<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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 No. 1-7852
POPE & TALBOT, INC.
Delaware 94-0777139
- --------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1500 S.W. 1st Ave., Portland, Oregon 97201
- --------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 228-9161
--------------------------
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Common stock, $1 par value - 13,481,441 shares as of November 3, 1997
<PAGE> 2
PART I. FINANCIAL INFORMATION
Page No.
--------
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1997 and December 31, 1996 2
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements 5-6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 6. Exhibits and Reports on Form 8-K 12-15
<PAGE> 3
PART I.
POPE & TALBOT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55,288 $ 32,208
Accounts receivable 45,244 39,170
Inventories:
Raw materials 37,979 49,353
Finished goods 31,091 31,683
--------- ---------
69,070 81,036
Prepaid expenses and other 12,014 12,088
--------- ---------
Total current assets 181,616 164,502
Properties:
Plant and equipment 464,547 458,281
Accumulated depreciation (286,349) (266,862)
--------- ---------
178,198 191,419
Land and timber cutting rights 10,093 10,247
--------- ---------
Total properties 188,291 201,666
Other assets:
Deferred income tax assets, net 23,468 21,871
Goodwill, net of amortization 3,739 3,863
Other 17,236 16,027
--------- ---------
Total other assets 44,443 41,761
--------- ---------
$ 414,350 $ 407,929
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 26,200 $ 30,000
Current portion of long-term debt 488 488
Accounts payable and accrued liabilities 61,710 55,215
Income taxes 4,325 1,364
--------- ---------
Total current liabilities 92,723 87,067
Noncurrent liabilities:
Reforestation 17,081 16,721
Postretirement benefits 13,353 12,887
Long-term debt, net of current portion 107,663 108,026
--------- ---------
Total noncurrent liabilities 138,097 137,634
Stockholders' equity:
Common stock 13,972 13,972
Additional paid-in capital 34,392 35,976
Retained earnings 151,646 150,563
Cumulative translation adjustments (6,976) (6,172)
Less treasury shares at cost (9,504) (11,111)
--------- ---------
Total stockholders' equity 183,530 183,228
--------- ---------
$ 414,350 $ 407,929
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
2
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POPE & TALBOT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Wood products $ 60,431 $ 58,939 $ 194,759 $ 169,538
Pulp and paper products 54,147 53,427 161,530 164,077
------------ ------------ ------------ ------------
Total 114,578 112,366 356,289 333,615
Costs and expenses:
Cost of sales:
Wood products 53,156 50,678 168,821 152,306
Pulp and paper products 48,921 52,589 151,213 162,501
Selling, general and administrative 4,488 4,193 14,440 12,937
Interest, net 1,844 2,178 6,245 6,647
------------ ------------ ------------ ------------
Total 108,409 109,638 340,719 334,391
------------ ------------ ------------ ------------
Income (loss) before income taxes and
discontinued operations 6,169 2,728 15,570 (776)
Income tax provision 2,809 1,591 6,851 190
------------ ------------ ------------ ------------
Income (loss) from continuing operations 3,360 1,137 8,719 (966)
Discontinued operations:
Gain on disposal of discontinued operations
(net of applicable income taxes of $2,074) -- -- -- 3,110
------------ ------------ ------------ ------------
Net income $ 3,360 $ 1,137 $ 8,719 $ 2,144
============ ============ ============ ============
Income (loss) per common share:
Income (loss) from continuing operations $ .25 $ .08 $ .65 $ (.07)
Income from discontinued operations -- -- -- .23
------------ ------------ ------------ ------------
Net income $ .25 $ .08 $ .65 $ .16
============ ============ ============ ============
Cash dividends per common share $ .19 $ .19 $ .57 $ .57
============ ============ ============ ============
Weighted average number of
common shares outstanding 13,465,759 13,363,779 13,398,218 13,363,779
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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POPE & TALBOT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 8,719 $ 2,144
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,526 23,739
Gain on disposal of discontinued operations -- (5,184)
Increase (decrease) in:
Accounts payable and accrued liabilities 6,495 (11,196)
Income taxes 2,961 (3,600)
Reforestation 490 375
Postretirement benefits 466 574
Decrease (increase) in:
Accounts receivable (6,074) 9,861
Inventories 11,966 96
Deposits on timber purchase contracts 1,368 (145)
Prepaid expenses (1,149) (1,342)
Deferred income taxes, net (1,618) (1,701)
Other assets (2,068) (670)
-------- --------
Net cash provided by operating activities 44,082 12,951
Cash flow from investing activities:
Capital expenditures (9,325) (3,944)
Proceeds from disposal of discontinued operations -- 50,500
Proceeds from sale of Paragon Trade Brands, Inc.
common stock -- 4,819
Proceeds from sale of other properties 99 2,224
-------- --------
Net cash provided by (used for)
investing activities (9,226) 53,599
Cash flow from financing activities:
Net decrease in short-term borrowings (3,800) (6,000)
Net reduction of long-term debt (363) (30,340)
Partnership transaction tax settlement costs (1,846) --
Proceeds from issuance of treasury stock, net 1,869 --
Cash dividends (7,636) (7,617)
-------- --------
Net cash used for financing activities (11,776) (43,957)
-------- --------
Increase in cash and cash equivalents 23,080 22,593
Cash and cash equivalents at
beginning of period 32,208 13,826
-------- --------
Cash and cash equivalents at
end of period $ 55,288 $ 36,419
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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POPE & TALBOT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(Unaudited)
1. General
The consolidated condensed interim financial statements have been
prepared by the Company without audit and are subject to normal
recurring year-end adjustments. Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, the
accompanying unaudited consolidated condensed financial statements
contain all adjustments (all of which are of a normal recurring nature)
necessary to present fairly the financial position of the Company as of
September 30, 1997 and December 31, 1996, the results of operations for
the three and nine months ended September 30, 1997 and 1996, and changes
in cash flows for the nine months ended September 30, 1997 and 1996. It
is suggested that these interim statements be read in conjunction with
the financial statements and notes thereto contained in the Company's
1996 report on Form 10-K. The results of operations for the three and
nine months ended September 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
2. Income Taxes
The income tax provision is estimated on an interim basis using the best
available information for projected results for the entire year.
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 Partnership). The transfer resulted in $10.3 million of
taxes currently payable in 1985, which was charged to stockholders'
equity.
Upon audit, the Internal Revenue Service (IRS) challenged the
distribution value of the assets reported by the Company for federal
income tax purposes. In January 1993, the Company petitioned the United
States Tax Court (Tax Court) in order to resolve the disputed value of
the distribution. The issue was tried in the Tax Court during the third
quarter 1995. The Company incurred costs (primarily in 1995) in
connection with the Tax Court litigation. In 1995, these litigation
costs, together with related tax payments and interest charges totaling
$4.9 million, net of tax benefits of $1.4 million, were recognized as a
reduction in additional paid-in capital with respect to the Partnership
transaction. In March and October, 1997, the Tax Court rendered
decisions concerning the Company's tax liability arising from the
Partnership transaction, which become final if not appealed within 90
days of the latter decision date. In the second quarter of 1997, based
on the Company's best estimate of the ultimate tax liability, taking
into consideration the Tax Court's March 1997 decision, the Company
recognized a further reduction in additional paid-in capital of $1.8
million. This charge to equity, which represents the minimum in the
estimated range of exposure to the Company, reflected tax and interest
amounts totaling $2.5 million, net of tax benefits of $0.7 million.
Taking into consideration the potential
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outcomes of a possible appeal by the Company of the Tax Court's
decision, the Company estimates the potential for additional equity
reductions will range from zero (if the Company is wholly successful in
an appeal of the Tax Court decision) up to $3.5 million (if the Tax
Court decision becomes final or is sustained on appeal). Any further
tax, interest and litigation costs related to the Partnership
transaction will be recognized as a reduction in equity with respect to
the Partnership transaction.
3. Earnings per Share
Per share information is based on the weighted average number of common
shares outstanding during each period.
Refer to Exhibit 11.1 of this filing for the computation of average
common shares outstanding and earnings per share.
6
<PAGE> 8
POPE & TALBOT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997 AND 1996
(unaudited)
RESULTS OF OPERATIONS
Pope & Talbot, Inc. (the Company) generated net income of $3,360,000, or $.25
per share, in the third quarter of 1997 as both the wood products and pulp and
paper products segments produced operating profits. The 1997 third quarter net
income compared to net income of $1,137,000, or $.08 per share, in the third
quarter of 1996. Revenues of $114,578,000 in the 1997 third quarter were 2
percent higher than those in the comparable 1996 period reflecting higher lumber
and pulp sales which more than offset lower tissue revenues. Third quarter 1997
year-to-date net income totaled $8,719,000, or $.65 per share, compared to net
income of $2,144,000, or $.16 per share, for the corresponding nine months of
1996. The 1996 year-to-date net income reflected a loss from continuing
operations of $966,000, or $.07 per share, and a gain on the disposal of the
Company's discontinued disposable diaper business of $3,110,000, or $.23 per
share.
Wood products segment earnings of $6.2 million in the third quarter of 1997
compared to income of $7.1 million in the third quarter of 1996. This segment
represented 53 percent of third quarter 1997 revenues. Third quarter 1997
year-to-date wood products earnings were $22.5 million versus income of $14.1
million in the comparable 1996 period. Included in the 1996 year-to-date results
was a $2.1 million gain recorded in the first quarter related to the sale of
sawmill equipment at Port Gamble. The Port Gamble facility was permanently shut
down in the fourth quarter of 1995. Wood Products revenues of $60.4 million in
the 1997 third quarter compared to revenues of $58.9 million during the
corresponding 1996 period and year-to-date 1997 wood products revenues of $194.8
million were 15 percent higher than for the first nine months of 1996. These
1997 revenue increases reflect higher lumber prices and volumes which more than
offset lower residual wood chip prices. Average third quarter 1997 lumber prices
were 5 percent below second quarter levels following a trend of continued
quarterly average price increases which began in mid-1995. Lumber prices appear
to have hit their cyclical peak in the second quarter 1997 and prices continued
to fall throughout the 1997 third quarter. Although no assurances can be given,
the lumber price slide seems to have stopped as market prices rebounded about 4
percent by the end of October from their lows a month earlier. Despite these
third quarter 1997 price reductions, lumber prices in the 1997 third quarter
were about 5 percent higher than for the corresponding period of 1996. Average
lumber prices for the first nine months of 1997 were about 18 percent above
averages for the same period of 1996. Although overall lumber prices have been
relatively strong during the first nine months of 1997, the sawmills' residual
chip markets in the Pacific Northwest and British Columbia remain poor,
reflecting the weakness in world pulp markets during the period. Chip prices
have remained essentially flat at their relatively low levels since the third
quarter of 1996 and year-to-date 1997 chip prices were 28 percent below the
levels of the first nine months of 1996. The Company has experienced some
firming of the residual markets recently in response to improving pulp markets.
The Company uses residual chips in its pulp business which mitigates somewhat
the impact of these low chip prices in the lumber business. However,
7
<PAGE> 9
the Company produces more residual chips in its lumber business than it consumes
in its pulp business, so on balance, weak chip prices have a detrimental impact
on the Company's overall operating results.
Lumber sales volume of 130 million board feet in the third quarter of 1997 was
comparable to shipments during the corresponding 1996 quarter. Shipments for the
first nine months of 1997 totaled 420 million board feet versus 400 million
board feet during the nine month 1996 period. The year-to-year volume increase
reflected increased production at the Company's Canadian sawmills to take
advantage of the favorable lumber markets. The Company's sawmills operated
essentially at capacity during the third quarter of 1997.
During 1996, U.S. and Canadian trade negotiators reached an agreement
establishing volume quotas on Canadian softwood lumber shipments to the U.S.
Based on this agreement, Canadian lumber producers are assigned volume quotas
specifying on a company by company basis the lumber volumes which may be shipped
to the U.S. tariff-free and those volumes subject to a $51 per thousand board
foot tariff. Shipments in excess of these specified volume quotas are subject to
a $102 per thousand board foot tariff. March 31, 1997, represented the end of
the first fiscal year lumber quota period related to this agreement and the
Company shipped volumes in excess of its specified quotas during the period. In
June 1997, the Company was informed of its fiscal year 1997/1998 quota volumes
which applied retroactively to April 1. The Company's updated tariff-free volume
allocation for the current fiscal year represents an 11.4 million board foot
reduction from the 1996/1997 fiscal year allocations. Partially offsetting this
tariff-free allocation reduction was a 2.6 million board foot increase in the
Company's volume allocation subject to the lower $51 per thousand board foot
tariff. The Company believes its volume allocations were determined consistently
with other British Columbia lumber producers. During the first nine months of
1997, the Company expensed tariff charges of about $3.2 million related to
shipments from the Company's Canadian sawmills into the U.S. Because of the
weakened third quarter and early fourth quarter lumber markets, coupled with the
implications of this tariff agreement, the Company implemented a two-week shut
down at its Midway, British Columbia sawmill at the end of October 1997. The
Company will evaluate the need for further shutdowns at its British Columbia
sawmills in the remainder of 1997 and the first quarter of 1998, taking into
consideration future movements in the lumber markets and the effects of the
tariff agreement. Approximately 75 percent of the Company's 1997 lumber capacity
is located in British Columbia.
The pulp and paper segment generated profits of $3.7 million in the third
quarter of 1997 which compared to a loss of $0.5 million in the 1996 third
quarter. Year-to-date results reflect a profit of $5.6 million in 1997 and a
loss of $2.6 million in 1996. In the third quarter of 1997, tissue operations
continued to be profitable while the Company's pulp business losses improved to
near break-even. For the first nine months of 1997, tissue profits more than
offset losses in the Company's pulp business. Segment revenues of $54.1 million,
or 47 percent of Company sales, were up slightly from third quarter 1996
revenues of $53.4 million. These third quarter revenues reflected higher pulp
volumes which offset lower tissue prices. Year-to-date segment revenues of
$161.5 million were down 2 percent from revenues in the first nine months of
1996 as increased tissue and pulp volumes were more than offset by lower tissue
and pulp prices.
The Company's pulp business represented 18 percent of third quarter 1997
revenues. In the 1997 third quarter, losses in this business improved to near
break-even levels as pulp
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prices strengthened. The third quarter 1997 pulp results were better than the
corresponding 1996 period losses. Year-to-date 1997 pulp losses were less than
for the comparable 1996 periods due mainly to lower raw material costs. Pulp
pricing peaked in the fourth quarter of 1995 followed by a rapid decline at the
end of 1995 which continued through the first quarter of 1996. Pulp prices for
the balance of 1996 approximated the lows of the first quarter 1996 and prices
in the first quarter of 1997 dropped even further. Second quarter 1997 prices
improved slightly from the low first quarter levels and this price improvement
continued through the third quarter. Third quarter 1997 Company pulp prices were
slightly better than the 1996 third quarter prices, but remained more than 40
percent below the fourth quarter 1995 peak. Year-to-date third quarter 1997
average pulp prices were 12 percent below the first nine month 1996 prices. The
Company sold just under half of its year-to-date 1997 pulp volume to the Grays
Harbor Paper Company (Grays Harbor) while during the corresponding 1996 period
the Company sold almost 60 percent of its volume to Grays Harbor. Under the
Company's supply agreement with Grays Harbor, pulp prices are determined on the
basis of a formula tied to white paper prices. During 1996, the Company
benefited from this pricing formula because white paper prices did not fall as
rapidly as market pulp prices. During the first nine months of 1997, however,
Grays Harbor and market pulp pricing were relatively comparable. As discussed
for the Company's wood products segment, residual wood chip prices have remained
low during the first three quarters of 1997. Consistent with these low residual
wood chip prices, sawdust costs also remained low in the first nine months of
1997. The low sawdust costs are significant since sawdust pulp represented over
half of third quarter year-to-date 1997 pulp production. These low chip and
sawdust prices have helped to somewhat offset the impact of the depressed pulp
sales prices. During the third quarter of 1997, residual chip prices began to
firm consistent with the strengthening of the pulp market. The Halsey mill
operated at near capacity levels during the third quarter and first nine months
of 1997.
The Company's tissue business, which represented about 29 percent of 1997 third
quarter revenues, generated profits in the third quarter and first nine months
of 1997 which significantly exceeded the minimal profits produced in the
corresponding 1996 periods. This improved profitability reflected higher
year-to-date tissue sales volumes and improved operating efficiencies at the
Ransom, Pennsylvania facility which more than offset lower tissue prices. During
1996, particularly in the first quarter, the Company worked through the process
of rebuilding lost business and correcting operating inefficiencies related to
the seven-month 1995 labor strike at the Ransom facility. The strike was settled
late in the 1995 fourth quarter. Due largely to these Ransom improvements,
tissue sales volume in the first nine months of 1997 was 10 percent higher than
the comparable 1996 period. Tissue sales volumes in the third quarters of 1997
and 1996 were comparable. After several years of poor tissue pricing, the
Company benefited from continuously improving prices during 1995 and early 1996.
During the second quarter of 1996, Procter & Gamble and Kimberly-Clark announced
6 to 8 percent average tissue price reductions and the Company responded by
decreasing tissue prices in the second and third quarters of 1996. First quarter
1997 tissue prices were essentially flat relative to the fourth quarter of 1996
while the 1997 second quarter prices fell about 2 percent from the first quarter
due to higher promotional activity. Third quarter 1997 prices returned to first
quarter levels as promotional activity declined. Third quarter and year-to-date
1997 tissue prices were 3 percent and 7 percent, respectively, below tissue
prices in the comparable 1996 periods. After being pushed to record levels
during 1995, wastepaper pricing began to decline at year-end 1995
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and accelerated through the first quarter of 1996 consistent with market pulp
prices. The Company's wastepaper costs have remained fairly stable since the
dramatic decreases early in 1996. Third quarter 1997 wastepaper costs were
comparable to costs in the third quarter of 1996 while 1997 year-to-date
wastepaper costs were 3 percent below those in the first nine months of 1996.
During the third quarter and first nine months of 1997, the tissue business
operated essentially at capacity.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1997, operations generated cash of $44.1
million. Income before non-cash charges for depreciation and amortization
generated $31.2 million of cash during the first nine months of 1997. Increases
in accounts receivable related mainly to higher export pulp and lumber shipments
and pulp prices used cash of $6.1 million. Reductions of inventories, related
primarily to seasonal decreases in log inventories from their relatively large
year-end 1996 levels, generated cash of $12.0 million. Increases in accounts
payable and accrued liabilities related mainly to higher logging costs and
activity, combined with accrued Canadian tariff costs on Canadian lumber
shipments into the U.S.
The Company invested $9.3 million in capital projects during the first nine
months of 1997 and estimates that total 1997 capital spending will approximate
$15 million. This 1997 capital spending includes various cost reducing, business
sustaining and profit improvement projects, the largest being a nearly $4
million project at the Pennsylvania tissue facility to install a facial tissue
interfold line which will be completed during 1998. The Company anticipates that
approximately $12 million will be required in the remainder of 1997 and during
1998 to complete previously approved projects. It is anticipated that capital
spending for the remainder of the year will be financed from internally
generated cash, existing balances of cash and cash equivalents and, if
necessary, from the Company's lines of credit.
Through the first nine months of 1997, the Company paid $7.6 million of
dividends. The Company also reduced debt by $4.2 million during the first nine
months of 1997. The Company currently has a $75 million revolving-credit
agreement under which $18.5 million was outstanding at September 30, 1997. The
Company also has a $10 million uncommitted credit line which is used primarily
to facilitate cash management activities. This uncommitted credit line had $7.7
million outstanding at September 30, 1997.
In the third quarter 1996, the Company borrowed $30 million on its
revolving-credit agreement which it then paid to Pope & Talbot, Ltd. (LTD), a
wholly-owned Canadian subsidiary, to satisfy a portion of its intercompany
account. During the period since this third quarter 1996 payment to LTD, the
Company has made further payments to LTD to satisfy intercompany account
obligations. Substantially all amounts included in the September 30, 1997 cash
and cash equivalents balance are held by LTD. These LTD holdings essentially can
only be used for Canadian purposes as using for the Company's U.S. operating,
capital spending and/or debt reduction requirements could result in changes to
the intercompany account having potentially substantial adverse tax
consequences.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report or in other Company communications, such as press
releases, may relate to future events or the Company's future performance and
such statements are forward-looking statements. Such forward-looking statements
are based on present information the Company has related to its existing
business circumstances. Investors are cautioned that such forward-looking
statements are subject to an inherent risk that actual results may differ
materially from such forward-looking statements. Factors that may result in such
variances include, but are not limited to, changes in commodity prices and other
economic conditions, actions by competitors, changing weather conditions and
natural phenomena, actions by government authorities, uncertainties associated
with legal proceedings and future decisions by management in response to
changing conditions. Such factors are discussed in this report on Form 10-Q as
well as in the Company's Annual Report on Form 10-K.
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PART II.
ITEM 1. 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.
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. Upon audit, the
Internal Revenue Service (IRS) challenged the distribution value of the
assets reported by the Company for federal income tax purposes. In
January 1993, the Company petitioned the United States Tax Court (Tax
Court) in order to resolve the disputed value of the distribution. The
issue was tried in the Tax Court during the third quarter 1995. The
Company incurred costs (primarily in 1995) in connection with the Tax
Court litigation. In 1995, these litigation costs, together with
related tax payments and interest charges totaling $4.9 million, net of
tax benefits of $1.4 million, were recognized as a reduction in
additional paid-in capital with respect to the Partnership transaction.
In March and October, 1997, the Tax Court rendered decisions concerning
the Company's tax liability arising from the Partnership transaction,
which become final if not appealed within 90 days of the latter
decision date. In the second quarter of 1997, based on the Company's
best estimate of the ultimate tax liability, taking into consideration
the Tax Court's March 1997 decision, the Company recognized a further
reduction in additional paid-in capital of $1.8 million. This charge to
equity, which represents the minimum in the estimated range of exposure
to the Company, reflected tax and interest amounts totaling $2.5
million, net of tax benefits of $0.7 million. Taking into consideration
the potential outcomes of a possible appeal by the Company of the Tax
Court's decision, the Company estimates the potential for additional
equity reductions will range from zero (if the Company is wholly
successful in an appeal of the Tax Court decision) up to $3.5 million
(if the Tax Court decision becomes final or is sustained on appeal).
Any further tax, interest and litigation costs related to the
Partnership transaction will be recognized as a reduction in equity
with respect to the Partnership transaction.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
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 3.2 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.)
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.)
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4.2 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.)
4.3 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.)
4.4 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. (Incorporated herein by
reference to Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.)
4.5 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. (Incorporated herein by
reference to Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.)
4.6 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. (Incorporated herein by
reference to Exhibit 4.8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.)
4.7 Extension/Modification Agreement dated as of June 30, 1995, 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.; Bank of America Illinois, fka Continental
Bank; and Wachovia Bank of Georgia, National Association.
(Incorporated herein by reference to Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.)
4.8 Modification Agreement dated as of October 16, 1995, 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.; Bank of America Illinois; and Wachovia
Bank of Georgia, National Association. (Incorporated herein by
reference to Exhibit 4.8 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.)
4.9 Modification Agreement, dated as of January 22, 1996, 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.; Bank of America Illinois; and Wachovia
Bank of Georgia, National Association. (Incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed February 8, 1996.)
4.10 Revolving Line of Credit Agreement, dated July 25, 1996,
between the Company and the United States National Bank of
Oregon. (Incorporated herein by reference to Exhibit 4.10 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.)
13
<PAGE> 15
4.11 Modification Agreement, dated as of November 18, 1996, to the
Revolving Credit Agreement, dated May 6, 1992, among the
Company and the United States National Bank of Oregon; CIBC,
Inc.; ABN AMRO Bank N.V.; Bank of America Illinois; and
Wachovia Bank of Georgia, National Association. (Incorporated
herein by reference to Exhibit 4.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.)
4.12 Modification Agreement, dated as of June 9, 1997, to the
Revolving Credit Agreement, dated May 6, 1992, among the
Company and the United States National Bank of Oregon; CIBC,
Inc.; ABN AMRO Bank N.V.; Bank of America Illinois; and
Wachovia Bank of Georgia, National Association. (Incorporated
herein by reference to Exhibit 4.12 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.)
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.)
10.1.7 1996 Non-Employee Director Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.1.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.)
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.)
14
<PAGE> 16
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.)
10.6 Province of British Columbia Tree Farm License No. 8, dated
March 1, 1995. (Incorporated herein by reference to Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.7 Province of British Columbia Tree Farm License No. 23, dated
March 1, 1995. (Incorporated herein by reference to Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.8 Province of British Columbia Forest License A18969, dated
December 1, 1993. (Incorporated herein by reference to Exhibit
10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
11.1 Statement showing computation of per share earnings.
27.1 Financial Data Schedule.
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.
Reports on Form 8-K
--------------------
No reports on Form 8-K were filed during the three months ended
September 30, 1997.
15
<PAGE> 17
SIGNATURE
Pursuant to the requirements 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.
POPE & TALBOT, INC.
---------------------------------
Registrant
Date: November 11, 1997 /s/ ROBERT J. DAY
--------------------------------
Robert J. Day
Senior Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 11.1
POPE & TALBOT, INC.
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding 13,465,759 13,363,779 13,398,218 13,363,779
Application of the "treasury
stock" method to the stock
option plan 159,784 6,442 159,784 3,393
----------- ----------- ----------- -----------
Total common and common
equivalent shares,
assuming full dilution 13,625,543 13,370,221 13,558,002 13,367,172
=========== =========== =========== ===========
Net income $ 3,360,000 $ 1,137,000 $ 8,719,000 $ 2,144,000
=========== =========== =========== ===========
Net income per common share,
assuming full dilution $ .25 $ .08 $ .64 $ .16
=========== =========== =========== ===========
</TABLE>
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.
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE POPE &
TALBOT, INC. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 55,288
<SECURITIES> 0
<RECEIVABLES> 45,244
<ALLOWANCES> 0
<INVENTORY> 69,070
<CURRENT-ASSETS> 181,616
<PP&E> 464,547
<DEPRECIATION> 286,349
<TOTAL-ASSETS> 414,350
<CURRENT-LIABILITIES> 92,723
<BONDS> 107,663
0
0
<COMMON> 13,972
<OTHER-SE> 169,558
<TOTAL-LIABILITY-AND-EQUITY> 414,350
<SALES> 356,289
<TOTAL-REVENUES> 356,289
<CGS> 320,034
<TOTAL-COSTS> 320,034
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,245
<INCOME-PRETAX> 15,570
<INCOME-TAX> 6,851
<INCOME-CONTINUING> 8,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,719
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
