MOD-PAC to Receive $22 Million from VistaPrint to Surrender Rights for North America
Press release from the issuing company
BUFFALO, N.Y.--July 6, 2004-- MOD-PAC CORP., a specialized commercial printer and manufacturer of paperboard packaging, announced today that it has agreed to VistaPrint Limited's request for MOD-PAC to forego its rights as the exclusive North American supplier of all print products for VistaPrint and restructure its supply agreement. Based on the restructured agreement with VistaPrint, MOD-PAC will receive $22 million in cash on August 30, 2004 when the new Supply Agreement becomes operative.
The new supply agreement continues MOD-PAC as the exclusive supplier for VistaPrint in North America through August 2005. In addition, the agreement changes the cost-plus nature of the contract to a unit pricing basis.
MOD-PAC will record the $22 million cash payment as deferred revenue and amortize it over 36 months. The amortization period includes the 12-month term of the contract and an additional 24-month period which provides for a general framework for setting prices for any subsequent agreement. MOD-PAC has reviewed this accounting treatment with its independent auditors, and they concur that it is in compliance with the SEC's latest guidance on revenue recognition.
In 2004, $2.4 million will be amortized into revenue, which will positively impact earnings per share by approximately $0.40. The amortization of the deferred revenue is in addition to the revenue that is expected through the sale of product to VistaPrint on a unit pricing basis. MOD-PAC had previously stated that it expects sales to VistaPrint to grow about 5% sequentially through the year.
The cash proceeds from the agreement will be used primarily to pay down debt. The balance will be used to fund capital expenditures and company operations.
Daniel G. Keane, President and CEO of MOD-PAC CORP. commented, "Our restructured agreement with VistaPrint reflects a fair value of the rights we have agreed to forego. It frees up our assets so that they can be utilized for a wider range of products and customers, thereby providing us the opportunity to gain operating leverage. We expect to continue to serve VistaPrint beyond the end of the new supply agreement and, in the meantime, we continue to move aggressively to attract new customers and additional business that benefit from our unique printing operations model which offers rapid delivery for highly variable print needs in short-run quantities."
MOD-PAC has been the primary print supplier for VistaPrint's products since VistaPrint began shipping product in 2000. The original 10-year supply agreement that granted MOD-PAC with the exclusivity rights in North America was signed in April 2001 and amended in September 2002. MOD-PAC has invested approximately $16.5 million in print, production and facility improvements to fulfill the contract requirements. MOD-PAC's sales to VistaPrint for the last twelve months ending April 3, 2004, were $14.8 million.
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