[BRYAN CAVE LLP LOGO] [BRYAN CAVE LLP LETTERHEAD]
June 1, 2005
VIA EDGAR AND BY COURIER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0405
Attention: H. Roger Schwall
Assistant Director
RE: ORCHIDS PAPER PRODUCTS COMPANY
REGISTRATION STATEMENT ON FORM S-1
FILE NO. 333-124173
FILED APRIL 19, 2005
Dear Mr. Schwall:
We are writing this letter on behalf of Orchids Paper Products Company (the
"Company" or "Orchids") in response to the letter of the Staff of the Commission
dated May 18, 2005 regarding the above-referenced filing.
This letter sets forth each comment of the Staff in the comment letter (numbered
in accordance with the comment letter) and, following each comment, sets forth
the Company's response. We are enclosing a copy of the Pre-Effective Amendment
No. 1 to the registration statement, together with copies which are marked to
show the changes from the initial filing.
GENERAL
1. WHERE COMMENTS ON A SECTION ALSO RELATE TO DISCLOSURE IN ANOTHER
SECTION, PLEASE MAKE PARALLEL CHANGES TO ALL AFFECTED DISCLOSURE.
THIS WILL ELIMINATE THE NEED FOR US TO REPEAT SIMILAR COMMENTS.
Response: The Company has taken into account the Staff's comments in
revising the registration statement and has made parallel changes to
all affected disclosure in accordance with your request.
2. PLEASE MONITOR YOUR NEED TO UPDATE YOUR FINANCIAL STATEMENTS, AS
REQUIRED BY REGULATION S-X, RULE 3-12. ADDITIONALLY, PLEASE
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
PROVIDE UPDATED CONSENTS FROM YOUR INDEPENDENT ACCOUNTANTS IN THE
NEXT AMENDMENT.
Response: The amended registration statement includes financial
statements for the quarter ended March 31, 2005. The Company will
continue to monitor its need to update its financial statements, as
required by Regulation S-X, Rule 3-12. Included with the amended
registration statement is an updated consent from our independent
accountants. Please note that we have determined that pricing
allowances originally classified as selling expenses are more
appropriately classified as deductions from net sales. Accordingly,
we have made appropriate modifications throughout the registration
statement to reflect this change.
3. WE WILL NEED TIME TO REVIEW ALL NEW DISCLOSURE, ANY ADDITIONAL
PROPOSED ARTWORK OR GRAPHICS AND ALL OMITTED EXHIBITS, INCLUDING THE
OPINION OF COUNSEL. YOU CAN EXPEDITE THE REVIEW PROCESS BY PROVIDING
ALL THIS INFORMATION AND ALL THESE DOCUMENTS PROMPTLY. WE MAY HAVE
ADDITIONAL COMMENTS.
Response: The amended registration statement includes the following
previously omitted exhibits:
Form of Underwriting Agreement;
Bank Commitment Letter;
Form of Warrant; and
Form of Indemnification Agreement.
The Company does not anticipate adding any additional art work to
the registration statement.
4. PROVIDE UPDATED DISCLOSURE IN EACH AMENDMENT. FOR EXAMPLE, INCLUDE
ANY NEW INFORMATION RELATING TO THE CONSTRUCTION LOAN COMMITMENT
LETTER, THE PROPOSED LISTING BY THE AMERICAN STOCK EXCHANGE, ANY
DEVELOPMENTS RELATED TO RULE 2720 AND ANY REVIEW BEING CONDUCTED BY
THE NASD, AND SUPPLY THE OMITTED ESTIMATES UNDER ITEM 13 IN PART II.
ALSO, ELIMINATE THE SUGGESTION AT PAGE I THAT THE DISCLOSURE IS
CURRENT "ONLY AS OF" THE DATE OF THE PROSPECTUS.
Response: On May 6, 2005, the Company entered into a commitment
letter with the Bank of Oklahoma, as agent, for the construction
loan. The Company has revised the disclosure in the section entitled
"Description of Indebtedness" to reflect this recent development.
The Company has also included the commitment letter as Exhibit 10.9.
The Company has updated the disclosure in the section entitled
"Underwriting" in response to comments received from the NASD. In
addition, the Company has supplied the information previously
omitted from "Item 13. Other Expenses of Issuance and Distribution"
and eliminated the suggestion at page i that the disclosure is
current "only as of" the date of the prospectus. The Company will
continue to
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
review and update the disclosure in each amendment in light of
developments in its business.
5. PLEASE PROVIDE DISCLOSURE REGARDING QUANTITATIVE AND QUALITATIVE
EXPOSURE TO MARKET RISK AS REQUIRED BY ITEM 305 OF REGULATION S-K.
Response: The Company's only significant exposure to market risk is
interest on variable rate debt, which has been disclosed in the
sections entitled "Management Discussion & Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" and "Risk Factors - Our Exposure to Variable Interest
Rates May Affect Our Financial Health". We do not believe that any
further disclosure is helpful.
TABLE OF CONTENTS, PAGE i
MARKET AND INDUSTRY DATA, PAGE i
6. YOU INCLUDE SIMILAR DISCLAIMER LANGUAGE AT PAGE 64. FIRST, THIS
INFORMATION SHOULD NOT APPEAR PRIOR TO THE RISK FACTORS SECTION.
SECOND, BECAUSE YOU ARE RESPONSIBLE FOR BOTH THE ACCURACY AND
COMPLETENESS OF THE DISCLOSURE THAT APPEARS IN YOUR DOCUMENT, ANY
SUGGESTION OR IMPLICATION TO THE CONTRARY IS INAPPROPRIATE. FINALLY,
THE READER IS ENTITLED TO RELY UPON ALL DISCLOSURE YOU PROVIDE.
REVISE ALL RELATED DISCLOSURE ACCORDINGLY.
Response: The Company has moved the disclaimer language regarding
market and industry information from page i to page 16, after the
Risk Factors section. The Company has also deleted the language in
the section entitled "Market and Industry Data" and in the section
entitled "Where You Can Find More Information" to eliminate the
suggestion that the Company is not responsible for the accuracy or
completeness of the information included in the prospectus or that
the reader should not rely on certain information included in the
prospectus.
Prospectus Summary, page 1
7. REVISE TO PROVIDE A SUMMARY THAT IS BALANCED. FOR EXAMPLE, IT
APPEARS INCOMPLETE WITHOUT MENTIONING THAT YOUR BIGGEST COMPETITOR
ALSO HAS A PLANT IN YOUR DISTRIBUTION AREA, THAT IT WILL TAKE YOU AN
ESTIMATED 18 MONTHS TO PUT INTO OPERATION THE NEW PAPER MACHINE --
THE FINANCING OF WHICH HAS NOT YET BEEN OBTAINED -- AND THAT IN 2003
YOU LOST A MATERIAL CUSTOMER AND ANOTHER REDUCED THE NUMBER OF
DISTRIBUTION CENTERS YOU SERVICE.
Response: The Company has revised the summary beginning on page 1 to
provide a more balanced description of the Company's business and
has added a new risk factor
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
entitled "Our Earnings per Share will decrease dramatically
immediately following this offering." to disclose the risk to the
Company associated with time lapse before the new paper machine
becomes fully operational.
8. PROVIDE US WITH OBJECTIVE SUPPLEMENTAL SUPPORT FOR THE STATEMENTS
YOU MAKE REGARDING YOUR RELATIVE MARKET SHARE, YOUR STATUS AS A
"LEADER" AND YOUR STATUS AS ONE OF THE LOWEST COST ISSUE PRODUCERS
IN YOUR MARKET. WE NOTE THE DISCLOSURE IN THAT REGARD AT VARIOUS
PLACES IN YOUR DOCUMENT, INCLUDING AT PAGE 36.
Response: As disclosed in the prospectus, the Company believes that
it has a market share in the value retail channel of approximately
12%.
Based on information obtained from RISI, an independent paper and
forest products industry research firm, the tissue industry in the
U.S. had total revenue of approximately $12.7 billion in 2004. Based
on data derived from the information obtained from RISI, the
consumer market represented approximately 67%, or approximately
$8,509,000,000, of the total tissue industry. According to Nielsen,
in 2004, approximately 3.5% of the consumer market, thus we
calculate approximately $297,815,000, was sold to the value retail
channel. Since Orchids' 2004 sales in the value retail channel was
$37,500,000, Orchids' market share of the total of the value retail
channel was approximately 12% in 2004.
Dollar General, the largest U.S. value retailer, and the Company's
largest customer, has informed the Company that approximately half
of its tissue products sold are in the private label segment of the
consumer tissue market. As indicated above, the Company has a market
share in the value retail channel of approximately 12%.
Assuming Dollar General is representative of other retailers in the
value retail channels (in terms of the private label tissue products
sold as a percentage of total tissue products sold), the Company
estimates that it has approximately 24% of the total private label
consumer tissue market. Accordingly, based on percentage of this
market, the Company believes it has a leading position supplying
private label tissue products to value retailers.
As noted in the prospectus, the Company's senior management team has
an average of 20 years experience in the paper business. The
Company's CEO and CFO had been employed at other tissue producers
including Proctor and Gamble and Kruger. Based upon such
experiences, management knows that these companies have higher cash
costs per ton to produce tissue products. In addition, one of the
Company's direct competitors, Cascades, reported its 2004 cash costs
per ton of tissue products sold as $1,599 compared to the Company's
cost of $1,371 per ton.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
9. YOU STATE THAT IN 2004 YOU GENERATED "PRO-FORMA NET INCOME OF $1.0
MILLION." PLEASE EXPLAIN TO US AND DISCLOSE IN THE DOCUMENT WHY YOU
HAVE USED PRO-FORMA INCOME AS COMPARED TO ACTUAL INCOME. EXPLAIN HOW
YOU DEFINE PRO-FORMA NET INCOME.
Response: The pro forma net income referred to on page 1 of the
prospectus summary and on page 42 under "Business - Overview of our
Business" is set forth in a table on page 5 under "Summary Financial
Data". Since pro forma net income is substantially the same amount
as combined actual net income, we initially chose to disclose the
pro forma figure. Since net income, pro forma or actual, is not
relevant to the discussion on page 1 or page 42, we have elected to
delete references to net income in both instances.
10. WE NOTE YOU HAVE PRESENTED THE FINANCIAL INFORMATION WITHIN THE
PROSPECTUS AND THROUGHOUT YOUR FINANCIAL STATEMENTS AS
PREDECESSOR/SUCCESSOR AS A RESULT OF THE ACQUISITION BY ORCHIDS
ACQUISITION GROUP, INC. IN MARCH 2004. PLEASE EXPLAIN TO US WHY YOU
CONCLUDED IT WAS APPROPRIATE TO DISCUSS AND PRESENT YOUR FINANCIAL
STATEMENTS BASED ON A PREDECESSOR/SUCCESSOR PRESENTATION. PLEASE
INCLUDE ANY APPLICABLE LITERATURE TO SUPPORT YOUR RESPONSE.
Response: The following guidance is found in the Division of
Corporation Finance Accounting Disclosure Rules and Practices Manual
(Training Manual), para. 23,313, Topic 1 G, "Predecessor Financial
Statements":
"Financial information of a registrant's predecessor is
required for all periods prior to the registrant's existence,
with no lapse in audited periods or omission of other
information required about the registrant. Any interim period
of the predecessor prior to its acquisition by the registrant
should be audited when audited financial statements for the
period after the acquisition are presented. Schedules required
by SX Article 12 are required for predecessor entities.
What is a predecessor entity?
The definition of "predecessor" at RC 405 is very broad. For
purposes of financial statements, the staff generally does not
require designation of an acquired business as a predecessor
except where a registrant succeeds to substantially all of the
business (or a separately identifiable line of business) of
another entity (or group of entities) and the registrant's own
operations prior to the succession appear insignificant
relative to the operations assumed or acquired."
On March 1, 2004, Orchids Acquisition Group, Inc. ("OAG") acquired
100% of the outstanding common stock of Orchids Paper Products
Company. Prior to the acquisition, OAG had no operations, having
been formed on November 2003. On
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
March 1, 2004, OAG succeeded to all of the business of Orchids Paper
Products Company. As a result, we have designated the financial
position and results of operations of Orchids Paper Products Company
prior to March 1, 2004, as that of the predecessor, and we have
designated the financial position and results of operations of OAG,
consolidated with Orchids Paper Products Company, subsequent to
March 1, 2004, as that of the successor.
11. ADDITIONALLY, PLEASE EXPLAIN TO US WHY YOU DETERMINED IT WAS
APPROPRIATE TO APPLY PURCHASE ACCOUNTING TO THE ACQUISITION BY
ORCHIDS ACQUISITION GROUP. PLEASE INCLUDE ANY APPLICABLE LITERATURE
TO SUPPORT YOUR RESPONSE.
Response: As set forth in Note 2 to the financial statements, OAG
acquired all of the outstanding shares of capital stock of Orchids
Paper Products Company. The transaction was completed on March 1,
2004 by the payment of cash and the assumption of certain debt. This
transaction qualifies as a business combination described in
paragraph 9 of Statement of Financial Accounting Standards No. 141:
"For purposes of applying this Statement, a business
combination occurs when an entity acquires net assets that
constitute a business or acquires equity interests of one or
more other entities and obtains control over that entity or
entities."
The acquisition described in Note 2 meets the definition of a
business combination of SFAS 141. Accordingly, the purchase method
of accounting for business combinations required by SFAS No. 141 was
used to account for the transaction.
Risk Factors, page 7
12. RATHER THAN INDICATING THAT YOU CANNOT "BE CERTAIN," "ASSURE" OR
"PREDICT" A PARTICULAR OUTCOME, DISCLOSE THE RISK PLAINLY AND
IDENTIFY THE POTENTIAL HARM THAT COULD RESULT IN THE EVENT THE RISK
IS REALIZED. SIMILARLY, ELIMINATE LANGUAGE THAT MITIGATES THE RISK
YOU PRESENT, INCLUDING CLAUSES THAT BEGIN "ALTHOUGH" OR "WHILE."
Response: The Company has revised the section entitled "Risk
Factors" to more plainly disclose the risk and identify the
particular harm that could result in the event the risk is realized.
The Company has also eliminated mitigating language from the "Risk
Factor" section.
"We have significant indebtedness", page 8
13. CONSIDER MOVING TO A NEW RISK FACTOR UNDER AN APPROPRIATELY
DESCRIPTIVE CAPTION, THE RISKS RELATED TO YOUR EXPOSURE TO
FLUCTUATING INTEREST RATES. WE NOTE THE DISCLOSURE YOU PROVIDE IN
THE LAST PARAGRAPH IN THAT REGARD.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
Response: The Company has created a new risk factor entitled "Our
exposure to variable interest rates may effect our financial
condition" to address the risks related to the Company's exposure to
fluctuating interest rates.
"THE AVAILABILITY OF AND PRICES FOR ENERGY", PAGE 9
14. TAILOR THE RISK FACTOR DISCUSSION TO YOUR PARTICULAR CIRCUMSTANCES,
AND MAKE CLEAR HOW ENERGY PRICES IMPACT YOUR FINANCIAL CONDITION.
CONSIDER, FOR EXAMPLE, HIGHLIGHTING MORE RECENT PERIODS IN WHICH YOU
MAY BE EXPERIENCING HIGHER PRICES AND MORE PRICE AND SUPPLY
VOLATILITY RELATIVE TO PRIOR PERIODS.
Response: The Company has revised the risk factor entitled "The
availability of and prices for energy will significantly impact our
business" to more particularly describe the Company's particular
circumstances and to make it clear how energy prices impact the
Company's financial position.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, PAGE 21
COMPARATIVE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004, PAGE 21
15. ONE OF THE OBJECTIVES OF MD&A IS TO PROVIDE READERS WITH AN
EXPLANATION OF PRIOR RESULTS AS WELL AS THE POTENTIAL VARIABILITY OF
EARNINGS AND CASH FLOWS, SO THE READER CAN ASCERTAIN THE LIKELIHOOD
THAT PAST PERFORMANCE IS INDICATIVE OF FUTURE PERFORMANCE. PLEASE
PROVIDE A DISCUSSION OF SPECIFIC FACTORS MANAGEMENT IS AWARE OF THAT
COULD POSITIVELY OR NEGATIVELY AFFECT THE AMOUNT OF SALES AND
EXPENSE ITEMS IDENTIFIED IN MD&A. REFER TO FRC SECTION 501.12 FOR
FURTHER GUIDANCE.
Response: The Company has revised the section entitled "Management
Discussion and Analysis of Financial Condition and Results of
Operations" to include a discussion of the specific factors that
could positively or negatively affect the amount of sales and
expenses items discussed in that section.
Liquidity and Capital Resources, page 25
16. IN YOUR DISCUSSION REGARDING CASH PROVIDED BY OPERATING ACTIVITIES
YOU REFER TO A DEFERRED TAX EXPENSE PRIMARILY RELATED TO BOOK VERSUS
TAX DEPRECIATION. PLEASE BE AWARE THAT PURSUANT TO REGULATION S-K
ITEM 303, THE LIQUIDITY AND CAPITAL RESOURCE DISCUSSION SHOULD FOCUS
ON MATERIAL SOURCES AND USES OF CASH. AS SUCH, PLEASE REMOVE SUCH
DISCLOSURE OR EXPLAIN TO US WHY YOU FEEL IT IS APPROPRIATE TO
INCLUDE A DISCUSSION OF DEFERRED TAX ITEMS WITHIN THIS SECTION.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
Response: The Company has revised the disclosure in the section
entitled "Liquidity and Capital Resources" to remove all references
to deferred taxes in the discussion of cash flows from operating
activities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES, PAGE 28
17. WE NOTE YOU HAVE IDENTIFIED REVENUE RECOGNITION AS AN AREA OF
ACCOUNTING YOU REGARD AS CRITICAL DUE TO THE ESTIMATES AND
ASSUMPTIONS INVOLVED IN THE APPLICATION OF THESE ACCOUNTING
POLICIES. YOUR CURRENT DISCLOSURE APPEARS TO BE MORE DESCRIPTIVE OF
GENERAL ACCOUNTING POLICIES UTILIZED, RATHER THAN ANY SPECIFIC
UNCERTAINTIES UNDERLYING YOUR SPECIFIC ESTIMATES AND ASSUMPTIONS.
PLEASE REVISE YOUR DISCLOSURES TO ADDRESS THE FOLLOWING:
o WHY YOU CONSIDER THE ITEM TO BE CRITICAL TO YOUR COMPANY,
o THE MATERIAL ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT UNDERLYING
THE CRITICAL ACCOUNTING POLICIES,
o AN ANALYSIS OF THE UNCERTAINTIES INVOLVED IN APPLYING THE POLICY AND
THE VARIABILITY THAT IS REASONABLY LIKELY TO RESULT FROM ITS
APPLICATION,
o AN ANALYSIS OF HOW YOU ARRIVED AT THE MEASURE AND HOW ACCURATE THE
ESTIMATE OR UNDERLYING ASSUMPTIONS HAVE BEEN IN THE PAST, AND
o AN ANALYSIS OF YOUR SPECIFIC SENSITIVITY TO CHANGE BASED ON OUTCOMES
THAT ARE REASONABLY LIKELY TO OCCUR AND HAVE A MATERIAL EFFECT.
YOU SHOULD PROVIDE QUANTITATIVE AS WELL AS QUALITATIVE DISCLOSURE WHEN
QUANTITATIVE INFORMATION IS REASONABLY AVAILABLE AND WILL PROVIDE MATERIAL
INFORMATION FOR INVESTORS. IN ADDITION, IDENTIFY INSTANCES WHERE YOU HAVE
CHANGED ASSUMPTIONS AND ESTIMATES IN THE PAST AND INDICATE HOW THESE
CHANGES IMPACTED YOUR FINANCIAL STATEMENTS. PLEASE REFER TO FRC SECTION
501.14 FOR FURTHER GUIDANCE.
PLEASE ALSO REVISE YOUR DISCUSSION INCLUDED IN THE NOTES TO FINANCIAL
STATEMENTS, NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, INCLUDED
ON PAGE F-8, TO INCLUDE THE ACCOUNTING ESTIMATES, ASSUMPTIONS AND
CIRCUMSTANCES SPECIFIC TO YOUR REVENUE RECOGNITION POLICY.
Response: Upon further consideration of the guidance of FRC Section 501,
we have determined that the Company's revenue recognition is not subject
to significant management judgment or estimates. We will remove the
paragraph entitled "Revenue recognition" from
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
the disclosure of significant accounting policies and estimates. No change
will be required in Note 1 - Summary of Significant Accounting Policies on
page F-8.
While the amounts are less material, we have determined that the allowance
for doubtful accounts and inventory valuation reserve do meet the guidance
of FRC Section 501. We have included disclosures in Critical Accounting
Policies and Estimates for allowance for doubtful accounts and inventory
valuation reserves and have modified the accounting policy disclosure
accordingly.
NON-GAAP DISCUSSION, PAGE 29
18. WE NOTE YOU PRESENT ADJUSTED EBITDA AS A NON-GAAP PERFORMANCE
MEASURE. AS INDICATED AT ITEM 10(e)(ii)(B) OF REGULATION S-K, YOU
MAY NOT ADJUST NON-GAAP PERFORMANCE MEASURES TO ELIMINATE OR SMOOTH
ITEMS IDENTIFIED AS NON-RECURRING, INFREQUENT OR UNUSUAL, WHEN THE
NATURE OF THE CHARGE OR GAIN IS SUCH THAT IT IS REASONABLY LIKELY TO
RECUR WITHIN TWO YEARS OR THERE WAS A SIMILAR CHARGE OR GAIN WITHIN
THE PRIOR TWO YEARS. IN THIS REGARD, WE NOTE YOU ADJUST THIS MEASURE
TO EXCLUDE PAYMENTS ON OPERATING LEASES AND MANAGEMENT INCENTIVE
PAYMENTS. PLEASE REVISE YOUR NON-GAAP PERFORMANCE MEASURE TO NO
LONGER ADJUST FOR THESE RECURRING ITEMS. TO THE EXTENT YOU BELIEVE
WHAT WE HAVE IDENTIFIED AS RECURRING ARE ACTUALLY NON-RECURRING,
PROVIDE DETAILED EVIDENCE TO SUPPORT YOUR POSITION.
UNDER CERTAIN LIMITED CIRCUMSTANCES A NON-GAAP PERFORMANCE MEASURE
MAY BE ADJUSTED FOR RECURRING ITEMS; HOWEVER, COMPANIES MUST MEET
THE BURDEN OF DEMONSTRATING THE USEFULNESS OF ANY MEASURE THAT
EXCLUDES RECURRING ITEMS. REFER TO QUESTION 8 OF THE FREQUENTLY
ASKED QUESTIONS REGARDING THE USE OF NON-GAAP FINANCIAL MEASURES.
PLEASE NOTE THAT IT IS UNDER LIMITED CIRCUMSTANCES WHEN WE WOULD
ALLOW THE PRESENTATION OF A NON-GAAP PERFORMANCE MEASURE THAT HAS
BEEN ADJUSTED FOR RECURRING ITEMS.
Response: We understand that, while we believe them to be non-recurring,
the adjustments referred to for "payments on operating lease" and
"management incentive payments" do not meet the strict criteria set forth
in Item 10(e)(ii)(B) because each has occurred more than once in the prior
two years. However, we believe the staff should consider an exception for
the reasons outlined below.
Our intent in adjusting for these items is to give the investor additional
information from a forward looking standpoint. Both the operating lease
and the management incentive plan have been terminated and will not recur.
We understand that adjusting for these items has the effect of increasing
historical adjusted EBITDA, which could be viewed as overstating the
Company's performance. However, our concern is that not disclosing this
information could
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
expose us to the argument that we failed to properly inform investors of
the full extent of the negative impact the issues discussed in "Management
Discussion and Analysis of Financial Condition and Results of Operations"
have had on EBITDA in recent periods. Perhaps our point is better
illustrated by examining our proposed disclosure for the first quarter of
2005:
Predecessor Successor Combined Successor
-------------------------------------------------------------------------
Two Months One Month Three Months Three Months
Ended Ended Ended Ended
February 29, 2004 March 31, 2004 March 31, 2004 March 31, 2005
(in thousands)
Net Income (Loss) ($272) ($84) ($356) $ 346
Plus: Interest expense, net 45 96 141 369
Plus: Income tax expense 66 10 76 148
Plus: Depreciation 384 112 496 321
------ ----- ------ ------
EBITDA 223 134 357 1,184
Plus: Payments on operating lease 193 96 2898 0
Plus: Management incentive payments 625 0 625 0
Adjusted EBITDA $1,041 $230 $1,271 $1,184
Percent of net sales 14.5% 8.1% 12.7% 9.4%
As can be seen, net income and EBITDA increased considerably in 2005
compared to 2004, however we believe this results in a misleading
comparison because all of this increase came as a result of the absence of
the management incentive and operating lease payments in 2005. It is our
belief that results actually deteriorated in 2005. We concede this
information is disclosed prominently elsewhere in the prospectus, but feel
our proposed "adjusted EBITDA" methodology results in overall better
disclosure.
BUSINESS, PAGE 34
HISTORY, PAGE 34
19. WE NOTE ON PAGE F-7 THAT ORCHIDS ACQUISITION GROUP, INC. WAS FORMED
IN 2003 FOR THE PURPOSE OF ACQUIRING THE COMPANY. IT IS NOT APPARENT
HOWEVER, WHY THE FORMATION OF ORCHIDS ACQUISITION GROUP, INC.
FACTORED INTO THE OVERALL BUSINESS STRATEGY OF THE COMPANY AND THE
DECISION TO GO PUBLIC. ON A SUPPLEMENTAL BASIS, PLEASE PROVIDE
INFORMATION, IN THE FORM OF A DIAGRAM OR OTHERWISE, THAT DELINEATES
THE OWNERSHIP STRUCTURE AND SHARE OWNERSHIP OF THE COMPANY AND
ORCHIDS ACQUISITION GROUP, INC. PRE-MERGER. FURTHER, PLEASE INFORM
US OF THE REASONS FOR THE FORMATION OF ORCHIDS ACQUISITION GROUP,
INC. AND WHY SUCH FORMATION WAS NECESSARY TO THE COMPANY'S OVERALL
BUSINESS STRATEGY.
Response: OAG was formed in 2003 for the sole purpose of acquiring
all of the capital stock of the Company. It was a holding company
with its sole asset consisting of the
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
capital stock of the Company. To simplify the corporate structure,
OAG was merged with and into the Company in April 2005. As a result
of the merger, the ownership structure of the Company is identical
to that of OAG prior to the merger.
20. WITH A VIEW TOWARD DISCLOSURE, EXPLAIN TO US IN NECESSARY DETAIL HOW
THE ACQUISITION CAME ABOUT. DISCUSS THE FEES AND COMPENSATION
ARRANGEMENTS -- INCLUDING THE TERMS OF ANY SECURITIES ISSUANCES,
EXPLAIN HOW IT ORIGINATED, DESCRIBE ANY NEGOTIATIONS AND CLARIFY WHO
PARTICIPATED AND IN WHAT CAPACITY. FOR EXAMPLE, WHERE MEMBERS OF THE
BOARD ALSO HAD INTERESTS IN THE OTHER PARTY OR IN AN AFFILIATED
PARTY, MAKE CLEAR ON WHOSE BEHALF EACH WAS ACTING. WE MAY HAVE
FURTHER COMMENTS.
Response: In addition to its regular activities as an NASD member
broker/dealer, Taglich Brothers agreed to a joint venture with
Weatherly Group, LLC (the "Venture") in early 2000 to pursue the
sourcing and sponsoring of management buyouts of small private
companies. Orchids represents the third such transaction completed
by the Venture, and it remains regularly engaged in the activity of
sponsoring management buyouts.
Until its purchase by OAG, Orchids was owned by a fund managed by
the private equity firm of Dimeling, Schreiber and Park ("DS&P").
After the death of a founder, DS&P began an effort to liquidate the
fund's remaining assets. Aware of Weatherly's business, DS&P
contacted Thomas A. McFall of Weatherly in 2002 to ascertain his
interest in bidding for some or all of the properties. Weatherly
ultimately decided to pursue the acquisition of Orchids. Mr. McFall,
along with Doug Hailey of Taglich Brothers, first visited the
Oklahoma facilities in July 2003. Weatherly submitted an indication
of interest for the company to US Bancorp Piper Jaffray, then
representing DS&P in the sale, which was ultimately accepted.
OAG was then formed for the exclusive purpose of effecting the
acquisition, and executed a Purchase and Sale Agreement with DS&P
for the purchase of Orchids on November 12, 2003. The Venture
continued to conduct due diligence and to search for debt financing,
ultimately choosing a syndicate headed by the Bank of Oklahoma.
A founders group was then formed to assume the risks associated with
the transaction if it were to fail, as well as to establish a
mechanism to provide the performance incentive customarily received
in its management buyout transactions. Proceeds from stock sales to
the founders were used to fund due diligence expenditures. The names
of the founders, amounts invested and their positions are detailed
below. All share information has been adjusted to reflect the 2.744
to one stock split that was completed earlier this year in
preparation for the IPO:
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
NUMBER OF
FOUNDERS'
SHARES PRICE DOLLARS
NAME OF FOUNDER POSITION PURCHASED PAID INVESTED
----------------------------------- -------------------------------- --------- ------- --------
Michael P. Sage Orchids Executive 17,666 $ 0.14 $ 2,500
Ronald E. Hawkinson Orchids Executive 8,834 0.14 1,250
Keith R. Schroeder Orchids Executive 2,945 0.14 417
Michael N. Taglich Taglich Brothers Principal 88,609 0.14 12,539
Robert F. Taglich Taglich Brothers Principal 88,609 0.14 12,539
Douglas E. Hailey Taglich Brothers Employee 48,623 0.14 6,880
Michael Brunone Taglich Brothers Employee 4,117 0.14 583
Richard C. Oh Taglich Brothers Employee 5,489 0.14 777
Aldo Kokot Taglich Brothers Employee 1,372 0.14 194
Vincent Palmieri Taglich Brothers Employee 4,117 0.14 583
Robert Schroeder Taglich Brothers Employee 3,535 0.14 500
Antonio Melo Taglich Brothers Employee 10,602 0.14 1,500
Ledgemaize Realty Trust Affiliate of Weatherly Principal 68,827 0.14 9,739
-------- ------- --------
353,345 $ 0.14 $ 50,000
In February 2004, Taglich Brothers was engaged by OAG to act as
placement agent for a private placement of $5.9 million of common
stock and $2.15 million of subordinated debentures with warrants.
The price of the common shares ($10 pre-split, $3.64 post split) was
calculated so that the founders' share would result in 17.7%
ownership, giving the founders a performance incentive approximating
that achieved by private equity sponsors.
Taglich Brothers did not receive a fee in connection with its
services as placement agent. However, certain principals and
employees of Taglich Brothers were allowed the opportunity to
purchase founders' shares in OAG as shown above.
Directors, former directors, principal stockholders of the Company
as well as all principals, employees or affiliates of Taglich
Brothers and Weatherly that participated in the private placement
are presented below:
AMOUNT OF PRICE SHARES
PRIVATE PLACEMENT PARTICIPANT POSITION INVESTMENT PAID RECEIVED
----------------------------------- -------------------------------- ---------- ------- --------
Michael N. Taglich Principal of Taglich Brothers $ 500,000 $ 3.64 137,222
Robert F. Taglich Principal of Taglich Brothers 500,000 $ 3.64 137,222
Douglas E. Hailey Employee of Taglich Brothers 50,000 $ 3.64 13,722
Gary Arnold Client of Taglich Brothers 400,000 $ 3.64 109,777
B. Kent Garlinghouse Client of Taglich Brothers 250,000 $ 3.64 68,611
E.H. Arnold Client of Taglich Brothers 480,000 $ 3.64 131,732
---------- --------
$2,180,000 598,286
Table excludes founders shares reported elsewhere for Messrs.
Taglich, Taglich & Hailey as well as shares issuable pursuant to
subordinated debenture warrants for Messr. Arnold, Arnold & Hailey
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
Management did not participate in the private placement, but
purchased 27,472 (post-split) shares directly from OAG for $100,000,
the same price ($3.64 per share) paid by the investors in the
private placement.
OAG paid a closing fee of $750,000 to the Venture for its efforts in
putting the transaction together, which was shared evenly by the two
entities. The Venture also entered into a management services
agreement with the Company which provides for an annual management
fee of $325,000. Weatherly receives $105,000 of this amount, with
the balance being paid to Taglich Brothers. The management services
agreement has been amended and restated, as disclosed in the
registration statement.
In order to provide further clarification regarding the above
matters, we have provided additional disclosures in the sections
entitled "Business - History" on page 42 and "Certain Relationships
and Related Party Transactions" on page 57.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS, PAGE 41
21. CONSISTENT WITH THE REQUIREMENTS OF ITEM 101(C)(1)(XII) OF
REGULATION S-K, PROVIDE EXPANDED DISCLOSURE REGARDING THE
ENVIRONMENTAL REGULATIONS TO WHICH YOUR OPERATIONS ARE SUBJECT. IN
THIS REGARD, WE NOTE THE DISCLOSURE IN THE RISK FACTOR SECTION OF
THE PROSPECTUS REFERENCES WHAT APPEARS TO BE A VARIETY OF
REGULATIONS THAT IMPACT YOUR OPERATIONS. PLEASE ENSURE THE
DISCUSSION ON PAGE 41 SUPPLEMENTS THE INFORMATION REFERENCED IN THE
RISK FACTOR. IF YOU HAVE BEEN IDENTIFIED AS A POTENTIALLY
RESPONSIBLE PARTY FOR STATE OR FEDERAL ENVIRONMENTAL PURPOSES,
DISCLOSE THE PARTICULARS.
Response: The Company has revised the section entitled " Business -
Environmental, Health and Safety Matters" on page 49 to provide
expanded disclosure regarding the environmental regulations to which
the Company is subject. In this regard, the Company has considered
the variety of regulations mentioned in the risk factor entitled
"Our business is subject to extensive governmental regulation and
any imposition of new regulations or failure to comply with existing
regulations could involve significant additional expense" on page
11. The Company has not been named as a potentially responsible
party for state or federal environmental purposes.
MANAGEMENT, PAGE 42
BOARD COMMITTEES, PAGE 43
22. WE NOTE YOU INCLUDE A DISCUSSION OF AND THE VARIOUS FUNCTIONS
CARRIED OUT BY YOUR AUDIT COMMITTEE. PLEASE NOTE THAT REGULATION
S-X, RULE 2-01(C)(7)(I) REQUIRES ALL AUDIT AND NON-AUDIT SERVICES
PERFORMED BY THE AUDITOR BE PRE-APPROVED BY THE AUDIT COMMITTEE. IN
THIS REGARD, AN AUDIT COMMITTEE IS
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
REQUIRED TO ESTABLISH A PRE-APPROVAL POLICY REGARDING THE SERVICES
PERFORMED BY THE INDEPENDENT AUDITOR. IF APPLICABLE, PLEASE DISCLOSE
THAT YOUR AUDIT COMMITTEE DOES HAVE AN ESTABLISHED AND FOLLOWED
PRE-APPROVAL POLICY, OR EXPLAIN TO US AND DISCLOSE WHY NO SUCH
POLICY HAS BEEN ESTABLISHED.
Response: The audit committee charter requires that the audit
committee pre-approve any audit or permissable non-audit engagement
or relationship between the Company and its auditors. It also
contemplates that the audit committee may establish a more detailed
pre-approval policy. We have been informed by the audit committee
that the audit committee intends to establish such a policy prior to
the registration statement becoming effective.
23. EXPAND YOUR DISCLOSURE FOR MESSRS. SCHROEDER, MCFALL AND ARNOLD TO
PROVIDE COMPLETE FIVE YEAR BIOGRAPHICAL SKETCHES WITHOUT GAPS OR
AMBIGUITIES WITH REGARD TO TIME OR THE CAPACITIES IN WHICH THE
INDIVIDUALS SERVED THE IDENTIFIED ENTITIES.
Response: The Company has revised the biographies of Messrs.
Schroeder, McFall and Arnold to eliminate any gaps or ambiguities
with regard to the time or the capacities in which the individuals
served various identified entities.
24. IF THE UNDERWRITERS WILL ENGAGE IN AN ELECTRONIC OFFER, SALE OR
DISTRIBUTION OF THE SHARES, PLEASE DESCRIBE THEIR PROCEDURES TO US
SUPPLEMENTALLY.
Response: The underwriters have informed the Company that they do
not presently intend to engage in an electronic offer, sale or
distribution of the shares.
25. WE NOTE THE DISCLOSURE ON PAGE 12 IN THE RISK FACTOR DISCUSSION
REGARDING THE TAGLICH BROTHERS, INC.'S ABILITY, IN ITS SOLE
DISCRETION, TO RELEASE PARTIES THAT WILL BE SUBJECT TO THE LOCK-UP
"AT ANY TIME OR FROM TIME TO TIME WITHOUT NOTICE" AND THAT THERE ARE
"NO PRE-ESTABLISHED CONDITIONS TO WAIVING THE TERMS OF THE LOCK-UP."
PLEASE ADVISE US WHETHER THERE ARE ANY AGREEMENTS, UNDERSTANDINGS OR
INTENTIONS, TACIT OR EXPLICIT, TO RELEASE ANY OF THE SHARES FROM THE
LOCK-UPS PRIOR TO THE EXPIRATION OF THE CORRESPONDING PERIOD. WE MAY
HAVE FURTHER COMMENTS.
Response: The underwriters have informed the Company that there are
no agreements, understandings or intentions, tacit or explicit, to
release any of the shares from the lock-up prior to the expiration
of the lock-up period. Pursuant to the terms of the lock-up
agreement, the underwriters may waive the lock-up restrictions, but
intends to do so only in extraordinary circumstances such as death,
divorce or financial necessity.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
CERTAIN MATERIAL U.S. FEDERAL INCOME, PAGE 58
26. THE READER IS ENTITLED TO RELY ON THE DISCLOSURE YOU PROVIDE. IT IS
INAPPROPRIATE TO SUGGEST ON PAGE 60 THAT THE DISCLOSURE IS "FOR
GENERAL INFORMATION ONLY" AND THAT THE READER "SHOULD CONSULT" WITH
ITS OWN ADVISORS. YOU MAY RECOMMEND THAT COURSE OF ACTION, HOWEVER.
Response: The Company has revised the first paragraph in the section
entitled "Certain Material U.S. Federal Income and Estate Tax
Consequences to Non-U.S. Holders" to eliminate the suggestion that
the disclosure is "for general information only" and that the reader
"should consult" with its own tax advisors. However, in accordance
with the Staff's comment, the Company has recommended that the
reader consult with its own tax advisors.
EXHIBITS
27. ADVISE US WHETHER EXHIBIT 10.8 REFERENCES THE TWO PURCHASE
AGREEMENTS DISCLOSED ON PAGE 28. ENSURE THAT YOU FILE AS EXHIBITS
AND DESCRIBE IN NECESSARY DETAIL ALL MATERIAL CONTRACTS AND PLEASE
FILE SUCH AGREEMENTS WITH YOUR NEXT AMENDMENT.
Response: Exhibit 10.8 discloses two related purchase agreements
pertaining to the new paper machine, as described in the section
entitled "Management Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources -
Contractual Obligations" on page 34 of the registration statement.
The Company has expanded the discussion of its contractual
obligations related to the new paper machine to disclose the
relationship between that discussion and the purchase agreements
included as Exhibit 10.8.
STATEMENTS OF INCOME, PAGE F-4
28. WE NOTE YOU HAVE INCLUDED THE BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE FOR THE SUCCESSOR'S TEN-MONTH PERIOD ENDED DECEMBER 31,
2004 ON THE FACE OF THE FINANCIAL STATEMENTS AS WELL AS IN THE NOTES
TO FINANCIAL STATEMENTS, NOTE 8 - EARNINGS PER SHARE, INCLUDED ON
PAGE F-15. PLEASE EXPLAIN TO US WHY YOU HAVE PRESENTED THE
CALCULATION FOR THIS PERIOD ONLY. INCLUDE ANY APPLICABLE ACCOUNTING
LITERATURE TO SUPPORT YOUR RESPONSE.
Response: Authoritative literature for the presentation of earnings
per share is found in SFAS 128, "Earnings Per Share." Relevant
portions of paragraph 6 discusses scope as follows:
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
"This Statement requires presentation of earnings per share by
all entities that have issued common stock or potential common
stock ... if those securities trade in a public market either
on a stock exchange (domestic or foreign) or in the
over-the-counter market, including securities quoted only
locally or regionally. This Statement also requires
presentation of earnings per share by an entity that has made
a filing or is in the process of filing with a regulatory
agency in preparation for the sale of those securities in a
public market. This Statement does not require presentation of
earnings per share ... in statements of wholly owned
subsidiaries..."
The entity that is making the filing in preparation for the sale of
securities is the successor. Prior to inception of the successor,
financial statements of the predecessor have been provided to meet
the requirements of Regulation S-X. The predecessor was a privately
owned company with a substantially different capital structure than
that of the successor. We believe that calculation and presentation
of earnings per share of the predecessor, based on the predecessor's
capital structure, would provide no relevant information to the
users of the financial statements.
If the staff believes that SFAS 128 requires presentation of
earnings per share for the predecessor, we would propose to
calculate earnings per share using the capital structure of the
successor as adjusted for the April 14, 2005, stock split disclosed
in Note 1 to the financial statements.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, PAGE F-5
29. WE NOTE A REDUCTION TO ADDITIONAL PAID-IN CAPITAL DURING 2004
IDENTIFIED AS A COST OF COMMON STOCK AND WARRANTS ISSUED OF
$646,502. PLEASE EXPLAIN TO US THE NATURE OF THE TRANSACTIONS TO
WHICH THIS ADJUSTMENT RELATES AND THE ACCOUNTING LITERATURE YOU
FOLLOWED TO SUPPORT THE TREATMENT OF THE COST.
Response: OAG incurred $876,250 of direct costs in connection with
its formation and the sale of its common stock and subordinated
debentures. These costs included preparation of the offering
document, printing, sales commissions and similar costs associated
with such an offering. The total costs were allocated between the
common stock and Units, consisting of subordinated debentures and
warrants to purchase common stock, on the basis of relative
proceeds. The amount allocated to common stock of $646,502 was
charged to Additional Paid-In Capital.
The relevant accounting literature is found in paragraph 28 of APB
Opinion No. 9: "...the following should be excluded from the
determination of net income or the results of operations under all
circumstances: (a) adjustments or charges or credits resulting from
transactions in the company's own capital stock..."
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
NOTES TO FINANCIAL STATEMENTS, PAGE F-7
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, PAGE F-11
30. WE NOTE THE INCLUSION OF NON-DEPRECIABLE MACHINERY AND EQUIPMENT
IDENTIFIED AS PARTS AND SPARES AS PROPERTY, PLANT AND EQUIPMENT.
PLEASE EXPLAIN TO US WHY YOU CONSIDER THESE ITEMS TO BE PROPERTY AS
COMPARED TO INVENTORY. INCLUDE ANY APPLICABLE ACCOUNTING LITERATURE
TO SUPPORT YOUR RESPONSE.
PLEASE ALSO EXPLAIN TO US THE METHODOLOGY YOU USE TO DETERMINE IF AN
IMPAIRMENT RELATED TO THESE ITEMS HAS OCCURRED.
Response: ARB 43, Chapter 4, paragraph 3, provides the following:
"The term inventory embraces goods awaiting sales (the merchandise
of a trading concern and the finished goods of a manufacturer),
goods in the course of production (work in process), and goods to be
consumed directly or indirectly in production (raw materials and
supplies). This definition of inventories excludes long-term assets
subject to depreciation accounting, or goods which, when put into
use, will be so classified."
The Company believes this definition of inventory excludes parts and
spares which it includes in property and equipment. Parts and spares
will ultimately be used to extend the useful lives of the related
equipment. They will be subject to depreciation when they have
actually been installed and used in operations.
Parts and spares are included with the machinery and equipment to
which they relate whenever property, plant and equipment is reviewed
for impairment as described in the accounting policy Impairment of
long-lived assets on page F-14.
NOTE 5 - LONG TERM DEBT, PAGE F-12
31. IN YOUR DISCUSSION REGARDING SHARES ISSUED TO "FOUNDERS" FOR $.39
PER SHARE YOU STATE THAT ORCHIDS ACQUISITION SOLD ITS COMMON STOCK
FOR $10 PER SHARE. PLEASE EXPLAIN TO US HOW ORCHIDS ACQUISITION
DETERMINED A VALUE OF $10 PER SHARE WAS APPROPRIATE. INCLUDE ANY
APPLICABLE LITERATURE UTILIZED TO SUPPORT YOUR RESPONSE.
Response: For purposes of clarification, the figures presented in
the Financial Statements are pre-split numbers and the post-split
figures are $.14 per share and $3.64 per share. As discussed in
response to comment 20, the price of the common shares was
calculated so that the founders' share would result in 17.7%
ownership, giving the founders a performance incentive approximating
that customarily achieved by private equity sponsors.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
32. WE NOTE YOUR DISCLOSURE THAT THE DIFFERENCE BETWEEN $10 PER SHARE
AND $.39 PER SHARE WAS REPORTED AS COMPENSATION EXPENSE FOR THE
TEN-MONTH PERIOD ENDED DECEMBER 31, 2004 TOTALING $103,106. THIS
SEEMS TO IMPLY THAT THERE WERE ONLY 10,729 ($103,106/$9.61) SHARES
PURCHASED BY "FOUNDERS". HOWEVER WITHIN YOUR DISCUSSION OF CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ON PAGE 49, YOU
DISCLOSE THAT ORCHIDS ACQUISITION GROUP ISSUED 353,345 SHARES OF
FOUNDERS STOCK AT A PURCHASE PRICE OF $.14 PER SHARE. PLEASE EXPLAIN
TO US AND DISCLOSE THE FOLLOWING:
o THE DIFFERENCE BETWEEN THE IMPLIED NUMBER OF SHARES AND THE
AMOUNT DISCLOSED ON PAGE 49, AND
o THE DIFFERENCE BETWEEN THE PURCHASE PRICE DISCLOSED IN NOTE 5
OF $.39 PER SHARE AND THE $.19 PER SHARE DISCLOSED ON PAGE 49.
INCLUDE ANY APPLICABLE ACCOUNTING LITERATURE YOU USED TO SUPPORT
YOUR RESPONSE.
Response: There were a total of 128,751 "Founders" shares issued at
$.39 per share. Of these shares, 10,729 shares were purchased by the
Company's management. In accordance with Statement of Financial
Accounting Standard No. 123, the difference between the determined
stock value of $10 per share and the actual price per share of $.39
was recorded as compensation expense (($10 - $.39)*10,729 shares =
$103,106).
The shares and the price per share on page 57 take into account the
2.744 for 1 stock split. Also, the number of shares on page 57
includes all of the "Founders" shares, not just the shares purchased
by management.
Total "Founders" shares = 128,751 * 2.744 = 353,345 (rounded), as
reported on page 57 Price = $.39 per share / 2.744 = $.14 per share,
as reported on page 57.
We have revised the wording in Note 5 of the Financial Statements to
restate all numbers on a post-split basis.
NOTE 7 - INCOME TAXES, PAGE F-14
33. PLEASE DISCLOSE THE SIGNIFICANT COMPONENTS OF INCOME TAX EXPENSE
ATTRIBUTABLE TO CONTINUING OPERATIONS FOR EACH YEAR PRESENTED. SUCH
INFORMATION SHOULD INCLUDE THE AMOUNT OF CURRENT AND DEFERRED TAX
EXPENSE OR BENEFIT, TAX CREDITS OR CARRYFORWARDS AND OTHER
APPLICABLE INFORMATION. REFER TO FAS 109 PARAGRAPH 45 FOR FURTHER
GUIDANCE.
H. Roger Schwall
Securities and Exchange Commission
June 1, 2005
RESPONSE: The significant components of tax expense are presented on
the Statements of Income on page F-4. None of the items identified
in paragraph 45 of SFAS No. 109 are present for any of the years
presented.
We acknowledge receipt of your oral comment on May 20, 2005, relating to
the discrepancy in the price of founder stock referenced in the section
entitled "Certain Relationships and Related Party Transactions" and Part
II - Item 15 and refer you to our response to comment 32. We have revised
the disclosure to clarify the impact of the stock split on the price of
our common stock.
* * *
If you require any additional information on these issues, or if we can provide
you with any other information which will facilitate your continued review of
these filings, please advise us at your earliest convenience. You may reach me
at 312-602-5025, C. Brendan Johnson at 314-259-2438, or Brian Feezel at
314-259-2467, or any of us by fax at 314-259-2020.
Very truly yours,
/s/ Donald Figliulo
Donald Figliulo
cc: Mark Wojciechowski
Mellissa Campbell Duru
April Sifford
Timothy Levenberg
Securities and Exchange Commission
Keith Schroeder
Orchids Paper Products Company
Jim Taylor
Tullius Taylor Sartain & Sartain LLP