8-K/A 1 d8ka.txt AMENDMENT #1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ Form 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) June 15, 2001 POPE & TALBOT, INC. (Exact name of registrant as specified in its charter) Delaware 1-7852 94-0777139 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation) Identification No.) 1500 S.W. First Avenue Portland, Oregon 97201 (Address of principal executive offices) (Zip Code) (503) 228-9161 (Registrant's telephone number, including area code) None (Former name or former address, if changed since last report.) Item 2. Acquisition or Disposition of Assets ------------------------------------ On June 15, 2001, pursuant to the Purchase and Sale Agreement among Norske Skog Canada Limited, Norske Skog Canada Pulp Operations Limited ("Norske Skog"), Pope & Talbot, Inc. (the "Company"), Pope & Talbot Ltd. ("P&T LTD"), and Norske Skog Canada Mackenzie Pulp Limited ("NSCMPL") dated March 29, 2001, as amended by the Amending Agreement dated June 14, 2001, P&T LTD, a wholly-owned Canadian subsidiary of the Company, completed the acquisition of all of the outstanding common shares of NSCMPL from Norske Skog. NSCMPL owns and operates a pulp mill in Mackenzie, British Columbia, Canada with an annual production capacity of 230,000 metric tons of pulp. The purchase price was Canadian $122.7 million or approximately US $80.4 million in cash and 1,750,000 shares of Company common stock. The purchase price includes Canadian $16.2 million in cash which P&T LTD has caused NSCMPL to loan to Norske Skog. This non-recourse loan is secured by the outstanding Series A Preference Shares of NSCMPL and will be repaid after September 2, 2001 by delivery of such Series A Preference Shares, thus permitting Norske Skog to keep the cash loan proceeds. The cash paid in the acquisition was funded with borrowings under the Company's credit facilities with U.S. Bank, The Toronto-Dominion Bank, Bank of Montreal and The Bank of Nova Scotia. The amount of consideration payable in connection with the transaction was determined in arms-length negotiations between the Company and Norske Skog and, as negotiated, represented approximately U.S. $450 per metric ton of annual production capacity. The Company intends to continue to use the acquired assets in the operation of the MacKenzie pulp mill. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (a) Financial Statements of Business Acquired ----------------------------------------- Included as pages F-1 to F-22 of this Form 8-K/A Amendment No. 1. (b) Pro Forma Financial Information ------------------------------- Pro forma Balance Sheet as of March 31, 2001 and Pro forma Statements of Income for the three months ended March 31, 2001 and the year ended December 31, 2000 included as pages F-23 to F-28 of this Form 8-K/A Amendment No. 1. (c) Exhibits -------- 2.1 Purchase and Sale Agreement dated March 29, 2001 among Norske Skog Canada Limited, Norske Skog Canada Pulp Operations Limited, Pope & Talbot Ltd., Pope & Talbot, Inc., and Norske Skog Canada Mackenzie Pulp Limited. (Incorporated herein by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.) 2.2 Amending Agreement dated June 14, 2001 to the Purchase and Sale Agreement dated March 29, 2001 among Norske Skog Canada Limited, Norske Skog Canada Pulp Operations Limited, Pope & Talbot Ltd., Pope & Talbot, Inc., and Norske Skog Canada Mackenzie Pulp Limited. (Included in the Company's original Current Report on Form 8-K filed on June 26, 2001.) 23.1 Consent of KPMG LLP. 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 15, 2001. POPE & TALBOT, INC. ------------------------------- Registrant By /s/ Maria M. Pope ------------------------------- Name: Maria M. Pope Title: Vice President and Chief Financial Officer 3 Financial Statements (Expressed in thousands of Canadian dollars) MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Year ended December 31, 2000 F-1 AUDITORS' REPORT To the Board of Directors Norske Skog Canada Limited We have audited the balance sheet of Mackenzie Pulp Operations (a Division of Norske Skog Canada Limited) as at December 31, 2000 and the statements of operations, retained earnings/divisional equity and cash flows for the year then ended. These financial statements are the responsibility of the Division's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Division as at December 31, 2000 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. KPMG LLP Chartered Accountants Vancouver, Canada March 30, 2001, except as to note 14 which is as of June 15, 2001 F-2 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Balance Sheet (Expressed in thousands of Canadian dollars) December 31, 2000 ------------------------------------------------------------------------------ Assets Current assets: Cash and short-term investments $ 783 Accounts receivable 18,789 Inventories (note 3) 33,688 Prepaid expenses 33 --------------------------------------------------------------------------------------- 53,293 Fixed assets (note 4) 144,032 Other assets (note 5) 276 --------------------------------------------------------------------------------------- $ 197,601 ======================================================================================= Liabilities and Shareholder's/Divisional Equity Current liabilities Accounts payable and accrued liabilities $ 20,819 Employee future benefits (note 6) 2,670 Future income taxes (note 7) 9,700 Shareholder's/divisional equity: Share capital (note 8) 164,412 Retained earnings - --------------------------------------------------------------------------------------- 164,412 --------------------------------------------------------------------------------------- $ 197,601 =======================================================================================
See accompanying notes to financial statements. F-3 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statement of Operations (Expressed in thousands of Canadian dollars) Year ended December 31, 2000 --------------------------------------------------------------------------- Sales $ 182,012 Freight expense (20,625) --------------------------------------------------------------------------- Net sales 161,387 Operating expenses: Cost of products sold 123,119 Selling and administrative 3,662 Depreciation 10,480 --------------------------------------------------------------------------- 137,261 --------------------------------------------------------------------------- Operating earnings 24,126 Other expense (note 9) (474) --------------------------------------------------------------------------- Earnings before income taxes 23,652 Income taxes (note 7) 9,113 --------------------------------------------------------------------------- Net earnings $ 14,539 =========================================================================== See accompanying notes to financial statements. F-4 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statement of Retained Earnings/Divisional Equity (Expressed in thousands of Canadian dollars)
Year ended December 31, 2000 ======================================================================= Balance, beginning of year $ 171,667 Net earnings 14,539 Distributions to corporate (21,794) Recapitalized to share capital (164,412) ----------------------------------------------------------------------- Balance, end of year $ - =======================================================================
See accompanying notes to financial statements. F-5 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statement of Cash Flows (Expressed in thousands of Canadian dollars)
Year ended December 31, 2000 --------------------------------------------------------------------------- Cash provided by (used for): Operating activities: Net earnings $ 14,539 Items not requiring (providing) cash: Depreciation 10,480 Future income taxes 9,113 Other (54) --------------------------------------------------------------------------- 34,078 Changes in non-cash working capital (note 10) (2,052) --------------------------------------------------------------------------- 32,026 Investing activities: Increase in share capital (9,450) Financing activities: Issuance (redemption) of preferred shares 1 Distributions to corporate (21,794) --------------------------------------------------------------------------- (21,793) --------------------------------------------------------------------------- Increase in cash 783 Cash, beginning of period - --------------------------------------------------------------------------- Cash, end of period $ 783 --------------------------------------------------------------------------- Supplementary information: Interest paid $ - Income taxes paid - ---------------------------------------------------------------------------
See accompanying notes to financial statements. F-6 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Notes to Financial Statements (Expressed in thousands of Canadian dollars) Year ended December 31, 2000 -------------------------------------------------------------------------------- 1. Nature of operations: Mackenzie Pulp Operations ("Mackenzie Pulp" or the "Division") is a division of the consolidated operations of Norske Skog Canada Limited ("NSCL"). NSCL is a Canadian public company with pulp and paper operations in British Columbia, Canada. Mackenzie Pulp operates a pulp mill in British Columbia, Canada. The Mackenzie Pulp mill operations were included in the operations of NSCL's wholly owned subsidiary, Norske Skog Canada Pulp Operations Limited ("NSCPOL") and the Mackenzie Pulp sales operations were included in the operations of NSCL's wholly owned subsidiary, Norske Skog Canada Sales Inc. (formerly Fletcher Challenge Canada Sales Inc.) to July 27, 2000 and in NSCL's wholly owned subsidiary, Norske Skog Pulp Sales Inc. from July 28, 2000 to December 31, 2000. The Mackenzie Pulp mill and sales operations were transferred to a newly formed wholly owned subsidiary of NSCPOL, Norske Skog Canada Mackenzie Pulp Limited on December 31, 2000. These divisional financial statements have been prepared to present the financial position and results of operations of Mackenzie Pulp, to be acquired by Pope & Talbot Inc. pursuant to a Purchase and Sale Agreement dated March 29, 2001, irrespective of the corporate form in which Mackenzie Pulp was operated. 2. Significant accounting policies: (a) Generally accepted accounting principles: These divisional financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Application of the measurement standards under United States generally accepted accounting principles would result in no material adjustments to the amounts reported. (b) Basis of presentation: These divisional financial statements present the assets, liabilities, revenues and expenses of Mackenzie Pulp and do not include any other assets, liabilities, revenues or expenses of NSCL or NSCPOL. The carrying values of the assets and liabilities included in Mackenzie Pulp include all adjustments necessary to reflect the cost basis of NSCL and NSCPOL. These divisional financial statements include expenses incurred by NSCL and NSCPOL only to the extent that such expenses relate directly to the business of Mackenzie Pulp (note 12). As Mackenzie Pulp was not a separate legal entity for financial reporting or income tax purposes until December 31, 2000, management has applied the following accounting and presentation policies in these divisional financial statements: (i) The excess of assets over liabilities until December 31, 2000 has been presented as divisional equity. Contributions from or distributions to NSCL's Corporate office, which exclude the sales to or purchases from other divisions of NSCL as described in note 12, have been recorded as adjustments to divisional equity and are not included in earnings; F-7 2. Significant accounting policies (continued): (b) Basis of presentation (continued): (ii) For the year ended December 31, 2000, income taxes have been recorded in the statement of operations based on an estimated effective tax rate of 38.5%. (iii) NSCL has not charged interest on its divisional equity. (c) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual amounts could differ from those estimates. (d) Inventories: Inventories, other than supplies which are valued at the lower of cost and net realizable value, are valued at the lower of average cost and net realizable value. (e) Fixed assets: Fixed assets are stated at cost. Buildings, pulp machinery and equipment are depreciated on a straight-line basis at rates that reflect estimates of the economic lives of the assets. The rates for major classes of assets are:
--------------------------------------------------------------------- Asset Rate --------------------------------------------------------------------- Buildings 2.5 - 5.0% Pulp machinery and equipment 5.0% =====================================================================
During periods of major production interruption, an obsolescence amount of 10% of normal depreciation is charged on manufacturing equipment. No depreciation is charged on capital projects during the period of construction. (f) Foreign currency: The majority of the Division's sales are denominated in foreign currencies, principally the U.S. dollar. Revenue and expense items denominated in foreign currencies are translated at the rates of exchange prevailing during the period. The monetary assets and liabilities of the Division's operations denominated in foreign currencies are translated at the period end exchange rates. Gains or losses on translation of monetary assets and liabilities are reflected in net earnings for the period. F-8 2. Significant accounting policies (continued): (g) Future income taxes: Income taxes are accounted for under the liability method. Future income tax assets and liabilities are determined based on "temporary differences" (differences between the accounting basis and the tax basis of the assets and liabilities), and are measured using the current tax rates and laws expected to apply when these differences reverse. The difference between the purchase price and tax basis of assets acquired in a business combination is a temporary difference. Future income tax benefits, such as non-capital loss carryforwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. (h) Employee future benefits: The estimated cost for pensions and other post-retirement benefits provided by the Division to employees is accrued using actuarial techniques and assumptions, including an appropriate discount rate, during the employees' active years of service. 3 Inventories: --------------------------------------------------------------------------- Pulp $ 19,718 Wood chips and pulp logs 6,221 Operating and maintenance supplies 7,749 --------------------------------------------------------------------------- $ 33,688 =========================================================================== 4 Fixed assets: --------------------------------------------------------------------------- Accumulated Net book Cost depreciation value --------------------------------------------------------------------------- Pulp mills $ 286,726 $142,694 $ 144,032 =========================================================================== 5 Other assets: --------------------------------------------------------------------------- Investments and long-term receivables $ 35 Deferred charges 241 --------------------------------------------------------------------------- $ 276 =========================================================================== F-9 6. Employee future benefits: NSCL maintains pension benefit plans, which include defined benefit and defined contribution segments, that are available to all salaried employees and to hourly employees not covered by union pension plans. Employees hired subsequent to January 1, 1994 enroll in the defined contribution segment. The defined benefit segment provides a pension based on years of service and earnings. For the defined contribution segment, NSCL's contributions are based on a percentage of an employee's earnings with the employee's pension benefits based on these contributions along with investment earnings from those contributions. For the defined contribution segment, NSCL's funding obligations are satisfied upon crediting contributions to an employee's account. NSCL provides other benefit plans consisting of group health care and life insurance benefits to eligible retired employees and their dependents. Mackenzie Pulp employees are included in the NSCL pension plans and other benefit plans as discussed above. NSCL allocates the cost of the pension plans and other benefit plans to its operating divisions based on the number of employees participating in each plan. For the year ended December 31, 2000, $0.9 million was allocated to Mackenzie Pulp and expensed in the statements of operations. An actuarial report was prepared by NSCL's actuaries as at December 31, 2000 for Mackenzie Pulp's active members of the pension plans and other benefit plans. The estimated accrued benefit liability under the defined benefit pension plan and other benefit plans was $0.7 million and $2.7 million, respectively. At December 31, 2000, NSCL's defined benefit pension plan was fully funded. Actuarial assumptions used in accounting for the pension plans and other benefit plans at December 31, 2000 are: -------------------------------------------------------------------------- Discount rate 7.0% Expected return on plan assets 7.5% Compensation increases 4.0% -------------------------------------------------------------------------- Unionized employees of the Division are members of industry-wide benefit plans to which NSCL contributes a predetermined amount per hour worked by an employee. The pension expense for these plans is equal to the Division's contribution of $0.7 million in the year ended December 31, 2000. F-10 7. Income taxes: --------------------------------------------------------------------------- Current $ - Future 9,113 --------------------------------------------------------------------------- $ 9,113 =========================================================================== The effective income tax rate equals the Canadian statutory income tax rate of 38.5%. The tax effects of temporary differences that give rise to significant future tax liabilities (assets) are as follows: --------------------------------------------------------------------------- Future tax assets: Employee future benefits $ (800) Future tax liabilities: Fixed assets 10,500 --------------------------------------------------------------------------- Net future tax liabilities $ 9,700 =========================================================================== 8. Share capital: Authorized: 10,000 common shares without par value 10,000,000 class A preference shares with a par value of $10 per share 10,000,000 class B preference shares with a par value of $10 per share Issued and outstanding: --------------------------------------------------------------------------- 2 common shares $ 148,211 1,620,000 class A preference shares 16,200 100 class B preference shares 1 --------------------------------------------------------------------------- $ 164,412 =========================================================================== F-11 9. Other income (expense): ---------------------------------------------------------------------------- B.C. corporation capital tax $ (471) Other (3) ---------------------------------------------------------------------------- $ (474) ============================================================================ 10. Change in non-cash working capital: ---------------------------------------------------------------------------- Cash provided by (used for): Accounts receivable $ (1,131) Inventories (6,034) Prepaid expenses 18 Accounts payable and accrued liabilities 5,095 ---------------------------------------------------------------------------- $ (2,052) ============================================================================ 11. Financial instruments: (a) Credit risk: The Division is exposed to credit risk on accounts receivable from customers. Its customers are mainly in the paper manufacturing businesses. To manage its credit risk, the Division has credit policies which include the analysis of the financial position of its customers and the regular review of their credit limits. In certain offshore markets, the Division requires bank letters of credit or utilizes credit insurance. (b) Fair value: The fair market value of cash, short-term investments, accounts receivable and accounts payable and accrued liabilities approximates carrying values due to the short term nature of these items. 12. Transactions with related parties and affiliates: NSCL and NSCPOL have provided selling, general and administrative services to and for the benefit of Mackenzie Pulp. The costs for these services have been charged to Mackenzie Pulp on a basis that management considers reasonable. Selling, general and administrative expenses charged by NSCL and NSCPOL were $3.7 million for the year ended December 31, 2000. AllWin Technical Services Inc. ("AllWin"), a joint venture formed between NSCPOL and ABB Inc., provides maintenance services to Mackenzie Pulp at prices and terms which are in accordance with a full Service Agreement between NSCPOL and AllWin. Purchases of maintenance services from AllWin for the year ended December 31, 2000 was $19.2 million. F-12 12. Transactions with related parties and affiliates (continued): Included in accounts receivable at December 31, 2000 is $0.1 million due from related parties and affiliates. Included in accounts payable at December 31, 2000 is $0.7 million due to related parties and affiliates. 13. Commitments: The Division is committed to make the following future minimum payments under various operating leases in each of the years ended December 31: ----------------------------------------------------------------------------- 2001 $ 88 2002 76 2003 75 2004 75 2005 75 -------------------------------------------------------------------------------- $ 389 ================================================================================ 14. Agreement to sell Mackenzie Pulp Operations and subsequent event: On March 29, 2001, NSCL and NSCPOL signed a Purchase and Sale Agreement with Pope & Talbot, Inc. for the sale of Norske Skog Canada Mackenzie Pulp Limited for cash of $123 million and 1,750,000 common shares of Pope & Talbot, Inc. with an estimated value of $34 million, for total proceeds of $157 million. The sale is completed on June 15, 2001. As a condition of the sale, certain employees and equipment of AllWin will be transferred to the Mackenzie Pulp Operations on closing (note 12). F-13 Financial Statements (Expressed in thousands of Canadian dollars) MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Three months ended March 31, 2001 and 2000 (unaudited) F-14 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Balance Sheets (Expressed in thousands of Canadian dollars) ------------------------------------------------------------------------------- March 31, December 31, 2001 2000 ------------------------------------------------------------------------------- (unaudited) Assets Current assets: Cash and short-term investments $ 217 $ 783 Accounts receivable 24,323 18,789 Inventories (note 3) 29,501 33,688 Prepaid expenses 411 33 ------------------------------------------------------------------------------- 54,452 53,293 Fixed assets 144,687 144,032 Other assets 229 276 ------------------------------------------------------------------------------- $199,368 $197,601 =============================================================================== Liabilities and Shareholder's/Divisional Equity Current liabilities Accounts payable and accrued liabilities $ 18,806 $ 20,819 Employee future benefits 2,670 2,670 Future income taxes 10,573 9,700 Payable to parent company 1,513 -- Shareholder's/divisional equity: Share capital (note 4) 164,411 164,412 Retained earnings 1,395 -- ------------------------------------------------------------------------------- 165,806 164,412 ------------------------------------------------------------------------------- $199,368 $197,601 =============================================================================== See accompanying notes to financial statements. F-15 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statements of Operations (Expressed in thousands of Canadian dollars) Three months ended March 31, 2001 and 2000 (unaudited) -------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------- Sales $ 47,194 $ 45,921 Freight expense (5,989) (5,749) -------------------------------------------------------------------------------- Net sales 41,205 40,172 Operating expenses: Cost of products sold 35,683 27,475 Selling and administrative 610 786 Depreciation 2,525 2,514 -------------------------------------------------------------------------------- 38,818 30,775 -------------------------------------------------------------------------------- Operating earnings 2,387 9,397 Other expense (119) (96) -------------------------------------------------------------------------------- Earnings before income taxes 2,268 9,301 Income taxes 873 3,584 -------------------------------------------------------------------------------- Net earnings $ 1,395 $ 5,717 ================================================================================ See accompanying notes to financial statements. F-16 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statements of Retained Earnings/Divisional Equity (Expressed in thousands of Canadian dollars) Three months ended March 31, 2001 and 2000 (unaudited) -------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------- Balance, beginning of period $ -- $ 171,667 Net earnings 1,395 5,717 Distributions to corporate -- (12,844) -------------------------------------------------------------------------------- Balance, end of period $ 1,395 $ 164,540 ================================================================================ See accompanying notes to financial statements. F-17 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Statement of Cash Flows (Expressed in thousands of Canadian dollars) Three months ended March 31, 2001 and 2000 (unaudited) ----------------------------------------------------------------------------- 2001 2000 ----------------------------------------------------------------------------- Cash provided by (used for): Operating activities: Net earnings $ 1,395 $ 5,717 Items not requiring (providing) cash: Depreciation 2,525 2,514 Employee future benefits -- 200 Future income taxes 873 3,584 Other -- (19) ----------------------------------------------------------------------------- 4,793 11,996 Changes in non-cash working capital (note 5) (3,738) 1,287 ----------------------------------------------------------------------------- 1,055 13,283 Investing activities: Additions to fixed assets (3,180) (379) Decrease (increase) in other assets 47 (60) ----------------------------------------------------------------------------- (3,133) (439) Financing activities: Payable to parent company 1,513 (12,405) Issuance (redemption) of preferred shares (1) -- Distributions to corporate -- (439) ----------------------------------------------------------------------------- 1,512 (12,844) ----------------------------------------------------------------------------- Increase (decrease) in cash (566) -- Cash, beginning of period 783 1 -------------------------------------------------------------------------------- Cash, end of period $ 217 $ 1 -------------------------------------------------------------------------------- Supplementary information: Interest paid $ -- $ -- Income taxes paid -- -- -------------------------------------------------------------------------------- See accompanying notes to financial statements. F-18 MACKENZIE PULP OPERATIONS (a Division of Norske Skog Canada Limited) Notes to Financial Statements (Expressed in thousands of Canadian dollars) Three months ended March 31, 2001 and 2000 (unaudited) -------------------------------------------------------------------------------- 1. Nature of operations: Mackenzie Pulp Operations ("Mackenzie Pulp" or the "Division") is a division of the consolidated operations of Norske Skog Canada Limited ("NSCL"). NSCL is a Canadian public company with pulp and paper operations in British Columbia, Canada. Mackenzie Pulp operates a pulp mill in British Columbia, Canada. The Mackenzie Pulp mill operations were included in the operations of NSCL's wholly owned subsidiary, Norske Skog Canada Pulp Operations Limited ("NSCPOL") and the Mackenzie Pulp sales operations were included in the operations of NSCL's wholly owned subsidiary, Norske Skog Canada Sales Inc. (formerly Fletcher Challenge Canada Sales Inc.) to July 27, 2000 and in NSCL's wholly owned subsidiary, Norske Skog Pulp Sales Inc. from July 28, 2000 to December 31, 2000. The Mackenzie Pulp mill and sales operations were transferred to a newly formed wholly owned subsidiary of NSCPOL, Norske Skog Canada Mackenzie Pulp Limited on December 31, 2000. These divisional financial statements have been prepared to present the financial position and results of operations of Mackenzie Pulp, to be acquired by Pope & Talbot Inc. pursuant to a Purchase and Sale Agreement dated March 29, 2001, irrespective of the corporate form in which Mackenzie Pulp was operated. 2. Significant accounting policies: (a) Generally accepted accounting principles: These divisional financial statements have been prepared in accordance with the measurement standards under Canadian generally accepted accounting principles. Application of the measurement standards under United States generally accepted accounting principles would result in no material adjustments to the amounts reported. These interim financial statements do not include all disclosures required by Canadian generally accepted accounting principles for annual financial statements, and accordingly, these interim consolidated financial statements follow the same accounting policies and methods of applications used in the Division's audited financial statements as at and for the year ended December 31, 2000. (b) Basis of presentation: These divisional financial statements present the assets, liabilities, revenues and expenses of Mackenzie Pulp and do not include any other assets, liabilities, revenues or expenses of NSCL or NSCPOL. The carrying values of the assets and liabilities included in Mackenzie Pulp include all adjustments necessary to reflect the cost basis of NSCL and NSCPOL. These divisional financial statements include expenses incurred by NSCL and NSCPOL only to the extent that such expenses relate directly to the business of Mackenzie Pulp (note 6). F-19 2. Significant accounting policies (continued): (b) Basis of presentation (continued): As Mackenzie Pulp was not a separate legal entity for financial reporting or income tax purposes until December 31, 2000, management has applied the following accounting and presentation policies in these divisional financial statements: (i) The excess of assets over liabilities until December 31, 2000 has been presented as divisional equity. Contributions from or distributions to NSCL's Corporate office, which exclude the sales to or purchases from other divisions of NSCL as described in note 6, have been recorded as adjustments to divisional equity and are not included in earnings; (ii) Income taxes have been recorded in these divisional financial statements as follows: . As at March 31, 2001 and December 31, 2000 and for the three months ended March 31, 2001, income taxes have been recorded under the liability method as described in note 2 (c). . For the three months ended March 31, 2000, income taxes have been recorded in the statement of operations based on an estimated effective tax rate of 38.5%. (iii) NSCL has not charged interest on its divisional equity. (c) Future income taxes: Income taxes are accounted for under the liability method. Future income tax assets and liabilities are determined based on "temporary differences" (differences between the accounting basis and the tax basis of the assets and liabilities), and are measured using the current tax rates and laws expected to apply when these differences reverse. The difference between the purchase price and tax basis of assets acquired in a business combination is a temporary difference. Future income tax benefits, such as non-capital loss carryforwards, are recognized to the extent that realization of such benefits is considered more likely than not. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. F-20 3. Inventories: ------------------------------------------------------------------------- March 31, December 31, 2001 2000 ------------------------------------------------------------------------- (unaudited) Pulp $ 15,822 $ 19,718 Wood chips and pulp logs 6,026 6,221 Operating and maintenance supplies 7,653 7,749 ------------------------------------------------------------------------- $ 29,501 $ 33,688 ========================================================================= 4. Share capital: Authorized: 10,000 common shares without par value 10,000,000 class A preference shares with a par value of $10 per share 10,000,000 class B preference shares with a par value of $10 per share Issued and outstanding: ------------------------------------------------------------------------- March 31, December 31, 2001 2000 ------------------------------------------------------------------------- (unaudited) 2 common shares $ 148,211 $ 148,211 1,620,000 class A preference shares 16,200 16,200 100 class B preference shares - 1 ------------------------------------------------------------------------- $ 164,411 $ 164,412 ========================================================================= 5. Change in non-cash working capital: ------------------------------------------------------------------------- March 31, March 31, 2001 2000 ------------------------------------------------------------------------- Cash provided by (used for): Accounts receivable $ (5,534) $ (1,049) Inventories 4,187 2,904 Prepaid expenses (378) 82 Accounts payable and accrued liabilities (2,013) (650) ------------------------------------------------------------------------- $ (3,738) $ 1,287 ========================================================================= F-21 6. Transactions with related parties and affiliates: NSCL and NSCPOL have provided selling, general and administrative services to and for the benefit of Mackenzie Pulp. The costs for these services have been charged to Mackenzie Pulp on a basis that management considers reasonable. Selling, general and administrative expenses charged by NSCL and NSCPOL were $0.6 million for the three months ended March 31, 2001 (March 31, 2000 - $0.6 million). AllWin Technical Services Inc. ("AllWin"), a joint venture formed between NSCPOL and ABB Inc., provides maintenance services to Mackenzie Pulp at prices and terms which are in accordance with a full Service Agreement between NSCPOL and AllWin. Purchases of maintenance services from AllWin for the three month period ended March 31, 2001 were $2.0 million (March 31, 2000 - $1.2 million). Included in accounts receivable at March 31, 2001 is $0.3 million (December 31, 2000 - $0.1 million) due from related parties and affiliates. Included in accounts payable at March 31, 2001 is $1.4 million (December 31, 2000 - $0.7 million) due to related parties and affiliates. 7. Agreement to sell Mackenzie Pulp Operations and subsequent event: On March 29, 2001, NSCL and NSCPOL signed a Purchase and Sale Agreement with Pope & Talbot, Inc. for the sale of Norske Skog Canada Mackenzie Pulp Limited for cash of $123 million and 1,750,000 common shares of Pope & Talbot, Inc. with an estimated value of $34 million, for total proceeds of $157 million. The sale was completed on June 15, 2001. As a condition of the sale, certain employees and equipment of AllWin will be transferred to the Mackenzie Pulp Operations on closing (note 6). F-22 POPE & TALBOT, INC. AND MACKENZIE PULP OPERATIONS UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Combined Financial Statements give effect to the transaction being accounted for using the purchase method of accounting, whereby the total cost of the transaction was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the effective time. The Unaudited Pro Forma Condensed Combined Financial Statements were prepared on the basis of assumptions described in the notes thereto, including assumptions related to the allocation of the total purchase cost to the assets and liabilities of Mackenzie Pulp Operations based upon preliminary estimates of fair value. The actual allocation may differ from those assumptions after valuations and other procedures are completed. The Unaudited Pro Forma Combined Statements of Income were prepared as if the transaction occurred as of the beginning of each period presented. The Unaudited Pro Forma Condensed Combined Balance Sheet was prepared as if the transaction occurred as of March 31, 2001. These statements are not necessarily indicative of what the actual operating results or financial position would have been had the transaction occurred on the dates and for the periods indicated and do not purport to indicate future results of operations. In addition, they do not reflect any cost savings or other synergies resulting from the transaction. The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with the historical financial statements and related notes of Pope & Talbot, Inc. and the Mackenzie Pulp Operations. F-23 Pope & Talbot, Inc. and Subsidiaries Pro Forma Condensed Combined Balance Sheet March 31, 2001 (U.S. dollars in thousands) (Unaudited)
Mackenzie Pope & Pulp Pro Forma Pro Forma Talbot, Inc. Operations Reclassifications Adjustments Combined -------------- ------------ ------------------- ------------- ------------ Assets Current assets: Cash and short-term investments $ 17,926 $ 138 $ $ (7,436)/C,D/ $ 10,628 Accounts receivable 56,258 15,455 71,713 Inventories 88,816 18,745 107,561 Prepaid expenses 10,581 261 10,842 --------- -------- ---------- -------- --------- Total current assets 173,581 34,599 (7,436) 200,744 Plant and equipment, net 235,715 91,934 24 /C/ 327,673 Other assets 26,008 146 (6,718)/B/ (2,115)/C/ 17,321 --------- -------- ---------- -------- --------- $ 435,304 $126,679 $ (6,718) $ (9,527) $ 545,738 ========= ======== ========== ======== ========= Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 10,000 $ - $ $ 20,000 /C,D/ $ 30,000 Current portion of long-term debt 3,333 - 3,333 Payable to parent company - 961 (961)/C/ - Accounts payable and accrued liabilities 51,753 11,949 63,702 --------- -------- ---------- -------- --------- Total current liabilities 65,086 12,910 - 19,039 97,035 Long-term liabilities: Employee future benefits - 1,697 (1,697)/B/ - Future income taxes - 6,718 (6,718)/B/ - Long-term debt, net of current portion 142,224 - 55,000 /C,D/ 197,224 Other long-term liabilities 45,640 - 1,697 /B/ 47,337 --------- -------- ---------- -------- --------- Total long-term liabilities 187,864 8,415 (6,718) 55,000 244,561 Stockholders' equity: Series A preference stock - 10,293 (10,293)/C/ - Common equity 182,354 95,061 (73,273)/C/ 204,142 --------- -------- ---------- -------- --------- Total Stockholders' equity 182,354 105,354 (83,566) 204,142 --------- -------- ---------- -------- --------- $ 435,304 $126,679 $ (6,718) $ (9,527) $ 545,738 ========= ======== ========== ======== =========
The accompanying notes are an integral part of this statement. F-24 Pope & Talbot, Inc. and Subsidiaries Pro Forma Condensed Combined Statement of Income Three Months Ended March 31, 2001 (U.S. Dollars in Thousands Except Per Share Amounts) (Unaudited)
Mackenzie Pope & Pulp Pro Forma Pro Forma Talbot, Inc. Operations Reclassifications Adjustments Combined -------------- -------------- ----------------- ---------------- -------------- Revenues: Wood products $ 39,938 $ - $ - $ - $ 39,938 Pulp products 76,179 30,898 107,077 Freight expense - (3,921) 3,921 /B/ - ----------- ----------- ------------ ------------ ------------ Total 116,117 26,977 3,921 - 147,015 Costs and expenses: Cost of sales: Wood products 40,138 - 40,138 Pulp products 72,388 23,362 5,574 /B/ 101,324 Depreciation - 1,653 (1,653)/B/ - Selling, general and administrative 6,663 399 78 /B/ 7,140 Other expense - 78 (78)/B/ - Interest, net 2,514 - 1,080 /D/ 3,594 ----------- ----------- ------------ ------------ ------------ Total 121,703 25,492 3,921 1,080 152,196 ----------- ----------- ------------ ------------ ------------ Income (loss) before income taxes (5,586) 1,485 - (1,080) (5,181) Income tax provision (benefit) (2,626) 572 (417) (2,471) ----------- ----------- ------------ ------------ ------------- Net income (loss) $ (2,960) $ 913 $ - $ (663) $ (2,710) =========== =========== ============ ============ ============ Basic net loss per common share $ (.21) $ (.17) =========== ============ Diluted net loss per common share $ (.21) $ (.17) ============ ============ Weighted average shares outstanding (thousands) Basic 13,835 1,750 15,585 Dilutive effect of common stock equivalents - - - ------------ ------------ ------------ Dilutive weighted average shares outstanding 13,835 1,750 15,585 ============ ============ ============
The accompanying notes are an integral part of this statement. F-25 Pope & Talbot, Inc. & Subsidiaries Pro Forma Condensed Combined Statement of Income Year Ended December 31, 2000 (U.S. Dollars in Thousands Except Per Share Amounts) (Unaudited)
Mackenzie Pope & Pulp Pro Forma Pro Forma Talbot, Inc. Operations Reclassifications Adjustments Combined ----------- ---------- ----------------- ----------- -------- Revenues: Wood products $ 231,896 $ -- $ -- $ -- $ 231,896 Pulp products 348,156 122,603 470,759 Freight expense -- (13,893) 13,893 /B/ -- --------- --------- --------- --------- --------- Total 580,052 108,710 13,893 -- 702,655 Costs and expenses: Cost of sales: Wood products 213,971 -- 213,971 Pulp products 273,276 82,933 20,952 /B/ 377,161 Depreciation -- 7,059 (7,059)/B/ -- Selling, general and administrative 28,677 2,467 319 /B/ 31,463 Other expense -- 319 (319)/B/ -- Interest, net 8,444 -- 4,320/D/ 12,764 --------- --------- --------- --------- --------- Total 524,368 92,778 13,893 4,320 635,359 --------- --------- --------- --------- --------- Income (loss) before income taxes 55,684 15,932 -- (4,320) 67,296 Income tax provision (benefit) 23,118 6,139 (1,668) 27,589 --------- --------- --------- --------- --------- Net income (loss) $ 32,566 $ 9,793 $ -- $ (2,652) $ 39,707 ========= ========= ========= ========= ========= Basic net income per common share $ 2.28 $ 2.48 ========= ========= Diluted net income per common share $ 2.24 $ 2.44 ========= ========= Weighted average shares outstanding (thousands) Basic 14,278 1,750 16,028 Dilutive effect of common stock equivalents 233 -- 233 --------- --------- --------- Dilutive weighted average shares outstanding 14,511 1,750 16,261 ========= ========= =========
The accompanying notes are an integral part of this statement. F-26 POPE & TALBOT, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (U.S. dollars, in thousands) A. Basis of Presentation --------------------- The accompanying Unaudited Pro Forma Condensed Combined Financial Statements have been prepared to present the effect of the acquisition by Pope & Talbot, Inc. (the Company) of Mackenzie Pulp Operations (Mackenzie). The Company acquired Mackenzie, in a transaction accounted for as a purchase on June 15, 2001. Mackenzie is a single-line pulp mill with an annual capacity of 230,000 metric tons of northern bleached softwood kraft chip and sawdust pulp. The Unaudited Pro Forma Condensed Combined Financial Statements are presented in U.S. dollars and in accordance with U.S. GAAP. Mackenzie's statements of income for the three months ended March 31, 2001 and for the year ended December 31, 2000 were converted from Canadian dollars to U.S. dollars using an average exchange rate for each period of .6547 and .6736 U.S. dollars per Canadian dollar, respectively. Mackenzie's balance sheet was converted at .6354 U.S. dollars per Canadian dollar, the exchange rate effective on the balance sheet date. For the 2001 period, the computation of diluted net income per share was antidilutive; therefore the amounts reported for basic and diluted earnings per share were the same. B. Reclassifications ----------------- Certain reclassifications to Mackenzie's financial statements were made to conform to Pope & Talbot's historical presentation. C. Purchase Price Allocation ------------------------- The total purchase price of Mackenzie was approximately U.S. $80.4 million plus 1,750,000 shares of Company common stock. The 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. The Unaudited Pro Forma Condensed Combined Financial Statements have been prepared on the basis of assumptions relating to the allocation of the total purchase price to the assets and liabilities of Mackenzie based upon preliminary estimates of their fair value. The actual allocation of the total purchase cost may differ from those assumptions after valuations and other procedures are completed. 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 ========== F-27 The excess purchase price over the historical basis of net assets acquired was calculated as follows (in thousands): Total purchase price $ 102,232 Direct transaction costs and expenses 1,854 Cash not acquired 138 Payable to parent company not assumed (961) Deferred tax effect of applying purchase accounting 2,115 Less: historical net assets (105,354) ---------- Excess purchase price allocated to plant and equipment $ 24 ========== The excess purchase price allocated to plant and equipment will increase depreciation expense over the average estimated remaining life of Mackenzie's plant and equipment. The purchase price included approximately $10.3 million U.S. in cash loaned by Mackenzie to Norske Skog. This non-recourse loan is secured by Mackenzie's Series A preference stock and will be repaid after September 2, 2001 by delivery of such stock, thus permitting Norske Skog to keep the cash loan proceeds. The loan to Norske Skog and the Series A preference stock have been netted in the pro forma balance sheet. D. Financing Costs --------------- The sources of the purchase price, including direct acquisition costs, were $7.4 million from existing cash balances and $75 million from bank lines of credit. The total pro forma annual cost of such financing, including amortization of debt issuance costs, was estimated to be $4.3 million. F-28