Orchids Paper Products Co. (NYSE AMEX:TIS)

Efficiency

The company is focusing on selling all of its parent roll capacity as converted products which have higher margins than parent rolls. The company recently improved its conversion process by identifying and addressing the root issues that impair production. As a result of these efforts, conversion productivity has been significantly improved. The company can manufacture 100% of its paper roll needs due to the purchase of a new paper machine in 2006.  Previously, the company had to purchase some of its paper roll inventory from the open market.

Going Forward

"Our goal is to be recognized as the supplier of choice of private label tissue products for the discount retail market, especially value retailers, within our geographic area and to increase our presence in the grocery store market.

In 2009, we will continue to focus on optimizing our operating assets. In particular, our converting operations team will utilize the management operating system installed in the converting operations in 2008 to continue the production improvement trends experienced to-date. In addition, we have projects scheduled for 2009 to re-build certain converting lines which should increase productivity and projects to improve the flexibility of certain converting lines. We will also focus on the optimization of the $4.7 million converting automation project that was completed in February 2009, and we anticipate increased year over year production in the paper mill.

We currently are reviewing our logistics operations and our strategy of employing a third-party warehouse. The results of this study may indicate a need to expand our current warehouse facility and eliminate the use of the third-party warehouse. The cost of expanding our warehouse is estimated at $8.0 million. Funding for this project would come from either cash earnings, a new borrowing agreement or a combination of both. We are also studying a project to purchase a new converting line to aid in our strategy to increase sales and profitability and to consume all of our paper making production in our converting operation. This project is in the early stages of evaluation and is expected to cost between $15 million and $18 million.

We will pursue profitable sales growth of our increased output in our converting operations by increasing sales to established customers as well as continuing to focus on obtaining new customers in the grocery sales channels."

Update:  On August 21, 2009 Orchids Paper Products announced the pricing of 750,000 common shares at $18.50.

Use of proceeds: 

• Construction of a warehouse
• The purchase and installation of a new converting line
• General corporate purposes

Benefits TIS hopes to gain from the construction of a warehouse and the purchase and installation of a new converting line:

• We plan to increase our converting capacity by approximately 4.0 million cases annually with the installation of a new converting line and construction of a warehouse. The Company's current 300,000 square-foot converting facility has the potential capacity to produce approximately 7.7 million cases of at-home tissue products a year. This represent a 48% increase in annual capacity.
  
• Additional capacity will enable us to both increase sales of existing products and to provide the flexibility to manufacture higher tier products for sales to our core customer base and into new retail channel.
  
• We believe with additional capacity from our new converting line, we will be able to significantly increase the addressable customer base of our business.
  
• We believe that having the additional capacity to provide both value and mid-tier product lines will enable us to meet a larger percentage of our customers' total tissue needs.
  
• Our planned warehouse expansion and new converting line project, which we expect to be completed in 2010, should further improve our manufacturing efficiency and lower costs.