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