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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2003

OR

For the transition period from                      to                     

Commission File No. 1-7852

POPE & TALBOT, INC.

Registrant’s telephone number, including area code:    (503) 228-9161

NONE

Former name, former address and former fiscal year, if changed since last report.

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ    No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of the latest practicable date.

Common stock, $1 par value—15,641,851 shares as of July 28, 2003.

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PART I.    FINANCIAL INFORMATION

ITEM 1.    Financial Statements

POPE & TALBOT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes to consolidated financial statements are an integral part of these statements.

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POPE & TALBOT, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

The accompanying notes to consolidated financial statements are an integral part of these statements.

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POPE & TALBOT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes to consolidated financial statements are an integral part of these statements.

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003

(Unaudited)

1.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Effective income tax rates for interim periods are based on the current best estimate of taxable earnings for the full year. This rate is applied to year-to-date income or loss at the end of each quarter. Results for the first six months of the year may not necessarily be indicative of the results that may be expected for the full year.

The balance sheet at December 31, 2002 was derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Certain reclassifications have been made to the balance sheet at December 31, 2002 to conform to the current year’s presentation. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Accounting Pronouncements Implemented

In August 2001, the FASB issued SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets.” SFAS No. 143, effective January 1, 2003, addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under the new statement, the Company is required to record the fair value of a liability (discounted) for an asset retirement obligation in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over the expected useful life of the asset. This statement changed the Company’s accounting for landfill closure costs and reforestation liabilities.

Accordingly, as of January 1, 2003, the Company adjusted the carrying value of liabilities, previously recorded on a non-discounted basis, for reforestation and certain landfill closure costs and recorded liabilities (discounted) and the associated asset and accumulated depreciation for landfill closure costs not previously accrued. The increase to total properties, net of accumulated depreciation was $.3 million and the net increase to total liabilities was $.5 million. The cumulative effect of adopting this standard was not material to the Company’s results of operations and the net impact was included in cost of goods sold in the first quarter of 2003. Revisions to the liabilities could occur due to changes in the estimated amount or timing of estimated expenditures, or possible new governmental regulations affecting these liabilities.

2.    Net Income (Loss) Per Share

The computation of basic earnings per share is based on net income or loss and the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the assumed issuance of common stock equivalents related to dilutive stock options and restricted stock awards. The computation of diluted earnings per share does not assume conversion or exercise of securities that would have an antidilutive

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

effect on earnings per share. In the table below, the effect of stock plans on diluted net income (loss) per share was either antidilutive or not significant.

The following table summarizes the computation of diluted net income (loss) per share:

Certain Company stock options were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares, or the impact of their inclusion would be antidilutive. Such stock options, with prices ranging from $5.25 to $30.38 per share, averaged 1,632,000 and 535,000 for the three months ended June 30, 2003 and 2002, respectively and 1,578,000 and 1,470,000 for the six months ended June 30, 2003 and 2002, respectively.

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123.” This statement provided alternative methods of transition for a voluntary change from the intrinsic value method of accounting for stock-based employee compensation to the fair value method.

The Company continues to use the intrinsic value method under APB Opinion No. 25 and related interpretations to account for stock-based employee compensation. Under this method, no compensation expense related to stock options has been recognized in the Statement of Operations for the periods presented. The table below provides the pro forma disclosures as if the Company had adopted the fair value method for all stock-based compensation.

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

The Company has followed the practice of using treasury stock to fulfill its obligations under its stock option plans. When stock is issued pursuant to a stock option plan, the difference between the exercise price and the cost of treasury shares is recorded as an increase or decrease to additional paid-in capital.

To calculate stock-based employee compensation expense under SFAS 123, the Company estimated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2003 and 2002, respectively: risk-free interest rates of 3.4 and 4.7 percent; dividend yields of 4.1 and 4.3 percent; and expected volatility of 46 percent for both periods. Expected option lives of six years were assumed.

3.    Inventories

Interim LIFO calculations require the estimation of the Company’s year-end inventory quantities and costs. These estimates are revised quarterly and the estimated incremental change in the LIFO inventory reserve is expensed over the remainder of the year. The portion of inventories determined using the last-in, first-out (LIFO) method aggregated $22.7 million and $19.9 million using the average cost method, which approximates the FIFO basis, at June 30, 2003 and December 31, 2002, respectively.

4.    Income taxes

Management believes that the Company will have sufficient future U.S. taxable income from tax planning strategies to make it more likely than not that the net operating loss deferred tax asset will be realized. In making this assessment, management has considered the cyclical nature of its business, the relatively long expiration period of net operating losses and the ability to utilize certain tax planning strategies if a net operating loss were to otherwise expire. The realization of the asset is not assured and could be reduced in the future if estimates of future taxable income during the carryforward period are reduced.

5.    Debt

In June 2003, the Company consolidated its $110.0 million Canadian revolving bank line of credit and its $35.0 million Canadian term loan due June 2003 into two 364-day extendable revolving credit facilities. The maximum borrowings under one line totals $95.0 million Canadian (approximately $70.0 million U.S.) and is convertible into a two-year term loan upon expiration of the revolving credit provisions. The other line provides $55.0 million Canadian (approximately $40.5 million U.S.) of revolving borrowings and is convertible into a

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

one-year term loan upon expiration of the revolving credit provisions. The restructured lines, expiring June 2004 and secured by the Mackenzie mill site and certain inventory and accounts receivable, increased the Company’s line availability by approximately $15.0 million Canadian (approximately $11.0 million U.S.).

The Company’s $15.0 million revolving credit facility with a U.S. bank, scheduled to expire in June 2003, was extended to September 2003. At June 30, 2003, the Company had no borrowings under this line. The line, secured by accounts receivable, is convertible into a one-year term loan upon expiration of the revolving credit provisions.

6.    Comprehensive Income (Loss)

Comprehensive income (loss) measures all changes in equity, including net income (loss), of the Company that result from recognized transactions and other economic events other than transactions with shareholders. Comprehensive income (loss) was as follows:

7.    Segment Information

The Company classifies its business into two operating segments: Pulp and Wood Products. A reconciliation of the totals reported for the operating segments to the corresponding amount in the Consolidated Statement of Operations was as follows:

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

8.    Legal Matters and Contingencies

The Company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to many variables and cannot be predicted with any degree of certainty, the Company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the Company’s current financial position or liquidity; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations.

The Forestry Revitalization Plan

In March 2003, the Government of British Columbia (Crown) introduced the Forestry Revitalization Plan (Plan) that provides for significant changes to Crown forest policy and to the existing allocation of Crown timber tenures to licensees. The changes prescribed in the Plan include: the elimination of minimum cut control regulations, the elimination of existing timber processing regulations, and the elimination of restrictions limiting the transfer and subdivision of existing licenses. In addition, the Crown has legislated that licensees, including the Company, will be required to return to the Crown 20 percent of their total allowable annual cut over 200,000 cubic meters (which would result in an approximately 16 percent decrease in the Company’s allowable annual cut). The Plan states that approximately half of this volume will be redistributed to open up opportunities for woodlots, community forests and First Nations and the other half will be available for public auction. The Crown has stated that licensees will be fairly compensated for lost harvesting rights and improvements on Crown land, such as roads and bridges. The Minister of Forests has three years from March 31, 2003 to determine reductions to a licensee’s allowable annual cut and the amount of related compensation. The Company will record the compensation to be received by it under the Plan at the time the amount to be recorded is estimable. The Company cannot predict what effect, if any, implementation of the Plan will have on the cost or supply of logs to its Canadian sawmills or the cost or supply of chips and sawdust to its Canadian pulp mills.

Import Duties

Approximately 80 percent of the Company’s current lumber capacity is located in British Columbia, Canada. Between April 1996 and April 2001, exporters of softwood lumber from Canada to the U.S. were subject to tariffs on lumber volumes in excess of defined tariff-free volumes under the Canada-U.S. Softwood Lumber Agreement (SLA). Upon expiration of the SLA on April 1, 2001, petitions for the imposition of antidumping duties (ADD) and countervailing duties (CVD) on softwood lumber from Canada were filed with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC), by certain U.S. industry and trade groups. In response to the petitions, the ITC conducted a preliminary injury investigation and on May 16, 2001, determined that there was a reasonable indication that the lumber industry in the United States was threatened with material injury by reason of softwood lumber imports from Canada.

On August 9, 2001, the DOC issued its preliminary determination on the CVD and imposed a preliminary duty rate of 19.31 percent to be posted by cash deposits or bonds on sales of softwood lumber to the U.S. on or after August 17, 2001. The DOC also made a preliminary determination that certain circumstances existed which would have resulted in duties on sales of softwood lumber applying retroactively to May 19, 2001 (Critical Circumstances). The preliminary duty rate of 19.31 percent was suspended on December 15, 2001, 120 days after the preliminary determination, in accordance with U.S. law.

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

On October 31, 2001, the DOC issued its preliminary determination on the ADD and imposed a company-specific preliminary duty rate on six companies reviewed ranging from 5.94 percent to 19.24 percent. All other companies, including Pope & Talbot’s Canadian subsidiary, received the weighted average rate of the six companies of 12.58 percent. The preliminary ADD rate applied to all shipments of softwood lumber made to the U.S. on or after November 6, 2001. The DOC did not find Critical Circumstances in its preliminary ADD ruling and, therefore, did not assess those duties retroactively.

On March 22, 2002, the DOC announced revised import duty rates of 19.34 percent and 9.67 percent, respectively in the CVD and ADD cases. The DOC also determined that there would be no retroactive application of the CVD prior to August 17, 2001. In May 2002, the ITC finalized its ruling on the imposition of ADD and CVD on softwood lumber from Canada, and based on the DOC’s final determination of ADD and CVD rates, the Company is currently subject to a combined import duty rate of 27.22 percent, effective May 22, 2002.

The Company’s 2003 second quarter and year-to-date results included duty costs of $6.9 million and $13.4 million, respectively. Based on the lumber import duty rates in effect at the time and the impact of DOC’s actions with respect to duty rates and time period applicability, the Company’s 2002 second quarter and year-to-date results included net reversals of $10.1 million and $14.4 million, respectively, of lumber import duties.

Beginning in June 2003, and annually thereafter for a total of five years, the DOC will conduct reviews to determine whether Canada continued to subsidize softwood logs and whether the Canadian companies including the Company’s Canadian subsidiary, engaged in dumping and, if so, the appropriate CVD and ADD rates to impose. Beginning in the second quarter of 2007, both the CVD and ADD orders will be automatically reviewed in a “sunset” proceeding to determine whether dumping or a countervailing subsidy would be likely to continue or recur.

The federal and provincial governments in Canada have moved for appellate review by panels under the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) with respect to the CVD findings. The ITC’s final ruling is subject to further reviews by panels of the WTO and under NAFTA, and it is possible that the lumber import duties may change as a result of a negotiated settlement between the Canadian and U.S. governments. Any adjustments to the financial statements resulting from a change in duty rates will be made prospectively if such events occur.

Environmental Matters

The Company is currently participating in the investigation and environmental remediation of several sites where the Company currently conducts or previously conducted business. The ultimate costs to the Company for the investigation, remediation and monitoring of these sites cannot be predicted with certainty, due to the often unknown magnitude of the pollution or the necessary cleanup, the varying costs of alternative cleanup methods, the amount of time necessary to accomplish such cleanups and the evolving nature of cleanup technologies and governmental regulations. The Company has recognized liabilities for environmental remediation costs for these sites in amounts that it believes are probable and reasonably estimable. Remediation costs incurred are charged against the reserves. The Company has assumed it will bear the entire cost of remediation at these sites.

The Company is working with the Washington Department of Ecology (WDOE) to remediate the Company’s former mill site and surrounding area at Port Gamble, Washington. The Company is responsible for

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

environmental remediation costs related to five landfills used by the Company that contain wood debris and industrial wastes. WDOE requested that the Company perform an investigation of sediments in the adjacent bay to determine the extent of wood waste accumulation. The Company completed the bay sediment characterization during 2002. The Company has submitted to WDOE closure plans for the landfills and, in the second quarter of 2003, submitted a bay sediment dredge and recovery plan. As of June 30, 2003, the five landfills have been closed and three of the landfills have received “no further action” letters from WDOE. The reserve balance for this site was $1.5 million at June 30, 2003, representing the low end of the range of estimated future remediation and monitoring costs at this site. Remediation costs charged to the reserve in the second quarter of 2003 totaled $.3 million and no other adjustments were made to the reserve. The Company expects the majority of the remaining remediation costs to be incurred in the second half of 2003 and expects to incur monitoring costs through 2013.

In June 2002, the Company was requested by Environment Canada, based on detection of environmental contamination in an effluent treatment pond at the Mackenzie pulp mill, to prepare a remediation plan for this pond. The environmental contamination occurred before the Company acquired the mill as a result of a manufacturing process that was discontinued at the mill in 1993. The Company is working with British Columbia’s Ministry of Land, Water and Air Protection to develop an appropriate remediation plan, with further site testing and engineering design feasibility studies to occur in the second half of 2003. No adjustments to the reserve were recorded in the first six months of 2003, and the reserve balance was $2.2 million at June 30, 2003.

In 1992, the Oregon Department of Environmental Quality (ODEQ), based on detection of creosote and hydrocarbon contamination, determined that a vacant industrial site in St. Helens, Oregon, formerly owned by the Company required further action. The Company is currently participating in the investigation phase of this site. The remediation reserve balance for this site was $3.7 million at June 30, 2003 and December 31, 2002, and represented the low end of the range of estimated future remediation and monitoring costs at this site. The reserve is for the estimated costs of soil and groundwater excavation and treatment, the capping and monitoring of surface water/sediment, and post remediation monitoring costs. The Company currently expects the majority of the remediation costs to be incurred in 2006, with post remediation monitoring costs to begin in 2007 and to continue for 15 to 20 years.

The Company tendered the defense of certain environmental claims to a number of insurance carriers that issued comprehensive general liability policies to the Company from the 1940’s to 1992. In 1995, the Company filed a declaratory judgment action to obtain a decision that the insurance carriers were obligated to defend the Company and indemnify it for any environmental liabilities incurred as a result of certain operations of the Company during that period. As of June 30, 2003, the Company has concluded settlements with these insurance carriers, primarily on a site-specific basis. In the second quarter of 2003, the Company collected $5.3 million in settlements concluded in the first six months of 2003.

Guarantees

In connection with the sale/leaseback of the Halsey pulp mill and its chlorine dioxide facility, the Company agreed to indemnify certain other participants in the financings against the loss, on an after-tax basis, of certain tax items, including Oregon pollution control tax credits. At June 30, 2003, the maximum potential future payments that could be required under these guarantees were $14.0 million, and the amount recorded as liabilities related to these guarantees was $8.7 million. The Company’s indemnity obligations with respect to these tax

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2003

(Unaudited)

items continue while the relevant tax years of the indemnified parties remain open to audit; however, with respect to $10.6 million of the potential payments, the Company’s obligation expires if a claim for indemnity is not asserted on or before March 15, 2016.

In connection with the sale of a former business, the Company is secondarily liable for certain payments to a third party in the event the buyer fails to make such payments. The potential future liability, if any, cannot be estimated at this time. The Company has recorded no liability for this potential obligation.

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ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Pope & Talbot, Inc. (the “Company”) lost $6.8 million in the second quarter of 2003, or $.43 loss per share, compared with net income of $.3 million, or $.02 per share, in the second quarter of 2002. The Company’s net loss year-to-date totaled $14.4 million, or $.92 loss per share, compared with a net loss of $5.5 million, or $.35 loss per share, for the sixth months ended June 30, 2002. Operating results for the three and six months ended June 30, 2003 were negatively affected by an appreciating Canadian dollar, which increased Canadian pulp and lumber manufacturing costs. Additionally, pulp production was lower than expected in the second quarter of 2003 and, after a series of pulp price increases through May of 2003, pulp prices began to fall at the end of the second quarter of 2003. Wood Products continued to be adversely affected by the lumber trade dispute between the U.S. and Canada and low lumber prices.

Included in the Company’s 2003 second quarter and year-to-date results were lumber import duty costs of $6.9 million and $13.4 million, respectively. The 2002 results included the positive impact of the net reversal of $10.1 million and $14.4 million, respectively, of lumber import duties. See Note 6 of Notes to Condensed Consolidated Financial Statements.

Selected Segment Data

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Pulp

Pulp generated an operating loss of $2.1 million in the second quarter of 2003, compared with an operating loss of $4.7 million in the second quarter of 2002 and operating income of $.2 million in the first quarter of 2003. EBITDA from Pulp for the second quarter of 2003 was $4.9 million, compared with $2.2 million in the second quarter of 2002 and $7.4 million in the first quarter of 2003.

Pulp generated an operating loss of $1.9 million in the first six months of 2003, compared with an operating loss of $15.4 million for the same period in 2002. EBITDA from Pulp for the first six months of 2003 was $12.3 million compared with ($1.9) million for the first six months of 2002.

Pulp revenues in the second quarter of 2003 totaled $82.6 million compared with $88.6 million in the same quarter of 2002 and $93.4 million in the first quarter of 2003. Pulp sales volume totaled 164,600 metric tons in

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the second quarter of 2003, compared with 213,700 metric tons in the second quarter of 2002 and 216,700 metric tons in the first quarter of 2003. The lower second quarter 2003 sales volume primarily reflected the impact of declining market pulp prices that began at the end of the second quarter. Year-to-date Pulp revenues were $175.9 million for 2003 and $160.5 million for 2002. Pulp sales volume in the first six months of 2003 totaled 381,300 metric tons compared with 394,300 metric tons in the same period of 2002.

According to Pulp & Paper Week, an industry trade publication, the average benchmark price of northern bleached softwood kraft (NBSK) pulp delivered into Northern Europe, was $553 per metric ton for the second quarter of 2003, compared with $457 and $478 per metric ton for the second quarter of 2002 and the first quarter of 2003, respectively. For the first six months of 2003 and 2002, the benchmark prices per metric ton averaged $516 and $455, respectively. The Company’s pulp sales price averaged $501 per metric ton in the second quarter of 2003, an increase of $86 per metric ton, or 21 percent, over the same period a year ago and $70 per metric ton, or 16 percent, over the first quarter of 2003.

Pulp cost of sales was $81.4 million in the second quarter of 2003, compared with $90.8 million in the same quarter of 2002 and $90.2 million in the first quarter of 2003. Pulp production totaled 181,900 metric tons in the second quarter of 2003, compared with 186,500 metric tons in the same quarter last year and 205,400 in the first quarter of 2003. In the second quarter of 2003, Harmac took 16 days of downtime for its planned annual maintenance. Lost production totaled approximately 22,300 metric tons.

The average cost per metric ton of pulp sold increased 16 percent in the second quarter of 2003 compared with the same quarter in 2002 and increased 19 percent compared with the first quarter of 2003. Pulp cost of sales in the second quarter of 2003 included a $1.8 million write-down of pulp inventories compared with a $.2 million write-down of inventories in the second quarter of 2002. The reductions to inventory reflect the excess of production costs over the anticipated net realizable value of period-end inventories. Another significant factor affecting the average cost per metric ton of pulp sold is the average Canadian to U.S. dollar exchange rate used to translate the results of operations of the Company’s Canadian subsidiaries. In the second quarter of 2003, the average exchange rate used to translate the Company’s Canadian subsidiaries’ cost of sales increased 11 percent compared with the rate used in the second quarter of 2002. The Company estimates that, using a constant currency translation rate, the average cost per metric ton of pulp sold would have increased eight percent in the second quarter of 2003 compared with the second quarter of 2002. This increase in average costs was primarily due to a temporary equipment failure at one of the pulp mills in the 2003 second quarter, which reduced total pulp production in the quarter.

Year-to-date cost of pulp sales was $171.6 million compared with $170.8 million in the same period of 2002. Pulp production totaled 387,300 metric tons in the 2003 period compared with 382,100 metric tons in the 2002 period. The average cost per metric ton of pulp sold increased four percent in the first six months of 2003 compared with the same period in 2002. Also, included in cost of goods sold year-to-date in 2003 was a $.9 million gain on the sale of excess land at the Company’s Harmac pulp mill, recognized in the first quarter of 2003. The average Canadian to U.S. dollar translation rate used to translate the results of operations of the Company’s Canadian subsidiaries in the first six months of 2003 increased eight percent compared with the rate used in the same period of 2002. The Company estimates that, using a constant currency translation rate, the average cost per metric ton of pulp sold would have decreased two percent for the first six months of 2003 compared to the same period in 2002.

Wood Products

Operating income (loss) from Wood Products for the second quarter of 2003 was ($2.7) million, compared with $12.2 million in the second quarter of 2002 and ($3.7) million in the first quarter of 2003. EBITDA from Wood Products for the second quarters of 2003 and 2002 was ($.8) million and $14.2 million, respectively, compared with ($1.4) million in the first quarter of 2003. EBITDA, adjusted to eliminate the impact of lumber import duties in each period, was $6.1 million in the second quarter of 2003, compared with $4.1 million for the second quarter of 2002 and $5.1 million in the first quarter of 2003.

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Operating income (loss) from Wood Products for the first six months of 2003 was ($6.3) million, compared with $20.5 million for the same period in 2002. EBITDA from Wood Products for the 2003 period was ($2.2) million compared with $24.3 million for the 2002 period. EBITDA, adjusted to eliminate the impact of lumber import duties in each period, was $11.2 million in the first six months of 2003, compared with $9.9 million for the first six months 2002.

Wood Products revenues, including lumber, log and chip sales, in the second quarter of 2003 totaled $57.9 million compared with $55.3 million in the same quarter of 2002 and $54.8 million in the first quarter of 2003. Lumber sales volumes of 161.5 million board feet in the second quarter of 2003 were up 13 percent compared with 143.4 million board feet the same quarter a year ago and up seven percent from 151.4 million board feet in the first quarter of 2003. Year-to-date Wood Products revenues, including lumber, log and chip sales, were $112.7 million in 2003 compared with $109.0 million in the same period of 2002. Lumber sales volumes of 312.9 million board feet in the 2003 period were up seven percent compared with 292.6 million board feet in the 2002 period.

According to Random Lengths, an industry trade publication, lumber prices in the U.S., as measured by the composite price index for western spruce/pine/fir 2x4 lumber, averaged $247 per thousand board feet for the second quarter of 2003 compared with $263 per thousand board feet for the second quarter of 2002 and $214 for the first quarter of 2003. For the first six months of 2003 and 2002, these lumber prices averaged $231 and $266, respectively. The Company’s average lumber sales price of $320 per thousand board feet in the current quarter was down four percent compared with $335 in the second quarter of last year and up three percent compared with $311 in the first quarter of 2003.

Cost of sales for Wood Products in the second quarter of 2003 was $59.5 million, compared with $42.0 million in the second quarter of 2002 and $57.3 million in the first quarter of 2003. Included in cost of sales for Wood Products in the second quarter of 2002 was the net reversal of lumber import duties of $10.1 million. Lumber production totaled 157.6 million board feet in the second quarter of 2003, compared with 150.6 million board feet in the same quarter of last year and 165.9 million board feet in the first quarter of 2003.

The average cost per thousand board feet of lumber sold was 26 percent higher in the second quarter of 2003 compared with the same quarter of 2002, primarily due to the $17.0 million variance in lumber import duties quarter-to-quarter. Excluding the impact of lumber import duties from both periods, the average cost per thousand board feet of lumber sold decreased 10 percent. Using a constant currency translation rate for both periods, the average cost per thousand board feet of lumber sold (excluding the impact of lumber import duties) would have decreased 17 percent in the second quarter of 2003 compared with the second quarter of 2002, primarily due to lower log and logging costs.

For the first six months of 2003, cost of sales for Wood Products was $116.7 million compared with $86.3 million in the first six months of 2002. Included in the cost of sales for Wood Products in the 2002 period was the net reversal of lumber import duties of $14.4 million. Lumber production totaled 323.5 million board feet in the first six months of 2003, compared with 309.2 million board feet in the same period of 2002. The average cost per thousand board feet of lumber sold was 27 percent higher in the first six months of 2003, compared with the same period of 2002, primarily due to the $27.8 million variance in lumber import duties period-to-period. Excluding the impact of lumber import duties from both periods, the average cost per thousand board feet of lumber sold decreased four percent, primarily due to lower log and logging costs. Using a constant currency translation rate (excluding the impact of lumber import duties), the average cost per thousand board feet of lumber sold would have decreased nine percent for the first six months of 2003, compared with the same period in 2002.

Selling, General and Administrative Expenses, Interest Expense, net and Income Taxes