Annual Reports

 
Quarterly Reports

  • 10-Q (Jul 26, 2013)
  • 10-Q (May 1, 2013)
  • 10-Q (Oct 31, 2012)
  • 10-Q (Aug 1, 2012)
  • 10-Q (May 2, 2012)
  • 10-Q (Nov 2, 2011)

 
8-K

 
Other

MOD-PAC CORP. 10-Q 2012

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
modpac_10q-033112.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarterly Period Ended:  March 31, 2012
 
OR
 
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ___________ to ____________
 
Commission File Number:  0-50063
 
MOD-PAC CORP.
 
(Exact Name of Registrant as Specified in its Charter)
New York
(State or other jurisdiction of incorporation or organization)
 
1801 Elmwood Avenue, Buffalo, New York
(Address of principal executive office)
16-0957153
(I.R.S. Employer Identification No.)
 
14207
(Zip Code)
 
                                                                                                                                                                                                                                                    
(716) 873-0640
(Registrant's telephone number, including area code)

 
______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.     Yes [ X ]     No [    ]
 
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 [ X ]     No [    ] 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company.  See definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [    ] Accelerated filer [    ]
   
Non-accelerated filer [    ] (Do not check if a smaller reporting company) Smaller reporting company [ X ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [    ]     No [ X ]
 
The number of shares outstanding of each class of common stock as of March 31, 2012 was:
 
 
Common Stock, $0.01 par value    2,635,301 shares  
       
Class B Common Stock, $0.01 par value     573,528 shares  
 


 
1

 
 
MOD-PAC CORP.
QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
      Page
       
PART I. FINANCIAL INFORMATION    
       
Item 1.
Consolidated Balance Sheets March 31, 2012 and December 31, 2011   3
       
  Consolidated Statements of Operations Three Months Ended March 31, 2012 and April 2, 2011   4
       
  Consolidated Statements of Cash Flows Three Months Ended March 31, 2012 and April 2, 2011   5
       
  Notes to Consolidated Financial Statements   6-10
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation   11-13
       
Item 3.
Quantitative and Qualitative Disclosures about Market Risk   13
       
Item 4.
Controls and Procedures   13
       
PART II. OTHER INFORMATION    
       
Item 1.
Legal Proceedings   14
       
Item 1A.
Risk Factors   14
       
Item 2.
Unregistered Sales of Equity Securities   14
       
Item 3.
Defaults Upon Senior Securities   14
       
Item 4.
(Removed and Reserved)   14
       
Item 5.
Other Information   14
       
Item 6.
Exhibits   14-15
       
SIGNATURES     16

 
 
2

 
 
PART I - FINANCIAL INFORMATION
 
Item 1.  Financial Statements

MOD-PAC CORP.
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share data)
           
   
(Unaudited)
       
   
March 31, 2012
   
December 31, 2011
 
Current assets:
           
Cash and cash equivalents
  $ 856     $ 3,900  
                 
Accounts receivable
    5,097       5,400  
Allowance for doubtful accounts
    (11 )     (20 )
Net accounts receivable
    5,086       5,380  
Inventories
    7,785       7,023  
Refundable income taxes
    88       219  
Prepaid expenses
    706       506  
Total current assets
    14,521       17,028  
                 
Property, plant and equipment, at cost:
               
Land
    1,192       1,192  
Buildings and improvements
    12,870       12,789  
Machinery and equipment
    50,570       50,566  
Construction in progress
    2,397       168  
      67,029       64,715  
Less accumulated depreciation
    (51,845 )     (51,065 )
Net property, plant and equipment
    15,184       13,650  
Deferred income taxes
    128       -  
Other assets
    490       466  
Total assets
  $ 30,323     $ 31,144  
                 
Current liabilities:
               
Current maturities of long-term debt
  $ 87     $ 89  
Accounts payable
    2,196       2,151  
Accrued expenses
    416       1,171  
Total current liabilities
    2,699       3,411  
                 
Long-term debt
    1,800       1,820  
Other liabilities
    27       27  
Deferred income taxes
    -       87  
Total liabilities
    4,526       5,345  
                 
Shareholders' equity:
               
Common stock, $.01 par value, authorized 20,000,000 shares, issued 3,634,110 in 2012, 3,623,945 in 2011
    36       36  
Class B common stock, $.01 par value, authorized 5,000,000 shares, issued 573,528 in 2012, 582,493 in 2011
    6       6  
Additional paid-in capital
    3,892       3,771  
Retained earnings
    29,873       29,996  
Treasury stock at cost, 998,809 shares in 2012 and 2011
    (8,010 )     (8,010 )
Total shareholders' equity
    25,797       25,799  
                 
Total liabilities and shareholders' equity
  $ 30,323     $ 31,144  
 
See accompanying notes to consolidated financial statements.

 
3

 

MOD-PAC CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(in thousands)
 
(Unaudited)
 
   
Three Months Ended
 
   
March 31, 2012
   
April 2, 2011
 
Revenue:
           
Net sales
  $ 13,689     $ 13,801  
Rental income
    112       110  
Total revenue
    13,801       13,911  
                 
Costs and expenses:
               
Cost of products sold
    12,026       11,664  
Selling, general and administrative expenses
    1,904       1,823  
(Loss) income from operations
    (129 )     424  
                 
Interest expense
    (47 )     (49 )
Other income, net
    1       109  
(Loss) income before taxes
    (175 )     484  
Income tax (benefit) expense
    (52 )     127  
Net (loss) income
  $ (123 )   $ 357  
                 
(Loss) income per share:
               
Basic
  $ (0.04 )   $ 0.11  
                 
Diluted
  $ (0.04 )   $ 0.10  
 
See accompanying notes to consolidated financial statements.


 
4

 

MOD-PAC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands)
 
(Unaudited)
 
   
Three Months Ended
 
   
March 31, 2012
   
April 2, 2011
 
Cash flows from operating activities:
           
Net (loss) income
  $ (123 )   $ 357  
Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
Depreciation and amortization
    784       724  
Adjustment to provision for doubtful accounts
    (16 )     -  
Stock option compensation expense
    119       134  
Deferred income taxes
    (215 )     47  
Gain on disposal of assets
    -       (13 )
Cash flows from changes in operating assets and liabilities:
         
Accounts receivable
    310       (923 )
Inventories
    (762 )     (1,828 )
Prepaid expenses
    (200 )     (106 )
Accounts payable
    45       1,575  
Income taxes payable
    131       63  
Accrued expenses
    (755 )     (476 )
                 
Net cash used in operating activities
    (682 )     (446 )
                 
Cash flows from investing activities:
               
Proceeds from the sale of assets
    -       13  
Change in other assets
    (28 )     -  
Capital expenditures
    (2,314 )     (320 )
                 
Net cash used in investing activities
    (2,342 )     (307 )
                 
Cash flows from financing activities:
               
Principal payments on long-term debt
    (22 )     (92 )
Proceeds from the issuance of stock
    2       -  
                 
Net cash used in  financing activities
    (20 )     (92 )
                 
Net decrease in cash and cash equivalents
    (3,044 )     (845 )
                 
Cash and cash equivalents at beginning of year
    3,900       3,440  
                 
Cash and cash equivalents at end of period
  $ 856     $ 2,595  
 
See accompanying notes to consolidated financial statements.
 
 
5

 
MOD-PAC CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2012
 
(unaudited)
 
1)        Basis of Presentation
 
The Registrant, MOD-PAC CORP., is referred to in this Quarterly Report on Form 10-Q as “MOD-PAC” or "the Company" or in the nominative “we” or the possessive “our.”
 
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. Operating results for the three-month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
 
The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted U.S. accounting principles for complete financial statements.
 
For further information, refer to the financial statements and footnotes thereto included in the Company's 2011 annual report on Form 10-K.
 
Revenue is recognized when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms.

2)        Product Line Net Sales
 
Product line net sales are as follows:
 
(in thousands)
           
   
Three Months Ended
 
   
March 31, 2012
   
April 2, 2011
 
Folding cartons:
           
Custom folding cartons
  $ 10,380     $ 10,489  
Stock packaging
    2,698       2,615  
Folding cartons sub-total
    13,078       13,104  
                 
Personalized print
    611       697  
                 
Total
  $ 13,689     $ 13,801  
 

 
6

 

3)        (Loss) Income Per Share
 
The following table sets forth the computation of (loss) income per share:
 
(in thousands, except per share data)
       
   
Three Months Ended
 
   
March 31, 2012
   
April 2, 2011
 
Net (loss) income
  $ (123 )   $ 357  
                 
Basic weighted average shares outstanding
    3,208       3,349  
Net effect of diluted stock options
    -       105  
Diluted weighted average shares outstanding
    3,208       3,454  
                 
Basic (loss) income per share
  $ (0.04 )   $ 0.11  
                 
Diluted (loss) income per share
  $ (0.04 )   $ 0.10  
 
There was no effect for stock options that were dilutive for the three months ended March 31, 2012 since the Company had a net loss.
 
For the three months ended April 2, 2011, approximately 325 thousand of common shares potentially issuable from the exercise of stock options were excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of common stock for the respective period.

4)        Inventories
 
Inventories are stated at the lower of cost or market, cost being determined in accordance with the first-in, first-out method.
 
Inventories are as follows:
 
(in thousands)
           
   
March 31, 2012
   
December 31, 2011
 
Finished goods
  $ 3,885     $ 3,706  
Work in progress
    348       248  
Raw material
    3,552       3,069  
Total inventory
  $ 7,785     $ 7,023  
 
5)        Income Taxes
 
The Company’s effective tax rate for the first quarter of 2012 was 29.7%. The effective tax rate for the first quarter of 2012 was recorded at a rate lower than customary mainly due to state income taxes. The Company’s effective tax rate for the first quarter of 2011 was 26.2%. The effective tax rate for the first quarter of 2011 was recorded at a rate lower than customary mainly due to alternative minimum tax credits.
 
The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in SG&A expense. As of March 31, 2012, the Company had no amounts accrued related to uncertain tax positions. The tax years 2007, 2008, 2009, 2010 and 2011 remain open to examination by the major taxing jurisdictions to which the Company is subject.
 
6)        Stock-Based Compensation
 
MOD-PAC CORP. established a Stock Option Plan that authorized the issuance of 800,000 shares of Common Stock for the purpose of attracting and retaining executive officers and key employees, and to align management’s 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 Director’s Stock Option Plan that authorized the issuance of 200,000 shares of Common Stock for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors, and to align their interest with those of its shareholders.  The options must be exercised no more than ten years from the grant date and vest after six months.  The exercise price for the options is equal to the fair market value at the date of grant.
 
 
7

 
 
The Company uses a straight-line method of attributing the value of stock-based compensation expense, subject to minimum levels of expense, based on vesting.  Stock compensation expense recognized during the period is based on the value of the portion of shared-based payment awards that is ultimately expected to vest during the period.
 
The fair value of stock options granted was estimated on the date of grant using the Black-Scholes option-pricing model.  The weighted average fair value of the options was $3.20 for options granted during the three months ended April 2, 2011.  The following table provides the range of assumptions used to value stock options granted during the three months ended April 2, 2011.  There were no options granted during the three months end March 31, 2012.
 
   
Three Months Ended
 
   
April 2, 2011
 
Expected volatility
    77 %
Risk-free rate
    2.2 %
Expected dividends
    0 %
Expected term (in years)
    5.5  
 
To determine expected volatility, the Company uses recent historical volatility based on weekly closing prices of its Common Stock over a period of time equal to the expected life of the options. 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 Company’s 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 the Company’s stock option activity and related information for the three months ended March 31, 2012 is as follows:
 
(aggregate intrinsic value in thousands)
                 
   
Options
   
Weighted Average Exercise Price
   
Aggregate Intrinsic Value
 
Outstanding at January 1, 2012
    769,469     $ 6.35     $ 1,240  
Options expired
    (13,874 )     10.34          
Options exercised
    (1,200 )     1.85          
Outstanding at March 31, 2012
    754,395     $ 6.29     $ 1,393  
                         
Exercisable at March 31, 2012
    629,995     $ 6.56     $ 1,222  

The aggregate intrinsic value in the preceding table represents the total pretax option holder’s intrinsic value, based on the Company’s closing stock price of Common Stock of $7.00 as of March 31, 2012, which would have been received by the option holders had all option holders with an exercise price less than the market price been exercised as of that date. The Company’s current policy is to issue additional new shares upon exercise of stock options.
 
There were no options that vested since December 31, 2011.  At March 31, 2012, total compensation costs related to non-vested awards not yet recognized was $273 thousand which will be recognized over a weighted average period of 1.5 years.
 
 
8

 
 
The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock options as of March 31, 2012:
 
   
Outstanding
         
Exercisable
       
Exercise Price Range
 
Shares
   
Weighted Average
Remaining Life
in Years
   
Weighted Average
Exercise Price
   
Shares
   
Weighted Average
Remaining Life
in Years
   
Weighted Average
Exercise Price
 
$1.68 to $4.86
    335,450       7.7     $ 3.35       270,850       7.6     $ 3.23  
$5.39 to $6.03
    127,545       6.3     $ 5.73       75,045       3.8     $ 5.61  
$7.36 to $10.34
    187,600       4.1     $ 8.57       180,300       4.0     $ 8.62  
$11.68 to $15.54
    103,800       3.4     $ 12.33       103,800       3.4     $ 12.33  
      754,395       5.9     $ 6.29       629,995       5.4     $ 6.56  
 
7)        Capital Structure
 
The Company's Class B stock is fully convertible into Common stock on a one-for-one basis at no cost. During the first three months of 2012, 8,965 shares of Class B stock were converted to Common stock.
 
8)        Information Regarding Industry Segments
 
The Company operates as one reporting segment.  The Company’s 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 Company’s President and CEO is consistent with the reporting format used in the Company’s 2011 Form 10-K and other external information.
 
9)        Financial Instruments
 
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and long-term debt.  The carrying value of the Company’s accounts receivable and accounts payable approximate fair value due to the short-term nature of the instruments.  The recorded amounts for long-term debt approximate fair value based on current market rates of similar instruments.
 
10)     Long-Term Debt
 
Long-term debt includes the following:
 
(in thousands)
           
   
March 31, 2012
   
December 31, 2011
 
Capital lease obligations:
           
Building - due in 2023; bears interest at
       
10%; payable monthly
  $ 1,800     $ 1,800  
Equipment
    20       27  
      1,820       1,827  
Less estimated current maturities
    (20 )     (24 )
Capital lease obligations - long-term
    1,800       1,803  
                 
Loans:
               
Equipment loans
    67       82  
Other
    -       -  
      67       82  
Less estimated current maturities
    (67 )     (65 )
Loans - long-term
    -       17  
                 
Total long-term debt
  $ 1,800     $ 1,820  
 
 
9

 
 
11)     Assets Under Capital Leases Included in Property, Plant and Equipment
 
Assets under capital leases included in property, plant and equipment are summarized as follows:
 
(in thousands)
           
   
March 31, 2012
   
December 31, 2011
 
Land
  $ 400     $ 400  
Building
    4,183       4,154  
Equipment
    89       89  
      4,672       4,643  
Less accumulated depreciation
    (1,368 )     (1,314 )
                 
Net assets under capital leases
  $ 3,304     $ 3,329  
 
12)     Long-Lived Assets
 
Long-lived 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 which is based upon estimated future discounted cash flows.
 
Based on this testing, no asset impairment charges were recognized in the first three months of 2012 or 2011.
 
13)     Line of Credit
 
The Company has access to a $3.0 million secured line of credit with a commercial bank which expires June 9, 2013.  Interest on the line of credit is based on LIBOR plus 2.75%, with an interest floor of 3.35%.  At March 31, 2012, $0.2 million was in use through a standby letter of credit and there was no balance drawn on the line. The Company was in compliance with all applicable covenants at March 31, 2012.  The amount of the line of credit that was unused and available to the Company at March 31, 2012 was $2.8 million.
 
14)     Recently Issued Accounting Standards
 
The Company’s management has reviewed recent accounting pronouncements issued through the date of the issuance of the financial statements.  In management’s opinion, none of these new pronouncements apply or will have a material effect on the Company’s financial statements.


 
10

 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
OVERVIEW
 
In the second quarter of 2009, 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 have begun to, and expect to continue to realize improvement in operating performance over the long-term. In addition, we believe we are more effective in sales and marketing in the custom folding carton market with a more focused approach and better utilization of our resources. 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 on-demand processing capability. We manufacture and print the specific quantities of custom folding cartons required by our customers as needed by them as opposed to printing 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 our private label customers who may have several of the same carton requirements, but with varying print requirements for their customers, extremely well.
 
We also continue to develop 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.  We believe that we are a leader in the private confectionery industry with over 4,000 customers that we serve in North America.  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 for both the retail and corporate markets, this product line is also heavily impacted by economic downturns.  We can compete with much larger companies in the personalized print industry and we have developed a strong brand in Krepe-Kraft among event planners and wedding coordinators.  Our websites, www.partybasics.com and myweddingbasics.com, make our products available directly to the retail market.  We also provide our products to third-party web-stores.
 
REVENUE
 
For the first quarter of 2012, total revenue was $13.8 million compared with $13.9 million in 2011, a slight decrease of 0.8%.  The custom folding carton product line sales were $10.4 million compared with $10.5 million in the first quarter of 2011.  The 1.0% decrease was mainly due to decreased business from several large existing customers and decreased graphic arts charges, offset partially by business from one new large customer and increased business with several large existing customers. Sales of the Company’s stock packaging product line were $2.7 million in the first quarter of 2012, up 3.2% from the first quarter of 2011, primarily due to improved market conditions.  Personalized print sales for the first quarter of 2012 were $0.6 million compared with $0.7 million in 2011, a decrease of 12.3%, mainly due to continued weakness in this market.
 
EXPENSES AND MARGINS
 
Gross margin was 12.9% for the first quarter of 2012, compared with 16.2% in the first quarter of 2011. Gross margin in 2012 was negatively affected by sales mix, increased paperboard costs, employee benefits and depreciation expense, offset, partially, by decreased repairs expense and utilities expense.
 
Selling, general, and administrative (“SG&A”) costs were $1.9 million in the first quarter of 2012, compared with $1.8 million in the same period of the prior year. This increase was driven primarily by increased professional services costs.
 
TAXES
 
The Company’s effective tax rate for the first quarter of 2012 was 29.7%. The effective tax rate for the first quarter of 2012 was recorded at a rate lower than customary mainly due to state income taxes. The Company’s effective tax rate for the first quarter of 2011 was 26.2%. The effective tax rate for the first quarter of 2011 was recorded at a rate lower than customary mainly due to alternative minimum tax credits.
 
NET LOSS/INCOME AND LOSS/INCOME PER SHARE
 
The net loss for the first quarter of 2012 was $0.1 million, compared with net income of $0.4 million in the first quarter of 2011. The net loss/income was due to the fluctuations discussed above.  Diluted loss per share was $0.04 in the first quarter of 2012 and income of $0.10 per share in the first quarter of 2011.
 
 
11

 
 
LIQUIDITY
 
Cash and cash equivalents at March 31, 2012 was $0.9 million, which was down from the $3.9 million balance at December 31, 2011 for the reasons set forth below.
 
Inventory increased by $0.8 million mainly due to planned forward purchasing of raw material.
 
Capital expenditures, driven primarily by productivity improvement and capacity investments, for the first three months of 2012 and 2011 were $2.3 million and $0.3 million, respectively.  The Company expects total capital expenditures to be approximately $4.8 to $5.2 million for the 2012 year compared to $2.3 million for the 2011 year. Depreciation and amortization for the first three months of 2012 and 2011 was $0.8 million and $0.7 million, respectively.
 
There were no shares repurchased by the Company during the first three months of 2012.  The Company has authorization to repurchase 200,000 shares at March 31, 2012.  The closing price of the Company’s stock at March 31, 2012 was $7.00.  At this price, the repurchase of 200,000 shares would require $1.4 million.
 
The Company has access to a $3.0 million secured line of credit with a commercial bank which expires June 9, 2013.  Interest on the line of credit is based on LIBOR plus 2.75%, with an interest floor of 3.35%.  At March 31, 2012, $0.2 million was in use through a standby letter of credit and there was no balance drawn on the line. The Company was in compliance with all applicable covenants at March 31, 2012.  The amount of the line of credit that was unused and available to the Company at March 31, 2012 was $2.8 million.
 
The Company believes that cash and cash equivalents, which totaled $0.9 million at March 31, 2012, in combination with its secured line of credit and cash expected to be generated from operations, will be adequate for the Company to meet its obligations, other working capital requirements and capital expenditure needs for the foreseeable future.
 
COMMITMENTS
 
The Company has commitments for items that it purchases in the normal on-going affairs of the business. The Company is not aware of any obligations in excess of normal market conditions, or of any long-term commitments that would have a material adverse effect on its financial condition.
 
MARKET RISK
 
There has been no significant change in market risks since December 31, 2011.
 
As a result of short cycle times, the Company does not have any long-term commitments to purchase production raw materials or sell products that would present significant risks due to price fluctuations. Raw paper stock is available to us from multiple domestic sources; as a result, we believe the risk of supply interruptions due to such things as strikes at the source of supply or to failures in logistics systems are limited.
 
Risks due to fluctuation in interest rates are not material to the Company at March 31, 2012 because of our limited exposure to floating rate debt.
 
Over 90% of the Company's 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 100% of its estimated usage through October 2012.  Historically, the price of natural gas has fluctuated widely. 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.
 
In the first quarter of 2012, the Company began a project to convert the majority of its power needs from natural gas to electricity.  This project is expected to be completed and operational in the fourth quarter of 2012.
 
 
We have no foreign operations, nor do we transact any business in foreign currencies.  Accordingly, we have no foreign currency market risks.
 
The market risk that the Company was exposed to at December 31, 2011 was generally the same as described above.
 
 
12

 
 
CRITICAL ACCOUNTING POLICIES
 
There have been no changes in critical accounting policies in the current year from those disclosed in our 2011 Form 10-K.
 
 
FORWARD-LOOKING STATEMENTS
 
Certain statements contained in this report are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and the word "anticipate," "believe," "expect," "estimate," "project," and similar expressions are generally intended to identify forward-looking statements. Any forward looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission, or in MOD-PAC's 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-PAC's goods and services;
 
·  
Customer acceptance of the products and services MOD-PAC provides;
 
·  
Competitive factors in print and print services and folding cartons industries;
 
·  
Changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations);
 
·  
Fluctuation 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 3.  Quantitative and Qualitative Disclosures About Market Risk
 
See Market Risk in Item 2, above.

Item 4.  Controls and Procedures

(a.)        Evaluation of Disclosure Controls and Procedures:
 
The Company’s management, with the participation of the Company’s President and Chief Executive Officer, and Chief Operating Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a - 15(e) and 15(d) - 15(e) of the Securities Exchange Act of 1934, as of March 31, 2012.  Based on that evaluation, the Company’s President and Chief Executive Officer, and Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2012.
 
(b.)        Changes in Internal Control over Financial Reporting:
 
There were no changes in the Company’s internal control over financial reporting during the first three months of 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
13

 

PART II - OTHER INFORMATION

Item 1.       Legal Proceedings
 
There are no material pending legal proceedings to which the Registrant or any of its subsidiaries is a party or of which any of their property is the subject.

Item 1A.    Risk Factors>
 
There has been no significant change to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
 
Period
 
(a) Total
Number of
Shares
(or Units)
Purchased
   
b) Average
Price Paid
per Share
(or Unit)
   
(c) Total
Number of
Shares
(or Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
   
(d) Maximum
Number
(or Approximate
Dollar Value)
of Shares
(or Units)
that May Yet
Be Purchased
Under the
Plans or
Programs
 
January 1 - January 28, 2012
    -       N/A       -       200,000  
January 29 - February 25, 2012
    -       N/A       -       200,000  
February 26 - March 31, 2012
    -       N/A       -       200,000  
Total
    -       N/A       -       200,000  
 
Item 3.       Defaults Upon Senior Securities
 
Not applicable.
 
Item 4.       (Removed and Reserved)
 
Item 5.       Other Information
 
Not applicable.
 
Item 6.       Exhibits
 
Exhibit 31.1
Section 302 Certification - President and Chief Executive Officer
Exhibit 31.2
Section 302 Certification – Chief Operating Officer and Chief Financial Officer
Exhibit 32.1
Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS*
XBRL Instance Document
Exhibit 101.SCH*
XBRL Taxonomy Extension Schema
Exhibit 101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.DEF*
XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.LAB*
XBRL Taxonomy Extension Label Linkbase
Exhibit 101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
 
*
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
 
 
14

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
MOD-PAC CORP,
(Registrant)
 
         
      Date: May 2, 2012  
         
     
/s/ David B. Lupp 
 
     
David B. Lupp
Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
 
 
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki