Orchids Paper Products Company Announces 2016 Fourth Quarter And Year To Date Results; Declares Dividend Of $0.35 Per Share

PRYOR, Okla., Feb. 14, 2017

				Three Months Ended December 31,			Twelve Months Ended December 31,
				2016	2015		2016		2015 ARIVA.DE Börsen-Geflüster Kurse Orchids Paper Products -   0,00%
				(Dollars in thousands, except per share data) (unaudited)
Net sales:
	Converted product			$  35,226	$  40,175		$ 158,102		$ 161,052
	Parent rolls			2,483	1,729		6,392		7,394
	Total net sales			$  37,709	$  41,904		$ 164,494		$ 168,446
Gross profit				$    5,680	$    8,147		$   30,149		$   30,497
Net income				$    2,621	$    3,701		$   12,811		$   13,557
Diluted net income per share				$      0.25	$      0.36		$       1.24		$       1.38
EBITDA				$    5,983	$    8,698		$   31,835		$   31,357
Adjusted EBITDA				$    6,260	$    9,017		$   33,352		$   32,646
Other Selected Financial Data:
	Gross profit margin			15.1%	19.4%		18.3%		18.1%
	EBITDA margin			15.9%	20.8%		19.4%		18.6%
	Adjusted EBITDA margin			16.6%	21.5%		20.3%		19.4%

Jeff Schoen, President and Chief Executive Officer, stated, "Despite  intense competitive pressures, year-over-year adjusted EBITDA increased 2%, the adjusted EBITDA margin increased from 19.4% to 20.3%, and Cost of sales, exclusive of depreciation, decreased 4.4% while Sales declined only 2.3%. In other words, improved cash margins and cost cutting helped offset the impact of the decline in sales.

On the whole, the fourth quarter of 2016 was characterized by a continuation of trends previously noted in the second and third quarters, principally competitive pressures that did not abate. As discussed in the third quarter earnings calls, Orchids has been active in several retailers' private label bids as part of our plan to increase breadth and depth in Orchids customer base. As previously announced, Orchids recently won private label bids and branded business that, all things being equal, are expected to increase sales volumes of converted products by over 35% in the second half of 2017. These developments lead us to remain optimistic about our ability to achieve our goal to grow Orchids' annual earnings per share (EPS) to within the approximate range of $2.50 to $3.50. We estimate that, based on current trends, our running rate EPS figure will enter this range by early 2018 and be toward the higher end of this range by the end of 2018.  

I am also pleased that, as previously announced, our bankers agreed to relax our covenant restrictions for a temporary period and increase our debt availability to allow us to bridge the next few quarters to our greater level of operations, inclusive of the completion of the capacity expansion in Barnwell, South Carolina. Regarding this project, the two converting lines are ramping-up to meet the new demand, and the paper mill is still scheduled for completion around the end of the first quarter of 2017, with the major ramp-up of the paper mill occurring in second quarter of 2017. The total projected expenditure for the facility remains at $150 million of which approximately $119.2 million had been expended as of December 31, 2016."

Fourth Quarter 2016, relative to Fourth Quarter 2015

Net sales decreased $4.2 million, or 10%, primarily due to heavy promotional activity by brand-competitors and other competitive pressures. Parent roll sales increased by $0.7 million while converted product sales decreased by $4.9 million. Of the $4.9 million decrease, $3.7 million was attributable to the decreased number of tons sold, and $1.2 million was due to a decline in the average price per ton that principally reflects the mix of customers buying the products.

Cost of sales, exclusive of depreciation, decreased $2.1 million, or 7%. The decrease in sales volumes, contributed to the relative decrease in Cost of sales, as did spreading fixed overhead over a lower volume and approximately $0.6 million in additional costs for our Mexicali operations, which reflected increased costs for fiber, electricity, and overhead that were only partially offset by favorable foreign exchange impacts upon peso-denominated costs.

Interest expense increased $0.3 million, or 112%, due principally to increased debt levels and financial leverage.

Other expenses increased $0.5 million principally due to the recognition of a $0.4 million foreign exchange loss on the valuation of VAT and income tax receivables. As the balances of these receivables have been diminished, this economic loss is not expected to be reoccurring to this extent.

As discussed further below, the Company's recognition of tax credits lessened tax expense by $2.1 million, contributing this greater amount to net income. As a consequence, principally of these factors, net income declined from $3.7 million to $2.6 million, or 29%.

Twelve-month period ended December 31, 2016 compared to same period in 2015

Net sales decreased $4.0 million or 2%. Parent roll sales decreased by $1.0 million, and converted product sales decreased by $3.0 million. Of the $3.0 million decrease, all $3.0 million was attributable to the decreased number of tons sold, as the average selling price did not change year-over-year.

Cost of sales, exclusive of depreciation, decreased $5.6 million, or 4%.  Overall, lower fiber costs in the United States are estimated to have saved the Company $2.5 million during 2016. We estimate that the devaluation of the peso reduced year-over-year costs by roughly $1.4 million. The Company received $1.1 million of business interruption insurance proceeds in the second quarter of 2016, which was applied to Cost of sales. Cost reductions in our Oklahoma converting operation, product-mix impacts, and lower sales volumes also contributed to the lower Cost of sales. Offsetting these favorable cost changes to a degree, Barnwell's (fixed) overhead expense (before being allocated to the inventory produced) in 2016 was $4.8 million, relative to $0.3 million in 2015, following from the start-up and ramp-up of those operations.

Depreciation expense increased $2.0 million, or 21%, due to the improvement and expansion projects placed into service.

Selling, general and administrative expenses increased $0.7 million, or 7%. Administrative compensation expenses decreased $0.4 million while sales compensation increased $0.3 million. Recruiting and relocation expenses increased $0.3 million. A variety of increases in professional and consulting expenses largely led to the balance of the change.  

Interest expense increased $1.2 million, or 222%, due principally to increased debt levels and financial leverage.

Other income decreased $0.5 million principally, as noted above, due to a $0.4 million foreign exchange loss on the valuation of VAT and income tax receivables that was recognized. As the balances of these receivables have been diminished, this economic loss is not expected to be reoccurring to this extent.

Tax expense decreased by $1.6 million or 27%. As of December 31, 2016, our effective tax rate was 25.6% as compared to 30.9% for 2015.  The effective rate was less than statutory rates due principally to Oklahoma, South Carolina, Indian Employment, and Foreign tax credits. Current income taxes in fiscal year 2016 provided a benefit of $3.2 million whereas current income taxes for the 2015 period were $1.8 million. The change was driven by accelerated tax depreciation and other timing differences recognized in 2016. The Company ended 2016 with a tax receivable balance of $8.7 million. The Company expects its effective tax rate for 2017 to return to the range of 30% to 34%.

Liquidity

				Three Months Ended December 31,			Twelve Months Ended December 31,
				2016	2015		2016		2015
				(Dollars in thousands) (unaudited)
Cash Flow Provided by (Used in):
Operating cash flow net of changes in working capital				$    5,928	$   12,195		$    33,193		$    30,260
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