Pope & Talbot, Inc. (NYSE:POP) today reported net income of
$45.3 million for the year ended December 31, 2006 compared with a
net loss of $50.0 million reported for the prior year. The earnings
for 2006 were $2.79 per share on 16.3 million shares, compared with
a loss of $3.09 per share for 2005 on 16.2 million shares. Revenues
were $841.1 million for 2006 compared with $848.8 million for the
prior year. For the fourth quarter of 2006, earnings were $82.9
million or $5.09 per share on revenues of $190.0 million, which
compares with a net loss of $33.6 million or a loss of $2.07 per
share on revenues of $226.8 million for the same period a year ago,
and a loss of $0.62 per share on revenues of $214.6 million for the
third quarter of 2006. The results for the full year and the fourth
quarter of 2006 reflect non-recurring duty refunds of approximately
$113.3 million, of which $101.2 million related to duty deposits
paid in prior years, and accrued interest of approximately $14.2
million. In total, the Company received $127.5 million from the
settlement of the softwood lumber dispute. With the receipt of the
duty refunds in November 2006, the Company prepaid $63 million of
term debt and reduced revolver cash borrowings to zero. This
provided both capital structure and liquidity improvement as of the
end of the year. Further liquidity enhancement was achieved with an
amendment to the Company�s credit agreement signed in December
2006. The Company remained in full compliance with its credit
agreement at December 31, 2006. The credit agreement contains
financial covenants including one based on defined EBITDA, which is
tested on a quarterly basis. Compliance with this covenant cannot
be assured because the Company�s results of operations are highly
dependent on price fluctuations in pulp and lumber markets and in
the Canadian to US dollar exchange rate. The Company�s independent
auditors cited uncertainty over the Company�s ability to comply in
future periods with the EBITDA covenant contained in the credit
agreement. As a result, their report included in the 2006 Annual
Report on Form 10-K contained an explanatory paragraph that this
factor raises substantial doubt about the Company�s ability to
continue as a going concern. In its evaluation and assessment of
internal controls over financial reporting as of December 31, 2006,
the Company concluded that such control over financial reporting
was effective thereby eliminating the material weakness noted in
prior years relative to its accounting for income taxes. The
Company�s operating income and earnings before interest, taxes,
depreciation and amortization (EBITDA) for 2006 were $83.4 million
and $125.6 million, respectively. After excluding the effects of
the lumber import duty refunds, the annual results were an
operating loss of $26.2 million and EBITDA of $16.0 million, which
favorably compared with an operating loss of $29.2 million and
EBITDA of $8.9 million for the prior year. The decreased operating
loss was due primarily to increased pulp revenues caused by higher
price realizations and lower costs for the combination of lumber
import duties and export taxes expensed. The results for 2006 were
negatively impacted by lower wood products revenues due to lower
price realizations and lower shipments, reduced pulp shipments,
increased pulp cost per ton and increased selling general and
administrative (SG&A) costs, primarily due to a $4.5 million
increase in environmental reserves. For the fourth quarter of 2006,
operating income and EBITDA were $93.0 million and $103.7 million,
respectively. Excluding the effects of the lumber import duty
refunds on the quarter, an operating loss of $16.6 million and
negative EBITDA of $5.9 million were realized, which compares with
an operating loss of $16.4 million and negative EBITDA of $6.0
million for the corresponding quarter one year ago. As compared
with the third quarter of 2006, which showed operating profit of
$1.0 million and EBITDA of $11.7 million, the adjusted numbers for
the fourth quarter of 2006 reflect lower contribution from pulp,
lower revenues from wood products and a significant increase in
SG&A costs. �The securing of the credit agreement, the receipt
of the duty refunds and subsequent prepayment of a portion of our
term debt, and the remediation of our material weakness all result
in a stronger financial position for us to begin the new year,�
stated Michael Flannery, Chairman and Chief Executive Officer.
�While I am disappointed in the fourth quarter operating results, I
am encouraged by the strength of the pulp market. Our challenge as
we look forward into 2007 is to fully optimize this market for the
benefit of our shareholders. To do this we must overcome the
significant negative impact on wood chip pricing, availability, and
quality caused by the weakness in the lumber markets.� Pulp
Revenues from Pope & Talbot�s Pulp business totaled $466.9
million in 2006 compared with $442.6 million in 2005, an increase
of five percent. The increase related to higher prices offset in
part by a decrease in volumes sold in 2006. Pulp generated
operating income before corporate expenses, interest and income
taxes of $18.2 million in 2006, compared with an operating loss of
$13.6 million in 2005. EBITDA from the Company�s pulp operations
totaled $46.6 million in 2006 compared with $12.8 million in 2005.
Pulp cost of sales was $435.8 million in 2006, compared with $445.1
million in 2005, a decrease of two percent. Per metric ton, the
average cost of pulp sold increased four percent in 2006 compared
with 2005. A significant factor affecting pulp cost of sales is the
average exchange rate used to translate operating costs of the
Company�s Canadian pulp mills from Canadian dollars to U.S.
dollars. The average value of the Canadian dollar relative to the
U.S. dollar strengthened significantly in 2006, and the Company
estimates that the increase in the average daily Canadian to U.S.
dollar exchange rate from 2005 to 2006 resulted in an approximate
$20.2 million increase in pulp cost of sales, or a five percent
increase in the average cost per metric ton of pulp sold in 2006.
Excluding the effect of the stronger Canadian dollar, the average
cost per ton of pulp sold was slightly lower in 2006 compared with
2005 primarily due to lower freight costs. Higher fiber costs in
the fourth quarter of 2006 were offset by lower fiber costs
experienced in the first half of the year. Pulp production totaled
800,700 metric tons in 2006 compared with 820,400 metric tons in
2005. This decrease is primarily due to reduced pulp production at
the Company�s Nanaimo and Mackenzie mills due to a shortage of wood
chips in the fourth quarter of 2006. The Company�s Mackenzie mill
also experienced operational difficulties from the restart of the
mill after its planned annual maintenance shutdown in September
2006. Pope & Talbot�s fourth quarter pulp revenues decreased 6
percent to $114.5 million due to sales volume decreasing 24 percent
to 177,800 metric tons, as compared with the fourth quarter of
2005. The reduction in shipments was due to lower production,
higher than normal shipment levels in December 2005 and inventory
building stemming from transportation issues over the year end. The
average price realized per metric ton sold during the quarter
increased 25 percent to $644 from $517 in the fourth quarter of
2005. As compared with the third quarter of 2006, the fourth
quarter of 2006 pricing represented a 2 percent increase from $630
per metric ton, but revenues for the quarter decreased 9 percent
with shipments decreasing 11 percent for the period. In the fourth
quarter of 2006, cost of sales for the pulp segment decreased $18.9
million, or 15 percent as compared with the fourth quarter of 2005,
due primarily to the decrease in volume, partially offset by a
significant increase in fiber costs. The Company estimates that the
increase in the average daily Canadian to U.S. dollar exchange rate
resulted in an approximate $2.5 million, or 3 percent increase in
pulp cost of sales. Excluding the impact of foreign exchange, cost
of sales on a per ton basis increased by 10% compared with the
fourth quarter of 2005; this was due in part to the decrease in
production of 7% and an increase in fiber costs primarily due to
supply constraints from weakness in the lumber industry. The
Company�s finished pulp inventory levels at December 31, 2006 were
approximately 36 days of shipments compared with 27 days of
shipments at December 31, 2005. Wood Products Revenues from Pope
& Talbot�s Wood Products business totaled $374.3 million in
2006 compared with $406.2 million in 2005, an eight percent
decrease. The decrease primarily related to lower lumber prices and
lower volumes sold, offset in part from the inclusion of a full
year of volume from the Fort St. James mill acquired on April 25,
2005 and an estimated $7.1 million increase from the effect of the
strengthening of the Canadian dollar on Canadian dollar revenues.
For 2006, Wood Products generated an operating loss before lumber
duty refund for prior years, corporate expenses, interest and
income taxes of $10.5 million and EBITDA of $2.4 million. Excluding
the effects of the current year lumber import duty refunds which
were recorded as a reduction to wood products cost of sales, an
operating loss of $21.1 million and negative EBITDA of $8.2 million
were realized, which compares with operating income of $2.9 million
and EBITDA of $13.2 million for the prior year. Wood Products cost
of sales was $378.0 million in 2006 compared with $397.2 million in
2005, a five percent decrease. Total cost of sales comparisons were
affected by the full year inclusion of the Fort St. James sawmill
in the 2006 amounts offset by $12.1 million for the current year
portion of the lumber import duties refunds. Per thousand board
feet, the average cost of lumber sold in 2006 was three percent
lower compared with 2005. The combined costs of lumber import
duties and export taxes of $6.2 million after refund for 2006
compared with $37.3 million for 2005. The change in the combined
costs decreased the average cost per thousand board feet of lumber
sold in 2006 by eight percent and all other costs increased five
percent. A significant factor affecting Wood Products cost of sales
is the average exchange rate used to translate operating costs of
the Company�s Canadian lumber operations from Canadian dollars to
U.S. dollars. The value of the Canadian dollar relative to the U.S.
dollar strengthened significantly between 2005 and 2006 and the
Company estimates that the increase in the average daily Canadian
to U.S. dollar exchange rate resulted in an approximately $18.3
million increase in Wood Products cost of sales, or a five percent
increase in the average cost per thousand board feet of lumber sold
in 2006. Lower log costs in 2006 were offset in part by higher
production costs related to training and equipment operational
issues at the Company�s Grand Forks sawmill due to integration of
the new planer installed at the end of the first quarter of 2006.
These startup issues were largely resolved in the fourth quarter of
2006. Lumber inventory write-downs were $3.9 million at December
31, 2006 and there were no lumber inventory write-downs at December
31, 2005. Inventory write-downs reflect the difference between
production costs and anticipated sales prices of year-end
inventories. Pope & Talbot�s fourth quarter wood products
revenues decreased 28 percent to $75.5 million, with lumber sales
volume decreasing 21 percent to 187.6 million board feet as
compared with the fourth quarter of 2005. The average price
realized per thousand board feet sold during the quarter decreased
16 percent to $328 from $391 in the fourth quarter of 2005. As
compared with the third quarter of 2006, fourth quarter of 2006
pricing represented a 10 percent decrease from average price
realization of $368 per thousand board feet. Shipments for the
fourth quarter decreased 12 percent from the third quarter totals
of 214.4 million board feet. The reduction in shipments reflects
the continued decline in demand as a result of the significant
downturn in residential housing construction combined with normal
seasonal slowing during the period. In the fourth quarter of 2006,
cost of sales for the wood products segment decreased $34.4 million
or 32 percent compared with the fourth quarter of 2005. Cost of
sales for the period was favorably impacted by the return of
approximately 82% of the lumber import duties paid during the
current year, which was $12.1 million. The decrease in shipments
discussed above also contributed to the decline in the segment�s
cost of sales for the period as compared with the fourth quarter of
2005. Pope & Talbot estimates the impact of changes in the
foreign currency exchange rates for the quarter to be approximately
$2.3 million, or a 3 percent increase in the average cost per
thousand board feet as compared with the fourth quarter of 2005.
This increase was fully offset by a decrease of $5.1 million in the
combined cost of import duties and export taxes, or a 4 percent
decrease in average cost per thousand board feet. The cost of sales
for the fourth quarter decreased 22 percent as compared with the
third quarter of 2006, due primarily to the receipt of the lumber
import duty refunds and lower shipments, partially offset by
inventory write-downs of $2.4 million taken due to the decline in
net sales prices as compared with inventory write-downs of $0.6
million taken during the third quarter of 2006. 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, was below $315 for the effective period of
the export tax in 2006. Selling, General & Administration
SG&A expenses of $45.1 million for 2006 increased by $5.9
million compared with SG&A expenses for 2005. SG&A expenses
for 2006 were impacted by incentive compensation triggered by
positive financial results and by increases to the Company�s
environmental reserves associated with two former sawmill
locations. SG&A costs increased by $3.2 million and $5.3
million, respectively, for these items. The Company increased its
environmental reserves $4.5 million for 2006 for these sites,
compared with a benefit of $0.8 million recorded in the fourth
quarter of 2005. These increases were partially offset by a
reduction in legal and other professional fees, charges associated
with terminated financing agreements and costs charged to SG&A
in 2005 associated with obtaining debt covenant waivers. SG&A
costs for the fourth quarter of 2006 totaled $16.8 million compared
with $11.9 million in the same period of 2005 and $9.3 million in
the third quarter of 2006, with the increase over the corresponding
periods caused by the impact of the incentive compensation and the
increase in the environmental reserves. Excluding the effect of
these items, SG&A costs decreased $3.6 million from the fourth
quarter of 2005 and $0.3 million from the prior quarter. The
decrease in SG&A costs as compared with the fourth quarter of
2005 was due primarily to a reduction in legal and other
professional fees and in charges associated with financing
agreements terminated earlier in the year. Interest Expense
Interest expense was $37.0 million for 2006, increasing from $21.9
million for 2005. The increase in interest expense for 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 the amortization of the issue costs associated with
that agreement. The Company�s weighted average interest rate on its
outstanding debt was 11.6% at December 31, 2006, compared with
11.7% at September 30, 2006 and 7.3% at December 31, 2005. Income
Tax Expense The Company�s effective tax rate was 20 percent for
2006 compared with an effective tax benefit rate of two percent for
2005. The 2006 tax rate resulted from the taxable effect of current
year earnings and the recording of additional deferred tax
liabilities for undistributed Canadian earnings of $5.1 million.
These items were offset by a net reversal of prior year�s valuation
allowance in the fourth quarter of $6.7 million caused by the
generation of earnings for the current year, a benefit due to
Canadian income tax rate reduction of $3.5 million, and the
reversal of prior year�s tax liabilities of $1.6 million. Selected
Statistics Fourth Quarter Third Quarter 2006 Year ended December
31, 2006� 2005� 2006� 2005� Sales Volumes: Pulp (metric tons)
177,800� 235,200� 199,400� 784,300� 836,400� Lumber (thousand board
feet) 187,600� 238,500� 214,400� 871,800� 885,800� � Production
Volumes: Pulp (metric tons) 202,600� 217,900� 198,500� 800,700�
820,400� Lumber (thousand board feet) 208,600� 226,300� 209,500�
883,400� 883,800� � Average Price Realizations: (A) Pulp (metric
tons) $644� $517� $630� $595� $529� Lumber (thousand board feet)
$328� $391� $368� $377� $405� � Notes: (A) Gross invoice price less
trade discounts. Capital In the fourth quarter of 2006, Pope &
Talbot�s capital expenditures were $5.8 million and depreciation
and amortization was $10.7 million. For the full year, capital
expenditures were $27.2 million and depreciation and amortization
was $42.2 million. Under the terms of its credit agreement, the
Company�s capital spending limit for 2007 is $32.8 million. At the
end of 2006, total debt was $321.0 million, a decrease of $68.2
million and $11.1 million from September 30, 2006 and December 31,
2005, respectively. The decrease in total debt from September 30,
2006 primarily reflects the mandatory prepayment resulting from the
receipt of the lumber duty refunds and the full repayment of cash
borrowings under its revolving credit facility. At December 31,
2006, stockholders� equity was $120.4 million, an increase of $36.2
million from September 30, 2006 and $8.4 million from year-end
2005. The Company�s adoption of a new pension and postretirement
benefit accounting standard, Statement of Financial Accounting
Standards No. 158, on December 31, 2006, resulted in a $37.2
million charge, net of taxes, to stockholders� equity, partially
offsetting the increase from current year earnings. At December 31,
2006, the ratio of long-term debt to total capitalization was 73
percent, down from 82 percent at September 30, 2006 and 75 percent
at year-end 2005. At December 31, 2006, the borrowing base under
the Company�s revolving facility was $69.0 million and the Company
was utilizing $18.2 million for outstanding letters of credit,
leaving $50.8 million of total availability for cash borrowings.
There were no cash borrowings outstanding under the revolving
facility at December 31, 2006. The Company held cash and cash
equivalents of $19.1 million at December 31, 2006, an increase of
$11.6 million from September 30, 2006 and $13.6 million from
year-end 2005. The Company was in compliance with all debt
covenants for its credit agreement at December 31, 2006. Pope &
Talbot, Inc. will be holding a conference call on Tuesday, April 3,
2007, at 10:00 a.m. PDT (1:00 p.m. ET.) The call-in number is
706-645-9773 Conference ID: 1768580. 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 �
Third Quarter 2006 Year endedDecember 31, Fourth Quarter 2006�
2005� 2006� 2005� Revenues: Pulp $ 114,494� $ 121,699� $ 125,698� $
466,851� $ 442,635� Wood Products Lumber 61,607� 93,286� 78,982�
328,436� 359,089� Chips, logs and other 13,884� 11,821� 9,903�
45,853� 47,121� Total Wood Products 75,491� 105,107� 88,885�
374,289� 406,210� Total revenues 189,985� 226,806� 214,583�
841,140� 848,845� Costs and expenses: Pulp cost of sales 107,028�
125,975� 109,167� 435,799� 445,113� Wood Products cost of sales
74,351� 108,790� 95,135� 377,997� 397,193� Lumber duty refund for
prior years (101,209) -� -� (101,209) -� Gain on timber take-back
-� (3,451) -� -� (3,451) Selling, general and administrative
16,831� 11,860� 9,255� 45,112� 39,172� Operating income (loss)
92,984� (16,368) 1,026� 83,441� (29,182) Interest expense (11,459)
(5,808) (12,206) (36,980) (21,865) Interest income 14,716� 28� 193�
15,066� 265� Loss on extinguishment of debt -� -� -� (4,910) -�
Income (loss) before income taxes 96,241� (22,148) (10,987) 56,617�
(50,782) Income tax expense (benefit) 13,350� 11,406� (826) 11,298�
(773) Net income (loss) $ 82,891� $ (33,554) $ (10,161) $ 45,319� $
(50,009) � Net income (loss) per common share - basic and diluted $
5.09� $ (2.07) $ (0.62) $ 2.79� $ (3.09) � Average shares
outstanding - basic and diluted 16,270� 16,227� 16,269� 16,250�
16,208� CONSOLIDATED BALANCE SHEETS � December 31, September
30,2006 � 2006� � 2005� � Assets: Current assets $ 258,336� $
218,049� $ 243,911� Properties, net 371,806� 386,401� 390,425�
Deferred charge 6,847� 7,562� 7,028� Other assets � 25,030� �
18,641� � 36,494� Total assets $ 662,019� $ 630,653� $ 677,858�
Liabilities and stockholders' equity: Current portion of long-term
debt $ 474� $ 63,800� $ 423� Other current liabilities 102,030�
105,363� 118,643� Long-term debt, excluding current portion
320,476� 268,200� 388,758� Deferred income tax liability, net
15,689� 9,042� 10,140� Other long-term liabilities � 102,925� �
72,216� � 75,698� Total liabilities 541,594� 518,621� 593,662�
Stockholders' equity � 120,425� � 112,032� � 84,196� Total
liabilities and stockholder's equity $ 662,019� $ 630,653� $
677,858� � Long-term debt to total capitalization � 73% � 75% � 82%
SEGMENT INFORMATION Third Quarter 2006 Year endedDecember 31,
Fourth Quarter 2006� 2005� 2006� 2005� EBITDA: (A) Pulp $ 11,031� $
(496) $ 20,226� $ 46,567� $ 12,825� Wood Products 2,115� (2,065)
(4,309) 2,444� 13,206� Lumber duty refund for prior years 101,209�
-� -� 101,209� -� Gain on timber take-back -� 3,451� -� -� 3,451�
General Corporate (10,688) (6,850) (4,246) (24,619) (20,534)
103,667� (5,960) 11,671� 125,601� 8,948� Depreciation and
amortization: Pulp $ 7,152� $ 6,925� $ 7,121� $ 28,382� $ 26,429�
Wood Products 3,334� 3,117� 3,311� 12,927� 10,269� General
Corporate 197� 366� 213� 851� 1,432� 10,683� 10,408� 10,645�
42,160� 38,130� Operating income (loss): Pulp $ 3,879� $ (7,421) $
13,105� $ 18,185� $ (13,604) Wood Products (1,219) (5,182) (7,620)
(10,483) 2,937� Lumber duty refund for prior years 101,209� -� -�
101,209� -� Gain on timber take-back -� 3,451� -� -� 3,451� General
Corporate (10,885) (7,216) (4,459) (25,470) (21,966) � Operating
income (loss) $ 92,984� $ (16,368) $ 1,026� $ 83,441� $ (29,182) �
Additional Information: Lumber import duties paid (refund received)
$ (12,100) $ 8,300� $ 4,400� $ 3,000� $ 37,300� Lumber export taxes
3,200� -� -� 3,200� -� Capital expenditures 5,794� 11,811� 6,450�
27,202� 43,716� Capital expenditures - acquisition of sawmill -� -�
-� -� 37,596� � 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 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, 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: Third Quarter 2006 Year
endedDecember 31, Fourth Quarter 2006� 2005� 2006� 2005� �
(thousands) Net income (loss) $ 82,891� $ (33,554) $ (10,161) $
45,319� $ (50,009) Interest expense (income), net (3,257) 5,780�
12,013� 21,914� 21,600� Loss on extinguishment of debt -� -� -�
4,910� -� Income tax provision (benefit) 13,350� 11,406� (826)
11,298� (773) Depreciation and amortization 10,683� 10,408� 10,645�
42,160� 38,130� � EBITDA $ 103,667� $ (5,960) $ 11,671� $ 125,601�
$ 8,948� � � The following table reconciles operating income (loss)
to EBITDA for each of the Company's Pulp and Wood Products
operating segments: � Third Quarter 2006 Year endedDecember 31,
Fourth Quarter 2006� 2005� 2006� 2005� Pulp � (thousands) Operating
income (loss) $ 3,879� $ (7,421) $ 13,105� $ 18,185� $ (13,604)
Depreciation and amortization 7,152� 6,925� 7,121� 28,382� 26,429�
� EBITDA $ 11,031� $ (496) $ 20,226� $ 46,567� $ 12,825� � Wood
Products Operating income (loss) $ (1,219) $ (5,182) $ (7,620) $
(10,483) $ 2,937� Depreciation and amortization 3,334� 3,117�
3,311� 12,927� 10,269� � EBITDA $ 2,115� $ (2,065) $ (4,309) $
2,444� $ 13,206� 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 $39.4 million for the year ended December 31,
2006. The following table reconciles net income to credit agreement
EBITDA for the year ended December 31, 2006: � � Year ended
December 31, 2006 (thousands) Net income $ 45,319� Interest
expense, net 21,914� Loss on extinguishment of debt 4,910� Income
tax provision (benefit) 11,298� Add back: quarterly income tax
benefits recognized 2,052� Depreciation and amortization 42,160�
Lumber duty refunds for prior years (101,209) Other non-cash income
and expenses: Net periodic benefit costs for pension and
postretirement plans, net of benefits paid and cash contributions
4,560� Net unrealized foreign exchange gains recognized in earnings
(424) Environmental accruals 4,536� Inventory write downs, net
2,580� Stock compensation and other � 1,696� � Credit agreement
EBITDA $ 39,392� SELECTED FINANCIAL RESULTS Third Quarter 2006 Year
endedDecember 31, Fourth Quarter 2006� 2005� 2006� 2005� � Selected
consolidated results as adjusted: � Adjusted operating income
(loss) (B) $ (16,628) $ (16,368) $ 1,026� $ (26,171) $ (29,182) �
Adjusted EBITDA(B) $ (5,945) $ (5,960) $ 11,671� $ 15,989� $ 8,948�
� Selected Segment results as adjusted: � Adjusted operating income
(loss):(B) Pulp $ 4,475� $ (7,421) $ 13,105� $ 18,781� $ (13,604) �
Wood Products $ (11,836) $ (5,182) $ (7,620) $ (21,100) $ 2,937� �
Adjusted EBITDA:(B) Pulp $ 11,627� $ (496) $ 20,226� $ 47,163� $
12,825� � Wood Products $ (8,502) $ (2,065) $ (4,309) $ (8,173) $
13,206� � Notes: (B) Adjusted operating income for the fourth
quarter and full year 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 these refunds
(principally incentive compensation resulting from achieving the
Company�s return on equity goal for the year). Adjusted EBITDA
equals EBITDA (as described above) 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. For
all other periods presented, Operating income (loss) and EBITDA are
presented as there were no significant one-time adjustments for
these periods. The following table reconciles operating income to
adjusted operating income for the periods indicated: � Fourth Year
ended Quarter December 31, � 2006� � 2006� (thousands) Operating
income $ 92,984� $ 83,441� Current year lumber duty refund in cost
of sales (12,123) (12,123) Lumber duty refund for prior years
(101,209) (101,209) Incentive compensation earned due to lumber
duty refund 3,298� 3,298� Other cost of sales related to lumber
duty refund � 422� � 422� � Adjusted operating loss $ (16,628) $
(26,171) � The following table reconciles net income (loss) to
adjusted EBITDA for the periods indicated: � Fourth Year ended
Quarter December 31, � 2006� � 2006� (thousands) Net income $
82,891� $ 45,319� Interest expense (income), net (3,257) 21,914�
Loss on extinguishment of debt -� 4,910� Income tax provision
13,350� 11,298� Depreciation and amortization 10,683� 42,160�
Current year lumber duty refund in cost of sales (12,123) (12,123)
Lumber duty refund for prior years (101,209) (101,209) Incentive
compensation earned due to lumber duty refund 3,298� 3,298� Other
cost of sales related to lumber duty refund � 422� � 422� �
Adjusted EBITDA $ (5,945) $ 15,989� � The following table
reconciles operating income (loss) to adjusted operating income
(loss) for each of the Company's Pulp and Wood Products operating
segments for the periods indicated: � Fourth Year ended Quarter
December 31, � 2006� � 2006� Pulp (thousands) Operating income $
3,879� $ 18,185� Incentive compensation earned due to lumber duty
refund � 596� � 596� � Adjusted operating income $ 4,475� $ 18,781�
� Wood Products Operating loss $ (1,219) $ (10,483) Current year
lumber duty refund in cost of sales (12,123) (12,123) Incentive
compensation earned due to lumber duty refund 1,084� 1,084� Other
cost of sales related to lumber duty refund � 422� � 422� �
Adjusted operating loss $ (11,836) $ (21,100) � The following table
reconciles operating income (loss) to adjusted EBITDA for each of
the Company's Pulp and Wood Products operating segments for the
periods indicated: � Fourth Year ended Quarter December 31, � 2006�
� 2006� Pulp (thousands) Operating income $ 3,879� $ 18,185�
Depreciation and amortization 7,152� 28,382� Incentive compensation
earned due to lumber duty refund � 596� � 596� � Adjusted EBITDA $
11,627� $ 47,163� � Wood Products Operating loss $ (1,219) $
(10,483) Depreciation and amortization 3,334� 12,927� Current year
lumber duty refund in cost of sales (12,123) (12,123) Incentive
compensation earned due to lumber duty refund 1,084� 1,084� Other
cost of sales related to lumber duty refund � 422� � 422� �
Adjusted EBITDA $ (8,502) $ (8,173)
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