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 -0- *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. -0- *T 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 -0- *T 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 -0- *T 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: -0- *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: -0- *T 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: -0- *T 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
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