<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, 1996 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, 1996: 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, 1996 and 1995
Consolidated Balance Sheet - 5
September 30, 1996 and December 31, 1995
Consolidated Statement of Cash Flows - 6
Nine Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of 10 - 12
Financial Condition and Results of Operations
PART II. Other Information
Item 1. Legal Proceedings *
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.
<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 of only normal recurring accruals) necessary to present
fairly the financial position of the Registrant as of September 30, 1996, and
the results of operations for the quarter and nine months ended September 30,
1996. 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, 1995, 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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues
Stumpage sales
International Paper $ 26,455 $ 49,508 $ 89,712 $ 148,440
Unaffiliated parties 46,050 24,781 108,931 74,813
Forestland sales 449 250 6,421 1,178
Other income, net 10,345 7,698 16,142 13,005
--------- -------- -------- ---------
Total revenues 83,299 82,237 221,206 237,436
--------- -------- -------- ---------
Operating Costs and Expenses
Depletion
International Paper 2,261 3,243 6,455 9,308
Unaffiliated parties 5,029 3,550 12,165 9,072
Cost of forestlands sold 15 17 383 101
Amortization of roads 410 528 1,393 1,602
Forest operations 11,046 11,488 32,982 32,011
General and administrative 4,505 5,165 14,129 15,879
Property and severance taxes 3,086 3,871 9,909 11,503
--------- -------- -------- ---------
Total operating costs and expenses 26,352 27,862 77,416 79,476
--------- -------- -------- ---------
56,947 54,375 143,790 157,960
Gains on Sales of Partnership Interests 656,654
--------- -------- -------- ---------
Operating Earnings 56,947 54,375 800,444 157,960
Interest Income 4,125 4,440 15,696 15,686
Interest Expense (3,096) (14,465)
General Partners' Interest in IPTO (562) (588) (1,568) (1,736)
--------- -------- -------- ---------
Net Partnership Earnings $ 57,414 $ 58,227 $800,107 $ 171,910
========= ======== ======== =========
Earnings per Class A Unit (Note 6) $ 1.23 $ 1.33 $ 7.87 $ 3.96
========= ======== ======== =========
</TABLE>
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,
1996 1995
------------- -----------
Assets
Current Assets
Cash and temporary investments $ 7,763 $ 11,899
Notes receivable - International Paper 126,112 371,378
Due from International Paper 7,293
Accounts and notes receivable 10,574 23,558
---------- ----------
Total current assets 144,449 414,128
Notes Receivable 295 1,027
Forestlands 663,509 734,200
Roads, net of accumulated amortization of
$31,579 (1996) and $49,618 (1995) 23,446 38,026
---------- ----------
Total Assets $ 831,699 $1,187,381
========== ==========
Liabilities and Partners' Capital
Current Liabilities
Accounts payable and accrued liabilities $ 7,358 $ 372
Accrued interest 5,983
Accrued property and severance taxes 6,077 6,286
Due to International Paper 10,587
Notes payable - International Paper 141,500
Customer advance payments 3,506 3,797
---------- ----------
Total current liabilities 169,028 16,438
Long-Term Debt 750,000
Lease Obligations 1,247 1,231
General Partners' Interest in IPTO 29,038 26,662
Partners' Capital
General partners 28,179 25,786
Limited partners 604,207 367,264
---------- ----------
Total Liabilities and Partners' Capital $ 831,699 $1,187,381
========== ==========
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,
--------------------------
1996 1995
----------- -----------
Operating Activities
Net Partnership earnings $ 800,107 $ 171,910
Noncash items
Depletion 18,620 18,380
Cost of forestlands sold 383 101
Amortization of roads 1,393 1,602
Gain on sale of partnership interest (638,205)
Other, net 6,085 981
Changes in current assets and liabilities
Accounts and notes receivable 13,716 6,086
Due to/from International Paper 17,880 (4,141)
Customer advance payments (291) (1,156)
Accrued interest payable (5,983)
Other, net (13,500) 2,492
----------- -----------
Cash provided by operations 200,205 196,255
----------- -----------
Investment Activities
Investment in forestlands and roads (26,285) (21,874)
Loans to International Paper (637,081) (172,757)
Loan repayments by, and borrowings from,
International Paper 1,023,847 302,452
----------- -----------
Cash provided by investment activities 360,481 107,821
----------- -----------
Financing Activities
Distributions to partners of IPT and IPTO (564,822) (304,206)
----------- -----------
Change in Cash and Temporary Investments (4,136) (130)
Cash and Temporary Investments
Beginning of the period 11,899 7,922
----------- -----------
End of the period $ 7,763 $ 7,792
=========== ===========
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, 1996 and 1995
were $2.2 million and $2.3 million, respectively and for the
nine-month periods ended September 30, 1996 and 1995 were $7.4 million
and $7.0 million, respectively. 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, 1996 and 1995 was $1.4 million and $4.3
million, respectively, and for the nine-month periods ended September
30, 1996 and 1995 was $ 10.4 million and $15.2 million, respectively.
The decrease in interest income was due to lower loan balances.
Interest expense from notes payable to International Paper for the
quarter and year-to-date ended September 30, 1996 was $3.1 million.
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, 1996 and December 31, 1995 were $6.4
million and $6.5 million, respectively.
4. Receivables
The major classifications of current receivables are shown below. No
allowance for doubtful accounts was considered necessary.
September 30, December 31,
1996 1995
------ -------
(In thousands)
Notes receivable - trade $ 6,257 $22,730
Accounts receivable - trade 1,509 275
Accrued interest and other receivables 2,808 553
------- -------
$10,574 $23,558
======= =======
7
<PAGE>
Notes receivable-trade at December 31, 1995 included $18.5 million
from a fourth-quarter bulk sale.
5. Gain on Sale of Partnership Interest
In June 1996, the Partnership completed a sale of a special
partnership interest relating to 20,000 acres of pine plantations in
the South. As a result of this sale, IPT recognized a gain of
approximately $18 million. Essentially all of the earnings from this
transaction were attributable to the Secondary Account.
On March 29, 1996, a subsidiary partnership of IPT completed the sale
of a 98% general partnership interest to R-H Timber Co. As a result of
this transaction, IPT recognized a book gain of approximately $638
million, approximately $203 million, or $4.37 per unit of which was
allocated to the Class A Units. IPT retained a 1% interest in the
partnership as well as a preferred interest. Class A unitholders have
approximately a 30% share of the retained preferred interest, equal to
about $.90 per Class A Unit.
6. 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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Allocation to Primary Account $ 60,398 $ 65,295 $ 366,718 $ 194,605
Allocation to Secondary Account (2,984) (7,068) 433,389 (22,695)
--------- --------- --------- ---------
Net Partnership Earnings 57,414 58,227 800,107 171,910
--------- --------- --------- ---------
95% of the Primary Account(1) 57,378 62,030 348,382 184,875
4% of the Secondary Account(1) (119) (283) 17,336 (908)
--------- --------- --------- ---------
Earnings Allocated to
Class A Limited Partners $ 57,259 $ 61,747 $ 365,718(2) $183,967
========= ========= ========= ========
Weighted Average Class A
Units Outstanding 46,446 46,446 46,446 46,446
========= ========= ========= ========
Earnings Per Class A Unit $ 1.23 $ 1.33 $ 7.87(2) $ 3.96
========= ========= ========= =========
</TABLE>
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.
2 Includes $203 million, or $4.37 per Class A Unit, from the sale of a
subsidiary partnership interest.
8
<PAGE>
7. 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, 1996
Balance - January 1, 1996 $ 25,786 $ 367,264 $ 393,050
Net earnings for the period 8,001 792,106 800,107
Partner distributions (5,608) (555,163) (560,771)
----------- ----------- -----------
Balance - September 30, 1996 $ 28,179 $ 604,207 $ 632,386
=========== =========== ===========
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
=========== =========== ===========
Distributions in 1996 include a special distribution paid on May 31 of
$9.75 per Class A Unit.
The authorized and outstanding Class A and B Depositary Units at September 30,
1996 and 1995, which represent the limited partnership interests of IPT, are
presented below. The Class B Units are 100% owned by International Paper and
affiliates.
<TABLE>
<CAPTION>
Class A Depositary Units Outstanding
------------------------------------ Class B
International Unaffiliated Depositary
Paper and Third Units
Affiliates Parties Total Outstanding
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Number of Units 39,146,229 7,299,500 46,445,729 50,976,480
Percentage of total 84% 16% 100% 100%
</TABLE>
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 1996 were $83.3 million
compared with $82.2 million for the same period of 1995. Revenues from stumpage
sales were $72.5 million in the third quarter of 1996 compared with $74.3
million in 1995. Although harvest volumes and prices were higher in the third
quarter of 1996 than in the same quarter of 1995 for the Partnership's southern
and northeastern regions, the loss of earnings contributions from the
Partnership's western region kept stumpage sales revenues approximately at 1995
levels. Net Partnership earnings of $57.4 million were slightly lower than the
third quarter 1995 level of $58.2 million due mainly to $3.1 million of
interest expense on notes payable to International Paper.
In the South, 25% higher harvest volumes combined with 12% higher average
prices led to 41% higher revenues from stumpage sales than in the 1995 third
quarter. This increase reflects a $21.5 million bulk sale of mostly mature pine
stumpage on approximately 8,700 acres in southeastern Louisiana. Approximately
two-thirds of the earnings from this sale were attributable to the Class A
Units. In the Northeast, harvest volumes for the third quarter of 1996 were
comparable to that for the same period of 1995. Stumpage sales in this region
were 7% higher than in 1995 due to higher prices.
With the sale in March 1996 of a subsidiary partnership interest that included
all of the Partnership's western forestlands, no significant subsequent
earnings contributions were generated from this region in 1996.
Forestland sales were minimal in both the 1996 and 1995 third quarters.
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,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Stumpage Sales
Primary Account $ 64,716 $ 74,289 $190,854 $223,226
Secondary Account 7,789 7,789 27
-------- -------- -------- --------
$ 72,505 $ 74,289 $198,643 $223,253
======== ======== ======== ========
Forestland Sales
Primary Account $ 103 $ $ 753 $ 629
Secondary Account 346 250 5,668 549
-------- -------- -------- --------
$ 449 $ 250 $ 6,421 $ 1,178
======== ======== ======== ========
Operating Costs and Expenses
Primary Account $ 14,580 $ 18,828 $ 45,352 $ 49,817
Secondary Account 11,772 9,034 32,064 29,659
-------- -------- -------- --------
$ 26,352 $ 27,862 $ 77,416 $ 79,476
======== ======== ======== ========
Stumpage sales attributable to the Secondary Account in 1996 related to a bulk
sale in the third quarter that included timber that was not scheduled to be
harvested during the Initial Term.
10
<PAGE>
Operating costs and expenses by category are shown in the consolidated
statement of earnings on page 4.
Sales volumes attributable to timber sales were (in thousand cunits):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Used by International Paper facilities 295 301 735 870
Resold by International Paper 146 160 360 438
Sold to unaffiliated parties 594 455 1,569 1,215
----- ----- ----- -----
1,035 916 2,664 2,523
===== ===== ===== =====
Liquidity and Capital Resources
IPT had cash and temporary investments of $7.8 million, a current payable to
International Paper of $10.6 million, notes receivable from International Paper
of $126.1 million and demand notes payable to International Paper of $141.5
million at September 30, 1996. The notes payable represent borrowings by the
Secondary Account. 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):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------------------------------- ----------------------------------
Primary Secondary Primary Secondary
Account Account Total Account Account Total
---------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and temporary
investments $ 6,764 $ 999 $ 7,763 $ 6,806 $ 5,093 $ 11,899
Notes receivable -
International Paper 120,581 5,531 126,112 288,587 82,791 371,378
Due from (to)
International Paper 7,143 (17,730) (10,587) 14,691 (7,398) 7,293
Notes payable -
International Paper (141,500) (141,500)
------------ --------- -------- ----------- -------- --------
$ 134,488 $(152,700) $ (18,212) $ 310,084 $ 80,486 $390,570
============ ========= =========== =========== ======== ========
Total per Class A Unit $ 2.62 $ 6.41
=========== ========
</TABLE>
The decrease in Primary Account liquid assets reflects the payment of a $9.75
per Class A Unit special distribution on May 15, 1996.
11
<PAGE>
In addition, current assets at September 30, 1996 and December 31, 1995,
included $1.5 million and $.3 million, respectively, of accounts receivable,
and $6.3 million and $22.7 million, respectively, of notes receivable, from
parties other than International Paper, due within the next 12 months.
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, 1996
Cash provided by operations $ 193,800 $ 6,405 $ 200,205
Investment in forestlands and roads (1,769) (24,516) (26,285)
IPTO general partners' interest in above (1,920) 181 (1,739)
--------- --------- ---------
Cash flow after capital expenditures 190,111 (17,930) $ 172,181
=========
Class A Unit allocation factor 95% 4%
--------- ---------
Class A Unit cash flow
after capital expenditures $ 180,605 $ (717) $ 179,888
========= ========= =========
Distributions declared for Class A Units $ 522,515 $ 522,515
========= =========
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
========= =========
In October, IPT declared a cash distribution of $.50 per Class A Unit for the
third calendar quarter of 1996. This distribution is payable on November 15,
1996 to holders of record as of October 31, 1996. The decrease in regular
quarterly distributions from $.72 per Class A Unit paid in 1995 reflects the
loss of future earnings contributions from the western forestlands included in
the subsidiary partnership interest that was sold in March 1996.
In April 1996, IPT declared a special distribution of $9.75 per Class A Unit
that was paid on May 15, 1996.
Capital expenditures, including expenditures for reforestation of harvested
forestland, acquisition of capitalized leases and road construction, are
expected to be approximately $35 million for 1996.
12
<PAGE>
Part II. Other Information
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
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 12, 1996 By: /s/ James W. Guedry
-------------------
James W. Guedry
Vice President and Secretary
Date: November 12, 1996 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,763
<SECURITIES> 0
<RECEIVABLES> 136,686
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 144,449
<PP&E> 686,955
<DEPRECIATION> 0
<TOTAL-ASSETS> 831,699
<CURRENT-LIABILITIES> 169,028
<BONDS> 0
0
0
<COMMON> 632,386
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 831,699
<SALES> 205,064
<TOTAL-REVENUES> 221,206
<CGS> 0
<TOTAL-COSTS> 77,416
<OTHER-EXPENSES> 1,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,231)
<INCOME-PRETAX> 800,107
<INCOME-TAX> 0
<INCOME-CONTINUING> 800,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800,107
<EPS-PRIMARY> 7.87
<EPS-DILUTED> 7.87
</TABLE>
