UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the quarterly period ended
September 27, 2008
or
|
|
|
o
|
|
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 0-50063
MOD-PAC CORP.
(Exact name of registrant as specified in its charter)
|
|
|
New York State
|
|
16-0957153
|
|
(State or other jurisdiction of
|
|
(IRS employer identification no.)
|
incorporation or organization)
|
|
|
|
|
|
1801 Elmwood Avenue, Buffalo, New York
|
|
14207
|
|
(Address of principal executive offices)
|
|
(Zip code)
|
Telephone number including area code:
(716) 873-0640
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or for
such shorter period that the registrant was required to file such reports, and (2) has been subject
to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
þ
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
The number of shares outstanding of each class of common stock as of September 27, 2008 were:
|
|
|
|
|
Common Stock, $0.01 par value
|
|
2,784,362 shares
|
Class B Common Stock, $0.01 par value
|
|
645,769 shares
|
MOD-PAC CORP.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Part 1. Financial Information
Item 1. Financial Statements
MOD-PAC CORP.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
September 27, 2008
|
|
|
December 31, 2007
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
165
|
|
|
$
|
98
|
|
Trade
accounts receivable, net of allowance of :
$76 in 2008 and in 2007
|
|
|
5,394
|
|
|
|
4,256
|
|
Inventories
|
|
|
4,139
|
|
|
|
3,541
|
|
Prepaid expenses
|
|
|
316
|
|
|
|
259
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,014
|
|
|
|
8,154
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
68,294
|
|
|
|
67,812
|
|
Less accumulated depreciation and amortization
|
|
|
(46,244
|
)
|
|
|
(44,488
|
)
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
22,050
|
|
|
|
23,324
|
|
Other assets
|
|
|
1,320
|
|
|
|
1,316
|
|
|
|
|
|
|
|
|
Totals assets
|
|
$
|
33,384
|
|
|
$
|
32,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
154
|
|
|
$
|
48
|
|
Accounts payable
|
|
|
3,560
|
|
|
|
2,912
|
|
Accrued expenses
|
|
|
810
|
|
|
|
815
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,524
|
|
|
|
3,775
|
|
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
1,525
|
|
|
|
400
|
|
Long-term debt
|
|
|
2,445
|
|
|
|
2,050
|
|
Other liabilities
|
|
|
35
|
|
|
|
269
|
|
Deferred income taxes
|
|
|
20
|
|
|
|
499
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
8,549
|
|
|
$
|
6,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value
Authorized 20,000,000 shares, issued
3,435,060 in 2008, 3,414,051 in 2007
|
|
|
34
|
|
|
|
34
|
|
Class B common stock, $.01 par value
Authorized 5,000,000 shares, issued
645,769 in 2008, 666,778 in 2007
|
|
|
6
|
|
|
|
7
|
|
Additional paid-in capital
|
|
|
2,338
|
|
|
|
2,129
|
|
Retained earnings
|
|
|
28,672
|
|
|
|
29,696
|
|
|
|
|
|
|
|
|
|
|
|
31,050
|
|
|
|
31,866
|
|
Less treasury shares, at cost 650,698 in 2008
and 625,698 in 2007
|
|
|
(6,215
|
)
|
|
|
(6,065
|
)
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
24,835
|
|
|
|
25,801
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
33,384
|
|
|
$
|
32,794
|
|
|
|
|
|
|
|
|
See notes to financial statements
3
MOD-PAC CORP.
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
(Unaudited)
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
27, 2008
|
|
|
29, 2007
|
|
|
27, 2008
|
|
|
29, 2007
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
34,922
|
|
|
$
|
34,849
|
|
|
$
|
12,504
|
|
|
$
|
12,941
|
|
Rental income
|
|
|
356
|
|
|
|
398
|
|
|
|
133
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
35,278
|
|
|
|
35,247
|
|
|
|
12,637
|
|
|
|
13,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
30,675
|
|
|
|
32,307
|
|
|
|
10,662
|
|
|
|
12,017
|
|
Selling, general and
administrative expenses
|
|
|
5,994
|
|
|
|
7,411
|
|
|
|
1,854
|
|
|
|
2,536
|
|
Interest expense, net
|
|
|
203
|
|
|
|
130
|
|
|
|
79
|
|
|
|
94
|
|
Other (income) expense
|
|
|
(93
|
)
|
|
|
11
|
|
|
|
(12
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
36,779
|
|
|
|
39,859
|
|
|
|
12,583
|
|
|
|
14,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,501
|
)
|
|
|
(4,612
|
)
|
|
|
54
|
|
|
|
(1,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
|
(477
|
)
|
|
|
(1,521
|
)
|
|
|
40
|
|
|
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,024
|
)
|
|
$
|
(3,091
|
)
|
|
$
|
14
|
|
|
$
|
(1,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.30
|
)
|
|
$
|
(.90
|
)
|
|
$
|
.00
|
|
|
$
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(.30
|
)
|
|
$
|
(.90
|
)
|
|
$
|
.00
|
|
|
$
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements
4
MOD-PAC CORP.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
(Unaudited)
|
|
|
|
Nine Months Ended
|
|
|
|
September
|
|
|
September
|
|
|
|
27, 2008
|
|
|
29, 2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,024
|
)
|
|
$
|
(3,091
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,850
|
|
|
|
3,645
|
|
Provision for doubtful accounts
|
|
|
11
|
|
|
|
33
|
|
Stock option compensation expense
|
|
|
208
|
|
|
|
166
|
|
Deferred income taxes
|
|
|
(479
|
)
|
|
|
(1,524
|
)
|
(Gain) loss on disposal of assets
|
|
|
(54
|
)
|
|
|
59
|
|
Cash flows from changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,149
|
)
|
|
|
(1,808
|
)
|
Inventories
|
|
|
(598
|
)
|
|
|
(1,076
|
)
|
Prepaid expenses
|
|
|
(57
|
)
|
|
|
105
|
|
Other liabilities
|
|
|
(234
|
)
|
|
|
(4
|
)
|
Accounts payable
|
|
|
648
|
|
|
|
86
|
|
Refundable or payable income taxes
|
|
|
|
|
|
|
621
|
|
Accrued expenses
|
|
|
(5
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
117
|
|
|
|
(2,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
125
|
|
|
|
52
|
|
Sale of temporary investments
|
|
|
|
|
|
|
1,000
|
|
Change in other assets
|
|
|
(45
|
)
|
|
|
(30
|
)
|
Capital expenditures
|
|
|
(1,601
|
)
|
|
|
(1,171
|
)
|
Acquisition of DDM assets
|
|
|
|
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,521
|
)
|
|
|
(1,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt and capital leases
|
|
|
(79
|
)
|
|
|
(32
|
)
|
Increase in line of credit
|
|
|
1,125
|
|
|
|
1,800
|
|
Proceeds from loans
|
|
|
580
|
|
|
|
|
|
Proceeds from issuance of stock
|
|
|
|
|
|
|
8
|
|
Purchase of treasury stock
|
|
|
(150
|
)
|
|
|
|
|
Deferred financing fees
|
|
|
(5
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,471
|
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
67
|
|
|
|
(2,179
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
98
|
|
|
|
2,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
165
|
|
|
$
|
265
|
|
|
|
|
|
|
|
|
See notes to financial statements.
5
MOD-PAC CORP.
Notes to Consolidated Financial Statements
Nine Months Ended September 27, 2008
1)
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of a normal recurring
nature. The results of operations for any interim period are not necessarily indicative of results
for the full year. Operating results for the nine-month period ended September 27, 2008 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2008.
The balance sheet at December 31, 2007 has been derived from the audited financial statements at
that date, but does not include all of the information and footnotes required by generally accepted
U.S. accounting principles for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in the
Companys 2007 annual report on Form 10-K.
Revenue is recognized on the accrual basis, which is at the time of shipment of goods or acceptance
at the United States Postal Service.
2)
Stock-Based Compensation
MOD-PAC CORP. established a Stock Option Plan that authorized the issuance of 800,000 shares of
Common Stock for the purpose of attracting and retaining executive officers and key employees, and
to align managements interests with those of the shareholders of MOD-PAC CORP. The options must
be exercised no more than ten years from the grant date and vest over up to a five-year period.
The exercise price for the options is equal to the fair market value of the common stock at the
date of grant.
MOD-PAC CORP. established the Directors Stock Option Plan that authorized the issuance of 200,000
shares of Common Stock for the purpose of attracting and retaining the services of experienced and
knowledgeable outside directors, and to align their interest with those of its shareholders. The
options must be exercised no more than ten years from the grant date and vest after six months.
The exercise price for the options is equal to the fair market value at the date of grant.
The Company uses a straight-line method of attributing the value of stock-based compensation
expense, subject to minimum levels of expense, based on vesting. Stock compensation expense
recognized during the period is based on the value of the portion of shared-based payment awards
that is ultimately expected to vest during the period.
The fair value of stock options granted was estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average fair value of options granted during the nine months
ended September 27, 2008 was $2.27. No options were granted during the nine months ended September
29, 2007. The following table provides the range of assumptions used to value stock options
granted during the nine months ended September 27, 2008.
|
|
|
|
|
Expected volatility
|
|
|
39
|
%
|
Risk-free rate
|
|
|
2.9
|
%
|
Expected dividends
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
5.5
|
|
To determine expected volatility, the Company uses historical volatility based on weekly closing
prices of its Common Stock since the Companys spin-off from Astronics Corporation in March 2003.
The risk-free rate is based on the United States Treasury yield curve at the time of grant for the
appropriate term of the options granted. Expected dividends are based on the Companys history and
expectation of dividend payouts. The expected term of stock options is based on vesting schedules,
expected exercise patterns and contractual terms.
6
A summary of the Companys stock option activity and related information for the nine months ended
September 27, 2008 is as follows:
(aggregate intrinsic value in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average Exercise
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Price
|
|
|
Intrinsic Value
|
|
|
|
|
Outstanding at January 1, 2008
|
|
|
406,867
|
|
|
$
|
9.15
|
|
|
$
|
149
|
|
Options granted
|
|
|
16,000
|
|
|
|
5.62
|
|
|
|
|
|
Options forfeited
|
|
|
(10,406
|
)
|
|
|
7.13
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 27, 2008
|
|
|
412,461
|
|
|
$
|
9.06
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 27, 2008
|
|
|
330,801
|
|
|
$
|
9.05
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table represents the total pretax option holders
intrinsic value, based on the Companys closing stock price of Common Stock of $3.08 as of
September 27, 2008, which would have been received by the option holders had all option holders
with an exercise price less than the market price been exercised as of that date. As of September
27, 2008, there were no options with an exercise price below the closing stock price on that date.
The intrinsic value of the options exercised is based on the Companys closing stock price of
common stock as of the date the option is exercised. There were no options exercised in the first
nine months of 2008. The Companys current policy is to issue additional new shares upon exercise
of stock options.
The fair value of options fully vested since December 31, 2007 is $0.2 million. At September 27,
2008, total compensation costs related to non-vested awards not yet recognized was $0.2 million
which will be recognized over a weighted average period of 1.83 years.
The following is a summary of weighted average exercise prices and contractual lives for
outstanding and exercisable stock options as of September 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Remaining
|
|
Weighted
|
Exercise Price
|
|
|
|
|
|
Life
|
|
Exercise
|
|
|
|
|
|
Life in
|
|
Average
|
Range
|
|
Shares
|
|
in Years
|
|
Price
|
|
Shares
|
|
Years
|
|
Exercise Price
|
|
|
|
$5.22 to $6.22
|
|
|
71,626
|
|
|
|
2.7
|
|
|
$
|
5.55
|
|
|
|
71,626
|
|
|
|
2.7
|
|
|
$
|
5.55
|
|
$7.36 to $8.44
|
|
|
148,470
|
|
|
|
7.4
|
|
|
$
|
7.67
|
|
|
|
110,290
|
|
|
|
6.8
|
|
|
$
|
7.76
|
|
$10.00 to $15.54
|
|
|
192,365
|
|
|
|
6.8
|
|
|
$
|
11.45
|
|
|
|
148,885
|
|
|
|
6.4
|
|
|
$
|
11.70
|
|
|
|
|
|
|
|
412,461
|
|
|
|
6.3
|
|
|
$
|
9.06
|
|
|
|
330,801
|
|
|
|
5.8
|
|
|
$
|
9.05
|
|
|
|
|
|
|
3)
Inventories
Inventories are stated at the lower of cost or market, cost being determined in accordance with the
first-in, first-out method. Inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Three months ended
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
September 27,
|
|
|
December
|
|
|
|
2008
|
|
|
31, 2007
|
|
Finished goods
|
|
$
|
2,648
|
|
|
$
|
2,214
|
|
Work in progress
|
|
|
379
|
|
|
|
118
|
|
Raw material
|
|
|
1,112
|
|
|
|
1,209
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
4,139
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
7
4)
Product Line Net Sales
Product line net sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Nine months ended
|
|
|
Three months ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
|
27, 2008
|
|
|
29, 2007
|
|
|
27, 2008
|
|
|
29, 2007
|
|
Folding cartons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom folding cartons
|
|
$
|
22,189
|
|
|
$
|
22,031
|
|
|
$
|
8,194
|
|
|
$
|
8,346
|
|
Stock box
|
|
|
6,392
|
|
|
|
6,995
|
|
|
|
2,278
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Folding cartons sub-total
|
|
|
28,581
|
|
|
|
29,026
|
|
|
|
10,472
|
|
|
|
10,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
3,201
|
|
|
|
2,171
|
|
|
|
1,064
|
|
|
|
867
|
|
Personalized
|
|
|
3,140
|
|
|
|
3,652
|
|
|
|
968
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print services sub-total
|
|
|
6,341
|
|
|
|
5,823
|
|
|
|
2,032
|
|
|
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,922
|
|
|
$
|
34,849
|
|
|
$
|
12,504
|
|
|
$
|
12,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5) (
Loss) Income Per Share
The following table sets forth the computation of (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
Three months ended
|
|
|
|
September
|
|
|
September
|
|
|
September
|
|
|
September
|
|
(in thousands except per share data)
|
|
27, 2008
|
|
|
29, 2007
|
|
|
27, 2008
|
|
|
29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income as reported
|
|
$
|
(1,024
|
)
|
|
$
|
(3,091
|
)
|
|
$
|
14
|
|
|
$
|
(1,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
weighted average shares
|
|
|
3,436
|
|
|
|
3,450
|
|
|
|
3,430
|
|
|
|
3,450
|
|
Net effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share
weighted average shares
|
|
|
3,436
|
|
|
|
3,450
|
|
|
|
3,430
|
|
|
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) income per share
|
|
$
|
(.30
|
)
|
|
$
|
(.90
|
)
|
|
$
|
.00
|
|
|
$
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share
|
|
$
|
(.30
|
)
|
|
$
|
(.90
|
)
|
|
$
|
.00
|
|
|
$
|
(.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of dilutive stock options has not been included for the nine and three months ended
September 27, 2008 and September 29, 2007 and the three months ended September 29, 2007, since this
would be anti-dilutive as a result of the Companys net loss. There is no effect of dilutive stock
options for the three months ended September 27, 2008 due to the average share price in the three
months ended September 27, 2008 being lower than all outstanding option prices.
6)
Income Taxes
The Companys effective tax rate for the first nine months of 2008 was 31.8%, which approximates
the Companys expected tax rate for 2008 exclusive of the recording of any valuation allowances
which may be necessary to offset any deferred tax assets which may be recorded in the fourth
quarter of 2008. The effective tax rate for the first nine months of 2007 was 33.0%.
The Companys continuing practice is not to recognize interest and/or penalties related to income
tax matters in income tax expense. As of September 27, 2008, the Company had no amounts accrued
related to uncertain tax
8
positions. The tax years 2006 and 2007 remain open to examination by the major state and federal
taxing jurisdictions to which the Company is subject.
7)
Capital Structure
The Companys Class B stock is fully convertible into Common stock on a one-for-one basis at no
cost. During the first nine months of 2008, 21,009 shares of Class B stock were converted to Common
stock.
8)
Information Regarding Industry Segments
The Company operates as one reporting segment. The Companys customer base is comprised of
companies and individuals throughout the United States and North America and is diverse in both
geographic and demographic terms. The format of the information used by the Companys CEO is
consistent with the reporting format used in the Companys 2007 Form 10-K and other external
information.
9)
Line of Credit
The Company has access to a $5.0 million committed line of credit with a commercial bank, which
expires in March, 2010. At September 27, 2008, $1.53 million was borrowed and an additional $0.25
million was in use through standby letters of credit. Interest on the line of credit is either
LIBOR plus 150 basis points or the prime rate plus 50 basis points, at the Companys option.
10)
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement
establishes a framework for measuring fair value under generally accepted accounting principles
(GAAP), changes the definition of fair value within that framework, and expands disclosures about
the use of fair value measurement. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years; however, the FASB provided a one
year deferral for implementation of the standard for nonfinancial assets and liabilities. The
adoption of SFAS 157 did not have an impact on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial reporting
by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS 159 did not have an impact on the Companys consolidated financial
statements.
In December 2007, the FASB Statement 141R, Business Combinations (SFAS 141R) was issued. SFAS
141R replaces SFAS 141. SFAS 141R requires the acquirer of a business to recognize and measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at fair value. SFAS 141R also requires transaction costs related to the business
combination to be expensed as incurred. SFAS 141R applies prospectively to business combinations;
the effective date for the Company will be January 1, 2009. The Company has not yet determined the
impact SFAS 141R will have, if any, on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51. The objective of SFAS No. 160 is to improve the relevance,
comparability and transparency of the financial information that a reporting entity provides in its
consolidated financial statements by establishing additional accounting and reporting standards.
SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption
of this statement is prohibited. The Company does not believe that SFAS 160 will have an impact on
its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (SFAS 161), which is intended to improve
financial reporting about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an entitys financial
position, financial performance and cash flows. SFAS 161 is effective in fiscal years beginning
after November 15, 2008. The Company does not believe that SFAS 161 will have an impact on its
consolidated financial statements.
9
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations
REVENUE
For the third quarter of 2008, total revenue was $12.6 million compared with $13.1 million in 2007,
a decrease of 3.4%. The custom folding cartons line sales were $8.2 million in the third quarter of
2008 compared with $8.3 million in the third quarter of 2007, a decrease of 1.8%, or $0.1 million,
with increased business volumes from several customers and some new customer activity being more
than offset by decreased business from primarily one customer due to that customers business
conditions. Sales of the Companys stock box product line were $2.3 million in 2008, a decrease of
10.6% from the prior years third quarter sales of $2.5 million due to general market conditions.
Personalized print sales for the third quarter of 2008 were $1.0 million, compared with $1.2
million in the third quarter of 2007, a decrease of 18.0% due to generally soft market conditions.
Third quarter 2008 commercial print sales grew 22.7%, or $0.2 million, to $1.1 million compared
with sales of $0.9 million in the third quarter of 2007. The commercial print increase was
primarily due to sales growth in mailing services and sales to custom folding cartons customers.
For the first nine months of 2008, total revenue was $35.3 million, relatively unchanged, compared
with $35.2 million in 2007. The custom folding cartons product line sales were $22.2 million
compared with $22.0 million in 2007, an increase of 0.7% with increased business volumes from
several customers being partially offset by decreased business from primarily one customer due to
that customers business conditions. Sales of the Companys stock box product line were $6.4
million compared with $7.0 million in the prior year, a decrease of 8.6% primarily due to general
market conditions. Personalized print sales for the first nine months of 2008 were $3.1 million
compared with $3.7 million in the same period of 2007, a decrease of 14.0% due to one customer
changing from buying product from the Company to making product internally, along with general soft
market conditions. The first nine months of 2008, commercial print sales grew 47.4%, or $1.0
million, to $3.2 million compared with sales of $2.2 million in the first nine months of 2007. The
commercial print increase was primarily due to additional sales driven by capability from the DDM
Digital Imaging, Data Processing and Mailing Services LC acquisition which was effective May 1,
2007, along with sales to custom folding cartons customers.
EXPENSES AND MARGINS
Gross margin was 15.6% for the third quarter of 2008, an improvement from 8.1% in the third quarter
of 2007. This improvement was a result of decreases in labor related costs, repairs expense and
depreciation expense, combined with price increases, offset partially by weaker sales mix.
Selling, general, and administrative costs decreased 26.9% to $1.9 million in the third quarter of
2008 from $2.5 million during the same period in the prior year due to lower wage related costs,
depreciation expense and other cost reduction measures.
Gross margin was 13.1% for the first nine months of 2008, an increase from 8.3% in the first nine
months of 2007. This increase was a result of decreases in labor related costs, repairs expense
and depreciation expense combined with price increases, offset partially by increases in paperboard
cost and a weaker product mix. Selling, general, and administrative costs decreased 19.1% to $6.0
million in the first nine months of 2008 from $7.4 million during the prior years first nine
months, due to lower depreciation expense, wage related costs and other cost reduction measures.
TAXES
The Companys effective tax rate for the third quarter of 2008 was 74.0%, due to a revision in the
expected effective annual rate. The effective tax rate for the first nine months of 2008 was 31.8%,
which approximates the annual effective tax rate. The effective tax rate in the third quarter of
2007 was 33.1% and 33.0% for the first nine months of 2007.
Due to its three year cumulative loss position, the Company does not expect to be able to record
any additional tax benefit for any future tax losses as a deferred tax asset in 2008.
10
NET LOSS AND LOSS PER SHARE
The net income for the third quarter of 2008 was $0.01 million, an improvement of $1.1 million from
the third quarter of 2007. This improvement was due to focused efforts to reduce costs while sales
were impacted by economic conditions. Diluted income per share was $0.00 in the third quarter of
2008 compared to a loss of $0.31 in the third quarter of 2007.
The net loss for the first nine months of 2008 was $1.0 million, an improvement of $2.1 million
from the first nine months of 2007. This decrease in loss was the result of the same reasons noted
for the quarter. Diluted loss per share was $0.30 in the first nine months of 2008 and $0.90 in
the first nine months of 2007.
LIQUIDITY
Cash and cash equivalents were $0.2 million at September 27, 2008, relatively unchanged from
December 31, 2007.
The Company has access to a $5.0 million committed line of credit with a commercial bank, which
expires in March 2010. At September 27, 2008, $1.53 million was borrowed and an additional $0.25
million was in use through standby letters of credit. The borrowed amount is an increase of $1.1
million from the balance at December 31, 2007. Interest on the line of credit is either LIBOR plus
150 basis points or the prime rate plus 50 basis points at the Companys option.
The increase in the amount outstanding under the line of credit in the first nine months of 2008
was primarily the result of net losses, capital expenditures, working capital requirements and a
share re-purchase in the first quarter, partially offset by non-cash depreciation, amortization
expense and proceeds from equipment loans.
Inventory increased by $0.6 million during the first nine months of 2008 primarily in finished
goods and work in progress, due primarily to seasonality of business in the fourth quarter of 2008.
Receivables increased by $1.1 million during the first nine months of 2008 due primarily to sales
timing.
Capital expenditures, driven primarily by productivity improvement investments, for the first nine
months of 2008 were $1.6 million compared with $2.0 million in the first nine months of 2007, which
includes the acquisition of the assets of DDM Digital Imaging, Data Processing and Mailing
Services LC. Depreciation and amortization for the first nine months of 2008 was $2.9 million
compared with $3.6 million in the same period last year.
The Company believes that cash, cash equivalents and the line of credit, are sufficient to meet
cash requirements for operations, capital expenditures and debt service for the balance of 2008.
There were 25,000 shares repurchased by the Company during the first nine months of 2008. The
Company has authorization to repurchase 75,885 shares at September 27, 2008. The closing price of
the Companys stock at September 27, 2008 was $3.08. At this price, the repurchase of 75,885
shares would require $233,726.
COMMITMENTS
The Company has commitments for items that it purchases in the normal on-going affairs of the
business. The Company is not aware of any obligations in excess of normal market conditions, or of
any long-term commitments that would have a material adverse affect on its financial condition.
MARKET RISK
There has been no significant change in market risks since December 31, 2007.
As a result of short cycle times, the Company does not have any long-term commitments to purchase
production raw materials or sell products that would present significant risks due to price
fluctuations. Raw paper stock is available to us from multiple domestic sources; as a result, we
believe the risk of supply interruptions due to such things as strikes at the source of supply or
to logistics systems is limited.
Risks due to fluctuation in interest rates are not material to the Company at September 27, 2008
because of our limited exposure to floating rate debt.
Since May of 2003, over 90% of the Companys power needs are met through natural gas. The Company
has investigated supply contracts of various lengths and currently it has supply arrangements for
fixed prices on approximately 85% of its estimated usage through September 2009. Historically, the
price of natural gas has fluctuated widely. Although the Company is concerned about cost, its main
concern is availability. The Company
11
monitors the availability of natural gas, considering such factors as amount in storage, gas
production data and transportation data, so that it can take appropriate action if concerns about
availability occur. The Company has investigated and tested a back-up power source in the form of
a rented transportable diesel-powered generator. Although such generators are generally available,
the Company cannot be assured that a generator adequate to meet the Companys needs would be
available if and when such need should arise.
We have no foreign operations, nor do we transact any business in foreign currencies. Accordingly,
we have no foreign currency market risks.
The market risk that the Company was exposed to at December 31, 2007 was generally the same as
described above.
CRITICAL ACCOUNTING POLICIES
There have been no changes in critical accounting policies in the current year from those disclosed
in our 2007 Form 10-K.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve
risks and uncertainties. All statements contained herein that are not clearly historical in nature
are forward-looking, and the word anticipate, believe, expect, estimate, project, and
similar expressions are generally intended to identify forward-looking statements. Any forward
looking statement contained herein, in press releases, written statements or other documents filed
with the Securities and Exchange Commission, or in MOD-PACs communications and discussions with
investors and analysts in the normal course of business through meetings, webcasts, phone calls and
conference calls, regarding expectations with respect to sales, earnings, cash flows, operating
efficiencies, product and market channel expansions, capacity utilization and expansion, and
repurchase of capital stock, are subject to known and unknown risks, uncertainties and
contingencies. Many of these risks, uncertainties, and contingencies are beyond our control, and
may cause actual results, performance or achievements to differ materially from anticipated
results, performance or achievements. Factors that might affect such forward-looking statements
include, among other things:
|
|
|
Overall economic and business conditions;
|
|
|
|
|
The demand for MOD-PACs goods and services;
|
|
|
|
|
Customer acceptance of the products and services MOD-PAC provides;
|
|
|
|
|
Competitive factors in print and print services and folding cartons industries;
|
|
|
|
|
Raw material cost fluctuations;
|
|
|
|
|
Changes in tax requirements (including tax rate changes, new tax laws and revised tax
law interpretations);
|
|
|
|
|
The availability and costs of natural gas supplies in Western New York State;
|
|
|
|
|
The internal and external costs of compliance with laws and regulations such as Section
404 of the Sarbanes-Oxley Act of 2002;
|
|
|
|
|
Litigation against the Company.
|
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
See Market Risk in Item 2, above.
Item 4T.
Controls and Procedures
The companys management, with the participation of the Companys Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures as defined in Rules 13a 15(e) and 15(d) 15(e) of the Securities Exchange Act of
1934, as of September 27, 2008. Based on that evaluation, the Companys Chief Executive Officer
and Chief Operating Officer/Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective as of September 27, 2008. There were no changes in the
Companys internal control over financial reporting during the third quarter of 2008 that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
12
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
There are no material pending legal proceedings to which the Registrant or any of its
subsidiaries is a party or of which any of their property is the subject.
Item 1A
.
Risk Factors
Due to the general weakening of the national economy, our lender in our senior credit
facility may have a weakened financial condition related to its lending and other
financial relationships. As a result, it may tighten its lending standards, which
could make it more difficult for us to borrow under our credit facility or to obtain
other financing on favorable terms or at all. Also, certain cash balances with our bank
are insured up to $250,000 by the FDIC, therefore any amounts in excess of this limit
are also subject to risk. In addition, the weakening of the national economy and the
recent reduced availability of credit may have decreased the financial stability of our
major customers and suppliers. As a result, it may become more difficult for us to
collect our accounts receivable and outsource products and services from our suppliers.
If any of these conditions were to occur, our financial condition and results of
operations would be adversely affected.
Other then what is mentioned here, there have been no significant changes to the risk
factors disclosed in our Annual Report on Form 10-K for the year ended December 31,
2007.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
|
|
of Shares (or Units)
|
|
(or Approximate Dollar
|
|
|
(a) Total
|
|
|
(b) Average
|
|
|
Purchased as Part
|
|
Value) of Shares (or
|
|
|
Number of
|
|
Price Paid per
|
|
of Publicly
|
|
Units) that May Yet Be
|
|
|
Shares (or Units)
|
|
Share
|
|
Announced Plans
|
|
Purchased Under the
|
Period
|
|
Purchased
|
|
(or Unit)
|
|
or Programs
|
|
Plans or Programs
|
June 29 - July 26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,885
|
|
July 27 - August 23, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,885
|
|
August 24 - September
27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,885
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
Defaults Upon Senior Securities
Not applicable.
Item 4.
Submission of Matters to a Vote of Securities Holders
Not applicable.
Item 5.
Other Information
Not applicable.
Item 6.
Exhibits
|
|
|
|
|
Exhibit 31.1
|
|
Section 302 Certification Chief Executive Officer
|
|
|
|
|
|
Exhibit 31.2
|
|
Section 302 Certification Chief Operating Officer/Chief Financial Officer
|
|
|
|
|
|
Exhibit 32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Exhibit 32.2
|
|
Certification of Chief Operating Officer/Chief Financial Officer
pursuant to 18
U.S.C. Section 1350 as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of
2002.
|
13
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.
|
|
|
|
|
|
MOD-PAC CORP.
|
|
|
(Registrant)
|
|
Date: November 5, 2008
|
By:
|
/s/ David B. Lupp
|
|
|
David B. Lupp
|
|
|
Chief Operating Officer/Chief Financial Officer
(Principal financial officer)
|
|
14
Model Performance Acquis... (NASDAQ:MPAC)
Historical Stock Chart
From Jun 2024 to Jul 2024
Model Performance Acquis... (NASDAQ:MPAC)
Historical Stock Chart
From Jul 2023 to Jul 2024