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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________.
Commission File Number 1-7852
POPE & TALBOT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-0777139
- ----------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1500 SW 1st Avenue, Portland, Oregon 97201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 228-9161
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
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Common Shares, par value $1.00 New York Stock Exchange
Common Shares, par value $1.00 Pacific Stock Exchange
8-3/8% Debentures, Due June 1, 2013 None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark 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 [X] No [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $207,267,954 as of March 9, 1995 ($16.375 per share).
13,362,729
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(Number of shares of common stock outstanding as of March 9, 1995)
Part I and Part II incorporate specified information by reference from the
annual report to shareholders for the year ended December 31, 1994. Part III
incorporates specified information by reference from the proxy statement for
the annual meeting of shareholders on May 10, 1995.
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PART I
Item 1. Business
INTRODUCTION AND DEVELOPMENTS IN 1994
Pope & Talbot, Inc. (the "Company") is engaged principally in the wood
products and pulp and paper products businesses. The Company's wood products
business involves the manufacture and sale of standardized and specialty lumber
and wood chips. In its pulp and paper business, the Company manufactures and
sells a full line of private label consumer tissue and disposable diaper
products, bleached kraft pulp for newsprint and writing paper, and brokers wood
chips. During 1994, wood products accounted for approximately 46 percent of
the Company's revenues, consumer tissue accounted for 16 percent, disposable
diapers 24 percent and bleached kraft pulp and brokered wood chips 14 percent.
The Company, a Delaware corporation, was originally incorporated as a
California corporation in 1940. It is the successor to a partnership formed in
San Francisco, California in 1849 that acquired its first timberlands and
opened a lumber mill in the Seattle, Washington area in 1853. Subsequently,
the Company developed a lumber business based on timberland and facilities in
the U.S. Pacific Northwest, British Columbia, Canada, and the Black Hills
region of South Dakota and Wyoming.
Since the mid-1980s, the Company has reduced its dependency on timber
from the Pacific Northwest, where environmental concerns about the preservation
of old-growth forests have sharply restricted the availability and increased
the cost of public timber. At the same time, the Company has increased its
operations in regions presently having more stable timber supplies,
particularly in British Columbia and the Black Hills region of South Dakota and
Wyoming. In 1985, the Company distributed its timber and land development
properties in the State of Washington to its shareholders through interests in
a newly formed master limited partnership. In 1989, the Company sold its
Oregon sawmill, and the Company has since sold its remaining Oregon
timberlands. In 1992, the Company acquired a 225 million board feet capacity
sawmill and related timber cutting rights in Castlegar, British Columbia. The
Company currently operates six sawmills with an estimated annual capacity of
726 million board feet, of which approximately 80% is located in British
Columbia and the Black Hills.
In order to expand and broaden its sources of revenue, the Company
acquired its pulp, consumer tissue and disposable diaper businesses in the late
1970s and 1980s. The Halsey, Oregon pulp mill produces bleached kraft pulp
which is sold in the open market and to newsprint manufacturers and a writing
paper manufacturer in the Pacific Northwest. The Company's private label
tissue business manufactures towels, napkins, bathroom tissue and facial tissue
from recycled paper at two mills in the U.S. Disposable diapers are produced
by the Company at four mills in the U.S. The Company sells its tissue and
diaper products under private labels to supermarkets, drugstores, mass
merchandisers and food and drug distribution companies. In 1992, the Company
commenced a program to reduce costs and improve operating efficiencies in these
businesses, resulting in the consolidation of one tissue mill and one diaper
plant. In early 1994, the Company completed projects resulting in significant
product and cost improvements to its pulp mill.
The businesses in which the Company is engaged are extremely
competitive, and a number of the Company's competitors are substantially larger
than the Company with correspondingly greater resources. In particular,
competition in the tissue products and disposable diaper markets is extremely
strong, both in terms of price and product innovation. See "Pulp and Paper
Products Business - Paper Products."
Environmental regulations to which the Company is subject require the
Company from time to time to incur significant operating costs and capital
expenditures. In addition, as discussed herein, environmental concerns have in
the past materially affected the availability
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and cost of raw materials used in the Company's business. See "Wood Products
Business", "Pulp and Paper Products Business" and "Environmental Matters."
WOOD PRODUCTS BUSINESS
The Company's wood products business involves the manufacture and sale
of standardized and specialty lumber and wood chips. The Company's principal
wood product categories and the sales generated by each over the past three
years are set forth in the following table:
<TABLE>
<CAPTION>
Classes of Wood Products 1994 1993 1992
------------------------ ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Lumber $261,322 $256,842 $176,544
Wood chips 30,284 29,695 26,376
Logs and other 12,599 13,498 11,247
-------- -------- --------
Total wood products sales $304,205 $300,035 $214,167
======== ======== ========
</TABLE>
In 1994, lumber revenues increased $4.5 million, or 2 percent, compared
with 1993. These increased revenues were due to higher lumber sales prices
which more than offset the impact of lower sales volumes, primarily due to
downtime taken at the Port Gamble sawmill. In 1993, lumber revenues increased
$80.3 million, or 45 percent, compared with 1992. These increased revenues in
1993 were due mainly to higher lumber sales prices, but also to greater lumber
sales volumes resulting from operating the Castlegar, British Columbia sawmill,
which was purchased in the second quarter of 1992, throughout 1993.
The Company's lumber products consist principally of boards and
dimension lumber, some of which are specialty, value-added items, such as
stress-rated lumber. Wood chips and other similar materials are obtained as a
by-product of the Company's lumber operations. Wood chips were also obtained
from direct chipping of whole logs in 1993 and 1992.
The principal sources of raw material for the Company's wood products
operations are timber obtained through long-term cutting licenses on public
lands, logs purchased in open log markets, timber offered for sale via
competitive bidding by federal and state agencies and private sources, and
timber purchased under long-term contracts to cut timber on private lands.
Approximately 80% of the Company's current lumber capacity is located in
British Columbia, Canada and the Black Hills region of South Dakota and
Wyoming, where timber supplies are more stable than in the U.S. Pacific
Northwest. In Canada, timber requirements are obtained primarily from the
Provincial Government of British Columbia under long-term timber harvesting
licenses which allow the Company to remove timber from defined areas annually
on a sustained yield basis. Approximately 25 percent of the Company's Canadian
log requirements are satisfied through open market log purchases. In the Black
Hills, the Company obtains its timber from various public and private sources
under long-term timber harvesting contracts in addition to buying logs on open
markets. Under these licenses and contracts, prices are subject to periodic
adjustment based upon formulas set forth therein. Additionally, the Provincial
Government of British Columbia has the authority to modify prices and harvest
volumes at any time. During 1994, the Provincial Government of British
Columbia adjusted upward the price charged for a substantial portion of the
wood used by the Company's three Canadian sawmills effective May 1, 1994. The
new pricing formula, which is based on a relationship to end-product prices,
had the effect of increasing 1994 log costs by approximately $7 million.
Reduced timber harvest levels resulted in the January 1, 1995, curtailment of
the Grand Forks, British Columbia sawmill to a one-shift production basis.
This Grand Forks curtailment reduced lumber capacity by 60 million board feet
annually, or
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approximately 8 percent of the Company's lumber capacity. The Provincial
Government of British Columbia's Commission of Resources and Environment
("CORE") is reviewing the future use of the forest resources in the province,
including reserving additional forest resources to park lands. The results of
these CORE reviews may affect the amount of timber available in the future and
could reduce the amount of timber available to the Company's Canadian sawmills
by 10 percent to 30 percent or more. Any ultimate reduction in allowable
timber harvests may result in further decreases in lumber production levels at
one or more of the Company's Canadian sawmills.
At Port Gamble, the Company obtains its timber primarily via competitive
bidding on timber offered by federal and state agencies and private sources and
from logs purchased in the open market. Decreased availability of federal
timber caused primarily by pressures from environmental groups to curtail
harvests from public lands, thereby protecting old-growth forests and wildlife
habitat, combined with strong export demand for logs, has resulted in reduced
wood supplies. This highly competitive log supply environment caused the
Company to reduce production at its Port Gamble sawmill to 58% of capacity in
1994.
Although no assurances can be given, subject to the results of the CORE
studies, the Company believes that timber supplies will be adequate to sustain
current lumber production levels at the Company's sawmills, with the exception
of Port Gamble which will continue to operate based upon log availability.
Marketing and Distribution. The Company's lumber products are sold
primarily to wholesalers. Wood chips produced by the Company's sawmills are
sold to manufacturers of pulp and paper in the U.S. and Canada. Sales of logs
are made to other U.S. and Canadian forest products companies.
Marketing of the Company's wood products is centralized in its Portland,
Oregon offices. Although the Company does not have distribution facilities at
the retail level, the Company does utilize several reload facilities around the
U.S. to assist in moving the product closer to the customer. The Company sold
wood products to numerous customers during 1994, the ten largest of which
accounted for approximately 33 percent of total wood products sales. No single
wood products customer accounted for more than 10 percent of the Company's
revenues in 1994.
Backlog. The Company maintains a minimal finished goods inventory of
wood products. At December 31, 1994, orders were approximately $7.5 million,
compared with approximately $11.2 million at December 31, 1993. This backlog
represented an average order file for the Company which generally would be
shipped in two weeks to one month. The decrease from 1993 to 1994 reflects
both reduced lumber sales prices and lower order volume. The lower order
volume is a function of timing and the Company does not believe it is
indicative of a business trend.
Competition. The wood products industry is highly competitive, with a
large number of companies producing products that are reasonably standardized.
There are numerous competitors of the Company that are of comparable size or
larger, none of which is believed to be dominant. With the 1992 Castlegar
sawmill acquisition, the Company believes it is one of the larger lumber
producers in North America. The principal means of competition in the
Company's wood products business are pricing and an ability to satisfy customer
demands for various types and grades of lumber and other finished products.
For further information regarding amounts of revenue, operating profit
and loss and identifiable assets attributable to the wood products industry
segment, see Note 11 of "Notes to Consolidated Financial Statements" in the
Company's 1994 Annual Report to Shareholders.
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PULP AND PAPER PRODUCTS BUSINESS
The Company's principal pulp and paper products categories and the sales
generated by each over the last three years are set forth in the following
table:
<TABLE>
<CAPTION>
Classes of Pulp and Paper Products 1994 1993 1992
---------------------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Tissue products $104,884 $105,040 $114,647
Disposable diapers 157,067 170,128 139,515
Bleached kraft pulp 77,950 40,319 63,410
Brokered wood chips 15,767 13,404 12,606
-------- -------- --------
Total pulp and paper products sales $355,668 $328,891 $330,178
======== ======== ========
</TABLE>
Pulp and paper revenues increased $26.8 million, or 8 percent, from 1993
to 1994 due mainly to improved pulp sales. From 1993 to 1994, pulp volumes and
prices increased 54 percent and 25 percent, respectively. The volume increase
related primarily to the Halsey pulp mill's return to essentially full
production for the majority of 1994. In tissue, a 2 percent drop in volume was
offset by a 2 percent price improvement from 1993 to 1994. The decrease in
1994 diaper revenues resulted from a 5 percent volume reduction combined with 3
percent lower prices. Pulp and paper revenues were essentially unchanged from
1992 to 1993 as increased disposable diaper revenues were offset by lower
tissue and pulp revenues. The improved diaper revenues resulted from a 21
percent increase in sales volume. Tissue and pulp volumes were off
approximately 8 percent and 28 percent, respectively, from 1992 to 1993, while
tissue prices dropped 1 percent and pulp prices fell 12 percent during this
same period.
1. PAPER PRODUCTS
The Company produces a full line of private label consumer tissue
products including towels, napkins, bathroom tissue, and facial tissue. The
Company also produces disposable diapers. All of these products are sold under
private and controlled labels.
The raw material for the Company's tissue mills is wastepaper purchased
from wastepaper dealers located in the upper Midwest, mid- Atlantic and, to a
lesser extent, on the East Coast. The principal raw material for disposable
diapers is fluff pulp, which is produced by pulp and paper manufacturers
throughout the United States. The Company believes that there will continue to
be an adequate supply of wastepaper and fluff pulp in the foreseeable future.
Marketing and Distribution. The Company utilizes its own sales force
and some retail consumer products brokers to sell its products to supermarkets,
drugstores, mass merchandisers and food and drug distribution companies. The
Company's products enjoy national distribution; however, the majority are sold
east of the Rocky Mountains. Sales to the Company's ten largest paper products
customers represented 50 percent of tissue products and diaper sales in 1994.
No single paper products customer accounted for 10 percent or more of total
Company revenues in 1994.
Backlog. The Company carries a minimal finished goods inventory in
tissue products and disposable diapers. At the end of 1994 the order file was
approximately $11.8 million compared to a backlog of approximately $13.3
million at December 31, 1993. The lower order backlog at year-end 1994 than
year-end 1993 relates to timing of order receipts and the Company does not
believe it is indicative of a business trend. This backlog is generally
shipped in less than one month.
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Competition. The tissue market is extremely competitive, with
approximately 10 major producers. Of these, Scott Paper Company, Fort Howard
Corporation, James River Corporation and Procter & Gamble Corporation are
dominant and account for approximately 64 percent of the market. Within the
tissue market, the Company estimates that the private label tissue segment
accounts for approximately 12 percent to 22 percent of the total, depending on
the product.
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, has resulted in an
extremely competitive tissue pricing environment. The Company's tissue mills
operated at 97 percent of capacity in 1994. Overall, beginning in 1989 and
continuing through 1993, prices for the Company's tissue fell an average 13
percent. This 13 percent price reduction included decreases of 6 percent in
1992 and 1 percent in 1993. In 1994, prices rebounded somewhat, averaging 2
percent higher than 1993.
Of the disposable diaper market, the Company estimates that
approximately 77 percent is in branded products, with the remaining 23 percent
relating to private label products. There are four major producers in the
disposable diaper business. Procter & Gamble and Kimberly- Clark are dominant
with a combined 75 percent of the market, all of which is in branded products.
Paragon Trade Brands, Inc. is the largest producer in the private label market
segment, followed by the Company with approximately 7 percent of the disposable
diaper market.
National branded manufacturers have introduced numerous and frequent
product innovations that have resulted in major improvements in infant
disposable diaper absorbency, leakage prevention and fit. The national branded
manufacturers have substantially larger research and development budgets than
the Company and are able to develop product innovations more rapidly than the
Company and may thereby gain market share at the Company's expense. While in
recent years the Company has been able to introduce product enhancements
comparable to those introduced by the national branded manufacturers, there can
be no assurance that the Company will be able to continue to introduce
comparable product innovations on a profitable basis or that the Company will
continue to be able to introduce such product innovations at the pace required
to remain competitive with the national branded manufacturers.
The Company believes that its national distribution capabilities, its
full product line and its reputation as a private label supplier enhance its
market efforts.
2. PULP PRODUCTS
The Company owns a pulp mill and supporting facilities at Halsey,
Oregon. This mill produces bleached kraft pulp which is sold in various forms
in the open market and to newsprint manufacturers and a writing paper
manufacturer in the Pacific Northwest. In conjunction with the fiber
acquisition program for the pulp mill, the Company brokers pulp chips for sale
primarily into the export market. The total annual capacity of the mill is
180,000 air dry metric tons; 158,000 metric tons were produced in 1994 and
109,000 metric tons were produced in 1993. The Company's pulp business was
affected in 1992 and to a greater extent in 1993 by relatively high wood chip
costs, weak demand, declining pulp prices and by the loss of a major customer.
However, the pulp market rebounded dramatically in 1994 which, along with sales
to a significant new pulp customer in 1994, allowed the Company to increase its
pulp sales volume 54 percent over the 1993 level.
From 1985 until 1993 the Company had a pulp supply contract with James
River Corporation ("James River") under which the Company supplied up to
approximately 65,000 metric tons of pulp in slush form to a tissue facility
owned by James River adjacent to the Company's pulp mill. James River began
production of its own recycled pulp at Halsey in
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1992, and correspondingly reduced its consumption of pulp from the Company's
pulp mill in 1992 and completely phased out of its Halsey pulp consumption in
1993. Approximately 10,000 metric tons were sold to James River in early 1993.
As a result of depressed world pulp prices in 1992 and 1993, selective
downtime was taken in lieu of selling pulp in the open market to replace the
lost James River tonnage. Because of the lost James River volume and the
related decision to take selective downtime, the Halsey pulp mill operated at
60 percent of capacity in 1993.
In order to provide additional sales flexibility and attempt to improve
margins through higher value products, the Company initiated mill modifications
in 1993 totaling $41 million, which were completed in early 1994, to improve
pulp quality and expand pulp drying capabilities. These modifications were in
addition to a $24 million oxygen delignification project which reduced both the
use of chlorine in the bleaching process and dioxin discharges. This oxygen
delignification project, which was completed late in 1993, was necessary to
comply with an agreement entered into with the Oregon Department of
Environmental Quality on meeting target emission levels. These mill
improvements have allowed the Company to expand its pulp product offerings and
to dry its total pulp production, thus providing greater access to new pulp
markets within and outside the Pacific Northwest, which has historically been
the Company's primary pulp market region.
The pulp mill modifications mentioned previously made it possible for
the Company to enter into a significant pulp supply agreement in late 1993.
Under this agreement with Grays Harbor Paper L.P. ("Grays Harbor"), the Company
began supplying pulp to the Grays Harbor writing grade paper mill. In 1994,
Grays Harbor purchased approximately 89,000 metric tons of pulp from the
Company. All output from the paper mill is sold to one customer. In the event
that the paper mill's sales to its customer are adversely impacted for any
reason, sales of the Company's pulp may be adversely impacted. A portion of
the pulp sold to the paper mill is produced from sawdust and hardwood chips,
which have historically been less expensive than softwood chips, which has been
the primary raw material for the pulp mill. Pricing for this pulp is computed
using a formula based on prices for white paper.
Weyerhaeuser Company ("Weyerhaeuser") owns a pulp mill, which it is
currently upgrading and expanding, located adjacent to the North Pacific Paper
Company ("Norpac") newspaper manufacturing facility in Longview, Washington.
Weyerhaeuser is a part owner of Norpac. Upon completion of the Weyerhaeuser
upgrade and expansion project, Norpac will likely satisfy its pulp needs
through purchases from the Weyerhaeuser mill. In 1994, Norpac purchased
approximately 48,000 metric tons of pulp from the Company. Norpac is presently
phasing out its pulp purchases from the Company and by the fourth quarter of
1995, plans to discontinue purchases from the Halsey pulp mill. As a result of
the mill's pulp enhancements brought about by the previously mentioned mill
modifications, the Company does not anticipate that the present reduction, and
ultimate discontinuation, of Norpac sales volume will have a material adverse
effect on the Company's pulp business or results of operations.
Substantially all of the Company's wood chip and sawdust requirements
for the Halsey pulp mill are satisfied through purchases by the Company from
third parties. The Company has long-term chip supply contracts with sawmills
in the Pacific Northwest.
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 past several years. In order to maintain an adequate supply of wood
fiber for the mill, the Company has expanded its geographic base from which it
obtains the softwood chips normally used as the primary raw material for the
pulp mill. The Company has also expanded the capability of using sawdust and
hardwood chips, which historically have been less expensive than softwood
chips, as raw materials for a portion of the production. 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 softwood
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chips, the Company will continue to use an expanded geographic base to obtain
chips, adding to their cost. Although chip costs have remained at historically
high levels, they have been essentially constant during 1992, 1993 and 1994;
however, chip prices did begin to increase late in 1994 and early 1995. Unless
environmental restrictions on timber harvests are relaxed, chip prices likely
will remain high, and sawdust and hardwood chip prices may also increase. The
Company believes that its third-party chip and sawdust purchases will be
adequate for the Halsey pulp mill in the foreseeable future.
Marketing and Distribution. The Company utilizes its own sales force
and pulp brokers to sell its pulp products. Substantially all of the Company's
pulp products are sold in the Northwest. In 1994, sales to Grays Harbor
represented 45 percent of the Company's pulp revenues, sales to Norpac
represented 28 percent of the Company's pulp revenues, and the remaining eight
largest customers accounted for an additional 22 percent of pulp revenues. No
single pulp customer accounted for 10 percent or more of total Company revenues
in 1994.
Backlog. The Company's pulp customers typically enter into one- to
three-year contracts and provide the Company with annual estimates of their
requirements. More definite orders are placed by these customers on a
quarterly or monthly basis. As of December 31, 1994, the Company's backlog of
orders for pulp products for delivery during the first quarter of 1995 was $27
million, compared to a backlog of approximately $19 million at December 31,
1993. This increase in order backlog reflects the improved pulp markets in the
first quarter of 1995 compared to the first quarter of 1994.
Competition. The pulp industry is highly competitive, with a
substantial number of competitors having extensive financial resources,
manufacturing expertise and sales and distribution organizations, most of which
are larger than the Company, but none of which is believed to be dominant. The
principal methods of competition in the pulp market are price, quality, volume,
reliability of supply and customer service.
For further information regarding amounts of revenue, operating profit
and loss and identifiable assets attributable to the pulp and paper products
industry segment, see Note 11 of "Notes to Consolidated Financial Statements"
in the Company's 1994 Annual Report to Shareholders.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, Canadian and local air, water
and land pollution control, solid and hazardous waste management, disposal and
remediation laws and regulations in all areas where it has operations.
Compliance with these laws and regulations generally requires operating costs
as well as capital expenditures. It is difficult to estimate the costs related
solely to environmental matters of many capital projects which have been
completed in the past or which may be required in the future. Changes required
to comply with environmental standards will affect other areas such as facility
life and capacity, changes in raw material requirements and costs and product
value. It is estimated that during 1994, capital expenditures for
environmental controls amounted to approximately $4 million. It is expected
that capital expenditures will continue into the future and may increase over
time. Based on the understanding of future compliance standards, expenditures
for such purposes are currently estimated to be minimal in 1995 and 1996;
however, the ultimate outcome of future compliance is uncertain due to various
factors such as the interpretation of environmental laws and evolving
technologies.
In response to environmental concerns in Western Oregon and Western
Washington, specifically the preservation of old-growth forests and wildlife
habitat, substantial amounts of federal timberlands have been set aside as
wilderness areas. This has affected and may continue to affect the amount and
cost of timber obtainable from public agencies in this region. Currently, the
Company's exposure in this region is the Port Gamble, Washington sawmill and
the Halsey, Oregon pulp mill. The carrying value of the Port Gamble sawmill
was written down
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in 1990 as a result of its inability to obtain adequate timber supply; the
sawmill now operates based upon log availability. The Halsey pulp mill is also
affected by the decrease in timber availability, since its primary raw
materials, wood chips, sawdust and hardwood chips, are by-products of the
lumber manufacturing process. The Company believes that, based on existing
wood chip and sawdust availability both within the Willamette Valley region of
Oregon and from other sources discussed previously, wood chip and sawdust
resources will be adequate for the Company's requirements at the Halsey pulp
mill in the foreseeable future. The Company also believes that the reduced
availability of public timber in Western Washington will have little, if any,
additional impact on the Company's Port Gamble operations.
In Canada, the Provincial Government of British Columbia's Commission of
Resources and Environment ("CORE") is reviewing the future use of the forest
resources in the province, including reserving additional forest resources to
park lands. The results of these CORE reviews may affect the amount of timber
available in the future and could reduce the amount of timber available to the
Company's Canadian sawmills by 10 percent to 30 percent or more.
The Environmental Protection Agency ("EPA") has published proposed
regulations which would establish standards and limitations for non-combustion
sources under the Clean Air Act and revised regulations under the Clean Water
Act. These proposals are collectively referred to as the "cluster rules" and
have been the subject of extensive discussions between the pulp and paper
industry and the EPA. The Company's primary exposure to these proposals relate
to the Company's Halsey pulp mill, and to a much lesser degree the Company's
two tissue mills. Based on preliminary evaluation of the proposed rules,
required modifications to the Company's mills could range from $15 million to
$30 million. The proposed rules could be made effective in 1999 at the
earliest, although later enactment is possible.
In 1992, the Company was contacted by the local governmental owner of a
vacant industrial site in Oregon on which the Company previously conducted
business. The owner informed the Company that the site has been identified as
one containing creosote and coal tar, and that it plans to undertake a
voluntary cleanup effort of the site. The owner has requested that the Company
participate in the cost of the cleanup. The Company, in conjunction with an
environmental consultant has performed preliminary assessment of soil
contamination on the site and, in conjunction with the site owner, is beginning
to make more extensive site assessments which will take up to two years. The
results of the preliminary assessment indicate there is some soil contamination
present from creosote and coal tar as well as pollutants from other sources,
and that the responsibility for the contamination is not clear. The total
estimated cost of cleaning up the known contamination at this time could be in
the range of $1 million to $3 million although no determination of the
responsibility for the cleanup has been established. If the more extensive
site assessment indicates additional contamination which has not been shown at
this time, the costs of remediation could be much higher. The Company believes
it is reasonably possible that the costs associated with the cleanup of this
site may exceed current accruals by amounts which may range from insignificant
up to approximately $5 million over several years. This upper range estimate
of possible outcomes is substantially less certain than the estimates upon
which accruals are currently based, and utilizes assumptions substantially less
favorable to the Company among the range of reasonably possible outcomes.
EMPLOYEES
The Company currently employs approximately 3,000 employees of whom
2,500 are paid hourly and a majority of which are members of various labor
unions. Approximately 47 percent of the Company's employees are associated
with the Company's wood products business, 51 percent are associated with the
Company's pulp and paper business and 2 percent are corporate management and
administration personnel.
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FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company's foreign manufacturing operations consist of three lumber
mills located in Canada. The Company's primary exports are disposable diapers
sold to Canada and brokered wood chips sold to Japan. The Company's export
sales from the United States were $31.9 million for 1994, $29.1 million for
1993 and $19.3 million for 1992. Of the 1994 export sales, 45 percent were to
Canada and 36 percent were to Japan.
Financial information regarding the Company's domestic and foreign
operations is included in Note 11 of "Notes to Consolidated Financial
Statements" on page 32 of the Company's 1994 Annual Report to Shareholders.
Item 2. Properties
WOOD PRODUCTS PROPERTIES
1. Mills and Plants
The following tabulation briefly states the location, character,
capacity and 1994 production of the Company's lumber mills:
<TABLE>
<CAPTION>
Estimated Annual 1994
Location Capacity (1) (2) Production(2)
- -------- ---------------- -------------
<S> <C> <C>
Port Gamble, WA 150,000,000 bd. ft. 87,000,000 bd. ft.
Spearfish, SD 110,000,000 bd. ft. 102,000,000 bd. ft.
Newcastle, WY 31,000,000 bd. ft. 31,000,000 bd. ft.
Grand Forks, BC (3) 60,000,000 bd. ft. 95,000,000 bd. ft.
Midway, BC 150,000,000 bd. ft. 154,000,000 bd. ft.
Castlegar, BC 225,000,000 bd. ft. 217,000,000 bd. ft.
</TABLE>
_______________
(1) Based on normal industry practice of operating two shifts, five days per
week for lumber mills except for the Newcastle, Wyoming and Grand Forks,
British Columbia mills which are based upon one shift, five days per week.
(2) Wood chips are produced as a result of the operation of the Company's
lumber mills. It is estimated that the aggregate annual capacity for such
production is 406,000 bone dry units. In 1994, 380,000 bone dry units were
produced.
(3) The Grand Forks, British Columbia lumber mill was changed from a two-shift
to a one-shift production basis effective January 1, 1995.
The Company believes that its wood products manufacturing facilities are
adequate and suitable for current operations. Nevertheless, the Company is
committed to continually improving its manufacturing facilities as evidenced by
the 1994 completion of the second phase of a project to improve raw material
utilization at the Castlegar lumber mill.
The Company owns all of its wood products manufacturing facilities
except that it leases the ground on which the Port Gamble facilities are
located from Pope Resources, A Delaware Limited Partnership, pursuant to a
20-year lease entered into in December 1985.
2. Timber and Timberland
Restructuring activities in 1992 resulted in the sale of approximately
21,800 acres of primarily immature timber in Oregon. The Company no longer
owns any timberland in the Pacific Northwest.
10
<PAGE> 11
PULP AND PAPER PROPERTIES
1. Tissue and Diaper Mills
The following table briefly states the location, character, capacity and
1994 production of the Company's tissue and diaper products manufacturing
facilities:
<TABLE>
<CAPTION>
Estimated Annual 1994
Location Capacity(1) Production
- -------- ----------------- ----------
<S> <C> <C>
Tissue Products
- ---------------
Eau Claire, Wisconsin 55,000 tons 54,000 tons
Ransom, Pennsylvania 55,000 tons 53,000 tons
Diapers
- -------
Shenandoah, Georgia 267,000,000 diapers 176,000,000 diapers
Eau Claire, Wisconsin 280,000,000 diapers 238,000,000 diapers
Oneonta, New York 408,000,000 diapers 364,000,000 diapers
Porterville, California 373,000,000 diapers 264,000,000 diapers
Incontinents
- ------------
Shenandoah, Georgia 126,000,000 pads 23,000,000 pads
</TABLE>
__________________
(1) Based on normal industry practice of operating three shifts per day,
seven days per week, less scheduled downtime.
The Company believes that its tissue and diaper manufacturing facilities
are adequate and suitable for current operations. In 1994, the Company
completed rebuilds of its diaper machines and also began a project to
significantly upgrade the Eau Claire wastepaper pulping capabilities. This
pulping upgrade project is scheduled for completion in mid 1995.
The Company owns all of its tissue and diaper production facilities,
except that it leases the building which contains the Shenandoah diaper and
incontinent production facilities.
2. Pulp Mill
The Company owns a bleached kraft pulp mill near Halsey, Oregon. In
1994, 158,000 air dry metric tons of pulp were produced, compared with an
estimated annual capacity of 180,000 metric tons. During 1994 the Company
spent $13 million to complete installation of a conventional Flakt pulp dryer
which allows the mill to produce market pulp in a form suitable for shipping to
markets outside the Pacific Northwest. The Flakt pulp dryer cost $37 million
in total. The Company believes that its pulp facility is adequate and suitable
for current operations.
Item 3. Legal Proceedings
In 1985, shareholders 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,
with interests in the partnership distributed to the Company's shareholders on
a pro rata basis.
11
<PAGE> 12
The Company assigned to the assets transferred a distribution value for
federal income tax purposes based upon the public trading price of the
partnership interests at the time of distribution. The Internal Revenue
Service has asserted that the Company owes additional federal income tax in the
amount of approximately $14 million (plus applicable interest) in connection
with this transaction and the Company has disputed this asserted tax liability.
The issue is scheduled to be heard in U.S. Tax Court during the third quarter
1995. The Company will vigorously contest the assessed tax liability through
independent tax counsel. The Company believes, based upon consultation with
independent tax counsel, that the additional tax due in this matter, if any,
will ultimately be significantly less than the assessed amount and will not
have a material adverse effect on the Company's financial position. The final
tax settlement, if any, will be recognized as a reduction in equity with
respect to the partnership transaction.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT WHO ARE NOT DIRECTORS
In addition to the executive officers who are also directors of the
Company, the following executive officers are not directors:
CARLOS M. LAMADRID, 59, Senior Vice President - Finance, Secretary, Treasurer
and Chief Financial Officer since August 1987.
MICHAEL FLANNERY, 51, Group Vice President - Wood Products Division since
August 1987.
WILLIAM G. FROHNMAYER, 56, Group Vice President - Fiber Products since August
1987.
ROBERT L. VANDERSELT, 48, Group Vice President - Consumer Products Division
since September 1991; August 1990 to September 1991 President, CKI
Consulting (a management consulting firm); September 1988 to August
1990 President, Scott Worldwide Food Service, Scott Paper Company (a
diversified consumer paper company).
RICHARD N. MOFFITT, 47, Vice President - Human Resources since June 1987.
All officers hold office at the pleasure of the Board of Directors.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Pope & Talbot, Inc. common stock is traded on the New York and Pacific
stock exchanges under the symbol POP. The number of shareholders at year-end
1994 and 1993 were 1,372 and 1,398, respectively. The high and low sales
prices for the common stock on the New York Stock Exchange and the dividends
paid per common share for each quarter in the last two fiscal years are shown
below:
<TABLE>
<CAPTION>
Sales price per share
--------------------- Cash dividends
High Low per share
---- --- --------------
<S> <C> <C> <C>
1994
1st Quarter $32-5/8 $23-3/4 $ .19
2nd Quarter 25-5/8 17-3/8 .19
3rd Quarter 22-1/4 17-1/4 .19
4th Quarter 18-7/8 15-1/4 .19
-----
$ .76
1993
1st Quarter $28-1/8 $16 $ .19
2nd Quarter 26-7/8 21-1/2 .19
3rd Quarter 25-1/2 20 .19
4th Quarter 29-7/8 20-7/8 .19
-----
$ .76
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Information required by Item 6 of Part II is presented in the table
entitled "Five Year Summary of Selected Financial Data" on page 14 of the
Company's 1994 Annual Report to Shareholders. Such information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 of Part II is presented on pages 15,
16, 17, 18 and 19 of the Company's 1994 Annual Report to Shareholders. Such
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Part II is presented on pages 20
through 33 of the Company's 1994 Annual Report to Shareholders. Such
information is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by Item 10 of Part III is presented on page 12
as a separate item entitled "Executive Officers of the Registrant Who
are Not Directors" in Part I of this Report on Form 10-K and on pages 2 and 3
(under the item entitled "Certain Information
13
<PAGE> 14
Regarding Directors and Officers") of the Company's Definitive Proxy Statement
for the Annual Meeting of Shareholders on May 10, 1995. Such information is
incorporated herein by reference.
ITEM 11. MANAGEMENT REMUNERATION
The information required by Item 11 of Part III is presented on pages
4-12 of the Company's Definitive Proxy Statement for the Annual Meeting of
Shareholders on May 10, 1995. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Part III is presented on page 3
and on page 4 (beginning just after the title "Beneficial Ownership of Over
Five Percent of Pope & Talbot Common Stock" on page 4) of the Company's
Definitive Proxy Statement for the Annual Meeting of Shareholders on May 10,
1995. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Part III is presented on page 13
(beginning just after the title "Certain Relationships and Related
Transactions" on page 13) of the Company's Definitive Proxy Statement for the
Annual Meeting of Shareholders on May 10, 1995. Such information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this annual report.
(a) (2) Schedules
All schedules are omitted since the required information is not
present or is not present in amounts sufficient to require
submission of the related schedule, or because the information
required is included in the financial statements and notes thereto.
(a) (3) Exhibits
The following exhibits are filed as part of this annual report.
Exhibit No.
<TABLE>
<S> <C>
3.1 Certificate of Incorporation, as amended. (Incorporated herein by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.)
3.2 Bylaws. (Incorporated herein by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.)
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
4.1 Indenture, dated June 2, 1993, between the Company and Chemical Trust Company of California as Trustee with
respect to the Company's 8-3/8% Debentures due 2013. (Incorporated herein by reference to Exhibit 4.1 to the
Company's registration statement on Form S-3 filed April 6, 1993.)
4.2 Revolving Credit Agreement, dated July 18, 1990, between the Company and United States National Bank of Oregon.
(Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990.)
4.3 Revolving Credit Agreement, dated May 6, 1992, among the Company and United States National Bank of Oregon; CIBC,
Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.; and Wachovia Bank of Georgia, National Association.
(Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.)
4.4 Rights Agreement, dated as of April 13, 1988, between the Company and The Bank of California, as rights agent.
(Incorporated herein by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.)
4.5 Line of Credit Agreement, dated April 29, 1994, between the Company and Wachovia Bank of Georgia, National
Association. (Incorporated herein by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.)
4.6 Extension Agreement, dated as of June 30, 1994, to the Revolving Credit Agreement, dated May 6, 1992, among the
Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.; and
Wachovia Bank of Georgia, National Association.
4.7 Modification Agreement, dated as of October 31, 1994, to the Revolving Credit Agreement, dated May 6, 1992, among
the Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.; and
Wachovia Bank of Georgia, National Association.
4.8 Modification Agreement, dated as of December 31, 1994, to the Revolving Credit Agreement, dated May 6, 1992, among
the Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.; and
Wachovia Bank of Georgia, National Association.
10.1 Executive Compensation Plans and Arrangements
---------------------------------------------
10.1.1 Stock Option and Appreciation Plan. (Incorporated herein by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.)
10.1.2 Executive Incentive Plan. (Incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.)
10.1.3 Restricted Stock Bonus Plan. (Incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
10.1.4 Deferral Election Plan. (Incorporated herein by reference to Exhibit 10(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.)
10.1.5 Supplemental Executive Retirement Income Plan. (Incorporated herein by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.1.6 Form of Severance Pay Agreement among the Company and certain of its executive officers. (Incorporated herein
by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.2 Lease agreement between the Company and Pope Resources, dated December 20, 1985, for Port Gamble, Washington
sawmill site. (Incorporated herein by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990.)
10.3 Lease agreement between the Company and Shenandoah Development Group, Ltd., dated March 14, 1988, for Atlanta
diaper mill site as amended September 1, 1988 and August 30, 1989. (Incorporated herein by reference to Exhibit
10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.4 Lease agreement between the Company and Shenandoah Development Group, Ltd., dated July 31, 1989, for additional
facilities at Atlanta diaper mill as amended August 30, 1989 and February 1990. (Incorporated herein by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.5 Grays Harbor Paper L.P. Amended and Restated Pulp Sales Supply Contract, dated September 28, 1994 (with certain
confidential information deleted). (Incorporated herein by reference to Exhibit 10(j) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994.)
11.1 Statement showing computation of per share earnings.
13.1 Portions of the annual report to shareholders for the year ended December 31, 1994 which have been incorporated
by reference in this report.
21.1 Listing of parents and subsidiaries. (Incorporated herein by reference to Exhibit 22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.)
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
The undersigned registrant hereby undertakes to file with the Commission a copy
of any agreement not filed under exhibit item (4) above on the basis of the
exemption set forth in the Commission's rules and regulations.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1994.
16
<PAGE> 17
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Annual
Report
to
Shareholders
------------
<S> <C>
Report of Independent Public Accountants 19
Consolidated balance sheets at December 31, 1994 and 1993 20
Consolidated statements of income for each of the three years
in the period ended December 31, 1994 21
Consolidated statements of stockholders' equity for each of the
three years in the period ended December 31, 1994 22
Consolidated statements of cash flows for each
of the three years in the period ended December 31, 1994 23
Notes to consolidated financial statements 24-32
Supplementary information:
Quarterly financial information (unaudited) 33
</TABLE>
All schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
The consolidated financial statements listed in the above index which
are included in the Annual Report to Shareholders of Pope & Talbot, Inc. for
the year ended December 31, 1994 are hereby incorporated by reference. With
the exception of the pages listed in the above index and the items referred to
in Items 1, 6, 7 and 8, the 1994 Annual Report to Shareholders is not to be
deemed filed as part of this report.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Portland, State of Oregon, on this 28th day of March, 1995.
POPE & TALBOT, INC.
BY: \s\ Peter T. Pope
--------------------------------
Peter T. Pope
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Chairman of the Board,
President and
\s\ Peter T. Pope Chief Executive Officer March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Peter T. Pope
\s\ Gordon P. Andrews Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Gordon P. Andrews
\s\ Hamilton W. Budge Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Hamilton W. Budge
\s\ Charles Crocker Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Charles Crocker
\s\ Warren E. McCain Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Warren E. McCain
\s\ Robert Stevens Miller, Jr. Director March 28,1995
- ---------------------------------------- -------------------------------------- -------------
Robert Stevens Miller, Jr.
\s\ Hugo G. L. Powell Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Hugo G. L. Powell
\s\ Brooks Walker, Jr. Director March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Brooks Walker, Jr.
Senior Vice President,
Secretary, Treasurer and
\s\ Carlos M. Lamadrid Chief Financial Officer March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Carlos M. Lamadrid
\s\ Dennis E. Bunday Financial Controller March 28, 1995
- ---------------------------------------- -------------------------------------- --------------
Dennis E. Bunday
</TABLE>
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended. (Incorporated herein by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.)
3.2 Bylaws. (Incorporated herein by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.)
4.1 Indenture, dated June 2, 1993, between the Company and Chemical Trust Company of California as Trustee with
respect to the Company's 8-3/8% Debentures due 2013. (Incorporated herein by reference to Exhibit 4.1 to the
Company's registration statement on Form S-3 filed April 6, 1993.)
4.2 Revolving Credit Agreement, dated July 18, 1990, between the Company and United States National Bank of
Oregon. (Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1990.)
4.3 Revolving Credit Agreement, dated May 6, 1992, among the Company and United States National Bank of Oregon;
CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.; and Wachovia Bank of Georgia, National Association.
(Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.)
4.4 Rights Agreement, dated as of April 13, 1988, between the Company and The Bank of California, as rights
agent. (Incorporated herein by reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.)
4.5 Line of Credit Agreement, dated April 29, 1994, between the Company and Wachovia Bank of Georgia, National
Association. (Incorporated herein by reference to Exhibit 4(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.)
4.6 Extension Agreement, dated as of June 30, 1994, to the Revolving Credit Agreement, dated May 6, 1992, among
the Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank N.A.;
and Wachovia Bank of Georgia, National Association.
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
4.7 Modification Agreement, dated as of October 31, 1994, to the Revolving Credit Agreement, dated May 6, 1992,
among the Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank
N.A.; and Wachovia Bank of Georgia, National Association.
4.8 Modification Agreement, dated as of December 31, 1994, to the Revolving Credit Agreement, dated May 6, 1992,
among the Company and United States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank N.V.; Continental Bank
N.A.; and Wachovia Bank of Georgia, National Association.
10.1 Executive Compensation Plans and Arrangements
---------------------------------------------
10.1.1 Stock Option and Appreciation Plan. (Incorporated herein by reference to Exhibit 10(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.)
10.1.2 Executive Incentive Plan. (Incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
10.1.3 Restricted Stock Bonus Plan. (Incorporated herein by reference to Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.)
10.1.4 Deferral Election Plan. (Incorporated herein by reference to Exhibit 10(d) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.)
10.1.5 Supplemental Executive Retirement Income Plan. (Incorporated herein by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.1.6 Form of Severance Pay Agreement among the Company and certain of its executive officers. (Incorporated
herein by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December
31, 1990.)
10.2 Lease agreement between the Company and Pope Resources, dated December 20, 1985, for Port Gamble, Washington
sawmill site. (Incorporated herein by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990.)
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.3 Lease agreement between the Company and Shenandoah Development Group, Ltd., dated March 14, 1988, for Atlanta
diaper mill site as amended September 1, 1988 and August 30, 1989. (Incorporated herein by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990.)
10.4 Lease agreement between the Company and Shenandoah Development Group, Ltd., dated July 31, 1989, for
additional facilities at Atlanta diaper mill as amended August 30, 1989 and February 1990. (Incorporated
herein by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December
31, 1990.)
10.5 Grays Harbor Paper L.P. Amended and Restated Pulp Sales Supply Contract, dated September 28, 1994 (with
certain confidential information deleted). (Incorporated herein by reference to Exhibit 10(j) to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.)
11.1 Statement showing computation of per share earnings.
13.1 Portions of the annual report to shareholders for the year ended December 31, 1994 which have been
incorporated by reference in this report.
21.1 Listing of parents and subsidiaries. (Incorporated herein by reference to Exhibit 22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.)
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 4.6
EXTENSION AGREEMENT
This extension agreement is dated as of June 30, 1994, and is among
Pope & Talbot, Inc. ("Pope & Talbot"), United States National Bank of Oregon
("U.S. Bank"), CIBC Inc. ("CIBC"), ABN Amro Bank N.V. ("ABN"), Continental Bank
("Continental"), and Wachovia Bank of Georgia, National Association
("Wachovia").
Recitals
--------
A. U.S. Bank, CIBC, ABN, Continental and Wachovia (collectively the
"Banks") and Pope & Talbot are parties to a credit agreement dated May 6, 1992,
as amended ("Agreement"), under which the Banks severally make revolving loans
aggregating up to $75,000,000 to Pope & Talbot.
B. Pope & Talbot has requested a one-year extension of the scheduled
maturity of the credit facility.
NOW, THEREFORE, for value, it is agreed that effective as of the date
hereof:
1. The "Expiry Date" (as defined in the Agreement) is extended to
June 30, 1997. Borrower acknowledges that there is no commitment or
understanding that the Expiry Date will be extended further or that the lines
of credit will be renewed.
2. Borrower reaffirms that the representations and warranties made
by Borrower in the Agreement continue to be true and correct in all material
respects, but any such representation or warranty as to the financial condition
or results of operations of Borrower is limited to the financial condition and
results of operations which are reported on in the financial statements most
recently provided to Banks.
3. Except as hereby modified, the Agreement and the Notes will
continue in full force and effect.
4. This extension agreement may be signed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which, taken together shall constitute one and the same contract.
POPE & TALBOT, INC. UNITED STATES NATIONAL BANK
OF OREGON
By By
------------------------------------ ------------------------------
Carlos M. Lamadrid Janice T. Thede
Senior Vice President Vice President
- 1 -
<PAGE> 1
Exhibit 4.7
MODIFICATION AGREEMENT
This modification agreement is dated as of October 31, 1994, and is
among POPE & TALBOT, INC., a Delaware corporation ("Borrower"), UNITED STATES
NATIONAL BANK OF OREGON ("U.S. Bank"), CIBC INC. ("CIBC"), ABN AMRO BANK N.V.
("ABN"), BANK OF AMERICA ILLINOIS, formerly CONTINENTAL BANK ("BAI"), and
WACHOVIA BANK OF GEORGIA, NATIONAL ASSOCIATION ("Wachovia").
Recitals
--------
A. U.S. Bank, CIBC, ABN, BAI, and Wachovia ("Banks") and Borrower
are parties to a credit agreement dated as of May 6, 1992, as modified in
October, 1992, in June, 1993, and in June, 1994 (the "Credit Agreement"). The
capitalized words and phrases that are not defined in this modification
agreement have the same meanings as are given to those words and phrases in the
Credit Agreement.
B. Borrower and Banks desire to modify the terms of the Loan
Documents (the Credit Agreement and the Notes) to change the fees and the
Interbank Rate of interest payable by Borrower.
NOW, THEREFORE, for value, it is agreed that effective as of November
1, 1994:
1. Fees. The definition of "Commitment Fee" is changed to mean an
annual fee of 18.75 basis points per annum of each Bank's Individual
Commitment. The term "Unused Fee" is hereby added to the Credit Agreement and
is defined as 6.25 basis points per annum of the average positive difference
between each Bank's Individual Commitment and the amount owed to such Bank
during a calendar quarter. Borrower promises and agrees to pay the Commitment
Fee and the Unused Fee to the order of each Bank through Agent quarterly in
arrears on the last Banking Day of each calendar quarter.
2. Interest Rate. The definition of "Interbank Rate" is changed
only to reduce the margin from 5/8ths of 1% (62.50 basis points) per annum to
43.75 basis points per annum.
3. Miscellaneous. The parties agree to issue any additional
documents and instruments reasonably necessary to effectuate the objectives of
this modification agreement. The Loan Documents will continue in full force
and effect as modified by this modification agreement. This modification
agreement may be signed in one or more counterparts but all such counterparts
will constitute but one agreement. The Loan Documents, as modified by this
- 1 -
<PAGE> 2
modification agreement, are intended to be the complete, final, and exclusive
statement of the terms upon which Banks made their Individual Commitments to
Borrower and Borrower promised to repay Loans.
POPE & TALBOT, INC. UNITED STATES NATIONAL BANK
OF OREGON
By By
---------------------------------------- ------------------------------
Carlos M. Lamadrid Janice T. Thede
Senior Vice President Vice President
CIBC INC.
By
------------------------------
ABN AMRO BANK N.V.
By
------------------------------
By
------------------------------
BANK OF AMERICA ILLINOIS
By
------------------------------
WACHOVIA BANK OF GEORGIA,
NATIONAL ASSOCIATION
By
------------------------------
- 2 -
<PAGE> 1
Exhibit 4.8
MODIFICATION AGREEMENT
This modification agreement is dated as of December 31, 1994, and is
among POPE & TALBOT, INC., a Delaware corporation ("Borrower"), UNITED STATES
NATIONAL BANK OF OREGON ("U.S. Bank"), CIBC INC. ("CIBC"), ABN AMRO BANK N.V.
("ABN"), BANK OF AMERICA ILLINOIS, formerly CONTINENTAL BANK ("BAI"), and
WACHOVIA BANK OF GEORGIA, NATIONAL ASSOCIATION ("Wachovia").
Recitals
--------
A. U.S. Bank, CIBC, ABN, BAI, and Wachovia ("Banks") and Borrower
are parties to a credit agreement dated as of May 6, 1992, as modified in
October, 1992, in June, 1993, June, 1994, and October, 1994 (the "Credit
Agreement"). The capitalized words and phrases that are not defined in this
modification agreement have the same meanings as are given to those words and
phrases in the Credit Agreement.
B. Borrower and Banks desire to modify the terms of the Loan
Documents (the Credit Agreement and the Notes) to change the Leverage Ratio and
to introduce a pricing grid.
NOW, THEREFORE, for value, it is agreed that effective as of December
31, 1994:
1. Leverage Ratio. The Leverage Ratio (the ratio of Funded Debt to
Tangible Net Worth on a consolidated basis) is hereby increased to 1.0 to 1.0
from .80 to 1.0.
2. Pricing. The Interbank Rate margin, the Commitment Fee, and the
Unused Fee payable by Borrower will be determined quarterly and put into effect
as of the date upon which Borrower delivers its quarterly compliance
certificate to Agent. The margin and fees will be based on the Leverage Ratio
disclosed in such compliance certificate and the following matrix:
<TABLE>
<CAPTION>
Leverage Ratio Interbank Margin Commitment Fee Unused Fee
- -------------- ---------------- -------------- ----------
<C> <C> <C> <C>
** .50 to 1.0 43.75 bps* 15.00 bps 5.00 bps
*** .50 but ** .80 to 1.0 50.00 bps 18.75 bps 6.25 bps
*** .80 but **** 1.0 to 1.0 62.50 bps 20.00 bps 8.50 bps
</TABLE>
- ---------------
* The abbreviation "bps" means basis points. 100 bps = 1%.
** Less than.
*** Greater than or equal to.
**** Less than or equal to.
The applicable margin and fees will remain as determined until the next
quarterly compliance certificate is delivered.
3. Miscellaneous. The parties agree to issue any additional
documents and instruments reasonably necessary to effectuate the objectives of
this modification agreement. The Loan Documents will continue in full force
and effect as modified by this modification
- 1 -
<PAGE> 2
agreement. This modification agreement may be signed in one or more
counterparts but all such counterparts will constitute but one agreement. The
Loan Documents, as modified by this modification agreement, are intended to be
the complete, final, and exclusive statement of the terms upon which Banks made
their Individual Commitments to Borrower and Borrower promised to repay Loans.
POPE & TALBOT, INC. UNITED STATES NATIONAL BANK
OF OREGON
By By
----------------------------------- -------------------------------
Carlos M. Lamadrid Janice T. Thede
Senior Vice President Vice President
CIBC INC.
By
-------------------------------
Ray Mendoza
Vice President
ABN AMRO BANK N.V.
By
-------------------------------
By
-------------------------------
David McGinnis
Vice President
BANK OF AMERICA ILLINOIS
By
-------------------------------
Michael J. Balok
Vice President
WACHOVIA BANK OF GEORGIA,
NATIONAL ASSOCIATION
By
-------------------------------
William F. Hamlet
Senior Vice President
- 2 -
<PAGE> 1
EXHIBIT 11.1
POPE & TALBOT, INC. AND SUBSIDIARIES
Statement Showing Calculation of Average
Common Shares Outstanding and Earnings
Per Average Common Share
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994(1) 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 13,109,640 11,685,313 11,608,608
Weighted average of common stock
equivalent shares attributable
to convertible debentures 249,258 1,542,020 1,542,020
Application of the "treasury stock"
method to the stock option plan 108,755 264,323 13,938
----------- ----------- -----------
Total common and common
equivalent shares,
assuming full dilution 13,467,653 13,491,656 13,164,566
=========== =========== ===========
Net income (loss) $15,897,000 $21,013,000 $(2,252,000)
Add: interest on convertible
debentures, net of
applicable income taxes 244,000 1,464,000 2,184,000
----------- ----------- -----------
Net income (loss), assuming
full dilution $16,141,000 $22,477,000 $ (68,000)
=========== =========== ===========
Net income (loss) per common share,
assuming full dilution(2) $ 1.20 $ 1.67 $ (.19)
=========== =========== ===========
</TABLE>
(1) The 1994 calculation reflects the February 1994 month-end conversion
of convertible debentures to 1.5 million shares of common stock.
(2) In accordance with generally accepted accounting principles,
fully-diluted earnings per share may not exceed primary earnings per
share. As such, the 1992 fully-diluted earnings per share amount
equals the primary earnings per share amount.
The computation of primary net income per common share is not included because
the computation can be clearly determined from the material contained in this
report.
<PAGE> 1
Exhibit 13.1
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
Pope & Talbot, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
(Dollars in thousands except per share) 1994 1993 1992 1991 1990
- --------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues $659,873 $628,926 $544,345 $502,275 $562,493
Depreciation and amortization 39,061 29,303 28,564 27,948 26,352
Interest expense, net 9,322 8,714 5,622 3,941 3,925
Income (loss) before accounting changes 15,897 21,575 (2,252) (5,095) 19,829
Cumulative effect of accounting changes - (562) - (6,467) -
-------- -------- -------- -------- --------
Net income (loss) $ 15,897 $ 21,013 $ (2,252) $(11,562) $ 19,829
======== ======== ======== ======== ========
Effective tax rate 40% 41% (9)% (28)% 36%
PER COMMON SHARE
Income (loss) before accounting changes - primary $ 1.21 $ 1.85 $ (.19) $ (.44) $ 1.70
Income (loss) before accounting changes - fully diluted 1.20 1.71 (.19) (.44) 1.61
Effect of accounting changes - primary - (.05) - (.56) -
Effect of accounting changes - fully diluted - (.04) - (.56) -
Cash dividends .76 .76 .76 .76 .72
Stockholders' equity 17.08 15.73 14.85 16.09 17.83
YEAR-END COMMON SHARES OUTSTANDING, NET OF TREASURY STOCK 13,362,729 11,715,798 11,610,664 11,597,560 11,580,440
FINANCIAL POSITION (at December 31)
Current assets $223,050 $169,897 $138,288 $122,393 $131,612
Properties, net 282,827 269,200 222,500 213,964 209,673
Other assets 33,507 16,724 8,893 10,626 12,655
-------- -------- -------- -------- --------
$539,384 $455,821 $369,681 $346,983 $353,940
======== ======== ======== ======== ========
Current liabilities $103,576 $101,162 $ 79,668 $ 64,545 $ 49,389
Long-term obligations 28,777 27,803 24,227 16,934 4,401
Long-term debt 177,471 134,599 89,500 69,000 77,490
Deferred income taxes 1,365 7,936 3,892 9,896 16,132
Stockholders' equity 228,195 184,321 172,394 186,608 206,528
-------- -------- -------- -------- --------
$539,384 $455,821 $369,681 $346,983 $353,940
======== ======== ======== ======== ========
CASH FLOW
Operating activities:
Net income (loss) $ 15,897 $ 21,013 $ (2,252) $(11,562) $ 19,829
Depreciation and amortization 39,061 29,303 28,564 27,948 26,352
Other (gains) losses, net (13,845) - 1,589 1,940 (867)
Cumulative effect of accounting changes - 562 - 6,467 -
Working capital and other (51,686) (13,990) 10,833 2,717 (6,615)
-------- -------- ------ -------- --------
Cash provided by (used for) operating activities (10,573) 36,888 38,734 27,510 38,699
Investing activities:
Capital expenditures (55,582) (82,585) (32,276) (37,268) (41,876)
Acquisition of sawmill - - (19,417) - -
Cash provided by restructuring activities - - 11,480 2,750 19,622
Proceeds from sale of other properties 722 1,156 1,158 1,848 1,101
-------- -------- -------- -------- --------
Cash used for investing activities (54,860) (81,429) (39,055) (32,670) (21,153)
Financing activities:
Net increase in borrowings 91,899 51,017 9,483 8,440 1,935
Increase in restricted bond funds (15,458) - - - -
Cash dividends (9,855) (8,871) (8,821) (8,806) (8,445)
Other 1,926 1,819 229 293 (4,133)
-------- -------- -------- -------- --------
Cash provided by (used for) financing activities 68,512 43,965 891 (73) (10,643)
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents $ 3,079 $ (576) $ 570 $ (5,233) 6,903
======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K into the Company's
previously filed Registration Statement No. 33-34996 on Form S-8 and
Registration Statement No. 33-64764 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE POPE &
TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 6,847
<SECURITIES> 0
<RECEIVABLES> 55,333
<ALLOWANCES> 0
<INVENTORY> 127,392
<CURRENT-ASSETS> 223,050
<PP&E> 559,292
<DEPRECIATION> 276,465
<TOTAL-ASSETS> 539,384
<CURRENT-LIABILITIES> 103,576
<BONDS> 177,471
<COMMON> 13,972
0
0
<OTHER-SE> 214,223
<TOTAL-LIABILITY-AND-EQUITY> 539,384
<SALES> 659,873
<TOTAL-REVENUES> 659,873
<CGS> 604,249
<TOTAL-COSTS> 604,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,322
<INCOME-PRETAX> 26,662
<INCOME-TAX> 10,765
<INCOME-CONTINUING> 15,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,897
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
</TABLE>
