<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 March 31, 1998
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
incorporation or organization) Identification 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 May 7, 1998
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
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<S> <C>
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 2
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial Statements 5-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 6. Exhibits and Reports on Form 8-K 14-16
</TABLE>
<PAGE> 3
PART I.
POPE & TALBOT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,223 $ 31,911
Short-term investments 26,131 --
Accounts receivable 66,743 34,134
Inventories:
Raw materials 56,471 46,704
Finished goods 31,735 19,283
--------- ---------
88,206 65,987
Prepaid expenses and other 12,251 11,057
Discontinued tissue operations net assets held for sale -- 67,861
--------- ---------
Total current assets 240,554 210,950
Properties:
Plant and equipment 428,051 279,298
Accumulated depreciation (184,980) (178,459)
--------- ---------
243,071 100,839
Land and timber cutting rights 11,889 7,326
--------- ---------
Total properties 254,960 108,165
Other assets:
Investment in equity securities -- 13,760
Deferred income tax assets, net -- 24,843
Other 13,482 18,049
--------- ---------
Total other assets 13,482 56,652
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$ 508,996 $ 375,767
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 41,800
Current portion of long-term debt 521 521
Accounts payable and accrued liabilities 72,141 40,488
Income taxes 5,778 2,026
--------- ---------
Total current liabilities 78,440 84,835
Noncurrent liabilities:
Reforestation 17,245 16,427
Postretirement benefits 12,308 6,338
Deferred income tax liabilities, net 5,427 --
Long-term debt, net of current portion 142,472 88,705
--------- ---------
Total noncurrent liabilities 177,452 111,470
Minority interest 53,083 --
Commitments and contingent liabilities -- --
Stockholders' equity:
Common stock 13,972 13,972
Additional paid-in capital 34,395 34,395
Retained earnings 168,306 150,386
Cumulative translation adjustments (7,208) (9,847)
Less treasury shares at cost (9,444) (9,444)
--------- ---------
Total stockholders' equity 200,021 179,462
--------- ---------
$ 508,996 $ 375,767
========= =========
</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
March 31,
1998 1997
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<S> <C> <C>
Revenues:
Wood products $ 57,168 $ 64,314
Pulp products 46,325 19,778
------------ ------------
Total 103,493 84,092
Costs and expenses:
Cost of sales:
Wood products 55,396 56,440
Pulp products 50,778 21,573
Selling, general and administrative 6,429 3,991
Interest, net 2,299 1,574
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Total 114,902 83,578
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Income (loss) before income taxes, minority
interest and discontinued tissue operations (11,409) 514
Income tax provision (benefit) (3,482) 271
------------ ------------
Income (loss) before minority interest
and discontinued tissue operations (7,927) 243
Minority interest in net loss of subsidiary, net of income tax (1,334) --
------------ ------------
Income (loss) from continuing operations (6,593) 243
------------ ------------
Discontinued operations:
Income from discontinued tissue operations
(net of tax provision of $164 and $726 for three
months ended March 31, 1998 and 1997, respectively) 256 1,135
Gain on disposal of discontinued operations
(net of applicable income taxes of $24,630) 26,818 --
------------ ------------
Income from discontinued operations 27,074 1,135
------------ ------------
Net income $ 20,481 $ 1,378
============ ============
Basic income (loss) per common share:
Income (loss) from continuing operations $ (.49) $ .02
Income from discontinued operations 2.01 .08
------------ ------------
Net income $ 1.52 $ .10
============ ============
Diluted income (loss) per common share:
Income (loss) from continuing operations $ (.49) $ .02
Income from discontinued operations 2.00 .08
------------ ------------
Net income $ 1.51 $ .10
============ ============
Cash dividends per common share $ .19 $ .19
============ ============
Weighted average number of
common shares outstanding 13,481,441 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>
Three months ended
March 31,
1998 1997
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<S> <C> <C>
Cash flow from operating activities:
Net income $ 20,481 $ 1,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,204 7,537
Gain on disposal of discontinued operations (51,448) --
Minority interest in subsidiary loss, net of income tax (1,334) --
Increase (decrease) in:
Accounts payable and accrued liabilities 1,099 (1,295)
Income taxes 3,752 767
Reforestation 691 1,076
Postretirement benefits 261 174
Deferred income taxes, net 15,269 (1,315)
Decrease (increase) in:
Accounts receivable (4,548) (5,496)
Inventories 6,457 3,205
Deposits on timber purchase contracts 118 40
Prepaid expenses 1,531 (409)
Other assets 4,977 (782)
--------- ---------
Net cash provided by
operating activities 4,510 4,880
Cash flow from investing activities:
Purchase of short-term investments (26,131) --
Capital expenditures (4,349) (1,650)
Investment in subsidiary, net of cash acquired (35,846) --
Proceeds from disposal of discontinued operations 121,218 --
Proceeds from sale of other properties 398 2
--------- ---------
Net cash provided by (used for)
investing activities 55,290 (1,648)
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings (41,800) 1,100
Reduction in long-term debt (127) (119)
Cash dividends (2,561) (2,539)
--------- ---------
Net cash used for financing activities (44,488) (1,558)
--------- ---------
Increase in cash and cash equivalents 15,312 1,674
Cash and cash equivalents at
beginning of period 31,911 32,208
--------- ---------
Cash and cash equivalents at
end of period $ 47,223 $ 33,882
========= =========
</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
March 31, 1998 and 1997
(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
March 31, 1998 and December 31, 1997, the results of operations for the
three months ended March 31, 1998 and 1997, and changes in cash flows
for the three months ended March 31, 1998 and 1997. It is suggested that
these interim statements be read in conjunction with the financial
statements and notes thereto contained in the Company's 1997 report on
Form 10-K. The results of operations for the three months ended March
31, 1998 and 1997 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.
3. Earnings per Share
The Company has adopted the provision of Statement of Financial
Accounting Standards (SFAS No. 128), "Earnings per Share," to calculate
its per share amounts. Per share information is based on the weighted
average number of common shares outstanding during each period.
Certain Company stock options were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market prices. Such stock options totaled
826,454 shares and 853,236 shares for the three months ended March 31,
1998 and 1997, respectively.
Refer to Exhibit 11.1 of this filing for the computation of average
common shares outstanding and earnings per share.
4. Discontinued Operations
On January 22, 1998, the Company entered into a definitive agreement to
sell assets of its tissue business (the "business") to PLAINWELL, INC.
(Plainwell) for a total cash consideration of $121.2 million and the
assumption by Plainwell of essentially all of the tissue business
liabilities. This sale closed on March 6, 1998. The liabilities assumed
by Plainwell included the $18.8 million City of Eau Claire note payable
and the business's $7.1 million postretirement benefit obligation. The
final amount of cash received is subject to post-closing adjustments
based on the final working capital position of the business.
5
<PAGE> 7
The pre-tax gain on disposition of the business of $51.4 million was
accounted for as discontinued operations and includes closing costs
associated with the transaction and a provision of $0.4 million for
losses (including the allocation of interest expense) during the
phase-out period. The Consolidated Statement of Income for the three
months ended March 31, 1997, has been reclassified to reflect the
discontinuation of the tissue business.
5. Acquisitions
On February 2, 1998, the Company acquired 6.8 million shares of Harmac
Pacific Inc. (Harmac) common stock for $77.8 million Canadian dollars
(approximately $53.4 million U.S. dollars). This February 1998
acquisition, combined with the Company's previous Harmac stock
purchases, resulted in the Company holding a 53 percent controlling
ownership interest in Harmac. Total consideration paid for Harmac,
including acquisition costs of $2.5 million Canadian dollars, was $101.8
million Canadian dollars (approximately $69.9 million U.S. dollars).
The acquisition was accounted for as a purchase and the results of
operations of Harmac have been included in the consolidated financial
statements from the date of acquisition. The fair value of assets
acquired and liabilities assumed are as follows:
<TABLE>
<S> <C>
Current assets, other than cash $ 60,495
Property, plant and equipment 145,776
Other assets 728
Current liabilities (29,297)
Convertible subordinated debentures (52,556)
Other liabilities (20,429)
Minority interest (54,417)
---------
Purchase price, net of cash received $ 50,300
=========
</TABLE>
The following unaudited proforma information for the periods set forth
below give effect to the transaction as if it had occurred at the
beginning of each period after giving effect to certain adjustments,
including material differences between Canadian and U.S. GAAP. The
proforma information does not necessarily reflect the results of
operations that actually would have been achieved had the acquisition
been consummated at that time.
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 112,556 $ 122,575
Loss from continuing operations (7,375) (1,608)
Income from discontinued tissue operations 27,074 1,135
Net income (loss) 19,699 (473)
Basic income (loss) per share
Loss from continuing operations (.55) (.12)
Income from discontinued tissue operations 2.01 .08
Net income (loss) 1.46 (.04)
Diluted income (loss) per share
Loss from continuing operations (.55) (.12)
Income from discontinued tissue operations 2.00 .08
Net income (loss) 1.45 (.04)
</TABLE>
6
<PAGE> 8
6. Legal Matters and Contingencies
The Company is a party to legal proceedings, environmental matters and
other contingencies generally incidental to its business. Although the
final outcome of any legal proceeding or environmental matter is subject
to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that the ultimate outcome
resulting from these proceedings and matters would not have a material
effect on the Company's current financial position or liquidity;
however, in any given future reporting period such proceedings or
matters could have a material effect on results of operations.
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 is currently participating in the investigation stage of this
site with remediation and monitoring to occur over several years, likely
beginning in late 1999 or 2000. Based on preliminary findings, the
Company has estimated the likely cost of remediation and monitoring to
be in the range of $5 to $12 million and that no amount within the range
is more likely an outcome than another. The ultimate cost to the Company
for site remediation and monitoring cannot be predicted with certainty
due to the unknown magnitude of the contamination, the varying costs of
alternative cleanup methods, the cleanup time frame possibilities, the
evolving nature of remediation technologies and governmental regulations
and the inability to determine the Company's share of multi-party
obligations or the extent to which contributions will be available from
other parties. The Company has established reserves for environmental
remediation and monitoring related to this site in an amount it believes
is probable and reasonably estimable. The Company has not assumed it
will bear the entire cost of remediation to the exclusion of other known
potentially responsible parties (PRPs) who may be jointly and severally
liable. The ability of other PRPs to participate has been taken into
account based generally on the parties' financial condition and probable
contribution. Certain recoveries from insurance carriers have been
recorded as their receipt is deemed probable and amounts are reasonably
estimable.
On December 31, 1997, the Company filed a claim in the United States
District Court for the Western District of Washington in Seattle against
the Procter & Gamble Company (P&G) alleging anti-trust violations and
seeking a declaration of non-infringement and invalidity of certain P&G
disposable baby diaper patents. This claim was filed in response to
assertions made by P&G to the Company that certain disposable diaper
products produced by the Company's discontinued disposable diaper
operations infringed two of P&G's inner-leg gather patents. P&G has
indicated it believes the Company is obligated to it with respect to the
sale of diapers which allegedly used the patents. The Company has
asserted in its legal action that it did not infringe any valid claims
of the P&G patents and also that P&G and another diaper supplier have
taken actions to prevent fair competition among sellers of disposable
diapers. P&G received a favorable judgment in the State of Delaware in
December 1997 in an infringement action against Paragon Trade Brands,
Inc. (Paragon) based on the same diaper patents. Early in 1998, Paragon
appealed the Court's decision. If
7
<PAGE> 9
P&G proceeds against the Company with legal action related to its patent
infringement assertions and is substantially successful in such legal
action, the outcome could have a material adverse affect on the
Company's results of operations, liquidity and financial position. The
Company intends to vigorously assert its position.
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 $10,266,000 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
$4,884,000, net of tax benefits of $1,374,000, 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. The Company is presently in the process of
appealing the decision and filed notice as such with the 9th Circuit
Court of Appeals during December, 1997. 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
$1,846,000. This charge to equity, which represents the minimum in the
estimated range of exposure to the Company, reflected tax and interest
amounts totaling $2,492,000, net of tax benefits of $646,000. Taking
into consideration the potential outcomes of the Company's appeal of the
Tax Court decision, the Company estimates the potential for additional
equity reductions will range from zero (if the Company is wholly
successful in its appeal of the Tax Court decision) up to $4 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.
In December 1996, the IRS proposed certain adjustments pertaining to
transactions between the Company and its wholly-owned Canadian
subsidiary, resulting in the assertion that additional taxes were due
for tax years 1993 and 1994. Although the final outcome of this matter
cannot be predicted, the Company presently believes that the results of
the IRS proposed adjustments will not have a material effect on the
Company's financial position or liquidity. However, in any given
reporting period, IRS adjustments pertaining to such transactions could
have a material effect on results of operations.
8
<PAGE> 10
7. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, (SFAS No. 130) "Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The statement is effective for
fiscal years beginning after December 15, 1997. Comprehensive income is
as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
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<S> <C> <C>
Net income $20,481 $ 1,378
Cumulative translation adjustments 2,639 (1,080)
------- -------
Comprehensive income $23,120 $ 298
======= =======
</TABLE>
9
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POPE & TALBOT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1998 AND 1997
(unaudited)
RESULTS OF OPERATIONS
Pope & Talbot, Inc.'s (the Company's) first quarter 1998 results include the
consolidation of Harmac Pacific Inc. (Harmac), since the February 2, 1998
acquisition of 53 percent of Harmac's outstanding common shares. First quarter
net income of $20.5 million, or $1.51 per diluted share, included a loss from
continuing operations of $6.6 million, or $.49 per diluted share, and income
from discontinued operations of $27.1 million or $2.00 per diluted share. Income
from discontinued operations included a gain on the disposal of the Company's
discontinued tissue operations of $26.8 million. The 1998 first quarter net
income compared to first quarter 1997 net income of $1.4 million, or $.10 per
share, which included income from the discontinued tissue operations of $1.1
million, or $.08 per share. Revenues of $103.5 million in the 1998 first quarter
were 23 percent higher than those in the comparable 1997 period reflecting
inclusion of Harmac revenues of $26.8 million, which more than offset lower
lumber sales of $7.3 million.
WOOD PRODUCTS
Wood products segment earnings of $.7 million in the first quarter of 1998
compared to income of $6.8 million in the first quarter of 1997. This segment
represented 55 percent of first quarter 1998 revenues. Wood products revenues of
$57.2 million in the 1998 first quarter compared to revenues of $64.3 million
during the corresponding 1997 period. The 1998 revenue decrease reflects lower
lumber prices which more than offset higher lumber volumes. Average first
quarter 1998 lumber prices were 7, 15 and 20 percent below fourth, third and
second quarter of 1997 levels, respectively. This trend of falling average
quarterly lumber prices followed a trend of continued quarterly average price
increases, which began in mid-1995. Lumber prices hit their cyclical peak in the
second quarter 1997 and prices continued to fall throughout the 1997 fourth
quarter and into the early first quarter of 1998. Prices appear to have
stabilized at the early first quarter of 1998 amounts. Lumber prices in the 1998
first quarter were about 18 percent lower than for the corresponding period 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 remained essentially flat at their relatively low levels
beginning in the third quarter of 1996 through the first three quarters of 1997.
First quarter 1998 chip prices were 19 percent higher than the levels of the
corresponding 1997 period, but only 2 percent higher than the fourth quarter of
1997. The Company uses residual chips in its pulp business, which mitigates
somewhat the impact of these low chip prices in the lumber business. However,
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 145 million board feet in the first quarter of 1998
compared to shipments of 139 million board feet during the corresponding 1997
quarter. The volume increase reflected increased production at the Company's
Canadian sawmills. The Company's sawmills operated at capacity during the first
quarter of 1998.
10
<PAGE> 12
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 $52 per thousand board
foot tariff. Shipments in excess of these specified volume quotas are subject to
a $104 per thousand board foot tariff. March 31, 1998, represented the end of
the fiscal year lumber quota period related to this agreement. During the 1998
first quarter, shipments from the Company's Canadian sawmills into the U.S.
resulted in no additional accruals, compared to charges of $.9 million in the
first quarter of 1997. The Company expects to be informed of its fiscal year
1998/1999 quota volumes, which will apply retroactively to April 1, in the
second quarter of 1998. Approximately 75 percent of the Company's 1998 lumber
capacity is located in British Columbia.
PULP PRODUCTS
The Company's pulp segment consists of its Halsey, Oregon pulp mill and its
newly acquired share of the Harmac pulp mill. The pulp segment incurred an
operating loss of $6.3 million in the first quarter of 1998, which compared to a
loss of $2.5 million in the 1997 first quarter. The first quarter of 1998
results included an operating loss of $3.2 million, as a result of the
consolidation of the Harmac operations since the February 2, 1998 acquisition.
Segment revenues of $46.3 million, or 45 percent of Company sales, were up from
first quarter 1997 revenues of $19.8 million. The increase in revenues is due to
the inclusion of Harmac sales of $26.8 million for the two-month period since
the date of acquisition.
HALSEY
In the 1998 first quarter, losses for the Company's Halsey pulp mill were up
slightly compared to the corresponding 1997 period reflecting higher production
and 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 remained relatively poor throughout the
second half of 1996 and appeared to have bottomed in early 1997. Although prices
improved in second, third and fourth quarters of 1997, pulp prices have fallen
in the first quarter of 1998. Average first quarter of 1998 pulp prices are flat
when compared to the corresponding 1997 period but are down 18 percent from the
fourth quarter of 1997 and over 40 percent from the fourth quarter of 1995 peak.
The Company sold approximately 40 percent of its first quarter 1998 pulp volume
to the Grays Harbor Paper Company (Grays Harbor) while during the corresponding
1997 period the Company sold about half of its volume to Grays Harbor. In late
1997, the Company and Grays Harbor modified their pulp sales supply contract.
The modified contract, which became effective January 1, 1998, changed the pulp
pricing formula so that pulp prices are indexed to Southern mixed (U.S.)
bleached hardwood kraft prices rather than white paper prices. The impact of the
revised agreement on the 1998 first quarter was lower Grays Harbor pulp prices,
however the Company expects that over the long-term, pulp pricing under the new
formula will be comparable to that under the previous pricing formula. As
discussed for the Company's wood products segment, residual wood chip prices had
remained low during the first three quarters of 1997 with an upturn in prices in
the fourth quarter of 1997 which have lasted through the first quarter of 1998.
Sawdust costs, however, have remained flat at low levels for all of 1997 and
through the first quarter of 1998. The low sawdust costs are significant since
sawdust pulp represented over 60 percent of first quarter of 1998 pulp
production. Total wood cost is 26 percent higher than the corresponding 1997
quarter.
11
<PAGE> 13
Pulp sales volume of 46,000 metric tons in the first quarter of 1998 compared to
shipments of 47,000 metric tons during the corresponding 1997 quarter. The
Company's Halsey pulp mill operated at capacity during the first quarter of
1998.
HARMAC
Proforma revenues for the first three months of 1998 for the Harmac pulp mill of
$35.9 million compare to proforma revenues for the corresponding 1997 period of
$38.5 million. Pulp pricing for the first quarter of 1998 was 2 percent and 11
percent below the 1997 first and fourth quarters' prices, respectively. Sales
volume for the first quarter of 1998 was 6 percent below the corresponding 1997
period, but was 7 percent above the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1998, operations generated cash of $4.5
million. Income from continuing operations before non-cash charges for
depreciation and amortization generated $.6 million of cash during the first
three months of 1998. Increases in income taxes payable and deferred income
taxes during the first three months of $3.8 million and $15.2 million,
respectively, related primarily to the gain on the sale of the discontinued
tissue business. Reductions of inventories, related primarily to seasonal
decreases in log inventories from their relatively large year-end 1997 levels,
generated cash of $6.5 million. Increases in accounts receivable related mainly
to higher lumber and pulp shipments used cash of $4.5 million. Decreases of
other assets, totaling $5.1 million, included the receipt of payment for $3.5
million on a long-term note receivable.
Upon the sale of the tissue business to Plainwell, the Company received $121.2
million in cash and Plainwell assumed essentially all of the tissue business
liabilities. The Company used the cash received mainly to pay short-term debt
obligations and to purchase short-term investments.
In December 1997, the Company announced its tender offer to acquire a
controlling interest in Harmac's outstanding common shares for cash. During the
first quarter of 1998, the investment in Harmac, net of cash acquired of $19.6
million, was $35.8 million, and included common stock purchases and acquisition
costs. On February 2, 1998, the Company acquired 6.8 million shares of Harmac
common stock for $77.8 million Canadian dollars (approximately $53.4 million
U.S. dollars). This February 1998 acquisition, combined with the Company's
previous Harmac stock purchases in 1997 and January 1998, resulted in the
Company holding a 53 percent controlling ownership interest in Harmac. The
payment for the Harmac shares in the first quarter of 1998 was made from
existing cash and cash equivalent balances, supplemented with borrowings of
approximately $20 million under the Company's revolving-credit agreement.
The Company invested $4.3 million in capital projects during the first three
months of 1998 and estimates that total 1998 capital spending will approximate
$26 million. This 1998 capital spending includes various cost reducing, business
sustaining and profit improvement projects, the largest being a $9 million
project at the Castlegar sawmill to install an energy system, and a nearly $9
million project at the Harmac pulp mill to install a barge unloading facility
which will be completed during 1998. The Company anticipates that approximately
$32 million will be required in the remainder of 1998 and during 1999 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.
12
<PAGE> 14
Through the first three months of 1998, the Company paid $2.6 million of
dividends. The Company currently has a $75 million revolving-credit agreement
with no outstanding balance as of March 31, 1998.
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, interest
rates and other economic conditions, actions by competitors, changing weather
conditions and natural phenomena, actions by government authorities,
uncertainties associated with legal proceedings (as described in Notes to
Consolidated Condensed Financial Statements, Note 6.), technological
developments, future decisions by management in response to changing conditions
and misjudgments in the course of preparing forward-looking statements. Such
factors are discussed in this report on Form 10-Q as well as in the Company's
Annual Report on Form 10-K.
13
<PAGE> 15
PART II.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 30, 1998.
The following members were elected to the Company's Board of Directors
to hold office for three-year terms expiring in 2001.
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
Hamilton W. Budge 10,536,785(93.20%) 768,125(6.80%)
Charles Crocker 10,591,926(93.69%) 712,984(6.31%)
Michael Flannery 10,597,324(93.74%) 707,586(6.26%)
</TABLE>
Additionally, the following directors were elected in previous years to
three-year terms on the Company's Board of Directors and will continue
their terms of office: Gordon P. Andrews, Warren E. McCain, Robert
Stevens Miller, Jr., Peter T. Pope, Hugo G.L. Powell and Brooks Walker,
Jr.
The results of the voting on the approval to amend the Stock Option and
Appreciation Plan was as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
7,421,480(65.65%) 3,803,256(33.64%) 80,174(0.71%)
</TABLE>
The results of the voting on the ratification of selection of Arthur
Andersen LLP as independent public accountants was as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
11,219,393(99.24%) 38,167(0.34%) 47,350(0.42%)
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
2.2 Offer to Purchase and Circular, dated December 20, 1997.
(Incorporated herein by reference to Exhibit 1 to Schedule
14-D-1F filed with the Securities and Exchange Commission on
December 22, 1997 by Pope & Talbot Pulp Ltd.)
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.)
</TABLE>
14
<PAGE> 16
<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 Rights Agreement, dated April 4, 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.)
4.3 Revolving Credit Agreement, dated December 15, 1997, between
the Company and U.S. Bank National Association. (Incorporated
herein by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed March 20, 1998.)
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.
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.)
10.1.8 Director Deferred Compensation Plan.
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.)
</TABLE>
15
<PAGE> 17
<TABLE>
<S> <C>
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 December 17, 1997 (with certain confidential
information deleted). (Incorporated herein by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.)
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.
</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.
Reports on Form 8-K
A Current Report on Form 8-K was filed on January 22, 1998 reporting
the signing of a definitive agreement to sell its private label tissue
business to an investor group led by PLAINWELL, INC. (Plainwell) for
$147 million in cash and certain assumed liabilities. On February 11,
1998 a Current Report on Form 8-K was filed reporting the acquisition
of Harmac Pacific Inc. (Harmac) common shares which resulted in the
Company owning 53 percent of Harmac's outstanding common shares. A
Current Report on Form 8-K was filed on March 20, 1998 reporting the
March 6, 1998 sale of the Company's private label tissue business to
Plainwell.
16
<PAGE> 18
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: May 14, 1998 /s/ Robert J. Day
---------------------------------
Robert J. Day
Senior Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1.6
February 10, 1998
[Name]
c/o Pope & Talbot, Inc.
P.O. Box 8171
Portland, Oregon 97207
Dear Name:
We are pleased to inform you that the Human Resources and Nominating Committee
of Pope & Talbot, Inc. (the "Company") has recently authorized and approved a
special severance benefit program for you and other key executives. The purpose
of this letter agreement is to set forth the terms and conditions of your
benefit package and to explain the limitations which will govern the overall
value of your benefits.
Your severance benefits will become payable in the event your employment
terminates within a specified time period following certain changes in ownership
or control of the Company. To understand the full scope of your severance
benefits, you should familiarize yourself with the definitional provisions of
Part One of this letter agreement. The benefits comprising your severance
package are detailed in Part Two, and the dollar limitations on the overall
value of your benefit package are specified in Part Three. Part Four deals with
ancillary matters affecting your severance arrangement.
PART ONE -- DEFINITIONS
For purposes of this letter agreement, the following definitions will be in
effect:
AVERAGE COMPENSATION means the average of your W-2 wages from the Company
for the five (5) calendar years (or such fewer number of calendar years of
employment with the Company) completed immediately prior to the calendar
year in which the Change of Control is effected. Any W-2 wages for a
partial year of employment will be annualized, in accordance with the
frequency which such wages are paid during such partial year, before
inclusion in your Average Compensation. If any of your compensation from
the Company during such five (5)-year or shorter period was not included
in your W-2 wages for U.S. income tax purposes, either because you were
not a U.S. citizen or resident or because such compensation was excludable
from income as foreign earned income under Code Section 911, then such
compensation will nevertheless be included in your Average Compensation to
the same extent as if it were part of your W-2 wages.
BASE SALARY means the annual rate of base salary in effect for you
immediately prior to the Change in Control or (if greater) the annual rate
of base salary in effect at the time of your Involuntary Termination.
<PAGE> 2
Name
February 10, 1998
Page 2
BOARD means the Company's Board of Directors.
CHANGE IN CONTROL means:
(i) the successful acquisition by a person or a group of related
persons, other than the Company or a person controlling, controlled
by or under common control with the Company, of beneficial ownership
(as determined pursuant to the provisions of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of securities
possessing more than twenty-five percent (25%) of the total combined
voting power of the Company's outstanding securities pursuant to a
transaction or series of related transactions which the Board does
not at any time recommend the Company's shareholders to accept or
approve, or
(ii) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board
ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been
members of the Board continuously since the beginning of such period
or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
(iii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company in complete liquidation or dissolution
of the Company, or
(iv) any merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to person or
persons different from the persons holding those securities
immediately prior to such transaction.
CODE means the Internal Revenue Code of 1986, as amended.
COMMON STOCK means the Company's common stock.
FAIR MARKET VALUE means, with respect to any shares of Common Stock
subject to any of your Options, the closing selling price per share of
Common Stock on the date in question, as reported on the New York Stock
Exchange. If there is no reported sale of Common Stock on such date, then
the closing selling price on the New York Stock Exchange on the next
preceding day for which there does exists such quotation will be
determinative of Fair Market Value.
<PAGE> 3
Name
February 10, 1998
Page 3
HEALTH CARE COVERAGE means the continued health care coverage to which you
and your eligible dependents may become entitled under Part Two of this
letter agreement upon the Involuntary Termination of your employment.
INVOLUNTARY TERMINATION means the termination of your employment with the
Company:
o involuntarily upon your discharge or dismissal (other than a
Termination for Cause), or
o voluntarily upon your resignation following (I) a change in your
position with the Company which materially reduces your duties or
level of responsibility or which otherwise changes the level of
management to which you report, (II) a 20% or more reduction in
your level of compensation (including base salary, fringe benefits
and target bonus under any incentive performance plan) or (III) a
change in your place of employment which is more than fifty (50)
miles from your place of employment prior to the Change in Control,
provided and only if such change or reduction is effected without
your written concurrence.
In no event shall an Involuntary Termination be deemed to occur should
your employment terminate by reason of your death or disability.
OPTION means any option granted to you under the Plan which is outstanding
at the time of the Change in Control or upon your subsequent Involuntary
Termination. Your Options will be divided into two (2) separate categories
as follows:
Acquisition-Accelerated Options: any outstanding Option (or installment
thereof) which automatically accelerates, pursuant to the acceleration
provisions of the agreement evidencing that Option, upon a change in
control or ownership of the Company under certain specified
circumstances.
Severance-Accelerated Options: any outstanding Option (or installment
thereof) which accelerates upon your Involuntary Termination pursuant
to Part Two of this letter agreement.
OPTION PARACHUTE PAYMENT means, with respect to any
Acquisition-Accelerated Option or any Severance-Accelerated Option, the
portion of that Option deemed to be a parachute payment under Code Section
280G and the Treasury Regulations issued thereunder. The portion of such
Option which is categorized as an Option Parachute Payment will be
calculated in accordance with the valuation provisions established under
Code Section 280G and the applicable Treasury Regulations and will include
an appropriate dollar adjustment to reflect the lapse of your obligation
to remain in the Company's employ as a condition to the vesting of the
accelerated
<PAGE> 4
Name
February 10, 1998
Page 4
installment. In no event, however, will the Option Parachute Payment
attributable to any Acquisition-Accelerated Option or
Severance-Accelerated Option (or accelerated installment) exceed the
spread (the excess of the Fair Market Value of the accelerated option
shares over the option exercise price payable for those shares) existing
at the time of acceleration.
OTHER PARACHUTE PAYMENT means any payment in the nature of compensation
(other than the benefits to which you become entitled under Part Two of
this letter agreement) which are made to you in connection with the Change
in Control and which accordingly qualify as parachute payments within the
meaning of Code Section 280G(b)(2) and the Treasury Regulations issued
thereunder. Your Other Parachute Payment will include (without limitation)
the Present Value, measured as of the Change in Control, of the aggregate
Option Parachute Payment attributable to your Acquisition-Accelerated
Options (if any).
PLAN means (i) the Company's Stock Option and Appreciation Plan, as
amended or restated from time to time, and (ii) any successor stock
incentive plan subsequently implemented by the Company.
PRESENT VALUE means the value, determined as of the date of the Change in
Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or the subsequent
Involuntary Termination of your employment, including (without limitation)
the Option Parachute Payment attributable to your Severance-Acceleration
Options, your Severance Payment under Part Two of this letter agreement
and the Option Parachute Payment attributable to your
Acquisition-Accelerated Options. The Present Value of each such payment
shall be determined in accordance with the provisions of Code Section
280G(d)(4), utilizing a discount rate equal to one hundred twenty percent
(120%) of the applicable Federal rate in effect at the time of such
determination, compounded semi-annually to the effective date of the
Change in Control.
SEVERANCE PAYMENT means the severance payment to which you may become
entitled under Part Two in the event of your Involuntary Termination
following a Change in Control, subject, however, to the dollar limitations
of Part Three.
TERMINATION FOR CAUSE means an Involuntary Termination of your employment
occasion by reason of your having engaged in fraud or in any other
intentional misconduct adversely affecting the business reputation of the
Company in a material manner.
<PAGE> 5
Name
February 10, 1998
Page 5
PART TWO -- CHANGE IN CONTROL BENEFITS
Upon the Involuntary Termination of your employment within eighteen (18) months
following a Change in Control, you will become entitled to receive the special
severance benefits provided in this Part Two.
1. SEVERANCE PAYMENT.
If your Involuntary Termination occurs within the first eighteen (18)
months after the Change in Control, then you will be entitled to a
Severance Payment in an aggregate amount equal to (i) two (2) times
your Base Salary plus (ii) your target bonus for the fiscal year of the
Company in which such Involuntary Termination occurs. The Severance
Payment will be made to you in a lump sum payment within ninety (90)
days after your Involuntary Termination.
The Severance Payment will be subject to the Company's collection of
applicable federal and state income and employment withholding taxes.
In the event your employment terminates by reason of your death or
disability or your Termination for Cause, you will not be entitled to
receive any Severance Payment or other benefits under this letter
agreement.
2. OPTION ACCELERATION.
Each of your outstanding Options will (to the extent not then otherwise
fully exercisable) automatically accelerate so that each such Option
will become fully vested and immediately exercisable for the total
number of shares of Common Stock at the time subject to that Option.
Each such accelerated Option, together with all your other vested
Options, will remain exercisable for fully-vested shares until the
earlier of (i) the expiration date of the ten (10) year option term or
(ii) the end of the one (1) year period measured from the date of your
Involuntary Termination.
3. ADDITIONAL BENEFITS.
(a) HEALTH CARE COVERAGE.
The Company will, at its expense, provide you and your eligible
dependents with continued health care coverage under the Company's
medical/dental plan until the earlier of (i) eighteen (18) months
after the date of your Involuntary Termination or (ii) the first
date that the you are covered under another employer's health
benefit program which provides substantially the same level of
benefits without exclusion for pre-existing medical conditions. The
coverage so provided you and your eligible dependents will be
<PAGE> 6
Name
February 10, 1998
Page 6
in full and complete satisfaction of the continued health care
coverage to which you or your eligible dependents would otherwise,
at your own expense, be entitled under Code Section 4980B by reason
of your termination of employment, and neither you nor your
eligible dependents will accordingly be entitled to any additional
period of health care coverage under Code Section 4980B as a result
of your termination of employment.
(b) UNPAID BENEFITS
You will receive an immediate lump sum payment of all unpaid
vacation days which you have accrued through the date of your
Involuntary Termination.
PART THREE -- LIMITATION ON BENEFITS
1. PARACHUTE LIMIT.
Except to the limited extent (if any) provided under Paragraph 4(a)
below, the aggregate Present Value (measured as of the Change in
Control) of the benefits to which you become entitled under Part Two at
the time of your Involuntary Termination (namely the Severance Payment,
the Option Parachute Payment attributable to your Severance-Accelerated
Options and your Health Care Continuation) will in no event exceed in
amount the difference between (i) 2.99 times your Average Compensation
and (ii) the Present Value, measured as of the Change in Control, of
all Other Parachute Payments to which you are entitled.
Accordingly, except as otherwise provided under Paragraph 4(a) below,
your Options will not accelerate and no Severance Payment will be made
to you pursuant to this letter agreement, to the extent the Present
Value as of the Change in Control of (I) the aggregate Option Parachute
Payment attributable to your Severance-Accelerated Options plus (II)
your Severance Payment plus (III) your Health Care Continuation would,
when added to the Present Value of your Other Parachute Payments,
exceed 2.99 times your Average Compensation (the "Parachute Limit").
2. RESOLUTION PROCEDURE.
For purposes of the foregoing Parachute Limit, the following provisions
will be in effect:
(a) In the event there is any disagreement between you and the Company
as to whether one or more payments to which you become entitled in
connection with either the Change in Control or your subsequent
Involuntary Termination constitute Option Parachute Payments or
Other Parachute Payments or as to the determination of the Present
Value thereof, such dispute will be resolved as follows:
<PAGE> 7
Name
February 10, 1998
Page 7
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the
status of any such payment or the method of valuation
therefor, the characterization afforded to such payment by
the Regulations (or such decisions) will, together with the
applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any payment in
dispute, the matter will be submitted for resolution to
independent counsel mutually acceptable to you and the
Company ("Independent Counsel"). The resolution reached by
Independent Counsel will be final and controlling; provided,
however, that if in the judgment of Independent Counsel the
status of the payment in dispute can be resolved through the
obtainment of a private letter ruling from the Internal
Revenue Service, a formal and proper request for such ruling
will be prepared and submitted by Independent Counsel, and
the determination made by the Internal Revenue Service in the
issued ruling will be controlling. All expenses incurred in
connection with the retention of Independent Counsel and (if
applicable) the preparation and submission of the ruling
request shall be shared equally by you and the Company.
(iii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the appropriate valuation
methodology for any payment in dispute, the Present Value
thereof will, at the Independent Counsel's election, be
determined through an independent third-party appraisal, and
the expenses incurred in obtaining such appraisal shall be
shared equally by you and the Company.
3. STATUS OF BENEFITS.
(a) No Severance Payment will be made to you under Part Two of this
letter agreement until the Present Value of the Option Parachute
Payment attributable to both your Severance-Accelerated Options and
your Acquisition-Accelerated Options has been determined and the
status of any payments in dispute under Paragraph 2 above has been
resolved in accordance therewith. However, you will be permitted to
exercise your Severance-Accelerated Options at any time during the
one (1) year (or shorter) period immediately following your
Involuntary Termination.
(b) Once the requisite determinations under Paragraph 2 have been made,
then to the extent the aggregate Present Value, measured as of the
Change in Control, of (1) the Option Parachute Payment attributable
to your Severance-Accelerated Options (or installments
<PAGE> 8
Name
February 10, 1998
Page 8
thereof) plus (2) your Severance Payment would, when added to the
Present Value of all your Other Parachute Payments (including the
Option Parachute Payment attributable to your
Acquisition-Accelerated Options), exceed the Parachute Limit, your
Severance Payment will be accordingly reduced.
4. OVERRIDING LIMITATIONS.
(a) Notwithstanding any provision to the contrary set forth in the
preceding provisions of this Part Three, the aggregate Present
Value of your Severance Payment and the Option Parachute Payment
attributable to your Severance-Accelerated Options will not be
reduced below that amount (if any) which, when added to the
Present Value of all the Other Parachute Payment to which you are
entitled, would nevertheless qualify as reasonable compensation
for past services within the standards established under Code
Section 280G(b)(4)(B).
(b) The limitations of this Part Three will in all events be
interpreted in such manner as to avoid the imposition of excise
taxes under Code Section 4999, and the disallowance of deductions
under Code Section 280G(a), with respect to any of the benefits
paid pursuant to Part Two of this letter agreement.
PART FOUR -- MISCELLANEOUS PROVISION
1. TERMINATION FOR CAUSE.
Should your Involuntary Termination constitute a Termination for Cause,
then the Company will only be required to pay you (i) any unpaid
compensation earned for services previously rendered through the date
of such termination and (ii) any accrued but unpaid vacation benefits
or sick days, and no benefits will be payable to you under Part Two of
this letter agreement.
2. DEATH.
Should you die before receipt of one or more Severance Payment to which
you become entitled under Part Two of this letter agreement, then those
payment or payments will be made to the executors or administrators of
your estate. Should you die before you exercise all your outstanding
Options, then such Options may be exercised, within twelve (12) months
after your death, by the executors or administrators of your estate or
by persons to whom the Options are transferred pursuant to your will or
in accordance with the laws of inheritance. In no event, however, may
any such Option be exercised after the specified expiration date of the
option term.
<PAGE> 9
Name
February 10, 1998
Page 9
3. GENERAL CREDITOR STATUS.
The payments and benefits to which you become entitled hereunder will
be paid, when due, from the general assets of the Company, and no trust
fund, escrow arrangement or other segregated account will be
established as a funding vehicle for such payment. Accordingly, your
right (or the right of the personal representatives or beneficiaries of
your estate) to receive any payments or benefits hereunder will at all
times be that of a general creditor of the Company and will have no
priority over the claims of other general creditors.
4. INDEMNIFICATION.
The indemnification provisions for Officers and Directors under the
Company By-Laws will (to the maximum extent permitted by law) be
extended to you, during the period following your Involuntary
Termination, with respect to any and all matters, events or
transactions occurring or effected during your employment with the
Company.
5. MISCELLANEOUS.
This letter agreement will be binding upon the Company, its successors
and assigns (including, without limitation, the surviving entity in any
Change in Control) and is to be construed and interpreted under the
laws of the State of Oregon. This letter agreement supersedes all prior
agreements between you and the Company relating to the subject of
severance benefits payable upon a change in control or ownership of the
Company, and you will not be entitled to any other severance benefits
upon your termination of employment. This letter may only be amended by
written instrument signed by you and an authorized officer of the
Company. If any provision of this letter agreement as applied to you or
the Company or to any circumstance should be adjudged by a court of
competent jurisdiction to be void or unenforceable for any reason, the
invalidity of that provision will in no way affect (to the maximum
extent permissible by law) the application of such provision under
circumstances different from those adjudicated by the court, the
application of any other provision of this letter agreement, or the
enforceability or invalidity of this letter agreement as a whole.
Should any provision of this letter agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the
scope, extent or duration of its coverage, then such provision will be
deemed amended to the extent necessary to conform to applicable law so
as to be valid and enforceable or, if such provision cannot be so
amended without materially altering the intention of the parties, then
such provision will be stricken and the remainder of this letter
agreement will continue in full force and effect. You will not be
eligible for any other benefits.
<PAGE> 10
Name
February 10, 1998
Page 10
6. NO EMPLOYMENT OR SERVICE CONTRACT.
Nothing in this letter agreement is intended to provide you with any
right to continue in the employ of the Company (or any subsidiary) for
any period of specific duration or interfere with or otherwise restrict
in any way your rights or the rights of the Company (or any
subsidiary), which rights are hereby expressly reserved by each, to
terminate your employment at any time for any reason whatsoever, with
or without cause.
7. ATTORNEY FEES.
In the event legal proceeding should be initiated by you or by the
Company with respect to any controversy, claim or dispute relating to
the interpretation or application of the provisions of this letter
agreement or any benefits payable hereunder, the prevailing party in
such proceedings will be entitled to recover from the losing party
reasonable attorney fees and costs incurred in connection with such
proceedings or in the enforcement or collection of any judgment or
award rendered in such proceedings. For purposes of this provision, the
prevailing party means the party determined by the court to have most
nearly prevailed in the proceedings, even if that party does not
prevail in all matters, and does not necessarily mean the party in
whose favor the judgment is actually rendered.
Please indicate your acceptance of the foregoing provisions of this employment
agreement by signing the enclosed copy of this agreement and returning it to the
Company.
BY: ___________________________________
TITLE:___________________________________
ACCEPTANCE
I hereby agree to all the terms and provisions of the foregoing letter agreement
governing the special benefits to which I may become entitled in connection with
certain changes in control or ownership of ___________________.
Signature: ______________________________
Dated: _______________________ , 1998
<PAGE> 1
EXHIBIT 10.1.8
POPE & TALBOT, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
EFFECTIVE SEPTEMBER 11, 1996
PURPOSE
The purpose of the Directors' Deferred Compensation Plan (the "Plan") is to
provide Directors of Pope & Talbot, Inc. (the "Corporation") with payment
alternatives for fees payable for future services as a member of the Board of
Directors (the "Director Fees") of the Corporation (hereinafter referred to as
the "Board") or as a member of any committee thereof.
SECTION 1 ELIGIBILITY
Any Director of the Corporation who is separately compensated for services on
the Board or on any committee of the Board shall be eligible to participate in
the Plan.
SECTION 2 ELECTIONS AND DEFERRALS
2.1 ELECTION TO DEFER DIRECTOR'S FEES
Each Director may elect to receive current payment of Director Fees (on the date
on which the Director Fees are payable) either in cash or may elect to defer
payment of Director Fees each calendar year. The election by a Director to defer
payment of Director Fees is made by filing with the Secretary of the Corporation
a Notice of Election in the form prescribed by the Corporation (an "Election").
Director Fees earned at any time for which an Election is not effective will
continue to be paid in cash on the date when the Director Fees are otherwise
payable. An existing election may be changed or terminated as of the first day
of any succeeding calendar year, provided notice of such change or termination
is filed with the Secretary of the Corporation prior to the first day of that
calendar year. Any Election shall automatically terminate on the date a Director
ceases to be a member of the Board.
2.2 DIRECTOR DEFERRAL OF COMPENSATION
On or before December 31 of any calendar year, an Eligible Director may elect to
defer receipt of all or any part of any Compensation payable in respect of the
calendar year following the year in which such election is made. Any person who
shall become an Eligible Director during any calendar year may elect, not later
than the 30th day after his or her term as a Director begins, to defer payment
of all or any part of his or her Compensation payable for the portion of such
calendar year following such Election.
1
<PAGE> 2
2.3 DEFERRED COMPENSATION ACCOUNT AND EARNINGS
The amount of any Director Fees deferred shall be credited on the date on which
such Director Fees are otherwise payable to a deferred compensation account
maintained by the Corporation in the name of the Director (a "Deferred
Compensation Account"). The balance from time to time outstanding in such
Deferred Compensation Account shall accrue interest at the 5-year treasury rate
in effect at the first day of each calendar year during the deferral period.
Such interest shall be credited to Deferred Compensation Account annually in
arrears.
SECTION 3 ACCOUNT PAYOUT
3.1 DISTRIBUTION
The balance of a Director's Deferred Compensation Account will be paid in a lump
sum to the Director or, in the event of the Director's death, to the Director's
designated beneficiary on the Payment Commencement Date specified in Section
3.2. However, a Director may elect at the time of filing of his/her initial
Notice of Election to receive payment of the Deferred Compensation Account in
annual installments rather than a lump sum, provided that the payment period for
installment payments shall not exceed ten years following the Payment
Commencement Date. The amount of any installment shall be determined by dividing
(i) the balance in the Director's Deferred Compensation Account on the date of
such installment by (ii) the number of remaining unpaid installments (including
the current installment to be paid). The balance of the Deferred Compensation
Account shall be appropriately reduced on the date of payment to the Director or
the Director's designated beneficiary to reflect the installment payments made
hereunder. Amounts held pending distribution shall continue to be credited with
interest pursuant to Section 2.3.
3.2 PAYMENT COMMENCEMENT DATE
All lump sum payments and the first installment of any installment payout in the
Deferred Compensation Account shall be made within thirty (30) days after the
earlier of (i) the Director's termination of Board service or (ii) his/her
death.
SECTION 4 GENERAL PROVISIONS
4.1 BENEFICIARY DESIGNATION
A Director may designate, in the Beneficiary Designation form prescribed by the
Corporation, any person to whom payments are to be made if the Director dies
before receiving payment of all amounts due hereunder. A beneficiary designation
will be effective only after the signed beneficiary designation form is filed
with the Secretary of the Corporation while the Director is alive and will
cancel all beneficiary designations signed and filed earlier. If the Director
fails to designate a beneficiary, or if all designated beneficiaries of the
Director die before the Director or before complete payment of all amounts due
hereunder, any remaining unpaid amounts shall be
2
<PAGE> 3
paid in one lump sum to the estate of the last to die of the Director or the
Director's designated beneficiaries, if any.
4.2 NON-ALIENABILITY OF BENEFITS
Neither the Director nor any beneficiary designated by the Director shall have
the right to, directly or indirectly alienate, assign, transfer, pledge,
anticipate or encumber any amount that is or may be payable hereunder. To the
maximum extent permitted by law, no amount due hereunder shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors of the Director or the Director's
designated beneficiary or to the debts, contracts, liabilities, engagements, or
torts of any Director or designated beneficiary, or transfer by operation of law
in the event of bankruptcy or insolvency of the Director of any beneficiary, or
any legal process.
4.3 UNFUNDED OBLIGATION
Any Deferred Compensation Account shall be established and maintained only on
the books and records of the Corporation, and no assets or funds of the
Corporation shall be removed from the claims of the Corporation's general or
judgment creditors or otherwise made available until such amounts are actually
payable to Directors or their designated beneficiaries as provided herein. The
Plan constitutes a mere promise by the Corporation to make payments in the
future. The Directors and their designated beneficiaries shall have the status
of, and their rights to receive a payment under the Plan shall be no greater
than the rights of, general unsecured creditors of the Corporation. The
Corporation shall not be obligated under any circumstances to fund its financial
obligations under the Plan, and the Plan is intended to constitute an unfunded
plan for tax purposes. However, the Corporation may, in its discretion, set
aside funds in a trust or other vehicle, subject to the claims of its creditors,
in order to assist it in meeting its obligations under the Plan, if such
arrangement will not cause the Plan to be considered a funded deferred
compensation plan under the Internal Revenue Code of 1986, as amended.
4.4 ADMINISTRATION OF PLAN; HARDSHIP WITHDRAWAL
Full power and authority to construe, interpret, and administer the Plan shall
be vested in the Board. Decisions of the Board shall be final, conclusive, and
binding upon all parties. Notwithstanding the terms of an Election made by a
Director hereunder, the Board may, in its sole discretion, permit the withdrawal
of amounts credited to the Deferred Compensation Account with respect to
Director Fees previously payable, upon the request of a Director or the
Director's representative, if the Board determines that the Director or the
director's beneficiary, as the case may be, is confronted with an unforeseeable
emergency. For this purpose, an unforeseeable emergency is an unanticipated
emergency caused by an event that is beyond the control of the Director or the
Director's beneficiary and that would result in severe financial hardship to the
Director or the Director's beneficiary if an early hardship withdrawal were not
permitted. The Director or the Director's beneficiary shall provide to the Board
such evidence as the Board, in its discretion, may require to demonstrate that
such emergency exists and financial hardship would occur if the withdrawal were
not permitted. The withdrawal shall be limited to the amount necessary to meet
the emergency. For purposes of the Plan, a hardship shall be
3
<PAGE> 4
considered to constitute an immediate and unforeseen financial hardship if the
Director has an unexpected need for cash to pay for expenses incurred by him or
a member of his immediate family (spouse and/or natural or adopted children)
such as those arising from illness, casualty loss, or death. Cash needs arising
from foreseeable events, such as the purchase or building of a house or
education expenses, will not be considered to be the result of an unforeseeable
financial emergency. Payment shall be made as soon as practicable after the
Board approves the payment and determines the amount of the payment which shall
be withdrawn, in a single lump sum. No Director shall participate in any
decision of the Board regarding such Director's request for a withdrawal under
this Section.
4.5 GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in accordance
with the laws of the State of Delaware.
SECTION 5 EFFECTIVE DATES; AMENDMENT AND TERMINATION
The Plan was adopted by the Board on September 11, 1996. Deferrals are permitted
commencing January 1, 1997. The Board may amend or terminate the Plan at any
time, provided that no such amendment or termination shall adversely affect
rights with respect to amounts or shares then credited to any Deferred Account.
4
<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
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Weighted average number of common
shares outstanding 13,481,441 13,363,779
Application of the "treasury stock"
method to the stock option plan 60,474 993
----------- -----------
Total common and common equivalent
shares, assuming dilution 13,541,915 13,364,772
=========== ===========
Net income $20,481,000 $ 1,378,000
=========== ===========
Diluted net income per common share $ 1.51 $ .10
=========== ===========
</TABLE>
The computation of basic net income per common share is not included because the
computation can be clearly determined from the material contained in this
report.
<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 MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 47,223
<SECURITIES> 26,131
<RECEIVABLES> 66,743
<ALLOWANCES> 0
<INVENTORY> 88,206
<CURRENT-ASSETS> 240,554
<PP&E> 439,940
<DEPRECIATION> 184,980
<TOTAL-ASSETS> 508,996
<CURRENT-LIABILITIES> 78,440
<BONDS> 142,472
0
0
<COMMON> 13,972
<OTHER-SE> 186,049
<TOTAL-LIABILITY-AND-EQUITY> 508,996
<SALES> 103,493
<TOTAL-REVENUES> 103,493
<CGS> 106,174
<TOTAL-COSTS> 106,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,299
<INCOME-PRETAX> (11,409)
<INCOME-TAX> (3,482)
<INCOME-CONTINUING> (7,927)
<DISCONTINUED> 27,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,481
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.51
</TABLE>
