SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
___X___ Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: July 31, 1997
_______ Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period From _____________ to _____________
Commission File Number: 0-18252
ULTRA PAC, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Minnesota 41-1581031
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
21925 Industrial Boulevard, Rogers, Minnesota 55374
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(612) 428-8340
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. __X__ Yes _____ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock No Par Value 3,858,515
- ------------------------------------- -----------------------------------
Class of Common Stock Shares outstanding as of
August 21, 1997
<PAGE>
ULTRA PAC, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of July 31,
1997 and January 31, 1997 3
Statements of Operations for the
three and six months ended July 31, 1997
and 1996 5
Statements of Cash Flows for the six
months ended July 31, 1997 and 1996 6
Notes to Interim Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 17
Item 6. Exhibits and Reports on
Form 8-K 17
<PAGE>
Ultra Pac, Inc.
BALANCE SHEETS
ASSETS
July 31, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 604,471 $ 663,072
Accounts receivable
Trade, less allowance for doubtful
receivables and sales discounts
of $361,342 and $312,854 at July 31
and January 31, 1997, respectively 3,778,054 3,422,970
Refundable sales taxes 22,750 22,335
Inventories
Raw materials 2,203,209 1,783,640
Work in process 1,469,896 1,379,856
Finished goods 3,151,685 3,708,934
Deferred income taxes 2,041,000 1,822,000
Other current assets 229,363 216,086
----------- -----------
Total current assets 13,500,428 13,018,893
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and improvements 3,492,768 3,492,768
Manufacturing equipment and tooling 22,355,712 21,957,017
Extrusion equipment 12,376,870 12,355,550
Other equipment and furnishings 1,072,976 1,029,281
Leasehold improvements 987,896 957,738
----------- -----------
40,286,222 39,792,354
Less accumulated depreciation and
amortization 14,785,632 12,851,061
----------- -----------
25,500,590 26,941,293
Deposits on manufacturing equipment 261,001 --
Land 737,317 737,317
----------- -----------
26,498,908 27,678,610
OTHER
Security deposits 505,010 499,186
Leasehold costs
less accumulated amortization
of $60,833 and $48,667 at July 31
and January 31, 1997, respectively 304,167 316,333
Investments in affiliates 166,115 232,350
Other 180,778 283,215
----------- -----------
1,156,070 1,331,084
----------- -----------
$41,155,406 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
<PAGE>
Ultra Pac, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 5,375,896 $ 4,819,961
Accounts payable - principally trade 3,596,536 5,838,416
Accrued liabilities
Compensation 1,430,487 1,140,975
Interest and other 887,237 883,638
Income taxes payable 279,646 65,465
----------- -----------
Total current liabilities 11,569,802 12,748,455
LONG-TERM OBLIGATIONS, less current
maturities 12,688,880 15,977,599
DEFERRED INCOME TAXES 2,679,000 1,775,000
SHAREHOLDERS' EQUITY
Common stock - authorized, 10,000,000 shares
of no par value; issued and outstanding,
3,853,415 and 3,814,015 at July 31 and
January 31, 1997, respectively 7,930,701 7,784,972
Additional contributed capital 1,389,393 1,360,334
Retained earnings 4,897,630 2,382,227
----------- -----------
14,217,724 11,527,533
----------- -----------
$41,155,406 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
<PAGE>
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 17,406,024 $ 18,970,423 $ 32,356,306 $ 34,730,827
Cost of products sold 10,139,764 12,979,864 19,339,969 25,135,181
------------ ------------ ------------ ------------
Gross profit 7,266,260 5,990,559 13,016,337 9,595,646
Operating expenses
Marketing and sales 3,485,786 2,955,106 6,415,261 5,596,292
Administrative 740,363 671,638 1,572,407 1,321,250
------------ ------------ ------------ ------------
4,226,149 3,626,744 7,987,668 6,917,542
------------ ------------ ------------ ------------
Operating profit 3,040,111 2,363,815 5,028,669 2,678,104
Other income(expense)
Interest expense (451,476) (648,137) (957,083) (1,274,720)
Write down of recycling
equipment -- (459,638) -- (459,638)
Equity in net loss of
affiliate (40,000) (10,000) (66,235) (27,000)
Other 47,377 (117,943) 55,052 (225,245)
------------ ------------ ------------ ------------
(444,099) (1,235,718) (968,266) (1,986,603)
------------ ------------ ------------ ------------
Earnings before income taxes 2,596,012 1,128,097 4,060,403 691,501
Income tax provision 985,000 403,000 1,545,000 293,000
------------ ------------ ------------ ------------
NET EARNINGS $ 1,611,012 $ 725,097 $ 2,515,403 $ 398,501
============ ============ ============ ============
Earnings per common share $ .40 $ .19 $ .63 $ .11
============ ============ ============ ============
Weighted average number of
shares outstanding 4,025,957 3,797,643 3,997,914 3,779,094
============ ============ ============ ============
</TABLE>
See accompanying notes to interim financial statements.
<PAGE>
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
July 31,
Increase (Decrease) in Cash 1997 1996
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities
Net earnings $ 2,515,403 $ 398,501
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 2,006,737 2,079,215
Amortization of warrants 40,682 19,734
Non cash compensation to employees 28,125 54,325
Write down of equipment 55,000 459,638
Gain on sale of equipment, net -- (31,540)
Equity in undistributed net loss of affiliates 66,235 27,000
Net deferred income taxes 685,000 237,000
Change in operating assets and liabilities:
Accounts receivable (355,499) 1,547,872
Inventories 47,640 1,555,180
Other current assets (13,277) (60,192)
Accounts payable (2,241,880) (3,555,879)
Accrued liabilities 344,367 (82,840)
Income taxes payable 214,181 21,595
----------- -----------
Net cash provided by operating
activities 3,392,714 2,669,609
Cash flows from investing activities
Capital expenditures (869,869) (199,945)
Proceeds from sale of assets -- 110,000
Security deposits and other 55,931 (50,263)
----------- -----------
Net cash used in investing activities (813,938) (140,208)
Cash flows from financing activities
Proceeds from long-term obligations -- 2,600,000
Principal payments under long-term obligations (2,732,784) (5,382,944)
Exercise of stock options 95,407 --
----------- -----------
Net cash used in financing
activities (2,637,377) (2,782,944)
----------- -----------
Net change in cash (58,601) (253,543)
Cash at beginning of period 663,072 345,906
----------- -----------
Cash at end of period $ 604,471 $ 92,363
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
<PAGE>
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
July 31, 1997
(unaudited)
(1) Basis of Presentation
The interim financial statements presented herein are unaudited, but in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. The results of operations for
any interim period are not necessarily indicative of results for the
full year. Information as of January 31, 1997, was taken from the
Company's Annual Report on Form 10-K for the year ended January 31,
1997. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended January 31, 1997.
(2) Shareholders' Equity
The following table summarizes stock option activity for the six months
ended July 31, 1997:
<TABLE>
<CAPTION>
Outside
Grant Expiration Exercise Total 1996 1991 Directors
Recipient Date Date Price Shares Plan Plan Plan Other
----------- ---------- ---------- -------- -------- ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPTIONS OUSTANDING AS OF JANUARY 31, 1997 361,500 145,500 66,500 14,500 135,000
GRANTED
COO March 1997 March 2002 $ 5.63 25,000(1) - 25,000 - -
Directors June 1997 June 2002 6.88 3,000 - - 3,000 -
CEO July 1997 July 2002 9.25 20,000 20,000 - - -
CFO July 1997 July 2002 9.25 10,000 10,000 - - -
EXPIRED OR FORFEITED
Employees - - - (4,000) - (4,000) - -
EXERCISED
Employees - - 2.94-3.88 (20,500) (20,500) - - -
-------- -------- ------- ------- -------
OPTIONS OUTSTANDING AS OF JULY 31, 1997 395,000 155,000 87,500 17,500 135,000
======== ======== ======= ======= =======
OPTIONS EXERCISABLE AS OF JULY 31, 1997 310,000 145,000 87,500 17,500 60,000
======== ======== ======= ======= =======
</TABLE>
(1) Incentive stock option.
At the time of employment, the Company's new Chief Operating Officer
was issued compensation in the form of 5,000 shares of the Company's
common stock.
<PAGE>
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
July 31, 1997
(unaudited)
(3) Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share." This pronouncement provides a
different method of calculating earnings per share than is currently
used in accordance with APB No. 15, "Earnings per Share." SFAS 128
provides for the calculation of basic and diluted earnings per share.
Basic earnings per share include no dilution and are computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted
earnings per share.
SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997, and early adoption is
not permitted. When adopted, the statement will require restatement of
prior years' earnings per share. The Company will adopt this statement
for its fourth quarter and year ending January 31, 1998. Assuming that
SFAS 128 had been implemented, basic earnings per share would have been
$.42 per share for the three months ended July 31, 1997, versus primary
earnings per share of $.40 per share as reported and $.66 per share for
the six months ended July 31, 1997, versus primary earnings per share
of $.63 as reported. Dilutive earnings per share would have been the
same as reported primary earnings per share for the three and six
months ended July 31, 1997 and 1996.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Information
THE FOLLOWING DISCUSSION CONTAINS CERTAIN STATEMENTS WHICH REFLECT THE COMPANY'S
CURRENT EXPECTATIONS REGARDING FUTURE RESULTS OF OPERATIONS AND PERFORMANCE.
WHEN USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND
OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM THOSE SET FORTH IN SUCH STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AS WELL AS ELSEWHERE IN THIS DOCUMENT AND IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT NEW EVENTS OR CIRCUMSTANCES.
Background
Ultra Pac, Inc. designs, manufactures, markets and sells plastic containers and
packaging to the food industry, including supermarkets, distributors of food
packaging, wholesale bakery companies, fruit and vegetable growers,
delicatessens, processors and retailers of prepared foods, and foodservice
providers. The Company's packaging is primarily made from virgin and recycled
polyethylene terephthalate ("PET") which the Company extrudes into plastic sheet
and thermoforms into various shapes.
Management believes that future sales and earnings could be affected by various
factors. These include: supply and demand for PET raw material (including both
virgin and recycled material) and the resulting impact on the Company's raw
material costs; competitive pressures in the marketplace for the Company's
products both from existing competitors and new entrants into the market place
and from competitors who use lower-cost non-PET resins such as OPS (oriented
polystyrene); weather conditions during the growing season of fresh produce and
the resulting impact on the demand for plastic packaging, principally during the
Company's first, second and third quarters; the Company's ability to estimate
future sales and react to any significant unforeseen increases or decreases in
sales and the impact on its
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Background (Continued)
fixed overhead cost structure including the possible need for significant
capital expenditures; the cost and availability of suitably skilled employees;
and the cost, availability and amount of debt financing.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Statements of Operations of the Company expressed as a percentage of
net sales.
Three Months Ended Six Months Ended
July 31, July 31,
-------------- --------------
1997 1996 1997 1996
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 58.2 68.5 59.8 72.4
----- ----- ----- -----
Gross profit 41.8 31.5 40.2 27.6
Operating expenses
Marketing and sales 20.0 15.6 19.8 16.1
Administrative 4.2 3.5 4.9 3.8
----- ----- ----- -----
24.2 19.1 24.7 19.9
----- ----- ----- -----
Operating Profit 17.6 12.4 15.5 7.7
Other income (expense)
Interest expense and other 2.6 4.1 3.0 4.4
Write down of recycling equipment -- 2.4 -- 1.3
----- ----- ----- -----
2.6 6.5 3.0 5.7
----- ----- ----- -----
Earnings before taxes 15.0 5.9 12.5 2.0
Income tax provision 5.7 2.1 4.8 0.9
----- ----- ----- -----
NET EARNINGS 9.3% 3.8% 7.7% 1.1%
===== ===== ===== =====
Net Sales:
Net sales decreased 8.2% from $18,970,423 to $17,406,024 for the three months
ended July 31, 1997, as compared to the three months ended July 31, 1996, and
decreased 6.8% from $34,730,827 to $32,356,306 for the six months ended July 31,
1997, as compared to the six months ended July 31, 1996. The decrease in net
sales for both the second quarter and the six months ended July 31, 1997, was
primarily due to a decline in sales of the Company's produce containers. While
sales in the first quarter were
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
negatively impacted by the publicity surrounding the hepatitis alert related to
frozen strawberries, sales of these containers have remained soft through the
second quarter due to pricing and marketing strategies and market conditions. To
be more competitive in the produce marketplace and to better service its
existing customers, the Company is considering establishing West Coast
distribution capabilities. The decline in produce container sales was offset in
part by an increase in unit volume sales of the Company's line of bakery
containers, Ultra Lite Bakeable products and the manufacture of plastic sheet
for others. In addition the Company's sales were impacted by lower selling
prices for its products, reflecting lower material costs. The Company expects
sales to increase slightly in the last half of fiscal 1998, as compared to the
prior year, as a result of continued strong sales of its bakery containers, the
recent introduction of the Company's Reservations series of plastic food
containers and the introduction of products in the last half of the year.
Gross Profit:
Gross profit margins improved from 31.5% to 41.8% for the three months ended
July 31, 1997, as compared to the three months ended July 31, 1996, and from
27.6% to 40.2% for the six months ended July 31, 1997, as compared to the six
months ended July 31, 1996. The improvement in gross profit margins can be
primarily attributed to lower prices of raw materials and to the manufacture of
plastic sheet for others.
Prices for virgin PET resin and recycled material declined dramatically during
the second and third quarters of fiscal 1997 due in part to increased capacity
of refiners and lower market prices for paraxylene, a major component of PET
resins. These prices remained relatively flat during the fourth quarter of
fiscal 1997 and increased slightly late in the first quarter and again in the
second quarter of fiscal 1998. However, material prices remain near historic
lows for the Company.
The Company has a resin supply agreement through December 31, 1997, which
provides for pricing to float with market conditions, subject to limits on the
amount by which prices may increase, with no limit on price decreases. The
Company is currently
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
negotiating, with this supplier, a similar agreement for future years. Under the
current agreement, the Company is required to purchase minimum resin quantities
which will supply a major portion of its virgin PET resin needs.
In June 1997, the Company's price for its virgin PET resin was increased to the
maximum price allowable under the agreement (approximately a 6% increase from
April 30, 1997, prices). This pricing will remain in effect through December 31,
1997, unless the Company receives notification of a price decrease. The Company
anticipates that prices for recycled PET materials may increase slightly during
the third quarter ending October 31, 1997, however, it believes the effect of
these increases will not be significant, due to current inventory levels being
sufficient to satisfy the majority of its recycled material requirements for the
third quarter.
Since the installation of its fifth and sixth extrusion lines in fiscal 1996,
the Company has been able to supply all its PET sheet needs and expects to be
able to do so during all of fiscal 1998. In fact, at various times, the Company
has and expects to continue to extrude PET sheet at less than its full
production capacity. The Company has also been extruding plastic sheet for other
manufacturing firms. The cost of plastic sheet extruded by the Company has been
significantly lower than the cost of plastic sheet purchased from outside
sources.
The Company expects that the above factors will continue to have a favorable
impact on its gross margins as compared to the prior year. However, because
sales for the last half of the year are expected to be lower than the first half
of the year, the Company expects its gross margin percentage to decline slightly
from the first half level.
Operating Expenses:
Marketing and sales expense increased from $2,955,106, or 15.6% of net sales, to
$3,485,786, or 20.0% of net sales, during the three months ended July 31, 1997,
as compared to the three months ended July 30, 1996, and increased from
$5,596,292, or 16.1% of net sales, to $6,415,261, or 19.8% of net sales, during
the six months ended July 31, 1997, as compared to the six months ended
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
July 31, 1996. The increase was due in part to increased salaries as a result of
the hiring of a Director of Sales and additional sales and marketing support
personnel in the last half of fiscal 1997. The increase was also attributable to
increased freight costs and commissions. The increase in commission expense, in
both absolute dollars and as a percentage of net sales, was a result of an
increase in commission rates, effective February 1997. The increase in marketing
and sales expense as a percentage of sales was primarily due to lower sales and
the increase in expenses as discussed above.
Administrative expense increased from $671,638, or 3.5% of net sales to
$740,363, or 4.2% of net sales, during the three months ended July 31, 1997, as
compared to the three months ended July 31, 1996, and increased from $1,321,250,
or 3.8% of net sales, to $1,572,407, or 4.9% of net sales, during the six months
ended July 31, 1997, as compared to the six months ended July 31, 1996. The
increase in administrative expense was due in part to an increase in
administrative salaries primarily from the hiring of a Director of Management
Information Systems and other administrative support personnel during the third
and fourth quarters of last year and the hiring of a Chief Operating Officer in
March 1997. Employee benefit costs also increased as a result of the Company's
reinstatement of its practice of matching a portion of employee contributions to
its 401(k) plan.
Interest Expense and Other:
Interest expense decreased from $648,137, or 3.4% of net sales, to $451,476, or
2.6% of net sales, for the three months ended July 31, 1997, as compared to the
three months ended July 31, 1996, and decreased from $1,274,720, or 3.7% of net
sales, to $957,083, or 3.0% of net sales, for the six months ended July 31,
1997, as compared to the six months ended July 31, 1996. The decrease was
principally due to lower debt levels as well as lower interest rates. The
Company anticipates a decrease in interest expense for the remainder of fiscal
1998 as compared to fiscal 1997 as a result of lower debt levels and lower
interest rates resulting from the refinancing of its bank debt in February 1997,
as discussed below.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
In the second quarter of last year, the Company recorded other expense of
$459,638, resulting from the writedown to the net realizable value of its
recycling equipment.
Inflation:
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
Because the Company's business is highly capital intensive, it has traditionally
relied heavily on bank and other debt financing to fund its capital
requirements. While the Company expects to continue to rely on bank and other
debt financing, it anticipates that its debt levels will continue to decrease
during fiscal 1998 due to its improved operating performance and modest planned
capital expenditures for the balance of fiscal 1998. As of July 31, 1997, the
Company had borrowed $2,660,544 under its $8,000,000 revolving credit facility,
leaving $5,339,456 potentially available. Pursuant to the Company's borrowing
base formula, $3,989,343 of the $5,339,456 was available at July 31, 1997.
In February 1997, the Company amended its credit facility and term note with its
principal lender to reduce the interest rate differentials on both by 1%, to
extend the maturity date to May 31, 1999, and to reduce the amount available
under the revolving credit facility by $1,500,000 to $8,000,000 reflecting the
Company's decreased credit needs. As a result of attaining certain performance
criteria, the Company will receive further interest rate reductions during the
third quarter.
During the six months ended July 31, 1997, the Company has repaid $415,600 of
deferred principal payments required under the amended equipment note with one
of its equipment lenders. The Company may be required to make additional
payments, dependent upon the level of availability under the Company's revolving
credit facility as determined on January 31 and April 30, 1998.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility.
Working capital increased from $270,438 on January 31, 1997, to $1,930,626 on
July 31, 1997. This increase is primarily due to a decrease in accounts payable
and an increase in accounts receivable, partially offset by increases in current
maturities of long-term obligations and accrued liabilities. Accounts payable
decreased from $5,838,416 on January 31, 1997, to $3,596,536 on July 31, 1997.
Accounts receivable increased from $3,422,970 on January 31, 1997, to $3,778,054
on July 31, 1997.
For the six months ended July 31, 1997, $3,392,714 of cash was provided by
operating activities as compared to $2,669,609 for the six months ended July 31,
1996, primarily due to improved earnings.
As of July 31, 1997, the Company had outstanding capital commitments of
$1,668,000 for thermoforming equipment and molds and was reviewing $225,000 of
additional capital expenditures. The Company anticipates that capital
expenditures for fiscal 1998 will be approximately $2,000,000, as compared to
$570,000 incurred in fiscal 1997. The Company believes the current level of
production equipment and facilities along with the committed capital
expenditures will be sufficient to meet anticipated fiscal 1998 requirements.
The fiscal 1998 expenditures will be financed from funds available through the
Company's credit facility, capital expenditure term note facility and funds
generated from operations.
Seasonality of Sales and Operating Profits
Historically, the Company's sales were highest during the third quarter and
declined in the fourth quarter. Since the introduction of its line of produce
containers during 1992, the percentage of the Company's sales occurring during
the first two quarters has progressively increased and the Company expects this
trend to continue.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Seasonality of Sales and Operating Profits (Continued)
Because the Company's sales have historically declined during the fourth quarter
while its fixed overhead costs have remained relatively constant, the Company's
gross margins and operating profit have generally been lowest during the fourth
quarter. Since the introduction of the Company's line of produce containers,
this has also impacted the third quarter gross margins and operating profit.
Prices for virgin PET resin and recycled material increased significantly during
fiscal 1996 and declined significantly in fiscal 1997, however the Company
believes that, as refiners continue to expand capacity, the supply of PET will
exceed the increase in demand and there will be a more stable pricing
environment. As a result, the relationship of gross margins from quarter to
quarter should be more consistent with historical results.
<PAGE>
PART II
OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 annual shareholders meeting of Ultra Pac, Inc. was held on
June 19, 1997. The issues and the respective vote totals were as
follows:
1. The proposal to set the number of directors at five was approved
with 3,558,249 shares voted in favor, 9,317 shares voted against,
and 3,250 shares abstaining.
2. The slate of five directors was elected with each candidate
receiving the number of votes indicated next to his name:
Withhold
For Authority
--- ---------
Calvin S. Krupa 3,566,116 4,700
James A. Thole 3,565,566 5,250
John F. DeBoer 3,564,616 6,200
Thomas F. Rains 3,564,966 5,850
Frank I. Harvey 3,564,516 6,300
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: September 8, 1997 ULTRA PAC, INC.
By: /s/ Calvin Krupa
--------------------------------
Calvin Krupa
Its: President and Chief
Executive Officer
/s/ Bradley Yopp
--------------------------------
Bradley Yopp
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 604,471
<SECURITIES> 0
<RECEIVABLES> 4,019,673
<ALLOWANCES> 361,342
<INVENTORY> 6,824,790
<CURRENT-ASSETS> 13,500,428
<PP&E> 41,284,540
<DEPRECIATION> 14,785,632
<TOTAL-ASSETS> 41,155,406
<CURRENT-LIABILITIES> 11,569,802
<BONDS> 12,688,880
0
0
<COMMON> 7,930,701
<OTHER-SE> 6,287,023
<TOTAL-LIABILITY-AND-EQUITY> 41,155,406
<SALES> 32,356,306
<TOTAL-REVENUES> 32,356,306
<CGS> 19,339,969
<TOTAL-COSTS> 19,339,969
<OTHER-EXPENSES> 7,987,668
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 957,083
<INCOME-PRETAX> 4,060,403
<INCOME-TAX> 1,545,000
<INCOME-CONTINUING> 2,515,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,515,403
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
