MOD-PAC CORP. (NASDAQ: MPAC), an on demand commercial printer and
manufacturer of custom paper board packaging, today reported
revenue of $11.6 million for the first quarter of 2008, which ended
March 29, 2008, compared with revenue of $11.3 million in the first
quarter of 2007. Net loss for the first quarter of 2008 was $0.5
million, or $0.15 per diluted share, an improvement when compared
with a net loss of $0.75 million, or $0.22 per diluted share, in
the first quarter of 2007. Mr. Daniel G. Keane, President and CEO
of MOD-PAC CORP., commented, �The efforts we have made to reduce
costs has helped to reduce our loss on relatively flat sales. We
will continue to stringently manage our operating costs by
enhancing operational productivity, improving raw material usage
and managing fixed costs, such as equipment and facility repairs.
In addition, we will leverage additional savings opportunities
throughout the year. To date, we have reduced annual operating
costs by approximately $2.5 million to $3.5 million.� First Quarter
Sales Review Sales of folding cartons, which includes custom
folding cartons and stock boxes, were flat year-over-year at $9.5
million for the first quarters of 2008 and 2007. Higher custom
folding carton sales offset lower sales of stock boxes. Custom
folding carton sales in the first quarter of 2008 were $7.0
million, up 3.2% compared with sales of $6.7 million in the first
quarter of 2007 primarily as a result of growth with one customer.
This helped to offset the decline in sales of stock boxes which
were $2.5 million, a 9.4% decrease from sales of $2.8 million in
the first quarter of 2007. The primary niche market for stock boxes
are small shops and boutiques in vacation destinations, which we
believe were adversely affected by an early Easter season and a
general decrease in discretionary spending. Print service sales,
which include commercial and personalized print products and
services, were $2.0 million in the first quarter of 2008, up 23.7%
compared with sales of $1.6 million in the same period the prior
year. Sales of commercial print products more than doubled to $0.99
million in the first quarter of 2008 compared with $0.46 million
the prior year first quarter. Direct mailing service sales
contributed $0.46 million to the year-over-year increase.
Personalized print sales declined to $1.0 million in the first
quarter of 2008 compared with $1.1 million in the first quarter of
2007. First Quarter Operating Results Gross margin was 11.6% in the
first quarter of 2007 compared with 12.9% in the first quarter of
2007. Of note, gross margin was relatively unchanged on $1.4
million less revenue compared with fourth quarter 2007 gross margin
of 11.8% as the cost cutting initiatives implemented in the third
and fourth quarters of 2007 began to gain traction. Year-over-year,
higher paperboard, utilities and increased labor costs along with
weaker sales mix, were offset by somewhat higher sales, lower
repair costs and lower depreciation expense. Selling, general and
administrative (SG&A) expenses in the first quarter of 2008
were $2.1 million, or 17.8% of sales, compared with $2.6 million,
or 22.7% of sales, in the same period the prior year and down from
$2.4 million, or 18.8% of sales, in the fourth quarter of 2007. The
year-over-year improvement reflects the proactive approach to
managing labor and benefits costs through the workforce reduction
initiatives, lower depreciation expense, as well as other cost
reduction measures. Adjusted earnings before interest, taxes,
depreciation and amortization, and non-cash option expense
(Adjusted EBITDA) improved to $0.38 million in the first quarter of
2008 compared with $0.18 million in the first quarter of 2007
reflecting tighter cost management and a leaner operating
infrastructure. The Company believes that, when used in conjunction
with GAAP measures, Adjusted EBITDA, which is a non-GAAP measure,
helps in the understanding of operating performance. (See the
reconciliation of Net Loss to Adjusted EBITDA in the attached
table.) Liquidity Cash and cash equivalents were $0.12 million at
March 29, 2008, up from $0.10 million at December 31, 2007. At
March 29, 2008, borrowings on the $5 million line of credit were
$1.1 million compared with $0.4 million at December 31, 2007. An
additional $0.25 million of the line of credit was in use through
standby letters of credit. Capital expenditures in the first
quarter of 2008 were $0.67 million compared with $0.06 million in
the same period the prior year. The increase was primarily a result
of productivity improvement investments. Capital expenditures are
expected to be up to $1.5 million for the full year. Depreciation
and amortization was $1.0 million in the first quarter of 2007
compared with $1.2 million in the same period the prior year. In
the first quarter of 2008, 25,000 shares of common stock were
repurchased at an average price of $6.00 per share. The Company
currently has authorization to repurchase up to 75,885 additional
common shares. The increase in the amount outstanding under the
line of credit was primarily the result of net losses, capital
expenditures, working capital requirements and the share
repurchase. The Company believes that cash and cash equivalents and
the committed line of credit will be sufficient to meet operating
requirements, capital expenditures and debt service throughout
2008. Outlook Mr. Keane concluded, �Our objective in 2008 is to
make significant progress towards a return to profitability by
remaining committed to tightly managing our cost structure while
executing on our sales and marketing strategy in order to fill our
sales pipeline. We have a solid operational foundation and will
continue to deliver on our reputation for superior customer service
and quality products.� Webcast and Conference Call The release of
the financial results will be followed today by a company-hosted
teleconference at 1:30 pm 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. 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 (201) 689-8562 and
requesting Conference ID Number 280308 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 (201) 612-7415 and
entering conference ID number 280308 and account number 3055. The
telephonic replay will be available through Tuesday, May 13, 2008
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 leverages its capabilities to
innovate and aggressively integrate technology into its marketing,
order in-take and production operations to provide
economically-priced, short run, on demand, full-color commercial
and folding carton print products and services. MOD-PAC also offers
data management and direct mail and fulfillment service
capabilities. MOD-PAC, through its large, centralized facility, has
captured significant economies of scale by channeling large numbers
of small-to-medium-sized print orders through its operations.
MOD-PAC�s key differentiator is its success at being a just-in-time
producer of short-run, quality on demand print products. Through
its lean manufacturing processes coupled with state-of-the-art
printing technologies, MOD-PAC is able to address short-run, highly
variable content needs of its customers with short turn around
times relative to industry standards. MOD-PAC�s strategy is to
expand its market share by leveraging its capabilities and
expanding its service offering to capture a greater share of the
print value chain to meet the growing customized needs of its
customers. 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 internet related sales, the
effectiveness of agreements with print distributors and other
factors which are described in MOD-PAC�s annual report on Form 10K
on file with the Securities and Exchange Commission. The Company
assumes no obligation to update forward-looking information in this
press release whether to reflect changed assumptions, the
occurrence of unanticipated events or changes in future operating
results, financial conditions or prospects, or otherwise. � MOD-PAC
CORP. CONSOLIDATED INCOME STATEMENT DATA (unaudited) � � (in
thousands except per share data) Three months ended � 3/29/2008 � �
� 3/31/2007 � Revenue Product sales $ 11,467 $ 11,140 Rent � 110 �
� � 119 � Total revenue 11,577 11,259 Cost of products sold �
10,231 � � � 9,812 � Gross profit 1,346 1,447 Gross profit margin
11.6 % 12.9 % Selling, general and administrative expense � 2,056 �
� � 2,556 � Loss from operations (710 ) (1,109 ) Operating loss
margin -6.1 % -9.8 % Interest expense, net 52 5 Other income � (12
) � � (6 ) Loss before taxes (750 ) (1,108 ) Income tax benefit �
(250 ) � � (359 ) Net loss $ (500 ) � $ (749 ) � Basic loss per
share: $ (0.15 ) $ (0.22 ) Diluted loss per share: $ (0.15 ) $
(0.22 ) � Weighted average diluted shares outstanding 3,446 3,449 �
MOD-PAC CORP. PRODUCT LINE REVENUE DATA (unaudited) ($, in
thousands) � � Three Months Ended � % � � 2008 YTD 3/29/2008 �
3/31/2007 � change % of Total FOLDING CARTONS � Custom folding
cartons $ 6,952 $ 6,737 3.2% 60.6% Stock box 2,544 � 2,809 � -9.4%
22.2% Folding cartons subtotal 9,496 9,546 -0.5% 82.8% � PRINT
SERVICES Commercial 988 458 115.7% 8.6% Personalized 983 � 1,136 �
-13.5% 8.6% Print services subtotal 1,971 1,594 23.7% 17.2% � � � �
� � Total product revenue $ 11,467 � $ 11,140 � 2.9% 100.0% �
MOD-PAC CORP. CONSOLIDATED BALANCE SHEET DATA � � (in thousands)
3/29/2008 12/31/2007 (unaudited) � ASSETS: Cash and cash
equivalents $ 120 $ 98 Trade accounts receivable: Customers 4,367
4,332 Allowance for doubtful accounts � (44 ) � � (76 ) Net trade
accounts receivable 4,323 4,256 Inventories: Finished goods 2,210
2,214 Work in progress 116 118 Raw materials � 1,147 � � � 1,209 �
3,473 3,541 Prepaid expenses � 428 � � � 259 � Total current assets
8,344 8,154 � Property, plant and equipment, at cost 68,202 67,812
Less accumulated depreciation and amortization � (45,191 ) � �
(44,488 ) Net property, plant and equipment 23,011 23,324 Other
assets � 1,343 � � � 1,316 � Total assets $ 32,698 � � $ 32,794 � �
LIABILITIES AND SHAREHOLDERS' EQUITY: Current maturities of
long-term debt $ 49 $ 48 Accounts payable 3,004 2,912 Accrued
expenses � 539 � � � 815 � Total current liabilities 3,592 3,775 �
Line of credit 1,100 400 Long-term debt 2,038 2,050 Other
liabilities 489 269 Deferred income taxes 248 499 Shareholders'
equity � 25,231 � � � 25,801 � Total liabilities and shareholders'
equity $ 32,698 � � $ 32,794 � � MOD-PAC CORP. CONSOLIDATED
STATEMENT OF CASH FLOWS (unaudited) (in thousands) � � Three Months
Ended 3/29/2008 � 3/31/2007 Cash flows from operating activities:
Net loss $ (500 ) $ (749 ) Adjustments to reconcile net loss to net
cash provided by (used in) operating activities: Depreciation and
amortization 998 1,222 Provision for doubtful accounts (25 ) (6 )
Stock option compensation expense 80 60 Deferred income taxes (251
) (395 ) Loss on disposal of assets - 9 Cash flow from change in
operating assets and liabilities: Accounts receivables (42 ) (272 )
Inventories 68 (662 ) Prepaid expenses (169 ) (113 ) Other
liabilities 220 - Accounts payable 92 (869 ) Refundable or payable
income taxes - 29 Accrued expenses � (276 ) � � (272 ) Net cash
provided by (used in) operating activities $ 195 � � $ (2,018 ) �
Cash flows from investing activities Sale of temporary assets $ - $
1,000 Change in other assets (37 ) (60 ) Capital expenditures �
(670 ) � � (62 ) Net cash (used in) provided by investing
activities $ (707 ) � $ 878 � � Cash flows from financing
activities Principal payments on long-term debt and capital lease $
(11 ) $ (23 ) Increase in line of credit 700 - Proceeds from
issuance of stock - 8 Purchase of treasury stock (150 ) - Deferred
financing fees $ (5 ) � $ - � Net cash provided by (used in)
financing activities $ 534 � � $ (15 ) � Net increase (decrease) in
cash and cash equivalents 22 (1,155 ) � Cash and cash equivalents
at beginning of year � 98 � � � 2,444 � Cash and cash equivalents
at end of period $ 120 � � $ 1,289 � � MOD-PAC CORP. Reconciliation
between GAAP Net Loss and Adjusted EBITDA � � � � (in thousands)
Three Months Ended 3/29/2008 3/31/2007 � GAAP Net Loss ($500 )
($749 ) � Interest 52 5 Taxes (250 ) (359 ) Depreciation and
amortization 998 1,222 Stock-based compensation 80 60 � � � � � � �
Adjusted EBITDA � � � $380 � � $179 � � Adjusted EBITDA = earnings
before interest, taxes, depreciation and amortization, and non-cash
option expense.
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