MOD-PAC CORP. (NASDAQ: MPAC) (the “Company”), a manufacturer of
custom and stock paper board packaging and provider of personalized
print products, today reported total revenue of $11.52 million in
the second quarter of 2010, which ended July 3, 2010, up 2.7% from
total revenue of $11.21 million in the 2009 second quarter. In June
of 2009, MOD-PAC exited the commercial print market and
rationalized the Company’s specialty print and direct mail product
line. Excluding the $0.75 million in specialty print and direct
mail sales from the prior year period, total revenue grew $1.06
million, or 10.1% year-over-year. Driving the revenue growth was
increased sales to the Company’s existing folding carton
customers.
Net income for the second quarter was $46 thousand, or $0.01 per
diluted share compared with net loss of $3.72 million, or $1.09 per
diluted share, in the second quarter of 2009. The increase in net
income was a result of the rationalization which eliminated an
unprofitable product line and other productivity and cost reduction
measures that were implemented throughout 2009. The second quarter
of 2009 was negatively impacted by $2.4 million in one-time charges
related to the product line rationalization and a mark-to-market
adjustment for a facility since sold. Excluding those charges,
second quarter net loss would have been $1.31 million, or $0.39 per
diluted share. (See reconciliation of GAAP net income (loss) and
earnings (loss) per share to adjusted net income (loss) and
earnings (loss) per share in the attached table.)
Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP.,
commented, “Our second quarter results reflect the continued
success we are having in growing our custom folding carton
business, as well as the operational improvements we have put in
place, including the strategic decision to rationalize our
specialty print and direct mail product line.”
Custom Folding Cartons, MOD-PAC’s leading product line, has
double digit growth in quarter
- Sales of folding cartons, which
include custom folding cartons and stock packaging, were up 11.2%,
or $1.06 million, to $10.53 million in the 2010 second quarter from
$9.46 million in the prior year second quarter driven by growth in
custom folding carton sales.
- Custom folding carton sales in
the second quarter of 2010 were $9.04 million, up $1.05 million, or
13.1% from $7.99 million in the second quarter of 2009. Sales
growth was the result of increased volume from existing
customers.
- Stock packaging sales increased
1.2% to $1.49 million in the 2009 second quarter.
- Print services sales, which are
now comprised solely of personalized print, were $0.86 million in
the second quarter of 2010, down 46.7% from $1.61 million in the
second quarter of 2009. The 2009 second quarter had $0.75 million
in sales related to the specialty print and direct mail product
line.
Margin expansion reflects effectiveness of
restructuring
Gross profit increased 332% to $1.97 million in the second
quarter of 2010, compared with $0.46 million in the prior year
period. Gross margin expanded to 17.1% in the second quarter of
2010, compared with 4.1% in the second quarter of 2009. The
improvement in gross profit and margin was largely driven by the
savings realized from the product line rationalization as the
Company realized lower depreciation expense and decreased labor,
supply and maintenance costs. Also contributing to the expansion
were improvements in productivity, product mix, lower utility
costs, and recovery in the recycling market. Gross margin improved
from 14.9% in the trailing first quarter despite lower sales as
additional cost savings measures and productivity enhancements were
implemented.
Mr. David B. Lupp, Chief Operating Officer and Chief Financial
Officer commented, “Our product line rationalization was successful
in making us a leaner, more efficient organization, but just as
important, allowed us to refine our focus and inject resources into
our remaining core product lines. Given the second quarter is
traditionally our weakest quarter, I was particularly pleased with
our results in the quarter, which is a true testament to the
success we’ve had at aligning our cost structure with our current
level of sales.”
Second quarter 2010 selling, general & administrative
expense (SG&A) was $1.88 million down 4.1% from $1.96 million
in the 2009 second quarter. The decrease was due to staff
reductions from the product line rationalization, cost discipline
and lower bad debt, partially offset by higher professional service
fees and stock option expense. As a percent of total revenue,
SG&A declined to 16.3% from 17.5%.
Adjusted earnings before interest, asset impairment, taxes,
depreciation and amortization, and non-cash option expense
(Adjusted EBITDA) was $0.94 million in the second quarter of 2010
compared with negative $0.44 million in the 2009 second quarter and
$0.91 in the trailing first quarter. Included in the prior year
quarter was an asset impairment charge of $2.18 million. 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 (loss) to Adjusted EBITDA in the attached table.)
The Company’s effective tax rate for the second quarter of 2010
was 8.0% as a result of federal and state minimum taxes. The
Company has approximately $0.49 million in net operating loss carry
forwards that can be applied to future income.
First Half 2010 Review
Total revenue for the first half of 2010 was $23.54 million,
consistent with the first half of 2009 despite the $1.52 million in
sales related to the rationalized product line in last year’s first
half. Excluding that, total revenue for the first half of 2010 was
up 6.9% over the corresponding period of 2009 reflecting improved
folding carton sales.
Custom folding carton sales were up $1.24 million, or 7.5% to
$17.72 million for the 2010 six-month period compared with $16.48
million in the first half of 2009, while stock packaging sales
increased 9.5%, or $0.35 million, to $3.99 million. Personalized
print sales were down $74 thousand, or 4.5%, to $1.56 million
reflecting the weakness in the economy.
Gross profit and margin doubled in the first half of 2010, to
$3.77 million and 16.0%, respectively, on flat sales primarily
reflecting the rationalization and other productivity
enhancements.
SG&A expense was $3.66 million, or 15.5% of total revenue,
in the first six months of 2010 compared with $3.96 million, or
16.8% of total revenue, in the first six months of 2009. The lower
SG&A for the period was due to similar reasons as in the second
quarter.
Adjusted EBITDA for the first six months of 2009 was $1.84
million compared with negative $33 thousand for the same period in
2009. (See the Reconciliation of Net Income (loss) to Adjusted
EBITDA in the attached table.)
Liquidity
Cash and cash equivalents were $2.87 million at July 3, 2010
compared with $3.11 million at April 3, 2010 and a 2009 year-end
balance of $3.78 million. The decrease through the first six months
of 2010 was primarily the result of capital expenditures, increased
working capital requirements and reduction in long-term debt that
was partially offset by proceeds from the sale of equipment.
Capital expenditures in the second quarter and first half of
2010 were $0.70 million and $1.0 million, respectively, compared
with $0.35 million and $0.70 million in the corresponding periods
of the prior year. System investments and custom folding carton
equipment made up the bulk of the first half of 2010 expenditures.
Fiscal year 2010 capital expenditures are expected to be between
$1.6 million to $1.8 million.
Mr. Lupp added, “Our capital investments in our custom folding
carton product line will support continued growth and provide the
quality product and timely deliveries our customers have come to
expect from us.”
Depreciation and amortization for the first six months of 2010
was $1.37 million compared with $1.87 million during the prior year
period. The decline was a result of the product line
rationalization, as most assets associated with that line were sold
in the latter part of fiscal 2009.
On June 9, 2010, MOD-PAC completed an agreement for a new $3.0
million, three-year revolving credit facility with Manufacturers
and Traders Trust Company. The new facility replaced the Company’s
$5.0 million line of credit, which expired in March 2010. At the
end of the second quarter, only $0.2 million of the line of credit
was in use through standby letters of credit. MOD-PAC believes its
cash on hand and the cash it generates from operations will be
sufficient for its working capital and capital spending
requirements throughout 2010.
There were no shares repurchased by the Company in the second
quarter of 2010. MOD-PAC has authorization to repurchase 75,885
shares.
Webcast and Conference Call
The release of the financial results will be followed today by a
conference call and webcast at 1:30 pm ET. During the call, 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. A
question-and-answer session will follow.
The MOD-PAC CORP. conference call can be accessed by calling
(201) 689-8562 and entering conference ID number 353819. The
listen-only audio webcast can be monitored at www.modpac.com. To
listen to the archived call, dial (858) 384-5517, and enter
conference ID number 353819. The telephonic replay will be
available from 4:30 p.m. ET today until 11:59 p.m. ET on Wednesday,
August 11, 2010. A transcript will also be posted to the Company’s
Web site, once available.
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 Six months ended 7/3/2010
7/4/2009 7/3/2010 7/4/2009 Revenue Product
sales $ 11,384 $ 11,071 $ 23,268 $ 23,281 Rent 137
142 269 258 Total Revenue
11,521 11,213 23,537 23,539 Cost of products sold 9,547
10,756 19,768 21,663
Gross profit 1,974 457 3,769 1,876
Gross profit margin
17.1 % 4.1 % 16.0 % 8.0 % Selling, general and administrative
expense 1,880 1,960 3,657 3,958 Write-down of impaired assets
0 2,175 0 2,175
Income (Loss) from operations 94 (3,678 ) 112 (4,257 )
Operating margin 0.8 % -32.8 % 0.5 % -18.1 % Interest expense, net
52 67 104 130 Other income (8 ) (22 ) (72 )
(11 ) Income (Loss) before taxes 50 (3,723 ) 80 (4,376 )
Income tax expense (benefit) 4 0
14 (120 )
Net income (loss) $ 46
$ (3,723 ) $ 66
$ (4,256 ) Basic income (loss) per
share: $ 0.01 $ (1.09 ) $ 0.02 $ (1.24 ) Diluted income (loss) per
share: $ 0.01 $ (1.09 ) $ 0.02 $ (1.24 ) Weighted average
diluted shares outstanding 3,575 3,430 3,575 3,430
MOD-PAC CORP. PRODUCT LINE REVENUE DATA (unaudited)
($, in thousands)
Three Months Ended % Six Months Ended
% 2010 YTD % of 7/3/2010
7/4/2009 change 7/3/2010
7/4/2009 change
Total
FOLDING CARTONS Custom folding cartons $ 9,036 $ 7,989 13.1
% $ 17,715 $ 16,480 7.5 % 76.1 % Stock packaging 1,492
1,475 1.2 % 3,994 3,649 9.5 %
17.2 %
Folding cartons subtotal 10,528 9,464
11.2 % 21,709 20,129 7.8
% 93.3 % PRINT SERVICES
Specialty print & direct mail 0 747 -100 % 0 1,519 -100 % 0 %
Personalized 856 860 -0.5 % 1,559
1,633 -4.5 % 6.7 %
Print services subtotal
856 1,607 -46.7 % 1,559
3,152 -50.5 % 6.7 %
Total product
revenue $ 11,384 $ 11,071
2.8 % $ 23,268 $ 23,281
-0.1 % 100.0 %
MOD-PAC CORP.
CONSOLIDATED BALANCE SHEET
(dollars in thousands) (Unaudited)
July 3,2010
December31, 2009
Current assets: Cash and cash equivalents $ 2,873 $ 3,780
Accounts receivable 5,122 4,975 Allowance for doubtful accounts
(106 ) (155 ) Net accounts receivable 5,016 4,820
Inventories 4,248 4,258 Prepaid expenses 618
297 Total current assets 12,755 13,155 Property,
plant and equipment, at cost: Land 1,170 1,170 Buildings and
equipment 12,406 12,389 Machinery and equipment 49,891 49,129
Construction in progress 902 990 64,369
63,678 Less accumulated depreciation (49,348 )
(48,262 ) Net property, plant and equipment 15,021 15,416 Assets
held for sale 63 171 Other assets 477 459
Totals assets $ 28,316 $
29,201 Current liabilities: Current maturities
of long-term debt $ 109 $ 202 Accounts payable 1,929 2,567 Accrued
expenses 591 803 Total current
liabilities 2,629 3,572 Long-term debt 2,014 2,292 Other
liabilities 26 38
Total
liabilities 4,669 5,902
Shareholders' equity:
Common stock, $.01 par value,
authorized 20,000,000
shares, issued 3,458,828 in 2010,
3,453,863 in 2009
35 35 Class B common stock, $.01 par value, authorized 5,000,000
shares, issued 623,420 in 2010, 628,385 in 2009 6 6 Additional
paid-in capital 2,936 2,654 Retained earnings 26,885
26,819 29,862 29,514 Less treasury stock at cost,
650,698 shares in 2010 and 2009 (6,215 ) (6,215 )
Total shareholders' equity 23,647
23,299 Total liabilities and
shareholders' equity $ 28,316 $
29,201 MOD-PAC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited) (in thousands)
Six Months Ended 7/3/2010
7/4/2009 Cash flows from operating activities: Net
Income (loss) $ 66 $ (4,256 ) Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 1,374 1,869 Provision for doubtful
accounts (34 ) 39 Stock option compensation expense 282 169
Deferred income taxes - (118 ) Write-down of impaired assets -
2,175 (Gain) Loss on disposal of assets (33 ) 24 Cash flow from
change in operating assets and liabilities: Accounts receivables
(162 ) 63 Inventories 10 120 Prepaid expenses (321 ) (164 ) Other
liabilities (12 ) 15 Accounts payable (638 ) (417 ) Accrued
expenses (212 ) (1 ) Net cash provided by (used in)
operating activities $ 320 $ (482 )
Cash flows
from investing activities Proceeds from sale of assets $ 131 $
6 Change in other assets (5 ) (74 ) Capital expenditures
(965 ) (702 ) Net cash used in investing activities $ (839 )
$ (770 )
Cash flows from financing activities
Principal payments on long-term debt $ (371 ) $ (82 ) Deferred
financing fees (17 ) - Increase in line of credit -
1,300 Net cash (used in) provided by financing
activities $ (388 ) $ 1,218
Net decrease in cash
and cash equivalents (907 ) (34 ) Cash and cash
equivalents at beginning of year 3,780 200
Cash and cash equivalents at end of period $ 2,873
$ 166
MOD-PAC CORP. Reconciliation
between GAAP Net Income (Loss) and Adjusted EBITDA
(in thousands)
Three Months Ended Six
Months Ended 7/3/2010
7/4/2009 7/3/2010
7/4/2009 GAAP Net Income (Loss)
$ 46 $ (3,723 ) $
66 $ (4,256 ) Interest 52 67 105
130 Write-down of impaired assets 0 2,175 0 2,175 Taxes 4 0 14 (120
) Depreciation and amortization 686 955 1,374 1,869 Stock-based
compensation 147 83 282 169
Adjusted EBITDA $ 935
$ (443 ) $ 1,841
$ (33 ) Adjusted EBITDA =
earnings before interest, asset impairment, taxes, depreciation and
amortization and non-cash option expense.
MOD-PAC
CORP. Reconciliation between GAAP Net Income (Loss) and
Adjusted Net Income (Loss) (in thousands)
Three
Months Ended
Six Months Ended
7/3/2010 7/4/2009
7/3/2010 7/4/2009
GAAP Net Income (Loss) $ 46 $
(3,723 ) $ 66 $ (4,256
)
Write-down of impaired
assets (Specialty Print and
Direct Mail)
0
(1,933
)
0
(1,933
)
Write-down of impaired
assets (Blasdell facility)
0
(242
)
0
(242
)
Workforce reduction 0 (65 ) 0
(65 )
Change in useful life of
assets
0
(40
)
0
(40
)
Other rationalization charges 0 (134 ) 0
(134 ) Total one-time charges 0 (2,414 ) 0 (2,414 )
Adjusted Net Income
(Loss)
$ 46 $ (1,309 ) $
66 $ (1,842 ) MOD-PAC
CORP. Reconciliation between GAAP Diluted Earnings (Loss)
per Share and Adjusted Diluted Earnings (Loss) Per Share
Three Months Ended
Six Months Ended 7/3/2010
7/4/2009
7/3/2010
7/4/2009 GAAP Diluted Earnings
(Loss) Per Share $ 0.01 $ (1.09
) $ 0.02 $ (1.24 )
Write-down of impaired assets
0
(0.56
)
0
(0.56
)
(Specialty Print and Direct
Mail)
Write-down of impaired assets
0
(0.07
)
0
(0.07
)
(Blasdell facility)
Workforce reduction
0
(0.02
)
0 (0.02 )
Change in useful life of
assets
0 (0.01 ) 0 (0.01 )
Other rationalization charges
0 (0.04 ) 0 (0.04 ) Total one-time
charges 0 (0.70 ) 0 (0.70 )
Adjusted Diluted Earnings
(Loss) Per Share $ 0.01 $ (0.39
) $ 0.02 $ (0.54 )
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