FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
Commission File Number 1-9204
THE PACIFIC LUMBER COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3318327
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
P. O. BOX 37 95565
125 MAIN STREET (Zip Code)
SCOTIA, CALIFORNIA
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (707) 764-2222
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 /_/
Number of shares of common stock outstanding at May 1, 1995: 100
Registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.
<PAGE>
THE PACIFIC LUMBER COMPANY
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1995 and December 31,
1994 3
Consolidated Statement of Operations for the three months
ended March 31, 1995 and 1994 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1995 and 1994 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures S-1
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,429 $ 24,330
Receivables:
Trade 10,795 23,258
Other 3,943 4,035
Inventories 63,828 68,168
Prepaid expenses and other current 4,945 3,660
assets
------------ ------------
Total current assets 95,940 123,451
Timber and timberlands, net of depletion
of $190,455 and $188,003 at
March 31, 1995 and December 31,
1994, respectively 349,116 350,871
Property, plant and equipment, net of
accumulated depreciation of
$58,498 and $57,088 at March 31,
1995 and December 31, 1994,
respectively 95,539 96,960
Deferred financing costs, net 23,958 24,516
Deferred income taxes 51,286 50,142
Restricted cash 32,325 32,402
Other assets 5,937 5,925
------------ ------------
$ 654,101 $ 684,267
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 3,532 $ 3,309
Accrued compensation and related
benefits 7,582 10,285
Accrued interest 7,651 21,109
Deferred income taxes 12,986 12,986
Other accrued liabilities 2,170 2,105
Long-term debt, current maturities 13,928 13,670
------------ ------------
Total current liabilities 47,849 63,464
Long-term debt, less current maturities 577,512 586,007
Other noncurrent liabilities 24,474 23,517
------------ ------------
Total liabilities 649,835 672,988
------------ ------------
Contingencies
Stockholder's equity:
Common stock, $.01 par value, 100 - -
shares authorized and issued
Additional capital 157,520 157,520
Accumulated deficit (153,254) (146,241)
------------ ------------
Total stockholder's
equity 4,266 11,279
------------ ------------
$ 654,101 $ 684,267
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
(In thousands of dollars)
<S> <C> <C>
Net sales:
Lumber and logs $ 42,518 $ 47,855
Other 4,791 2,961
---------- ----------
47,309 50,816
---------- ----------
Operating expenses:
Cost of goods sold (exclusive of depletion 27,640 28,712
and depreciation)
Selling, general and administrative 3,822 3,975
Depletion and depreciation 5,856 5,981
---------- ----------
37,318 38,668
---------- ----------
Operating income 9,991 12,148
Other income (expense):
Investment, interest and other income 660 7,459
Interest expense (14,007) (13,871)
---------- ----------
Income (loss) before income taxes (3,356) 5,736
Credit (provision) in lieu of income taxes 1,343 (2,355)
---------- ----------
Net income (loss) $ (2,013) $ 3,381
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
(In thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,013) $ 3,381
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depletion and depreciation 5,856 5,981
Amortization of deferred financing
costs 558 522
Net losses on marketable securities - 359
Net purchases of marketable
securities - (7,108)
Decrease in receivables 12,555 1,468
Decrease in inventories, net of 3,172 3,784
depletion
Increase in accounts payable 223 2,377
Decrease in accrued interest (13,458) (13,869)
Increase (decrease) in other
liabilities (1,609) 2,165
Increase in prepaid expenses and
other current assets (1,285) (597)
Decrease (increase) in accrued and
deferred income taxes (1,216) 2,355
Other 205 342
---------- ----------
Net cash provided by operating
activities 2,988 1,160
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets 14 43
Capital expenditures (1,743) (3,908)
---------- ----------
Net cash used for investing
activities (1,729) (3,865)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash released 77 30
Principal payments on long-term debt (8,237) (8,145)
Dividends paid (5,000) (5,700)
---------- ----------
Net cash used for financing
activities (13,160) (13,815)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,901) (16,520)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 24,330 38,760
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,429 $ 22,240
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid, net of capitalized interest $ 26,907 $ 27,218
Income taxes paid - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. GENERAL
The information contained in the following notes to the
consolidated financial statements is condensed from that which would
appear in the annual consolidated financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by The Pacific
Lumber Company with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (the "Form 10-K"). All references to the
"Company" include The Pacific Lumber Company and its subsidiary companies
unless otherwise indicated or the context indicates otherwise. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of operations for the interim
periods presented are not necessarily indicative of the results to be
expected for the entire year.
The consolidated financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring
nature which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31,
1995 and the consolidated results of operations and cash flows for the
three months ended March 31, 1995 and 1994. Certain reclassifications of
prior period information have been made to conform to the current
presentation. The Company is a wholly owned indirect subsidiary of MAXXAM
Group Inc. ("MGI") which is a wholly owned subsidiary of MAXXAM Inc.
("MAXXAM").
2. CASH AND CASH EQUIVALENTS
At March 31, 1995 and December 31, 1994, cash and cash
equivalents includes $4,764 and $19,439, respectively, which is restricted
for debt service payments on the 7.95% Timber Collateralized Notes due
2015.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Lumber $ 56,007 $ 53,393
Logs 7,821 14,775
---------- ------------
$ 63,828 $ 68,168
========== ============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
7.95% Timber Collateralized Notes due July
20,2015 $ 355,576 $ 363,811
10-1/2% Senior Notes due March 1, 2003 235,000 235,000
Other 864 866
------------ ------------
591,440 599,677
Less: current maturities (13,928) (13,670)
------------ ------------
$ 577,512 $ 586,007
============ ============
</TABLE>
<PAGE>
5. CONTINGENCIES
The Company's operations are subject to a variety of California
and, in some cases, federal laws and regulations dealing with timber
harvesting, endangered species, water quality and air and water pollution.
The Company does not expect that compliance with such existing laws and
regulations will have a material adverse effect on the Company's future
operating results or financial position. There can be no assurance,
however, that future legislation, governmental regulations or judicial or
administrative decisions would not adversely affect the Company or its
ability to sell lumber, logs or timber.
Various groups and individuals have filed objections with the
California Department of Forestry ("CDF") regarding the CDF's actions and
rulings with respect to certain of the Company's timber harvesting plans
("THPs"), and the Company expects that such groups and individuals will
continue to file objections to the Company's THPs. In addition, lawsuits
are pending and threatened which seek to prevent the Company from
implementing certain of its approved THPs and undertaking other timber
harvesting operations. These challenges have severely restricted the
Company's ability to harvest virgin old growth redwood timber on its
property during the past few years, as well as substantial amounts of
virgin Douglas-fir timber which are located in virgin old growth redwood
stands. No assurance can be given as to the extent of such litigation in
the future. The Company believes that environmentally focused challenges
to its THPs are likely to occur in the future, particularly with respect to
residual old growth timber. Although such challenges have delayed or
prevented the Company from conducting a portion of its operations, to date
such challenges have not had a material adverse effect on the Company's
consolidated financial position or results of operations.
It is, however, impossible to predict the future nature or degree of such
challenges or their ultimate impact on the operating results or
consolidated financial position of the Company.
The Company is also involved in various claims, lawsuits and
proceedings relating to a wide variety of other matters. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
<PAGE>
THE PACIFIC LUMBER COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the response to
Part I, Item 1 of this Report and Items 7 and 8 of the Form 10-K. Any
capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
RESULTS OF OPERATIONS
The Company's business is highly seasonal in that the Company
has historically experienced lower first and fourth quarter sales due
largely to the general decline in construction related activity during the
winter months. Accordingly, the Company's results for any one quarter are
not necessarily indicative of results to be expected for the full year.
The following table presents selected operational and financial
information for the three months ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
(In millions of dollars,
except shipments and prices)
<S> <C> <C>
Shipments:
Lumber: (1)
Redwood upper grades 10.7 12.9
Redwood common grades 32.1 27.7
Douglas-fir upper grades 1.8 2.5
Douglas-fir common grades and other 16.5 15.4
------------ ------------
Total lumber 61.1 58.5
============ ============
Logs (2) 8.7 9.9
============ ============
Wood chips (3) 44.0 26.0
============ ============
Average sales price:
Lumber: (4)
Redwood upper grades $ 1,544 $ 1,406
Redwood common grades 441 468
Douglas-fir upper grades 1,368 1,405
Douglas-fir common grades 379 460
Logs (4) 369 692
Wood chips (5) 91 79
Net sales:
Lumber, net of discount $ 39.3 $ 41.0
Logs 3.2 6.9
Wood chips 4.0 2.0
Cogeneration power .5 .6
Other .3 .3
------------ ------------
Total net sales $ 47.3 $ 50.8
============ ============
Operating income $ 10.0 $ 12.1
============ ============
Operating cash flow (6) $ 15.8 $ 18.1
============ ============
Income (loss) before income taxes $ (3.4) $ 5.7
============ ============
Net income (loss) $ (2.0) $ 3.4
============ ============
<FN>
(1) Lumber shipments are expressed in millions of board feet.
(2) Log shipments are expressed in millions of feet, net
Scribner scale.
(3) Wood chip shipments are expressed in thousands of bone dry
units of 2,400 pounds.
(4) Dollars per thousand board feet.
(5) Dollars per bone dry unit.
(6) Operating income before depletion and depreciation, also
referred to as "EBITDA."
</TABLE>
<PAGE>
Shipments
Lumber shipments for the three months ended March 31, 1995
increased from the three months ended March 31, 1994. Increased shipments
of redwood common lumber were partially offset by a decrease in shipments
of upper grade redwood lumber. Log shipments for the three months ended
March 31, 1995 were 8.7 million feet (net Scribner scale), a decrease from
9.9 million feet for the three months ended March 31, 1994.
Net sales
Revenues from net sales of lumber and logs for the three months
ended March 31, 1995 decreased as compared to the three months ended March
31, 1994. This decrease was principally due to lower shipments of upper
grade redwood lumber, decreases in the average realized prices for logs,
common grade Douglas-fir and redwood common lumber and lower log
shipments, partially offset by increased shipments of redwood common
lumber and an increase in the average realized price for upper grade
redwood lumber. The increase in other sales for the three months ended
March 31, 1995 as compared to the three months ended March 31, 1994 was
attributable to increased sales of wood chips.
Operating income
Operating income for the three months ended March 31, 1995
decreased as compared to the three months ended March 31, 1994. This
decrease was principally due to lower sales of lumber and logs, partially
offset by increased sales of wood chips and lower costs of lumber sales.
Costs of lumber sales decreased due to lower purchases of logs from third
parties and improved sawmill productivity.
Income (loss) before income taxes
The loss before income taxes for the three months ended March
31, 1995, as compared to income before income taxes for the three months
ended March 31, 1994, resulted from a decrease in investment, interest and
other income and the decrease in operating income as discussed above.
Investment, interest and other income for the three months ended March 31,
1994 included a franchise tax refund of $7.2 million (the substantial
portion of which represented interest) from the State of California.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
As of March 31, 1995, the Company had consolidated long-term
debt of $545.2 million (net of current maturities and restricted cash
deposited in the Liquidity Account) as compared to $553.6 million at
December 31, 1994. The decrease in long-term debt was due to principal
payments on the Timber Notes. The Company anticipates that cash flows
from operations, together with existing cash and available sources of
financing, will be sufficient to fund the Company's working capital and
capital expenditures requirements for the foreseeable future; however, due
to its highly leveraged condition, the Company is more sensitive than less
leveraged companies to factors affecting its operations, including
governmental regulation affecting its timber harvesting practices,
increased competition from other lumber producers or alternative building
products and general economic conditions.
The indentures governing the Senior Notes and the Timber Notes
and the Company's Revolving Credit Agreement contain various covenants
which, among other things, limit the payment of dividends and restrict
transactions between the Company and its affiliates. As of March 31,
1995, under the most restrictive of these covenants, approximately $17.0
million of dividends could be paid by the Company. On March 31, 1995, the
Company paid dividends of $5.0 million.
<PAGE>
As of March 31, 1995, $20.0 million of borrowings was available
under the Company's Revolving Credit Agreement, of which $5.0 million was
available for letters of credit. No borrowings were outstanding as of
March 31, 1995, and letters of credit outstanding amounted to $10.0
million. The Company has signed a commitment letter with the bank which
will amend the Revolving Credit Agreement to extend its maturity date to
May 31, 1998 and provide for an additional $30.0 million of available
borrowings.
TRENDS
During the first quarter, severe weather conditions in northern
California hampered the Company's timber harvesting operations and
shipments of lumber. Heavy rainfall impeded access to logging roads which
prevented normal harvesting operations, and caused extended rail shutdowns
and other transportation delays, thereby affecting deliveries and
shipments of lumber. Continued rainfall in April and early May created
conditions not conducive to conducting harvesting operations as the
Company had initially planned. Timber harvesting is highly seasonal in
that the Company conducts the material portion of its logging operations
in the months of April through November of each year; accordingly, log
inventories are generally at or near their lowest levels by the end of
March. Compounding the seasonally low log inventories and weather-related
constraints on its log supplies and deliveries, a temporary restraining
order ("TRO") was granted which required the Company to cease all timber
harvesting operations on one of the few all-season harvest sites from which
it has been able to supplement its declining log inventories. A preliminary
injunction hearing was held on May 5, 1995 at which the court did not
issue a preliminary injunction or lift the TRO but took the matter under
advisement. See Part II, Item 1. "Legal Proceedings--Timber Harvesting
Litigation." Further, delays in the regulatory process have resulted from
both objections filed with, and litigation against, the CDF by
environmentally active groups regarding the CDF's actions with respect to
the CDF's THP approval process in general, and certain of the Company's
THPs in particular. Such delays have impeded the Company's ability to
conduct normal timber harvesting operations on its timberlands. This
combination of seasonal operations, severe weather, judicial action and
regulatory delays forced the Company to curtail operations at one of its
four sawmills, and to temporarily idle another sawmill for the period from
April 17 to May 2, 1995.
Additional judicial actions adverse to the Company, further
regulatory delays and/or continued inclement weather in northern
California could further exacerbate the problems experienced during the
first quarter and affect the Company's results of operations in
the second quarter. Furthermore, the collective impact of such judicial
actions and regulatory delays, together with difficulties caused by bad
weather, may again force the Company to temporarily idle or curtail
operations at certain of its lumber mills from time to time until it can
secure an adequate supply of logs to sustain operations.
<PAGE>
THE PACIFIC LUMBER COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 of the Form 10-K for information
concerning material legal proceedings with respect to the Company. The
following material developments have occurred with respect to such legal
proceedings. Any capitalized or italicized terms used but not defined in
this Item have the same meaning given to them in the Form 10-K.
In connection with the Miller action, on April 10, 1995, the
U.S. Ninth Circuit Court of Appeals reversed the dismissal of this case;
the appellate court made other findings reversing in part and
affirming in part the other decisions made by the U.S. District Court in
response to plaintiffs' and defendants' motions for summary judgment.
Defendants have sought rehearing of this decision by the U.S. Circuit
Court of Appeals. Presently, the U.S. Ninth Circuit Court of Appeal has
formal jurisdiction of the case and it is uncertain whether the case will
be remanded to the U.S. District Court for trial preparation and trial on
the merits while the motion for rehearing or any further appeal is pending.
TIMBER HARVESTING LITIGATION
In connection with Sierra Club, et al. v. CDF, et al. (No. 95 DR
0072), involving the Company and its wholly owned subsidiaries, Scotia
Pacific Holding Company ("SPHC") and Salmon Creek Corporation, on May 1,
1995, the Court heard plaintiffs' request for preliminary injunction and
the Company's request for dismissal of the case.
On April 11, 1995, EPIC and others filed an action entitled
Thron, et al. v. Pacific Lumber, et al. (No. 95 DR 0100) in Superior Court
of Humboldt County. This action relates to THP No. 95-042 for
approximately 198 acres of residual old-growth timber; plaintiffs also
complain about four other THPs in the same watershed as THP No. 95-042 and
have indicated they intend to litigate those THPs if they are approved by CDF.
The plaintiffs allege, among other things, that the defendants have
violated CEQA and the Forest Practice Act, and seek, among other things,
to prevent harvesting pursuant to this CDF-approved THP. Also, on April
11, 1995, the court granted a TRO staying all timber harvesting operations
in connection with THP No. 95-042 pending its decision on plaintiffs'
request for a preliminary injunction. The preliminary injunction hearing
was held on May 5, 1995 at which the court left the TRO in effect and took
the matter under advisement.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
*27 Financial Data Schedule
---------------
* Included with this filing.
B. REPORTS ON FORM 8-K:
None.
<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, who has signed this
report on behalf of the Registrant and as the principal accounting officer
of the Registrant.
THE PACIFIC LUMBER COMPANY
Date: May 12, 1995 By: GARY L. CLARK
Gary L. Clark
Vice President - Finance and
Administration
<TABLE> <S> <C>
<CAPTION>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Company's consolidated balance sheet and consolidated
statement of operations and is qualified in its entirety by
reference to such consolidated financial statements together with
the related footnotes thereto.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 12,429
<SECURITIES> 0
<RECEIVABLES> 10,795
<ALLOWANCES> 0
<INVENTORY> 63,828
<CURRENT-ASSETS> 95,940
<PP&E> 154,037
<DEPRECIATION> 58,498
<TOTAL-ASSETS> 654,101
<CURRENT-LIABILITIES> 47,849
<BONDS> 591,440
<COMMON> 0
0
0
<OTHER-SE> 4,266
<TOTAL-LIABILITY-AND-EQUITY> 654,101
<SALES> 47,309
<TOTAL-REVENUES> 47,309
<CGS> 27,640
<TOTAL-COSTS> 27,640
<OTHER-EXPENSES> 9,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,007
<INCOME-PRETAX> (3,356)
<INCOME-TAX> (1,343)
<INCOME-CONTINUING> (2,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,013)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
