Pope & Talbot Posts First Quarter Loss on Pricing
May 10, 2006 (Press Release) - Pope & Talbot, Inc. today reported a net loss of $12.9 million, or $0.79 per share for the three months ended March 31, 2006, a decrease of $12.3 million, or $0.75 per share, when compared with a net loss of $0.6 million, or $0.04 per share, reported for the same period in 2005 and an improvement of $20.7 million, or $1.28 per share, over the fourth quarter of 2005. Revenues were $223.0 million for the quarter compared to $207.2 million for the first quarter of 2005, and earnings before interest, taxes, depreciation and amortization (EBITDA) decreased to $3.2 million compared with $12.9 million one year ago. EBITDA for the first quarter of 2006 increased $9.1 million compared to negative $6.0 million in the fourth quarter of 2005.
The year-over-year decline was driven primarily by market price decreases in the Company's lumber and pulp divisions, and the weakening U.S. dollar. The Canadian to U.S. dollar average exchange rate of $0.87 in the first quarter of 2006 was six percent higher than the first quarter of 2005 rate of $0.82 and two percent higher then the $0.85 rate in the fourth quarter of 2005. The Company estimates that the change in the Canadian to U.S. dollar exchange rate increased first quarter 2006 reported cost of goods sold by approximately $8.6 million, as compared with the first quarter of 2005 and $2.0 million as compared with the fourth quarter of 2005. Import duty deposits on Canadian softwood lumber totaled $5.8 million in the first quarter of 2006, compared with $8.5 million in the same quarter of 2005 and $8.3 million in the fourth quarter of 2005. The decrease in duties paid primarily reflected the decrease in duty deposit rates from a combined rate of 20.15 percent to 10.8 percent.
On April 27, 2006, the governments of Canada and the U.S. announced a framework of basic terms for a definitive agreement resolving the softwood lumber dispute. Upon the effectiveness of the expected agreement, the U.S. will stop collecting cash deposits of the softwood lumber duties and refund to Canadian lumber producers approximately 80 percent of the cash deposits of duties made since 2002, and Canada will impose a new system of export charges on softwood lumber exported to the U.S. Accordingly, upon the effectiveness of the agreement, the Company will become entitled to a pre-tax refund of approximately $103 million based on duties incurred through March 31, 2006.
"We are extremely pleased with the framework for resolution of the Softwood Lumber Trade Dispute," stated Michael Flannery, Chairman and Chief Executive Officer. "While it doesn't resolve all of the Company's ongoing challenges, the positive impacts on Pope & Talbot's earnings, EBITDA and capitalization are significant and position the Company for additional improvements."
Pope & Talbot's first quarter pulp sales volume decreased one percent to 207,100 metric tons, with pulp sales revenues decreasing four percent to $110.8 million, as compared with the first quarter of 2005. The average price realized per metric ton sold during the quarter decreased three percent to $535 from $551 in the first quarter of 2005. The first quarter 2006 pricing represented a three percent increase from the fourth quarter 2005 average price realization of $517 per metric ton.
In the first quarter of 2006, pulp cost of goods sold decreased $0.5 million, or one percent. The Company estimates that the increase in the average daily Canadian to U.S. dollar exchange rate resulted in an approximately $4.3 million, or four percent, increase in pulp cost of sales. Excluding the foreign exchange impacts, cost of goods sold declined three percent compared with the first quarter of 2005, primarily as a result of lower fiber costs and lower sales volume.
Pope & Talbot's first quarter 2006 lumber sales volume increased 32 percent to 244.0 million board feet, with wood products sales revenues increasing 22 percent to $112.2 million, as compared with the first quarter of 2005. The average price realized per thousand board feet sold during the quarter decreased seven percent to $407 from $438 in the first quarter of 2005. First quarter 2006 pricing represented a four percent improvement relative to fourth quarter 2005 average price realization of $391 per thousand board feet.
In the first quarter 2006, wood products cost of goods sold increased $26.4 million or 32 percent. These cost increases are largely attributable to the addition of Fort St. James and the associated 32 percent increase in sales volume. Foreign currency exchange driven cost increases of approximately $4.3 million, or a four percent increase in average cost per thousand board feet, compared with the first quarter of 2005 were offset by a decrease in lumber import duty deposits of $2.7 million, or a five percent decrease in average cost per thousand board feet.
Selling, General & Administration
Selling, general and administrative expenses (SG&A) for the first quarter of 2006 totaled $9.8 million compared with $8.6 million in the same period of 2005 and $11.9 million in the fourth quarter of 2005. SG&A expenses in the first quarter of 2006 were $1.2 million higher than the same period a year ago, primarily due to $0.7 million in increased costs associated with financial consultants, $0.3 million in increased costs for legal services and $0.2 million in increased costs associated with the Company's sale of accounts receivable under its Receivable Purchase Agreement. SG&A expenses decreased $2.1 million compared with the fourth quarter of 2005. Included in the fourth quarter of 2005 was the benefit of a $0.8 million reversal of a portion of the environmental reserves associated with a former sawmill location due to an update of cost estimates. After adjusting for this benefit, SG&A expenses decreased $2.9 million. The reduction in expense is primarily due to a decrease of $1.4 million in costs associated with obtaining lease amendments and debt covenant waivers, a decrease of $0.8 million in cash management and other financial consulting fees, and a decrease of $0.3 million related to Sarbanes-Oxley compliance consulting.
In the first quarter of 2006, Pope & Talbot's capital expenditures were $6.5 million and depreciation and amortization was $10.4 million. At the end of the quarter, total debt was $330.9 million, a decrease of $1.1 million from year-end 2005, and shareholders equity was $99.8 million, a decrease of $12.2 million from year-end 2005. On March 31, 2006, the ratio of long-term debt to total capitalization was 77 percent, up from 75 percent at year-end 2005.
Due to the recent increase in the Canadian to U.S. dollar exchange rate to over $0.90, the Company is uncertain about whether it will be in compliance with the minimum interest coverage covenant under its Canadian revolving credit facility at June 30, 2006. To address this issue and its other previously disclosed refinancing and financial covenant compliance issues, the Company has substantially completed the negotiation and documentation of a new $300 million revolving credit and term loan facility with certain institutional lenders to refinance its Halsey pulp mill leases, its existing Canadian and U.S. revolving credit facilities and its receivable sales arrangement. This transaction is awaiting a tax ruling from the Canadian Revenue Agency and, subject to receipt of a favorable ruling, is expected to close in the second quarter of 2006.
SOURCE: Pope & Talbot, Inc.