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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 33-95318

PORTOLA PACKAGING, INC.
(Exact name of Registrant as specified in its charter)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

Registrant's voting and non-voting common stock is privately held and there is no public market for such common stock. The aggregate market value of Registrant's voting and non-voting common stock cannot be computed by reference to the price at which the stock was sold, or the average bid and ask price of such common stock, as of any date within sixty days prior to the date of filing because there have been no sales of the non-voting common stock within sixty days prior to the date of filing.

11,905,193 shares of Registrant's $.001 par value common stock, consisting of 2,134,992 shares of non-voting Class A Common Stock and 9,770,201 shares in the aggregate of voting Class B Common Stock, Series 1 and 2 combined, were outstanding at November 21, 2003.

DOCUMENTS INCORPORATED BY REFERENCE: None

PORTOLA PACKAGING, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 31, 2003

TABLE OF CONTENTS

        Cap Snap®, Snap Cap®, Portola Packaging®, Nepco®, Tech Industries, Inc. and the Portola logo are our registered trademarks used in this Annual Report on Form 10-K.

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SAFE HARBOR STATEMENT UNDER
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

        In addition to historical information, this report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this Form 10-K, including, without limitation, statements contained in the "Management's Discussion and Analysis of Results of Operations and Financial Condition" regarding our financing alternatives, financial position, business strategy, plans and objectives of management for future operations, and industry conditions, are forward-looking statements. Certain statements, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," "plans," and words of similar import, constitute forward-looking statements. Readers are referred to the sections of this Report entitled "Plastic Closure Market," "Raw Materials and Production," "Competition," "Risk Factors," "Critical Accounting Policies and Estimates" and "Quantitative and Qualitative Disclosures About Market Risk." These sections describe risks that could cause actual results to differ materially from such forward-looking statements. Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to have been correct and only reflect management's opinions as of the date hereof. Any forward-looking statements herein are subject to certain risks and uncertainties in our business, including but not limited to, competition in our markets, and reliance on key customers, all of which may be beyond our control. Any one or more of these factors could cause actual results to differ materially from those expressed in any forward-looking statement. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this paragraph, elsewhere in this report and in other documents we file from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q we will file in fiscal 2004.

PART I

Item 1. BUSINESS

        We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non-carbonated beverage and institutional foods markets. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-proof. In addition, we recently entered the cosmetics, fragrance and toiletries ("CFT") market with the acquisition of Tech Industries, a leading provider of closures in this market, in September 2003.

        We believe that we are the sole or largest supplier to our top 25 customers of the products we supply to them. We have supplied products to these customers for an average of 12 years. We sold over 12.3 billion closures in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Express Dairies, Kroger, Perrier Water/Nestle, Estée Lauder, Avon and Coca-Cola.

        Many features of our products have been developed through our significant research and development efforts. For example, we developed the "tear strip" feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed most of the technical information and know-how that we believe necessary to operate our business. We hold approximately 150 domestic and foreign patents, with over 70 additional patents pending, on the design of container closures and compatible bottlenecks.

        Our products are manufactured through technologically advanced, high speed injection molding, compression molding and blowmolding processes at 14 manufacturing facilities, including seven located

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in the United States, four in Canada and one in each of the United Kingdom, Mexico and China. In addition, we have two equipment facilities located in the United States that produce equipment and tooling. We are also developing a new advanced manufacturing facility in the Czech Republic to serve European markets for closures and CFT products.

History

        We were founded in 1964 and were acquired from our founders in 1986 by a group led by Jack L. Watts, our current Chairman of the Board and Chief Executive Officer. We have grown from $31.4 million in sales and 2.4 billion in closure units sold in fiscal 1988 to $215.3 million in sales and over 12.3 billion closures and 235.0 million bottles sold in fiscal 2003. Portola's senior management has significant experience in the plastic packaging business and an average tenure of over eight years.

        On June 30, 1994, we acquired Northern Engineering & Plastics Corp., a Pennsylvania corporation, and certain related companies and assets (collectively, "Pennsylvania Nepco") for a purchase price of $43.7 million. The acquisition of Pennsylvania Nepco, a designer, manufacturer and marketer of tamper evident plastic closures in markets similar to those served by Portola, enabled us to establish new customer relationships, diversify and expand our product offerings and customer base and benefit from Pennsylvania Nepco's proprietary product designs.

        On June 16, 1995, we purchased for $13.6 million the 50% interest we had not previously owned in Canada Cap Snap Corporation, a British Columbia corporation engaged in manufacturing and distributing small closures in western Canada, together with all the capital stock of two affiliated plastic bottle manufacturers. On September 1, 1996, we purchased for $2.1 million Rapid Plast J-P, Inc., a company headquartered in Montreal, Quebec engaged in manufacturing and distributing plastic bottles, primarily in eastern Canada. The Canadian acquisitions enabled us to establish a position in the Canadian bottle manufacturing marketplace and to advance our position in the Canadian closure marketplace.

        During fiscal 1999, we entered into a joint venture with Greiner A.G. of Austria to form an Austrian company now named Capsnap Europe Packaging GmbH ("CSE"), which is 50% owned by Portola. CSE currently sells five-gallon closures and bottles that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. CSE also has a 50% ownership interest in Watertek, a joint venture in Turkey which produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a new Greek company, Cap Snap Hellas, that sells our products in Greece.

        On March 31, 1999, we purchased certain operating and intangible assets and repaid certain liabilities of Allied Tool, Inc. ("Portola Allied"), for a total purchase price of $2.2 million. Portola Allied is located in Michigan and is engaged primarily in the manufacture and sale of tooling and molds used in the blowmolding industry.

        Effective March 22, 2000, we acquired the remaining 45% ownership interest in Shanghai Portola Packaging Company Limited ("PPI China") that we did not previously own for $1.4 million. PPI China is located in the Shanghai province of China and is engaged in the manufacture and distribution of plastic closures and plastics components for the electronics industry in Asia, Australia and New Zealand.

        Effective January 1, 2001, we purchased certain assets and assumed certain liabilities of Consumer Cap Corporation ("Consumer") for approximately $9.9 million. Consumer's manufacturing and distributing operations have been merged with our existing operations in Chino, California; Batavia, Illinois; and Sumter, South Carolina.

        On September 19, 2003, we acquired all of the outstanding capital stock of Tech Industries for approximately $40.0 million (including assumed liabilities and transaction costs). Tech Industries is a

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manufacturer of plastic closures and containers for the CFT industries. Tech Industries' customers include Estée Lauder and Avon, each of which has used our products for over 20 years. Tech Industries provides us with an entrance to the CFT market, where advanced design capabilities and specialized manufacturing processes are required. We funded the purchase price for Tech Industries through borrowings under our existing credit facility.

        We plan to implement our efficient manufacturing processes within Tech Industries' operations to further increase their profitability and contribution to our cash flow. We funded the purchase price for Tech Industries through borrowings under our credit facility.

Business strategy

        Our primary strategy is to increase cash flow by maintaining and extending our position as a leader in significant segments in the plastic closure and bottle markets, as well as the newly entered CFT market. The key elements of this strategy are as follows:

        Emphasizing research and development and product engineering.    Packaging of food and beverages is rapidly changing in the marketplace, as producers encounter increased competition and escalating sophistication among their customers. The demands for new packaging solutions can only be met by using new materials and innovative design and manufacturing techniques. We are continuing our commitment to the research and development of new containers, closures and packaging systems.

        Emphasizing customer support and total product solutions.    We build long-term relationships with customers and attract new customers by providing on-time delivery and technical service and support, and by positioning and selling our products as "total product solutions." We work closely with our customers to design closures and compatible container necks and neck inserts that meet their specific needs, provide them with a wide range of stock and customizable products, and support their ongoing needs for service and support. Many of our closure customers also use our capping equipment, which we believe improves their products and strengthens our relationships with them.

        Expanding sales in markets outside of the United States.    We expect significant growth in markets outside of the United States for plastic closures and capping and filling equipment, as bottled water and other non-carbonated beverage companies in international markets adopt more advanced packaging materials and techniques. We are seeking to capitalize on these growth opportunities by entering into joint ventures with local bottle manufacturers, bottlers and distributors, by increasing export sales and by establishing direct operations in local markets. For example, we are developing a new manufacturing facility in the Czech Republic to serve European markets for closures and CFT products.

        Product Integrity initiative    We have adopted a Product Integrity strategy in which we focus on providing products and services that leverage our core strengths in enhancing our customers' product safety and protecting their brand equity. We design our products to assure customers that their products will be received by end-users with all of the attributes the manufacturer intended, including taste, freshness, odor and effectiveness. Other Product Integrity initiatives include anti-counterfeiting measures to protect brand equity as well as quality control and manufacturing control products designed to eliminate defective products. In addition, Product Integrity encompasses safety and security products and services designed to protect the integrity of the manufacturing process and protect products as they move through the distribution chain.

        Seeking strategic acquisitions.    We intend to selectively pursue strategic acquisitions, focusing on markets with higher growth rates than those we currently serve, and on markets in which we can leverage our strengths in Product Integrity and manufacturing efficiency. For example, in September 2003, we acquired Tech Industries to gain access to the CFT market.

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Plastic closure market

        Portola competes in the closure segment of the worldwide plastic container packaging industry, focusing on proprietary tamper evident plastic closure applications. Plastic closures have various applications and are designed and engineered to meet specific uses. Portola's major product applications for plastic closures for beverages include dairy, fruit juice, bottled water, sport drinks, other non-carbonated beverage products and institutional food products.

        Closure design is a function of the type of container and its contents. Products which are perishable, highly acidic or susceptible to tampering all require specialized capping applications. In many instances, it may be necessary for the container to be re-sealable, or it may be preferable for the contents to be dispensed through the closure without the closure being removed.

        The use of plastic closures has grown as the demand for tamper evident packaging has grown. A tamper evident feature is highly valued by the non-carbonated beverage and food market. While certain tamper evident devices can be incorporated into metal closures, the most sophisticated devices have been developed for plastic closures. We invented the original snap-on cap design as well as the "tear strip" feature with breakaway bands for plastic closures. These Portola innovations established the standard tamper evident mechanism for the non-carbonated beverage and food industries.

        Historically, growth in demand for our products has been driven by population growth, increasing concerns about the sanitation and safety of packaged food and beverage products, and the continued shift from glass or metal to plastic containers throughout the packaged food industry. In addition, in many international markets, demand for plastic containers is growing with increasing consumer disposable income. For juice, dairy and bottled water markets, demand is also a function of climate variations, with warm weather tending to increase consumption. In the CFT market, growth has been driven by trends such as the aging of the population, increasing demand by younger consumers and the development of new cosmetic and skin care products. As packaging has shifted from glass and metal to plastic containers, which tend to rely on plastic closures, the use of plastic closures has grown more than the overall closures market. See "Products" and "Product development" in Item 1—Business.

Products

        We design, manufacture and sell a wide array of tamper evident plastic closures for dairy, fruit juice, bottled water, sport drinks, other non-carbonated beverage products and institutional food products and for cosmetics, fragrances and toiletries. We also design, manufacture and sell (i) blowmolded bottles used in the dairy, water, juice and industrial markets, (ii) injection stretch bottles blowmolded for water markets (iii) jars for CFT products, (iv) high speed capping equipment used by our plastic closure customers in their bottling and packaging operations, (v) tooling and molds used in the blowmolding industry to manufacture bottles and (vii) customized bottling and capping systems for returnable water cooler bottles.

        Plastic closures.    We offer a wide variety of plastic closures under each of our principal product lines to satisfy a great number of application and customer requirements. Our plastic closures for beverages are broadly grouped into five categories: (i) small closures used to cap blowmolded plastic bottles, (ii) closures for five-gallon returnable glass and plastic water cooler bottles, (iii) widemouth closures for institutional food products, (iv) fitments for gable-top containers (such as conventional paperboard milk and juice cartons) and (v) push-pull dispensing closures for bottled water, flavored water and sports drinks. Our plastic closures range in size from 26 mm to 110 mm and conform to international packaging standards. We offer 30 standard colors, and also offer a high degree of product distinction for our customers through over 300 custom-blended colors, and sophisticated printing, embossing and adhesive labeling capabilities. Most of our plastic closures offer a snap-on, snap-screw or screw feature, designs which are preferred by packagers because they reduce production costs. Our plastic closures also incorporate tear strips, breakaway bands or other visible tamper evident devices, a

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feature that has become an industry standard for non-carbonated beverage and food products. Our sales of plastic closures represented approximately 75%, 80% and 79% of total sales in fiscal 2003, 2002 and 2001, respectively.

        We have recently entered the CFT market through our acquisition of Tech Industries in September 2003. Tech Industries produces and markets custom bottle caps and jar covers for personal care and cosmetics products.

        The following describes our principal closure lines:

•

Closures for gallon and half-gallon plastic containers.    We are a leading provider of 38 mm closures used primarily for gallon and half-gallon blowmolded containers for milk, fruit juices and bottled water in the United States, and similar plastic containers in Mexico and the United Kingdom These closures represented $124.9 million of sales in fiscal 2003.



•

Five-gallon closures.    We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States and the United Kingdom. These closures represented $26.1 million of sales in fiscal 2003.



•

Other food and beverage closures.    We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as condiments, mayonnaise and salad dressing, (ii) re-closeable plastic dispensing fitments for gable-top paperboard cartons used for orange juice, lemonade, other juice, dairy and soy products, and (iii) push-pull dispensing tamper evident closures for bottled water, juices and sport drinks. We believe that we are a leader in many of these markets in the United States and the United Kingdom. These products represented $29.3 million of sales in fiscal 2003.



•

Closures and jars for the cosmetics, fragrance and toiletry markets.    With the acquisition of Tech Industries, we believe that we have become a leader in closures for the CFT markets, with particular strength in compression-molded closures used in high-end product applications. Tech Industries has had long-standing relationships, averaging over 20 years, with five out of the seven major global cosmetics companies, including Avon, Estée Lauder and L'Oreal.

        Plastic bottles.    We produce a wide variety of blowmolded high density plastic bottles in Canada for use primarily in the dairy, water and juice industry. We also produce five-gallon polycarbonate water bottles in Mexico and the United Kingdom. The ability to sell the closures and bottles together enables the Canadian, Mexican and the United Kingdom operations to provide their customers with a complete packaging system. Through our joint venture, CSE, we sell five-gallon polycarbonate bottles and closures primarily in Europe. In the CFT market, Tech Industries offers a line of heavy wall PETG and polypropylene jars that complements our closure offerings. Our sales of bottles represented 13%, 11% and 12% of total sales in fiscal 2003, 2002 and 2001, respectively.

        Capping equipment and tooling.    We design, manufacture and sell capping equipment for use in high speed bottling, filling and packaging production lines. A substantial majority of our plastic closure customers use our capping equipment. Our ability to supply capping equipment and technical assistance along with our plastic closures represents an important competitive advantage, as customers have confidence that our plastic closures will be applied properly to provide leak-proof seals, and that any capping problems will be resolved quickly.

        We also manufacture and sell high quality tooling and molds used in the blowmolding industry for the manufacture of bottles. These capabilities allow us to rapidly respond to customers tooling needs, enhancing our ability to provide a complete solution to our customers. Our sales of equipment and tooling represented 7% of total sales in fiscal 2003.

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        Bottling and capping systems.    We design, manufacture and sell customized high production water treatment, bottling and robotic palletizing equipment for the five-gallon and other refillable water containers. Our most comprehensive five-gallon water bottling system is our PortaPlant system. The PortaPlant, Adapta and ValuLine systems are compact bottle washing, filling, capping and conveying systems for glass and plastic refillable water bottles. The Roboloader system is a robotic palletizing system for automated rack loading and unloading at speeds up to 2,200 bottles per hour ("BPH"). The PortaPlant system can process 800 to 3,000 BPH, the Adapta system can process 300 to 600 BPH and the ValuLine can process 150 BPH. Adapta's modular and expandable design make it ideal for new and small water bottling companies whose growth requires integrated expansion.

Product development

        We continue to be committed to product development and engineering in areas of our sales and operations. Our research and development group and engineering staff, as well as a number of skilled package design consultants, engage in a range of design and development services, focusing on (i) new products and existing product enhancements, (ii) tooling and molds necessary for manufacturing plastic closures and (iii) capping equipment compatible with our closures and our customers' containers. Research and development expenditures for fiscal 2003, 2002 and 2001 were $4.7 million, $3.1 million and $3.1 million, respectively.

        We have made a substantial investment in developing both new and enhanced products. To facilitate this process and to increase the chances of ultimate market acceptance of such products, we encourage ongoing exchanges of ideas with customers, container manufacturers, machinery manufacturers and sales and service personnel. Ongoing consultations with our customers have enabled us to identify new product opportunities to develop improved traditional closures, as well as fitments and closures, for institutional foods industries. During the past two years, we have substantially increased the size of our research and development staff, and have added experienced new research and development management.

        We have accelerated the pace of our product development activities to address the increasing rate of innovation in the worldwide plastic packaging industry. However, in many cases, customers who are comfortable with their existing closure products are generally slow to switch to a new design.

Intellectual property

        As of November 30, 2003, we held approximately 150 domestic and foreign patents on the design of our products, including container closures, compatible bottlenecks, handling equipment and related processes and we have over 70 patent applications pending. We rely primarily on our patents to protect our intellectual property and are committed to developing new proprietary innovations in tamper evident plastic closures, bottles, related equipment and tooling for the food and beverage industry which we expect to provide us with a competitive advantage in many new product areas. A number of our prior patents relating to one of our closure product lines have expired in recent years, and we believe this adversely affected our gross margins as competitors who become free to imitate Portola designs have begun to compete aggressively in product pricing. Our continued innovation in the markets served, as well as new markets, is designed to counteract this situation. We also have a number of trademarks that are deemed valuable to our business. We have developed most of the technical information and know-how necessary to operate our business. In addition, in 2003 we entered into a licensing agreement with a third party licensor for a type of closure valve for containers of liquids that we believe may have significant market potential.

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Raw materials and production

        As of August 31, 2003, the principal raw material for our plastic closures and bottles was injection and blowmolding grade resin, which accounted for approximately 60% of the cost of all raw materials purchased for our plastic closures and bottles in fiscal 2003. Resin can be purchased from a number of reliable, competitive producers and is priced as a commodity. The majority of the resin we use in production is low density polyethylene (LDPE). We also use high density polyethylene, linear low polyethylene, polypropylene and polycarbonate. We generally do not purchase resin under long-term agreements. We believe that our volume purchases enable us to negotiate favorable pricing and delivery conditions with resin suppliers. While resin prices can fluctuate substantially over relatively short periods of time, we have not experienced any significant difficulties over the past ten years in obtaining sufficient quantities of resin. In the past, we generally have been able to eventually pass on increases in resin prices directly to our customers, although during the past two years, with the significant increases in resin prices, we experienced difficulty passing on all of such resin price increases to certain customers. Significant increases in resin prices from current levels, coupled with an inability to promptly pass such increases on to customers, could have a material adverse effect on our sales and margins. We experienced decreases in margins due to the impact of resin price increases during fiscal 2002 and 2003.

        To produce plastic closures and bottles, resin, which is delivered as small pebble-size pellets to large storage silos, is conveyed through a pipeline system to injection or compression molding, or blowmolding machines where it is melted into a thick liquid state. Coloring agents are added as appropriate and the mixture is injected or blowmolded at high pressure into a specially designed, multi-cavity mold. The principal equipment in our plants includes injection molding, compression molding and blowmolding machines, finishing lines that print, label and insert closures with foam or foil to meet customer requirements and automated systems for handling and processing raw materials and finished goods. We use similar, automated process in the production of our bottles.

        Our operations use advanced automated and proprietary manufacturing processes to provide high quality products at relatively low production costs. We have a continuous process improvement program, based on the Toyota model, designed to further automate our production flow, enhance the capabilities of our workforce and upgrade our molds, equipment and systems. This enables us to limit our direct labor costs while meeting the strict sanitary requirements necessary for producing food and beverage packaging products. For example, from fiscal 1997 through fiscal 2003, we increased the productivity of our United States closure manufacturing employees by 25% (as measured in units per manufacturing employee). We recently began to apply our continuous process improvement program to the operations of Tech Industries, which we believe can yield significant improvements in Tech Industries' operations over time. In addition, we have developed significant propriety manufacturing processes that we believe provide us with a competitive advantage.

Backlog

        Production and delivery cycles for closures and bottles are very short and our backlog is generally cancelable on short notice. Backlog for closures and bottles is generally two to three weeks of orders and is relatively constant from period to period. Contracts for equipment purchases generally include cancellation penalties. Due to the short production and delivery cycles for closures and bottles, we do not believe backlog information is a material factor in understanding our business.

Sales, marketing and customer service

        We sell our products through our in-house sales staff, sales representatives and, to a lesser extent, distributors. Domestically, a substantial portion of our sales and marketing activities are conducted by majority-owned subsidiaries. Calls on customers and participation at trade shows are our primary means of customer contact. A number of our customers are large corporate clients with numerous production

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facilities, and each facility may make its own purchase decisions. Our customers include processors and packagers of fluid milk, non-carbonated bottled water, chilled juice and flavored drink products sold on the retail level and condiments sold in the wholesale and institutional market. Our top ten customers (including our European joint venture) accounted for approximately 38% of our sales during fiscal 2003. No customer accounted for 10% or more of total sales during fiscal 2003. We believe that we are the sole or largest supplier to our top 25 customers for the products we supply to them. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers; our relationships with our top 25 customers average 12 years in length. For information regarding sales by geographical region, see Note 14 of the Notes to consolidated financial statements.

        Attention to customer service is a critical component of our marketing efforts. Our customers generally operate high-speed, high-volume production lines, many of which handle perishable products. In order to help assure that the production lines operate efficiently and avoid costly line stoppages, many customers rely on our ability to provide reliable, on-time delivery of our closure and bottle products and to maintain uniform quality of those products. We also provide technical assistance to domestic and foreign customers by dispatching service personnel on short notice to solve bottling line problems. Several of our field service representatives have extensive blowmolding technical expertise that is especially important in resolving bottle leakage problems for customers.

International sales and joint ventures

        Our international sales have increased substantially in recent years. Export sales from the United States and sales from our non-U.S. facilities increased to $92.8 million in fiscal 2003 from $84.4 million and $83.7 million in fiscal 2002 and 2001. Bottled water companies and other non-carbonated beverage companies in Europe, East Asia, Latin America, Australia and elsewhere have continued to adopt more advanced packaging materials and techniques and have increasingly chosen to purchase our products from our nearby plants rather than from the U.S. facilities. Correspondingly, our foreign subsidiaries have increased their production and total foreign sales accounted for 39% of our consolidated sales in fiscal 2003. For fiscal 2003, 2002 and 2001, export closure sales from the United States to unaffiliated customers were $3.9 million, $3.6 million and $2.8 million, respectively. For information regarding international sales by geographical region, see Note 14 of the Notes to consolidated financial statements.

        We have historically entered new markets outside of the United States through joint ventures with bottle manufacturers, bottlers and distributors that have an established presence in the local market. We currently are a party to a joint venture that sells certain products in Europe. For risks associated with our foreign operations, see "Item 7—Management's Discussion and Analysis of Results of Operations and Financial Condition—Risk Factors—Difficulties presented by non-U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts."

        In November 2003, we purchased land in the Czech Republic and we intend to begin construction of a closure manufacturing plant on this property in late fiscal 2004 or early fiscal 2005 to serve the European markets for closures and CFT products.

Competition

        We compete in sales of container closures and bottles to the beverage and food industry on the basis of price, product design, product quality, reliability, on-time delivery and customer service. We believe that our proprietary products and our ability to provide our customers with innovative, low-cost closures and complete capping systems, as well as our reputation for quality, reliability and service, and our automated and strategically located production facilities give us a competitive advantage.

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        While no single competitor offers products that compete with all of our product lines, we face direct competition in each of those lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. For example, we compete with divisions or subsidiaries of Alcoa, Berry Plastics, Crown Cork & Seal, International Paper and Rexam, as well as a number of smaller companies. Additionally, we from time to time also face direct competition from bottling companies and other beverage and food providers that elect to produce their own closures rather than purchase them from outside sources. A significant increase in competition, through technological innovations, offerings of lower priced products or introduction of new products not offered by us, could have a significant adverse effect on our financial condition and results of operations.

Employees

        As of August 31, 2003, we had 1,065 full-time employees, 32 of whom were engaged in product development, 100 in marketing, sales and customer support, 851 in manufacturing and 82 in finance and administration. We use seasonal and part-time employees for training, vacation replacements and other short-term requirements. None of our employees in the United States are covered by any collective bargaining agreement. Approximately 35 employees of our Canadian subsidiary are members of the Teamsters Union, and during fiscal 2002, we entered into a three-year agreement with the Teamsters Union. In addition, approximately 60 of our employees are covered by a collective bargaining agreement in Mexico. We have never experienced a work stoppage and believe that employee relations are good.

Item 2. PROPERTIES

Properties

        We believe that our facilities are well-maintained, in good operating condition and strategically located. We believe our facilities are adequate for our current needs and near-term growth requirements. However, substantial capital expenditures will be required to meet the production requirements for new and developing product lines. We cannot assure you that unanticipated developments will not occur that would require us to add production facilities sooner than expected. The table below indicates the locations, functions, square footage and nature of ownership of our current facilities. In addition, in November 2003 we purchased land in the Czech Republic and we intend to begin construction of a closure manufacturing facility on this property in late fiscal 2004 or early fiscal 2005 to serve the European markets for closures and CFT products.

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(1)

The facilities shown as leased in the table above are subject to long-term leases or lease options that extend for at least five years, except as follows: (a) the lease for Michigan Center, MI expires in October 2005, (b) the lease for Shanghai, China expires in November 2007, (c) the lease for Batavia, IL expires in July 2007, (d) the lease for Clifton Park, NY expires in June 2005, (e) the lease for the New Castle, PA warehouse will not be continued after December 2003 and (f) the lease for Indialantic, FL expires in November 2005.

(2)

We have contracted with real estate brokers to sell our manufacturing facility in Chino and one of our two facilities in San Jose, California, (as those facilities are redundant for our operations) and plan to relocate their operations to a new facility under construction in a suburb of Phoenix Arizona, in fiscal 2004. In addition, we plan to close our redundant South Carolina plant and relocate its operations to other facilities in fiscal 2004.

(3)

This facility was acquired with Tech Industries on September 19, 2003. See Note 18 of the Notes to consolidated financial statements.

Item 3. LEGAL PROCEEDINGS

        In the normal course of business we are subject to various legal proceedings and claims. Based on the facts currently available, management believes that the ultimate amount of liability beyond reserves provided, if any, for any such pending actions in the ordinary course of business will not have a material adverse effect on our financial position.

        We are currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division, in which Blackhawk

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Molding alleges that an adhesive label attached to our five-gallon caps infringes a patent held by it. We have answered the complaint denying all allegations and asserting that the patent is invalid and that we have not infringed Blackhawk Molding's patents. While we believe that we have substantial defenses in the matter, the ultimate outcome of any litigation is uncertain, and an unfavorable result could result in our sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II

        Our equity securities are privately held and no class of voting securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934. There is no established trading market for any class of our common equity.

        We have 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. Our 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.

        As of October 31, 2003, there were two holders of record of the 2,134,992 outstanding shares of Class A Common Stock. Additionally, there were two holders of record of immediately exercisable warrants to purchase 2,492,741 shares of Class A Common Stock. As of October 31, 2003, there were approximately 194 holders of record of the 8,599,806 outstanding shares of Class B Common Stock, Series 1 and 13 holders of record of the 1,170,395 outstanding shares of Class B Common, Series 2. See Note 10 of the Notes to Consolidated Financial Statements for additional information on stock and warrants.

Dividend Policy

        We have not paid dividends on any class of our common stock. Furthermore, certain of our credit agreements, including the senior notes issued on October 2, 1995, the amended and restated senior revolving credit facility entered into on September 29, 2000 and the consent and first amendment to the amended and restated senior revolving credit facility entered into on September 19, 2003, restrict our ability to pay dividends.

Recent Sales of Unregistered Securities

        None

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Item 6. SELECTED FINANCIAL DATA

The following table sets forth Portola's selected consolidated historical financial data for each of the five years in the period ended August 31, 2003, which have been derived from the consolidated financial statements of Portola, which have been audited by PricewaterhouseCoopers LLP, independent auditors, and are included elsewhere in this report memorandum. The following data should be read in conjunction with our consolidated financial statements and related notes, "Management's discussion and analysis of financial condition and results of operations" and the other financial information included elsewhere in this report.

See next page for notes to selected consolidated financial data.

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Notes to selected consolidated financial data

(1)

During the fourth quarter of fiscal 2001, we adopted the Financial Accounting Standards Board's Emerging Issues Task Force ("EITF") Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires all shipping and handling fees billed to customers to be classified as revenue. Prior to August 31, 2001, we included both shipping revenues and shipping and handling charges in cost of sales. We adopted EITF Issue 00-10 in the fourth quarter of fiscal year 2001 and reclassified the previously reported results for fiscal years ended 2000 and 1999 to conform with the new standard, which had no effect on net income (loss). The effect of this accounting policy change was to increase revenue and cost of sales during the fiscal years 2001, 2000 and 1999 by $5.1 million, $5.9 million and $5.2 million, respectively.

(2)

Includes amortization of patents and technology, licenses, tradename, covenants not-to-compete and customer relationships for all years presented and also includes goodwill amortization for fiscal 2001, 2000 and 1999. Effective September 1, 2001, we chose early adoption of the Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," for existing goodwill and other identifiable assets.

(3)

At August 31, 2003, we used the discounted cash flows methodology to value our goodwill by operating unit. Based on this review, we recorded a $0.2 million impairment related to Shanghai Portola Packaging Company Limited in fiscal 2003.

(4)

During the second quarter of fiscal 2003, we announced a restructuring plan to reduce our work force. During fiscal 2003, we incurred restructuring charges of $0.4 million for employee severance costs. The restructuring affected nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales, totaling fourteen severed employees. As of August 31, 2003, approximately $0.3 million had been charged against the restructuring reserve for the employee severance costs.

We expect to incur additional restructuring costs in fiscal 2004 relating to the closing and relocation of our manufacturing plant located in Chino, California and one of our two facilities in San Jose, California and plan to relocate their operations to a new facility located in Tolleson, Arizona, a suburb of Phoenix, towards the end of the second quarter of fiscal 2004. In June 2003, we entered into a fifteen-year lease commencing December 1, 2003 for the Tolleson, Arizona facility. See Note 9 of the notes to our consolidated financial statements. We have contracted with real estate brokers to sell the manufacturing buildings in Chino and San Jose, California. The operations from the South Carolina plant will be relocated in the first quarter of fiscal 2004 primarily to our existing facility in Kingsport, Tennessee as well as to other facilities within Portola. We estimate that we will incur $1.3 million in relocation expenses and stay bonuses and $2.2 million in cash restructuring costs related to the closing of the three plants during fiscal year 2004.

During the first quarter of fiscal 2001, we announced a restructuring plan involving the relocation of our New Castle, Pennsylvania closure operation to Sumter, South Carolina and Kingsport, Tennessee, and the relocation of the Cap Snap Equipment Manufacturing group from San Jose, California to New Castle, Pennsylvania. These relocations affected approximately 88 employees. We recorded restructuring charges during fiscal year 2001 totaling approximately $1.9 million, which consisted of approximately $0.9 million for employee severance costs and approximately $1.0 million for the non-cash write-down of certain assets. During the fourth quarter of fiscal 2000, we effected a reduction in work force that affected 22 employees. In connection with the reduction in work force, we recorded restructuring charges in the fourth quarter of fiscal year 2000, totaling approximately $0.5 million, which were primarily for employee severance costs.

(5)

Interest income includes income on the revaluation of the redeemable warrants and in fiscal 2002 interest income also included $0.8 million recognized on the recovery of an investment in Sand Hill Systems, Inc., an entity in which our chief executive officer and certain other officers held a financial interest. See Note 15 of the Notes to our consolidated financial statements.

(6)

Represents minority interest expense for our consolidated subsidiaries which are not wholly owned.

(7)

Represents equity (income) loss relating to our 50% interest in Capsnap Europe Packaging GmbH.

(8)

Loss (gain) on sale of property, plant and equipment includes a $6.8 million gain on the sale of real estate in San Jose, California in fiscal 2000.

(9)

Represents income on recovery on our investment in Sand Hill Systems, Inc. as described in Note 15 of the Notes to our consolidated financial statements.

(10)

Represents income relating to the forgiveness of debt in the dissolution of one of our joint ventures.

(11)

Other expense (income), net principally includes foreign currency gains and losses.

(12)

Two redeemable warrants entitle the holders thereof to purchase an aggregate of 2,492,741 shares of our Class A Common Stock. These warrants to purchase 2,052,526 and 440,215 shares of Class A Common Stock are exercisable, in whole or in part, through June 30, 2004 and June 30, 2007, respectively. Effective June 30, 1999 and August 1, 2001, respectively, these warrants became redeemable at the option of the holder upon 60 days' prior written notice to us. Our obligation to redeem the warrants is calculated based on the higher of the current market value of our common stock or an amount computed under the warrant agreements and is deferred if the redemption of the warrants would cause a default or event of default under our credit facilities. At August 31, 2003, 2002, 2001, 2000

15

and 1999, our credit facilities did not permit redemption of the warrants. If our credit facilities do not permit the payout of the warrant upon expiration on June 30, 2004 and June 30, 2007, respectively, we will be required to accrue interest on the amount that we would be required to pay the warrantholder, if the credit facilities permitted such payment at the higher of (i) the prime rate plus 6% or (ii) the federal funds rate plus 6.5% on the current market price of the unpaid portion of the warrant until the payout is permitted. Our amended and restated senior credit facility will permit redemption of the warrants in 2004.

(13)

As of June 30, 2001, we applied EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The effect of the application of Issue 00-19 was to reclassify our redeemable warrants from temporary equity to a liability on June 30, 2001.

(14)

EBITDA represents, for any relevant period, income (loss) before interest expense, taxes, depreciation of property, plant and equipment, amortization of debt financing costs and amortization of intangibles. EBITDA is not a recognized term under GAAP and does not puport to be an alternative to net income as a measure of operating performance or to cash flow from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies.

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        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk factors" section of this Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements.

Overview

        We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non-carbonated beverage and institutional foods markets. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-proof. In addition, we recently entered the CFT closure market with the acquisition of Tech Industries, a leading provider of closures in this market, in September 2003.

        As of August 31, 2003, we had the following principal holding and operating subsidiaries:

Portola Allied Tool, Inc.—U.S.
Northern Engineering and Plastics Corporation—U.S.
Portola Ltd.—U.K.
Portola Packaging Limited—U.K.
Portola Packaging Canada Ltd.—Canada
Portola Packaging Inc. Mexico, S.A. de C.V.—Mexico
Shanghai Portola Packaging Company Limited—Republic of China
Portola Holding (Asia Pacific) Limited—Hong Kong
Portola GmbH—Austria
Portola s.r.o.—Czech Republic

        All of these subsidiaries, except Shanghai Portola Packaging Company Limited, Portola Holding (Asia Pacific) Limited, Portola s.r.o., and our domestic joint ventures (Associated Sales Group, Leonard S. Slaughter and Associates and Great Lakes Sales Associates) that are majority but not wholly owned, are designated as restricted subsidiaries. Restricted subsidiary status allows greater flexibility in funding the operations of these subsidiaries under the terms of the indenture governing the senior notes issued by us in October 1995 and under the terms of our senior credit facility. Unrestricted subsidiary status imposes limitations on the ability of us and our restricted subsidiaries to finance the operations of unrestricted subsidiaries.

Critical accounting policies and estimates

        General.    The consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to "Management's discussion and analysis of financial conditions and results of operations." The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions and, in some cases, actuarial techniques. We constantly re-evaluate these factors and make adjustments

17

where facts and circumstances dictate. We believe that the following accounting policies are critical due to the degree of estimation required.

        Allowance for doubtful accounts.    We provide credit to our customers in the normal course of business, perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, an evaluation of specific accounts is conducted when information is available indicating that a customer may not be able to meet its financial obligations. Judgments are made in these specific cases based on available facts and circumstances, and a specific reserve for that customer may be recorded to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all customers based on historical collection and write-off experience. The collectibility of trade receivables could be significantly reduced if default rates are greater than expected or if an unexpected material adverse change occurs in a major customer's ability to meet its financial obligations. The allowance for doubtful accounts totaled approximately $1.2 million as of both August 31, 2003 and August 31, 2002.

        Revenue recognition.    We follow Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" in recognizing revenues within our financial statements. This bulletin requires, among other things, that revenue be recognized only when title has transferred and risk of loss has passed to a customer with the capability to pay, and when we have no significant remaining obligations related to the sale.

        Inventory valuation.    Cap and bottle related inventories are stated at the lower of cost (first-in, first-out method) or market and equipment related inventories are stated at the lower of cost (average cost method) or market. We record reserves against the value of inventory based upon ongoing changes in technology and customer needs. These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.

        Impairment of assets.    We periodically evaluate our property, plant and equipment, goodwill and other intangible assets for potential impairment. Management's judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business. Future events could cause management to conclude that impairment indicators exist and that property, plant and equipment, goodwill and other intangible assets may be impaired. Any resulting impairment loss could have a material adverse impact on our results of operations and financial condition. We recorded an impairment loss of $0.2 million during the fiscal year ended August 31, 2003 for goodwill related to our purchase of the remaining 45% interest in Shanghai Portola Packaging Company Limited in March 2000 (see Note 7 of the Notes to Consolidated Financial Statements).

        Income taxes.    We estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income, and, to the extent recovery is not likely, a valuation allowance is established. When an increase in this allowance within a period is recorded, we include an expense in the tax provision in the consolidated statements of operations. Management's judgment is required in determining the provision (benefit) for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. Although realization is not assured, management believes that the deferred tax assets will be realized before expiration through the recognition of future taxable income, except in certain foreign jurisdictions and portions of our domestic jurisdictions for which a valuation allowance has been

18

provided. While the deferred tax assets for which valuation allowances have not been provided are considered realizable, actual amounts could be reduced if future taxable income is not achieved. We had provided valuation allowances against net deferred tax assets of $4.0 million and $1.1 million as of August 31, 2003 and August 31, 2002.

        Impact of equity issuances.    We have two outstanding warrants, which are redeemable at the option of the holder upon 60 days' written notice to us based upon a price equal to the higher of the current market price per share of our common stock or an amount computed under formulas in the warrant agreements, through June 30, 2004 and June 30, 2007, respectively. Our obligation to redeem the warrants is deferred if the redemption of the warrants would cause a default or event of default under our credit facilities. At August 31, 2003, our credit facilities did not permit redemption of the warrants. If our credit facilities do not permit the pay out of the warrant upon expiration on June 30, 2004 or June 30, 2007, respectively, we will be required to accrue interest at the higher of (i) the prime rate plus 6% or (ii) the federal funds rate plus 6.5% on the fair value of the warrant until the payout is permitted. The carrying value of the warrants totaled approximately $10.3 million and $10.4 million at August 31, 2003 and 2002, respectively, which represent the fair value of the instruments as determined by our management. In accordance with EITF Issue 00-19, the change in the current market price of the warrants of $58,000 and $151,000 was recognized as interest income during fiscal 2003 and 2002, respectively.

Results of operations

Fiscal year ended August 31, 2003 compared to fiscal year ended August 31, 2002

        Sales.    Sales increased $4.5 million, or 2.2%, from $210.8 million for fiscal 2002 to $215.3 million for fiscal 2003. The increase in sales for fiscal 2003 from fiscal 2002 was mainly attributable to increased sales of $4.6 million in Canada, $3.3 million in the United Kingdom and $0.4 million in Mexico primarily due to increased unit pricing as a result in increased resin prices, and increased volume growth due to increased market share. Offsetting these increases were decreased sales of $3.8 million in United States operations due to decreased sales volume with certain customers, as well as dairy customer consolidation, which resulted in lower selling prices for certain products.

        During fiscal 2003, our top ten customers accounted for approximately 38% of our sales and no customer accounted for 10% of total sales. During fiscal 2002 one customer accounted for approximately 10% of total sales.

        Gross profit.    Gross profit decreased $5.0 million to $48.6 million for fiscal 2003 from $53.6 million for fiscal 2002 and decreased as a percentage of sales from 25.4% in fiscal 2002 to 22.6% in fiscal 2003. The margin decrease occurred primarily in the United States, Canadian and United Kingdom operations, and was primarily due to increases in resin prices, increased sales of lower margin products, dairy customer consolidation, (which resulted in lower selling prices for certain products), increased competition affecting certain products due to the expiration of patents previously held by us, and, to a lesser extent, increased employee costs.

        Overall, fiscal 2003 direct materials, labor and overhead costs represented 38.2%, 16.1% and 26.7% of sales, respectively, compared to fiscal 2002 percentages of 35.1%, 15.7% and 27.6%. Direct material costs as a percentage of sales increased for fiscal 2003 from fiscal 2002 due to increased resin prices.

        Selling, general and administrative expenses.    Selling, general and administrative expense decreased from $30.8 million in fiscal 2002 to $29.3 million in fiscal 2003 and decreased as a percentage of sales from 14.6% for fiscal 2002 to 13.6% for fiscal 2003. These decreases were primarily due to decreased incentive compensation costs and decreased bad debt expense, offset in part by increased consulting costs.

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        Research and development expenses.    Research and development expenses were $4.7 million and $3.1 million in fiscal 2003 and 2002, and increased as a percentage of sales from 1.5% in fiscal 2002 to 2.2% in fiscal 2003. The increase in research and development expenses was due primarily to an increase in prototype expenses related to new products and, to a lesser extent, to increased consulting and employee costs.

        Amortization of intangibles.    Amortization of intangibles (consisting of amortization of patents, acquisition costs, technology, tradename and covenants not-to-compete) decreased $441,000, or 28.4%, to $1.1 million for fiscal 2003 from $1.6 million in fiscal 2002. This decrease was due to certain intangibles related to the acquisitions of Portola Allied and Portola Consumer being fully amortized in March 2002 and June 2002, respectively, offset by an impairment loss of $207,000 included in amortization expense in fiscal 2003.

        Restructuring costs.    During the second quarter of fiscal 2003, we announced a restructuring plan to reduce our work force. During fiscal 2003, we incurred restructuring charges of $405,000 for employee severance costs. The restructuring affected nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales, totaling 14 severed employees. As of August 31, 2003, approximately $0.3 million had been charged against the restructuring reserve for the employee severance costs. Management anticipates the accrual balance will be paid by the end of fiscal 2004.

        We expect to incur additional restructuring costs in fiscal 2004 related to the closing and relocation of three plants located in Chino and San Jose, California and Sumter, South Carolina. The operations from the two California plants will be relocated to a new facility located in Tolleson, Arizona, a suburb of Phoenix, towards the end of the second quarter of fiscal 2004. In June 2003, we entered into a 15-year lease commencing November 1, 2003 for the Tolleson, Arizona facility. We have contracted with real estate brokers to sell the manufacturing buildings in Chino and San Jose, California. The operations from the South Carolina plant will be relocated in the first quarter of fiscal 2004 primarily to our existing facility in Kingsport, Tennessee as well as to other facilities within our company. We estimate that we will incur $1.3 million in relocation expenses and stay bonuses and $2.2 million in restructuring costs related to the closing of the three plants during fiscal 2004.

        Income from operations.    Due to the effect of the factors summarized above, income from operations decreased $5.1 million, or 28.0%, to $13.1 million for fiscal 2003 from $18.2 million for fiscal 2002 and decreased as a percentage of sales from 8.6% in fiscal 2002 to 6.1% in fiscal 2003.

        Other (income) expense.    Other (income) expense includes interest income, interest expense, amortization of debt financing costs, minority interest expense, equity (income) loss of unconsolidated affiliates, net gain or loss on the sale of property, plant and equipment, income on dissolution of a joint venture, income on recovery of a note receivable and other expense, net.

        Interest income decreased $963,000 to $120,000 during fiscal 2003 from $1.1 million in fiscal 2002, primarily due to $0.8 million of interest income recognized in fiscal 2002 with respect to a promissory note payable to us by Sand Hill Systems, Inc. (the "SHS Note") in connection with a related party transaction described in "Related party transactions" and Note 15 of the Notes to Consolidated Financial Statements. Interest expense decreased by $693,000 to $12.5 million in fiscal 2003 from $13.3 million in fiscal 2002. This decrease was primarily due to the decrease in borrowings on the revolving credit facility and the effect of a decrease in the LIBOR rate. Amortization of debt financing costs totaled $777,000 in fiscal 2003 compared with $756,000 in fiscal 2002.

        In fiscal 2002, we recognized income of $475,000 on the dissolution of a joint venture (see Note 2 of the Notes to Consolidated Financial Statements) and recognized income of $1.1 million on the recovery with respect to the SHS Note. (See Note 15 of the Notes to Consolidated Financial Statements). We recognized a net loss of $30,000 on the sale of property, plant and equipment during

20

fiscal 2003, compared to a gain of $20,000 recognized on the sale of property, plant and equipment during the same period in fiscal 2002.

        Other expense, net consisted primarily of gain and loss on foreign exchange transactions. We recognized a gain of $0.3 million on foreign exchange transactions for fiscal 2003, included in other expense, net, compared to a loss of $0.3 million in fiscal 2002. In addition, we recognized income of $58,000 as a result of the change in the fair market value of our outstanding warrants as of August 31, 2003 as compared to $151,000, as of August 31, 2002.

        Income tax provision.    The income tax provision for fiscal 2003 was $2.1 million on income before income taxes of $340,000, compared to an income tax provision of $2.2 million in fiscal 2002 on income before income taxes of $6.8 million. Our effective tax rate differs from the U.S. statutory rate principally due to providing a valuation allowance against net deferred tax assets in certain foreign jurisdictions, and for a portion of our domestic jurisdictions.

        Net (loss) income.    Net loss was $1.7 million in fiscal 2003 compared to net income of $4.6 million in fiscal 2002.

Fiscal year ended August 31, 2002 compared to fiscal year ended August 31, 2001

        Sales.    Sales decreased $8.6 million, or 4.0%, from $219.4 million for fiscal 2001 to $210.8 million for fiscal 2002. The decrease in sales for fiscal 2002 compared to fiscal 2001 was mainly attributable to decreased sales of $7.3 million from the United States closure division primarily due to price reductions to customers to reflect lower resin costs and product mix. Equipment sales decreased $2.7 million mainly due to the timing of customer orders. Sales decreased by $0.9 million in Mexico due to sales volume and also decreased by $1.2 million in bottle sales due to discontinuation of one of our consolidated joint ventures. Offsetting these decreases were increased sales of $2.7 million in the United Kingdom due to sales volume and $0.8 million in tooling due to timing of customer orders.

        Gross profit.    Gross profit increased $3.7 million to $53.6 million for fiscal 2002 as compared to $49.9 million for fiscal 2001 and increased as a percentage of sales from 22.7% in 2001 to 25.5% in 2002. The margin increase was due to overall lower raw material costs, primarily due to the lower resin prices in the closure and bottle operations and improved margins in our equipment sales.

        Overall, fiscal 2002 direct materials, labor and overhead costs represented 35.1%, 15.7% and 27.6% of sales, respectively, compared to fiscal 2001 percentages of 40.1%, 14.7% and 26.4%.

        Selling, general and administrative expenses.    Selling, general and administrative expense increased from $28.8 million in fiscal 2001 to $30.8 million in fiscal 2002 and increased as a percentage of sales from 13.1% for fiscal 2001 to 14.6% for fiscal 2002. These increases were primarily due to increased expenses for consulting fees for our product expansion project and ERP system upgrade, employee costs, travel expenses and bad debt charges.

        Research and development expenses.    Research and development expenses were $3.1 million in both fiscal 2001 and 2002, and increased slightly as a percentage of sales from 1.4% in fiscal 2001 to 1.5% in fiscal 2002.

        Amortization of intangibles.    Amortization of intangibles (consisting of amortization of patents, goodwill, tradename, covenants not-to-compete and customer lists) decreased $2.6 million, or 62.9%, to $1.6 million for fiscal 2002 as compared to $4.2 million in fiscal 2001. The decrease was primarily due to the elimination of goodwill amortization expense due to the early adoption of SFAS No. 142 effective September 1, 2001. The effect of the adoption was to eliminate goodwill amortization expense of $2.6 million in fiscal 2002. There was an additional decrease of amortization expense of $0.3 million primarily due to certain Portola Allied intangibles becoming fully amortized in March 2002. Offsetting

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this decrease was an increase of $0.2 million in amortization expense for additional patent, tradename, covenants not-to-compete and customer list assets relating to the acquisition of Consumer Cap Corporation ("Consumer") during fiscal 2001.

        Restructuring costs.    We did not incur restructuring charges during fiscal 2002, compared to the $1.9 million incurred during fiscal 2001, which consisted of approximately $0.9 million for employee severance costs and approximately $1.0 million for the non-cash writedown of certain assets.

        Income from operations.    Due to the effect of the factors summarized above, income from operations increased $6.3 million, or 52.8%, to $18.2 million for fiscal 2002 as compared to $11.9 million for fiscal 2001 and increased as a percentage of sales from 5.4% in fiscal 2001 to 8.6% in fiscal 2002.

        Other (income) expense.    Interest income increased $1.0 million to $1.1 million during fiscal 2002 as compared to $75,000 in fiscal 2001 primarily due to $0.8 million interest income recognized with respect to the SHS Note payable to us (see Note 15 of the Notes to Consolidated Financial Statements), and we also recognized $0.2 million as a result of the change in the fair market value of the warrants as of August 31, 2002.

        Interest expense decreased by $1.2 million to $13.3 million in fiscal 2002 as compared to $14.5 million in fiscal 2001. This decrease was primarily due to the decrease in borrowings on the revolving credit facility and the effect of a decrease in the LIBOR rate during fiscal 2002, as compared to the same period in fiscal 2001.

        Amortization of debt financing costs increased $38,000 to $756,000 in fiscal 2002 as compared to $718,000 for the same period in fiscal 2001 due to the additional loan fees that are being amortized as a result of the amended and restated senior revolving credit facility entered into on September 29, 2000.

        We recognized a net gain of $20,000 on the sale of property, plant and equipment during fiscal 2002, compared to a gain of $7.0 million recognized on the sale of certain real estate located in San Jose, California, during the same period in fiscal 2001, offset by a $0.2 million loss on the sale of property, plant and equipment.

        In fiscal 2002, we recognized income of $475,000 and $1.1 million on the dissolution of a joint venture and the recovery of the SHS Note, respectively. See Notes 2 and 15 of the Notes to consolidated financial statements.

        Income tax provision.    The income tax provision for fiscal 2002 was $2.2 million compared to an income tax benefit of $2.1 million in fiscal 2001. Our effective tax rate differs from the U.S. statutory rate principally due to providing a valuation allowance against net deferred tax assets in certain foreign jurisdictions and nondeductible goodwill and amortization expense in fiscal 2001.

        Net income (loss).    Net income was $4.6 million in fiscal 2002 compared to net income of $1.0 million in fiscal 2001.

Liquidity and capital resources

Fiscal year ended August 31, 2003 compared to fiscal year ended August 31, 2002

        In recent years, we have relied primarily upon cash from operations and borrowings from financial institutions to finance our operations, repay long-term indebtedness and fund capital expenditures and acquisitions. On October 2, 1995, we completed a $110.0 million senior notes offering; the notes mature on October 1, 2005 and bear interest at the rate of 10.75% per annum. The net proceeds of the notes offering were approximately $106.0 million, of which $83.0 million was used to retire our debt then outstanding under our senior term loans, revolving credit facility and senior subordinated notes.

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As of August 31, 2003, we had cash and cash equivalents of $4.3 million, a decrease from $4.6 million as of August 31, 2002.

        Operating activities.    Net cash provided by operations totaled $14.3 million and $24.4 million in fiscal 2003 and 2002, respectively. Net cash provided by operations for fiscal 2003 was principally the result of non-cash charges for depreciation and amortization offset, in small part, by our net loss. Net cash provided by operations for fiscal 2002 was the result of net income plus non-cash charges for depreciation and amortization, offset by an aggregate of $2.4 million of non-cash items included in other (income) expense. See Notes 2 and 15 of the Notes to Consolidated Financial Statements. Working capital decreased $7.7 million to $10.4 million as of August 31, 2003 from $18.1 million as of August 31, 2002, primarily due to the re-classification of warrants with a carrying value of $9.0 million as current due to their expiration in June 2004, in addition to increases in accounts payable and a decrease in inventory, offset in part by an increase in accounts receivable.

        Investing activities.    Cash used in investing activities was $10.6 million in fiscal 2003 as compared to $11.0 million in fiscal 2002, and consisted primarily of additions to property, plant and equipment of $11.1 million and $10.5 million in fiscal 2003 and 2002, respectively. Cash used in investing activities was reduced by $0.1 million and $0.4 million in fiscal 2003 and 2002, respectively, by proceeds from the sale of property, plant and equipment.

        Financing activities.    At August 31, 2003, we had total indebtedness of $127.2 million, $110.0 million of which was attributable to our senior notes. Of the remaining indebtedness, $6.6 million was attributable to our senior credit facility and $0.3 million was principally comprised of capital lease obligations. In addition, our total indebtedness at August 31, 2003 included redeemable warrants with a carrying value of $10.3 million. See Note 10 of the Notes to Consolidated Financial Statements for additional information on the redeemable warrants. On September 29, 2000, we entered into a four-year amended and restated senior secured revolving credit facility of up to $50.0 million, subject to a borrowing base of eligible receivables and inventory, plus net property, plant and equipment. This credit facility contains covenants and provisions that restrict, among other things, our ability to: (i) incur additional indebtedness, (ii) incur liens on our property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vi) engage in certain transactions with affiliates, (vii) make restricted junior payments and (viii) declare or pay dividends. See Note 8 of the Notes to Consolidated Financial Statements for additional information.

        At September 19, 2003, we acquired Tech Industries for approximately $40.0 million (including assumed liabilities and transaction costs). Effective September 19, 2003, we entered into a consent and first amendment to our senior credit facility to finance the acquisition. The amended agreement increased the senior secured revolving credit facility from $50.0 million to $54.0 million, subject to a borrowing base of eligible receivables and inventory, plus net property and equipment. In addition, the amended credit facility retains covenants and provisions that restrict, among other things, our ability to: (i) incur additional indebtedness, (ii) incur liens on our property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vi) engage in certain transactions with affiliates, (vii) make restricted junior payments and (viii) declare or pay dividends. See Note 8 of the Notes to Consolidated Financial Statements for additional information.

        Cash and cash equivalents.    At August 31, 2003, we had $4.3 million in cash and cash equivalents as well as borrowing capacity of approximately $34.2 million under the $50.0 million revolving credit facility, less a minimum availability requirement of $3.0 million.

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        At October 31, 2003, we had approximately $3.8 million in cash and cash equivalents as well as borrowing capacity of approximately $8.6 million under the amended $54.0 million revolving credit facility, less a minimum availability requirement of $3.0 million.

        As of August 31, 2003, we had contracted with real estate brokers to sell the manufacturing building in Chino, California and one of our two buildings in San Jose, California, related to the closure of these two manufacturing plants and relocation of their operations from California to Arizona during fiscal 2004. We cannot assure you that the two buildings will be sold in the near future or that, if sold, the selling terms will be favorable to us.

Fiscal year ended August 31, 2002 compared to fiscal year ended August 31, 2001

        Operating activities.    Cash provided by operations totaled $24.4 million and $15.0 million in fiscal 2002 and 2001, respectively. Net cash provided by operations for fiscal 2002 was the result of net income plus non-cash charges for depreciation and amortization, offset by an aggregate of $2.4 million in other income and interest income recognized on the dissolution of a joint venture and settlement on a promissory note. See Notes 2 and 14 of the Notes to Consolidated Financial Statements. Due to the adoption of SFAS No. 142, amortization expense for fiscal 2002 did not include goodwill amortization. Net cash provided by operations for fiscal 2001 was the result of net income plus non-cash charges for depreciation and amortization, reduced by the net gain on the sale of property of $6.8 million, which is reflected in cash flows from investing activities. Working capital decreased $0.9 million as of August 31, 2002 to $18.1 million, as compared to $19.0 million as of August 31, 2001, primarily as a result of a decrease in accounts receivable and inventory, offset by a decrease in accounts payable and accrued liabilities.

        Investing activities.    Cash used in investing activities was $11.0 million in fiscal 2002 as compared to $4.1 million in fiscal 2001. This consisted primarily of additions to property, plant and equipment of $10.5 million and $14.1 million, in fiscal 2002 and 2001, respectively. Fiscal 2001 included additions to intangible and other assets relating to the acquisition of Consumer. Cash used in investing activities was reduced by $0.4 million in fiscal 2002 by proceeds from the sale of property, plant and equipment and by $10.1 million in fiscal 2001 by proceeds from the sale of property, plant and equipment, primarily related to the sale of certain real estate located in San Jose, California.

        Financing activities.    At August 31, 2002, we had total indebtedness of $131.0 million, $110.0 million of which was attributable to our senior notes. Of the remaining indebtedness, $9.8 million was attributable to our senior credit facility and $0.8 million of the indebtedness was principally comprised of capital lease obligations. In addition, our total indebtedness at August 31, 2002 included redeemable warrants with a carrying value of $10.4 million. See Note 10 of the Notes to Consolidated Financial Statements for additional information on the redeemable warrants.

        Cash and cash equivalents.    At August 31, 2002, we had $4.6 million in cash and cash equivalents as well as unused borrowing capacity of approximately $33.0 million under the revolving credit facility, less a minimum availability requirement of $3.0 million.

Off-balance sheet arrangements

        We currently own a 50% interest in Capsnap Europe Packaging GmbH ("CSE"). CSE currently sells five-gallon closures and bottles that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. CSE also has a 50% ownership interest in Watertek, a joint venture in Turkey, which produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a new Greek company, Cap Snap Hellas, that will be selling our products in Greece, our portion of the results of which are reflected in equity

24

(income) loss from unconsolidated affiliates, net. See "—Contractual Obligations" and Note 9 of the Notes to Consolidated Financial Statements.

Contractual obligations

        Our contractual cash obligations as of August 31, 2003 are summarized in the following table:

        (1)   On October 2, 1995, we completed an offering of $110.0 million of senior notes that mature on October 1, 2005 and bear interest at 10.75% per annum. Interest payments of approximately $5.9 million are due semi-annually on April 1 and October 1. The senior notes' indenture contains certain restrictive covenants and provisions.

        (2)   Concurrently with the offering of senior notes, in October 1995, we entered into a five-year senior revolving credit facility of up to $35.0 million. On September 29, 2000, we entered into a new four year amended and restated senior secured credit facility of $50.0 million for operating purposes subject to a borrowing base of eligible receivables and inventory, plus property, plant and equipment, net, which serve as collateral for the line. The credit facility retains the restrictive covenants and provisions. An unused fee is payable on the facility, based on the total commitment amount less the balance outstanding, at the rate of 0.375% per annum. In addition, interest payable is based on either the Bank Prime loan rate plus 1.00% or the LIBOR loan rate plus 2.25% determined by a pricing table based on total indebtedness to EBITDA. At August 31, 2003, the Bank Prime loan rate and the LIBOR loan rate were 4.00% and 1.12%, respectively.
On September 17, 2003, we entered into a consent and first amendment to the amended and restated senior secured credit facility, increasing the credit facility to $54.0 million in connection with our purchase of Tech Industries, Inc. (See Note 18 of the Notes to consolidated financial statements), subject to a borrowing base and covenants similar to those in the amended and restated senior secured credit facility existing at August 31, 2003. An unused fee is payable on the facility, based on the total commitment amount less the balance outstanding plus the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. Interest payable is based on either the Bank Prime loan rate plus 1.50% or the LIBOR loan rate plus 2.75%. The credit facility under this first amendment expires on September 7, 2004.

        (3)   We acquired certain machinery and office equipment under non-cancelable capital leases.

        (4)   As of August 31, 2003, we had two outstanding warrants, which are redeemable at the option of the holder upon 60 days' written notice to us based upon a price equal to the higher of the current market price per share of our common stock or an amount computed under formulas in the warrant agreements, through June 30, 2004 and June 30, 2007, respectively. Our obligation to redeem the warrants is deferred if the redemption of the warrants would cause a default or event of default under our credit facilities. At August 31, 2003, our credit facilities did not permit redemption of the warrants. If our credit facilities do not permit the payout of the warrant upon expiration on June 30, 2004 and June 30, 2007, respectively, we will be required to accrue interest on the amount that we would be required to pay the warrant holder, if the credit facilities permitted such payment at the higher of

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(i) the prime rate plus 6% or (ii) the federal funds rate plus 6.5% on the current market price of the unpaid portion of the warrant until the payout is permitted. At August 31, 2003, the carrying value of the warrants totaled $10.3 million, which represents the fair value of the instruments as determined by our management. The current market value of the warrants was estimated at August 31, 2003 using the Black-Scholes pricing model with the following assumptions: risk-free interest rates of 1.35% and 3.49%, respectively, expected redemption period of June 30, 2004 and June 30, 2007 respectively; and volatility of 20% for each warrant.

        (5)   We lease certain office, production and warehouse facilities under operating lease agreements expiring on various dates through 2021. Under the terms of the facilities' leases, we are responsible for common area maintenance expenses, which include taxes, insurance, repairs and other operating costs. Base rent expense for fiscal 2003 totaled $3.3 million.

        (6)   We issued a letter of credit in October 1999, expiring in December 2010, that guarantees $0.3 million of a loan related to the purchase of machinery for CSE's 50% owned Turkish joint venture, Watertek. CSE is an unconsolidated, 50% owned Austrian joint venture that sells five-gallon water bottles and closures that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. We issued a letter of credit in February 2000, expiring in February 2004, that guarantees a loan of $0.4 million for the purchase of machinery by CSE, presently being used at our United Kingdom facility. These guarantee agreements are in Eurodollars and were valued using a conversion rate as of August 31, 2003.
In November 2000, our Mexican consolidated subsidiary entered into a ten-year lease for a building in Guadalajara, Mexico commencing in May 2001. Our Mexican operations relocated to the new building during May 2001. We guaranteed approximately $0.6 million in future lease payments relating to the lease as of August 31, 2003.

Related party transactions

        We enter into certain related party transactions throughout the course of our business. See Note 15 of the Notes to Consolidated Financial Statements.

Raw material price volatility

        Most of our closures are priced based in part on the cost of the plastic resins from which they are produced. Historically, we have been able to pass on increases in resin prices directly to our customers, although that practice has proven more difficult in the past two years because of increased price competition in the beverage related markets.

Seasonality

        Our sales and earnings reflect a slightly seasonal pattern as a result of greater sales volumes during the summer months. In both fiscal 2003 and 2002, 48% of sales occurred in the first half of the year (September through February) while 52% of sales were generated in the second half (March through August).

Income taxes

        The relationship of income tax expense to income before income taxes is affected primarily by not providing a benefit for losses generated in certain foreign jurisdictions and a portion of our domestic operations and, in fiscal 2001, by non-deductible goodwill arising from our acquisitions. See Note 13 of the Notes to Consolidated Financial Statements.

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Recent accounting pronouncements

        Effective September 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," for existing goodwill and other identifiable assets. This standard requires that goodwill and intangible assets with indefinite lives should not be amortized but should be tested for impairment annually. At August 31, 2003, we used the discounted cash flows methodology to measure its goodwill by operating unit and review for impairment. Based on this review, we recorded an impairment loss of $0.2 million during the fiscal year ended August 31, 2003 for goodwill related to its purchase of the remaining 45% interest in PPI China in March 2000. See Note 7 of the Notes to Consolidated Financial Statements.

        Effective September 1, 2002, we adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The adoption of SFAS No. 143 had no impact on our financial statements for fiscal 2003.

        Effective September 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes or amends existing accounting literature related to the impairment and disposal of long-lived assets. SFAS No. 144 requires long-lived assets to be tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable from future cash flows of the particular asset group or there is an expectation that it is more likely than not that a long-lived group will be sold or otherwise disposed of before the end of its previously estimated useful life. The adoption of SFAS No. 144 had no impact on financial statements for fiscal 2003.

        Effective September 1, 2002, we adopted SFAS No. 145, "Rescission of Financial Accounting Standards Board's ("FASB") Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections," rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of SFAS No. 64, "Extinguishment of Debt made to Satisfy Sinking Fund Requirements." This statement also rescinds SFAS 44, "Accounting for Intangible Assets of Motor Carriers." This statement updates, clarifies and simplifies existing accounting pronouncements. While the technical corrections to existing pronouncements are not substantive in nature, in some instances they may change accounting practice. The provisions of this standard related to SFAS No. 13, Accounting for Leases, are effective for transactions occurring after May 15, 2002. Prospectively, as a result of the adoption of SFAS No. 145, debt extinguishment costs will no longer be treated as extraordinary items. The impact of adopting SFAS No. 145 was not material to our financial statements for fiscal 2003.

        Effective September 1, 2002, we adopted SFAS No. 146, "Accounting for Exit or Disposal Activities." The standard requires companies to recognize costs that are associated with exit and disposal activities when incurred rather than at the date of a commitment to exit or disposal plan. Examples of costs covered by the standard includes (1) costs to terminate contracts that are not capital leases; (2) costs to consolidate facilities or relocate employees; and (3) termination benefits provided to employees who are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. Previous accounting guidance was provided by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 replaces EITF 94-3 and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. During fiscal 2003, the Company incurred restructuring charges of $0.4 million, which were determined in accordance with the provisions of SFAS No. 146 (Note 4).

        Effective December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123," to provide

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alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure provision of SFAS No. 123 and APB No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies footnote in the financial statements of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. We have elected to continue to follow the disclosure-only provisions of SFAS No. 123 and has adopted the required disclosure provisions of SFAS No. 148, (see Note 11 of the Notes to Consolidated Financial Statements).

        In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees that are issued or modified after December 31, 2002. The provisions of FIN 45 did not have a material impact on our results of operations or financial condition for fiscal 2003 as there were no new guarantees or modifications of existing guarantees during fiscal 2003.

        In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51" ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective January 31, 2003 for newly created and existing variable interest entities. On October 8, 2003, the FASB issued FASB Staff Position No. 46-e, which allows public entities, who meet certain criteria, to defer the effective date for applying the provisions of FIN 46 to interests held by the public entity in certain variable interest entities or potential variable interest entities until the end of the first interim or annual period ending after December 15, 2003. FIN 46 did not have a material impact on our results of operation or financial condition for fiscal 2003. We are analyzing the impact of FIN 46 on fiscal 2004.

        Effective April 1, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends SFAS No. 133 for certain decisions made by the Board as part of the Derivatives Implementation Group (DIG) process and further claries the accounting and reporting standards for derivative instruments including derivatives embedded in other contracts and for hedging activities. The provisions of this statement are to be prospectively applied effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a material impact on our results of operations or financial condition for fiscal 2003.

        Effective May 1, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have a material impact on our results of operations or financial condition.

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Risk Factors

        The following risk factors, in addition to the risks described elsewhere in the description of our business in this Annual Report on Form 10-K, may cause actual results to differ materially from those in any forward-looking statements contained in such business description or elsewhere in this report or made in the future by us or our representatives:

Risks related to our outstanding indebtedness

Our level of indebtedness could limit cash flow available for our operations and could adversely affect our ability to obtain additional financing.

        As of August 31, 2003, our total indebtedness was approximately $127.2 million. $110.0 million of this amount represented the principal amount of our 10.75% senior notes which are due in 2005; $6.6 million represented funds drawn down under our $50.0 million revolving line of credit and $0.3 million was principally comprised of capital leases. In addition, our total indebtedness included redeemable warrants with a carrying value of $10.3 million. Moreover, we have a total shareholders' deficit of $36.9 million. Our level of indebtedness could restrict our operations and make it more difficult for us to fulfill our obligations under the notes. Among other things, our indebtedness may:

•

limit our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions and general corporate purposes;



•

require us to dedicate all or a substantial portion of our cash flow to service our debt, which will reduce funds available for other business purposes, such as capital expenditures or acquisitions;



•

limit our flexibility in planning for or reacting to changes in the markets in which we compete;



•

place us at a competitive disadvantage relative to our competitors with less indebtedness;



•

render us more vulnerable to general adverse economic and industry conditions; and



•

make it more difficult for us to satisfy our financial obligations.

        We and our subsidiaries may still be able to incur substantially more debt. The terms of our amended and restated senior secured credit facility and the indenture governing our 10.75% senior notes permit additional borrowings and such borrowings may be secured debt.

Our ability to service our debt and meet our cash requirements depends on many factors, some of which are beyond our control.

        Although there can be no assurances, we believe that the level of borrowings available to us, in addition to cash provided by our operations, will be sufficient to provide for our ongoing cash requirements. However, our ability to satisfy our obligations will depend on our future operating performance and financial results, which will be subject, in part, to factors beyond our control, such as interest rates and general economic, financial and business conditions, as well as other factors. If we are unable to generate sufficient cash flow to service our debt, we may be required to:

•

refinance all or a portion of our debt;



•

obtain additional financing;



•

sell certain of our assets or operations;



•

reduce or delay capital expenditures; or



•

revise or delay our strategic plans.

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        If we are required to take any of these actions, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt instruments, including the indenture governing our 10.75% senior notes.

The covenants in our senior secured credit facility and the indenture governing our 10.75% senior notes impose restrictions that may limit our operating and financial flexibility.

        Our senior secured credit facility and the indenture governing our 10.75% senior notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries' ability to:

•

incur liens and debt or provide guarantees in respect of obligations of any other person;



•

issue redeemable preferred stock and subsidiary preferred stock;



•

make redemptions and repurchases of capital stock;



•

make loans, investments and capital expenditures;



•

prepay, redeem or repurchase debt;



•

engage in mergers, consolidations and asset dispositions;



•

change our business, amend certain debt and other material agreements, and issue and sell capital stock of subsidiaries; and



•

restrict distributions from subsidiaries.

        Adverse changes in our operating results or other adverse factors, including a significant increase in interest rates or in resin prices or a significant decrease in demand for our products, could result in our being unable to comply with the financial covenants in our senior secured credit facility. If we violate these covenants and are unable to obtain waivers from our lenders, we would be in default under these agreements and our lenders could accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us. If our expectations of future operating results are not achieved, or our debt is in default for any reason, our business, financial condition and results of operations would be materially and adversely affected. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.

Our senior notes are effectively subordinate to all of our secured debt, and if a default occurs, we may not have sufficient funds to fulfill our obligations under the notes.

        Our 10.75% senior notes are not secured by any of our assets. The indenture governing the senior notes permits us to incur certain secured indebtedness, including indebtedness under our senior secured credit facility. If we become insolvent or are liquidated, or if payment under the credit facility or other secured indebtedness is accelerated, the lenders under the credit facility and the holders of any other secured indebtedness would be entitled to exercise the remedies available to them as secured creditors under applicable laws and pursuant to instruments governing such indebtedness. Accordingly, such secured indebtedness would have a prior claim on the collateral and would effectively be senior to the senior notes to the extent that the value of such collateral is sufficient to satisfy the indebtedness secured thereby. To the extent that the value of such collateral is not sufficient to satisfy the secured indebtedness, amounts remaining outstanding on such indebtedness would be entitled to share with holders of senior notes and other claims on us with respect to any of our other assets. In either event,

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because the senior notes are not secured by any of our assets, it is possible that there will be insufficient assets remaining from which claims of the holders of the senior notes could be satisfied. In addition, the senior notes are our obligations and not of any of our subsidiaries, although the indenture does require that any of our restricted subsidiaries having assets with an aggregate fair market value in excess of $0.1 million execute a guarantee in respect of the senior notes. We cannot assure you that such guarantees, or any guarantee delivered by a restricted subsidiary formed in the future, would not be subject to avoidance by another creditor as a fraudulent transfer or for other reasons. Our unrestricted subsidiaries do not guarantee our obligations under the senior notes. Upon liquidation of any unrestricted subsidiary, such obligations would be effectively subordinated to claims of such subsidiary's creditors upon its assets. It is likely that this will also be the case for other unrestricted subsidiaries that we may form in the future. See Note 17 of Notes to Consolidated Financial Statements for additional information regarding our restricted and unrestricted subsidiaries.

We may be unable to purchase our senior notes upon a change in control.

        Upon a change of control of Portola (as defined in our senior notes), each holder of senior notes will have certain rights to require us to repurchase all or a portion of such holder's senior notes. If a change of control were to occur, we cannot assure you that we would have sufficient funds to pay the repurchase price for all senior notes tendered by the holders thereof. In addition, a change of control would constitute a default under our senior secured credit facility and, since indebtedness under the credit facility effectively ranks senior in priority to indebtedness under the senior notes, we would be obligated to repay indebtedness under the credit facility in advance of indebtedness under our senior notes. Our repurchase of senior notes as a result of the occurrence of a change of control may be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings which we may enter into from time to time, including agreements relating to secured indebtedness. Failure by us to make or consummate a change of control offer would constitute an immediate event of default under the indenture governing the senior notes, thereby entitling the trustee or holders of at least 25% in principal amount of the then outstanding senior notes to declare all of the senior notes to be due and payable immediately; provided that so long as any indebtedness permitted to be incurred pursuant to the senior secured credit facility is outstanding, such acceleration shall not be effective until the earlier of (i) an acceleration of any such indebtedness under the credit facilities or (ii) five business days after receipt by us of written notice of such acceleration. In the event all of the senior notes are declared due and payable, our ability to repay the senior notes would be subject to the limitations referred to above.

Risk related to our business

The integration of Portola and Tech Industries may not be successful and may adversely affect our results of operations.

        We could have difficulty integrating our and Tech Industries' operations and could incur unanticipated disruption and expenses related to that integration. The continuing integration of our company with Tech Industries will require a substantial amount of our management's time to the detriment of their other duties. Our management is not experienced in the sales and marketing of CFT closures, and we will depend on the sales, marketing and design capabilities of Tech Industries' senior management. Although Tech Industries' management has agreed to continue in their current roles, we cannot assure you that they will continue to do so in the future.

        The integration of Portola and Tech Industries may take longer and be more disruptive to our business than originally anticipated. Integration may also result in additional unanticipated expenses, which could reduce our profitability. We may not succeed in implementing new manufacturing processes at Tech Industries' facilities at the rate anticipated, and as a result, we may not realize the anticipated operating efficiencies, growth opportunities and other benefits of the transaction or may

31

realize them later than planned. Problems that may arise in connection with the integration of Tech Industries' operations with our operations may have a material adverse impact on our business and results of operations.

We may be subject to pricing pressures due to consolidation in our customers' industries, and we do not have long-term contracts with most of our customers.

        The dairy, water and juice industries, which constitute our most important customer base, have experienced consolidations through mergers and acquisitions in recent years and this trend may continue. As a result, we could experience increased customer concentration, and our results of operations would be increasingly sensitive to changes in the business of large customers or any deterioration of their financial condition. During fiscal 2003, our top ten customers accounted for approximately 38% of our sales. In addition, consolidation has resulted in pricing pressures, as larger customers often have been able to make greater pricing and other demands over us. Consolidations in the dairy and water industries have had a negative impact on our gross margins during fiscal 2003. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations."

        We do not have firm long-term contracts relating to a majority of our sales. Although these customers provide indications of their product needs and purchases on a periodic basis, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any time. The loss or significant decrease in business or change in the procurement practices of any of our major customers may produce pricing pressures that could have a material adverse effect on our business, results of operations and financial condition.

We are subject to competition in our markets.

        We face direct competition in each of our product lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. We can expect to meet significant competition from existing and new competitors with entrenched positions with respect to our existing product lines as well as with respect to new products we might introduce. We have experienced a negative impact due to competitor pricing, and this impact has accelerated during the past year and the current fiscal year. Further, numerous well-capitalized competitors might expand their product offerings, either through internal product development or acquisitions of our direct competitors. Such competitors could introduce products or establish prices for their products in a manner that could adversely affect our ability to compete. Additionally, we, from time to time, also face direct competition from bottling companies, carton manufacturers and other food and beverage providers that elect to produce their own closures rather than purchase them from outside sources. See "Item 1—Business—Competition."

We are subject to the risk of changes in resin prices and do not have firm contracts with resin suppliers.

        Our products are molded from various plastic materials, primarily low density polyethylene ("LDPE") resin. LDPE resin accounts for a significant portion of our cost of sales for closures. Plastic resins, including LDPE, are subject to substantial price fluctuations, resulting from shortages in supply and changes in the prices of natural gas, crude oil and other petrochemical products from which resins are produced, as well as other factors. Instability in the world markets for petroleum and natural gas could materially adversely affect the price and general availability of raw materials quickly. In the event of a significant increase in resin prices, we may not be able to pass such increases on to customers promptly in whole or in part. Such inability to pass on such increases, or delays in passing them on, would have a material adverse effect on our sales and margins on a direct or delayed basis. Most of our sales are either made to customers on a purchase order basis, which provide us with no assurance

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that we can pass on price increases to these customers, or pursuant to contracts which only allow us to adjust prices on a quarterly basis, which could delay our ability to pass on price increases to these customers, if at all. Moreover, even if the full amount of such price increases were to be passed on to customers, the increases would have the effect of reducing our gross margins. On the other hand, if resin prices decrease, customers typically would expect rapid pass-through of the decrease, and we cannot assure you that we would be able to maintain our gross margin percentages. Resin price increases had a negative impact on our business during fiscal 2003. See "Item 1—Business—Raw Materials and Production" and "Item 7—Management's Discussion and Analysis of Results of Operations and Financial Condition—Results of Operations."

        In addition, we have not entered into a firm supply contract with any of our resin vendors. We may not be able to arrange for other sources of resin in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers. Any such shortage may negatively impact our competitive position with respect to companies that are able to better or more cheaply source resin.

The integration of future acquisitions may result in substantial costs, delays and other problems.

        We may not be able to successfully integrate future acquisitions, if any, without substantial costs, delays or other problems. Future acquisitions would require us to expend substantial managerial, operating, financial and other resources to integrate any new businesses. The costs of such integration could have a material adverse effect on our operating results and financial condition. Such costs would likely include non-recurring acquisition costs, investment banking fees, recognition of transaction-related obligations, plant closing and similar costs and various other acquisition-related costs. In addition, each transaction inherently carries an unavoidable level of risk regarding the actual condition of the acquired business, regardless of the investigation we may conduct regarding the business prior to consummating the transaction. Until we can actually assume operating control of such business assets and their operations, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities and their operations. If and when we acquire a business, we would likely be subject to risks including:

•

the possibility that it would be difficult to integrate the operations into our other operations;



•

the possibility that we had acquired substantial undisclosed liabilities;



•

the risks of entering markets or offering services for which we had no prior experience;



•

the potential loss of customers; and



•

the possibility we might be unable to recruit managers with the necessary skills to supplement or replace the incumbent management of the acquired business.

        We may not be successful in overcoming these risks.

We depend on new business development, international expansion and acquisitions.

        We believe that growth has slowed in the domestic markets for our traditional beverage products and that, in order to increase our sales, we must continue to develop new products in the markets we currently serve and new products in different markets, to make acquisitions and to expand in our international markets. Developing new products, expanding into new markets and identifying and completing acquisitions will require a substantial investment and involve additional risks. We cannot assure you that our efforts to achieve such development and expansion or to identify and complete potential acquisitions will be successful. Expansion poses risks and potential adverse effects on our operating results, such as the diversion of management's attention, the loss of key personnel and the risks of unanticipated problems and liabilities. We may be unsuccessful in making acquisitions because

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of competition for acquisition candidates, which could result in fewer opportunities and higher acquisition prices. Moreover, as described below, our debt instruments impose significant restrictions under certain circumstances on our ability to make investments in or acquire other companies.

Difficulties presented by non-U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts.

        Approximately 43% of our sales for fiscal 2003 was derived from shipments to destinations outside of the United States or from our international operations. We intend to expand such exports and our international operations and customer base. Our international operations require us to comply with the legal requirements of foreign jurisdictions and expose us to the political consequences of operating in foreign jurisdictions. Our foreign business operations are also subject to the following potential risks:

•

difficulty in managing, operating and marketing such operations because of distance, and, in some cases, language and cultural differences;



•

fluctuations in the value of the U.S. dollar could increase or decrease the effective price of our products sold in U.S. dollars and might have a material adverse effect on sales or costs, require us to raise or lower our prices or affect our reported sales or margins in respect of sales conducted in foreign currencies;



•

difficulty entering new international markets due to greater regulatory barriers than those of the United States and differing political systems;



•

increased costs due to domestic and foreign customs and tariffs, adverse tax legislation, imposition or increases of withholding and other taxes on remittances and other payments by subsidiaries;



•

credit risk or financial condition of local customers and distributors;



•

potential difficulties in staffing and labor disputes;



•

risk of nationalization of private enterprises;



•

government embargoes or foreign trade restrictions such as anti-dumping duties;



•

increased costs of transportation or shipping;



•

ability to obtain supplies from foreign vendors and ship products internationally during times of crisis or otherwise;



•

difficulties in protecting intellectual property;



•

increased worldwide hostilities;



•

potential imposition of restrictions on investments; and



•

local political, economic and social conditions such as hyper-inflationary conditions and political instability.

        As we continue to expand our international operations, these and other risks might increase. As we enter new geographic markets, we may encounter competition from the primary participants in those markets that may have significantly greater market knowledge and that may have substantially greater resources than we do. In addition, we conduct some of our international operations through joint venture arrangements in which our operational and financial control of the business are limited.

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Adverse weather conditions could adversely impact our financial results.

        Weather conditions around the world can have a significant impact on our sales. Unusually cool temperatures during a hot weather season in one or more of our markets could adversely affect sales of our products in those markets.

We are subject to risks that our intellectual property may not be adequately protected, and we may be adversely affected by the intellectual property rights of others.

        We rely on a combination of patent and trademark laws, licensing agreements and unpatented proprietary know-how and trade secrets to establish and protect our intellectual property rights. We enter into confidentiality agreements with customers, vendors, employees, consultants and potential acquisition candidates to protect our know-how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete protection of our intellectual property and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe on our intellectual property rights. We cannot assure you that our competitors will not independently develop equivalent or superior know-how, trade secrets or production methods. Litigation may be necessary to enforce our intellectual property rights and to protect our trade secrets. Further, there can be no assurance that our products will not be found to infringe upon the proprietary technology of others and our intellectual property rights may not have the value we believe them to have. Third parties may initiate claims or litigation asserting infringement of intellectual property rights against us and we cannot assure you that we would prevail in any litigation.

        We are currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division, in which Blackhawk Molding alleges that an adhesive label attached to our five-gallon caps infringes a patent held by it. We have answered the complaint denying all allegations and asserting that the patent is invalid and that we have not infringed Blackhawk Molding's patents. While we believe that we have substantial defenses in the matter, the ultimate outcome of any litigation is uncertain, and an unfavorable result could result in our sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

        Many of our prior patents relating to one of our closure product lines have expired in recent years. We believe such expirations adversely affected our margins as competitors who have become free to imitate our designs have begun to compete aggressively against us in the pricing of certain products. These adverse effects will only be partially ameliorated to the extent that we continue to obtain new patents.

        The laws of certain countries in which our products or technology are or may be licensed may not protect our products, technology and intellectual property rights to the same extent as the laws of the United States. In addition, the protection offered by the patent laws of foreign countries may be less than the protection offered by the United States patent laws.

Defects in our products could result in litigation and harm our reputation.

        Many of our products are used to cap food and beverage products. From time to time in the past, we and other producers of similar products have received complaints from customers and end-consumers claiming that such products might cause or almost caused injury to the end-consumer. In some instances, such claims have alleged defects in manufacture or faulty design of our closures. In the event an end-consumer suffers a harmful accident, we could incur substantial costs in responding to complaints or litigation. Further, if any of our products were found to be defective, we could incur

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significant costs in correcting any defects, lose sales derived from such products and suffer damage to our reputation. In addition, a substantial portion of such costs might not be covered by insurance.

Our customers' products could be contaminated through tampering, which could harm our reputation and business.

        Terrorist activities could result in contamination or adulteration of our customers' products, as our products are tamper resistant but not tamper proof. We cannot assure you that a disgruntled employee or third party could not introduce an infectious substance into packages of our finished products, either at our manufacturing plants or during shipment of our products. Were our products or our customers' products to be tampered with in a manner not readily capable of detection, we could experience a material adverse effect to our reputation, business, operations and financial condition.

Changes to government regulations affecting our products could harm our business.

        Our products are subject to governmental regulation, including regulation by the Federal Food and Drug Administration and other agencies to the extent that such agencies have jurisdiction over effectiveness of tamper resistant devices and other closures for dairy and other food and beverage products. A change in government regulation could adversely affect our business. We cannot assure you that federal, state or foreign authorities will not issue regulations in the future that could materially increase our costs of manufacturing certain of our products. Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls, or seizures as well as potential criminal sanctions, which could have a material adverse effect on us.

Our business may be adversely affected by compliance obligations or liabilities under environmental laws and regulations.

        We are subject to federal, state, local and foreign environmental, and health and safety, laws and regulations that could result in liability, affect ongoing operations and increase capital costs and operating expenses in order to maintain compliance with such requirements. Some of these laws and regulations provide for strict and joint and several liability regarding contaminated sites. Such sites may include properties currently or formerly owned or operated by us and properties to which we disposed of, or arranged to dispose of, wastes or hazardous substances. Based on the information presently known to us, we do not expect environmental costs or contingencies to have a material adverse effect on us. We may, however, be affected by hazards or other conditions presently unknown to us. In addition, we may become subject to new requirements pursuant to evolving environmental, and health and safety, laws and regulations. Accordingly, we cannot assure you that we will not incur material environmental costs or liabilities in the future.

We depend upon key personnel.

        We believe that our future success depends upon the knowledge, ability and experience of our personnel. The loss of key personnel responsible for managing Portola or for advancing our product development could adversely affect our business and financial condition.

We are controlled by Jack Watts, our Chairman and Chief Executive Officer, and JPMorgan Partners 23A, an affiliate of J.P. Morgan Securities Inc., and their interests may conflict with those of our other securityholders.

        Jack Watts, our Chairman and Chief Executive Officer, and JPMorgan Partners 23A own a majority of our common stock. Robert Egan, a member of our Board of Directors is a Senior Advisor to JPMorgan Partners 23A and a Partner of J.P. Morgan Entertainment Partners. The interests of Mr. Watts, Mr. Egan and JPMorgan Partners 23A may not in all cases be aligned with your interests.

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There is only one independent director (as defined under the federal securities laws) on our Board of Directors and, as a result, our Board of Directors, Audit Committee and Compensation Committee have not met the standard "independence" requirements that would be applicable if our equity securities were traded on Nasdaq or the New York Stock Exchange, when they have considered numerous issues of importance to us. We have engaged in a number of related party transactions. For example, Portola engaged in a series of transactions with Sand Hill Systems, Inc., an entity in which Mr. Watts and other of our officers had a financial interest. See "Item 13—Certain Relationships and Related Transactions" and Note 15 of Notes to Consolidated Financial Statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The following discussion about our market risk exposure involves forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, credit risk and resin prices. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity

        We are exposed to market risk from changes in interest rates on long-term debt obligations. We manage such risk through the use of a combination of fixed and variable rate debt. Currently, we do not use derivative financial instruments to manage our interest rate risk.

        The following table provides information about our debt obligations that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related interest rates by expected maturity dates.

(a)

Average interest is equal to either the Bank Prime Loan rate plus 1.00% or LIBOR Loan rate plus 2.25%. At August 31, 2003, the Bank Prime Loan rate was 4.00% and the LIBOR Loan rate was 1.12%.

(b)

As of August 31, 2003, we had two outstanding warrants, which are redeemable at the option of the holder upon 60 days' written notice to us based upon a price equal to the higher of the current market price per share of our common stock or an amount computed under formulas in the warrant agreements, through June 30, 2004 and June 30, 2007, respectively. Our obligation to redeem the warrants is deferred if the redemption of the warrants would cause a default or event of default under our credit facilities. At August 31, 2003, our credit facilities did not permit redemption of the warrants. If our credit facilities do not permit the pay out of the warrant upon expiration on June 30, 2004, we would be required to accrue interest at the higher of (i) the prime rate plus 6% or (ii) the federal funds rate plus 6.5% on the fair value of the warrant until the payout is permitted. At August 31, 2003, the carrying value of the warrants totaled $10.3 million,

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which represents the fair value of the instruments as determined by our management. The fair value of the warrants was estimated at August 31, 2003 using the Black-Scholes pricing model with the following assumptions: Risk-free interest rates of 1.35% and 3.49%; expected redemption period of June 30, 2004 and June 30, 2008; and volatility of 20% for each warrant, respectively.

Exchange Rate Sensitivity

        Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at month-end exchange rates. Items of income and expense are translated at average exchange rates. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders' equity (deficit). Gains (losses) arising from foreign currency transactions are included in determining net income (loss). During fiscal 2003, we incurred a gain of $348,000 arising from foreign currency transactions. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates.

Credit Risk Sensitivity

        Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables. Our cash and cash equivalents are concentrated primarily in several United States banks. At times, such deposits may be in excess of insured limits. Management believes that the financial institutions which hold our financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

        Our products are principally sold to entities in the beverage and food industries in the United States, Canada, the United Kingdom, Mexico, China, Australia, New Zealand and throughout Europe. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required. We maintain reserves for potential credit losses which, on a historical basis, have not been significant. There were no customers that accounted for 10% or more of sales for fiscal 2003.

Resin Price Sensitivity

        The majority of our products are molded from various plastic resins which comprise a significant portion of our cost of sales. These resins are subject to substantial price fluctuations, resulting from shortages in supply, changes in prices in petrochemical products and other factors. During the fourth quarter of fiscal 2002, we experienced increases in resin prices. In the past, we generally have been able to eventually pass on increases in resin prices directly to our customers, although during fiscal 2003 with the significant increases in resin, we had difficulty passing on all of the resin increases to certain customers. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on us. We experienced a loss in margin due to the impact of the resin increases during fiscal 2003. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations."

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Portola Packaging, Inc. and Subsidiaries:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Portola Packaging, Inc. and its Subsidiaries (the Company) at August 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of our management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note 7 to the Consolidated Financial Statements, the Company changed its method of accounting for long-lived asset impairments, goodwill and other intangible assets in fiscal 2002.

        As discussed in Note 10 to the Consolidated Financial Statements, the Company reclassified our redeemable warrants from temporary equity to a liability in fiscal 2001.

        As described in Note 8 to the Consolidated Financial Statements, our senior revolving credit facility matures on September 7, 2004.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania

November 18, 2003, except for Note 19,
    as to which the date is December 10, 2003

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Portola Packaging, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

41

Portola Packaging, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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Portola Packaging, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)