MOD-PAC CORP. (NASDAQ: MPAC), an on demand commercial printer and
manufacturer of custom paper board packaging, today reported net
income of $14 thousand on revenue of $12.6 million in the third
quarter of 2008, which ended September 27, 2008, compared with a
net loss of $1.1 million on revenue of $13.1 million in the third
quarter of 2007. Mr. David B. Lupp, Chief Operating Officer and
Chief Financial Officer of MOD-PAC CORP., commented, �Our
aggressive cost cutting measures we implemented over the last 12
months, as well as the capital investments we made to enhance
productivity, are reflected in the significant improvement in our
financial results this quarter. We are now in a position to realize
operating leverage as we work to grow our revenue.� Third Quarter
Sales Review Folding carton sales, which include custom folding
cartons and stock boxes, were $10.5 million in the third quarter of
2008, a slight decrease from sales of $10.9 million in the same
period the prior year. Sales of custom folding cartons declined
$0.1 million to $8.2 million in the third quarter of 2008 primarily
due to lower business activity with one large customer that was
partially offset by meaningful growth from both new and other
existing customers. Sequentially, third quarter custom folding
carton sales increased $1.2 million compared with the second
quarter of 2008 as historically demand in the third quarter is
greater than the second quarter. Stock box sales also declined to
$2.3 million in the third quarter of 2008 compared with $2.5
million in the same period the prior year, but increased
sequentially from $1.6 million in the second quarter of 2008. Print
service sales, which include commercial and personalized print
products and services, were $2.0 million in both the third quarters
of 2008 and 2007. Commercial print product sales increased to $1.1
million in the third quarter of 2008 compared with $0.9 million in
the same period the prior year. Sales of direct mailing services
contributed $0.7 million to total commercial print product sales, a
44.2% increase compared with the prior year third quarter.
Cross-selling efforts to select custom folding carton customers is
gaining traction and contributed $0.2 million to total commercial
sales. The increase in commercial print product sales was offset by
a decline in personalized print sales to $1.0 million in the third
quarter of 2008 compared with $1.2 million in the same period the
prior year. Mr. Daniel G. Keane, President and CEO of MOD-PAC
CORP., commented, �We are gaining more volume from several custom
folding carton customers, a number of which are relatively new, but
that is being more than offset by lower demand from a few of our
larger customers. We believe the sluggish economy has hindered our
ability to grow sales this year. We are focused on continuing to
pursue new business development for our custom folding carton and
commercial print product lines. We have had some success in
capturing more print share from newer folding carton customers,
cross-selling product lines to our existing customer base and
establishing new customer relationships in the Western New York
region.� Third Quarter Operating Results Gross margin improved to
15.6% in the third quarter of 2008 compared with 8.1% in the same
period the prior year. The improvement in gross margin is a result
of leverage gained from the cost cutting steps implemented over the
past year and capital expenditures to improve productivity, such as
facility lighting and plate making. Decreases in labor and benefit
costs, and repairs, maintenance and depreciation expenses were
partially offset by product mix as higher margin stock box sales
lagged in the quarter. Selling, general and administrative
(SG&A) expenses were $1.9 million, or 14.7% of sales, in the
third quarter of 2008 compared with $2.5 million, or 19.4% of
sales, in the same period the prior year and $2.1 million, or 18.8%
of sales, in the trailing second quarter of 2008. Lower wages,
benefits, professional service fees and depreciation expense
primarily drove the reduction in SG&A expense in the third
quarter with additional reductions in almost every expense
category. Leverage gained from the cost cutting measures in all
operating and administrative areas significantly improved adjusted
earnings before interest, taxes, depreciation and amortization, and
non-cash option expenses (Adjusted EBITDA), which increased to $1.0
million in the third quarter of 2008 compared with ($0.3) million
in the same period the prior year. The third quarter of 2008 was
the fourth consecutive quarter of positive Adjusted EBITDA. 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 Income or Loss to Adjusted EBITDA in the attached table.) Mr.
Lupp noted, "We made some excellent strides in cost reductions this
past year. However, the cost of materials is increasing rapidly and
will be more of a challenge in the coming year because we will not
be able to pass on all of the increases to our customers in this
extremely competitive environment. We will continue to find ways to
improve efficiencies and reduce waste, but recognize that revenue
growth is imperative." Nine-Month Review Product sales for the nine
months of 2008 were $34.9 million compared with $34.8 million in
the first nine months of 2007. Custom folding carton sales of $22.2
million were up slightly for the nine-month period compared with
$22.0 million in the first nine months of 2007. Stock box sales
were down for the first nine months of 2008 to $6.4 million
compared with $7.0 million in the same period the prior year.
Commercial print product sales increased 47.4% in the nine-month
comparable periods to $3.2 million in 2008 compared with $2.2
million in 2007, primarily on higher direct mailing service sales
and sales to existing custom folding carton customers. Personalized
print sales declined to $3.1 million in the first nine months of
2008 compared with $3.7 million in the first nine months of 2007
primarily due to weakened general business conditions. As a result
of reductions in labor and benefits costs, and repairs and lower
depreciation expense, gross margin improved to 13.0% for the first
nine months of 2008 compared with 8.3% in the same period the prior
year. SG&A expense decreased to $6.0 million, or 17.2% of
sales, in the first nine months of 2008 compared with $7.4 million,
or 21.3% of sales, in the first nine months of 2007. Lower
depreciation expense and wage related costs, as well as other cost
reduction measures, contributed to the reduction in year-over-year
expenses. For the nine month periods, Adjusted EBITDA increased to
$1.8 million in 2008 compared with ($0.7) million in 2007. (See the
reconciliation of Net Income or Loss to Adjusted EBITDA in the
attached table.) Liquidity Cash and cash equivalents were $0.17
million at September 27, 2008, an increase compared with $0.1
million at December 31, 2007 and $0.13 million at June 28, 2008.
Borrowings were $1.5 million on the Company�s $5 million line of
credit at September 27, 2008, up from $0.4 million at December 31,
2007 due to the Company�s net losses, capital expenditures, working
capital requirements, and the share repurchase partially offset by
non-cash depreciation and amortization expenses and proceeds from
equipment loans. Borrowings were down from $1.7 million at the end
of the second quarter of 2008. An additional $0.25 million of the
line of credit was in use for standby letters of credit. 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. Capital
expenditures were $1.6 million in the first nine months of 2008
compared with $2.0 million in the same period the prior year which
included $0.8 million for the direct mail asset purchase
transaction. The Company expects capital expenditures of up to $2
million in 2008. Depreciation and amortization was $2.9 million in
the first nine months of 2008 compared with $3.6 million for the
first nine months of 2007. There were no shares repurchased in the
third quarter of 2008. The Company currently has authorization to
repurchase up to 75,885 additional common shares. Outlook Mr. Keane
concluded, �We have successfully restructured our operations to
improve efficiencies and reduce costs. There are still some
operational rationalization activities that we have to complete,
but our resources now can be focused on capturing sales. This is a
highly competitive environment, and we believe we can win market
share by demonstrating our capabilities of delivering high quality,
highly variable print products for short runs on demand. We also
have an advantage of being able to provide a wide variety of value
added services with our extensive capabilities for design,
finishing and direct mail." Webcast and Conference Call The release
of the financial results will be followed today by a company-hosted
teleconference at 11:00 am ET. During the teleconference, Daniel G.
Keane, President and CEO, and David B. Lupp, Chief Operating
Officer and 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 300446 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 300446 and
account number 3055. The telephonic replay will be available
through Tuesday, November 11, 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 Nine months
ended 9/27/2008 � 9/29/2007 9/27/2008 � 9/29/2007 Revenue Product
sales $ 12,504 $ 12,941 $ 34,922 $ 34,849 Rent � 133 � � � 141 � �
356 � � � 398 � Total Revenue 12,637 13,082 35,278 35,247 Cost of
products sold � 10,662 � � � 12,017 � � 30,675 � � � 32,307 � Gross
profit 1,975 1,065 4,603 2,940 Gross profit margin 15.6 % 8.1 %
13.0 % 8.3 % Selling, general and administrative expense � 1,854 �
� � 2,536 � � 5,994 � � � 7,411 � Loss from operations 121 (1,471 )
(1,391 ) (4,471 ) Operating profit margin 1.0 % -11.2 % -3.9 %
-12.7 % Interest expense, net 79 94 203 130 Other income (expense)
� 12 � � � (37 ) � 93 � � � (11 ) Income (loss) before taxes 54
(1,602 ) (1,501 ) (4,612 ) Income tax provision (benefit) � 40 � �
� (531 ) � (477 ) � � (1,521 ) Net income (loss) $ 14 � � $ (1,071
) $ (1,024 ) � � (3,091 ) � Basic income (loss) per share: $ 0.00 $
(0.31 ) $ (0.30 ) $ (0.90 ) Diluted income (loss) per share: $ 0.00
$ (0.31 ) $ (0.30 ) $ (0.90 ) � Weighted average diluted shares
outstanding 3,430 3,450 3,436 3,450 MOD-PAC CORP. PRODUCT LINE
REVENUE DATA (unaudited) ($, in thousands) � Three Months Ended � %
� Nine Months Ended � % � 2008 9/27/2008 � 9/29/2007 � change
9/27/2008 � 9/29/2007 � change % of Total FOLDING CARTONS � �
Custom Folding Cartons $ 8,194 $ 8,346 -1.8 % $ 22,189 $ 22,031 0.7
% 60.8 % Stock Box � 2,278 � � 2,548 � -10.6 % � 6,392 � � 6,995 �
-8.6 % 18.3 % Folding Cartons Subtotal 10,472 10,894 -3.9 % 28,581
29,026 -1.5 % 79.1 % � PRINT SERVICES Commercial Printing 1,064 867
22.7 % 3,201 2,171 47.4 % 9.2 % Personalized Printing � 968 � �
1,180 � -18.0 % � 3,140 � � 3,652 � -14.0 % 9.0 % Print Services
Subtotal 2,032 2,047 -0.7 % 6,341 5,823 8.9 % 18.2 % � � � � � � �
� � � � � � Total Product Revenue $ 12,504 � $ 12,941 � -3.4 % $
34,922 � $ 34,849 � 0.2 % 100.0 % MOD-PAC CORP. CONSOLIDATED
BALANCE SHEET DATA � � (in thousands) 9/27/2008 12/31/2007
(unaudited) � � ASSETS: Cash and cash equivalents $ 165 $ 98
Temporary investments - - Trade accounts receivable: Customers
5,470 4,332 Allowance for doubtful accounts � (76 ) � � (76 ) Net
trade accounts receivable 5,394 4,256 Inventories: Finished goods
2,648 2,214 Work in progress 379 118 Raw materials � 1,112 � � �
1,209 � 4,139 3,541 � Prepaid expenses � 316 � � � 259 � Total
current assets 10,014 8,154 � Property, plant and equipment, at
cost 68,294 67,812 Less accumulated depreciation and amortization �
(46,244 ) � � (44,488 ) Net property, plant and equipment 22,050
23,324 Other assets � 1,320 � � � 1,316 � Total assets $ 33,384 � �
$ 32,794 � � LIABILITIES AND SHAREHOLDERS' EQUITY: Current
maturities of long-term debt $ 154 $ 48 Accounts payable 3,560
2,912 Accrued expenses � 810 � � � 815 � Total current liabilities
4,524 3,775 � Line of credit 1,525 400 Long-term debt 2,445 2,050
Other liabilities 35 269 Deferred income taxes 20 499 Shareholders'
equity � 24,835 � � � 25,801 � Total liabilities and shareholders'
equity $ 33,384 � � $ 32,794 � MOD-PAC CORP. CONSOLIDATED STATEMENT
OF CASH FLOWS (unaudited) (in thousands) � � Nine Months Ended
9/27/2008 � 9/29/2007 Cash Flows from Operating Activities: Net
loss $ (1,024 ) $ (3,091 ) Adjustments to reconcile net loss to net
cash provided by (used in) operating activities: Depreciation and
amortization 2,850 3,645 Provision for doubtful accounts 11 33
Stock option compensation expense 208 166 Deferred income taxes
(479 ) (1,524 ) (Gain) loss on disposal of assets (54 ) 59 Cash
flow from change in operating assets and liabilities: Accounts
receivables (1,149 ) (1,808 ) Inventories (598 ) (1,076 ) Prepaid
expenses (57 ) 105 Other liabilities (234 ) (4 ) Accounts payable
648 86 Refundable or payable income taxes 621 Accrued expenses � (5
) � � (31 ) Net cash provided by (used in) operating activities $
117 � � $ (2,819 ) � Cash Flows from Investing Activities Proceeds
from sale of assets $ 125 $ 52 Decrease in temporary investments -
1,000 Change in other assets (45 ) (30 ) Capital expenditures
(1,601 ) (1,171 ) Acquisition of DDM assets � - � � � (947 ) Net
cash used in investing activities $ (1,521 ) � $ (1,096 ) � Cash
Flows from Financing Activities Principal payments on long-term
debt $ (79 ) $ (32 ) Increase in line of credit 1,125 1,800
Proceeds from loan 580 - Proceeds from issuance of stock - 8
Deferred financing fees (5 ) (40 ) Purchase of stock for treasury $
(150 ) � $ - � Net cash provided by financing activities $ 1,471 �
� $ 1,736 � � Net change in cash and cash equivalents 67 (2,179 ) �
Cash and cash equivalents at beginning of year � 98 � � � 2,444 �
Cash and cash equivalents at end of period $ 165 � � $ 265 �
MOD-PAC CORP. Reconciliation between GAAP Net Income (Loss) and
Adjusted EBITDA � � � � (in thousands) Three Months Ended Nine
Months Ended 9/27/2008 9/29/2007 9/27/2008 9/29/2007 � GAAP Net
income (loss) $14 ($1,071 ) ($1,024 ) ($3,091 ) � Interest 79 94
203 130 Taxes 40 (531 ) (477 ) (1,521 ) Depreciation and
amortization 860 1,185 2,850 3,645 Stock-based compensation 45 37
208 166 � � � � � � � � Adjusted EBITDA � $1,038 � ($286 ) $1,760 �
� ($671 ) Adjusted EBITDA = earnings before interest, taxes,
depreciation and amortization, and non-cash option expense.
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