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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File No. 1-7852

POPE & TALBOT, INC.

Delaware
(State or other jurisdiction of
incorporation or organization) 94-0777139
(I.R.S. Employer
Identification Number)

1500 S.W. 1st Ave., Portland, Oregon
(Address of principal executive offices) 97201
(Zip Code)

Registrant's telephone number, including area code: (503) 228-9161

NONE
Former name, former address and former fiscal year, if changed since last report.

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date.

Common stock, $1 par value—15,616,659 shares as of October 29, 2001.

PART I.  FINANCIAL INFORMATION

		Page No.
ITEM 1.	Financial Statements:
	Condensed Consolidated Balance Sheets—September 30, 2001 and December 31, 2000	3
	Consolidated Statements of Income—Three and Nine Months Ended September 30, 2001 and 2000	4
	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2001 and 2000	5
	Notes to Condensed Consolidated Financial Statements	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	18
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	*
ITEM 2.	Changes in Securities and Use of Proceeds	*
ITEM 3.	Defaults Upon Senior Securities	*
ITEM 4.	Submission of Matters to a Vote of Security Holders	*
ITEM 5.	Other Information	*
ITEM 6.	Exhibits and Reports on Form 8-K	19
SIGNATURES		20

*

Omitted since no answer is called for, answer is in the negative or inapplicable.

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Part I.  Financial Information

ITEM 1.  Financial Statements

POPE & TALBOT, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(Dollars in Thousands)

				September 30, 2001			December 31, 2000
ASSETS
Current assets
	Cash and cash equivalents			$	4,129		$	1,391
	Short-term investments				109			10,604
	Accounts receivable				73,916			62,085
	Inventories				98,284			98,737
	Prepaid expenses				12,225			9,681
			Total current assets		188,663			182,498
Properties
	Plant and equipment				580,986			485,819
	Accumulated depreciation				(260,630	)		(246,165	)
					320,356			239,654
		Land and timber cutting rights			7,687			8,206
			Total properties		328,043			247,860
Other assets
	Deferred income tax assets, net				10,433			6,300
	Other				14,102			21,529
			Total other assets		24,535			27,829
				$	541,241		$	458,187
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Short-term borrowings			$	20,000		$	—
	Current portion of long-term debt				3,422			3,247
	Accounts payable				49,066			29,770
	Accrued payroll and related taxes				13,856			20,411
	Other accrued liabilities				22,284			20,730
			Total current liabilities		108,628			74,158
Long-term liabilities
	Long-term debt, net of current portion				200,258			143,756
	Other long-term liabilities				46,694			44,667
			Total long-term liabilities		246,952			188,423
Stockholders' equity
	Common stock				17,207			15,457
	Additional paid-in capital				68,328			48,292
	Retained earnings				149,510			172,977
	Cumulative translation adjustment				(24,242	)		(15,796	)
	Common stock held in treasury, at cost				(25,142	)		(25,324	)
			Total stockholders' equity		185,661			195,606
				$	541,241		$	458,187

The accompanying notes to consolidated financial statements are an integral part of this statement.

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POPE & TALBOT, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in Thousands Except Per Share Amounts)

				Three months ended September 30,					Nine months ended September 30,
				2001			2000		2001			2000
Revenues:
	Wood products			$	57,559		$	50,473	$	154,944		$	182,616
	Pulp products				84,773			92,622		211,746			271,378
			Total		142,332			143,095		366,690			453,994
Costs and expenses:
	Cost of sales:
		Wood products			60,040			48,081		149,011			165,961
		Pulp products			86,896			69,506		217,295			210,517
	Selling, general and administrative				6,036			7,833		18,576			22,111
	Interest, net				3,954			1,567		9,132			6,211
			Total		156,926			126,987		394,014			404,800
Income (loss) before income taxes					(14,594	)		16,108		(27,324	)		49,194
Income tax provision (benefit)					(5,447	)		6,834		(10,359	)		20,704
Net income (loss)				$	(9,147	)	$	9,274	$	(16,965	)	$	28,490
Basic net income (loss) per common share				$	(.59	)	$	.66	$	(1.17	)	$	1.98
Diluted net income (loss) per common share				$	(.59	)	$	.64	$	(1.17	)	$	1.94

The accompanying notes to consolidated financial statements are an integral part of this statement.

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POPE & TALBOT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)

				Nine months ended September 30,
				2001			2000
Cash flow from operating activities:
	Net income (loss)			$	(16,965	)	$	28,490
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			21,679			24,666
		Changes in assets and liabilities:
			Accounts receivable		1,313			2,437
			Inventories		13,799			12,685
			Prepaid expenses and other assets		5,945			(1,279	)
			Accounts payable and accrued liabilities		8,797			(6,991	)
			Current and deferred income taxes		(13,534	)		4,645
			Other liabilities		(2,080	)		(206	)
		Net cash provided by operating activities			18,954			64,447
Cash flow from investing activities:
	Purchases of short-term investments				(2,745	)		(18,645	)
	Proceeds from maturities of short-term investments				13,240			16,257
	Capital expenditures				(14,506	)		(41,071	)
	Proceeds from sale of properties				42			18
	Investment in subsidiary, net of cash acquired				(82,603	)		—
		Net cash used for investing activities			(86,572	)		(43,441	)
Cash flow from financing activities:
	Net increase (decrease) in short-term borrowings				20,000			(11,059	)
	Repayments of long-term debt				(3,088	)		(3,906	)
	Additions to long-term debt				59,765			—
	Shares repurchased				—			(10,054	)
	Proceeds from issuance of treasury stock, net				181			1,678
	Cash dividends				(6,502	)		(5,406	)
		Net cash provided by (used for) financing activities			70,356			(28,747	)
Increase in cash and cash equivalents					2,738			(7,741	)
Cash and cash equivalents at beginning of period					1,391			22,719
Cash and cash equivalents at end of period				$	4,129		$	14,978

The accompanying notes to consolidated financial statements are an integral part of this statement.

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POPE & TALBOT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001 and 2000

(Unaudited)

1.  Basis of Presentation

    The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flow activity required under generally accepted accounting principles. Income tax provisions for interim periods are based on the current best estimate of the effective tax rate expected to be applicable for the full year. In the opinion of the Company, all adjustments (consisting of only normal accruals) necessary for a fair presentation of results have been made, and the Company believes such presentation is adequate to make the information presented not misleading. Quarterly results are not necessarily indicative of results that may be expected for the full year. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

2.  Net Income Per Share

    Basic earnings per share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share are based on the weighted average number of common shares outstanding and the dilutive impact of stock options outstanding during the period. For 2001, the computation of diluted net loss per share was antidilutive; therefore, the amounts reported for basic and diluted were the same.

    The following table summarizes the computation of diluted net income per common share:

	Three months ended September 30,					Nine months ended September 30,
	2001			2000		2001			2000
Weighted average number of common shares outstanding		15,616,689			14,101,466		14,548,656			14,418,425
Application of the "treasury stock" method to the stock option plans		—			259,775		—			265,630
Total common and common equivalent shares, assuming dilution		15,616,689			14,361,241		14,548,656			14,684,055
Net income (loss)	$	(9,147,000	)	$	9,274,000	$	(16,965,000	)	$	28,490,000
Diluted net income (loss) per common share	$	(0.59	)	$	0.64	$	(1.17	)	$	1.94

    Certain Company stock options were not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of the common shares, or the impact of their inclusion would be antidilutive. Such stock options, with prices ranging from $5.25 to $30.38 per share, averaged 1,344,571 for the nine months ended September 30, 2001. Options to purchase 207,127 shares at prices ranging from $19.12 to $30.38 per share were outstanding during the nine months ended September 30, 2000.

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3.  Inventories

(thousands)	September 30, 2001			December 31, 2000
Lumber	$	15,502		$	13,803
Pulp		26,505			23,425
Logs		28,575			34,377
Wood chips and sawdust		13,468			18,680
Chemicals and supplies		16,951			13,791
LIFO reserve		(2,717	)		(5,339	)
	$	98,284		$	98,737

    The portion of inventories determined using the last-in, first-out (LIFO) method aggregated $21.0 million at September 30, 2001 and December 31, 2000.

4.  Comprehensive Income

    Comprehensive income measures all changes in equity, including net income, of the Company that result from recognized transactions and other economic events other than transactions with shareholders. Comprehensive income was as follows:

	Three months ended September 30,						Nine months ended September 30,
	2001			2000			2001			2000
Net income (loss)	$	(9,147	)	$	9,274		$	(16,965	)	$	28,490
Foreign currency translation adjustment		(5,500	)		(3,567	)		(8,446	)		(6,765	)
Comprehensive income (loss)	$	(14,647	)	$	5,707		$	(25,411	)	$	21,725

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5.  Segment Information

    The Company classifies its business into two operating segments: wood products and pulp products. A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements was as follows:

			Three months ended September 30,						Nine months ended September 30,
			2001			2000			2001			2000
EBITDA(1)
	Wood products(2)		$	(2,002	)	$	2,342		$	7,482		$	17,511
	Pulp products			730			26,149			3,362			70,977
		Total		(1,272	)		28,491			10,844			88,488
Depreciation and amortization
	Wood products		$	1,708		$	1,650		$	5,276		$	6,268
	Pulp products			5,219			5,699			15,717			17,906
		Total		6,927			7,349			20,993			24,174
Operating profit (loss)
	Wood products		$	(3,710	)	$	692		$	2,206		$	11,243
	Pulp products			(4,489	)		20,450			(12,355	)		53,071
		Total operating segments		(8,199	)		21,142			(10,149	)		64,314
	Corporate			(2,441	)		(3,467	)		(8,043	)		(8,909	)
	Interest expense, net			(3,954	)		(1,567	)		(9,132	)		(6,211	)
Income (loss) before incomes taxes			$	(14,594	)	$	16,108		$	(27,324	)	$	49,194

Notes:

(1)

Earnings before income taxes, depreciation and amortization.

(2)

Wood products' results for the three and nine month periods of 2001 include a non-cash charge of $10.2 million for countervailing duties assessed by the U.S. Department of Commerce on Canadian lumber imports into the U.S. from May 19, 2001 at a preliminary rate of 19.31 percent.

6.  Acquisition

    On June 15, 2001, the Company completed the acquisition of the Mackenzie pulp mill from Norske Skog Canada. The Company acquired Mackenzie, in a transaction accounted for as a purchase, for approximately U.S. $80.4 million in cash (subject to certain working capital adjustments), 1,750,000 shares of Company common stock and the assumption of approximately $21.0 million of liabilities. The Company's common shares were assigned a value of $12.45, based on the average closing price of Company common stock over a reasonable period of time around the announcement date (March 29, 2001) of the transaction. Mackenzie is a single-line pulp mill with an annual capacity of 230,000 metric tons of northern bleached kraft chip and sawdust pulp. The results of Mackenzie are included in the consolidated financial statements from the date of acquisition.

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    The purchase price of Mackenzie was calculated as follows:

Company common shares issued			1,750,000
Multiplied by the average market price		$	12.45
Value of common shares issued (thousands)		$	21,788
Cash			80,444
	Total purchase price		102,232
Direct acquisition costs			2,159
	Total	$	104,391

    The purchase price, including estimated direct acquisition costs, was allocated to the assets and liabilities of Mackenzie based upon preliminary estimates of their fair value as indicated below. The actual allocation may differ from those assumptions after valuations and other procedures are completed.

Current assets	$	26,683
Property, plant and equipment		98,704
Other assets		8
Current liabilities		(8,930	)
Other liabilities		(12,074	)
Purchase price	$	104,391

    The following unaudited pro forma information for the periods set forth below give effect to the transaction as if it had occurred as of the beginning of each respective year after giving effect to certain adjustments. The pro forma information is not necessarily indicative of what the actual operating results would have been had the transaction occurred on the date indicated and does not purport to indicate future results of operations. In addition, the pro forma information does not reflect any cost savings or other synergies resulting from the transaction.

(In thousands, except per share)	Nine Months Ended September 30, 2001			Nine Months Ended September 30, 2000
Revenues	$	417,287		$	549,841
Net income (loss)		(20,711	)		34,903
Basic net income (loss) per share		(1.27	)		2.16
Diluted net income (loss) per share		(1.27	)		2.12

7.  Contingencies

    On April 1, 2001, the Canada-U.S. Softwood Lumber Agreement expired. This five-year agreement, concerning the export of softwood lumber into the U.S., assigned quotas of lumber volumes that could be shipped to the U.S. fee free, with a multi-tier fee structure on incremental volumes. On

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April 2, 2001, petitions for the imposition of anti-dumping and countervailing duties on softwood lumber from Canada were filed with the U.S. Department of Commerce ("DOC") and the U.S. International Trade Commission ("ITC") by the Coalition for Fair Lumber Imports. The filing requested countervailing duties of 40 percent and anti-dumping duties of an additional 26 to 30 percent on imports of certain softwood lumber from Canada.

    In response to the petitions, the DOC imposed countervailing duties at a preliminary rate of 19.31 percent on Canadian softwood lumber imports after August 17, 2001. The DOC also made a preliminary determination that critical circumstances exist with respect to Canadian softwood lumber imports, which required that countervailing duties at the same rate be assessed retroactively to May 19, 2001. The DOC is expected to announce its preliminary determination regarding anti-dumping duties on October 30, 2001.

    The DOC is expected to issue its final determination decisions on both countervailing duties and anti-dumping duties at a future date estimated to be 75 days after the anti-dumping preliminary determination. The Canadian federal and provincial governments, as well as several Canadian lumber producers, are expected to contest the preliminary determinations. The Company has accrued its best estimate of the liability for countervailing duties at the preliminary rates as of September 30, 2001. The final amount and effective date of anti-dumping and/or countervailing duties that may be assessed on imports of softwood lumber from Canadian exporters, including the Company, cannot be determined at this time.

    The Company is a party to legal proceedings, environmental matters and other contingencies generally incidental to its business. Although the final outcome of these contingencies is subject to many variables and cannot be predicted with any degree of certainty, the Company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the Company's current financial position or liquidity; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations.

8.  Recent Accounting Developments

    In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method, thus eliminating the use of pooling-of-interests accounting for business combinations. SFAS No. 142 changes the accounting for goodwill, eliminating the periodic charge to earnings for goodwill amortization for fiscal years beginning after December 15, 2001. Instead, the statement will require an annual assessment of goodwill for impairment, or more frequent assessments if circumstances indicate a possible impairment. Additionally, SFAS No. 142 prescribes the accounting for identifiable intangible assets acquired in a business combination. Whereas, SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, SFAS No. 142 required companies to continue to amortize goodwill existing at June 30, 2001 through the end of the current fiscal year, with periodic amortization ceasing effective January 1, 2002. The effect of the adoption of SFAS No. 142 will not have a material impact on the Company's financial statements.

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    In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets". SFAS No. 143 requires the accrual, at fair value, of the estimated retirement obligation for tangible long-lived assets if the Company is legally obligated to perform retirement activities at the end of the related asset's life and is effective for fiscal years beginning after June 15, 2002. The Company is evaluating the impact of adopting SFAS No. 143 on its consolidated financial position, but does not believe SFAS No. 143 will have a material impact on the Company's financial statements.

    In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for Impairment for Disposal of Long-Lived Assets", that replaces FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 144 created one accounting model for long-lived assets to be disposed of by sale that applies to all long-lived assets, including discountinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business", for the disposal of segments of a business. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reporting in continuing operations or in discontinued operations. Discontinued operations will no longer include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Early application is encouraged.

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ITEM 2.

POPE & TALBOT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

    Pope & Talbot, Inc. (the "Company") lost $9.1 million in the third quarter of 2001, or $.59 per share, compared with net income of $9.3 million, or $.64 per diluted share, in the third quarter of 2000. The Company's net loss year-to-date totaled $17.0 million compared with net income of $28.5 million for the nine months ended September 30, 2000. The third quarter 2001 results include a full quarter of operations for the Mackenzie pulp mill acquired on June 15, 2001.

    Included in the Company's third quarter net loss was a $6.3 million ($10.2 million pre-tax), or $.41 per share, accrual for preliminary import duties on lumber shipped from Canada into the U.S. from May 19, 2001 through the end of the third quarter. See Note 7 of Notes to Condensed Consolidated Financial Statements. The third quarter net loss, excluding the impact of the import duties, was $2.8 million, or $.18 per share.

    Total revenues were $142.3 million in the third quarter of 2001 compared with $143.1 million in the same period of 2000. Pulp products revenues were $84.8 million in the third quarter of 2001 compared with $92.6 million in the third quarter a year ago and $50.8 million in the second quarter of 2001. Pulp sales totaled 194,454 metric tons in the third quarter of 2001, compared with 134,884 metric tons in the third quarter of 2000 and 112,940 metric tons in the second quarter of 2001. The increase in sales volume resulted primarily from the Mackenzie pulp mill acquisition. Average pulp sales prices of $407 per metric ton in the third quarter of 2001 declined $264 per metric ton, or 39 percent, over the same period a year ago and $33 per metric ton, or 8 percent, from the second quarter of 2001. Pulp prices in 2001 have declined as a result of weakening demand and high levels of pulp inventory world-wide in the first half of 2001. Recent declines in pulp producer inventory levels has led to announced pulp price increases for the fourth quarter of 2001.

    Year-to-date, pulp products revenues were $211.7 million for 2001 and $271.4 million for 2000. Prices averaged $470 per metric ton in the 2001 period and $634 per metric ton in the first nine months of 2000. Pulp shipments in the first nine months of 2001 totaled 441,690 metric tons compared with 424,752 metric tons in the same period of 2000.

    Wood products revenues, including lumber, log and chip sales, in the third quarter of 2001 totaled $57.6 million compared with $50.5 million in the same quarter of 2000 and $57.4 million in the second quarter of 2001. Average lumber sales prices of $342 per thousand board feet in the current quarter were up 11 percent compared with $307 per thousand board feet in the third quarter of last year, and down 3 percent compared with the second quarter of 2001. Lumber sales volumes of 142.7 million board feet in the third quarter of 2001 were up 8 percent compared with the same period a year ago, and flat compared with the second quarter of 2001. Despite the currently low interest rate environment, recent declines in the level of new housing starts and remodeling activity and uncertainties with respect to the outcome of the preliminary countervailing duty assessment may lead to continued volatility in lumber sales prices.

    Year-to-date, wood products revenues were $154.9 million for 2001 and $182.6 million for 2000. Prices averaged $334 per thousand board feet in the first nine months of 2001 compared with $352 per thousand board feet in the same period of 2000. Lumber sales volumes for the first nine months of 2001 totaled 387 million board feet compared with 434.3 million board feet in the same period last year.

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    Year-to-date, cost of sales for pulp products was $217.3 million in the 2001 period compared with $210.5 million in the first nine months of 2000. Cost of sales for pulp products in the 2001 period included write-downs of pulp inventories due to rapidly declining prices. Cost of sales for pulp products was $86.9 million in the third quarter of 2001 compared with $69.5 million in the same period of 2000 and $58.0 million in the second quarter of 2001. Pulp production totaled 174,255 metric tons in the third quarter of 2001 compared with 140,000 metric tons in the same period last year and 120,275 metric tons in the second quarter of 2001. Average production costs per ton of pulp decreased in the third quarter of 2001 compared with the same quarter last year, primarily the result of lower fiber and energy costs.

    Production at the Company's Halsey pulp mill was shut down during July and August 2001 resulting in the curtailment of approximately 32,000 metric tons of pulp production. In connection with the shutdown, the Company entered into an agreement with PacifiCorp under which PacifiCorp paid the Company to reduce electricity demand. The payments from PacifiCorp offset a significant portion of the costs incurred during the shutdown period. The Mackenzie pulp mill curtailed two weeks of production in September for its scheduled annual maintenance outage.

    At June 30, 2001, the Company had pulp inventory valuation allowances of $4.5 million, resulting from pulp inventory write-downs of $1.3 million and $3.2 million in the first and second quarters of 2001, respectively. The second quarter write-down reflected the second quarter decrease in prices for the Company's pulp products as well as the Halsey pulp mill's inventory volume increase in advance of the anticipated July and August shutdown period. The pulp inventory valuation allowances declined to $2.3 million at September 30, 2001 as inventory levels decreased and pulp prices stabilized in the third quarter of 2001.

    Year-to-date, cost of sales for wood products was $149.9 million in the 2001 period with $166.0 million in the first nine months of 2000. Cost of sales for wood products in the third quarter of 2001 was $60.0 million compared with $48.1 million in the third quarter of 2000 and $48.8 million in the second quarter of 2001. Included in cost of sales in the third quarter of 2001 is $10.2 million of accrued (non-cash) countervailing duties on softwood lumber imported into the U.S. from the Company's Canadian sawmills. In August 2001, the U.S. Department of Commerce imposed countervailing duties at a preliminary rate of 19.31 percent on lumber imports after August 17, 2001. Due to a preliminary determination that "critical circumstances" exist with respect to Canadian softwood lumber imports, the countervailing duties were assessed at the same rate retroactively to May 19, 2001. The amount of countervailing duties at the preliminary rate that relates to the retroactive application period totaled $6.7 million. Lumber production totaled 140.6 million board feet in the third quarter of 2001 compared with 117.7 million board feet in the same period of last year and 150.6 million board feet in the second quarter of 2001. Average lumber costs of production, excluding countervailing duties, decreased in the third quarter of 2001 compared with the same period of 2000, primarily due to lower log costs.

    Selling, general and administrative expenses ("SG&A") for the third quarter of 2001 totaled $6.0 million compared with $7.8 million in the same period of 2000. Total SG&A expenses in 2001 decreased from the year ago amounts primarily due to lower legal fees and lower costs for employee incentive plans linked to the Company's financial performance.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

    During the first nine months of 2001, net cash provided by operating activities was $19.0 million compared with $64.4 million in the first nine months of 2000. Income in the third quarter of 2001 before interest, taxes, depreciation and amortization ("EBITDA") was a negative $3.5 million,

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compared with $25.2 million in the third quarter of 2000 and $2.5 million in the second quarter of 2001.

    EBITDA was $3.5 million year-to-date as of September 30, 2001 compared with $80.1 million for the first nine months of 2000. The decrease in EBITDA was primarily due to a $76.5 million decrease in pre-tax earnings for 2001, which also included a $10.2 million non-cash charge for countervailing duties on lumber. Excluding the non-cash charge for those duties, EBITDA for the third quarter and first nine months of 2001 was $6.7 million and $13.7 million, respectively. The discussion of changes in assets and liabilities that follows excludes the impact of the acquisition of the net assets of the Mackenzie pulp mill on June 15, 2001. In the first nine months of 2001, accounts receivable decreased $1.3 million, and inventories decreased $13.8 million primarily due to reductions in saw logs. Saw log inventories generally build in the winter months due to fewer logging restrictions. Accounts payable and accrued liabilities increased $8.8 million since year-end, reflecting the accrual of countervailing duties on lumber which was partially offset by decreases in accrued incentive compensation and interest expense. The change in income taxes reflected estimated Canadian income tax payments made in 2001 and the current year increase in income taxes receivable.

Investing Activities

    The Company invested $14.5 million in capital projects in the first nine months of 2001 and estimates that total 2001 capital spending will be less than $20 million, including anticipated Mackenzie capital projects. These capital projects relate primarily to maintenance of existing operations and include a limited number of relatively small, high-return projects. Capital expenditures for the year 2000 totaled $50.6 million ($41.1 million through September 30, 2000), which included $27.5 million of expenditures related to the Halsey pulp mill chlorine dioxide project completed in November 2000.

    On June 15, 2001, the Company acquired the Mackenzie pulp mill from Norske Skog Canada for approximately $80.4 million in cash and 1,750,000 shares of Company common stock. The cash investment in Mackenzie, including direct acquisition costs, totaled $82.6 million. The funding for the cash portion of the acquisition costs was financed with approximately $75 million of bank lines of credit and term loan facilities and the balance from existing cash balances.

Financing Activities

    At September 30, 2001, the Company had available approximately $37.0 million of borrowing capacity under its revolving credit agreements. The Company's ratio on long-term debt to total capitalization was 52 percent at September 30, 2001.

    Cash dividends of $6.5 million were paid in the first nine months of 2001 compared with $5.4 million in 2000. The increase in dividends paid primarily reflects an increase in the dividend rate in July 2000 and an increase in the number of shares outstanding due to shares issued in the Mackenzie acquisition. In the first nine months of 2000, the Company repurchased 636,100 common shares through open market purchases.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

    Statements in this report that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on present information the Company has related to its existing business circumstances and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from such forward-looking statements. Further, investors are cautioned that the Company does not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. In addition to specific factors that may be

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described in connection with any particular forward-looking statement, factors that could cause actual results to differ materially include (but are not limited to):

Cyclical Operating Results and Product Pricing

    The Company's financial performance is principally dependent on the prices it receives for its products. Prices for the Company's products are highly cyclical and have fluctuated significantly in the past and may fluctuate significantly in the future. Industry cyclicality resulting from increases or decreases in production capacity, increases or decreases in operating rates and changes in customer consumption patterns will affect changes in product prices, which affect the Company's profitability and cash flows.

    The amount of downtime that the Company's mills take may fluctuate based on changes in current pricing and demand for its products.

Global Competition

    The markets for the Company's products are highly competitive on a global basis, with a number of major companies competing in each market with no company holding a dominant position. For both lumber and pulp, a large number of companies produce products that are reasonably standardized and the principal basis for competition is price.

    The Company's products are sold primarily in the United States, Europe, Canada and Asia. The economic climate of each region has a significant impact on the demand for pulp and lumber. Changes in regional economies can cause fluctuations in prices and sales volumes and, as a result, directly affect the Company's profitability and cash flows.

Exchange Rate Fluctuations

    Although the Company's sales are made primarily in U.S. dollars, a substantial portion of its operating costs and expenses are incurred in Canadian dollars. Significant variations in relative currency values, particularly a significant increase in the value of the Canadian dollar relative to the U.S. dollar, could adversely affect the Company's results of operations and cash flows.

Availability and Pricing of Raw Materials

    Logs, wood chips and sawdust, the principal raw materials used in the manufacture of the Company's products, are purchased in highly competitive, price-sensitive markets. These raw materials have historically exhibited price and demand cyclicality. Supply and price of these raw materials are dependent upon a variety of factors, many of which are beyond the Company's control. These factors include changing environmental and conservation regulations and natural disasters, such as forest fires, wind storms or other extreme weather conditions. A decrease in the supply of logs, wood chips and sawdust can cause higher raw material costs and, as a result, material fluctuations in the Company's results of operations.

    The Company's Harmac pulp mill has a long-term fiber supply agreement with Weyerhaeuser Company Limited (Weyerhaeuser) that provides for 1.7 million cubic meters of fiber per year through 2019. Fiber is purchased at market or at prices determined under a formula intended to reflect market value of the fiber and which takes into account the net sales value of pulp sold by Harmac. The Company's Mackenzie pulp mill purchases approximately 70 percent of its fiber requirements from sawmills also located in Mackenzie, British Columbia and operated by Slocan Forest Products Ltd. ("Slocan"). The failure by Weyerhaeuser or Slocan to produce the required fiber pursuant to this contract could have a material adverse effect on the Company as a whole. The Company has entered into arrangements with other independent fiber suppliers to provide fiber incremental to that provided

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by Weyerhaeuser. There can be no assurance that the Company will be able to obtain an adequate supply of softwood fiber for its pulp operations.

Environmental Regulation

    The Company's pulp and lumber operations are subject to a variety of national and local laws and regulations, many of which deal with the environment. These laws and regulations impose stringent standards on the Company's operations regarding, among other things, air emissions, water discharges, use and handling of hazardous materials, use, handling and disposal of waste and remediation of environmental contamination. Changes in these laws or regulations have in the past, and could in the future, require the Company to make substantial expenditures on order to comply.

    Current legislation requires all pulp mills in British Columbia to eliminate the discharge of chlorinated organic compounds by December 31, 2002. With currently available technology, it is not technically feasible to eliminate all chlorinated organic compounds at kraft pulp mills in a cost-effective manner. The British Columbia government, industry participants and other stakeholders are engaged in discussions to resolve this issue. If the current legislation is not amended, substantially all of the chemical pulp mills in British Columbia would likely be required to be closed, which would have a material adverse effect on the Company's business.

    The Company is currently participating in the investigation of environmental contamination at three sites on which it previously conducted business. The ultimate cost to the Company for site remediation and monitoring of these sites cannot be predicted with certainty due to the difficulties in measuring the magnitude of the contamination, the varying costs of alternative cleanup methods, the cleanup time frame possibilities, the evolving nature of remediation technologies and governmental regulations and determining the extent to which contributions will be available from the other parties, including insurance carriers.

Kootenay Boundary Land Use Plan

    The Provincial Government of British Columbia's Commission of Resources and Environment issued the Kootenay Boundary Land Use Plan in 1997. This land use plan set aside several new wilderness areas. No assurance can be given that such restrictions will not adversely effect the Company's supply of timber. Any decrease in the supply of timber could have an adverse effect on the Company's business.

British Columbia's First Nations People's Claims to British Columbia Land

    The Company's forest operations are primarily conducted on public forestlands under forest licenses. Many of these lands are subject to the constitutionally protected treaty or common law rights of the First Nations People of Canada. For historical reasons, most of the lands in British Columbia are not covered by treaties and, as a result, the claims of British Columbia's First Nations People relating to these forest resources are largely unresolved. These types of claims may, in the future, result in

•

a decrease in the lands available for forest operations under British Columbia licenses, including under the Company's licenses and contracts;



•

additional restrictions on the sale and harvest of timber on British Columbia timberlands; and



•

an increase in operating costs.

    These claims could also affect timber supply and prices. No assurance can be given these claims will not have a significant effect on the Company's timber requirements or production of pulp in the future.

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Cost Reductions from Capital Expenditures

    The Company has made, and will continue to make, capital expenditures in both its lumber and pulp operations that it expects to generate cost savings. Although the Company's management is experienced in achieving cost reduction and operating efficiencies, there can be no assurance that any specified level of cost savings will be fully achieved or will be achieved within the time periods contemplated. In addition, cost savings from capital projects may be offset by cost increases in other areas so that total costs may not actually decrease.

Fees on Lumber Imports into the United States

    On April 1, 2001, the Canada-U.S. Softwood Lumber Agreement expired. On April 2, 2001, petitions for the imposition of anti-dumping and countervailing duties on softwood lumber from Canada were filed with the U.S. Department of Commerce ("DOC") and the U.S. International Trade Commission ("ITC") by the Coalition for Fair Lumber Imports. In August 2001, the DOC imposed countervailing duties at a preliminary rate of 19.31 percent on Canadian lumber imports retroactive to May 19, 2001. As of September 30, 2001, the DOC had not yet made a determination regarding anti-dumping duties. The final amount and effective date of anti-dumping and/or countervailing duties that may be assessed on imports of softwood lumber from Canadian exporters, including the Company, cannot be determined at this time.

Net Operating Loss Tax Asset

    Management believes that the Company will have sufficient future U.S. taxable income to use its net operating loss deferred tax asset. In making this assessment, management has considered the cyclical nature of its businesses, the relatively long expiration period of net operating losses and the ability to utilize certain tax planning strategies if a net operating loss were to otherwise expire. The strategy that would be most feasible for U.S. federal tax loss carryforwards is changing the method of tax depreciation. The realization of the asset is not assured and could be reduced in the future if estimates of future taxable income during the carryforward period are reduced.

Financial Leverage

    The Company's long-term debt as a percentage of total capitalization at September 30, 2001 was 52 percent. While the Company's leverage level is not unusual for the forest products and pulp industries, this leverage increases its financial risk by:

•

potentially increasing the cost of additional financing for working capital, capital expenditures and other purposes, and



•

increasing the amount of cash flow dedicated to the payment of interest and principal.

Business Acquisition

    On June 15, 2001, the Company completed the acquisition of the Mackenzie pulp mill in British Columbia, Canada. This acquisition has increased the Company's exposure to the cyclical fluctuations of the pulp industry and increased the Company's financial leverage. The Company's inability to effectively manage these risks or its inability to successfully integrate the business of the Mackenzie pulp mill into the Company could materially and adversely affect its business, financial condition and results of operations.

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ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

    The Company's exposure to market risk for interest rates relates primarily to investments in short-term marketable securities and variable rate short- and long-term debt. The Company's investment in marketable securities at September 30, 2001 was not significant, and the Company's debt is primarily fixed rate. Therefore, net income is not materially affected when market interest rates change.

    The Company from time-to-time utilizes well-defined financial contracts in the normal course of its operations as a means to manage its foreign exchange and commodity price risks. The vast majority of these contracts are fixed-price contracts for future purchases of natural gas that meet the definition of "normal purchases" and, therefore, are not considered derivative instruments under Statement 133, as amended.

    The Company has significant operations in Canada and, therefore, is exposed to foreign currency rate risk. For the Company, a weakening of the Canadian dollar relative to the U.S. dollar has a positive effect on the cost of operating in Canada but has a negative foreign currency translation effect on the Company's investment in Canadian operations.

    The Company's net investment in foreign subsidiaries with a functional currency other than the U.S. dollar is not hedged. The net assets in foreign subsidiaries translated into U.S. dollars using the period-end exchange rate were approximately $220.0 million. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in foreign exchange rates would be approximately $22.0 million at September 30, 2001. Any loss in fair value would be reflected as a cumulative translation adjustment and would not reduce reported net income of the Company.

    The Company is exposed to foreign currency transaction gains and losses in the translation of U.S. dollar denominated intercompany borrowings, cash and accounts receivable of its Canadian subsidiary and Canadian dollar denominated intercompany loans made by the parent company. Transaction gains and losses were not material to the results of operations for the Company's 2001 or 2000 periods.

    At September 30, 2001, the Company had no forward currency exchange contracts outstanding. The Company does not hold financial instruments for trading purposes.

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PART II.  OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8K

(a)

Reports on Form 8-K

On August 17, 2001, the Company filed a Current Report on Form 8-K/A Amendment No. 1 to amend its previously filed Form 8-K relating to the acquisition of Norske Skog Canada Mackenzie Pulp Limited. The amendment included under Item 7 the financial statements of Mackenzie Pulp Operations (a Division of Norske Skog Canada Limited) as of and for the year ended December 31, 2000, and as of and for the three months ended March 31, 2001, as well as pro forma financial information as of March 31, 2001 and for the three months ended March 31, 2001 and the year ended December 31, 2000.

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SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	POPE & TALBOT, INC. Registrant
Date: October 29, 2001	/s/ Maria M. Pope
	Maria M. Pope Vice President and Chief Financial Officer

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QuickLinks

PART I. FINANCIAL INFORMATION

Part I. Financial Information
ITEM 1. Financial Statements

POPE & TALBOT, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (Dollars in Thousands)
POPE & TALBOT, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands Except Per Share Amounts)
POPE & TALBOT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
POPE & TALBOT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 and 2000 (Unaudited)

ITEM 2.

POPE & TALBOT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8K

SIGNATURES