Pope & Talbot

March 11, 2005 08:00 ET

Pope & Talbot Announces Fourth Quarter 2004 Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: POPE & TALBOT

NYSE SYMBOL: POP

MARCH 11, 2005 - 08:00 ET

Pope & Talbot Announces Fourth Quarter 2004 Results

PORTLAND, Ore.--(CCNMatthews - Mar 11, 2005) -

Pope & Talbot, Inc. (NYSE:POP) today reported net income of $11.1
million, or $0.69 per diluted share, for the year ended December 31,
2004, compared with a net loss of $24.8 million, or $1.59 per share for
the year ended December 31, 2003. Revenues for 2004 were $762.7 million
compared to $612.7 million in 2003, and earnings before interest, taxes,
depreciation, and amortization (EBITDA) increased $53.2 million to $72.4
million. Net income for 2004, while substantially better than 2003, was
lower than the net income of $13.7 million reported for the nine months
ended September 30, 2004 due to a net loss of $2.6 million in the fourth
quarter of 2004. The fourth quarter loss was attributable to lower
prices for both pulp and lumber as compared with the second and third
quarters of 2004, as well as a sharp decline during the fourth quarter
in the value of the U.S. dollar relative to the Canadian dollar.

During the course of the year-end review process, it was determined that
the Company had miscalculated the required deferred income taxes on
undistributed earnings of its Canadian subsidiaries and related
valuation allowances and tax reserves for the years 2002 through 2004.
Several weeks of additional work were required to develop, refine and
verify the proper methodology for this complex calculation, resulting in
a delay in this year-end earnings release. The impact of the
miscalculation was a cumulative understatement of state tax benefits of
$0.8 million which was recorded in the fourth quarter of 2004 as it was
determined to be immaterial to all affected periods. As a result of this
deferred tax and other related tax accounting miscalculations, the
Company has determined that it has an internal control deficiency that
constitutes a "material weakness" as defined by the Public Company
Accounting Oversight Board's Auditing Standard No. 2. A material
weakness is a significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that a
material misstatement of the financial statements will not be prevented
or detected. Because of this material weakness, management has concluded
that the Company's internal control over financial reporting was not
effective as of December 31, 2004.

Improved financial performance for the full year was driven by
significant market price increases for the Company's pulp and lumber
products, partially offset by the continued weakening of the U.S. dollar
and the ongoing U.S./Canada lumber trade dispute. The weaker U.S. dollar
increased cost of sales for the year by approximately $30.6 million
compared with 2003, and the 27.22 percent import duty deposit rate on
Canadian softwood lumber partially offset the benefits of higher lumber
prices. Duty deposits with respect to lumber imported into the U.S.
during 2004 totaled $42.3 million, and increased cost of sales by $12.9
million for 2004 compared with 2003. On December 20, 2004, the duty
deposit rate was lowered to 21.21 percent, and was subsequently adjusted
on January 24, 2005 and again on February 24, 2005, resulting in a
current rate applicable to the Company of 20.15 percent. The Company's
effective tax rate for 2004 was 23 percent versus the federal statutory
rate of 35 percent. Factors and adjustments reducing the effective tax
rate in 2004 included $2.2 million of net tax benefit from several
items, including favorable affects of Canadian tax loss carrybacks,
previously unrecognized tax credits, the reversal of tax reserves no
longer required and the correction of the deferred tax calculation
referred to above.

For the fourth quarter of 2004, the Company reported a net loss of $2.6
million, or $0.16 per share, compared with a net loss of $5.7 million,
or $0.36 per share for the same quarter in 2003. Similar to the full
year, the quarterly results were significantly affected by higher pulp
and lumber prices as compared with the fourth quarter of 2003, the
weakness of the U.S. dollar, and lumber import duties. During the fourth
quarter, the weakening U.S. dollar increased cost of sales by $6.2
million compared with the third quarter, and $6.9 million compared with
the fourth quarter of 2003. Fourth quarter duty deposits were $9.7
million.

Michael Flannery, Chairman and Chief Executive Officer stated, "Despite
the setback in the fourth quarter, I am very pleased with the continued
improvement in the Company's operating performance and particularly the
strong markets for our products. The continuing weakness of the U.S.
dollar in combination with the continuation of the lumber trade dispute
has unfortunately prevented the Company from bringing the full benefits
of those markets to the bottom line. Further, while errors were
discovered in the Company's calculation of deferred income taxes, those
errors have been corrected and had no impact on the Company's revenue,
cash flow, or pre-tax earnings."

Pulp

Pope & Talbot's 2004 pulp sales volume increased two percent to 798,600
metric tons, with pulp sales revenues increasing 17 percent to $432.5
million, as compared with 2003. The average price realized per metric
ton sold during 2004 increased 15 percent to $541 from $470 in 2003.

Pulp cost of goods sold increased $41.3 million, or 11 percent, compared
with a pulp revenue increase of $62.6 million, over 2003. The increase
in cost of goods sold was primarily the result of foreign exchange
driven cost increases of approximately $19.6 million, as well as higher
fiber and production costs. The cost of a significant portion of the
Company's fiber supply is formula-based upon the sales price of pulp.

In the fourth quarter of 2004, pulp revenues increased four percent, or
$4.6 million dollars compared with the third quarter. The increase was
driven by a sales volume increase of 14 percent, which was substantially
offset by an eight percent decline in average price realized per metric
ton sold from $562 in the third quarter to $518 in the fourth quarter.

Pulp cost of goods sold increased $10.2 million, or ten percent in the
fourth quarter compared with the third quarter of 2004. The increase in
cost of goods sold was primarily the result of the 14 percent increase
in sales volumes, coupled with a weakening U.S dollar which increased
cost of goods sold by $4.0 million.

Wood Products

Pope and Talbot's 2004 lumber sales volume increased 5 percent to 657.2
million board feet, with wood products sales revenues increasing 36
percent to $330.1 million, as compared with 2003. The average price
realized per thousand board feet sold during the year increased 29
percent to $442 from $343 in 2003.

Wood products cost of goods sold increased $46.9 million, or 20 percent,
compared with a revenue increase of $87.3 million over 2003.
Contributing to the increase in cost of goods sold were higher costs of
approximately $12.0 million related to the increase in sales volume,
lumber duty increases of $12.9 million, and foreign currency exchange
driven cost increases of $11.0 million, compared with 2003. The increase
in lumber import duties resulted primarily from lumber sales price
increases.

In the fourth quarter of 2004, lumber revenues decreased 15 percent, or
$12.4 million dollars compared with the third quarter. The decrease was
primarily driven by a 13 percent decline in average price realized per
thousand board feet sold from $483 in the third quarter to $418 in the
fourth quarter and a two percent decrease in sales volume. Lumber cost
of goods sold was virtually unchanged compared to the previous quarter.
The weakening U.S. dollar did, however, increase lumber cost of goods
sold $2.2 million compared with the third quarter of 2004.



Selected Statistics

Third Year ended December
Quarter Fourth Quarter 31,
--------------------------------------------------
2004 2004 2003 2004 2003
--------- --------- --------- ----------- --------
Sales Volumes:
Pulp (metric tons) 185,200 210,800 188,700 798,600 786,600
Lumber (thousand
board feet) 174,400 171,700 143,900 657,200 625,400

Production Volumes:
Pulp (metric tons) 203,600 207,100 201,700 805,800(A) 788,700
Lumber (thousand
board feet) 169,000 171,400 149,800 675,300 618,300


Average Price
Realizations:(B)
Pulp (metric tons) $ 562 $ 518 $ 494 $ 541 $ 470
Lumber (thousand
board feet) $ 483 $ 418 $ 373 $ 442 $ 343

Notes:
(A) Includes production in 2004 of 8,800 metric tons of pulp
processed from semi-finished (wetlap) pulp.
(B) Gross invoice price less trade discounts.



During 2004, Pope & Talbot's capital expenditures increased $6.7 million
to $25.2 million, and depreciation expense was $37.7 million. At the end
of the year, total debt was $235.2 million, a decrease of $14.0 million
from year-end 2003. Shareholders' equity on December 31, 2004, was
$163.6 million, an increase of $17.2 million from December 31, 2003. On
December 31, 2004, the ratio of long-term debt to total capitalization
was 58 percent, down from 63 percent at December 31, 2003.

On December 22, 2004 Pope & Talbot, Inc. announced it had entered into
an agreement to acquire the Fort St. James sawmill, including timber
tenures with 640,000 cubic meters of annual allowable cut, from Canfor
Corporation for approximately Canadian $39 million or approximately US
$32 million, plus the value of certain inventory, less the amount of
reforestation and certain other liabilities which will be determined at
closing. The transaction is expected to close in the second quarter of
2005 and is subject to normal course regulatory filings and other
customary conditions.

Pope & Talbot, Inc. will be holding a conference call on Friday, March
11, 2005, at 10:00 a.m. PDT (1:00 p.m. EDT.) The call-in number is
416-695-9753. 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 evaluating 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 and
Pacific stock exchanges 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 Year ended December
Quarter Fourth Quarter 31,
--------- ------------------ -------------------
2004 2004 2003 2004 2003
-------- -------- -------- -------- --------
Revenues:
Pulp $104,583 $109,203 $ 93,118 $432,525 $369,878
Wood Products
Lumber 84,192 71,835 53,628 290,766 214,342
Chips, logs and
other 10,369 11,604 8,219 39,374 28,459
-------- -------- -------- -------- --------
Total Wood
Products 94,561 83,439 61,847 330,140 242,801
-------- -------- -------- -------- --------
Total
revenues 199,144 192,642 154,965 762,665 612,679
Costs and expenses:
Pulp cost of sales 97,877 108,050 93,900 407,014 365,672
Wood Products cost
of sales 76,889 76,740 59,618 286,799 239,924
Selling, general
and administrative 7,803 8,894 7,574 34,170 26,134
-------- -------- -------- -------- --------
Operating income
(loss) 16,575 (1,042) (6,127) 34,682 (19,051)
Interest expense,
net 4,985 4,871 5,336 20,256 21,389
-------- -------- -------- -------- --------
Income (loss) before
income taxes 11,590 (5,913) (11,463) 14,426 (40,440)
Income tax provision
(benefit) 3,815 (3,334) (5,776) 3,299 (15,628)
-------- -------- -------- -------- --------
Net income (loss) $ 7,775 $ (2,579) $ (5,687) $ 11,127 $(24,812)
======== ======== ======== ======== ========

Net income (loss)
per common share -
basic $ .49 $ (.16) $ (.36) $ .70 $ (1.59)
======== ======== ======== ======== ========
Net income (loss)
per common share -
diluted $ .48 $ (.16) $ (.36) $ .69 $ (1.59)
======== ======== ======== ======== ========

Average shares
outstanding -
basic 16,021 16,189 15,625 15,902 15,622
Average shares
outstanding -
diluted 16,263 16,189 15,625 16,116 15,622

Return on equity 19.9% (6.2)% (15.6)% 7.2% (17.1)%
======== ======== ======== ======== ========


CONSOLIDATED BALANCE SHEETS
December 31,
------------------
2004 2003
-------- --------
Assets:
Current assets $211,241 $179,140
Properties, net 340,038 335,008
Deferred income tax
assets, net - 6,686
Other assets 19,348 18,728
-------- --------
Total assets $570,627 $539,562
======== ========
Liabilities and
stockholders'
equity:
Current portion of
long-term debt $ 5,605 $ 5,079
Other current
liabilities 107,285 84,646
Long-term debt,
excluding current
portion 229,634 244,143
Deferred income tax
liability, net 2,522 -
Other long-term
liabilities 61,947 59,229
-------- --------
Total liabilities 406,993 393,097
Stockholders'
equity 163,634 146,465
-------- --------
Total liabilities
and stockholder's
equity $570,627 $539,562
======== ========

Long-term debt to
total capitalization 58% 63%
======== ========


SEGMENT INFORMATION
Third Year ended December
Quarter Fourth Quarter 31,
--------- ------------------ -------------------
2004 2004 2003 2004 2003
-------- -------- -------- -------- --------
EBITDA: (A)
Pulp $ 11,531 $ 4,957 $ 3,710 $ 40,648 $ 20,991
Wood Products 18,012 6,967 3,141 44,604 6,229
General Corporate (3,182) (3,917) (2,965) (12,898) (8,100)
-------- -------- -------- -------- --------
26,361 8,007 3,886 72,354 19,120
-------- -------- -------- -------- --------
Depreciation and
amortization:
Pulp $ 7,621 $ 6,687 $ 7,629 $ 28,801 $ 28,933
Wood Products 1,762 1,974 1,926 7,256 7,760
General Corporate 403 388 458 1,615 1,478
-------- -------- -------- -------- --------
9,786 9,049 10,013 37,672 38,171
-------- -------- -------- -------- --------
Operating income
(loss):
Pulp $ 3,910 $ (1,730) $ (3,919) $ 11,847 $ (7,942)
Wood Products 16,250 4,993 1,215 37,348 (1,531)
General Corporate (3,585) (4,305) (3,423) (14,513) (9,578)
-------- -------- -------- -------- --------

Operating income
(loss) $ 16,575 $ (1,042) $ (6,127) $ 34,682 $(19,051)
======== ======== ======== ======== ========

Selected Statistics:
Lumber import
duties $ 13,000 $ 9,700 $ 7,300 $ 42,300 $ 29,400
Capital
expenditures $ 7,788 $ 7,118 $ 4,914 $ 25,240 $ 18,570


(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
considers EBITDA to be a relevant and meaningful indicator of
earnings performance commonly used by investors, financial
analysts and others in evaluating companies in its industry and,
as such, has provided this information in addition to the
generally accepted accounting principle-based presentation of net
income (loss).



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Pope & Talbot, Inc.
    Richard K. Atkinson, 503-228-9161