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Orchids Paper Products 4Q Earnings Up on Lower Costs

Feb. 24, 2010 - Orchids Paper Products Company [Feb. 24] reported net income for the three months ended December 31, 2009 of $3.2 million, or $0.40 per diluted share, compared with $2.3 million or $0.34 per diluted share, in the same period in 2008.

For the full year of 2009, net income was $13.6 million, or $1.89 per diluted share, an increase of $8.4 million compared to net income of $5.2 million, or $0.79 per diluted share, for the full year of 2008. The earnings per share figure for both periods in 2009 include the effects of the follow-on offering of 862,500 shares of common stock completed in the third quarter of 2009.

THREE-MONTH PERIOD ENDED DECEMBER 31, 2009

Net sales in the quarter ended December 31, 2009 were $23.6 million, a decrease of $700,000 or 3%, compared to $24.3 million in the same period of 2008. Net sales of converted product were $20.9 million in the 2009 quarter, slightly under the $21.1 million in the same quarter last year. Net sales of parent rolls were $2.7 million in the fourth quarter of 2009, a decrease of $430,000, or 14%, compared to $3.2 million of parent roll sales in the same quarter last year. The 1% decrease in converted product sales resulted from a decrease of approximately 2.5% in net selling prices of converted product which was somewhat offset by a 1% increase in converted tonnage shipped. Net sales of parent rolls were negatively affected by a 27% decrease in net selling price which was partially offset by an 18% increase in the tonnage shipped.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter ended December 31, 2009 was $5.7 million, an increase of $1.3 million or 31%, compared to $4.4 million in the same period in the prior year. As a percent of net sales, EBITDA was 24.3% in the 2009 quarter compared with 18.0% in the 2008 quarter.

Gross profit for the fourth quarter of 2009 was $6.3 million, an increase of $937,000 or 17%, when compared with a gross profit of $5.4 million in the comparable prior year quarter. Gross profit as a percent of net sales was 27% in the fourth quarter of 2009 compared to 22% for the same period in 2008. As a percent of net sales, gross profit increased primarily due to lower waste paper prices and lower converting direct labor costs, which were partially offset by lower selling prices and higher converting overhead costs. Cost of waste paper in the fourth quarter of 2009 was 15% lower than the costs incurred in the same quarter of 2008, resulting in lower waste paper costs of approximately $790,000. Following a sharp drop in waste paper prices in the first half of 2009, waste paper prices began to increase in July 2009 through February 2010. As a result, compared to the third quarter of 2009, the cost of waste paper increased in the fourth quarter of 2009 by approximately $700,000 or 20%.

Selling, general and administrative expenses in the fourth quarter of 2009 totaled $1.7 million, slightly less than the $1.8 million of selling, general and administrative expenses incurred in the fourth quarter of 2008. Lower costs associated with recruitment and relocation and lower professional fees were somewhat offset by higher franchise tax costs and employee-related costs. As a percent of net sales, selling, general and administrative expenses decreased to 7.0% for the quarter ended December 31, 2009, compared to 7.5% in the prior year quarter.

Interest expense for the fourth quarter of 2009 totaled $224,000 compared to interest expense of $321,000 in the same period in 2008. This decrease was mainly driven by lower LIBOR interest rates.

As of December 31, 2009, the full year effective tax rate is estimated to be 32.3%. As a result, the effective rate for the fourth quarter of 2009 was 29.3%.

TWELVE-MONTH PERIOD ENDED DECEMBER 31, 2009

Net sales increased 6% to $96.0 million in the twelve months ended December 31, 2009, compared to $90.2 million in the same period of 2008. Net sales of converted product increased for the twelve months ended December 31, 2009, by $11.7 million, or 16%, to $86.6 million compared to $74.9 million in the same period last year. Net sales of converted product increased in the 2009 period due to a 11% increase in net selling prices and a 6% increase in shipment volume. Net sales of parent rolls decreased $5.9 million, or 39%, to $9.3 million in the twelve months ended December 31, 2009 compared to $15.2 million in the same period last year. The decrease in net sales of parent rolls in the 2009 period was due to a 23% decrease in tonnage and a 21% decrease in net selling prices.

EBITDA increased $12.5 million to $24.4 million in the twelve months ended December 31, 2009, compared to $11.9 million in 2008 period. As a percent of net sales, EBITDA was 25.4% in the 2009 full-year period compared with 13.2% in the 2008 period.

Gross profit for the twelve months ended December 31, 2009, was $28.0 million, an increase of $13.0 million, or 87%, when compared with a gross profit of $15.0 million in the comparable prior year period. Gross profit as a percent of net sales increased to 29.2% in the 2009 period compared to 16.6% for the same period in 2008. As a percent of net sales, gross profit increased in the 2009 period primarily due to lower waste paper costs, higher selling prices and shipment volumes of converted products and lower converting direct labor costs being partially offset by higher converting overhead costs.

Selling, general and administrative expenses in the twelve months ended December 31, 2009, totaled $7.3 million, an increase of $1.0 million, or 17%, when compared with selling, general and administrative expenses of $6.3 million in the same period of 2008. Increased accruals under the Company's incentive bonus plan, increased converted product sales commissions, an increase in stock option expense primarily due to a higher market price of the Company's stock, and increased professional and legal expenses accounted for most of the variance. As a percent of net sales, selling, general and administrative expenses increased to 7.7% for the twelve-month period ended December 31, 2009 compared to 6.9% in the prior year period.

Interest expense for the twelve months ended December 31, 2009, totaled $692,000 compared to interest expense of $1.4 million in the same period in 2008. Lower LIBOR rates and lower margins over LIBOR drove the favorable variance.

Mr. Robert Snyder, President and Chief Executive Officer, stated, "We are very pleased with our results for 2009. We made significant improvements in overall sales and converting production, while at the same time, continued to strengthen our balance sheet.

"The current economic climate has us facing the dual challenges of inventory corrections being made by our customers, along with increasing input costs, mainly due to higher fiber, or waste paper costs. At the same time, we remain very optimistic about the future due to our enhanced sales opportunities. We offer a great product, our new state-of-the-art converting line is slated to start up by the end of the second quarter of 2010, and our existing facility continues to benefit from our on-going efficiency programs. These will allow us to increase our product offerings to new and existing customers through improved product quality and increased configuration offerings, and to enter higher tier, higher margin markets."

ABOUT ORCHIDS

Orchids Paper Products Company is an integrated manufacturer of tissue paper products serving the private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins. From its operations in Pryor, Oklahoma, Orchids Paper Products Company uses recycled waste paper to produce finished tissue products that it provides to retail chains throughout the central United States.

SOURCE: Orchids Paper Products Company




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