MOD-PAC CORP. (NASDAQ: MPAC), a manufacturer of custom and stock
paper board packaging and personalized print products, today
reported total revenue of $12.59 million in the third quarter of
2009, which ended October 3, 2009, relatively flat compared with
revenue of $12.64 million in the 2008 third quarter. Strong sales
growth in the custom folding carton line was offset by reduced
sales in the stock packaging and personalized print lines which
have been impacted heavily by the weak economy and the elimination
of sales to the commercial print market due to the rationalization
of the Company’s specialty print and direct mail product line in
June this year. Excluding last year’s specialty print and direct
mail sales, total revenue in the recent quarter grew $1.0 million,
or 8.8%, as compared with the 2008 third quarter.
Net income for the quarter was $1.01 million, or $0.29 per
diluted share compared with net income of $14 thousand, or $0.00
per diluted share, in the third quarter of 2008. Net income
increased as a result of improved operating leverage from the
rationalization and a $263 thousand fair value adjustment to
increase the specialty print and direct mail assets.
Third Quarter 2009 Sales Review: Existing customers drove
custom folding carton growth
- Sales of folding cartons, which
include custom folding cartons and stock packaging, were up 11.2%,
or $1.18 million, to $11.65 million in the 2009 third quarter from
$10.47 million in the prior year third quarter. Custom folding
carton sales drove the product line increase.
- Custom folding carton sales for
the third quarter of 2009 were $9.41 million, up $1.21 million, or
14.8%, from 2008 third quarter sales of $8.19 million. Greater
sales from two large existing customers and the addition of one new
customer, more than offset reduced sales from customers impacted by
the economy and decreased waste sales due to a drop in the recycled
paperboard market.
- Stock packaging sales were $2.24
million in the 2009 third quarter, a decline of $39 thousand, or
1.7%, from $2.28 million the prior year period. The stock packaging
line has been impacted by economic conditions over the last
year.
- Print service sales, which are
now solely comprised of personalized print, were down$1.23 million,
or 60.7%, to $0.80 million in the 2009 third quarter compared with
$2.03 million in the same period in 2008. Of the decline, $1.06
million was related to sales in last year’s third quarter for
specialty print and direct mail to the commercial market which the
Company exited in June of this year. Personalized print sales
declined $169 thousand, or 17.5%, to $0.80 million in the current
quarter compared with sales of $0.97 million in last year’s third
quarter. The decrease was primarily due to weakness in economic
conditions.
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP.,
commented, “Our custom folding carton sales have grown
exceptionally well. Many of our customers produce private label
products for the consumer staples market. Consumers in this
economic environment are highly cost conscious and tend to buy more
store brands which drives sales for our customers. Importantly, as
our customers are realizing stronger sales, we are also capturing a
greater percentage of their business and adding new accounts.”
Third Quarter Operating Results: Product line
rationalization improved operating leverage
Gross profit for the 2009 third quarter was $2.52 million, or
20.0% of total revenue, compared with gross profit of $1.98
million, or 15.6% of total revenue, in the same period the prior
year. The improvement in gross profit and margin was driven by the
measurable savings realized from the product line rationalization.
Savings were realized through lower depreciation expense and
decreased labor and supply costs. Lower freight and utility costs
also helped margin improvement. Partially offsetting those gains
were generally weaker custom folding carton sales mix and decreased
product waste sales due to a drop in the recycled paperboard
market.
Selling, general and administrative (SG&A) expense was
relatively flat at $1.84 million, or 14.6% of total revenue, in the
third quarter of 2009 when compared with $1.85 million, or 14.7% of
total revenue, in the same period the prior year. Lower labor costs
due to reduced headcount from the product line rationalization
combined with decreased professional service fees more than offset
increased commission expense.
Mr. David B. Lupp, Chief Operating Officer and Chief Financial
Officer commented, “Our strategic decision to rationalize our
product lines and refine our focus to our core products is
validated by this quarter’s strong results. Our concentration is on
establishing a solid business model that can succeed in all
economic environments. We are generating cash, strengthening our
balance sheet, maintaining cost discipline, and driving our value
proposition to grow sales.”
Other income was $0.4 million in the third quarter of 2009.
Included in this balance is a $263 thousand fair value adjustment
to increase the balance of assets held for sale associated with the
rationalized product line based on bids received in a public
auction held in September 2009. These assets had previously been
written down in the second quarter of 2009. Also included in other
income was a $104 thousand gain on the sale of assets associated
with the rationalized product line.
Adjusted earnings before interest, asset impairment, fair value
adjustment, taxes, depreciation and amortization, and non-cash
option expense (Adjusted EBITDA) was $1.51 million in the third
quarter of 2009 compared with $1.04 million in the 2008 third
quarter. The Company believes that, when used in conjunction with
GAAP measures, Adjusted EBITDA, which is a non-GAAP measure, helps
in the understanding of operating performance. (See the
reconciliation of Net Income or Loss to Adjusted EBITDA in the
attached table.)
As required by generally accepted accounting principles, in the
second quarter of 2009 the Company recorded a full valuation
allowance on its net deferred tax asset due to the uncertainty with
respect to utilizing it in the future based on a past trend of
operating losses. As a result, the effective tax rate for the third
quarter of 2009 was 0% compared with an effective tax rate of 74.1%
in the third quarter of 2008.
Liquidity: Cash from asset and insurance policy sales
used to pay down $1.7 million on line
Cash and cash equivalents were $0.32 million at October 3, 2009,
an increase compared with $0.17 million at July 4, 2009 and $0.20
million at December 31, 2008. MOD-PAC generated $1.0 million in
cash from operations during the quarter from higher net income and
non-cash depreciation and amortization expense, partially offset by
increased working capital requirements. Also, in the third quarter
of 2009, the Company surrendered life insurance policies and
received the cash surrender value of $0.86 million and sold assets
associated with its rationalized product line for net proceeds of
$0.2 million. Proceeds were used to pay down debt and to increase
cash on hand.
Capital expenditures in the third quarter of 2009 were $0.14
million compared with $0.34 million in the same period last year.
Equipment upgrades made up the bulk of the third quarter 2009
expenditures. Capital expenditures were $0.8 million in the first
nine months of 2009 compared with $1.6 million in the same period
last year. Capital expenditures are expected to be approximately
$1.0 million in fiscal year 2009. Depreciation and amortization was
$2.5 million in the first nine months of 2009 compared with $2.9
million for the first nine months of 2008. Lower depreciation
reflects a reduced asset base from the write-down of assets
associated with the rationalized product line in the second quarter
of 2009.
MOD-PAC has access to a $5.0 million committed line of credit
with a commercial bank, which expires in March 2010. The line of
credit balance at October 3, 2009, was $0.6 million, down $1.7
million from $2.3 million at July 4, 2009, and down $0.4 million
from $1.0 million at December 31, 2008. An additional $0.2 million
of the line of credit was in use through standby letters of credit.
The Company believes that cash and cash equivalents and net cash
provided by operations and its available line are sufficient to
meet requirements in 2009 and beyond.
On October 9, 2009, MOD-PAC entered into a contract to sell its
Blasdell, NY facility. The sale is subject to various terms and
conditions and there is no assurance that the facility will be
sold. The net proceeds of the sale are expected to approximate the
carrying value of the property at October 3, 2009.
There were no shares repurchased by the Company in the first
nine months of 2009. MOD-PAC has authorization to repurchase 75,885
shares.
Nine-Month Review: 16.7% growth in custom folding
carton sales more than offsets other product line declines
Net sales for the nine months of 2009 were up 2.3% to $35.7
million compared with $34.9 million in the first nine months of
2008. New customer accounts and business expansion from several
existing customers drove the 16.7% year-to-date growth in custom
folding carton sales to $25.9 million, compared with $22.2 million
in the corresponding period in 2008. Stock packaging sales were
down 7.9% to $5.9 million for the first nine months of 2009, while
personalized print sales declined 22.5% to $2.4 million over the
same time period. Both product lines were negatively affected by
reduced demand due to economic conditions. For the nine-month
period last year, there was $3.2 million in specialty print and
direct mail sales compared with the $1.5 million in the first half
of this year while the Company still had the full product line.
Excluding this product line from both years, total sales were $34.2
million for the nine-month period in 2009 up 7.8% compared with
$31.7 million for the same period last year.
Gross profit for the first nine months of 2009 was $4.4 million,
or 12.2% of total revenue, down from gross profit of $4.6 million,
or 13.0% of total revenue, in the same period the prior year. The
decline was driven by generally weaker sales mix, decreased waste
sales due to a drop in the recycled paperboard market, and
increased labor and repairs expense, partially offset by lower
depreciation expense.
SG&A expense decreased 3.3% to $5.8 million, or 16.1% of
total revenue, in the first nine months of 2009 compared with $6.0
million, or 17.0% of total revenue, in the first nine months of
2008. Lower professional service costs as a result of cost
reduction initiatives implemented in 2008 contributed to the
reduction in year-over-year expenses.
Included in the first nine months of 2009, was $2.2 million of
expense that was associated with the write-down of impaired assets
in the second quarter of 2009 due to the Company's rationalization
of the specialty print and direct mail product line.
Other income was $0.4 million in the first nine months of 2009,
compared with $93 thousand in the same period the prior year.
Included in the 2009 year-to-date balance is the previously noted
adjustment to increase assets held for sale to fair value and the
gain on the sale of assets associated with the rationalized product
line.
For the nine-month period, Adjusted EBITDA was $1.5 million in
2009 compared with $1.8 million in 2008. (See the reconciliation of
Net Income or Loss to Adjusted EBITDA in the attached table.)
Webcast and Conference
Call
The release of the financial results will be followed by a
company-hosted teleconference and webcast on Wednesday, November 4
at 4:30 p.m. Eastern Time. During the teleconference, Daniel G.
Keane, President and Chief Executive Officer, and David B. Lupp,
Chief Operating Officer and Chief Financial Officer, will review
the financial and operating results for the period and discuss
MOD-PAC CORP.’s corporate strategy and outlook. A
question-and-answer session will follow.
The MOD-PAC conference call can be accessed the following
ways:
- The live webcast can be found at
http://www.modpac.com. Participants should go to the website 10 -
15 minutes prior to the scheduled conference in order to register
and download any necessary audio software.
- The teleconference can be
accessed by dialing (201) 689-8562 and requesting Conference ID
Number 334954 approximately 5 - 10 minutes prior to the call.
The archived webcast will be at http://www.modpac.com. A
transcript will also be posted once available. A replay can also be
heard by calling (201) 612-7415 and entering conference ID number
334954 and account number 3055. The telephonic replay will be
available from 7:30 p.m. Eastern Time the day of the teleconference
through 11:59 p.m. Eastern Time on November 11, 2009.
ABOUT MOD-PAC
CORP.
MOD-PAC CORP. is a high value-added, on demand print services
firm providing products and services in two product categories:
folding cartons and personalized print. Within folding cartons,
MOD-PAC provides CUSTOM FOLDING CARTONS for branded and private
label consumer products in the food and food service, healthcare,
medical and automotive industries. The Company also offers a line
of STOCK PACKAGING primarily to the retail confectionary industry.
MOD-PAC’s PERSONALIZED PRINT product line is a comprehensive
offering for consumer and corporate social occasions.
MOD-PAC’s strategy for growth is to leverage its capabilities to
innovate and aggressively integrate technology into its production
operations providing cost-effective solutions for its customers.
Through its large, centralized facility, the Company has captured
significant economies of scale by channeling large numbers of
small-to-medium-sized orders through its operations due to its
rapid order change out skills. Applying its lean manufacturing
processes coupled with state-of-the-art printing technologies,
MOD-PAC is able to address short-run, highly variable content needs
of its customers with quick turn around times relative to industry
standards.
Additional information on MOD-PAC can be found at its website:
http://www.modpac.com.
Safe Harbor Statement: This press release contains
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. One can identify these
forward-looking statements by the use of the words such as
"expect," "anticipate," "plan," "may," "will," "estimate" or other
similar expressions. Because such statements apply to future
events, they are subject to risks and uncertainties that could
cause the actual results to differ materially. Important factors,
which could cause actual results to differ materially, include
market events, competitive pressures, changes in technology,
customers preferences and choices, success at entering new markets,
the execution of its strategy, marketing and sales plans, the rate
of growth of internet related sales, the effectiveness of
agreements with print distributors and other factors which are
described in MOD-PAC’s annual report on Form 10K on file with the
Securities and Exchange Commission. The Company assumes no
obligation to update forward-looking information in this press
release whether to reflect changed assumptions, the occurrence of
unanticipated events or changes in future operating results,
financial conditions or prospects, or otherwise.
FINANCIAL TABLES FOLLOW.
MOD-PAC CORP.
CONSOLIDATED INCOME STATEMENT
DATA
(unaudited) (in thousands
except per share data)
Three months ended Nine months
ended 10/3/2009 9/27/2008 10/3/2009
9/27/2008 Revenue Product sales $ 12,446 $ 12,504 $ 35,727 $
34,922 Rent 141 133 399
356 Total Revenue 12,587 12,637 36,126 35,278 Cost of
products sold 10,071 10,662
31,732 30,675 Gross profit 2,516 1,975 4,394
4,603 Gross profit margin 20.0 % 15.6 % 12.2 % 13.0 % Selling,
general and administrative expense 1,841 1,854 5,799 5,994
Write-down of impaired assets 0 0
2,175 0 Income (Loss) from operations
675 121 (3,580 ) (1,391 ) Operating loss margin 5.4 % 1.0 % -9.9 %
-3.9 % Interest expense, net 64 79 194 203 Other income 400
12 410 93 Income
(Loss) before taxes 1,011 54 (3,364 ) (1,501 ) Income tax expense
(benefit) 0 40 (118 )
(477 )
Net income (loss) $ 1,011
$ 14 $ (3,246 ) $
(1,024 ) Basic earnings (loss) per share: $
0.29 $ 0.00 $ (0.95 ) $ (0.30 ) Diluted earnings (loss) per share:
$ 0.29 $ 0.00 $ (0.95 ) $ (0.30 ) Weighted average diluted
shares outstanding 3,470 3,430 3,430 3,436
MOD-PAC
CORP. PRODUCT LINE REVENUE DATA (unaudited) ($, in
thousands)
Three Months Ended % Nine Months
Ended % 2009 YTD % of 10/3/2009
9/27/2008 change 10/3/2009 9/27/2008
change Total FOLDING CARTONS
Custom folding cartons $ 9,408 $ 8,194 14.8 % $ 25,888 $ 22,189
16.7 % 72.5 % Stock packaging 2,239 2,278 -1.7 %
5,888 6,392 -7.9 % 16.5 %
Folding cartons
subtotal 11,647 10,472 11.2 %
31,776 28,581 11.2 % 89.0
% PRINT SERVICES Specialty print & direct
mail 0 1,064 -100.0 % 1,519 3,201 -52.5 % 4.2 % Personalized
799 968 -17.5 % 2,432 3,140 -22.5 % 6.8 %
Print services subtotal 799 2,032 -60.7
% 3,951 6,341 -37.7 %
11.0 %
Total product revenue $ 12,446 $
12,504 -0.5 % $ 35,727 $
34,922 2.3 % 100.0 %
MOD-PAC CORP.CONSOLIDATED BALANCE SHEET
DATA
(dollars in thousands)
October 3, 2009
December 31, (Unaudited)
2008 Current assets:
Cash and cash equivalents $ 315 $ 200 Trade accounts receivable,
net of allowance of $186 in 2009 and $170 in 2008 5,457 4,750
Inventories 4,118 4,313 Prepaid expenses 406
357
Total current assets 10,296 9,620
Property, plant and equipment, at cost 63,579 68,707 Less
accumulated depreciation (47,685 ) (47,116 ) Net
property, plant and equipment 15,894 21,591 Assets held for sale
2,091 - Other assets 465 1,340
Totals assets $ 28,746 $
32,551 Current liabilities: Current maturities
of long-term debt $ 186 $ 168 Accounts payable 2,902 3,222 Accrued
expenses 729 581 Line of credit, current 600 -
Total current liabilities 4,417 3,971
Line of credit, long-term - 1,000 Long-term debt 2,301 2,413 Other
liabilities 52 37 Deferred income taxes - 118
Total liabilities $ 6,770
$ 7,539 Shareholders' equity: Common
stock, $.01 par value Authorized 20,000,000 shares, issued
3,443,557 in 2009, 3,439,347 in 2008 34 34 Class B common stock,
$.01 par value Authorized 5,000,000 shares, issued 637,272 in 2009,
641,482 in 2008 7 7 Additional paid-in capital 2,595 2,385 Retained
earnings 25,555 28,801 28,191 31,227
Less treasury shares, at cost 650,698 in 2009 and 2008
(6,215 ) (6,215 ) Total shareholders' equity 21,976
25,012
Total liabilities and shareholders’
equity $ 28,746 $ 32,551
MOD-PAC CORP.CONSOLIDATED STATEMENT OF CASH
FLOWS
(dollars in thousands) (Unaudited)
Nine Months Ended
October 3,2009
September
27,2008
Cash flows from operating activities: Net loss $ (3,246 ) $
(1,024 ) Adjustments to reconcile net loss to net cash provided by
operating activities: Depreciation and amortization 2,531 2,850
Provision for doubtful accounts 45 11 Stock option compensation
expense 210 208 Deferred income taxes (118 ) (479 ) Write-down of
impairment of assets 2,175 - Fair value adjustment for assets held
for sale (263 ) - Gain on disposal of assets (80 ) (54 ) Cash flows
from changes in operating assets and liabilities Accounts
receivable (752 ) (1,149 ) Inventories 195 (598 ) Prepaid expenses
(49 ) (57 ) Other liabilities 15 (234 ) Accounts payable (320 ) 648
Accrued expenses 148 (5 )
Net cash
provided by operating activities 491
117 Cash flows from investing
activities: Proceeds from the sale of assets 212 125 Proceeds
from the cash surrender value of officers' life insurance policies
857
-
Change in other assets (78 ) (45 ) Capital expenditures (841
) (1,601 )
Net cash provided by (used in)
investing activities 150
(1,521 ) Cash flows from financing
activities: Principal payments on long-term debt (126 ) (79 )
(Decrease) increase in line of credit (400 ) 1,125 Proceeds from
loans - 580 Purchase of treasury stock - (150 ) Deferred financing
fees - (5 )
Net cash (used in)
provided by financing activities (526 )
1,471 Net increase in cash and cash
equivalents 115 67 Cash and cash equivalents at beginning of
year 200 98
Cash and cash
equivalents at end of period $ 315
$ 165 MOD-PAC CORP.
Reconciliation between GAAP Net Income or Loss and Adjusted
EBITDA (in thousands)
Three Months Ended Nine Months Ended
10/3/2009 9/27/2008
10/3/2009 9/27/2008
GAAP Net Income (Loss) $ 1,011 $
14 $ (3,246 ) $ (1,024
) Interest 63 79 194 203 Write-down of impaired
assets 0 0 2,175 0 Fair value adjustment for assets held for sale
(263 ) 0 (263 ) 0 Taxes 0 40 (118 ) (477 ) Depreciation and
amortization 662 860 2,531 2,850 Stock-based compensation 41 45 210
208
Adjusted EBITDA $ 1,514 $
1,038 $ 1,483 $
1,760 Adjusted EBITDA = earnings before
interest, asset impairment, fair value adjustment, taxes,
depreciation and amortization and non-cash option expense.
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