Attached files
file | filename |
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EX-23 - EXHIBIT 23 - MOD PAC CORP | c97300exv23.htm |
EX-21 - EXHIBIT 21 - MOD PAC CORP | c97300exv21.htm |
EX-32.2 - EXHIBIT 32.2 - MOD PAC CORP | c97300exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - MOD PAC CORP | c97300exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - MOD PAC CORP | c97300exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - MOD PAC CORP | c97300exv31w1.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended: December 31, 2009
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 | 16-0957153 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1801 Elmwood Avenue, Buffalo, New York 14207
(Address of principal executive office)
(Address of principal executive office)
(716) 873-0640
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
$.01 par value Common Stock | NASDAQ Stock Market LLC | |
$.01 par value Class B Stock | NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file report pursuant to Section 13 of
Section 15(d) of the Act. Yes o No þ
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 twelve months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated filer, or 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.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(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
Act). Yes o No þ
As of February 5, 2010, 3,431,550 shares were outstanding, consisting of 2,805,007 shares of Common
Stock $.01 Par value and 626,543 shares of Class B Stock $.01 Par Value. The aggregate market
value, as of July 4, 2009, of the shares of Common Stock and Class B Stock of MOD-PAC CORP. held by
non-affiliates was approximately $7,765,379 (assuming conversion of all of the outstanding Class B
Stock into Common Stock and assuming the affiliates of the Registrant to be its directors,
executive officers and persons known to the Registrant to beneficially own more than 10% of the
outstanding capital stock of the Corporation).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Companys Proxy Statement for the Annual Meeting of Shareholders to be held May 5,
2010 are incorporated by reference into Part III of this Report.
PART I
The Registrant, MOD-PAC CORP., is referred to in this Annual Report on Form 10-K as MOD-PAC or in
the nominative we or the possessive our.
Forward Looking Information
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 services and the folding cartons industries; |
| Changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); |
| Fluctuations in 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; and |
| Litigation against the Company. |
Item 1. BUSINESS
Description of the Business
MOD-PAC is a high value-added, on-demand print services firm providing products and services in two
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. We also offer a line of Stock Packaging
primarily to the retail confectionary industry. MOD-PACs Personalized Print product line is a
comprehensive offering for consumer and corporate social occasions. In June 2009, we rationalized
our product lines and exited the Specialty Print and Direct Mail market in order to focus our
resources on our core folding carton and personalized print product lines.
Folding Cartons:
Custom Folding Cartons: Through our fully-integrated, automated die design and custom
folding carton print production, we can meet the highly variable needs of our custom
packaging customers while providing competitive prices for on-demand products in the required
quantities. Full service design, employing advanced computer-aided design and manufacturing
systems, computer-to-plate speed and accuracy, and rapid turnover print processes give our
customers the products they need when they need them. Our customers are generally in the
healthcare, confectionary, food and food service, and automotive industries, including
private label manufacturers. We sell directly to these customers, who have requirements that
are characterized by high product variability, short production cycles, and variable print
run quantities.
Stock Packaging: Our stock packaging line sells a variety of products including a collection
of candy boxes and gourmet bags as well as other products such as trays and other
complementary items. Most of these items are available for customization with ink and foil
stamping in quantities of as few as 50. We serve over 4,000 customers in the U.S. and Canada
on a direct basis and through distributor networks. Our core target
market is the independent confectionery industry; however, we also provide retail packaging
solutions during the holiday season to gift retailers and for general consumer use.
2
Personalized Print Services:
We produce a wide variety of event-oriented products for both the corporate and consumer
markets including invitations, napkins, announcements, bags, boxes and a wide accessory
product line for all social occasions such as corporate events, weddings, bar mitzvahs, bat
mitzvahs, graduations and anniversaries. We are able to leverage our operational
capabilities to deliver smaller quantities of highly variable personalized print products
with short turn around times to meet the customized needs of our customers. Our channels to
market include primarily retailers, such as bridal and gift shops, and branded internet web
resellers. We also sell on our own website, partybasics.com, and through our retail
outlet store located within our facilities.
MOD-PACs products and services offer common values to contribute to the success of our customers
including the following:
| Strong, service-based customer relationships; |
| Reliability and premium quality that comes from many decades of reputable experience; |
| Our high level of responsiveness to our customers needs, offering products and services on-demand, with short lead times from order entry to delivery; |
| One stop shopping with wide ranging products and services, |
| Integrated manufacturing and technology capabilities; and |
| Our ability to service order sizes from hundreds to millions of pieces, allowing our customers to order in their desired, not forced, quantities. |
We also provide additional value added services that include design assistance, finishing services
and digital asset management.
Our strategy for growth is to leverage our capabilities to innovate and aggressively integrate
technology into our production operations while providing cost-effective solutions for our
customers. Through our large, centralized facility, we have captured significant economies of
scale by channeling large numbers of small-to-medium-sized orders through our operations due to our
rapid order change-out skills. Applying our lean manufacturing processes coupled with
state-of-the-art printing technologies, MOD-PAC is able to address short-run, highly variable
content needs of our customers with quick turn around times relative to industry standards.
General Development of Business
An important event in our history was when we were spun-off from Astronics Corporation, our former
parent company, on March 14, 2003. The spin-off was accomplished by means of a one-for-two
distribution (the Distribution) of all of the outstanding shares of MOD-PACs common stock and
Class B stock to shareholders of Astronics. At the time of the Distribution, MOD-PAC became a
separately traded, publicly held company.
In 2002, MOD-PAC developed a specialty print product line when we began servicing our former
customer, VistaPrint, which was a front-end web store for commercial print to the small office/home
office market. MOD-PAC produced and distributed the orders VistaPrint received.
In order to respond to the growth in sales of the specialty print product line for VistaPrint and
high custom folding carton growth, MOD-PAC rapidly increased its capacity with capital expenditure
investment and increased employment. In July 2004, we agreed to terminate our supply agreement
with VistaPrint, which was scheduled to expire in April 2011, for a $22 million contract buy-out
fee. VistaPrint, at that time, represented approximately 30% of our total sales. Since 2005, we
grew the specialty print and direct mail business, exclusive of VistaPrint, to $4.2 million in
2008, somewhat offsetting the loss of VistaPrint sales revenue.
In June 2009, we rationalized our product lines in order to refine our focus and capitalize on our
growing position in custom folding cartons. As a result, MOD-PAC exited the commercial print
product line which included the specialty print and direct mail business. The strategic action
enabled us to achieve solid profitability in the third and fourth quarters of 2009 as well as
reduce our debt.
We believe that by focusing our resources on our traditional product lines, we can improve our
ability to expand market share while also creating greater operational efficiencies and reduced
costs.
3
Practices as to Maintaining Working Capital
Part of our strategy is to minimize working capital requirements by reducing production cycle
times, generally enabling us to generate substantially all of our working capital requirements from
operations. MOD-PAC has access to a committed and secured line of credit with a commercial bank of
$5.0 million. This line of credit expires on March 8, 2010. We are currently in negotiation to
renew or replace the existing line of credit. At December 31, 2009, we had no balance drawn on the
line. We believe cash and cash equivalents, which totaled $3.8 million at December 31, 2009, in
combination with cash expected to be generated from our 2010 operations, can meet our obligations,
other working capital requirements and capital expenditure needs in 2010.
Competitive Conditions
The print industry is a highly competitive industry, and MOD-PAC faces a number of competitors
within each of the markets it serves. In the folding carton industry, we compete with a
significant number of national, regional and local companies, many of which are independent and
privately-held. Due to increased consolidation, the top 5 producers in 2008 accounted for 64% of
the market (source: Paperboard Packaging Council). The largest competitors in this market are
primarily focused on the long-run print order market. They include large integrated paper
companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company
and Mead Westvaco. MOD-PACs focus is on niche market opportunities requiring short print runs,
which capitalize on our efficient processes and operations to meet customers highly variable
needs.
For personalized print products, the market we are targeting is highly fragmented, with the top 400
printers in the U.S. accounting for approximately 35% of the market (source: Printing Impressions
2008 Industry Outlook Report). We compete with many small operations that do not have the
technological capabilities equivalent to MOD-PAC, lack the variety of print and finishing
capabilities and are often geographically constrained to local customers.
Our success is dependent upon our competitive pricing, responsive customer support, creative
graphics support, innovative print service capabilities and short lead-time delivery performance.
We believe our investments in state-of-the-art technology and production processes will enable us
to continue introducing new, enticing product designs and value added services. We focus on
consistently providing flexible and responsive service for our customers, with just in time
delivery.
Employees
MOD-PAC employed 363 employees as of December 31, 2009. We consider relations with our employees to
be good.
Raw Materials and Components
Our principal raw materials are paperboard, paper and ink which are available from multiple
sources. We purchase most of these raw materials from a limited number of strategic and preferred
suppliers. The paper industry is cyclical and prices can fluctuate, and we have been somewhat
impacted in recent years by increases in paper prices.
International Quality Standards
Our principal printing and packaging plant is ISO 9001:2008 registered for folding carton
production. ISO 9001:2008 standards are an international consensus on effective management
practices with the goal of ensuring that a company can consistently deliver its products and
related services in a manner that meets or exceeds customer quality requirements. ISO 9001:2008
standards set forth the requirements that a companys business and production systems must meet to
achieve a high standard of quality. As an ISO 9001:2008-registered manufacturer, we can represent
to our customers that we maintain high quality industry standards in the education of our employees
and the design and manufacture of our products.
Environmental and Other Governmental Regulations
We are subject to various federal, state and local laws relating to the protection of the
environment. We continually assess our obligations and compliance with respect to these
requirements. We believe we are in material compliance with all existing applicable environmental
laws and permits and our current expenditures will enable us to remain in material compliance.
Because of the complexity and changing nature of environmental regulatory standards, it is possible
situations will arise from time to time that require us to incur expenditures in order to ensure
environmental regulatory compliance. However, we are not aware of any environmental condition or
any operation at any of our facilities, either individually or in the aggregate, which would cause
expenditures having a material adverse effect on our results of operations or financial condition
and, accordingly, have not budgeted any material capital expenditures for environmental compliance
for fiscal 2010.
4
Our operations are also governed by many other laws and regulations, including those relating to
workplace safety and worker health. We believe we are in material compliance with these laws and
regulations and do not believe future compliance with such laws and regulations will have a
material adverse effect on our operating results or financial condition.
Significant Customer
MOD-PAC has a significant concentration of business with two major customers. Sales to Gilster Mary
Lee accounted for 11.5% of sales in 2009, 6.5% of sales in 2008 and 3.7% of sales in 2007. Accounts
receivable from this customer at December 31, 2009 and 2008 were $0.5 million and $0.3 million,
respectively. Sales to Covidien accounted for 14.8% of sales in 2009, 11.9% of sales in 2008 and
9.9% of sales in 2007. Accounts receivable from this customer at December 31, 2009 and 2008 were
$1.4 million and $1.0 million, respectively.
Information Regarding Industry Segments
MOD-PAC operates as one reporting segment. Our 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 our President and CEO is consistent with
the reporting format used in our 2009 Form 10-K and other external information.
Available Information
We file financial information and other materials required by the SEC electronically with the SEC.
These materials can be accessed electronically via the Internet at www.sec.gov. Such materials and
other information about MOD-PAC are available through our website at www.modpac.com under the
Investor Relations information section. Also, copies of our annual report will be made available,
free of charge, upon written request to MOD-PAC CORP., Attn: Investor Relations, 1801 Elmwood Ave.,
Buffalo, NY 14207.
Item 1A. | RISK FACTORS |
| Significant increases in the cost of energy or raw materials could have a material adverse effect on our margins and income from operations. Increases in paper costs, which represent a significant portion of our raw material costs, and any decrease in availability of paper could adversely affect our business. |
| A significant amount of paperboard is scrapped as a result of normal operations. Virtually all paperboard waste is sold to third party recyclers. Changes in the recycled paperboard market may have an impact on our profitability. |
| We have been dependent on certain customers, the loss of which could have material adverse effects on product sales and, depending on the significance of the loss, our results of operations, financial condition or cash flow. Our two largest customers accounted for 26.3% of total revenues in 2009. Our ability to generate cash flows is dependent, in significant part, on our ability to re-establish growth in sales volume and maintain or increase selling prices that we realize for our products. |
| Our ability to successfully implement our business strategies, our efforts to expand our markets for print services and to realize anticipated savings is subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. |
| The current economic environment and the 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. |
| Certain cash balances with our bank may only be insured up to $250,000 by the FDIC, therefore any amounts in excess of this limit may be subject to risk. |
| We face intense competition, and if we are unable to compete successfully against other manufacturers of paperboard, custom folding cartons, stock packaging and personalized print, we could lose customers and our revenues may decline. |
| Our net sales and profitability could be affected by intense pricing pressures. If our facility is not as cost efficient as those of our competitors, or if our competitors otherwise choose to lower prices, we may lose customers, which could negatively impact our revenue, cash flows and financial condition. |
5
| Delays in our plans to improve manufacturing productivity and control costs of operations could negatively impact our margins. |
| Any prolonged disruption in production due to equipment failures, destruction of, or material damage to any of our facilities could have a material adverse effect on our net sales, margins and cash flows. |
| Work stoppages and other labor relations matters may make it substantially more difficult or expensive for us to manufacture and distribute our products, which could result in decreased sales or increased costs, either of which would negatively impact our financial condition and results of operations. |
| If we cannot protect our reputation due to product quality and liability issues, our business could be harmed. |
| We are dependent on key management personnel. We cannot be certain that we will be able to retain our executive officers and key personnel or attract additional qualified management in the future. |
| We are subject to environmental, health and safety laws and regulations, and costs to comply with such laws and regulations, or any liability or obligation imposed under such laws or regulations, could negatively impact our financial condition and results of operations. |
| We may unknowingly, or inadvertently violate the intellectual property rights of others as we innovate new ways to capture, aggregate, process and print orders from the internet which could result in the payment of damages or injunctions which could interfere with our business. |
| We may not be able to adequately protect and defend our intellectual property and proprietary rights, which could harm our future success and competitive position. |
| We have incurred operating losses over the past four years, and may not be profitable in 2010. In the event we are unable to increase sales and/or reduce costs, our operating losses are likely to continue. |
| Unfavorable or uncertain economic and market conditions, which can be caused by: outbreaks of hostilities or other geopolitical instability; declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation, interest rates, exchange rate volatility, default rates or the price of basic commodities; corporate, political or other scandals that reduce investor confidence in capital markets; natural disasters or pandemics; or a combination of these or other factors, may adversely affect our business and profitability. |
| New legislation, specifically the Employee Free Choice Act, may be passed which would increase the ability for unions to organize employees of non-unionized businesses such as MOD-PAC. This could have a negative impact on our relations with our employees. |
| An impairment of our fixed assets could negatively impact our financial condition. Although this write-off would be a non-cash charge, it could significantly reduce our earnings and net worth. |
Item 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
Item 2. | PROPERTIES |
We maintain our corporate headquarters and conduct our operations at the following facilities:
Square | Owned or | |||||||||
Location | Type of Facility | Footage | Leased | |||||||
Buffalo, NY |
Corporate headquarters; printing and manufacturing | 335,000 | Owned | |||||||
Buffalo, N.Y. |
Office and warehouse | 203,000 | Leased |
6
We believe the 335,000 square foot corporate headquarters, printing and manufacturing property have
been adequately maintained, are in generally good condition and are suitable for our business as
presently conducted. We also believe our existing facilities provide sufficient production
capacity for our present needs and for our anticipated needs in the foreseeable future. We entered
into a forty-nine year lease for the 203,000 square feet of office and warehouse buildings in
November 2003. These buildings are adjacent to our corporate headquarters, printing and
manufacturing property and were acquired for potential expansion of such facilities. Currently,
portions of this space
are being rented to third parties. Future rehabilitation expenditures will be based on our
anticipated facility requirements.
Item 3. | 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 4. | (REMOVED AND RESERVED) |
PART II
Item 5. | MARKET FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
On March 14, 2003, MOD-PAC was spun-off from Astronics Corporation in a tax-free distribution to
the shareholders of Astronics Corporation and became listed on the NASDAQ National Market under the
symbol MPAC. Except for a special $7,000,000 dividend paid to Astronics Corporation on December
31, 2002, in connection with its spin-off from Astronics, we have not paid any cash dividends in
the six-year period ended December 31, 2009. We have no plans to pay dividends as we plan to
retain all cash from operations as a source of capital to finance growth in the business. As of
February 5, 2010, there were 519 holders of record for our Common Stock and 468 holders of record
for our Class B stock. We did not sell any unregistered securities in 2009.
Quarterly information for each quarterly period during 2009 and 2008 on the range of prices for our
Common Stock appears in the following table:
2009 | 2008 | |||||||||||||||||||||||||||||||
Quarter | Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||
High |
$ | 4.96 | $ | 3.48 | $ | 3.00 | $ | 2.70 | $ | 3.35 | $ | 4.65 | $ | 6.96 | $ | 8.11 | ||||||||||||||||
Low |
$ | 2.37 | $ | 2.25 | $ | 1.45 | $ | 0.81 | $ | 1.00 | $ | 2.87 | $ | 3.25 | $ | 4.74 |
PURCHASES OF EQUITY SECURITIES IN THE FOURTH QUARTER
(c) Total Number | ||||||||||||||||
of Shares | (d) Maximum | |||||||||||||||
(a) Total | (or Units) | Number of Shares | ||||||||||||||
Number of | (b) Average | Purchased as Part | (or Units) that May | |||||||||||||
Shares (or | Price Paid | of Publicly | Yet Be Purchased | |||||||||||||
Units) | per Share | Announced Plans | Under the Plans or | |||||||||||||
Period | Purchased | (or Unit) | or Programs | Programs | ||||||||||||
October 4 October 31, 2009 |
| N/A | | 75,885 | ||||||||||||
November 1 November 28, 2009 |
| N/A | | 75,885 | ||||||||||||
November 29 December 31, 2009 |
| N/A | | 75,885 | ||||||||||||
Total |
| N/A | | 75,885 | ||||||||||||
7
CORPORATE PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return of (i) MOD-PAC CORP., (ii) the
Nasdaq Non-Financial Stocks and (iii) the NASDAQ Composite Total Returns for the period December
31, 2004 through December 31, 2009.
TOTAL RETURN DATA POINTS
12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | 12/31/08 | 12/31/09 | |||||||||||||||||||
MOD-PAC CORP. |
100.00 | 88.09 | 86.22 | 58.70 | 18.57 | 34.56 | ||||||||||||||||||
NASDAQ Composite Total Returns |
100.00 | 102.12 | 112.73 | 124.73 | 74.87 | 108.83 | ||||||||||||||||||
NASDAQ Non-Financial |
100.00 | 102.28 | 112.15 | 127.21 | 58.24 | 82.80 |
Source: Zacks Investment Research
8
Item 6. | SELECTED FINANCIAL DATA |
(amounts in thousands, except for per share data) | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Performance: |
||||||||||||||||||||
Revenue (1) |
$ | 48,896 | $ | 48,898 | $ | 48,190 | $ | 46,559 | $ | 71,193 | ||||||||||
Cost of Products Sold |
$ | 41,518 | $ | 42,174 | $ | 43,725 | $ | 42,243 | $ | 42,960 | ||||||||||
Gross Margin |
15.1 | % | 13.8 | % | 9.3 | % | 9.3 | % | 39.7 | % | ||||||||||
Selling, General and Administrative Expenses |
$ | 7,549 | $ | 7,870 | $ | 9,850 | $ | 9,479 | $ | 10,476 | ||||||||||
Operating Margin |
(4.0 | %) | (2.3 | %) | (11.2 | %) | (11.1 | %) | 24.9 | % | ||||||||||
Net (Loss) Income (2) |
$ | (1,982 | ) | $ | (895 | ) | $ | (4,101 | ) | $ | (3,431 | ) | $ | 11,028 | ||||||
Net Margin |
(4.1 | %) | (1.8 | %) | (8.5 | %) | (7.4 | %) | 15.5 | % | ||||||||||
Basic (Loss) Earnings Per Share |
$ | (0.58 | ) | $ | (0.26 | ) | $ | (1.19 | ) | $ | (1.00 | ) | $ | 3.07 | ||||||
Weighted Average Shares Outstanding Basic |
3,430 | 3,434 | 3,450 | 3,442 | 3,593 | |||||||||||||||
Diluted (Loss) Earnings Per Share |
$ | (0.58 | ) | $ | (0.26 | ) | $ | (1.19 | ) | $ | (1.00 | ) | $ | 2.97 | ||||||
Weighted Average Shares Outstanding Diluted |
3,430 | 3,434 | 3,450 | 3,442 | 3,708 | |||||||||||||||
(Loss) Return on Average Assets |
(6.4 | %) | (2.7 | %) | (11.4 | %) | (8.3 | %) | 21.7 | % | ||||||||||
(Loss) Return on Average Equity |
(8.2 | %) | (3.5 | %) | (14.8 | %) | (11.0 | %) | 38.8 | % | ||||||||||
Year End Financial Position: |
||||||||||||||||||||
Total Assets |
$ | 29,201 | $ | 32,551 | $ | 32,794 | $ | 39,006 | $ | 43,724 | ||||||||||
Line of Credit |
$ | | $ | 1,000 | $ | 400 | $ | | $ | | ||||||||||
Long Term Debt |
$ | 2,292 | $ | 2,413 | $ | 2,050 | $ | 1,931 | $ | 1,969 | ||||||||||
Shareholders Equity |
$ | 23,299 | $ | 25,012 | $ | 25,801 | $ | 29,661 | $ | 32,598 | ||||||||||
Book Value Per Share |
$ | 6.79 | $ | 7.29 | $ | 7.47 | $ | 8.60 | $ | 9.50 | ||||||||||
Other Data: |
||||||||||||||||||||
Depreciation and Amortization |
$ | 3,188 | $ | 3,737 | $ | 4,970 | $ | 5,011 | $ | 5,667 | ||||||||||
Capital Expenditures |
$ | 975 | $ | 1,993 | $ | 2,707 | $ | 1,028 | $ | 4,732 | ||||||||||
Shares Outstanding at year-end Common |
2,803 | 2,789 | 2,788 | 2,756 | 2,716 | |||||||||||||||
Class B |
628 | 641 | 667 | 693 | 717 | |||||||||||||||
Number of Registered Shareholders Common |
519 | 529 | 544 | 597 | 642 | |||||||||||||||
(as of February 5, 2010) Class B |
468 | 476 | 492 | 537 | 591 |
(1) | Includes $19,556 of revenue in 2005 related to the amortization of the VistaPrint contract buy-out fee. | |
(2) | Includes $1,772 expense for net write-down of impaired assets in 2009 and $319 expense for goodwill impairment in 2007. |
9
Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should
be read together with the Selected Financial Data, our Consolidated Financial Statements and the
related notes included elsewhere in this Annual Report. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in those forward-looking statements as a result of
many factors including those under the caption Forward-Looking Information in Item 1.
Overview
In the 2009 second quarter, we made a strategic decision to rationalize our product lines and exit
the specialty print and direct mail market, choosing to focus our resources on our growing custom
folding carton line. As a result of the rationalization, we expect to realize significant
improvement in operating performance as we had not realized the results that we had anticipated in
the specialty print and direct mail market over the last four years. In addition, we expect that we
can be more effective in sales and marketing in the custom folding carton market with a more
focused approach. Our custom folding carton customers are generally in the healthcare,
confectionary, food and food service, and automotive industries, including private label
manufacturers. Our expertise in this market is our ability to run on-demand the specific
quantities required by our customers as opposed to doing long runs and creating inventory and
obsolescence challenges either for our customers or ourselves. As a result, we do not require
minimum print orders and are more flexible than most printers in addressing our customers needs.
This capability has served extremely well for our private label customers who may have several of
the same carton requirements with varying print requirements for their customers.
We also plan to continue developing our stock packaging and personalized print product lines. Our
stock packaging line serves primarily private confectionaries and, therefore is seasonal in nature
and driven by the economy. During this current state of the economy, sales in stock packages have
declined measurably. Our personalized print product line is focused on its store, catalog and web
sales. Because we provide products such as personalized dinner and cocktail napkins, small boxes
for sundries at events, and other celebration type items both for the retail and corporate markets,
this product line is also heavily impacted by economic downturns. Nonetheless, we believe that in
the stock packaging market, we are a leader with over 4,000 customers that we serve around the
world. Also, in personalized print where we compete with much larger companies, we have developed
a strong brand as Krepe-Kraft among event planners and wedding coordinators. Our website,
www.partybasics.com, has had some success, and we also provide our products to third-party
web-stores as well.
Revenue
2009 compared with 2008
For fiscal 2009, revenue was $48.9 million which was virtually unchanged from revenue in 2008.
The custom folding cartons product line had sales of $34.9 million in 2009, an increase of 13.7%
from 2008, mainly attributable to sales to new customers and additional business with existing
customers.
The stock packaging product line had sales of $9.0 million in 2009, down 7.4% from $9.7 million in
2008. The decline from the prior year was mainly due to weakness in general business conditions.
This product line is sold primarily to retail confectioners who continue to be negatively affected
by the current state of the economy.
The personalized print product line had sales of $3.0 million in 2009, down 22.4%, from $3.9
million in 2008. The decline from the prior year was mainly due to weakness in general business
conditions.
The specialty print and direct mail product line had sales of $1.5 million in 2009, a decrease of
63.7%, from $4.2 million in 2008. In June 2009, the Company rationalized its product lines and
exited the specialty print and direct mail market. There were no specialty print and direct mail
sales in the third and fourth quarters of 2009.
2008 compared with 2007
For fiscal 2008, revenue was $48.9 million compared with $48.2 million in 2007, an increase of $0.7
million or 1.5%.
The custom folding cartons product line had sales of $30.6 million in 2008, an increase of 5.7%
from 2007, mainly attributable to meaningful sales growth with one new large customer and
additional sales to existing customers. This growth was partially offset by declines from
customers that slowed spending due to the economic climate.
The stock packaging product line had sales of $9.7 million in 2008, down $1.2 million, or 11.0%,
from $10.9 million in 2007. The decline from the prior year was mainly due to weakness in general
business conditions. This product line is
sold primarily to retail confectioners who were negatively affected by the state of the economy.
10
The specialty print and direct mail, formerly commercial print, product line had sales of $4.2
million in 2008, up $1.1 million, or 35.2%, from $3.1 million in 2007. The increase was primarily
due to increased mailing services sales, which was partially the result of four additional months
of activity in 2008 versus 2007, and sales to two custom folding cartons customers.
The personalized print product line had sales of $3.9 million in 2008, down $0.8 million, or 16.9%,
from $4.7 million in 2007. The decline from the prior year was mainly due to weakness in general
business conditions.
Cost of Products Sold
As a percentage of revenue, the cost of products sold were 84.9%, 86.2% and 90.7%, for the years
2009, 2008, and 2007, respectively.
The improvement of cost of products sold as a percent of revenue in 2009 compared with 2008 was
mainly the result of decreases in labor costs, depreciation expense and supplies costs, offset
partially by a decline in recycled paperboard sales due to market conditions and increased
paperboard costs.
The improvement of cost of products sold as a percent of revenue in 2008 compared with 2007 was
mainly the result of decreases in labor costs, repairs expense and depreciation expense offset
partially by increases in paperboard cost and weaker product mix. The decreases in labor costs were
primarily the result of workforce reductions that took place from the latter half of 2007 through
the first half of 2008.
Selling, General and Administrative Costs
Selling, general and administrative (SG&A) costs were $7.5 million in 2009 compared with $7.9
million in 2008, and $9.9 million in 2007. As a percentage of total revenue, SG&A costs were
15.4%, 16.1%, and 20.4%, for the years 2009, 2008 and 2007 respectively.
The 4.1% decrease in SG&A costs in 2009 compared with 2008 was driven primarily by lower
professional services and bad debt expense, offset partially by higher depreciation expense.
SG&A costs were 20.1% lower in 2008 compared with 2007. Included in 2007 SG&A was $0.4 million in
costs associated with a workforce reduction and $0.2 million of accelerated depreciation related to
the reduction in useful lives of certain software assets. Lower depreciation expense, employee
related expenses and professional services expenses in 2008 were additional reasons for this
decrease.
Net Write-Down of Impaired Assets
Included in operating expenses in 2009 was $1.8 million in net write-down of impaired assets. This
net write-down was the result of the product line rationalization that took place in June 2009 and
the sale of the Blasdell facility that took place in December 2009. The write-down of these assets
was based upon an estimate of the net realizable value based on expected selling prices less costs
to sell. As of December 31, 2009, $171 thousand of Specialty Print and Direct Mail equipment
remaining to be sold are classified as Assets Held for Sale on the consolidated balance sheet.
There were no net write-downs of impaired assets that were included in operating expenses in 2008
and 2007.
Provision for Income Taxes
Our effective income tax rate was 5.6% in 2009, 29.7% in 2008, and 31.2% in 2007. We recorded
income tax benefits in 2009, 2008 and 2007 due to our losses. The 2009 tax benefit was recorded
at a rate lower than customary due to certain stock option charges which are a permanent,
non-deductible, expense for income tax purposes and due to the recording of a full valuation
allowance on our net deferred tax asset due to the uncertainly with respect to utilization in the
future based on our trend of operating losses.
The 2008 tax benefit was recorded at a rate lower than customary due to certain stock option
charges which are a permanent, non-deductible, expense for income tax purposes.
The 2007 tax benefit was recorded at a rate lower than customary due to our goodwill impairment
charge and stock option charges which are permanent, non-deductible, expenses for income tax
purposes.
11
Earnings Per Share
There was no effect on our number of outstanding shares used in our diluted earnings per share
calculation for stock options that were dilutive at December 31, 2009, since we had a net loss. We
did not buy back any shares in 2009, but repurchased 25,000 shares in 2008.
Liquidity and Capital Resources
Cash and cash equivalents were $3.8 million at December 31, 2009, an increase of $3.6 million from
$0.2 million at December 31, 2008.
Capital expenditures for 2009 were $1.0 million compared with $2.0 million in 2008 and $2.7 million
in 2007. The spending in 2009 was primarily focused on equipment and system improvements.
Expenditures in 2008 were mainly for productivity and efficiency initiatives. Expenditures in 2007
were primarily for mailing services equipment, including the DDM Digital Imaging, Data Processing
and Mailing Services LC (DDM) asset purchase, along with additional investment in systems and
building improvements. We anticipate approximately $1.2 million in capital spending for 2010.
During 2009 and 2008, we had access to a $5.0 million committed line of credit with a commercial
bank. We had access to an $8.0 million committed line of credit with a commercial bank throughout
most of 2007. As the fourth quarter of 2007 ended, it was determined that we would have violated
our financial covenants at year end. Our commercial bank granted a waiver for the covenant
violations. In addition, we executed an amendment to the credit agreement which lowered the amount
available on the committed line of credit to $5.0 million, in order to reduce costs, and also to
change the financial covenants for 2008 and 2009 to more favorable levels. The line is secured by
certain assets of ours and the agreement expires in March 2010. The interest rate charged for
borrowings under the terms of the facility provide for prime rate plus 50 basis points or LIBOR
plus 150 basis points, at our option. There was no balance drawn on the line at December 31, 2009,
a decrease of $1.0 million from the balance at December 31, 2008. An additional $0.2 million was
in use through standby letters of credit. We were not in violation of our financial covenants at
year end 2009 and 2008. The Companys management is in negotiation to renew or replace the existing
line of credit that is due to expire in March 2010. We separately financed the purchase of certain
equipment in the first half of 2008 and the fourth quarter of 2007 in the amount of $0.6 million
and $0.2 million, respectively. The total balance owed on these equipment loans was $0.5 million at
December 31, 2009.
The decrease in the amount outstanding under the line of credit and the increase in cash and cash
equivalents during 2009 was primarily the result of proceeds from the cash surrender value of
officers life insurance policies, proceeds from the sale of specialty print and direct mail
equipment, and proceeds from the sale of the Blasdell, NY facility.
In August of 2005, we received authorization from our Board to purchase 200,000 shares for its
share repurchase program. In 2008, 25,000 shares were repurchased. There were no shares
repurchased in 2009 and 2007. At December 31, 2009, our outstanding authorization for repurchase
of shares is 75,885. The closing price of our stock as of December 31, 2009 was $4.41. At this
price, the repurchase of 75,885 shares would require $335 thousand.
We believe cash and cash equivalents, which totaled $3.8 million at December 31, 2009, in
combination with cash expected to be generated from our 2010 operations, can meet our obligations,
other working capital requirements and capital expenditure needs in 2010.
12
Contractual Obligations
(in thousands) | ||||||||||||||||||||
Payments Due by Period | Total | 2010 | 2011-2012 | 2013-2014 | After 2014 | |||||||||||||||
Equipment Loans |
$ | 513 | $ | 146 | $ | 327 | $ | 40 | $ | | ||||||||||
Other Loans |
91 | 21 | 47 | 23 | | |||||||||||||||
Capital Lease Obligation Aggregate payments (1) |
7,689 | 159 | 360 | 360 | 6,810 | |||||||||||||||
Capital Lease Obligation Aggregate (Other) |
96 | 38 | 55 | 3 | | |||||||||||||||
Operating Leases |
432 | 413 | 17 | 2 | | |||||||||||||||
Purchase Commitments |
490 | 490 | | | | |||||||||||||||
Total |
$ | 9,311 | $ | 1,267 | $ | 806 | $ | 428 | $ | 6,810 | ||||||||||
(1) | Represents a forty-nine year lease beginning November 2003 for 203,000 square feet of office and warehouse buildings adjacent to the Companys corporate printing and manufacturing property. Beginning in November 2022 and ending in October 2027, the Company has an option to purchase the property for $1.8 million and terminate the lease. If the purchase option is not exercised, the Company is obligated to make monthly payments of $15,000 through October 2052. |
Off-Balance Sheet Arrangements
The only off-balance sheet arrangements we have are operating leases for equipment and two
automobile leases. Rental expense under these leases was $490 thousand in 2009, $541 thousand in
2008, and $561 thousand in 2007.
Recently Issued Accounting Standards
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles -
Overall (ASC 105-10). ASC 105-10 establishes the FASB Accounting Standards Codification (the
Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements in conformity with
U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide background information
about the guidance and provide the basis for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for the Codification.
In December 2007, the ASC Topic 805, Business Combinations (ASC 805) was issued. ASC 805
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. ASC 805 also
requires transaction costs related to the business combination to be expensed as incurred. ASC 805
applies prospectively to business combinations; the effective date for the Company is January 1,
2009. The impact of ASC 805 on future business combinations cannot currently be determined.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, Subsequent Events, to
establish principles and requirements for subsequent events. The guidance sets forth the date after
the balance sheet date during which management of a reporting entity shall evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements.
The guidance also identifies the circumstances under which an entity shall recognize events or
transactions occurring after the balance sheet date. The guidance is effective for interim or
annual financial periods ending after June 15, 2009, and shall be applied prospectively. The
Company adopted the provisions of the guidance during the year ended December 31, 2009 and its
impact on the Companys disclosures was not significant.
13
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with U.S. generally
accepted accounting principles. The preparation of our financial statements requires management to
make estimates, assumptions and judgments that affect the amounts reported. These estimates,
assumptions and judgments are affected by managements application of accounting policies, which
are discussed in Note 2 of Item 8, Financial Statements and Supplementary Data of this report.
Actual results may differ from these estimates under different assumptions or conditions. The
critical accounting policies have been reviewed with the audit committee of our board of directors.
Revenue Recognition
Revenue is recognized on the accrual basis, which is at the time of shipment of goods or acceptance
at the United States Postal Service.
Accounts Receivable and Allowance for Doubtful Accounts
A trade receivable is recorded at the value of the sale. We perform periodic credit evaluations of
our customers financial condition and generally do not require collateral. Generally, amounts not
collected from customers within 120 days of the due date of the invoice are credited to an
allowance for doubtful accounts. After collection efforts have been exhausted, uncollected
balances are charged off to the allowance.
Inventory Valuation
Inventories are stated at the lower of cost or market, with cost being determined in accordance
with the first-in, first-out method. Costs included in inventory are the cost to purchase the raw
material, the direct labor incurred on work in progress and finished goods, and an overhead factor
based on other indirect manufacturing costs incurred.
Deferred Tax Asset and Liability Valuation Allowances
We recognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial reporting and tax basis of assets and liabilities.
Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of
tax benefits not expected to be realized. In 2009 we recorded a $0.5 million full valuation
allowance on our net federal deferred tax asset due to the uncertainty with respect to utilizing
the deferred tax asset related to our tax loss carry-forward based on a history of operating
losses. Investment tax credits are recognized on the flow through method. Specifically and with
respect to deferred tax assets, we had gross deferred assets at December 31, 2009 of $4.6 million
related to New York State tax credits. These credits are subject to certain statutory provisions,
such as length of available carry-forward period and minimum tax, which reduces the probability of
realization of the full value of such credits. Management estimates the amount of credits we are
likely to realize in the future based on actual historical realization rates and the statutory
carry-forward period. As a result of the analysis performed as of December 31, 2009, we do not
expect to be able to utilize these credits and management adjusted the valuation allowance for
these credits to $4.6 million.
Stock-Based Compensation
Stock-based compensation awards granted are valued at fair market value at the date of the grant
and are charged to expense ratably over the requisite service period. Stock compensation expense
is included in selling, general and administrative expenses. Stock compensation expense was $265
thousand, $256 thousand and $209 thousand in 2009, 2008 and 2007, respectively.
14
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a result of short cycle times, we do 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 and, 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 are limited.
Risks due to fluctuations in interest rates are not material to us at December 31, 2009 because of
minimal exposure to floating rate debt.
Since May of 2003, over 90% of our power needs are met through natural gas. We have investigated
supply contracts of various lengths and currently have supply arrangements for fixed prices on
approximately 60% of our estimated usage through October 2010. Historically, the price of natural
gas has fluctuated widely. We monitor the availability of natural gas, considering such factors as
amount in storage, gas production data and transportation data, so that we can take appropriate
action if concerns about availability occur. We have investigated and tested a back-up power
source in the form of a rented transportable diesel-powered generator.
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 we were exposed to at December 31, 2008 was generally the same as described
above.
15
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of MOD-PAC CORP. as of December 31,
2009 and 2008, and the related consolidated statements of operations, shareholders equity, and
cash flows for each of the three years in the period ended December 31, 2009. These financial
statements and schedule are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of MOD-PAC CORP. at December 31, 2009 and 2008, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Buffalo, New York
March 5, 2010
March 5, 2010
16
MOD-PAC CORP.
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
December 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 3,780 | $ | 200 | ||||
Accounts receivable |
4,975 | 4,920 | ||||||
Allowance for doubtful accounts |
(155 | ) | (170 | ) | ||||
Net accounts receivable |
4,820 | 4,750 | ||||||
Inventories |
4,258 | 4,313 | ||||||
Prepaid expenses |
297 | 357 | ||||||
Total current assets |
13,155 | 9,620 | ||||||
Property, plant and equipment, at cost: |
||||||||
Land |
1,170 | 1,331 | ||||||
Buildings and equipment |
12,389 | 14,536 | ||||||
Machinery and equipment |
49,129 | 52,111 | ||||||
Construction in progress |
990 | 729 | ||||||
63,678 | 68,707 | |||||||
Less accumulated depreciation and amortization |
(48,262 | ) | (47,116 | ) | ||||
Net property, plant and equipment |
15,416 | 21,591 | ||||||
Assets held for sale |
171 | | ||||||
Other assets |
459 | 1,340 | ||||||
Total assets |
$ | 29,201 | $ | 32,551 | ||||
17
MOD-PAC CORP.
CONSOLIDATED BALANCE SHEET (Continued)
CONSOLIDATED BALANCE SHEET (Continued)
December 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 202 | $ | 168 | ||||
Account payable |
2,567 | 3,222 | ||||||
Accrued expenses |
803 | 581 | ||||||
Total current liabilities |
3,572 | 3,971 | ||||||
Line of credit |
| 1,000 | ||||||
Long-term debt |
2,292 | 2,413 | ||||||
Other liabilities |
38 | 37 | ||||||
Deferred income taxes |
| 118 | ||||||
Total liabilities |
5,902 | 7,539 | ||||||
Shareholders equity: |
||||||||
Common stock, $.01 par value, authorized 20,000,000 shares, issued
3,453,863 at December 31, 2009; 3,439,347 at December 31, 2008 |
35 | 34 | ||||||
Class B stock, $.01 par value, authorized 5,000,000 shares, issued
628,385 at December 31, 2009; 641,482 at December 31, 2008 |
6 | 7 | ||||||
Additional paid-in capital |
2,654 | 2,385 | ||||||
Retained earnings |
26,819 | 28,801 | ||||||
29,514 | 31,227 | |||||||
Less treasury stock at cost: 650,698 shares at December 31,
2009 and 2008 |
(6,215 | ) | (6,215 | ) | ||||
Total shareholders equity |
23,299 | 25,012 | ||||||
Total liabilities and shareholders equity |
$ | 29,201 | $ | 32,551 | ||||
See accompanying notes to financial statements.
18
MOD-PAC CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, | ||||||||||||
(in thousands, except share data) | 2009 | 2008 | 2007 | |||||||||
Revenue: |
||||||||||||
Net sales |
$ | 48,353 | $ | 48,412 | $ | 47,670 | ||||||
Rental income |
543 | 486 | 520 | |||||||||
Total revenue |
48,896 | 48,898 | 48,190 | |||||||||
Costs and expenses: |
||||||||||||
Cost of products sold |
41,518 | 42,174 | 43,725 | |||||||||
Selling, general and administrative expenses |
7,549 | 7,870 | 9,850 | |||||||||
Net write-down of impaired assets |
1,772 | | | |||||||||
Loss from operations |
(1,943 | ) | (1,146 | ) | (5,385 | ) | ||||||
Interest income |
| 8 | 64 | |||||||||
Interest expense |
(245 | ) | (274 | ) | (248 | ) | ||||||
Other income (expense) |
88 | 138 | (389 | ) | ||||||||
Loss before taxes |
(2,100 | ) | (1,274 | ) | (5,958 | ) | ||||||
Income tax benefit |
(118 | ) | (379 | ) | (1,857 | ) | ||||||
Net loss |
$ | (1,982 | ) | $ | (895 | ) | $ | (4,101 | ) | |||
Loss per share: |
||||||||||||
Basic |
$ | (0.58 | ) | $ | (0.26 | ) | $ | (1.19 | ) | |||
Diluted |
$ | (0.58 | ) | $ | (0.26 | ) | $ | (1.19 | ) |
See accompanying notes to financial statements.
19
MOD-PAC CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, | ||||||||||||
(in thousands) | 2009 | 2008 | 2007 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net loss |
$ | (1,982 | ) | $ | (895 | ) | $ | (4,101 | ) | |||
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |
||||||||||||
Depreciation and amortization |
3,188 | 3,737 | 4,970 | |||||||||
Provision for doubtful accounts |
20 | 108 | 61 | |||||||||
Stock option compensation expense |
265 | 256 | 209 | |||||||||
Deferred income taxes |
(118 | ) | (381 | ) | (1,867 | ) | ||||||
Net write-down of impaired assets |
1,772 | | 416 | |||||||||
Loss (gain) on disposal of assets |
15 | (54 | ) | 59 | ||||||||
Cash flows from changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(90 | ) | (602 | ) | (313 | ) | ||||||
Inventories |
55 | (772 | ) | (306 | ) | |||||||
Prepaid expenses |
60 | (98 | ) | 190 | ||||||||
Other liabilities |
1 | (232 | ) | 238 | ||||||||
Accounts payable |
(655 | ) | 310 | (961 | ) | |||||||
Refundable income taxes |
| | 625 | |||||||||
Accrued expenses |
222 | (234 | ) | (233 | ) | |||||||
Net cash provided by (used in) operating activities |
2,753 | 1,143 | (1,013 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Proceeds from sale of assets |
2,190 | 125 | 52 | |||||||||
Decrease in temporary investments |
| | 1,000 | |||||||||
Proceeds from the cash surrender value of officers life
insurance policies |
857 | | | |||||||||
Change in other assets |
(78 | ) | (80 | ) | (60 | ) | ||||||
Capital expenditures |
(975 | ) | (1,993 | ) | (1,900 | ) | ||||||
Acquisition of DDM assets |
| | (947 | ) | ||||||||
Net cash provided by (used in) investing activities |
1,994 | (1,948 | ) | (1,855 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Principal payments on long-term debt and capital leases |
(171 | ) | (118 | ) | (38 | ) | ||||||
(Decrease) increase in line of credit |
(1,000 | ) | 600 | 400 | ||||||||
Proceeds from loan |
| 580 | 168 | |||||||||
Proceeds from issuance of stock |
4 | | 32 | |||||||||
Purchase of treasury stock |
| (150 | ) | | ||||||||
Deferred financing fees |
| (5 | ) | (40 | ) | |||||||
Net cash (used in) provided by financing activities |
(1,167 | ) | 907 | 522 | ||||||||
Net change in cash and cash equivalents |
3,580 | 102 | (2,346 | ) | ||||||||
Cash and cash equivalents at beginning of year |
200 | 98 | 2,444 | |||||||||
Cash and cash equivalents at end of year |
$ | 3,780 | $ | 200 | $ | 98 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||||||
Cash paid for interest |
$ | 245 | $ | 274 | $ | 248 | ||||||
Income tax refund, net |
$ | | $ | | $ | (628 | ) |
See accompanying notes to financial statements.
20
MOD-PAC CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Treasury | ||||||||||||||||||||||||||||||||
Common Stock | Class B Stock | Stock | ||||||||||||||||||||||||||||||
Shares | Par | Shares | Par | Paid-In | Retained | |||||||||||||||||||||||||||
(in thousands) | Issued | Value | Issued | Value | Shares | Cost | Capital | Earnings | ||||||||||||||||||||||||
Balance at December 31, 2006 |
3,381 | $ | 34 | 693 | $ | 7 | 625 | $ | 6,065 | $ | 1,888 | $ | 33,797 | |||||||||||||||||||
Net loss |
(4,101 | ) | ||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | 209 | |||||||||||||||||||||||||
Stock option and employee stock
purchase plan, including tax
benefit of $2 |
7 | | | | | | 32 | |||||||||||||||||||||||||
Class B stock converted |
26 | | (26 | ) | | | | | ||||||||||||||||||||||||
Balance at December 31, 2007 |
3,414 | $ | 34 | 667 | $ | 7 | 625 | $ | 6,065 | $ | 2,129 | $ | 29,696 | |||||||||||||||||||
Net loss |
(895 | ) | ||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | 256 | |||||||||||||||||||||||||
Class B stock converted |
25 | | (25 | ) | | | | | ||||||||||||||||||||||||
Treasury stock purchased |
| | | | 25 | 150 | | |||||||||||||||||||||||||
Balance at December 31, 2008 |
3,439 | $ | 34 | 642 | $ | 7 | 650 | $ | 6,215 | $ | 2,385 | $ | 28,801 | |||||||||||||||||||
Net loss |
(1,982 | ) | ||||||||||||||||||||||||||||||
Stock compensation expense |
| | | | | | 265 | |||||||||||||||||||||||||
Employee stock purchase plan |
1 | | | | | | 4 | |||||||||||||||||||||||||
Class B stock converted |
14 | 1 | (14 | ) | (1 | ) | | | | |||||||||||||||||||||||
Balance at December 31, 2009 |
3,454 | $ | 35 | 628 | $ | 6 | 650 | $ | 6,215 | $ | 2,654 | $ | 26,819 | |||||||||||||||||||
See accompanying notes to financial statements.
21
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
On March 14, 2003, MOD-PAC CORP. (MOD-PAC or the Company) was spun-off from Astronics
Corporation by means of a tax-free distribution (the Distribution) of all of the outstanding
shares of MOD-PACs common stock and Class B stock to Astronics shareholders. The Astronics Board
of Directors set a one-for-two distribution ratio, in which (i) each Astronics common stock owner
received one share of MOD-PAC common stock for every two shares of Astronics common stock owned on
the record date for the Distribution and (ii) each Astronics Class B stock owner received one share
of MOD-PAC Class B for every two shares of Astronics Class B stock owned on the record date for the
Distribution. As a result of the Distribution, MOD-PAC became a separately traded, publicly-held
company.
Prior to the Distribution, MOD-PAC was recapitalized. Astronics exchanged its existing shares of
our common stock for approximately 2,868,316 shares of the Companys common stock and approximately
1,007,341 shares of the Companys Class B stock.
2. Significant Accounting Policies
Revenue and Expense Recognition
The Company is a manufacturer and printer of folding cartons used primarily in the confectionary
and consumer product markets. The Company also markets its print service capabilities to the
personalized print market. Personalized printing includes items used for social occasions such as
invitations, announcements and napkins. The vast majority of the Companys sales are to customers
in North America, although the Company also ships orders to destinations outside of North America
on behalf of its North American customers. In June 2009, the Company rationalized its product
lines and exited the specialty print and direct mail market.
Revenue is recognized on the accrual basis, which is at the time of shipment of goods or acceptance
at the United States Postal Service. There are no significant contracts allowing for right of
return. A trade receivable is recorded at the value of the sale. The Company performs periodic
credit evaluations of its customers financial condition and generally does not require collateral.
Generally, amounts not collected from customers within 120 days of the due date of the invoice are
credited to an allowance for doubtful accounts. After collection efforts have been exhausted,
uncollected balances are charged off to the allowance. Shipping and handling costs are expensed as
incurred and are included in costs of products sold.
Advertising costs are expensed when incurred and were $86 thousand in 2009, $152 thousand in 2008,
and $210 thousand in 2007.
Loss per share
Loss per share computations are based upon the following table:
Years Ended December 31, | ||||||||||||
(in thousands, except per share data) | 2009 | 2008 | 2007 | |||||||||
Net loss |
$ | (1,982 | ) | $ | (895 | ) | $ | (4,101 | ) | |||
Basic and diluted loss per share weighted average shares |
3,430 | 3,434 | 3,450 | |||||||||
Basic and diluted loss per share |
$ | (0.58 | ) | $ | (0.26 | ) | $ | (1.19 | ) | |||
There was no effect for stock options that were dilutive at December 31, 2009, 2008 and 2007 since
the Company had a net loss in all years.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary. All intercompany transactions have been eliminated.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed on the straight-line method for financial
reporting purposes and on accelerated methods for income tax purposes. Estimated useful lives of
the assets are as follows: buildings, 10-40 years; computer software, 3 years; and machinery and
equipment, 3-10 years.
The costs of properties sold, or otherwise disposed of, and the accumulated depreciation thereon is
eliminated from the accounts, and the resulting gain or loss is reflected in income. Renewals and
betterments are capitalized; maintenance and repairs are expensed.
22
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
Machinery and equipment includes $67 thousand and $84 thousand of unamortized computer software
costs at December 31, 2009 and 2008 respectively. The expense related to the amortization of
capitalized computer software costs for the years ended December 31, 2009, 2008, and 2007 was $60
thousand, $73 thousand, and $629 thousand, respectively.
In December 2007, the estimated lives of certain software assets were changed. The effect was $0.2
million in additional amortization costs recognized in 2007.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the financial reporting and tax basis of assets and liabilities.
Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of
tax benefits not expected to be realized. Investment tax credits are recognized on the flow
through method.
Cash and Cash Equivalents
All highly liquid instruments with maturities of three months or less at the time of purchase are
considered cash equivalents.
Financial Instruments
The Companys financial instruments consist primarily of cash and cash equivalents, receivables,
accounts payable and long-term debt. The carrying value of the Companys financial instruments
approximate fair value. The Company does not hold or issue financial instruments for trading
purposes.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined in accordance
with the first-in, first-out method. Costs included in inventory are the cost to purchase the raw
material, the direct labor incurred on work in progress and finished goods, and an overhead factor
based on other indirect manufacturing costs incurred. Inventories at December 31 were as follows:
(in thousands) | 2009 | 2008 | ||||||
Finished goods |
$ | 2,788 | $ | 2,671 | ||||
Work in progress |
327 | 238 | ||||||
Raw material |
1,143 | 1,404 | ||||||
Total inventory |
$ | 4,258 | $ | 4,313 | ||||
Capital Stock
Class B Stock is identical to common stock, except Class B Stock has ten votes per share, and is
automatically converted to common stock on a one-for-one basis when sold or transferred, and cannot
receive dividends unless an equal or greater amount is declared on common stock. As of December
31, 2009, 1,259,214 shares of common stock have been reserved for issuance upon conversion of the
Class B stock and for options granted under the employee and director stock option plans.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those estimates.
Long-lived Assets
Long-lived assets, including acquired identifiable intangible assets, are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount of those assets may
not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset
or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived
asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset or asset group. That
assessment is based on the carrying amount of the asset or asset group at the date tested. An
impairment loss is measured as the amount by which the carrying amount of a long-lived asset or
asset group exceeds its fair value.
Based on this testing, the Company recognized $1.8 million and $0.1 million of net asset impairment
charges in 2009 and 2007, respectively. In 2007, these impairment charges were recorded as a
component of other expenses in the consolidated statements of operations. No asset impairment
charges were recognized in 2008.
23
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
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 President and
CEO is consistent with the reporting format used in the Companys 2009 Form 10-K and other external
information.
Goodwill
The Companys goodwill was the result of the excess of purchase price over net assets acquired from
an acquisition. The Company tested goodwill for impairment at least annually, during the fourth
quarter, and whenever events occurred or circumstances changed that indicated there may be
impairment. The process of evaluating the Companys goodwill for impairment was subjective and
required significant estimates. These estimates included judgments about future cash flows that
were dependent on internal forecasts, long-term growth rates and estimates of the weighted average
cost of capital used to discount projected cash flows. In December 2007, management concluded that
the $319 thousand of goodwill was impaired based on the discounted projected cash flows. As a
result, this asset was written-off to expense as a component of other expenses in the consolidated
statements of operations. The Company had no goodwill as of December 31, 2009.
Recently Issued Accounting Standards
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) 105-10, Generally Accepted Accounting Principles -
Overall (ASC 105-10). ASC 105-10 establishes the FASB Accounting Standards Codification (the
Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements in conformity with
U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. The Codification superseded all existing non-SEC
accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new standards in the
form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide background information
about the guidance and provide the basis for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for the Codification.
In December 2007, the ASC Topic 805, Business Combinations (ASC 805) was issued. ASC 805
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. ASC 805 also
requires transaction costs related to the business combination to be expensed as incurred. ASC 805
applies prospectively to business combinations; the effective date for the Company is January 1,
2009. The impact of ASC 805 on future business combinations cannot currently be determined.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, Subsequent Events, to
establish principles and requirements for subsequent events. The guidance sets forth the date after
the balance sheet date during which management of a reporting entity shall evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements.
The guidance also identifies the circumstances under which an entity shall recognize events or
transactions occurring after the balance sheet date. The guidance is effective for interim or
annual financial periods ending after June 15, 2009, and shall be applied prospectively. The
Company adopted the provisions of the guidance during the year ended December 31, 2009 and its
impact on the Companys disclosures was not significant.
24
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Product Line Net Sales
Product line net sales are as follows:
Years Ended December 31, | ||||||||||||
(in thousands) | 2009 | 2008 | 2007 | |||||||||
Folding cartons: |
||||||||||||
Custom folding cartons |
$ | 34,851 | $ | 30,647 | $ | 29,008 | ||||||
Stock packaging |
8,953 | 9,672 | 10,865 | |||||||||
Folding cartons sub-total |
43,804 | 40,319 | 39,873 | |||||||||
Print services: |
||||||||||||
Specialty print and direct mail |
1,519 | 4,190 | 3,098 | |||||||||
Personalized |
3,030 | 3,903 | 4,699 | |||||||||
Print services sub-total |
4,549 | 8,093 | 7,797 | |||||||||
Total |
$ | 48,353 | $ | 48,412 | $ | 47,670 | ||||||
In June 2009, the Company rationalized its product lines and exited the specialty print and direct
mail market.
4. Selected Quarterly Financial Information (unaudited)
2009 | 2008 | |||||||||||||||||||||||||||||||
(in thousands, except share data) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||
Revenue |
$ | 12,770 | $ | 12,587 | $ | 11,213 | $ | 12,326 | $ | 13,620 | $ | 12,637 | $ | 11,064 | $ | 11,577 | ||||||||||||||||
Gross Profit |
$ | 2,985 | $ | 2,516 | $ | 457 | $ | 1,420 | $ | 2,120 | $ | 1,975 | $ | 1,283 | $ | 1,346 | ||||||||||||||||
Adjustments to (write-down of) impaired assets |
$ | 36 | $ | 367 | $ | (2,175 | ) | $ | | $ | | $ | | $ | | $ | | |||||||||||||||
Net income (loss) |
$ | 1,263 | $ | 1,011 | $ | (3,723 | ) | $ | (533 | ) | $ | 129 | $ | 14 | $ | (538 | ) | $ | (500 | ) | ||||||||||||
Earnings (loss) per share: |
||||||||||||||||||||||||||||||||
Basic |
$ | 0.37 | $ | 0.29 | $ | (1.09 | ) | $ | (0.16 | ) | $ | 0.04 | $ | 0.00 | $ | (0.16 | ) | $ | (0.15 | ) | ||||||||||||
Diluted |
$ | 0.36 | $ | 0.29 | $ | (1.09 | ) | $ | (0.16 | ) | $ | 0.04 | $ | 0.00 | $ | (0.16 | ) | $ | (0.15 | ) |
5. Rationalization of Product Lines
During 2009, the Company rationalized its product lines in order to capitalize on its growing
position in the custom folding cartons product line.
The following charges are associated with this rationalization process:
(in thousands) | ||||
Net write-down of impaired assets |
$ | 1,536 | ||
Workforce reduction costs (included in Selling, general and administrative expenses) |
65 | |||
Other rationalization charges (included in Cost of products sold) |
134 | |||
Total |
$ | 1,735 | ||
As of December 31, 2009, approximately $14 thousand of accrued liabilities associated with
workforce reduction charges and contract settlement costs are recorded on the consolidated balance
sheet. This amount is expected to be paid in 2010. The Company has not incurred any additional
costs associated with this rationalization and does not expect to incur additional costs in the
future.
25
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Assets Held for Sale
As a result of the Companys rationalization of its product lines, managements change of plans
regarding its use of the Blasdell, NY facility and managements committed plan and related actions
to sell those assets, the Company recognized asset impairment charges in the second quarter of 2009
of $2.2 million ($0.2 million for the Blasdell, NY facility and $2.0 million for Specialty Print
and Direct Mail equipment) related to these assets based upon an estimate of the net realizable
value based on expected selling prices less costs to sell.
Subsequent to the initial asset impairment charges, the Company sold the Blasdell, NY facility for
net proceeds of $1.4 million and Specialty Print and Direct Mail equipment for net proceeds of $0.8
million, realizing a net gain of $0.4 million, resulting in a net write-down of impaired assets of
$1.8 million for the year ended December 31, 2009.
As of December 31, 2009, $171 thousand of Specialty Print and Direct Mail equipment remaining to be
sold are classified as Assets Held for Sale on the consolidated balance sheet.
The reported fair value of these assets held for sale is considered to be level three within the
fair value hierarchy as established by ASC 820 Fair Value Measurements. Level three is defined
as inputs for which significant valuation assumptions are unobservable in a market and therefore
value is based on the best available data, some of which is internally developed and considers risk
premiums that a market participant would require.
7. Net Write-Down of Impaired Assets:
As a result of the Companys rationalization of its product lines and managements change of plans
regarding its use of the Blasdell, NY facility, the Company recognized a net write-down of impaired
assets during 2009 which was included in operating income as follows:
(in thousands) | ||||
Specialty print and direct mail equipment |
$ | 1,536 | ||
Blasdell, NY facility |
236 | |||
Total net write-down of impaired assets |
$ | 1,772 | ||
In 2007, $416 thousand in net write-down of impaired assets were included in other expense. There
were no net write-downs of impaired assets included in operating income in 2008 and 2007.
8. Income Taxes
The provision for income taxes consists of the following:
Years Ended December 31, | ||||||||||||
(in thousands) | 2009 | 2008 | 2007 | |||||||||
Current: |
||||||||||||
US Federal |
$ | | $ | | $ | | ||||||
State |
| 2 | 10 | |||||||||
Deferred |
(118 | ) | (381 | ) | (1,867 | ) | ||||||
$ | (118 | ) | $ | (379 | ) | $ | (1,857 | ) | ||||
The effective tax rates differ from the statutory federal income tax rate as follows:
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Statutory federal income tax rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
Permanent differences, primarily nondeductible stock option expense in
2009, 2008 and 2007 and goodwill impairment charge in 2007 |
(3.4 | %) | (4.3 | %) | (2.9 | %) | ||||||
Valuation allowance |
(25.0 | %) | | | ||||||||
State income tax, net of federal income tax benefit |
| | 0.1 | % | ||||||||
5.6 | % | 29.7 | % | 31.2 | % | |||||||
26
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Companys deferred tax liabilities and assets as of December 31, 2009
and 2008 are as follows:
(in thousands) | 2009 | 2008 | ||||||
Long-term deferred tax liability: Tax depreciation over financial statement depreciation |
$ | (534 | ) | $ | (1,448 | ) | ||
Long-term deferred asset: State investment tax credit carry forwards, net of federal tax |
4,600 | 4,600 | ||||||
Long-term deferred asset: Tax loss carry-forward |
635 | 950 | ||||||
Other net |
423 | 380 | ||||||
Total long-term deferred tax assets |
5,658 | 5,930 | ||||||
Valuation allowance for deferred tax asset |
(5,124 | ) | (4,600 | ) | ||||
Net long-term deferred tax asset |
534 | 1,330 | ||||||
Net deferred tax liability |
$ | | $ | (118 | ) | |||
On December 31, 2009, the Company had various state tax credit carry forwards of $6.7 million ($6.7
million in 2008) including approximately $2.1 million of state investment tax credits expiring
through 2022 and $4.6 million of other business credits.
The Companys continuing practice is not to recognize interest and/or penalties related to income
tax matters in income tax expense. As of December 31, 2009, the Company had no amounts accrued
related to uncertain tax positions. The tax loss carry forward will begin to expire in 2022.
9. Long-Term Debt
Long-term debt consists of the following:
(in thousands) | 2009 | 2008 | ||||||
Capital lease obligations: |
||||||||
Building due in 2022; bears interest at 10%; payable monthly |
$ | 1,800 | $ | 1,800 | ||||
Equipment |
90 | 20 | ||||||
1,890 | 1,820 | |||||||
Less current maturities |
(35 | ) | (12 | ) | ||||
Capital lease obligation long-term |
1,855 | 1,808 | ||||||
Loans: |
||||||||
Equipment loans |
513 | 650 | ||||||
Other |
91 | 111 | ||||||
604 | 761 | |||||||
Less current maturities |
(167 | ) | (156 | ) | ||||
Loans long-term |
437 | 605 | ||||||
Total long-term debt |
$ | 2,292 | $ | 2,413 | ||||
In November of 2003, the Company entered into a lease transaction, which gave it control of the
real estate complex adjoining its main production facility. This complex consists of approximately
13 acres and buildings totaling approximately 203,000 square feet. It is a capital lease for
accounting and financial reporting purposes, meaning that the land and buildings are capitalized
and the building is amortized, while the lease obligation is treated as the equivalent of a
mortgage note. The lease term is forty-nine years with the option to buy the underlying real
estate and terminate the lease in the twentieth year for $1.8 million. This purchase option in the
twentieth year represents the principal balance of the obligation. Monthly lease payments total
$155 thousand annually for the first seven years, and $180 thousand annually for the remainder of
the lease. Lease payments are recorded as interest expense. The aggregate of the lease payments
from inception over the lease term is $8.6 million. The carrying value of the underlying real
estate, including improvements, was $3.7 million at December 31, 2009. Amortization of such assets
is included with depreciation and amortization in the accompanying statement of cash flows. The
Company has non-cancelable sub-leases for space in the complex that have scheduled rents as follows
over the next three years: $408 thousand in 2010, $294 thousand in 2011 and $63 thousand in
2012.
27
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
Equipment capital lease obligations are as follows: $35 thousand in 2010, $28 thousand in 2011, $24
thousand in 2012 and $3 thousand thereafter.
Equipment loans debt matures as follows: $146 thousand in 2010, $158 thousand in 2011, $169
thousand in 2012 and $40 thousand thereafter. The interest rates on the loans range from 7.1% to
7.6% and the terms of the loans range from 58 months to 60 months.
Other long-term debt matures as follows: $21 thousand in 2010, $23 thousand in 2011, $24 thousand
in 2012 and $23 thousand thereafter.
10. Assets Under Capital Leases Included in Property, Plant and Equipment
Assets under capital leases included in property, plant and equipment are summarized as follows:
Years Ended December 31, | ||||||||
(in thousands) | 2009 | 2008 | ||||||
Land |
$ | 400 | $ | 400 | ||||
Buildings |
4,148 | 4,148 | ||||||
Equipment |
89 | 25 | ||||||
4,637 | 4,573 | |||||||
Less accumulated depreciation |
(894 | ) | (711 | ) | ||||
Net assets under capital leases |
$ | 3,743 | $ | 3,862 | ||||
11. Operating Leases
The Company leases several pieces of equipment and two automobiles under separate operating leases.
Rental expense under these leases was $490 thousand in 2009, $541 thousand in 2008, and $561
thousand in 2007. Minimum future rental payments under non-cancelable lease obligations as of
December 31, 2009 are: 2010, $413 thousand; 2011, $10 thousand; 2012, $7 thousand; 2013, $2
thousand and none thereafter.
12. Stock Option and Purchase Plans
MOD-PAC CORP. established a Stock Option Plan that authorizes 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 authorizes 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 of the common stock 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.
28
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
The fair values of options granted under these Plans are calculated at the date of grant using the
Black-Scholes option-pricing model. The weighted average fair value at the grant date of options
granted during 2009, 2008 and 2007 was $2.55, $1.15 and $3.12 respectively. The following table
provides the range of assumptions used to value stock options granted during 2009, 2008 and 2007.
Years Ended December 31, | ||||||
2009 | 2008 | 2007 | ||||
Expected volatility |
76% 82% | 39% 60% | 38% | |||
Risk-free rate |
2.0% 2.3% | 1.5% 2.9% | 3.4% | |||
Expected dividends |
0% | 0% | 0% | |||
Expected term (in years) |
5.5 6.5 | 5.5 6.5 | 5.5 6.5 |
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.
A summary of stock option activity for the years ended December 31, 2009, 2008 and 2007 follows:
Weighted | ||||||||||||
Average | Aggregate | |||||||||||
Exercise | Intrinsic | |||||||||||
(aggregate intrinsic value in thousands) | Options | Price | Value | |||||||||
Outstanding at January 1, 2007 |
379,137 | $ | 9.43 | |||||||||
Options granted |
62,500 | $ | 7.36 | |||||||||
Options forfeited |
(28,560 | ) | $ | 9.80 | ||||||||
Options exercised |
(6,210 | ) | $ | 5.27 | ||||||||
Outstanding at the end of year |
406,867 | $ | 9.15 | $ | 149 | |||||||
Exercisable at December 31, 2007 |
277,623 | $ | 9.41 | $ | 130 | |||||||
Outstanding at January 1, 2008 |
406,867 | $ | 9.15 | |||||||||
Options granted |
145,000 | $ | 2.27 | |||||||||
Options forfeited |
(14,858 | ) | $ | 7.92 | ||||||||
Outstanding at the end of year |
537,009 | $ | 7.33 | $ | 67 | |||||||
Exercisable at December 31, 2008 |
340,799 | $ | 9.04 | $ | | |||||||
Outstanding at January 1, 2009 |
537,009 | $ | 7.33 | |||||||||
Options granted |
115,000 | $ | 3.67 | |||||||||
Options forfeited |
(7,000 | ) | $ | 1.85 | ||||||||
Options expired |
(14,180 | ) | $ | 5.22 | ||||||||
Outstanding at the end of year |
630,829 | $ | 6.77 | $ | 398 | |||||||
Exercisable at December 31, 2009 |
472,689 | $ | 7.37 | $ | 308 | |||||||
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 $4.41, $2.37 and
$7.49 as of December 31, 2009, 2008 and 2007, respectively, which would have been received by the
option holders had all options with an exercise price less than the market price been exercised as
of 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. The intrinsic value of options
exercised was $18 thousand during 2007. There were no shares exercised in 2009 and 2008. The
Companys current policy is to issue additional new shares upon exercise of stock options.
29
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
The fair value of options vested since December 31, 2008 is $0.1 million. At December 31, 2009,
total compensation costs related to non-vested awards not yet recognized was $0.4 million which
will be recognized over a weighted average period of 1.5 years.
The following is a summary of weighted average exercise prices and contractual lives for
outstanding and exercisable stock options as of December 31, 2009:
Outstanding | Exercisable | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | Weighted | Average | Weighted | |||||||||||||||||||||
Remaining | Average | Remaining | Average | |||||||||||||||||||||
Life in | Exercise | Life in | Exercise | |||||||||||||||||||||
Exercise Price Range | Shares | Years | Price | Shares | Years | Price | ||||||||||||||||||
$1.68 to $5.62 |
292,659 | 8.5 | $ | 3.25 | 174,059 | 7.6 | $ | 2.97 | ||||||||||||||||
$6.22 to $8.44 |
148,919 | 5.2 | $ | 7.72 | 127,019 | 4.8 | $ | 7.80 | ||||||||||||||||
$10.00 to$11.73 |
132,474 | 6.1 | $ | 10.79 | 115,274 | 6.0 | $ | 10.80 | ||||||||||||||||
$12.41 to$15.54 |
56,777 | 4.3 | $ | 13.01 | 56,337 | 4.3 | $ | 13.01 | ||||||||||||||||
630,829 | 6.8 | $ | 6.77 | 472,689 | 6.1 | $ | 7.37 | |||||||||||||||||
MOD-PAC CORP. established the Employee Stock Purchase Plan to encourage its employees to invest in
the Company. The plan provides employees that have been with the Company for at least a year the
option to invest up to 20% of their cash compensation (up to an annual maximum of $20 thousand) in
the Companys common stock at a price equal to 85% of the fair market value of the Companys common
stock, determined each October 1. Employees are allowed to enroll annually. Employees indicate the
number of shares they wish to obtain through the program and their intention to pay for the shares
through payroll deductions over the annual cycle of October 1 through September 30. Employees can
withdraw anytime during the annual cycle and all money withheld from the employees pay is returned
with interest. If an employee remains enrolled in the program, enough money will have been withheld
from the employees pay during the year to pay for all the shares that the employee opted for under
the program. At December 31, 2009, employees have enrolled to purchase 99,586 shares at $2.15 per
share on September 30, 2010. The fair value of options granted under the Employee Stock Purchase
Plan was $1.03, $0.83 and $2.11 per option in 2009, 2008 and 2007, respectively, and is recorded as
expense over the one year term of the options.
13. Profit Sharing/401(k) Plan
The Company has a Qualified Profit Sharing / 401(k) Plan (the Plan) for the benefit of its
eligible full-time employees. Under the provisions of the Plan, the Company may make annual
contributions to the Plan based on percentages of pre-tax income. In addition, employees may
contribute a portion of their salary to the Plan, which is partially matched by the Company. The
Plan may be amended or terminated at any time. Total charges to income for the Company plan were
$87 thousand, $93 thousand, and $98 thousand in 2009, 2008, and 2007, respectively.
14. Concentrations Related to Production Assets, Employees and Power
Nearly all of the Companys production assets and its employees are located in Western New York
State. The Company believes that the supply of labor and the infrastructure to support the supply
of materials and the shipment of product from its facilities is generally adequate.
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 60% of its estimated usage through October 2010. Historically, the
price of natural gas has fluctuated widely. Although the Company is concerned about cost, its main
concern is availability. The Company 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.
The Companys purchase commitment is $0.5 million in 2010 and none thereafter.
30
MOD-PAC CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTES TO FINANCIAL STATEMENTS (Continued)
15. Sales to Major Customers
The Company has a significant concentration of business with two major customers. Sales to Gilster
Mary Lee accounted for 11.5% of sales in 2009, 6.5% of sales in 2008 and 3.7% of sales in 2007.
Accounts receivable from this customer at December 31, 2009 and 2008 were $0.5 million and $0.3
million, respectively. Sales to Covidien accounted for 14.8% of sales in 2009, 11.9% of sales in
2008 and 9.9% of sales in 2007. Accounts receivable from this customer at December 31, 2009 and
2008 were $1.4 million and $1.0 million, respectively.
16. Line of Credit
The Company has access to a committed and secured line of credit with a commercial bank of $5.0
million. 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. This line of credit expires on March 8, 2010. The
Company is currently in negotiation to renew or replace the existing line of credit. At December
31, 2009, $0.2 million was in use through a standby letter of credit and there was no balance drawn
on the line. The amount of the line of credit that was unused and available to the Company at
December 31, 2009 was $4.8 million.
17. DDM Acquisition:
Effective May 1, 2007, the Company acquired certain assets of DDM Digital Imaging, Data
Processing and Mailing Services LC (DDM) for a total purchase price of $850 thousand for the
purpose of expanding the Companys print service offerings and capabilities.
The purchase price, including acquisition related costs, was allocated as follows:
(in thousands) | ||||
Property, plant and equipment |
$ | 807 | ||
Intangible assets |
140 | |||
Total |
$ | 947 | ||
31
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
Item 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures:
We carried out an evaluation, under the supervision and with the participation of our Management,
including the President/Chief Executive Officer and Chief Operating Officer/Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the
President/Chief Executive Officer and Chief Operating Officer/Chief Financial Officer concluded
that these disclosure controls and procedures are effective as of the end of the period covered by
this report, to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commissions rules and forms, and that such information is
accumulated and communicated to management, including our President/Chief Executive Officer and
Chief Operating Officer/Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures.
Managements report on Internal Control over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act.
Under the supervision and with the participation of our management, including the President/Chief
Executive Officer and Chief Operating Officer/Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of December 31, 2009 based
upon the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded
that our internal control over financial reporting is effective as of December 31, 2009.
This annual report on Form 10-K does not include an attestation report of Ernst & Young LLP,
our independent registered public accounting firm, regarding internal controls over financial
reporting. Managements report was not subject to attestation by our registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to
provide only managements report in this annual report.
By:
|
/s/ Daniel G. Keane
|
By: | /s/ David B. Lupp
|
|||||||
Executive Officer | Financial Officer | |||||||||
(Principal Executive Officer) | (Principal Financial Officer) | |||||||||
Changes in Internal Control over Financial Reporting:
There have been no changes in our internal control over financial reporting during the most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. | OTHER INFORMATION |
Not applicable.
32
PART III
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |
The information regarding directors is contained under the captions Election of Directors and
Security Ownership of Certain Beneficial Owners and Management in our definitive Proxy Statement
to be filed within 120 days of the end of our fiscal year and is incorporated herein by reference.
The information regarding our audit committee and audit committee financial experts is contained
under the caption Corporate Governance and Board Matters in our definitive Proxy Statement to be
filed within 120 days of the end of our fiscal year and is incorporated herein by reference.
The information concerning the procedures by which our shareholders may recommend nominees to our
Board of Directors is contained under the caption Corporate Governance and Board Matters in our
definitive Proxy Statement to be filed within 120 days of the end of the fiscal year and is
incorporated herein by reference.
The information concerning compliance with Section 16(a) of the Exchange Act is contained under the
caption Section 16(A) Beneficial Ownership Reporting Compliance in our definitive Proxy Statement
to be filed within 120 days of the end of the fiscal year and is incorporated herein by reference.
Our executive officers, their ages, certain biographical information, their positions and offices
with MOD-PAC, and the date each assumed their office with us is as follows as of March 5, 2010:
Daniel G. Keane President and Chief Executive Officer Age 44
Mr. Keane was first elected an officer of MOD-PAC in 1997. He has held the position of President
since 1998. In 2003 he was appointed Chief Executive Officer. From 1993 to 1998 he served in
various management capacities at MOD-PAC. Mr. Keane holds a Bachelor of Arts in Economics modified
with Mathematics from Dartmouth College and a M.B.A. from Duke University.
David B. Lupp Chief Operating Officer and Chief Financial Officer Age 53
Mr. Lupp was elected as the Chief Financial Officer of MOD-PAC in January 2006. In 2008, he was
also appointed Chief Operating Officer. Prior to joining MOD-PAC, he spent 16 years as the Chief
Financial Officer of International Imaging Materials, Inc., a global, private company which
manufactures thermal transfer ribbons. A Certified Public Accountant, Mr. Lupp holds a B.S. in
Accounting from the State University of New York at Buffalo.
Daniel J. Geary Vice President Finance Age 39
Mr. Geary joined MOD-PAC in March 2005 as Corporate Controller. In 2006, he was elected an officer
of MOD-PAC. In 2008, he was promoted to Vice President of Finance. Mr. Geary was employed by
Eastman Kodak Company in various Finance Management positions from September 2001 to March 2005.
Most recently, he was the Accounting Manager in the Consumer and Professional Imaging Group from
January 2004 to February 2005. He holds a B.S. in Accounting from Canisius College, a M.B.A. from
Carnegie Mellon University, and is a Certified Public Accountant.
Philip C. Rechin Vice President Sales- Age 46
Mr. Rechin began his career at MOD-PAC in 1986 as the Finished Goods Supervisor. He has served as
Vice President of Sales at MOD-PAC since 2000. In 2006, he was elected an officer of MOD-PAC. Mr.
Rechin has a B.S. in Industrial Technology from Buffalo State College and is APICS certified.
Code of Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics that is applicable to its
President and Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, as well
as all of our other directors, officers and employees. This Code of Business Conduct and Ethics is
posted on the Investor Information section of our website at www.modpac.com. We will
disclose any amendment to this Code of Business Conduct and Ethics or waiver of a provision of this
Code of Business Conduct and Ethics, including the name of any person to whom the waiver was
granted, on its website. We will provide a copy of our Code of Business Conduct and Ethics free of
charge upon request.
33
Item 11. | EXECUTIVE COMPENSATION |
The information contained under the caption Executive Compensation and Summary Compensation
Table in our definitive Proxy Statement to be filed within 120 days of the end of our fiscal year
is incorporated herein by reference.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND STOCKHOLDER MATTERS |
The information contained under the caption Security Ownership of Certain Beneficial Owners and
Management in our definitive Proxy Statement to be filed within 120 days of the end of our fiscal
year is incorporated herein by reference.
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information contained under the caption Certain Relationships and Related Party Transactions
and Board of Directors Independence in our definitive Proxy Statement to be filed within 120 days
of the end of our fiscal year is incorporated herein by reference.
Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information contained under the caption Auditor Fees in our definitive Proxy Statement to be
filed within 120 days of the end of our fiscal year is incorporated herein by reference.
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following financial statements and supplemental schedule of MOD-PAC CORP. and Report of
Independent Registered Public Accounting Firm thereon are included herein:
(a) (1). Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2009 and 2008
Consolidated Statement of Operations for the years ended December 31, 2009, 2008, and 2007
Consolidated Statement of Shareholders Equity for the years ended December 31, 2009, 2008, and 2007
Consolidated Statement of Cash Flows for the years ended December 31, 2009, 2008, and 2007
Notes to Financial Statements
(a) (2). Financial Statement Schedules
Schedule II Valuation and qualifying accounts
All other consolidated financial schedules are omitted because they are inapplicable, not required,
or the information is included elsewhere in the consolidated financial statements or the notes
thereto.
34
SCHEDULE II
MOD-PAC CORP.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at | ||||||||||||||||||
the | Charged to | Balance at | ||||||||||||||||
Beginning | Costs and | Write-offs/ | end of | |||||||||||||||
Year | Description | of Period | Expense | Recoveries | Period | |||||||||||||
2009 | Allowance for Doubtful Accounts |
$ | 170 | $ | 20 | $ | (35 | ) | $ | 155 | ||||||||
2008 | Allowance for Doubtful Accounts |
$ | 76 | $ | 108 | $ | (14 | ) | $ | 170 | ||||||||
2007 | Allowance for Doubtful Accounts |
$ | 74 | $ | 61 | $ | (59 | ) | $ | 76 | ||||||||
2009 | Valuation allowance Deferred Tax Assets |
$ | 4,600 | $ | 524 | $ | | $ | 5,124 | |||||||||
2008 | Valuation
allowance Deferred Tax Assets |
$ | 4,338 | $ | 262 | $ | | $ | 4,600 | |||||||||
2007 | Valuation
allowance Deferred Tax Assets |
$ | 4,060 | $ | 278 | $ | | $ | 4,338 | |||||||||
2009 | Inventory Reserve Allowance |
$ | 137 | $ | 70 | $ | (99 | ) | $ | 108 | ||||||||
2008 | Inventory Reserve Allowance |
$ | 124 | $ | 65 | $ | (52 | ) | $ | 137 | ||||||||
2007 | Inventory Reserve Allowance |
$ | 123 | $ | 44 | $ | (43 | ) | $ | 124 |
35
(a) 3. Exhibits
Exhibit No. | Description | |||
3 | (a) | Restated Certificate of Incorporation; incorporated
by reference to exhibit 3.1 of the Registrants, Form 10/A Registration
Statement Dated January 28, 2003. |
||
(b) | By-Laws, as amended; incorporated by reference to
exhibit 3.2 of the Registrants Form 10/A Registration Statement Dated
January 28, 2003. |
|||
10.1 | * | MOD-PAC CORP. 2002 Stock Option Plan; incorporated
by reference to exhibit 10.6 of the Registrants Form 10/A Registration
Statement Dated January 28, 2003. |
||
10.2 | * | MOD-PAC CORP. 2002 Director Stock Option Plan;
incorporated by reference to exhibit 10.8 the Registrants Form 10/A
Registration Statement Dated January 28, 2003. |
||
10.3 | * | MOD-PAC CORP. Employee Stock Purchase Plan;
incorporated by reference to exhibit 10.7 of the Registrants Form 10/A
Registration Statement Dated January 28, 2003. |
||
10.4 | * | Employment Agreement with David B. Lupp;
incorporated by reference to exhibit 10.1 of the Registrants Form 8-K
dated January 31, 2006. |
||
10.5 | Loan Agreement dated as of March 8, 2007 among
MOD-PAC CORP. and KeyBank, National Association, as lender; incorporated
by reference to exhibit 10.1 of the Registrants Form 8-K dated March 9,
2007. |
|||
10.6 | * | Indemnification Agreement dated March 7, 2007,
between MOD-PAC CORP. and Philip C. Rechin; incorporated by reference to
exhibit 10.2 of the Registrants Form 8-K dated March 9, 2007. |
||
10.7 | * | Indemnification Agreement dated March 7, 2007,
between MOD-PAC CORP. and Larry N. Kessler; incorporated by reference to
exhibit 10.3 of the Registrants Form 8-K dated March 9, 2007. |
||
10.8 | * | Separation Agreement Dated September 17, 2007 by and
between the Registrant and Larry N. Kessler; incorporated by reference to
exhibit 10.1 of the Registrants Form 8-K dated September 26, 2007. |
||
10.9 | * | Form of Indemnification Agreement dated August 18,
2005, as executed by MOD-PAC CORP. and each of Daniel J. Geary, Daniel G.
Keane, Kevin T. Keane, William G. Gisel, Jr., Robert J. McKenna and Howard
Zemsky; incorporated by reference to exhibit 10.9 of the Registrants Form 10-K dated March 5, 2009. |
||
10.10 | * | Indemnification Agreement dated January 30, 2006, as executed by MOD-PAC
CORP. and David B. Lupp; incorporated by reference to exhibit 10.10 of the Registrants Form 10-K dated March 5, 2009. |
||
10.11 | Amendment to the Loan Agreement referenced in
exhibit 10.5 dated January 14, 2008 between MOD-PAC CORP. and KeyBank,
National Association, as lender; incorporated by reference to exhibit
10.11 of the Registrants Form 10-K/A dated July 22, 2009. |
|||
10.12 | Security Agreement to the Loan Agreement referenced
in exhibit 10.5, between MOD-PAC CORP. and KeyBank, National Association,
as lender; incorporated
by reference to exhibit 10.12 of the Registrants Form 10-K/A
dated July 22, 2009. |
36
Exhibit No. | Description | |||
21 | Subsidiaries of the Registrant (filed herewith). |
|||
23 | Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm (filed herewith). |
|||
31.1 | Certification of President and Chief Executive
Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to
section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
31.2 | Certification of Chief Operating Officer and Chief
Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith). |
|||
32.1 | Certification of President and Chief Executive
Officer pursuant to 18U.S.C. Section 1350 as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|||
32.2 | Certification of Chief Operating Officer and Chief
Financial Officer pursuant to 18U.S.C. Section 1350 as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
* | Identifies a management contract or compensatory plan or arrangement as required by Item 15(a)(3) of Form 10-K. |
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 5, 2010.
MOD-PAC CORP. | ||||
By:
|
/s/ Daniel G. Keane
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature | Title | Date | ||
/s/ Daniel G. Keane
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
March 5, 2010 | ||
/s/ David B. Lupp
|
Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) |
March 5, 2010 | ||
/s/ Daniel J. Geary
|
Vice President of Finance (Principal Accounting Officer) |
March 5, 2010 | ||
/s/ Kevin T. Keane
|
Chairman of the Board of Directors | March 5, 2010 | ||
/s/ William G. Gisel, Jr.
|
Director | March 5, 2010 | ||
/s/ Robert J. McKenna
|
Director | March 5, 2010 | ||
/s/ Howard Zemsky
|
Director | March 5, 2010 |
38