SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended: October 31, 1997
___ Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period From _______________to _______________
Commission File Number: 0-18252
ULTRA PAC, INC.
(Exact name of Registrant as specified in its Charter)
Minnesota 41-1581031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
21925 Industrial Boulevard, Rogers, Minnesota 55374
(Address of principal executive offices) Zip Code
(612) 428-8340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. _X_ Yes ___ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock No Par Value 3,878,165
Class of Common Stock Shares outstanding as of
November 19, 1997
ULTRA PAC, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of October 31,
1997 and January 31, 1997 3
Statements of Operations for the
three and nine months ended October 31,
1997 and 1996 5
Statements of Cash Flows for the nine
months ended October 31, 1997 and 1996 6
Notes to Interim Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on
Form 8-K 17
Ultra Pac, Inc.
BALANCE SHEETS
ASSETS
October 31, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 399,726 $ 663,072
Accounts receivable
Trade, less allowance for doubtful
receivables and sales discounts of
$318,439 and $312,854 at October 31
and January 31, 1997, respectively 4,285,792 3,422,970
Refundable sales taxes 25,603 22,335
Inventories
Raw materials 1,792,434 1,783,640
Work in process 1,550,012 1,379,856
Finished goods 4,263,117 3,708,934
Deferred income taxes 1,637,000 1,822,000
Other current assets 211,569 216,086
----------- -----------
Total current assets 14,165,253 13,018,893
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and improvements 3,492,768 3,492,768
Manufacturing equipment and tooling 22,969,052 21,957,017
Extrusion equipment 12,376,870 12,355,550
Other equipment and furnishings 1,213,429 1,029,281
Leasehold improvements 987,896 957,738
----------- -----------
41,040,015 39,792,354
Less accumulated depreciation and
amortization 15,896,755 12,851,061
----------- -----------
25,143,260 26,941,293
Deposits on manufacturing equipment 535,692 --
Land 737,317 737,317
----------- -----------
26,416,269 27,678,610
OTHER
Security deposits 509,562 499,186
Leasehold costs
less accumulated amortization
of $66,917 and $48,667 at October 31
and January 31, 1997, respectively 298,083 316,333
Investments in affiliates 166,115 232,350
Other 183,142 283,215
----------- -----------
1,156,902 1,331,084
----------- -----------
$41,738,424 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
October 31, January 31,
1997 1997
----------- -----------
(unaudited)
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 5,129,668 $ 4,819,961
Accounts payable - principally trade 3,907,558 5,838,416
Accrued liabilities
Compensation 1,320,872 1,140,975
Interest and other 1,038,310 883,638
Income taxes payable 199,645 65,465
----------- -----------
Total current liabilities 11,596,053 12,748,455
LONG-TERM OBLIGATIONS, less current
maturities 12,604,583 15,977,599
DEFERRED INCOME TAXES 2,360,000 1,775,000
SHAREHOLDERS' EQUITY
Common stock - authorized, 10,000,000
shares of no par value; issued and
outstanding, 3,877,165 and 3,814,015
at October 31 and January 31, 1997,
respectively 8,011,208 7,784,972
Additional contributed capital 1,445,057 1,360,334
Retained earnings 5,721,523 2,382,227
----------- -----------
15,177,788 11,527,533
----------- -----------
$41,738,424 $42,028,587
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
October 31, October 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 15,142,835 $ 14,305,170 $ 47,499,141 $ 49,035,997
Cost of goods sold 9,334,147 9,147,884 28,674,116 34,283,065
------------ ------------ ------------ ------------
Gross profit 5,808,688 5,157,286 18,825,025 14,752,932
Operating expenses
Marketing and sales 3,308,483 2,488,893 9,723,744 8,085,185
Administrative 814,395 752,399 2,386,802 2,073,649
------------ ------------ ------------ ------------
4,122,878 3,241,292 12,110,546 10,158,834
------------ ------------ ------------ ------------
Operating profit 1,685,810 1,915,994 6,714,479 4,594,098
Other income (expense)
Interest expense (379,369) (613,611) (1,336,452) (1,888,331)
Write down of recycling
equipment -- (50,000) -- (509,638)
Equity in net loss of
affiliate -- (42,635) (66,235) (69,635)
Other (12,548) (109,675) 42,504 (334,920)
------------ ------------ ------------ ------------
(391,917) (815,921) (1,360,183) (2,802,524)
------------ ------------ ------------ ------------
Earnings before income taxes 1,293,893 1,100,073 5,354,296 1,791,574
Income tax provision 470,000 423,000 2,015,000 716,000
------------ ------------ ------------ ------------
NET EARNINGS $ 823,893 $ 677,073 $ 3,339,296 $ 1,075,574
============ ============ ============ ============
Earnings per common share $ 0.20 $ 0.18 $ 0.83 $ 0.28
============ ============ ============ ============
Weighted average number of
shares outstanding 4,086,532 3,795,364 4,031,140 3,784,700
============ ============ ============ ============
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
October 31,
--------------------------
1997 1996
----------- -----------
Increase (Decrease) in Cash
Cash flows provided by operating activities
Net earnings $ 3,339,296 $ 1,075,574
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,125,194 3,148,328
Amortization of warrants 43,589 48,430
Non cash compensation to employees 28,125 54,325
Write down of equipment -- 509,638
Gain on sale of equipment, net (250) (31,540)
Equity in net loss of affiliates 66,235 69,635
Net deferred income taxes 770,000 644,000
Change in operating assets and liabilities:
Accounts receivable (866,090) 2,591,541
Inventories (733,133) 2,454,247
Other current assets 4,517 15,248
Accounts payable (1,930,858) (3,981,990)
Accrued liabilities 385,825 (73,245)
Income taxes payable 134,180 32,465
----------- -----------
Net cash provided by operating activities 4,366,630 6,556,656
Cash flows from investing activities
Capital expenditures (1,846,353) (236,014)
Proceeds from sale of assets 2,000 215,000
Security deposits and other 46,108 (15,104)
----------- -----------
Net cash used in investing activities (1,798,245) (36,118)
Cash flows from financing activities
Bank overdraft -- 216,403
Proceeds from long-term obligations -- 2,600,000
Principal payments under long term obligations (3,063,309) (9,694,147)
Exercise of stock options 231,578 11,800
----------- -----------
Net cash used in financing activities (2,831,731) (6,865,944)
Net change in cash (263,346) (345,406)
Cash at beginning of period 663,072 345,906
----------- -----------
Cash at end of period $ 399,726 $ 500
=========== ===========
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 1997
(unaudited)
(1) Basis of Presentation
The interim financial statements presented herein are unaudited, but in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. The results of operations for
any interim period are not necessarily indicative of results for the
full year. Information as of January 31, 1997, was taken from the
Company's Annual Report on Form 10-K for the year ended January 31,
1997. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended January 31, 1997.
(2) Shareholders' Equity
The following table summarizes stock option activity for the nine
months ended October 31, 1997:
Outside
Grant Expiration Exercise Total 1996 1991 Directors
Recipient Date Date Price Shares Plan Plan Plan Other
-------------- ---------- --------------- --------- ---------- --------- -------- ---------- ---------
OPTIONS OUSTANDING AS OF JANUARY 31, 1997 361,500 145,500 66,500 14,500 135,000
GRANTED
COO March 1997 March 2002 $ 5.63 25,000 (1) - 25,000 - -
Directors June 1997 June 2002 6.88 3,000 - - 3,000 -
CEO July 1997 July 2002 9.25 20,000 20,000 - - -
CFO July 1997 July 2002 9.25 10,000 10,000 - - -
EXPIRED OR FORFEITED
CFO - - - (2,000) - (2,000)
Employees - - - (4,000) - (4,000) - -
EXERCISED
Employees - - 2.75-7.50 (44,350) (43,350) (1,000) - -
-------- -------- ------- ------- -------
OPTIONS OUTSTANDING AS OF OCTOBER 31, 1997 369,150 132,150 84,500 17,500 135,000
======== ======== ======= ======= =======
OPTIONS EXERCISABLE AS OF OCTOBER 31, 1997 284,150 122,150 84,500 17,500 60,000
======== ======== ======= ======= ======
(1) Incentive stock option.
At the time of employment, the Company's new Chief Operating Officer
was issued compensation in the form of 5,000 shares of the Company's
common stock.
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
October 31, 1997
(unaudited)
(3) Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share." This pronouncement provides a
different method of calculating earnings per share than is currently
used in accordance with APB No. 15, "Earnings per Share." SFAS 128
provides for the calculation of basic and dilutive earnings per share.
Basic earnings per share include no dilution and are computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Dilutive
earnings per share reflect the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted
earnings per share.
SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997, and early adoption is
not permitted. When adopted, the statement will require restatement of
prior years' earnings per share. The Company will adopt this statement
for its fourth quarter and year ending January 31, 1998. Assuming that
SFAS 128 had been implemented, basic earnings per share would have been
$.21 per share for the three months ended October 31, 1997, versus
primary earnings per share of $.20 per share, as reported, and $.87 per
share for the nine months ended October 31, 1997, versus primary
earnings per share of $.83, as reported. Dilutive earnings per share
would have been the same as reported primary earnings per share for the
three and nine months ended October 31, 1997 and 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
THE FOLLOWING DISCUSSION CONTAINS CERTAIN STATEMENTS WHICH REFLECT THE COMPANY'S
CURRENT EXPECTATIONS REGARDING FUTURE RESULTS OF OPERATIONS AND PERFORMANCE.
WHEN USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND
OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM THOSE SET FORTH IN SUCH STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AS WELL AS ELSEWHERE IN THIS DOCUMENT AND IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO
REFLECT NEW EVENTS OR CIRCUMSTANCES.
Background
Ultra Pac, Inc. designs, manufactures, markets and sells plastic containers and
packaging to the food industry, including supermarkets, distributors of food
packaging, wholesale bakery companies, fruit and vegetable growers,
delicatessens, processors and retailers of prepared foods, and foodservice
providers. The Company's packaging is primarily made from virgin and recycled
polyethylene terephthalate ("PET") which the Company extrudes into plastic sheet
and thermoforms into various shapes.
Management believes that future sales and earnings could be affected by various
factors. These include: supply and demand for PET raw material (including both
virgin and recycled material) and the resulting impact on the Company's raw
material costs; competitive pressures in the marketplace for the Company's
products both from existing competitors and new entrants into the market place
and from competitors who use lower-cost non-PET resins such as OPS (oriented
polystyrene); weather conditions during the growing season of fresh produce and
the resulting impact on the demand for plastic packaging, principally during the
Company's first, second and third quarters; the Company's ability to estimate
future sales and react to any significant unforeseen increases or decreases in
sales and the impact on its fixed overhead cost structure including the possible
need for significant capital expenditures; the cost and availability of suitably
skilled employees; and the cost, availability and amount of debt financing.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Statements of Operations of the Company expressed as a percentage of
net sales.
Three Months Ended Nine Months Ended
October 31, October 31,
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 61.7 64.0 60.4 69.9
----- ----- ----- -----
Gross profit 38.3 36.0 39.6 30.1
Operating expenses
Marketing and sales 21.8 17.4 20.5 16.5
Administrative 5.4 5.3 5.0 4.2
----- ----- ----- -----
27.2 22.7 25.5 20.7
----- ----- ----- -----
Operating Profit 11.1 13.3 14.1 9.4
Other income (expense)
Interest expense and other 2.6 5.4 2.9 4.7
Write down of recycling equipment -- 0.1 -- 1.0
----- ----- ----- -----
2.6 5.5 2.9 5.7
----- ----- ----- -----
Earnings before taxes 8.5 7.8 11.2 3.7
Income tax provision 3.1 3.0 4.2 1.5
----- ----- ----- -----
NET EARNINGS 5.4% 4.8% 7.0% 2.2%
===== ===== ===== =====
Net Sales:
Net sales increased 5.9% from $14,305,170 to $15,142,835 for the three months
ended October 31, 1997, as compared to the three months ended October 31, 1996,
and decreased 3.1% from $49,035,997 to $47,499,141 for the nine months ended
October 31, 1997, as compared to the nine months ended October 31, 1996. The
increase in net sales for the third quarter was primarily due to strong sales of
the Company's line of bakery containers, and to a lesser degree, food service
products as well as the sale of plastic sheet to others. The above were offset
in part by a decline in the sale of produce containers, and to a lesser degree,
the sale of deli containers. The decrease in net sales during the nine months
ended October 31, 1997, was primarily due to a decline in sales of the Company's
produce containers, and to a lesser degree, its line of deli containers.
While produce container sales in the first quarter were negatively impacted by
the publicity surrounding the hepatitis alert related to frozen strawberries,
sales of these containers have remained soft through the second and third
quarters due to the Company's pricing and marketing strategies and market
conditions. To be more competitive in the produce marketplace and to better
serve its existing customers, the Company is establishing local warehousing and
labeling facilities for its produce products in the growing regions of Florida
and California during the fourth quarter of fiscal 1998 and the first quarter of
fiscal 1999, respectively.
In addition, the Company's sales were impacted by lower selling prices for its
products, resulting from lower material costs throughout the industry. The above
sales declines were offset in part by an increase in unit volume sales of the
Company's line of bakery containers, and to a lesser degree, sales of food
service containers and the sale of plastic sheet to others.
The Company expects sales to increase slightly in the fourth quarter of fiscal
1998, as compared to the prior year, primarily as a result of continued strong
sales of its bakery containers. In addition, the Company expects its sales to
increase in fiscal 1999, as compared to fiscal 1998, as a result of strong
bakery container sales and improved sales to the produce markets due to the
establishment of its warehousing and labeling facilities in those markets.
Gross Profit:
Gross profit margins improved from 36.0% to 38.3% for the three months ended
October 31, 1997, as compared to the three months ended October 31, 1996, and
from 30.1% to 39.6% for the nine months ended October 31, 1997, as compared to
the nine months ended October 31, 1996. The improvement in gross profit margins
can be primarily attributed to lower prices of raw materials and, to a lesser
extent, the sale of plastic sheet to others.
Prices for virgin PET resin and recycled material declined dramatically during
the second, third and fourth quarters of fiscal 1997, due in part, to increased
capacity of refiners and lower market prices for paraxylene, a major component
of PET resins. While these prices have increased slightly in fiscal 1998,
material prices continue to remain near historic lows for the Company.
The Company has a resin supply agreement through December 31, 1997, which
provides for pricing to float with market conditions,
subject to limits on the amount by which prices may increase, with no limit on
price decreases. Under the current agreement, the Company is required to
purchase minimum resin quantities which represent a major portion of its virgin
PET resin needs. The Company is currently paying the maximum price allowable
under this agreement. The Company is currently negotiating an agreement with
this supplier for 1998.
Since the installation of its fifth and sixth extrusion lines in fiscal 1996,
the Company has been able to supply all its PET sheet needs. The cost of plastic
sheet extruded by the Company has been significantly lower than the cost of
plastic sheet purchased from outside sources. At various times, the Company's
production requirements for plastic sheet have been less than its full
production capacity. As a result of this excess capacity, the Company has also
been extruding plastic sheet for other manufacturing firms.
The Company expects that the above factors will continue to have a favorable
impact on its gross margins as compared to the prior year. However, because
sales for the last half of the year are expected to be lower than the first half
of the year, and because its fixed overhead costs are relatively constant, the
Company expects its gross margin percentage to decline slightly from the first
half level.
Gross margins have increased significantly in fiscal 1998 as compared to the
same periods of fiscal 1997. The Company does not anticipate significant changes
to gross margins during fiscal 1999 as compared to fiscal 1998.
Operating Expenses:
Marketing and sales expense increased from $2,488,893, or 17.4% of net sales, to
$3,308,483, or 21.8% of net sales, during the three months ended October 31,
1997, as compared to the three months ended October 31, 1996, and increased from
$8,085,185, or 16.5% of net sales, to $9,723,744, or 20.5% of net sales, during
the nine months ended October 31, 1997, as compared to the nine months ended
October 31, 1996. The increase was primarily attributable to increased freight
costs and commissions, expressed in terms of both dollars and as a percentage of
sales. The increase in commission expense resulted from an increase in
commission rates, effective February 1997. Marketing and sales expense also
increased as a result of the hiring of a Director of Sales and additional sales
and marketing personnel primarily during the fourth quarter of fiscal 1997.
The Company anticipates increases in marketing and sales expense during fiscal
1999 as compared to fiscal 1998, primarily due to operating costs related to the
establishment of warehousing facilities in California and Florida. In October
1997, the Company signed a 10 year lease agreement for a 110,000 square foot
warehouse facility in California. The minimum annual payments under this lease
are $543,168 during years one through five and $602,784 during years six through
ten. However, with the anticipation of increased sales in fiscal 1999, the
Company expects sales and marketing expense, as a percentage of sales, to
decline.
Administrative expense increased from $752,399, or 5.3% of net sales, to
$814,395, or 5.4% of net sales, during the three months ended October 31, 1997,
as compared to the three months ended October 31, 1996, and increased from
$2,073,649, or 4.2% of net sales, to $2,386,802, or 5.0% of net sales, during
the nine months ended October 31, 1997, as compared to the nine months ended
October 31, 1996. The increase was due primarily to an increase in depreciation
expense resulting from a reduction in the estimated useful lives of the
Company's computer hardware and software. The Company is currently implementing
a new information system, which it expects to be completed during the first
quarter of fiscal 1999. In addition, administrative salaries increased, as a
result of the hiring of a Director of Management Information Systems and other
administrative support personnel, primarily during the last half of fiscal 1997.
Employee benefit costs also increased resulting from the reinstatement of the
Company's practice of partially matching employee contributions to its 401(k)
plan.
Interest Expense and Other:
Interest expense decreased from $613,611, or 4.3% of net sales, to $379,369, or
2.5% of net sales, for the three months ended October 31, 1997, as compared to
the three months ended October 31, 1996, and decreased from $1,888,331, or 3.9%
of net sales, to $1,336,452, or 2.8% of net sales, for the nine months ended
October 31, 1997, as compared to the nine months ended October 31, 1996. The
decrease was principally due to lower debt levels as well as lower interest
rates. The Company anticipates a decrease in interest expense, expressed in
terms of both dollars and as a percentage of sales, for the remainder of fiscal
1998, as compared to fiscal 1997, for the same reasons.
In the second and third quarters of fiscal 1997, the Company recorded other
expense of $509,638, resulting from the writedown of its recycling equipment to
its net realizable value.
Inflation:
The Company believes inflation has not significantly affected its results of
operations.
Liquidity and Capital Resources
Because the Company's business is highly capital intensive, it has traditionally
relied heavily on bank and other debt financing to fund its capital
requirements. While the Company expects to continue to rely on bank and other
debt financing, it anticipates that its debt levels will continue to decrease
slightly during fiscal 1998 due to its improved operating performance. As of
October 31, 1997, the Company had borrowed $3,751,514 under its $8,000,000
revolving credit facility, leaving $4,248,486 potentially available. Pursuant to
the Company's borrowing base formula, $3,870,714 of the $4,248,486 was available
at October 31, 1997.
In February 1997, the Company amended its credit facility and term note with its
principal lender to reduce the interest rate differentials on its revolving
credit facility and term note by one percentage point, to extend the maturity
dates of both 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.
During the nine months ended October 31, 1997, the Company has repaid $415,600
of deferred principal payments required under an April 1996 amended equipment
note with one of its equipment lenders. The Company may be required to make
additional payments, up to an aggregate maximum of $600,000, in advance of
scheduled maturities on this note, dependent upon availability under the
Company's revolving credit facility as determined on January 31 and April 30,
1998.
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility.
Working capital increased from $270,438 on January 31, 1997, to $2,569,200 on
October 31, 1997. This increase is primarily due to a decrease in accounts
payable and increases in accounts receivable, inventories and deferred taxes,
partially offset by increases in current maturities of long-term obligations and
accrued liabilities. Accounts payable decreased from $5,838,416 on January 31,
1997, to $3,907,558 on October 31, 1997. Accounts receivable increased from
$3,422,970 on January 31, 1997, to $4,285,792 on October 31, 1997. Inventories
increased from $6,872,430 on January 31, 1997, to $7,605,563 on October 31,
1997.
For the nine months ended October 31, 1997, $4,366,630 of cash was provided by
operating activities as compared to $6,556,656 for the nine months ended October
31, 1996. The decrease was primarily due to increases in accounts receivable and
inventories, and a decrease in accounts payable, partially offset by improved
earnings.
As of October 31, 1997, the Company had outstanding capital commitments of
$2,988,000 for thermoforming equipment, molds, computer hardware and software
and other equipment, and was reviewing $390,000 of additional capital
expenditures. The Company anticipates that capital expenditures for fiscal 1998
will be approximately $3,000,000, as compared to $570,000 incurred in fiscal
1997. The Company believes the current level of production equipment and
facilities, including its planned distribution facilities in California and
Florida, plus the committed capital expenditures, should be sufficient to meet
anticipated fiscal 1998 and 1999 requirements. The fiscal 1998 and 1999
expenditures will be financed from funds available through the Company's credit
facility, capital expenditure term note facility and funds generated from
operations.
Seasonality of Sales and Operating Profits
Historically, the Company's sales were highest during the third quarter and
declined in the fourth quarter. Since the introduction of its line of produce
containers during 1992, the percentage of the Company's sales occurring during
the first two quarters has progressively increased and the Company expects this
trend to continue.
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. The introduction of the Company's line of produce containers in 1992
has also impacted the third quarter gross margins and operating profit. Prices
for virgin PET resin and recycled material increased significantly during fiscal
1996 and declined significantly in fiscal 1997, however the Company believes
that as refiners have continued to expand capacity, the supply of PET has
exceeded the increase in demand and there is a more stable pricing environment.
As a result, the relationship of gross margins from quarter to quarter should be
more consistent with historical results.
PART II
OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Lease Agreement with The Centurion Corporation, dated
October 20, 1997 for Lot 26, Bert Drive, Hollister
Business Park, Hollister, California
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: December 15, 1997 ULTRA PAC, INC.
By: /s/ Calvin Krupa
Calvin Krupa
Its: President and Chief
Executive Officer
/s/ Bradley Yopp
Bradley Yopp
Chief Financial Officer