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, 1996
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
(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 3,784,015
Class of Common Stock Shares outstanding as of
August 31, 1996
ULTRA PAC, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of July 31,
1996 and January 31, 1996 3
Statements of Operations for the
three and six months ended July 31, 1996
and 1995 5
Statements of Cash Flows for the
six months ended July 31, 1996
and 1995 6
Notes to Interim Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 19
Item 6. Exhibits and Reports on
Form 8-K 19
Ultra Pac, Inc.
BALANCE SHEETS
ASSETS
July 31, January 31,
1996 1996
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 92,363 $ 345,906
Accounts receivable - trade, less
allowances for doubtful receivables,
sales discounts and returns of
$388,606 at July 31 and $305,000
at January 31 4,521,657 4,706,477
Refundable income and sales taxes 20,702 1,534,500
Inventories
Raw materials 2,309,518 2,089,444
Work in process 1,414,291 2,077,652
Finished goods 4,320,526 5,432,419
Deferred income taxes 469,000 264,000
Other current assets 468,996 153,803
----------- -----------
Total current assets 13,617,053 16,604,201
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and improvements 3,491,268 3,491,268
Manufacturing equipment 21,811,410 22,592,367
Extrusion equipment 12,355,550 12,270,044
Other equipment and furnishings 972,896 1,868,806
Leasehold improvements 945,219 945,219
----------- -----------
39,576,343 41,167,704
Less accumulated depreciation and
amortization 10,929,851 9,837,213
----------- -----------
28,646,492 31,330,491
Deposits on manufacturing equipment 11,629 --
Land 737,317 737,317
----------- -----------
29,395,438 32,067,808
OTHER
Security deposits and leasehold costs
less accumulated amortization of
leasehold costs of $36,500 at July
31 and $24,333 at January 31 825,332 836,623
Investments in affiliates 266,961 143,215
Deferred income taxes 280,000 722,000
Other 268,944 207,391
----------- -----------
1,641,237 1,909,229
----------- -----------
$44,653,728 $50,581,238
=========== ===========
See accompanying notes to interim financial statements
Ultra Pac, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, January 31,
1996 1996
----------- -----------
(unaudited)
CURRENT LIABILITIES
Current maturities of long-term
obligations $14,698,536 $ 1,900,220
Accounts payable - principally trade 6,881,322 10,437,204
Accrued liabilities
Salaries and commissions 872,780 843,922
Interest and other 625,783 737,481
Income taxes payable 21,595 --
----------- -----------
Total current liabilities 23,100,016 13,918,827
LONG-TERM OBLIGATIONS, less current
maturities 11,526,216 27,235,076
SHAREHOLDERS' EQUITY
Common stock - authorized, 5,000,000
shares of no par value; issued and
outstanding, 3,784,015 at July 31,
and 3,766,215 shares at January 31 7,685,897 7,631,572
Additional contributed capital 1,360,334 1,213,000
Retained earnings 981,265 582,763
----------- -----------
10,027,496 9,427,335
----------- -----------
$44,653,728 $50,581,238
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $18,970,423 $20,039,514 $34,730,827 $37,137,978
Cost of products sold 12,979,864 15,477,757 25,135,181 28,083,656
---------- ---------- ---------- ----------
Gross profit 5,990,559 4,561,757 9,595,646 9,054,322
Operating expenses
Marketing and sales expense 2,955,106 3,200,620 5,596,292 5,979,583
Administrative expense 784,027 704,248 1,525,552 1,372,256
---------- ---------- ---------- ----------
3,739,133 3,904,868 7,121,844 7,351,839
---------- ---------- ---------- ----------
Operating profit 2,251,426 656,889 2,473,802 1,702,483
Other income (expense)
Interest expense (648,137) (632,719) (1,274,720) (1,182,005)
Write down of recycling
equipment (459,638) - (459,638) -
Equity in net loss of
affiliates (10,000) - (27,000) -
Other (5,554) 23,520 (20,943) (2,436)
---------- --------- --------- ---------
(1,123,329) (609,199) (1,782,301) (1,184,441)
---------- --------- --------- ---------
Earnings before income taxes 1,128,097 47,690 691,501 518,042
Income taxes 403,000 18,000 293,000 195,000
---------- ---------- ---------- ----------
NET EARNINGS $ 725,097 $ 29,690 $ 398,501 $ 323,042
========== ========== ========== ==========
Earnings per common and common
equivalent share $ .19 $ .01 $ .11 $ .09
========== ========== ========== ==========
Weighted average number of
shares outstanding 3,797,643 3,767,078 3,779,094 3,766,882
========== ========== ========== ==========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
July 31
----------------------------
Increase (Decrease) in Cash 1996 1995
----------- -----------
Cash flows provided by operating activities
Net earnings $ 398,501 $ 323,042
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 2,079,215 1,636,777
Amortization of warrants 19,734 --
Issuance of employee stock grants 54,325 --
Write down of recycling equipment 459,638
Equity in undistributed net loss of
affiliates 27,000 --
Gain on sale of equipment, net (31,540) (8,297)
Deferred Income Taxes 237,000 105,600
Change in assets and liabilities:
Accounts receivable 34,074 (262,639)
Refundable income and sales taxes 1,513,798 (114,392)
Inventories 1,555,180 (324,407)
Other current assets (60,192) (202,807)
Accounts payable (3,555,879) 539,372
Accrued liabilities (82,840) (46,509)
Income taxes payable 21,595 (322,054)
----------- -----------
Net cash provided by operating
activities 2,669,609 1,323,686
Cash flows from investment activities
Capital expenditures (199,945) (7,514,570)
Proceeds from sale of assets 110,000 87,500
Security deposits and other (50,263) (139,392)
----------- -----------
Net cash used in investing activities (140,208) (7,566,462)
Cash flows from financing activities
Proceeds from long-term obligations 2,600,000 7,609,490
Principal payments under long-term obligations (5,382,944) (1,376,260)
----------- -----------
Net cash provided by (used in) financing
activities (2,782,944) 6,233,230
----------- -----------
Net change in cash (253,543) (9,546)
Cash at beginning of period 345,906 145,731
----------- -----------
Cash at end of period $ 92,363 $ 136,185
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
July 31, 1996
(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, 1996 was taken from the
Company's Annual Report to Shareholders on Form 10-K for the year ended
January 31, 1996. These financial statements should be read in
conjunction with the financial statements and notes thereto contained
in the Company's Annual Report to Shareholders on Form 10-K for the
year ended January 31, 1996.
(2) Write Down of Recycling Equipment
Pursuant to Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets To Be Disposed Of",
the Company wrote down its recycling equipment by $459,638 to its
estimated net realizable value. This writedown was recorded after it
became apparent that a planned joint venture to utilize such assets
would not happen. This writedown was based on the estimated fair value
as determined by management and is included in other income(expense) in
the Statement of Operations for the three and six months ended July 31,
1996.
(3) Long Term Obligations
The Company received, in June 1996, an additional $2,600,000 from its
principal lender pursuant to a new term note due May 31, 1997.
Additionally, the Company modified certain terms of its existing
revolving credit facility and term note with its principal lender and
certain equipment notes with other of its lenders.
Prior to May 31, 1997, the Company will be required to refinance or
renew its existing $9,500,000 revolving credit facility and $7,400,000
of existing term notes and a mortgage. Management believes that the
above will be refinanced or renewed on similar terms. However, if the
Company is unable to secure a timely replacement, renewal or
satisfactory extension of the maturity dates of these facilities, or
raise sufficient additional equity, there could be a material adverse
effect on the Company's financial condition and business.
(4) Shareholders' Equity
In April 1996, the Company's Board of Directors granted non-qualified
stock options to purchase 76,000 shares of common stock to employees at
an exercise price of $2.94 per share. These options, which vest
immediately, were issued under the Company's 1996 Stock Option Plan and
expire in March 2001.
In May 1996, the Company's Board of Directors granted incentive stock
options to purchase 25,000 shares of common stock to the Company's new
Chief Operating Officer (COO) at an exercise price of $3.38 per share.
These options, which vest immediately, were issued under the Company's
1991 Stock Option Plan and will expire in May 2001. Additionally, in
May 1996, the COO was also granted non-qualified stock options to
purchase 75,000 shares of common stock at an exercise price of $3.38
per share which will expire in May 2001. The vesting of such options is
subject to acceleration based on the Company's annual net earnings.
These options were issued under the Company's 1996 Stock Option Plan.
The COO was also issued compensation in the form of 5,000 shares of the
Company's common stock.
In June 1996, non-qualified stock options to purchase 20,000 shares of
common stock expired. Additionally, options to purchase 19,000 shares
of common stock under the Company's 1991 Stock Option Plan have
expired.
In June 1996, the Company issued warrants to purchase 185,000 shares of
common stock to certain of its lenders at an exercise price of $3.00
per share which will expire in June 2006. The exercise price is subject
to reduction under certain circumstances. These warrants were issued in
connection with the financing discussed in (3) above and have certain
registration rights. Pursuant to applicable accounting principles, the
Company will record $147,334 as additional interest expense over the
term of such notes, equal to the estimated fair value of these warrants
at time of issuance. A significant portion of such interest expense
will be recognized from the date of issuance through May 31, 1997. A
total of $19,734 of this additional interest expense was recognized
during the second quarter ended July 31, 1996.
In August 1996, the Company amended its Articles of Incorporation to
increase the number of authorized shares of Capital Stock from
5,000,000 to 10,000,000 shares, as approved by the Company's
shareholders at the July 17, 1996, Annual Shareholders meeting.
(5) Income Taxes
As of July 31, 1996 the Company has recorded net deferred tax assets of
$749,000 primarily resulting from the benefit of net operating loss
carry forwards, which expire in varying amounts between the years
ending January 31, 2008 and 2012. Gross deferred tax assets of
$4,000,000 are offset by deferred tax liabilities of $3,251,000
resulting principally from accelerated depreciation.
The Company is not required to record valuation allowances for deferred
tax assets where management believes it is more likely than not that
the tax benefit will be realized. Valuation allowances were not
established against deferred tax assets as they are offset by existing
taxable temporary differences, principally depreciation, reversing
within the carryforward period and taxable income of approximately
$3,000,000 expected in future years. The Company believes the loss
experienced in fiscal 1996 was caused by several factors, including its
cost of raw materials and fixed overhead cost structure, which are not
expected to have a similar negative impact in future years. The Company
will continue to review this valuation allowance on a quarterly basis
and make adjustments as appropriate.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background
Ultra Pac, Inc. designs, manufactures, markets and sells plastic containers and
packaging to food industry retailers and distributors, including supermarkets,
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 or recycled polyethylene
terephthalate ("PETE") which is extruded into plastic sheet and thermoformed
into various shapes.
Management believes that future sales and earnings could be affected by
variations in markets served, fluctuations in the cost of its primary raw
materials and a variety of other factors. These include: (1) market demand for
PETE raw material and the resulting impact on the Company's raw material costs;
(2) competitive pressures in the marketplace for the Company's products; (3) the
impact of weather conditions on the seasonal production of fresh produce and the
resulting demand for plastic packaging; and, (4) fixed overhead and borrowing
costs.
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,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 68.5 77.2 72.4 75.6
---- ---- ---- ----
Gross profit 31.5 22.8 27.6 24.4
Operating expenses
Marketing and sales 15.6 16.0 16.1 16.1
Administrative 4.1 3.5 4.4 3.7
---- ---- ---- ----
19.7 19.5 20.5 19.8
---- ---- ---- ----
Operating profit 11.8 3.3 7.1 4.6
Interest expense and other
Interest expense and other 3.5 3.0 3.8 3.2
Write down of recycling
equipment 2.4 - 1.3 -
---- ---- ---- ----
5.9 3.0 5.1 3.2
---- ---- ---- ----
Earnings before income taxes 5.9 0.3 2.0 1.4
Income taxes 2.1 0.1 .9 0.5
---- ---- ---- ----
NET EARNINGS 3.8% 0.2% 1.1% 0.9%
==== ==== ==== ====
Net Sales:
Net sales decreased 5.3% from $20,039,514 to $18,970,423 for the three months
ended July 31, 1996, as compared to the three months ended July 31, 1995, and
6.5% from $37,137,978 to $34,730,827 for the six months ended July 31, 1996, as
compared to the six months ended July 31, 1995.
The decrease in sales during both periods is in part a result of the Company
focusing on margin improvement rather than on growing sales. The Company also
believes that the market for bakery and produce containers has become
increasingly competitive, however the Company has and is currently taking a
strategy of not pursuing sales purely based on competitive pricing. The Company
believes the pricing pressures come primarily from competitors who use
lower-cost, non-PETE resins such as oriented polystyrene.
The decrease in sales was offset in part by an increase in sales of the
Company's line of deli, Ultra Lite Bakeable products and its line of food
service products. The Company anticipates sales to decline in the second half of
fiscal 1997 as compared to the first half of fiscal 1997 and as compared to the
second half of fiscal 1996. This anticipated decline reflects the Company's
strategy as discussed above.
Management continues its efforts to identify and analyze long term market
trends, competitive strategies, and other factors that influence market
conditions or result in competitive pressures. Management believes that this
activity will assist the Company in developing future markets, product and price
strategies, as well as improve its production planning process. In connection
with its efforts in this area, the Company has recently hired a Director of
Sales and Marketing.
Gross Profit:
Gross profit margins improved from 22.8% to 31.5% for the three months ended
July 31, 1996, as compared to the three months ended July 31, 1995, and from
24.4% to 27.6% for the six months ended July 31, 1996, as compared to the six
months July 31, 1995. The improvement in gross profit margins can be attributed
to lower prices of PETE resin and of other raw materials, to the Company's
ability to supply all PETE sheet needs from in-house extrusion facilities and to
a decline in production labor costs coupled with improved manufacturing
efficiencies.
As previously discussed in the Company's Form 10-K and first quarter Form 10-Q,
the Company negotiated, late in fiscal 1996, a three-year supply agreement for a
major portion of its virgin PETE resin needs. Minimum resin quantities are
required to be purchased at a fixed price (adjusted annually). As recently
announced, this agreement, by practice between the Company and its suppliers,
has been informally amended to allow pricing to float with market conditions
subject to limits on the amount by which prices may change. The Company believes
the price it pays continues to be favorable under current market conditions.
Prices for PETE resins declined dramatically during the second quarter due in
part to increased capacity of refiners and the lower cost of paraxylene, a major
component of PETE resins. The Company anticipates, to a lesser extent, that
there will be additional PETE resin price declines during the balance of fiscal
1997. The declines in resin prices in fiscal 1997 have more than offset the
increases in resin prices in fiscal 1996.
With the installation of its fifth and sixth extrusion lines in fiscal 1996, the
Company expects to be able to supply all its PETE sheet needs for fiscal 1997.
In fact, at various times, the Company extrudes PETE sheet at less than its full
production capacity. The cost of plastic sheet extruded by the Company has been
significantly lower than the cost of plastic sheet purchased from outside
sources.
Additionally, the Company has significantly reduced its workforce from
approximately 434 in August 1995 to less than 300 in August 1996. The Company
has also improved productivity and reduced costs in thermoforming and extrusion
operations. Due to these factors, the Company believes it will require a smaller
workforce in fiscal 1997. As a result, the Company expects its labor costs will
decline during fiscal 1997, as compared to fiscal 1996.
With the anticipated decline in sales for the second half of fiscal 1997, the
Company expects its gross margin percentage to decline from its current level
due to fixed overhead costs, which are anticipated to decline at a slower rate
than sales. However, the factors discussed above are expected to continue to
have a positive impact on gross margins for the balance of fiscal 1997.
Operating Expenses:
Marketing and sales expense decreased from $3,200,620 or 16.0% of net sales, to
$2,955,106 or 15.6% of net sales during the three months ended July 31, 1996, as
compared to the three months ended July 31, 1995, and decreased from $5,979,583
or 16.1% of net sales to $5,596,292 or 16.1% of net sales for the six months
ended July 31, 1996, as compared to the six months ended July 31, 1995. The
decrease in marketing and sales expense was primarily due to lower sales levels
resulting in a reduction in freight and commission expense. Additionally, the
reduction in commission expense was due to a reduction in the commission rate
paid which also accounted for most of the decline of sales and marketing
expenses as a percent of net sales.
Administrative expenses increased from $704,248 or 3.5% of net sales to $784,027
or 4.1% of net sales during the three months ended July 31, 1996, as compared to
the three months ended July 31, 1995, and increased from $1,372,256 or 3.7% of
net sales to $1,525,552 or 4.4% of net sales for the six months ended July 31,
1996, as compared to the six months ended July 31, 1995. The increase in
administrative expenses was primarily due to increased legal costs associated
with certain litigation matters arising in the normal conduct of the Company's
business. The Company believes that ultimate resolution of such litigation will
not have a material adverse impact on the Company's financial condition. In
addition, expenses increased because the Company added two key individuals to
its management team. In May, the Company hired Michael J. Laub as its Chief
Operating Officer and in July 1996, the Company further strengthened its team by
hiring Gregory Nelson as its Director of Management Information Systems.
Interest Expense and Other:
Interest expense increased from $632,719 or 3.2% of net sales to $648,137 or
3.4% of net sales for the three months ended July 31, 1996, as compared to the
three months ended July 31, 1995 and increased from $1,182,005 or 3.2% of net
sales to $1,274,720 or 3.7% of net sales for the six months ended July 31, 1996,
as compared to the six months ended July 31,1995. The increase was principally
due to higher debt levels. The increase in debt was primarily the result of
financing additional property, equipment and improvements acquired during the
second and third quarters of fiscal 1996 and the losses incurred during the
third and fourth quarters of fiscal 1996.
During the three and six months ended July 1996, approximately $460,000 of other
expenses resulted from the writedown, to the estimated net realizable value, of
the Company's recycling equipment. While the Company has not operated this
equipment since August 1995, it was planning to use the equipment in connection
with a joint venture. The joint venture discussions were terminated during the
quarter ended July 31, 1996. Since then the Company has been actively searching
for a buyer of this equipment, but currently has no ongoing substantive
discussions with any potential purchasers.
Income Taxes:
As of July 31, 1996, the Company has $749,000 of net deferred tax assets. See
Footnote (5) of the "Notes to Interim Financial Statements" as of July 31, 1996,
for information regarding asset realizability.
Net Earnings:
As a result of the factors discussed above, net earnings for the three months
ended July 31, 1996 were $725,097 or 3.8% of net sales as compared to $29,690 or
0.2% of net sales for the three months ended July 31, 1995 and $398,501 or 1.1%
of net sales for the six months ended July 31, 1996 as compared to $323,042 or
0.9% of net sales for the six months ended July 31, 1995.
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. As of July 31, 1996, the Company had borrowed $4,938,375 under its
$9,500,000 revolving credit facility, leaving $4,561,625 available. However,
under the Company's borrowing base, only $1,657,314 of the $4,561,625 was
available for the Company to borrow.
As of, or subsequent to, January 31, 1996, the Company was in default on
virtually all of its long-term obligations due to financial covenant violations
and failure to make certain required payments, including repayment of excess
borrowings under its revolving credit facility. In April 1996, the Company
received waivers for the existing defaults from such lenders and commitments to
amend certain financial covenants. The covenants were amended in June 1996 and
the Company believes it will be able to comply with such amended covenants at
least through the current fiscal year.
In June 1996, the Company received from its principal lender an additional
$2,600,000 pursuant to a new term note. The proceeds were used to pay down its
existing revolving credit facility, including excess borrowings under such
facility. The term note bears interest at 3% over the bank's base rate with
monthly installments of $75,000 plus interest with the remaining balance of
$1,625,000 due May 31, 1997. Additionally, the terms of such facility and the
existing term note with its principal lender were modified to (i) increase the
interest rate differentials on both the facility and existing term note by 1%
and .875%, respectively and (ii) reduce the Company's borrowing base under the
facility by $1,000,000.
In addition to the new agreements with its principal lender, the Company and
certain of the Company's equipment lenders amended their equipment notes to
defer approximately $2,250,000 in principal payments due during fiscal 1997.
Pursuant to the amendments, the deferred principal payments will be due with the
last payment of each respective equipment note. Additionally, the Company may be
required, subject to certain restrictions, to repay a portion of the deferred
principal over the next two fiscal years to the extent there is availability
under the Company's revolving credit facility as determined on January 31, 1997
and 1998.
In connection with the above, the Company issued warrants to certain lenders to
purchase 185,000 shares of the Company's common stock. Such warrants are
exerciseable at $3.00 per share, representing the market price existing at time
of issuance, and will expire June 2006. The issuance of these warrants resulted
in $147,334 of additional interest to be recognized over the term of the
respective credit facilities and notes.
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility. However, the Company
will be required to renew or refinance up to $13,500,000 related to its existing
revolving credit facility ($9,500,000) and existing term note ($4,000,000) prior
to their expiration in May 1997. This is in addition to $1,625,000 due on May
31, 1997 pursuant to the new term note, discussed above and $905,000 due under a
real estate mortgage. Because of the Company's operating losses in fiscal 1996
and the first quarter of fiscal 1997, and its high debt levels, such debt
renewal or refinancing may be more difficult to secure than in the past, may be
more costly than its current credit facility, and may require covenants or
restrictions more difficult to comply with than those previously or currently
imposed. Additionally, renewal or refinancing will be dependent upon the Company
meeting its cash flow projections and managing its financial performance, among
other things. No assurance can be given that the Company will be able to renew
or refinance its existing credit facility or term notes or that it will be able
to do so on acceptable terms. The Company may also explore equity financing but
has not entered into any agreement or negotiations related thereto.
If the Company is unable to secure a timely replacement, renewal or satisfactory
extension of the maturity dates of these facilities, or raise sufficient
additional equity, there could be a material adverse effect on the Company's
financial condition and business.
Working capital decreased from $2,685,374 on January 31, 1996 to a shortfall of
$9,482,963 on July 31, 1996. This decrease is primarily due to an increase in
current maturities of long term debt as discussed above. Contributing to the
decrease in working capital were decreases in inventories and refundable income
and sales taxes, as well as an increase in income taxes payable. Offsetting the
decrease was a decrease in accounts payable. Accounts receivable declined from
$4,706,477 on January 31, 1996 to $4,521,657 on July 31, 1996. This decrease is
primarily due to the reduction in net sales. Inventories decreased from
$9,599,515 on January 31, 1996 to $8,044,335 on July 31, 1996. This decrease was
principally due to a decrease in the levels of work in process and finished
goods.
For the six months ended July 31, 1996, $2,669,609 of cash was provided by
operating activities. This reflects a decrease in refundable income and sales
taxes, and inventories, and other funds generated through operations, offset in
part by a decrease in accounts payable.
As of July 31, 1996, the Company had minimal outstanding capital commitments and
was reviewing only minimal capital expenditures related to improving
manufacturing efficiencies, as well as expenditures on molds for new products.
The Company anticipates that capital expenditures for fiscal 1997 will be
substantially less than the $9,600,000 expended in fiscal 1996 because it
believes that the current level of production equipment and facilities is
sufficient to meet anticipated fiscal 1997 requirements. The fiscal 1997
expenditures will be financed from funds available through the Company's credit
facility and funds generated from operations.
Seasonality of Sales and Earnings
With the introduction of its line of produce containers during 1992, the Company
has progressively received a greater portion of its sales during the first half
of its fiscal year. With its current fixed overhead cost structure, the
Company's gross margin and earnings have been lower during the second half of
its fiscal year due to lower sales levels during that period. The Company
expects this trend to continue for the foreseeable future.
PART II
OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1995 annual shareholders meeting of Ultra Pac, Inc. was held on
July 17, 1996. The issues and the respective vote totals were as
follows:
1. The proposal to set the number of directors at five was
approved with 3,446,736 shares voted in favor, 34,366 shares
voted against, and 15,036 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 3,425,730 70,048
James A. Thole 3,374,080 122,058
John F. DeBoer 3,434,016 62,122
Thomas F. Rains 3,426,230 69,908
Frank I. Harvey 3,373,966 122,172
3. The proposal to approve an amendment to the Company's Articles
of Incorporation to increase the number of authorized shares
of Capital Stock from 5,000,000 to 10,000,000 shares was
approved with 3,228,190 shares voted in favor, 219,816 shares
voted against, and 21,895 shares abstaining.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
3.1 Restated Articles of Incorporation (Exhibit No. 3.1) (1)
3.1a Articles of Amendment of Articles of Incorporation filed
August 12, 1996
10.1 Amended and Restated Credit and Security Agreement by and
between Ultra Pac, Inc. and Norwest Credit Inc. dated June 21,
1996.
10.2 Credit and Security Agreement by and between Ultra Pac, Inc.
and Norwest Bank Minneapolis, N.A., dated June 21, 1996.
10.3 First Amendment, dated June 21, 1996, to Loan and Security
Agreement between The CIT Group/Equipment Financing Inc. and
Ultra Pac, Inc. dated March 10, 1995.
10.4 Forbearance and Amendment Agreement between Ultra Pac, Inc.
and Norwest Equipment Finance, Inc., dated June 21, 1996.
10.5 Loan Modification Agreement dated June 21, 1996 to Security
Agreement between Ultra Pac, Inc. and USL Capital Corporation,
dated December 20, 1994.
10.6 Loan Modification Agreement, dated June 21, 1996, between
Ultra Pac, Inc. and Concord Commercial to Equipment Note
Agreement with Norwest Equipment Finance, Inc. dated May 24,
1994.
10.7 Warrant Agreement between Ultra Pac, Inc. and Norwest Credit
Inc., dated June 21, 1996.
10.8 Warrant Agreement between Ultra Pac, Inc. and Norwest Bank
Minneapolis, N.A., dated June 21, 1996.
10.9 Warrant Agreement between Ultra Pac, Inc. and The CIT
Group/Equipment Financing Inc., dated June 21, 1996.
10.10 Warrant Agreement between Ultra Pac, Inc., and Norwest
Equipment Finance, Inc., dated June 21, 1996.
10.11 Warrant Agreement between Ultra Pac, Inc. and USL Capital
Corporation, dated June 21, 1994.
27 Financial Data Schedule
(1) Incorporated by reference to the specified exhibit to Form 10-Q for the
quarter ended October 31, 1989.
(b) Reports on Form 8-K: None
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 12, 1996 ULTRA PAC, INC.
---------------
(Registrant)
Calvin Krupa
------------
Calvin Krupa, President and
Chief Executive Officer
Bradley Yopp
------------
Bradley Yopp, Chief Financial
Officer