SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
__X__ EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_____ EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transaction 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 No.)
21925 Industrial Boulevard
Rogers, Minnesota 55374
(Address of Principal executive offices)
(612) 428-8340
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
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 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 Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
As of March 31, 1997, 3,834,815 shares of Common Stock, no par value
per share, were outstanding, and the aggregate market value of the shares of
Common Stock (based upon the closing sales price on such date reported by
NASDAQ) held by nonaffiliates of the Registrant was approximately $23,011,590.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its Annual Meeting
of Shareholders to be held June 19, 1997, are incorporated by reference into
Part III.
PART I.
ITEM 1 - BUSINESS
Products
Ultra Pac, Inc., designs, manufactures, markets and sells plastic containers
and packaging for 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 or recycled
polyethylene terephthalate ("PETE") which the Company extrudes into plastic
sheet and thermoforms into various shapes.
Generally, food industry packaging buyers select plastic packaging as an
alternative to paper or other materials in order to achieve marketing and
merchandising objectives. Plastic packaging generally allows food to be more
attractively displayed than alternative packaging materials, and provides more
efficient use of shelf space. Also, plastic packaging often helps preserve
food's freshness and decreases spoilage by allowing more complete sealing of the
package to minimize the effects of outside air and moisture.
Products
The largest users of the Company's products are bakery and deli departments
of supermarkets; wholesale bakeries (both fresh and frozen); and growers of
fresh fruit and produce. Food packaging has accounted for almost all of the
Company's net sales during the past three fiscal years. During February 1997,
the Company introduced its Reservations(TM) series of plastic food containers
for the rapidly expanding home meal replacement and other food service markets.
The Company strives to serve as a single source of plastic packaging for its
customers by offering a wide variety of shapes, styles and sizes of containers.
The Company's products may be made from clear or colored plastic or a
combination of both. The Company's current product offerings include both
products manufactured and stocked in inventory, enabling timely shipment to
customers, and special products that require a minimum order quantity and
production lead time. A significant majority of the Company's sales are from
products manufactured for inventory.
The Company's current product strategy is to design, market and manufacture
products in sizes and shapes that will permit its products to be used in
multiple applications, rather than custom products for single customers or
limited markets. Even designs specially made for niche uses, such as muffin
containers and cake domes, generally have multiple potential uses and/or
customers. Most designs, like clamshells and rectangular designs, may be used
for a broad range of applications such as cookies and mini-muffins by a bakery
or salads and cold cuts by a delicatessen. From time to time, when significant
volume is involved, on a non-exclusive basis, the Company will create inserts to
existing molds in order to satisfy individual customer requirements. For
example, the Company may create an insert for a mold that would allow a
rectangular clamshell container to have two compartments, rather than one.
The Company produces most of its plastic products from PETE with the
exception of some cake and pie bases, and deli trays which are made from either
polystyrene or PETE. The Company believes that packaging produced from PETE is
preferable to packaging produced from polystyrene or other more rigid plastics,
because PETE has superior flexibility and is not prone to crack or chip like
other plastic materials. The Company also believes that PETE's distinctive
characteristics benefit customers economically through improved sales and lower
food spoilage than alternative packaging materials. PETE has also become the
most widely recycled form of plastic packaging in the United States, primarily
as a result of its widespread use in plastic beverage bottles.
The Company offers a wide variety of bakery and deli containers. These
containers are of both the hinged-clamshell style, as well as two-piece designs
with separate domes and bases. Clamshells are most commonly used for pies,
muffins, cookies, donuts, rolls, salads, fruits, sandwiches, candies and nuts.
The two-piece container designs are typically used for cakes and pies, as well
as cookies, donuts, vegetables, fruit and snacks. While some of the Company's
bakery and deli containers are product-specific, the generic shapes of others
make them suitable for a wide variety of bakery and deli products.
In fiscal 1993, the Company introduced a line of produce containers, made
from recycled PETE, which are used by growers and distributors for shipping and
displaying products such as strawberries, blueberries, raspberries, tomatoes and
other fruits and vegetables. With continuing public concern over environmental
issues and recycling, the Company believes that its use of recycled PETE in
produce containers appeals to customers, producers and sellers of fresh fruit.
During April 1994, the Company introduced its line of C-PET containers,
suitable for baking in either conventional or microwave ovens, which are
primarily intended for use by commercial bakeries. This C-PET material is
extruded in-house in a rigid form similar to the process used for other PETE
products. Compared to aluminum foil containers, these C-PET bakery containers
offer superior shape retention and durability. They also allow bakers and other
food processors to perform a detection process for metal contaminants not
possible with aluminum containers. Currently, wholesale bakeries and other food
processors use these containers for both baking and packaging angel food cakes,
pizzas, cookies and muffins.
The Company routinely modifies existing container designs and develops new
designs. Such product development is based upon input from its customers and
distributors, as well as from ideas developed by Company staff. In certain
cases, customers may fund the cost of tooling or inserts related to the new
designs. The Company's development of new designs and marketing of existing
designs for new applications is an ongoing process. The Company can produce
various types of containers by using inserts of different sizes and shapes in a
particular mold. This technique minimizes the time and expense of designing and
producing tooling for new containers, where applicable.
In fiscal 1993, the Company began custom printing on certain of its products
and labeling certain produce containers with customer names and UPC codes as a
value-added service. The Company believes that its printing of certain
containers, and to a lesser extent, its customer labeling and UPC codes
distinguish it from competitors and provide customers with additional value. The
Company continues to focus its primary product development and marketing efforts
on bakery, deli and produce packaging.
Manufacturing and Supply of Raw Materials
The Company's products are manufactured from rolled plastic sheet,
principally PETE plastic sheet, using a thermoforming process. The rolls of
plastic sheet are made by an extrusion process that involves melting
petroleum-based resin pellets and then forcing the material under pressure
through a die to form a flat sheet which is wound onto a large roll and stored
for later production. At March 31, 1997, the Company had 6 extrusion lines in
operation.
To produce the Company's products, the plastic sheet is unwound from the
large roll at the beginning of the 60-foot thermoforming production line. The
sheet is first heated to approximately 300(degree) Fahrenheit and then molded
into the desired shape using vacuum and air pressure. The molds are
multiple-cavity and product specific, with the number of cavities determined by
the size and shape of the container specific to that mold. The plastic retains
the desired rigid shape as the mold cavities are cooled by water. The plastic
sheet which has been formed into containers continues down the production line
to a trim press which cuts and stacks the product in preparation for packing
into corrugated shipping cartons. The trim scrap is then ground up for reuse in
the extrusion process. At March 31, 1997, the Company had 32 thermoforming lines
in operation.
The Company manufactures its own PETE sheet from both virgin resin material
and recycled material. During fiscal 1996 and 1997 the Company was able to
extrude approximately 85% and 100% of its PETE sheet requirements. With its
current extrusion capacity, the Company expects to be able to supply all its
PETE sheet needs for fiscal 1998. In fact, at certain times during the year, the
Company anticipates it will be extruding PETE sheet at less than its full
production capacity and on occasion, may extrude plastic sheet for other
manufacturers.
The PETE resin pellets used to make plastic sheet may be purchased from
several large suppliers, including Eastman Chemical Company, Shell Chemical
Company, and E I Dupont DeNemours & Co. While the available supply of PETE has
historically been considered adequate, supplies of resin did tighten during
fiscal 1996 and the Company experienced significant increases in raw material
costs from its suppliers of virgin and recycled PETE resin. Among other factors,
these prices reflect increasing demand for PETE resin by apparel manufacturers
and soft drink bottlers worldwide. However, in fiscal 1997, the Company
experienced significant reductions in the cost of these raw materials as
capacity was being added by refiners. The Company believes that as refiners
continue to expand capacity during the next few years, the supply of PETE will
exceed the increase in demand and there will be a more stable pricing
environment. Furthermore, worldwide changes in oil prices and availability may
affect the cost and availability of resins and plastic sheet. While the Company
was not dependent on any one supplier of resin, during fiscal 1996, the Company
executed a three-year supply agreement, subject to minimum purchase
requirements, for a major portion of its virgin resin needs with a major PETE
resin supplier. During fiscal 1997, the Company and such supplier amended this
agreement to allow pricing to float with market conditions subject to limits on
the amount of price increases but with no limits on price decreases.
Marketing and Sales
In promoting its products, the Company relies primarily on direct sales
contacts and the displaying of its products at industry trade shows, rather than
extensive print advertising. The Company markets and sells its products through
5 regional sales managers and approximately 40 independent manufacturers'
representatives or "brokers." The regional sales managers have territorial
and/or product line sales responsibility. The sales managers supervise the
brokers' activities and make selected direct sales calls with certain key
customers. Typically, brokers have responsibility for calling on existing and
potential customers, such as grocery store chains, food processors and
distributors within a specific assigned sales territory.
Although the market for the Company's food packaging is generally nationwide,
some product sales are concentrated in certain geographic areas, such as
blueberry packaging in certain northern tier states and strawberry packaging in
California and Florida. During the past three years, the Company has shipped to
a small but growing number of customers in other countries. In addition, the
Company has ownership interest in two joint ventures and one product licensing
agreement which involve marketing or manufacturing, or both, outside the United
States.
The Company primarily uses common carriers to ship its products. The Company,
like many other packaging manufacturers, generally sells products at a price
that includes shipment to the customer's location. However, the Company also
sells produce containers to certain customers with the customer responsible for
bearing the shipment costs.
Recycling and Recycled Products
Several factors, including regulation, general consumer awareness of
the benefits of recycling plastics and other natural resources, and consumer
habits, have influenced the popularity of recycling. These factors, combined
with increasing demand, have encouraged the growth of a recycling industry that
collects, reprocesses and markets PETE and other recycled materials.
Accordingly, commodity markets have developed for these recycled materials,
including PETE. The Company's cost of purchasing recycled PETE has, and will
continue to be, influenced by such commodity market pricing.
In October 1992, the Company purchased a 21,500 square foot facility,
adjacent to its manufacturing facilities, to house its recycling equipment which
was installed in March 1993. In August 1995, the Company shut down this
recycling facility having experienced increasing difficulty in finding reliable
sources of post-consumer PETE for reprocessing. During fiscal 1997, the Company
wrote down this equipment to its estimated net realizable value. The Company
continues to search for a buyer of this equipment but currently has no ongoing
substantive discussions with any potential purchasers.
Government Regulation
The United States Food and Drug Administration ("FDA") regulates packaging
that comes into contact with food, including packaging made from recycled
material. The Company sought, and subsequently obtained, the FDA staff's
acknowledgment that it does not object to the use of recycled PETE in the line
of produce containers manufactured by the Company. In addition, the Company also
sought and obtained the FDA staff's acknowledgment that it does not object to
the use of co-extruded PETE (Petewich(R)) which has a layer of recycled PETE
laminated between layers of virgin PETE.
The plastic packaging industry (including the Company) is subject to existing
federal, state and local regulations and potential regulations in connection
with legislation designed to reduce solid waste. Proposed regulations have
ranged from requiring plastics to be degradable in landfills to banning specific
products altogether. Current regulations, however, include simple labeling
requirements that aid in the recycling process; banning certain materials unless
subject to specified recycling/reuse programs; and imposing taxes or advance
disposal fees on all containers on a per-unit basis, with the fees being used to
fund recycling programs. At the present time, the Company believes it is in
substantial compliance with all local, state and federal laws designed to reduce
solid waste entering landfills.
Customer Base
The Company has over 750 active customers located throughout the United
States as well as Canada, Australia, South America, Mexico and other countries.
Only one customer, Kroger, accounted for more than 10% of the Company's sales
during fiscal 1997. The loss of this customer may have a material adverse effect
on the Company's operations. With time and subject to additional growth of its
business, the Company expects its dependence on any single customer or small
number of customers will diminish.
Backlog
Although from time to time the Company receives advance orders for certain
of its produce containers, the Company does not believe that backlog is a
material aspect of its business.
Competition
The Company's products compete with non-plastic packaging alternatives,
including paper, aluminum and paper pulp or wood (as often used in produce
packaging), as well as with packaging products made from polystyrene, PETE and
other plastics. The Company believes that its primary competitive advantages
include its ability to rapidly develop and produce innovative packaging designs
to meet customer needs; its ability to rapidly fill most customer orders; and
the functional, environmental and merchandising advantages of the Company's
predominantly PETE based product line.
The Company competes with packaging manufacturers with substantially greater
financial resources, marketing and development resources. Primary competitors in
plastic packaging include Tenneco Packaging, IVEX Packaging Corporation and
InLine Packaging. These competitors may be able to sell products similar to
those of the Company's at a lower price than the Company, because a significant
portion of their plastic products are manufactured using polystyrene plastic
material which is lower in cost than PETE. The Company believes that the price
advantage of competitors using non-PETE resins is, in part, offset by the higher
quality, greater versatility and superior utility of products made from PETE.
However, the degree to which this price advantage may benefit competitors has
and will vary over time, depending on the cost disparity between polystyrene and
PETE resin prices.
Patents and Trademarks
The Company currently holds a number of design patents related to bakery and
produce containers. As the Company develops new and innovative container
designs, it applies for design patents where possible. Also, the Company has
obtained federal trademark registrations on the marks "Ultra Fresh,(R)" "Ultra
Tub,(R)" "Ultra Clam,(R)" "Show-bowls,(R)" "Snack Clam,(R)" and "Petewich(R)"
from the United States Patent and Trademark Office. The Company believes that
the loss of its right to use one or more of its trademarks would not have a
material adverse effect on the Company's business. The Company believes that its
continued success will depend primarily on its level of customer service,
product design and the management abilities of its officers, directors, key
employees and sales representatives, rather than on ownership of patents or
trademarks.
Employees
As of March 28, 1997, the Company had 49 salaried employees and 223 hourly
employees, none of whom were represented by labor unions or subject to
collective bargaining agreements. Also at March 28, 1997, the Company had
contracted the services of approximately 47 production workers through temporary
agencies. Because the unemployment rate is currently low, from time to time, the
Company may have difficulty in attracting and retaining qualified employees. The
Company generally believes its relations with its employees are good.
ITEM 2 - PROPERTIES
The Company utilizes approximately 454,000 square feet of space for its
manufacturing, warehousing and office facilities located in Rogers, Minnesota.
The Company owns approximately 109,000 square feet of this space and leases the
remaining facilities under four separate operating lease agreements. The square
feet covered under each lease and the respective expiration date is as follows:
Lease Square Feet Expiration Date
----- ----------- ---------------
1 166,000 December 1, 2008
2 65,000 March 1, 2010
3 56,000 March 1, 2010
4 58,000 December 1, 2002
All of these leases provide renewal and purchase options during the lease
term.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the normal
course of its business. Management believes that the ultimate resolution of
these matters will not have a material adverse impact on the Company's financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters which were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended January 31, 1997.
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock has been traded on the Nasdaq National Market tier
of the Nasdaq Stock Market under the symbol "UPAC" since January 7, 1992. The
following table sets forth, as reported by Nasdaq for the periods indicated, the
range of high and low sale prices of the Company's common stock.
HIGH LOW
---- ---
FISCAL YEAR ENDED JANUARY 31, 1997
First Quarter $3-3/8 $2-1/2
Second Quarter 4-3/8 2-3/4
Third Quarter 4-1/4 2-3/8
Fourth Quarter 4-7/16 2-5/8
HIGH LOW
---- ---
FISCAL YEAR ENDED JANUARY 31, 1996
First Quarter $7-1/8 $5-3/8
Second Quarter 7-1/4 5-5/8
Third Quarter 6-1/8 3-7/8
Fourth Quarter 4-1/8 3-1/8
As of April 17, 1997, there were approximately 600 holders of record, plus
approximately an additional 1,000 beneficial owners of the Company's common
stock.
The Company has never paid cash dividends on its common stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate payment of cash dividends in the foreseeable future. In addition, one
of the Company's current loan agreements prohibits the payment of dividends.
ITEM 6 - SELECTED FINANCIAL DATA
Years ended January 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------- -------- ------- ------- -------
(in thousands, except for Earnings per Common Share)
Statements of Earnings Data
Net sales $61,719 $ 66,129 $57,250 $41,189 $27,572
Cost of products sold 42,156 54,187 41,625 30,521 19,688
------- -------- ------- ------- -------
Gross profit 19,563 11,942 15,625 10,668 7,884
Operating expenses
Marketing and sales 10,647 11,481 10,066 8,202 5,287
Administrative 2,750 2,760 2,347 1,549 1,728
------- -------- ------- ------- -------
13,397 14,241 12,413 9,751 7,015
------- -------- ------- ------- -------
Operating profit (loss) 6,166 (2,299) 3,212 917 869
Interest expense and other 3,223 2,581 1,507 842 413
------- -------- ------- ------- -------
Earnings (loss) before income tax 2,943 (4,880) 1,705 75 456
Income tax provision (benefit) 1,144 (1,721) 654 16 186
------- -------- ------- ------- -------
NET EARNINGS (LOSS) $ 1,799 $ (3,159) $ 1,051 $ 59 $ 270
======= ======== ======= ======= =======
Earnings (loss) per common share $ .47 $ (.84) $ .28 $ .02 $ .08
======= ======== ======= ======= =======
Weighted average number of shares outstanding 3,792 3,766 3,766 3,768 3,587
======= ======== ======= ======= =======
January 31,
-------------------------------------------------
1997 1996 1995 1994 1993
------- -------- ------- ------- -------
Balance Sheet Data
Working capital $ 270 $ 2,685 $ 6,771 $ 5,632 $ 5,084
Total assets 41,736 50,581 44,322 32,801 23,503
Long-term obligations 15,978 27,235 20,227 13,652 6,564
Shareholders' equity 11,528 9,427 12,587 11,533 11,474
ITEM 7 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 THE FUTURE RESULTS OF OPERATIONS AND
PERFORMANCE OF THE COMPANY. 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. 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 ("PETE") 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 PETE raw material,
(including both virgin resin 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 PETE 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 fiscal 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 fixed overhead
cost structure including the possible need for significant captial expenditures;
and the cost, availability and amount of the Company's 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.
Fiscal years ended January 31,
------------------------------
1997 1996 1995
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 68.3 81.9 72.7
----- ----- -----
Gross profit 31.7 18.1 27.3
Operating expenses
Marketing and sales expense 17.2 17.4 17.6
Administrative expense 4.5 4.2 4.1
----- ----- -----
21.7 21.6 21.7
----- ----- -----
Operating profit (loss) 10.0 (3.5) 5.6
Other income (expense)
Write down of recycling equipment ( .8) - -
Interest expense and other (4.4) (3.9) (2.6)
----- ----- -----
(5.2) (3.9) (2.6)
----- ----- -----
Earnings (loss) before income taxes 4.8 (7.4) 3.0
Income tax provision (benefit) 1.9 (2.6) 1.2
----- ----- -----
NET EARNINGS (LOSS) 2.9% (4.8)% 1.8%
===== ===== =====
Fiscal 1997 Compared To Fiscal 1996
Net Sales:
Net sales decreased 6.7% from $66,128,723 to $61,718,514 for the year ended
January 31, 1997 ("fiscal 1997"), as compared to the year ended January 31, 1996
("fiscal 1996"). The decrease in net sales during fiscal 1997 was due in part to
the Company's focus on margin improvement rather than on sales growth. The
Company also believes that competitive pressures resulted in a decline in bakery
and produce container sales due to new entrants into the markets served and
pricing pressures from competitors using lower-cost, non-PETE resins such as
oriented polystyrene.
The decrease in bakery and produce container sales was offset in part by an
increase in sales of the Company's line of Ultra Lite Bakeable products and its
line of food service products. The Company expects to see continued sales growth
in both these product lines in the fiscal year ending January 31, 1998 ("fiscal
1998") and believes that these markets will continue to provide opportunities
for continued growth beyond fiscal 1998. The Company also anticipates, in fiscal
1998, a reversal of the fiscal 1997 sales decline of its bakery and produce
containers. In addition, the Company will be introducing, in the second quarter,
its Reservations series of plastic food containers for the rapidly expanding
home meal replacement and other food service markets. While the cost disparity
between oriented polystyrene and PETE had increased significantly during fiscal
1996, the Company has seen a narrowing of this disparity during the second half
of fiscal 1997. As result, the Company believes it can be more competitive in
some markets in which it lost sales in fiscal 1997 including bakery and produce
containers.
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, and product and
price strategies, as well as improving its production planning process. In
connection with its efforts in this area, the Company hired a Director of Sales
and Marketing in August 1996 and has also expanded its sales and marketing
support staff.
Gross Profit:
Gross profit margins increased from 18.1% during fiscal 1996 to 31.7% during
fiscal 1997. The improvement in gross profit margins is primarily attributable
to lower prices of PETE resin and of other raw materials, and to a lesser
extent, 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.
During fiscal 1996, the Company experienced significant increases in raw
material costs from its suppliers of virgin PETE resin and recycled PETE
material. These prices remained high during the early part of fiscal 1997.
However, prices for virgin PETE 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 of paraxylene, a
major component of PETE resins. These prices remained relatively flat during the
fourth quarter and the Company does not anticipate any significant increases in
the foreseeable future for virgin PETE resins. This decline in the cost of PETE
resin and recycled material in fiscal 1997 was significantly greater than the
increase experienced in fiscal 1996. During fiscal 1997, the Company amended its
three-year resin supply agreement, entered into in fiscal 1996, to allow for
pricing to float with market conditions subject to limits on the amount by which
prices may increase (approximately 10% from the Company's current price) with no
limit on price decreases. Under this agreement, the Company is required to
purchase minimum resin quantities which will supply a major portion of its
virgin PETE resin needs.
With the installation of its fifth and sixth extrusion lines in fiscal 1996,
the Company was able to supply all its PETE sheet needs for fiscal 1997 and
expects to be able to do so during fiscal 1998. In fact, at various times, the
Company extrudes PETE sheet at less than its full production capacity and on
occasion, extrudes plastic sheet for other manufacturers. 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's workforce was dramatically lower in fiscal 1997 as compared to
fiscal 1996. On average during fiscal 1997, the Company employed approximately
319 people as compared to 468 during fiscal 1996. Almost all of the reduction in
staffing levels was in the Company's manufacturing operations reflecting
improved productivity. The Company expects productivity improvements to continue
in fiscal 1998, although at a slower rate, and also expects that the number of
people employed may increase to support the anticipated increase in sales during
fiscal 1998.
The Company expects its gross margin percentage for fiscal 1998 to improve
from fiscal 1997 reflecting the continued impact of the factors discussed above,
however at a slower rate than was achieved in fiscal 1997. The Company expects
to realize the positive impact of lower resin prices for the full year as
compared to only the second half of fiscal 1997. However, this impact is
expected to be offset to some degree by the continuing competitiveness of the
price-sensitive food packaging marketplace.
Operating Expenses:
Marketing and sales expense decreased from $11,481,007 or 17.4% of net sales,
to $10,647,163 or 17.2% of net sales during fiscal 1997, as compared to fiscal
1996. The decrease in marketing and sales expense was primarily due to lower
sales levels resulting in a reduction in freight and commission expense. The
commission expense decrease, in dollars and as a percentage of sales, was
partially due to a reduction in the commission rate. The Company expects its
marketing and sales expenses to increase in fiscal 1998 in both dollars and as a
percentage of sales reflecting in part the anticipated increase in sales and an
increase in its commission rate structure for fiscal 1998. The Company has also
expanded its sales and marketing staff with the addition of another regional
sales manager in the fourth quarter of fiscal 1997 and recent additions to the
sales and marketing support staff.
Administrative expenses of $2,759,614 or 4.2% of net sales in fiscal 1996 and
$2,749,693 or 4.5% of net sales in fiscal 1997, remained relatively unchanged.
However, fiscal 1997 expenses included costs associated with the May 1996 hiring
and subsequent October 1996 separation of a Chief Operating Officer, as well as
the addition of a Director of Management Information Systems in August 1996.
Although the Company saw an increase in legal costs associated with certain
litigation matters arising in the normal conduct of the Company's business,
almost all of those legal costs, which were associated with the Company's claim
for patent infringement, were reclassified during the fourth quarter ended
January 31, 1997 into "Other Income and Expense" to offset the proceeds
received, in January 1997, from the settlement of such litigation.
Interest Expense and Other:
Interest expense increased from $2,516,672 or 3.8% of net sales, to
$2,584,498 or 4.2% of net sales, for fiscal 1997, as compared to fiscal 1996.
During the second half of fiscal 1997, the Company significantly lowered its
debt levels primarily through improved earnings and cash flow performance during
such time. The interest savings from these lower debt levels was offset by an
increase in interest rates resulting from the refinancing of its bank debt in
June 1996 as discussed under Liquidity and Capital Resources. The Company
anticipates that interest expense for fiscal 1998 will decline from fiscal 1997
for several reasons including significantly lower debt levels resulting from
improved cash flow. In addition, no significant capital expenditures are planned
for fiscal 1998 and interest rate differentials are lower as a result of the
February 1997 refinancing of its bank debt.
Other income and expense increased from $65,180 or .1% of net sales, to
$637,921 or 1.0% of net sales for fiscal 1997, as compared to fiscal 1996.
During the second and third quarters of fiscal 1997, the Company recorded
charges of $50,000 and $459,638 respectively from the writedown to the estimated
net realizable value of the Company's recycling equipment. The Company continues
to search for a buyer of this equipment, but currently has no ongoing
substantive discussions with any potential purchasers.
Income Taxes:
The Company has recorded deferred tax assets of $3,590,000, primarily
resulting from the benefit of net operating loss carryforwards, which expire in
varying amounts between the years ending January 31, 2008 and 2011. These
deferred tax assets are offset by deferred tax liabilities of $3,543,000
resulting primarily from accelerated depreciation. Management believes existing
deferred tax assets will be realized in subsequent years.
Fiscal 1996 Compared To Fiscal 1995
Net Sales:
Net sales increased 15.5% from $57,249,979 to $66,128,723 for the year ended
January 31, 1996 as compared to the year ended January 31, 1995 ("fiscal 1995").
The rate of sales growth during fiscal 1996 was significantly lower than
historical growth rates.
The increase in net sales during fiscal 1996 reflected increased unit volume
of the Company's produce containers and line of Ultra Lite Bakeables(TM) (which
the Company first introduced during the summer of 1994) in combination with
several price increases the Company implemented between October 1994 and April
1995. While sales dollars had continued to grow in each product category, unit
volume of bakery and deli containers declined by approximately 6% during fiscal
1996 as compared to fiscal 1995.
The Company believes that the decline in unit volume of its bakery containers
and deli containers which may be used in bakery applications occurred primarily
due to the increasingly competitive nature of the marketplace that has been
caused by aggressive pricing practices by competitors. The Company believes this
is particularly the case with competitors who use lower-cost, non-PETE resins
such as oriented polystyrene. This cost disparity increased significantly during
fiscal 1996, creating additional competitive pressure on pricing of the
Company's products. The Company has also seen an increase in the number of
packaging manufacturers serving the bakery/deli market. To a lesser degree, the
Company also believes that changing consumer buying habits, including a shift
from high-fat to low or non-fat products, may have accounted for lower unit
volume of certain bakery/deli containers. However, the Company believes that its
line of bakery and deli containers can accommodate bakery products which satisfy
shifting consumer preferences.
Gross Profit:
Gross profit margins decreased from 27.3% during fiscal 1995 to 18.1% during
fiscal 1996. The decrease in gross profit margins during fiscal 1996 was
primarily due to the following three factors: higher raw material costs; higher
fixed overhead costs that the Company incurred to support a significant
anticipated increase in sales that did not materialize; and higher labor costs.
The higher costs related to these three factors were not fully offset by price
increases to its customers.
The Company experienced significant increases in raw material costs from its
suppliers of virgin PETE resin and recycled PETE material. The purchase of resin
material represents more than 50% of the Company's product cost. Among other
factors, these PETE raw material costs reflected increasing demand for PETE
resin by apparel manufacturers, soft drink bottlers and other users, worldwide.
While the Company increased its prices to customers, such increases did not
fully offset these increases in raw material costs.
Higher fixed overhead costs resulted primarily from the addition of
thermoforming and extrusion equipment, molds, and leased facilities to increase
manufacturing capacity based on anticipated sales. However, the Company
experienced lower than anticipated sales of bakery and deli containers, and, as
described below, it also experienced significantly lower than anticipated sales
of produce containers during fiscal 1996.
At the beginning of the 1995 California berry season (i.e., during fiscal
1996), the Company began expanding its capacity to meet an anticipated increase
in demand for the Company's berry containers based on a significant anticipated
increase in the overall berry harvest. Despite heavy rains in California earlier
in the year, indications were that berry production might be delayed, but would
still meet the Company's earlier expectations. In mid-summer, however, berry
growers also suffered an extended period of 100 degree-plus heat which
compounded the effect of the excessive rainfall earlier in the year. These
factors reduced the overall size of the berry crop and caused a higher than
normal percentage of the crop to be used for frozen and other applications. This
led to a reduction in the demand for the Company's packaging. In July 1995, as a
result of this reduction in demand, management significantly reduced its
temporary workforce.
The Company incurred higher labor costs due to the combined effect of a wage
increase plan the Company implemented in February 1995 and the fact that
production efficiencies did not increase at the same rate as the increase in
wages. Because the Company had experienced an excessive level of employee
turnover which it believes was related to low wage rates, it implemented the
wage increase plan to become more competitive in the local labor market.
The Company had taken a number of actions intended to improve gross profit
margins on a long-term basis. The most significant actions were the installation
of a fifth extrusion line in May 1995 and a sixth extrusion line in September
1995. The cost of plastic sheet which is extruded by the Company has been
significantly lower than the cost of plastic sheet purchased from outside
sources. The Company continued to purchase polystyrene sheet from outside
suppliers as it has in the past.
The Company negotiated 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) that is favorable to the Company
under current market conditions.
During fiscal 1996, the Company's workforce declined from approximately 620
in June 1995, to approximately 355 in March 1996. This reduction primarily
resulted from the Company's layoff of personnel in production-related jobs in
July 1995 and January 1996.
Operating Expenses:
Marketing and sales expense increased from $10,066,119, or 17.6% of net
sales, to $11,481,007 or 17.4% of net sales, during fiscal 1996, as compared to
fiscal 1995. The increase in marketing and sales expense during fiscal 1996 was
due in part to the increase in net sales, resulting in an increase in freight
and commission expense. Also, the Company incurred additional labor and
facilities costs to support its distribution operations. The decrease in
marketing and sales expense as a percentage of net sales is primarily the result
of sales growing at a faster rate than marketing and sales expense.
Administrative expense increased from $2,347,558, or 4.1% of net sales, to
$2,759,614 or 4.2% of net sales, during fiscal 1996, as compared to fiscal 1995.
The increase in administrative expense was to support the increase in net sales
and legal costs associated with certain litigation matters arising in the normal
conduct of its business. The Company believes that ultimate resolution of such
litigation will not have a material adverse impact on the Company's financial
condition.
Interest Expense and Other:
Interest expense and other increased from $1,506,820, or 2.6% of net sales,
to $2,581,852, or 3.9% of net sales, for fiscal 1996, as compared to fiscal
1995. The increase was primarily due to higher debt levels and increases in the
average rate of interest paid by the Company. The increase in interest rates is
primarily due to an increase in base rates and an increase in the differentials
charged over the base rates.
Income Taxes:
The Company recognized an income tax benefit of $1,721,000 for operating
losses incurred during the fiscal year ended January 31, 1996. As of January 31,
1996, the Company has approximately $986,000 of net deferred tax assets
primarily resulting from net operating loss and other tax credit carryforwards
of $3,728,000. Realization of these tax carryforwards is dependent on generating
sufficient taxable income prior to expiration of the net operating loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax assets will be realized. The
amount of the deferred tax assets considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
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, the Company, in fiscal 1997, dramatically reduced its
level of debt financing due to its improved operating performance and
significantly lower capital expenditures. As of January 31, 1997, the Company
had borrowed $2,828,061 under its amended $8,000,000 revolving credit facility,
leaving $5,171,939 potentially available. Under the Company's borrowing base,
$2,140,605 of the $5,171,939 was available at January 31, 1997.
As of January 31, 1996, and during the first quarter of fiscal 1997, 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.
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 had an interest rate at 3% over the bank's base rate
with monthly installments of $75,000 plus interest with the remaining balance of
$1,281,453 due May 31, 1997. The balance of this note was paid in full on
January 31, 1997 in connection with the February 1997 amendment with its bank as
discussed below. Additionally, the terms of its existing credit facility and its
existing term note with its principal lender were modified to increase the
interest rate differentials on both the facility and existing term note by 1%
and .875%, respectively, to reduce the Company's borrowing base under the
facility by $1,000,000, and to amend certain financial covenants.
In June 1996, 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
are due with the last payment of each respective equipment notes. 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 and April 30, 1997 and 1998. The Company has included an estimated
additional $300,000 in current maturities of long-term obligations based upon
payments to be required under this amendment.
In connection with the June 1996 refinancing discussed above, the Company
issued warrants to certain lenders to purchase 185,000 shares of the Company's
common stock. Such warrants are exercisable 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.
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.
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility.
Working capital decreased from $2,685,374 on January 31, 1996 to $270,438 on
January 31, 1997. This decrease is primarily attributable to reductions in
accounts receivable, inventories and refundable sales and income taxes offset in
part by a decrease in accounts payable. Accounts receivable decreased from
$4,706,477 on January 31, 1996 to $3,129,968 on January 31, 1997. This decrease
is due in part to a decrease in receivables outstanding from the Company's joint
venture in Chile and a decrease in receivables from the Company's partner in
such joint venture as compared to last year because of revised payment terms
used in fiscal 1997. This foreign receivable represented approximately 8.5% of
trade receivables as of January 31, 1997 as compared to 19% of trade receivables
at January 31, 1996. Inventories declined from $9,599,515 on January 31, 1996 to
$6,872,430 on January 31, 1997. This decrease is due to a reduction in inventory
levels of raw materials and work in process as well as lower costs of
inventories due to lower raw material prices and lower manufacturing costs due
to improved manufacturing efficiencies and lower labor costs as previously
discussed. Accounts payable decreased from $10,437,204 on January 31, 1996 to
$5,838,416 on January 31, 1997 primarily as the result of lower balances due to
certain vendors to whom the Company had delayed its payments in late fiscal 1996
and early fiscal 1997.
For fiscal 1997, $9,057,924 of cash was provided by operating activities as
compared to $3,563,404 for fiscal 1996. This reflects an decrease in accounts
receivable, refundable income and sales taxes and inventories, and other funds
generated through operations, offset in part by the decrease in accounts
payable.
Property, equipment and improvements decreased from $32,067,808 on January
31, 1996 to $27,678,610 on January 31, 1997. The decrease is principally due to
depreciation. Given that the Company's level of production equipment and
facilities was sufficient to meet its fiscal 1997 requirements, capital
expenditures in fiscal 1997 were significantly lower than in the past two fiscal
years. The Company purchased $569,325 of property and equipment in fiscal 1997
as compared to $9,611,266 and $8,881,457 in fiscal 1996 and fiscal 1995
respectively.
As of January 31, 1997, the Company had approximately $100,000 outstanding in
capital commitments and was reviewing only minimal expenditures related to
improving manufacturing efficiencies and expenditures on molds for new products.
Because the Company believes that its current level of production equipment and
facilities is sufficient to meet anticipated fiscal 1998 requirements, its
capital expenditures for fiscal 1998 are anticipated to be less than $1,500,000
which the Company expects will be financed from funds available through the
Company's credit facilities and funds generated from operations.
Seasonality of Sales and Earnings
Historically, the Company's sales were highest during the third quarter and
declined during 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.
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. However, given the significant increases in prices for virgin PETE resin
and recycled material during fiscal 1996, and the significant declines in PETE
prices during the second and third quarters of fiscal 1997, the Company's gross
margin (both in dollars and as a percentage of sales) was actually lower during
the first two quarters of fiscal 1997 than in the third quarter and fourth
quarters. The Company believes that as refiners continue to expand capacity, the
supply of PETE 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 historic results. The
relationship of gross margins from quarter to quarter during fiscal 1997 is not
expected to re-occur.
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 No. 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects 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 $.48 per share for the year ended January 31,
1997 versus $.47 per share as reported, and would have been the same as
previously reported primary earnings per share for the years ended January 31,
1996 and 1995. Dilutive earnings per share would have been the same as
previously reported primary earnings per share for the years ended January 31,
1997, 1996 and 1995.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Identified at Item 14 hereof and incorporated herein by reference are the
financial statements and schedules following Item 14 of this report.
ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III.
Items 10, 11, 12, and 13 of Part III are omitted because the Company intends
to file with the Securities and Exchange Commission within 120 days of the close
of the year ended January 31, 1997, a definitive proxy statement containing
information pursuant to Regulation 14A of the Securities Exchange Act of 1934,
and that such information shall be deemed to be incorporated herein by reference
from the date of filing such document.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K
1. Financial Statements
The following financial statements of Ultra Pac, Inc. are included herein at the
indicated page numbers:
Page No.
--------
Report of Independent Certified Public Accountants F-1
Balance Sheets at January 31, 1997 and 1996 F-2
Statements of Operations - Years ended January 31, 1997, 1996 and 1995 F-4
Statement of Shareholders' Equity - Years ended January 31, 1997,
1996 and 1995 F-5
Statements of Cash Flows - Years ended January 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements - January 31, 1997, 1996 and 1995 F-7
2. Financial Statement Schedule
The following financial statement schedule of Ultra Pac, Inc. is included herein
at the indicated page number:
Page No.
--------
Report of Independent Certified Public
Accountants on Schedule E-1
II. Valuation of Qualifying Accounts - Years ended January 31, 1997,
1996 and 1995 E-2
All other schedules of Ultra Pac, Inc. have been omitted since the required
information is not present or not present in an amount sufficient to require
submission of the schedule, or because the information required is included in
the financial statements or the notes thereto.
3. (a) Exhibits
The exhibits required to be a part of this Report are listed in the Index to
Exhibits which follows the Financial Statement Schedules. A copy of these
Exhibits will be furnished at a reasonable cost to any person who is a
shareholder of the Company as of May 16, 1997 upon receipt from any such person
of a written request for any such Exhibit. Such request should be sent to Ultra
Pac, Inc., 21925 Industrial Blvd., Rogers, Minnesota 55374, Attention: Chief
Financial Officer.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter of
the year ended January 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ULTRA PAC, INC.
Dated: April 22, 1997 By: /s/ Calvin Krupa
----------------
Calvin Krupa
Its: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Calvin Krupa President, Chief April 22, 1997
- ------------------------ Executive Officer and
Calvin Krupa Director
/s/ William J. Howard Chief Operating Officer April 22, 1997
- ------------------------
William J. Howard
/s/ Brad C. Yopp Chief Financial April 22, 1997
- ------------------------ Officer (Principal
Brad C. Yopp Accounting Officer)
/s/ James A. Thole Secretary and April 22, 1997
- ------------------------ Director
James A. Thole
/s/ John F. DeBoer Director April 22, 1997
- ------------------------
John F. DeBoer
/s/ Thomas F. Rains Director April 22, 1997
- ------------------------
Thomas F. Rains
/s/ Frank I. Harvey Director April 22, 1997
- ------------------------
Frank I. Harvey
No annual report or proxy materials have been sent to security holders. An
annual report for the Company's fiscal year ended January 31, 1997, will be
forwarded to shareholders.
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Ultra Pac, Inc.
We have audited the accompanying balance sheets of Ultra Pac, Inc. (a Minnesota
corporation) as of January 31, 1997 and 1996 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended January 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ultra Pac, Inc. as of January
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ DIVINE, SCHERZER & BRODY, LTD.
St. Paul, Minnesota
March 14, 1997
F-1
Ultra Pac, Inc.
BALANCE SHEETS
January 31, 1997 and 1996
ASSETS (Note E)
1997 1996
----------- -----------
CURRENT ASSETS
Cash (note C) $ 663,072 $ 345,906
Accounts receivable
Principally trade, less allowance for doubtful receivables and
sales discounts of $312,854 and $305,000 at January 31,
1997 and 1996, respectively (notes C and D) 3,129,968 4,706,477
Refundable income and sales taxes 22,335 1,534,500
Inventories (notes A1 and B)
Raw materials 1,783,640 2,089,444
Work in process 1,379,856 2,077,652
Finished goods 3,708,934 5,432,419
Deferred income taxes (notes A1, A2, A5 and J) 1,822,000 264,000
Other current assets (note A7) 216,086 153,803
----------- -----------
Total current assets 12,725,891 16,604,201
PROPERTY, EQUIPMENT AND IMPROVEMENTS - AT COST
Buildings and improvements (note K) 3,492,768 3,491,268
Manufacturing equipment and tooling (notes A7, F and K) 21,957,017 22,592,367
Extrusion equipment 12,355,550 12,270,044
Other equipment and furnishings (note A7) 1,029,281 1,868,806
Leasehold improvements (note F) 957,738 945,219
----------- -----------
39,792,354 41,167,704
Less accumulated depreciation and amortization (note A2) 12,851,061 9,837,213
----------- -----------
26,941,293 31,330,491
Land (note K) 737,317 737,317
----------- -----------
27,678,610 32,067,808
OTHER
Security deposits 499,186 495,956
Leasehold costs, less accumulated amortization of $48,667
and $24,333 at January 31, 1997 and 1996, respectively
(notes A2 and K) 316,333 340,667
Investments in affiliates (notes A3 and D) 232,350 143,215
Deferred income taxes (notes A1, A2, A5 and J) -- 722,000
Other 283,215 207,391
----------- -----------
1,331,084 1,909,229
----------- -----------
$41,735,585 $50,581,238
=========== ===========
The accompanying notes are an integral part of these statements.
F-2
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
----------- -----------
CURRENT LIABILITIES
Current maturities of long-term obligations $ 4,819,961 $ 1,900,220
Accounts payable - principally trade 5,838,416 10,437,204
Accrued liabilities
Compensation 1,140,975 843,922
Interest and other 590,636 737,481
Income taxes payable 65,465 --
----------- -----------
Total current liabilities 12,455,453 13,918,827
LONG-TERM OBLIGATIONS, less current maturities (note E) 15,977,599 27,235,076
DEFERRED INCOME TAXES (notes A1, A2, A5 and J) 1,775,000 --
COMMITMENTS AND CONTINGENCIES (notes E and G) -- --
SHAREHOLDERS' EQUITY
Common stock - authorized, 10,000,000 shares of no par value;
issued and outstanding, 3,814,015 and 3,766,215 shares at
January 31, 1997 and 1996, respectively (notes E and H) 7,784,972 7,631,572
Additional contributed capital 1,360,334 1,213,000
Retained earnings 2,382,227 582,763
----------- -----------
11,527,533 9,427,335
----------- -----------
$41,735,585 $50,581,238
=========== ===========
F-3
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
Years ended January 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
Net sales (notes A4, C and D) $ 61,718,514 $ 66,128,723 $ 57,249,979
Cost of products sold (notes B and K) 42,155,775 54,186,647 41,624,598
------------ ------------ ------------
Gross profit 19,562,739 11,942,076 15,625,381
Operating expenses (note K)
Marketing and sales 10,647,163 11,481,007 10,066,119
Administrative 2,749,693 2,759,614 2,347,558
------------ ------------ ------------
13,396,856 14,240,621 12,413,677
------------ ------------ ------------
Operating profit (loss) 6,165,883 (2,298,545) 3,211,704
Other income (expense)
Interest expense (2,584,498) (2,516,672) (1,507,495)
Write down of recycling equipment (note A7) (509,638) -- --
Equity in net loss of affiliates (notes A3 and D) (49,429) (8,585) --
Other (78,854) (56,595) 675
------------ ------------ ------------
(3,222,419) (2,581,852) (1,506,820)
------------ ------------ ------------
Earnings (loss) before income taxes 2,943,464 (4,880,397) 1,704,884
Income tax provision (benefit)
(notes A1, A2, A5 and J) 1,144,000 (1,721,000) 654,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ 1,799,464 $ (3,159,397) $ 1,050,884
============ ============ ============
Earnings (loss) per common share (note A8) $ .47 $ (.84) .28
============ ============ ============
Weighted average number of shares outstanding
(note A8) 3,791,886 3,766,215 3,766,144
============ ============ ============
The accompanying notes are an integral part of these statements.
F-4
Ultra Pac, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY (Notes E and H)
Years ended January 31, 1997, 1996 and 1995
Common Stock Additional
---------------------- contributed Retained
Shares Amount capital earnings
--------- ---------- ---------- -----------
Balance - January 31, 1994 3,765,715 $7,628,322 $1,213,000 $ 2,691,276
Common stock issued for services 500 3,250 -- --
Net earnings for the year ended
January 31, 1995 -- -- -- 1,050,884
--------- ---------- ---------- -----------
Balance - January 31, 1995 3,766,215 7,631,572 1,213,000 3,742,160
Net loss for the year ended
January 31, 1996 -- -- -- (3,159,397)
--------- ---------- ---------- -----------
Balance - January 31, 1996 3,766,215 7,631,572 1,213,000 582,763
Common stock issued to employees 17,800 54,325 -- --
Common stock issued upon exercise of
options 30,000 99,075 -- --
Warrants issued in connection with
financing -- -- 147,334 --
Net earnings for the year ended
January 31, 1997 -- -- -- 1,799,464
--------- ---------- ---------- -----------
Balance - January 31, 1997 3,814,015 $7,784,972 $1,360,334 $ 2,382,227
========= ========== ========== ===========
The accompanying notes are an integral part of this statement.
F-5
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS (Note L)
Years ended January 31, 1997, 1996 and 1995
1997 1996 1995
------------ ----------- ------------
Increase (Decrease) in Cash
Cash flows provided by operating activities
Net earnings (loss) $ 1,799,464 $(3,159,397) $ 1,050,884
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization (notes A2 and B)
Property, equipment and improvements 4,165,425 3,896,560 2,777,982
Leasehold costs 24,334 24,333 --
Warrants 77,488 -- --
Provision for doubtful receivables 7,854 60,000 (12,833)
Non cash compensation to employees 66,881 38,700 --
Net (gain) loss on asset disposal and write down 478,098 16,971 (24,824)
Equity in undistributed net loss of affiliates 49,429 4,800 --
Net deferred income taxes 939,000 (1,299,400) 306,300
Common stock issued for services -- -- 3,250
Change in operating assets and liabilities:
Accounts receivable 3,080,820 (1,183,025) (1,420,130)
Inventories 2,727,085 741,385 (2,640,451)
Other current assets 37,717 16,804 (64,161)
Accounts payable (4,598,788) 4,549,640 1,210,020
Accrued liabilities 137,652 178,087 396,948
Income taxes payable 65,465 (322,054) 320,354
------------ ----------- ------------
Net cash provided by operating activities 9,057,924 3,563,404 1,903,339
Cash flows from investment activities
Capital expenditures (569,325) (9,611,266) (8,881,457)
Proceeds from sale of equipment 215,000 206,800 141,625
Leasehold costs -- -- (365,000)
Investments in affiliates (138,564) (143,215) (4,800)
Security deposits and other (9,208) (198,256) (137,656)
------------ ----------- ------------
Net cash used in investing activities (502,097) (9,745,937) (9,247,288)
Cash flows from financing activities
Proceeds from long-term obligations 2,600,000 9,388,449 11,791,194
Principal payments under long-term obligations (10,937,736) (3,005,741) (4,746,801)
Exercise of stock options 99,075 -- --
------------ ----------- ------------
Net cash provided by (used in) financing
activities (8,238,661) 6,382,708 7,044,393
------------ ----------- ------------
Net increase (decrease) in cash 317,166 200,175 (299,556)
Cash at February 1 345,906 145,731 445,287
------------ ----------- ------------
Cash at January 31 $ 663,072 $ 345,906 $ 145,731
============ =========== ============
The accompanying notes are an integral part of these statements.
F-6
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1997, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company designs and markets plastic containers in a wide range of
sizes and designs for use primarily in the food industry. In addition,
the Company had nominal sales to the floral industry through January
31, 1995; however, the Company has stopped manufacturing for the floral
industry and sold its related tooling during the year ended January 31,
1997 (see note A7).
The Company's products are primarily manufactured by the Company in its
vertically integrated production facilities, located in Rogers,
Minnesota, using both virgin and recycled materials. However, during
August 1995, the Company shut down its recycling center and listed the
related equipment for sale (see note A7). Additionally, certain
products are manufactured in Chile by Ultra Pac SudAmerica S.A., a
joint venture owned 49% by Ultra Pac, Inc.
Although sales are primarily within the continental United States, the
Company has international sales, principally in Canada, South America,
Australia and Europe.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Inventories
Inventories are stated at the lower of cost or market; cost is
determined using the first-in, first-out method. Certain costs are
expensed for financial reporting purposes and capitalized for income
tax reporting purposes; deferred income taxes are provided for these
timing differences.
Inventory categories consist of the following:
Raw materials which include virgin and recycled materials used in
the recycling and extrusion process, and packaging and shipping
supplies.
Work in process which includes both purchased and internally
extruded plastic sheet used in the production of finished goods.
Finished goods which include completed, packaged products
available for shipment.
F-7
2. Depreciation and Amortization
For financial reporting purposes, depreciation of property and
equipment is provided using the straight-line method over the estimated
useful lives of the applicable assets while amortization of leasehold
improvements is provided over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Expenditures
for maintenance and repairs are charged to expense as incurred, whereas
expenditures for renewals and betterments are capitalized. The
estimated useful lives used to compute depreciation and amortization of
property, equipment and improvements are fifteen years for buildings
and improvements and ten years for all other depreciable property,
equipment and improvements.
Leasehold costs are amortized over 15 years, the term of the lease.
For income tax reporting purposes, other lives and methods may be used;
deferred income taxes are provided for these temporary differences.
3. Investments in Affiliates
Investments in the common stock of Ultra Pac SudAmerica, S.A. and Ultra
Pac Middle East EC are stated at cost plus equity in undistributed net
earnings (loss) since dates of acquisition.
4. Revenue Recognition
The Company recognizes revenue upon shipment of products.
5. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to
timing from those deducted for tax reporting purposes; these relate
primarily to accelerated depreciation, the writedown of the recycling
center and to net operating loss and alternative minimum tax credit
carryforwards. The tax effects of these differences are recorded as
deferred income taxes.
6. Accounting for Stock Based Compensation
During 1997, the Company implemented the disclosure requirements of
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). Under SFAS 123, the Company will
continue to account for stock-based compensation under the intrinsic
value method prescribed by Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees," (APB 25) and will provide
pro forma disclosures of net income or loss and income or loss per
share as if the fair value basis method prescribed in SFAS 123 had been
applied in measuring compensation expense.
F-8
Pursuant to APB 25, no accounting recognition is given to employee
stock options issued at fair market value or greater until they are
exercised, at which time the proceeds are credited to the capital
accounts. With respect to non-statutory compensatory options, the
Company may recognize a tax benefit upon exercise of these options in
an amount equal to the excess of the fair market value of the common
stock over the option price on the day of the exercise. With respect to
incentive stock options, tax benefits arising from disqualifying
dispositions are recognized at the time of disposition. Tax benefits
related to stock options are credited to additional contributed
capital.
7. Accounting for the Impairment of Long-Lived Assets
On November 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" (SFAS 121),
which requires the Company to review for impairment of long-lived
assets and certain identifiable intangibles whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. In certain situations, an impairment loss would be
recognized. See note B for discussion of the writedown of certain
assets to their estimated net realizable value pursuant to SFAS 121.
8. Earnings (Loss) Per Common Share
Earnings (loss) per common share are based upon the weighted average
number of common and dilutive common equivalent shares outstanding.
During February 1997 the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share" (SFAS 128). 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 includes no dilution and is
computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects 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 quarter and year ending January 31, 1998. Assuming that SFAS
128 had been implemented, basic earnings per share would have been $.48
per share for the year ended January 31, 1997 versus $.47 per share as
reported, and would have been the same as previously reported primary
earnings per share for the years ended January 31, 1996 and 1995.
Dilutive earnings per share would have been the same as previously
reported primary earnings per share for the years ended January 31,
1997, 1996 and 1995.
F-9
NOTE B - USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions 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. Significant estimates include
the allowance for doubtful receivables and sales discounts, provision
for excess and obsolete inventories and depreciation, valuation of
inventory regrind, and realization of deferred income tax assets.
Actual results could differ from those estimates.
The Company's manufacturing processes (thermoforming and extrusion)
produce trim and other scrap material that may be ground into flake for
reuse by the Company. Most of the scrap material ("regrind") is reused
by the Company in the ordinary course of business. However, some of the
Company regrind is not reusable due to the color, composition or
quantity of the material and is disposed of through sale or other
means. Regrind in inventory is reported by the Company in its balance
sheet as raw material and is valued at its estimated net realizable
value. During the years ended January 31, 1997, 1996 and 1995, the
Company adjusted its estimated net realizable value of regrind material
downward by approximately $84,000, $250,000, and $100,000,
respectively. In addition, writedowns of approximately $479,000 and
$140,000 were made for excess and obsolete inventories during the years
ended January 31, 1997 and 1996, respectively.
In connection with the Company's decision to dispose of its tooling
related to the floral industry, the Company wrote down tooling by
approximately $64,000 and $100,000 during the years ended January 31,
1997 and 1996, respectively. In addition, writedowns of approximately
$174,000, $200,000 and $69,000 were made for other tooling during the
years ended January 31, 1997, 1996 and 1995, respectively. The impact
of these writedowns was included in cost of products sold in the
accompanying statements of operations. Management believes that the
undepreciated value of these assets as of January 31, 1997 is
realizable.
In addition, the Company wrote down its recycling center during the
year ended January 31, 1997 by $509,638 in connection with its decision
to dispose of it. This write down was based on the estimated net
realizable value by management and is included in other income
(expense) in the accompanying statements of operations. The estimated
net realizable value of $100,000 has been reclassified to other current
assets as of January 31, 1997.
See note J for discussion of deferred tax asset realization.
F-10
NOTE C - CONCENTRATIONS OF CREDIT RISK AND SALES
Trade receivables have significant concentrations of credit risk in the
retail packaged food sector. As of January 31, 1997, substantially all
trade receivables relate to this sector.
The Company had sales to one customer which accounted for 12.9%, 12.3%
and 10.9% of net sales during the years ended January 31, 1997, 1996
and 1995, respectively. Included in trade receivables as of January 31,
1997 are $473,688 of receivables from foreign customers, most of which
are backed by letters of credit.
The Company maintains its cash balances in one financial institution
located in Minneapolis, Minnesota. These balances are insured by the
Federal Deposit Insurance Corporation up to $100,000.
Investments in affiliates as of January 31, are as follows:
1997 1996
-------- --------
Ultra Pac SudAmerica, S.A. ("UPSA")
Common stock, 147,107 shares (49%) $232,350 $143,215
Ultra Pac Middle East EC
Common stock, 800 shares (40%) -- --
-------- --------
$232,350 $143,215
======== ========
NOTE D - INVESTMENTS IN AND TRANSACTIONS WITH AFFILIATES
Equity in undistributed net earnings (loss) of Ultra Pac SudAmerica,
S.A., and Ultra Pac Middle East PC since acquisition amounted to
($53,214) and $(53,079), respectively, as of January 31, 1997.
Net sales to affiliates and to UPSA's majority shareholder were
$423,389 and $565,723, respectively, during the year ended January 31,
1997, and $569,502 and $490,966, respectively, during the year ended
January 31, 1996. As of January 31, 1997 and 1996, $265,710 and
$936,897, respectively were receivable from UPSA and UPSA's majority
shareholder.
F-11
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations as of January 31, are as follows:
1997 1996
----------- -----------
Facility A
Interest payable monthly at 2.375% above the three month LIBOR
rate (effective rate of 8.00% as of January 31, 1996) $ -- $ 5,000,000
Interest payable at 1.5% and .5% above bank's base rate as of
January 31, 1997 and 1996, respectively (effective rate of
9.75% and 9% as of January 31, 1997 and 1996,
respectively) 2,828,061 4,037,676
Facility B; interest payable monthly at 1.75% and .875% above
bank's base rate as of January 31, 1997 and 1996,
respectively, (effective rate of 10.00% and 9.375% as of
January 31, 1997 and 1996, respectively) 3,955,704 4,899,683
Facility D; $7,073,666 non-revolving equipment loan; interest
payable monthly at 2.5% above the three month LIBOR rate
(effective rate of 8.00% and 8.125% as of January 31, 1997
and 1996, respectively) subject to prepayment penalty prior
to October 31, 1997 6,344,392 6,445,313
Equipment notes payable in monthly installments, including interest
from 8.00% to 10.87%; subject to prepayment penalties 6,034,191 6,756,564
Real estate mortgage payable in monthly installments, including
interest to be adjusted each three year anniversary to a rate
equal to 3% over the three year U.S. Treasury Securities Yield
(effective rate of 9.29% and 8.00% as of January 31, 1997 and
1996, respectively) 862,764 949,907
Contracts for deed payable in monthly installments, including interest
from 8.00% to 9.00% 353,418 377,456
Capitalized leases (note F) 419,030 668,697
----------- -----------
20,797,560 29,135,296
Less current maturities 4,819,961 1,900,220
----------- -----------
$15,977,599 $27,235,076
=========== ===========
During February 1997, the Company entered into an amended and restated
credit and security agreement with its primary lender.
The terms of the Company's credit and security agreement under
Facilities A, B and C include the following:
Facility A: $8,000,000 revolving note. The agreement provides for
issuance of up to $1,000,000 of letters of credit ($100,000
outstanding as of January 31, 1997 and none outstanding as of
January 31, 1996). Borrowings are limited to a borrowing base of
eligible accounts receivable and inventory, less outstanding
letters of credit. A commitment fee of .25% per year is payable on
the unused portion of the revolving credit. Interest is payable
monthly. A prepayment penalty of 2% is provided for under certain
circumstances. The note is due on May 31, 1999.
F-12
Facility B: non-revolving term note payable in monthly
installments of $64,817, plus interest through May 1999 with any
unpaid balance under the agreement due and payable on May 31,
1999.
Facility C: $1,000,000 non-revolving capital expenditure loan
payable in monthly installments, including interest, to amortize
advances under the agreement over a thirty-six month period, with
any unpaid balance under the agreement due and payable on May 31,
1999.
The interest rate on Facility A borrowings ranges from .25% below to
1.5% above the bank's base rate. The interest rates on Facility B and C
borrowings range from the bank's base rate to 2% above the bank's base
rate. The interest rate differentials are based on the Company's debt
to equity ratio at the end of each quarter.
Additionally, during February 1997 the primary lender purchased the
Company's real estate mortgage payable. The interest rate has been
adjusted to the rate charged on Facility B and C borrowings. The note
is payable in monthly installments of $13,750 plus interest with any
unpaid balance under the agreement due and payable on May 31, 1999.
As of January 31, 1996, or subsequently, the Company was in default on
substantially all of its long-term obligations due to covenant
violations and its failure to make certain required payments under the
terms of the agreements. During April 1996, the Company received
waivers of the defaults from each of the respective lenders and
commitments from its lenders to modify the terms of their respective
loan agreements. In June 1996, the agreements were amended as follows:
1. Approximately $2,250,000 of principal payments on Facility D and
certain equipment notes were deferred from the year ended January
31, 1997 to later years.
2. Approximately $750,000 of principal payments on the equipment
notes were accelerated from the year ending January 31, 2004 to
the year ending January 31, 1998.
3. An additional $2,600,000 term note was provided by the Company's
bank. The term note was due in monthly principal payments of
$75,000 plus interest at 3% above the banks' base rate.
The term note was paid in full during January 1997.
4. The Company reduced its borrowing base under Facility A by
$1,000,000.
5. The rate of interest was increased on borrowings based on the
bank's base rate under Facilities A and B by 1% and .875%,
respectively.
6. The Company is to repay, to the extent available, as defined, up
to an additional $600,000 to an equipment note holder during each
of the years ending January 31, 1997 and 1998. An additional
$300,000 has been included in current maturities of long-term
obligations for estimated payments required under this provision
as of January 31, 1997.
7. The Company issued the lenders warrants to purchase 185,000 shares
of the Company's common stock (see note H).
F-13
8. The Company agreed to pay $75,000 in agent and origination fees.
9. The prepayment penalty for Facilities A and B was modified to 2%,
as defined.
The long-term obligations are collateralized by substantially all
assets of the Company and life insurance on the president of the
Company. Certain agreements contain covenants relating to financial
performance, limitations on payment of dividends, acquisitions,
mergers, change in control, investments, additional debt, capital
expenditures, disposition of assets and other matters. In addition,
under the commitments, the respective lending institutions have been
provided cross defaults.
Aggregate maturities of long-term obligations adjusted for the impact
of the above amendments for the four years following January 31, 1998
are as follows: 1999, $5,004,780; 2000, $7,598,414; 2001, $1,166,319;
and 2002, $1,515,065.
NOTE F - CAPITALIZED LEASES
For financial reporting purposes, minimum lease rentals relating to
certain equipment and leasehold improvements have been capitalized.
The related assets and obligations have been recorded using the
Company's incremental borrowing rate at the inception of the leases.
The leases, which are noncancelable, expire at various dates through
February 1999. The following is a schedule of leased property under
capital leases:
January 31,
-----------------------
1997 1996
---------- ----------
Manufacturing equipment $ 744,808 $ 744,808
Leasehold improvements 301,756 301,756
---------- ----------
1,046,564 1,046,564
Less accumulated depreciation (note A4) 316,463 211,808
---------- ----------
$ 730,101 $ 834,756
========== ==========
F-14
The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum
lease payments at January 31, 1997.
Year ending January 31,
-----------------------
1998 $ 284,053
1999 159,371
2000 9,085
----------
Total minimum lease payments 452,509
Less amount representing interest 33,479
----------
Present value of net minimum lease payments $ 419,030
==========
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts a substantial portion of its operations in leased
facilities under noncancelable operating leases expiring at various
dates through 2010. At the end of the lease terms, substantially all of
the leases are renewable at the then fair rental value for periods of 3
to 15 years. Each of the leases provide that the Company pay property
taxes, maintenance, insurance and other occupancy expense applicable to
leased premises. Certain of the rents are subject to increases in
proportion to the increase in the Consumer Price Index and
substantially all of the leases contain purchase options. Portions of
one facility are subleased under subleases which expire in 1998 and
2000, respectively. Total future minimum sublease rentals amount to
$100,208 as of January 31, 1997.
Minimum rental commitments of non-cancelable operating leases are
approximately as follows:
Year ending January 31,
-----------------------
1998 $ 1,652,946
1999 1,579,551
2000 1,469,487
2001 1,381,727
2002 1,356,012
2003 and thereafter 7,652,256
-----------
$15,091,979
===========
Rental expense for all operating leases for the years ended January 31
is as follows:
1997 1996 1995
----------- ---------- ----------
Minimum rentals $ 1,950,435 $2,294,579 $1,707,343
Sublease rentals (29,948) -- --
----------- ---------- ----------
$ 1,920,487 $2,294,579 $1,707,343
=========== ========== ==========
F-15
The Company has commitments to purchase equipment aggregating
approximately $100,000 at January 31, 1997.
The Company has entered into two material supply agreements which will
fulfill a significant portion of its virgin and post consumer plastic
resin needs. The agreements are for two and five year periods and call
for annual minimum purchase requirements. Pricing is reviewed and
negotiated quarterly in one of the agreements and pricing in the other
is negotiated monthly, and therefore fluctuates with market prices.
The Company is subject to certain lawsuits and other claims arising out
of the conduct of its business. In the opinion of management, such
matters are without merit or are of such a kind or involve such amounts
that they would not have a material effect on the financial position or
results of operations of the Company.
The Company is required to make payments to certain officers and
employees in the event of a change in control and termination, as
defined. The aggregate amount of such commitment approximates
$2,152,000 as of January 31, 1997.
NOTE H - COMMON STOCK
Options
On March 14, 1996, the Company adopted the 1996 Ultra Pac, Inc. Stock
Option Plan ("1996 Plan") which reserves 200,000 shares of common stock
for future issuance. Under the terms of the 1996 Plan, the Company may
grant to its employees and consultants options to purchase shares with
a term not to exceed ten years.
The 1991 Stock Option Plan ("1991 Plan"), reserves 100,000 shares of
the Company's authorized common stock for future issuance. Under the
terms of the 1991 Plan, the Company may grant to its employees and
consultants options to purchase shares with a term not to exceed ten
years.
The Outside Directors' Option Plan ("Directors' Plan"), reserves
100,000 shares of the Company's authorized common stock for future
issuance. Under the terms of the Outside Directors' Option Plan, the
Company will grant to its outside directors options to purchase shares
with a term not to exceed five years.
F-16
The following table summarizes option activity for the period from
February 1, 1994 through January 31, 1997:
Number of Shares
------------------------------------------
1991 1996 Directors' Range of Wtd. Avg.
Plan Plan Plan Non-Plan Exercise Exercise
Options Options Options Options Prices Price
------- ------- --------- -------- ----------- --------
Balance as of February 1, 1994 43,500 -- 14,000 90,000 $7.50-12.69 $9.38
Granted 30,000 -- 4,000 20,000 5.13-8.00 7.22
Exercised -- -- -- -- -- --
Expired or canceled (4,000) -- -- -- 7.50 7.50
------- -------- ------- -------- ----------- -----
Balance as of January 31, 1995 69,500 -- 18,000 110,000 5.13-12.69 8.82
Granted 15,000 -- 5,500 20,000 5.75-6.00 5.97
Exercised -- -- -- -- -- --
Expired or canceled (2,000) -- (4,500) (50,000) 7.25-12.69 8.97
------- -------- ------- -------- ----------- -----
Balance as of January 31, 1996 82,500 -- 19,000 80,000 5.13-12.69 8.14
Granted 35,000 244,500 5,500 75,000 2.75-4.25 3.47
Exercised (25,000) (5,000) -- -- 2.94-3.38 3.30
Expired or canceled (26,000) (94,000) (10,000) (20,000) 2.94-12.69 5.56
------- -------- ------- -------- ----------- -----
Balance as of January 31, 1997 66,500 145,500 14,500 135,000 $2.75-12.69 $4.96
======= ======== ======= ======== =========== =====
Available for grant as of
January 31, 1997 8,500 49,500 85,500 --
======= ======== ======= ========
The weighted average fair value of all options granted during the year
ended January 31, 1997 was $1.70.
Additional information regarding the options outstanding as of January
31, 1997 follows:
Wtd. Wtd. Wtd.
Number Avg. Avg. Avg.
Range of of Exercise Remaining Number Exercise
Exercise Prices Options Price Life Exercisable Price
--------------- ------- -------- --------- ----------- --------
$ 2.75-4.25 236,000 $ 3.57 4.69 years 151,000 $ 3.21
5.75-7.50 89,500 6.86 3.08 89,500 6.86
8.75-12.69 36,000 9.41 2.34 36,000 9.41
F-17
The following proforma information regarding net earnings (loss) and
net earnings (loss) per share has been determined as if the Company had
accounted for its stock options (all of which are to employees and
directors) under the fair value method prescribed by SFAS 123 (see note
A6).
Years ended January 31,
-------------------------------
1997 1996
------------- -------------
Net income (loss)
As reported $ 1,799,464 $ (3,159,397)
Proforma 1,605,243 (3,228,311)
Income (loss) per share
As reported .47 (.84)
Proforma .42 (.86)
The fair value of each employee and director option grant is estimated
on the date of grant using the Black-Sholes options pricing model with
the following weighted average assumptions used for grants in 1997 and
1996: (a) no dividends; (b) expected volatility of 58%; (c) risk free
interest rates of 6.3%; and (d) expected lives of four years.
Warrants
The Company issued warrants to purchase 30,000 shares of its common
stock to an Underwriter and certain of its employees in connection with
the public offering of the Company's common stock in May 1992. The
warrants are exercisable at prices ranging from $11.50 to $13.76 per
share, depending upon time of exercise. These warrants expire during
the year ending January 31, 1998 and remain outstanding at January 31,
1997.
In connection with closing the debt restructuring (see note E), the
Company issued warrants for 185,000 shares of its common stock. The
warrants are exercisable at $3.00 per share, the market price at date
of grant, and expire June 2006. The estimated fair value of the
warrants of $147,000 is being amortized over the terms of the
respective debt agreements. As of January 31, 1997, $77,448 of such
amount has been recognized as additional interest expense. The warrant
agreement provides for adjusting both the exercise price and the number
of shares purchasable based on various criteria, including the
Company's issuing shares of common stock, or options exercisable at
less than market price or the warrant exercise price.
F-18
Other
Effective December 1996 and April 1996, respectively, the Company
accrued compensation to be distributed in the form of 13,800 and 12,800
shares of its common stock to its employees. The shares were issued in
February 1997 and May 1996, respectively.
During 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. All such shares of capital stock have
initially been designated as common stock.
NOTE I - PROFIT-SHARING PLAN AND TRUST
During the year ended January 31, 1993, the Company implemented The
Ultra Pac, Inc. 401(k) Profit Sharing Plan and Trust which covers
substantially all of its employees. Participants may elect to enter
into salary reduction agreements with the Company for a portion of
their compensation. The plan authorizes the Board of Directors of the
Company to annually authorize contributions, out of earnings and
profits, up to 50% of each participant's contribution, not to exceed 2%
of that participant's total compensation. For the years ended January
31, 1997, 1996 and 1995, contributions to the plan totaled $223,250,
$321,296 and $219,135, respectively, of which $0, $78,262 and $54,975,
respectively, were contributed by the Company.
During the year ended January 31, 1997, the Company suspended its
contribution to the plan. Effective February 1, 1997, the Company
reinstated its contributions to the plan.
NOTE J - INCOME TAXES
The components of the income tax provision (benefit) are as follows:
Year ended January 31,
--------------------------------------
1997 1996 1995
----------- ----------- --------
Current
Federal $ 196,000 $ (421,600) $312,600
State 9,000 -- 35,100
----------- ----------- --------
205,000 (421,600) 347,700
Deferred
Federal 833,000 (1,119,400) 275,000
State 106,000 (180,000) 31,300
----------- ----------- --------
939,000 (1,299,400) 306,300
----------- ----------- --------
$ 1,144,000 $(1,721,000) $654,000
=========== =========== ========
F-19
A reconciliation of the difference between income tax expense and the
amount computed by applying the statutory federal income tax rates to
earnings (loss) before income taxes is as follows:
Year ended January 31,
------------------------------------
1997 1996 1995
---------- ----------- --------
Income tax expense (benefit) at federal
statutory rate $1,001,000 $(1,659,000) $580,000
State taxes, less federal tax benefit 73,000 (117,000) 44,000
Tax effect of permanent financial statement/
tax differences 9,000 19,000 17,000
Other 61,000 36,000 13,000
---------- ----------- --------
Income tax expense (benefit) $1,144,000 $(1,721,000) $654,000
========== =========== ========
Deferred income taxes are the result of temporary differences in
recognition of income and expense for financial statement and tax
reporting. The major sources of these differences and the tax effect of
each are as follows:
Year ended January 31,
-------------------------------------
1997 1996 1995
---------- ----------- ---------
Tax depreciation in excess of financial
statement depreciation $ 541,000 $ 717,000 $ 799,000
Recycling center writedown (186,000) -- --
Net operating loss carryforwards 794,000 (2,399,000) (113,000)
Alternative minimum tax credit
carryforwards (191,000) 439,000 (349,000)
Allowance for doubtful receivables 44,000 (22,000) 3,000
Inventories 2,000 35,000 17,000
Compensation related (74,000) (31,000) (26,000)
Other 9,000 (38,400) (24,700)
---------- ----------- ---------
$ 939,000 $(1,299,400) $ 306,300
========== =========== =========
Deferred tax assets and liabilities consist of the following:
January 31,
---------------------
1997 1996
---------- --------
Deferred tax assets - current
Allowance for doubtful receivables $ 67,000 $111,000
Inventories 59,000 61,000
Compensation related 131,000 57,000
Recycling center writedown 186,000 --
Deferred gain 17,000 22,000
Net operating loss carryforwards 1,357,000 --
Other 5,000 13,000
---------- --------
$1,822,000 $264,000
========== ========
F-20
January 31,
--------------------------
1997 1996
----------- -----------
Deferred tax assets (liabilities) - long-term
Depreciation of property, equipment and improvements $(3,543,000) $(3,002,000)
Net operating loss carryforwards 1,538,000 3,689,000
Alternative minimum tax credit carryforwards 230,000 39,000
Other -- (4,000)
----------- -----------
$(1,775,000) $ 722,000
=========== ===========
As of January 31, 1997, the Company has net operating loss
carryforwards which expire as follows:
Federal State
------------ ------------
Year ending January 31,
-----------------------
2008 $ -- $ 236,000
2009 1,034,000 624,000
2010 133,000 33,000
2011 6,717,000 2,427,000
------------ ------------
$ 7,884,000 $ 3,320,000
============ ============
The Company has recorded deferred tax assets of $3,590,000, primarily
resulting from the benefit of net operating loss carryforwards. These
deferred tax assets are offset by deferred tax liabilities of
$3,543,000 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 future taxable income.
NOTE K - RELATED PARTY TRANSACTIONS
The Company conducts a portion of its operations from facilities leased
(see note G) and purchased from an individual who was a director of the
Company through July 14, 1995. In addition, during the year ended
January 31, 1995, the Company reimbursed this former director $365,000
for his costs of moving and business interruption in connection with an
expansion of the Company's manufacturing facilities which are leased
from this former director. The Company also purchases certain tooling
and services from a company owned in part by this former director.
F-21
The following is a summary of rent expense, building and land
acquisition costs, leasehold costs and tooling and services purchased
from this individual while he was a director during the years ended
January 31, 1996 and 1995:
Year ended January 31,
------------------------
1996 1995
---------- ----------
Lease obligations $ 388,000 $ 464,000
Building, land and land acquisition costs 16,000 4,000
Leasehold costs (note A2) -- 365,000
Tooling and services 63,000 312,000
---------- ----------
$ 467,000 $1,145,000
========== ==========
Sales to a customer whose chief executive officer was a director of the
Company were $531,000 from July 14, 1995, when such person became a
director of the Company, through January 31, 1996 and $407,744 from
February 1, 1996 through July 16, 1996, when such person resigned as a
director of the Company.
See note D for transactions with affiliates.
NOTE L - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
Income
Year ended January 31, Interest taxes
---------------------- ------------- -----------
1997 $ 2,475,799 $ 120,770
1996 2,403,587 421,438
1995 1,489,918 59,017
During the year ended January 31, 1997, the Company issued warrants
valued at $147,334 to acquire its common stock (see note E).
During the year ended January 31, 1995, the Company acquired $745,930
of manufacturing equipment and leasehold improvements under capitalized
leases.
NOTE M - FINANCIAL INSTRUMENTS
The following information about estimated fair values as of January 31,
1997 and 1996 is required by FASB Statement 107 and pertains to the
Company's financial instruments. This information is based on the
requirements set forth in that Statement and does not purport to
represent the aggregate net fair value of the Company.
F-22
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable
to estimate that value:
CASH: The carrying amount approximates fair value based on the
demand nature of the deposits.
RECEIVABLES: The carrying amount approximates fair value based
on the short maturity of these instruments.
LONG-TERM OBLIGATIONS: The carrying amount approximates fair
value, where significant, because the interest rates are
indexed to market value, or, due to the short maturity of
these instruments.
NOTE N - RECLASSIFICATIONS
Certain amounts for the year ended January 31, 1996 have been
reclassified to conform with the financial statement presentation used
for the year ended January 31, 1997. These reclassifications had no
effect on previously reported net earnings or stockholders' equity.
F-23
Report of Independent Certified Public Accountants on Schedule
Board of Directors
Ultra Pac, Inc.
In connection with our audit of the financial statements of Ultra Pac, Inc.
referred to in our report dated March 14, 1997 which is included in Part II of
this Form 10-K, we have also audited Schedule II for the years ended January 31,
1997, 1996 and 1995.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ DIVINE, SCHERZER & BRODY, LTD.
St. Paul, Minnesota
March 14, 1997
E-1
Ultra Pac, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended January 31, 1997, 1996 and 1995
Col. A Col. B Col. C Col. D Col. E Col. F
- --------------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs and other accounts - Deductions - End of
Description of period expenses Retirement Describe(1) Period
- --------------------------------------------------------------------------------------------------------------------------------
Allowance deducted from asset to which it applies:
Allowance for doubtful receivables,
sales discounts and returns:
1997 $ 305,000 $ 214,540 $ $ 206,686 $ 312,854
1996 $ 245,000 $ 123,000 $ -- $ 63,000 $ 305,000
1995 $ 257,833 $ 130,339 $ -- $ 143,172 $ 245,000
(1) Uncollected receivables written off.
E-2
Exhibit Index
3.1 Restated Articles of Incorporation (Exhibit No. 3.1) (3)
3.2 Bylaws (Exhibit No. 3.2) (1)
10.2 Employment Agreement with Calvin Krupa, dated June 20, 1989
(Exhibit No. 10.2) (2)
10.3 First Amendment to Employment Agreement, dated March 31, 1990,
with Calvin Krupa (Exhibit No. 10.17) (4)
10.4 Second Amendment to Employment Agreement, dated January 3, 1992,
with Calvin Krupa (Exhibit No. 10.4) (9)
10.9 1991 Stock Option Plan (exhibit No. 10.3) (7)
10.15 Lease Agreement with Charles J. Van Heel for 21925 Industrial
Boulevard, Rogers, Minnesota dated July 23, 1991 (Exhibit No.
10.2) (8)
10.16 Amendment dated July 23, 1991, to Lease Agreement with Charles J.
Van Heel for 21925 Industrial Boulevard, Rogers, Minnesota, dated
July 23, 1991 (Exhibit No. 10.3) (8)
10.17 Outside Directors' Option Plan (Exhibit No. 10.17) (9)
10.19 Purchase Agreement and Contract For Deed with Clement L. Sharp
dated October 29, 1992 (Exhibit 10.2) (10)
10.20 Purchase Agreement with Mr. Chuck Van Heel dated December 7, 1992
(Exhibit No. 10.3) (10)
10.22 Equipment Note Agreement with Norwest Equipment Finance, Inc.,
dated March 22, 1993 (Exhibit No. 10.22) (11)
10.23 Lease Agreement with MLH Partners, dated April 8, 1992 (Exhibit
10.23) (11)
10.24 Equipment Note Agreement with Norwest Equipment Finance Inc.,
dated April 14, 1993 (Exhibit 10.24) (11)
10.25 Letter of Intent for real estate mortgage agreement with AmeriBank
dated March 17, 1993 (Exhibit 10.25) (11)
10.26 Amendment dated June 1, 1993, to Lease Agreement with Charles J.
Van Heel for 21925 Industrial Boulevard, Rogers, Minnesota, N.A.
dated May 26, 1992 (Exhibit No. 10.1) (12)
10.27 Real Estate Mortgage Agreement with AmeriBank dated June 1, 1993
(Exhibit No. 10.2) (12)
10.29 Assumption Agreement between Ultra Pac, Inc. and Charles J. Van
Heel and Marilyn Van Heel, dated June 3, 1993 and the Mortgage
Note between Charles J. Van Heel and W.J.D. & Co. (Exhibit No.
10.2) (13)
10.30 Equipment Lease Agreement with the CIT Group dated August 30, 1993
(Exhibit No. 10.1) (14)
10.31 Equipment Note Agreement with Norwest Equipment Finance, Inc.,
dated October 19, 1993 (Exhibit No. 10.2) (14)
10.32 Equipment Note Agreement with Norwest Equipment Finance, Inc.,
Dated November 8, 1993 (Exhibit No. 10.3) (14)
10.33 Amendment dated December 1, 1993 to Lease Agreement with ML
Limited Partnership dated April 8, 1993 (Exhibit 10.33) (15)
10.34 Patent, Technical Information and Technical Assistance Agreement
with Shell Oil Company dated May 28, 1993 (Exhibit 10.34) (15)
10.35 Interim Funding Agreement with Norwest Equipment Finance dated
February 3, 1994 (Exhibit 10.35) (15)
10.37 Equipment Note Agreement with Norwest Equipment Finance, Inc.
dated May 24, 1994 (Exhibit 10.1) (16)
10.38 Equipment Lease Agreement with the CIT Group dated February 1,
1994. (Exhibit 10.2) (16)
10.39 Credit and Security Agreement with Norwest Bank, Minnesota N.A.
dated June 13, 1994. (Exhibit 10-3) (16)
10.40 Equipment Note Agreement with Norwest Equipment Finance, Inc.
dated October 17, 1994 (Exhibit 10.1) (17)
10.41 Leasehold Lease Agreement with Linmark Financial Group, Inc. dated
October 20, 1994 (Exhibit 10.2) (17)
10.42 Lease Agreement with Charles J. Van Heel, dated November 20, 1994,
for 22101 Industrial Blvd., Rogers, Minnesota (Exhibit 10.3) (17)
10.43 Lease Agreement with Charles J. Van Heel, dated November 20, 1994,
for 22101 Industrial Blvd., Rogers, Minnesota (Exhibit 10.4) (17)
10.44 Second Amendment dated November 2, 1994, to Lease Agreement with
Charles J. Van Heel for 21925 Industrial Blvd., Rogers, Minnesota
(Exhibit 10.5) (17)
10.45 Waiver dated December 14, 1994, related to Credit and Security
Agreement with Norwest Bank, Minnesota N.A. dated June 13, 1994
(Exhibit 10.6) (17)
10.46 Loan and Security Agreement with the CIT Group/Equipment
Financing, Inc., dated March 10, 1995 (Exhibit 10.46) (18)
10.47 Amendment dated July 1, 1994 to the Credit and Security Agreement
with Norwest Bank, Minnesota, N.A. dated June 13, 1994 (Exhibit
10.47) (18)
10.48 Amendment dated March 7, 1995 to the Credit and Security Agreement
with Norwest Bank, Minnesota, N.A. dated June 13, 1994. (Exhibit
10.48) (18)
10.49 Waiver dated March 2, 1995, related to Credit and Security
Agreement with Norwest Bank, Minnesota N.A. dated June 13, 1994
(Exhibit 10.49) (18)
10.50 Waiver dated March 3, 1995, related to Real Estate Mortgage
Agreement with AmeriBank, dated June 1, 1993 (Exhibit 10.50) (18)
10.51 Amendment dated June 1, 1995 to the Credit and Security Agreement
with Norwest Bank, Minnesota N.A., dated June 13, 1994. (Exhibit
10.1) (19)
10.52 Amendment dated June 30, 1995 to the Credit and Security Agreement
with Norwest Bank, Minnesota N.A., dated June 13, 1994. (Exhibit
10.1) (20)
In prior filings, three exhibit numbers (10.51, 10.52 and 10.53) were
used twice. Only one of such exhibits, 10.53, filed with Form 10-K/A for
the year ended January 31, 1995 remains in force.
10.53a Change in Control Termination Agreement between Ultra Pac, Inc.
and Bradley C. Yopp dated February 25, 1995 (Exhibit 10.53)(24)
10.53b Waiver dated September 7, 1995, related to the Credit and Security
Agreement with Norwest Bank, Minnesota N.A., dated June 13, 1994.
(Exhibit 10.2) (20)
10.54 Amendment dated October 8, 1995 to the Credit and Security
Agreement with Norwest Bank, Minnesota N.A., dated June 13, 1994.
(Exhibit 10.1) (21)
10.55 Waiver dated December 12, 1995 related to the Credit and Security
Agreement with Norwest Bank, Minnesota N.A., dated June 13, 1994.
(Exhibit 10.2) (21)
10.56 Material supply agreement with Eastman Chemical Company, dated
January 2, 1996 (confidential treatment has been requested with
respect to selected portions of this exhibit). (Exhibit 10.56)
(22)
10.57 Equipment note agreement with Wentworth Capital Corporation dated
December 7, 1995. (Exhibit 10.57) (22)
10.58 Financing Commitment with Norwest Credit, Inc. dated April 25,
1996. (Exhibit 10.58) (22)
10.59 Financing Commitment with Norwest Bank Minnesota N.A. dated April
25, 1996. (Exhibit 10.59) (22)
10.60 Commitment Letter, dated April 25, 1996, to Amend the Security
Agreement on Promissory Note with USL Capital Corporation dated
December 20, 1994. (Exhibit 10.60) (22)
10.61 Commitment Letter, dated April 25, 1996, to Amend the Loan and
Security Agreement with The CIT Group/Equipment Financing, Inc.
dated March 10, 1995. (Exhibit 10.61) (22)
10.62 Commitment letter, dated April 25, 1996, to Amend the Equipment
Note Agreement with Norwest Equipment Finance dated May 24, 1994.
(Exhibit 10.62) (22)
10.63 Commitment letter, dated April 26, 1996, to Amend the Equipment
Note Agreements with Norwest Equipment Finance dated March 22,
1993, April 14, 1993, October 19, 1993, November 8, 1993 and
October 17, 1994 respectively. (Exhibit 10.63) (22)
10.64 Waiver dated April 24, 1996, related to the Credit and Security
Agreement with Norwest Bank, Minnesota N.A. dated June 13, 1994.
(Exhibit 10.64) (22)
10.65 Waiver dated April 26, 1996, related to Real Estate Mortgage
Agreement with AmeriBank, dated June 1, 1993. (Exhibit 10.65) (22)
10.66 Amended and Restated Credit and Security Agreement by and between
Ultra Pac, Inc. and Norwest Credit Inc. dated June 21, 1996.
(Exhibit 10.1) (23)
10.67 Credit and Security Agreement by and between Ultra Pac, Inc. and
Norwest Bank Minneapolis, N.A., dated June 21, 1996. (Exhibit
10.2) (23)
10.68 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. (Exhibit 10.3) (23)
10.69 Forbearance and Amendment Agreement between Ultra Pac, Inc. and
Norwest Equipment Finance, Inc. dated June 21, 1996. (Exhibit
10.4) (23)
10.70 Loan Modification Agreement, dated June 21, 1996, to Security
Agreement between Ultra Pac, Inc. and USL Capital Corporation,
dated December 20, 1994. (Exhibit 10.5) (23)
10.71 Loan Modification Agreement, dated June 21, 1996, between Ultra
Pac, Inc. and Concord Commercial to Equipment Noted Agreement with
Norwest Equipment Finance, Inc. dated May 24, 1994. (Exhibit 10.6)
(23)
10.72 Warrant Agreement between Ultra Pac, Inc. and Norwest Credit Inc.,
dated June 21, 1996. (Exhibit 10.7) (23)
10.73 Warrant Agreement between Ultra Pac, Inc. and Norwest Bank
Minneapolis, N.A., dated June 21, 1996. (Exhibit 10.8) (23)
10.74 Warrant Agreement between Ultra Pac, Inc. and The CIT
Group/Equipment Financing, Inc., dated June 21, 1996. (Exhibit
10.9) (23)
10.75 Warrant Agreement between Ultra Pac, Inc. and Norwest Equipment
Finance Inc., dated June 21, 1996. (Exhibit 10.10) (23)
10.76 Warrant Agreement between Ultra Pac, Inc. and USL Capital
Corporation, dated June 21, 1996. (Exhibit 10.11) (23)
*10.77 Second Amendment, dated February 7, 1997, to the Restated Credit
and Security Agreement by and between Ultra Pac, Inc. and Norwest
Credit Inc. dated June 21, 1996.
*10.78 First Amendment, dated August 2, 1996, to the Material supply
agreement with Eastman Chemical Company, dated January 2, 1996
(confidential treatment has been requested with respect to
selected portions of this exhibit).
*10.79 Change in Control Termination Agreement between Ultra Pac, Inc.
and William J. Howard dated January 31, 1997.
*10.80 Change in Control Termination Agreement between Ultra Pac, Inc.
and Dan Erikstrup dated February 28, 1997.
*10.81 Change in Control Agreement between Ultra Pac, Inc. and Gregory L.
Nelson dated March 3, 1997.
*10.82 Change in Control and Termination Agreement between Ultra Pac,
Inc. and Brian Gaggin dated March 3, 1997.
*23.1 Consent of Independent Certified Public Accountants.
*27 Financial Data Schedule.
- -------------------------------------------------------------------------------
* Filed herewith
(1) Incorporated by reference to the specified exhibit to the Form S-18
Registration Statement, dated August 15, 1988, Registration No.
33-23631C.
(2) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1989.
(3) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended October 31, 1989.
(4) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended January 31, 1990.
(5) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1990.
(6) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended April 30, 1991.
(7) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1991.
(8) Incorporated by reference to the specified exhibit to the Registration
Statement on Form S-2 dated April 3, 1992, Registration No. 33-46937.
(9) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended April 30, 1992.
(10) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended October 31, 1992.
(11) Incorporated by reference to the specified exhibit to the Form 10-K for
the year ended January 31, 1993.
(12) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended April 30, 1993.
(13) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1993.
(14) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended October 31, 1993.
(15) Incorporated by reference to the specified exhibit to the Form 10-K for
the year ended January 31, 1994.
(16) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended April 30, 1994.
(17) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended October 31, 1994.
(18) Incorporated by reference to the specified exhibit to the Form 10-K for
the year ended January 31, 1995.
(19) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended April 30, 1995.
(20) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1995.
(21) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended October 31, 1995.
(22) Incorporated by reference to the specified exhibit to the Form 10-K for
the year ended January 31, 1996.
(23) Incorporated by reference to the specified exhibit to the Form 10-Q for
the quarter ended July 31, 1997.
(24) Incorporated by reference to the specified exhibit to the Form 10-K/A for
the year ended January 31, 1995.