On November 3, 2005, the Company's Board of Directors suspended the quarterly dividend to conserve the Company's net worth and cash balances.
The year-over-year decline in earnings was driven primarily by a combination of market price decreases for the Company's pulp and lumber businesses, as well as increases in the Company's cost of goods sold. In particular, the Canadian to U.S. dollar exchange rate continues to cause significant year-over-year increases in the cost of goods sold. For the quarter ended September 30, 2005, the average Canadian to U.S. dollar exchange rate was .83 versus .80 for the quarter ended June 30, 2005, and was significantly higher than the average .76 rate for the third quarter of 2004. The Company estimates that the change in the Canadian to U.S. dollar exchange rate increased third quarter 2005 reported cost of goods sold by approximately $13.5 million as compared with the third quarter of 2004.
Lumber import duty deposits on Canadian softwood lumber continue to negatively affect lumber costs. Import duties totaled $10.4 million in the third quarter of 2005, compared with $13.0 million in the same quarter of 2004 and $10.1 million in the second quarter of 2005. The decrease in duties paid compared with 2004 reflected the decrease in duty deposit rates from a combined rate of 27.22 percent in 2004 to 20.15 percent in 2005.
"We are pleased with the performance and production improvements of both our pulp and lumber mills; however, the year-to-year decline in prices for the Company's lumber and pulp products, foreign exchange driven cost increases, and continuation of the lumber trade dispute have all lead to the continued erosion of Pope & Talbot's financial performance," stated Mike Flannery, Chairman and Chief Executive Officer.
Pulp
Pope & Talbot's third quarter 2005 pulp sales volume increased 11 percent, with pulp sales revenues largely unchanged, compared with the third quarter 2004. The average price realized per metric ton sold during the quarter decreased nine percent from the third quarter of 2004. The third quarter 2005 pricing represented a five percent decrease from the second quarter of 2005.
In the third quarter of 2005, pulp cost of goods sold increased eight percent compared with the third quarter of 2004. The increase in cost of goods sold was primarily the result of the 11 percent increase in sales volume and foreign exchange driven cost increases of approximately $6.7 million, or seven percent, compared with the third quarter of 2004.
Wood products
Pope & Talbot's third quarter 2005 lumber sales volume increased 41 percent, primarily due to the Fort St. James acquisition, with wood products sales revenues increasing 14 percent, compared with the third quarter of 2004. The average price realized per thousand board feet sold during the quarter decreased 19 percent in the third quarter of 2004. Third quarter 2005 pricing also declined five percent relative to second quarter 2005 average price realization.
In the third quarter of 2005, wood products cost of goods sold increased 40 percent compared with the third quarter of 2004. The 41 percent increase in lumber sales volume was the principle cause of the increase in cost of goods sold, along with foreign exchange driven cost increases of approximately $6.8 million.
Selected Statistics
Second Nine months ended
Third Quarter Quarter September 30,
--------------------- ------------------- --------- ------------------
2005 2004 2005 2005 2004
--------------------- --------- --------- --------- --------- --------
Sales Volumes
(thousands):
Pulp (metric tons) 204,800 185,200 187,300 601,200 587,800
Lumber (thousand
board feet) 246,000 174,400 216,300 647,300 485,500
Production Volumes
(thousands):
Pulp (metric tons) 209,900 203,600 189,600 602,500 598,700
Lumber (thousand
board feet) 245,200 169,000 227,100 657,500 503,900
Average Price
Realizations: (A)
Pulp (metric tons) $ 512 $ 562 $ 539 $ 534 $ 549
Lumber (thousand
board feet) $ 390 $ 483 $ 411 $ 411 $ 451
Notes:
(A) Gross invoice price less trade discounts.
In the third quarter of 2005, Pope & Talbot's capital expenditures were $10.9 million and depreciation was $9.7 million. At the end of the quarter, total debt was $292.5 million, an increase of $18.0 million from June 30, 2005, and $57.3 million from year-end 2004. As of September 30, 2005, the Company had borrowing capacity under its revolving lines of credit and their restrictive covenant requirements of approximately $84.2 million. Stockholders' equity was $147.4 million, a decrease of $16.2 million from year-end 2004. On September 30, 2005, the ratio of total debt to total capitalization was 66 percent, up from 59 percent at year-end 2004.
As of September 30, 2005, the Company required and obtained waivers from the other parties to its Halsey pulp mill leases to avoid a violation of one of the financial covenants in those leases. The Company does not expect to be in compliance with the financial covenants of those leases as of December 31, 2005, and therefore will require a further waiver or amendment or other negotiated resolution.
Pope & Talbot, Inc. will be holding a conference call on Friday, November 4, 2005, at 10:00 a.m. PST (1:00 p.m. EST.) The call-in number is 416-695-5259. 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 deterioration 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 considers net income or loss before interest, income taxes, depreciation and amortization ("EBITDA") to be a relevant and meaningful indicator of earnings performance commonly used by investors, financial analysts and others, in addition to and not in lieu of generally accepted accounting principles (GAAP) results, to evaluate companies in its industry and, as such, has included this non-GAAP financial measure in its public statements.
Pope & Talbot is dedicated to the pulp and wood products businesses. 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 OPERATIONS
Third Quarter Second September 30,
Quarter
------------------- --------- -------------------
2005 2004 2005 2005 2004
-------- -------- --------- -------- --------
Revenues:
Pulp $104,833 $104,583 $100,901 $320,936 $323,322
Wood Products
Lumber 95,946 84,192 88,860 265,803 218,931
Chips, logs and
other 11,957 10,369 12,332 35,300 27,770
-------- -------- -------- -------- --------
Total Wood
Products 107,903 94,561 101,192 301,103 246,701
-------- -------- -------- -------- --------
Total
revenues 212,736 199,144 202,093 622,039 570,023
-------- -------- -------- -------- --------
Costs and expenses:
Pulp cost of sales 106,144 97,877 101,743 319,138 298,964
Wood Products cost
of sales 108,018 76,889 97,006 288,403 210,059
Selling, general
and administrative 10,123 7,803 8,567 27,312 25,276
-------- -------- -------- -------- --------
Operating income
(loss) (11,549) 16,575 (5,223) (12,814) 35,724
Interest expense,
net 5,458 4,985 5,227 15,820 15,385
-------- -------- -------- -------- --------
Income (loss) before
income taxes (17,007) 11,590 (10,450) (28,634) 20,339
Income tax provision
(benefit) (8,185) 3,815 (3,462) (12,179) 6,633
-------- -------- -------- -------- --------
Net income (loss) $ (8,822) $ 7,775 $ (6,988) $(16,455) $ 13,706
======== ======== ======== ======== ========
Net income (loss)
per common share:
Basic $ (0.54) $ 0.49 $ (0.43) $ (1.02) $ 0.87
======== ======== ======== ======== ========
Diluted $ (0.54) $ 0.48 $ (0.43) $ (1.02) $ 0.86
======== ======== ======== ======== ========
Average shares
outstanding:
Basic 16,226 16,021 16,222 16,202 15,805
Diluted 16,226 16,263 16,222 16,202 16,026
CONSOLIDATED BALANCE SHEETS
September 30, June 30, December 31,
------------------- -------- ------------
2005 2004 2005 2004
-------- -------- -------- --------
Assets:
Current assets $227,401 $214,290 $211,893 $211,241
Properties, net 384,027 327,315 366,394 340,038
Deferred income
taxes, net 3,217 8,789 1,084 -
Other assets 20,361 19,521 19,197 19,348
-------- -------- -------- --------
Total assets $635,006 $569,915 $598,568 $570,627
======== ======== ======== ========
Liabilities and
stockholders'
equity:
Current portion of
long-term debt $ 63,974 $ 5,601 $ 6,673 $ 5,605
Other current
liabilities 127,096 115,897 109,789 107,285
Long-term debt,
excluding current
portion 228,539 220,402 267,847 229,634
Deferred income
tax liability,
net - - - 2,522
Other long-term
liabilities 68,028 60,106 64,511 61,947
-------- -------- -------- --------
Total liabilities 487,637 402,006 448,820 406,993
Stockholders'
equity 147,369 167,909 149,748 163,634
-------- -------- -------- --------
Total liabilities
and stockholder's
equity $635,006 $569,915 $598,568 $570,627
======== ======== ======== ========
Total debt to total
capitalization 66% 57% 65% 59%
======== ======== ======== ========
SEGMENT INFORMATION
Nine months ended
Third Quarter Second September 30,
Quarter
------------------- --------- ------------------
2005 2004 2005 2005 2004
-------- -------- -------- -------- --------
EBITDA: (A)
Pulp $ 2,658 $ 11,902 $ 2,851 $ 13,321 $ 36,909
Wood Products 1,259 18,160 4,881 15,271 38,123
General Corporate (5,723) (3,701) (3,876) (13,684) (10,685)
-------- -------- -------- -------- --------
(1,806) 26,361 3,856 14,908 64,347
-------- -------- -------- -------- --------
Depreciation and
amortization:
Pulp $ 6,573 $ 7,621 $ 6,354 $ 19,504 $ 22,114
Wood Products 2,820 1,762 2,386 7,152 5,282
General Corporate 350 403 339 1,066 1,227
-------- -------- -------- -------- --------
9,743 9,786 9,079 27,722 28,623
-------- -------- -------- -------- --------
Operating income
(loss):
Pulp $ (3,915) $ 4,281 $ (3,503) $ (6,183) $ 14,795
Wood Products (1,561) 16,398 2,495 8,119 32,841
General Corporate (6,073) (4,104) (4,215) (14,750) (11,912)
-------- -------- -------- -------- --------
Operating income
(loss) $(11,549) $ 16,575 $ (5,223) $(12,814) $ 35,724
======== ======== ======== ======== ========
Additional
Information:
Lumber import
duties $ 10,400 $ 13,000 $ 10,100 $ 29,000 $ 32,600
Capital
expenditures 10,934 7,788 12,626 31,905 18,122
Notes:
(A) EBITDA equals net income (loss) before income taxes and net
interest expense, plus depreciation and amortization, and is
reconcilable to the Company's net income (loss) using the
depreciation and amortization, net interest expense and income tax
provision (benefit) numbers in the above table. The Company uses
EBITDA to evaluate the operating performance of its business on a
consolidated basis and for each of its operating segments. The
Company considers EBITDA to be a relevant and meaningful indicator
of earnings performance commonly used by investors, financial
analysts and others, in addition to and not in lieu of generally
accepted accounting principles (GAAP) results, to evaluate
companies in its industry. EBITDA is not a measure of liquidity
under GAAP and should not be considered as an alternative to cash
flow from operating activities.
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