Pope Talbot (NYSE:POP)
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Pope & Talbot, Inc. (NYSE:POP):
Financial Highlights for First Quarter of
2007:
First quarter 2007 net loss widens to $1.15 per share from $0.49 in
first quarter of 2006
Wood Products average cost of lumber per board feet sold decreased
from the fourth quarter of 2006, after adjusting for effect of
one-time lumber import duty refund
Pulp revenues of $114.6 million increased 3 percent from the first
quarter of 2006
Pulp production of 182,800 tons decreased 13 percent and 10 percent
from the first and fourth quarters of 2006, respectively
Pope & Talbot, Inc. (NYSE:POP) today reported a net loss of $18.6
million for the first quarter of 2007 compared with a net loss of $8.0
million for the first quarter of 2006. The net loss for the first
quarter of 2007 was $1.15 per share on 16.3 million shares, compared
with a net loss of $0.49 per share for the first quarter of 2006 on 16.2
million shares. Revenues were $200.5 million for the first quarter of
2007 compared with $223.0 million for first quarter of 2006. For the
fourth quarter of 2006, the Company earned $88.1 million or $5.41 per
share on revenues of $190.0 million. The fourth quarter results reflect
non-recurring lumber import duty refunds of $113.3 million of which
$12.1 million related to duties expensed in 2006 and recorded as a
reduction to Wood Products cost of sales, and interest income of $14.2
million earned on the duty refunds. As a result of the Company’s
adoption of a recently issued accounting pronouncement for planned major
maintenance activities, the first quarter 2006 net loss is lower by $4.9
million and fourth quarter 2006 net income is higher by $5.2 million
than amounts previously reported.
The Company’s operating performance declined
in the first quarter of 2007 compared to both the first and fourth
quarters of 2006. In the first quarter of 2007, the Company’s
operating loss was $14.7 million and earnings before interest, taxes,
depreciation and amortization (EBITDA) were negative $4.4 million, as
compared with an operating loss of $2.8 million and EBITDA of $8.1
million for the first quarter of 2006. For the fourth quarter of 2006,
operating income was $98.5 million and EBITDA was $108.9 million.
Excluding the effects of the lumber import duty refunds, the fourth
quarter operating loss was $11.1 million and EBITDA was negative $0.7
million. The decrease in operating performance reflects lower
contributions from both the pulp and wood products divisions, partially
offset by a decrease in selling general and administrative (SG&A)
expenses.
The Company was in compliance with the covenants of its senior secured
credit agreement as of March 31, 2007. EBITDA, as defined under this
agreement, was $32.4 million for the four quarters ended March 31, 2007.
Until lumber market conditions improve, the Company will continue to be
challenged by low lumber prices in the Wood Products business and raw
material cost and availability issues in the Pulp business. Moreover,
expenses in the second quarter of 2007 will include the cost of the
planned annual maintenance shutdown of the Company’s
Nanaimo pulp mill, estimated to be approximately $10.0 million, whereas
the first quarter of 2007 Halsey pulp mill maintenance shutdown expense
was $3.0 million. Second quarter EBITDA will be further adversely
affected by a mechanical failure in the Kamyr digester at the Mackenzie
pulp mill in April 2007 that resulted in 14 days of lost production.
Accordingly, based on current estimates, the Company does not expect
sufficient second quarter EBITDA to remain in compliance with the EBITDA
covenant for the four-quarter period ended June 30, 2007. Further, the
Company believes it is unlikely to be in compliance with the EBITDA
covenant for the periods ending September 30, 2007 and December 31,
2007. The Company is currently engaged in discussions with its senior
lenders regarding the issuance of an amendment or waiver of this
covenant for the applicable periods.
“While the operational results for this
quarter represent a significant setback, they underscore the necessity
of focusing our near-term efforts on repositioning the company to
weather the downturn,” said Harold Stanton,
President and Chief Executive Officer. “With
the support of our senior lenders, we should be able to endure the
challenges of the current market environment.”
Selected Statistics
First Quarter
Fourth Quarter
2006
2007
2006
Sales Volumes (thousands):
Pulp (metric tons)
174,500
207,100
177,800
Lumber (thousand board feet)
209,100
244,000
187,600
Production Volumes (thousands):
Pulp (metric tons)
182,800
209,700
202,600
Lumber (thousand board feet)
239,200
253,100
208,600
Average Price Realizations: (A)
Pulp (metric tons)
$
657
$
535
$
644
Lumber (thousand board feet)
$
320
$
407
$
328
Notes:
(A) Gross invoice price less trade discounts.
Pulp
Pope & Talbot’s first quarter revenues
for Pulp increased 3 percent to $114.6 million, compared with the same
period a year ago due to an increase in average price realized,
partially offset by a decrease in tons shipped of 16 percent. Shipments
for the first quarter of 2007 and 2006 were 174,500 metric tons and
207,100 metric tons, respectively. The reduction in shipments was
primarily due to lower production for the current quarter combined with
transportation issues arising from the Canadian National Railway strike.
The first quarter of 2007 revenues were comparable to fourth quarter of
2006 revenues of $114.5 million.
Pulp generated an operating loss of $1.7 million for the first quarter
of 2007, as compared with operating income of $1.8 million and $9.2
million for the first and fourth quarters of 2006, respectively. EBITDA
for the first quarter of 2007 decreased to $5.0 million from $9.0
million and $16.4 million for the first and fourth quarters of 2006,
respectively. The reduction in contribution was primarily due to a
significant increase in fiber costs and reduced production caused by
fiber availability and quality issues as well as the planned maintenance
shutdown of the Halsey pulp mill during the quarter. Fiber availability
and quality have been severely impacted particularly by the steady
decline of lumber prices in 2006 and lack of price recovery during the
current year, causing some U.S. and Canadian sawmills to curtail or
cease production. Pulp segment results for the first and fourth quarters
of 2006 were increased by $4.9 million and $5.2 million, respectively,
as compared with previously reported results, to reflect the Company’s
adoption of a recently issued accounting pronouncement for planned major
maintenance activities.
Pulp production totaled 182,800 metric tons in the first quarter of
2007, compared with 209,700 and 202,600 metric tons in the first and
fourth quarters of 2006, respectively. In the first quarter of 2007, the
Company’s Halsey pulp mill took 20 days of
downtime for its planned maintenance outage, resulting in a reduction of
approximately 11,000 metric tons produced. The Company estimates that
approximately 10,000 metric tons of production was lost at its Canadian
pulp mills for the first quarter of 2007 due to wood chip and sawdust
availability and quality issues.
Wood Products
Pope & Talbot’s first quarter revenues
for Wood Products of $85.9 million decreased 23 percent from the same
period a year ago, primarily due to lower average lumber prices, which
decreased 21 percent to $320 per thousand board feet from $407 per
thousand board feet for the first quarter of 2006. Shipments for the
first quarter decreased 14 percent to 209.1 million board feet from
244.0 million in the first quarter of 2006. Wood Product revenues for
the quarter increased by 14 percent compared with the fourth quarter of
2006, primarily due to an increase in shipments of 11 percent up from
187.6 million board feet. Also contributing was an increase in
by-product revenues primarily due to increases in the price and volume
of chips sold stemming from reduced wood chip supply produced by the
rest of the wood products industry.
Wood Products generated an operating loss of $7.8 million for the first
quarter of 2007, as compared with operating income of $0.7 million for
the first quarter of 2006 and an operating loss of $1.1 million for the
fourth quarter of 2006. EBITDA for the first quarter of 2007 was
negative $4.5 million, whereas EBITDA was $3.6 million and $2.3 million
for the first and fourth quarters of 2006, respectively. The reduction
in contribution from a year ago was primarily due to a decrease in
average sales price realized caused by the slump in demand for lumber
products. The reduction in contribution from the prior quarter was due
to the impact of a one-time receipt of $12.1 million in lumber import
duty refunds which benefited the segment’s
cost of sales in the prior quarter, partially offset by improved
contribution in the current quarter from the sale of chips and other
by-products.
Since October 12, 2006, the Company’s lumber
shipments to the United States have been subject to a 15% export tax.
The benchmark Prevailing Monthly Price, as established by an average of
the Random Lengths Framing Lumber Composite Index, has been below $315
for the entire period of the export tax.
Lumber production in the first quarter of 2007 decreased 5 percent to
239.2 million board feet from 253.1 million board feet in the same
quarter of 2006. The decrease in production as compared with the first
quarter of 2006 primarily resulted from the planned reduction in Midway’s
operations beginning in the second quarter of 2006, which was partially
offset by a shift in production to the Grand Forks sawmill. As compared
with the fourth quarter production of 208.6 million board feet,
production increased 15 percent primarily resulting from the return to
normal operations for most of the mills after taking extended holiday
downtime during the fourth quarter.
Selling, General & Administrative
SG&A expenses for the first quarter of 2007 decreased 3 percent to $9.5
million from $9.8 million in the same period of 2006, primarily due to a
decrease in costs associated with financial consultants and legal
services, and fees associated with certain financing arrangements that
were terminated in June 2006, offset by an increase in audit and
relocation fees, uninsured losses and insurance costs. SG&A expenses
decreased $7.3 million compared with the fourth quarter of 2006.
Included in the fourth quarter of 2006 was a $4.5 million increase in
environmental reserves associated with two former sawmill locations and
an increase of $3.2 million in employee incentive plan costs. After
adjusting for these items, SG&A expenses increased by $0.4 million due
to the factors discussed above.
Capital
In the first quarter of 2007, Pope & Talbot’s
capital expenditures were $5.2 million and depreciation and amortization
was $10.1 million. Under the terms of its credit agreement, the Company’s
capital spending limit for 2007 is $32.8 million.
At March 31, 2007, total debt was $344.0 million, an increase of $23.0
million from December 31, 2006. The increase in total debt primarily
reflects the Company’s build up of raw
material and finished goods inventories for both operating segments. At
March 31, 2007, the ratio of long-term debt to total capitalization was
77 percent, up from 73 percent at December 31, 2006.
As of March 31, 2007, the Company had net working capital of $172.5
million, including cash and cash equivalents of $0.9 million, as
compared with net working capital of $155.8 million and cash and cash
equivalents of $19.1 million at December 31, 2006. At March 31, 2007,
the Company was utilizing $23.5 million of its $75 million revolving
facility for cash borrowings and $16.4 million for letters of credit,
leaving $35.1 million of total revolver availability for further cash
borrowings.
“Seasonal inventory build up due to the
upcoming break-up period is normal and can be expected; however, this
situation was amplified by our need to secure sufficient raw materials
for our pulp mills, unfortunately at higher costs, and by the CN rail
strike, which caused a deferral of shipments and corresponding increases
in finished good inventories,” said Stanton. “We
are currently in the process of working down these inventories, which
should improve our liquidity position in due course.”
Pope & Talbot, Inc. will be holding a conference call on Friday, May 11,
2007, at 10:00 a.m. PDT (1:00 p.m. ET.) The call-in number is
706-645-9773 Conference ID: 8523145. 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 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 decrease 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 is a pulp and wood products company. The Company is based
in Portland, Oregon and trades on the New York stock exchange under the
symbol POP. Pope & Talbot was founded in 1849 and produces market pulp
and softwood lumber at mills in the U.S. and Canada. Markets for the
Company's products include the U.S., Europe, Canada, South America, and
the Pacific Rim. For more information on Pope & Talbot, Inc., please
check our website at www.poptal.com.
POPE & TALBOT, INC. AND SUBSIDIARIES
(Thousands except per share, unaudited)
CONSOLIDATED STATEMENTS OF INCOME
First Quarter
Fourth Quarter
2006 (1)
2007
2006 (1)
Revenues:
Pulp
$
114,604
$
110,840
$
114,494
Wood Products
Lumber
66,982
99,234
61,607
Chips, logs and other
18,875
12,937
13,884
Total Wood Products
85,857
112,171
75,491
Total revenues
200,461
223,011
189,985
Costs and expenses:
Pulp cost of sales
113,279
106,148
101,660
Wood Products cost of sales
92,379
109,885
74,185
Lumber duty refund for prior years
-
-
(101,209)
Selling, general and administrative
9,473
9,766
16,831
Operating income (loss)
(14,670)
(2,788)
98,518
Interest expense
(10,112)
(6,293)
(11,459)
Interest income
467
53
14,716
Other income (loss)
154
481
(332)
Income (loss) before income taxes
(24,161)
(8,547)
101,443
Income tax expense (benefit)
(5,534)
(527)
13,350
Net income (loss)
$
(18,627)
$
(8,020)
$
88,093
Net income (loss) per common share - basic and diluted
$
(1.15)
$
(0.49)
$
5.41
Average shares outstanding - basic and diluted
16,268
16,236
16,270
CONSOLIDATED BALANCE SHEETS
March 31,
December 31,2006
2007
2006 (1)
Assets:
Current assets
$
298,848
$
220,350
$
258,336
Properties, net
367,396
382,875
371,806
Deferred charge
6,596
7,373
6,847
Other assets
24,145
19,012
25,030
Total assets
$
696,985
$
629,610
$
662,019
Liabilities and stockholders' equity:
Current portion of long-term debt
$
476
$
60,269
$
474
Other current liabilities
125,894
111,674
102,030
Long-term debt, excluding current portion
343,570
270,662
320,476
Deferred income tax liability, net
20,628
8,610
15,689
Other long-term liabilities
103,782
73,703
102,925
Total liabilities
594,350
524,918
541,594
Stockholders' equity
102,635
104,692
120,425
Total liabilities and stockholder's equity
$
696,985
$
629,610
$
662,019
Long-term debt to total capitalization
77%
76%
73%
Note 1 - Recast from amounts previously reported due to the
Company's adoption of a recently issued accounting pronouncement
for planned major maintenance activities.
SEGMENT INFORMATION
First Quarter
Fourth Quarter
2006
2007
2006
EBITDA: (A)
Pulp
$
4,956
$
8,958
$
16,399
Wood Products
(4,537)
3,642
2,281
Lumber duty refund for prior years
-
-
101,209
General Corporate
(4,850)
(4,535)
(11,020)
(4,431)
8,065
108,869
Depreciation and amortization:
Pulp
$
6,677
$
7,167
$
7,152
Wood Products
3,214
2,985
3,334
General Corporate
194
220
197
10,085
10,372
10,683
Operating income (loss):
Pulp
$
(1,721)
$
1,791
$
9,247
Wood Products
(7,751)
657
(1,053)
Lumber duty refund for prior years
-
-
101,209
General Corporate
(5,198)
(5,236)
(10,885)
Operating income (loss)
$
(14,670)
$
(2,788)
$
98,518
Additional Information:
Lumber import duties (refunds)
$
-
$
5,800
$
(12,100)
Lumber export taxes
5,000
-
3,200
Capital expenditures
5,197
6,539
5,794
Notes:
(A)
EBITDA equals net income (loss) before net interest expense,
income tax provision (benefit) and depreciation and amortization.
Segment EBITDA equals operating income (loss) before segment
depreciation and amortization. EBITDA is a measure used by the
Company's chief operating decision makers to evaluate operating
performance on both a consolidated and segment-by-segment basis.
The Company believes EBITDA is useful to investors because it
provides a means to evaluate the operating performance of the
Company and its segments on an ongoing basis using criteria that
are used by the Company's internal decision makers and because it
is frequently used by investors and other interested parties in
the evaluation of companies with substantial financial leverage.
The Company believes EBITDA is a meaningful measure because it
presents a transparent view of the Company's recurring operating
performance and allows management to readily view operating
trends, perform analytical comparisons, and identify strategies to
improve operating performance. For example, the Company believes
that excluding items such as taxes and net interest expense
enhances management's ability to assess and view the core
operating trends in its segments. EBITDA is not a measure of the
Company's liquidity or financial performance under generally
accepted accounting principles (GAAP) and should not be considered
as an alternative to net income (loss), income (loss) from
operations, or any other performance measure derived in accordance
with GAAP or as an alternative to cash flow from operating
activities as a measure of the Company's liquidity. The use of
EBITDA instead of net income (loss) or segment income (loss) has
limitations as an analytical tool, including the inability to
determine profitability; the exclusion of net interest expense and
associated significant cash requirements, given the level of the
Company's indebtedness; and the exclusion of depreciation and
amortization which represent significant and unavoidable operating
costs, given the capital expenditures needed to maintain the
Company's businesses. Management compensates for these limitations
by relying on GAAP results. The Company's measures of EBITDA are
not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the methods of
calculation.
The following table reconciles net income (loss) to EBITDA for the
periods indicated:
First Quarter
Fourth Quarter
2006
2007
2006
(thousands)
Net income (loss)
$
(18,627)
$
(8,020)
$
88,093
Interest expense (income), net
9,645
6,240
(3,257)
Income tax provision (benefit)
(5,534)
(527)
13,350
Depreciation and amortization
10,085
10,372
10,683
EBITDA
$
(4,431)
$
8,065
$
108,869
The following table reconciles operating income (loss) to EBITDA for
each of the Company's Pulp and Wood Products operating segments:
First Quarter
Fourth Quarter
2006
2007
2006
Pulp
(thousands)
Operating income
$
(1,721)
$
1,791
$
9,247
Depreciation and amortization
6,677
7,167
7,152
EBITDA
$
4,956
$
8,958
$
16,399
Wood Products
Operating income (loss)
$
(7,751)
$
657
$
(1,053)
Depreciation and amortization
3,214
2,985
3,334
EBITDA
$
(4,537)
$
3,642
$
2,281
The Company's senior secured credit agreement subjects the Company
to a financial covenant based on EBITDA. EBITDA is defined
differently in the credit agreement and requires additional
adjustments, among other items, to (i) eliminate any refunds of
prior years lumber import duties, (ii) include income tax benefits
recognized in any quarter, and (iii) exclude certain other
non-cash income and expense items. EBITDA as defined in the credit
agreement was $32.4 million for the four-quarter period ended
March 31, 2007. The following table reconciles net income to
credit agreement EBITDA for the four quarters ended March 31, 2007:
Four Quarters
Ended
March 31, 2007
(thousands)
Net income
$
34,712
Interest expense, net
25,319
Loss on extinguishment of debt
4,910
Income tax provision (benefit)
6,291
Add back: quarterly income tax benefits recognized
7,059
Depreciation and amortization
41,873
Lumber duty refunds for prior years
(101,209)
Refund of lumber import duties paid in first quarter of 2006
(4,819)
Other non-cash income and expenses:
Net periodic benefit costs for pension and postretirement plans, net
of benefits paid and cash contributions
4,477
Net unrealized foreign exchange gains recognized in earnings
3,715
Environmental accruals
4,536
Inventory write downs, net
4,253
Stock compensation and other
1,234
Credit agreement EBITDA
$
32,351
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT & RECLASSIFICATIONS
In January 2007, the Company changed its method of accounting for
planned major maintenance from the previously accepted method of
allocating the cost over interim periods in the year in which they
were incurred to the expense as incurred method. As required by
GAAP, the Company has retrospectively applied the expense as
incurred method to its 2006 income statement and segment operating
results for interim periods. Additionally in January, the Company
began presenting foreign currency transaction and remeasurement
gains (losses) in non-operating income and expense. In prior
periods, the Company had presented these items in cost of sales.
The Company has reclassified the prior periods to be consistent
with this presentation. The effect of these changes is summarized
as follows:
Operating Income (Loss)
Net Income (Loss)
Earnings (Loss) Per
Basic & Diluted Share
As
Previously
Reported
After Retrospective
Application
As
Previously
Reported
After Retrospective
Application
As
Previously
Reported
After Retrospective
Application
(thousands except per share)
2006
First Quarter
$
(7,190)
$
(2,788)
$
(12,903)
$
(8,020)
$
(0.79)
$
(0.49)
Second Quarter
(3,379)
(10,474)
(14,508)
(21,825)
(0.89)
(1.35)
Third Quarter
1,026
(1,742)
(10,161)
(12,929)
(0.62)
(0.79)
Fourth Quarter
92,984
98,518
82,891
88,093
5.09
5.41
Pulp - Operating
Income (Loss)
Wood Products -
Operating Income (Loss)
As
Previously
Reported
After Retrospective
Application
As
Previously
Reported
After Retrospective
Application
(thousands)
2006
First Quarter
$
(2,766)
$
1,791
$
812
$
657
Second Quarter
3,967
(2,331)
(2,456)
(3,253)
Third Quarter
13,105
9,515
(7,620)
(6,798)
Fourth Quarter
3,879
9,247
(1,219)
(1,053)
FOURTH QUARTER RESULTS ADJUSTED TO EXCLUDE LUMBER DUTY REFUNDS
Adjusted operating income for the fourth quarter of 2006 equals
operating income excluding the non-recurring lumber duty refunds
received in the fourth quarter and costs that resulted from the
receipt of those refunds (principally incentive compensation
resulting from achieving the Company's return on equity goal for
the year). Adjusted EBITDA equals EBITDA (as described previously)
excluding the same refunds and costs. The Company believes that
Adjusted operating income and Adjusted EBITDA are meaningful
measures for investors because the lumber import duty refunds had
a very significant one-time impact that obscures the Company's
recurring operating performance.
The following table reconciles actual operating income to adjusted
operating loss for the fourth quarter of 2006:
Fourth Quarter 2006
(thousands)
Operating income
$ 98,518
Current year lumber duty refund in cost of sales
(12,123)
Lumber duty refund for prior years
(101,209)
Incentive compensation earned due to lumber duty refund
3,298
Other cost of sales related to lumber duty refund
422
Adjusted operating loss
$ (11,094)
The following table reconciles net income to Adjusted EBITDA for the
fourth quarter of 2006:
Fourth Quarter 2006
(thousands)
Net income
$ 88,093
Interest income, net
(3,257)
Income tax provision
13,350
Depreciation and amortization
10,683
Current year lumber duty refund in cost of sales
(12,123)
Lumber duty refund for prior years
(101,209)
Incentive compensation earned due to lumber duty refund
3,298
Other cost of sales related to lumber duty refund
422
Adjusted EBITDA
$ (743)