-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cgebCY+TB967vtOO6sQnoB7J9fWnLfmk3daJ45/e9Sn/aHF13EBLgkVxmcBM3QBY JfoGLOHJx2AUpqYCJdgrsQ== 0000891020-94-000053.txt : 19940331 0000891020-94-000053.hdr.sgml : 19940331 ACCESSION NUMBER: 0000891020-94-000053 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPE & TALBOT INC /DE/ CENTRAL INDEX KEY: 0000311871 STANDARD INDUSTRIAL CLASSIFICATION: 2621 IRS NUMBER: 940777139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07852 FILM NUMBER: 94518856 BUSINESS ADDRESS: STREET 1: 1500 SW FIRST AVE CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5032289161 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________. Commission File Number 1-7852 POPE & TALBOT, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-0777139 - --------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 1500 SW 1st Avenue, Portland, Oregon 97201 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 228-9161 Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange Title of each class on which registered ------------------- --------------------- Common Shares, par value $1.00 New York Stock Exchange Common Shares, par value $1.00 Pacific Stock Exchange 6% Convertible Subordinated Debentures, Due March 1, 2012 New York Stock Exchange 8-3/8% Debentures, Due June 1, 2013 None
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ The aggregate market value of voting stock held by nonaffiliates of the registrant is $361,801,079 as of March 14, 1994 ($28.625 per share). 13,355,680 ------------------------------------------------------------------- (Number of shares of common stock outstanding as of March 14, 1994) Part I and Part II incorporate specified information by reference from the annual report to shareholders for the year ended December 31, 1993. Part III incorporates specified information by reference from the proxy statement for annual meeting of shareholders on April 25, 1994. 2 PART I Item 1. Business INTRODUCTION AND DEVELOPMENTS IN 1993 Pope & Talbot is engaged principally in the wood products and pulp and paper businesses. The Company's wood products business involves the manufacture and sale of standardized and specialty lumber and wood chips. In its pulp and paper business, the Company manufactures and sells a full line of private label consumer tissue and disposable diaper products, bleached kraft pulp for newsprint and writing paper, and brokers wood chips. During 1993, wood products accounted for approximately 48 percent of the Company's revenues, consumer tissue accounted for 17 percent, disposable diapers 27 percent and bleached kraft pulp and brokered wood chips 8 percent. The Company, a Delaware corporation, was originally incorporated as a California corporation in 1940. It is the successor to a partnership formed in San Francisco, California in 1849 that acquired its first timberlands and opened a lumber mill in the Seattle, Washington area in 1853. Subsequently, the Company developed a lumber business based on timberland and facilities in the U.S. Pacific Northwest, British Columbia, Canada, and the Black Hills region of South Dakota and Wyoming. Since the mid-1980s, the Company has reduced its dependency on timber from the Pacific Northwest, where environmental concerns about the preservation of old-growth forests have sharply restricted the availability and increased the cost of public timber. At the same time, the Company has increased its operations in regions of more stable timber supplies, particularly in British Columbia and the Black Hills region of South Dakota and Wyoming. In 1985, the Company distributed its timber and land development properties in the State of Washington to its stockholders through interests in a newly formed master limited partnership. In 1990, the Company sold its Oregon sawmill, and the Company has since sold its remaining Oregon timberlands. In 1992, the Company acquired a 225 million board feet capacity sawmill and related timber cutting rights in Castlegar, British Columbia. The Company currently operates six sawmills with an estimated annual capacity of 785 million board feet, of which approximately 80% is located in British Columbia and the Black Hills. In order to expand and broaden its sources of revenue, the Company acquired its pulp, consumer tissue and disposable diaper businesses in the late 1970s and 1980s. The Halsey, Oregon pulp mill produces bleached kraft pulp which is sold in the open market and to newsprint and writing paper manufacturers in the Pacific Northwest. The Company's private label tissue business manufactures towels, napkins, bathroom tissue and facial tissue from recycled paper at two mills in the U.S. Disposable diapers are produced by the Company at four mills in the U.S. The Company sells its tissue and diaper products under private labels to supermarkets, drugstores, mass merchandisers and food and drug distribution companies. In 1992, the Company commenced a program to reduce costs and improve operating efficiencies in these businesses, resulting in the consolidation of one tissue mill and one diaper plant. The Company is also presently in the process of making significant product and cost improvements to its pulp mill. 2 3 The businesses in which the Company is engaged are extremely competitive, and a number of the Company's competitors are substantially larger than the Company with correspondingly greater resources. In particular, competition in the tissue products and disposable diaper markets is extremely strong, both in terms of price and product innovation. See "Pulp and Paper Products Business - Paper Products." Environmental regulations to which the Company is subject require the Company from time to time to incur significant expenditures. In addition, as discussed herein, environmental concerns have in the past materially affected the availability and cost of raw materials used in the Company's business. See "Wood Products Business." WOOD PRODUCTS BUSINESS The Company's wood products business involves the manufacture and sale of standardized and specialty lumber and wood chips. The Company's principal wood product categories and the sales generated by each over the past three years are set forth in the following table:
Thousands -------------------------------- Classes of Wood Products 1993 1992 1991 - ------------------------ ---- ---- ---- Lumber $256,842 $176,544 $120,336 Wood chips 29,695 26,376 23,137 Logs and other 13,498 11,247 9,544 ------- ------- ------- Total wood products sales $300,035 $214,167 $153,017 ======= ======= =======
In 1993, lumber revenues increased $80.3 million, or 45 percent, compared with 1992. These increased revenues in 1993 were due mainly to higher lumber sales prices, but also to greater lumber sales volumes due to operating the Castlegar, British Columbia sawmill throughout 1993. In 1992, lumber revenues increased $56.2 million, or 47 percent, compared with 1991. These increased revenues were due to higher lumber sales volume, primarily from the second quarter acquisition of the Castlegar, British Columbia sawmill, combined with higher lumber sales prices. The Company's lumber products consist principally of boards and dimension lumber, some of which are specialty, value-added items, such as stress-rated lumber. Wood chips and other similar materials are obtained as a by-product of the Company's lumber operations. Wood chips are also obtained from direct chipping of whole logs. The principal sources of raw material for the Company's wood products operations are timber obtained through long-term cutting licenses on public lands, logs purchased in open log markets, timber offered for sale via competitive bidding by federal and state agencies and private sources, and timber purchased under long-term contracts to cut timber on private and public lands. Approximately 80% of the Company's current lumber capacity is located in regions of relatively stable timber supply, namely Canada and the Black Hills region of South Dakota and Wyoming. In Canada, timber requirements are obtained primarily from the Provincial Government of British Columbia under long-term timber harvesting licenses which allow the Company to remove timber from defined areas annually on a sustained yield basis. Approximately 15 3 4 percent of the Company's Canadian log requirements are satisfied through open market log purchases. In the Black Hills, the Company obtains its timber from various public and private sources under long-term timber harvesting contracts in addition to buying logs on open markets. Under these licenses and contracts, prices are subject to periodic adjustment based upon formulas set forth therein. Additionally, the Provincial Government of British Columbia has the authority to modify prices and harvest volumes at any time. In the Northwest, the Company obtains its timber primarily via competitive bidding on timber offered by federal and state agencies and private sources. Decreased availability of federal timber caused primarily by pressures from environmental groups to curtail harvests from public lands, thereby protecting old-growth forests, combined with strong export demand for logs, has resulted in reduced wood supplies in Oregon and Washington, particularly affecting the Company's Port Gamble sawmill. The Northwest's highly competitive log supply environment caused the Company to reduce production at its Port Gamble sawmill to 74% of capacity in 1993. Although no assurances can be given, the Company believes that purchases from public agencies and private sources, in addition to its existing long-term cutting rights, will be adequate to sustain current lumber production levels at the Company's sawmills, with the exception of Port Gamble which will continue to operate based upon log availability. Marketing and Distribution. The Company's lumber products are sold primarily to wholesalers. Wood chips produced by the Company's sawmills are sold to manufacturers of pulp and paper in the U.S. and Canada. Sales of logs are made to other domestic forest products companies and to international trading companies. Marketing of the Company's wood products is centralized in its Portland, Oregon offices. The Company does not have distribution facilities at the wholesale or retail level. The Company sold wood products to numerous customers during 1993, the ten largest of which accounted for approximately 32% of total wood products sales. No wood products customer accounted for more than 10% of the Company's revenues in 1993. Backlog. The Company maintains a minimal finished goods inventory of wood products. At December 31, 1993, orders were approximately $11.2 million, compared with approximately $8.9 million at December 31, 1992. This was an average order file for the Company and generally would be shipped in two weeks to one month. The increase from 1992 to 1993 reflects increased lumber sales prices. Competition. The wood products industry is highly competitive, with a large number of companies producing products that are reasonably standardized. There are numerous competitors of the Company that are of comparable size or larger, none of which is believed to be dominant. With the 1992 Castlegar sawmill acquisition, the Company believes it is one of the larger lumber producers in North America. The principal means of competition in the Company's wood products business are pricing and an ability to satisfy customer demands for various types and grades of lumber and other finished products. For further information regarding amounts of revenue, operating profit and loss and identifiable assets attributable to the wood products industry segment, see Note 11 of "Notes to Consolidated Financial Statements" in the Company's 1993 Annual Report to Shareholders. 4 5 PULP AND PAPER PRODUCTS BUSINESS The Company's principal pulp and paper products categories and the sales generated by each over the last three years are set forth in the following table:
Thousands ---------------------------- Classes of Pulp and Paper Products 1993 1992 1991 - ---------------------------------- ---- ---- ---- Tissue products $105,040 $114,647 $138,551 Disposable diapers 170,128 139,515 118,511 Bleached kraft pulp 40,319 63,410 74,885 Brokered wood chips 13,404 12,606 17,311 ------- ------- ------- Total pulp and paper products sales $328,891 $330,178 $349,258 ======= ======= =======
Pulp and paper revenues were essentially unchanged from 1992 to 1993 as increased disposable diaper revenues were offset by lower tissue and pulp revenues. The improved diaper revenues resulted from a 21 percent increase in sales volume. Tissue and pulp volumes were off approximately 8 percent and 28 percent, respectively, from 1992 to 1993, while tissue prices dropped 1 percent and pulp prices fell 12 percent during this same period. Pulp and paper revenues decreased $19.1 million, or 5 percent, from 1991 to 1992, due mainly to tissue and pulp volume and price reductions. From 1991 to 1992, tissue and pulp volumes fell approximately 12 percent and 8 percent, respectively, while prices dropped 6 percent for tissue and 9 percent for pulp. Diaper improvements from 1991 to 1992 only partially offset the tissue and pulp reductions as diaper volumes and average prices increased 10 percent and 6 percent, respectively. 1. PAPER PRODUCTS The Company produces a full line of private label consumer tissue products including towels, napkins, bathroom tissue, and facial tissue. The Company also produces disposable diapers. All of these products are sold under private and controlled labels. The raw material for the Company's tissue mills is wastepaper purchased from wastepaper dealers located in the upper Midwest, mid- Atlantic and, to a lesser extent, on the East Coast. The principal raw material for disposable diapers is fluff pulp, which is produced by pulp and paper manufacturers throughout the United States. The Company believes that there will continue to be an adequate supply of wastepaper and fluff pulp in the foreseeable future. Marketing and Distribution. The Company utilizes its own sales force and some retail consumer products brokers to sell its products to supermarkets, drugstores, mass merchandisers and food and drug distribution companies. The Company's products enjoy national distribution; however, the majority are sold east of the Rocky Mountains. Sales to the Company's ten largest paper products customers represented 54 percent of tissue products and diaper sales in 1993. No single paper products customer accounted for 10 percent or more of total Company revenues in 1993. Backlog. The Company carries a minimal finished goods inventory in tissue products and disposable diapers. At the end of 1993 the order file was approximately $13.3 million compared to a backlog of approximately $7.9 million at December 31, 1992. The higher order backlog at year-end 1993 than 5 6 year-end 1992 relates to timing of order receipts and is not indicative of a business trend. This backlog is generally shipped in less than one month. Competition. The tissue market is extremely competitive, with approximately 10 major producers. Of these, James River Corporation, Scott Paper Company, Procter & Gamble Corporation and Fort Howard Paper Company are dominant and account for approximately 64 percent of the market. Within the tissue market, the Company estimates that the private label tissue segment accounts for approximately 9 percent to 22 percent of the total, depending on the product. In the tissue business, continued low industry operating rates resulting from industry capacity increases in recent years which have exceeded demand growth, coupled with aggressive pricing by tissue producers, has resulted in an extremely competitive tissue pricing environment. The Company's tissue mills operated at 97 percent of capacity in 1993. Overall, prices for the Company's tissue have fallen an average 13 percent from 1989 when tissue prices first began to decline. This 13 percent price reduction includes decreases of 6 percent in 1992 and 1 percent in 1993. Of the disposable diaper market, the Company estimates that approximately 82 percent is in branded products, with the remaining 18 percent relating to private label products. There are four major producers in the disposable diaper business. Procter & Gamble and Kimberly- Clark are dominant with a combined 76 percent of the market, all of which is in branded products. Paragon Trade Brands, Inc. is the largest producer in the private label market segment, followed by the Company with approximately 4 percent of the disposable diaper market. National branded manufacturers have introduced numerous and frequent product innovations that have resulted in major improvements in infant disposable diaper absorbency, leakage prevention and fit. The national branded manufacturers have substantially larger research and development budgets than the Company and are able to develop product innovations more rapidly than the Company and may thereby gain market share at the Company's expense. While in recent years the Company has been able to introduce product enhancements comparable to those introduced by the national branded manufacturers, there can be no assurance that the Company will be able to continue to introduce comparable product innovations on a profitable basis or that the Company will continue to be able to introduce such product innovations at the pace required to remain competitive with the national branded manufacturers. The Company believes that its national distribution capabilities, its full product line and its reputation as a private label supplier enhance its market efforts. 2. PULP PRODUCTS The Company owns a pulp mill and supporting facilities at Halsey, Oregon. This mill produces bleached kraft pulp which is sold in various forms in the open market and to newsprint and writing paper manufacturers in the Pacific Northwest. The mill also produces a flash dried pulp which is sold in the open market. In conjunction with the fiber acquisition program for the pulp mill, the Company brokers pulp chips for sale primarily into the export market. The total annual capacity of the mill is 180,000 air dry metric tons; 109,000 metric tons were produced in 1993 and 152,000 metric tons were 6 7 produced in 1992. The Company's pulp business was affected in 1992 and to a greater extent in 1993 by high wood chip costs, weak demand, and declining pulp prices. During 1992 construction began at Halsey on a $24 million oxygen delignification project to reduce both the use of chlorine in the bleaching process and dioxin discharges. This multi-year project, which was necessary to comply with an agreement entered into with the Oregon Department of Environmental Quality on meeting target emission levels, was completed in late 1993. Since 1985 the Company has had a pulp supply contract with James River Corporation ("James River") to supply pulp in slush form to a tissue facility owned by James River adjacent to the Company's pulp mill. James River began production of its own recycled pulp at Halsey in 1992, and correspondingly reduced its consumption of pulp from the Company's pulp mill in 1992 and completely phased out of its Halsey pulp consumption in 1993. Approximately 10,000 metric tons were sold to James River in early 1993 compared to 31,000 in 1992. As a result of depressed world pulp prices, selective downtime was taken in lieu of selling pulp in the open market to replace the lost James River tonnage. Because of the lost James River volume and the related decision to take selective downtime, the Halsey pulp mill operated at 60 percent of capacity in 1993. Weyerhaeuser Company ("Weyerhaeuser") presently owns a pulp mill, which it has announced it intends to upgrade and expand, located adjacent to the North Pacific Paper Company ("Norpac") newspaper manufacturing facility in Longview, Washington. Weyerhaeuser is a part owner of Norpac. The Company believes that completion of the upgrade and expansion project by Weyerhaeuser at its pulp mill will occur in 1995 or later. At that time, there is a significant possibility that Norpac will begin to satisfy a portion of its pulp needs from the Weyerhaeuser mill, and at the same time substantially reduce the quantity of pulp it purchases from the Company at the Halsey mill. In 1993, Norpac purchased approximately 46,000 metric tons of pulp from the Company. In order to provide additional sales flexibility and attempt to improve margins through higher value products, the Company initiated mill modifications in 1993 totaling $41 million, which will be completed in early 1994 to improve pulp quality and expand pulp drying capabilities. These modifications are in addition to the $24 million oxygen delignification project. These mill improvements will allow the Company to expand its pulp product offerings and to dry its total pulp production, thus providing greater access to new pulp markets within and outside the Pacific Northwest, which has historically been the Company's primary pulp market region. Given these mill improvements, management does not anticipate that elimination of the James River sales volume will have a material adverse effect on the Company's pulp business. The pulp mill modifications mentioned previously made it possible for the Company to enter into a significant pulp supply agreement in the third quarter of 1993. Under this agreement, late in the fourth quarter of 1993 the Company began supplying pulp to a writing grade paper mill which reopened in January 1994. The paper mill was recently purchased from its former owners by a group of private investors. All output from the paper mill will be sold to one 7 8 customer. It has been anticipated that ultimately the paper mill would purchase pulp from the Company in significant quantities, depending on sales by the paper mill to its customer. However, to date pulp purchases have not been at this level. In the event that the paper mill's sales to its customer are adversely impacted for any reason, sales of the Company's pulp may be adversely impacted. It is also anticipated that a portion of the pulp sold to the paper mill will be produced from sawdust and hardwood chips, which have historically been less expensive than softwood chips, which has been the primary raw material for the pulp mill. Pricing for this pulp will be computed using a formula based on prices for white paper. Based on prices in effect for white paper at the end of 1993, the price that pulp would be sold under this agreement would be 8 percent higher than the average pulp price the Company obtained for its pulp at the end of 1993. Substantially all of the Company's wood chip and sawdust requirements for the Halsey pulp mill are satisfied through purchases by the Company from third parties. The Company has long-term chip supply contracts with sawmills in the Pacific Northwest. Environmental concerns over timber harvests, which have caused high log costs for the Company's Port Gamble sawmill, have also caused higher chip costs and reduced chip availability from historic sources at the Halsey pulp mill over the last three years. In order to maintain an adequate supply of wood fiber for the mill, the Company has expanded its geographic base from which it obtains the softwood chips normally used as the primary raw material for the pulp mill. The Company has also expanded the capability of using sawdust and hardwood chips, which historically have been less expensive than softwood chips, as raw materials for a portion of the production. In order to maintain an adequate supply of chips for the anticipated 60 percent of the pulp mill's production which will remain based on softwood chips, the Company will continue to use an expanded geographic base to obtain chips, adding to their cost. Unless environmental restrictions on timber harvests are relaxed, chip prices likely will remain high, and sawdust and hardwood chip prices may also increase. The Company believes that these third-party chip purchases, in addition to its whole-log chipping capabilities, will be adequate for the Halsey pulp mill in the foreseeable future. Marketing and Distribution. The Company utilizes its own sales force and pulp brokers to sell its pulp products. Substantially all of the Company's pulp products are sold in the Northwest. In 1993, sales to Norpac represented 46 percent of the Company's pulp revenues, sales to James River represented 7 percent of the Company's pulp revenues, and the remaining eight largest customers accounted for an additional 37 percent of pulp revenues. No single pulp customer accounted for 10 percent or more of total Company revenues in 1993. Backlog. The Company's pulp customers typically enter into one- to three-year contracts and provide the Company with annual estimates of their requirements. More definite orders are placed by these customers on a quarterly basis. As of December 31, 1993, the Company's backlog of orders for pulp products for delivery during the first quarter of 1994 was $19 million, compared to a backlog of approximately $15 million at December 31, 1992. This increase was due primarily to scheduled pulp sales volume resulting from the third quarter 1993 pulp supply agreement mentioned previously. 8 9 Competition. The pulp industry is highly competitive, with a substantial number of competitors having extensive financial resources, manufacturing expertise and sales and distribution organizations, most of which are larger than the Company, but none of which is believed to be dominant. The principal methods of competition in the pulp market are price, quality, volume, reliability of supply and customer service. For further information regarding amounts of revenue, operating profit and loss and identifiable assets attributable to the pulp and paper products industry segment, see Note 11 of "Notes to Consolidated Financial Statements" in the Company's 1993 Annual Report to Shareholders. ENVIRONMENTAL MATTERS The Company's wood products and pulp and paper businesses are subject to federal, state and Canadian pollution control regulations that have required, and are expected to continue to require, significant expenditures. During the fiscal year ended December 31, 1993, the Company's capital expenditures for environmental control amounted to approximately $23.4 million. Additionally, expenditures for such purposes are expected to be $2 million and $4 million for the years ending December 31, 1994 and 1995, respectively. The expenditures in 1993 represent primarily the costs necessary to complete the oxygen delignification project at the Halsey, Oregon pulp mill. $16 million of the oxygen delignification project was financed by a note payable to the State of Oregon under the State's Small Scale Energy Loan Program (SELP). In response to environmental concerns in Western Oregon and Western Washington, specifically the preservation of old-growth forests, substantial amounts of federal timberlands have been set aside as wilderness areas. This has affected and may continue to affect the amount and cost of timber obtainable from public agencies in this region. Currently, the Company's exposure in this region is the Port Gamble, Washington sawmill and the Halsey, Oregon pulp mill. The carrying value of the Port Gamble sawmill was written down in 1990 as a result of its inability to obtain adequate timber supply; the sawmill now operates based upon log availability. The Halsey pulp mill is also affected by the decrease in timber availability, since its primary raw materials, wood chips and to a greater extent beginning in 1994, sawdust and hardwood chips, are by-products of the lumber manufacturing process. It is management's opinion that, based on existing wood chip and sawdust availability both within the Willamette Valley region of Oregon and from other sources discussed previously, wood chip and sawdust resources will be adequate for the Company's requirements at the Halsey pulp mill in the foreseeable future. It is also management's opinion that the reduced availability of public timber in Western Washington will have little, if any, additional impact on the Company's Port Gamble operations. In 1992, the Company was contacted by the local governmental owner of a vacant industrial site in Oregon on which Pope & Talbot 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 clean-up effort of the site. The owner has requested that the Company participate in the cost of the cleanup. The Company, in conjunction with an environmental consultant, performed in 1993 a preliminary assessment of soil contamination on the site. The results of this study indicate there is some soil contamination present from creosote and coal tar as well as 9 10 pollutants from other sources, and that the responsibility for the contamination is not clear. The estimated cost of cleaning up this site and the Company's liability, if any, has yet to be determined. EMPLOYEES The Company currently employs approximately 3,100 employees of whom 2,600 are paid hourly and a majority of which are members of various labor unions. Approximately 47 percent of the Company's employees are associated with the Company's wood products business, 51 percent are associated with the Company's pulp and paper business and 2 percent are corporate management and administration personnel. FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company's foreign manufacturing operations consist of three lumber mills located in Canada. The Company's primary exports are disposable diapers sold to Canada and brokered wood chips sold to Japan. The Company's export sales from the United States were $29.1 million for 1993, $19.3 million for 1992 and $19.4 million for 1991. Of the 1993 export sales, 56 percent were to Canada and 32 percent were to Japan. Financial information regarding the Company's domestic and foreign operations is included in Note 11 of "Notes to Consolidated Financial State-ments" on page 32 of the Company's 1993 Annual Report to Shareholders. Item 2. Properties WOOD PRODUCTS PROPERTIES 1. Mills and Plants The following tabulation briefly states the location, character, capacity and 1993 production of the Company's primary wood products manufacturing facilities:
Type of Estimated Annual 1993 Location Plant Capacity (1) Production - --------- ------- ---------------- ------------------- Port Gamble, WA Lumber mill 150,000,000 bd. ft. 111,000,000 bd. ft. Port Gamble, WA Alder chip 130,000 bone dry 16,000 bone dry facility (2) units units Spearfish, SD Lumber mill 110,000,000 bd. ft. 110,000,000 bd. ft. Newcastle, WY Lumber mill 30,000,000 bd. ft. 31,000,000 bd. ft. Grand Forks, BC Lumber mill 120,000,000 bd. ft. 112,000,000 bd. ft. Midway, BC Lumber mill 150,000,000 bd. ft. 148,000,000 bd. ft. Castlegar, BC Lumber mill 225,000,000 bd. ft. 214,000,000 bd. ft.
________________________________________________________________________ (1) Based on normal industry practice of operating two shifts, five days per week for lumber mills except for the Newcastle, Wyoming mill which is based upon one shift, five days per week. Assumes two shifts, five days per week for the alder chip facility. (2) Wood chips are also produced as a result of the operation of the Company's lumber mills. It is estimated that the aggregate annual capacity for such production is 440,000 bone dry units. In 1993, 396,000 bone dry units were produced. 10 11 The Company believes that its wood products manufacturing facilities are adequate and suitable for current operations. Nevertheless, the Company is committed to continually improving its manufacturing facilities as evidenced by the Castlegar lumber mill modernization completed in 1993. The Company owns all of its wood products manufacturing facilities except that it leases the ground on which the Port Gamble facilities are located from Pope Resources, A Delaware Limited Partnership, pursuant to a 20-year lease entered into in December 1985. 2. Timber and Timberland Restructuring activities in 1992 resulted in the sale of approximately 21,800 acres of primarily immature timber in Oregon. The Company no longer owns any timberland in the Pacific Northwest. PULP AND PAPER PROPERTIES 1. Tissue and Diaper Mills The following table briefly states the location, character, capacity and 1993 production of the Company's tissue and diaper products manufacturing facilities:
Estimated Annual 1993 Location Capacity (1) Production - -------- ---------------- ---------- Tissue Products - --------------- Eau Claire, Wisconsin 55,000 tons 54,000 tons Ransom, Pennsylvania 55,000 tons 53,000 tons Diapers - ------- Shenandoah, Georgia 267,000,000 diapers 177,000,000 diapers Eau Claire, Wisconsin 265,000,000 diapers 248,000,000 diapers Oneonta, New York 393,000,000 diapers 364,000,000 diapers Porterville, California 358,000,000 diapers 267,000,000 diapers Incontinents - ------------ Shenandoah, Georgia 126,000,000 pads 26,000,000 pads
_____________________________________________________________________ (1) Based on normal industry practice of operating three shifts per day, seven days per week, less scheduled downtime. The Company believes that its tissue and diaper manufacturing facilities are adequate and suitable for current operations. The Company completed installation of equipment in 1993 to produce diaper training pants at its Shenandoah, Georgia diaper facilities. The Company owns all of its tissue and diaper production facilities, except that it leases the building which contains the Shenandoah diaper and incontinent production facilities. 11 12 2. Pulp Mill The Company owns a bleached kraft pulp mill near Halsey, Oregon. In 1993, 109,000 air dry metric tons of pulp were produced, compared with an estimated annual capacity of 180,000 metric tons. During 1993 the Company (1) began installation of a conventional Flakt pulp dryer costing approximately $37 million which will be completed in the first quarter of 1994 and will allow the mill to produce market pulp in a form suitable for shipping to markets outside the Pacific Northwest, (2) completed the installation of an oxygen delignification system which, in addition to permitting the Company to meet the Oregon State Department of Environmental Quality dioxin discharge limitations, will improve pulp quality and slightly improve brightness, and (3) made certain modifications to its bleach plant at the Halsey mill which will also result in pulp quality and brightness improvements. The Flakt pulp dryer will require additional 1994 spending of approximately $13 million. With the completion of the above mentioned capital projects, the Company believes that its pulp facility is adequate and suitable for current operations. Item 3. Legal Proceedings In 1985, 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, with interests in the partnership distributed to the Company's stockholders 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. The Internal Revenue Service has asserted that the Company owes additional federal income tax in the amount of approximately $14 million (plus applicable interest) in connection with this transaction and the Company has disputed this asserted tax liability. The issue is scheduled to be heard in U.S. Tax Court during the third quarter 1994. The Company will vigorously contest the assessed tax liability through independent tax counsel. It is management's opinion, based upon consultation with independent tax counsel, that the additional tax due in this matter, if any, will ultimately be significantly less than the assessed amount and will not have a material adverse effect on the Company's financial position. The final tax settlement, if any, will be recognized as a reduction in equity with respect to the partnership transaction. In September 1992, Kimberly-Clark sued in the U.S. District Court for the Western District of Washington, alleging that diapers manufactured by the Company infringe a U.S. patent that has been assigned to Kimberly-Clark. The Company is vigorously defending the litigation, on the basis that the patent is invalid and unenforceable. The Company is also defending on the basis that its products do not infringe the patent (even if it is determined to be valid and enforceable). The Company has significant arguments to defend its position of non-infringement, and has already prevailed on a motion for partial summary judgment that substantially narrowed the scope of the asserted patent. If the patent is found to be both valid and infringed, damages could consist of a reasonable royalty on the sales of infringing products and/or profits lost by Kimberly-Clark as a result of infringement. Kimberly-Clark has also requested an injunction to prohibit future sales of any products ultimately found to infringe the patent if the Company declines to accept Kimberly-Clark's offer to license the patent. The impact of any such injunction could be limited by accepting a patent license from Kimberly-Clark. The Company does not expect that the ultimate resolution of this matter will have a material adverse impact on the financial position or results of operations of the Company. Kimberly-Clark has also threatened additional litigation with respect to a related patent, which may issue from the U.S. Patent & Trademark Office. The patent that is the basis for the threatened litigation has not yet been issued and its scope has not yet been determined. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 12 13 EXECUTIVE OFFICERS OF THE REGISTRANT WHO ARE NOT DIRECTORS In addition to the executive officers who are also directors of the Company, there are the following executive officers who are not directors. CARLOS M. LAMADRID, 58, Senior Vice President - Finance, Secretary, Treasurer and Chief Financial Officer since August 1987. MICHAEL FLANNERY, 50, Group Vice President - Wood Products Division since August 1987. WILLIAM G. FROHNMAYER, 55, Group Vice President - Fiber Products since August 1987. ROBERT L. VANDERSELT, 47, Group Vice President - Consumer Products Division since September 1991; August 1990 to September 1991 President, CKI Consulting (a management consulting firm); September 1988 to August 1990 President, Scott Worldwide Food Service, Scott Paper Company (a diversified consumer paper company). RICHARD N. MOFFITT, 46, Vice President - Human Resources since June 1987. All officers hold office at the pleasure of the Board of Directors. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Pope & Talbot, Inc. common stock is traded on the New York and Pacific stock exchanges under the symbol POP. The number of shareholders at year-end 1993 and 1992 were 1,398 and 1,576, respectively. The high and low sales prices for the common stock on the New York Stock Exchange and the dividends paid per common share for each quarter in the last two fiscal years are shown below:
Sales price per share --------------------- Cash dividends High Low per share ------ ----- -------------- 1993 1st Quarter $28-1/8 $16 $.19 2nd Quarter 26-7/8 21-1/2 .19 3rd Quarter 25-1/2 20 .19 4th Quarter 29-7/8 20-7/8 .19 --- $.76 1992 1st Quarter $19-3/4 $15-1/4 $.19 2nd Quarter 19-3/4 14-5/8 .19 3rd Quarter 15-7/8 13-5/8 .19 4th Quarter 16-7/8 13-3/8 .19 --- $.76
13 14 ITEM 6. SELECTED FINANCIAL DATA Information required by Item 6 of Part II is presented in the table entitled "Five Year Summary of Selected Financial Data" on page 14 of the Company's 1993 Annual Report to Shareholders. Such information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview An exceptionally strong lumber market and record earnings in diapers more than offset losses in tissue and pulp to return Pope & Talbot to profitability in 1993, after two years of losses. Pope & Talbot's earnings for 1993 were $21.0 million, or $1.80 per share ($1.67 on a fully diluted basis), up from 1992's loss of $2.3 million, or $.19 per share. Operations contributed $21.6 million, or $1.85 per share in 1993; however, also included was a net charge of $562,000, or $.05 per share, reflecting the cumulative effect of accounting changes adopted in 1993. See Note 1 of Notes to Consolidated Financial Statements for an explanation of the accounting changes. Widely divergent business environments affected Pope & Talbot's businesses during 1993. An improving housing industry, combined with sharply curtailed timber harvests in the Pacific Northwest as a result of environmental pressures, produced lumber prices that were 34 percent higher on average in 1993 than 1992, resulting in the best wood products earnings in the Company's history. Demand for the Company's disposable diapers remained strong in 1993 and, combined with only minor price reductions as a result of competitors' price reduction efforts, resulted in record profits for the diaper business. Conversely, tissue produced a loss for the second year in a row, as extremely competitive conditions in the tissue industry continued, and world pulp markets remained poor, resulting in losses from our pulp business for the third consecutive year. Revenues reached a record $628.9 million in 1993, a 16 percent increase from $544.3 million in 1992. Higher lumber sales prices in wood products was the most significant factor impacting the revenue increase. In pulp and paper, revenue gains from higher diaper sales volumes were largely offset by poor pricing and demand for tissue and pulp. Liquidity and Capital Resources Capital spending, largely to expand drying capabilities, improve pulp quality and to meet environmental requirements at the Company's Halsey, Oregon pulp mill, increased the debt-to-total-capitalization ratio to 42 percent at year-end 1993, from 34 percent at the end of 1992. The Company continues to have available $95 million under existing credit agreements, of which $11 million was borrowed at December 31, 1993. The Company's primary sources of internally generated cash are operating income plus depreciation; the principal external source of cash is debt financing. Cash generated from operations was $36.9 million in 1993. Additionally, during 1993 the Company completed an offering of $75 million of 8 3/8 percent, 20-year debentures, and received $16 million at 6.55 percent from the State of Oregon under the State's Small Scale Energy Loan Program. 14 15 See Note 4 of Notes to Consolidated Financial Statements for further long-term debt information and subsequent years' debt repayment schedules. These cash resources were used to finance $82.6 million of capital expenditures, $8.9 million for the payment of dividends, and to reduce borrowings on the Company's lines of credit including repayment of $45.0 million on the Company's unsecured revolving-credit agreement. Scheduled long-term debt repayments were $500,000 in 1993 and are anticipated to be $901,000 in 1994. The most significant capital improvement projects included $47 million to improve pulp quality, expand drying capabilities and reduce both the use of chlorine in the bleaching process and the discharge of dioxins from the Halsey pulp mill. The project to reduce chlorine usage and dioxin discharges is necessary to comply with an agreement entered into with the Oregon Department of Environmental Quality on meeting target dioxin emission levels. Other significant projects during 1993 included completion of the first phase of a project to improve raw material utilization at the Castlegar, B.C. sawmill, installation of equipment to produce diaper training pants and other cost reduction and product improvement projects for the Company's diaper business. At December 31, 1993, the Company had numerous capital projects in process at its facilities. It is expected that $25 million will be required to complete approved projects, including those in progress at year-end. The principal projects included in this amount are for completion of the pulp drying improvements at Halsey and the completion of diaper cost reduction projects. In addition, the Company anticipates that additional capital projects will be undertaken during 1994, primarily to sustain existing operations. Projected 1994 capital spending is expected to be funded with internally generated cash, supplemented with borrowings on the Company's lines of credit. The December 31, 1993 current ratio remained essentially unchanged from year-end 1992 at 1.7 to 1. Significant changes in the components of working capital included increases in accounts receivable, inventories, and income taxes payable. Accounts receivable increased primarily due to a $6.1 million United States income tax refund receivable. Inventories increased approximately $21.6 million. Significant changes in inventory balances include a change in accounting for supplies inventories and higher log volumes from taking advantage of buying opportunities. Income taxes payable increased approximately $9.2 million reflecting higher current income taxes payable on higher earnings in Canada. The impact of fluctuations in foreign currency exchange rates have not had, and are not expected to have, a significant effect on the Company's liquidity or results of operations. Results of Operations Wood Products The Company's wood products business, which in 1993 comprised 48 percent of consolidated revenues, generated operating profit of $62.1 million in 1993, a sharp increase over earnings of $15.3 million in 1992, and a loss of $1.1 million in 1991. The 1993 earnings were more than double the previous best wood products earnings of $29.9 million reported in 1979. Housing starts, which historically have been a significant factor in the profitability of the wood products business, have improved in conjunction with the general economy and lower interest rates. Housing starts have increased from 1.0 15 16 million in 1991 to 1.2 million in 1992 and 1.28 million in 1993. Although these improvements in the housing market were a factor in the improved lumber sales prices, this alone was not adequate to generate the sales price increases and earnings improvements realized in 1993. A more significant factor continues to be the significantly curtailed harvest levels for timber from federal lands in the Pacific Northwest as a result of continuing environmental pressures to reduce timber harvests. During 1991, log costs increased as a result of constricting supply from federal lands. During 1992, lumber sales prices increased to offset these log cost increases and returned the relationship of log costs to sales prices to more historic levels. As log supplies, and consequently lumber supplies, tightened further in 1993, sales prices rose substantially. During 1993, log costs for the Company's United States sawmills increased generally with the increase in lumber sales prices. The Company has shifted much of its timber dependency out of Western Washington and Western Oregon where the environmental concerns over timber harvests have sharply restricted the volume of public timber available, and increased the cost of remaining timber, into regions of more stable timber supplies such as the Black Hills region of South Dakota and Wyoming and British Columbia. Currently, 80 percent of the Company's lumber capacity is in the Black Hills and British Columbia, with the remaining 20 percent representing the Company's Port Gamble, Washington sawmill. In the second quarter of this year, a Presidential Commission issued a proposal for resolving the timber supply situation in the Pacific Northwest. The proposal has been criticized by various environmental and industry groups. At this point, it is uncertain whether the proposal will be adopted. Until a solution is adopted, it is likely that timber supplies will remain restricted in the Pacific Northwest. When an agreement ultimately is reached, it is likely that the ultimately agreed upon harvest levels will be less than historic levels, but more than is currently available. During 1992, the United States government imposed a 6.51 percent tariff on Canadian lumber sold in the United States. During 1993, the Company paid approximately $9.2 million under this tariff resulting in higher costs for the approximately 425 million board feet of Canadian lumber sold in the United States. In December 1993, a bi-national commission ruled that there is no basis for this duty. However, this decision may be appealed by the United States Government. At this time, it is unknown if the United States Government will make such an appeal, or if any adjustment to the tariff would be made, either upward or downward, and if any such adjustment would be made retroactive to March 1992, when the tariff was first imposed. Lumber sales volume increased to 726 million board feet in 1993, up 9 percent from 669 million board feet in 1992 and 496 million board feet in 1991. The increased lumber volume over the three-year period was due primarily to the mid 1992 acquisition of the 225 million board-feet-per-year Castlegar, B.C. sawmill. With the acquisition of this sawmill, lumber capacity for the Company is now approximately 785 million board feet. The Company's sawmills operated essentially at capacity for 1993, except for the Port Gamble sawmill, which reduced production during the year as a result of lack of acceptably priced timber in relation to end-product prices. Port Gamble is the only Company sawmill in the high-priced timber regions of the Pacific Northwest and the Company, recognizing the limitation on acquiring adequate, acceptably priced timber supplies for the mill, has previously reduced its carrying value to its estimated recoverable value. 16 17 Wood Products revenues climbed to a record $300 million in 1993 from $214.2 million in 1992 and $153 million in 1991. Both 1992 and 1993 revenue increases were a combination of volume increases and higher sales prices. Sales volumes were up 35 percent in 1992 and 9 percent in 1993 primarily from having the Castlegar sawmill for part of 1992, and for a full year in 1993. Lumber sales prices were up an average of 40 percent for the Company's Canadian sawmills and Port Gamble. These mills, which comprised approximately 80 percent of the Company's total lumber production, compete primarily in the home construction markets which have seen the greatest lumber supply reductions from the Pacific Northwest timber harvest restrictions. The remaining 20 percent of the Company's lumber production comes from two mills located in the Black Hills region of South Dakota and Wyoming. Lumber from these mills goes principally into remodeling markets and competes less directly with Pacific Northwest lumber. Prices for these products rose an average of 17 percent during 1993. Overall, sales prices were up an average of 34 percent in 1993 and 13 percent in 1992. Pulp and Paper Products The pulp and paper segment, which produces private label tissue and disposable diapers as well as market pulp, generated 52 percent of 1993 revenues. Operating profits from pulp and paper have declined from $6.2 million in 1991 to losses of $4.6 million in 1992 and $9.8 million in 1993. Disposable diapers have been increasingly profitable from 1991 through 1993; however, losses in tissue products and market pulp in 1992 and 1993 more than offset diaper profits. Pulp and paper revenues have remained essentially flat over the last three years, with 1993 sales of $328.9 million, 1992 sales of $330.2 million and 1991 sales of $349.3 million. Tissue products and market pulp revenues declined in 1992 and again in 1993 on lower pricing and volumes. Diaper sales volume and selling prices improved in 1992 and in 1993 volume again improved while prices declined slightly. Losses in the Company's market pulp business were the most significant factor in the pulp and paper segment's 1993 loss. A combination of an extremely depressed pulp market and the high cost of wood chips, the primary raw material for pulp, resulted in the increasing losses for 1991 through 1993. As a result of the weak markets, many pulp mills in the industry experienced significantly curtailed production rates during 1993. The Company's pulp mill at Halsey operated at 60 percent of capacity in 1993 and 83 percent of capacity in 1992. Historically, the Company had sold pulp to an adjacent tissue facility owned by James River Corporation. Beginning in 1992, James River began producing recycled pulp at Halsey and began phasing out of purchases of the Company's pulp. By mid 1993, James River no longer was purchasing any of the Company's pulp. As a result of depressed world pulp prices, selective downtime was taken in lieu of selling pulp in the open market to replace this lost tonnage. Consistent with world pulp pricing, the Company's sales prices in 1993 were approximately 12 percent below 1992's already depressed prices. Overall, pulp revenues decreased 36 percent to $40.3 million in 1993. Of this decline, approximately $17 million was due to volume reductions, and approximately $6 million was due to price declines. Based on a long-term pulp supply arrangement entered into in 1993, the Company began supplying, in December 1993, pulp to a printing and writing grade paper mill which opened at the beginning of 1994. The mill was purchased recently from its former owners by a group of private investors. The total output of this paper mill will be sold to one customer who will re-market the paper to outside customers. It has been anticipated that ultimately the paper mill 17 18 would purchase pulp from the Company in significant quantities, depending on sales by the paper mill to its customer. However, to date pulp purchases have not been at this level. In the event that the paper mill's sales to its customer are adversely impacted for any reason, sales of the Company's pulp may be adversely impacted. Pricing for this pulp will be computed using a formula based on prices for white paper. Based on the prices in effect for white paper at the end of 1993, the price that pulp would be sold under this agreement would be 8 percent higher than the average pulp price the Company obtained for its pulp at the end of 1993. Environmental concerns over timber harvests, which have caused high log costs for the Company's Port Gamble sawmill, have also caused higher chip costs and reduced chip availability from historic sources at the Halsey pulp mill over the last three years. In order to maintain an adequate supply of wood fiber to the mill, the Company has expanded its geographic base from which it obtains softwood chips and has developed the capability of using sawdust and hardwood chips as raw materials for a portion of the production, which historically have been less expensive than the softwood chips normally used as the primary raw material for the pulp mill. It is anticipated that a portion of the pulp sold to the paper mill will be produced from sawdust and hardwood chips. In order to maintain an adequate supply of chips for the anticipated 60 percent of the pulp mill's production which will remain based on these softwood chips, the Company will continue to use an expanded geographic base to obtain chips, adding to their cost. Unless environmental restrictions on timber harvests are relaxed, chip prices likely will remain high, and sawdust and hardwood chip prices may also increase. In the tissue business, continued low industry operating rates resulting from industry capacity increases in recent years which have exceeded demand growth, coupled with aggressive pricing by tissue producers, resulted in a second consecutive loss year for the Company's tissue business. Overall, tissue operated at approximately 97 percent of capacity in 1993. Prices for the Company's tissue products declined in 1992 an average of 6 percent from the already depressed 1991 levels and declined by another 1 percent in 1993. Overall, prices for the Company's tissue have declined an average 13 percent from 1989, when tissue prices first began to decline. During 1992, the Company permanently closed one high-cost tissue facility and instituted cost reduction measures which reduced tissue operating costs in 1993; however, these savings were partially offset by increases in prices paid for wastepaper, the primary raw material for the Company's tissue products. Diaper earnings improved substantially in 1993 over already strong earnings in 1992 and 1991. Diaper sales volumes in 1992 were 10 percent greater than 1991. This sales growth continued in 1993, with sales volumes 21 percent ahead of 1992 at a record 1.1 billion diapers. Based on the existing mix of diaper sales, the Company's diaper business operated essentially at capacity in 1993. During 1992, Procter & Gamble, a significant producer of branded disposable diapers, instituted an everyday low price program intended to reduce the shelf package prices to the consumer. Private label disposable diapers, including the Company's, are priced under the pricing umbrella of branded products; however, the Company was generally able to maintain its diaper sales prices in 1993 at 1992 levels, which were on average 6 percent above 1991 levels. In November 1992, the Company closed one of its five diaper facilities and transferred the diaper machines to the remaining facilities. This eliminated the overhead of operating one additional facility while leaving diaper capacity essentially unchanged. 18 19 Other Matters In 1993, the Company adopted Financial Accounting Standards Board Statement No. 109 on accounting for income taxes. The charge to earnings for adopting this new standard was $2.3 million ($.20 per share) and is reflected as part of the cumulative effect of accounting changes in the Consolidated Statements of Income. In 1993, expendable supplies on hand, which previously were charged to expense as purchased, were included in supplies inventories as of January 1, 1993. The cumulative effect of this change in accounting method amounted to $1.8 million ($.15 per share), net of tax, and is reflected as part of the cumulative effect of accounting changes in the Consolidated Statements of Income. In November 1992, the Financial Accounting Standards Board issued a pronouncement on Employers' Accounting for Postemployment Benefits. This statement must be adopted by the Company no later than 1994. The Company will adopt the new standard in the first quarter of 1994. The Company has reviewed the pronouncement and does not expect its implementation to have a material effect on the Company's financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by Item 8 of Part II is presented on pages 20 through 33 of the Company's 1993 Annual Report to Shareholders. Such information is incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by Item 10 of Part III is presented on page 13 as a separate item entitled "Executive Officers of the Registrant Who are Not Directors" in Part I of this Report on Form 10-K and on pages 2-5 (under the item entitled "Certain Information Regarding Directors and Officers") of the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on April 25, 1994. Such information is incorporated herein by reference. ITEM 11. MANAGEMENT REMUNERATION The information required by Item 11 of Part III is presented on pages 5-13 of the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on April 25, 1994. Such information is incorporated herein by reference. 19 20 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Part III is presented on pages 2-4 and on page 6 (beginning just after the title "Beneficial Ownership of Over Five Percent of Pope & Talbot Common Stock" on page 6) of the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on April 25, 1994. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of Part III is presented on page 14 (beginning just after the title "Certain Relationships and Related Transactions" on page 14) of the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders on April 25, 1994. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements -------------------- The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this annual report. (a) (2) Schedules --------- The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement schedules are filed as part of this annual report. (a) (3) Exhibits -------- The following exhibits are filed as part of this annual report. Exhibit No. - ----------- (3) (a) 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.) (b) Bylaws. (Incorporated herein by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) (4) (a) 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.) 20 21 (b) A Revolving Credit Agreement with United States National Bank of Oregon dated July 18, 1990. (Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.) (c) A Revolving Credit Agreement dated May 6, 1992 with 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.) (d) Indenture dated March 1, 1987 between the Company and the Bank of California, National Association as Trustee with respect to the Company's 6% Convertible Subordinated Debentures due March 1, 2012. (Incorporated herein by reference to Exhibit 4(d) to the Company's registration statement on Form S-3 filed February 23, 1987.) (e) Instrument of Resignation, Appointment and Acceptance dated July 5, 1989 appointing Manufacturers Hanover Trust Company of California as successor trustee with respect to the Company's 6% Convertible Subordinated Debentures due March 1, 2012. (Incorporated herein by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989.) (f) Rights Agreement between Pope & Talbot, Inc. and The Bank of California, as rights agent, dated as of April 13, 1988. (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.) (10) Executive Compensation Plans and Arrangements --------------------------------------------- (a) 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.) (b) 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.) (c) 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.) (d) 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.) (e) 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.) 21 22 (f) Form of Severance Pay Agreement between the Corporation 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.) ______________________________ (g) Lease agreement with 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.) (h) Lease agreement with 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.) (i) Lease agreement with 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.) (j) Grays Harbor Industrial, Inc. Pulp Sales Supply Contract. (Incorporated herein by reference to Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.) (11) Statement showing computation of per share earnings. (13) Portions of the annual report to shareholders for the year ended December 31, 1993 which have been incorporated by reference in this report. (18) Letter re change in accounting principles. (Incorporated herein by reference to Exhibit 18 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.) (22) Listing of parents and subsidiaries. (Incorporated herein by reference to Exhibit 22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the three months ended December 31, 1993. 22 23 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Annual Report to 10-K Shareholders ---- ------------ Report of Independent Public Accountants 19 Consolidated balance sheets at December 31, 1993 and 1992 20 Consolidated statements of income for each of the three years in the period ended December 31, 1993 21 Consolidated statements of stockholders' equity for each of the three years in the period ended December 31, 1993 22 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1993 23 Notes to consolidated financial statements 24-32 Supplementary information; Quarterly financial information (unaudited) 33 Report of Independent Public Accountants on Financial Statement Schedules 24 Schedules for each of the three years in the period ended December 31, 1993: V. Consolidated property, plant and equipment 25 VI. Consolidated accumulated depreciation of plant and equipment 26 IX. Consolidated short-term borrowings 27 X. Consolidated supplementary income statement information 28
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. The consolidated financial statements listed in the above index which are included in the Annual Report to Shareholders of Pope & Talbot, Inc. for the year ended December 31, 1993 are hereby incorporated by reference. With the exception of the pages listed in the above index and the items referred to in Items 1, 6 and 8, the 1993 Annual Report to Shareholders is not to be deemed filed as part of this report. 23 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of Pope & Talbot, Inc.: We have audited in accordance with generally accepted auditing standards the consolidated financial statements included in the Pope & Talbot, Inc. and subsidiaries' annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 20, 1994 (except with respect to the matter discussed in Note 12, as to which the date is January 24, 1994). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements and financial statement schedules are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Portland, Oregon, January 20, 1994 24 25 POPE & TALBOT, INC. AND SUBSIDIARIES SCHEDULE V - CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 1991, 1992 and 1993 (Thousands)
Balance at Depletion Balance Beginning Additions, Retirements and Translation at End Classification of Year at Cost or Sales Amortization Adjustments of Year - -------------- ---------- ---------- ----------- ------------ ----------- ------- 1991 ---- Mills, plants and improvements $ 80,551 $ 1,424 $ 835 $ - $ 39 $ 81,179 Equipment 274,056 22,628 7,398 - 147 289,433 Mobile equipment 18,753 531 460 - 37 18,861 Construction in progress 8,840 12,512 - - 1 21,353 ------- ------ ------ --- --- ------- 382,200 37,095(a) 8,693 - 224 410,826 ------- ------ ------ --- --- ------- Land 4,025 15 78 10 2 3,954 Timber and timber cutting rights 2,747 158 2,025 - 1 881 Canadian timber cutting licenses 2,897 - - 103 11 2,805 ------- ------ ------ --- --- ------- 9,669 173 2,103 113 14 7,640 ------- ------ ------ --- --- ------- $391,869 $37,268 $10,796 $113 $238 $418,466 ======= ====== ====== === === ======= 1992 ---- Mills, plants and improvements $ 81,179 $12,060 $ 104 $ - $(1,061) $ 92,074 Equipment 289,433 27,124 2,353 - (3,855) 310,349 Mobile equipment 18,861 2,345 1,022 - (949) 19,235 Construction in progress 21,353 309 - - (50) 21,612 ------- ------ ----- --- ------ ------- 410,826 41,838 3,479 - (5,915) 443,270 ------- ------ ----- --- ------ ------- Land 3,954 2,281 15 - (69) 6,151 Timber and timber cutting rights 881 133 821 - (17) 176 Canadian timber cutting licenses 2,805 2,882 - 139 (387) 5,161 ------- ------ ----- --- ------ ------- 7,640 5,296 836 139 (473) 11,488 ------- ------ ----- --- ------ ------- $418,466 $47,134 $4,315 $139 $(6,388) $454,758 ======= ====== ===== === ====== ======= 1993 ---- Mills, plants and improvements $ 92,074 $ 2,441 $ 5,538 $ - $ (487) $ 88,490 Equipment 310,349 56,133 12,810 - (1,820) 351,852 Mobile equipment 19,235 2,006 1,272 - (410) 19,559 Construction in progress 21,612 21,942 - - (39) 43,515 ------- ------ ------ --- ------ ------- 443,270 82,522(b) 19,620(c) - (2,756) 503,416 ------- ------ ------ --- ------ ------- Land 6,151 63 272 - (36) 5,906 Timber and timber cutting rights 176 - - - (8) 168 Canadian timber cutting licenses 5,161 - - 146 (201) 4,814 ------- ------ ------ --- ------ ------- 11,488 63 272 146 (245) 10,888 ------- ------ ------ --- ------ ------- $454,758 $82,585 $19,892 $146 $(3,001) $514,304 ======= ====== ====== === ====== =======
NOTES: (a) Includes $14.9 million for new converting facilities at and modernization of Ransom, Pennsylvania tissue mill. (b) Includes $23.8 million for Flakt pulp dryer and $19.1 million for oxygen delignification project at the Halsey, Oregon pulp mill. Also includes $6.4 million for Castlegar, British Columbia sawmill modernization. (c) Includes $13.4 million related to the sale of the Ladysmith, Wisconsin tissue facilities. DEPRECIATION AND AMORTIZATION: The annual provisions for depreciation have been computed principally in accordance with the following ranges of rates applied on the straight-line method: Buildings 12.5% - 4.0% Equipment 33.3% - 5.0% Mobile equipment 33.3% - 10.0%
25 26 POPE & TALBOT, INC. AND SUBSIDIARIES SCHEDULE VI - CONSOLIDATED ACCUMULATED DEPRECIATION OF PLANT AND EQUIPMENT Years ended December 31, 1991, 1992 and 1993 (Thousands)
Additions Balance at Charged to Balance Beginning Costs and Retirements Other Changes Translation at End Classification of Year Expenses or Sales Add (Deduct) Adjustments of Year - -------------- ---------- ---------- ----------- ------------- ----------- ------- 1991 ---- Mills, plants and improvements $ 42,697 $ 2,840 $ 748 $1,217(a) $ 15 $ 46,021 Equipment 127,802 21,867 5,670 1,253(a) 70 145,322 Mobile equipment 11,697 1,865 427 - 24 13,159 ------- ------ ----- ----- --- ------- $182,196 $26,572 $6,845 $2,470 $109 $204,502 ======= ====== ===== ===== === ======= 1992 ---- Mills, plants and improvements $ 46,021 $ 2,976 $ 66 $2,062(b) $ (373) $ 50,620 Equipment 145,322 22,742 1,600 3,336(b) (1,822) 167,978 Mobile equipment 13,159 1,885 713 - (671) 13,660 ------- ------ ----- ----- ------ ------- $204,502 $27,603 $2,379 $5,398 $(2,866) $232,258 ======= ====== ===== ===== ====== ======= 1993 ---- Mills, plants and improvements $ 50,620 $ 3,004 $ 3,943 $ - $ (167) $ 49,514 Equipment 167,978 24,172 9,567 - (862) 181,721 Mobile equipment 13,660 1,728 1,227 - (292) 13,869 ------- ------ ------ ----- ------ ------- $232,258 $28,904 $14,737(c) $ - $(1,321) $245,104 ======= ====== ====== ===== ====== =======
Notes: (a) Amount relates to write-down of tissue machines removed from production and building held for sale. (b) Amount relates to write-down of the Company's Ladysmith, Wisconsin tissue plant and Maryville, Missouri diaper plant. (c) Includes $10.7 million related to the sale of the Ladysmith, Wisconsin tissue facilities. 26 27 POPE & TALBOT, INC. AND SUBSIDIARIES SCHEDULE IX - CONSOLIDATED SHORT-TERM BORROWINGS Years ended December 31, 1991, 1992 and 1993 Notes payable to banks:
Maximum Amount Average Weighted Balance Weighted Outstanding Amount Average At End Average at any Month- Outstanding Interest Rate of Interest end during During During Period Rate the Period the Period the Period ------- -------- ------------- ----------- ------------- (a) (b) 1991 $17,000,000 5.1% $17,000,000 $2,817,000 5.5% 1992 $ 5,483,000 4.4% $ 9,700,000 $2,013,000 4.8% 1993 $11,000,000 4.3% $14,300,000 $6,449,000 4.0%
The Company has available from a bank a short-term line of credit totaling $20,000,000 with interest based on a negotiated rate. As of December 31, 1993, there was $11,000,000 outstanding on this line. Notes: (a) The average amount outstanding during the period is computed by dividing the total of daily outstanding principal balances by 365. (b) The weighted average interest rate during the period was computed by dividing the average amount of short-term debt outstanding during the period into the actual interest expense on short-term borrowings. 27 28 POPE & TALBOT, INC. AND SUBSIDIARIES SCHEDULE X - CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION Years ended December 31, 1993, 1992 and 1991 (Thousands)
1993 1992 1991 ---- ---- ---- Maintenance and repairs $34,246 $35,811 $38,885 Depreciation, depletion and amortization 29,303(a) 28,564(a) 27,948(a) (a)Amortization and depletion per Schedule V: Canadian timber cutting licenses $ 146 $ 139 $ 103 Depletable land - - 10 Amortization of goodwill and deferred charges 253 822 1,263 Depreciation per Schedule VI 28,904 27,603 26,572 ------ ------ ------ Total $29,303 $28,564 $27,948 ====== ====== ======
28 29 For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of the expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered on the Form S-8's identified below, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. The preceding undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 No. 33-34996 (filed May 21, 1990) and No. 33-64764 (filed June 21, 1993). 29 30 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement No. 33-34996 on Form S-8, Registration Statement No. 33-64764 on Form S-8 and Registration Statement No. 33-52305 on Form S-3. ARTHUR ANDERSEN & CO. Portland, Oregon March 29, 1994 30 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Portland, State of Oregon, on this 29th day of March, 1993. POPE & TALBOT, INC. BY: \s\ Peter T. Pope ------------------------------ Peter T. Pope Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Chairman of the Board, President and \s\ Peter T. Pope Chief Executive Officer March 29, 1994 - ------------------------------ ---------------------------- -------------- Peter T. Pope \s\ Adolphus Andrews, Jr. Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Adolphus Andrews, Jr. \s\ Hamilton W. Budge Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Hamilton W. Budge \s\ Edward Cooley Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Edward Cooley \s\ Charles Crocker Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Charles Crocker \s\ Warren E. McCain Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Warren E. McCain \s\ Robert Stevens Miller, Jr. Director March 29, 1994 - ------------------------------ --------------------------- -------------- Robert Stevens Miller, Jr. \s\ Hugo G. L. Powell Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Hugo G. L. Powell \s\ Brooks Walker, Jr. Director March 29, 1994 - ------------------------------ ---------------------------- -------------- Brooks Walker, Jr. Senior Vice President, Secretary, Treasurer and \s\ Carlos M. Lamadrid Chief Financial Officer March 29, 1994 - ------------------------------ ---------------------------- -------------- Carlos M. Lamadrid \s\ Dennis E. Bunday Financial Controller March 29, 1994 - ------------------------------ ---------------------------- -------------- Dennis E. Bunday
31 32 EXHIBIT INDEX
Exhibit No. Description Page No. - ----------- ----------- -------- (3) (a) 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.) (b) Bylaws. (Incorporated herein by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) (4) (a) 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.) (b) A Revolving Credit Agreement with United States National Bank of Oregon dated July 18, 1990. (Incorporated herein by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.) (c) A Revolving Credit Agreement dated May 6, 1992 with 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.) (d) Indenture dated March 1, 1987 between the Company and the Bank of California, National Association as Trustee with respect to the Company's 6% Convertible Subordinated Debentures due March 1, 2012. (Incorporated herein by reference to Exhibit 4(d) to the Company's registration statement on Form S-3 filed February 23, 1987.) (e) Instrument of Resignation, Appointment and Acceptance dated July 5, 1989 appointing Manufacturers Hanover Trust Company of California as successor trustee with respect to the Company's 6% Convertible Subordinated Debentures due March 1, 2012. (Incorporated herein by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1989.)
33
Exhibit No. Description Page No. ----------- ----------- -------- (f) Rights Agreement between Pope & Talbot, Inc. and The Bank of California, as rights agent, dated as of April 13, 1988. (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.) (10) Executive Compensation Plans and Arrangements --------------------------------------------- (a) 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.) (b) 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.) (c) 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.) (d) 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.) (e) 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.) (f) Form of Severance Pay Agreement between the Corporation 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.) ------------------------------ (g) Lease agreement with 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.)
34
Exhibit No. Description Page No. ----------- ----------- -------- (h) Lease agreement with 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.) (i) Lease agreement with 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.) (j) Grays Harbor Industrial, Inc. Pulp Sales Supply Contract. (Incorporated herein by reference to Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.) (11) Statement showing computation of per share earnings. (13) Portions of the annual report to shareholders for the year ended December 31, 1993 which have been incorporated by reference in this report. (18) Letter re change in accounting principles. (Incorporated herein by reference to Exhibit 18 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.) (22) Listing of parents and subsidiaries. (Incorporated herein by reference to Exhibit 22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.)
EX-11 2 EXHIBIT 11 1 EXHIBIT 11 POPE & TALBOT, INC. AND SUBSIDIARIES Statement Showing Calculation of Average Common Shares Outstanding and Earnings Per Average Common Share Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991 ---- ---- ---- Weighted average number of common shares outstanding 11,685,313 11,608,608 11,588,312 Weighted average of common stock equivalent shares attributable to convertible debentures 1,542,020 1,542,020 1,542,020 Application of the "treasury stock" method to the stock option plan 264,323 13,938 6,563 ---------- ---------- ---------- Total common and common equivalent shares, assuming full dilution 13,491,656 13,164,566 13,136,895 ========== ========== ========== Net income (loss) $21,013,000 $(2,252,000) $(11,562,000) Add: interest on convertible debentures, net of applicable income taxes 1,464,000 2,184,000 1,728,000 ---------- ---------- ----------- Net income (loss), assuming full dilution $22,477,000 $ (68,000) $ (9,834,000) ========== ========== =========== Net income (loss) per common share, assuming full dilution (1) $1.67 $(.19) $(1.00) ==== ==== =====
(1) In accordance with generally accepted accounting principles, fully-diluted earnings per share may not exceed primary earnings per share. As such, the 1992 and 1991 fully-diluted earnings per share amount equals the primary earnings per share amount. The computation of primary net income per common share is not included because the computation can be clearly determined from the material contained in this report. EX-13 3 EXHIBIT 13 1 Exhibit 13 POPE & TALBOT, INC. AND SUBSIDIARIES FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE) OPERATIONS Revenues............................. $ 628,926 $ 544,345 $ 502,275 $ 562,493 $ 613,898 Depreciation and amortization........ 29,303 28,564 27,948 26,352 25,455 Interest expense..................... 8,714 5,622 3,941 3,925 4,188 Income (loss) before accounting changes............................ 21,575 (2,252) (5,095) 19,829 43,637 Cumulative effect of accounting changes............................ (562) -- (6,467) -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss).................... $ 21,013 $ (2,252) $ (11,562) $ 19,829 $ 43,637 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective tax rate................... 41% (9)% (28)% 36% 37% PER COMMON SHARE Income (loss) before accounting changes -- primary................. $ 1.85 $ (.19) $ (.44) $ 1.70 $ 3.70 Income (loss) before accounting changes -- fully diluted........... 1.71 (.19) (.44) 1.61 3.35 Effect of accounting changes -- primary................. (.05) -- (.56) -- -- Effect of accounting changes -- fully diluted............................ (.04) -- (.56) -- -- Cash dividends....................... .76 .76 .76 .72 .60 Stockholders' equity................. 15.73 14.85 16.09 17.83 16.91 YEAR-END COMMON SHARES OUTSTANDING, NET OF TREASURY STOCK.............. 11,715,798 11,610,664 11,597,560 11,580,440 11,788,310 FINANCIAL POSITION (at December 31) Current assets....................... $ 169,897 $ 138,288 $ 122,393 $ 131,612 $ 129,803 Properties, net...................... 269,200 222,500 213,964 209,673 212,015 Other assets......................... 16,724 8,893 10,626 12,655 13,657 ---------- ---------- ---------- ---------- ---------- $ 455,821 $ 369,681 $ 346,983 $ 353,940 $ 355,475 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Current liabilities.................. $ 101,162 $ 79,668 $ 64,545 $ 49,389 $ 65,803 Long-term obligations................ 27,803 24,227 16,934 4,401 2,672 Long-term debt....................... 134,599 89,500 69,000 77,490 67,560 Deferred income taxes................ 7,936 3,892 9,896 16,132 20,146 Stockholders' equity................. 184,321 172,394 186,608 206,528 199,294 ---------- ---------- ---------- ---------- ---------- $ 455,821 $ 369,681 $ 346,983 $ 353,940 $ 355,475 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE) CASH FLOW Operating activities: Net income (loss).................. $ 21,013 $ (2,252) $ (11,562) $ 19,829 $ 43,637 Depreciation and amortization...... 29,303 28,564 27,948 26,352 25,455 Other (gains) losses, net.......... -- 1,589 1,940 (867) (5,555) Cumulative effect of accounting changes......................... 562 -- 6,467 -- -- Working capital and other.......... (13,990) 10,833 2,717 (6,615) (12,914) ---------- ---------- ---------- ---------- ---------- Cash provided by operating activities.................... 36,888 38,734 27,510 38,699 50,623 Investing activities: Capital expenditures............... (82,585) (32,276) (37,268) (41,876) (52,144) Acquisition of sawmill............. -- (19,417) -- -- -- Cash provided by restructuring activities...................... -- 11,480 2,750 19,622 11,798 Proceeds from sale of other properties...................... 1,156 1,158 1,848 1,101 946 ---------- ---------- ---------- ---------- ---------- Cash used for investing activities.................... (81,429) (39,055) (32,670) (21,153) (39,400) Financing activities: Net increase (decrease) in borrowings...................... 51,017 9,483 8,440 1,935 (2,260) Cash dividends..................... (8,871) (8,821) (8,806) (8,445) (7,084) Other.............................. 1,819 229 293 (4,133) (67) ---------- ---------- ---------- ---------- ---------- Cash provided by (used for) financing activities.......... 43,965 891 (73) (10,643) (9,411) ---------- ---------- ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents........................ $ (576) $ 570 $ (5,233) $ 6,903 $ 1,812 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
14 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Pope & Talbot, Inc.: We have audited the accompanying consolidated balance sheets of Pope & Talbot, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pope & Talbot, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 7 to the financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes and supplies inventories. Also as discussed in Note 1 to the financial statements, effective January 1, 1991, the Company changed its method of accounting for postretirement benefits other than pensions. Arthur Andersen & Co. Portland, Oregon, January 20, 1994 (except with respect to the matter discussed in Note 12, as to which the date is January 24, 1994) 19 3 POPE & TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- 1993 1992 --------- --------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE) ASSETS Current assets: Cash and cash equivalents.......................................... $ 3,768 $ 4,344 Accounts receivable................................................ 56,040 47,779 Inventories (Notes 1 and 2)........................................ 95,256 73,676 Deposits on timber purchase contracts.............................. 5,937 4,096 Prepaid expenses (Note 7).......................................... 8,896 8,393 --------- --------- Total current assets....................................... 169,897 138,288 Properties (Notes 3, 8 and 9): Plant and equipment................................................ 503,416 443,270 Accumulated depreciation........................................... (245,104) (232,258) --------- --------- 258,312 211,012 Land and timber cutting rights..................................... 10,888 11,488 --------- --------- Total properties........................................... 269,200 222,500 Other assets: Deferred charges................................................... 12,362 4,365 Goodwill, net of amortization...................................... 4,362 4,528 --------- --------- Total other assets......................................... 16,724 8,893 --------- --------- $ 455,821 $ 369,681 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable (Note 4)............................................. $ 11,000 $ 5,483 Current portion of long-term debt (Note 4)......................... 901 500 Accounts payable................................................... 36,228 30,878 Accrued payroll and related taxes.................................. 18,336 17,082 Other accrued liabilities.......................................... 16,875 17,114 Income taxes (Notes 1 and 7)....................................... 17,822 8,611 --------- --------- Total current liabilities.................................. 101,162 79,668 Reforestation (Notes 1 and 9)........................................ 14,999 12,271 Postretirement benefits (Notes 1 and 6).............................. 12,804 11,956 Long-term debt, net of current portion (Notes 4 and 12).............. 134,599 89,500 Deferred income taxes (Notes 1 and 7)................................ 7,936 3,892 Commitments and contingencies (Note 10).............................. -- -- Stockholders' equity (Notes 1, 4, 5 and 12): Preferred stock, $10 par value, 1,500,000 shares authorized, none issued.......................................................... -- -- Common stock, $1 par value, 20,000,000 shares authorized, 12,429,352 issued............................................... 12,429 12,429 Additional paid-in capital......................................... 3,370 2,388 Retained earnings.................................................. 185,762 173,620 Cumulative translation adjustments................................. (4,578) (2,544) Common stock held in treasury, at cost............................. (12,662) (13,499) --------- --------- Total stockholders' equity................................. 184,321 172,394 --------- --------- $ 455,821 $ 369,681 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated balance sheets. 20 4 POPE & TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- (THOUSANDS EXCEPT PER SHARE) Revenues................................................... $628,926 $544,345 $502,275 Costs and expenses: Cost of sales............................................ 554,172 509,821 475,780 Selling, general and administrative...................... 29,634 29,783 27,707 Interest (Notes 1 and 4)................................. 8,714 5,622 3,941 -------- -------- -------- 592,520 545,226 507,428 Other gains (losses), net (Note 8)......................... -- (1,589) (1,940) -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting changes....................................... 36,406 (2,470) (7,093) Income tax provision (benefit) (Note 7).................... 14,831 (218) (1,998) -------- -------- -------- Income (loss) before cumulative effect of accounting changes.................................................. 21,575 (2,252) (5,095) Cumulative effect of accounting changes (Note 1)........... (562) -- (6,467) -------- -------- -------- Net income (loss).......................................... $ 21,013 $ (2,252) $(11,562) -------- -------- -------- -------- -------- -------- Net income (loss) per common share (Note 1): Primary: Income (loss) before cumulative effect of accounting changes............................................. $ 1.85 $ (.19) $ (.44) Cumulative effect of accounting changes............... (.05) -- (.56) -------- -------- -------- Primary earnings (loss) per share........................ $ 1.80 $ (.19) $ (1.00) -------- -------- -------- -------- -------- -------- Fully diluted: Income (loss) before cumulative effect of accounting changes............................................. $ 1.71 $ (.19) $ (.44) Cumulative effect of accounting changes............... (.04) -- (.56) -------- -------- -------- Fully diluted earnings (loss) per share.................. $ 1.67 $ (.19) $ (1.00) -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated statements. 21 5 POPE & TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31
COMMON STOCK TREASURY STOCK ADDITIONAL CUMULATIVE --------------------- ------------------- PAID-IN RETAINED TRANSLATION SHARES AMOUNTS SHARES AMOUNTS CAPITAL EARNINGS ADJUSTMENTS ----------- -------- -------- -------- ---------- --------- ----------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE) Balance at December 31, 1990................. 12,429,352 $ 12,429 (848,912) $(13,730) $2,097 $ 205,061 $ 671 Net loss............... -- -- -- -- -- (11,562) -- Purchase of treasury stock................ -- -- (10,800) (141) -- -- -- Issuance of shares under stock plans.... -- -- 27,920 270 164 -- -- Cash dividends ($.76 per share)........... -- -- -- -- -- (8,806) -- Change in translation adjustment........... -- -- -- -- -- -- 155 ----------- -------- -------- -------- ---------- --------- ----------- Balance at December 31, 1991................. 12,429,352 12,429 (831,792) (13,601) 2,261 184,693 826 ----------- -------- -------- -------- ---------- --------- ----------- Net loss............... -- -- -- -- -- (2,252) -- Issuance of shares under stock plans.... -- -- 13,104 102 127 -- -- Cash dividends ($.76 per share)........... -- -- -- -- -- (8,821) -- Change in translation adjustment........... -- -- -- -- -- -- (3,370) ----------- -------- -------- -------- ---------- --------- ----------- Balance at December 31, 1992................. 12,429,352 12,429 (818,688) (13,499) 2,388 173,620 (2,544) ----------- -------- -------- -------- ---------- --------- ----------- Net income............. -- -- -- -- -- 21,013 -- Purchase of treasury stock................ -- -- (16,703) (353) -- -- -- Issuance of shares under stock plans.... -- -- 121,837 1,190 982 -- -- Cash dividends ($.76 per share)........... -- -- -- -- -- (8,871) -- Change in translation adjustment........... -- -- -- -- -- -- (2,034) ----------- -------- -------- -------- ---------- --------- ----------- Balance at December 31, 1993................. 12,429,352 $ 12,429 (713,554) $(12,662) $3,370 $ 185,762 $(4,578) ----------- -------- -------- -------- ---------- --------- ----------- ----------- -------- -------- -------- ---------- --------- -----------
The accompanying notes are an integral part of these consolidated statements. 22 6 POPE & TALBOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 -------- -------- -------- (THOUSANDS EXCEPT PER SHARE) Cash flow from operating activities: Net income (loss)........................................ $ 21,013 $ (2,252) $(11,562) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization......................... 29,303 28,564 27,948 Other (gains) losses, net (Note 8).................... -- 1,589 1,940 Cumulative effect of accounting changes (Note 1)...... 562 -- 6,467 Changes in assets and liabilities: Increase (decrease) in: Accounts payable................................. 5,350 14,482 (3,732) Accrued payroll and related taxes................ 1,254 3,430 597 Other accrued liabilities........................ (239) (4,090) 344 Income taxes..................................... 9,211 5,161 900 Reforestation.................................... 3,280 3,095 1,341 Postretirement benefits.......................... 848 783 1,232 Deferred income taxes............................ 150 (5,940) (2,775) Decrease (increase) in: Accounts receivable.............................. (8,261) (7,934) 2,720 Inventories...................................... (18,648) 4,071 (2,153) Deposits on timber purchase contracts............ (3,651) (1,649) 5,196 Prepaid expenses................................. (120) 990 (1,326) Deferred charges and other....................... (3,164) (1,566) 373 -------- -------- -------- Net cash provided by operating activities............. 36,888 38,734 27,510 Cash flow from investing activities: Capital expenditures..................................... (82,585) (32,276) (37,268) Acquisition of sawmill (Note 9).......................... -- (19,417) -- Cash provided by sale of timberlands (Note 8)............ -- 11,480 2,750 Proceeds from sale of other properties................... 1,156 1,158 1,848 -------- -------- -------- Net cash used for investing activities................ (81,429) (39,055) (32,670) Cash flow from financing activities: Net increase (decrease) in short-term borrowings......... 5,517 (11,517) 17,000 Proceeds from issuance of long-term debt................. 91,000 21,000 -- Reduction of long-term debt, including current portion... (45,500) -- (8,560) Proceeds from issuance of treasury stock................. 2,172 229 434 Purchase of treasury stock............................... (353) -- (141) Cash dividends........................................... (8,871) (8,821) (8,806) -------- -------- -------- Net cash provided by (used for) financing activities.......................................... 43,965 891 (73) -------- -------- -------- Increase (decrease) in cash and cash equivalents........... (576) 570 (5,233) Cash and cash equivalents at beginning of period........... 4,344 3,774 9,007 -------- -------- -------- Cash and cash equivalents at end of period................. $ 3,768 $ 4,344 $ 3,774 -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated statements. 23 7 POPE & TALBOT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992 AND 1991 1. ACCOUNTING POLICIES Principles of consolidation The accompanying consolidated financial statements include the accounts of Pope & Talbot, Inc. and Subsidiaries (the Company), after eliminating intercompany transactions and balances. All assets and liabilities of the Company's Canadian subsidiary are translated into United States dollars at the period-end exchange rate. Revenues and expenses are translated at the average exchange rate for the year. Translation gains and losses are reflected in Stockholders' equity as Cumulative translation adjustments. Net gains and losses on foreign currency transactions, which are not significant, are reflected in Net income (loss). Inventories Inventories are stated at the lower of cost or market. For portions of lumber and raw material inventories, cost has been determined on the last-in, first-out method. For remaining inventories, cost has been determined using the first-in, first-out and average-cost methods. Inventory costs include the cost of materials, labor and plant overhead. Plant and equipment Plant and equipment is carried at cost and includes expenditures for new facilities and those expenditures which substantially increase the useful lives of existing plant and equipment. Costs of maintenance and repairs are charged to expense as incurred. Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts, with the resultant gain or loss included in income. Depreciation is computed using the straight-line method over the useful lives of respective assets. The estimated useful lives of the principal items of plant and equipment range from 4 to 20 years. The Company capitalizes interest on borrowed funds during the construction period of major capital projects. Interest capitalized is determined by applying the Company's effective interest rate to the accumulated capital costs during the construction period of a project. Total interest costs incurred were $10,449,000, $5,956,000 and $4,361,000 for 1993, 1992 and 1991, respectively. Interest capitalized was $1,735,000 in 1993, $334,000 in 1992 and $420,000 in 1991. Capitalized interest is amortized over the depreciable life of related assets. Timber resources In the United States, the Company obtains its timber from various public and private sources under timber harvesting contracts. Additionally, logs are purchased on open log markets. Liabilities for timber removed under harvesting contracts are not recorded until the timber is cut, as the Company generally does not incur a direct liability for, or ownership of, this timber until it has been harvested. The total volume committed under contract, the 1994 planned contract harvest at contract prices and the estimated market values based on current log markets are as follows:
THOUSAND PER THOUSAND BOARD FEET AMOUNT BOARD FEET ---------- ----------- ------------ Total under contract: At contract prices........................................ 291,000 $62,176,000 $214 At current log market values.............................. 291,000 72,773,000 250 1994 planned harvest: At contract prices........................................ 85,000 19,768,000 233 At current log market values.............................. 85,000 24,821,000 292
In Canada, the Company obtains its timber from the Provincial Government of British Columbia under timber harvesting licenses. The cost assigned to these timber licenses is amortized over 50 years on a straight-line basis. These licenses allow, but do not require, the Company to remove timber from defined areas annually on a sustained yield basis. Future allowable harvests may be adjusted if the Company does not remove timber over a five year period in accordance with the grants. As in the United States, liabilities for the cost of timber removed are not recorded until the timber is cut as the Company does not incur a direct liability for, or ownership of, this timber until it has been harvested. Goodwill The goodwill contained in the Consolidated Balance Sheets relates to the 1980 purchase of the Company's Eau Claire, Wisconsin facilities. This amount is being amortized on a straight-line basis over 40 years. Reforestation Under the Canadian timber harvesting licenses mentioned previously, the Company is responsible for the reforestation of the land from which timber is harvested. A substantial portion of the costs incurred to reforest do not occur until 10 to 24 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) 15 years after the timber is harvested. The Company accrues for the total projected cost of reforestation as the timber is removed. Actual expenditures for reforestation are applied against this accrual when they are made. Income taxes Effective January 1, 1993, the Company implemented the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The principal temporary differences are related to depreciation, reforestation and postretirement benefits. Prior to the implementation of SFAS No. 109, the Company accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. Undistributed earnings of the Company's Canadian subsidiary totaled $53,612,000 on December 31, 1993, which, under existing law, will not be subject to United States tax until distributed as dividends. Since the earnings have been, and are intended to be, reinvested in Canadian operations, no provision has been made for any United States taxes that may be applicable thereto. Furthermore, any taxes paid to the Canadian Government on those earnings may be used in whole or in part, as credits against the United States tax on any dividends distributed from such earnings. It is not practicable to estimate the amount of unrecognized deferred United States taxes on these undistributed earnings. Statements of cash flows The Company classifies as Cash and cash equivalents, cash on deposit in banks plus cash invested temporarily in various investment instruments that are part of the Company's cash management program. The Company's cash and cash equivalents have original maturities of 90 days or less and the related carrying amounts approximate fair values. The effect of exchange rate changes on cash balances held in foreign currencies is not significant. Non-cash transactions, which have been excluded from the accompanying Consolidated Statements of Cash Flows, are not significant. Total cash expenditures for interest, net of capitalized interest, were $8,821,000, $5,402,000 and $4,598,000 for 1993, 1992 and 1991, respectively. Total cash expenditures for income taxes were $9,589,000 for 1993, $1,166,000 for 1992 and $3,337,000 for 1991. Per share information Per share information is based on the weighted average number of common shares outstanding during each year. The computation for fully diluted net income (loss) per common share assumes conversion of $40 million of 6 percent convertible debentures issued in March 1987. The computation also includes the assumed issuance of common shares under the stock option and appreciation plan, net of an assumed buyback of treasury shares at the average market price. The average number of shares used to calculate primary net income (loss) per common share was 11,685,000 in 1993, 11,609,000 in 1992 and 11,588,000 in 1991. The average number of shares used to calculate fully diluted net income (loss) per common share was 13,492,000 in 1993, 13,165,000 in 1992 and 13,137,000 in 1991. Accounting changes In 1991, the Company adopted an accounting change relating to postretirement benefits other than pensions. In 1993, the Company changed its accounting for supplies inventories and income taxes. The income (expense) related to the cumulative effect of these accounting changes was as follows:
1993 1991 --------------------- --------------------- AMOUNT PER SHARE AMOUNT PER SHARE ------- --------- ------- --------- (THOUSANDS EXCEPT PER SHARE) Supplies inventories (net of $1,168 tax provision)... $ 1,764 $ .15 $ -- $ -- Income taxes......................................... (2,326) (.20) -- -- Postretirement benefits other than pensions (net of $3,474 tax benefit)................................ -- - (6,467) (.56) ------- --------- ------- --------- $ (562) $(.05) $(6,467) $(.56) ------- --------- ------- --------- ------- --------- ------- ---------
Supplies inventories Effective January 1, 1993, the Company changed its method of accounting for supplies inventories. Prior to 1993, supplies items were expensed when purchased. As of January 1, 1993, such supplies items were valued using the average-cost method and were recorded as supplies inventories. Since many supplies items are kept on hand for an extended period of time, the Company believes that reflecting these items as inventory results in a better matching of the cost of supplies with the timing of their use. The cumulative effect of this change in accounting for supplies inventories for years prior to 1993, which is reflected in the Consolidated Statements of Income for 1993, resulted in a benefit of $1,764,000, after related income taxes of $1,168,000, or $.15 per common share. The effect of the 25 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) change on 1993's net income before cumulative effect of accounting changes was not significant. The Company was not able to determine the impact of this change on 1992 and 1991 as supplies inventory records were not available prior to 1993. Income taxes During the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The new standard was adopted prospectively and a $2,326,000, or $.20 per share, charge related to the cumulative effect of this change in accounting for income taxes was recognized. Postretirement benefits other than pensions Effective January 1, 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This standard requires that the expected cost of postretirement benefits be charged to expense during the years that the employees render service. In 1991, the Company elected to recognize its entire transition obligation, which represented the present value of the estimated future benefits payable to current retirees and a pro rata portion of estimated benefits payable to active employees after retirement, as allowed under the standard. The charge to 1991 earnings was $6,467,000 after a related tax benefit of $3,474,000. Reclassifications Certain reclassifications have been made to prior years' data to conform to the 1993 presentation. 2. INVENTORIES
1993 1992 ------- ------- (THOUSANDS) Lumber.................................................... $13,144 $10,230 Tissue, tissue products and diapers....................... 15,218 12,314 Logs...................................................... 34,095 24,496 Pulp and paper raw material............................... 21,187 17,561 Chemicals and supplies.................................... 7,193 3,964 Other..................................................... 4,419 5,111 ------- ------- $95,256 $73,676 ------- ------- ------- -------
The portion of lumber and raw materials inventories determined using the last-in, first-out (LIFO) method aggregated $8,406,000 and $7,033,000 at December 31, 1993 and 1992, respectively. The cost of these LIFO inventories valued at the lower of average cost or market, which approximates current cost, at December 31, 1993 and 1992, was $16,596,000 and $12,950,000, respectively. 3. PROPERTIES
1993 1992 -------- -------- (THOUSANDS) Plant and equipment: Mills, plants and improvements........................................ $ 88,490 $ 92,074 Equipment............................................................. 351,852 310,349 Mobile equipment...................................................... 19,559 19,235 Construction in progress.............................................. 43,515 21,612 -------- -------- $503,416 $443,270 -------- -------- -------- -------- Land and timber cutting rights: Land.................................................................. $ 5,906 $ 6,151 Canadian timber cutting rights........................................ 4,814 5,161 Timber................................................................ 168 176 -------- -------- $ 10,888 $ 11,488 -------- -------- -------- --------
4. DEBT
1993 1992 -------- -------- (THOUSANDS) 6% convertible subordinated debentures, due 2012........................ $ 40,000 $ 40,000 8.375% debentures, due 2013............................................. 75,000 -- SELP note payable, secured by related properties, 6.55%, payable monthly from 1994 through 2013................................................ 16,000 -- Industrial revenue bond, secured by related properties, variable interest rate (3.3% at December 31, 1993), payable annually from 1993 through 2002.......................................................... 4,500 5,000 Unsecured revolving-credit agreement, variable interest rate (4.1% at December 31, 1993).................................................... -- 45,000 -------- -------- 135,500 90,000 Less current portion.................................................... 901 500 -------- -------- $134,599 $ 89,500 -------- -------- -------- --------
During the second quarter of 1993, the Company issued $75 million of 8 3/8 percent debentures due June 1, 2013. The net proceeds of approximately $73.8 million were partially used to retire the $45 million of indebtedness that was outstanding under the Company's $75 million unsecured revolving-credit agreement. The remainder of the proceeds have been used to finance the Company's capital improvement projects. 26 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) In June of 1993, the State of Oregon issued tax-exempt bonds under the State's Small Scale Energy Loan Program (SELP). Upon completion of the Company's Halsey pulp mill oxygen delignification project in the fourth quarter of 1993, the State of Oregon loaned a portion of the bond proceeds ($16 million) to the Company for 20 years at 6.55 percent interest. Principal and interest are payable monthly beginning in January 1994. The note is secured by substantially all of the assets at the Company's Halsey pulp mill. The Company has an unsecured revolving-credit agreement with a group of five banks. The agreement provides $75 million of revolving credit until 1996. On or before April 30 of any calendar year which precedes by two years the June 1996 expiration date, the Company may request a one year extension, which may be granted upon the affirmative vote of all involved banks. The interest rate associated with this agreement is based, at the option of the Company, on the Interbank (LIBOR) rate plus 5/8 percent or the greater of the bank's prime rate during the revolving period or the Federal Funds rate plus 1/2 percent. An annual commitment fee of 1/4 percent per year on the total loan commitment is payable quarterly. Without extension, any outstanding balance on the revolving-credit agreement would be due in 1996. The Company also has an unsecured $20 million short-term line-of-credit agreement with a domestic bank, with interest based on a negotiated rate. As of December 31, 1993, there was an outstanding balance of $11,000,000 on this line at 4.25 percent interest. There are no commitment fees or compensating balance requirements associated with this agreement. In 1987, the Company issued $40 million of 6 percent convertible subordinated debentures due March 1, 2012. The debentures are convertible by the holder into common stock at a conversion price of $25.94 per common share. The Company is required to make equal annual sinking-fund payments beginning March 1, 1998, which are calculated to retire 70 percent of the issue prior to maturity. The debentures are redeemable by the Company, subject to certain restrictions, at any time at the Company's option. The various loan agreements contain, among other things, certain requirements as to maintenance of working capital, sale of assets, incurrence of debt and restrictions as to the payment of cash dividends. At December 31, 1993, the payment of dividends from retained earnings under all of these agreements was limited to $19,452,000. The annual maturities of long-term debt, including sinking fund requirements, for the four years subsequent to December 31, 1994 are: 1995 -- $928,000; 1996 -- $957,000; 1997 -- $988,000 and 1998 -- $3,021,000. The fair value of the convertible subordinated debentures at December 31, 1993 was $44,800,000 based on their current trading price. The Company's carrying value of other long-term debt approximates its fair value. 5. STOCK OPTION AND BONUS PLANS The Company has a stock option and appreciation plan and a restricted stock bonus plan for officers and key employees. Both plans are administered by the Human Resources Committee of the Board of Directors. The Committee is composed of outside Directors who are not eligible for awards. At December 31, 1993, 600,008 shares were available for future grants under these plans. Stock option and appreciation plan The stock option and appreciation plan provides for granting both incentive stock options and non-qualified stock options to purchase shares of the Company's common stock at prices not less than 85 percent of fair market value on the date of grant. Options are exercisable as stated in each individual grant; however, no option may extend beyond ten years from the date of grant. The grant may provide that all or part of the option, to the extent exercisable, may be surrendered to the Company for an appreciation distribution of the difference between the option price and the fair market value on the surrender date (stock appreciation rights (SAR) grants). The appreciation distribution must be made up of at least 70 percent common stock. No stock option grants made subsequent to 1987 have SARs attached. At December 31, 1993, no outstanding options have SARs attached. At the date of grant, compensation expense is accrued and is measured as the excess, if any, of the current market value over the option price of the stock. Adjustments to compensation expense are made periodically for market price fluctuations when options are outstanding which have an appreciation right attached. Stock option compensation expense was not significant in 1993, 1992 or 1991. The Company has followed the practice of using treasury stock to fulfill its obligations under the stock option plan. When stock is issued pursuant to the stock option plan, the difference between the cost of treasury stock issued and the exercise price of the option is credited to Additional paid-in capital. 27 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) At December 31, 1993, 179,544 options were exercisable. The following table summarizes stock option transactions under this plan for the three years ended December 31, 1993:
1993 1992 1991 ------------- ------------- ------------ Option price range............................. $14.00-$24.63 $14.00-$24.63 $8.75-$24.63 Option shares granted.......................... 296,100 167,600 184,650 Exercised and surrendered...................... (122,650) (11,689) (32,462) Cancelled...................................... (10,450) (62,060) (48,512) Option shares at year-end...................... 749,364 586,364 492,513
Restricted stock bonus plan The restricted stock bonus plan provides for issuance of restricted shares to officers and key employees. The issued shares are covered by restrictions as to transfer for periods of up to ten years. Compensation expense is recognized in the year the grant is made based on the market price of the Company's stock at the date of grant. Restricted stock bonus plan compensation expense was not significant in 1993, 1992 or 1991. At December 31, 1993, 6,000 shares were still under restriction. 6. PENSION AND OTHER POSTRETIREMENT PLANS Pension plans Substantially all of the Company's employees participate in noncontributory defined-benefit pension plans. These include plans which are administered by the Company and multi-employer plans administered by various unions. Certain union employees are covered under multi-employer union pension plans. Contributions to these plans are based upon negotiated hourly rates. It is not possible to determine the amount of accumulated benefits or net assets available for benefits that apply solely to Company employees covered by these plans. Substantially all other Company employees are covered by noncontributory defined-benefit pension plans administered by the Company. The pension benefit for salaried employees is based on years of service and the five highest out of the last ten years of compensation. Pension benefits for employees covered under hourly plans are generally based on each employee's years of service. The Company's funding policy regarding all of its Company administered plans is to make contributions to the plans that are between the minimum amounts required by the Employee Retirement Income Security Act (ERISA) and the maximum amounts deductible under current income tax regulations. Net periodic pension cost for 1993, 1992 and 1991 was composed of the following:
1993 1992 1991 ------- ------- ------- (THOUSANDS) Company administered plans: Service cost -- benefits earned by employees during the period....................................................... $ 1,933 $ 2,164 $ 1,807 Interest cost on projected benefit obligation................... 3,116 2,927 2,438 Actual (earnings) loss from plan assets......................... (5,072) (4,576) (6,646) Deferral of earnings (loss) from plan assets.................... 1,520 1,431 4,196 Net amortization and deferral................................... (43) (27) (25) ------- ------- ------- Net periodic pension cost for Company administered plans..... 1,454 1,919 1,770 Contributions to multi-employer plans............................. 4,351 3,562 2,663 ------- ------- ------- Total net periodic pension cost.............................. $ 5,805 $ 5,481 $ 4,433 ------- ------- ------- ------- ------- -------
The following table sets forth the funded status of the Company administered plans and the amounts recognized as an asset or liability in the accompanying Consolidated Balance Sheets at December 31, 1993 and 1992:
1993 1992 --------------------------- --------------------------- PLANS HAVING PLANS HAVING PLANS HAVING PLANS HAVING ASSETS IN ACCUMULATED ASSETS IN ACCUMULATED EXCESS OF BENEFITS IN EXCESS OF BENEFITS IN ACCUMULATED EXCESS OF ACCUMULATED EXCESS OF BENEFITS ASSETS BENEFITS ASSETS ------------ ------------ ------------ ------------ (THOUSANDS) Accumulated benefit obligation: Vested portion.................................. $(24,402) $(15,610) $(22,854) $(11,426) Nonvested portion............................... (836) (1,159) (358) (230) ------------ ------------ ------------ ------------ (25,238) (16,769) (23,212) (11,656) Effect of projected future compensation levels.... (6,068) (209) (6,226) (147) ------------ ------------ ------------ ------------ Projected benefit obligation...................... (31,306) (16,978) (29,438) (11,803) Plan assets at fair market value.................. 30,980 13,416 30,418 10,157 ------------ ------------ ------------ ------------ Plan assets in excess of (less than) projected benefit obligation.............................. (326) (3,562) 980 (1,646) Unrecognized net (gain) loss...................... 688 1,521 (18) (397) Unrecognized prior service........................ (340) 1,626 (364) 1,769 Balance of unrecorded transition (asset) liability from initial application of Statement of Financial Accounting Standards No. 87........... (922) (96) (1,214) 39 ------------ ------------ ------------ ------------ Accrued pension liability......................... $ (900) $ (511) $ (616) $ (235) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Substantially all of the pension plans' assets are invested in common stock, fixed-income securities, cash and cash equivalents. The discount rate and rate of increase in future 28 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) compensation levels used in determining the actuarial present value of the projected benefit obligation were 7 percent and 5 percent, respectively, for 1993, and 8 percent and 6 percent, respectively, for 1992. The expected long-term rate of return on plan assets was 9 percent for 1993 and 1992. The Company has granted some former employees pension benefits which supplement the normal Company plan. These benefits are unfunded, general obligations of the Company. The cost associated with these grants was $242,000 in 1993, $138,000 in 1992 and $299,000 in 1991. Other postretirement plans The Company sponsors postretirement medical and life insurance plans for certain salaried and nonsalaried employees and eligible spouses and dependents of the employees. The medical plans pay a stated percentage of covered medical expenses incurred after deducting co-payments made once a stated deductible has been met. The life insurance plans pay a defined benefit. The Company's funding policy for these plans is to not make contributions to the plans prior to the actual incurrence of costs under the plans. Net periodic cost in 1993, 1992 and 1991 for these plans was composed of the following:
1993 1992 1991 ------ ------ ------ (THOUSANDS) Service cost-benefits attributed to service during the period..................................................... $ 406 $ 387 $ 437 Interest cost on accumulated benefit obligation.............. 892 853 795 ------ ------ ------ Net periodic cost of postretirement medical and life insurance plans............................................ $1,298 $1,240 $1,232 ------ ------ ------ ------ ------ ------
The following table reconciles the plans' funded status to the accrued postretirement medical and life insurance cost liability in the accompanying Consolidated Balance Sheets at December 31, 1993 and 1992:
1993 1992 ------- ------- (THOUSANDS) Accumulated Benefit Obligation: Retirees......................................................... $ 1,908 $ 2,091 Other fully eligible participants................................ 3,853 3,374 Other active participants........................................ 7,938 5,997 ------- ------- 13,699 11,462 Unrecognized actuarial gain (loss)................................. (895) 494 ------- ------- Accrued postretirement medical and life insurance cost liability... $12,804 $11,956 ------- ------- ------- -------
For measurement purposes, 10 1/2 percent and 11 percent rates of increase were assumed for health care costs in 1993 and 1992, respectively. The rate is assumed to decline in 1/2 percent decrements every year until it reaches 5 percent in 2004 where it will remain level thereafter. A 1 percent increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by $1,800,000 at December 31, 1993. The effect of this 1 percent increase on the service and interest cost components of the net periodic cost of postretirement medical and life insurance plans would be an increase of $200,000 in 1993. The discount rate used in determining the accumulated benefit obligation was 7 percent in 1993 and 8 percent in 1992. 7. INCOME TAXES The income tax provision (benefit) consists of the following components:
CURRENT DEFERRED TOTAL ------- ------- ------- (THOUSANDS) 1993 Federal................................. $(4,195) $ 914 $(3,281) State................................... (17) 181 164 Canada.................................. 18,993 (1,045) 17,948 ------- ------- ------- $14,781 $ 50 $14,831 ------- ------- ------- ------- ------- ------- 1992 Federal................................. $ (897) $(1,835) $(2,732) State................................... -- -- -- Canada.................................. 3,775 (1,261) 2,514 ------- ------- ------- $ 2,878 $(3,096) $ (218) ------- ------- ------- ------- ------- ------- 1991 Federal................................. $ 2,128 $(2,899) $ (771) State................................... 320 (159) 161 Canada.................................. 64 (1,452) (1,388) ------- ------- ------- $ 2,512 $(4,510) $(1,998) ------- ------- ------- ------- ------- -------
The third quarter 1993 increase in the United States top federal statutory rate from 34 percent to 35 percent did not have a significant effect on the Company's provision for income taxes. Effective January 1, 1993, the Company changed its method of accounting for supplies inventories. The tax effect of this accounting change of $1,168,000 was deferred. Effective January 1, 1991, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The cumulative tax benefit of 29 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) $3,474,000 related to this accounting change was deferred. The tax rate used in providing for the cumulative effect of accounting changes differed from the United States statutory federal income tax rate by an amount representing state income taxes. The income tax provision was different from the amount computed by applying the United States statutory federal income tax rate as follows:
1993 1992 1991 ------- ------- ------- (THOUSANDS) Income (loss) before income taxes and cumulative effect of accounting changes: United States................................ $(9,530) $(8,137) $(3,359) Canada....................................... 45,936 5,667 (3,734) ------- ------- ------- $36,406 $(2,470) $(7,093) ------- ------- ------- ------- ------- ------- United States: U.S. statutory federal income tax............ $(3,335) $(2,767) $(1,142) State income and franchise taxes, net of federal income tax benefit................ 107 -- 193 Other items, net............................. 111 35 339 ------- ------- ------- (3,117) (2,732) (610) Canada: U.S. statutory federal income tax............ 16,078 1,927 (1,269) Effect of Canadian tax rate different from U.S....................................... 1,878 331 (119) Non-deductible interest...................... -- 186 -- Other items, net............................. (8) 70 -- ------- ------- ------- 17,948 2,514 (1,388) ------- ------- ------- $14,831 $ (218) $(1,998) ------- ------- ------- ------- ------- -------
The nature and tax effects of the timing differences reflected in the provision for deferred income taxes in 1992 and 1991 as computed in accordance with Accounting Principles Board Opinion No. 11 are as follows:
1992 1991 ------- ------- (THOUSANDS) Write-down of assets...................................... $(1,829) $ (912) Reforestation............................................. (1,532) (503) Alternative minimum tax................................... (735) (2,080) Other items, net.......................................... (641) (614) Restructuring............................................. (451) -- Postretirement benefits................................... (266) (466) Inventory basis differences............................... 221 -- Other reserves............................................ 236 (766) Canadian net operating loss carryforward.................. 388 (484) Land basis differences.................................... 439 -- Depreciation expense...................................... 1,074 1,315 ------- ------- $(3,096) $(4,510) ------- ------- ------- -------
In 1992 and 1991, the Company was required to compute its current federal income tax liability under the Alternative Minimum Tax (AMT) methodology as it resulted in a greater tax payable when compared to that computed using the standard tax system. Additional amounts paid under the AMT system can be carried forward indefinitely as credits to be applied against regular tax. AMT carryforwards at December 31, 1993 are $2,833,000. Following the provisions of SFAS No. 109, "Accounting for Income Taxes," adopted January 1, 1993, deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax liability is comprised of the following:
DECEMBER 31, JANUARY 1, 1993 1993 ------------ ---------- (THOUSANDS) Current deferred taxes: Gross assets.......................................... $ 5,385 $ 5,262 Gross liabilities..................................... -- -- ------------ ---------- Total current deferred taxes.......................... 5,385 5,262 Noncurrent deferred taxes: Gross assets.......................................... 19,018 15,276 Gross liabilities..................................... (26,954) (21,871) ------------ ---------- Total noncurrent deferred taxes....................... (7,936) (6,595) ------------ ---------- Net deferred tax liability.............................. $ (2,551) $ (1,333) ------------ ---------- ------------ ----------
The Company's valuation allowance against deferred tax assets was not significant at December 31, 1993, or January 1, 1993. The tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
DECEMBER 31, JANUARY 1, 1993 1993 ------------ ---------- (THOUSANDS) Postretirement benefits............................... $ 4,671 $ 4,231 Reforestation......................................... 4,458 3,597 Vacation pay.......................................... 2,028 1,942 Depreciation.......................................... (24,589) (21,871) AMT and other tax credits............................. 6,009 6,146 Other, net............................................ 4,872 4,622 ------------ ---------- Net deferred tax liability.......................... $ (2,551) $ (1,333) ------------ ---------- ------------ ----------
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 30 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) assets and liabilities in the State of Washington were transferred to newly-formed Pope Resources, A Delaware Limited Partnership. The transfer resulted in $10,266,000 of taxes currently payable in 1985, which was charged to Stockholders' equity. The distribution value for federal income tax purposes that was assigned to the assets transferred to the Partnership has been challenged by the Internal Revenue Service (IRS). In January 1993, the Company petitioned the United States Tax Court in order to resolve the disputed value of the distribution. It is management's opinion, based upon consultation with independent tax counsel, that the Company can successfully defend itself against this claim and that any additional tax due would not have a material adverse effect on the financial position of the Company. The final tax settlement, if any, will be recognized as a reduction in equity with respect to the partnership transaction. 8. OTHER GAINS AND LOSSES Wood products Beginning in 1990 and concluding in 1992, the Company sold parcels of its Oregon timberland which were no longer necessary as a result of selling its Oakridge, Oregon sawmill in 1989. Pulp and paper plant and equipment write-downs During the fourth quarter of 1991, the Company removed from production and wrote down two small, inefficient paper machines that could no longer produce tissue at an acceptable level of quality. In addition, a building previously used in the manufacturing of diapers was written down to the amount of net proceeds anticipated upon sale of the building. Cost reduction and efficiency improvements In the second quarter of 1992, the Company announced a program to reduce costs and improve operating efficiencies, principally in the pulp and paper business. Costs under this program primarily include severance and early retirement packages, asset write-downs resulting from the permanent closure of the Ladysmith, Wisconsin tissue plant and the Maryville, Missouri diaper plant, and costs to transfer equipment from the closed plants to other Company facilities. The components of Other gains (losses) in the Consolidated Statements of Income are as follows:
1992 1991 -------- ------- (THOUSANDS) Sale of timberlands...................................... $ 10,348 $ 647 Cost reduction and efficiency improvements............... (11,937) -- Pulp and paper plant and equipment write-downs........... -- (2,587) -------- ------- Other gains (losses), before tax....................... $ (1,589) $(1,940) -------- ------- -------- -------
9. ACQUISITION OF SAWMILL On April 15, 1992, the Company purchased a sawmill in Castlegar, British Columbia from Westar Ltd. The sawmill has an annual capacity of approximately 225 million board feet. The purchase price of $19,417,000 was paid in cash and financed under the Company's revolving-credit agreement. Assets acquired and liabilities assumed include inventory, $8,730,000; prepaid expenses, $1,085,000; properties, $11,466,000; land and timber cutting rights, $3,392,000; accrued liabilities, $962,000; and reforestation liability, $4,294,000. The acquisition of the sawmill was accounted for as a purchase, and the consolidated financial statements include results of operating the sawmill since the date of acquisition. The 1992 results of Castlegar operations prior to the acquisition date were not material to the consolidated financial statements of the Company. 10. LITIGATION AND LEGAL MATTERS The Company is party to various legal proceedings incidental to its business. Management, in consultation with legal counsel, does not believe that ultimate resolution of any of these proceedings will have a material adverse effect on the financial position or results of operations of the Company. 31 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS POPE & TALBOT, INC. AND SUBSIDIARIES -- (CONTINUED) 11. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT INDUSTRIES AND GEOGRAPHIC AREAS By Industry
1993 1992 1991 -------- -------- -------- (THOUSANDS) Revenues: Wood products............................. $300,035 $214,167 $153,017 Pulp and paper products................... 328,891 330,178 349,258 -------- -------- -------- $628,926 $544,345 $502,275 -------- -------- -------- -------- -------- -------- Operating profit (loss): Wood products............................. $ 62,084 $ 15,297 $ (1,140) Pulp and paper products................... (9,784) (4,632) 6,219 -------- -------- -------- 52,300 10,665 5,079 -------- -------- -------- Other gains (losses), net................... -- (1,589) (1,940) Interest expense............................ (8,714) (5,622) (3,941) General corporate expense................... (7,180) (5,924) (6,291) -------- -------- -------- Income (loss) before income taxes and accounting changes........................ $ 36,406 $ (2,470) $ (7,093) -------- -------- -------- -------- -------- -------- Identifiable assets: Wood products............................. $130,905 $111,319 $ 89,494 Pulp and paper products................... 302,503 242,572 243,655 Corporate................................. 22,413 15,790 13,834 -------- -------- -------- $455,821 $369,681 $346,983 -------- -------- -------- -------- -------- -------- Capital expenditures: Wood products............................. $ 12,984 $ 22,873 $ 3,702 Pulp and paper products................... 69,601 24,261 33,566 -------- -------- -------- $ 82,585 $ 47,134 $ 37,268 -------- -------- -------- -------- -------- -------- Depreciation and amortization: Wood products............................. $ 7,334 $ 6,847 $ 6,354 Pulp and paper products................... 21,270 21,057 20,823 Corporate................................. 699 660 771 -------- -------- -------- $ 29,303 $ 28,564 $ 27,948 -------- -------- -------- -------- -------- --------
By Geographic Area
1993 1992 1991 -------- -------- -------- (THOUSANDS) Revenues: United States.................................... $450,142 $449,401 $449,146 Canada........................................... 178,784 94,944 53,129 -------- -------- -------- $628,926 $544,345 $502,275 -------- -------- -------- -------- -------- -------- Operating profit (loss): United States.................................... $ (2,259) $ (608) $ 4,322 Canada........................................... 54,559 11,273 757 -------- -------- -------- 52,300 10,665 5,079 Other gains (losses), net.......................... -- (1,589) (1,940) Interest expense................................... (8,714) (5,622) (3,941) General corporate expense.......................... (7,180) (5,924) (6,291) -------- -------- -------- Income (loss) before income taxes and accounting changes............................... $ 36,406 $ (2,470) $ (7,093) -------- -------- -------- -------- -------- -------- Identifiable assets: United States.................................... $354,365 $284,746 $284,589 Canada........................................... 79,043 69,145 48,560 Corporate........................................ 22,413 15,790 13,834 -------- -------- -------- $455,821 $369,681 $346,983 -------- -------- -------- -------- -------- --------
Notes: A. The Company operates principally in two industries: 1) Wood products: Manufacture and sale of lumber and wood chips. 2) Pulp and paper products: Manufacture and sale of bleached kraft pulp, tissue products and disposable diapers. B. Operating profit (loss) is total revenue less directly identifiable costs and expenses. In computing operating profit (loss), none of the following items have been included: General corporate expenses, interest expense, other gains (losses) and income taxes. C. Identifiable assets are those assets of the Company that are identified with the operations in each industry or geographic area. 12. SUBSEQUENT EVENT On January 24, 1994, the Board of Directors authorized management to redeem the Company's $40 million of convertible subordinated debentures. It is expected the debentures will be converted into approximately 1,542,000 shares of common stock in the first quarter of 1994. Primary earnings per share for 1993, assuming the conversion had taken place at the beginning of the year, would have been $1.70 compared to the $1.80 reported for 1993. Fully diluted earnings per share for 1993 would not have been affected as the amount reported already reflects the impact of the conversion transaction. 32 16 POPE & TALBOT, INC. AND SUBSIDIARIES QUARTERLY FINANCIAL INFORMATION The following quarterly information is unaudited, but includes all adjustments which management considers necessary for a fair presentation of such information. For interim quarterly statements, the income tax provision is estimated using the best available information for projected results for the entire year.
QUARTER ----------------------------------------------- FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- -------- (THOUSANDS EXCEPT PER SHARE) 1993 Revenues............................. $167,613 $151,216 $150,910 $159,187 $628,926 Gross profit......................... 26,386 16,791 12,562 19,015 74,754 Income before accounting changes..... 11,034 4,672 1,313 4,556 21,575 Cumulative effect of accounting changes............................ (562) -- -- -- (562) -------- -------- -------- -------- -------- Net income........................... $ 10,472 $ 4,672 $ 1,313 $ 4,556 $ 21,013 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net income per common share: Primary income before accounting changes......................... $ .95 $ .40 $ .11 $ .39 $ 1.85 Cumulative effect of accounting changes......................... (.05) -- -- -- (.05) -------- -------- -------- -------- -------- Primary net income.............. $ .90 $ .40 $ .11 $ .39 $ 1.80 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Fully diluted income before accounting changes.............. $ .85 $ .38 $ .11 $ .36 $ 1.71 Cumulative effect of accounting changes......................... (.04) -- -- -- (.04) -------- -------- -------- -------- -------- Fully diluted net income........ $ .81 $ .38 $ .11 $ .36 $ 1.67 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- 1992 Revenues............................. $127,142 $129,764 $143,571 $143,868 $544,345 Gross profit......................... 8,030 3,840 7,637 15,017 34,524 Other gains (losses), net............ -- (1,657) -- 68 (1,589) Net income (loss).................... 103 (4,280) (907) 2,832 (2,252) Primary and fully diluted net income (loss) per common share............ .01 (.37) (.08) .25 (.19) -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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