Pope Talbot (NYSE:POP)
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Pope & Talbot, Inc. (NYSE:POP):
Third Quarter 2006 Highlights:
Operating income of $1.0 million, an improvement of $12.5 million
compared with the third quarter of 2005
Pulp sales prices realized of $630 per metric ton, up 23% from the
third quarter of 2005
EBITDA of $11.7 million, increasing by $4.6 million from the second
quarter 2006
Lumber sales prices realized of $368 per thousand board feet, down 6%
from the second quarter of 2006
Pope & Talbot, Inc. (NYSE:POP) today reported a net loss of $10.2
million for the three months ended September 30, 2006, compared with a
net loss of $8.8 million reported for the same period in 2005 and a net
loss of $14.5 million for the second quarter of 2006. The loss for the
third quarter was $0.62 per share on 16.3 million shares, compared with
a loss of $0.54 per share for the third quarter of 2005 and a loss of
$0.89 per share for the second quarter of 2006 on 16.2 million shares
for both periods. Revenues were $214.6 million for the quarter compared
with $212.7 million for the third quarter of 2005, and earnings before
interest, taxes, depreciation and amortization (EBITDA) increased by
$13.5 million to $11.7 million compared with negative EBITDA of $1.8
million one year ago. As compared with the second quarter of 2006,
EBITDA for the third quarter of 2006 increased $4.6 million from $7.1
million. Net interest expense was $12.0 million for the quarter,
increasing from $5.5 million for the third quarter of 2005 and $6.9
million for the second quarter of 2006.
The Company’s operating income and EBITDA
improved in the third quarter of 2006 compared with both the third
quarter of 2005 and the second quarter of 2006. The Company’s
operating income of $1.0 million for the three months ended September
30, 2006, was an improvement of $12.5 million over an operating loss of
$11.5 million for the same period in 2005. As compared with the second
quarter of 2006, operating income increased $4.4 million from an
operating loss of $3.4 million. Increased pulp revenues from higher pulp
prices, lower lumber duty rates and reductions in selling, general and
administration expense during the third quarter of 2006 contributed to
the favorable operating results compared with the same period in 2005.
These factors were partially offset by the weaker U.S. dollar and
declining lumber prices. As compared with the second quarter of 2006,
operating income was favorably impacted by the Company’s
pulp price increases, but was partially offset by the declining lumber
prices and a decrease in shipments for both pulp and lumber products.
The Canadian to U.S. dollar average exchange rate of $0.89 in the third
quarter of 2006 was 7 percent higher than the third quarter of 2005 rate
of $0.83 and unchanged from the rate in the second quarter of 2006. The
Company estimates that the change in the Canadian to U.S. dollar
exchange rate increased third quarter 2006 reported cost of goods sold
by approximately $10.1 million, as compared with the third quarter of
2005. Import duty deposits on Canadian softwood lumber totaled $4.4
million in the third quarter of 2006, compared with $10.4 million in the
same quarter of 2005, reflecting the decrease in duty rates from a year
ago. As compared with the second quarter of 2006, duties paid decreased
by $0.5 million from $4.9 million, primarily due to decreased lumber
revenues.
"On balance, the results from operations reflect improvement and I am
optimistic that the measured progress we have made during this quarter
can be built upon with continued pulp price momentum,”
stated Michael Flannery, Chairman and Chief Executive Officer.
Pulp
Pope & Talbot’s third quarter pulp
revenues increased 20 percent to $125.7 million, with sales volume
decreasing 3 percent to 199,400 metric tons, as compared with the third
quarter of 2005. The average price realized per metric ton sold during
the quarter increased 23 percent to $630 from $512 in the third quarter
of 2005. As compared with the second quarter of 2006, the third quarter
2006 pricing represented a 9 percent increase from $579 per metric ton.
In the third quarter of 2006, cost of sales for the pulp segment
increased $3.0 million, or 3 percent. These cost increases are largely
attributable to the weakening U.S. dollar. The Company estimates that
the increase in the average daily Canadian to U.S. dollar exchange rate
resulted in an approximately $6.3 million, or 6 percent, increase in
pulp cost of sales. Excluding the impact of foreign exchange, cost of
sales on a per ton basis was comparable to the third quarter of 2005;
however, in September 2006, the Mackenzie mill experienced operational
difficulties in the restart of the pulp mill from its planned annual
maintenance shutdown, causing a loss of production of approximately
4,400 tons in the third quarter and an additional 1,800 tons in October
2006. These difficulties, now resolved, increased cost of sales in the
third quarter of 2006 by approximately $1.8 million.
Wood Products
Pope & Talbot’s third quarter wood
products revenues decreased 18 percent to $88.9 million, with lumber
sales volume decreasing 13 percent to 214.4 million board feet as
compared with the third quarter of 2005. The average price realized per
thousand board feet sold during the quarter decreased 6 percent to $368
from $390 in the third quarter of 2005. As compared with the second
quarter of 2006, third quarter 2006 pricing represented a 6 percent
decrease from average price realization of $392 per thousand board feet.
In the third quarter of 2006, cost of sales for the wood products
segment decreased $12.9 million or 12 percent primarily due to a
decrease in shipments and lower duty rates, partially offset by the
weakening U.S. dollar. For the third quarter of 2006, Pope & Talbot
estimates the impact of foreign currency exchange cost increases to be
approximately $3.8 million, or a 4 percent increase in the average cost
per thousand board feet as compared with the third quarter of 2005. This
increase was offset by a decrease in lumber import duty deposits of $6.0
million, or a 5 percent decrease in average cost per thousand board feet.
On October 12, 2006, the Softwood Lumber Agreement (2006 SLA) became
effective and the U.S. stopped collecting cash deposits of lumber import
duties. The Company estimates that it is entitled to duty refunds of
approximately $109 million, with accrued interest, which the Company
estimates will be around $18 million, totaling approximately $127
million. The Company expects to record this amount in earnings upon
final approval of the export charge legislation discussed below. The
Company has assigned its rights to duty refunds to the Canadian
government pursuant to a program designed to accelerate receipt of the
funds, and expects to receive 90 percent of its refunds, approximately
$114 million, from the Canadian government in December 2006, with the
balance to be received in the first quarter of 2007.
Effective with the 2006 SLA, the Company has been paying an export tax
of 15% to the Canadian government on lumber shipments to the United
States since October 12, 2006, and, based on current price levels, the
Company expects to pay export tax at this rate for the remainder of the
fourth quarter. The export tax is subject to passage by the Canadian
Parliament, which is expected to occur in December 2006.
Selling, General & Administration
Selling, general and administrative expenses (SG&A) for the third
quarter of 2006 totaled $9.3 million compared with $10.1 million in the
same period of 2005 and $9.3 million in the second quarter of 2006.
SG&A expenses in the third quarter of 2006 were $0.8 million lower than
the same period a year ago, with a decrease in corporate SG&A costs of
$1.6 million offset by increases of pulp SG&A costs. The decrease in
corporate SG&A costs was primarily due to non-recurring expenses
incurred in 2005 associated with Canadian research and experimentation
tax credits, costs savings during the quarter related to agreements
terminated in June 2006 for the receivable purchase agreement and the
Halsey credit facility and reduced compensation expense. The increase in
pulp SG&A expenses was primarily due to pulp commissions and certain
fringe benefit accruals.
SG&A expenses in the third quarter of 2006 were comparable with the
second quarter of 2006, with increases in pulp SG&A costs, offset by
decreases in corporate SG&A costs. The increase in pulp SG&A costs was
primarily due to pulp commissions and certain fringe benefit accruals.
The decrease in corporate SG&A costs was primarily due to a decrease in
legal and other professional fees and non-recurring costs incurred in
the second quarter associated with the resolution of a sales tax audit.
Net Interest Expense
Net interest expense for the third quarter of 2006 totaled $12.0 million
compared with $5.5 million in the third quarter of 2005 and $6.9 million
in the second quarter of 2006. The increase in interest expense for the
third quarter of 2006 as compared with the corresponding period a year
ago was primarily due to increased interest rates under the Company’s
new credit agreement and increased borrowings. The Company’s
weighted average interest rate on its outstanding debt was 11.7% at
September 30, 2006, compared with 7.4% at September 30, 2005.
Selected Statistics
Third Quarter
Second
Quarter
Nine months ended
September 30,
2006
2005
2006
2006
2005
Sales Volumes:
Pulp (metric tons)
199,400
204,800
200,000
606,500
601,200
Lumber (thousand board feet)
214,400
246,000
225,800
684,200
647,300
Production Volumes:
Pulp (metric tons)
198,500
209,900
189,900
598,100
602,500
Lumber (thousand board feet)
209,500
245,200
212,200
674,800
657,500
Average Price Realizations: (A)
Pulp (metric tons)
$630
$512
$579
$581
$534
Lumber (thousand board feet)
$368
$390
$392
$390
$411
Notes:
(A) Gross invoice price less trade discounts.
Capital
In the third quarter of 2006, Pope & Talbot’s
capital expenditures were $6.5 million and depreciation and amortization
was $10.6 million. At the end of the quarter, total debt was $389.2
million, an increase of $5.2 million from June 30, 2006, and an increase
of $57.2 million from year-end 2005. At September 30, 2006, shareholders
equity was $84.2 million, a decrease of $10.1 million from June 30,
2006, and $27.8 million from year-end 2005. On September 30, 2006, the
ratio of long-term debt to total capitalization was 82 percent, up from
80 percent at June 30, 2006, and 75 percent at year-end 2005.
At September 30, 2006, Pope & Talbot had borrowed amounts under the
terms of its $325.0 million senior secured credit agreement, which
expires during 2012. These amounts included $250.0 million borrowed
under its term loan credit facility, and $5.0 million borrowed under the
$75.0 million revolving facility. At September 30, 2006, the borrowing
base under the revolving facility was $68.2 million and the Company was
utilizing $18.3 million for outstanding letters of credit, leaving $44.9
million of total revolver availability, of which $35.0 million was
available for additional cash borrowings. The Company held cash and cash
equivalents of $7.4 million at September 30, 2006, a decrease of $5.5
million compared with June 30, 2006 and an increase of $1.9 million
compared with year-end 2005.
The Company anticipates making mandatory principal prepayments without
prepayment premium of its term borrowing, upon the receipt of the
expected softwood lumber duty refunds. The Company expects to make total
mandatory prepayments of approximately $63 million. The Company
anticipates that it will use a portion of the duty refunds received in
excess of the mandatory prepayments to further reduce its outstanding
borrowings. Such payments would be subject to prepayment premium.
Pope & Talbot, Inc. will be holding a conference call on Wednesday,
November 1, 2006, at 11:00 a.m. PST (2:00 p.m. ET.) The call-in number
is 706-645-9773; passcode: 8757505. 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 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.
POPE & TALBOT, INC. AND SUBSIDIARIES
(Thousands except per share, unaudited)
CONSOLIDATED STATEMENTS OF INCOME
Second
Nine months ended
Third Quarter
Quarter
September 30,
2006
2005
2006
2006
2005
Revenues:
Pulp
$
125,698
$
104,833
$
115,819
$
352,357
$
320,936
Wood Products
Lumber
78,982
95,946
88,613
266,829
265,803
Chips, logs and other
9,903
11,957
9,129
31,969
35,300
Total Wood Products
88,885
107,903
97,742
298,798
301,103
Total revenues
214,583
212,736
213,561
651,155
622,039
Costs and expenses:
Pulp cost of sales
109,167
106,144
108,899
328,771
319,138
Wood Products cost of sales
95,135
108,018
98,781
303,646
288,403
Selling, general and administrative
9,255
10,123
9,260
28,281
27,312
Operating income (loss)
1,026
(11,549)
(3,379)
(9,543)
(12,814)
Interest expense, net
(12,013)
(5,458)
(6,918)
(25,171)
(15,820)
Loss on extinguishment of debt
-
-
(4,910)
(4,910)
-
Loss before income taxes
(10,987)
(17,007)
(15,207)
(39,624)
(28,634)
Income tax benefit
(826)
(8,185)
(699)
(2,052)
(12,179)
Net loss
$
(10,161)
$
(8,822)
$
(14,508)
$
(37,572)
$
(16,455)
Net loss per common share - basic and diluted
$
(0.62)
$
(0.54)
$
(0.89)
$
(2.31)
$
(1.02)
Average shares outstanding - basic and diluted
16,269
16,226
16,227
16,244
16,202
CONSOLIDATED BALANCE SHEETS
September 30,
June 30,
December 31,
2006
2005
2006
2005
Assets:
Current assets
$
243,911
$
227,401
$
237,198
$
218,049
Properties, net
390,425
384,027
394,880
386,401
Deferred tax charge
7,028
-
7,199
7,562
Other assets
36,494
23,578
36,496
18,641
Total assets
$
677,858
$
635,006
$
675,773
$
630,653
Liabilities and stockholders' equity:
Current portion of long-term debt
$
423
$
63,974
$
423
$
63,800
Other current liabilities
118,643
127,096
112,152
105,363
Long-term debt, excluding current portion
388,758
228,539
383,589
268,200
Deferred income tax liability, net
10,140
-
9,962
9,042
Other long-term liabilities
75,698
68,028
75,318
72,216
Total liabilities
593,662
487,637
581,444
518,621
Stockholders' equity
84,196
147,369
94,329
112,032
Total liabilities and stockholder's equity
$
677,858
$
635,006
$
675,773
$
630,653
Long-term debt to total capitalization
82%
66%
80%
75%
SEGMENT INFORMATION
Second
Nine months ended
Third Quarter
Quarter
September 30,
2006
2005
2006
2006
2005
EBITDA: (A)
Pulp
$
20,226
$
2,658
$
10,909
$
35,536
$
13,321
Wood Products
(4,309)
1,259
841
329
15,271
General Corporate
(4,246)
(5,723)
(4,669)
(13,931)
(13,684)
11,671
(1,806)
7,081
21,934
14,908
Depreciation and amortization:
Pulp
$
7,121
$
6,573
$
6,942
$
21,230
$
19,504
Wood Products
3,311
2,820
3,297
9,593
7,152
General Corporate
213
350
221
654
1,066
10,645
9,743
10,460
31,477
27,722
Operating income (loss):
Pulp
$
13,105
$
(3,915)
$
3,967
$
14,306
$
(6,183)
Wood Products
(7,620)
(1,561)
(2,456)
(9,264)
8,119
General Corporate
(4,459)
(6,073)
(4,890)
(14,585)
(14,750)
Operating income (loss)
$
1,026
$
(11,549)
$
(3,379)
$
(9,543)
$
(12,814)
Additional Information:
Lumber import duties
$
4,400
$
10,400
$
4,900
$
15,100
$
29,000
Capital expenditures
6,450
10,934
8,419
21,408
31,905
Notes:
(A) EBITDA equals net income (loss) before net interest expense,
loss on extinguishment of debt, 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
used 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, loss on extinguishment of debt 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:
Second
Nine months ended
Third Quarter
Quarter
September 30,
2006
2005
2006
2006
2005
(thousands)
Net income (loss)
$
(10,161)
$
(8,822)
$
(14,508)
$
(37,572)
$
(16,455)
Interest expense, net
12,013
5,458
6,918
25,171
15,820
Loss on extinguishment of debt
-
-
4,910
4,910
-
Income tax provision (benefit)
(826)
(8,185)
(699)
(2,052)
(12,179)
Depreciation and amortization
10,645
9,743
10,460
31,477
27,722
EBITDA
$
11,671
$
(1,806)
$
7,081
$
21,934
$
14,908
The following table reconciles operating income (loss) to EBITDA for
each of the Company's Pulp and Wood Products operating segments:
Second
Nine months ended
Third Quarter
Quarter
September 30,
2006
2005
2006
2006
2005
Pulp
(thousands)
Operating income (loss)
$
13,105
$
(3,915)
$
3,967
$
14,306
$
(6,183)
Depreciation and amortization
7,121
6,573
6,942
21,230
19,504
EBITDA
$
20,226
$
2,658
$
10,909
$
35,536
$
13,321
Wood Products
Operating income (loss)
$
(7,620)
$
(1,561)
$
(2,456)
$
(9,264)
$
8,119
Depreciation and amortization
3,311
2,820
3,297
9,593
7,152
EBITDA
$
(4,309)
$
1,259
$
841
$
329
$
15,271
The Company's senior secured credit agreement subjects the Company to a
financial covenant based on EBITDA. See discussion of "Capital" earlier
in this release. EBITDA is defined differently in the credit agreement
and requires additional adjustments, among other items, to (i) eliminate
any future refunds of lumber import duties, (ii) include income tax
benefits recognized in any quarter, and (ii) exclude certain other
non-cash income and expense items. EBITDA as defined in the credit
agreement was $25.3 million for the nine months ended September 30,
2006. The following table reconciles net income (loss) to credit
agreement EBITDA for the nine months ended September 30, 2006:
Nine months ended
September 30, 2006
(thousands)
Net income (loss)
$
(37,572)
Interest expense, net
25,171
Loss on extinguishment of debt
4,910
Income tax provision (benefit)
(2,052)
Add back: quarterly income tax benefits recognized
2,052
Depreciation and amortization
31,477
Other non-cash income and expenses:
Pension and postretirement accruals, net of payment
3,350
Unrealized foreign exchange loss (gain), net
(3,430)
Stock compensation and other
1,364
Credit agreement EBITDA
$
25,270
Pope & Talbot, Inc. (NYSE:POP):
Third Quarter 2006 Highlights:
-- Operating income of $1.0 million, an improvement of $12.5
million compared with the third quarter of 2005
-- Pulp sales prices realized of $630 per metric ton, up 23%
from the third quarter of 2005
-- EBITDA of $11.7 million, increasing by $4.6 million from
the second quarter 2006
-- Lumber sales prices realized of $368 per thousand board
feet, down 6% from the second quarter of 2006
Pope & Talbot, Inc. (NYSE:POP) today reported a net loss of $10.2
million for the three months ended September 30, 2006, compared with a
net loss of $8.8 million reported for the same period in 2005 and a
net loss of $14.5 million for the second quarter of 2006. The loss for
the third quarter was $0.62 per share on 16.3 million shares, compared
with a loss of $0.54 per share for the third quarter of 2005 and a
loss of $0.89 per share for the second quarter of 2006 on 16.2 million
shares for both periods. Revenues were $214.6 million for the quarter
compared with $212.7 million for the third quarter of 2005, and
earnings before interest, taxes, depreciation and amortization
(EBITDA) increased by $13.5 million to $11.7 million compared with
negative EBITDA of $1.8 million one year ago. As compared with the
second quarter of 2006, EBITDA for the third quarter of 2006 increased
$4.6 million from $7.1 million. Net interest expense was $12.0 million
for the quarter, increasing from $5.5 million for the third quarter of
2005 and $6.9 million for the second quarter of 2006.
The Company's operating income and EBITDA improved in the third
quarter of 2006 compared with both the third quarter of 2005 and the
second quarter of 2006. The Company's operating income of $1.0 million
for the three months ended September 30, 2006, was an improvement of
$12.5 million over an operating loss of $11.5 million for the same
period in 2005. As compared with the second quarter of 2006, operating
income increased $4.4 million from an operating loss of $3.4 million.
Increased pulp revenues from higher pulp prices, lower lumber duty
rates and reductions in selling, general and administration expense
during the third quarter of 2006 contributed to the favorable
operating results compared with the same period in 2005. These factors
were partially offset by the weaker U.S. dollar and declining lumber
prices. As compared with the second quarter of 2006, operating income
was favorably impacted by the Company's pulp price increases, but was
partially offset by the declining lumber prices and a decrease in
shipments for both pulp and lumber products. The Canadian to U.S.
dollar average exchange rate of $0.89 in the third quarter of 2006 was
7 percent higher than the third quarter of 2005 rate of $0.83 and
unchanged from the rate in the second quarter of 2006. The Company
estimates that the change in the Canadian to U.S. dollar exchange rate
increased third quarter 2006 reported cost of goods sold by
approximately $10.1 million, as compared with the third quarter of
2005. Import duty deposits on Canadian softwood lumber totaled $4.4
million in the third quarter of 2006, compared with $10.4 million in
the same quarter of 2005, reflecting the decrease in duty rates from a
year ago. As compared with the second quarter of 2006, duties paid
decreased by $0.5 million from $4.9 million, primarily due to
decreased lumber revenues.
"On balance, the results from operations reflect improvement and I
am optimistic that the measured progress we have made during this
quarter can be built upon with continued pulp price momentum," stated
Michael Flannery, Chairman and Chief Executive Officer.
Pulp
Pope & Talbot's third quarter pulp revenues increased 20 percent
to $125.7 million, with sales volume decreasing 3 percent to 199,400
metric tons, as compared with the third quarter of 2005. The average
price realized per metric ton sold during the quarter increased 23
percent to $630 from $512 in the third quarter of 2005. As compared
with the second quarter of 2006, the third quarter 2006 pricing
represented a 9 percent increase from $579 per metric ton.
In the third quarter of 2006, cost of sales for the pulp segment
increased $3.0 million, or 3 percent. These cost increases are largely
attributable to the weakening U.S. dollar. The Company estimates that
the increase in the average daily Canadian to U.S. dollar exchange
rate resulted in an approximately $6.3 million, or 6 percent, increase
in pulp cost of sales. Excluding the impact of foreign exchange, cost
of sales on a per ton basis was comparable to the third quarter of
2005; however, in September 2006, the Mackenzie mill experienced
operational difficulties in the restart of the pulp mill from its
planned annual maintenance shutdown, causing a loss of production of
approximately 4,400 tons in the third quarter and an additional 1,800
tons in October 2006. These difficulties, now resolved, increased cost
of sales in the third quarter of 2006 by approximately $1.8 million.
Wood Products
Pope & Talbot's third quarter wood products revenues decreased 18
percent to $88.9 million, with lumber sales volume decreasing 13
percent to 214.4 million board feet as compared with the third quarter
of 2005. The average price realized per thousand board feet sold
during the quarter decreased 6 percent to $368 from $390 in the third
quarter of 2005. As compared with the second quarter of 2006, third
quarter 2006 pricing represented a 6 percent decrease from average
price realization of $392 per thousand board feet.
In the third quarter of 2006, cost of sales for the wood products
segment decreased $12.9 million or 12 percent primarily due to a
decrease in shipments and lower duty rates, partially offset by the
weakening U.S. dollar. For the third quarter of 2006, Pope & Talbot
estimates the impact of foreign currency exchange cost increases to be
approximately $3.8 million, or a 4 percent increase in the average
cost per thousand board feet as compared with the third quarter of
2005. This increase was offset by a decrease in lumber import duty
deposits of $6.0 million, or a 5 percent decrease in average cost per
thousand board feet.
On October 12, 2006, the Softwood Lumber Agreement (2006 SLA)
became effective and the U.S. stopped collecting cash deposits of
lumber import duties. The Company estimates that it is entitled to
duty refunds of approximately $109 million, with accrued interest,
which the Company estimates will be around $18 million, totaling
approximately $127 million. The Company expects to record this amount
in earnings upon final approval of the export charge legislation
discussed below. The Company has assigned its rights to duty refunds
to the Canadian government pursuant to a program designed to
accelerate receipt of the funds, and expects to receive 90 percent of
its refunds, approximately $114 million, from the Canadian government
in December 2006, with the balance to be received in the first quarter
of 2007.
Effective with the 2006 SLA, the Company has been paying an export
tax of 15% to the Canadian government on lumber shipments to the
United States since October 12, 2006, and, based on current price
levels, the Company expects to pay export tax at this rate for the
remainder of the fourth quarter. The export tax is subject to passage
by the Canadian Parliament, which is expected to occur in December
2006.
Selling, General & Administration
Selling, general and administrative expenses (SG&A) for the third
quarter of 2006 totaled $9.3 million compared with $10.1 million in
the same period of 2005 and $9.3 million in the second quarter of
2006.
SG&A expenses in the third quarter of 2006 were $0.8 million lower
than the same period a year ago, with a decrease in corporate SG&A
costs of $1.6 million offset by increases of pulp SG&A costs. The
decrease in corporate SG&A costs was primarily due to non-recurring
expenses incurred in 2005 associated with Canadian research and
experimentation tax credits, costs savings during the quarter related
to agreements terminated in June 2006 for the receivable purchase
agreement and the Halsey credit facility and reduced compensation
expense. The increase in pulp SG&A expenses was primarily due to pulp
commissions and certain fringe benefit accruals.
SG&A expenses in the third quarter of 2006 were comparable with
the second quarter of 2006, with increases in pulp SG&A costs, offset
by decreases in corporate SG&A costs. The increase in pulp SG&A costs
was primarily due to pulp commissions and certain fringe benefit
accruals. The decrease in corporate SG&A costs was primarily due to a
decrease in legal and other professional fees and non-recurring costs
incurred in the second quarter associated with the resolution of a
sales tax audit.
Net Interest Expense
Net interest expense for the third quarter of 2006 totaled $12.0
million compared with $5.5 million in the third quarter of 2005 and
$6.9 million in the second quarter of 2006. The increase in interest
expense for the third quarter of 2006 as compared with the
corresponding period a year ago was primarily due to increased
interest rates under the Company's new credit agreement and increased
borrowings. The Company's weighted average interest rate on its
outstanding debt was 11.7% at September 30, 2006, compared with 7.4%
at September 30, 2005.
Selected Statistics
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*T
Second Nine months ended
Third Quarter Quarter September 30,
----------------- -----------------
2006 2005 2006 2006 2005
-------- -------- -------- -------- --------
Sales Volumes:
Pulp (metric tons) 199,400 204,800 200,000 606,500 601,200
Lumber (thousand board
feet) 214,400 246,000 225,800 684,200 647,300
Production Volumes:
Pulp (metric tons) 198,500 209,900 189,900 598,100 602,500
Lumber (thousand board
feet) 209,500 245,200 212,200 674,800 657,500
Average Price
Realizations: (A)
Pulp (metric tons) $630 $512 $579 $581 $534
Lumber (thousand board
feet) $368 $390 $392 $390 $411
Notes:
(A) Gross invoice price less trade discounts.
*T
Capital
In the third quarter of 2006, Pope & Talbot's capital expenditures
were $6.5 million and depreciation and amortization was $10.6 million.
At the end of the quarter, total debt was $389.2 million, an increase
of $5.2 million from June 30, 2006, and an increase of $57.2 million
from year-end 2005. At September 30, 2006, shareholders equity was
$84.2 million, a decrease of $10.1 million from June 30, 2006, and
$27.8 million from year-end 2005. On September 30, 2006, the ratio of
long-term debt to total capitalization was 82 percent, up from 80
percent at June 30, 2006, and 75 percent at year-end 2005.
At September 30, 2006, Pope & Talbot had borrowed amounts under
the terms of its $325.0 million senior secured credit agreement, which
expires during 2012. These amounts included $250.0 million borrowed
under its term loan credit facility, and $5.0 million borrowed under
the $75.0 million revolving facility. At September 30, 2006, the
borrowing base under the revolving facility was $68.2 million and the
Company was utilizing $18.3 million for outstanding letters of credit,
leaving $44.9 million of total revolver availability, of which $35.0
million was available for additional cash borrowings. The Company held
cash and cash equivalents of $7.4 million at September 30, 2006, a
decrease of $5.5 million compared with June 30, 2006 and an increase
of $1.9 million compared with year-end 2005.
The Company anticipates making mandatory principal prepayments
without prepayment premium of its term borrowing, upon the receipt of
the expected softwood lumber duty refunds. The Company expects to make
total mandatory prepayments of approximately $63 million. The Company
anticipates that it will use a portion of the duty refunds received in
excess of the mandatory prepayments to further reduce its outstanding
borrowings. Such payments would be subject to prepayment premium.
Pope & Talbot, Inc. will be holding a conference call on
Wednesday, November 1, 2006, at 11:00 a.m. PST (2:00 p.m. ET.) The
call-in number is 706-645-9773; passcode: 8757505. 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
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
Second Nine months ended
Third Quarter Quarter September 30,
------------------- -------------------
2006 2005 2006 2006 2005
--------- --------- --------- --------- ---------
Revenues:
Pulp $125,698 $104,833 $115,819 $352,357 $320,936
Wood Products
Lumber 78,982 95,946 88,613 266,829 265,803
Chips, logs and
other 9,903 11,957 9,129 31,969 35,300
--------- --------- --------- --------- ---------
Total Wood
Products 88,885 107,903 97,742 298,798 301,103
--------- --------- --------- --------- ---------
Total
revenues 214,583 212,736 213,561 651,155 622,039
--------- --------- --------- --------- ---------
Costs and expenses:
Pulp cost of sales 109,167 106,144 108,899 328,771 319,138
Wood Products cost
of sales 95,135 108,018 98,781 303,646 288,403
Selling, general
and
administrative 9,255 10,123 9,260 28,281 27,312
--------- --------- --------- --------- ---------
Operating income
(loss) 1,026 (11,549) (3,379) (9,543) (12,814)
Interest expense,
net (12,013) (5,458) (6,918) (25,171) (15,820)
Loss on
extinguishment of
debt - - (4,910) (4,910) -
--------- --------- --------- --------- ---------
Loss before income
taxes (10,987) (17,007) (15,207) (39,624) (28,634)
Income tax benefit (826) (8,185) (699) (2,052) (12,179)
--------- --------- --------- --------- ---------
Net loss $(10,161) $ (8,822) $(14,508) $(37,572) $(16,455)
========= ========= ========= ========= =========
Net loss per common
share - basic and
diluted $ (0.62) $ (0.54) $ (0.89) $ (2.31) $ (1.02)
========= ========= ========= ========= =========
Average shares
outstanding -
basic and diluted 16,269 16,226 16,227 16,244 16,202
========= ========= ========= ========= =========
*T
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CONSOLIDATED BALANCE SHEETS
September 30, June 30, December 31,
-------------------
2006 2005 2006 2005
--------- --------- --------- ------------
Assets:
Current assets $243,911 $227,401 $237,198 $218,049
Properties, net 390,425 384,027 394,880 386,401
Deferred tax charge 7,028 - 7,199 7,562
Other assets 36,494 23,578 36,496 18,641
--------- --------- --------- ------------
Total assets $677,858 $635,006 $675,773 $630,653
========= ========= ========= ============
Liabilities and
stockholders' equity:
Current portion of long-
term debt $ 423 $ 63,974 $ 423 $ 63,800
Other current liabilities 118,643 127,096 112,152 105,363
Long-term debt, excluding
current portion 388,758 228,539 383,589 268,200
Deferred income tax
liability, net 10,140 - 9,962 9,042
Other long-term
liabilities 75,698 68,028 75,318 72,216
--------- --------- --------- ------------
Total liabilities 593,662 487,637 581,444 518,621
Stockholders' equity 84,196 147,369 94,329 112,032
--------- --------- --------- ------------
Total liabilities and
stockholder's equity $677,858 $635,006 $675,773 $630,653
========= ========= ========= ============
Long-term debt to total
capitalization 82% 66% 80% 75%
========= ========= ========= ============
*T
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SEGMENT INFORMATION
Second Nine months ended
Third Quarter Quarter September 30,
------------------ -------------------
2006 2005 2006 2006 2005
-------- --------- -------- --------- ---------
EBITDA: (A)
Pulp $20,226 $ 2,658 $10,909 $ 35,536 $ 13,321
Wood Products (4,309) 1,259 841 329 15,271
General Corporate (4,246) (5,723) (4,669) (13,931) (13,684)
-------- --------- -------- --------- ---------
11,671 (1,806) 7,081 21,934 14,908
-------- --------- -------- --------- ---------
Depreciation and
amortization:
Pulp $ 7,121 $ 6,573 $ 6,942 $ 21,230 $ 19,504
Wood Products 3,311 2,820 3,297 9,593 7,152
General Corporate 213 350 221 654 1,066
-------- --------- -------- --------- ---------
10,645 9,743 10,460 31,477 27,722
-------- --------- -------- --------- ---------
Operating income
(loss):
Pulp $13,105 $ (3,915) $ 3,967 $ 14,306 $ (6,183)
Wood Products (7,620) (1,561) (2,456) (9,264) 8,119
General Corporate (4,459) (6,073) (4,890) (14,585) (14,750)
-------- --------- -------- --------- ---------
Operating income
(loss) $ 1,026 $(11,549) $(3,379) $ (9,543) $(12,814)
======== ========= ======== ========= =========
Additional
Information:
Lumber import duties $ 4,400 $ 10,400 $ 4,900 $ 15,100 $ 29,000
Capital expenditures 6,450 10,934 8,419 21,408 31,905
Notes:
(A) EBITDA equals net income (loss) before net interest expense, loss
on extinguishment of debt, 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 used 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, loss
on extinguishment of debt 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.
*T
The following table reconciles net income (loss) to EBITDA for the
periods indicated:
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*T
Second Nine months ended
Third Quarter Quarter September 30,
------------------ -------------------
2006 2005 2006 2006 2005
--------- -------- --------- --------- ---------
(thousands)
Net income (loss) $(10,161) $(8,822) $(14,508) $(37,572) $(16,455)
Interest expense, net 12,013 5,458 6,918 25,171 15,820
Loss on
extinguishment of
debt - - 4,910 4,910 -
Income tax provision
(benefit) (826) (8,185) (699) (2,052) (12,179)
Depreciation and
amortization 10,645 9,743 10,460 31,477 27,722
--------- -------- --------- --------- ---------
EBITDA $ 11,671 $(1,806) $ 7,081 $ 21,934 $ 14,908
========= ======== ========= ========= =========
*T
The following table reconciles operating income (loss) to EBITDA
for each of the Company's Pulp and Wood Products operating segments:
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Second Nine months ended
Third Quarter Quarter September 30,
-------------------- -----------------
2006 2005 2006 2006 2005
----------- -------- -------- -------- --------
Pulp (thousands)
Operating income
(loss) $13,105 $(3,915) $ 3,967 $14,306 $(6,183)
Depreciation and
amortization 7,121 6,573 6,942 21,230 19,504
----------- -------- -------- -------- --------
EBITDA $20,226 $ 2,658 $10,909 $35,536 $13,321
=========== ======== ======== ======== ========
Wood Products
Operating income
(loss) $(7,620) $(1,561) $(2,456) $(9,264) $ 8,119
Depreciation and
amortization 3,311 2,820 3,297 9,593 7,152
----------- -------- -------- -------- --------
EBITDA $(4,309) $ 1,259 $ 841 $ 329 $15,271
=========== ======== ======== ======== ========
*T
The Company's senior secured credit agreement subjects the Company
to a financial covenant based on EBITDA. See discussion of "Capital"
earlier in this release. EBITDA is defined differently in the credit
agreement and requires additional adjustments, among other items, to
(i) eliminate any future refunds of lumber import duties, (ii) include
income tax benefits recognized in any quarter, and (ii) exclude
certain other non-cash income and expense items. EBITDA as defined in
the credit agreement was $25.3 million for the nine months ended
September 30, 2006. The following table reconciles net income (loss)
to credit agreement EBITDA for the nine months ended September 30,
2006:
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Nine months ended
September 30, 2006
------------------
(thousands)
Net income (loss) $ (37,572)
Interest expense, net 25,171
Loss on extinguishment of debt 4,910
Income tax provision (benefit) (2,052)
Add back: quarterly income tax benefits
recognized 2,052
Depreciation and amortization 31,477
Other non-cash income and expenses:
Pension and postretirement accruals, net of
payment 3,350
Unrealized foreign exchange loss (gain), net (3,430)
Stock compensation and other 1,364
------------------
Credit agreement EBITDA $ 25,270
==================
*T