MPAC Model Performance Acquisition Corporation

MOD-PAC CORP. (NASDAQ: MPAC) a commercial on demand printer and manufacturer of custom paper board packaging, today reported revenue of $24.5 million for the fourth quarter of 2005 compared with $15.1 million in the fourth quarter of 2004. In the 2005 fourth quarter, the Company recognized $14.1 million in revenue relating to the remaining contract buy-out fee received in 2004 from a former customer of the Company. The fourth quarter of 2004 revenue included $1.8 million of this contract buy-out fee. Product sales for the fourth quarter 2005 were $10.3 million compared with $13.1 million in the same quarter of 2004. A 33.0%, or $1.5 million, increase in custom folding cartons partially offset the $4.3 million decline in commercial printing sales. Commercial printing sales declined primarily as a result of the loss of a large commercial print customer that bought out their contract in 2004 so they could manufacture in house in 2005. This customer had fully transitioned manufacturing in-house during the third quarter of 2005 resulting in zero sales to this customer in the fourth quarter of 2005. Gross margin for the fourth quarter, excluding the contract buy-out fee related revenue, was 5.8% compared with 22.0% in the same period last year. The reduction in gross margin was primarily due to increased raw material costs and reduced operating leverage caused by lower volumes. In an effort to minimize further gross margin declines, the Company has reduced labor costs primarily through attrition while at the same time maintaining its highly skilled workforce. On an absolute basis, selling, general and administrative (SG&A) expenses increased $0.3 million to $2.4 million in the fourth quarter of 2005 compared with the same period in the prior year. The SG&A increase in the quarter was primarily the result of increased expenses associated with the Company's PrintLizard.com web-to-print store. Net income for the fourth quarter of 2005 was $8.0 million, or $2.30 per diluted share. Net income in the fourth quarter of 2004 was $1.7 million, or $0.45 per diluted share. Excluding the impact of revenue and earnings associated with the contract buy-out fee, net loss in the fourth quarter of 2005 was $1.2 million, or $0.36 per diluted share, and net income in the fourth quarter of 2004 was $0.5 million, or $0.14 per diluted share. Daniel G. Keane, President and Chief Executive Officer of MOD-PAC CORP. commented, "While we have concluded selling to our largest commercial print customer during the third quarter of 2005, we have had strong growth in our custom paper board packaging market, and we are continuing to invest in the growth of our commercial print market. We have recently announced some major commercial print partnerships that should begin to fill our capacity. These are customers who value our unique capabilities to provide short run, quality on demand print products. We anticipate seeing the sales through these partnerships building through the year. Once we have significant volumes from these relationships, we will begin to realize the efficiencies of our operation." Full-year Review For the full year, revenue was $71.2 million and $50.3 million in 2005 and 2004, respectively. Excluding the contract buy-out fee related revenue, 2005 revenue was $51.6 million compared with $47.8 million in 2004. Gross margin, excluding the contract buy-out fee related revenue, was 16.8% in 2005 compared with 22.6% the prior year. The decline in gross margin was primarily the result of increased raw material cost, changing sales mix, and continued investment in resources to support growth of the commercial print business. SG&A increased $2.8 million in 2005 when compared with 2004 and was primarily the result of increased expenses associated with the Company's PrintLizard.com web-to-print store. Net income was $11.0 million, or $2.97 per diluted share, in 2005 compared with $3.7 million, or $0.97 per diluted share, in 2004. Excluding the impact of revenue and earnings associated with the contract buy-out fee, net loss in 2005 was $1.9 million or $0.51 per diluted share compared with net income of $2.1 million in 2004, or $0.55 per diluted share. Mr. Keane added, "The next year or so will be a transition period for us as we build our distributor relationships in the commercial print market, continue to develop our direct web-to-print efforts and maintain our market share growth in packaging. It is difficult to predict the length of the transition period, but we are very optimistic that given our unique capabilities, the size and needs of the market, and the successes we have had to date that, over the next few years, we believe we will more than replace the VistaPrint business." Sales by Product Line Custom folding cartons: MOD-PAC's custom folding carton sales continue to show strong growth as it adds new customers and increases volume to existing customers. Sales for the fourth quarter of 2005 were $6.0 million, a 33% increase from $4.5 million in the same quarter the previous year. Sales of the custom folding carton line increased 32.7% to $23.6 million for the full year. MOD-PAC has increased its sales efforts for this product line the last two years primarily through direct sales to manufacturers that use the Company's packaging for their products. Commercial print: Sales to commercial print declined to $0.1 million in the fourth quarter of 2005 from $4.4 million in the prior year's fourth quarter. Sales in the fourth quarter of 2004 were all attributed to VistaPrint, a former customer of the Company that chose to in source its printing needs. During 2004, VistaPrint bought out its long term printing contract with MOD-PAC for $22.0 million. The cash from the buy out was received by the Company in August 2004. The buy-out fee was originally scheduled to be amortized over three years, however, as a result of the full conclusion of the business relationship with no further sales by the Company to VistaPrint, the remaining unamortized buy-out fee was recognized as revenue in the fourth quarter of 2005. There were no product sales to VistaPrint in the fourth quarter of 2005. Sales via the new web-to-print store for small businesses, PrintLizard.com(R), accounted for approximately $81,000 of commercial print sales in the fourth quarter, up from $59,000 in the 2005 third quarter. The balance of commercial print revenue was from direct sales. In addition to the Internet channel to market, MOD-PAC has been pursuing partnerships with commercial print distributors in an effort to grow the Company's commercial print business. In January 2006, the Company announced a Preferred Limited Partner agreement with Proforma, one of North America's leading distributors of printed materials. Personalized print consumer products and stock boxes: Personalized print had sales in the fourth quarter of $0.8 million, up 10.4% from the same period last year, while stock box sales were $3.3 million, down 2.8% from the same period last year. For the year, personalized print increased 4.6% over 2004 while stock box sales remained relatively flat. Liquidity Capital expenditures for the quarter were $1.2 million and $4.7 million for the year. Depreciation and amortization was $1.3 million in the fourth quarter 2005 and $5.7 million for the full year. During 2005, 292,787 shares of stock were purchased by the Company for $3.5 million. The Company currently has authorization to repurchase an additional 100,885 shares. No shares were repurchased in the fourth quarter of 2005. Webcast and Conference Call The release of the financial results will be followed today by a company-hosted teleconference at 1:30 p.m. ET. During the teleconference, Daniel G. Keane, President and CEO, and David B. Lupp, Chief Financial Officer will review the financial and operating results for the period and discuss MOD-PAC's corporate strategy and outlook. A question-and-answer session will follow. The MOD-PAC conference call can be accessed the following ways: -- The live webcast can be found at http://www.modpac.com. Participants should go to the website 10 - 15 minutes prior to the scheduled conference in order to register and download any necessary audio software. -- The teleconference can be accessed by dialing (303) 262-2140 approximately 5 - 10 minutes prior to the call. The archived webcast will be at http://www.modpac.com. A transcript will also be posted once available. A replay can also be heard by calling (303) 590-3000, and entering passcode 11051730#. The telephonic replay will be available through Friday, February 17, 2006 at 11:59 p.m. ET. ABOUT MOD-PAC CORP. MOD-PAC CORP. is a high value-added, on demand print services firm operating a unique low-cost business model. MOD-PAC's strategy is to capture a share of the $25 billion market currently served by over 28,000 printers with under $5 million in annual print volume. It will aggregate this market by leveraging its capabilities to innovate and aggressively integrate technology into its marketing and operations, and to provide economically-priced, short run, on demand print products and services within its superprint facility. Consistently outpacing the printing industry in growth and profits, MOD-PAC's key differentiator is its success at being a just-in-time producer of short-run, quality on demand print products. The Company applies lean manufacturing processes coupled with state-of-the-art printing technologies to challenge its competition and expand its market share. PrintLizard(R) is a division of MOD-PAC which serves specific markets with demanding print requirements through its website: www.printlizard.com. Additional information on MOD-PAC can be found at its website: http://www.modpac.com Safe Harbor Statement: This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. One can identify these forward-looking statements by the use of the words such as "expect," "anticipate," "plan," "may," "will," "estimate" or other similar expressions. Because such statements apply to future events, they are subject to risks and uncertainties that could cause the actual results to differ materially. Important factors, which could cause actual results to differ materially, include market events, competitive pressures, changes in technology, customers preferences and choices, success at entering new markets, the execution of its strategy, marketing and sales plans, the rate of growth of the PrintLizard(R) division, the effectiveness of agreements with print distributors and other factors which are described in MOD-PAC's annual report on Form 10K on file with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise. -0- *T MOD-PAC CORP. CONSOLIDATED INCOME STATEMENT DATA ---------------------------------- (unaudited) (in thousands except per share data) Three months ended Year ended % % 12/31/05 12/31/04 change 12/31/05 12/31/04 change ------------------------- ------------------------- Sales $24,458 $15,050 62.5% $71,193 $50,280 41.6% Cost of products sold 9,799 10,309 -4.9% 42,960 37,008 16.1% ------------------------- ------------------------- Gross profit 14,659 4,741 209.2% 28,233 13,272 112.7% Selling, general and administrative expense 2,378 2,054 15.8% 10,476 7,658 36.8% ------------------------- ------------------------- Income from operations 12,281 2,687 357.1% 17,757 5,614 216.3% Interest (income) expense, net (38) 49 -177.6% (32) 316 -110.1% Income taxes 4,287 897 377.9% 6,761 1,576 329.0% ------------------------- ------------------------- Net Income $ 8,032 $ 1,741 361.3% $11,028 $ 3,722 196.3% ========================= ========================= Basic earnings per share: $ 2.34 $ 0.47 $ 3.07 $ 1.00 Diluted earnings per share: $ 2.30 $ 0.45 $ 2.97 $ 0.97 Weighted average diluted shares outstanding 3,498 3,832 3,708 3,821 MOD-PAC CORP. CONSOLIDATED BALANCE SHEET DATA ------------------------------- (Unaudited) (in thousands) 12/31/05 12/31/04 --------- --------- ASSETS: ------- Cash and cash equivalents $ 1,178 $ 2,584 Temporary investments 2,700 12,183 Trade accounts receivable: VistaPrint Ltd. - 1,870 All other customers 4,425 3,169 Allowance for doubtful accounts (42) (44) --------- --------- Net trade accounts receivable 4,383 4,995 Inventories: Finished goods 1,583 1,779 Work in progress 104 90 Raw materials 1,201 1,168 --------- --------- 2,888 3,037 Prepaid income taxes 1,199 - Prepaid expenses 423 281 --------- --------- Total current assets 12,771 23,080 Property, plant and equipment, at cost 64,363 60,339 Less accumulated depreciation and amortization (34,678) (29,765) --------- --------- Net property, plant and equipment 29,685 30,574 Deferred income taxes - 3,323 Other assets 1,268 983 --------- --------- Total Assets $ 43,724 $ 57,960 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: ------------------------------------- Current maturities of long-term debt $ 87 $ 85 Accounts payable 3,489 2,533 Due to Astronics - 38 Accrued expenses 1,696 2,075 Income taxes payable within one year - 6,961 --------- --------- Total current liabilities 5,272 11,692 Long-term debt 1,969 2,057 Other liabilities 428 384 Deferred income (advanced payment from VistaPrint) - 19,555 Deferred income taxes 3,457 - Shareholders' equity 32,598 24,272 --------- --------- Total liabilities and shareholders' equity $ 43,724 $ 57,960 ========= ========= MOD-PAC CORP. CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (unaudited) (in thousands) Year ended 12/31/2005 12/31/2004 ----------- ----------- Cash Flows from Operating Activities: Net Income $ 11,028 $ 3,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,668 4,951 Provision for doubtful accounts 44 22 Other liabilities 44 (510) Deferred taxes 6,780 (6,198) Deferred income - advanced payment from VistaPrint (19,556) 19,555 Reclass from other comprehensive income - 95 Cash flows from changes in operating assets and liabilities: Accounts receivables 568 116 Due from Astronics (38) 514 Inventories 149 (159) Prepaid expenses (142) 57 Accounts payable 956 426 Accrued expenses (379) 436 Refundable (payable) income taxes (8,160) 7,602 --------- --------- Net cash (used in) provided by operating activities $ (3,038) $ 30,629 --------- --------- Cash Flows from Investing Activities Increase (sale) of temporary assets $ 9,483 $(12,183) Change in other assets (332) 302 Capital expenditures (4,732) (6,316) --------- --------- Net cash provided by (used in) investing activities $ 4,419 $(18,197) --------- --------- Cash Flows from Financing Activities New long term debt $ - $ 200 Principal payments on long-term debt and capital lease (86) (9,354) Proceeds from issuance of stock 821 216 Purchase of treasury stock (3,522) (1,541) --------- --------- Net cash used by financing activities $ (2,787) $(10,479) --------- --------- Net (decrease) increase in cash and cash equivalents (1,406) 1,953 Cash and cash equivalents, January 1 2,584 631 --------- --------- Cash and cash equivalents, December 31 $ 1,178 $ 2,584 ========= ========= MOD-PAC CORP. PRODUCT LINE REVENUE DATA ($, in thousands) Three Months Ended 12/31/2005 12/31/2004 % change --------------------------------- Custom Folding Cartons $ 6,048 $ 4,547 33.0% Commercial Printing 102 4,413 -97.7% Stock Box 3,322 3,416 -2.8% Personalized printing 808 732 10.4% -------------------------------- Total product sales $10,280 $ 13,108 -21.6% ================================ Year Ended 2005 12/31/2005 12/31/2004 %change %of Total ------------------------------------------ Custom Folding Cartons $ 23,633 $ 17,812 32.7% 46.2% Commercial Printing 14,366 16,467 -12.8% 28.1% Stock Box 9,766 9,841 -0.8% 19.1% Personalized printing 3,409 3,260 4.6% 6.7% ------------------------------------------ Total product sales $ 51,174 $ 47,380 8.0% 100.0% ========================================== *T