) (772) (2,353) (571)
---------- ---------- ---------- ----------
Net loss........................ ($2,877) ($1,377) ($4,183) ($1,013)
========== ========== ========== ==========
Number of shares used in
computing basic per share
amounts....................... 12,146 11,949 12,118 11,946
========== ========== ========== ==========
Basic loss per share.......... ($0.24) ($0.12) ($0.35) ($0.09)
Number of shares used in
computing diluted per share
amounts....................... 12,146 11,949 12,118 11,946
========== ========== ========== ==========
Diluted loss per share........ ($0.24) ($0.12) ($0.35) ($0.09)
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 Six
Months Ended
---------------------
2/29/00 2/28/99
---------- ----------
Cash flows from operating activities:
Net loss............................................... ($4,183) ($1,013)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................ 10,342 8,306
Deferred income taxes................................ 11 (74)
Loss on property and equipment dispositions.......... 70 47
Provision for doubtful accounts...................... 80 183
Provision for excess and obsolete inventories........ (31) 168
Equity in losses of affiliates....................... 577 --
Minority interest income............................. (65) (194)
Changes in working capital:
Accounts receivable.................................. 2,749 1,691
Inventories.......................................... (481) (1,027)
Other current assets................................. (281) (524)
Accounts payable..................................... 3,110 926
Accrued liabilities.................................. (2,915) (378)
Accrued interest..................................... (343) (142)
---------- ----------
Net cash provided by operating activities............ 8,640 7,969
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment............. (5,856) (8,244)
Proceeds from sale of property, plant and equipment.... 6 863
Decrease (increase) in other assets.................... 227 (563)
---------- ----------
Net cash used in investing activities................ (5,623) (7,944)
---------- ----------
Cash flows from financing activities:
Decrease in book overdraft............................. (3,338) --
Repayment of long-term debt obligations................ (996) (693)
Increase in notes receivable from shareholders......... (3) --
Issuance of common stock............................... 74 --
Distributions.......................................... (14) --
---------- ----------
Net cash used in financing activities................ (4,277) (693)
---------- ----------
Effect of exchange rate changes on cash.................. 14 (45)
---------- ----------
Decrease in cash and cash equivalents................ (1,246) (713)
Cash and cash equivalents at beginning of period......... 2,372 3,570
---------- ----------
Cash and cash equivalents at end of period............... $1,126 $2,857
========== ==========
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 and six-month periods ended February 29, 2000
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 February 29,
2000 computation of net loss per share as their effect is anti-dilutive.
3. Inventories:
Inventory balances as of February 29, 2000 and August 31, 1999 were
as follows (in thousands):
February 29, August 31,
2000 1999
----------- -----------
(unaudited)
Raw materials.................... $7,360 $7,300
Work in process.................. 1,744 1,145
Finished goods................... 4,804 4,918
----------- -----------
$13,908 $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 promissory
note. As of February 29, 2000, 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% and since October 1, 1999,
the Company has accounted for its investment in SHS under the equity
method. In March 2000, SHS received a cash investment of $8 million from
a new investor, reducing the Company's ownership interest to
approximately 11%.
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.
The Company anticipates finalizing the terms on a new five-year, $50
million senior secured credit facility by May 2000. Management believes
the new credit facility will be subject to a borrowing base and covenants
similar to those in the existing senior credit facility.
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.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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
(EBITDA) and certain non-operating income and expenses. Certain Company
businesses and activities, including the equipment division, Portola
Allied Tool Inc., 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.
The table below presents information about reported segments for the
three and six month periods ended February 29, 2000 and February 28, 1999
(in thousands):
For the Three For the Six
Months Ended, Months Ended,
-------------------- ---------------------
2/29/00 2/28/99 2/29/00 2/28/99
---------- --------- ---------- ----------
Revenues
United States.......... $28,510 $27,711 $57,281 $59,119
Canada................. 6,215 5,648 12,443 11,407
United Kingdom......... 5,477 5,222 11,649 10,215
Other.................. 6,676 4,694 13,118 7,293
---------- --------- ---------- ----------
Total Consolidated $46,878 $43,275 $94,491 $88,034
========== ========= ========== ==========
Adjusted EBITDA
United States.......... $5,594 $6,832 $12,022 $15,180
Canada................. 978 595 1,967 1,285
United Kingdom......... 764 780 1,878 1,586
Other.................. (2,721) (2,287) (5,096) (4,081)
---------- --------- ---------- ----------
Total Consolidated $4,615 $5,920 $10,771 $13,970
========== ========= ========== ==========
Intersegment revenues totaling $1.5 million and $1.6 million for the
three month periods ended February 29, 2000 and February 28, 1999,
respectively, and $3.1 million and $2.8 million for the six month periods
ended February 29, 2000 and February 28, 1999, respectively, have been
eliminated from the segment totals presented above.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The table below presents a reconciliation of total segment Adjusted
EBITDA to total consolidated loss before income taxes for the three and
six-month periods ended February 29, 2000 and February 28, 1999 (in
thousands):
For the Three For the Six
Months Ended, Months Ended,
--------------------- ----------------------
2/29/00 2/28/99 2/29/00 2/28/99
---------- ---------- ---------- -----------
Total Adjusted EBITDA - for
reportable segments....... $4,615 $5,920 $10,771 $13,970
Depreciation and amortization.. (5,135) (4,257) (10,342) (8,306)
Interest expense, net.......... (3,939) (3,508) (6,999) (6,950)
Loss from sale of property,
plant and equipment....... (23) (48) (70) (47)
Other.......................... (13) (256) 104 (251)
---------- ---------- ---------- -----------
Consolidated loss before income
taxes..................... ($4,495) ($2,149) ($6,536) ($1,584)
========== ========== ========== ===========
7. Other Comprehensive Loss:
In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The following is a breakdown of other
comprehensive loss for the three and six month periods ended February 29,
2000 and February 28, 1999 (in thousands):
For the Three For the Six
Months Ended, Months Ended,
------------------- ---------------------
2/29/00 2/28/99 2/29/00 2/28/99
--------- --------- ---------- ----------
Net loss........................... ($2,877) ($1,377) ($4,183) ($1,013)
Cumulative translation adjustment.. (55) (1,287) 264 (1,150)
--------- --------- ---------- ----------
Total comprehensive loss........... ($2,932) ($2,664) ($3,919) ($2,163)
========= ========= ========== ==========
8. Subsequent Events:
Effective March 22, 2000, the Company acquired the remaining 45%
interest in Shanghai Portola Packaging LLC (SHPPC) for $1.4 million. The
transaction was accounted for as a purchase and accordingly the purchase
price was allocated to the underlying assets and liabilities acquired
based on the proportional change in ownership and the respective
estimated fair values.
SHPPC is located in the Shanghai province of China and manufactures
and sells closures primarily for the Asian marketplace. 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.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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 Exchange 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" 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 $3.6 million, or 8.3%, from $43.3 million for the
three months ended February 28, 1999 to $46.9 million for the three
months ended February 29, 2000. For the first six months of fiscal year
2000, sales were $94.5 million compared to $88.0 million for the first
six months of fiscal year 1999, a 7.4% increase. The increase in sales
for the second fiscal quarter ended February 29, 2000 compared to the
same quarter in fiscal 1999 was primarily due to the addition of $0.9
million in sales from a new subsidiary formed in March 1999, Portola
Allied Tool Inc., and increases in sales of $0.6 million and $0.5 million
from the Company's Canadian and Mexican operations, respectively. Also
contributing to the increased sales for the quarter were increased sales
from domestic closures and various new domestic ventures totaling $1.3
million. The increase in sales for the first six months of fiscal 2000
compared to the same period in fiscal 1999 was mainly attributable to
increased sales from the Company's foreign operations, specifically, $3.6
million from Mexico, $1.4 million from the United Kingdom and $1.0
million from Canada. The addition of $1.9 million in sales from Portola
Allied Tool Inc., and $1.5 million from new domestic ventures also
contributed to the increase in sales for the first six months of fiscal
2000. However, these sales increases were offset by decreases in sales
in domestic closures operations and the equipment division of $2.6
million and $1.4 million, respectively, for the first half of fiscal
2000. The increased sales in the Company's foreign subsidiaries for the
three and six month periods ended February 29, 2000 as compared to the
same periods in fiscal 1999 was primarily due to increased unit sales
associated with continued expansion of market share in the United Kingdom
and increased prices on bottles in Canada. The decrease in domestic
closures sales for the six months ended February 29, 2000 was due mainly
to pricing pressure caused by consolidation in the dairy industry and a
shift in sales of one large customer from the Company's domestic business
to its United Kingdom subsidiary.
Gross profit decreased $0.3 million, or 3.1%, to $9.5 million for the
second quarter of fiscal 2000 as compared to $9.8 million for the second
quarter of fiscal 1999 and decreased $1.5 million, or 7.1%, to $19.7
million for the six months ended February 29, 2000, from $21.2 million
for the same period in fiscal year 1999. Gross profit as a percentage of
sales decreased from 22.6% for the three months ended February 28, 1999
to 20.3% for the same period in fiscal year 2000, and from 24.1% for the
six months ended February 28, 1999 to 20.8% for the same period in fiscal
year 2000. The decreased margins for the three and six month periods
ended February 29, 2000 were mainly attributable to margin decreases in
domestic closures offset by the addition of margins from new domestic
ventures and improved margins from the Company's Canadian and Mexican
subsidiaries. The decreased domestic margins are due to increased resin
costs associated with a rise in oil prices that the Company has been
unable to pass on to customers in a timely fashion. Increased resin
costs also had a negative impact on the Company's foreign subsidiaries'
margins in the second quarter of fiscal 2000.
Selling, general and administrative expenses increased $0.9 million,
or 12.9%, to $7.9 million for the three months ended February 29, 2000 as
compared to $7.0 million for the same period in fiscal year 1999, and
increased as a percentage of sales from 16.2% for the three months ended
February 28, 1999 to 16.8% for the three months ended February 29, 2000.
For the six months ended February 29, 2000, selling, general and
administrative expenses were $15.4 million, an increase of $2.3 million,
or 17.6%, from $13.1 million for the same period in fiscal year 1999. As
a percentage of sales, the selling, general and administrative expenses
were 16.3% for the six months ended February 29, 2000 as compared to
14.9% for the same period in fiscal year 1999. Domestically, these
increases are primarily due to the addition of selling, general and
administrative costs from new domestic ventures and Portola Allied Tool
Inc. Also contributing to the domestic increase in these costs were
increased salaries and wages and increased litigation costs.
Internationally, the selling, general and administrative costs increased
due to increased travel costs associated with the Company's expansion
into new markets in Latin America and Europe and consulting fees.
Offsetting these increases was a decrease in general and administrative
costs related to the Company's operations in China due to the reduction
of startup costs.
Research and development expense increased $0.2 million, or 33.3%, to
$0.8 million for the three months ended February 29, 2000 as compared to
$0.6 million for the three months ended February 28, 1999 and increased
as a percentage of sales from 1.4% in the three months ended February 28,
1999 to 1.7% in the three months ended February 29, 2000. Research and
development expense remained stable at approximately $1.4 million for the
six month periods ended February 29, 2000 and February 28, 1999. As a
percentage of sales, research and development expense was 1.5% for the
six months ended February 29, 2000 as compared to 1.6% for the same
period in fiscal 1999. The slight increases in research and development
expense in dollars and as a percentage of sales for the three month
period ended February 29, 2000 as compared to the same period in fiscal
year 1999 was due primarily to an increase in consulting costs.
Amortization of intangibles (consisting of amortization of patents,
goodwill and covenants not to compete) increased $0.2 million, or 33.3%,
to $0.8 million for the three months ended February 29, 2000 as compared
to $0.6 million for the three months ended February 28, 1999 and
increased $0.5 million, or 41.7%, to $1.7 million for the six months
ended February 29, 2000 as compared to $1.2 million for the same period
in fiscal 1999. The increase was primarily due to amortization of
goodwill related to the Company's acquisition of the remaining interest
in Portola Packaging, Inc. Mexico, S.A. de C.V. that it did not
previously own, amortization of goodwill related to the acquisition of
Portola Allied Tool Inc., and amortization of additional patent costs.
Interest income remained stable at $0.1 million for the three month
periods ended February 29, 2000 and February 28, 1999 and decreased $0.1
million to $0.1 million for the six months ended February 29, 2000 as
compared to $0.2 million for the same period in fiscal 1999. The
interest income balances fluctuated based on the levels of invested cash
in fiscal 2000 as compared to fiscal 1999.
Interest expense increased $0.5 million to $4.1 million for the three
months ended February 29, 2000 as compared to $3.6 million for the three
months ended February 28, 1999 and remained stable at approximately $7.1
million for the six month periods ended February 29, 2000 and February
28, 1999. The increase was primarily due to an increase in the Company's
outstanding line of credit balance for the three and six months ended
February 29, 2000 as compared to the same period in fiscal year 1999,
offset by the payoff of a United Kingdom acquisition note in the first
quarter of fiscal 2000 and reduced interest rates for certain borrowings
under the senior credit facility.
Other expense increased $0.1 million to $0.4 million for the three
months ended February 29, 2000 as compared to other expense of $0.3
million for the same period in fiscal year 1999, and increased $0.4
million to $0.5 million for the six months ended February 29, 2000 as
compared to $0.1 million for the same period in fiscal 1999. The
increase in other expense for the three and six month periods ended
February 29, 2000 as compared to the same periods in fiscal 1999 is due
primarily to equity losses incurred by the Company related to its
investment in Sand Hill Systems, Inc.
The Company recorded a benefit for income taxes of $2.4 million for
the six months ended February 29, 2000 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 benefit from income taxes of $0.6
million for the six-month period ending February 28, 1999.
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 29, 2000, the Company had
cash and cash equivalents of $1.1 million, a decrease of $1.3 million
from August 31, 1999.
Cash provided by operations totaled $8.6 million for the six months
ended February 29, 2000, a $0.6 million increase from the $8.0 million
provided by operations for the six months ended February 28, 1999.
Accounts receivable provided funds of $2.8 million for the first six
months of fiscal year 2000 as compared to providing funds of $1.7 million
for the same period in fiscal year 1999. Accounts payable provided funds
of $3.1 million in the first six months of fiscal 2000 compared to
providing funds of $0.9 million in the first six months of fiscal year
1999, and accrued expenses used funds of $2.9 million in the first six
months of fiscal 2000 as compared to using funds of $0.4 million in the
same period of fiscal year 1999. Accrued interest expense used funds of
$0.3 million in the first six months of fiscal 2000 compared to using
funds of $0.1 million in the same period of fiscal year 1999.
Cash used in investing activities was $5.6 million for the six
months ended February 29, 2000 as compared to using $7.9 million for the
same period in fiscal year 1999. In both periods, the use of cash
consisted primarily of additions to property, plant and equipment.
Proceeds from the sale of property, plant and equipment in the first six
months of fiscal year 1999 included $0.9 million from the sale of the
Company's Bettendorf, Iowa facility.
Cash used by financing activities was $4.3 million for the six month
period ended February 29, 2000 as compared to cash used by financing
activities of $0.7 million for the first six months of fiscal year 1999.
The increase was principally due to $3.3 million of cash used in the
first quarter of fiscal year 2000 to satisfy a book overdraft and an
increase in repayment of borrowings under the line of credit for the six-
month period ended February 29, 2000 as compared to the same period in
fiscal year 1999.
At February 29, 2000, the Company had $1.1 million in cash and cash
equivalents as well as borrowing capacity under the revolving credit line
(of which $9.4 million was available for draw as of February 29, 2000).
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 2001.
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.
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 13 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
February 16, 2000 for the purpose of electing five 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, 2000. Proxies representing 7,183,188 shares of
the 8,865,475 shares of Class B Common Stock, Series 1 issued and
outstanding on the record date, or approximately 81% of the outstanding
shares of such series, were received and entitled to be voted at the
annual meeting. Proxies representing 1,151,046 shares of the 1,171,430
shares of Class B Common Stock, Series 2 issued and outstanding on the
record date, or approximately 98% 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.
Christopher Behrens, Jeffrey Pfeffer, Timothy Tomlinson, Jack L. Watts
and Larry C. Williams each received 8,333,568 votes, representing
approximately 83% of the total voting shares outstanding, and almost 100%
of the 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. The holders of 8,286,449 shares
represented and entitled to vote at the annual meeting, representing
approximately 99% of all shares present and voting at the meeting (and
approximately 83% of the total voting shares outstanding) ratified and
approved the selection of PricewaterhouseCoopers, L.L.P. as independent
public accountants for the Company for the fiscal year ending
August 31, 2000.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by
reference herein.
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Exhibit Number
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Exhibit Title
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27.01
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Financial Data Schedule.
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(b) The Company did not file any reports on Form 8-K during the three (3)
month period ended February 29, 2000.
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: April 6, 2000
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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
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Exhibit Title
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27.01
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Financial Data Schedule.
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