<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- --------------------------------------------------------------------------------
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission file number: 1-8859
IP TIMBERLANDS, Ltd.
(Exact name of registrant as specified in its charter)
Texas 13 3259241
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
Two Manhattanville Road, Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-397-1500
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 ____
Class A Depositary Units outstanding on October 31, 1995: 46,445,729
<PAGE>
IP TIMBERLANDS, Ltd.
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements 3
Consolidated Statement of Earnings - 4
Three Months and Nine Months Ended
September 30, 1995 and 1994
Consolidated Balance Sheet -
September 30, 1995 and December 31, 1994 5
Consolidated Statement of Cash Flows - 6
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 12
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
* Omitted since no answer is called for, answer is in the negative or
inapplicable.
2
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
The accompanying unaudited financial statements have been prepared in
conformity with current Securities and Exchange Commission regulations
governing interim financial reporting. In the opinion of the managing general
partner of IP Timberlands, Ltd. (the "Registrant"), a Texas limited
partnership, the accompanying unaudited financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position of the Registrant as of September 30,
1995, and the results of operations for the quarter and nine months ended
September 30, 1995. It is suggested that these interim financial statements
be read in conjunction with the audited financial statements and notes thereto
incorporated by reference in the Registrant's Form 10-K for the year ended
December 31, 1994, which has been previously filed with the Commission.
The results for the interim period covered by this report are not necessarily
indicative of what the results will be for the remainder of the year.
3
<PAGE>
IP TIMBERLANDS, Ltd.
CONSOLIDATED STATEMENT OF EARNINGS
(In thousands - except per unit data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- --------- ---------
Revenues
Stumpage sales
International Paper $ 49,508 $ 44,574 $ 148,440 $ 132,887
Unaffiliated parties 24,781 26,758 74,813 84,255
Forestland sales 250 19,182 1,178 67,975
Other income, net 7,698 7,929 13,005 11,895
-------- -------- --------- ---------
Total revenues 82,237 98,443 237,436 297,012
-------- -------- --------- ---------
Operating Costs and Expenses
Depletion
International Paper 3,243 2,992 9,308 8,009
Unaffiliated parties 3,550 2,436 9,072 8,315
Cost of forestlands sold 17 4,143 101 9,964
Amortization of roads 528 521 1,602 1,579
Forest operations 11,488 11,190 32,011 30,151
General and administrative 5,165 4,969 15,879 15,181
Property and severance taxes 3,871 4,168 11,503 12,833
-------- -------- --------- ---------
Total operating costs and
expenses 27,862 30,419 79,476 86,032
-------- -------- --------- ---------
Operating Earnings 54,375 68,024 157,960 210,980
Interest Income 4,440 5,070 15,686 11,607
General Partners' Interest
in IPTO (588) (731) (1,736) (2,226)
-------- -------- --------- ---------
Net Partnership Earnings $ 58,227 $ 72,363 $ 171,910 $ 220,361
======== ======== ========= =========
Earnings Per Class A Unit
(Note 5) $ 1.33 $ 1.47 $ 3.96 $ 4.05
======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
IP TIMBERLANDS, Ltd.
CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
Assets
Current Assets
Cash and temporary investments $ 7,792 $ 7,922
Notes receivable - International Paper 300,451 430,146
Due from International Paper 7,469 3,328
Accounts and notes receivable 3,006 8,716
----------- -----------
Total current assets 318,718 450,112
Notes Receivable 798 1,174
Forestlands 740,934 739,136
Roads, net of accumulated amortization of
$49,106 (1995) and $47,504 (1994) 36,846 36,097
----------- -----------
Total Assets $ 1,097,296 $ 1,226,519
=========== ===========
Liabilities and Partners' Capital
Current Liabilities
Accounts payable and accrued liabilities $ 377 $ 354
Accrued property and severance taxes 8,543 5,868
Customer advance payments 3,502 4,658
----------- -----------
Total current liabilities 12,422 10,880
Lease Obligations 1,237 1,443
General Partners' Interest in IPTO 33,301 34,607
Partners' Capital
General partners 32,358 33,651
Limited partners 1,017,978 1,145,938
----------- -----------
Total Liabilities and Partners' Capital $ 1,097,296 $ 1,226,519
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
IP TIMBERLANDS, Ltd.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
1995 1994
--------- ---------
Operating Activities
Net Partnership earnings $ 171,910 $ 220,361
Noncash items
Depletion 18,380 16,324
Cost of forestlands sold 101 9,964
Amortization of roads 1,602 1,579
Other, net 981 2,294
Changes in current assets and liabilities
Accounts and notes receivable 6,086 26,941
Due from International Paper (4,141) (10,858)
Customer advance payments (1,156) 1,381
Other, net 2,492 2,147
--------- --------
Cash provided by operations 196,255 270,133
--------- --------
Investment Activities
Investment in forestlands and roads (21,874) (22,243)
Loans to International Paper (172,757) (266,571)
Repayment of loans by International Paper 302,452 126,540
--------- --------
Cash provided by (used for) investment activities 107,821 (162,274)
--------- --------
Financing Activities
Distributions to partners of IPT and IPTO (304,206) (106,670)
--------- --------
Change in Cash and Temporary Investments (130) 1,189
Cash and Temporary Investments
Beginning of the period 7,922 6,782
--------- --------
End of the period $ 7,792 $ 7,971
========= ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
IP TIMBERLANDS, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
IP Timberlands, Ltd. (the "Registrant" or "IPT"), is a Texas limited
partnership. IP Forest Resources Company ("IPFR"), a wholly owned
subsidiary of International Paper, is the managing general partner of
the Registrant and International Paper is the special general partner.
The Registrant operates through IP Timberlands Operating Company, Ltd.
("IPTO"), a Texas limited partnership, in which the Registrant holds a
99% limited partner's interest, and IPFR and International Paper
together hold a 1% general partners' interest. IPFR is also the
managing general partner of IPTO, and International Paper is the special
general partner.
2. Transactions with International Paper
The Registrant reimburses IPFR and International Paper for both direct
and indirect costs and expenses associated with the management and
operations of the Partnerships. Charges from International Paper for
indirect expenses for the quarters ended September 30, 1995 and 1994
were $ 2.3 million for both quarters and for the nine-month periods
ended September 30, 1995 and 1994 were $7.0 million for both periods.
The interim period charges are based upon estimates of the total charges
for the year.
Interest income from notes receivable from International Paper for the
quarters ended September 30, 1995 and 1994 was $ 4.3 and $ 4.7 million,
respectively, and for the nine-month periods ended September 30, 1995
and 1994 was $ 15.2 and $ 10.6 million, respectively. The increase in
interest income for the nine-month period was due to higher interest
rates and loan balances.
3. Temporary Investments
Temporary investments with a maturity of three months or less are
treated as cash equivalents and are stated at cost. Temporary
investments at September 30, 1995 and December 31, 1994 were $ 6.5
million for both periods.
7
<PAGE>
4. Receivables
The major classifications of current receivables are shown below. No
allowance for doubtful accounts was considered necessary.
September 30, December 31,
1995 1994
------------- ------------
(In thousands)
Notes receivable - trade $ 2,197 $ 7,487
Accounts receivable - trade 548 609
Accrued interest and other receivables 261 620
------------- ------------
$ 3,006 $ 8,716
============= ============
5. Computation of Earnings Per Class A Unit
The Partnership Agreement provides for the allocation of Partnership
earnings among the general and limited partners. The following table
presents the computation of earnings per Class A Unit (in thousands,
except per unit data):
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ------------------
1995 1994 1995 1994
------- ------- -------- --------
Allocation to Primary Account $65,295 $71,621 $194,605 $196,875
Allocation to Secondary Account (7,068) 742 (22,695) 23,486
------- ------- -------- --------
Net Partnership Earnings 58,227 72,363 171,910 220,361
------- ------- -------- --------
95% of the Primary Account(1) 62,030 68,040 184,875 187,031
4% of the Secondary Account(1) (283) 30 (908) 940
------- ------- -------- --------
Earnings Allocated to
Class A Limited Partners $61,747 $68,070 $183,967 $187,971
======= ======= ======== ========
Weighted Average Class A
Units Outstanding 46,446 46,446 46,446 46,446
======= ======= ======== ========
Earnings Per Class A Unit $ 1.33 $ 1.47 $ 3.96 $ 4.05
======= ======= ======== ========
(1) Class B units are allocated 4% of Primary Account and 95% of
Secondary Account earnings. The general partners are allocated
1% of each account.
Partnership earnings allocated to the Secondary Account included $ 5.0
million for the three months ended September 30, 1994, and $ 36.4
million for the nine months ended September 30, 1994, generated by
forestlands sales. Forestland sales in 1995 were minimal.
8
<PAGE>
6. Partners' Capital
The following tables present an analysis of the activity in Partners'
Capital (in thousands):
Partners' Capital
-------------------------------
General Limited
Partners Partners Total
-------- -------- -----
Nine Months Ended September 30, 1995
------------------------------------
Balance - January 1, 1995 $33,651 $1,145,938 $1,179,589
Net earnings for the period 1,719 170,191 171,910
Partner distributions (3,012) (298,151) (301,163)
------- ---------- ----------
Balance - September 30, 1995 $32,358 $1,017,978 $1,050,336
======= ========== ==========
Nine Months Ended September 30, 1994
------------------------------------
Balance - January 1, 1994 $32,321 $1,014,323 $1,046,644
Net earnings for the period 2,204 218,157 220,361
Partner distributions (1,056) (104,547) (105,603)
------- ---------- ----------
Balance - September 30, 1994 $33,469 $1,127,933 $1,161,402
======= ========== ==========
The authorized and outstanding Class A and B Depositary Units at
September 30, 1995 and 1994, which represent the limited partnership
interests of IPT, are presented below. The Class B Units are 100% owned
by International Paper and affiliates.
Class A Depositary Units Outstanding
--------------------------------------- Class B
International Unaffiliated Depositary
Paper and Third Units
Affiliates Parties Total Outstanding
------------- ------------ ---------- -----------
Number of Units 39,146,229 7,299,500 46,445,729 50,976,480
Percentage of total 84% 16% 100% 100%
Under the terms of the Partnership Agreement, International Paper has
the right to purchase, at any time, all outstanding Class A Units at a
price equal to 133% of the market price at that time.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results Of Operations
Total Partnership revenues for the third quarter of 1995 were $82.2 million,
down 16% from 1994 third quarter revenues of $98.4 million. The decline in
total Partnership revenues was attributable to lower forestland sales in 1995.
Revenues from stumpage sales were $74.3 million in the third quarter of 1995,
compared with $71.3 million in the third quarter of 1994. Harvest volumes were
5% higher in 1995 while overall average prices were comparable. Net Partnership
earnings were $58.2 million, compared with $72.4 million in 1994, reflecting the
lower forestland sales.
In the South, higher harvest volumes led to a 10% increase in revenues from
stumpage sales for the third quarter as overall average prices remained flat
with prior year levels. The higher harvest volume was due to favorable logging
conditions and increased sales of pulpwood thinnings. In the West, stumpage
sales revenues were about the same as in the prior year period. Harvest volumes
were unchanged from 1994 third quarter levels, but average prices declined
slightly as market conditions for domestic logs remained soft in response to
lower lumber prices and a weak Japanese economy. In the Northeast, stumpage
sales revenues declined 19% due to lower harvest volumes. High log inventories
at Canadian lumber mills and weak pulp and paper markets led to reduced demand
for Partnership sawlogs during the quarter. Overall average prices in this
region were flat.
Forestland sales, which are made when current market values for certain tracts
exceed the values expected from future operations, vary from period to period.
The Partnership recorded no significant forestland sales for the third quarter
of 1995. Forestland sales totaled $19.2 million in the 1994 third quarter.
Amounts attributable to the Primary and Secondary Accounts for major categories
in the statement of earnings were (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1995 1994 1995 1994
------- ------- -------- --------
Stumpage Sales
Primary Account $74,289 $71,332 $223,226 $217,142
Secondary Account - - 27 -
------- ------- -------- --------
$74,289 $71,332 $223,253 $217,142
======= ======= ======== ========
Forestland Sales
Primary Account $ - $12,335 $ 629 $ 25,578
Secondary Account 250 6,847 549 42,397
------- ------- -------- --------
$ 250 $19,182 $ 1,178 $ 67,975
======= ======= ======== ========
Operating Costs and Expenses
Primary Account $18,828 $21,610 $ 49,817 $ 60,975
Secondary Account 9,034 8,809 29,659 25,057
------- ------- -------- --------
$27,862 $30,419 $ 79,476 $ 86,032
======= ======= ======== ========
10
<PAGE>
Operating costs and expenses by category are shown in the consolidated statement
of earnings on page 4.
Sales volumes attributable to stumpage sales were (in thousand cunits):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1995 1994 1995 1994
---- ---- ----- -----
Used by International Paper
facilities 301 283 870 718
Resold by International Paper 160 153 438 468
Sold to unaffiliated parties 455 434 1,215 1,178
--- --- ----- -----
916 870 2,523 2,364
=== === ===== =====
The business outlook for the remainder of 1995 is generally favorable, although
some further softening of stumpage prices is expected in all three of the
Partnership's operating areas due to sluggish lumber and panel markets and
weaker export demand.
Liquidity and Capital Resources
IPT had cash and temporary investments of $ 7.8 million, an intercompany account
receivable from International Paper of $ 7.5 million and notes receivable from
International Paper of $ 300.4 million at September 30, 1995, giving the
Partnership $ 315.7 million in liquid assets. Cash is either invested in
temporary investments or loaned to International Paper at market rates. The
breakdown of liquid assets between the Primary and Secondary Accounts was (in
thousands):
September 30, December 31,
1995 1994
------------- ------------
Cash, temporary investments
and current receivables from
International Paper
Primary Account $234,271 $313,742
Secondary Account 81,441 124,326
-------- --------
$315,712 $438,068
======== ========
Total per Class A Unit $ 4.86 $ 6.52
======== ========
The decrease in Primary Account liquid assets reflects the payment of a $4.00
per Class A Unit special distribution on March 31, 1995.
In addition, current assets at September 30, 1995 and December 31, 1994,
included $ .8 million and $1.2 million of accounts receivable, respectively,
and $ 2.2 million and $7.5 million of notes receivable, respectively, from
parties other than International Paper, due within the next 12 months.
11
<PAGE>
The following table reflects cash flow from operations, after capital
expenditures, attributable to the Class A Units (in thousands).
Primary Secondary IPT
Account Account Total
-------- --------- --------
Nine Months Ended September 30, 1995
- ------------------------------------
Cash provided by operations $216,506 $(20,251) $196,255
Investment in forestlands and roads (5,013) (16,861) (21,874)
IPTO general partners' interest in above (2,115) 371 (1,744)
-------- -------- --------
Cash flow after capital expenditures 209,378 (36,741) $172,637
Class A Unit allocation factor 95% 4% ========
-------- --------
Class A Unit cash flow
after capital expenditures $198,909 $ (1,470) $197,439
======== ======== ========
Distributions declared for Class A Units $286,106 $286,106
======== ========
Nine Months Ended September 30, 1994
- ------------------------------------
Cash provided by operations $224,728 $ 45,405 $270,133
Investment in forestlands and roads (10,274) (11,969) (22,243)
IPTO general partners' interest in above (2,145) (334) (2,479)
-------- -------- --------
Cash flow after capital expenditures 212,309 33,102 $245,411
Class A Unit allocation factor 95% 4% ========
-------- --------
Class A Unit cash flow
after capital expenditures $201,694 $ 1,324 $203,018
======== ======== ========
Distributions declared for Class A Units $100,323 $100,323
======== ========
In October, IPT declared a cash distribution of $.72 per Class A Unit for the
third calendar quarter of 1995. This distribution is payable on November 15,
1995 to holders of record as of October 31, 1995. In March 1995, IPT declared a
special cash distribution of $4.00 per unit, based on management's evaluation
that existing cash balances plus projected future cash flows would be adequate
for capital expenditure, working capital and regular quarterly distribution
requirements during the remainder of the Initial Term.
Capital expenditures, including expenditures for reforestation of harvested
forestland, acquisition of capitalized leases and road construction, are
expected to be approximately $30 million for 1995.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As reported in the Annual Report on Form 10-K for the year ended December 31,
1994, IP Timberlands Operating Company, Ltd. ("IPTO") and International Paper
have been parties to two lawsuits involving long-term leases on approximately
210,000 acres of property in Louisiana and Mississippi.
In 1992 a jury trial in the Louisiana suit resulted in a verdict in favor of
IPTO and International Paper. Subsequent rulings by the trial judge awarded the
lessors $2.1 million in damages. On May 23, 1995, the Louisiana Court of Appeals
reduced that award by $100,000, but otherwise affirmed the trial judge's ruling.
Further appeals by both parties to the Louisiana Supreme Court were dismissed on
October 27, 1995.
Trial in the Mississippi state court case has been stayed pending the outcome of
certain valuation issues relating to the exercise of a purchase option by IPTO.
On October 20, 1995, a panel of appraisers set the value of the option lands at
$38.5 million. IPTO and International Paper believe this value is excessive and
plan to appeal any final award based on this amount.
The Registrant is involved in various legal proceedings incidental to its
business. While any proceeding or litigation has an element of uncertainty, the
Registrant believes that the outcome of any lawsuit or claim that is pending or
threatened, or all of them combined, will not have a material adverse effect
on its consolidated financial position or the results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) No Current Reports on Form 8-K have been filed during the quarter for
for which this report is filed.
13
<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.
IP Timberlands, Ltd.
By: IP Forest Resources Company
Managing General Partner
(Registrant)
Date: November 3, 1995 By: /s/ Robert A. Kriscunas
----------------------------
Robert A. Kriscunas
Vice President
Date: November 3, 1995 By: /s/ Frederick L. Bleier
-----------------------------
Frederick L. Bleier
Treasurer and Controller
and Chief Financial and
Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings and the Consolidated Balance Sheet of IP
Timberlands, Ltd. and is qualified in its entirety by reference to such
financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,792
<SECURITIES> 0
<RECEIVABLES> 310,926
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 318,718
<PP&E> 777,780
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,097,296
<CURRENT-LIABILITIES> 12,422
<BONDS> 0
<COMMON> 1,050,336
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,097,296
<SALES> 224,431
<TOTAL-REVENUES> 237,436
<CGS> 0
<TOTAL-COSTS> 79,476
<OTHER-EXPENSES> 1,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,686)
<INCOME-PRETAX> 171,910
<INCOME-TAX> 0
<INCOME-CONTINUING> 171,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,910
<EPS-PRIMARY> 3.96
<EPS-DILUTED> 3.96
</TABLE>
