POP Pope & Talbot

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)