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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported)
FEBRUARY 16, 1994
POPE & TALBOT, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-7852 94-0777139
(State or other
jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1500 S.W. FIRST AVENUE
PORTLAND, OREGON 97201
(Address of principal executive offices) (Zip Code)
</TABLE>
(503) 228-9161
(Registrant's telephone number, including area code)
NONE
(Former name or former address, if changed since last report.)
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<S> <C>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Set forth below are the financial statements of Pope & Talbot, Inc., including the
related notes and the accountants' report thereon, and Management's Discussion and
Analysis of Results of Operations and Financial Condition to be included in the
1993 Annual Report to Shareholders.
</TABLE>
1
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POPE & TALBOT, INC. AND SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues............................. $ 628,926 $ 544,345 $ 502,275 $ 562,493 $ 613,898
Depreciation and amortization........ 29,303 28,564 27,948 26,352 25,455
Interest expense..................... 8,714 5,622 3,941 3,925 4,188
Income (loss) before accounting
changes............................ 21,575 (2,252) (5,095) 19,829 43,637
Cumulative effect of accounting
changes............................ (562) -- (6,467) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 21,013 $ (2,252) $ (11,562) $ 19,829 $ 43,637
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Effective tax rate................... 41% (9)% (28)% 36% 37%
PER COMMON SHARE
Income (loss) before accounting
changes -- primary................. $ 1.85 $ (.19) $ (.44) $ 1.70 $ 3.70
Income (loss) before accounting
changes -- fully diluted........... 1.71 (.19) (.44) 1.61 3.35
Effect of accounting
changes -- primary................. (.05) -- (.56) -- --
Effect of accounting changes -- fully
diluted............................ (.04) -- (.56) -- --
Cash dividends....................... .76 .76 .76 .72 .60
Stockholders' equity................. 15.73 14.85 16.09 17.83 16.91
YEAR-END COMMON SHARES OUTSTANDING,
NET OF TREASURY STOCK.............. 11,715,798 11,610,664 11,597,560 11,580,440 11,788,310
FINANCIAL POSITION (at December 31)
Current assets....................... $ 169,897 $ 138,288 $ 122,393 $ 131,612 $ 129,803
Properties, net...................... 269,200 222,500 213,964 209,673 212,015
Other assets......................... 16,724 8,893 10,626 12,655 13,657
---------- ---------- ---------- ---------- ----------
$ 455,821 $ 369,681 $ 346,983 $ 353,940 $ 355,475
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Current liabilities.................. $ 101,162 $ 79,668 $ 64,545 $ 49,389 $ 65,803
Long-term obligations................ 27,803 24,227 16,934 4,401 2,672
Long-term debt....................... 134,599 89,500 69,000 77,490 67,560
Deferred income taxes................ 7,936 3,892 9,896 16,132 20,146
Stockholders' equity................. 184,321 172,394 186,608 206,528 199,294
---------- ---------- ---------- ---------- ----------
$ 455,821 $ 369,681 $ 346,983 $ 353,940 $ 355,475
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
CASH FLOW
Operating activities:
Net income (loss).................. $ 21,013 $ (2,252) $ (11,562) $ 19,829 $ 43,637
Depreciation and amortization...... 29,303 28,564 27,948 26,352 25,455
Other (gains) losses, net.......... -- 1,589 1,940 (867) (5,555)
Cumulative effect of accounting
changes......................... 562 -- 6,467 -- --
Working capital and other.......... (13,990) 10,833 2,717 (6,615) (12,914)
---------- ---------- ---------- ---------- ----------
Cash provided by operating
activities.................... 36,888 38,734 27,510 38,699 50,623
Investing activities:
Capital expenditures............... (82,585) (32,276) (37,268) (41,876) (52,144)
Acquisition of sawmill............. -- (19,417) -- -- --
Cash provided by restructuring
activities...................... -- 11,480 2,750 19,622 11,798
Proceeds from sale of other
properties...................... 1,156 1,158 1,848 1,101 946
---------- ---------- ---------- ---------- ----------
Cash used for investing
activities.................... (81,429) (39,055) (32,670) (21,153) (39,400)
Financing activities:
Net increase (decrease) in
borrowings...................... 51,017 9,483 8,440 1,935 (2,260)
Cash dividends..................... (8,871) (8,821) (8,806) (8,445) (7,084)
Other.............................. 1,819 229 293 (4,133) (67)
---------- ---------- ---------- ---------- ----------
Cash provided by (used for)
financing activities.......... 43,965 891 (73) (10,643) (9,411)
---------- ---------- ---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents........................ $ (576) $ 570 $ (5,233) $ 6,903 $ 1,812
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
3
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POPE & TALBOT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
An exceptionally strong lumber market and record earnings in diapers more
than offset losses in tissue and pulp to return Pope & Talbot to profitability
in 1993, after two years of losses. Pope & Talbot's earnings for 1993 were $21.0
million, or $1.80 per share ($1.67 on a fully diluted basis), up from 1992's
loss of $2.3 million, or $.19 per share. Operations contributed $21.6 million,
or $1.85 per share in 1993; however, also included was a net charge of $562,000,
or $.05 per share, reflecting the cumulative effect of accounting changes
adopted in 1993. See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the accounting changes.
Widely divergent business environments affected Pope & Talbot's businesses
during 1993. An improving housing industry, combined with sharply curtailed
timber harvests in the Pacific Northwest as a result of environmental pressures,
produced lumber prices that were 34 percent higher on average in 1993 than 1992,
resulting in the best wood products earnings in the Company's history. Demand
for the Company's disposable diapers remained strong in 1993 and, combined with
only minor price reductions as a result of competitors' price reduction efforts,
resulted in record profits for the diaper business. Conversely, tissue produced
a loss for the second year in a row, as extremely competitive conditions in the
tissue industry continued, and world pulp markets remained poor, resulting in
losses from our pulp business for the third consecutive year.
Revenues reached a record $628.9 million in 1993, a 16 percent increase
from $544.3 million in 1992. Higher lumber sales prices in wood products was the
most significant factor impacting the revenue increase. In pulp and paper,
revenue gains from higher diaper sales volumes were largely offset by poor
pricing and demand for tissue and pulp.
LIQUIDITY AND CAPITAL RESOURCES
Capital spending, largely to expand drying capabilities, improve pulp
quality and to meet environmental requirements at the Company's Halsey, Oregon
pulp mill, increased the debt-to-total-capitalization ratio to 42 percent at
year-end 1993, from 34 percent at the end of 1992. The Company continues to have
available $95 million under existing credit agreements, of which $11 million was
borrowed at December 31, 1993.
The Company's primary sources of internally generated cash are operating
income plus depreciation; the principal external source of cash is debt
financing. Cash generated from operations was $36.9 million in 1993.
Additionally, during 1993 the Company completed an offering of $75 million of
8 3/8 percent, 20-year debentures, and received $16 million at 6.55 percent from
the State of Oregon under the State's Small Scale Energy Loan Program. See Note
4 of Notes to Consolidated Financial Statements for further long-term debt
information and subsequent years' debt repayment schedules. These cash resources
were used to finance $82.6 million of capital expenditures, $8.9 million for the
payment of dividends, and to reduce borrowings on the Company's lines of credit
including repayment of $45.0 million on the Company's unsecured revolving-credit
agreement. Scheduled long-term debt repayments were $500,000 in 1993 and are
anticipated to be $901,000 in 1994. The most significant capital improvement
projects included $47 million to improve pulp quality, expand drying
capabilities and reduce both the use of chlorine in the bleaching process and
the discharge of dioxins from the Halsey pulp mill. The project to reduce
chlorine usage and dioxin discharges is necessary to comply with an agreement
entered into with the Oregon Department of Environmental Quality on meeting
target dioxin emission levels. Other significant projects during 1993 included
completion of the first phase of a project to improve raw material utilization
at the Castlegar, B.C. sawmill, installation of equipment to produce diaper
training pants and other cost reduction and product improvement projects for the
Company's diaper business.
At December 31, 1993, the Company had numerous capital projects in process
at its facilities. It is expected that $25 million will be required to complete
approved projects, including those in progress at year-
4
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end. The principal projects included in this amount are for completion of the
pulp drying improvements at Halsey and the completion of diaper cost reduction
projects. In addition, the Company anticipates that additional capital projects
will be undertaken during 1994, primarily to sustain existing operations.
Projected 1994 capital spending is expected to be funded with internally
generated cash, supplemented with borrowings on the Company's lines of credit.
The December 31, 1993 current ratio remained essentially unchanged from
year-end 1992 at 1.7 to 1. Significant changes in the components of working
capital included increases in accounts receivable, inventories, and income taxes
payable. Accounts receivable increased primarily due to a $6.1 million United
States income tax refund receivable. Inventories increased approximately $21.6
million. Significant changes in inventory balances include a change in
accounting for supplies inventories and higher log volumes from taking advantage
of buying opportunities. Income taxes payable increased approximately $9.2
million reflecting higher current income taxes payable on higher earnings in
Canada.
The impact of fluctuations in foreign currency exchange rates have not had,
and are not expected to have, a significant effect on the Company's liquidity or
results of operations.
RESULTS OF OPERATIONS
Wood Products
The Company's wood products business, which in 1993 comprised 48 percent of
consolidated revenues, generated operating profit of $62.1 million in 1993, a
sharp increase over earnings of $15.3 million in 1992, and a loss of $1.1
million in 1991. The 1993 earnings were more than double the previous best wood
products earnings of $29.9 million reported in 1979. Housing starts, which
historically have been a significant factor in the profitability of the wood
products business, have improved in conjunction with the general economy and
lower interest rates. Housing starts have increased from 1.0 million in 1991 to
1.2 million in 1992 and 1.28 million in 1993. Although these improvements in the
housing market were a factor in the improved lumber sales prices, this alone was
not adequate to generate the sales price increases and earnings improvements
realized in 1993. A more significant factor continues to be the significantly
curtailed harvest levels for timber from federal lands in the Pacific Northwest
as a result of continuing environmental pressures to reduce timber harvests.
During 1991, log costs increased as a result of constricting supply from federal
lands. During 1992, lumber sales prices increased to offset these log cost
increases and returned the relationship of log costs to sales prices to more
historic levels. As log supplies, and consequently lumber supplies, tightened
further in 1993, sales prices rose substantially. During 1993, log costs for the
Company's United States sawmills increased generally with the increase in lumber
sales prices. The Company has shifted much of its timber dependency out of
Western Washington and Western Oregon where the environmental concerns over
timber harvests have sharply restricted the volume of public timber available,
and increased the cost of remaining timber, into regions of more stable timber
supplies such as the Black Hills region of South Dakota and Wyoming, and British
Columbia. Currently, 80 percent of the Company's lumber capacity is in the Black
Hills and British Columbia, with the remaining 20 percent representing the
Company's Port Gamble, Washington sawmill. In the second quarter of this year, a
Presidential Commission issued a proposal for resolving the timber supply
situation in the Pacific Northwest. The proposal has been criticized by various
environmental and industry groups. At this point, it is uncertain whether the
proposal will be adopted. Until a solution is adopted, it is likely that timber
supplies will remain restricted in the Pacific Northwest. When an agreement
ultimately is reached, it is likely that the ultimately agreed upon harvest
levels will be less than historic levels, but more than is currently available.
During 1992, the United States government imposed a 6.51 percent tariff on
Canadian lumber sold in the United States. During 1993, the Company paid
approximately $9.2 million under this tariff resulting in higher costs for the
approximately 425 million board feet of Canadian lumber sold in the United
States. In December 1993, a bi-national commission ruled that there is no basis
for this duty. However, this decision may be appealed by the United States
Government. At this time, it is unknown if the United States Government will
make such an appeal, or if any adjustment to the tariff would be made, either
upward or downward, and if any such adjustment would be made retroactive to
March 1992, when the tariff was first imposed.
5
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Lumber sales volume increased to 726 million board feet in 1993, up 9
percent from 669 million board feet in 1992 and 496 million board feet in 1991.
The increased lumber volume over the three-year period was due primarily to the
mid 1992 acquisition of the 225 million board-feet-per-year Castlegar, B.C.
sawmill. With the acquisition of this sawmill, lumber capacity for the Company
is now approximately 785 million board feet. The Company's sawmills operated
essentially at capacity for 1993, except for the Port Gamble sawmill, which
reduced production during the year as a result of lack of acceptably priced
timber in relation to end-product prices. Port Gamble is the only Company
sawmill in the high-priced timber regions of the Pacific Northwest and the
Company, recognizing the limitation on acquiring adequate, acceptably priced
timber supplies for the mill, has previously reduced its carrying value to its
estimated recoverable value.
Wood Products revenues climbed to a record $300 million in 1993 from $214.2
million in 1992 and $153 million in 1991. Both 1992 and 1993 revenue increases
were a combination of volume increases and higher sales prices. Sales volumes
were up 35 percent in 1992 and 9 percent in 1993 primarily from having the
Castlegar sawmill for part of 1992, and for a full year in 1993. Lumber sales
prices were up an average of 40 percent for the Company's Canadian sawmills and
Port Gamble. These mills, which comprised approximately 80 percent of the
Company's total lumber production, compete primarily in the home construction
markets which have seen the greatest lumber supply reductions from the Pacific
Northwest timber harvest restrictions. The remaining 20 percent of the Company's
lumber production comes from two mills located in the Black Hills region of
South Dakota and Wyoming. Lumber from these mills goes principally into
remodeling markets and competes less directly with Pacific Northwest lumber.
Prices for these products rose an average of 17 percent during 1993. Overall,
sales prices were up an average of 34 percent in 1993 and 13 percent in 1992.
Pulp and Paper Products
The pulp and paper segment, which produces private label tissue and
disposable diapers as well as market pulp, generated 52 percent of 1993
revenues. Operating profits from pulp and paper have declined from $6.2 million
in 1991 to losses of $4.6 million in 1992 and $9.8 million in 1993. Disposable
diapers have been increasingly profitable from 1991 through 1993; however,
losses in tissue products and market pulp in 1992 and 1993 more than offset
diaper profits. Pulp and paper revenues have remained essentially flat over the
last three years, with 1993 sales of $328.9 million, 1992 sales of $330.2
million and 1991 sales of $349.3 million. Tissue products and market pulp
revenues declined in 1992 and again in 1993 on lower pricing and volumes. Diaper
sales volume and selling prices improved in 1992 and in 1993 volume again
improved while prices declined slightly.
Losses in the Company's market pulp business were the most significant
factor in the pulp and paper segment's 1993 loss. A combination of an extremely
depressed pulp market and the high cost of wood chips, the primary raw material
for pulp, resulted in the increasing losses for 1991 through 1993. As a result
of the weak markets, many pulp mills in the industry experienced significantly
curtailed production rates during 1993. The Company's pulp mill at Halsey
operated at 60 percent of capacity in 1993 and 83 percent of capacity in 1992.
Historically, the Company had sold pulp to an adjacent tissue facility owned by
James River Corporation. Beginning in 1992, James River began producing recycled
pulp at Halsey and began phasing out of purchases of the Company's pulp. By mid
1993, James River no longer was purchasing any of the Company's pulp. As a
result of depressed world pulp prices, selective downtime was taken in lieu of
selling pulp in the open market to replace this lost tonnage. Consistent with
world pulp pricing, the Company's sales prices in 1993 were approximately 12
percent below 1992's already depressed prices. Overall, pulp revenues decreased
36 percent to $40.3 million in 1993. Of this decline, approximately $17 million
was due to volume reductions, and approximately $6 million was due to price
declines. Based on a long-term pulp supply arrangement entered into in 1993, the
Company began supplying, in December 1993, pulp to a printing and writing grade
paper mill which opened at the beginning of 1994. The mill was purchased
recently from its former owners by a group of private investors. The total
output of this paper mill will be sold to one customer who will re-market the
paper to outside customers. It is anticipated that by early 1994 the paper mill
will purchase pulp from the Company at an annual rate of approximately 90,000
metric tons, or 50 percent of the pulp mill's capacity, depending on sales by
the paper mill to its customer. Assuming no other changes in market conditions,
this arrangement will allow the Company's pulp mill to operate essentially at
capacity during most of 1994. In the event that the paper mill's sales to its
customer are adversely impacted for any
6
<PAGE> 8
reason, sales of the Company's pulp may be adversely impacted. Pricing for this
pulp will be computed using a formula based on prices for white paper. Based on
the prices in effect for white paper at the end of 1993, the price that pulp
would be sold under this agreement would be 8 percent higher than the average
pulp price the Company obtained for its pulp at the end of 1993.
Environmental concerns over timber harvests, which have caused high log
costs for the Company's Port Gamble sawmill, have also caused higher chip costs
and reduced chip availability from historic sources at the Halsey pulp mill over
the last three years. In order to maintain an adequate supply of wood fiber to
the mill, the Company has expanded its geographic base from which it obtains
softwood chips and has developed the capability of using sawdust and hardwood
chips as raw materials for a portion of the production, which historically have
been less expensive than the softwood chips normally used as the primary raw
material for the pulp mill. It is anticipated that a portion of the pulp sold to
the paper mill will be produced from sawdust and hardwood chips. In order to
maintain an adequate supply of chips for the anticipated 60 percent of the pulp
mill's production which will remain based on these softwood chips, the Company
will continue to use an expanded geographic base to obtain chips, adding to
their cost. Unless environmental restrictions on timber harvests are relaxed,
chip prices likely will remain high, and sawdust and hardwood chip prices may
also increase.
In the tissue business, continued low industry operating rates resulting
from industry capacity increases in recent years which have exceeded demand
growth, coupled with aggressive pricing by tissue producers, resulted in a
second consecutive loss year for the Company's tissue business. Overall, tissue
operated at approximately 97 percent of capacity in 1993. Prices for the
Company's tissue products declined in 1992 an average of 6 percent from the
already depressed 1991 levels and declined by another 1 percent in 1993.
Overall, prices for the Company's tissue have declined an average 13 percent
from 1989, when tissue prices first began to decline. During 1992, the Company
permanently closed one high-cost tissue facility and instituted cost reduction
measures which reduced tissue operating costs in 1993; however, these savings
were partially offset by increases in prices paid for wastepaper, the primary
raw material for the Company's tissue products.
Diaper earnings improved substantially in 1993 over already strong earnings
in 1992 and 1991. Diaper sales volumes in 1992 were 10 percent greater than
1991. This sales growth continued in 1993, with sales volumes 21 percent ahead
of 1992 at a record 1.1 billion diapers. Based on the existing mix of diaper
sales, the Company's diaper business operated essentially at capacity in 1993.
During 1992, Procter & Gamble, a significant producer of branded disposable
diapers, instituted an everyday low price program intended to reduce the shelf
package prices to the consumer. Private label disposable diapers, including the
Company's, are priced under the pricing umbrella of branded products; however,
the Company was generally able to maintain its diaper sales prices in 1993 at
1992 levels, which were on average 6 percent above 1991 levels. In November
1992, the Company closed one of its five diaper facilities and transferred the
diaper machines to the remaining facilities. This eliminated the overhead of
operating one additional facility while leaving diaper capacity essentially
unchanged.
Other Matters
In 1993, the Company adopted Financial Accounting Standards Board Statement
No. 109 on accounting for income taxes. The charge to earnings for adopting this
new standard was $2.3 million ($.20 per share) and is reflected as part of the
cumulative effect of accounting changes in the Consolidated Statements of
Income.
In 1993, expendable supplies on hand, which previously were charged to
expense as purchased, were included in supplies inventories as of January 1,
1993. The cumulative effect of this change in accounting method amounted to $1.8
million ($.15 per share), net of tax, and is reflected as part of the cumulative
effect of accounting changes in the Consolidated Statements of Income.
In November 1992, the Financial Accounting Standards Board issued a
pronouncement on Employers' Accounting for Postemployment Benefits. This
statement must be adopted by the Company no later than 1994. The Company will
adopt the new standard in the first quarter of 1994. The Company has reviewed
the pronouncement and does not expect its implementation to have a material
effect on the Company's financial position or results of operations.
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REPORT OF MANAGEMENT
The management of Pope & Talbot, Inc. is responsible for the preparation as
well as the integrity of the financial statements and related financial data
contained in this Annual Report. The financial statements have been prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, and necessarily include amounts which represent the best
estimates and judgments of management with appropriate considerations to
materiality.
Management maintains a system of internal accounting controls to meet its
responsibility for the integrity and reliability of the financial statements,
and to provide reasonable assurance that assets are safeguarded and that
accounting records are reliable. The Company's system is supported with written
policies and procedures, as well as internal and external audits to ensure the
system is working effectively. Effective internal control is enhanced by
organizational arrangements that provide an appropriate division of
responsibility, and by emphasis on detailed planning of operations and
performance evaluations. Management also has in place a code of conduct which
contains policies addressing, among other things, compliance with domestic and
foreign laws to which the Company is subject, potential conflicts of interest
and confidentiality of proprietary information.
The Board of Directors pursues its oversight role for these financial
statements through its Audit Committee, which is comprised exclusively of
outside directors. The Audit Committee meets regularly with management and the
independent public accountants, Arthur Andersen & Co., approves the scope of
audits and fee arrangements, and reviews the audit report and findings. The
independent public accountants have full and free access to the Audit Committee.
Peter T. Pope
Chairman, President and
Chief Executive Officer
C. Lamadrid
Senior Vice President and
Chief Financial Officer
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Pope & Talbot, Inc.:
We have audited the accompanying consolidated balance sheets of Pope &
Talbot, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pope & Talbot, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7 to the financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes
and supplies inventories. Also as discussed in Note 1 to the financial
statements, effective January 1, 1991, the Company changed its method of
accounting for postretirement benefits other than pensions.
Arthur Andersen & Co.
Portland, Oregon,
January 20, 1994
(except with respect to the matter discussed in
Note 12, as to which the date is January 24, 1994)
9
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POPE & TALBOT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 3,768 $ 4,344
Accounts receivable................................................ 56,040 47,779
Inventories (Notes 1 and 2)........................................ 95,256 73,676
Deposits on timber purchase contracts.............................. 5,937 4,096
Prepaid expenses (Note 7).......................................... 8,896 8,393
--------- ---------
Total current assets....................................... 169,897 138,288
Properties (Notes 3, 8 and 9):
Plant and equipment................................................ 503,416 443,270
Accumulated depreciation........................................... (245,104) (232,258)
--------- ---------
258,312 211,012
Land and timber cutting rights..................................... 10,888 11,488
--------- ---------
Total properties........................................... 269,200 222,500
Other assets:
Deferred charges................................................... 12,362 4,365
Goodwill, net of amortization...................................... 4,362 4,528
--------- ---------
Total other assets......................................... 16,724 8,893
--------- ---------
$ 455,821 $ 369,681
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 4)............................................. $ 11,000 $ 5,483
Current portion of long-term debt (Note 4)......................... 901 500
Accounts payable................................................... 36,228 30,878
Accrued payroll and related taxes.................................. 18,336 17,082
Other accrued liabilities.......................................... 16,875 17,114
Income taxes (Notes 1 and 7)....................................... 17,822 8,611
--------- ---------
Total current liabilities.................................. 101,162 79,668
Reforestation (Notes 1 and 9)........................................ 14,999 12,271
Postretirement benefits (Notes 1 and 6).............................. 12,804 11,956
Long-term debt, net of current portion (Notes 4 and 12).............. 134,599 89,500
Deferred income taxes (Notes 1 and 7)................................ 7,936 3,892
Commitments and contingencies (Note 10).............................. -- --
Stockholders' equity (Notes 1, 4, 5 and 12):
Preferred stock, $10 par value, 1,500,000 shares authorized, none
issued.......................................................... -- --
Common stock, $1 par value, 20,000,000 shares authorized,
12,429,352 issued............................................... 12,429 12,429
Additional paid-in capital......................................... 3,370 2,388
Retained earnings.................................................. 185,762 173,620
Cumulative translation adjustments................................. (4,578) (2,544)
Common stock held in treasury, at cost............................. (12,662) (13,499)
--------- ---------
Total stockholders' equity................................. 184,321 172,394
--------- ---------
$ 455,821 $ 369,681
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
10
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POPE & TALBOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C>
Revenues................................................... $628,926 $544,345 $502,275
Costs and expenses:
Cost of sales............................................ 554,172 509,821 475,780
Selling, general and administrative...................... 29,634 29,783 27,707
Interest (Notes 1 and 4)................................. 8,714 5,622 3,941
-------- -------- --------
592,520 545,226 507,428
Other gains (losses), net (Note 8)......................... -- (1,589) (1,940)
-------- -------- --------
Income (loss) before income taxes and cumulative effect of
accounting changes....................................... 36,406 (2,470) (7,093)
Income tax provision (benefit) (Note 7).................... 14,831 (218) (1,998)
-------- -------- --------
Income (loss) before cumulative effect of accounting
changes.................................................. 21,575 (2,252) (5,095)
Cumulative effect of accounting changes (Note 1)........... (562) -- (6,467)
-------- -------- --------
Net income (loss).......................................... $ 21,013 $ (2,252) $(11,562)
-------- -------- --------
-------- -------- --------
Net income (loss) per common share (Note 1):
Primary:
Income (loss) before cumulative effect of accounting
changes............................................. $ 1.85 $ (.19) $ (.44)
Cumulative effect of accounting changes............... (.05) -- (.56)
-------- -------- --------
Primary earnings (loss) per share........................ $ 1.80 $ (.19) $ (1.00)
-------- -------- --------
-------- -------- --------
Fully diluted:
Income (loss) before cumulative effect of accounting
changes............................................. $ 1.71 $ (.19) $ (.44)
Cumulative effect of accounting changes............... (.04) -- (.56)
-------- -------- --------
Fully diluted earnings (loss) per share.................. $ 1.67 $ (.19) $ (1.00)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
11
<PAGE> 13
POPE & TALBOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL CUMULATIVE
--------------------- ------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNTS SHARES AMOUNTS CAPITAL EARNINGS ADJUSTMENTS
----------- -------- -------- -------- ---------- --------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1990................. 12,429,352 $ 12,429 (848,912) $(13,730) $2,097 $ 205,061 $ 671
Net loss............... -- -- -- -- -- (11,562) --
Purchase of treasury
stock................ -- -- (10,800) (141) -- -- --
Issuance of shares
under stock plans.... -- -- 27,920 270 164 -- --
Cash dividends ($.76
per share)........... -- -- -- -- -- (8,806) --
Change in translation
adjustment........... -- -- -- -- -- -- 155
----------- -------- -------- -------- ---------- --------- -----------
Balance at December 31,
1991................. 12,429,352 12,429 (831,792) (13,601) 2,261 184,693 826
----------- -------- -------- -------- ---------- --------- -----------
Net loss............... -- -- -- -- -- (2,252) --
Issuance of shares
under stock plans.... -- -- 13,104 102 127 -- --
Cash dividends ($.76
per share)........... -- -- -- -- -- (8,821) --
Change in translation
adjustment........... -- -- -- -- -- -- (3,370)
----------- -------- -------- -------- ---------- --------- -----------
Balance at December 31,
1992................. 12,429,352 12,429 (818,688) (13,499) 2,388 173,620 (2,544)
----------- -------- -------- -------- ---------- --------- -----------
Net income............. -- -- -- -- -- 21,013 --
Purchase of treasury
stock................ -- -- (16,703) (353) -- -- --
Issuance of shares
under stock plans.... -- -- 121,837 1,190 982 -- --
Cash dividends ($.76
per share)........... -- -- -- -- -- (8,871) --
Change in translation
adjustment........... -- -- -- -- -- -- (2,034)
----------- -------- -------- -------- ---------- --------- -----------
Balance at December 31,
1993................. 12,429,352 $ 12,429 (713,554) $(12,662) $3,370 $ 185,762 $(4,578)
----------- -------- -------- -------- ---------- --------- -----------
----------- -------- -------- -------- ---------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE> 14
POPE & TALBOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)........................................ $ 21,013 $ (2,252) $(11,562)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 29,303 28,564 27,948
Other (gains) losses, net (Note 8).................... -- 1,589 1,940
Cumulative effect of accounting changes (Note 1)...... 562 -- 6,467
Changes in assets and liabilities:
Increase (decrease) in:
Accounts payable................................. 5,350 14,482 (3,732)
Accrued payroll and related taxes................ 1,254 3,430 597
Other accrued liabilities........................ (239) (4,090) 344
Income taxes..................................... 9,211 5,161 900
Reforestation.................................... 3,280 3,095 1,341
Postretirement benefits.......................... 848 783 1,232
Deferred income taxes............................ 150 (5,940) (2,775)
Decrease (increase) in:
Accounts receivable.............................. (8,261) (7,934) 2,720
Inventories...................................... (18,648) 4,071 (2,153)
Deposits on timber purchase contracts............ (3,651) (1,649) 5,196
Prepaid expenses................................. (120) 990 (1,326)
Deferred charges and other....................... (3,164) (1,566) 373
-------- -------- --------
Net cash provided by operating activities............. 36,888 38,734 27,510
Cash flow from investing activities:
Capital expenditures..................................... (82,585) (32,276) (37,268)
Acquisition of sawmill (Note 9).......................... -- (19,417) --
Cash provided by sale of timberlands (Note 8)............ -- 11,480 2,750
Proceeds from sale of other properties................... 1,156 1,158 1,848
-------- -------- --------
Net cash used for investing activities................ (81,429) (39,055) (32,670)
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings......... 5,517 (11,517) 17,000
Proceeds from issuance of long-term debt................. 91,000 21,000 --
Reduction of long-term debt, including current portion... (45,500) -- (8,560)
Proceeds from issuance of treasury stock................. 2,172 229 434
Purchase of treasury stock............................... (353) -- (141)
Cash dividends........................................... (8,871) (8,821) (8,806)
-------- -------- --------
Net cash provided by (used for) financing
activities.......................................... 43,965 891 (73)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... (576) 570 (5,233)
Cash and cash equivalents at beginning of period........... 4,344 3,774 9,007
-------- -------- --------
Cash and cash equivalents at end of period................. $ 3,768 $ 4,344 $ 3,774
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE> 15
POPE & TALBOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1. ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
Pope & Talbot, Inc. and Subsidiaries (the Company), after eliminating
intercompany transactions and balances.
All assets and liabilities of the Company's Canadian subsidiary are
translated into United States dollars at the period-end exchange rate. Revenues
and expenses are translated at the average exchange rate for the year.
Translation gains and losses are reflected in Stockholders' equity as Cumulative
translation adjustments. Net gains and losses on foreign currency transactions,
which are not significant, are reflected in Net income (loss).
Inventories
Inventories are stated at the lower of cost or market. For portions of
lumber and raw material inventories, cost has been determined on the last-in,
first-out method. For remaining inventories, cost has been determined using the
first-in, first-out and average-cost methods. Inventory costs include the cost
of materials, labor and plant overhead.
Plant and equipment
Plant and equipment is carried at cost and includes expenditures for new
facilities and those expenditures which substantially increase the useful lives
of existing plant and equipment. Costs of maintenance and repairs are charged to
expense as incurred. Upon sale or retirement, the related cost and accumulated
depreciation are removed from the accounts, with the resultant gain or loss
included in income.
Depreciation is computed using the straight-line method over the useful
lives of respective assets. The estimated useful lives of the principal items of
plant and equipment range from 4 to 20 years.
The Company capitalizes interest on borrowed funds during the construction
period of major capital projects. Interest capitalized is determined by applying
the Company's effective interest rate to the accumulated capital costs during
the construction period of a project. Total interest costs incurred were
$10,449,000, $5,956,000 and $4,361,000 for 1993, 1992 and 1991, respectively.
Interest capitalized was $1,735,000 in 1993, $334,000 in 1992 and $420,000 in
1991. Capitalized interest is amortized over the depreciable life of related
assets.
Timber resources
In the United States, the Company obtains its timber from various public
and private sources under timber harvesting contracts. Additionally, logs are
purchased on open log markets. Liabilities for timber removed under harvesting
contracts are not recorded until the timber is cut, as the Company generally
does not incur a direct liability for, or ownership of, this timber until it has
been harvested.
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
The total volume committed under contract, the 1994 planned contract
harvest at contract prices and the estimated market values based on current log
markets are as follows:
<TABLE>
<CAPTION>
THOUSAND PER THOUSAND
BOARD FEET AMOUNT BOARD FEET
---------- ----------- ------------
<S> <C> <C> <C>
Total under contract:
At contract prices........................................ 291,000 $62,176,000 $214
At current log market values.............................. 291,000 72,773,000 250
1994 planned harvest:
At contract prices........................................ 85,000 19,768,000 233
At current log market values.............................. 85,000 24,821,000 292
</TABLE>
In Canada, the Company obtains its timber from the Provincial Government of
British Columbia under timber harvesting licenses. The cost assigned to these
timber licenses is amortized over 50 years on a straight-line basis.
These licenses allow, but do not require, the Company to remove timber from
defined areas annually on a sustained yield basis. Future allowable harvests may
be adjusted if the Company does not remove timber over a five year period in
accordance with the grants. As in the United States, liabilities for the cost of
timber removed are not recorded until the timber is cut as the Company does not
incur a direct liability for, or ownership of, this timber until it has been
harvested.
Goodwill
The goodwill contained in the Consolidated Balance Sheets relates to the
1980 purchase of the Company's Eau Claire, Wisconsin facilities. This amount is
being amortized on a straight-line basis over 40 years.
Reforestation
Under the Canadian timber harvesting licenses mentioned previously, the
Company is responsible for the reforestation of the land from which timber is
harvested. A substantial portion of the costs incurred to reforest do not occur
until 10 to 15 years after the timber is harvested. The Company accrues for the
total projected cost of reforestation as the timber is removed. Actual
expenditures for reforestation are applied against this accrual when they are
made.
Income taxes
Effective January 1, 1993, the Company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of the enacted tax laws. The principal temporary differences are related to
depreciation, reforestation and postretirement benefits. Prior to the
implementation of SFAS No. 109, the Company accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11.
Undistributed earnings of the Company's Canadian subsidiary totaled
$53,612,000 on December 31, 1993, which, under existing law, will not be subject
to United States tax until distributed as dividends. Since the earnings have
been, and are intended to be, reinvested in Canadian operations, no provision
has been made for any United States taxes that may be applicable thereto.
Furthermore, any taxes paid to the Canadian Government on those earnings may be
used in whole or in part, as credits against the United States tax on any
15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
dividends distributed from such earnings. It is not practicable to estimate the
amount of unrecognized deferred United States taxes on these undistributed
earnings.
Statements of cash flows
The Company classifies as Cash and cash equivalents, cash on deposit in
banks plus cash invested temporarily in various investment instruments that are
part of the Company's cash management program. The Company's cash and cash
equivalents have original maturities of 90 days or less and the related carrying
amounts approximate fair values. The effect of exchange rate changes on cash
balances held in foreign currencies is not significant. Non-cash transactions,
which have been excluded from the accompanying Consolidated Statements of Cash
Flows, are not significant. Total cash expenditures for interest, net of
capitalized interest, were $8,821,000, $5,402,000 and $4,598,000 for 1993, 1992
and 1991, respectively. Total cash expenditures for income taxes were $9,589,000
for 1993, $1,166,000 for 1992 and $3,337,000 for 1991.
Per share information
Per share information is based on the weighted average number of common
shares outstanding during each year.
The computation for fully diluted net income (loss) per common share
assumes conversion of $40 million of 6 percent convertible debentures issued in
March 1987. The computation also includes the assumed issuance of common shares
under the stock option and appreciation plan, net of an assumed buyback of
treasury shares at the average market price.
The average number of shares used to calculate primary net income (loss)
per common share was 11,685,000 in 1993, 11,609,000 in 1992 and 11,588,000 in
1991. The average number of shares used to calculate fully diluted net income
(loss) per common share was 13,492,000 in 1993, 13,165,000 in 1992 and
13,137,000 in 1991.
Accounting changes
In 1991, the Company adopted an accounting change relating to
postretirement benefits other than pensions. In 1993, the Company changed its
accounting for supplies inventories and income taxes. The income (expense)
related to the cumulative effect of these accounting changes was as follows:
<TABLE>
<CAPTION>
1993 1991
--------------------- ---------------------
AMOUNT PER SHARE AMOUNT PER SHARE
------- --------- ------- ---------
(THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Supplies inventories (net of $1,168 tax provision)... $ 1,764 $ .15 $ -- $ --
Income taxes......................................... (2,326) (.20) -- --
Postretirement benefits other than pensions (net of
$3,474 tax benefit)................................ -- - (6,467) (.56)
------- --------- ------- ---------
$ (562) $(.05) $(6,467) $(.56)
------- --------- ------- ---------
------- --------- ------- ---------
</TABLE>
Supplies inventories
Effective January 1, 1993, the Company changed its method of accounting for
supplies inventories. Prior to 1993, supplies items were expensed when
purchased. As of January 1, 1993, such supplies items were valued using the
average-cost method and were recorded as supplies inventories. Since many
supplies items are kept on hand for an extended period of time, the Company
believes that reflecting these items as inventory results in a better matching
of the cost of supplies with the timing of their use.
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
The cumulative effect of this change in accounting for supplies inventories
for years prior to 1993, which is reflected in the Consolidated Statements of
Income for 1993, resulted in a benefit of $1,764,000, after related income taxes
of $1,168,000, or $.15 per common share. The effect of the change on 1993's net
income before cumulative effect of accounting changes was not significant. The
Company was not able to determine the impact of this change on 1992 and 1991 as
supplies inventory records were not available prior to 1993.
Income taxes
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The new
standard was adopted prospectively and a $2,326,000, or $.20 per share, charge
related to the cumulative effect of this change in accounting for income taxes
was recognized.
Postretirement benefits other than pensions
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This standard requires that the expected cost of
postretirement benefits be charged to expense during the years that the
employees render service. In 1991, the Company elected to recognize its entire
transition obligation, which represented the present value of the estimated
future benefits payable to current retirees and a pro rata portion of estimated
benefits payable to active employees after retirement, as allowed under the
standard. The charge to 1991 earnings was $6,467,000 after a related tax benefit
of $3,474,000.
Reclassifications
Certain reclassifications have been made to prior years' data to conform to
the 1993 presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
1993 1992
------- -------
(THOUSANDS)
<S> <C> <C>
Lumber.................................................... $13,144 $10,230
Tissue, tissue products and diapers....................... 15,218 12,314
Logs...................................................... 34,095 24,496
Pulp and paper raw material............................... 21,187 17,561
Chemicals and supplies.................................... 7,193 3,964
Other..................................................... 4,419 5,111
------- -------
$95,256 $73,676
------- -------
------- -------
</TABLE>
The portion of lumber and raw materials inventories determined using the
last-in, first-out (LIFO) method aggregated $8,406,000 and $7,033,000 at
December 31, 1993 and 1992, respectively. The cost of these LIFO inventories
valued at the lower of average cost or market, which approximates current cost,
at December 31, 1993 and 1992, was $16,596,000 and $12,950,000, respectively.
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
3. PROPERTIES
<TABLE>
<CAPTION>
1993 1992
-------- --------
(THOUSANDS)
<S> <C> <C>
Plant and equipment:
Mills, plants and improvements........................................ $ 88,490 $ 92,074
Equipment............................................................. 351,852 310,349
Mobile equipment...................................................... 19,559 19,235
Construction in progress.............................................. 43,515 21,612
-------- --------
$503,416 $443,270
-------- --------
-------- --------
Land and timber cutting rights:
Land.................................................................. $ 5,906 $ 6,151
Canadian timber cutting rights........................................ 4,814 5,161
Timber................................................................ 168 176
-------- --------
$ 10,888 $ 11,488
-------- --------
-------- --------
</TABLE>
4. DEBT
<TABLE>
<CAPTION>
1993 1992
-------- --------
(THOUSANDS)
<S> <C> <C>
6% convertible subordinated debentures, due 2012........................ $ 40,000 $ 40,000
8.375% debentures, due 2013............................................. 75,000 --
SELP note payable, secured by related properties, 6.55%, payable monthly
from 1994 through 2013................................................ 16,000 --
Industrial revenue bond, secured by related properties, variable
interest rate (3.3% at December 31, 1993), payable annually from 1993
through 2002.......................................................... 4,500 5,000
Unsecured revolving-credit agreement, variable interest rate (4.1% at
December 31, 1993).................................................... -- 45,000
-------- --------
135,500 90,000
Less current portion.................................................... 901 500
-------- --------
$134,599 $ 89,500
-------- --------
-------- --------
</TABLE>
During the second quarter of 1993, the Company issued $75 million of 8 3/8
percent debentures due June 1, 2013. The net proceeds of approximately $73.8
million were partially used to retire the $45 million of indebtedness that was
outstanding under the Company's $75 million unsecured revolving-credit
agreement. The remainder of the proceeds have been used to finance the Company's
capital improvement projects.
In June of 1993, the State of Oregon issued tax-exempt bonds under the
State's Small Scale Energy Loan Program (SELP). Upon completion of the Company's
Halsey pulp mill oxygen delignification project in the fourth quarter of 1993,
the State of Oregon loaned a portion of the bond proceeds ($16 million) to the
Company for 20 years at 6.55 percent interest. Principal and interest are
payable monthly beginning in January 1994. The note is secured by substantially
all of the assets at the Company's Halsey pulp mill.
The Company has an unsecured revolving-credit agreement with a group of
five banks. The agreement provides $75 million of revolving credit until 1996.
On or before April 30 of any calendar year which precedes by two years the June
1996 expiration date, the Company may request a one year extension, which may be
granted upon the affirmative vote of all involved banks. The interest rate
associated with this agreement is based, at the option of the Company, on the
Interbank (LIBOR) rate plus 5/8 percent or the greater of the bank's prime rate
during the revolving period or the Federal Funds rate plus 1/2 percent. An
annual
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
commitment fee of 1/4 percent per year on the total loan commitment is payable
quarterly. Without extension, any outstanding balance on the revolving-credit
agreement would be due in 1996.
The Company also has an unsecured $20 million short-term line-of-credit
agreement with a domestic bank, with interest based on a negotiated rate. As of
December 31, 1993, there was an outstanding balance of $11,000,000 on this line
at 4.25 percent interest. There are no commitment fees or compensating balance
requirements associated with this agreement.
In 1987, the Company issued $40 million of 6 percent convertible
subordinated debentures due March 1, 2012. The debentures are convertible by the
holder into common stock at a conversion price of $25.94 per common share. The
Company is required to make equal annual sinking-fund payments beginning March
1, 1998, which are calculated to retire 70 percent of the issue prior to
maturity. The debentures are redeemable by the Company, subject to certain
restrictions, at any time at the Company's option.
The various loan agreements contain, among other things, certain
requirements as to maintenance of working capital, sale of assets, incurrence of
debt and restrictions as to the payment of cash dividends. At December 31, 1993,
the payment of dividends from retained earnings under all of these agreements
was limited to $19,452,000.
The annual maturities of long-term debt, including sinking fund
requirements, for the four years subsequent to December 31, 1994 are: 1995 --
$928,000; 1996 -- $957,000; 1997 -- $988,000 and 1998 -- $3,021,000.
The fair value of the convertible subordinated debentures at December 31,
1993 was $44,800,000 based on their current trading price. The Company's
carrying value of other long-term debt approximates its fair value.
5. STOCK OPTION AND BONUS PLANS
The Company has a stock option and appreciation plan and a restricted stock
bonus plan for officers and key employees. Both plans are administered by the
Human Resources Committee of the Board of Directors. The Committee is composed
of outside Directors who are not eligible for awards. At December 31, 1993,
600,008 shares were available for future grants under these plans.
Stock option and appreciation plan
The stock option and appreciation plan provides for granting both incentive
stock options and non-qualified stock options to purchase shares of the
Company's common stock at prices not less than 85 percent of fair market value
on the date of grant. Options are exercisable as stated in each individual
grant; however, no option may extend beyond ten years from the date of grant.
The grant may provide that all or part of the option, to the extent exercisable,
may be surrendered to the Company for an appreciation distribution of the
difference between the option price and the fair market value on the surrender
date (stock appreciation rights (SAR) grants). The appreciation distribution
must be made up of at least 70 percent common stock. No stock option grants made
subsequent to 1987 have SARs attached. At December 31, 1993, no outstanding
options have SARs attached.
At the date of grant, compensation expense is accrued and is measured as
the excess, if any, of the current market value over the option price of the
stock. Adjustments to compensation expense are made periodically for market
price fluctuations when options are outstanding which have an appreciation right
attached. Stock option compensation expense was not significant in 1993, 1992 or
1991. The Company has followed the practice of using treasury stock to fulfill
its obligations under the stock option plan. When stock is issued pursuant to
the stock option plan, the difference between the cost of treasury stock issued
and the exercise price of the option is credited to Additional paid-in capital.
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
At December 31, 1993, 179,544 options were exercisable. The following table
summarizes stock option transactions under this plan for the three years ended
December 31, 1993:
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- ------------
<S> <C> <C> <C>
Option price range............................. $14.00-$24.63 $14.00-$24.63 $8.75-$24.63
Option shares granted.......................... 296,100 167,600 184,650
Exercised and surrendered...................... (122,650) (11,689) (32,462)
Cancelled...................................... (10,450) (62,060) (48,512)
Option shares at year-end...................... 749,364 586,364 492,513
</TABLE>
Restricted stock bonus plan
The restricted stock bonus plan provides for issuance of restricted shares
to officers and key employees. The issued shares are covered by restrictions as
to transfer for periods of up to ten years. Compensation expense is recognized
in the year the grant is made based on the market price of the Company's stock
at the date of grant. Restricted stock bonus plan compensation expense was not
significant in 1993, 1992 or 1991. At December 31, 1993, 6,000 shares were still
under restriction.
6. PENSION AND OTHER POSTRETIREMENT PLANS
Pension plans
Substantially all of the Company's employees participate in noncontributory
defined-benefit pension plans. These include plans which are administered by the
Company and multi-employer plans administered by various unions.
Certain union employees are covered under multi-employer union pension
plans. Contributions to these plans are based upon negotiated hourly rates. It
is not possible to determine the amount of accumulated benefits or net assets
available for benefits that apply solely to Company employees covered by these
plans.
Substantially all other Company employees are covered by noncontributory
defined-benefit pension plans administered by the Company. The pension benefit
for salaried employees is based on years of service and the five highest out of
the last ten years of compensation. Pension benefits for employees covered under
hourly plans are generally based on each employee's years of service.
The Company's funding policy regarding all of its Company administered
plans is to make contributions to the plans that are between the minimum amounts
required by the Employee Retirement Income Security Act (ERISA) and the maximum
amounts deductible under current income tax regulations.
Net periodic pension cost for 1993, 1992 and 1991 was composed of the
following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Company administered plans:
Service cost -- benefits earned by employees during the
period....................................................... $ 1,933 $ 2,164 $ 1,807
Interest cost on projected benefit obligation................... 3,116 2,927 2,438
Actual (earnings) loss from plan assets......................... (5,072) (4,576) (6,646)
Deferral of earnings (loss) from plan assets.................... 1,520 1,431 4,196
Net amortization and deferral................................... (43) (27) (25)
------- ------- -------
Net periodic pension cost for Company administered plans..... 1,454 1,919 1,770
Contributions to multi-employer plans............................. 4,351 3,562 2,663
------- ------- -------
Total net periodic pension cost.............................. $ 5,805 $ 5,481 $ 4,433
------- ------- -------
------- ------- -------
</TABLE>
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
The following table sets forth the funded status of the Company
administered plans and the amounts recognized as an asset or liability in the
accompanying Consolidated Balance Sheets at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
--------------------------- ---------------------------
PLANS HAVING PLANS HAVING PLANS HAVING PLANS HAVING
ASSETS IN ACCUMULATED ASSETS IN ACCUMULATED
EXCESS OF BENEFITS IN EXCESS OF BENEFITS IN
ACCUMULATED EXCESS OF ACCUMULATED EXCESS OF
BENEFITS ASSETS BENEFITS ASSETS
------------ ------------ ------------ ------------
(THOUSANDS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested portion.................................. $(24,402) $(15,610) $(22,854) $(11,426)
Nonvested portion............................... (836) (1,159) (358) (230)
------------ ------------ ------------ ------------
(25,238) (16,769) (23,212) (11,656)
Effect of projected future compensation levels.... (6,068) (209) (6,226) (147)
------------ ------------ ------------ ------------
Projected benefit obligation...................... (31,306) (16,978) (29,438) (11,803)
Plan assets at fair market value.................. 30,980 13,416 30,418 10,157
------------ ------------ ------------ ------------
Plan assets in excess of (less than) projected
benefit obligation.............................. (326) (3,562) 980 (1,646)
Unrecognized net (gain) loss...................... 688 1,521 (18) (397)
Unrecognized prior service........................ (340) 1,626 (364) 1,769
Balance of unrecorded transition (asset) liability
from initial application of Statement of
Financial Accounting Standards No. 87........... (922) (96) (1,214) 39
------------ ------------ ------------ ------------
Accrued pension liability......................... $ (900) $ (511) $ (616) $ (235)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Substantially all of the pension plans' assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate and
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 7 percent and 5 percent,
respectively, for 1993, and 8 percent and 6 percent, respectively, for 1992. The
expected long-term rate of return on plan assets was 9 percent for 1993 and
1992.
The Company has granted some former employees pension benefits which
supplement the normal Company plan. These benefits are unfunded, general
obligations of the Company. The cost associated with these grants was $242,000
in 1993, $138,000 in 1992 and $299,000 in 1991.
Other postretirement plans
The Company sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried employees and eligible spouses and dependents
of the employees. The medical plans pay a stated percentage of covered medical
expenses incurred after deducting co-payments made once a stated deductible has
been met. The life insurance plans pay a defined benefit. The Company's funding
policy for these plans is to not make contributions to the plans prior to the
actual incurrence of costs under the plans.
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
Net periodic cost in 1993, 1992 and 1991 for these plans was composed of
the following:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits attributed to service during the
period..................................................... $ 406 $ 387 $ 437
Interest cost on accumulated benefit obligation.............. 892 853 795
------ ------ ------
Net periodic cost of postretirement medical and life
insurance plans............................................ $1,298 $1,240 $1,232
------ ------ ------
------ ------ ------
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
Consolidated Balance Sheets at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------- -------
(THOUSANDS)
<S> <C> <C>
Accumulated Benefit Obligation:
Retirees......................................................... $ 1,908 $ 2,091
Other fully eligible participants................................ 3,853 3,374
Other active participants........................................ 7,938 5,997
------- -------
13,699 11,462
Unrecognized actuarial gain (loss)................................. (895) 494
------- -------
Accrued postretirement medical and life insurance cost liability... $12,804 $11,956
------- -------
------- -------
</TABLE>
For measurement purposes, 10 1/2 percent and 11 percent rates of increase
were assumed for health care costs in 1993 and 1992, respectively. The rate is
assumed to decline in 1/2 percent decrements every year until it reaches 5
percent in 2004 where it will remain level thereafter. A 1 percent increase in
the assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation by $1,800,000 at December 31, 1993. The effect
of this 1 percent increase on the service and interest cost components of the
net periodic cost of postretirement medical and life insurance plans would be an
increase of $200,000 in 1993. The discount rate used in determining the
accumulated benefit obligation was 7 percent in 1993 and 8 percent in 1992.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
7. INCOME TAXES
The income tax provision (benefit) consists of the following components:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- ------- -------
<S> <C> <C> <C>
(THOUSANDS)
1993
Federal................................. $(4,195) $ 914 $(3,281)
State................................... (17) 181 164
Canada.................................. 18,993 (1,045) 17,948
------- ------- -------
$14,781 $ 50 $14,831
------- ------- -------
------- ------- -------
1992
Federal................................. $ (897) $(1,835) $(2,732)
State................................... -- -- --
Canada.................................. 3,775 (1,261) 2,514
------- ------- -------
$ 2,878 $(3,096) $ (218)
------- ------- -------
------- ------- -------
1991
Federal................................. $ 2,128 $(2,899) $ (771)
State................................... 320 (159) 161
Canada.................................. 64 (1,452) (1,388)
------- ------- -------
$ 2,512 $(4,510) $(1,998)
------- ------- -------
------- ------- -------
</TABLE>
The third quarter 1993 increase in the United States top federal statutory
rate from 34 percent to 35 percent did not have a significant effect on the
Company's provision for income taxes. Effective January 1, 1993, the Company
changed its method of accounting for supplies inventories. The tax effect of
this accounting change of $1,168,000 was deferred. Effective January 1, 1991,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
cumulative tax benefit of $3,474,000 related to this accounting change was
deferred. The tax rate used in providing for the cumulative effect of accounting
changes differed from the United States statutory federal income tax rate by an
amount representing state income taxes.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
The income tax provision was different from the amount computed by applying
the United States statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
(THOUSANDS)
Income (loss) before income taxes and
cumulative effect of accounting changes:
United States................................ $(9,530) $(8,137) $(3,359)
Canada....................................... 45,936 5,667 (3,734)
------- ------- -------
$36,406 $(2,470) $(7,093)
------- ------- -------
------- ------- -------
United States:
U.S. statutory federal income tax............ $(3,335) $(2,767) $(1,142)
State income and franchise taxes, net of
federal income tax benefit................ 107 -- 193
Other items, net............................. 111 35 339
------- ------- -------
(3,117) (2,732) (610)
Canada:
U.S. statutory federal income tax............ 16,078 1,927 (1,269)
Effect of Canadian tax rate different from
U.S....................................... 1,878 331 (119)
Non-deductible interest...................... -- 186 --
Other items, net............................. (8) 70 --
------- ------- -------
17,948 2,514 (1,388)
------- ------- -------
$14,831 $ (218) $(1,998)
------- ------- -------
------- ------- -------
</TABLE>
The nature and tax effects of the timing differences reflected in the
provision for deferred income taxes in 1992 and 1991 as computed in accordance
with Accounting Principles Board Opinion No. 11 are as follows:
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
(THOUSANDS)
Write-down of assets...................................... $(1,829) $ (912)
Reforestation............................................. (1,532) (503)
Alternative minimum tax................................... (735) (2,080)
Other items, net.......................................... (641) (614)
Restructuring............................................. (451) --
Postretirement benefits................................... (266) (466)
Inventory basis differences............................... 221 --
Other reserves............................................ 236 (766)
Canadian net operating loss carryforward.................. 388 (484)
Land basis differences.................................... 439 --
Depreciation expense...................................... 1,074 1,315
------- -------
$(3,096) $(4,510)
------- -------
------- -------
</TABLE>
In 1992 and 1991, the Company was required to compute its current federal
income tax liability under the Alternative Minimum Tax (AMT) methodology as it
resulted in a greater tax payable when compared to that computed using the
standard tax system. Additional amounts paid under the AMT system can be carried
forward indefinitely as credits to be applied against regular tax. AMT
carryforwards at December 31, 1993 are $2,833,000.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
Following the provisions of SFAS No. 109, "Accounting for Income Taxes,"
adopted January 1, 1993, deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities given the provisions of the enacted tax laws. The net
deferred tax liability is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
(THOUSANDS)
<S> <C> <C>
Current deferred taxes:
Gross assets.......................................... $ 5,385 $ 5,262
Gross liabilities..................................... -- --
------------ ----------
Total current deferred taxes.......................... 5,385 5,262
Noncurrent deferred taxes:
Gross assets.......................................... 19,018 15,276
Gross liabilities..................................... (26,954) (21,871)
------------ ----------
Total noncurrent deferred taxes....................... (7,936) (6,595)
------------ ----------
Net deferred tax liability.............................. $ (2,551) $ (1,333)
------------ ----------
------------ ----------
</TABLE>
The Company's valuation allowance against deferred tax assets was not
significant at December 31, 1993, or January 1, 1993.
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
(THOUSANDS)
<S> <C> <C>
Postretirement benefits............................... $ 4,671 $ 4,231
Reforestation......................................... 4,458 3,597
Vacation pay.......................................... 2,028 1,942
Depreciation.......................................... (24,589) (21,871)
AMT and other tax credits............................. 6,009 6,146
Other, net............................................ 4,872 4,622
------------ ----------
Net deferred tax liability.......................... $ (2,551) $ (1,333)
------------ ----------
------------ ----------
</TABLE>
In 1985, the stockholders of the Company approved a Plan of Distribution
pursuant to which all of the Company's timber properties and development
properties and related assets and liabilities in the State of Washington were
transferred to newly-formed Pope Resources, A Delaware Limited Partnership. The
transfer resulted in $10,266,000 of taxes currently payable in 1985, which was
charged to Stockholders' equity.
The distribution value for federal income tax purposes that was assigned to
the assets transferred to the Partnership has been challenged by the Internal
Revenue Service (IRS). In January 1993, the Company petitioned the United States
Tax Court in order to resolve the disputed value of the distribution. It is
management's opinion, based upon consultation with independent tax counsel, that
the Company can successfully defend itself against this claim and that any
additional tax due would not have a material adverse effect on the financial
position of the Company. The final tax settlement, if any, will be recognized as
a reduction in equity with respect to the partnership transaction.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
8. OTHER GAINS AND LOSSES
Wood products
Beginning in 1990 and concluding in 1992, the Company sold parcels of its
Oregon timberland which were no longer necessary as a result of selling its
Oakridge, Oregon sawmill in 1989.
Pulp and paper plant and equipment write-downs
During the fourth quarter of 1991, the Company removed from production and
wrote down two small, inefficient paper machines that could no longer produce
tissue at an acceptable level of quality. In addition, a building previously
used in the manufacturing of diapers was written down to the amount of net
proceeds anticipated upon sale of the building.
Cost reduction and efficiency improvements
In the second quarter of 1992, the Company announced a program to reduce
costs and improve operating efficiencies, principally in the pulp and paper
business. Costs under this program primarily include severance and early
retirement packages, asset write-downs resulting from the permanent closure of
the Ladysmith, Wisconsin tissue plant and the Maryville, Missouri diaper plant,
and costs to transfer equipment from the closed plants to other Company
facilities.
The components of Other gains (losses) in the Consolidated Statements of
Income are as follows:
<TABLE>
<CAPTION>
1992 1991
-------- -------
(THOUSANDS)
<S> <C> <C>
Sale of timberlands...................................... $ 10,348 $ 647
Cost reduction and efficiency improvements............... (11,937) --
Pulp and paper plant and equipment write-downs........... -- (2,587)
-------- -------
Other gains (losses), before tax....................... $ (1,589) $(1,940)
-------- -------
-------- -------
</TABLE>
9. ACQUISITION OF SAWMILL
On April 15, 1992, the Company purchased a sawmill in Castlegar, British
Columbia from Westar Ltd. The sawmill has an annual capacity of approximately
225 million board feet. The purchase price of $19,417,000 was paid in cash and
financed under the Company's revolving-credit agreement. Assets acquired and
liabilities assumed include inventory, $8,730,000; prepaid expenses, $1,085,000;
properties, $11,466,000; land and timber cutting rights, $3,392,000; accrued
liabilities, $962,000; and reforestation liability, $4,294,000. The acquisition
of the sawmill was accounted for as a purchase, and the consolidated financial
statements include results of operating the sawmill since the date of
acquisition.
The 1992 results of Castlegar operations prior to the acquisition date were
not material to the consolidated financial statements of the Company.
10. LITIGATION AND LEGAL MATTERS
The Company is party to various legal proceedings incidental to its
business. Management, in consultation with legal counsel, does not believe that
ultimate resolution of any of these proceedings will have a material adverse
effect on the financial position or results of operations of the Company.
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
11. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT INDUSTRIES AND
GEOGRAPHIC AREAS
By Industry
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
(THOUSANDS)
Revenues:
Wood products............................. $300,035 $214,167 $153,017
Pulp and paper products................... 328,891 330,178 349,258
-------- -------- --------
$628,926 $544,345 $502,275
-------- -------- --------
-------- -------- --------
Operating profit (loss):
Wood products............................. $ 62,084 $ 15,297 $ (1,140)
Pulp and paper products................... (9,784) (4,632) 6,219
-------- -------- --------
52,300 10,665 5,079
-------- -------- --------
Other gains (losses), net................... -- (1,589) (1,940)
Interest expense............................ (8,714) (5,622) (3,941)
General corporate expense................... (7,180) (5,924) (6,291)
-------- -------- --------
Income (loss) before income taxes and
accounting changes........................ $ 36,406 $ (2,470) $ (7,093)
-------- -------- --------
-------- -------- --------
Identifiable assets:
Wood products............................. $130,905 $111,319 $ 89,494
Pulp and paper products................... 302,503 242,572 243,655
Corporate................................. 22,413 15,790 13,834
-------- -------- --------
$455,821 $369,681 $346,983
-------- -------- --------
-------- -------- --------
Capital expenditures:
Wood products............................. $ 12,984 $ 22,873 $ 3,702
Pulp and paper products................... 69,601 24,261 33,566
-------- -------- --------
$ 82,585 $ 47,134 $ 37,268
-------- -------- --------
-------- -------- --------
Depreciation and amortization:
Wood products............................. $ 7,334 $ 6,847 $ 6,354
Pulp and paper products................... 21,270 21,057 20,823
Corporate................................. 699 660 771
-------- -------- --------
$ 29,303 $ 28,564 $ 27,948
-------- -------- --------
-------- -------- --------
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED)
By Geographic Area
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
(THOUSANDS)
Revenues:
United States.................................... $450,142 $449,401 $449,146
Canada........................................... 178,784 94,944 53,129
-------- -------- --------
$628,926 $544,345 $502,275
-------- -------- --------
-------- -------- --------
Operating profit (loss):
United States.................................... $ (2,259) $ (608) $ 4,322
Canada........................................... 54,559 11,273 757
-------- -------- --------
52,300 10,665 5,079
Other gains (losses), net.......................... -- (1,589) (1,940)
Interest expense................................... (8,714) (5,622) (3,941)
General corporate expense.......................... (7,180) (5,924) (6,291)
-------- -------- --------
Income (loss) before income taxes and
accounting changes............................... $ 36,406 $ (2,470) $ (7,093)
-------- -------- --------
-------- -------- --------
Identifiable assets:
United States.................................... $354,365 $284,746 $284,589
Canada........................................... 79,043 69,145 48,560
Corporate........................................ 22,413 15,790 13,834
-------- -------- --------
$455,821 $369,681 $346,983
-------- -------- --------
-------- -------- --------
</TABLE>
Notes:
A. The Company operates principally in two industries:
1) Wood products: Manufacture and sale of lumber and wood chips.
2) Pulp and paper products: Manufacture and sale of bleached kraft pulp,
tissue products and disposable diapers.
B. Operating profit (loss) is total revenue less directly identifiable costs and
expenses. In computing operating profit (loss), none of the following items
have been included: General corporate expenses, interest expense, other gains
(losses) and income taxes.
C. Identifiable assets are those assets of the Company that are identified with
the operations in each industry or geographic area.
12. SUBSEQUENT EVENT
On January 24, 1994, the Board of Directors authorized management to redeem
the Company's $40 million of convertible subordinated debentures. It is expected
the debentures will be converted into approximately 1,542,000 shares of common
stock in the first quarter of 1994.
Primary earnings per share for 1993, assuming the conversion had taken
place at the beginning of the year, would have been $1.70 compared to the $1.80
reported for 1993. Fully diluted earnings per share for 1993 would not have been
affected as the amount reported already reflects the impact of the conversion
transaction.
28
<PAGE> 30
POPE & TALBOT, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
The following quarterly information is unaudited, but includes all
adjustments which management considers necessary for a fair presentation of such
information. For interim quarterly statements, the income tax provision is
estimated using the best available information for projected results for the
entire year.
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(THOUSANDS EXCEPT PER SHARE)
1993
Revenues............................. $167,613 $151,216 $150,910 $159,187 $628,926
Gross profit......................... 26,386 16,791 12,562 19,015 74,754
Income before accounting changes..... 11,034 4,672 1,313 4,556 21,575
Cumulative effect of accounting
changes............................ (562) -- -- -- (562)
-------- -------- -------- -------- --------
Net income........................... $ 10,472 $ 4,672 $ 1,313 $ 4,556 $ 21,013
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income per common share:
Primary income before accounting
changes......................... $ .95 $ .40 $ .11 $ .39 $ 1.85
Cumulative effect of accounting
changes......................... (.05) -- -- -- (.05)
-------- -------- -------- -------- --------
Primary net income.............. $ .90 $ .40 $ .11 $ .39 $ 1.80
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Fully diluted income before
accounting changes.............. $ .85 $ .38 $ .11 $ .36 $ 1.71
Cumulative effect of accounting
changes......................... (.04) -- -- -- (.04)
-------- -------- -------- -------- --------
Fully diluted net income........ $ .81 $ .38 $ .11 $ .36 $ 1.67
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1992
Revenues............................. $127,142 $129,764 $143,571 $143,868 $544,345
Gross profit......................... 8,030 3,840 7,637 15,017 34,524
Other gains (losses), net............ -- (1,657) -- 68 (1,589)
Net income (loss).................... 103 (4,280) (907) 2,832 (2,252)
Primary and fully diluted net income
(loss) per common share............ .01 (.37) (.08) .25 (.19)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (continued).
(b) Exhibits.
23(a) -- Consent of Arthur Andersen & Co.
</TABLE>
30
<PAGE> 32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly authorized this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 16, 1994.
POPE & TALBOT, INC.
By /s/ CARLOS M. LAMADRID
Name: Carlos M. Lamadrid
Title: Chief Financial Officer
31
<PAGE> 33
POPE & TALBOT, INC.
CURRENT REPORT OF FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ --------------------------------------------------------------------------- ----
<C> <S> <C>
23(a) Consent of Arthur Andersen & Co.
</TABLE>
32
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K into the Company's previously filed
Post-Effective Amendment No. 1 to Registration Statement No. 33-8966 on Form S-8
and Registration Statement No. 22-24082 on Form S-8.
/s/ ARTHUR ANDERSEN & CO.
Portland, Oregon,
February 14, 1994
