Pope Talbot (NYSE:POP)
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Pope & Talbot, Inc. (NYSE:POP) today reported a net loss
of $12.9 million, or $0.79 per share for the three months ended March
31, 2006, a decrease of $12.3 million, or $0.75 per share, when
compared with a net loss of $0.6 million, or $0.04 per share, reported
for the same period in 2005 and an improvement of $20.7 million, or
$1.28 per share, over the fourth quarter of 2005. Revenues were $223.0
million for the quarter compared to $207.2 million for the first
quarter of 2005, and earnings before interest, taxes, depreciation and
amortization (EBITDA) decreased to $3.2 million compared with $12.9
million one year ago. EBITDA for the first quarter of 2006 increased
$9.1 million compared to negative $6.0 million in the fourth quarter
of 2005.
The year-over-year decline was driven primarily by market price
decreases in the Company's lumber and pulp divisions, and the
weakening U.S. dollar. The Canadian to U.S. dollar average exchange
rate of $0.87 in the first quarter of 2006 was six percent higher than
the first quarter of 2005 rate of $0.82 and two percent higher then
the $0.85 rate in the fourth quarter of 2005. The Company estimates
that the change in the Canadian to U.S. dollar exchange rate increased
first quarter 2006 reported cost of goods sold by approximately $8.6
million, as compared with the first quarter of 2005 and $2.0 million
as compared with the fourth quarter of 2005. Import duty deposits on
Canadian softwood lumber totaled $5.8 million in the first quarter of
2006, compared with $8.5 million in the same quarter of 2005 and $8.3
million in the fourth quarter of 2005. The decrease in duties paid
primarily reflected the decrease in duty deposit rates from a combined
rate of 20.15 percent to 10.8 percent.
On April 27, 2006, the governments of Canada and the U.S.
announced a framework of basic terms for a definitive agreement
resolving the softwood lumber dispute. Upon the effectiveness of the
expected agreement, the U.S. will stop collecting cash deposits of the
softwood lumber duties and refund to Canadian lumber producers
approximately 80 percent of the cash deposits of duties made since
2002, and Canada will impose a new system of export charges on
softwood lumber exported to the U.S. Accordingly, upon the
effectiveness of the agreement, the Company will become entitled to a
pre-tax refund of approximately $103 million based on duties incurred
through March 31, 2006.
"We are extremely pleased with the framework for resolution of the
Softwood Lumber Trade Dispute," stated Michael Flannery, Chairman and
Chief Executive Officer. "While it doesn't resolve all of the
Company's ongoing challenges, the positive impacts on Pope & Talbot's
earnings, EBITDA and capitalization are significant and position the
Company for additional improvements."
Pulp
Pope & Talbot's first quarter pulp sales volume decreased one
percent to 207,100 metric tons, with pulp sales revenues decreasing
four percent to $110.8 million, as compared with the first quarter of
2005. The average price realized per metric ton sold during the
quarter decreased three percent to $535 from $551 in the first quarter
of 2005. The first quarter 2006 pricing represented a three percent
increase from the fourth quarter 2005 average price realization of
$517 per metric ton.
In the first quarter of 2006, pulp cost of goods sold decreased
$0.5 million, or one percent. The Company estimates that the increase
in the average daily Canadian to U.S. dollar exchange rate resulted in
an approximately $4.3 million, or four percent, increase in pulp cost
of sales. Excluding the foreign exchange impacts, cost of goods sold
declined three percent compared with the first quarter of 2005,
primarily as a result of lower fiber costs and lower sales volume.
Wood products
Pope & Talbot's first quarter 2006 lumber sales volume increased
32 percent to 244.0 million board feet, with wood products sales
revenues increasing 22 percent to $112.2 million, as compared with the
first quarter of 2005. The average price realized per thousand board
feet sold during the quarter decreased seven percent to $407 from $438
in the first quarter of 2005. First quarter 2006 pricing represented a
four percent improvement relative to fourth quarter 2005 average price
realization of $391 per thousand board feet.
In the first quarter 2006, wood products cost of goods sold
increased $26.4 million or 32 percent. These cost increases are
largely attributable to the addition of Fort St. James and the
associated 32 percent increase in sales volume. Foreign currency
exchange driven cost increases of approximately $4.3 million, or a
four percent increase in average cost per thousand board feet,
compared with the first quarter of 2005 were offset by a decrease in
lumber import duty deposits of $2.7 million, or a five percent
decrease in average cost per thousand board feet.
Selling, General & Administration
Selling, general and administrative expenses (SG&A) for the first
quarter of 2006 totaled $9.8 million compared with $8.6 million in the
same period of 2005 and $11.9 million in the fourth quarter of 2005.
SG&A expenses in the first quarter of 2006 were $1.2 million higher
than the same period a year ago, primarily due to $0.7 million in
increased costs associated with financial consultants, $0.3 million in
increased costs for legal services and $0.2 million in increased costs
associated with the Company's sale of accounts receivable under its
Receivable Purchase Agreement. SG&A expenses decreased $2.1 million
compared with the fourth quarter of 2005. Included in the fourth
quarter of 2005 was the benefit of a $0.8 million reversal of a
portion of the environmental reserves associated with a former sawmill
location due to an update of cost estimates. After adjusting for this
benefit, SG&A expenses decreased $2.9 million. The reduction in
expense is primarily due to a decrease of $1.4 million in costs
associated with obtaining lease amendments and debt covenant waivers,
a decrease of $0.8 million in cash management and other financial
consulting fees, and a decrease of $0.3 million related to
Sarbanes-Oxley compliance consulting.
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Selected Statistics
First Quarter Fourth Quarter
--------------------- ---------------
2006 2005 2005
---------- -------- ------------
Sales Volumes (thousands):
Pulp (metric tons) 207,100 209,100 235,200
Lumber (thousand board feet) 244,000 185,000 238,500
Production Volumes (thousands):
Pulp (metric tons) 209,700 203,000 217,900
Lumber (thousand board feet) 253,100 185,200 226,300
Average Price Realizations: (A)
Pulp (metric tons) $ 535 $ 551 $ 517
Lumber (thousand board feet) $ 407 $ 438 $ 391
Notes:
(A) Gross invoice price less trade discounts.
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Capital
In the first quarter of 2006, Pope & Talbot's capital expenditures
were $6.5 million and depreciation and amortization was $10.4 million.
At the end of the quarter, total debt was $330.9 million, a decrease
of $1.1 million from year-end 2005, and shareholders equity was $99.8
million, a decrease of $12.2 million from year-end 2005. On March 31,
2006, the ratio of long-term debt to total capitalization was 77
percent, up from 75 percent at year-end 2005.
Due to the recent increase in the Canadian to U.S. dollar exchange
rate to over $0.90, the Company is uncertain about whether it will be
in compliance with the minimum interest coverage covenant under its
Canadian revolving credit facility at June 30, 2006. To address this
issue and its other previously disclosed refinancing and financial
covenant compliance issues, the Company has substantially completed
the negotiation and documentation of a new $300 million revolving
credit and term loan facility with certain institutional lenders to
refinance its Halsey pulp mill leases, its existing Canadian and U.S.
revolving credit facilities and its receivable sales arrangement. This
transaction is awaiting a tax ruling from the Canadian Revenue Agency
and, subject to receipt of a favorable ruling, is expected to close in
the second quarter of 2006.
Pope & Talbot, Inc. will be holding a conference call on
Wednesday, May 10, 2006, at 10:00 a.m. PDT (1:00 p.m. EDT.) The
call-in number is 416-695-7806, passcode: 619705#. The conference call
will also be webcast simultaneously on the Company's website:
www.poptal.com.
Statements in this press release or in other Company
communications may relate to future events or the Company's future
performance. Such statements are forward-looking statements and are
based on present information the Company has related to its existing
business circumstances. Investors are cautioned that such
forward-looking statements are subject to an inherent risk that actual
results may differ materially from such forward-looking statements.
Further, investors are cautioned that the Company does not assume any
obligation to update forward-looking statements based on unanticipated
events or changed expectations.
The above statement that the Company expects to complete the new
credit facility in the second quarter of 2006 is a forward-looking
statement that is subject to the inherent uncertainty of completion of
any transaction for which the agreement has not been signed and
closing conditions have not been satisfied. Accordingly, the Company
cannot guarantee that it will be successful in completing the new
credit facility or that the terms will not change prior to completion.
The Company's financial performance depends on operating
efficiencies and the prices it receives for its products, as well as
other factors such as foreign exchange fluctuations. Prices for the
Company's products are highly cyclical and have fluctuated
significantly in the past and may fluctuate significantly in the
future. A deterioration in pricing may result in the Company taking
downtime or other unanticipated actions at its manufacturing
facilities. The Company's sensitivity to these and other factors that
may affect future results are discussed in the Company's Annual Report
on Form 10-K and Quarterly Reports on Form 10-Q.
Pope & Talbot considers net income or loss before interest, income
taxes, depreciation and amortization ("EBITDA") to be a relevant and
meaningful indicator of earnings performance commonly used by
investors, financial analysts and others in evaluating companies in
its industry and, as such, has included this non-GAAP financial
measure in its public statements.
Pope & Talbot is dedicated to the pulp and wood products
businesses. The Company is based in Portland, Oregon and trades on the
New York and Pacific stock exchanges under the symbol POP. Pope &
Talbot was founded in 1849 and produces pulp and softwood lumber in
the U.S. and Canada. Markets for the Company's products include: the
U.S.; Europe; Canada; South America; Japan; and other Pacific Rim
countries. For more information on Pope & Talbot, Inc., please check
the website: www.poptal.com.
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POPE & TALBOT, INC. AND SUBSIDIARIES
(Thousands except per share, unaudited)
CONSOLIDATED STATEMENTS OF INCOME
First Quarter Fourth
------------------- Quarter
2006 2005 2005
-------- -------- --------
Revenues:
Pulp $110,840 $115,202 $121,699
Wood Products
Lumber 99,234 80,997 93,286
Chips, logs and other 12,937 11,011 11,821
-------- -------- --------
Total Wood Products 112,171 92,008 105,107
-------- -------- --------
Total revenues 223,011 207,210 226,806
-------- -------- --------
Costs and expenses:
Pulp cost of sales 110,705 111,251 125,975
Wood Products cost of sales 109,730 83,379 108,790
Gain on timber take-back - - (3,451)
Selling, general and administrative 9,766 8,622 11,860
-------- -------- --------
Operating income (loss) (7,190) 3,958 (16,368)
Interest expense, net 6,240 5,135 5,780
-------- -------- --------
Loss before income taxes (13,430) (1,177) (22,148)
Income tax provision (benefit) (527) (532) 11,406
-------- -------- --------
Net loss $(12,903) $ (645) $(33,554)
======== ======== ========
Net loss per common share - basic and
diluted $ (0.79) $ (0.04) $ (2.07)
======== ======== ========
Average shares outstanding - basic and
diluted 16,236 16,157 16,227
======== ======== ========
CONSOLIDATED BALANCE SHEETS
March 31,
------------------- Dec. 31,
2006 2005 2005
-------- -------- --------
Assets:
Current assets $220,350 $217,352 $218,049
Properties, net 382,875 337,123 386,401
Deferred charge 7,373 - 7,562
Other assets 19,012 19,172 18,641
-------- -------- --------
Total assets $629,610 $573,647 $630,653
======== ======== ========
Liabilities and stockholders' equity:
Current portion of long-term debt $ 60,269 $ 6,673 $ 63,800
Other current liabilities 116,529 96,520 105,363
Long-term debt, excluding current
portion 270,662 246,600 268,200
Deferred income tax liability, net 8,610 974 9,042
Other long-term liabilities 73,703 62,801 72,216
-------- -------- --------
Total liabilities 529,773 413,568 518,621
Stockholders' equity 99,837 160,079 112,032
-------- -------- --------
Total liabilities and stockholder's
equity $629,610 $573,647 $630,653
======== ======== ========
Long-term debt to total capitalization 77% 61% 75%
======== ======== ========
SEGMENT INFORMATION
First Quarter Fourth
------------------- Quarter
2006 2005 2005
-------- -------- --------
EBITDA: (A)
Pulp $ 4,401 $ 7,812 $ (496)
Wood Products 3,797 9,131 (2,065)
Gain on timber take-back - - 3,451
General Corporate (5,016) (4,085) (6,850)
-------- -------- --------
3,182 12,858 (5,960)
-------- -------- --------
Depreciation and amortization:
Pulp $ 7,167 $ 6,577 $ 6,925
Wood Products 2,985 1,946 3,117
General Corporate 220 377 366
-------- -------- --------
10,372 8,900 10,408
-------- -------- --------
Operating income (loss):
Pulp $ (2,766) $ 1,235 $ (7,421)
Wood Products 812 7,185 (5,182)
Gain on timber take-back - - 3,451
General Corporate (5,236) (4,462) (7,216)
-------- -------- --------
Operating income (loss) $ (7,190) $ 3,958 $(16,368)
======== ======== ========
Additional Information:
Lumber import duties $ 5,800 $ 8,500 $ 8,300
Capital expenditures 6,539 8,345 11,811
Notes:
(A) EBITDA equals net loss before income taxes and net interest
expense, plus depreciation and amortization, and is reconcilable
to the Company's net loss using the depreciation and amortization,
net interest expense and income tax benefit numbers in the above
table. The Company uses EBITDA to evaluate the operating
performance of its business on a consolidated basis and for each
of its operating segments. The Company considers EBITDA to be a
relevant and meaningful indicator of earnings performance commonly
used by investors, financial analysts and others, in addition to
and not in lieu of generally accepted accounting principles (GAAP)
results, to evaluate companies in its industry. EBITDA is not a
measure of liquidity under GAAP and should not be considered as an
alternative to cash flow from operating activities.
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