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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23259
--------------------------
U.S. TIMBERLANDS COMPANY, LP
(Exact name of registrant as specified in its charter)
Delaware 91-1842156
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, Suite 10-B, New York, NY 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-755-1100
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 [ ]
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
-------
U.S. TIMBERLANDS COMPANY, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
------------------------------------------
2000 1999
------------------- ------------------
<S> <C> <C>
Revenues $ 14,064 $ 26,175
Cost of timber harvested (4,785) (6,709)
Depletion, depreciation and road amortization (6,563) (8,077)
------------------- ------------------
Gross profit 2,716 11,389
Selling, general and administrative (2,525) (1,801)
Equity in net loss of affiliate (61) -
------------------- ------------------
Operating income 130 9,588
Interest expense (5,569) (5,495)
Interest income 85 55
Financing fees (169) (169)
Other income - net 233 2
------------------- ------------------
Net income (loss) before general partner and minority interest (5,290) 3,981
General partner and minority interest 106 (80)
------------------- ------------------
Net income (loss) allocable to Unitholders $ (5,184) $ 3,901
=================== ==================
Net income (loss) per Unit - Basic
Common $ (0.40) $ 0.30
=================== ==================
Subordinated $ (0.40) $ 0.30
=================== ==================
Net income (loss) per Unit - Diluted $ (0.40) $ 0.30
=================== ==================
Distributions per Unit $ 0.50 $ 0.50
=================== ==================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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<PAGE>
U.S. TIMBERLANDS COMPANY, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Revenues $ 49,948 $ 57,600
Cost of timber harvested (11,609) (11,505)
Depletion, depreciation and road amortization (18,508) (17,329)
-------------------- --------------------
Gross profit 19,831 28,766
Selling, general and administrative (6,686) (6,640)
Equity in net income of affiliate 680 -
-------------------- --------------------
Operating income 13,825 22,126
Interest expense (16,425) (16,460)
Interest income 315 406
Financing fees (506) (507)
Other income - net 1,237 1,141
-------------------- --------------------
Net income (loss) before general partner and minority interest (1,554) 6,706
General partner and minority interest 30 (134)
-------------------- --------------------
Net income (loss) allocable to Unitholders $ (1,524) $ 6,572
==================== ====================
Net income (loss) per Unit - Basic
Common $ (0.12) $ 0.51
==================== ====================
Subordinated $ (0.12) $ 0.51
==================== ====================
Net income (loss) per Unit - Diluted $ (0.12) $ 0.51
==================== ====================
Distributions per Unit $ 1.50 $ 1.50
==================== ====================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3 of 19
<PAGE>
U.S. TIMBERLANDS COMPANY, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------- --------------------
(UNAUDITED) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,419 $ 2,798
Accounts and current portion of notes receivable - net 7,252 3,140
Prepaid expenses and other current assets 16 981
--------------------- --------------------
Total current assets 8,687 6,919
Timber and timberlands, net 278,022 293,828
Investment in affiliate 19,960 18,243
Property, plant and equipment, net 964 1,038
Notes receivable - long-term - 2,304
Deferred financing fees 4,817 5,323
--------------------- --------------------
Total assets $ 312,450 $ 327,655
===================== ====================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 10,543 $ 4,472
Deferred revenue - 39
--------------------- --------------------
Total current liabilities 10,543 4,511
--------------------- --------------------
Long-term debt 225,000 225,000
--------------------- --------------------
Minority Interest 769 981
--------------------- --------------------
Partners' capital:
General partner interest 769 981
Limited partner interest (12,859,607 units issued and outstanding) 75,369 96,182
--------------------- --------------------
76,138 97,163
--------------------- --------------------
Total liabilities and partners' capital $ 312,450 $ 327,655
===================== ====================
</TABLE>
* Derived from audited Consolidated Balance Sheet as of December 31, 1999
See accompanying notes to the condensed consolidated financial statements.
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<PAGE>
U.S. TIMBERLANDS COMPANY, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 20,589 $ 21,408
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Timber, timberlands and road additions (2,279) (771)
Purchase of property, plant and equipment - net (52) (36)
Proceeds from sale of assets 46 -
-------------------- --------------------
Net cash used in investing activities (2,285) (807)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to unitholders, general partner,
and minority interest (19,683) (19,682)
-------------------- --------------------
Net cash used in financing activities (19,683) (19,682)
-------------------- --------------------
Increase (decrease) in cash and cash equivalents (1,379) 919
Cash and cash equivalents - beginning of period 2,798 4,824
-------------------- --------------------
Cash and cash equivalents - end of period $ 1,419 $ 5,743
==================== ====================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5 of 19
<PAGE>
U.S. TIMBERLANDS COMPANY, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS OR AS OTHERWISE INDICATED) (UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION:
BUSINESS
U.S. Timberlands Company, LP (the "MLP"), a Delaware limited partnership, was
formed in 1997 to acquire and own 99% of the equity interests in U.S.
Timberlands Klamath Falls, LLC (the "Operating Company") and through the
Operating Company to acquire and own the business and assets of U.S. Timberlands
Management Company, LLC, formerly known as U.S. Timberlands Services Company,
LLC. As used herein, "Company" refers to the consolidated entities of the MLP
and the Operating Company.
The primary activity of the Company is the growing of trees and the sale of logs
and standing timber to third party wood processors. The Company's timber is
located in Oregon, east of the Cascade Range. Logs harvested from the
timberlands are sold to unaffiliated domestic conversion facilities. These logs
are processed for sale as lumber, plywood and other wood products, primarily for
use in new residential home construction, home remodeling and repair and general
industrial applications.
U.S. Timberlands Services Company, LLC (the "General Partner") manages the
businesses of the MLP and the Operating Company. The General Partner owns a 1%
general partner interest in the MLP and a 1% managing member interest in the
Operating Company.
BASIS OF PRESENTATION
These condensed consolidated financial statements have been prepared by the
Company, without audit by independent public accountants, pursuant to the rules
and regulations of the United States Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited financial statements include
all normal recurring adjustments necessary to present fairly the information
required to be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted from these
statements pursuant to such rules and regulations and, accordingly these
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the Company's 1999 Annual
Report on Form 10-K. Operating results for the quarter and nine month periods
ended September 30, 2000 are not necessarily indicative of the results that may
be expected for the full year or any other period.
There have been no significant changes in the accounting policies of the
Company. There were no significant changes in the Company's commitments and
contingencies as previously described in the 1999 Annual Report on Form 10-K.
RECLASSIFICATIONS
Certain amounts presented for 1999 have been reclassified for comparability
purposes and have no impact on net income.
6 of 19
<PAGE>
2. TIMBER AND TIMBERLANDS:
Timber and timberlands consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- --------------------
<S> <C> <C>
Timber and logging roads $ 319,458 $ 317,856
Timberlands 39,691 39,338
Seed orchard and nursery stock 1,684 1,277
------------------- --------------------
360,833 358,471
Less accumulated depletion and road amortization 82,811 64,643
------------------- --------------------
$ 278,022 $ 293,828
=================== ====================
</TABLE>
3. INVESTMENT IN AFFILIATE:
The following is summarized financial information for U.S. Timberlands Yakima,
LLC, an affiliate of the Company accounted for under the equity method.
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
---------------------- -----------------------
Net sales $ 7,404 $ 17,177
Gross profit $ 1,980 $ 7,295
Net income (loss) $ (125) $ 1,642
There are no corresponding amounts for the quarter and nine month period ended
September 30, 1999 as the Company's investment in the affiliate began in October
1999.
4. SHORT-TERM DEBT:
The Company has a credit facility with an affiliate of the General Partner (the
"Affiliate Credit Facility") consisting of a revolving line of credit of up to
$12.0 million. Borrowings under the Affiliate Credit Facility bear interest at
the prime lending rate as published in the Wall Street Journal plus applicable
margin (1.25% at September 30, 2000), which is based on the Company's leverage
ratio. The prime lending rate was 9.50% at September 30, 2000. There were no
outstanding borrowings under the Affiliate Credit Facility at September 30,
2000. The Affiliate Credit Facility expires June 30, 2001 and any amounts
borrowed thereunder shall then be due and payable.
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<PAGE>
5. PER UNIT INFORMATION:
The Company accounts for income (loss) per unit in accordance with Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings Per Share."
Under SFAS No. 128, the Company is required to present basic income per common
and subordinated unit, and diluted income per unit information. The weighted
average common and subordinated units outstanding were 8,577,487 and 4,282,120,
respectively, for the quarters and nine month periods ended September 30, 2000
and September 30, 1999.
6. SUBSEQUENT EVENTS:
On November 2, 2000 the Company announced that a group lead by senior management
has begun the process to explore taking the Company private. On November 9, 2000
the Board of Directors of the General Partner established an independent
committee to evaluate management proposals to take the Company private.
On October 17, 2000, the Board of Directors of the General Partner authorized
the MLP to make a distribution of $0.50 per Unit. The total distribution will be
$6,561 (including $131 to the General Partner) and will be paid on November 14,
2000 to Unitholders of record on October 30, 2000.
7. NEW ACCOUNTING PRONOUNCEMENT:
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting for derivative
instruments and hedging activities, and would require the Company to record all
derivatives as assets or liabilities at fair value. Implementation of the
statement was delayed by SFAS No. 137 to all fiscal quarters of fiscal years
beginning after June 15, 2000. Consistent with SFAS No. 137, the Company will
adopt SFAS No. 133 as of January 1, 2001. Management believes that adoption of
this statement will not have a material impact on the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------- CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain information contained in this report may constitute forward-looking
statements within the meaning of the federal securities laws. Although the
Company believes that expectations reflected in such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Forward-looking information is subject to certain
risks, trends and uncertainties that could cause actual results to differ
materially from those projected. Such risks, trends and uncertainties include
the highly cyclical nature of the forest products industry, general economic
conditions, competition, price conditions or trends for the Company's products,
the possibility that timber supply could increase if governmental, environmental
or endangered species policies change, and limitations on the Company's ability
to harvest its timber due to adverse natural conditions or increased
governmental restrictions. These and other risks are described in the Company's
other reports and registration statements, which are available from the United
States Securities and Exchange Commission.
8 of 19
<PAGE>
OVERVIEW
The Company's principal operations consist of growing and harvesting timber and
selling logs, standing timber and related by-products to third party wood
processors. These logs and by-products are processed for sale as lumber; molding
products; doors; mill work; commodity, specialty, and overlaid plywood products;
laminated veneer lumber; engineered wood I-beams; particleboard; hardboard;
paper and other wood products. These products are used in residential,
commercial, and industrial construction; home remodeling and repair; general
industrial applications; and a variety of paper products. The results of the
Company's operations and its ability to pay quarterly distributions to its
Unitholders depend upon a number of factors, many of which are beyond its
control. These factors include general economic and industry conditions,
domestic and export prices, supply and demand for timber and logs, seasonality,
government regulations affecting the manner in which timber may be harvested,
and competition from other supplying regions and substitute products.
SEASONALITY
The Company's log and standing timber sales volumes are generally at their
lowest levels in the first and second quarter of each year. In the first
quarter, heavy snowfalls in higher elevations prevent access to many areas of
the Company's timberlands. This limited access, along with spring break-up
conditions (when warming weather thaws and softens roadbeds) in March or April,
restricts logging operations to lower elevations and areas with rockier soil
types. As a result of these constraints, the Company's sales volumes are
typically at their lowest in the first quarter, improving in the second quarter
and at their highest during the third and fourth quarters. Most customers in the
region react to this seasonality by carrying sufficiently high log inventories
at the end of the calendar year to carry them to the second quarter of the
following year.
CURRENT MARKET CONDITIONS
Third quarter 2000 prices for finished wood products (e.g., lumber,
plywood, and engineered wood products) declined from prior year levels. Average
prices during the third quarter for Ponderosa Pine # 3 shop, Lodgepole pine
studs, White fir sheathing, and Douglas fir # 2 were down 34%, 30%, 33%, and 33%
respectively from the same period in 1999. Log and timber prices were down from
1999 levels for the same period due to this decline in finished product prices.
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<PAGE>
RESULTS OF OPERATIONS
Selected operating statistics for the Company:
<TABLE>
<CAPTION>
Sales Volume (MBF) Price Realization (MBF)
------------------------------------------ --------------------------------------
Timber Timber
Period Logs Stumpage Deeds Logs Stumpage Deeds
------ ---- -------- ----- ---- -------- -----
2000
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30 57,190 503 89,239 $ 405 $ 379 $ 292
3rd Quarter 22,718 - 29,501 $ 372 $ - $ 189
2nd Quarter 13,908 - 51,037 $ 432 $ - $ 346
1st Quarter 20,564 503 8,701 $ 425 $ 379 $ 325
1999
Nine Months Ended September 30 66,380 2,665 70,254 $ 437 $ 430 $ 385
3rd Quarter 39,008 744 25,597 $ 444 $ 404 $ 334
2nd Quarter 15,376 - 26,898 $ 455 $ - $ 484
1st Quarter 11,996 1,921 17,759 $ 395 $ 440 $ 308
</TABLE>
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
REVENUES Revenues for the quarter ended September 30, 2000 were $14.1
million, a decrease of $12.1 million or 46% from revenues of $26.2 million for
the same period in 1999. Revenues during the third quarter of 2000 were below
the Company's expectations due to the continued industry declines. Pricing for
some of the Company's species is at or near 15-year lows.
Timber deed and stumpage sales for the third quarter of 2000 were $5.6
million on volume of 29.5 million board feet ("MMBF"), as compared to the same
period in 1999, when timber deed and stumpage sales were $8.9 million on 26.3
MMBF. The average timber deed and stumpage price was $189 per thousand board
feet ("MBF") during the third quarter of 2000, as compared to $338 per MBF for
the same period in 1999. The decrease in deed and stumpage value reflects the
lower value grade of timber sold from the Ochoco Timberlands as well as
deteriorating market prices.
Log sales for the quarter ended September 30, 2000 were $8.4 million on
volume of 22.7 MMBF, as compared to the same period in 1999 when log sales were
$17.3 million on 39.0 MMBF. The average sales price was $372 per MBF for the
third quarter of 2000, as compared to an average of $444 per MBF for the same
period in 1999. The decline in log prices reflects a general decrease in log
prices and a significant shift to a lower value species mix sold during the
third quarter of 2000 as compared to the same period in 1999. The decrease in
the average log sales price was primarily attributable to a 32% decrease in
Lodgepole Pine prices combined with an average decrease of approximately 15% in
the prices of Douglas Fir and White Fir during the third quarter of 2000 as
compared to the same period in 1999.
GROSS PROFIT Gross profit decreased $8.7 million from $11.4 million in the
third quarter of 1999 to $2.7 million in the third quarter of 2000. As a
percentage of sales, gross profit decreased from 44% in the third quarter of
1999 to 19% in the third quarter of 2000. The decrease in gross profit dollars
is attributed to a lower overall sales volume in the third quarter of 2000 as
compared to the same
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<PAGE>
period in 1999, deteriorating market prices and an increase in contracted log
and haul costs. Log and haul costs increased due to longer haul distances for
delivered logs as well as rising fuel costs. As a percentage of sales gross
profit is down due to the deteriorating market prices and an increase in log and
haul costs.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses increased by $0.7 million from $1.8 million in the third
quarter of 1999 to $2.5 million in the third quarter of 2000. The increase was
primarily due to $0.2 million of severance expenses for the Company's former
Chief Financial Officer, a $0.3 increase in professional service expenses, and
increased property taxes due to new Oregon property tax legislation effective
for the property tax year beginning July 1, 2000 during the third quarter of
2000 as compared to the same period in 1999.
EQUITY IN NET LOSS OF AFFILIATE Equity in net loss of affiliate was $0.1
million for the third quarter of 2000. This amount reflects the Company's share
of the net loss from an affiliate accounted for under the equity method. The
Company made its investment in the affiliate during the fourth quarter of 1999.
PARTNERS' CAPITAL During the quarter ended September 30, 2000, the limited
partner interests in the Company declined $11.6 million from $87.0 million to
$75.4 million. This decline is the result of the limited partners' $5.2 million
share of the Company's net loss as well as the $6.4 million distributed to the
limited partners during this period. The General Partner interest in the Company
also declined during the quarter ended September 30, 2000 reflecting its share
of the Company's net income and distributions for the period. The Company
expects to continue to make distributions in excess of its operating earnings.
As a result, the Company anticipates that partners' capital will continue to
decline.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES Revenues for the nine months ended September 30, 2000 were $49.9
million, a decrease of $7.7 million or 13% from revenues of $57.6 million for
the same period in 1999. This decrease in revenues was primarily attributable to
low realizations on delivered log values and decreased demand in the industry in
general.
Log sales for the nine months ended September 30, 2000 were $23.2 million
on volume of 57.2 MMBF, as compared to the same period in 1999 when log sales
were $29.0 million on 66.4 MMBF. The average sales price for logs during the
nine month period ended September 30, 2000 was $405 per MBF compared to $437 per
MBF in for the same period in 1999. This is due to continued declines in the
prices and demand in the timber industry.
Timber deed and stumpage sales for the nine months ended September 30, 2000
were $26.3 million on volume of 89.7 MMBF, as compared to the same period in
1999, when timber deed and stumpage sales were $28.2 million on volumes of 72.9
MMBF. The average timber deed and stumpage sales price for the nine months ended
September 30, 2000 was $293 per MBF, as compared to $387 per MBF for the same
period in 1999. The decrease in average timber deed and stumpage sales price can
be attributed to a lower value grade mix of timber sold from the Ochoco
Timberlands.
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<PAGE>
GROSS PROFIT Gross profit decreased $9.0 million from $28.8 million in the
first nine months of 1999 to $19.8 million in the first nine months of 2000. The
decrease in gross profit was primarily from three factors. First, contracted log
and haul costs on a per MBF basis were approximately 20% higher in the first
nine months of 2000 as compared to the same period in 1999 due to longer hauls
for delivered logs and higher fuel costs. Second, the Company's timber deed
sales were composed of a lower value grade mix as compared to the same period in
1999. Finally, continued declines in the timber markets have resulted in lower
realizations on delivered log values.
EQUITY IN NET INCOME OF AFFILIATE Equity in net income of affiliate was
$0.7 million for the nine month period ended September 30, 2000. This amount
reflects the Company's share of the net income from an affiliate accounted for
under the equity method. The Company made its investment in the affiliate during
the fourth quarter of 1999.
PARTNERS' CAPITAL During the nine months ended September 30, 2000, the
limited partner interests in the Company declined $20.8 million from $96.2
million to $75.4 million. This decline is the result of the limited partners'
$1.5 million share of the Company's net loss plus the $19.3 million of
distributions to the limited partners during this period. The General Partner
interest in the Company also declined during the first nine months of 2000
reflecting its share of the Company's net loss and distributions for the period.
The Company expects to continue to make distributions in excess of its operating
earnings. As a result, the Company anticipates that partners' capital will
continue to decline.
FINANCIAL CONDITION AND LIQUIDITY
OPERATING ACTIVITIES Cash flows provided by operating activities during the
nine months ended September 30, 2000 were $20.6 million, as compared to $21.4
million during the same period in 1999. The $0.8 decrease is due to net income
decreasing $8.1 million for the first nine months of 2000 as compared to the
same period in 1999 combined with an increase in cash flows provided due to
changes in working capital components. The change in working capital was
primarily driven by the fact that the Company utilized notes receivable for
timber deed sales during the first quarter of 1999 and the Company received cash
for its timber deed sales during the first nine months of 2000. Timber deed
sales during the first quarter of 1999 resulted in notes receivable of $4.3
million, which reduced operating cash flow during the first nine months of 1999,
while a $2.1 million net reduction of notes receivable through collections
during the first nine months of 2000 increased operating cash flow during that
period.
INVESTING ACTIVITIES Cash flows used in investing activities were $2.3
million during the first nine months of 2000, as compared to $0.8 million during
the same period in 1999. The increase is primarily attributable to the Company's
purchase of cutting rights from its affiliate for approximately $1.3 million.
FINANCING ACTIVITIES Cash flows used in financing activities, consisting of
distributions to unitholders, the General Partner and minority interest were
$19.7 million for the first nine months of 2000, approximately the same as the
same period in 1999.
The Company has a credit agreement with an affiliate of the General Partner
(the "Affiliate Credit Facility"). The Affiliate Credit Facility allows the
Company to borrow up to $12.0 million under certain terms and covenants. The
covenants include restrictions on the Company's ability to make cash
distributions, incur certain additional indebtedness or incur certain liens. In
addition, the Company is required to maintain certain financial ratios. The
Affiliate Credit Facility will expire on June 30, 2001. At that time, any
amounts borrowed will be due and
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<PAGE>
payable. As of September 30, 2000 there were no outstanding borrowings under the
Affiliate Credit Facility. The Company has the ability to generate cash flow
through the acceleration of planned log and timber deed sales. In addition, the
Company's plan is to use investment and commercial banks to raise funds for
acquisitions.
The agreements governing the Company's 9-5/8% senior notes (the "Notes")
and the Affiliate Credit Facility contain restrictive covenants, including
limitations on harvest levels, land sales, cash distributions and the amount of
future indebtedness. In addition, these agreements require the Company to
maintain certain financial ratios. Under the Notes, the Company's average annual
adjusted harvest volume over any period of four consecutive years cannot exceed
a volume of approximately 147 MMBF as adjusted for timberland sales and
purchases. The Notes also limit one-year harvest levels and average annual
harvest levels for consecutive two-and three-year periods. As of September 30,
2000 the Company was in compliance with the covenants and ratios pertaining to
the Notes and Affiliate Credit Facility.
Through the first nine months of 2000, the Company funded its operations
and met its cash requirements for distributions to its Unitholders and debt
service from cash on hand, cash generated from current operations and borrowings
under its Affiliate Credit Facility.
Cash required to make distributions to all Unitholders at current levels
and to pay interest on the Notes is $26.2 million and $21.7 million,
respectively, per year. To make these payments and meet its working capital
requirements, the Company has been selling logs and timber at a rate in excess
of the General Partner's estimate of the current annual board footage growth on
the Company's timberlands. The General Partner expects that the debt service and
quarterly cash distributions will be funded from operations and borrowings.
Given projected volumes for sales of logs and timber, estimated current board
footage growth on the timberlands and the harvest restrictions in the Notes,
unless prices improve, costs are reduced, new markets are developed or the
Company makes accretive acquisitions, the Company's ability in the future to
make distributions at current levels may be adversely affected. The Company
continues to evaluate means to improve cash flows, including the factors
mentioned above. However, there can be no assurance that prices will improve or
that the Company will be able to take any of these actions.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------
There is no pending litigation and, to the knowledge of the Company, there
is no threatened litigation, the unfavorable resolution of which could have a
material adverse effect on the business or financial condition of the Company.
ITEMS 2, 3, 4 AND 5 OF PART II are not applicable and have been omitted.
------------------------------
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
+3.1 -- Amended and Restated Agreement of Limited Partnership of U.S. Timberlands Company, LP
+3.2 -- Second Amended and Restated Operating Agreement of U.S. Timberlands Klamath Falls, LLC
+10.2 -- Indenture among U.S. Timberlands Klamath Falls, LLC, U.S. Timberlands Finance Corp.
and State Street Bank and Trust Company, as trustee
+10.3 -- Contribution, Conveyance and Assumption Agreement among U.S. Timberlands Company, LP
and certain other parties
*10.4 -- Form of U.S. Timberlands Company, LP 1997 Long-Term Incentive Plan
*10.5 -- Employment Agreement for Mr. Rudey
*10.9 -- Supply Agreement between U.S. Timberlands Klamath Falls, LLC and Collins Products LLC
++10.10 -- Operating Agreement of U.S. Timberlands Yakima, LLC
ff 10.11 -- Agreement for Greg Byrne
**16 -- Letter from Arthur Andersen, LLP dated December 8, 1998
*21.1 -- List of Subsidiaries
27.1 -- Financial Data Schedule
</TABLE>
* Incorporated by reference to the same numbered Exhibit to the Registrant's
Registration Statement on Form S-1 filed November 13, 1997.
** Incorporated by reference to Exhibit 1 to the Registrant's Form 8-K filed
on December 8, 1998.
+ Incorporated by reference to the same numbered Exhibit to the Registrant's
Current Report on Form 8-K filed January 15, 1998.
++ Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-Q filed on May 15, 2000.
ff Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-Q filed on August 14, 2000.
(b.) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: NOVEMBER 14, 2000 U.S. TIMBERLANDS COMPANY, LP
By: U.S. Timberlands Services Company, LLC
as General Partner
By: /s/ Thomas C. Ludlow
------------------------------------
Thomas C. Ludlow
Chief Financial Officer
(Chief Financial Officer
and Duly Authorized Officer)
By: /s/ Toby A. Luther
------------------------------------
Toby A. Luther
Corporate Controller - Western Operations
(Principal Accounting Officer)
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