MOD-PAC CORP. (NASDAQ: MPAC) (the “Company”), a manufacturer of
custom and stock paper board packaging and provider of personalized
print products, today announced financial results for its fourth
quarter and year ended December 31, 2010.
Daniel G. Keane, President and CEO, commented, “As a direct
result of successfully implementing our focused strategies over the
last two years, we delivered solid results in 2010, led by our
market-share gains in custom folding cartons and a rebound in our
stock packaging business line. During the year, we also generated
strong cash from operations, strengthened our balance sheet, and
continued to return more capital to our shareholders through share
repurchases.”
David B. Lupp, Chief Operating Officer and Chief Financial
Officer, noted, “This was our sixth consecutive quarter of
profitability. And even though our fourth-quarter earnings were
impacted by the write-down of the remaining held-for-sale Specialty
Print and Direct Mail assets and a software system no longer being
used, together with higher-than-expected repair and maintenance
costs, our 2010 results clearly demonstrate that our restructured
and refocused business platform has enhanced our ability to achieve
our long-term growth and profitability goals.”
Total revenue for the fourth quarter of 2010 was $12.80 million,
a slight increase from total revenue of $12.77 million in the 2009
fourth quarter. Net income was $240 thousand, or $0.07 per diluted
share, compared with net income of $1.26 million, or $0.36 per
diluted share, in the fourth quarter of 2009. The change in net
income was primarily due to higher repair and maintenance costs,
pricing pressure, product mix, and a $178 thousand, or $0.05 per
diluted share, charge for impaired asset write-downs. On an
adjusted basis, fourth quarter net income was $418 thousand, or
$0.12 per diluted share, compared with $1.23 million, or $0.35 per
diluted share, for the same period last year. Reconciliation of
GAAP net income to adjusted net income and diluted earnings per
share is summarized in the following table:
Three Months Ended
12/31/2010
12/31/2009
12/31/2010
12/31/2009
(in thousands) (diluted earnings per share)
Net Income
$
240
$
1,264
$
0.07
$
0.36 Net write-down (write-up) of impaired assets
178 (36 )
0.05 (0.01 ) Total one-time charges 178 (36 )
0.05 (0.01 )
Adjusted Net
Income
$
418
$
1,228
$
0.12
$
0.35
Total revenue for 2010 was $48.7 million compared with $48.9
million in the prior year period. Excluding 2009 specialty print
and direct mail sales, which was rationalized in the second quarter
of 2009, total revenue grew $1.34 million, or 2.8%, compared with
2009, reflecting higher folding carton sales and improved waste
sales due to a recovery in the recycling market.
Net income increased to $1.31 million, or $0.37 per diluted
share, in 2010 from a net loss of $1.98 million, or $0.58 per
diluted share, in 2009. Excluding one-time charges associated with
the product line rationalization and the write-down of impaired
assets from both periods, adjusted net income would have been $1.48
million, or $0.42 per diluted share, in 2010 compared with adjusted
net income of $12 thousand, or $0.00 per diluted share, in 2009.
The significant increase in adjusted net income reflects the
effectiveness of the product line rationalization combined with
other productivity and cost reduction initiatives, increased waste
sales and lower utility costs. Reconciliation of GAAP net income
(loss) to adjusted net income and diluted earnings per share is
summarized in the following table:
Year Ended
12/31/2010
12/31/2009
12/31/2010
12/31/2009
(in thousands) (diluted earnings per share)
Net Income
(Loss) $ 1,306
$
(1,982) $ 0.37 $ (0.58 )
Net write-down of impaired assets 178 1,772 0.05 0.52
Workforce reduction charges 0 65 0 0.02 Change in useful life of
assets 0 40 0 0.01 Other rationalization charges 0 117
0 0.03 Total one-time charges 178 1,994 0.05
0.58
Adjusted Net Income $ 1,484
$
12
$ 0.42
$ 0.00
Fourth Quarter 2010 Sales Review
- Sales of folding cartons, which include
custom folding cartons and stock packaging, were up 0.4%, or $48
thousand, to $12.08 million in the 2010 fourth quarter from $12.03
million in the prior year fourth quarter. Stock packaging sales,
which increased 8.6%, or $0.26 million, to $3.33 million, drove the
product line increase. Higher waste sales, due to a recovery in the
recycling market, also contributed to the increase.
- Custom folding carton sales for the
fourth quarter of 2010 were $8.75 million compared with $8.96
million in the prior year period, as year-over-year demand from
existing custom folding carton accounts was down slightly.
- Print services sales, which are now
comprised solely of personalized print, were $0.62 million in the
fourth quarter of 2010, up 3.8% from $0.60 million in the fourth
quarter of 2009. This product line continues to be hindered by weak
economic conditions.
Fourth Quarter Operating Results
Gross profit for the 2010 fourth quarter was $2.25 million, or
17.5% of total revenue, compared with gross profit of $2.98
million, or 23.4% of total revenue, in the prior year period. The
savings realized from productivity improvements were more than
offset by higher repair and maintenance costs to the Company’s
infrastructure. Pricing pressure, product mix and supply purchase
timing also contributed to the decline.
Selling, general and administrative (SG&A) expense was down
$56 thousand, or 3.2%, to $1.69 million, or 13.2% of total revenue,
in the fourth quarter of 2010 compared with $1.75 million, or 13.7%
of total revenue, in the prior year period. The decrease was
primarily due to a lower administrative headcount, as the Company
began to realign functions in 2009.
In the fourth quarter of 2010, the Company recognized a $60
thousand expense for the write-down of the remaining rationalized
assets and a $118 thousand expense for the write-down of a software
system.
Adjusted earnings before interest, asset impairment, taxes,
depreciation and amortization, and non-cash option expense
(Adjusted EBITDA) was $1.28 million in the fourth quarter of 2010
compared with $1.99 million in the 2009 fourth 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 (Loss) to Adjusted EBITDA in the attached table.)
The Company’s effective tax rate of 16.7% for the fourth quarter
of 2010 was related to alternative minimum taxes. The Company has
approximately $0.2 million in net operating loss carry forwards
that can be applied to future income.
Liquidity
Cash and cash equivalents were $3.44 million at December 31,
2010, down from the 2009 year-end balance of $3.78 million, though
up from $2.24 million at October 2, 2010. The slight decrease from
2009 was primarily the result of capital expenditures, increased
working capital requirements, particularly with inventory, a
reduction in long-term debt and the repurchase of stock, partially
offset by higher net income.
The Company increased inventory $0.98 million, or 22.9%, to
$5.23 million at December 31, 2010, from $4.26 million at 2009
year-end to continue to meet demand and customer schedules as
supplier lead times have increased.
Capital expenditures for the fourth quarter and full-year 2010
were $0.55 million and $1.79 million, respectively, compared with
$0.13 million and $0.98 million in the corresponding periods of the
prior year. The fourth quarter included the purchase of a folding
carton print press which was previously under a long-term operating
lease. Infrastructure improvements and other custom folding carton
equipment made up the bulk of the remaining 2010 expenditures.
Capital expenditures in 2011 are expected to be between $1.5
million to $2.0 million.
The Company repurchased 111,602 shares in the fourth quarter of
2010 at an average price of $4.98. In 2010, a total of 165,572
shares were repurchased at an average price of $4.74. MOD-PAC has
authorization to repurchase up to 84,930 additional shares.
Depreciation and amortization for 2010 declined to $2.79 million
from $3.19 million in 2009 due to equipment sold in 2009 related to
the product line rationalization.
MOD-PAC has access to a $3.0 million revolving credit facility
with a commercial bank. At the end of 2010, only $0.2 million of
the line was in use through standby letters of credit. The Company
believes its cash on hand and the cash it generates from operations
will be sufficient for its working capital and capital spending
requirements in 2011.
Mr. Lupp concluded, “We will continue to make targeted
investments in our business to further advance our market position,
generate long-term growth, and improve our profitability. We remain
intensely focused on growing sales and continue to look for
opportunities to increase efficiencies and reduce costs to improve
our earnings. With a renewed operating platform, and the economy
stabilizing, we enter 2011 with positive momentum.”
2010 Review
Custom folding carton sales in 2010 increased $0.86 million, or
2.5%, to $35.71 million compared with $34.85 million for 2009, as
the Company has successfully gained additional business from
existing customers. Stock packaging sales increased $0.63 million,
or 7.0%, to $9.58 million over the corresponding period, while
personalized print sales were down $93 thousand, or 3.1%, to $2.94
million reflecting continued weakness in that product line.
Gross profit increased to $8.76 million, or 18.0% of total
revenue, in 2010 from gross profit of $7.38 million, or 15.1% of
total revenue, in 2009. The 290 basis point improvement in margin
was due to the business rationalization, higher waste sales, and
other productivity and cost reduction initiatives.
SG&A expense was $7.06 million, or 14.5% of total revenue,
compared with $7.55 million, or 15.4% of total revenue, in 2009.
The lower SG&A for the period was primarily due to lower labor
costs and other efficiency enhancements implemented during the
period.
Included in the 2009 results was $1.77 million of expense
associated with the write-down of impaired assets due to the
Company's rationalization of the specialty print and direct mail
product line compared with $60 thousand in 2010. Also included in
2010 was the previously noted $118 thousand write-down for a
software system.
Adjusted EBITDA for 2010 was up 46.5%, or $1.57 million, to
$4.94 million compared with $3.37 million in 2009. (See the
Reconciliation of Net Income (Loss) to Adjusted EBITDA in the
attached table.)
Webcast and Conference Call
MOD-PAC CORP. will host a conference call and webcast at 1:30
p.m. ET on Tuesday, March 1, 2011. 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 conference call can be accessed by dialing (201) 689-8562
and entering conference ID number 364170. 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
364170. The telephonic replay will be available from 4:30 p.m. ET
the day of the call until 11:59 p.m. ET on Tuesday, March 8, 2011.
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 confectionery 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 news 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
news release whether to reflect changed assumptions, the occurrence
of unanticipated events or changes in future operating results,
financial conditions or prospects, or otherwise.
MOD-PAC CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
Three months
ended Year ended 12/31/2010
12/31/2009 12/31/2010
12/31/2009 Revenue Product sales $ 12,697 $ 12,626 $
48,232 $ 48,353 Rent 107 144 489
543 Total Revenue 12,804 12,770 48,721 48,896
Cost of products sold 10,559 9,786
39,964 41,518 Gross profit 2,245 2,984
8,757 7,378 Gross profit margin 17.5 % 23.4 % 18.0 % 15.1 %
Selling, general and administrative expense 1,694 1,750 7,056 7,549
Net write-down (write-up) of impaired assets 178
(36 ) 178 1,772 Income (Loss)
from operations 373 1,270 1,523 (1,943 ) Operating margin 2.9 % 9.9
% 3.1 % -4.0 % Interest expense, net 47 51 195 245 Other (expense)
income (38 ) 45 45 88
Income (Loss) before taxes 288 1,264 1,373 (2,100 ) Income
tax expense (benefit) 48 0 67
(118 )
Net income (loss) $ 240
$ 1,264 $ 1,306
$ (1,982 ) Basic income (loss) per
share: $ 0.07 $ 0.37 $ 0.38 $ (0.58 ) Diluted income (loss) per
share: $ 0.07 $ 0.36 $ 0.37 $ (0.58 )
Weighted average diluted shares
outstanding
3,497 3,534 3,544 3,430
MOD-PAC CORP.
PRODUCT LINE REVENUE DATA (unaudited) ($ in thousands)
Three Months Ended %
Year Ended % 2010 % of
12/31/2010 12/31/2009
change 12/31/2010 12/31/2009
change Total FOLDING
CARTONS Custom folding cartons $ 8,747 $ 8,963
-2.4% $ 35,713 $ 34,851 2.5% 74.0% Stock packaging 3,329
3,065 8.6% 9,582 8,953
7.0% 19.9%
Folding cartons subtotal 12,076
12,028 0.4% 45,295 43,804 3.4%
93.9% PRINT SERVICES Specialty print &
direct mail 0 0 N/A 0 1,519 -100% 0% Personalized 621
598 3.8% 2,937 3,030
-3.1% 6.1%
Print services subtotal 621 598
3.8% 2,937 4,549 -35.4% 6.1%
Total product
revenue $ 12,697 $ 12,626
0.6% $ 48,232 $ 48,353
-0.3% 100.0%
MOD-PAC CORP.
CONSOLIDATED
BALANCE SHEETS
(dollars in thousands) (Unaudited)
December 31,
2010
December 31,
2009
Current assets: Cash and cash equivalents $ 3,440 $ 3,780 Accounts
receivable 5,003 4,975 Allowance for doubtful accounts (96 )
(155 ) Net accounts receivable 4,907 4,820 Inventories 5,234
4,258 Prepaid expenses 440 297 Total
current assets 14,021 13,155 Property, plant and equipment,
at cost: Land 1,170 1,170 Buildings and equipment 12,460 12,389
Machinery and equipment 48,697 49,129 Construction in progress
56 990 62,383 63,678 Less accumulated
depreciation (48,114 ) (48,262 ) Net property, plant
and equipment 14,269 15,416 Assets held for sale - 171 Other assets
487 459
Total assets $
28,777 $ 29,201 Current
liabilities: Current maturities of long-term debt $ 110 $ 202
Accounts payable 1,302 2,567 Accrued expenses 939 803 Income taxes
payable 40 - Total current liabilities
2,391 3,572 Long-term debt 1,958 2,292 Other liabilities 24
38 Deferred income taxes 6 -
Total
liabilities 4,379 5,902
Shareholders' equity: Common stock, $.01 par value,
authorized 20,000,000shares, issued 3,549,017 in 2010, 3,453,863 in
2009 35 35 Class B common stock, $.01 par value,
authorized5,000,000 shares, issued 616,472 in 2010, 628,385 in2009
6 6 Additional paid-in capital 3,232 2,654 Retained earnings
28,125 26,819 31,398 29,514 Less treasury
stock at cost, 816,270 shares in 2010 and 650,698 in 2009
(7,000 ) (6,215 )
Total shareholders' equity
24,398 23,299 Total
liabilities and shareholders' equity $ 28,777
$ 29,201 MOD-PAC CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
($ in thousands)
(Unaudited)
Year Ended
December 31,
2010
December 31,
2009
Cash flows from operating activities: Net income
(loss) $ 1,306 $ (1,982 )
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,792 3,188 (Reversal of) Provision
for doubtful accounts (33 ) 20 Stock option compensation expense
399 265 Deferred income taxes 6 (118 ) Net write-down of impaired
assets 178 1,772 Loss on disposal of assets 12 15 Cash flows from
changes in operating assets and liabilities Accounts receivable (53
) (90 ) Inventories (976 ) 55 Prepaid expenses (143 ) 60 Other
liabilities (14 ) 1 Accounts payable (1,266 ) (655 ) Payable income
taxes 40 - Accrued expenses 136 222
Net cash provided by operating
activities 2,384 2,753
Cash flows from investing activities: Proceeds
from the sale of assets 134 2,190 Proceeds from the cash surrender
value of officers' life insurance policies
-
857
Change in other assets (16 ) (78 ) Capital expenditures
(1,789 ) (975 )
Net cash (used in) provided by
investing activities (1,671 )
1,994 Cash flows from financing
activities: Principal payments on long-term debt and capital
leases (426 ) (171 ) (Decrease) increase in line of credit - (1,000
) Proceeds from issuance of stock 179 4
Purchase of treasury stock
(785 ) - Deferred financing fees (21 ) -
Net cash used in financing activities
(1,053 ) (1,167 ) Net
change in cash and cash equivalents (340 ) 3,580 Cash and
cash equivalents at beginning of year 3,780
200
Cash and cash equivalents at end of period
$ 3,440 $ 3,780
MOD-PAC CORP. Reconciliation between Net Income (Loss)
and Adjusted EBITDA
(in thousands)
Three
Months Ended Year Ended
12/31/2010
12/31/2009
12/31/2010
12/31/2009
Net Income (Loss)
$
240
$
1,264
$
1,306
$
(1,982 ) Interest 47 51 195 245 Net write-down
(write-up) of impaired assets 178 (36 ) 178 1,772 Taxes 48 0 67
(118 ) Depreciation and amortization 713 658 2,792 3,188
Stock-based compensation 52 55 399 265
Adjusted EBITDA
$
1,278
$
1,992
$
4,937
$
3,370 Adjusted EBITDA = earnings before
interest, asset impairment, taxes, depreciation and amortization
and non-cash option expense.
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