Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________.
Commission File Number 1-7852
POPE & TALBOT, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-0777139
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1500 SW 1st Avenue, Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 228-9161
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
- ------------------------------------------------------------------------------
Common Stock, par value $1.00 New York Stock Exchange,
Pacific Stock Exchange
Rights to purchase Series A Junior New York Stock Exchange,
Participating Cumulative Pacific Stock Exchange
Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $262,663,771 as of March 13, 2000 ($19.00 per share).
14,553,448
(Number of shares of common stock outstanding as of March 13, 2000)
Part I and Part II incorporate specified information by reference from the
annual report to shareholders for the year ended December 31, 1999. Part III
incorporates specified information by reference from the proxy statement for the
annual meeting of shareholders to be held on April 27, 2000.
PART I
This Annual Report on Form 10-K and the documents incorporated herein
by reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. The
statements contained in this report that are not statements of historical fact,
including without limitation, statements containing the words "believes,"
"expects," and words of similar import, constitute forward-looking statements
that involve a number of risks and uncertainties. Moreover, from time to time
the Company may issue other forward-looking statements. Investors are cautioned
that such forward-looking statements are subject to an inherent risk that actual
results may differ materially from such forward looking statements. Such risks
and uncertainties include those set forth under "Factors That May Affect Future
Results" in the Management's Discussion and Analysis of Results of Operations
and Financial Condition incorporated by reference from the Company's Annual
Report to Shareholders for the year ended December 31, 1999. Unless required by
law, the Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the reports and documents the Company
files from time to time with the Securities and Exchange Commission,
particularly its Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.
ITEM 1. BUSINESS
INTRODUCTION
Pope & Talbot, Inc. (the Company) is engaged principally in the wood
products and pulp products businesses. Wood products accounted for 51 percent of
the Company's 1999 revenues of $486.9 million and pulp products accounted for 49
percent. The Company's wood products business involves the manufacture and sale
of standardized and specialty lumber and wood chips. In its pulp products
business, the Company manufactures and sells bleached kraft pulp for newsprint,
tissue and high-grade coated and uncoated paper. On November 8, 1999, the
Company acquired the remaining minority interest in Harmac Pacific Inc.
(Harmac). Through a number of purchases in 1997 and 1998, the Company previously
acquired a 60 percent ownership interest in Harmac. The Harmac acquisition was
accounted for as a step purchase transaction, and the results of operations of
Harmac have been included in the consolidated financial statements from February
2, 1998. Harmac, which was publicly traded on the Toronto, Vancouver and
Montreal stock exchanges, operates a pulp mill located on the East Coast of
Vancouver Island at Nanaimo, British Columbia, Canada.
Until the sale of the tissue business in March 1998, the Company
produced a line of private label consumer tissue products including towels,
napkins, bathroom tissue and facial tissue. Also, until the February 1996 sale
of the diaper business, the Company produced disposable diaper products. These
products were sold under private and controlled labels. The tissue business
results for 1998 and 1997 were shown as discontinued tissue operations. Revenues
from these operations were $8.3 million in 1998, $136.2 million in 1997 and
$133.6 million in 1996.
For further information regarding the Company's discontinued
operations, see Note 11 of "Notes to Consolidated Financial Statements" in the
Company's 1999 Annual Report to Shareholders.
1
The Company, a Delaware corporation, was originally incorporated as a
California corporation in 1940. It is the successor to a partnership formed in
San Francisco, California in 1849 that acquired its first timberlands and opened
a lumber mill in the Seattle, Washington area in 1853. Subsequently, the Company
developed a lumber business based on timberland and facilities in the U.S.
Pacific Northwest, British Columbia, Canada and the Black Hills region of South
Dakota and Wyoming.
Since the mid-1980s, the Company has reduced its dependency on timber
from the Pacific Northwest, where environmental concerns have sharply restricted
the availability of and increased the cost of public timber. At the same time,
the Company has increased its operations in regions presently having more stable
timber supplies, specifically in British Columbia and the Black Hills region of
South Dakota and Wyoming. In 1985, the Company distributed its timber and land
development properties in the State of Washington to its shareholders through
interests in a newly formed master limited partnership. In 1989, the Company
sold its Oregon sawmill, and the Company has since sold its remaining Oregon
timberlands. In 1992, the Company acquired a sawmill in Castlegar, British
Columbia and related timber cutting rights. At the end of 1995, the Company
permanently closed its Port Gamble, Washington sawmill. The Company currently
operates five sawmills.
In the late 1970s, the Company expanded into the pulp business with the
purchase of the Halsey, Oregon pulp mill. The Halsey mill produces bleached
kraft pulp which is sold to writing paper, tissue and newsprint manufacturers in
the U.S., Europe and Asia.
The businesses in which the Company is engaged are extremely
competitive, and a number of the Company's competitors are substantially larger
than the Company with correspondingly greater resources.
Environmental regulations to which the Company is subject require the
Company from time to time to incur significant operating costs and capital
expenditures. In addition, as discussed herein, environmental concerns have in
the past materially affected the availability and cost of raw materials used in
the Company's business. See "Wood Products Business," "Pulp Products Business"
and "Environmental Matters."
WOOD PRODUCTS BUSINESS
The Company's wood products business involves the manufacture and sale
of boards and dimension lumber. Wood chips and other similar materials obtained
as a by-product of the Company's lumber operations are also sold. During the
last three years, revenues from lumber sales were approximately 85 percent or
more of total wood products revenues with the balance of revenues from the sale
of logs and wood chips. The principal sources of raw material for the Company's
wood products operations are timber obtained through long-term cutting licenses
on public lands, logs purchased on open log markets, timber offered for sale via
competitive bidding by federal agencies and timber purchased under long-term
contracts to cut timber on private lands.
Approximately 75 percent of the Company's current lumber capacity is
located in British Columbia, Canada and 25 percent in the Black Hills region of
South Dakota and Wyoming. In Canada, timber requirements are obtained primarily
from the Provincial Government of British Columbia under long-term timber
harvesting licenses which allow the Company to remove timber from defined areas
annually on a sustained yield basis. The Provincial Government of British
Columbia has the authority to modify prices and harvest volumes at any time.
Under the provincial stumpage pricing formula, wood costs are based on a
relationship to end-product prices. Approximately 20 to 25 percent of the
Company's Canadian log requirements are satisfied through open market log
purchases. In the Black Hills, the Company obtains its timber
2
from various public and private sources under long-term timber harvesting
contracts in addition to buying logs on open markets. Under these Black Hills
contracts, prices are subject to periodic adjustment based upon formulas set
forth therein.
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. Although no assurances can be
given, management believes that in the near-term, timber supplies for the
Company's Canadian sawmills should be relatively stable. The Company has in
place reforestation practices designed to sustain and enhance timber supplies in
the long-term to mitigate the adverse effects of forest restrictions.
The British Columbia government has also implemented its Forest
Practices Code (Code). This Code sets strict standards for logging activities
and reforestation responsibilities. Requirements under this Code were phased in
beginning in 1996, with full implementation completed in 1998. The Code could
ultimately have a long-term unfavorable impact on the Company's timber harvest
volumes.
During 1996, U.S. and Canadian trade negotiators reached an agreement
establishing volume quotas on Canadian softwood lumber shipments to the U.S.
Based on this agreement, as amended by Canada and the United States on August
26, 1999, Canadian lumber producers in certain provinces are assigned quotas of
lumber volumes which may be shipped to the U.S. tariff-free. Revisions to quotas
of lumber volumes and related tariffs since the implementation of the Softwood
Lumber Agreement have increased tariff fees paid to the Government of Canada
and/or reduced production (by increasing downtime) at the Company's British
Columbia sawmills. Because of the Softwood Lumber Agreements, the Company took
several shutdowns during 1999, 1998 and 1997. The Company continually evaluates
the need for temporary shutdowns in balancing the economics of the Softwood
Lumber Agreement, sales prices and production costs.
MARKETING AND DISTRIBUTION. The Company's lumber products are sold
primarily to wholesale distributors. Wood chips produced by the Company's
sawmills are sold to manufacturers of pulp and paper in the U.S. and Canada.
Logs not suitable for consumption in the Company's sawmills are sold to other
U.S. and Canadian forest products companies.
Marketing of the Company's wood products is centralized in its
Portland, Oregon office. Although the Company does not have distribution
facilities at the retail level, the Company does utilize several reload
facilities around the U.S. to assist in moving the product closer to the
customer. The Company sold wood products to numerous customers during 1999, the
ten largest of which accounted for approximately 44 percent of total wood
products sales.
BACKLOG. The Company maintains a minimal finished goods inventory of
wood products. At December 31, 1999 orders were approximately $5.4 million
compared with approximately $5.1 million at December 31, 1998. This backlog
represented an order file for the Company which generally would be shipped
within one to two months.
COMPETITION. The wood products industry is highly competitive, with a
large number of companies producing products that are reasonably standardized.
There are numerous competitors of the Company that are of comparable size or
larger, none of which is believed to be dominant. The principal means of
competition in the Company's wood products business are pricing and the ability
to satisfy customer demands for various types and grades of lumber.
For further information regarding amounts of revenue, operating profit
and other financial information attributable to the wood products business, see
Note 13 of "Notes to Consolidated Financial Statements" in the Company's 1999
Annual Report to Shareholders.
3
PULP PRODUCTS BUSINESS
The Company owns a pulp mill located in Halsey, Oregon (the Halsey
mill) and a pulp mill in Nanaimo, British Columbia (the Harmac mill). The Halsey
mill, with a capacity of approximately 180,000 metric tons, produces bleached
kraft pulp which is sold in various forms to printing and writing paper, tissue
and newsprint manufacturers in the Pacific Northwest and on the open market. In
conjunction with the fiber acquisition program for the Halsey pulp mill, the
Company brokers wood chips for sale primarily into the export market. The Harmac
mill supplies pulp to all sectors of the paper market, for products ranging from
newsprint and tissue to high-grade coated and uncoated paper.
With a current annual capacity of 390,000 metric tons, the Harmac mill
is one of the largest producers of market pulp in Canada. The Harmac mill
produced 370,800 metric tons of pulp in 1999, and 354,400 metric tons in 1998,
of which 325,100 metric tons were produced in the period subsequent to February
2, 1998. The Harmac mill manufactures a wide range of high-quality kraft pulp
made from custom blends of western hemlock, balsam, western red cedar and
Douglas fir. The Harmac mill's products are marketed globally through sales
offices in Portland, Oregon and Brussels, Belgium and through agency sales
offices around the world.
The Company has a long-term fiber supply agreement for the Harmac mill
with Weyerhaeuser Company Limited (Weyerhaeuser) that provides for 1.7 million
cubic meters of fiber per year through 2019. Under this contract, fiber is
purchased at market, or at prices determined under a formula intended to reflect
fair market value of the fiber and which takes into account the net sales value
of pulp sold by Harmac. To run the Harmac mill at full capacity, additional
fiber is required to supplement the base supply from Weyerhaeuser.
Weyerhaeuser has agreed that it will supply, in addition to the minimum
volumes to which it is committed under the Chip and Pulp Log Supply Agreement,
the fiber required to fulfill the balance of the Harmac mill's operating
requirements, provided that such fiber is available in the market without
detriment to Weyerhaeuser's own operations. In addition, the Company has entered
into arrangements with other independent fiber suppliers to provide pulp fiber
incremental to that provided by Weyerhaeuser. Finally, improved utilization and
recovery of available raw materials, through means such as the chip conditioning
system completed in 1998, will help to ensure that adequate fiber is available.
To a very limited degree, the Harmac mill also acquires wood chips from the
Company's Canadian sawmills.
The Company has an agreement with Grays Harbor Paper L.P. (Grays
Harbor), under which the Halsey mill supplies pulp to the Grays Harbor writing
grade paper mill. Grays Harbor purchased approximately 66,000 metric tons,
60,000 metric tons and 89,000 metric tons of pulp from the Company in 1999, 1998
and 1997, respectively. All output from the paper mill is sold to Weyerhaeuser.
In the event that the paper mill's sales to its customer are adversely impacted
for any reason, sales of the Company's pulp may be adversely impacted. A
significant portion of the pulp sold to the paper mill is produced from sawdust,
which has historically been less expensive than softwood and hardwood chips. In
1997, pricing for pulp sold to Grays Harbor was computed using a formula based
on prices for white paper. In late 1997, the Company and Grays Harbor modified
their pulp supply contract. The modified contract, which became effective
January 1, 1998, changed the pulp pricing formula so that pulp prices are based
on southern mixed (U.S.) bleached hardwood kraft prices rather than white paper
prices. The Company believes that over the longer-term, pulp pricing under the
new formula will be comparable to that under the previous pricing formula.
The availability of softwood fiber (wood chips and sawdust),
particularly in the quantities necessary to support world-scale pulp facilities,
fluctuates in the Pacific Northwest. The
4
Company had access to more than adequate supplies of fiber during 1999.
Substantially all of the Company's wood chip and sawdust requirements for the
Halsey pulp mill are satisfied through purchases by the Company from third
parties. The Company has long-term chip supply contracts with sawmills in the
Pacific Northwest. To provide an adequate supply of wood fiber for the mill, the
Company has expanded its capability of using sawdust as a raw material for a
significant portion of the production. Additionally, the Company continues to
use an expanded geographic base to maintain an adequate supply of chips for the
approximately 30 to 40 percent of the pulp mill's production which remains based
on softwood chips. The Company believes that, based on existing wood chip and
sawdust availability both within the Willamette Valley region of Oregon and from
other sources, fiber resources will be adequate for the Company's requirements
at the Halsey pulp mill in the foreseeable future.
MARKETING AND DISTRIBUTION. The Company utilizes its own sales force
and pulp brokers to sell its pulp products to paper manufacturers worldwide. In
1999, approximately 50 percent of the pulp segment's sales volume was shipped to
Europe, 20 percent to North America and 30 percent to Japan and other Pacific
Rim countries. Sales in 1999 to Grays Harbor represented 11 percent of pulp
revenues and the remaining nine largest pulp customers accounted for an
additional 49 percent of pulp revenues.
In 1999, approximately 57 percent of pulp products were sold to
customers at market prices under long-term or "evergreen" contracts, renewable
each year. The balance of the mills' pulp is sold on a spot basis. By
establishing and maintaining long-term contractual relationships, the Company is
better able to forecast and regulate production than would be the case if it
relied entirely on the spot markets.
BACKLOG. The Company's pulp customers either enter into contracts for
periods of one to three years or purchase products without obligation for future
purchases. The contractual customers provide the Company with annual estimates
of their requirements, followed by periodic orders based on more definitive
information. As of December 31, 1999, the Company's backlog of orders believed
to be firm for both contractual and non-contractual customers was $77.5 million
compared with $37.9 million at December 31, 1998. The increase in the total
backlog of orders was due to a 37 percent increase in selling prices and a 49
percent increase in order volumes. The backlog of pulp orders at year-end
represents orders which will be filled in the first quarter of the following
year.
COMPETITION. The pulp industry is highly competitive, with a
substantial number of competitors having extensive financial resources,
manufacturing expertise and sales and distribution organizations, many of which
are larger than the Company, but none of which is believed to be dominant.
Canada and the Nordic countries produce substantially more market pulp than they
consume, with the surplus being sold in Western Europe, the United States and
Japan and other Asian countries. Canada, Finland, Norway and Sweden are the
principal suppliers of northern bleached softwood kraft pulp to world markets.
The United States is a large exporter of hardwood and southern softwood pulp,
as well as a significant importer of northern bleached softwood kraft pulp.
Latin America also exports both hardwood and softwood pulp.
The principal methods of competition in the pulp market are price,
quality, volume, reliability of supply and customer service. The Company's
competitive advantages include the strength of its northern softwood fiber and
the variety and consistent quality of the pulps it produces. In addition, Harmac
has the operational flexibility provided by its three separate production lines
in combination with the three principal species of fiber available in the
region.
5
For further information regarding amounts of revenue, operating profit
and loss and other financial information attributable to the pulp products
business, see Note 13 of "Notes to Consolidated Financial Statements" in the
Company's 1999 Annual Report to Shareholders.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, provincial and local air,
water and land pollution control, solid and hazardous waste management, disposal
and remediation laws and regulations in all areas where it has operations.
Compliance with these laws and regulations generally requires operating costs as
well as capital expenditures. It is difficult to estimate the costs related
solely to environmental matters of many capital projects which have been
completed in the past or which may be required in the future. Changes required
to comply with environmental standards will affect other areas such as facility
life and capacity, production costs, changes in raw material requirements and
costs and product value. In April 1998, the Environmental Protection Agency
(EPA) published regulations establishing standards and limitations for
non-combustion sources under the Clean Air Act and revised regulations under the
Clean Water Act. These regulations are collectively referred to as the "Cluster
Rules." The Company's exposure to these regulations relates to the Company's
Halsey pulp mill. The capital costs to comply with these new regulations at the
Halsey mill are anticipated to be $35 million, with compliance required by the
first quarter of 2001. The required upgrade of the Halsey mill is underway and
is expected to be completed by the end of 2000. Approximately $8.2 million of
costs related to this project have been incurred through December 31, 1999.
Other environmental expenditures anticipated in the year 2000 are not material.
Based on its understanding of future environmental compliance
standards, the Company's expenditures for such purposes, with the exception of
expenditures related to Cluster Rule compliance, are currently estimated to not
be significant in 2000. However, the ultimate outcome of future compliance is
uncertain due to various factors such as the interpretation of environmental
laws, potential introduction of new environmental laws and evolving
technologies.
The preservation of old-growth forests and wildlife habitat has
affected and may continue to affect the amount and cost of timber obtainable
from public agencies in Oregon and Western Washington. The Halsey pulp mill has
been affected by the decrease in timber availability since its primary raw
materials, wood chips and sawdust, are by-products of the lumber manufacturing
process.
In British Columbia, the Company's forest resources and related logging
activities and reforestation responsibilities have been affected by governmental
actions over the past several years. Refer to "Wood Products Business" for the
discussion on the impact of the Provincial Government of British Columbia's
Commission of Resources and Environment and the Forest Practices Code.
The major environmental issues for pulp producers in coastal British
Columbia are the management of wastewater, air emissions and solid waste in
compliance with the extensive body of applicable environmental protection laws
and regulations. Harmac has in place a comprehensive environmental management
program, comprising modern pollution abatement and control technologies,
detailed operating procedures and practices, early warning systems, scheduled
equipment inspections and emergency response planning. Regular independent
audits ensure that the environmental program is being implemented effectively
and that all regulated requirements are being met.
6
Current legislation requires all pulp mills in British Columbia to
eliminate the discharge of chlorinated organic compounds by December 31, 2002.
Currently, the cost of available technology to eliminate all chlorinated organic
compounds at kraft pulp mills is prohibitive. The British Columbia government,
industry and other stakeholders are engaged in discussion 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 affect on the Company.
Legislation in British Columbia governing contaminated sites became
effective in April 1997. If a triggering event occurs in respect of any
property that has been used for industrial or commercial purposes, the
regulations require, among other things, a site profile to be prepared in
order to determine whether the site in question is potentially contaminated,
in which case remediation may be required under government supervision. Pulp
mills are subject to these regulations and past and present owners or
operators of mill sites may face remediation costs if contaminated areas are
found. Triggering events would include the sale of the property or the
decommissioning of the mill. The Company cannot assess the magnitude of costs
it may be required to incur in order to comply with this legislation if a
triggering event should occur.
See "Item 3. Legal Proceedings" for a discussion of certain
environmental legal proceedings.
EMPLOYEES
At December 31, 1999, the Company employed 2067 employees of whom 1646
were paid on an hourly basis and a majority of which were members of various
labor unions. Approximately 60 percent of the Company's employees were
associated with the Company's wood products business, 37 percent were associated
with the Company's pulp business and 3 percent were corporate management,
marketing and administration personnel.
GEOGRAPHIC AREAS
For information regarding the Company's revenues and long-lived assets
by geographic area, see Note 13 of "Notes to Consolidated Financial Statements"
in the Company's 1999 Annual Report to Shareholders.
7
ITEM 2. PROPERTIES
The Company leases 38,000 square feet of office space in Portland,
Oregon for its corporate administrative and sales functions.
WOOD PRODUCTS PROPERTIES
The following tabulation briefly states the location, character,
capacity and 1999 production of the Company's lumber mills:
- -------------------------------------------------------------------------------------------------------------------
Estimated Annual 1999
Location Capacity (3) Production(3)
---------------------------------------- -------------------------- ------------------------
Spearfish, South Dakota 115,000,000 bd. ft.(1) 113,000,000 bd. ft.
Newcastle, Wyoming 35,000,000 bd. ft.(1) 32,000,000 bd. ft.
Grand Forks, British Columbia 85,000,000 bd. ft.(2) 72,000,000 bd. ft.
Midway, British Columbia 155,000,000 bd. ft.(2) 153,000,000 bd. ft.
Castlegar, British Columbia 220,000,000 bd. ft.(2) 208,000,000 bd. ft.
- -------------------------------------------------------------------------------------------------------------------
(1) Based on operating two shifts, five days per week for the
Spearfish, South Dakota lumber mill and one shift, five days
per week for the Newcastle, Wyoming lumber mill.
(2) Based on operating two shifts, five days per week for the
Midway and Castlegar, British Columbia mills and one shift,
five days per week for the Grand Forks, British Columbia mill.
These capacities reflect reduced operations resulting from
tariffs under the 1996 Softwood Lumber Agreement.
(3) Wood chips are produced as a result of the operation of the
Company's lumber mills. It is estimated that the aggregate
annual capacity for such production is 300,000 bone-dry units.
In 1999, 295,000 bone dry units were produced.
The Company believes that its wood products manufacturing facilities are
adequate and suitable for current operations. The Company owns all of its wood
products manufacturing facilities.
PULP PRODUCTS PROPERTIES
The Company owns a bleached kraft pulp mill near Halsey, Oregon. In
1999, 181,000 metric tons of pulp were produced, which approximated full
capacity for the mill. Other than future mill modifications required by the
EPA's "Cluster Rules," as described previously in "Environmental Matters," the
Company believes that its Halsey pulp facility is adequate and suitable for
current operations.
The Harmac pulp mill is located on a site owned by the Company in
Nanaimo on the east coast of Vancouver Island in British Columbia. The Harmac
pulp mill has an annual capacity of 390,000 metric tons of NBSK pulp and
produced 371,000 metric tons in 1999.
8
ITEM 3. LEGAL PROCEEDINGS
The Oregon Department of Environmental Quality (ODEQ), based on
detection of possible creosote and hydrocarbon contamination, determined that a
vacant industrial site formerly owned by the Company requires further action.
Accordingly, the Company and the local governmental owner agreed in a Consent
Order with ODEQ to investigate the site and determine an appropriate remedy. The
Company is currently participating in the investigation phase of this site with
remediation and monitoring to occur over an extended future time period. Based
on preliminary findings, the Company has established a reserve in the amount of
$6.1 million representing the low end of the range of estimated future
remediation and monitoring costs at this site. Factors outside the Company's
control could cause the costs to be substantially greater.
The Washington Department of Ecology (WDOE) requested that the Company
undertake an assessment to determine whether and to what extent the Company's
former mill site at Port Gamble, Washington may be contaminated. Further, WDOE
requested that the Company perform an investigation of sediments in the adjacent
bay to determine the extent of wood waste accumulation. These activities were
completed during 1999. Future regulatory developments and investigation findings
regarding sediments may indicate remediation will be necessary. Based on
preliminary findings, the Company has established a reserve in the amount of
$2.6 million representing the low end of the range of estimated future
remediation and monitoring costs at this site. Factors outside the Company's
control could cause the costs to be substantially greater.
The Company has tendered the defense of the above environmental claims
to a number of insurance carriers which issued comprehensive general liability
policies to the Company from 1959 to 1985. In 1995, the Company filed a
declaratory judgment action to obtain a decision that the insurance carriers
were obligated to defend the Company and indemnify it for any environmental
liabilities incurred as a result of certain operations of the Company during
that period. The Company expects that the case will be tried, if necessary in
the year 2001. The Company has concluded settlements with several insurance
carriers and is engaged in settlement discussions with other insurance carriers.
If it is determined that the insurance carriers are obligated to pay the
Company's defense and indemnity claims, there are more than sufficient policy
limits available to meet the Company's estimated liabilities. The Company
believes recovery under these policies is probable and has recorded receivables
in amounts it has deemed highly probably of realization.
In March 1999, the Company filed a claim under Chapter 11 of the North
American Free Trade Agreement (NAFTA) against the Canadian Federal Government.
The complaint arises from the Company's assertion that its duty-free export
quota under the Canada/U.S. Softwood Lumber Agreement was unfairly allocated and
then reduced after the agreement came into effect. The NAFTA contains a special
process that permits NAFTA investors who have been harmed by government actions
which are inconsistent with the provisions of NAFTA's Investment Chapter to seek
compensation before an impartial international arbitration panel. An
international arbitration panel has been appointed to hear this claim but there
can be no assurance as to when the claim will be resolved.
The Internal Revenue Service (IRS) has assessed the Company additional
tax of approximately $5.3 million pertaining to transactions between the Company
and one of its Canadian subsidiaries during it 1993 tax year. The Company has
filed a petition with the Tax Court to challenge the IRS's assessment. The
Company has negotiated a tentative settlement with the IRS on this issue for
1993 and certain subsequent tax years and has established a
9
reserve for the amount. While a settlement has been negotiated with the IRS, the
settlement has not been finally approved or accepted on behalf of the IRS.
The Company is also a party to legal proceedings and environmental
matters generally incidental to its business. Although the final outcome of any
legal proceeding or environmental matter 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.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT WHO ARE NOT DIRECTORS
In addition to the executive officers who are also directors of the
Company, the following executive officers are not directors:
Abram Friesen, age 57, has been Vice President - Division Manager, Wood
Products since February 1996. From 1987 to 1996, Mr. Friesen was President of
Pope & Talbot Ltd., a wholly-owned subsidiary of the Company.
Maria M. Pope, age 35, has been Vice President, Chief Financial Officer
and Secretary since May 1999. From April 1998 to May 1999, Ms. Pope was the
Company's Treasurer and Secretary. Prior to becoming Secretary and Treasurer,
Ms. Pope was Planning and Budgeting Manager for the Company upon joining the
Company in 1995. Ms. Pope previously worked for Levi Strauss & Co. and Morgan
Stanley & Co., Inc. Ms. Pope is the daughter of Peter T. Pope, Chairman of the
Board of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Pope & Talbot, Inc. common stock is traded on the New York and Pacific
stock exchanges under the symbol POP. The number of registered shareholders at
year-end 1999 and 1998 were 1,049 and 952, respectively. Additional information
required by Item 5 of Part II is presented in the table entitled "Quarterly
Financial Information" on page 30 of the Company's 1999 Annual Report to
Shareholders. Such information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by Item 6 of Part II is presented in the table
entitled "Five Year Summary of Selected Financial Data" on page 29 of the
Company's 1999 Annual Report to Shareholders. Such information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 of Part II is presented on pages 9
through 15 of the Company's 1999 Annual Report to Shareholders. Such information
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7a of Part II is presented on pages 21
and 23 of the Company's 1999 Annual Report to Shareholders. Such information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Part II is presented on pages 15
through 28 of the Company's 1999 Annual Report to Shareholders. Such information
is incorporated herein by reference. Additionally, the required supplementary
quarterly financial information is presented on page 30 of the Company's 1999
Annual Report to Shareholders and is incorporated herein by reference.
11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by Item 10 of Part III is presented on page 11
as a separate item entitled "Executive Officers of the Registrant Who are Not
Directors" in Part I of this Report on Form 10-K and under the items entitled
"Certain Information Regarding Directors and Officers" and "Section 16(a) -
Beneficial Ownership Reporting Compliance" in the Company's Definitive Proxy
Statement for the Annual Meeting of Shareholders on April 27, 2000. Such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is presented under the
items entitled "Director Remuneration" and "Executive Compensation and Other
Information" in the Company's Definitive Proxy Statement for the Annual Meeting
of Shareholders on April 27, 2000. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Part III is presented under the
items entitled "Security Ownership of Management" and "Beneficial Ownership of
Over 5% of Pope & Talbot Common Stock" in the Company's Definitive Proxy
Statement for the Annual Meeting of Shareholders on April 27, 2000. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
Annual Report to
Shareholders
---------------------------------------------------------------------- ----------------------
Report of Independent Public Accountants 15
Consolidated balance sheets at December 31, 1999 16
and 1998
Consolidated statements of income for each of the three years in the 17
period ended December 31, 1999
Consolidated statements of stockholders' equity for 18
each of the three years in the period ended
December 31, 1999
Consolidated statements of cash flows for each of the three years in 19
the period ended December 31, 1999
Notes to consolidated financial statements 20-28
The consolidated financial statements listed above are included in the
Annual Report to Shareholders of Pope & Talbot, Inc. for the year ended
December 31, 1999. With the exception of the items referred to in Items 1, 5,
6, 7, 7a and 8, the 1999 Annual Report to Shareholders is not to be deemed
filed as part of this report.
The report of PricewaterhouseCoopers LLP on the financial statements of
Harmac as of and for the year ended December 31, 1998, which report has been
relied upon by Arthur Andersen LLP in their report listed above, is filed as
Exhibit 99.1 to this Form 10-K.
(a)(2) SCHEDULES
All schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the
related schedule, or because the information required is included in
the financial statements and notes thereto.
(a)(3) EXHIBITS
The following exhibits are filed as part of this annual report.
EXHIBIT NO.
3.1. Certificate of Incorporation, as amended. (Incorporated herein by
reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992).
3.2. Bylaws.
4.1. Indenture, dated June 2, 1993, between the Company and Chemical Trust
Company of California as Trustee with respect to the Company's 8-3/8%
Debentures due 2013. (Incorporated herein by reference to Exhibit 4.1
to the Company's registration statement on Form S-3 filed April 6,
1993).
4.2. Rights Agreement, dated as of April 3, 1998, between the Company and
Chase-Mellon Shareholder Services, L. L. C., as rights agent.
(Incorporated herein by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on April 7, 1998).
13
4.3. Participation Agreement dated as of September 15, 1999 among the
Company, SELCO Service Corporation, the Note Purchasers named therein,
Wilmington Trust Company and First Security Bank, National Association.
(Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
4.4. Facility Lease between the Company and Wilmington Trust Company dated
September 30, 1999. (Incorporated herein by reference to Exhibit 4.5 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.1. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.1.1. Stock Option and Appreciation Plan (as amended). (Incorporated herein
by reference to Exhibits 99.1 and 99.2 to the Company's Form S-8 filed
on February 22, 1999).
10.1.2. Executive Incentive Plan, as amended. (Incorporated herein by reference
to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992).
10.1.3. Restricted Stock Bonus Plan. (Incorporated herein by reference to
Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.1.4. Deferral Election Plan. (Incorporated herein by reference to Exhibit
10(d) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.1.5. Supplemental Executive Retirement Income Plan. (Incorporated herein by
reference to Exhibit 10(e) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.1.6. Form of Severance Pay Agreement among the Company and certain of its
executive officers. (Incorporated herein by reference to Exhibit 10.1.6
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
10.1.7. 1996 Non-Employee Director Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.1.7 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
10.1.8. Special Non-Employee Director Stock Retainer Fee Plan. (Incorporated
herein by reference to Exhibit 99.5 to the Company's Form S-8 filed on
February 22, 1999).
10.1.9. Employment Agreement with Ralph Leverton, dated November 30, 1998.
(Incorporated herein by reference to Exhibit 10.1.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998).
10.1.10.Separation Agreement with Ralph Leverton dated August 31, 1999.
10.1.11 Split Dollar Life Insurance Agreement between the Company and Maria M.
Pope, as trustee of the Pope Grandchildren's Trust, dated December 21,
1999.
14
10.2. Lease agreement between the Company and Pope Resources, dated December
20, 1985, for Port Gamble, Washington sawmill site. (Incorporated
herein by reference to exhibit 10(g) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
10.3. Lease agreement between the Company and Shenandoah Development Group,
Ltd., dated March 14, 1998, for Atlanta diaper mill site as amended
September 1, 1988 and August 30, 1989. (Incorporated herein by
reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.4. Lease agreement between the Company and Shenandoah development Group,
Ltd., dated July 31, 1989, for additional facilities at Atlanta diaper
mill as amended August 30, 1989 and February 1990. (Incorporated herein
by reference to Exhibit 10(1) to the Company's Annual Report on Form
10-K for the year ended December 31, 1990).
10.5. Province of British Columbia Tree Farm License No. 8, dated March 1,
1995. (Incorporated herein by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996).
10.6. Province of British Columbia Tree Farm License No. 23, dated March 1,
1995. (Incorporated herein by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996).
10.7. Province of British Columbia Forest License A18969, dated December 1,
1993. (Incorporated herein by reference to Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996).
11.1. Statement showing computation of per share earnings.
13.1. Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 which have been incorporated by reference in this
report.
21.1. List of subsidiaries.
23.1. Consent of Arthur Andersen LLP.
23.2. Consent of PricewaterhouseCoopers LLP.
27.1. Financial Data Schedule.
99.1. Report of PricewaterhouseCoopers LLP.
The undersigned registrant hereby undertakes to file with the
Commission a copy of any agreement not filed under exhibit item (4) above on the
basis of the exemption set forth in the Commission's rules and regulations.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1999.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Portland, State of Oregon, on this 20th day of March, 2000.
POPE & TALBOT, INC.
By: \s\Peter T. Pope
------------------------------------
Peter T. Pope, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 20, 2000, by the following persons on behalf of
the registrant and in the capacities indicated.
\s\Peter T. Pope Chairman of the Board
- --------------------------------------------- -------------------------------------------
Peter T. Pope
President, Director and
\s\Michael Flannery Chief Executive Officer
- --------------------------------------------- -------------------------------------------
Michael Flannery
\s\Gordon P. Andrews Director
- --------------------------------------------- -------------------------------------------
Gordon P. Andrews
\s\Hamilton W. Budge Director
- --------------------------------------------- -------------------------------------------
Hamilton W. Budge
\s\Charles Crocker Director
- --------------------------------------------- -------------------------------------------
Charles Crocker
\s\Lionel G. Dodd Director
- --------------------------------------------- -------------------------------------------
Lionel G. Dodd
\s\Kenneth G. Hanna Director
- --------------------------------------------- -------------------------------------------
Kenneth G. Hanna
\s\Robert Stevens Miller, Jr. Director
- --------------------------------------------- -------------------------------------------
Robert Stevens Miller, Jr.
\s\Brooks Walker, Jr. Director
- --------------------------------------------- -------------------------------------------
Brooks Walker, Jr.
Vice President and
\s\Maria M. Pope Chief Financial Officer
- --------------------------------------------- -------------------------------------------
Maria M. Pope
\s\Gerald L. Brickey Financial Controller
- --------------------------------------------- -------------------------------------------
Gerald L. Brickey
16